ASSET PURCHASE AGREEMENT
between
Electronic Specialty Corporation,
Deltec International, Inc.,
ESC Acquisition Corp.,
and
Pacific Aerospace & Electronics, Inc.
TABLE OF CONTENTS
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ARTICLE 1 PURCHASE AND SALE OF THE ASSETS....................................2
1.1 Purchase and Sale..................................................2
1.2 Excluded Assets....................................................3
1.4 Further Assurances.................................................3
ARTICLE 2 ASSIGNMENT AND ASSUMPTION OF LIABILITIES...........................4
2.1 Assignment and Assumption..........................................4
2.2 Excluded Liabilities...............................................4
ARTICLE 3 PURCHASE PRICE.....................................................4
3.1 Purchase Price.....................................................4
3.2 Allocation of Purchase Price.......................................4
ARTICLE 4 CLOSING............................................................5
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER AND PA&E...................5
5.1 Authorization......................................................5
5.2 No Violations; Consents............................................5
5.3 PA&E Shares........................................................5
5.4 SEC Reports........................................................5
5.5 Material Adverse Changes...........................................6
5.6 Brokers............................................................6
5.7 Disclosure.........................................................6
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE SELLER.......................6
6.1 Corporate Existence................................................6
6.2 Authority..........................................................6
6.3 The Subsidiary.....................................................6
6.4 No Violations......................................................7
6.5 Consents...........................................................7
6.6 Financial Statements...............................................7
6.7 Material Adverse Changes...........................................7
6.8 Taxes..............................................................7
6.9 Absence of Indebtedness and Other Obligations......................8
6.10 Real Property......................................................8
6.11 Tangible Personal Property.........................................8
6.12 Contracts..........................................................9
6.13 Inventories........................................................9
6.14 Intellectual Property..............................................9
6.15 Receivables........................................................9
6.16 Customer and Supplier Lists.......................................10
6.17 Compliance........................................................10
6.18 Certain Interests.................................................10
6.19 Employment Arrangements...........................................10
6.20 Employee Benefits.................................................10
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6.21 Labor Matters.....................................................11
6.22 Environmental Matters.............................................11
6.23 Insurance.........................................................12
6.24 Litigation........................................................12
6.25 Banks.............................................................12
6.26 Letters of Credit and Powers of Attorney..........................12
6.27 Absence of Questionable Payments..................................12
6.28 Brokers...........................................................13
6.29 Investment Intent.................................................13
6.30 Reliance..........................................................13
6.31 Undisclosed Liabilities...........................................13
6.32 Disclosure........................................................13
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF DELTEC..........................14
7.1 Corporate Existence; Authority....................................14
7.2 No Violations.....................................................14
7.3 Consents..........................................................14
7.4 Brokers...........................................................14
7.5 Reliance..........................................................14
7.6 Disclosure........................................................14
ARTICLE 8 COVENANTS.........................................................15
8.1 Covenants of the Seller and Deltec................................15
8.2 Covenants of Buyer and PA&E.......................................17
ARTICLE 9 CONDITIONS PRECEDENT TO CLOSING...................................18
9.1 Condition to Each Party's Obligations.............................18
9.2 Conditions to Buyer's Obligations.................................18
9.3 Conditions to the Seller and Deltec's Obligations.................21
ARTICLE 10 TERMINATION.......................................................22
10.1 Right to Terminate................................................22
10.2 Effect of Termination.............................................23
ARTICLE 11 FURTHER AGREEMENTS................................................23
11.1 News Releases.....................................................23
11.2 Confidentiality...................................................23
11.3 Non-Competition and Non-Solicitation..............................23
11.4 Restrictions on PA&E Shares.......................................24
11.5 Closing Costs and Prorations......................................25
11.6 Costs, Expenses and Professional Fees.............................25
11.7 Investment in Seller..............................................26
11.8 Board of Directors................................................26
11.9 Termination of Benefit Plans......................................26
11.10 Accountants' Consent..............................................26
11.11 Qualification in California.......................................26
11.12 Employees.........................................................26
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ARTICLE 12 SURVIVAL; INDEMNIFICATION.........................................27
12.1 Survival..........................................................27
12.2 Indemnification by the Seller and Subsidiary......................27
12.3 Indemnification by Buyer and PA&E.................................27
12.4 Indemnification Period............................................28
12.5 Threshold and Deductible..........................................28
12.6 Indemnification Procedures........................................28
ARTICLE 13 ACCESS TO RECORDS.................................................29
13.1 Seller's and Subsidiary's Access..................................29
13.2 Buyer's and PA&E's Access.........................................29
13.3 Procedures........................................................29
ARTICLE 14 GENERAL PROVISIONS................................................29
14.1 Assignment........................................................29
14.2 Notices...........................................................29
14.3 Governing Law.....................................................30
14.4 Attorney Fees.....................................................30
14.5 Severability......................................................30
14.6 Amendment and Modification........................................30
14.7 Waiver............................................................30
14.8 Further Assurances................................................31
14.9 Entire Agreement..................................................31
14.10 Counterparts.....................................................31
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Exhibits
A Warranty Xxxx of Sale
B Assignment of Lease with Landlord's Consent
C Assignment and Assumption Agreement
D Investment Letter
Schedules
1.2 Excluded Assets
1.3 Permitted Liens
2.1 Assumed Liabilities
2.2 Excluded Liabilities
3.2 Allocation of Purchase Price
5.5 Material Adverse Changes (PA&E)
6.5 Seller's Consents
6.7 Material Adverse Changes (Seller)
6.8 Taxes
6.9 Absence of Indebtedness and Other Obligations
6.10 Real Property
6.11 Personal Property
6.12 Contracts
6.14 Intellectual Property
6.16 Customer and Supplier Lists
6.17 Compliance
6.18 Certain Interests
6.19 Employment Arrangements
6.20 Employee Benefits
6.21 Labor Matters
6.22 Environmental Matters
6.23 Insurance
6.24 Litigation
6.25 Banks
6.26 Letters of Credit and Powers of Attorney
6.31 Undisclosed Liabilities
7.3 Deltec's Consents
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ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT ("Agreement") is entered into as of April 13,
1998, by and between ELECTRONIC SPECIALTY CORPORATION, a Washington corporation
(the "Seller"), DELTEC INTERNATIONAL, INC., a Florida corporation ("Deltec"),
ESC ACQUISITION CORP., a Washington corporation ("Buyer"), and PACIFIC AEROSPACE
& ELECTRONICS, INC., a Washington corporation ("PA&E").
RECITALS
A. The Seller is in the business of designing and manufacturing electronic
relays, solenoids and sensors. The Seller's subsidiary, DISPLAYS & TECHNOLOGIES,
INC., a Washington corporation (the "Subsidiary"), manufactures display products
for use in airplanes and other applications. The businesses currently conducted
by the Seller and Subsidiary are collectively referred to in this Agreement as
the "Business". The Seller's president is Xxxxx Xxxxx, and the Subsidiary's
president is Xxxx XxXxxx.
B. Buyer is a wholly-owned subsidiary of PA&E, formed for the purpose of
acquiring substantially all of the Seller's assets.
C. Deltec is the majority shareholder of the Seller, and the Seller is the
sole shareholder of the Subsidiary. The Seller's second largest shareholder is
ARC Holdings, Ltd., an affiliate of Deltec ("ARC"). Deltec's president is Xxxx
Xxxxxxxx.
D. The Seller and all but one of the Seller's other shareholders (the
"Minority Shareholders") are parties to Restrictive Stock Transfer Agreements
(the "Buy-Sell Agreements"), covering the shares held by those shareholders. In
Section 17 of the Buy-Sell Agreements, those Minority Shareholders agree (i)
that the Seller has the right to repurchase or redeem their shares, in cash, for
their pro rata share of the purchase price in order to facilitate the sale of
all or substantially all of the Seller's assets, not in the ordinary course of
business, and (ii) to vote those shares in favor of such sale.
E. PA&E has made a bona fide offer to purchase substantially all of the
assets of the Seller and the Subsidiary, either directly or through a
wholly-owned subsidiary. Accordingly, the Seller desires to sell to Buyer, and
Buyer desires to purchase from the Seller, substantially all of the Seller's and
the Subsidiary's assets on the terms and conditions set forth in this Agreement
(the "Asset Sale").
F. The Seller's Board of Directors believes that the Asset Sale is in the
best interests of the Seller and all of its shareholders (the "Seller's
Shareholders").
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AGREEMENT
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE OF THE ASSETS
1.1 Purchase and Sale. On the Closing Date, as defined in Article 4, the
Seller will sell, transfer, assign, convey and deliver to Buyer, and Buyer will
purchase from Seller, all of the assets, properties and rights (except for the
Excluded Assets, as defined in Section 1.2), whether real or personal, tangible
or intangible, and wherever located, that are owned by the Seller or the
Subsidiary (the "Assets"), which Assets include without limitation:
a. cash, cash equivalents, and securities, including all of the
Subsidiary's Shares (as defined is Section 6.3.1) if the Assets of the
Subsidiary have not been distributed or transferred by operation of law to the
Seller (the "Subsidiary Distribution") before the Closing;
b. interests in real property (the "Real Property"), including
but not limited to (i) all leasehold interests and interests as a lessor or a
lessee, (ii) all improvements, easements, and appurtenances to or located on the
Real Property, and (iii) all contractual and other rights pertaining to the Real
Property, such as road and access rights, water rights, water delivery
contracts, condemnation awards, and insurance proceeds;
c. tangible personal property (the "Personal Property"),
including but not limited to manufacturing and office equipment, vehicles,
inventory (whether raw materials, work in process, or finished goods),
furniture, fixtures, leasehold improvements, drawings, designs and blueprints,
materials and supplies, and spare and replacement parts;
d. contracts, agreements, commitments, leases, licenses, purchase
orders, sales orders, insurance policies and documents, to the extent that they
are assignable (the "Contracts");
e. governmental licenses, permits, approvals, authorizations,
consents, franchises, tariffs, orders and other registrations required for the
conduct of the Business, to the extent that they are assignable (the
"Licenses");
f. patents, trademarks, copyrights, service marks and trade
names, including the right to use the names "Electronic Specialty Corporation",
"ESC", "Displays & Technologies, Inc." or "D&T", and all derivatives thereof,
which right shall be exclusive as against the Seller, the Subsidiary, Deltec and
any Affiliate (as defined in Section 12.2.1) of such parties, subject to the D&T
Agreement, as defined in Section 9.2.11; all registrations therefor; all
applications pending or allowed therefor; and all other proprietary rights and
intangible property, such as trade secrets, technology, software, operating
systems, customer and supplier lists, know-how, formulae, slogans, processes and
operating rights (the "Intellectual Property");
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g. all of the Accounts Receivable that are reflected in the most
recent of the Financial Statements, as defined in Section 6.6, or that have been
billed since the date of the most recent of the Financial Statements
(collectively, the "Accounts Receivable");
h. prepaid and deferred items, including but not limited to
prepaid rentals, insurance, taxes and unbilled charges and deposits, to the
extent that they are assignable;
i. operating data and records, including but not limited to,
financial and accounting records, correspondence, budgets, and engineering and
manufacturing records;
j. goodwill; and
k. telephone lines and numbers.
1.2 Excluded Assets. The Assets shall not include (collectively, the
"Excluded Assets") (a) the Seller's corporate seals, minute books, charter
documents, corporate stock record books, (b) if the Subsidiary Distribution has
occurred before Closing, the Subsidiary's corporate seals, minute books, charter
documents, corporate stock record books, (c) any of the assets set forth on
Schedule 1.2, or (d) any records relating to the Seller's or the Subsidiary's
corporate existence or to the assets set forth in Sections 1.2(a) through
1.2(c).
1.3 Conveyance of Assets. Subject to the terms and conditions of this
Agreement, the sale, assignment, transfer and delivery of the Assets, shall be
effected by the Seller's execution and delivery to Buyer at Closing (as defined
in Article 4) of a Warranty Xxxx of Sale in substantially the form attached as
Exhibit A (the "Xxxx of Sale"), the Assignment of Lease with Lessor's Consent in
substantially the form attached as Exhibit B (the "Lease Assignment"), the stock
certificates representing the Subsidiary's Shares if the Subsidiary Distribution
has not occurred before the Closing, all vehicle titles, and any other
instruments of transfer requested by Buyer, in form and substance sufficient to
vest in Buyer all right, title and interest in and to the Assets, free and clear
of any liens, claims or encumbrances of any kind, except as set forth on
Schedule 1.3 (the "Permitted Liens").
1.4 Further Assurances. Upon Buyer's or PA&E's request, and without further
consideration, each of the Seller and Deltec will take such further actions and
will execute such further documents, on and after the Closing Date, as are
reasonably necessary to (a) place Buyer in possession and operating control of
the Assets, (b) vest in Buyer good, valid and marketable title to the Assets,
free and clear of any liens, claims or encumbrances of any kind except for the
Permitted Liens, (c) complete the transactions described this Agreement, (d)
comply with all laws and regulations applicable to such transactions, and (e)
transfer to Buyer any governmental permits, consents or approvals that are
transferable.
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ARTICLE 2
ASSIGNMENT AND ASSUMPTION OF LIABILITIES
2.1 Assignment and Assumption. On the Closing Date, except for the Excluded
Liabilities (as defined below), the Seller will assign to Buyer, and Buyer will
assume from Seller, the Seller's liabilities and obligations (collectively, the
"Assumed Liabilities") which either are (a) known or existing as of the
Effective Date (as defined in Article 4) and set forth on Schedule 2.1, or (b)
incurred from and after the Effective Date in the ordinary course of the
Business, which assumption shall be set forth in an Assignment and Assumption
Agreement in substantially the form attached as Exhibit C (the "Assumption
Agreement").
2.2 Excluded Liabilities. Except as specifically set forth on Schedule 2.1
or in the Assumption Agreement, Buyer will not assume and will not be liable for
any liabilities of the Seller, the Subsidiary, the Business, Deltec, or any of
their Affiliates, known or unknown, contingent or absolute, accrued or otherwise
(the "Excluded Liabilities"), including but not limited to any liability: (a)
set forth on Schedule 2.2; (b) for Taxes (as defined in Section 6.8) arising
before the Effective Date and that are not reflected on Seller's February 28,
1998, financial statements; (c) relating to issuances of securities; (d)
incurred in connection with distributions to shareholders or in connection with
any corporate dissolution; (e) under any laws regarding employment practices,
terms and conditions of employment and wages and hours; or (f) under any
"Environmental Law," as defined in Section 6.22.
ARTICLE 3
PURCHASE PRICE
3.1 Purchase Price. PA&E agrees to deliver to the Seller at Closing
consideration for Buyer's purchase of the Assets (the "Purchase Price")
consisting of: (a) $2,000,000 in cash (the "Cash Purchase Price"), and (b)
unregistered shares (the "PA&E Shares") of PA&E's $.001 par value common stock.
The number of PA&E Shares shall be determined by dividing $6,000,000 by the
Market Price, as defined in Section 3.1.1.
3.1.1 Market Price. "Market Price" means an amount equal to the
average closing sale price of the PA&E Common Stock on the Nasdaq National
Market System ("Nasdaq") for the 20 consecutive trading days immediately
preceding the Closing Date, except that (a) if such formula produces a Market
Price that is greater than $6.75, then the Market Price for purposes of this
Section 3.1 shall be equal to $6.75, and (b) if such formula produces a Market
Price that is less than $5.75, then the Market Price for purposes of this
Section 3.1 shall be equal to $5.75.
3.2 Allocation of Purchase Price. The parties agree, for purposes of IRS
Form 8594, to allocate the fair market value of the Assets that constitute Class
I, II, III, IV and V Assets (as defined in Treasury Regulation Section
1.1060-IT(d), as amended), in accordance with Schedule 3.2, which the parties
agree to complete promptly after the Closing. The allocation prepared for Form
8594 purposes will be binding on Buyer and each of the Seller and the Subsidiary
for all federal, state and local tax purposes. Buyer and each of the Seller and
the
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Subsidiary shall attach the Form 8594 in the agreed form to their respective
applicable federal income tax returns.
ARTICLE 4
CLOSING; EFFECTIVE DATE
4.1 Closing. The Closing shall take place at the offices of Stoel Rives
LLP, 3600 Xxx Xxxxx Xxxxxx, Xxxxxxx, Xxxxxxxxxx at 10:00 a.m. on the later of
(a) one day after all conditions under Article 9 are met, or (b) at such other
place, date, and time as may be agreed upon by the parties (the "Closing Date").
The parties agree to use their best efforts to close one business day following
the date that the Seller's Shareholders approve this Agreement and the Asset
Sale.
4.2 Effective Date. The parties agree that the effective date of this
Agreement for state and federal tax and financial accounting purposes is the
close of business on February 28, 1998 (the "Effective Date").
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER AND PA&E
Buyer and PA&E, jointly and severally, represent and warrant to the Seller
that the following statements are true and correct as of the date of this
Agreement, and will be true and correct as of the Closing Date:
5.1 Authorization. Buyer and PA&E are each corporations duly organized and
validly existing under the laws of the State of Washington. Buyer and PA&E have
each taken all corporate action necessary to authorize execution and delivery
of, and performance of their obligations under, this Agreement. Buyer and PA&E
each have full corporate power and authority to enter into and to carry out
their obligations under this Agreement. This Agreement (a) has been approved by
the Boards of Directors of Buyer and PA&E, (b) Buyer and PA&E each have duly
executed and delivered this Agreement, and (c) this Agreement is a valid and
binding obligation of Buyer and PA&E, enforceable against each of them in
accordance with its terms.
5.2 No Violations; Consents. Execution, delivery and performance of this
Agreement by Buyer and PA&E will not conflict with, result in the breach of, or
constitute a material default under: (a) their respective Articles of
Incorporation or Bylaws, (b) any material note, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which Buyer or PA&E is a
party or by which either of them is bound, or (c) any statute, order,
injunction, judgment, decree, rule or regulation of any court or regulatory
authority or governmental body applicable to Buyer or PA&E. No consent or
approval by any third person or public authority is required to authorize, or is
required in connection with, execution, delivery or performance of this
Agreement by Buyer or PA&E.
5.3 PA&E Shares. At Closing, the Seller will acquire good title to the PA&E
Shares, free and clear of all pledges, security interests, liens, charges,
equities or claims, except
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as otherwise agreed to in this Agreement or as may be created by the Seller. The
PA&E Shares shall be validly issued, fully paid and non-assessable upon delivery
to the Seller at the Closing.
5.4 SEC Reports. PA&E has filed all required reports, schedules, forms,
statements, exhibits and other documents (collectively, the "SEC Reports") which
it is required to file with the Securities and Exchange Commission (the "SEC"),
since January 1, 1996, under the Securities Exchange Act of 1934, as amended,
and any rules or regulations adopted under that act (the "Exchange Act").
5.5 Material Adverse Changes. Except as disclosed in the SEC Reports or on
Schedule 5.5, there has been no material adverse change, on a consolidated
basis, to PA&E or its subsidiaries, their assets or the businesses conducted by
them, since December 31, 1997.
5.6 Brokers. Neither Buyer nor PA&E has entered into or authorized any
arrangements with any broker, finder, or investment banker that will result in
payment of a fee in connection with this transaction.
5.7 Disclosure. No representation or warranty made by Buyer or PA&E in this
Agreement or in any certificate furnished or to be furnished by Buyer or PA&E to
the Seller in connection with the transactions contemplated hereby contains any
untrue statement of a material fact, or omits to state a material fact necessary
to make the statements contained herein or therein not misleading.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to Buyer and PA&E, jointly and
severally, that the following statements are true and correct as of the date of
this Agreement, and will be true and correct as of the Closing Date:
6.1 Corporate Existence. The Seller and the Subsidiary are each
corporations duly organized, validly existing and in good standing under the
laws of the State of Washington. The Seller and the Subsidiary each have all
necessary corporate power and corporate authority to own, lease, and operate
their properties and assets and to carry on their businesses as now conducted
and as proposed to be conducted. The Seller and the Subsidiary are each duly
qualified or licensed to do business as a foreign corporation and are in good
standing in each jurisdiction where the failure to be qualified or licensed
would have a material adverse effect on the Business or the Assets.
6.2 Authority. The Seller has full power and authority to enter into and
carry out the terms of this Agreement. This Agreement (a) has been approved by
the Seller's Board of Directors, (b) has been duly and validly executed and
delivered by the Seller, and (c) is binding upon and enforceable against the
Seller in accordance with its terms, except as enforceability may be limited or
affected by applicable bankruptcy, insolvency, reorganization, or other laws of
general application relating to or affecting the rights of creditors, and except
as enforceability may be limited by rules of law governing specific performance,
injunctive relief, or other equitable remedies.
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6.3 The Subsidiary.
6.3.1 Capital Stock. The Subsidiary's authorized capital stock
consists of 1,000 shares of common stock (the "Subsidiary's Common Stock"), of
which 500 shares are issued and outstanding (the "Subsidiary's Shares"). The
Seller is the owner of all of the Subsidiary's Shares, free and clear of any
pledges, security interests, liens, encumbrances, or claims, and the
Subsidiary's Shares are validly issued, fully paid and nonassessable. There is
no subscription, option, warrant, call, right, agreement, or commitment relating
to the issuance, sale, delivery, or transfer (including any right of conversion
or exchange under any outstanding security or other instrument) of the
Subsidiary's Common Stock. The Subsidiary has no outstanding obligations to
repurchase, redeem, or otherwise acquire any of the outstanding shares of the
Subsidiary's Common Stock. If the Subsidiary Distribution has not occurred by
the Closing, then Buyer shall obtain good title to the Subsidiary's Shares at
the Closing, free and clear of all pledges, security interests, liens,
encumbrances, or claims.
6.3.2 Liquidation or Merger. If the Subsidiary Distribution has not
occurred by the Closing, then Buyer shall obtain good title to the Subsidiary's
Assets free and clear of all pledges, security interest, liens, encumbrances, or
claims, except for Permitted Liens. However, if the Subsidiary Distribution is
effective before Closing, Buyer shall have received true and correct copies of
the Subsidiary's Articles of Merger, certified by the Washington Secretary of
State, or of the documents distributing the Subsidiary's Assets to the Seller,
as the case may be.
6.4 No Violations. Except for the required consents set forth on Schedule
6.5, the execution, delivery and performance of this Agreement by the Seller
will not conflict with, result in the breach of, or constitute a default under
(a) the Articles of Incorporation or Bylaws of the Seller or the Subsidiary; (b)
any note, mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which the Seller or the Subsidiary is a party or by which either
of them is bound, or (c) any statute, order, injunction, judgment, decree, rule
or regulation of any court or regulatory authority or governmental body
applicable to either the Seller or the Subsidiary.
6.5 Consents. Except as set forth on Schedule 6.5, no consent or approval
by any third person or public authority is required to authorize, or is required
in connection with, the execution, delivery or performance of this Agreement by
the Seller.
6.6 Financial Statements. The Seller has furnished to Buyer and PA&E, or
will furnish before Closing, complete and accurate copies of (a) the
consolidated interim financial statements of the Seller through February 28,
1998, and (b) the Seller's audited financial statements for the fiscal years
ended March 31, 1995, 1996 and 1997, consolidated with and consolidating the
Subsidiary's financial statement for fiscal years ended March 31, 1996 and 1997
(collectively, the "Financial Statements"). Except as otherwise described in the
Financial Statements or in the accompanying auditor reports, the Financial
Statements (i) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
specified, and (ii) fairly present the financial condition of the Seller and the
Subsidiary as of the dates specified, and the results of their operations for
the periods
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specified, subject in the case of unaudited interim financial statements to
ordinary and recurring year-end adjustments.
6.7 Material Adverse Changes. Except as set forth on Schedule 6.7, there
has been no material adverse change to the Assets or the Business, since the
date of the most recent of the Financial Statements.
6.8 Taxes. Except as set forth on Schedule 6.8, (a) each of the Seller and
the Subsidiary has timely paid all federal, state, local or foreign taxes,
assessments, fees, imposts, levies and other charges, including without
limitation all income, sales, use, business and occupation, withholding,
payroll, employment, excise or property taxes or assessments, and interest and
penalties thereon (collectively, "Taxes") that have become due and payable in
the seven years preceding the Effective Date; (b) each of the Seller and the
Subsidiary has timely filed all required returns and reports with respect to
Taxes; (c) neither the Seller nor the Subsidiary (i) is subject to any dispute
regarding Taxes, or (ii) has waived any statute of limitations relating to
Taxes; and (d) no federal, state or local audits or administrative court
proceedings are presently pending or threatened with regard to any Taxes.
6.9 Absence of Indebtedness and Other Obligations. Except as set forth in
the Financial Statements or as described on Schedule 6.9, neither the Seller nor
the Subsidiary has (a) any Indebtedness (as defined below) of a material nature,
or (b) any other obligations of a material nature, whether accrued, absolute,
contingent or otherwise (including without limitation liabilities as a surety or
guarantor) and whether due or to become due, including without limitation any
liabilities for Taxes. "Indebtedness" means (i) all indebtedness of each of the
Seller and the Subsidiary for borrowed money or for the deferred purchase price
of property or services, including without limitation any indebtedness of either
the Seller or the Subsidiary with respect to any shareholder or previous
shareholder of either the Seller or the Subsidiary, and (ii) any other
indebtedness of either the Seller or the Subsidiary which is evidenced by a
note, bond, debenture or similar instrument.
6.10 Real Property. Schedule 6.10 sets forth a complete and correct
description of the Real Property. Except as set forth on Schedule 6.10, neither
the Seller nor the Subsidiary owns any Real Property or is the lessor or
sublessor under any lease of Real Property. Except as set forth in Schedule
6.10, each of the Seller and the Subsidiary has good and marketable title to all
Real Property leased by them, free and clear of all mortgages, pledges, liens,
conditional sales agreements, or other encumbrances of any kind. The Real
Property (including improvements thereon) is in satisfactory condition and
repair subject to normal wear and tear consistent with its present use, and is
available for immediate use in the conduct of the Business. Neither the
operations of the Business or any sublessee on the Real Property, nor any
improvements on the Real Property, violate in any material respect any
applicable building or zoning code or regulation of any governmental authority
having jurisdiction.
6.11 Tangible Personal Property. Schedule 6.11 contains a complete and
accurate list of all tangible Personal Property with a current value in excess
of $5,000 per item of personal property, that is owned or leased by either the
Seller or the Subsidiary (the "Tangible Personal Property"), including the dates
of and parties to any leases of tangible personal property. Each of the Seller
and the Subsidiary owns all of the Tangible Personal Property, free
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and clear of all mortgages, pledges, security interests, claims, charges or
other encumbrances, except as described on Schedule 6.11. The Tangible Personal
Property is adequate for the conduct of the Business as currently conducted, is
in satisfactory condition and repair subject to normal wear and tear consistent
with its present use, and is available for immediate use in the
conduct of the Business.
6.12 Contracts. Schedule 6.12 contains a complete and accurate list and
description of the Contracts having a value of $10,000 or more (the "Material
Contracts"). Except as set forth in Schedule 6.12: (a) the Material Contracts
are valid, binding and enforceable in accordance with their terms; (b) each of
the Seller and the Subsidiary has performed, or is now performing, the
obligations of, and is not in material default (and would not by the lapse of
time or the giving of notice be in material default) under, any Material
Contracts; (c) no party has raised any claim, dispute or controversy or withheld
payments from either the Seller or the Subsidiary with respect to any Material
Contracts, which claim, dispute, controversy or withholding of payment could, if
such party were to prevail, have a material adverse effect, either individually
or in the aggregate, on the Material Contracts; (d) no other party to a Material
Contract is in material default or has breached any material term or provision
of such Contract that has not previously been cured; (e) neither the Seller nor
the Subsidiary has received notice or warning of alleged nonperformance, delay
in delivery or other noncompliance with respect to any of the Material
Contracts; nor any notice that the other parties may totally or partially
terminate any of the Material Contracts; and (f) the Material Contracts are
assignable and no other party to a Contract is required to consent to sale of
the Assets to Buyer.
6.13 Inventories. The inventories of the Seller and the Subsidiary shown on
the most recent Financial Statements, or thereafter acquired, are all items of a
quality usable or saleable in the ordinary course of the Business, except for
inventory items that have been written down to an amount not in excess of
realizable market value or for which adequate reserves or allowances have been
provided.
6.14 Intellectual Property. Schedule 6.14 contains a complete and accurate
list of the Intellectual Property. Except as set forth on Schedule 6.14, (a)
each of the Seller and the Subsidiary owns the Intellectual Property and, to the
knowledge of the Seller, has the right to use and to transfer the Intellectual
Property to Buyer free and clear of all liens, claims and encumbrances, (b) the
use of the Intellectual Property by the Seller or the Subsidiary does not create
any conflict with or infringe upon any rights of any other person known to
either the Seller or the Subsidiary, (c) no claims of conflict or infringement
have been asserted against either the Seller or the Subsidiary, (d) neither the
Seller nor the Subsidiary is aware of any actual or threatened infringement of
the Intellectual Property by any third parties, and (e) neither the Seller nor
the Subsidiary has licensed to others, or agreed to license, any of the
Intellectual Property, or entered into any contracts with respect thereto.
6.15 Receivables. Buyer and PA&E have been provided access to information
regarding all of the Accounts Receivable. The Accounts Receivable (a) have
arisen in the ordinary course of the Business; (b) represent valid obligations
due to either the Seller or the Subsidiary enforceable in accordance with their
terms, except as enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally or (ii) general principles of equity which are
within
9
the discretion of courts of applicable jurisdiction; (c) have been collected or
will be collected in the ordinary course of the Business, subject only to
reserves for bad debts set forth on the Financial Statements, and (d) will not
be subject to any recoupments, setoffs or counterclaims.
6.16 Customer and Supplier Lists. Schedule 6.16 sets forth (a) a true and
correct list of each of the Business' ten largest customers in terms of sales,
and (b) a true and correct list of each of the Business' ten largest suppliers
in terms of purchases, for the last three years. There has not been any material
adverse change in either of the Seller's business relationship with any such
customer or supplier. Neither the Seller nor the Subsidiary has reason to
believe that any such customer or supplier intends to materially reduce the
amount of business it conducts with the either the Seller or the Subsidiary.
6.17 Compliance. Schedule 6.17 sets forth all governmental permits,
registrations, authorizations and other approvals required to be obtained in
order to operate the Assets or the Business. Except as set forth on Schedule
6.17, each of the Seller and the Subsidiary has all such permits, registrations,
authorizations and other approvals. The Seller has exercised and will exercise,
until the Closing, their best efforts to maintain and operate the Assets and the
Business in compliance with all applicable laws, ordinances, codes and
regulations. Except as set forth on Schedule 6.17, neither the Seller nor the
Subsidiary has received notice of violation of (a) any applicable governmental
permit, registration, authorization and other approval, (b) zoning regulation or
ordinance, (c) Environmental Law (as defined in Section 6.22), Federal
Occupational, Safety and Health Act, or comparable state laws, regulations and
rulings, or (d) other law, order, regulation or requirement relating to the
operation of the Assets or the Business, and, so far as is known to either the
Seller or the Subsidiary, there is no such violation.
6.18 Certain Interests. Except as set forth on Schedule 6.18, none of the
previous or current shareholders of the Seller or the Subsidiary (a) has any
interest in any property, real or personal, tangible or intangible, used in or
pertaining to the Business or the Assets, (b) is indebted to either the Seller
or the Subsidiary, (c) has any financial interest, direct or indirect, in any
supplier or customer of, or other outside business which has any transactions
with either the Seller or the Subsidiary. Except as set forth on Schedule 6.18,
neither the Seller nor the Subsidiary is indebted to any of the Seller's
Shareholders, except for amounts due under normal compensation arrangements and
for reimbursement of ordinary business expenses.
6.19 Employment Arrangements. Except as set forth on Schedule 6.19, (a)
each of the Seller and the Subsidiary has provided Buyer and PA&E with a list of
the names, positions, and current salaries of each of their respective employees
and the names and addresses of any agency that currently supplies them with
temporary workers, (b) each of such employees is an "at-will" employee, (c)
there are no written employment, commission or compensation agreements of any
kind between either the Seller or the Subsidiary and any of their respective
employees, and (d) the Seller and the Subsidiary have paid all salaries,
vacation pay, medical pay and other employee benefits or severance payments due
to be paid as of the date of this Agreement and through the last payroll date
immediately preceding the Closing Date. The Seller has provided to Buyer and
PA&E true and complete copies of all employment manuals and policies currently
in force that are generally provided to the employees of the Seller or the
Subsidiary.
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6.20 Employee Benefits. All pension, retirement, profit sharing, deferred
compensation, bonus, commission, incentive, life insurance, health and benefit
plans or arrangements established, maintained, or adopted by either the Seller
or the Subsidiary ("Benefit Arrangements") are listed in Schedule 6.20.
Complete, accurate copies of all documents relating to the establishment, terms,
and funding of such Benefit Arrangements have been provided to Buyer and PA&E.
Each Benefit Arrangement has been and is maintained, operated, and administered
in all material respects in compliance with its terms and any related documents
or agreements, and in all material respects in compliance with all applicable
laws. Neither the Seller nor the Subsidiary is aware of any pending or
threatened assessment, complaint, proceeding, or investigation of any kind with
respect to any Benefit Arrangement, or any pending material claims for benefits
or expenses under any Benefit Arrangement.
6.21 Labor Matters. Neither the Seller nor the Subsidiary is currently
party to any collective bargaining arrangement, and, except as set forth on
Schedule 6.21, has never been party to any collective bargaining arrangement.
Except as set forth on Schedule 6.21, neither the Seller nor the Subsidiary has
any knowledge of the existence or threat of, and neither the Seller nor the
Subsidiary has been party to, involved in, or aware of, for at least two years:
(a) any unfair labor practice or complaint of the existence of any unfair labor
practice, (b) labor strike, slowdown or work stoppage, representation petition
brought before the National Labor Relations Board, (c) grievance or arbitration
proceeding arising out of or under any collective bargaining agreements, or (d)
any violation by either the Seller or the Subsidiary of any applicable laws
respecting employment practices, terms and conditions of employment and wages
and hours in the two years preceding the date of this Agreement.
6.22 Environmental Matters. Except as described in the Phase I and Phase II
environmental assessments obtained by Buyer and PA&E (the "Environmental
Reports") or on Schedule 6.22:
6.22.1 neither the Seller nor the Subsidiary has received any request
for information from any governmental agency with regard to Hazardous Substances
or either the Seller's or the Subsidiary's compliance with any Environmental
Law;
6.22.2 neither the Seller, the Subsidiary, nor, to the best knowledge
of the Seller, any other person, has used, treated, stored, disposed of,
generated, manufactured, released or spilled any Hazardous Substance on the Real
Property which would constitute a violation of or a reportable event under any
Environmental Law;
6.22.3 each of the Seller and the Subsidiary has all permits currently
required by Environmental Law for the conduct of their respective businesses and
the current use, occupancy or condition of the Real Property;
6.22.4 all wastes generated by either the Seller or the Subsidiary has
been properly transported off site and disposed of or recycled in compliance
with all applicable Environmental Laws;
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6.22.5 neither the Seller, nor, to the best knowledge of the Seller,
any other person, has disposed of any solid wastes, or spilled, released or
disposed of any petroleum product or fraction thereof, on the Real Property;
6.22.6 no material containing more than one percent by weight of
asbestos is present in any of the improvements upon, or is otherwise located on,
the Real Property; and
6.22.7 no underground storage tanks are in use, out of service, closed
or decommissioned on the Real Property (whether or not excluded from regulation
under any Environmental Law). Schedule 6.22 describes the size, location,
construction, date of installation, use and testing history of any such
underground storage tanks.
"Hazardous Substance" means any hazardous, toxic, radioactive or infectious
substance, material or waste as defined or listed under any Environmental Law.
"Environmental Law" means any federal, state or local statute, regulation or
ordinance pertaining to the protection of human health or the environment.
6.23 Insurance. Schedule 6.23 contains a complete list of all insurance
policies maintained by either the Seller or the Subsidiary, and the annual
premium for each such policy. All premiums owing on such polices are paid in
full and no notice of cancellation or termination has been received with respect
to any such policies. Such policies (a) are in full force and effect, (b) are
sufficient for compliance with all material requirements of law and of material
agreements to which either the Seller or the Subsidiary is a party, and (c)
provide insurance coverage for the Assets and operation of the Business
comparable to that of companies similarly situated. Neither the Seller nor the
Subsidiary has been refused any insurance with respect to the Assets or
operation of the Business nor had coverage limited by any insurance carrier.
6.24 Litigation. Except as set forth in Schedule 6.24, there is no action,
dispute, claim, proceeding, suit, appeal or investigation pending or threatened
against either the Seller or the Subsidiary that involves the Assets or the
Business, or that questions the validity of this Agreement. To the knowledge of
the Seller, there are no facts that could reasonably be expected to result in a
judgment or other determination that would have a material adverse effect on the
Assets or the Business, or that would cause this Agreement to be prohibited or
enjoined.
6.25 Banks. Schedule 6.25 contains a complete and accurate list of all
banks in which either the Seller or the Subsidiary has an account or safe
deposit box, and the names of all persons authorized to draw thereon or have
access thereto.
6.26 Letters of Credit and Powers of Attorney. Except as listed as Schedule
6.26, neither the Seller nor the Subsidiary has any outstanding letters of
credit or powers of attorney, except routine powers of attorney relating to
representation before governmental agencies or given in connection with or
relating to permission to conduct business in a state or other jurisdiction.
6.27 Absence of Questionable Payments. Neither the Seller, the Subsidiary,
nor any director, officer, agent, employee or other person acting on behalf of
either the Seller or the Subsidiary, has used, to the knowledge of the Seller,
any funds for unlawful contributions,
12
payments, gifts or entertainment or made any unlawful expenditures relating to
political activity to any government official or other person. The Seller and
the Subsidiary have adequate financial controls to prevent such unlawful
contributions, payments, gifts, entertainment or expenditures, to the extent
that any such use of funds would, in the aggregate, be material to the Business.
Neither the Seller, the Subsidiary, nor any director, officer, agent, employee
or other person acting on behalf of either the Seller or the Subsidiary, has
accepted or received, to the knowledge of the Seller, any unlawful
contributions, payments, gifts or expenditures in connection with the operation
of the Assets or Business which would, in the aggregate, be material to the
Assets or the Business.
6.28 Brokers. Neither the Seller nor the Subsidiary has entered into or
authorized any arrangements with any broker, finder, or investment banker that
will result in payment of a fee in connection with this transaction, except for
the agreement with Acquisition Services Group, Inc. All amounts due under that
agreement shall be paid at Closing. The Seller shall indemnify Buyer and PA&E,
jointly and severally, against any claim for payment under that agreement or any
other claim by any person for a fee in connection with this transaction.
6.29 Investment Intent. The Seller is acquiring the PA&E Shares for
investment and not with a view to distribution, except (a) as may be required
under the LeCave Agreement as defined in Section 9.2.12, and (b) distributions
to the Seller's Shareholders upon the liquidation of the Seller. The Seller
acknowledges that the PA&E Shares have not been registered under federal or
state securities laws and cannot be resold without registration under such laws
or an exemption therefrom. The Seller has knowledge and experience in financial
and business matters, is capable of evaluating the merits and risks of an
investment in the PA&E Shares, and can bear the economic risk of an investment
in such shares.
6.30 Reliance. Except to the extent that Buyer and PA&E have actual
knowledge to the contrary, the Seller recognizes and agrees that Buyer and PA&E
are relying upon the representations and warranties made by the Seller in this
Agreement, notwithstanding any investigation by Buyer and PA&E.
6.31 Undisclosed Liabilities. To the knowledge of the Seller, neither the
Seller nor the Subsidiary has any liability or obligation (whether absolute,
accrued, contingent or other, and whether due or to become due) not otherwise
disclosed on the attached Schedules, or accrued, reserved against, or otherwise
disclosed in the most recent Financial Statements, except liabilities disclosed
on Schedule 6.31 as having been incurred in the ordinary course of business (a)
after the date of the most recent Financial Statements, or (b) within 60 days
prior to the date of the most recent Financial Statements, for which the Seller
were not invoiced by such date.
6.32 Disclosure. No representation or warranty made by either the Seller or
the Subsidiary in this Agreement or certificate furnished or to be furnished by
either the Seller or the Subsidiary to Buyer or PA&E in connection with the
transactions contemplated by this Agreement, contains any untrue statement of a
material fact, or omits to state a material fact necessary to make the
statements contained herein or therein not misleading. Notwithstanding any
provision of this Agreement to the contrary, any information specifically
disclosed in one Schedule to this Agreement shall be deemed to be disclosed for
all purposes of this Agreement. Certain information set forth in the Schedules
to this Agreement is included solely for
13
informational purposes and may not be required to be disclosed pursuant to this
Agreement. The disclosure of any information shall not be deemed to constitute
an acknowledgment that such information is required to be disclosed in
connection with the representations and warranties made by the Seller in this
Agreement or that it is material, nor shall such information be deemed to
establish a standard of materiality (and the actual standard materiality may be
higher or lower than the matters disclosed by such information).
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF DELTEC
Deltec represents and warrants to Buyer and PA&E, jointly and severally,
that the following statements are true and correct as of the date of this
Agreement, and will be true and correct as of the Closing Date:
7.1 Corporate Existence; Authority. Deltec is a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida.
Deltec has full power and authority to enter into and carry out its obligations
under this Agreement. This Agreement (a) has been approved by Deltec's Board of
Directors, (b) has been duly and validly executed and delivered by Deltec, and
(c) is binding upon and enforceable against Deltec in accordance with its terms,
except as enforceability may be limited or affected by applicable bankruptcy,
insolvency, reorganization, or other laws of general application relating to or
affecting the rights of creditors, and except as enforceability may be limited
by rules of law governing specific performance, injunctive relief, or other
equitable remedies.
7.2 No Violations. Except for the required consents set forth on Schedule
7.3, the execution, delivery and performance of this Agreement by Deltec will
not conflict with, result in the breach of, or constitute a default under (a)
its Articles of Incorporation or Bylaws; (b) any note, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which Deltec is a
party or by which it is bound, or (c) any statute, order, injunction, judgment,
decree, rule or regulation of any court or regulatory authority or governmental
body applicable to Deltec.
7.3 Consents. Except as set forth on Schedule 7.3, no consent or approval
by any third person or public authority is required to authorize, or is required
in connection with, the execution, delivery or performance of this Agreement by
Deltec.
7.4 Brokers. Deltec has not entered into or authorized any arrangements
with any broker, finder, or investment banker that will result in payment of a
fee in connection with this transaction , except for the agreement with
Acquisition Services Group, Inc.
7.5 Reliance. Except to the extent that Buyer and PA&E have actual
knowledge to the contrary, Deltec recognizes and agrees that Buyer and PA&E are
relying upon the representations and warranties made by Deltec in this
Agreement, notwithstanding any investigation by Buyer and PA&E.
7.6 Disclosure. No representation or warranty made by Deltec in this
Agreement or certificate furnished or to be furnished by Deltec to Buyer or PA&E
in connection with the
14
transactions contemplated by this Agreement, contains any untrue statement of a
material fact, or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE 8
COVENANTS
8.1 Covenants of the Seller and Deltec. The Seller and Deltec agree that,
between the date of this Agreement and the Closing Date, unless Buyer and PA&E
consent otherwise in writing, the Seller and Deltec shall comply with the
following covenants:
8.1.1 Shareholder Approval.
a. Shareholders Meeting. The Seller's Board of Directors shall
submit a summary of this Agreement and the Asset Sale (in a form reasonably
acceptable to PA&E's counsel) to the Seller's Shareholders for approval, as
required by Washington law, at a shareholders' meeting (the "Shareholders'
Meeting") to be held as soon as reasonably practicable after the date of this
Agreement.
b. Notice of Meeting. The Seller shall provide the Seller's
Shareholders with notice of the Shareholders' Meeting, as required under
Washington law and in a form reasonably acceptable to PA&E's counsel. The notice
shall contain (a) the statement that the Seller's Shareholders are or may be
entitled to assert dissenters' rights under Revised Code of Washington ss.23B.12
et. seq. (the "Dissenters' Rights Statute"), (b) a copy of the Dissenters'
Rights Statute, and (c) a statement that the Seller shall promptly deliver a
copy of this Agreement to any of the Seller's Shareholders who request a copy,
at the Seller's expense. The Seller shall provide to Buyer's and PA&E's counsel,
promptly after such notice has been provided, with (i) copies of all such
notices, and (ii) a certificate of the Seller's corporate secretary certifying
the mailing of such notice to all of the Seller's Shareholders, including but
not limited to each of the Seller's Shareholders listed on the Seller's common
stock ledger dated March 10, 1998.
c. Voting. At the Shareholders' Meeting, Deltec (a) shall vote
its shares in the Seller to approve this Agreement and the Asset Sale, and (b)
shall cause ARC to vote its shares in the Seller to approve this Agreement and
the Asset Sale.
8.1.2 Intercompany Liabilities.
a. Owed to Deltec. The Seller shall repay $200,000 in
intercompany liabilities owed to Deltec by delivering to Deltec before or at
Closing, a promissory note in the initial principal amount of $200,000 (the
"Deltec Note"). The Deltec Note shall be payable in three payments as follows:
(i) $100,000 principal plus accrued interest due immediately after the
effectiveness of the Closing, (ii) $50,000 principal plus accrued interest due
six months after the Closing Date, and (iii) $50,000 principal plus accrued
interest due 12 months after the Closing Date. The Deltec Note shall accrue
interest, from and after the date of issuance, at 9% per annum. The Deltec Note
will allow prepayment at any time without penalty.
15
b. E&N Lease Buyout. The Seller shall purchase the Equipment
subject to the leases between E&N, Inc. (an affiliate of Deltec) and ESN
Corporation (a dissolved or to be dissolved subsidiary of the Seller), for
$20,000 (the "E&N Lease Buyout Price"), in exchange for cancellation of such
leases. The Seller shall pay the E&N Lease Buyout Price by delivering to E&N,
Inc. before or at Closing a promissory note in the initial principal amount of
$20,000 (the "E&N Note"). All principal and accrued interest on the E&N Note
shall be due in full immediately after the effectiveness of the Closing. The E&N
Note shall accrue interest, from and after the date of issuance, at 9% per
annum. The E&N Note will allow prepayment at any time without penalty.
8.1.3 Environmental. Before Closing, the Seller shall take the
following actions, in accordance with applicable environmental regulations:
a. Remove and properly dispose off-site of the pile of waste
metal chips buried on the grounds of the Vancouver, Washington facility;
b. Complete the secondary containment in the chemical storage
room required by a notice letter from the State of Washington Department of
Ecology, unless the need for such containment is waived in writing by the
Department of Ecology; and
c. Obtain and provide a copy of the following documents to Buyer
and PA&E: (1) spill prevention and control plan, (2) required pollution
prevention reports, and (3) certifications of completed hazardous communications
training for persons employed by either the Seller or the Subsidiary for more
than six months.
8.1.4 Business Operations. The Seller and the Subsidiary shall (a)
conduct the Business in a reasonable and prudent manner in accordance with past
practices, (b) use their best efforts to preserve the Business and relationships
with their employees, customers, suppliers, and others, (c) preserve and protect
the Assets, and (d) conduct the Business in compliance with all applicable laws
and regulations.
8.1.5 Access. The Seller and the Subsidiary shall permit Buyer and
PA&E and their authorized representatives to contact customers and suppliers of
each of the Seller and the Subsidiary, which shall be conducted with an
authorized representative of the Seller. The Seller and the Subsidiary shall
grant Buyer and PA&E, and their authorized representatives, reasonable access
to, and make available for inspection, during normal business hours, (a) the
premises in which the Seller and the Subsidiary conduct the Business, (b) all of
the Seller's and the Subsidiary's books, records, and personnel files, and (c)
such financial data, operating data, and other information as Buyer and PA&E
shall reasonably request.
8.1.6 Dividends; Changes in Capital Stock. Except as otherwise
required or permitted in this Agreement, neither the Seller nor the Subsidiary
shall (a) declare, set aside, or pay any dividends on, or make any distributions
in respect of, any of their capital stock, (b) split, combine, or reclassify any
of their capital stock or issue, authorize, or propose the issuance of any other
securities in respect of, in lieu of, or in substitution for shares of their
capital stock, or (c) repurchase, redeem, or otherwise acquire any shares of
their capital stock
16
or any other outstanding securities. Until the Closing is consummated, Deltec
shall not transfer any of the shares of the Seller's common stock held by it.
8.1.7 No Acquisitions or Borrowings. Except as set forth in Section
8.1.2, neither the Seller nor the Subsidiary shall (a) acquire or agree to
acquire by merger or consolidation with, or by purchase of a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association, or other business organization or division thereof, or
otherwise acquire or agree to acquire any other assets, except that the Seller
may merge with the Subsidiary or otherwise acquire all of the Subsidiary's
assets, or (b) engage in any borrowings, indebtedness, or similar obligations
(other than trade debt or draws on the Seller's bank line of credit in the
ordinary course of the Business).
8.1.8 No Dispositions. Except as set forth in Section 8.1.2, neither
the Seller nor the Subsidiary shall sell, lease, encumber, pledge, grant a
security interest in, or otherwise dispose of, or agree to sell, lease, or
otherwise dispose of, any of the Assets or any interest in the Assets, except in
the ordinary course of the Business consistent with prior practice.
8.1.9 Employee Compensation. Neither the Seller nor the Subsidiary
shall (a) grant any increase in the compensation or rate of compensation payable
or to become payable to any officer, employee, or director, except for usual and
customary increases to non-exempt employees if PA&E approves such increases
before their grant, (b) set aside, pay or accrue for or on behalf of any person,
any bonus, profit sharing, retirement, insurance, death, fringe benefit,
severance, or other extraordinary or indirect compensation, other than as
required by plans or agreements in effect on the date of this Agreement, or (c)
amend or make any commitment to enter into or amend any employment, consulting,
employee benefit, or other similar agreement.
8.1.10 Contracts. Neither the Seller nor the Subsidiary shall waive
any material right or cancel any Material Contract or assume or enter into any
Material Contract, lease, License, obligation, indebtedness, commitment,
purchase or sale, except in the ordinary course of the Business.
8.1.11 No Solicitation. Neither the Seller, the Subsidiary nor Deltec
shall, directly or indirectly, solicit, or encourage any person, entity, or
group (other than Buyer and PA&E), or enter into any negotiations, discussions
or communications with such persons, concerning any other exchange, merger, sale
of substantially all of the Assets not in the ordinary course of the Business,
or sale of any capital stock, of the Seller.
8.1.12 Material Changes. The Seller and Deltec shall promptly inform
Buyer and PA&E of (a) any material adverse change (or any condition, event, or
development that would cause a material adverse change) in the financial
condition, prospects or operations of the Business or the Assets, (b) any
institution or threat of any governmental complaints, investigations or hearings
that affects the Business or the Assets, and (c) the institution or threat of
litigation involving the Business, the Assets or this Agreement.
17
8.2 Covenants of Buyer and PA&E . Buyer and PA&E agree that, between the
date of this Agreement and the Closing Date, unless the Seller and Deltec
consent in writing, Buyer and PA&E shall comply with the following covenants:
8.2.1 Access. PA&E shall permit the Seller and Deltec and their
authorized representatives reasonable access to, and make available for
inspection, during normal business hours, the premises in which PA&E conducts
its business and such financial data, operating data, and other information
regarding PA&E as the Seller and Deltec shall reasonably request.
ARTICLE 9
CONDITIONS PRECEDENT TO CLOSING
9.1 Condition to Each Party's Obligations. The obligations of each party
under this Agreement are subject to the fulfillment, at or prior to Closing, of
the following conditions (unless waived in writing by all parties):
9.1.1 Pre-Closing Inventory. At Buyer's election, the Seller and Buyer
shall have completed a joint inventory of the Assets immediately prior to
Closing. The parties agree to fully cooperate with each other in planning and
conducting such inventory. Representatives of PA&E and the Seller, and Deltec if
it elects to participate, shall be present for such inventory.
9.2 Conditions to Buyer's Obligations. The obligations of Buyer and PA&E
under this Agreement are subject to the fulfillment, at or prior to Closing, of
the following conditions (unless waived in writing by Buyer and PA&E ):
9.2.1 Consents. All releases, authorizations, consents, and approvals
required to be obtained from any third-party, including those listed on Schedule
6.5, shall have been obtained in a form reasonably satisfactory to Buyer and
PA&E.
9.2.2 Corporate Approval. The execution, delivery and performance of
this Agreement shall have been approved by the Seller's Shareholders. The Seller
shall have provided Buyer and PA&E with (a) a copy of the Shareholders' Meeting
notice that was sent to each of the Seller's Shareholders, together with all
attachments, enclosures and the secretary's certificate specified in Section
8.1.1(b), (b) any notices from Seller's Shareholders which purport to assert
dissenter's rights with regard to the Asset Sale, and (c) evidence of full
payment, and a copy of the certificate, for the shares of Seller's common stock
issued to Xxxxxx XxXxxxxx.
9.2.3 Representations, Warranties and Covenants. The representations
and warranties of the Seller and Deltec contained in this Agreement shall be
true and correct in all material respects as of Closing as if made on and as of
the Closing Date. The Seller and Deltec shall have each performed and complied
with all covenants or conditions required by this Agreement to be performed and
complied with by them prior to Closing.
9.2.4 Officer's Certificate. The Seller shall have executed and
delivered to Buyer and PA&E a certificate in which a duly authorized officer
certifies: (a) satisfaction of the conditions set forth in Sections 9.2.1
through 9.2.3 as of the Closing Date, and (b) copies of
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the resolutions of the Seller's Shareholders and Board of Directors, authorizing
the execution, delivery and performance of this Agreement and all other
agreements executed by Seller in connection with this Agreement. Deltec shall
have executed and delivered to Buyer and PA&E a certificate in which a duly
authorized officer certifies copies of the resolutions of Deltec's Board of
Directors, authorizing the execution, delivery and performance of this Agreement
and all other agreements executed by Deltec in connection with this Agreement.
9.2.5 Litigation. No litigation, investigation or proceeding shall
have been instituted or threatened by any third party which would materially
adversely affect the Assets, the Business, or the ability of any party to this
Agreement to comply with the provisions of this Agreement.
9.2.6 Environmental Issues. Buyer and PA&E shall have obtained the
Environmental Reports, and the Environmental Reports shall be reasonably
acceptable to Buyer and PA&E. The Seller shall have completed the actions
required under Section 8.1.3.
9.2.7 Financial Statements. The Seller has delivered the February 28,
1998 interim Financial Statements to Buyer and PA&E in a form acceptable to
Buyer and PA&E, in hard copy and on floppy disk.
9.2.8 Subsidiary Shares. If the Subsidiary Distribution has not
occurred prior to Closing, then the Seller shall have delivered to Buyer and
PA&E the original certificate or certificates representing the Subsidiary
Shares, together with appropriate stock powers transferring such shares to
Buyer.
9.2.9 Documents. The Seller shall have executed and delivered the
following documents to Buyer and PA&E:
a. Xxxx of Sale.
b. Lease Assignment.
c. Assumption Agreement.
d. Investment Letter in substantially the form attached as
Exhibit D.
e. Real estate excise tax affidavit covering leasehold
improvements.
9.2.10 Employment Arrangements. Xx. Xxxxx and Xx. XxXxxx shall have
each executed and delivered employment agreements with Buyer in a form mutually
acceptable to Buyer and Xx. Xxxxx and Xx. XxXxxx, respectively (the "Employment
Agreements").
9.2.11 D&T Agreement. The Seller shall have delivered to Buyer and
PA&E a copy of the fully-executed Settlement and Release Agreement with the
Subsidiary, Displays & Technologies, Inc., a California corporation ("D&T") and
Xx. XxXxxx (who is also D&T's president and majority shareholder), in a form
reasonably acceptable to Buyer and PA&E (the "D&T Agreement"). Pursuant to the
D&T Agreement, ESC shall have delivered to D&T (a) all cash due to D&T under the
D&T Agreement, and (b) the stock certificates representing all shares of D&T
common stock currently held by Seller, together with appropriate stock powers.
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9.2.12 LeCave Agreement. Xx. XxXxxx, the Seller, the Subsidiary and
D&T shall have delivered to Buyer and PA&E a copy of the fully-executed
agreement between the Seller and Xx. XxXxxx for the compensation of services
rendered by Xx. XxXxxx to the Seller in connection with the Asset Sale in a form
reasonably acceptable to Buyer and PA&E (the "LeCave Agreement").
9.2.13 Deltec Note. The Seller shall have delivered to PA&E and Buyer
the original Deltec Note (which shall have been stamped paid if the Seller has
paid it in full before Closing).
9.2.14 ESN Corporation. ESN Corporation shall have been dissolved and
its assets distributed to the Seller, its sole shareholder, and PA&E and Buyer
have received evidence of such dissolution and distribution. The leases between
Seller and ESN Corporation, and between ESN Corporation and E&N, Inc., shall
have been terminated and the assets subject to such leases shall have been
conveyed to the Seller to become part of the Assets. The Seller shall have
delivered to PA&E and Buyer (a) evidence satisfactory to PA&E and Buyer of such
lease termination and asset distribution, and (b) the original E&N Note (which
shall have been stamped paid if the Seller has paid it in full before Closing).
9.2.15 Title Policy. Buyer shall have received a Standard Coverage
leasehold title insurance policy insuring its leasehold interest in the Real
Property located in Vancouver, Washington for such property's fair market value,
subject to no exceptions other the Permitted Liens and the real estate excise
tax due by virtue of the conveyance of the leasehold improvements located on
such Real Property.
9.2.16 Seller's Name Changes. The Seller, and also the Subsidiary if
the Subsidiary Distribution has not occurred by Closing, shall have delivered to
Buyer and PA&E duly authorized Articles of Amendment to their Articles of
Incorporation changing their respective names to anything except "Electronic
Specialty Corporation", "ESC" "Displays & Technologies, Inc." or "D&T", or any
derivative thereof; provided that Buyer and PA&E shall not file such Articles of
Amendment until Closing.
9.2.17 No Material Adverse Change. There shall have been no materially
adverse changes in the financial condition, operations, or prospects of the
Business or Assets, between the date of this Agreement and the Closing Date,
that have not been cured to Buyer's and PA&E's satisfaction before Closing.
9.2.18 Control. Each of the Seller and the Subsidiary shall have taken
all steps necessary or desirable to place Buyer in actual possession and
operating control of the Assets and the Business, including but not limited to
delivering to Buyer all keys, passcards and other access devices to the Real
Property.
9.2.19 Actions Satisfactory to Buyer's and PA&E's Counsel. All
actions, proceedings, instruments and documents required to be carried out by or
in connection with this Agreement, and all other relevant legal matters, shall
be reasonably satisfactory to counsel for Buyer and PA&E.
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9.2.20 Compliance with Securities Laws. All actions shall have been
taken and all filings shall have been made which PA&E's counsel deems to be
necessary and appropriate for issuance of the PA&E Shares in compliance with
federal and applicable state securities laws. The parties agree that this
condition does not require the registration of the PA&E Shares under the
Securities Act of 1933, as amended (the "Securities Act"), or under any state
blue sky law.
9.3 Conditions to the Seller and Deltec's Obligations. The obligations of
the Seller and Deltec under this Agreement are subject to the fulfillment, at or
prior to Closing, of the following conditions (unless waived in writing by the
Seller and Deltec):
9.3.1 Consents. All releases, authorizations, consents, and approvals
required to be obtained from any third-party, including those listed on Schedule
6.5, shall have been obtained in a form satisfactory to the Seller and Deltec.
9.3.2 Representations, Warranties and Covenants. The representations
and warranties of Buyer and PA&E contained in this Agreement shall be true and
correct in all material respects as of the Closing as if made on and as of the
Closing Date. Buyer and PA&E shall have performed and complied with all
covenants or conditions required by this Agreement to be performed and complied
with by them prior to Closing.
9.3.3 Officer's Certificate. Buyer and PA&E shall have executed and
delivered to the Seller a certificate in which a duly authorized officer of
Buyer and PA&E certifies: (a) satisfaction of the conditions set forth in
Sections 9.3.1 and 9.3.2 as of the Closing Date, and (b) copies of the
resolutions of Buyer's and PA&E's Boards of Directors authorizing the execution,
delivery and performance of this Agreement and all other agreements executed in
connection with this Agreement.
9.3.4 Litigation. No litigation, investigation or proceeding shall
have been instituted or threatened by any third party which would materially
adversely affect the ability of any party to this Agreement to comply with the
provisions of this Agreement.
9.3.5 Corporate Approval. The execution, delivery and performance of
this Agreement shall have been approved by the Seller's Shareholders.
9.3.6 Purchase Price. PA&E shall have delivered to the Seller (a) the
Cash Purchase Price, and (b) the certificates representing the PA&E Shares.
9.3.7 Documents. Buyer shall have executed and delivered the following
documents to the Seller:
a. Lease Assignment.
b. Assumption Agreement.
c. Real estate excise tax affidavit covering leasehold
improvements.
9.3.8 Employment Agreements. Buyer shall have each executed and
delivered the Employment Agreements to Xx. Xxxxx and Xx. XxXxxx.
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9.3.9 Other Agreements. D&T and Xx. XxXxxx shall have executed and
delivered the D&T Agreement to the Seller and the Subsidiary. Xx. XxXxxx shall
have executed and delivered the LeCave Agreement to the Seller.
9.3.10 No Material Adverse Change. There shall have been no materially
adverse changes in the business, assets, financial condition, operations, or
prospects of Buyer or PA&E, on a consolidated basis with its subsidiaries,
between the date of this Agreement and the Closing Date, that have not been
cured to the Seller's and Deltec's satisfaction before Closing.
9.3.11 Actions Satisfactory to Seller's and Deltec's Counsel. All
actions, proceedings, instruments and documents required to be carried out by or
in connection with this Agreement, and all other relevant legal matters, shall
be reasonably satisfactory to counsel for the Seller and Deltec.
ARTICLE 10
TERMINATION
10.1 Right to Terminate. Notwithstanding anything to the contrary in this
Agreement, this Agreement may be terminated and the transactions contemplated in
this Agreement abandoned at any time prior to Closing:
10.1.1 Mutual Consent. By mutual consent of Buyer, PA&E, the Seller
and Deltec;
10.1.2 Delay. Either by Buyer and PA&E, or by the Seller and Deltec,
if the Closing has not occurred by April 30, 1998. However, the right to
terminate this Agreement under this Section 10.1.2 shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing Date to occur on or before
such date;
10.1.3 Court Order. Either by Buyer and PA&E, or by the Seller and
Deltec, if a court or governmental agency of competent jurisdiction shall have
issued an order, decree, or ruling permanently restraining, enjoining, or
otherwise prohibiting the transactions contemplated by this Agreement, and such
order, decree, ruling, or other action shall have become final and
nonappealable;
10.1.4 Breach by Buyer or PA&E. By the Seller and Deltec if either of
Buyer or PA&E (a) breaches any of their representations or warranties in any
material respect, or (b) fails to comply in any material respect with any of
their covenants or agreements, contained in this Agreement; or
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10.1.5 Breach by the Seller or Deltec. By Buyer and PA&E if the either
the Seller or Deltec (a) breaches any of their representations or warranties in
any material respect, or (b) fails to comply in any material respect with any of
their covenants or agreements, contained in this Agreement.
10.2 Effect of Termination. The party choosing to terminate this Agreement
under Section 10.1 shall give prior written notice of termination to the other
party. The parties shall thereafter be released from all liabilities and
obligations arising under this Agreement, unless such termination arises from a
breach of this Agreement or except as otherwise provided in this Agreement.
Nothing in this Agreement shall relieve any party from liability for any willful
breach of this Agreement.
ARTICLE 11
FURTHER AGREEMENTS
11.1 News Releases. Except for notice of the Shareholders' Meeting or as
otherwise required by law, neither the parties to this Agreement, nor any person
affiliated with any of them, will issue or approve a news release or other
announcement concerning this Agreement or the transactions contemplated by this
Agreement without the prior approval of the other parties as to the contents of
the announcement and its release. This section shall not apply to reports filed
under Section 11.2(d).
11.2 Confidentiality. From the date of this Agreement, and continuing after
the Closing and the Closing Date, no information concerning one party that has
been furnished to or obtained by the other party in connection with this
Agreement may be disclosed to any person other than in confidence to employees,
legal counsel, financial advisers or independent public accountants who
reasonably need to know such information in connection with the transactions
contemplated by this Agreement. If such disclosure is required, the disclosing
party shall provide the other parties with a copy of the proposed disclosure
prior to making the disclosure. However, this obligation shall not apply to
information that (a) is, or becomes, publicly available from a source other than
the other party, (b) was known and can be shown to have been known by the other
party at the time of its receipt, (c) is received by the other party from a
third party without breach of this Agreement, (d) is required by law or court
order to be disclosed, including required disclosure by Buyer and PA&E under the
rules of the SEC or any state securities law, or (e) is disclosed in accordance
with the written consent of the other party.
11.3 Non-Competition and Non-Solicitation.
11.3.1 Non-Competition.
a. Covenant. Each of the Seller and Deltec agree that for a
period of five years after Closing, it will not, directly or indirectly through
an affiliate, (i) contact any customers of Buyer, PA&E, or any of PA&E's
subsidiaries, (ii) engage or participate in, or become employed by or render
advisory or consulting or other services in connection with any Prohibited
Business, as defined below, or (iii) make any financial investment, whether in
the form of equity or debt, or own any interest, directly or indirectly, in any
Prohibited Business.
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b. Exception. Nothing in this Section 11.3.1 shall restrict
either the Seller, the Subsidiary, Deltec or their affiliates from making any
investment in any company whose stock is listed on a national securities
exchange or actively traded in the over-the-counter market; provided that such
investment does not give the Seller, the Subsidiary or Deltec the right or
ability to control or influence the policy decisions of any Prohibited Business.
c. Prohibited Business. "Prohibited Business" means any business
entity whose activities or products are directly competitive with the business,
activities or products engaged in or produced by Buyer, PA&E, or any of PA&E's
subsidiaries as of the Closing Date, and which has contact, or seeks to
establish contact (including without limitation by making or soliciting sales or
submitting bids), with any business or governmental entity in the United States
that is, at any time, a customer of Buyer, PA&E, or any of PA&E's subsidiaries.
11.3.2 Non-Solicitation. Each of the Seller, the Subsidiary and Deltec
agrees that for a period of five years after Closing, it will not, directly or
indirectly through an affiliate, (a) solicit, induce, or encourage any employee
of Buyer, PA&E, or any of PA&E's subsidiaries to leave such employment or
interfere with any employment relationship between Buyer, PA&E, or any of PA&E's
subsidiaries and any of their employees, or (b) hire or encourage or assist any
other person to hire any person who has been an employee of Buyer, PA&E, or any
of PA&E's subsidiaries within the previous three months of the date of such
hire.
11.3.3 Reasonableness. Each of the Seller, the Subsidiary and Deltec
agrees and acknowledges that the covenants set forth in Sections 11.3.1 and
11.3.2, (a) do not impose unreasonable restrictions or work a hardship on it or
its affiliates, (b) are necessary and fundamental to the protection of the
Business to be conducted by Buyer, (c) are reasonable as to scope, duration, and
territory, (d) are given as a condition to Buyer and PA&E entering into this
Agreement, (e) are necessary to preserve the value of the Assets, and (f) are
for the purpose of restricting the activities of each of the Seller, the
Subsidiary, Deltec and their affiliates only to the extent necessary for the
protection of the legitimate business interests of Buyer and PA&E.
11.3.4 Injunctive Relief. Each of the Seller and Deltec acknowledges
and agrees that (a) any damages sustained by Buyer and PA&E as a result of a
breach of this Section 11.3 cannot be adequately remedied by damages, and (b)
that Buyer and PA&E, notwithstanding any other provision of this Agreement, and
in addition to any other remedy they may have under this Agreement or at law,
shall be entitled to injunctive and other equitable relief to prevent or curtail
any breach of this Section 11.3.
11.4 Restrictions on PA&E Shares.
11.4.1 Securities Laws. Subject to the satisfaction of the conditions
set forth in Sections 9.1 and 9.2, PA&E will issue the PA&E Shares to the Seller
pursuant to available state and federal exemptions from registration. The PA&E
Shares will not be registered under the Securities Act, or pursuant to the blue
sky laws of any state, and PA&E will have no obligation to register the PA&E
Shares. The PA&E Shares will bear a legend restricting their transferability.
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11.4.2 Lock-up Agreement. Except for the PA&E Shares distributable to
Xxxxxx XxXxxxxx under the letter agreement between Xx. XxXxxxxx and the Seller
dated April __, 1998, the Seller shall not sell, distribute to its shareholders,
or otherwise transfer, (a) any of the PA&E Shares for the first 12-month period
following the Closing Date, or (b) more than 50% of the PA&E Shares, in
increments of no more than 4.1667% per month, during the second 12-month period
following the Closing Date. The period for which any PA&E Shares are
non-transferable under subsection (a), above, together with the period for which
50% of the PA&E Shares are non-transferable under subsection (b), above, is
referred to in this Agreement as the "Lock-up Period" as to those shares. Seller
agrees to obtain and deliver to Buyer an Investment Letter from (i) each of
Seller's Shareholders if and when Seller distributes PA&E Shares to any of
Seller's Shareholders, and (ii) Xx. XxXxxx when Seller distributes PA&E Shares
to him under the LeCave Agreement, after expiration of the Lock-up Period.
11.4.3 SEC Reports. PA&E agrees to: (a) timely file the SEC Reports
and to take such further actions as are required by the Securities Act or the
Exchange Act in order for the holders of the PA&E Shares to sell such shares
pursuant to Rule 144 of the Securities Act, except to the extent that transfer
of the PA&E Shares would be prohibited under Section 11.4.2 of this Agreement or
by Rule 144, and (b) upon written request from such holders in connection with
the sale of the PA&E Shares, to deliver a written statement as to whether PA&E
has complied with such requirements.
11.5 Closing Costs and Prorations.
11.5.1 Seller's Closing Costs. Except as otherwise agreed by the
parties in writing, the Seller will pay: (a) any sums due with respect to
licenses, fees, and charges related to the Assets and the discharge of any
encumbrances affecting the Assets, except Permitted Liens; (b) the premium for
the title insurance obtained pursuant to Section 9.2.15; (c) any real estate
excise taxes payable on the conveyance of the Real Property or any leasehold
improvements located on the Real Property; (d) the prorations described below;
and (e) any other applicable usual and customary closing costs paid by Seller.
11.5.2 Buyer's Closing Costs. Except as otherwise agreed by the
parties in writing, PA&E will pay: (a) any recording fees in connection with
conveyance of the Assets; (b) any sales or use taxes payable on the conveyance
of the Personal Property; (c) the prorations described below; and (d) any other
applicable usual and customary closing costs paid by buyers.
11.5.3 Prorations. PA&E and the Seller agree to pay their respective
prorated shares of all operating expenses of the Business as set forth on
Schedule 11.5, including but not limited to rent, property taxes, utilities,
services, and other applicable items that are customarily prorated. All
prorations shall be as of the Effective Date.
11.5.4 Insurance. The Seller and the Subsidiary are solely responsible
for insuring the Assets against casualty and general liability until Closing.
After Closing, Buyer is solely responsible for either assuming the Seller's and
the Subsidiary's existing insurance policies, to the extent they are assumable,
or obtaining such other insurance as Buyer may
25
desire. If Buyer elects to assume the Seller's and the Subsidiary's existing
assumable insurance polices, the current year premium for such policies will be
prorated under Section 11.5.3, above.
11.6 Costs, Expenses and Professional Fees. Except as provided otherwise in
this Agreement, the parties each agree to bear their own costs and expenses,
including without limitation all fees of attorneys, accountants, brokers and
other service providers incurred in connection with the negotiation and
preparation of this Agreement, and with any due diligence conducted, and
documents required to be executed, in connection with this Agreement.
11.7 Investment in Seller. PA&E agrees that it will invest up to $6,000,000
into Buyer after the Closing, in such form and amounts and at such times as PA&E
shall determine, in its sole discretion.
11.8 Board of Directors. After the Closing Date, PA&E shall recommend Xx.
Xxxxxxxx to PA&E's nominating committee as a candidate to fill the current
vacancy on PA&E's Board of Directors. PA&E shall use its best efforts to
encourage the nominating committee to nominate, and the Board of Directors to
appoint, Xx. Xxxxxxxx to fill such vacancy.
11.9 Termination of Benefit Plans. The Seller agrees to terminate its
current 401(k) plans and all other employee benefit plans, as soon as
practicable after the Closing.
11.10 Accountants' Consent. The Seller and Deltec agree to (a) authorize
Price Waterhouse to consent, from time to time, to the disclosure of any audited
Financial Statements prepared by such firm in any reports filed with the SEC by
PA&E, and (b) to assist PA&E in obtaining all such consents.
11.11 Qualification in California. The Seller agrees to provide, and to
cause the Subsidiary to provide such information as Buyer or PA&E may request to
facilitate Buyer's application for qualification to do business as a foreign
corporation in the State of California.
11.12 Employees.
11.12.1 Continued Employment. Effective as of the Closing Date, Buyer
shall employ, on an "at will" basis, all persons who are employed by the Seller
and the Subsidiary as of the Closing Date (including, without limitation, those
on temporary layoffs or approved leaves of absence) ("Employees") on terms and
conditions substantially equivalent to the terms and conditions of employment
then provided by the Seller and the Subsidiary, including, without limitation,
job responsibilities, wages and compensation no less favorable than are
applicable to each such Employee immediately before the Closing Date.
11.12.2 WARN Act Obligations. Buyer will comply fully, if applicable,
with the Worker Adjustment and Retraining Notification Act of 1988 ("WARN Act")
and all other applicable foreign, federal, state and local laws, including those
prohibiting discrimination and requiring notice to employees. Following the
Closing Date, Buyer shall not effectuate a "plant closing" or "mass layoff", as
those terms are defined in the WARN Act, within 90 days after the Closing Date
without complying fully with the requirements of the WARN Act, including
26
the requirement of 60-day's prior written notice of such actions to the affected
Employees. PA&E or Buyer will bear the cost of compliance with (or failure to
comply with) any such laws.
ARTICLE 12
SURVIVAL; INDEMNIFICATION
12.1 Survival. Except as otherwise specified in this Agreement, the
representations, warranties, covenants and agreements of the parties contained
in this Agreement, or in any certificate or agreement delivered in accordance
with this Agreement, shall survive (a) the execution and delivery of this
Agreement, (b) any investigation by or on behalf of any party, and (c) the
Closing.
12.2 Indemnification by the Seller and Subsidiary.
12.2.1 Indemnification. The Seller, and the Subsidiary if the
Subsidiary Distribution has occurred and the capital stock of the Subsidiary is
not transferred to Buyer at Closing, shall indemnify Buyer and PA&E, and any of
their subsidiaries, affiliates, directors, officers, employees and agents
("Affiliates") and hold them harmless from and against all losses, costs,
expenses, damages or liabilities, including reasonable attorney fees
(collectively, "Damages"), incurred by Buyer, PA&E or their Affiliates as the
result of or in connection with: (a) any breach or inaccuracy of any
representation or warranty of either the Seller, the Subsidiary or Deltec made
in this Agreement, (b) any failure by either the Seller, the Subsidiary or
Deltec to fulfill any of their covenants or other agreements contained in this
Agreement or in any agreement delivered pursuant to this Agreement, (c) any
liability or obligation of either the Seller, the Subsidiary or Deltec to any
third party arising out of or related to any Excluded Liability, or to the use
of the Assets or the operation of the Business before the Closing Date,
including without limitation any liability or obligation under any Environmental
Law, which liability or obligation was not expressly assumed by Buyer in
accordance with the terms of this Agreement, (d) any governmentally required
remedial action or cleanup arising out of or related to any use of the Real
Property occurring before the Closing Date, or (e) any liability or obligation
to any Minority Shareholder arising out of or related to any Minority
Shareholder's ownership or claim of ownership of shares of the Seller's common
stock, including but not limited to Damages incurred by Buyer or PA&E in
connection with notice of the Shareholders' Meeting, the conduct of the
Shareholders' Meeting, the distribution of the Purchase Price by Seller or any
paying agent engaged by Seller, or under the Dissenters' Rights Statute.
12.2.2 Maximum Amount. Notwithstanding anything in Section 12.2.1 to
the contrary, the Seller's and the Subsidiary's indemnity obligations under that
section shall not exceed the Purchase Price.
12.3 Indemnification by Buyer and PA&E. Buyer and PA&E will indemnify the
Seller and its Affiliates, and hold them harmless from and against all Damages
incurred by them by reason of or arising out of or in connection with: (a) any
breach or inaccuracy of any representation or warranty of Buyer or PA&E made in
this Agreement, (b) any failure by Buyer or PA&E to fulfill any of their
covenants or other agreements contained in this Agreement or in any agreement
delivered pursuant to this Agreement, (c) any liability or obligation of either
Buyer or PA&E to any third party arising out of or related to any Assumed
Liability, or to the
27
use of the Assets or the operation of the Business after the Closing Date,
including without limitation any liability or obligation under any Environmental
Law, which liability or obligation was expressly assumed by Buyer in accordance
with the terms of this Agreement, and (d) any governmentally required remedial
action or cleanup arising out of or related to any use of the Real Property
occurring after the Closing Date.
12.4 Indemnification Period. Except as otherwise specified in this
Agreement, no claim for indemnity for Damages under this Article 12 will be
effective if not made within the following periods after the Closing Date (the
"Indemnification Period"): (a) seven years for Claims based upon the assertion
that either the Seller or Deltec had actual knowledge that a representation or
warranty made by either of them was materially false when made or was made with
the intent to deceive, and Claims based on Sections 6.8, 6.22 and 11.3, and (b)
two years for all other Claims. Notwithstanding the above, indemnification
obligations arising in connections with Section 6.22 shall be limited to Claims
arising pursuant to laws existing as of the Closing Date.
12.5 Threshold and Deductible. No party that is entitled to indemnification
under this Agreement shall be indemnified unless and until the aggregate of all
of such party's claims for indemnification exceeds $25,000, after which time the
indemnifying person's indemnification obligation shall be the entire amount of
the losses incurred, less a $5,000 deductible. Except to the extent of the
$5,000 deductible, this provision shall operate as a threshold for triggering
payment obligations under Section 12.2 and 12.3 and not as a deductible from
either party's indemnification obligations.
12.6 Indemnification Procedures.
12.6.1 Claim Notice. Any claim for indemnification under this Article
12 must be made in writing and delivered as a notice by the party seeking
indemnification to the party from whom indemnification is sought within the
Indemnification Period, specifying in reasonable detail the nature and estimated
amount of the claim.
12.6.2 Third-Party Claims. If the claim specified in the claim notice
relates to a third-party claim, the indemnifying persons shall have 15 days
after their receipt of the claim notice to notify the indemnified person whether
the indemnifying persons agree that the claim is subject to indemnification
pursuant to this Article 12 and whether the indemnifying persons elect to defend
such third-party claim at their own expense. If the claim relates to a
third-party claim that the indemnifying persons elect to defend, the indemnified
person shall reasonably cooperate with such defense. The indemnified person
shall, however, be entitled to participate in the defense or settlement of such
a third-party claim through its own counsel and at its own expense and shall be
entitled to approve or disapprove any proposed settlement that would impose a
duty or obligation on the indemnified person. If the indemnifying persons do not
timely elect to defend a third-party claim, or if the indemnifying persons fail
to conduct such defense with reasonable diligence, the indemnified party may
conduct the defense of, or settle, such claim at the risk and expense of the
indemnifying persons.
12.6.3 Claims Other Than Third-Party Claims. If the claim does not
relate to a third-party claim, the indemnifying persons shall have 30 days after
receipt of the claim
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notice to notify the indemnified party in writing whether the indemnifying
persons accept liability for all or any part of the claim and the method and
timing of any proposed payment. If the indemnifying persons do not so notify the
indemnified party, the indemnifying persons shall be deemed to have accepted
liability for all damages described in the claim notice.
ARTICLE 13
ACCESS TO RECORDS
13.1 Seller's and Subsidiary's Access.
13.1.1 Indemnification Period. During the Indemnification Period,
Buyer shall provide agents of the Seller and the Subsidiary with access to the
Buyer's premises for the purpose of reviewing and copying records relating to
the operation of the Business and the Assets before the Closing Date, to the
extent reasonably necessary for the Seller and the Subsidiary to comply with
their indemnification obligations under Section 12.2.
13.1.2 Required Retention Periods. During any document retention
periods required by law, Buyer shall provide agents of the Seller and the
Subsidiary with access to the Buyer's premises for the purpose of reviewing and
copying records which the Seller or the Subsidiary are required by law to
retain. Buyer will not discard any such records without offering them first to
the Seller. Buyer will use its best efforts to comply with any such document
retention requirements.
13.2 Buyer's and PA&E's Access. Seller and Subsidiary shall provide agents
of Buyer and PA&E with access to the Seller's or Subsidiary's premises for the
purpose of reviewing and copying any records retained by the Seller or the
Subsidiary which reasonably relate to the operation of the Business or the
Assets before the Closing Date, to the extent reasonably necessary for Buyer or
PA&E to (a) comply with any document retention required by law, (b) to conduct
the Business after the Closing, or (c) to operate the Assets.
13.3 Procedures. The rights to access set forth in Sections 13.1 and 13.2
shall be available only during normal business hours after three-days advance
written notice to the other party which states an allowed purpose for such
access. During such review, the party providing access shall be entitled to have
a representative present at all times, and none of the records being reviewed
shall be removed from the premises of the party providing access.
ARTICLE 14
GENERAL PROVISIONS
14.1 Assignment. Neither this Agreement nor any right or obligation created
by this Agreement may be assigned by any party without the prior written consent
of the other parties or their successors. Subject to the foregoing, this
Agreement shall bind and benefit the parties' respective successors, personal
representatives, heirs, and permitted assigns, as the case may be.
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14.2 Notices. Any notice required or permitted to be given under this
Agreement or any agreement or instrument executed in connection with this
Agreement shall be (a) in writing; (b) delivered personally, including by means
of facsimile transmission or courier, or mailed by registered or certified mail,
postage prepaid and return receipt requested; (c) deemed given on the date of
personal delivery or on the date set forth on the return receipt; and (d)
delivered or mailed to the addresses or facsimile numbers set forth below or to
such other address as any party may from time to time direct:
If to Buyer or PA&E: With a copy to:
Xxxxxx X. Xxxxxxx, Vice President Xxxxxxx X. Xxxxxxxxx, Esq.
and General Counsel Stoel Rives LLP
Pacific Aerospace & Electronics, Inc. 000 Xxxxxxxxxx Xx., Xxxxx 0000
00000 00xx XX, Xxxxx 000 Xxxxxxx, XX 00000-0000
Xxxxxxx, Xxxxxxxxxx 00000 Facsimile: (000) 000-0000
Facsimile: (000) 000-0000
If to Deltec: With a copy to:
Xxxx Xxxxxxxx, President Xxxxxxx X. Xxxxxxxxx, Esq.
Deltec International, Inc. Xxxx Xxxxxx Xxxxxx Lubersky LLP
XX Xxx 000000 000 XX Xxxxxxx Xx., Xxxxx 000
Coral Gables, Florida 33114-1878 Xxxxxxxx, Xxxxxx 00000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
If to the Seller: With a copy to:
Xxxxx X. Xxxxx Xxxxxxx X. Xxxxxxxxx, Esq.
Electronic Specialty Corp. Xxxx Xxxxxx Spears Lubersky
00000 XX 00xx Xxxxxx 000 XX Xxxxxxx Xx., Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxx 00000-0000 Xxxxxxxx, Xxxxxx 00000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
14.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington. The parties consent to the
jurisdiction of and venue in any appropriate court in King County, Washington.
14.4 Attorney Fees. The prevailing party in any arbitration or litigation
concerning this Agreement is entitled to reimbursement of its court costs and
attorney fees by the non-prevailing party, including such costs and fees as may
be incurred on appeal or in a bankruptcy proceeding.
14.5 Severability. If any provision of this Agreement is held to be
invalid, illegal, or unenforceable by a court of competent jurisdiction, that
provision shall not affect any other provision of this Agreement, which shall
remain in full force and effect to the extent possible.
14.6 Amendment and Modification. This Agreement may be amended or modified
only by written agreement executed by all parties.
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14.7 Waiver. The terms of this Agreement may only be waived in writing by
the party granting such waiver. Any waiver or failure to insist upon strict
compliance with any obligation, covenant, agreement or condition shall not
operate as a waiver of any other provision.
14.8 Further Assurances. Subject to the terms and conditions of this
Agreement, each of the parties will use its best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, to consummate and effect the
transactions contemplated in this Agreement.
14.9 Entire Agreement. This Agreement, including the attached Schedules and
Exhibits, sets forth the entire understanding and agreement of the parties
relating to the subject matter of this Agreement, and supersedes any and all
other understandings, negotiations or agreements between the parties relating to
such subject matter.
14.10 Counterparts. This Agreement may be executed in two or more
counterparts, all of which together shall constitute a single instrument.
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Executed as of the first date written above.
BUYER:
ESC ACQUISITION CORP.
By XXXXXX X. XXXXXX
--------------------------------------
Xxxxxx X. Xxxxxx
Its President
PA&E :
PACIFIC AEROSPACE & ELECTRONICS, INC.
By XXXXXX X. XXXXXX
--------------------------------------
Xxxxxx X. Xxxxxx
Its President
SELLER:
ELECTRONIC SPECIALTY CORPORATION
By XXXXX X. XXXXX
--------------------------------------
Xxxxx X. Xxxxx
Its President
DELTEC:
DELTEC INTERNATIONAL, INC.
By XXXX XXXXXXXX
--------------------------------------
Xxxx Xxxxxxxx
Its President
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