EXHIBIT 10.12
EXCHANGE AGREEMENT
BY AND AMONG
PACIFIC AEROSPACE & ELECTRONICS, INC.,
AEROMET AMERICA, INC.,
BALO PRECISION PARTS, INC.,
CASHMERE MANUFACTURING CO., INC.,
CERAMIC DEVICES, INC.,
ELECTRONIC SPECIALTY CORPORATION,
NORTHWEST TECHNICAL INDUSTRIES, INC.,
PACIFIC COAST TECHNOLOGIES, INC.,
PA&E INTERNATIONAL, INC.,
SEISMIC SAFETY PRODUCTS, INC.,
SKAGIT ENGINEERING & MANUFACTURING, INC.
AND
THE HOLDERS OF THE OUTSTANDING
11 1/4% SENIOR SUBORDINATED NOTES DUE 2005 OF
PACIFIC AEROSPACE & ELECTRONICS, INC.
NAMED IN EXHIBIT A HERETO
Dated as of March 19, 2002
TABLE OF CONTENTS
Page
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ARTICLE 1
DEFINITIONS
1.1. Definitions...................................................................2
ARTICLE 2
THE EXCHANGE
2.1. Exchange......................................................................3
2.1.1. Common Stock...........................................................4
2.1.2. Preferred Stock........................................................4
2.1.3. New Notes..............................................................4
2.2. U.S. Federal Income Tax Treatment.............................................4
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SUBSIDIARY GUARANTORS
3.1. Representations and Warranties of the Company and the Subsidiary
Guarantors....................................................................4
3.1.1. Organization and Standing..............................................4
3.1.2. Authority and Enforceability...........................................5
3.1.3. Consents and Approvals.................................................5
3.1.4. No Violations..........................................................6
3.1.5. Validity of Stock and Notes............................................7
3.1.6. Litigation and Claims Against the Company..............................7
3.1.7. Capitalization.........................................................8
3.1.8. SEC Reports and Financial Statements...................................8
3.1.9. Undisclosed Liabilities................................................9
3.1.10. Material Contracts...................................................10
3.1.11. Compliance...........................................................10
3.1.12. Title to Property and Assets.........................................10
3.1.13. Related Party Transactions...........................................10
3.1.14. No Fees..............................................................11
3.1.15. Proprietary Rights...................................................11
3.1.16. Employee Benefit Plans...............................................11
3.1.17. Labor Relations; Employees...........................................13
3.1.18. Environmental Matters................................................13
3.1.19. Section 3(a)(9) Exemption; Blue Sky Exemption........................14
3.1.20. Board Representation; Compliance with Rule 14f-1.....................14
3.1.21. Tax Returns..........................................................15
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE HOLDERS
4.1. Representations and Warranties of the Holders................................17
4.1.1. Ownership of Notes....................................................17
4.1.2. Authority.............................................................17
4.1.3. Consents and Approvals................................................17
4.1.4. No Violations.........................................................18
4.1.5. No Fees...............................................................18
ARTICLE 5
REGISTRATION RIGHTS
5.1. Demand Registrations.........................................................18
5.1.1. Demand Registrations..................................................18
5.1.2. Participation.........................................................19
5.1.3. Underwriting Requirements.............................................19
5.1.4. Preemption of Requested Registration..................................20
5.1.5. Exceptions............................................................20
5.1.6. Registration Statement Form...........................................21
5.2. Piggyback Registrations......................................................21
5.2.1. Piggyback Rights......................................................21
5.2.2. Right to Terminate Registration.......................................21
5.2.3. Underwriting Requirements.............................................22
5.3. Shelf Registration...........................................................22
5.4. Obligations of the Company...................................................23
5.5. Information from Holder......................................................26
5.6. Expenses of Registration.....................................................26
5.7. Delay of Registration........................................................27
5.8. Indemnification..............................................................27
5.9. "Market Stand-Off" Agreement.................................................30
ARTICLE 6
COVENANTS
6.1. Further Actions..............................................................31
6.2. Proxy Statement..............................................................31
6.3. Meetings.....................................................................31
6.4. Transferability..............................................................31
6.5. Voting Agreement.............................................................32
6.6. Board of Directors...........................................................32
6.6.1. Election of Directors.................................................32
6.6.2. Vacancies.............................................................33
6.6.3. Removal of Holder Nominees............................................34
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6.7. Exercise of Specified Rights.................................................34
6.8. No Voting Obligations - HBK Master Fund L.P..................................34
6.9. Grant of Stock Options.......................................................34
ARTICLE 7
CLOSING
7.1. Closing......................................................................35
7.2. Deliveries by the Company....................................................35
7.3. Deliveries by the Holders....................................................36
ARTICLE 8
SURVIVAL
8.1. Survival.....................................................................37
ARTICLE 9
MISCELLANEOUS
9.1. Entirety.....................................................................37
9.2. Counterparts.................................................................37
9.3. Fees and Expenses............................................................37
9.4. Notices and Waivers..........................................................37
9.5. Table of Contents and Captions...............................................38
9.6. No Assignment................................................................38
9.7. Successors and Assigns.......................................................39
9.8. Severability.................................................................39
9.9. Applicable Law...............................................................39
9.10. Amendment....................................................................39
9.11. Third Party Beneficiaries....................................................39
9.12. Publicity....................................................................39
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TABLE OF SCHEDULES AND EXHIBITS
Schedule 3.1.3 - Company Consents and Approvals
Schedule 3.1.4 - No Violations
Schedule 3.1.6 - Litigation and Claims against the Company
Schedule 3.1.7 - Outstanding Options
Schedule 3.1.8 - SEC Reports and Financial Statements
Schedule 3.1.9 - Material Adverse Effect
Schedule 3.1.10 - Material Contracts
Schedule 3.1.12 - Title to Property and Assets
Schedule 3.1.13 - Related Party Transactions
Schedule 3.1.15 - Proprietary Rights
Schedule 3.1.16(a) - Employee Benefit Plans
Schedule 3.1.16(f) - Payments, Vestings or Liabilities
Schedule 3.1.16(g) - Claims With Respect to Plans
Schedule 3.1.16(h) - Post-Employment Life or Health Insurance Coverage
Schedule 3.1.18 - Environmental Matters
Schedule 3.1.21 - Tax Returns
Exhibit A - Holders/Allocation of New Securities
Exhibit B - Certificate of Designation
Exhibit C - New Notes Indenture
Exhibit D - Opinion of Company Counsel as to matters of Washington Law
Exhibit E - Opinion of Company Counsel as to matters other than Washington Law
Exhibit F - Amendment to Employment Agreement - Xxxxxx X. Xxxxxx
Exhibit G - Supplemental Indenture
Exhibit H - Form of Guarantee
Exhibit I - Note Purchase Agreement
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EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "Agreement") is made and entered
into as of March 19, 2002 by and among Pacific Aerospace & Electronics, Inc., a
corporation organized under the laws of the State of Washington (the "Company"),
Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co.,
Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest
Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E
International, Inc., Seismic Safety Products, Inc. and Skagit Engineering &
Manufacturing, Inc. (collectively, the "Subsidiary Guarantors") and the
noteholders named in Exhibit A (the "Holders") of the Company's 11 1/4% Senior
Subordinated Notes due 2005 (the "Old Notes") issued pursuant to that certain
indenture (the "Old Indenture") dated as of July 30, 1998 by and among the
Company, the Guarantors (as defined therein) and the Bank of New York (as
successor to IBJ Xxxxxxxxx Bank & Trust Company), as Trustee.
WHEREAS, the Company has failed to pay the interest payment on
the Old Notes which was due on August 1, 2001, and did not make that payment by
the expiration of the 30-day grace period, giving rise to certain rights of the
Holders under the Old Indenture to accelerate payment of the Old Notes;
WHEREAS, the Company and the Holders have entered into a Second
Amended and Restated Agreement (as amended through the date hereof, the "Lock-Up
Agreement"), dated as of January 11, 2002, pursuant to which the Holders have
agreed to exchange their Old Notes for certain other securities of the Company,
including common stock, convertible preferred stock and pay-in-kind senior
subordinated notes, as more particularly described therein;
WHEREAS, this Agreement provides for the exchange of such
securities of the Company for the Old Notes;
WHEREAS, following the execution of this Agreement, upon receipt
of requisite shareholder approval to amend the Articles of Incorporation of the
Company to increase the number of authorized shares of common stock of the
Company as necessary to effect the full conversion of the convertible preferred
stock into shares of common stock, the convertible preferred stock shall
automatically convert into the number of shares of common stock of the Company
(the "Conversion Shares") which will give the Holders, in the aggregate, 97.5%
of the Company's common stock on a fully diluted basis (the "Automatic
Conversion"); and
WHEREAS, it is intended for U.S. federal income tax purposes that
the Exchange (as defined below) shall qualify as a reorganization within the
meaning of Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of the foregoing and of the
respective representations, warranties and agreements set forth herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1. Definitions. The following terms are defined in the sections
indicated:
Defined Term Section
------------ -------
2001 Financial Statement Report................... Section 5.3
Action............................................ Section 3.1.6
Agreement......................................... Preamble
Amendment......................................... Section 6.2
Automatic Conversion............................. Recitals
CEO............................................... Section 6.5
Certificate of Designation........................ Section 2.1.2
Closing........................................... Section 7.1
Code.............................................. Recitals
Common Stock...................................... Section 2.1
Company........................................... Preamble
Company Rights.................................... Section 3.1.15
Company SEC Filing................................ Section 3.1.8
Contract.......................................... Section 3.1.4(b)
Conversion Shares................................. Recitals
COO............................................... Section 6.5
Demand Request ................................... Section 5.1.1
Designated Registration........................... Section 5.2.1
DTC............................................... Section 7.2(i)
Enforceability Exceptions......................... Section 3.1.2
Environmental Laws................................ Section 3.1.18
ERISA............................................. Section 3.1.16
ERISA Plan........................................ Section 3.1.16
Exchange.......................................... Section 2.1
Exchange Act...................................... Section 3.1.8
Expiring Nominee.................................. Section 6.6.1(e)
GAAP.............................................. Section 3.1.8(a)
Governmental Entity............................... Section 3.1.3
Guarantees........................................ Section 3.1.2
Holders........................................... Preamble
Holder Nominee.................................... Section 6.6
Initiating Holder(s).............................. Section 5.1.1
Inspectors........................................ Section 5.4(o)
Law............................................... Section 3.1.4(e)
Liens............................................. Section 3.1.4(c)
Lock-Up Agreement................................. Recitals
Material Adverse Effect........................... Section 3.1.1
Material Contract................................. Section 3.1.10
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Defined Term Section
------------ -------
Materials of Environmental Concern................ Section 3.1.18
New Notes ........................................ Section 2.1
New Notes Indenture............................... Section 2.1.3
New Options....................................... Section 6.9
Old Indenture..................................... Preamble
Old Notes......................................... Preamble
Option Rights..................................... Section 3.1.7
Order............................................. Section 3.1.4(e)
Permit............................................ Section 3.1.4(e)
PIK Notes......................................... Section 3.1.2
Plan(s)........................................... Section 3.1.16(a)
Preferred Stock................................... Section 2.1
Proprietary Rights................................ Section 3.1.15
Proxy Statement................................... Section 6.2
Records........................................... Section 5.4(o)
Registrable Securities ........................... Section 5.1.1
Registration Expenses............................. Section 5.6
Resale Registration Statement..................... Section 5.3
Rule 14f-1 Filing................................. Section 3.1.20(a)
SEC............................................... Section 3.1.8(a)
Securities Act.................................... Section 3.1.7
Specified Rights.................................. Section 3.1.7
Subsidiary Guarantors............................. Preamble
Supplemental Indenture............................ Section 7.2(ix)
Tax Return........................................ Section 3.1.21(e)
Taxable Period.................................... Section 3.1.21(e)
Taxes............................................. Section 3.1.21(e)
Transaction Documents............................. Section 3.1.2
Voting Officer.................................... Section 6.5
Violation......................................... Section 5.8(a)
ARTICLE 2
THE EXCHANGE
2.1. Exchange. Upon the terms and subject to the conditions set
forth in this Agreement, the Company is hereby issuing and delivering to each
Holder which exchanges its Old Notes pursuant hereto, with respect to each
$1,000 aggregate principal amount of Old Notes (and accrued but unpaid interest
thereon through the date of the Exchange) so tendered, (i) 807.207 shares of
common stock, par value $0.001 per share, of the Company (the "Common Stock"),
(ii) 0.0158 shares of Series C Convertible Preferred Stock, par value $0.001 per
share, of the Company (the "Preferred Stock") and (iii) $235.4788 aggregate
amount of 10% pay-in-kind senior subordinated notes due November, 2007 of the
Company, (the "New Notes") as set forth for each participating
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Holder on Exhibit A hereto, all in exchange for cancellation of the Old Notes
(together with accrued interest thereon through the date of the Exchange) so
exchanged by such Holder (whether held beneficially or of record by such Holder)
(such exchanges collectively, the "Exchange").
2.1.1. Common Stock. Immediately following the exchange,
the Holders will hold in the aggregate over 50% of the outstanding
shares of Common Stock.
2.1.2. Preferred Stock. The Preferred Stock issued
hereunder to the Holders is issued pursuant to, and shall have the terms
and conditions set forth in, the Certificate of Designation attached
hereto as Exhibit B (the "Certificate of Designation").
2.1.3. New Notes. The New Notes issued hereunder to the
Holders are issued pursuant to, and shall have the terms and conditions
set forth in, the indenture by and between the Company, the Subsidiary
Guarantors and U.S. Bank National Association, as trustee, dated as of
the date hereof and in the form attached hereto as Exhibit C (the "New
Notes Indenture").
2.2. U.S. Federal Income Tax Treatment. The parties hereto (i)
agree that it is their intention that the Exchange contemplated hereby qualify
as a reorganization within the meaning of Section 368(a)(1)(E) of the Code
pursuant to which no gain or loss is recognized and (ii) hereby adopt this
Agreement as a plan of reorganization within the meaning of Treasury Regulation
Section 1.368-2(g).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SUBSIDIARY GUARANTORS
3.1. Representations and Warranties of the Company and the
Subsidiary Guarantors. The Company and each of the Subsidiary Guarantors hereby,
jointly and severally, represent and warrant to the Holders that the statements
contained in this Section 3.1 are true, correct and complete as to itself and
its subsidiaries as of the date of this Agreement, other than those
representations and warranties that speak only as of a specified date:
3.1.1. Organization and Standing. The Company is a
corporation duly organized and validly existing under the laws of the
State of Washington. Each of the subsidiaries of the Company is a
corporation duly organized and validly existing under the laws of the
jurisdiction of its incorporation. Each of the Company and its
subsidiaries has full corporate or other power and authority to carry on
its business as it is currently conducted and to own and operate the
properties currently owned and operated by it. Each of the Company and
its subsidiaries is duly qualified or licensed to do business and is in
good standing as a foreign corporation authorized to do business in all
jurisdictions in which the
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character of the properties owned or the nature of the business
conducted by it would make such qualification or licensing necessary,
except where the failure to be so qualified or licensed is not
reasonably likely to have a material adverse effect on the financial
condition, results of operations, properties, business or prospects of
the Company and its subsidiaries, taken as a whole (a "Material Adverse
Effect").
3.1.2. Authority and Enforceability. Each of the Company
and the Subsidiary Guarantors has full corporate power and authority to
execute and deliver this Agreement, the New Notes, the New Notes
Indenture, additional notes issued in kind in lieu of cash payment of
interest on the New Notes (hereinafter, the "PIK Notes"), the
Supplemental Indenture (as defined in Section 7.2(x) hereof) and the
guarantees (the "Guarantees") contemplated in Article 11 of the New
Notes Indenture (collectively, the "Transaction Documents"), to which it
is a party, and to perform its obligations hereunder and thereunder. The
Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by
the Company and each of the Subsidiary Guarantors, as applicable. The
Transaction Documents have been duly executed and delivered by the
Company and each of the Subsidiary Guarantors, as applicable, and the
Transaction Documents constitute, and in the case of the PIK Notes (when
issued in accordance with the New Notes Indenture), will constitute,
valid, legal and binding obligations of the Company and the Subsidiary
Guarantors, as applicable, enforceable against the Company and the
Subsidiary Guarantors in accordance with their respective terms, except
as enforceability may be limited by (A) applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other
similar laws relating to or affecting creditors' rights generally and
(B) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law)
(clauses (A) and (B) being hereinafter referred to as the
"Enforceability Exceptions").
3.1.3. Consents and Approvals. Except as set forth on
Schedule 3.1.3, no notices, reports, registrations or other filings are
required to be made by or on behalf of the Company or any of its
subsidiaries with, nor are any consents, approvals or authorizations
required to be obtained by or on behalf of the Company or any of its
subsidiaries from, any court or other governmental, administrative or
regulatory authority in the United States or elsewhere (each, a
"Governmental Entity") in connection with the execution, delivery or
performance of this Agreement or the other Transaction Documents, or the
consummation of the transactions contemplated hereby and thereby, in
each case except for those the failure to make or obtain which,
individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect or materially adversely affect the Company's or
any of the Subsidiary Guarantors' ability to perform its obligations
hereunder and under any of the other Transaction Documents or pursuant
to the Certificate of Designation.
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3.1.4. No Violations. Except as set forth on Schedule
3.1.4, the execution, delivery and performance of each of the
Transaction Documents will not:
(a) violate or contravene any provision of the articles of
incorporation or bylaws or similar organizational documents of the
Company or any of its subsidiaries;
(b) violate, conflict with, or constitute or result in a
default, acceleration or termination of, or entitle any party to
terminate, accelerate, alter the terms of or cause a default under (in
each case, with or without notice or lapse of time or both), any
provision of any agreement, license, lease, contract, loan, note,
mortgage, indenture, bond or other written or oral obligation to which
the Company or any of its subsidiaries is a party or by which any of
their assets are bound (each, a "Contract"), except, in each case, for
such violations, conflicts, breaches or defaults which individually or
in the aggregate are not reasonably likely to have a Material Adverse
Effect or materially adversely affect the Company's or any of the
Subsidiary Guarantors' ability to perform its obligations hereunder and
under any of the other Transaction Documents or pursuant to the
Certificate of Designation;
(c) except pursuant to the terms of this Agreement or any
of the other Transaction Documents, result in the creation or imposition
of any liens, mortgages, security interests, charges, restrictions,
pledges, equitable interests, rights of first refusal, preemptive
rights, adverse claims or other encumbrances of any nature whatsoever
(collectively, "Liens") with respect to any of the assets or properties
of the Company or any of its subsidiaries;
(d) require the Company or any of its subsidiaries to
obtain the consent, waiver, authorization or approval of any person
except where the failure to obtain such consent, waiver, authorization
or approval is not reasonably likely to have a Material Adverse Effect
or materially adversely affect the Company's or any of the Subsidiary
Guarantors' ability to perform its obligations hereunder and under any
of the other Transaction Documents or pursuant to the Certificate of
Designation; or
(e) violate, contravene or conflict with any award,
judgment, decree, directive, requirement or other order of any
Governmental Entity (each, an "Order"), any federal, state, local,
municipal or foreign statute, law, rule, code, ordinance or regulation
or common law (each, a "Law") or any federal, state, local, municipal or
foreign permit (each, a "Permit") applicable to the Company or any of
its subsidiaries except where such violation, contravention or conflict
is not reasonably likely to have a Material Adverse Effect or materially
adversely affect the Company's or any of the Subsidiary Guarantors'
ability to perform its obligations hereunder and under any of the other
Transaction Documents or pursuant to the Certificate of Designation.
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3.1.5. Validity of Stock and Notes(a) . (a) The shares of
the Common Stock being issued in the Exchange are duly authorized,
validly issued, fully paid and nonassessable and free and clear of any
Liens, and have not been issued in violation of any preemptive right or
similar rights of any shareholder of the Company or any of its
subsidiaries.
(b) The Conversion Shares to be issued pursuant to the
Automatic Conversion of the Preferred Stock following the receipt of
requisite shareholder approval of the Amendment (as defined in Section
6.2) and the filing of such Amendment with the Secretary of State of the
State of Washington will be duly authorized, validly issued, fully paid
and nonassessable and free and clear of any Liens and, when issued upon
such Automatic Conversion, will not have been issued in violation of any
preemptive right or similar right of any shareholder of the Company or
any of its subsidiaries.
(c) The shares of the Preferred Stock being issued in the
Exchange are duly authorized and validly issued, fully paid and
nonassessable and free and clear of any Liens, have not been issued in
violation of any preemptive right or similar rights of any shareholder
of the Company or any of its subsidiaries, and holders thereof are
entitled to the rights and privileges set forth in the Certificate of
Designation.
(d) The New Notes being issued in the Exchange are, and
the PIK Notes at the time of their issuance pursuant to the terms of the
New Notes Indenture will be, duly and validly authorized, executed,
issued and delivered by the Company and constitute valid and legally
binding obligations of the Company, entitled to the benefits provided by
the New Notes Indenture, and enforceable in accordance with their terms
subject to the Enforceability Exceptions, and the New Notes Indenture is
duly authorized, executed and delivered by the Company and each of the
Subsidiary Guarantors and duly qualified under the Trust Indenture Act
of 1939, as amended and constitutes a valid and legally binding
obligation of the Company and each of the Subsidiary Guarantors,
enforceable in accordance with its terms, subject to the Enforceability
Exceptions.
3.1.6. Litigation and Claims Against the Company. Except
as set forth on Schedule 3.1.6, there are no actions, suits, claims,
investigations or other legal or administrative proceedings by or before
any Governmental Entity or arbitration panel (each, an "Action") or
Orders pending or, to the knowledge of the Company, threatened against
the Company or any of its subsidiaries or any of their respective
assets, at law or in equity, individually or in the aggregate, that (i)
is reasonably likely to have a Material Adverse Effect or materially
adversely affect the Company's or any of the Subsidiary Guarantors'
ability to perform its obligations hereunder and under any of the other
Transaction Documents or pursuant to the Certificate of Designation or
(ii) challenges or seeks to prevent the Exchange or the transactions
contemplated by this Agreement and the other Transaction Documents.
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3.1.7. Capitalization. Immediately prior to the Exchange,
the authorized capital stock of the Company consists of 100,000,000
shares of Common Stock, of which 39,315,309 are issued and outstanding
as of the date hereof and 11,473,150* of which are reserved for issuance
as set forth on Schedule 3.1.7, and 5,000,000 shares of preferred stock,
par value $0.001 per share, none of which are issued and outstanding.
There are no shares of Common Stock which are treasury shares. All of
the issued shares of capital stock of the Company (i) have been duly
authorized, validly issued, fully paid and are nonassessable, and are
free and clear of all Liens, (ii) have been issued in accordance with
the Securities Act of 1933, as amended (the "Securities Act") and
applicable state securities Laws and (iii) have not been issued in
violation of any preemptive right or similar rights of any shareholder
of the Company or any of its subsidiaries. Except as set forth on
Schedule 3.1.7, all of the issued shares of capital stock of or other
equity interests in each subsidiary of the Company (i) have been duly
authorized, validly issued, fully paid and are nonassessable, and are
owned directly or indirectly by the Company, free and clear of all
Liens, (ii) have been issued in accordance with the Securities Act and
applicable state securities Laws and (iii) have not been issued in
violation of any preemptive right or similar rights of any shareholder
of the Company or any of its subsidiaries. As of the date hereof, except
pursuant to this Agreement and the other Transaction Documents and
except as set forth on Schedule 3.1.7, there are no outstanding or
authorized shares of phantom stock, options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, stock
appreciation rights, profit sharing rights or similar rights or other
contracts or commitments or preemptive rights that could require the
Company or any of its subsidiaries to issue, sell or otherwise cause to
become outstanding any of its capital stock or any other debt or equity
security (collectively, the "Option Rights"), and there are no
outstanding securities convertible or exchangeable into shares of such
capital stock or any other debt or equity security (together with the
Option Rights, the "Specified Rights"). As of the date hereof, except
for the Transaction Documents there are no agreements to which the
Company or any of its subsidiaries is a party or, to the knowledge of
the Company, to which any stockholder is a party, providing for voting
rights, rights of first refusal, calls, commitments, stock restriction
or other similar rights relating to any securities of the Company or any
of its subsidiaries.
3.1.8. SEC Reports and Financial Statements(a) . (a)
Except as described on Schedule 3.1.8, the Company has filed all
required forms, reports and documents with the Securities and Exchange
Commission (the "SEC") since January 1, 1996 (the "Company SEC
Filings"), each of which complied in all
--------
* This amount includes 2,207,560 shares of Common Stock reserved for
issuance in connection with stock options granted to Xxxxxx X. Xxxxxx, which Xx.
Xxxxxx has agreed to cancel in exchange for new options following the Exchange.
8
material respects with all applicable requirements of the Securities Act
and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), each as in effect on the dates such forms, reports and documents
were filed. None of the Company SEC Filings (as amended through the date
hereof), including, without limitation, any financial statements or
schedules included or incorporated by reference therein, contained or
incorporated by reference, when filed (or, in the case of filings
amended by the Company, at such time as amended), any untrue statement
of a material fact or omitted to state a material fact required to be
stated or incorporated by reference therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. Except as described on Schedule 3.1.8,
the consolidated financial statements of the Company included or
incorporated by reference in the Company SEC Filings complied as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto
(including footnote disclosure) and fairly present in all material
respects, in conformity with generally accepted accounting principles
applied on a consistent basis ("GAAP") (except as may be indicated in
the notes thereto), the consolidated financial position of the Company
and its consolidated subsidiaries as of the dates thereof and their
consolidated results of operations and changes in financial position for
the periods then ended (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments and to the fact
that quarterly financial statements exclude certain footnotes required
by GAAP).
(b) The Proxy Statement (as defined in Section 6.2), when
prepared and filed with the SEC as contemplated in Section 6.2, will
comply in all material respects with all applicable requirements of the
Exchange Act, as in effect on the date such Proxy Statement is filed and
the date it is mailed to the stockholders of the Company. The Proxy
Statement and any documents incorporated by reference therein (other
than with respect to information provided by the Holders to the Company
expressly for inclusion in such document) will not contain, when filed
and when mailed to the stockholders of the Company, any untrue statement
of a material fact or omit to state a material fact required to be
stated or incorporated by reference therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. The only information provided by the
Holders to the Company for inclusion in the Proxy Statement is (i) the
biographical information for each of the Holder Nominees (as defined
below) expressly required for such inclusion pursuant to the Exchange
Act and (ii) the aggregate principal amount of Old Notes either
beneficially owned by such Holder or over which such Holder, alone or
with its Affiliates (as defined in the Exchange Act, and over whom the
Holder exercises sufficient control to insure enforcement of the
provisions of this Agreement and the other Transaction Documents), has
investment authority or discretion.
3.1.9. Undisclosed Liabilities. Except (a) as and to the
extent reflected or adequately reserved against in the audited
consolidated balance sheet
9
of the Company as of May 31, 2001 or in the notes thereto and (b) for
liabilities which have been incurred since May 31, 2001 in the ordinary
course of business consistent with past practice, there are no
liabilities or obligations, secured or unsecured (whether absolute,
accrued, contingent or otherwise), matured or unmatured, of the Company
or any of its subsidiaries which would be required, in accordance with
United States generally accepted accounting principles applied on a
consistent basis, to be reflected or reserved against in the audited
consolidated balance sheet of the Company as of May 31, 2001 or in the
notes thereto or that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect. Except as set
forth in Schedule 3.1.9, since May 31, 2001, there has not been any
Material Adverse Effect.
3.1.10. Material Contracts. True and complete copies of
the contracts, agreements, licenses and commitments (whether oral or
written), material to the Company and its subsidiaries, taken as a whole
(each, a "Material Contract") have been made available to the Holders
prior to the date of this Agreement. All Material Contracts are valid
and binding obligations of the Company and/or the applicable subsidiary,
as the case may be, and to the knowledge of the Company, the other party
or parties thereto, enforceable in accordance with their terms, subject
to the Enforceability Exceptions. Except as set forth in Schedule
3.1.10, none of the Company nor any of its subsidiaries is in default
under any of the Material Contracts, and no event has occurred, which,
with notice or lapse of time or both, could constitute a default, except
for such defaults that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect, and to the
knowledge of the Company, except as set forth on Schedule 3.1.10, no
other party thereto is in material default thereunder.
3.1.11. Compliance. Each of the Company and its
subsidiaries has complied with all Laws and Orders applicable to its
business and has obtained all Permits necessary for the conduct of its
business, and such Permits are in full force and effect, except where
failure to comply or to obtain such permits is not reasonably likely to
have a Material Adverse Effect.
3.1.12. Title to Property and Assets. Except as set forth
in Schedule 3.1.12 hereto, as of January 31, 2002, each of the Company
and its subsidiaries has good and marketable title to all of its
material real properties and assets and has good and valid title to, or
a valid leasehold interest in, its other material property, in each case
free and clear of all Liens. The material properties and assets of the
Company and its subsidiaries are in good operating condition and repair,
normal wear and tear excepted.
3.1.13. Related Party Transactions. Except for this
Agreement and the other Transaction Documents, and except as set forth
in Schedule 3.1.13, there are no agreements, understandings or proposed
transactions among the Company or any of its subsidiaries on the one
hand, and any of its respective officers, directors, shareholders,
Affiliates (as such term is defined for purposes of the Securities Act),
or any Affiliate thereof, on the other hand.
10
3.1.14. No Fees. Except for Xxxxxxxxx & Company, Inc. and
Xxxxxxxx Xxxxx Xxxxxx & Xxxxx Financial Advisors, Inc., whose fees shall
be paid in accordance with Section 9.3 of this Agreement, no investment
banker, financial advisor, consultant or other intermediary is entitled
to any fee or commission from the Company or any of its subsidiaries for
services rendered on behalf of the Company or any of its subsidiaries in
connection with the transactions contemplated by this Agreement and the
other Transaction Documents.
3.1.15. Proprietary Rights. Except as set forth on
Schedule 3.1.15: (i) each of the Company and its subsidiaries is the
sole owner, free and clear of any Lien, of, or has a valid license or
other right, without the payment of any royalty except with respect to
off-the-shelf software and otherwise on commercially reasonable terms,
to all U.S. and foreign trademarks, service marks, logos, corporate and
trade names, internet domain names, patents, registered designs,
copyrights, computer software and databases, whether or not registered,
web sites (and all intellectual property and proprietary rights
incorporated therein) and all other trade secrets, research and
development, know-how, proprietary and intellectual property rights and
information, including all grants, registrations and applications
relating thereto (collectively, the "Proprietary Rights"), used in the
conduct of its business as now conducted, except for such Proprietary
Rights the absence of which is not reasonably likely to have a Material
Adverse Effect (such Proprietary Rights owned by or licensed to the
Company or any of its subsidiaries, subject to such exception,
collectively, the "Company Rights"); (ii) each of the Company and its
subsidiaries has taken commercially reasonable actions to protect the
Company Rights, and to acquire Proprietary Rights, consistent with
prudent commercial practices in their respective industry; (iii) each of
the rights of the Company and its subsidiaries in the Company Rights is
valid and enforceable; (iv) none of the Company or its subsidiaries has
received any demand, claim, notice or inquiry from any person or entity
in respect of any Company Rights which challenges, threatens to
challenge, or inquires as to whether there is any basis to challenge,
the validity of, or the rights of the Company and its subsidiaries in,
any such Company Rights, and the Company does not know of any basis for
any such challenge; (v) none of the Company or its subsidiaries is in
violation or infringement of, and none has violated or infringed, any
Proprietary Rights of any other person or entity, except as is not
reasonably likely to have a Material Adverse Effect; (vi) to the
knowledge of the Company, no person or entity is infringing any Company
Rights; and (vii) except on an arm's-length basis for value and other
commercially reasonable terms, none of the Company or its subsidiaries
has granted any license with respect to any Company Rights to any person
or entity.
3.1.16. Employee Benefit Plans(a) . (a) For purposes
hereof, each employee benefit or compensation plan, fund, program,
arrangement, agreement or policy maintained or contributed to by the
Company or any of its subsidiaries or as to which the Company or any of
its subsidiaries has any liability shall be referred to herein as the
"Plans" and individually as a "Plan". For purposes
11
hereof, "Plans" shall include any Plan that is an "employee benefit
plan" within the meaning of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") (each, an "ERISA Plan").
(b) Schedule 3.1.16(a) lists all Plans as of the date
hereof, and the Company has provided the Holders with all documents
relating to any of the Plans.
(c) Each ERISA Plan is in compliance in all material
respects with the applicable provisions of ERISA and the Code,
including, in the case of any ERISA Plan intended to be qualified under
Code Section 401(a), the provisions of Code Section 401(a). A
determination letter has been received from the IRS as to each ERISA
Plan that is intended to be qualified under Code Section 401(a) and to
the knowledge of the Company nothing has occurred that would be
reasonably likely to result in the revocation of any such determination
letter.
(d) With respect to any ERISA Plan maintained, sponsored
or required to be contributed to within the last six years by the
Company, any subsidiary or any trade or business which together with the
Company or any subsidiary would be treated as a single employer under
Section 414 of the Code that is subject to Title IV of ERISA, (i) no
"accumulated funding deficiency", as defined in Section 412 of the Code,
has been incurred, whether or not waived, that has not been satisfied in
full and (ii) the actuarially determined present value of all "benefit
liabilities" within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the
plans' most recent actuarial valuation) did not exceed the then current
value of the assets of such plans, and (iii) there has not been an
adverse change in the financial condition of such ERISA Plan which would
have caused a material change in the funded status of such plan. No
ERISA Plan to which the Company contributes or otherwise has any
liability is a multiemployer pension plan within the meaning of Section
3(37) of ERISA.
(e) None of the Company or any of its subsidiaries has
engaged in any "prohibited transactions" (as described in Section 4975
of the Code or in Part 4 of Subtitle B of Title I of ERISA) with respect
to any Plan.
(f) Except as disclosed on Schedule 3.1.16(f), the
consummation of the transactions contemplated by this Agreement will not
(i) entitle any person to payments under any Plan to which he would not
be entitled if the transactions contemplated by this Agreement were not
consummated, (ii) accelerate the time of payment or vesting, or increase
the amount of compensation or benefits due to any person under any Plan,
or (iii) result in any liability under Title IV of ERISA.
(g) Except as disclosed on Schedule 3.1.16(g), no Plan is
subject to any pending, or to the knowledge of the Company, threatened
with any, dispute, lawsuit, claim (other than routine claims for
benefits), investigation or complaint
12
to, or by, any person or Governmental Entity. Except as disclosed on
Schedule 3.1.16(g), no Plan is the subject of an audit or, to the
knowledge of the Company, under investigation by any Governmental
Entity, nor, to the knowledge of the Company, is any such audit or
investigation threatened.
(h) Except as set forth on Schedule 3.1.16(h), neither the
Company nor any of its subsidiaries has any obligation to provide any
post-employment health or life insurance coverage under any Plan or
arrangement, other than such benefits required by law, and each Plan may
be amended or terminated without incurring liability thereunder.
3.1.17. Labor Relations; Employees. No labor dispute with
the employees of the Company or any of its subsidiaries exists or, to
the knowledge of the Company, is imminent that is reasonably likely to
have a Material Adverse Effect. No collective bargaining agreement
covering any of the employees of the Company or any of its subsidiaries
exists and, to the knowledge of the Company, no such agreement is
imminent.
3.1.18. Environmental Matters(a) . (a) Except as disclosed
in Schedule 3.1.18 or as is not reasonably likely to have a Material
Adverse Effect, (i) each of the Company and its subsidiaries is in
compliance with all applicable federal, state, local, municipal, and
foreign Laws and Orders relating to pollution, preservation or
protection of human health or safety or the environment, including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata, and natural resources, and mitigation of
adverse effects thereon (together "Environmental Laws") and including,
without limitation, Laws and Orders relating to the presence,
manufacture, generation, processing, distribution, use, treatment,
storage, disposal, transport, handling, emission, discharge, release or
threatened release of chemicals, pollutants, contaminants, wastes,
radioactive, toxic or hazardous substances or wastes, petroleum or
petroleum-derived substances, products or wastes, asbestos or
asbestos-containing materials, polychlorinated biphenyls, lead or
lead-based paints or materials, or any constituent, breakdown product or
by-product of any of the foregoing ("Materials of Environmental
Concern"), and recordkeeping, notification, disclosure and reporting
requirements with respect thereto, (ii) each of the Company and its
subsidiaries possesses all Permits and other governmental authorizations
required under applicable Environmental Laws, and is in compliance with
the terms and conditions thereof and (iii) each of the Company and its
subsidiaries is in compliance with the terms and conditions of any
instrument or agreement pursuant to which any of them has settled or
discharged any liability under Environmental Laws.
(b) Except as disclosed in the Company SEC Filings or in
Schedule 3.1.18 or except as is not reasonably likely to have a Material
Adverse Effect, (i) neither the Company nor any of its subsidiaries has
received any communication (written or oral), whether from a
Governmental Entity, citizens group, employee or otherwise, which
alleges that the Company or any of its
13
subsidiaries (or any person or entity whose liability the Company or any
of its subsidiaries has acquired, retained or assumed either
contractually or by operation of law) is, has been or may be in
violation of or not in compliance with any Environmental Law or has or
may have any liability (including, without limitation, liability for
investigatory costs, cleanup costs, response costs, corrective action,
natural resource damages, property damage, personal injury, or fines or
penalties) under any Environmental Law and (ii) there are no past or
present actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the release, emission,
discharge, presence or disposal of any Materials of Environmental
Concern at any location and at any time, that would form the basis for
any future liability arising under or relating to Environmental Laws of
or to the Company or any of its subsidiaries or of or to any person or
entity whose liability the Company or any of its subsidiaries has
acquired, retained or assumed either contractually or by operation of
law.
(c) Each of the Company and its subsidiaries has made
available to the Holders any assessments, reports, data, results of
investigations or audits, notices of violation, complaints, agreements
and notices relating to contribution or indemnification rights or
obligations, that are in the possession of the Company or any of its
subsidiaries regarding actual or potential liabilities arising under or
relating to Environmental Laws of or to the Company or its subsidiaries
or of or to any person or entity whose liability the Company or any of
its subsidiaries has acquired, retained or assumed either contractually
or by operation of law, except as relates to such liabilities which are
not reasonably likely to have a Material Adverse Effect.
3.1.19. Section 3(a)(9) Exemption; Blue Sky Exemption.
Assuming no person, other than the Company, has paid or given, directly
or indirectly, any commission or other remuneration for soliciting the
Exchange and the other transactions contemplated in this Agreement or
the other Transaction Documents, the issuance and delivery of the Common
Stock, the Preferred Stock and the New Notes by the Company in exchange
for each of the Holders' Old Notes pursuant to the terms of this
Agreement and the other Transaction Documents is exempt pursuant to
Section 3(a)(9) of the Securities Act from the registration requirements
of the Securities Act. No consent, approval, filing, notice or similar
action is required in connection with the Exchange pursuant to any state
securities or "Blue Sky" Laws.
3.1.20. Board Representation; Compliance with Rule
14f-1(a) . (a) The Company has complied with the requirements of Rule
14f-1 pursuant to the Exchange Act and filed with the SEC, and
transmitted to all holders (as of the applicable record date) of
securities of the Company who would be entitled to vote at a meeting for
the election of directors of the Company, the information contemplated
by Rule 14f-1 under the Exchange Act (the "Rule 14f-1 Filing"), and
taken all other actions required under Section 14 of the Exchange Act
and Rule 14f-1 promulgated thereunder necessary to consummate the
transactions contemplated in this Agreement and the other Transaction
14
Documents, including, without limitation, the appointment of directors
contemplated by Section 3.1.20(b) hereof. The Rule 14f-1 Filing complied
in all material respects with all applicable requirements of the
Securities Act and the Exchange Act, as in effect on the date of such
filing and such transmission to securityholders of the Company of the
Rule 14f-1 Filing. The Rule 14f-1 Filing (other than with respect to the
information provided in writing by the Holders to the Company expressly
for inclusion in such filing) did not contain or incorporate by
reference, when filed and when transmitted to securityholders of the
Company, any untrue statement of a material fact or omit to state a
material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) As of the date hereof, Messrs. Xxxxxx Xxxxxxxxxxx,
Xxxx X. Xxxxxxxxx, Xxxx X. Xxxxxxxx, Xxxxxx X. Xxxxxxxx and Xxxxxxx X.
Xxxxxxx have tendered their resignations as directors of the Company
and, Messrs. Xxxxxx X. Xxxxxx, Xxxxxxx Xxxxxxx, Xxxxxxx Xxxxxxxxx and
Xxxx Xxxxxxxxx have been duly appointed by the holders of the Preferred
Stock in accordance with Washington law, the Articles of Incorporation
of the Company and the Bylaws of the Company, as directors of the
Company.
3.1.21. Tax Returns(a) . (a) Except as set forth on
Schedule 3.1.21, all Tax Returns required to be filed by or with respect
to the Company or any of its subsidiaries for all Taxable Periods have
been timely filed. All such Tax Returns (i) were prepared in the manner
required by applicable Law, (ii) are true, correct, and complete in all
material respects, and (iii) accurately reflect the liability for Taxes
of the Company and its subsidiaries. All Taxes shown to be payable on
such Tax Returns, and all assessments of Tax made against the Company or
any of its subsidiaries with respect to such Tax Returns, have been paid
when due. No adjustment relating to any such Tax Return has been
proposed or, to the Company's knowledge threatened formally or
informally by any Taxing authority and no basis exists for any such
adjustment. Since the date of the most recent Company SEC Filing,
neither the Company nor any subsidiary has incurred any liability for
Taxes that would result in a material decrease in the net worth of the
Company or any such subsidiary.
(b) Except as set forth on Schedule 3.1.21, the Company
and each of its subsidiaries have paid, or caused to be paid, all Taxes
due, whether or not shown (or required to be shown) on a Tax Return, and
have provided a sufficient reserve for the payment of all Taxes not yet
due and payable in the Company SEC Filing; and such Taxes paid or
provided for include those for which the Company or any of its
subsidiaries may be liable in its own right, or as the transferee of the
assets of, or as successor to, any other corporation, association,
partnership, joint venture, or other entity.
(c) The Company and each of its subsidiaries have complied
in all material respects with the requirements relating to the
withholding and payment
15
of Taxes, and have, within the time and in the manner prescribed by law,
withheld from employee wages and paid over to the proper governmental
authorities all amounts required.
(d) Neither the Company nor any of its subsidiaries has
incurred, or will incur, any material Tax liability in connection with
(i) the Exchange or (ii) the other transactions contemplated by this
Agreement.
(e) As used herein the following terms have the following
respective meanings:
(i) "Tax" or "Taxes" shall mean any and all
federal, state, local and foreign taxes, assessments and
other governmental charges, duties, impositions, levies
and liabilities, including, without limitation, taxes
based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem,
transfer, gains, franchise, withholding, payroll,
recapture, employment, excise, unemployment, insurance,
social security, business license, occupation, business
organization, stamp, environmental and property taxes,
together with all interest, penalties and additions
imposed with respect to such amounts. For purposes of this
Agreement, "Taxes" also includes any obligations under any
agreements or arrangements with any Person with respect to
the liability for, or sharing of, Taxes (including
pursuant to Treas. Reg. Section 1.1502-6 or comparable
provisions of state, local or foreign Tax law) and
including any liability for Taxes as a transferee or
successor, by contract or otherwise.
(ii) "Taxable Period" means any taxable year or any
other period that is treated as a taxable year (or other
period, or portion thereof, in the case of a Tax imposed
with respect to such other period; e.g., a quarter) with
respect to which any Tax may be imposed under any
applicable statute, rule, or regulation.
(iii) "Tax Return" means any report, return,
election, notice, estimate, declaration, information
statement and other forms and documents (including,
without limitation, all schedules, exhibits and other
attachments thereto) relating to and filed or required to
be filed with a taxing authority in connection with any
Taxes (including, without limitation, estimated Taxes).
16
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE HOLDERS
4.1. Representations and Warranties of the Holders. (i) Each
Holder hereby represents and warrants to the Company, severally, only as to
itself, and not jointly, that the statements contained in this Section 4.1 with
respect to such Holder are correct and complete as of the date of this
Agreement, other than those representations and warranties that speak only as of
a specified date:
4.1.1. Ownership of Notes. (i) The Holder either (A)
beneficially owns the principal amount of Old Notes set forth opposite
its name in Exhibit A attached hereto or (B) alone or with its
Affiliates (as defined in the Exchange Act, and over whom the Holder
exercises sufficient control to insure enforcement of the provisions of
this Agreement and the other Transaction Documents) has investment
authority or discretion over the principal amount of Old Notes set forth
opposite its name in Exhibit A attached hereto, free and clear of any
and all Liens, and the Holder has not granted, sold, conveyed,
transferred or otherwise disposed of any right, title or interest
(legal, record or beneficial) in and to such Old Notes to any person;
and (ii) the Holder has the full right and authority to cancel the
indebtedness represented by such Old Notes as contemplated by this
Agreement. The debt evidenced by the Old Notes is no longer outstanding,
the Holder does not have any rights thereunder and none of the Company,
any of its subsidiaries or the Holder will have any obligations
thereunder, except for those rights and obligations which the Company
will have with respect to holders of such notes who are not parties to
this Agreement or the other Transaction Documents.
4.1.2. Authority. The Holder has the power, authority and
capacity necessary to execute, deliver and perform its obligations under
this Agreement and any of the other Transaction Documents to which the
Holder is a party and to consummate the transactions contemplated hereby
and thereby and to execute the consent contemplated in Section 7.3(ii).
The execution, delivery and performance of this Agreement and any other
Transaction Document to which the Holder is a party and the consent
contemplated in Section 7.3(ii) and the consummation of the transactions
contemplated herein and therein have been duly and validly authorized by
all necessary action in respect thereof on the part of the Holder. This
Agreement and any other Transaction Document to which the Holder is a
party have been duly executed and delivered and represent legally valid
and binding obligations of the Holder, enforceable against the Holder in
accordance with their terms, subject to the Enforceability Exceptions.
4.1.3. Consents and Approvals. Except for the filing of
Schedule 13D and Form 3 with the SEC, no notices, reports, registrations
or other filings are required to be made by the Holder or on its behalf
with, nor are any consents, approvals or authorizations required to be
obtained by the Holder or on its behalf
17
from, any Governmental Entity in connection with the execution, delivery
or performance of this Agreement or any other Transaction Document to
which the Holder is a party, in each case except for those the failure
to make or obtain which, individually or in the aggregate, is not
material.
4.1.4. No Violations. The execution, delivery and
performance of this Agreement will not:
(a) violate or contravene any provision of the articles of
incorporation or bylaws or similar organizational documents of the
Holder;
(b) violate, conflict with, or constitute or result in a default,
acceleration or termination of, or entitle any party to terminate,
accelerate, alter the terms of or cause a default under (in each case,
with or without notice or lapse of time or both), any provision of any
agreement, license, lease, contract, loan, note, mortgage, indenture,
bond or other written or oral obligation to which the Holder is a party
or by which any of the Holder's assets are bound, except, in each case,
for such violations, conflicts, breaches or defaults which individually
or in the aggregate are not reasonably likely to materially adversely
affect the Holder's ability to perform its obligations hereunder;
(c) require the Holder to obtain the consent, waiver,
authorization or approval of any person except where the failure to
obtain such consent, waiver, authorization or approval is not reasonably
likely to materially adversely affect the Holder's ability to perform
its obligations hereunder; or
(d) violate, contravene or conflict with any Order, Law or
Permit, applicable to the Holder except where such violation,
contravention or conflict is not reasonably likely to materially
adversely affect the Holder's ability to perform its obligations
hereunder.
4.1.5. No Fees. No investment banker, financial advisor,
consultant or other intermediary is entitled to any fee or commission
from the Holder for services rendered on behalf of the Holder in
connection with the transactions contemplated by this Agreement and the
other Transaction Documents.
ARTICLE 5
REGISTRATION RIGHTS
5.1. Demand Registrations.
5.1.1. Demand Registrations. Subject to the conditions of
this Section 5.1, at any time on and after the date hereof, any of the
Holders individually or together with other Holders (the "Initiating
Holder" or "Initiating Holders") holding in the aggregate at least 50%
of the total outstanding number of shares or aggregate principal amount,
as applicable, of Registrable Securities for
18
which a Demand Request (as hereinafter defined) is made may make a
written request (a "Demand Request") that the Company file a
registration statement under the Securities Act on the appropriate form
covering the registration of Registrable Securities. Such Demand Request
shall specify the aggregate number of shares or aggregate principal
amount of Registrable Securities proposed to be sold and will also
specify the intended method or methods of disposition thereof. The
Company shall only be required to effect three registrations pursuant
hereto and no more than two in any 12-month period. "Registrable
Securities" shall mean (i) the shares of the Common Stock acquired by
the Holders pursuant to the terms of this Agreement, including the
Conversion Shares acquired by the Holders upon the Automatic Conversion
of the Preferred Stock and (ii) the New Notes and the PIK Notes;
provided, that any Registrable Securities transferred (A) pursuant to a
registration statement under the Securities Act covering such
Registrable Securities that has been declared effective by the SEC or
(B) pursuant to Rule 144 promulgated pursuant to the Securities Act to a
non-affiliate of the Company, shall be excluded from the definition of
"Registrable Securities".
5.1.2. Participation. Within twenty (20) days of the
receipt of any Demand Request, the Company shall give written notice of
such Demand Request to all Holders. Subject to the provisions of this
Section 5.1, the Company shall include in such demand registration all
Registrable Securities that the Holders request to be registered in a
written request from such Holders received by the Company within twenty
(20) days of the mailing of the Company's notice pursuant to this
Section 5.1.2.
5.1.3. Underwriting Requirements. The Company shall have
the right to select an investment banking firm to act as managing
underwriter from a list of five (5) investment banking firms chosen by
the Initiating Holder out of the top ten managers of underwritten equity
offerings in the country based on the volume of underwritten equity
offerings for the past two years. Notwithstanding any other provision of
this Section 5.1, if the managing underwriter with respect to a proposed
offering made pursuant to a Demand Request advises the Company and the
Holders in writing that, in its good faith opinion, the number of
securities requested to be included in such offering exceeds the number
of securities which can be sold in such offering without being likely to
have an adverse effect on the offering of securities as then
contemplated (including the price at which it is proposed to sell the
securities), then the Company shall so advise all Holders of Registrable
Securities that would otherwise be underwritten pursuant hereto, and the
number of shares that may be included in the registration shall be
allocated: (i) first, to securities being sold for the account of the
Holders of Registrable Securities on a pro rata basis based on the
number of Registrable Securities requested to be included in such
registration by all such Holders; provided that if the Initiating Holder
is unable to register at least 50% of its Registrable Securities
proposed to be registered in its or their Demand Request, such Demand
Request shall be deemed to have been withdrawn, but the Company shall be
obligated to continue to pursue the registration of Registrable
Securities initiated by the making of such Demand Request, and the
Initiating Holder shall retain its rights
19
to registration under this Section 5.1 as though no request for such
registration had been made by such Holder; (ii) second, to securities
being sold for the account of the Company; and (iii) last, to any other
shareholders the Company may determine to allow to participate in the
registration.
5.1.4. Preemption of Requested Registration.
Notwithstanding anything to the contrary contained herein, at any time
within twenty (20) business days after receiving a Demand Request, the
Company may elect to effect an underwritten primary registration in lieu
of the registration requested in the Demand Request if the Company's
Board of Directors believes that such primary registration would be in
the best interests of the Company or if the managing underwriter with
respect to the proposed offering requested in the Demand Request advises
the Company and the Holders in writing that in its good faith opinion,
in order to sell the Registrable Securities to be sold, the Company
should include its own securities. If the Company so elects to effect a
primary registration, the Company shall give prompt written notice to
all Holders of Registrable Securities of its intention to effect such a
registration and shall afford the Holders of the Registrable Securities
piggyback rights contained in Section 5.2 with respect to such primary
registration. In the event that the Company so elects to effect a
primary registration after receiving a Demand Request, such Demand
Request shall be deemed to have been withdrawn and the Initiating Holder
shall retain its rights to registration under this Section 5.1 as though
no request for such registration had been made by them.
5.1.5. Exceptions. Notwithstanding the foregoing
provisions, the Company shall not be required to effect a registration
pursuant to this Section 5.1:
(i) in any particular jurisdiction in which the
Company would be required to qualify to do business, where
not otherwise required, or to execute a general consent to
service of process in effecting such registration,
qualification or compliance; or
(ii) after the Company has effected the number of
registrations required pursuant to Sections 5.1.1, and
such registrations have been declared or ordered
effective, shall remain effective for at least the period
of time provided in Section 5.4(a) hereof, and no stop
order shall have been issued with respect thereto; or
(iii) during the period starting with the date
thirty (30) days prior to the Company's good faith
estimate of the date of the filing of, and ending on a
date one hundred eighty (180) days following the effective
date of, a registration subject to the Holders' rights
under Section 5.2; provided that the Company is actively
employing in good faith reasonable efforts to cause such
registration statement to become effective. If a demand
registration is delayed, deferred or otherwise not
effected due to
20
this Section 5.1.5(iii), the Initiating Holder's request
shall be deemed withdrawn and the Initiating Holder shall
retain its rights to registration under this Section 5.1
as though no request for such registration had been made
by such Holder; or
(iv) if the Board of Directors of the Company, in
its good faith judgment, determines that a registration of
Registrable Securities should not be made because it would
be seriously detrimental to the Company to register such
Registrable Securities, then in such event the Company
shall have the right to defer the filing or registration
statement pursuant to a Demand Request for a period of not
more than one hundred eighty (180) days after receipt of
such Demand Request (provided, however, that the Company
shall not defer its obligation in this manner more than
once in any twelve-month period).
5.1.6. Registration Statement Form. The Company may, if
permitted by law, effect any registration of Registrable Securities
pursuant to Section 5.1 by the filing of a registration statement on
Form S-3 unless, in the event such registration involves an underwritten
public offering, the managing underwriter shall notify the Company in
writing that, in the judgment of such managing underwriter, the use of a
more detailed form or inclusion of additional information, which in each
case shall be specified in such notice, is reasonably necessary to
effectively market the offering of such Registrable Securities, in which
case such registration shall be effected on the form so specified or
shall include the information so specified, as applicable.
5.2. Piggyback Registrations.
5.2.1. Piggyback Rights. If (but without any obligation to
do so) the Company proposes to register any of its shares of Common
Stock or other securities under the Securities Act in connection with
the public offering of such securities (other than a registration
relating solely to the sale of securities to participants in a Company
employee benefit plan or a registration relating to a corporate
reorganization or other transaction under Rule 145 of the Securities Act
(each, a "Designated Registration")), whether or not for its own
account, the Company shall, at such time, promptly give each Holder
written notice of such registration. Upon the written request of each
Holder given in writing to the Company within fifteen (15) days after
receipt of such notice by the Company, the Company shall, subject to the
provisions of Section 5.2.3, use its reasonable best efforts to prepare,
file and cause to become effective a registration statement which
includes all of the Registrable Securities that each such Holder has
requested to be registered.
5.2.2. Right to Terminate Registration. The Company shall
have the right to terminate or withdraw any registration initiated by it
under this Section 5.2 prior to the effectiveness of such registration,
whether or not any
21
Holder has elected to include securities in such registration. The
expenses of such withdrawn registration shall be borne by the Company in
accordance with Section 5.6 hereof. Any such withdrawal shall be without
prejudice to the rights of any Holder to request that a registration be
effected under Section 5.1 or to be included in subsequent registrations
under Section 5.2.1.
5.2.3. Underwriting Requirements. In connection with any
offering involving an underwriting of shares issued by the Company, the
Company shall not be required under this Section 5.2 to include any of a
Holder's Registrable Securities in such underwriting unless such Holder
accepts the terms of the underwriting as agreed upon between the Company
and the underwriters selected by the Company and enters into an
underwriting agreement in customary form with an underwriter or
underwriters selected by the Company. If the total amount of securities,
including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities to be sold,
other than by the Company, that the underwriters determine in their
reasonable discretion is compatible with the success of the offering,
then the Company shall be required to include in the offering only that
number of such securities, including Registrable Securities, that the
underwriters determine in their good faith opinion will not jeopardize
the success of the offering. If such registration as initially proposed
by the Company was in whole or in part requested by holders of
securities of the Company, other than the Holders of Registrable
Securities in their capacities as such, pursuant to demand registration
rights, then the number of shares that may be included in the
underwriting shall be allocated as follows: (x) first, such securities
held by the holders initiating such registration and, if applicable, any
securities proposed by the Company to be sold for its own account,
allocated in accordance with the priorities then existing among the
Company and such holders, (y) second, any Registrable Securities
requested to be included in such registration by Holders of Registrable
Securities, pro rata on the basis of the number of Registrable
Securities requested to be included in such registration and (z) last,
any other securities of the Company proposed to be included in such
registration, allocated among the holders thereof in accordance with the
priorities then existing among the Company and such holders. Any
Registrable Securities excluded or withdrawn from such underwriting
shall be withdrawn from the registration.
5.3. Shelf Registration. The Company shall use its best efforts
to obtain, and to cause its independent auditors to deliver, as promptly as
practicable following the date hereof, an unqualified audit opinion on the
consolidated financial statements of the Company as of December 31, 2000 and
December 31, 2001 and for each of the years ending May 31, 1999, 2000 and 2001
(the "2001 Financial Statement Report"). The Company shall, within 5 business
days following its receipt of the 2001 Financial Statement Report, (i) prepare
and file with the SEC a registration statement pursuant to which the Holders may
resell from time to time any Registrable Securities received in the Exchange or
upon the Automatic Conversion (the "Resale Registration Statement") and (ii) use
its best efforts to have the Resale Registration Statement declared effective by
the SEC as promptly as practicable following the filing thereof. The
22
Company shall prepare and file such amendments and supplements to the Resale
Registration Statement and the prospectus used in connection therewith and take
any other actions as may be necessary to keep the Resale Registration Statement
effective for a period of two years from the date upon which the SEC declares
the Resale Registration Statement effective.
5.4. Obligations of the Company. Whenever required under this
Article 5 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC, no later than
forty-five (45) days after the Company's receipt of a Demand Request
made pursuant to Section 5.1.1, a registration statement with respect to
such Registrable Securities and use its reasonable best efforts to cause
such registration statement to become effective and, keep such
registration statement effective for a period of one year or, if
earlier, until the distribution contemplated in the registration
statement has been completed; provided, however, that such one year
period shall be extended by the number of calendar days in any period
beginning with the delivery of the notification contemplated by the
first clause of subsection 5.4(g), and ending with the delivery of the
supplements or amendments contemplated by subsection 5.4(g);
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration as may be necessary to comply with the
provisions of the Securities Act with respect to disposition of all
securities covered by such registration statement for the period set
forth in paragraph 5.4(a) above or Section 5.3, as applicable;
(c) furnish to each selling Holder and counsel selected by
the selling Holders copies of all documents proposed to be filed with
the SEC in connection with such registration, which documents will be
subject to the review of such counsel and each selling Holder;
(d) furnish to the selling Holders, without charge, such
number of (i) conformed copies of the registration statement and of each
amendment or supplement thereto (in each case including all exhibits and
documents filed therewith), and (ii) copies of the prospectus included
in such registration statement, including each preliminary prospectus
and any summary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned
by them in accordance with the intended method or methods of such
disposition;
(e) in the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement,
in usual and customary form, with the managing underwriter of such
offering and enter into
23
such other agreements and take such other actions in order to expedite
or facilitate the disposition of such Registrable Securities, including,
without limitation, preparing for, and participating in, "road shows"
and all other customary selling efforts, all as the underwriters
reasonably request;
(f) promptly notify each selling Holder covered by such
registration statement (i) of the issuance of any stop order by the SEC
in respect of such registration statement (and use every reasonable
effort to obtain the lifting of any such stop order at the earliest
possible moment), (ii) of any period when the registration statement
ceases to be effective, (iii) when such registration statement or any
prospectus used in connection therewith, or any amendment or supplement
thereto, has been filed and, with respect to such registration statement
or any post-effective amendment thereto, when the same has become
effective or (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the applicable securities or blue sky laws of
any jurisdiction;
(g) notify each selling Holder covered by such
registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes or incorporates by
reference an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and, as promptly as is practicable, prepare, file with the SEC
and furnish to such selling Holder a reasonable number of copies of any
supplement to or amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include or incorporate by reference an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(h) cause all such Registrable Securities registered
hereunder to be listed on each national securities exchange on which
similar securities issued by the Company are then listed;
(i) provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number
for all such Registrable Securities, in each case not later than the
effective date of such registration;
(j) use its reasonable best efforts to register and
qualify the securities covered by such registration statement under such
other securities or blue sky Laws of such jurisdictions as shall be
reasonably requested by the selling Holders (or obtain an exemption from
registration or qualification under such Laws) and do any and all other
acts and things which may be necessary or advisable to enable such
selling Holders to consummate the disposition of the
24
Registrable Securities in such jurisdictions in accordance with the
intended method or methods of distribution thereof; provided, however,
that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business, where not otherwise
required, or to file a general consent to service of process in any such
states or jurisdictions;
(k) furnish to each selling Holder a signed counterpart,
addressed to such selling Holder, of an opinion of counsel for the
Company experienced in securities Law matters, dated the effective date
of the registration statement (and, if any registration includes an
underwritten public offering, the date of the closing under the
underwriting agreement) covering such matters as are customarily covered
in opinions of issuer's counsel delivered to the underwriters in
underwritten public offerings of securities and such other matters as
may be reasonably requested by the Initiating Holders, if any;
(l) to the extent the Company is able, after using its
best efforts, to cause the independent accountants who have issued an
audit report on the Company's financial statements included (or
incorporated by reference) in the registration statement to issue a
"comfort" letter to each selling Holder after using the Company's best
efforts to obtain such a letter, furnish to each selling Holder a signed
counterpart of such "comfort" letter, dated the effective date of the
registration statement (and, if any registration includes an
underwritten public offering, the date of the closing under the
underwriting agreement), signed by the independent public accountants
covering such matters as are customarily covered in accountant's letters
delivered to the underwriters in underwritten public offerings of
securities and such other matters as may be reasonably requested by the
Initiating Holders, if any;
(m) use its reasonable best efforts to cause all
Registrable Securities covered by such registration statement to be
registered with or approved by such other Governmental Entities as may
be necessary by virtue of the business and operations of the Company to
enable each selling Holder thereof to consummate the disposition of such
Registrable Securities in accordance with the intended method or methods
of disposition thereof;
(n) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement of the Company (in form complying with the provisions of Rule
158 under the Securities Act) covering the period of at least twelve
(12) months, but not more than eighteen (18) months, beginning with the
first month after the effective date of the registration statement;
(o) make available for inspection by any selling Holder,
any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent
retained by any such Holder or underwriter (collectively, the
"Inspectors"), all financial and other records,
25
pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with such
registration statement, and permit the Inspectors to participate in the
preparation of such registration statement and any prospectus contained
therein and any amendment or supplement thereto. Records which the
Company determines, in good faith, to be confidential and which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in the registration
statement, (ii) the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction or (iii)
the information in such Records has been made generally available to the
public. The selling Holder of Registrable Securities agrees by
acquisition of such Registrable Securities that it will, upon learning
that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at the
Company's expense, to undertake appropriate action to prevent disclosure
of the Records deemed confidential; and
(p) use its reasonable best efforts to take all other
steps necessary to effect the registration and disposition of such
Registrable Securities as contemplated hereby.
5.5. Information from Holder. Except with respect to the
Company's obligations contained in Section 5.3, it shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Article 5 with respect to the Registrable Securities of any selling Holder that
such Holder shall, within ten (10) business days of a written request by the
Company, furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be reasonably required by the Company to effect the
registration of such Holder's Registrable Securities. In any registration
statement with respect to any Registrable Securities or any amendment or
supplement thereto, the Company agrees not to refer to any selling Holder of any
Registrable Securities covered thereby by name, or otherwise identify such
seller as the holder of any Registrable Securities, without the prior written
consent of such selling Holder, such consent not to be unreasonably withheld.
5.6. Expenses of Registration. The Company shall pay all
Registration Expenses in connection with registrations, filings or
qualifications which the Company is required to effect pursuant to Sections 5.1
and 5.3 and which it effects pursuant to Section 5.2. For purposes of this
Section, "Registration Expenses" shall mean all expenses other than underwriting
discounts and commissions incident to the Company's performance of its
obligations under or compliance with Sections 5.1, 5.2, 5.3 and 5.4, including
(without limitation) all registration, filing and qualification fees (including
Blue Sky fees), NASD fees and other fees and expenses associated with listing
securities on the Nasdaq National Market or any national securities exchange,
printers' and accounting fees, transfer agent fees and expenses, trustee fees
and expenses, rating agency fees and
26
expenses, word processing and duplicating fees, messenger and delivery expenses,
fees and disbursements of underwriters customarily paid by issuers or sellers of
securities, fees and disbursements of counsel for the Company and the reasonable
fees and disbursements of one counsel for the selling Holders (which counsel
shall be selected by the Initiating Holders, if any, and otherwise by a majority
in interest of the Holders participating in such registration).
5.7. Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Article 5.
5.8. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Article 5:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each selling Holder, the partners, officers,
directors, members and shareholders of each selling Holder, legal
counsel and accountants for each selling Holder, any underwriter (as
defined in the Securities Act) for such Holder and each person, if any,
who controls such Holder or underwriter, within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages,
expenses or liabilities (joint or several) (or actions, proceedings or
settlements in respect thereof), to which they may become subject under
the Securities Act, the Exchange Act or other federal, state, local or
foreign securities Laws, insofar as such losses, claims, damages,
expenses or liabilities (or actions, proceedings or settlements in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "Violation") by the
Company: (i) any untrue statement or alleged untrue statement of a
material fact contained or incorporated by reference in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto,
or any other document required in connection therewith or any
qualification or compliance associated therewith; (ii) the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were
made) not misleading; or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any securities Laws or
any rule or regulation promulgated under the Securities Act, the
Exchange Act or any securities Laws; and the Company will reimburse each
such selling Holder, partner, officer, director, member, shareholder,
counsel, accountant, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending or settling any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however,
that the indemnity agreement contained in this Section 5.8(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld,
delayed or conditioned), nor shall the
27
Company be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon
a Violation that occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with the
applicable registration statement by any such Holder, underwriter or
controlling person; provided, further, that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to
the benefit of any Holder or underwriter, or any person controlling such
Holder or underwriter, from whom the person asserting any such losses,
claims, damages or liabilities purchased securities in the offering, if
a copy of the prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Holder or underwriter to such person,
if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the securities to such person, and if the
prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage or liability. Such indemnity
shall remain in full force and effect regardless of any investigation
made by or on behalf of any Holder or any other person entitled to
indemnification pursuant to this Section 5.8(a) and shall survive the
transfer of such securities by any Holder.
(b) To the extent permitted by law, each selling Holder,
on a several and not joint basis, will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company
within the meaning of the Securities Act, legal counsel and accountants
for the Company, any underwriter, any other Holder selling securities in
such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages,
expenses or liabilities (joint or several) (or actions, proceedings or
settlements in respect thereof) to which any of the foregoing persons
may become subject, under the Securities Act, the Exchange Act or any
state or foreign securities Laws, insofar as such losses, claims,
damages or liabilities (or actions, proceedings or settlements in
respect thereto) arise out of or are based upon any Violation (but
excluding clause (iii) of the definition thereof), in each case to the
extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with the applicable registration
statement; and each such Holder will reimburse any person intended to be
indemnified pursuant to this Section 5.8(b) for any legal or other
expenses reasonably incurred by such person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in
this Section 5.8(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of such Holder (which consent shall not be
unreasonably withheld, delayed or conditioned); provided, further, that
in no event shall any indemnity under this Section 5.8(b) exceed the net
proceeds from the offering received by such Holder. Such indemnity shall
remain in full force and effect regardless of any investigation made by
or on behalf of the Company or any such director, officer or controlling
person and shall survive the transfer of such securities by any Holder.
28
(c) Promptly after receipt by an indemnified party under
this Section 5.8 of written notice of the commencement of any action
(including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party
under this Section 5.8, deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party
so desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party (together with all
other indemnified parties that may be represented without conflict by
one counsel) shall have the right to retain one separate counsel, with
the reasonable fees and expenses to be paid by the indemnifying party,
if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its
ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 5.8 to the
extent of such prejudice, but the omission to so deliver written notice
to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 5.8.
No indemnifying party, in the defense of any such claim or action,
shall, except with the consent of each indemnified party, consent to
entry of any judgment or enter into any settlement that does not include
as an unconditional term thereof the giving by claimant or plaintiff to
such indemnified party of a full and unconditional release from all
liability in respect of such claim or action, or which contains any
admission of liability or responsibility with respect to such
indemnified party.
(d) If the indemnification provided for in this Section
5.8 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or
expense referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such
loss, liability, claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of and, except as to the
Company where the Company does not participate in the offering, the
relative benefits received by the indemnifying party on the one hand and
of the indemnified party on the other in connection with the statements
or omissions that resulted in such loss, liability, claim, damage or
expense, as well as any other relevant equitable considerations;
provided that no person guilty of fraud shall be entitled to
contribution. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such
29
statement or omission. The relative benefits received by the
indemnifying party and the indemnified party shall be determined by
reference to the net proceeds and underwriting discounts and commissions
from the offering received by each such party. In no event shall any
contribution under this Section 5.8(d) exceed the net proceeds from the
offering received by such Holder, less any amounts paid under Section
5.8(b).
(e) The obligations of the Company and Holders under this
Section 5.8 shall survive the completion of any offering of Registrable
Securities under this Article 5.
(f) Indemnification similar to that specified in this
Section 5.8 (with appropriate modifications) shall be given by the
Company and each seller of Registrable Securities with respect to any
required registration (other than under the Securities Act) or other
qualification of such Registrable Securities under any Law or regulation
of any Governmental Entity other than the Securities Act.
(g) Any indemnification required to be made by an
indemnifying party pursuant to this Section 5.8 shall be made by
periodic payments to the indemnified party during the course of the
action or proceeding, as and when bills are received by such
indemnifying party with respect to an indemnifiable loss claim, damage,
expense or liability incurred by such indemnified party.
(h) The obligations of the parties under this Section 5.8
shall be in addition to any liability which any party may otherwise have
to any other party.
5.9. "Market Stand-Off" Agreement. If requested by the Company or
the representative of the underwriters of Common Stock (or other securities) of
the Company, each Holder shall not sell or otherwise transfer or dispose of any
Common Stock (or any other securities convertible into Common Stock) of the
Company held by such Holder (other than those included in the registration) for
a period specified by the representative of the underwriters not to exceed
ninety (90) days following the effective date of a registration statement of the
Company filed under the Securities Act; provided that all officers and directors
of the Company enter into similar agreements. Each Holder agrees to execute and
deliver such other agreements as may be reasonably requested by the Company or
the underwriter which are consistent with the foregoing or which are necessary
to give further effect thereto. The obligations described in this Section 5.9
shall not apply to a Designated Registration. The Company may impose
stop-transfer instructions with respect to the shares of Common Stock subject to
the foregoing restriction until the end of such period, not to exceed a ninety
(90) day period.
30
ARTICLE 6
COVENANTS
6.1. Further Actions. Following the execution of this Agreement,
each of the parties hereto shall execute and deliver such instruments and take
such other actions as may reasonably be required to (i) carry out the intent of
this Agreement and the other Transaction Documents and (ii) consummate the
Exchange; provided that no Holder shall be required to incur any expense,
liability or other monetary obligation with respect thereto.
6.2. Proxy Statement. The Company has prepared and filed with the
SEC a proxy statement (the "Proxy Statement") for purposes of obtaining the
approval of the shareholders of the Company to amend the Articles of
Incorporation of the Company to increase the authorized number of shares of
Common Stock to effect the Automatic Conversion (the "Amendment"). The Company
shall provide the Holders with a copy of such filing and any related filings
with the SEC. The Company will use commercially reasonable efforts to cause the
Proxy Statement to be cleared by the SEC and mailed to its stockholders at the
earliest practicable date.
6.3. Meetings. The Company shall take all lawful action to (i)
cause a special meeting of its stockholders to be duly called and held as soon
as practicable after the date of this Agreement for the purpose of voting on and
obtaining the approval of the shareholders of the Amendment and (ii) solicit
proxies from its stockholders to obtain the vote required under Washington Law
and in accordance with the Articles of Incorporation of the Company for the
approval and adoption of the Amendment. The Board of Directors of the Company
shall recommend approval and adoption of the Amendment and shall not withdraw,
amend or modify in any manner such recommendation (or announce publicly its
intention to do so).
6.4. Transferability. The Holders shall not sell, assign or
otherwise transfer the Preferred Stock issued hereunder without the prior
written consent of the Company, which consent shall not be unreasonably
withheld, delayed or conditioned; provided, however, that the Holders may sell,
assign or otherwise transfer the Preferred Stock without the Company's prior
written consent to any purchaser or transferee if such transfer is in compliance
with applicable securities Laws and any other Laws applicable to such transfer,
the purchaser or transferee agrees in writing to be bound by the terms of this
Agreement and the other Transaction Documents, and the transferring Holder
provides notice to the other Holders and the Company as contemplated in Section
9.4. The Common Stock, the New Notes and the PIK Notes shall be transferable
without the Company's consent upon compliance with all applicable securities
Laws and any other Laws applicable to such transfer; provided, however, that no
shares of Common Stock may be transferred unless the transferee agrees in
writing to be bound by the terms of this Agreement and the other Transaction
Documents, and the transferring Holder provides notice to the other Holders and
the Company as contemplated in Section 9.4.
31
6.5. Voting Agreement. Each of the Holders, the Chief Executive
Officer of the Company, Xxxxxx X. Xxxxxx (the "CEO"), and the Chief Operating
Officer of the Company, Xxxxxx Xxxxxxxxxxx (the "COO", who together with the CEO
shall be parties to this Agreement solely for purposes of Sections 6.5, 6.6 and
6.7 and are referred to each as a "Voting Officer"), hereby agrees to vote, or
cause to be voted, or if applicable, execute written consents with respect to,
all shares of capital stock of the Company held by such Holder or Voting
Officer, respectively, and entitled to vote, or that such Holder or Voting
Officer, respectively, has the power to vote or in respect of which such Holder
or Voting Officer, respectively, has the power to direct the vote, in favor of
approving the Amendment, in any and all votes or solicitations of written
consents with respect to the approval of the Amendment, or any other
circumstances upon which a vote, consent or other approval is sought with
respect to the approval of the Amendment.
6.6. Board of Directors. For so long as the Holders own
securities having, in the aggregate, at least 33.3% of the outstanding voting
power of the Company and subject to Section 6.6.3, the Board of Directors will
consist of (i) three persons nominated by GSCP Recovery, Inc. and GSC Recovery
II, L.P. or their affiliates, (ii) one person nominated by MW Post Advisory
Group L.L.C. or its affiliates and (iii) the Chief Executive Officer of the
Company. Each person nominated for election as a director of the Company
pursuant to this Section 6.6, and each person nominated for election as a
director of the Company in lieu of any such person pursuant to Section 6.6.1(c),
or to fill a vacancy on the Board of Directors created by such person pursuant
to Section 6.6.2, is referred to herein as a "Holder Nominee."
6.6.1. Election of Directors.
(a) For so long as the Holders own securities having, the
aggregate at least 33.3% of the outstanding voting power of the Company,
each Holder agrees to take all actions necessary to cause the Holder
Nominees to be elected as directors of the Company in any and all
elections of directors.
(b) Each Voting Officer agrees to take all actions
necessary to cause the Holder Nominees to be elected as directors of the
Company at the next election of directors or upon the next solicitation
of written consents, or upon the next occasion upon which a vote,
consent or other approval is sought, with respect to the election of
directors, following the date of this Agreement.
(c) For so long as the Holders own securities having, in
the aggregate, at least 33.3% of the outstanding voting power of the
Company and without limiting the generality or effect of Section
6.6.1(a), each Holder will vote or cause to be voted, or if applicable
execute written consents with respect to, all shares of capital stock of
the Company held by such Holder and entitled to vote, or that such
Holder has the power to vote or in respect of which such Holder has the
power to direct the vote, in favor of the election of the Holder
Nominees to the Board of Directors of the Company in any and all
elections of, or solicitations of written consents, or in any other
circumstances upon which a
32
vote, consent or other approval is sought, with respect to the election
of directors.
(d) Each Voting Officer will vote or cause to be voted, or
if applicable execute written consents with respect to, all shares of
capital stock of the Company held by such Voting Officer and entitled to
vote, or that such Voting Officer has the power to vote or in respect of
which such Voting Officer has the power to direct the vote, in favor of
the election of the Holder Nominees to the Board of Directors of the
Company at the next election of directors or upon the next solicitation
of written consents, or upon the next occasion upon which a vote,
consent or other approval is sought, with respect to the election of
directors, following the date of this Agreement.
(e) Without limiting the generality or effect of this
Section 6.6.1, for so long as the Holders have the rights contemplated
by Section 6.6, at each meeting of the shareholders of the Company at
which the term of office of any Holder Nominee (an "Expiring Nominee")
expires, each such Expiring Nominee will be nominated for election to
another term as a director of the Company and will be included in the
slate of nominees recommended to shareholders of the Company for
election as directors of the Company in any proxy statement prepared by
or on behalf of the Company with respect to such meeting; provided that,
if any Holder or Holders that nominated any Holder Nominee that is an
Expiring Nominee so specify or if any Expiring Nominee declines or is
unable to accept the nomination, another individual designated by the
Holder or Holders that nominated such Expiring Nominee, in lieu of such
Expiring Nominee, will be nominated for election as a director of the
Company and will be included in the slate of nominees recommended to
shareholders of the Company for election as directors of the Company in
any such proxy statement.
(f) Without limiting any other provision of this Agreement
imposing obligations on transferees generally, it is expressly agreed
that the voting and related obligations contained in this Section 6.6
shall bind any transferee of any Holder or of any Voting Officer and no
transfer by such Holder or Voting Officer shall be valid until such
Holder or Voting Officer has delivered written evidence reasonably
satisfactory to the remaining Holders executed by the transferee
obligating such transferee to be bound by the terms contained in this
Section 6.6.
6.6.2. Vacancies. Except as contemplated in Section 6.6,
each director will hold his or her office as a director of the Company for such
term as is provided in the Company's Articles of Incorporation and Bylaws or
until his or her death, restriction or removal from the Board of Directors or
until his or her successor has been duly elected and qualified in accordance
with the provisions of this Agreement, the Company's Articles of Incorporation
and Bylaws and applicable law. If any Holder Nominee ceases to serve as a
director of the Company for any reason during his or her term, a nominee for the
vacancy resulting therefrom will be designated by the Holder or Holders that
nominated such director.
33
6.6.3. Removal of Holder Nominees. For so long as the
Holders own securities having, in the aggregate, at least 33.3% of the
outstanding voting power of the Company, if any Holder or Holders that nominated
any Holder Nominee shall notify the Company in writing of its desire to have
removed from the Board of Directors, with or without cause, a Holder Nominee,
each Holder will, if necessary, subject to all applicable requirements of law,
use its respective best efforts to take or cause to be taken all such action as
may be required to remove such Holder Nominee from the Board of Directors.
Subject to the immediately preceding sentence, none of the Holders will vote or
cause to be voted, or execute written consents with respect to, any shares of
the Company's capital stock that it has the power to vote or in respect of which
it has the power to direct the vote for the removal of any Holder Nominee
nominated by any other Holder without the prior written consent of the Holder or
Holders that nominated such Holder Nominee.
6.7. Exercise of Specified Rights. Each of the Voting Officers
hereby agrees that he or she will not exercise or cause to be exercised, in
whole or in part, or take any other similar action having the effect of such
exercise, any Specified Rights which such Voting Officer has, or may be entitled
to, except for options granted to Xxxxxx X. Xxxxxx pursuant to the 2002 Stock
Option Plan, and each of the Voting Officers hereby agrees to enter into and
execute any agreement or other documentation reasonably requested by the Holders
to effect the covenants contained in this Section 6.7.
6.8. No Voting Obligations - HBK Master Fund L.P. Solely for
purposes of Sections 6.5, 6.6 and 6.7 above, the term "Holders" shall not
include HBK Master Fund L.P. and, accordingly, HBK Master Fund L.P. shall not be
entitled to any of the rights or remedies, nor subject to any of the obligations
or restrictions, contemplated in Sections 6.5, 6.6 and 6.7.
6.9. Grant of Stock Options. The Company hereby agrees to grant
to Xxxxxx X. Xxxxxx one or more options to purchase the Company's Common Stock
(the "New Options"), in consideration for cancellation by Xx. Xxxxxx of his
existing unexercised stock options of the Company (such cancellation to be
effective as of the date of grant of the New Options). The New Options shall be
exercisable for five percent (5%) of the Company's Common Stock on a
fully-diluted basis immediately following the Exchange. The New Options shall
vest over three (3) years and may be exercised over a ten-year term. The New
Options shall contain exercise prices designed to incentivize Xx. Xxxxxx'x
performance as President and Chief Executive Officer of the Company, and shall
be based upon reasonable targets established by the Compensation Committee of
the Board of Directors after discussion with Xx. Xxxxxx, in accordance with the
targets previously discussed between Xx. Xxxxxx and the Holders.
34
ARTICLE 7
CLOSING
7.1. Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement and the other Transaction Documents and the
deliveries contemplated in Sections 7.2 and 7.3 hereof are taking place as of
the date hereof at the offices of Milbank Tweed Hadley & XxXxxx, Xxx Xxxxx
Xxxxxxxxx Xxxxx, Xxx Xxxx, XX 00000. All of the securities to be delivered at
Closing as contemplated in Sections 7.2 and 7.3 below shall be dated as of the
date hereof.
7.2. Deliveries by the Company. The Company is delivering to the
Holders at the Closing, the following:
(i) evidence reasonably satisfactory to the Holders
that The Depository Trust Company ("DTC") has recorded in
its book-entry system as holders, in the aggregate, of the
number of shares of Common Stock set forth on Exhibit A
for each Holder, the DTC Participants identified to the
Company by such Holder;
(ii) evidence reasonably satisfactory to the
Holders that DTC has recorded in its book-entry system as
holders, in the aggregate, of the number of shares of
Preferred Stock set forth on Exhibit A for each Holder,
the DTC Participants identified to the Company by such
Holder;
(iii) evidence reasonably satisfactory to the
Holders that the Company has delivered and DTC has
received one or more global certificates representing
$15,000,000 aggregate principal amount of New Notes and
has recorded in its book-entry system as holders, in the
aggregate, of the aggregate principal amount of the New
Notes set forth on Exhibit A for each Holder, the DTC
Participants identified by such Holder;
(iv) the New Notes Indenture, duly executed by the
Company, each Subsidiary Guarantor, and the trustee with
respect thereto, attached hereto as Exhibit C;
(v) evidence, reasonably satisfactory to the
Holders, that all consents, approvals and waivers listed
in Schedules 3.1.3 and 3.1.4 required in connection with
the Exchange and the transactions contemplated by this
Agreement and the other Transaction Documents, have been
obtained without the imposition of any non-customary
limitation, requirement or condition, and all waiting
periods the expiration of which are required under
applicable Law for such consummation have expired or been
terminated;
35
(vi) written opinions of counsel for the Company in
the form attached hereto as Exhibit D and Exhibit E;
(vii) a written opinion reasonably acceptable to
the Holders from Xxxxxxxx Xxxxx Xxxxxx & Xxxxx Financial
Advisors, Inc. as to the fairness of the transactions
contemplated by this Agreement and the other Transaction
Documents to the Company's existing shareholders not
participating in the Exchange;
(viii) an amendment to his existing employment
agreement executed by Xxxxxx X. Xxxxxx and the Company in
the form attached hereto as Exhibit F;
(ix) a copy of the supplemental indenture attached
hereto as Exhibit G (the "Supplemental Indenture")
executed by the Company and the trustee pursuant thereto;
(x) the Guarantees duly executed by each of the
Subsidiary Guarantors, substantially in the form of
Exhibit H hereto; and
(xi) a fully executed Note Purchase Agreement
executed by the Company, Xxxxxxxxx & Company, Inc. and
First Union National Bank, as collateral agent in the form
attached hereto as Exhibit I.
7.3. Deliveries by the Holders. The Holders are delivering to
the Company at the Closing, the following:
(i) the Old Notes held by each of the Holders (via
DTC's book-entry system);
(ii) evidence reasonably satisfactory to the
Company that each of the Holders has delivered
instructions to its respective DTC Participants with
respect to the tendering of the Old Notes held by such DTC
Participant for the benefit of such Holder and such
Holder's consent to the Supplemental Indenture;
(iii) their written consent to the Company entering
into the Supplemental Indenture; and
(iv) evidence, reasonably satisfactory to the
Company, that all consents, approvals and waivers listed
in Section 4.1.3, required in connection with the Exchange
and the transactions contemplated by this Agreement and
the other Transaction Documents, have been obtained
without the imposition of any non-customary limitation,
requirement or condition, and all waiting
36
periods the expiration of which are required under
applicable Law for such consummation have expired or been
terminated.
ARTICLE 8
SURVIVAL
8.1. Survival. The representations and warranties contained in
this Agreement shall survive the execution and delivery of this Agreement and
the Closing for a period of one (1) year, regardless of any investigation made
by the parties hereto or by any person on their behalf.
ARTICLE 9
MISCELLANEOUS
9.1. Entirety. This Agreement and the other Transaction Documents
to be delivered in connection herewith embody the entire agreement among the
parties with respect to the subject matter hereof and thereof, and all other
prior agreements between the parties with respect thereto are hereby and thereby
superseded in their entirety.
9.2. Counterparts. Any number of counterparts of this Agreement
may be executed and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one instrument.
9.3. Fees and Expenses. Except as otherwise provided herein and
for that certain letter agreement dated August 21, 2001 between the Company and
Xxxxx Xxxxxxxxxx LLP, the parties hereto shall each bear their respective
expenses incurred in connection with the negotiation, preparation, execution,
and performance of this Agreement, the other Transaction Documents and the
transactions contemplated hereby and thereby, including without limitation, all
fees and expenses of agents, representatives, investment bankers, counsel and
accountants.
9.4. Notices and Waivers. All notices, requests, instructions,
claims, demands, consents and other communications required or permitted to be
given under this Agreement or the other Transaction Documents shall be in
writing and shall be deemed to have been duly given on the date delivered by
hand or by courier service such as Federal Express, or by other messenger (or,
if delivery is refused, upon presentment) or upon receipt by facsimile
transmission (with confirmation), or upon delivery by registered or certified
mail (return receipt requested), postage prepaid, to the parties at the
following addresses (or to such other persons or addresses as the person to whom
notice is given may have previously furnished to the other parties hereto in
writing in the manner set forth above (provided that notice of any change in
address shall be effective only upon receipt thereof)):
37
(a) If to the Company:
Pacific Aerospace & Electronics, Inc.
000 Xxx Xxxxxxx Xxxx, Xxxxx Xxxxx
Xxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx
with a copy to:
Milbank Tweed Hadley & XxXxxx
000 Xxxxx Xxxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxx
(b) If to the Holders:
At the addresses set forth opposite
each Holders' name in Exhibit A
hereto
with a copy to:
Xxxxx Xxxxxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxx
9.5. Table of Contents and Captions. The table of contents, table
of exhibits and captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
article, section, or paragraph hereof or thereof.
9.6. No Assignment. No assignment of this Agreement or of any
rights or obligations hereunder may be made by any party without the prior
written consent of the other party hereto; provided, however, that the Holders
may assign their respective rights and obligations hereunder without the
Company's prior written consent to any assignee if such assignee agrees to be
bound by the terms of this Agreement and the other Transaction Documents.
38
9.7. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of and be enforceable by the successors and
permitted assigns of the parties hereto.
9.8. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void, or unenforceable, the remainder of the terms, provisions,
covenants and restrictions shall remain in full force and effect and shall in no
way be affected, impaired or invalidated.
9.9. Applicable Law. This Agreement shall be governed by the laws
of the State of New York applicable to contracts made and to be wholly performed
in the State of New York without giving effect to the principles of conflicts of
laws thereof.
9.10. Amendment. This Agreement may not be amended, modified or
supplemented and no waivers of or consents to departures from the provisions
hereof may be given unless consented to in writing by all parties hereto. Unless
otherwise specified in such waiver or consent, a waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
it is given.
9.11. Third Party Beneficiaries. Except as set forth in Section
5.8 hereof, nothing expressed or implied in this Agreement or any agreement
delivered in connection herewith is intended or shall be construed to confer
upon or give to any third party any rights or remedies against any party hereto.
The persons entitled to indemnification pursuant to Section 5.8 are intended
third party beneficiaries of such Section 5.8.
9.12. Publicity. None of the parties hereto shall issue any press
release or make any public disclosure regarding the transactions contemplated
hereby and by the other Transaction Documents unless such press release or
public disclosure shall be approved by the other parties hereto. Notwithstanding
the foregoing, each of the parties hereto may, in documents required to be filed
by it with the SEC or other Governmental Entity, make such statements with
respect to the transactions contemplated by this Agreement and by the other
Transaction Documents as each may be advised by counsel is legally necessary,
and may make such disclosure as it is advised by its counsel is required by Law.
[Signature Pages Follow]
39
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed in their respective names by their respective duly authorized
representatives, all as of the day and year first above written.
PACIFIC AEROSPACE &
ELECTRONICS, INC.
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: President and Chief Executive
Officer
XXXXXX X. XXXXXX
(solely for purposes of Sections 6.5,
6.6, 6.7 and 6.9 hereof)
/s/ Xxxxxx X. Xxxxxx
---------------------------------------
XXXXXX XXXXXXXXXXX
(solely for purposes of Sections 6.5,
6.6 and 6.7 hereof)
/s/ Xxxxxx Xxxxxxxxxxx
---------------------------------------
AEROMET AMERICA, INC.
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
BALO PRECISION PARTS, INC.
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
CASHMERE MANUFACTURING CO.,
INC.
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
CERAMIC DEVICES, INC.
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
ELECTRONIC SPECIALTY
CORPORATION
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
NORTHWEST TECHNICAL
INDUSTRIES, INC.
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
PACIFIC COAST TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
PA&E INTERNATIONAL, INC.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxx X. Xxxxxx
Title: President
SEISMIC SAFETY PRODUCTS, INC.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
SKAGIT ENGINEERING &
MANUFACTURING, INC.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
HOLDERS:
GSCP RECOVERY, INC.
By: /s/ Xxxxxxx Xxxxxxx
-----------------------------------
Name: Xxxxxxx Xxxxxxx
Title: Managing Director
ALLIANCE CAPITAL MANAGEMENT L.P.,
as investment advisor
By: Alliance Capital Management Corp.
By: /s/ Xxxxxxx X. Xxxx
-----------------------------------
Name: Xxxxxxx X. Xxxx
Title: Vice President
M.W. POST ADVISORY GROUP L.L.C.,
as investment advisor
By: /s/ Xxxx X. Xxxxxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxxxxx
Title: Managing Director
XXXXXXX X. XXXXX & SONS SPECIAL
SITUATION PARTNERS II, L.P.
By: XXXXXXX X. XXXXX & SONS SPECIAL
SITUATION PARTNERS II, L.L.C.
ITS GENERAL PARTNER
By: /s/ Xxxx X. Xxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxx
Title: Authorized Signatory
HBK MASTER FUND L.P.
By: HBK INVESTMENTS L.P.
INVESTMENT MANAGER
By: /s/ Xxxxxxx X. Xxxx
-----------------------------------
Name: Xxxxxxx X. Xxxx
Title: Authorized Signatory
GSC RECOVERY II, L.P.
By: GSC Recovery II GP, L.P.,
its general partner
By: GSC RII, LLC,
its general partner
By: GSCP (NJ) Holdings, L.P.,
its sole member
By: GSCP (NJ), Inc.,
its general partner
By: /s/ Xxxxxxx Xxxxxxx
-----------------------------------
Name: Xxxxxxx Xxxxxxx
Title: Managing Director
PACIFIC AEROSPACE & ELECTRONICS, INC.
AEROMET AMERICA, INC.
BALO PRECISION PARTS, INC.
CASHMERE MANUFACTURING CO., INC.
CERAMIC DEVICES, INC.
ELECTRONIC SPECIALTY CORPORATION
NORTHWEST TECHNICAL INDUSTRIES, INC.
PACIFIC COAST TECHNOLOGIES, INC.
PA&E INTERNATIONAL, INC.
SEISMIC SAFETY PRODUCTS, INC.
SKAGIT ENGINEERING & MANUFACTURING, INC.
SCHEDULES
TO
EXCHANGE AGREEMENT
DATED AS OF MARCH 19, 2002
These Schedules are furnished by Pacific Aerospace & Electronics, Inc., a
Washington corporation ("PA&E," "PACIFIC AEROSPACE" or the "COMPANY") as of the
date hereof pursuant to and as part of the Exchange Agreement dated as of March
19, 2002 (the "AGREEMENT"), by and among Aeromet America, Inc., Balo Precision
Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic
Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast
Technologies Inc., PA&E International, Inc., Seismic Safety Products, Inc., and
Skagit Engineering & Manufacturing Inc. (collectively, the "SUBSIDIARY
GUARANTORS") and the holders of the outstanding 11 1/4% senior subordinated
notes due 2005 of the Company participating in the Exchange (the "HOLDERS").
Unless otherwise provided herein, the defined terms in these Schedules have the
same meaning as under the Agreement. All attachments hereto are incorporated
into these Schedules.
Matters disclosed for the purpose of one section of these Schedules shall
constitute disclosure of such matters for the purposes of other sections only in
the event it is manifestly obvious that such matters apply. The duplication or
cross-referencing of any disclosures made herein shall not, in any instance or
in the aggregate, effect a waiver of the foregoing statement. Headings have been
provided for the sections of these Schedules for convenience of reference only
and shall to no extent have the effect of amending or changing any express
description of the sections set forth in the Agreement.
These Schedules relate to certain matters concerning the disclosures
required and transactions contemplated by the Agreement. These Schedules are
qualified in their entirety by reference to specific provisions of the
Agreement, and are not intended to constitute, and shall not be construed as an
admission that such information is material except to the extent required by the
Agreement.
Copies of all agreements, contracts and documents referenced in this
Disclosure Schedule have been made available for inspection by the Holders.
SCHEDULE 3.1.3
COMPANY CONSENTS AND APPROVALS (GOVERNMENT)
1. SEC filings regarding the Exchange and the securities issued
therein.
2. Filing of the Certificate of Designation for the Series C
Convertible Preferred Stock and an amendment to the Company's
Articles of Incorporation to increase the number of shares of Common
Stock authorized for issuance, each with the State of Washington
Secretary of State.
3. Securities filings that may be required under state blue sky laws.
SCHEDULE 3.1.4
NO VIOLATIONS
Currently exercisable warrants issued by the Company contain provisions
requiring the Company to reserve at all times a sufficient number of shares of
Common Stock to effect the exercise of such warrants. For the time between the
date of the Exchange and the effective filing of an amendment to the Company's
Articles of Incorporation increasing the number of shares of authorized Common
Stock the Company may issue, the Company will not have a sufficient number of
shares of Common Stock reserved if such warrants are exercised in technical
breach of such warrant agreements. All such warrant agreements contain
provisions that state the Company must take action as quickly as possible to
again have a sufficient amount of Common Stock reserved for exercise of the
warrants.
The Company has obtained waivers from both Strong River and Bay Harbor for
the covenant set forth in their respective warrants requiring the Company to
reserve at all times and keep available out of the aggregate of its authorized
but unissued Common Stock the number of Warrant Shares which are then issuable
and deliverable upon the exercise of the Warrant. The waivers are effective
until such time as the Company has amended its Articles of Incorporation to
increase its authorized shares of Common Stock as required in the Restructuring.
However, no waiver has been obtained from DDJ Capital Management, LLC ("DDJ") as
of the date hereof, under the warrants issued under a warrant agreement dated
March 1, 2001 between DDJ as agent for certain lenders (the "Holders"), the
Holders and the Company.
The Exchange will violate the Company's existing senior secured loan
documents (under which DDJ acts as agent), under which the Company is already in
payment default.
The Company has been notified by KeyBank National Association ("KeyBank")
that it is not in compliance with certain covenants of loans that are secured by
the Company's headquarters building and other assets of the Company and its
subsidiaries. Such defaults will not be cured by the completion of the Exchange.
KeyBank has agreed, however, pursuant to a forbearance letter dated March 15,
2002, to continue to forbear from exercising its remedies under its two
Promissory Notes until May 31, 2003. Such forbearance is conditioned upon there
being no loan or lease payment delinquency or defaults after April 1, 2002. The
Company has obtained the consent of KeyBank to the granting of certain security
interests in connection with the Exchange and the Company's new senior secured
financing.
SCHEDULE 3.1.6
LITIGATION AND CLAIMS AGAINST THE COMPANY
LITIGATION
The Company has the three following litigation matters outstanding:
1. XXXXXXXXX V. PACIFIC AEROSPACE & ELECTRONICS, INC., CHELAN
COUNTY (WA) SUPERIOR COURT CAUSE NO. 00-2-00523-1
Date filed: June 2000
Location: Wenatchee, WA
Nature of dispute: A former employee whose position was eliminated
in 1999 has asserted claims for, among other things, unlawful termination and
age discrimination. This matter is in the discovery stage, and trial is
currently scheduled on June 17, 2002. The Company took Xxxxxxxxx'x deposition on
January 15 and 16, 2002, and is in the process of preparing a summary judgment
motion.
Amount at issue: Unknown
Settlement: The Company has made a settlement offer of $10,000,
which was rejected. The plaintiff also agreed to mediate and then changed his
mind.
2. BOTHELL, d/b/a ATLAS TECHNOLOGIES V. HITACHI ZOSEN CORP.,
NORTHWEST TECHNICAL INDUSTRIES, INC., AND K. SHIMOTSUMA ASSOCIATES, INC.,
JEFFERSON COUNTY (WA) SUPERIOR COURT CAUSE NO. 99-2-00230-9
Date filed: August 1999
Location: Port Angeles, WA
Nature of dispute: Northwest Technical Industries, Inc. ("NTI"), a
wholly owned subsidiary of the Company, was sued on a 1994/1995 contract under
which NTI bonded metals for vacuum flanges produced by Atlas for Hitachi prior
to the Company's acquisition of NTI. Hitachi did not accept or pay for all of
the flanges. Atlas claims that, if it is proved that the flanges were defective,
NTI must have provided Atlas with defective materials and that NTI violated
provisions of a confidentiality agreement. NTI produced discovery materials for
plaintiff's counsel in approximately November 1999, which plaintiff's counsel
has yet to pick up. A trial date was set recently for Fall 2002 after the Court
threatened to dismiss the case for lack of activity, but the plaintiff's counsel
has not yet followed up regarding discovery.
Amount at issue: Unknown
Settlement: N/A
3. SUPERIOR FORGE, INC. V. PACIFIC AEROSPACE & ELECTRONICS, INC.,
SUPERIOR COURT OF THE STATE OF CALIFORNIA, COUNTY OF ORANGE, CENTRAL JUSTICE
CENTER, CASE NO. 02CC02864
Served on PA&E February 19, 2002
Collection claim for $51,631.04
SCHEDULE 3.1.7
OUTSTANDING OPTIONS
1. Authorized Capital: 100,000,000 shares of common stock,
$.001 par value
5,000,000 shares of preferred stock,
$.001 par value
2. Issued and Outstanding: 39,315,309 shares of common stock
No shares of preferred stock
3. Options Outstanding under Stock Incentive Plan: 3,599,948
4. Warrants Outstanding:
---------------------------------------------------------------------------------------------------------------
DATE ISSUED WARRANT HOLDER WARRANT WARRANT EXERCISE VESTED NON EXPIRATION
# /OTHER SHARES PRICE VESTED DATE
INFO
---------------------------------------------------------------------------------------------------------------
PUBLIC WARRANTS
---------------------------------------------------------------------------------------------------------------
6/01/96 Interwest Transfer 693259-11-1 2,295,000 4.6875 0 6/15/03
Co.
---------------------------------------------------------------------------------------------------------------
NON-PUBLIC WARRANTS
---------------------------------------------------------------------------------------------------------------
11/30/96(1) Xxxxxx X. Xxxxxx 001 100,000 $2.0000 100,000 0 12/24/04
---------------------------------------------------------------------------------------------------------------
11/30/96(1) Xxxx X. Xxxxx 001 25,000 $2.0000 25,000 0 02/01/05
---------------------------------------------------------------------------------------------------------------
11/30/96(2) Xxxxxx X. Xxxxxx 003 35,000 $2.0000 35,000 0 05/31/02
---------------------------------------------------------------------------------------------------------------
06/03/97 Xxxxxxx X. Xxxxx 20,000 $3.4500 50,000 0 06/03/02
---------------------------------------------------------------------------------------------------------------
06/03/97 Xxxxxx Xxxxxxx 5,000 $3.4500 5,000 0 06/03/02
---------------------------------------------------------------------------------------------------------------
04/17/00 Continental
Capital & Equity
Corporation CCEC1 50,000 $3.5000 50,000 0 04/17/03
---------------------------------------------------------------------------------------------------------------
04/17/00 Continental
Capital & Equity
Corporation CCEC2 50,000 $5.5000 50,000 0 04/17/03
---------------------------------------------------------------------------------------------------------------
04/17/00 Continental
Capital & Equity
Corporation CCEC3 50,000 $7.5000 50,000 0 04/17/03
---------------------------------------------------------------------------------------------------------------
04/17/00 Continental
Capital & Equity
Corporation CCEC4 50,000 $9.5000 50,000 0 04/17/03
---------------------------------------------------------------------------------------------------------------
07/27/00 Xxxxxx Capital
Group, Ltd. RCG1 79,150 $1.7688 79,150 0 07/26/04
---------------------------------------------------------------------------------------------------------------
07/27/00 Strong River
Investments CW1 192,500 $2.0100 192,500 0 07/27/03
---------------------------------------------------------------------------------------------------------------
07/27/00 Bay Harbor
Investments, Inc. CW 2 192,500 $2.0100 192,500 0 07/27/03
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
DATE ISSUED WARRANT HOLDER WARRANT WARRANT EXERCISE VESTED NON EXPIRATION
# /OTHER SHARES PRICE VESTED DATE
INFO
---------------------------------------------------------------------------------------------------------------
B-III Capital DDJ-1 1,883,923 $0.0010 1,883,923 0 03/01/06
03/01/01 Partners, L.P.
---------------------------------------------------------------------------------------------------------------
03/01/01 B-III A Capital DDJ-2 807,396 $0.0010 807,396 0 03/01/06
Partners, L.P.
---------------------------------------------------------------------------------------------------------------
03/01/01 DDJ Canadian High DDJ-3 538,263 $0.0010 538,263 0 03/01/06
Yield Fund
---------------------------------------------------------------------------------------------------------------
03/01/01 State Street Bank DDJ-4 807,396 $0.0010 807,396 03/01/06
& Trust, Custodian
---------------------------------------------------------------------------------------------------------------
04/09/01 First Albany FAC-1 692,074 $0.4062 692,074 04/09/06
Corporation
---------------------------------------------------------------------------------------------------------------
SCHEDULE 3.1.8
SEC REPORTS AND FINANCIAL STATEMENTS
KPMG's report on the Company's consolidated financial statements for the
fiscal year ended May 31, 2001 was a disclaimer of opinion.
SCHEDULE 3.1.9
MATERIAL ADVERSE EFFECT
The Company failed to make a semi-annual interest payment of approximately
$3.6 million as required under the terms of its 11 1/4% Senior Subordinated
Notes (the "Old Notes") that was due on August 1, 2001, and the Company also
failed to make that payment within the 30-day grace period that expired on
August 31, 2001. The Company also failed to make a payment of interest that was
due on the Old Notes on February 1, 2002 and did not make such payment during
the 30-day grace period provided therein
In addition, the Company did not make a quarterly interest payment of
approximately $618,000 that was due on its existing senior secured loan (the
"Senior Debt") on September 30, 2001, or before the expiration of the 5-day
grace period. The Company entered into a forbearance agreement with the holders
of the Senior Debt to waive payment defaults and certain other defaults on the
Senior Debt. However, this agreement expired on December 31, 2001. Additionally,
the Company failed to repay the Senior Debt on December 31, 2001, its maturity
debt.
The Company has been notified by KeyBank National Association ("KeyBank")
that it is not in compliance with certain covenants of loans that are secured by
the Company's headquarters building and other assets of the Company and its
subsidiaries. Such defaults will not be cured by the completion of the Exchange.
KeyBank has agreed, however, pursuant to a forbearance letter dated March 15,
2002, to continue to forbear from exercising its remedies under its two
Promissory Notes until May 31, 2003. Such forbearance is conditioned upon there
being no loan or lease payment delinquency or defaults after April 1, 2002. The
Company has obtained the consent of KeyBank to the granting of certain security
interests in connection with the Exchange and the Company's new senior secured
financing.
On February 28, 2002, Xxxxxx X. Xxxxxxx, who served as Vice President
Administration and General Counsel, left her employment with the Company. Xxxxxx
Xxxxxxxxxxx who is currently the Vice President Operations and Chief Operating
Officer, will continue serving as the Vice President Operations and Chief
Operating Officer until May 17, 2002. After those dates, the Company will be
operating without several of its key personnel.
There has been an overall economic decline in the Aerospace industry due
to both the recent economic downturn and the September 11, 2001 attacks since
May 31, 2001 that has contributed significantly to poor operating results.
SCHEDULE 3.1.10
MATERIAL CONTRACTS
The Company is in default under the following Material Contracts:
1. The Old Indenture;
2. The Term Loan Agreement governing the Company's Senior Debt;
3. KeyBank Deed of Trust on corporate headquarters dated September 30,
1998 and the related Promissory Note dated as of September 30. 1998;
4. KeyBank Promissory Note dated as of March 18, 1998 (relating to
improvements on building #7); and
5. Technology transfer agreement dated September 30,1998 with Xxxxxx X.
Xxxxx relating to the following U.S. patent application and one
European patent applications: (i) U.S. Serial No. 09/302,590, (ii)
U.S. Serial No. 09/303,196 (now U.S. Patent No. 6,284,389) and (iii)
E.P. Serial No. 99'920'345.8. The Company has entered into a
Settlement Agreement with Xx. Xxxxx dated February 28, 2002
regarding this dispute.
SCHEDULE 3.1.12
TITLE TO PROPERTY AND ASSETS
Pacific Aerospace & Electronics, Inc.
Detail Actual Debt Listing
As of January 31, 2002
Creditor Principal Balance Security
-------- ----------------- --------
Pacific Aerospace:
Term Debt:
KeyBank $ 1,111,090 Real Estate - Corporate Building
Ford Credit 19,707 Vehicle
Ford Credit 29,078 Vehicle
Ford Credit 15,634 Vehicle
Ford Credit 24,878 Vehicle
Ford Credit 12,411 Vehicle
Ford Credit 18,731 Vehicle
DDJ 13,731,446 Substantially all assets
Senior Subordinated Notes 63,700,000 None
Cashmere Manufacturing:
Term Debt:
KeyBank 121,959 Real Estate - Building #7 expansion
Ford Credit 25,447 Vehicle
Xxxxxxx Machinery Company 54,197 Fadal CNC machining center
Xxxxxxx Machinery Company 43,549 Fadal CNC machining center
Xxxxxxx Machinery Company 42,112 Fadal CNC machining center
Xxxxxxx Machinery Company 42,112 Fadal CNC machining center
Xxxxxxx Machinery Company 47,327 Fadal CNC machining center
Xxxxxxx Machinery Company 47,327 Fadal CNC machining center
Xxxxxxx Machinery Company 11,189 Komo CNC machining center
Xxxxxxx Machinery Company 337,525 Mori Seiki machining cell
Xxxxxxx Machinery Company 198,995 Mori Seiki machining cell
Capital Leases
GE Capital 41,980 Okuma cadet
GE Capital 41,980 Okuma cadet
NEC 83,999 Phone system
Xxxxx Leasing Corp. 34,078 Xxxxx press break
Pacific Coast Technologies:
Term Debt:
KeyBank 487,839 Real estate - building #7 expansion
Capital Leases:
GE Capital 35,256 Okuma cadet
GE Capital 35,744 Okuma cadet
Creditor Principal Balance Security
-------- ----------------- --------
GE Capital 41,196 Okuma crown
GE Capital 98,759 Okuma CNC machining center
CIT Group 70,397 Tornos screw machine
CIT Group 98,444 Okuma crown
Pacific A & E Limited:
Term Debt:
PA&E International, Inc. 38,908,000 None (Intercompany note)
Pacific Aerospace & Electronics (UK) Limited:
Term Debt:
Pacific A & E Limited 29,481,000 None (Intercompany note)
Aeromet International:
Capital Lease: 476,000 Equipment
Lloyds Bowmaker
------------
Total term debt and capital leases $ 149,569,386
============
SCHEDULE 3.1.13
RELATED PARTY TRANSACTIONS
Employment agreement with Xxxxxx X. Xxxxxx. Pursuant to the existing
employment agreement, Xx. Xxxxxx is employed through fiscal 2003. Xx. Xxxxxx is
expected to terminate his existing employment agreement in connection with the
Exchange transaction and enter into a new employment agreement with the Company.
On August 15, 2001, Xxxx Xxxxx, who served as Vice President Finance of
the Company, as well as Treasurer and Assistant Secretary, left his employment
with the Company. In accordance with Xx. Xxxxx'x employment agreement and
separation letter executed by Xx. Xxxxx and the Company, Xx. Xxxxx will receive
severance pay of $150,000, which is the equivalent of one year's salary. This
severance is payable on regular payroll days over a 12-month period. Xx. Xxxxx
will also receive medical benefits for one year.
On February 28, 2002, Xxxxxx X. Xxxxxxx, who served as Vice President
Administration and General Counsel, left her employment with the Company. In
accordance with Xx. Xxxxxxx' employment agreement and separation letter executed
by Xx. Xxxxxxx and the Company, Xx. Xxxxxxx will receive $205,710, which is the
equivalent of one year's salary. This severance is payable on regular payroll
days over a 12-month period. Xx. Xxxxxxx will also receive medical benefits for
one year.
Xxxxxx Xxxxxxxxxxx who is currently the Vice President Operations and
Chief Operating Officer, will continue serving as the Vice President Operations
and Chief Operating Officer until May 17, 2002. In accordance with Xx.
Xxxxxxxxxxx'x employment agreement and separation letter executed by Xx.
Xxxxxxxxxxx and the Company, Xx. Xxxxxxxxxxx will receive $210,000, which is the
equivalent of one year's salary. This severance is payable on regular payroll
days over a 12-month period. Xx. Xxxxxxxxxxx will also receive medical benefits
for one year.
Xxxxxx X. Xxxxxx rents the fourth floor condominium in the headquarters
building from PA&E and has an option to purchase the condominium for $250,000.
The option terminates ten business days after Xx. Xxxxxx'x employment with the
Company ceases for any reason other than death.
GSC Partners, CDO Fund, Limited, GSC Partners CDO Fund II, Limited, GSC
Recovery II, L.P. and GSC Recovery IIA, L.P., affiliates of GSCP Recovery, Inc,
and as applicable, GSC Recovery II, L.P. (participating noteholders in the
Exchange), which will collectively own approximately 54% of the Company's Common
Stock on a fully-diluted basis following the Exchange, intend to purchase, at or
around the time of the Exchange transaction, certain senior secured discount
notes of the Company.
In August 2001, the Company entered into a lease agreement with North
Central Educational Services District (the "NCESD"), pursuant to which the NCESD
leased the second floor of the Company's Wenatchee headquarters building from
the Company for $6,183 per month for a term of 24 months. In authorizing the
lease, the Board of Directors determined that
the lease was made for fair market value. Xxxx X. Xxxxxxxx, a director of the
Company, is Superintendent of the NCESD.
SCHEDULE 3.1.15
PROPRIETARY RIGHTS
The Company was in default under a technology transfer agreement dated
December 30,1998 with Xxxxxx X. Xxxxx relating to the following U.S. patent
applications and one European patent application: (i) U.S. Serial No.
09/302,590, (ii) U.S. Serial No. 09/303,196 (now U.S. Patent No. 6,284,389) and
(iii) E.P. Serial No. 99'920'345.8 (the "Xxxxx Patents").
However, a settlement was reached between Xx. Xxxxx and the Company.
Pursuant to the settlement agreement dated February 28, 2002, the Company is
permitted to retain the Xxxxx Patents upon payment by the Company to Xx. Xxxxx
of an amount equivalent to $950,000 (the "Purchase Price"). $200,000 of the
Purchase Price will be paid by the Company transferring to Xx. Xxxxx the
building owned by the Company in Cashmere, WA. If the building in Cashmere, WA
is not transferred to Xx. Xxxxx by June 1, 2002, the $200,000 of the Purchase
Price will be added to the outstanding principal balance of the promissory note.
The remaining sum of $750,000 will be paid pursuant to a promissory note. Xx.
Xxxxx will retain a security interest in the Xxxxx Patents until the promissory
note is fully paid.
SCHEDULE 3.1.16(a)
EMPLOYEE BENEFIT PLANS
PA&E'S EMPLOYEE BENEFIT PLANS
Mutual of Omaha Medical, Dental & Vision Insurance
ADP 401(k) Retirement Plan
Xxxxxxx Flexible Benefits Plan
PA&E'S STOCK INCENTIVE PLANS
2002 Stock Option Plan (adopted by the Board of Directors on February 27, 2002)
Amended and Restated Stock Incentive Plan
Amendment No. 1 to the Amended and Restated Stock Incentive Plan
Amended and Restated Independent Director Stock Plan
1999 Stock Incentive Plan
1997 Employee Stock Purchase Plan
SCHEDULE 3.1.16(f)
PAYMENTS, VESTINGS OR LIABILITIES
No exceptions.
SCHEDULE 3.1.16(g)
CLAIMS WITH RESPECT TO PLANS
None.
SCHEDULE 3.1.16(h)
POST-EMPLOYMENT LIFE OR HEALTH INSURANCE COVERAGE
Medical benefits for the following people continue until the stated date, or
earlier, if they become covered by new employers:
Xxxx Xxxxx (until 8/15/02)
Xxxxxx X. Xxxxxxx (until 2/28/03)
Xxxxxx Xxxxxxxx (until 5/31/03)
Xxxxxx Xxxxxxxxxxx (until 5/17/03)
SCHEDULE 3.1.18
ENVIRONMENTAL MATTERS
No exceptions.
SCHEDULE 3.1.21
TAX RETURNS
The Company is in the process of discussions with the Inland Revenue
service in the United Kingdom regarding the amount of taxes owing in the United
Kingdom. The main issue concerns the interest on the loan of Sterling Pounds
23,700,000 from the Company to Pacific A&E (UK) Limited.
The Company has not filed U.S. federal income tax returns for the years
ending May 31, 2000 and May 31, 2001. Both returns are currently being completed
by KPMG; and it is anticipated that no tax or penalties will be due with respect
to either of these returns.
Exhibit A
HOLDERS/ALLOCATION OF NEW SECURITIES*
------------------------------------------------------------------------------------------------------------------------------
Number of Number of Aggregate
Aggregate Shares of Shares of Principal
Principal Common Preferred Amount of
Amount of Stock Stock New Notes
Old Notes Received Received Received
Holders Address Held Hereunder Hereunder Hereunder
------------------------------------------------------------------------------------------------------------------------------
GSCP Recovery, Inc. 000 Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxx, XX 00000 $24,260,000 19,582,848 380.85 $ 5,712,716
------------------------------------------------------------------------------------------------------------------------------
GSC Recovery II, L.P. 000 Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxx, XX 00000 $10,000,000 8,072,072 156.99 $ 2,354,788
------------------------------------------------------------------------------------------------------------------------------
Alliance Capital Management L.P. 1345 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000 $ 8,500,000 6,861,262 133.44 $ 2,001,570
------------------------------------------------------------------------------------------------------------------------------
M.W. Post Advisory Group L.L.C. 0000 Xxxxxxx Xxxx Xxxx
Xxxxx 000
Xxx Xxxxxxx, XX 00000 $17,145,000 13,839,568 269.15 $ 4,037,284
-------------------------------------------------------------------------------------------------------------------------------
Xxxxxxx X. Xxxxx & Sons 00000 Xxxxxxxx Xxxx.
Special Situation Partners Xxxxx 000
XX, X.X. Xxx Xxxxxxx, XX 00000 $ 2,500,000 2,018,018 39.25 $ 588,697
------------------------------------------------------------------------------------------------------------------------------
HBK Master Fund L.P. 000 Xxxxxxxx Xx. #000
Xxxxxx, XX 00000 $ 295,000 238,126 4.63 $ 69,466
------------------------------------------------------------------------------------------------------------------------------
Unknown Holder $ 1,000,000 807,207 15.70 $ 235,479
------------------------------------------------------------------------------------------------------------------------------
TOTAL: $63,700,000 51,419,101 1,000 $15,000,000
------
------------------------------------------------------------------------------------------------------------------------------
--------
* Amounts in this table may deviate in immaterial respects from the
number of shares and/or notes actually received by the Holders due to rounding.
For each $1,000 principal amount of Old Notes tendered, Holders shall receive
$235.4788 principal amount of New Notes, 807.207 shares of Common Stock and
0.0158 shares of Preferred Stock. The number of shares of Common Stock and
Preferred Stock received in the Exchange will be rounded down to the closest
whole number of shares. The principal amount of New Notes received in the
Exchange will be rounded down to the closest dollar.
A-1
Exhibit B
Certificate of Designation
[Filed Separately]
B-1
Exhibit C
New Notes Indenture
[Filed Separately]
C-1
Exhibit D
Opinion of Company Counsel as to matters of Washington Law
[Intentionally Omitted]
D-1
Exhibit E
Opinion of Company Counsel as to matters other than Washington Law
[Intentionally Omitted]
E-1
Exhibit F
Amendment to Employment Agreement
[Filed Separately]
F-1
Exhibit G
Supplemental Indenture
[Intentionally Omitted]
G-1
Exhibit H
Form of Guarantee
[Filed Separately]
H-1
Exhibit I
Note Purchase Agreement
[Filed Separately]
I-1
