EXHIBIT 4.19
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement") is made as of May 15,
1998, by and among PACIFIC AEROSPACE & ELECTRONICS, INC., a Washington
corporation (the "Company"), and each of the purchasers of shares of Series B
Convertible Preferred Stock and Warrants whose names are set forth on Exhibit A
hereto (each individually, a "Purchaser" and collectively, the "Purchasers").
The parties hereto agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS
1.1 Purchase and Sale of StockUpon and subject to the terms and conditions
set forth in this Agreement, the Company agrees to issue and sell to the
Purchasers, and each Purchaser severally agrees to purchase from the Company,
the number of shares of the Company's Series B Convertible Preferred Stock, par
value $0.001 per share (the "Preferred Shares") set forth with respect to such
Purchaser on Exhibit A hereto, at a purchase price of $100 per share. The
designation, rights, preferences and other terms and provisions of the Series B
Convertible Preferred Stock, as of the Closing (as defined in Section 1.3), will
be as set forth in the Designation of Rights and Preferences of the Series B
Convertible Preferred Stock (the "Designation of Rights and Preferences")
contained in Exhibit B hereto.
1.2 Warrants. As additional inducement to enter into this Agreement, the
Company shall issue and deliver to the Purchasers Common Stock Purchase
Warrants, in substantially the form attached as Exhibit C hereto (the
"Warrants"), in an amount set forth with respect to such Purchaser on Exhibit A.
The Warrants shall grant the Purchaser the right to purchase shares of the
Company's common stock, par value $0.001 per share (the "Common Stock") equal to
10% of the shares issuable if the Preferred Shares converted into shares of
Common Stock at $7.20 per share. The Warrants shall have an exercise price of
$7.20 per share and shall be exercisable beginning one year, and expiring three
years, from the date of this Agreement.
1.3 The Conversion Shares; Warrant Shares. Prior to the Closing, the
Company shall have authorized and reserved, free of preemptive rights and other
similar contractual rights of stockholders, a sufficient number of authorized
but unissued shares of its Common Stock to satisfy the rights of (a) conversion
of the Preferred Shares, and (b) exercise of the Warrants. Any shares of Common
Stock issuable upon (i) conversion of the Preferred Shares (and such shares when
issued) are herein referred to as the "Conversion Shares," and (ii) exercise of
the Warrants (and such shares when issued) are herein referred to as the
"Warrant Shares." The Preferred Shares, the Conversion Shares and the Warrant
Shares are sometimes collectively referred to as the "Shares."
1.4 Closing. The closing of the purchase and sale of the Preferred Shares
to be acquired by the Purchasers from the Company under this Agreement shall
take place at the
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offices of Stoel Rives LLP, 3600 One Union Square, 000 Xxxxxxxxxx Xxxxxx,
Xxxxxxx, XX 00000 at 10:00 a.m. P.D.T. on the date on which the last of the
closing conditions set forth in Section 4 hereof have been fulfilled or waived,
or at such other time, date and place as the Purchasers and the Company may
agree (the "Closing Date").
1.4.1 Deliveries. Subject to Section 1.4.2, on the Closing Date, the
Company shall deliver to each Purchaser certificates for the number of Preferred
Shares and the number of Warrants set forth opposite such Purchaser's name on
Exhibit A hereto, registered in such Purchaser's name (or the name of its
nominee), against delivery of a check or checks payable to the order of the
Company, or a transfer of funds to an account designated in writing by the
Company, representing the cash consideration set forth opposite each such
Purchaser's name on Exhibit A. In addition, each party shall deliver all
documents, instruments and writings required to be delivered by such party
pursuant to this Agreement at or prior to the Closing.
1.4.2 Escrow. Notwithstanding Section 1.4.1, $7,000,000 of the
purchase price of the Preferred Shares shall be deposited into escrow in an
interest-bearing account with Stoel Rives LLP (the "Escrowed Funds"), and the
certificates for the Preferred Shares purchased thereby, and the proportionate
number of Warrants shall also be held in such escrow. Notwithstanding anything
in this Agreement to the contrary, if the Company does not consummate the
acquisition pending in the United Kingdom as of the date of this Agreement, then
the Purchasers, at their sole election, may require the Company to return the
Escrowed Funds and all interest thereon to the Purchasers, and the escrowed
Preferred Shares and Warrants shall be cancelled.
2. REPRESENTATIONS AND WARRANTIES
2.1 Representation and Warranties of the Company. The Company hereby makes
the following representations and warranties to the Purchasers:
2.1.1 Organization, Good Standing and Power. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Washington and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company is duly qualified as a foreign corporation to
do business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except for any jurisdiction in which the failure to be so qualified
will not have a Material Adverse Effect (as defined in Section 2.1.6) on the
Company's financial condition.
2.1.2 Authorization; . The Company has the requisite corporate power
and authority to enter into this Agreement, the Warrants, and the Registration
Rights Agreement attached hereto as Exhibit D (the "Registration Rights
Agreement") and to perform its obligations hereunder and thereunder, including
without limitation to issue and sell the Shares and to issue the Warrants in
accordance with the terms of this Agreement. The execution and delivery of this
Agreement, the Warrants, and the Registration Rights Agreement, and the
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performance by the Company of its obligations hereunder and thereunder,
including the consummation by it of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary corporate action, and no
further consent or authorization of the Company or its Board of Directors or
stockholders is required except as may be set forth in the Designation of Rights
and Preferences. This Agreement has been duly executed and delivered by the
Company. The Warrants and the Registration Rights Agreement will have been duly
executed and delivered by the Company at the Closing. This Agreement
constitutes, and the Registration Rights Agreement and the Warrants when
executed and delivered shall constitute, the valid and binding obligations of
the Company, enforceable against the Company in accordance with their terms,
except as the foregoing may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, or other similar laws relating to or
affecting generally the rights of creditors, or by equitable principles,
including those limiting the availability of specific performance, injunctive
relief, and other equitable remedies.
2.1.3 . The authorized capital stock of the Company and the shares
thereof issued and outstanding as of May 14, 1998, are set forth on Schedule
2.1.3 hereto. All of the outstanding shares of the Company's Common Stock have
been duly and validly authorized. Except as required by this Agreement, the
Registration Rights Agreement, the Warrants, or as described on Schedule 2.1.3
hereto, no shares of Common Stock are entitled to preemptive rights and there
are no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character to issue, or securities or rights convertible into,
any shares of capital stock of the Company, or contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of capital stock of the Company or options, securities
or rights convertible into shares of capital stock of the Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, warrants, scrip, rights to subscribe to, or commitments to purchase or
acquire, any shares, or securities or rights convertible into shares, of capital
stock of the Company. Except as described on Schedule 2.1.3 hereto, the Company
is not a party to any agreement granting registration rights to any person with
respect to any of its equity or debt securities. The Company has furnished or
made available to the Purchasers true and correct copies of the Company's
Articles of Incorporation, as in effect on the date hereof (the "Articles"), and
the Company's Bylaws, as in effect on the date hereof (the "Bylaws").
2.1.4 Issuance. The Preferred Shares and Warrants to be issued at the
Closing have been duly authorized by all necessary corporate action and, when
paid for, issued and delivered in accordance with the terms hereof, the
Preferred Shares and Warrants shall be validly issued, fully paid and
non-assessable and entitled to the rights and preferences set forth in the
Designation of Rights and Preferences. When the Shares are issued, they will be
duly authorized by all necessary corporate action and validly issued, fully paid
and non-assessable, and the holders shall be entitled to all rights accorded to
holders of Common Stock.
2.1.5 Subsidiaries. Schedule 2.1.5 contains a complete list of each
subsidiary of the Company (the "Subsidiaries"). "Subsidiary" shall mean any
corporation or other entity
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of which at least a majority of the securities or other ownership interest
having ordinary voting power (absolutely or contingently) for the election of
directors or other persons performing similar functions are at the time owned
directly or indirectly by the Company and/or any of its other Subsidiaries. All
of the outstanding shares of capital stock of each Subsidiary have been duly
authorized and validly issued, and are fully paid and non-assessable. There are
no outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary for the purchase
or acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Except as set forth on Schedule
2.1.5, neither the Company nor any Subsidiary is party to, or has any knowledge
of, any agreement restricting the voting or transfer of any shares of the
capital stock of any Subsidiary.
2.1.6 No Conflicts. Neither the execution or delivery of this
Agreement, the Warrants or the Registration Rights Agreement by the Company, nor
the performance by the Company of its obligations thereunder, will (a) result in
a violation of the Company's Articles or Bylaws, (b) violate, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement or instrument or obligation to
which the Company is a party, (c) create or impose a lien, charge or encumbrance
on any property of the Company under any agreement or any commitment to which
the Company is a party or by which the Company or any of its properties or
assets are bound, (iv) result in a violation of any federal, state, local or
foreign statute, rule, regulation, order, judgment or decree (including federal
and state securities laws and regulations) applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected, except for violations, defaults,
terminations, amendments, acceleration, and cancellations that would not,
individually or in the aggregate, have a Material Adverse Effect. "Material
Adverse Effect" means any adverse effect on the business, operations,
properties, prospects, or condition (financial or otherwise) of the Company that
is material to the Company and the Subsidiaries taken as a whole. The business
of the Company and its Subsidiaries is not being conducted in violation of any
law, ordinance, rule or regulation of any governmental entity, except for
possible violations that singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation in the United States to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency for it to execute, deliver or perform any of its obligations
under this Agreement and the Registration Rights Agreement or issue and sell the
Shares in accordance with the terms hereof or thereof (other than the filing
with or delivery to the Securities and Exchange Commission (the "Commission"),
Nasdaq, NASD or state securities agencies of notices or filings that may be
required to be made by the Company prior to or subsequent to the Closing, any
registration statement that may be filed pursuant to the Registration Rights
Agreement and the filing of the Designation of Rights and Preferences with the
Secretary of State of the State of Washington); provided that, for purpose of
the representation made in this sentence, the Company is assuming and relying
upon the accuracy of the relevant representations and agreements of the
Purchasers herein.
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2.1.7 Commission Documents, Financial Statements. The Common Stock of
the Company is registered pursuant to Section 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the Commission pursuant to the reporting requirements of the Exchange
Act, including material filed pursuant to Section 13(a) or 15(b) for the period
of at least twelve calendar months prior to the date of this Agreement (all of
the foregoing, including filings incorporated by reference therein, being
referred to herein as the "Commission Documents"). The Company has delivered or
made available to each of the Purchasers true and complete copies of the
Commission Documents filed with the Commission since June 1, 1996. As of their
respective dates, the Company's Annual Report on Form 10-KSB for the year ended
May 31, 1997 (the "Form 10-KSB") and its Quarterly Reports on Form 10-QSB for
the periods ended August 31, 1997, November 30, 1997 and February 28, 1998 (the
"Forms 10-QSB") complied in all material respects with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal and state laws, rules and regulations
applicable thereto, and, as of their respective dates, none of the Form 10-KSB
and the Forms 10-QSB contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the Form 10- KSB and the Forms 10-QSB comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission. Such financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
2.1.8 No Material Adverse Effect. Except as disclosed on Schedule
2.1.8, since February 28, 1998, the end of the last quarter for which the
Company has prepared and filed a quarterly report on Form 10-QSB with the
Commission, a copy of which is included in the Commission Documents, the Company
has not experienced or suffered any Material Adverse Effect.
2.1.9 No Undisclosed Liabilities. Except as disclosed on Schedule
2.1.9 hereto, neither the Company nor any of its Subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) that would be
required to be disclosed on a consolidated balance sheet of the Company and its
Subsidiaries (including the notes thereto) prepared in conformity with GAAP that
are not disclosed in the Commission Documents, other than those incurred in the
ordinary course of business consistent with past practices since February 28,
1998 that, individually or
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in the aggregate, would not reasonably be expected to have a Material Adverse
Effect on the Company and its Subsidiaries taken as whole.
2.1.10 No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
Subsidiaries or their respective businesses, properties, prospects, operations
or condition (financial or otherwise), that, under applicable law, rule or
regulation, should have been publicly disclosed or announced by the Company
before the date of this Agreement but that has not been so publicly announced or
disclosed.
2.1.11 Indebtedness. Schedule 2.1.11 hereto sets forth as of the date
hereof all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments that are
not disclosed in the Form 10- KSB or the Forms 10-QSB. "Indebtedness" shall
mean, in an amount in excess of $250,000, (i) any liability for borrowed money
or evidenced by a promissory note or similar written obligation given in
connection with the acquisition of any property or other assets (other than
trade accounts payable incurred in the ordinary course of business), (ii) all
guaranties, endorsements and other contingent obligations, in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business consistent with past practices,
and (iii) the present value of any lease payments due under leases required to
be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary
is in default in any material respect with respect to any Indebtedness.
2.1.12 Title to Assets. Each of the Company and the Subsidiaries has
good and marketable title to all of the real and personal property owned by it,
free of any mortgages, pledges, charges, liens, security interests or other
encumbrances, except for those indicated on Schedule 2.1.12 hereto or in the
Form 10-KSB or Forms 10-QSB or such that would not reasonably be expected to
have a Material Adverse Effect. The Company and each of its Subsidiaries enjoy
peaceful and undisturbed possession under all leases under which they are
operating, and all said leases are valid and subsisting and in full force and
effect.
2.1.13 Actions Pending. There is no action, suit, claim, investigation
or proceeding pending or, to the knowledge of the Company threatened, against
the Company or any Subsidiary that questions the validity of this Agreement or
the Registration Rights Agreement or the transactions contemplated hereby or
thereby or any action taken or to be taken pursuant hereto or thereto. Except as
set forth on Schedule 2.1.13 hereto, there is no material action, suit,
investigation or proceeding pending or, to the knowledge of the Company
threatened, against or involving the Company, any Subsidiary or any of their
respective properties or assets. There are no material outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any Subsidiary.
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2.1.14 Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted in compliance with all
applicable federal, state, and local governmental laws, rules, regulations and
ordinances, except as would not reasonably be expected to have a Material
Adverse Effect. Except as described on Schedule 2.1.14, the Company and each of
its Subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals needed to conduct their
respective businesses as now being conducted by them unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect.
2.1.15 Taxes. The Company and, to the best of the Company's knowledge,
each of the Subsidiaries have accurately prepared and filed all federal, state,
local, foreign and other tax returns required by law to be filed by them and
have paid or made provisions for the payment of all taxes shown to be due and
all additional assessments, and adequate provisions have been and are reflected
in the financial statements of the Company and the Subsidiaries for all current
taxes to which the Company or any Subsidiary is subject and that are not
currently due and payable. The Company has no knowledge of any assessments,
adjustments or contingent tax liability (whether federal or state) pending or
threatened against the Company or any Subsidiary for any period, nor of any
reasonable basis for any such assessment, adjustment or contingency.
2.1.16 Certain Fees. Except with respect to fees payable by the
Company to Pacific Continental Securities, Inc. and Lysys AG at the Closing, no
brokers', finders' or financial advisory fees or commissions will be payable by
the Company, any Subsidiary or, to the Company's knowledge any Purchaser, with
respect to the transactions contemplated by this Agreement.
2.1.17 Disclosure. Neither this Agreement nor the Schedules hereto nor
any other document, certificate or instrument furnished to the Purchasers by or
on behalf of the Company or any Subsidiary in connection with the transactions
contemplated by this Agreement, when all of the foregoing are considered
together, contains any untrue statement of a material fact or omits to state a
material fact needed to make the statements made herein or therein, in the light
of the circumstances under which they were made, not misleading.
2.1.18 Operation of Business. The Company and the Subsidiaries own or
possess all material patents, trademarks, service marks, trade names,
copyrights, and licenses or all rights with respect to the foregoing, needed to
conduct their respective businesses as they are now conducted.
2.1.19 Environmental Compliance. Except as disclosed on Schedule
2.1.19 hereto, the Company and each of its Subsidiaries have obtained all
material approvals, certificates, consents, licenses, orders and permits or
other similar authorizations of all federal, state, and local authorities that
are required under any Environmental Laws. "Environmental
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Laws" shall mean all applicable federal, state, and local laws relating to the
protection of the environment including, without limitation, all requirements:
(i) pertaining to reporting, licensing, permitting, controlling, investigating
or remediating emissions, discharges, releases or threatened releases of
hazardous substances, chemical substances pollutants, contaminants or toxic
substances, materials or wastes, whether solid, liquid or gaseous in nature,
into the air, surface water, groundwater or land; or (ii) relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. Except as described on Schedule 2.1.19 hereto, and except for
such instances that would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect, the Company does not know of any
past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its Subsidiaries
that would cause a violation of any Environmental Law after the Closing or that
may give rise to any material Environmental Liability, or otherwise form the
basis of any claim, action, demand, suit, proceeding, hearing, study or
investigation (i) under any Environmental Law, or (ii) based on or related to
the manufacture, processing, distribution, use, treatment, storage (including
without limitation underground storage tanks), disposal, transport or handling,
or the emission, discharge, release or threatened release of any hazardous
substance. "Environmental Liabilities" means all liabilities of the Company or
any of its Subsidiaries (whether such liabilities are owed by such person to
governmental authorities, third parties or otherwise), whether now in existence
or arising hereafter, that arise under or relate to any Environmental Law.
2.1.20 Books and Records. The records and documents of the Company and
the Subsidiaries accurately reflect in all material respects information
relating to the business of the Company and the Subsidiaries, the location and
collection of their assets, and the nature of all transactions giving rise to
the obligations or accounts receivable of the Company or any Subsidiary.
2.1.21 Material Agreements. Except as disclosed in the Commission
Documents (subject to any applicable confidential treatment granted by the
Commission) or on Schedule 2.1.21 hereto, neither the Company nor any Subsidiary
is a party to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be filed
with the Commission as an exhibit to a registration statement on Form S-3 if the
Company or any subsidiary were registering securities on such form under the
Securities Act of 1933, as amended (the "Securities Act"). The Company, each
Subsidiary and, to the best of the Company's knowledge, each other party
thereto, have performed all the obligations required to be performed by them to
date under any leases, contracts, or other agreements of the Company or its
Subsidiaries, and the Company has not received any notice of default and is not
in default under any lease, contract or agreement now in effect to which the
Company or any Subsidiary is a party or by which it or its property may be
bound, the result of any of which could reasonably be expected to cause a
Material Adverse Effect.
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2.1.22 Transactions with Affiliates. Except as set forth in the
Commission Documents or on Schedule 2.1.22 hereto, there are no loans, leases,
agreements (other than employment contracts, stock options, or warrant
agreements), contracts, royalty agreements, management contracts or arrangements
or other continuing transactions involving amounts exceeding $250,000 between
(a) the Company, any Subsidiary or any of their respective customers or
suppliers on the one hand, and (b) any officer, employee, consultant or director
of the Company, or any member of the immediate family of any such officer,
employee, consultant, or director or any corporation or other entity controlled
by such officer, employee, consultant, or director or a member of their
immediate family on the other hand.
2.1.23 Securities Act. Assuming the truthfulness of all
representations made by the Purchasers in this Agreement, the Company has
complied and will comply in all material respects with all applicable federal
and state securities laws in connection with the offer, issuance and sale of the
Shares hereunder. Neither the Company nor anyone acting on its behalf, directly
or indirectly, has sold, offered to sell or solicited offers to buy, or will
sell, offer to sell or solicit offers to buy the Shares or similar securities to
any person, so as to require the registration of the Shares under the Securities
Act and applicable state securities laws, except in accordance with the
Registration Rights Agreement. None of the Company, nor any of its affiliates,
nor any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of the Shares.
2.1.24 Approvals. Except for the filing or delivery of any notices or
other documents prior or subsequent to the Closing that may be required under
applicable state or federal securities laws or by Nasdaq (which if required,
shall be filed on a timely basis), the filing of the Designation of Rights and
Preferences, or as set forth in Schedule 2.1.24, no authorization, consent,
approval, license, filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or from any other third party, is or will be necessary for or in
connection with the execution or delivery of the Shares, or for the performance
by the Company of its obligations under this Agreement.
2.1.25 Employees. Neither the Company nor any Subsidiary has any
collective bargaining agreements covering any of its employees. To the best of
the Company's knowledge, no employee of the Company is in violation of any term
of any employment contract, patent or other proprietary information agreement or
any other contract or agreement relating to the right of any such employee to be
employed by the Company because of the nature of the business conducted or
proposed to be conducted by the Company or any other reason. Since November 30,
1996, no officer, consultant or key employee of the Company or any Subsidiary
whose termination, either individually or in the aggregate, could have a
Material Adverse Effect, has terminated or, to the knowledge of the Company has
any present intention of terminating, his or her employment or engagement with
the Company or any Subsidiary.
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2.1.26 Absence of Certain Developments. Except as provided in Schedule
2.1.26 hereto or as disclosed in the Commission Documents, since February 28,
1998, neither the Company nor any Subsidiary has:
(a) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
(b) borrowed any amount in excess of $250,000 or incurred or
become subject to any material liabilities (absolute or contingent) except
liabilities incurred in the ordinary course of business consistent with
past practices;
(c) discharged or satisfied any material lien or encumbrance or
paid any material obligation or liability (absolute or contingent), other
than current liabilities paid in the ordinary course of business consistent
with past practices;
(d) declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements to purchase or redeem, any shares of its
capital stock;
(e) sold, assigned or transferred any other tangible assets, or
cancelled any debts or claims, except in the ordinary course of business
consistent with past practices;
(f) sold, assigned or transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, except in the ordinary course of business
consistent with past practices;
(g) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of existing business;
(h) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(i) made capital expenditures or commitments therefor that
aggregate in excess of $250,000;
(j) made charitable contributions or pledges in excess of $25,000
in total;
(k) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance; or
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(l) experienced any material problems with labor or management in
connection with the terms and conditions of their employment.
2.1.27 Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately after the
Closing will not be, an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
2.1.28 U.S. Real Property Holding Corporation. Neither the Company nor
any of its Subsidiaries is now, nor will it be immediately after the Closing, a
"United States Real Property Holding Corporation" as defined in section
897(c)(2) of the Internal Revenue Code of 1986, as amended (the "Code") and
section 1.897-2(b) of the Treasury Regulations.
2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
2.2.1 Organization and Standing of the Purchasers. Such Purchaser is a
corporation or partnership duly incorporated or organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization.
2.2.2 Authorization; Power. Such Purchaser has the requisite power and
authority to enter into this Agreement and the Registration Rights Agreement and
to perform its obligations hereunder and thereunder, including without
limitation, to purchase the Shares being sold to it hereunder. The execution and
delivery of this Agreement and the Registration Rights Agreement by such
Purchaser, and the performance by the Purchaser of its obligations hereunder and
thereunder, including the consummation by it of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary corporate or
partnership action, and no further consent or authorization of such Purchaser or
its Board of Directors, stockholders, or partners, as the case may be, is
required. This Agreement has been duly executed and delivered by such Purchaser.
The Registration Rights Agreement will have been duly executed and delivered by
such Purchaser at the Closing. Assuming the due authorization, execution and
delivery hereof and thereof by the other parties hereto and thereto, this
Agreement constitutes, and the Registration Rights Agreement shall constitute
when executed and delivered, a valid and binding obligation of the Purchaser
enforceable against such Purchaser in accordance with its terms, except as the
foregoing may be limited by applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, or other similar laws relating to or
affecting generally the rights of creditors or by other equitable principles
including those limiting the availability of specific performance, injunctive
relief, and other equitable remedies.
2.2.3 No Conflicts. Neither the execution or delivery of this
Agreement or the Registration Rights Agreement by the Purchaser, nor the
performance by such Purchaser of its
11
obligations hereunder and thereunder, will (i) result in a violation of such
Purchaser's charter or other organizational documents or bylaws (ii) violate, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture, note, bond,
license agreement, or instrument to which such Purchaser is a party, or (iii)
result in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree applicable to such Purchaser or its
properties or by which any property or asset of such Purchaser is bound or
affected (except in the case of each of clauses (i), (ii) and (iii) for
conflicts, defaults and violations that would not, individually or in the
aggregate have a Material Adverse Effect on such Purchaser). Such Purchaser is
not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency for it to execute,
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or purchase the Shares in accordance with the
terms hereof, provided that for purposes of the representation made in this
sentence, such Purchaser is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
2.2.4 Acquisition for Investment. Such Purchaser is purchasing the
Preferred Shares and the Warrants solely for its own account for the purpose of
investment or as a nominee or agent solely for the entities named on the
signature pages hereto and not with a view to or for sale in connection with any
distribution. Such Purchaser does not have a present intention to sell the
Preferred Shares, the Warrants or the Shares, nor a present contract,
undertaking, agreement or arrangement (whether or not legally binding) to any
person, and the Purchaser, does not have any present intention to effect any
distribution of the Preferred Shares, the Warrants or the Shares, to or through
any person or entity other than the entities, if any, for which such Purchaser
is acting as nominee as set forth on the signature pages hereto; provided,
however, that by making the representations herein, such Purchaser does not
agree to hold the Preferred Shares, the Warrants or the Shares for any minimum
or other specific term and reserves the right to dispose of the Preferred
Shares, the Warrants and the Shares at any time in accordance with federal and
state securities laws applicable to such disposition. Such Purchaser is not a
broker-dealer. Such Purchaser acknowledges that it is able to bear the financial
risks associated with an investment in the Preferred Shares, the Warrants and
the Shares, and that it can bear the loss of its entire investment. Such
Purchaser represents that it was not organized solely for the purpose of making
an investment in the Company. Such Purchaser acknowledges that it has been given
full access to such records of the Company and the Subsidiaries and to the
officers of the Company and the Subsidiaries as it has deemed necessary and
appropriate to conduct and complete its due diligence investigation.
2.2.5 Accredited Purchasers. Such Purchaser, or each of the entities
set forth on the signature pages hereto for which such Purchaser is acting as
nominee, is an "accredited investor" as defined in Regulation D promulgated
under the Securities Act.
2.2.6 Rule 144. Such Purchaser understands that the Shares must be
held indefinitely unless such Shares are registered under the Securities Act or
an exemption from
12
registration is available. Such Purchaser acknowledges that it is familiar with
Rule 144 of the rules and regulations of the Commission, as amended, promulgated
pursuant to the Securities Act ("Rule 144"), and that it has been advised that
Rule 144 permits, only under certain circumstances, the resale of restricted
securities such as the Preferred Shares, the Warrants and the Shares, but that
Rule 144 is not now available to permit resales by such person of any of the
Preferred Shares, the Warrants or the Shares.
2.2.7 Reliance. Each Purchaser understands that the Shares are being
offered and sold in reliance on exemptions from the registration requirements of
federal and state securities laws and that the Company is relying upon the truth
and accuracy of the representations, warranties, agreements, acknowledgments and
understandings of the Purchasers set forth herein to determine the applicability
of such exemptions and the suitability of such Purchasers to acquire the Shares.
2.2.8 No Brokers. No brokers', finders' or financial advisory fees or
commissions will be payable by the Purchaser with respect to the transactions
contemplated by this Agreement.
2.2.9 Disclosure. Neither this Agreement nor any other document,
certificate or instrument furnished to the Company by or on behalf of the
Purchaser in connection with the transactions contemplated by this Agreement,
contains any untrue statement of a material fact or omits to state a material
fact needed to make the statements made herein or therein, in the light of the
circumstances under which they were made, not misleading.
3. COVENANTS
3.1 By the Company. The Company covenants with each of the Purchasers as
follows:
3.1.1 Securities Compliance. The Company shall notify the Commission
and Nasdaq, if applicable, in accordance with their requirements, of the
transactions contemplated by this Agreement and the Registration Rights
Agreement, and shall take any other action required by applicable law, rule or
regulation for the legal and valid issuance of the Shares to the Purchasers.
3.1.2 Conversion Notice. If the Company receives a Conversion Notice
in the form attached as Exhibit E duly executed by a holder of Preferred Shares
then entitled to convert such shares to Common Stock and accompanied by the
certificate or certificates representing such Preferred Shares and such other
documents as may be required by the Company in accordance with the Designation
of Rights and Preferences, then, unless the Preferred Shares are redeemed by the
Company pursuant to the Designation of Rights and Preferences, the Company shall
cause its transfer agent to issue certificates for the Conversion Shares to the
holder within five business days after such receipt.
13
3.1.3 Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to the Registration Rights Agreement and will not take
any action or file any document (whether or not permitted by the Securities Act
or the rules promulgated thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said Acts,
except as permitted herein. The Company will take all action necessary to
continue the quotation or trading of its Common Stock on the Nasdaq system and
will comply in all material respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the NASD and the Nasdaq system.
3.1.4 Inspection Rights. The Company shall permit, during normal
business hours and upon no less than 5 days' written notice, each Purchaser or
any employees, agents or representatives thereof, so long as such Purchaser
shall be obliged hereunder to purchase the Preferred Shares or shall
beneficially own Preferred Shares, Warrants or Shares that, in the aggregate,
represent more than 5% of the total combined voting power of all voting
securities then outstanding, to visit and inspect the properties, assets,
operations and business of the Company and any Subsidiary, and to discuss the
affairs, finances and accounts of the Company and any Subsidiary with any of its
officers, consultants, directors, and key employees, subject to appropriate
confidentiality obligations.
3.1.5 Reporting Requirements. The Company shall furnish the following
to each Purchaser so long as such Purchaser shall be obliged hereunder to
purchase the Preferred Shares or shall beneficially own Preferred Shares:
(a) Quarterly Reports filed with the Commission on Form 10-Q or
Form 10-QSB, as the case may be, as soon as available, and in any event
within 50 days after the end of each of the first three fiscal quarters of
the Company; and
(b) Annual Reports filed with the Commission on Form 10-K or Form
10-KSB, as the case may be, as soon as available, and in any event within
95 days after the end of each fiscal year of the Company.
3.1.6 Other Agreements. The Company shall not enter into any agreement
that would materially restrict or materially impair the rights of the Purchasers
under this Agreement, the Registration Rights Agreement or the Articles, except
as otherwise permitted in such agreements and the Articles.
3.1.7 Rule 144A. The Company covenants and agrees that if the Company
fails to register the Conversion Shares by one year from the date of this
Agreement under the terms and conditions of the Registration Rights Agreement
that, for so long as any of the Shares remain outstanding and continue to be
"restricted securities" within the meaning of Rule 144 under the Securities Act,
the Company shall make available to any Purchaser, or entity set forth
14
on the signature pages hereto for which such Purchaser is acting as nominee, who
is a "qualified institutional buyer" within the meaning set forth in Rule
144A(a) under the Securities Act, in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act to permit
resales of the Conversion Shares pursuant to Rule 144A.
3.1.8 Use of Proceeds. The proceeds from the sale of the Preferred
Shares will be used by the Company and its Subsidiaries primarily for potential
future acquisitions.
3.1.9 Right of First Refusal. The Company agrees that, for a period of
one year from the date of this Agreement, it will not issue in any
capital-raising transaction any series of preferred shares having rights senior
to or equal to the Preferred Shares with respect to the distribution of assets
on liquidation, dissolution, or winding up (including any shares of the
Company's Series A Convertible Preferred Stock) without giving each Purchaser at
least twenty days' prior notice of such issuance. For ten days after the receipt
of such notice, each Purchaser shall have a right of first refusal, exercisable
by written notice to the Company, to purchase in such offering that number of
such shares, at a purchase price per share equal to the proposed purchase price
in such offering, that have a total purchase price up to the purchase price paid
by such Purchaser for the Preferred Shares purchased by it hereunder. This right
of first refusal shall otherwise be subject to all of the same terms and
conditions of such offering. If a Purchaser does not timely give notice of its
intent to exercise such right of first refusal, the Purchaser's right of first
refusal shall be deemed to have terminated and Company may proceed to issue all
such shares to other purchasers, free and clear of such right of first refusal,
at a price not less than that offered to the Purchaser. However, this right of
first refusal shall not apply to the issuance by the Company in a public or
private offering of shares of (i) common stock; (ii) nonconvertible debt
securities; or (iii) the first issuance by the Company after the Closing of
preferred stock in an amount yielding gross proceeds to the Company of at least
$17,000,000.
3.1.10 U.S. Real Property Holding Corporation. The Company covenants
that it will operate in a manner such that it will not become a "United States
real property holding corporation" as that term is defined in section 897(c)(2)
of the Code ("USRPHC"), and the regulations thereunder. The Company agrees to
make determinations as to its status as a USRPHC, and will file statements
concerning those determinations with the Internal Revenue Service, in a manner
and at the times required under section 1.897-2(h) of the Treasury Regulations,
or any supplementary or successor provision thereto. Within 30 days of a request
from a holder, the Company will inform the requesting party, in the manner set
forth in section 1.897-2(h) Treasury Regulations or any supplementary or
successor provision thereto, whether that party's interest in the Company
constitutes a United States real property interest (within the meaning of
section 897(c)(1) of the Code and the regulations thereunder) and whether the
Company has provided to the Internal Revenue Service all required notices as to
its USRPHC status.
3.1.11 Structure of Voluntary Redemption. During the 20-day period
after receiving notice of a Voluntary Redemption (as such term is defined in the
Rights and Preferences), by the Company under Section 6(a) of the Rights and
Preferences, the Company
15
shall, at any Holder's (as such term is defined in the Rights and Preferences)
request, engage in good faith negotiations with such Holder, to structure the
Voluntary Redemption so that such redemption will be characterized as a sale or
exchange within the meaning of Section 1001 of the Code, and not as a
distribution within the meaning of Section 302 of the Code.
3.2 By the Purchasers. The Purchasers each covenant with the Company that
they shall not sell or agree to sell any Shares before they are the holder
thereof.
3.3 By All Parties. The Company and the Purchasers each agree to treat the
Preferred Stock as stock that is not "preferred stock" for all U.S. income tax
purposes, including for purposes of Section 305 of the Code and the regulations
thereunder, unless they are required to treat the Preferred Stock otherwise
pursuant to a "determination" within the meaning of Section 1313(a) of the Code;
provided that the Purchasers (x) have received prompt notice of any tax
assessment, deficiency, audit or judicial proceeding that relates to the
taxation of the Preferred Stock, (y) are given the opportunity to participate in
all proceedings that affect the taxation of Preferred Stock, and (z) have
consented to any closing or other agreement with or final disposition of a claim
for refund by the IRS that affects the taxation of the Preferred Stock. In the
event of a change of law regarding this treatment of the Preferred Stock, the
Company and the Purchasers agree to determine a position in such regard that is
reasonably acceptable to each of them.
4. CONDITIONS
4.1 Conditions Precedent to the Obligation of the Company to Sell the
Preferred Shares. The obligation hereunder of the Company to issue and/or sell
the Preferred Shares to the Purchasers is subject to the satisfaction or waiver,
at or before the Closing, of each of the conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
4.1.1 Accuracy of the Purchasers' Representations and Warranties. Each
of the representations and warranties of the Purchasers shall be true and
correct in all material respects as of the date made and as of the Closing as
though made at that time, and the Company shall have received a certificate from
each Purchaser to that effect.
4.1.2 Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all material
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Purchaser at or prior to the Closing and the
Company shall have received a certificate from each Purchaser to that effect.
4.1.3 No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by this
Agreement, the Warrants, or the Registration Rights Agreement.
16
4.1.4 No Proceedings or Litigation. No action, suit, investigation or
proceeding before or by any arbitrator or any governmental authority shall have
been commenced or threatened against the Company or any Subsidiary, or any of
the officers, directors or affiliates of the Company or any Subsidiary, seeking
to restrain, prevent or change the transactions contemplated by this Agreement,
the Warrants, or the Registration Rights Agreement, or seeking damages in
connection with such transactions.
4.1.5 Opinion of Counsel; Closing Documents. At the Closing, the
Company shall have received an opinion of counsel to each of the Purchasers, in
the form of Exhibit G hereto and such other certificates and documents as the
Company and its counsel shall reasonably require incident to the Closing.
4.1.6 Purchase Price. At the Closing, the Company shall have received
payment of the purchase price for the Preferred Shares.
4.1.7 Registration Rights Agreement. At the Closing, the Purchasers
shall have executed and delivered the Registration Rights Agreement to the
Company.
4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase
the Preferred Shares. The obligation hereunder of each Purchaser to acquire and
pay for the Preferred Shares is subject to the satisfaction or waiver, at or
before the Closing, of each of the conditions set forth below. These conditions
are for each Purchaser's sole benefit and may be waived by such Purchaser at any
time in its sole discretion.
4.2.1 Accuracy of the Company's Representations and Warranties. Each
of the representations and warranties of the Company shall be true and correct
in all material respects as of the date made and as of the Closing as though
made at that time (except for representations and warranties that speak as of a
particular date), and the Purchasers shall have received a certificate from the
Company to that effect.
4.2.2 Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing, and the Purchasers shall have
received a certificate from the Company to that effect.
4.2.3 No Suspension, etc. From the date hereof to the Closing Date,
trading in the Company's Common Stock shall not have been suspended by the
Commission or Nasdaq (except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated prior to
Closing), and, at any time from the date hereof to the Closing, trading in
securities generally as reported by Nasdaq shall not have been suspended or
limited or minimum prices shall not have been established on securities whose
trades are reported by Nasdaq, nor shall trading in securities on the New York
Stock Exchange have been
17
suspended nor minimum prices established on the New York Stock Exchange, nor
shall a banking moratorium have been declared either by the United States or New
York State authorities, nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity or crisis
of such magnitude in its effect on, or any material adverse change in, any
financial market that, in each case, in the reasonable judgment of such
Purchaser, makes it impracticable or inadvisable to purchase the Shares.
4.2.4 No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement.
4.2.5 No Proceedings or Litigation. No action, suit, investigation or
proceeding before or by any arbitrator or any governmental authority shall have
been commenced or threatened against the Company or any Subsidiary, or any of
the officers, directors or affiliates of the Company or any Subsidiary, seeking
to restrain, prevent or change the transactions contemplated by this Agreement
or the Registration Rights Agreement, or seeking damages in connection with such
transactions.
4.2.6 Designation of Rights and Preferences. The Amendment to the
Articles containing the Designation of Rights and Preferences shall have been
filed with the Secretary of State of Washington.
4.2.7 Opinion of Counsel; Closing Documents. At the Closing, the
Purchasers shall have received an opinion of Stoel Rives LLP, counsel to the
Company, dated the date of Closing, in the form of Exhibit H hereto and such
other certificates and documents as the Purchasers and their counsel shall
reasonably require incident to the Closing.
4.2.8 Registration Rights Agreement. At the Closing the Company shall
have executed and delivered the Registration Rights Agreement to each Purchaser.
5. [INTENTIONALLY OMITTED]
6. STOCK CERTIFICATE LEGEND
Each certificate representing the Shares, and, if appropriate, any
securities issued upon conversion thereof, shall be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required by applicable state securities or "blue sky" or other laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
18
REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAWS,
OR IN THE OPINION OF COUNSEL TO PACIFIC AEROSPACE & ELECTRONICS, INC.
(THE "COMPANY") THAT REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED.
The Company agrees to cause its transfer agent to reissue certificates
representing the Shares, without the legend set forth above, if prior to making
any transfer of any Shares, the holder thereof shall give written notice to the
Company describing the manner and terms of the proposed transfer and providing
the Company with such other information as the Company may reasonably request
and: (a) the Company has notified such holder that either (i) in the opinion of
Company counsel, the registration of such Shares under the Securities Act is not
required in connection with such proposed transfer; or (ii) a registration
statement under the Securities Act covering such proposed disposition has been
filed by the Company with the Commission and has become effective under the
Securities Act; and (b) the Company has notified such holder that either: (i) in
the opinion of Company counsel, the registration or qualification under the
securities of "blue sky" laws of any state is not required in connection with
such proposed disposition; or (ii) compliance with applicable state securities
or "blue sky" laws has been effected. The Company will use its best efforts to
respond to any such notice from a holder within five (5) business days. In the
case of any proposed transfer under this Article VI, the Company will use
reasonable efforts to comply with any such applicable state securities or "blue
sky" laws, but shall in no event be required, in connection therewith, to
qualify to do business in any state where it is not then qualified or to take
any action that would subject it to tax or to the general service of process in
any state where it is not then subject. The restrictions on transfer contained
in this Section 6 shall be in addition to, and not by way of limitation of, any
other restrictions on transfer contained in any other section of this Agreement.
7. TERMINATION
7.1 Termination by Mutual Consent. This Agreement may be terminated at any
time prior to the Closing by the mutual written consent of the Company and the
Purchasers.
7.2 Other Termination. This Agreement may be terminated by the action of
the Board of Directors of the Company or by any one or more of the Purchasers at
any time, prior to the Closing if the Closing shall not have been consummated
within 30 days after execution of this Agreement.
7.3 Effect of Termination. In the event of termination by the Company or
any one or more of the Purchasers, written notice thereof shall forthwith be
given to the other parties and the transactions contemplated by this Agreement
and the Registration Rights Agreement shall be terminated, without further
action by either party. If this Agreement is terminated as provided in Sections
7.1 or 7.2 this Agreement shall become void and of no further force and effect,
except for Sections 9.1, 9.2 and Article 8.
19
8. INDEMNIFICATION
8.1 General Indemnity. The Company agrees to indemnify and hold harmless
the Purchasers and each entity named on the signature pages hereto for which
such Purchaser is acting as nominee (and their respective directors, officers,
partners, affiliates, agents, successors and assigns) from and against any and
all claims, losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by them as a result of any breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by them as result of any material breach of the
representations, warranties or covenants made by such Purchaser herein.
8.2 Indemnification Procedure. Any party entitled to indemnification under
this Article 8 (an "indemnified party") will give written notice to the
indemnifying party of any matters giving rise to a claim for indemnification;
provided that the failure of any party entitled to indemnification hereunder to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under this Article 8 except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. Notwithstanding
anything else in this paragraph, no party shall have a claim for indemnification
hereunder if the indemnifying party has not been given notice by the indemnified
party of the claim by the date that is one year after the earlier of (i) the
effective date of the registration statement filed by the Company pursuant to
the Registration Rights Agreement or (ii) the date that the party seeking
indemnification ceases to hold Preferred Shares or Conversion Shares. If any
action, proceeding or claim is brought against an indemnified party in respect
of which indemnification is sought hereunder, the indemnifying party shall be
entitled to participate in and, unless in the reasonable judgment of the
indemnified party a conflict of interest between it and the indemnifying party
may exist in respect of such action, proceeding or claim, to assume the defense
thereof, with counsel reasonably satisfactory to the indemnified party. If the
indemnifying party advises an indemnified party that it will contest such a
claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the indemnified party may, at its option, defend,
settle or otherwise compromise or pay such action or claim. In any event, unless
and until the indemnifying party elects in writing to assume and does so assume
the defense of any such claim, proceeding or action, the indemnified party's
costs and expenses arising out of the defense, settlement or compromise of any
such action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim.
The indemnifying party shall furnish to the indemnifying party all information
reasonably available to the indemnified party that relates to such action or
claim. The indemnifying party shall keep the indemnified party fully apprised at
all times as to the
20
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. Notwithstanding anything in this
Article 8 to the contrary, the indemnifying party shall not, without the
indemnified party's prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof that imposes any future
obligation on the indemnified party or that does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party, a release from all liability in respect of such claim. The
indemnification required by this Article 8 shall be made by periodic payments of
the amount thereof during the course of investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred so long as
the indemnified party irrevocably agrees to refund such moneys if it is
ultimately determined by a court of competent jurisdiction that such party was
not entitled to indemnification. The indemnity agreements contained herein shall
be in addition to (a) any cause of action or similar rights of the indemnified
party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
9. MISCELLANEOUS
9.1 Fees and Expenses. Except as otherwise set forth in the Registration
Rights Agreement or the Designation of Rights and Preferences, each party shall
pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement,
provided that the Company shall pay, at the Closing, (a) all of the Purchasers
out-of-pocket expenses associated with the offering of the Preferred Shares,
whether or not the transactions contemplated under this Agreement are
consummated, in an amount not to exceed $20,000.
9.2 Specific Enforcement, Consent to Jurisdiction.
9.2.1 The Company and the Purchasers acknowledge and agree that
irreparable damage would occur if any of the provisions of this Agreement or the
Registration Rights Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
material breaches of the provisions of this Agreement or the Registration Rights
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
9.2.2 Each of the Company and the Purchasers (i) hereby irrevocably
submits to the jurisdiction of the United States District Court and other courts
of the United States sitting in King County, Washington for the purposes of any
suit, action or proceeding arising out of or relating to this Agreement or the
Registration Rights Agreement and (ii) hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
21
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper.
9.3 This Agreement (including the Exhibits and Schedules hereto) contains
the entire understanding of the parties with respect to the matters covered
hereby and, except as specifically set forth herein (including the Exhibits and
Schedules hereto) or in the Registration Rights Agreement, the Designation of
Rights and Preferences, or the Warrants, neither the Company nor any of the
Purchasers makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by a written instrument signed by (i) the Company, if enforcement of
any such amendment or waiver is sought against the Company; (ii) an individual
Purchaser, if enforcement of an amendment or waiver is sought solely with
respect to such Purchaser; or (iii) the Purchasers of two-thirds of all of the
Preferred Stock, if enforcement of an amendment or waiver is sought with respect
to all of the Purchasers.
9.4 Any notice, demand, request, waiver or other communication required to
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or by confirmed facsimile transmission at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received), or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur, or (c) three days after mailed by certified or registered
U.S. mail. The addresses for such communications shall be:
If to the Company: Xxxxxx X. Xxxxxxx
Vice President Administration & General Counsel
Pacific Aerospace & Electronics, Inc.
00000 - 00xx Xxx. XX, Xxxxx 000
Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
with copies to: Xxxxxxx X. Xxxxxxxxx
Stoel Rives LLP
One Union Square
000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000-0000
Fax: (000) 000-0000
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If to any Purchasers: Xxxx Xxxx
Xxxxxx Xxxxxx & Co.
000 Xxxx Xxx., 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
With copies to: Xxxxxxx X. Xxxx
Akin Gump Xxxxxxx Xxxxx & Xxxx
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Any party hereto may from time to time change its address for notices by
giving at least five (5) days' written notice of such changed address to the
other party hereto.
9.5 No waiver by either party of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right accruing to
it thereafter.
9.6 The article, section and subsection headings in this Agreement are for
convenience only and shall not constitute a part of this Agreement for any other
purpose and shall not be deemed to limit or affect any of the provisions hereof.
9.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. After Closing,
the assignment by a party to this Agreement of any rights hereunder shall not
affect the obligations of such party under this Agreement.
9.8 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by any other person.
9.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF WASHINGTON, WITHOUT GIVING
EFFECT TO THE CHOICE OF LAW PROVISIONS.
9.10 Survival. The representations and warranties of the Company and the
Purchasers contained in Section 2 shall survive the execution and delivery
hereof and the Closing until the date that is one year from the earlier of (i)
the effective date of the registration statement filed by the Company pursuant
to the Registration Rights Agreement or (ii) the date that the party seeking
indemnification ceases to hold Preferred Shares, Warrants or Shares. The
agreements and covenants set forth in Sections 1, 3, 5 and 8 of this Agreement
shall survive the execution
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and delivery hereof and the Closing hereunder until any registration statement
required by the Registration Rights Agreement is no longer required to be
effective under its terms and conditions.
9.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. If any signature is delivered by
facsimile transmission, the party using such means of delivery shall cause four
additional executed signature pages to be physically delivered to the other
parties within five days after the execution and delivery hereof; provided that
failure to transmit such original signature pages shall not invalidate that
party's signature.
9.12 The Company agrees that, without the consent of each Purchaser, it
will not disclose, and will not include in any public announcement, the name of
such Purchaser, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
9.13 Severability. The provisions of this Agreement, the Designation of
Rights and Preferences and the Registration Rights Agreement are severable and,
if any court of competent jurisdiction shall determine that any one or more of
the provisions or part of a provision contained in this Agreement, the
Designation of Rights and Preferences or the Registration Rights Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, the Designation of
Rights and Preferences or the Registration Rights Agreement shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or part
of a provision, had never been contained herein, and such provisions or part
reformed so that it would be valid, legal and enforceable to the maximum extent
possible.
9.14 From and after the date of this Agreement, upon the request of any
Purchaser or the Company, each of the Company and the Purchasers shall execute
and deliver such instrument, documents and other writings as may be reasonably
necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer or other agent as of the
date hereof.
THE COMPANY:
PACIFIC AEROSPACE &
ELECTRONICS, INC.
By: /s/ XXXXXX X. XXXXXX
------------------------------
Xxxxxx X. Xxxxxx
President
THE PURCHASERS:
AGR HALIFAX FUND, LTD.
SILVER OAK CAPITAL, L.L.C.
As Nominee for the following entities:
AG Arb Partners, L.P.
AG Super Fund, L.P.
AG Long Term Super Fund, L.P. By: /s/ XXXXXXX X. XXXXXXX
Nutmeg Partners, L.P. --------------------------------
Northern Trust Company as Master Name: Xxxxxxx X. Xxxxxxx,
Trustee of the Teachers Retirement Managing Officer of Ag Ramius, LLC
System of the State of Illinois Its: Investment Advisor
PHS Bay Colony Fund, L.P.
PHS Patriot Fund, L.P.
AG MM, X.X.
Xxxxxx Partners, L.P.
Triarc Companies, Inc.
Ramius, X.X.
Xxxxxxx Enterprises, Inc.
GAM Arbitrage Investments, Inc.
AG Super Fund International Partners,
L.P.
Ramius Fund, Ltd.
Xxxxxxxx, L.P.
By: /s/ XXXXXXX X. XXXXXX
------------------------------
Xxxxxxx X. Xxxxxx
Manager
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