<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): July 22, 1997
SI TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 0-12370 95-3381440
(State or Other Jurisdiction of (Commission File Number) (IRS Employer ID. No.)
Incorporation or Organization)
4611 South 134th Place
Seattle, Washington 98168
(Address of Principal Executive Offices) (Zip Code)
(206) 244-6100
(Registrant's Telephone number, including area code)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On July 22, 1997 SI Technologies, Inc. (the "Company") acquired all of
the outstanding capital stock of Aero-Go, a Tukwila, Washington-based
company engaged in the manufacture, development and sale of air and
water bearing "load handling" systems.
The stock was acquired for cash consideration of $6,000,000 pursuant
to a merger, from 29 Aero-Go shareholders. The value of consideration
given in exchange for the stock was determined by reference to
Aero-Go's past operating history and the Company's analysis of its
future earnings potential. The Company borrowed the funds for the
acquisition from US Bank of Washington, N.A. The borrowed funds are
secured by the assets of the Company and Aero-Go, as well as the stock
of Aero-Go.
(b) Aero-Go is an operating company. The Company currently intends to
continue to operate Aero-Go as a separate subsidiary.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements.
(b) Pro Forma Financial Information.
(i) Unaudited Pro Forma combined condensed financial statements of
the Company and Aero-Go, Inc. for the year ended July 31, 1996
and the nine months ended April 30, 1997.
(c) Exhibits.
(i) Acquisition Agreement among SI Technologies, Inc., SI
Acquisition Corporation, Aero-Go, Inc. and Kurtis V. Kosty,
Peter J. Burger, Stanley B. McDonald, Robert J. Behnke, and T.
Evans Wykoff dated July 21, 1997.
(ii) Closing and Indemnification Escrow Agreement dated as of July
21, 1997, by and among SI Technologies, Inc., Aero-Go, Inc.,
Kurt Kosty and Stanley B. McDonald, as representatives of the
shareholders and First Trust National Association, as escrow
agent.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Dated: August 6, 1997
SI TECHNOLOGIES, INC.
By /s/ Rick A. Beets
--------------------------------------
Rick A. Beets, President
3
<PAGE>
[letterhead]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Aero-Go, Inc.
Seattle, Washington
We have audited the accompanying consolidated balance sheets of Aero-Go, Inc.
and subsidiaries (the Company) as of April 30, 1997 and 1996, and the related
consolidated statements of earnings, stockholders' equity, and of cash flows
for the years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the
consolidated financial statements of Aero-Go Europe N.V. (a consolidated
subsidiary), which statements reflect total assest and sales constituting
approximately 24% and 25% in 1997, and approximately 40% and 38% in 1996,
respectively, of the related consolidated totals. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Aero-Go Europe
N.V., is based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
such consolidated financial statements represent fairly, in all material
respects, the financial position of Aero-Go, Inc. and subsidiaries as of April
30, 1997 and 1996 and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
June 3, 1997
<PAGE>
AERO-GO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1997 1996
- ------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,355,331 $ 319,298
Accounts receivable, including unbilled receivables
of $277,000 and $84,000 2,287,556 1,888,808
Inventories 1,267,115 1,364,780
Prepaid expenses 79,654 91,430
---------- ----------
Total current assets 4,989,656 3,664,316
LEASEHOLD IMPROVEMENTS AND EQUIPMENT,
at cost:
Leasehold improvements 189,300 200,483
Machinery and equipment 885,380 1,008,703
Furniture and fixtures 469,071 451,344
---------- ----------
1,543,751 1,660,530
Less accumulated depreciation and amortization 1,206,147 1,153,272
---------- ----------
Total leasehold improvements and equipment 337,604 507,258
OTHER ASSETS:
Goodwill 69,649 93,491
Organization costs 5,876 20,021
---------- ----------
Total other assets 75,525 113,512
---------- ----------
TOTAL $5,402,785 $4,285,086
---------- ----------
---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- ------ ---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $1,308,795 $ 887,223
Advances in excess of related costs 77,485 57,204
Salaries and commisions payable 521,880 383,530
Income taxes 6,225 85,240
Current portion of long-term debt 125,287 239,672
---------- ----------
Total current liabilities 2,039,672 1,652,869
LONG-TERM DEBT, less current portion 268,825 398,913
COMMITMENTS (note 6)
STOCKHOLDERS' EQUITY:
Common stock, par value $.25 per share--
Authorized 8,000,000 shares; issued and
outstanding, 1,567,500 shares 552,750 552,750
Retained earnings 2,597,531 1,623,643
Cumulative translation adjustment (55,993) 56,911
---------- ----------
Total stockholders' equity 3,094,288 2,233,304
---------- ----------
TOTAL $5,402,785 $4,285,086
---------- ----------
---------- ----------
</TABLE>
<PAGE>
AERO-GO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED APRIL 30, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
SALES $12,421,209 $10,571,851
OTHER INCOME, net 50,035 9,856
----------- -----------
12,471,244 10,581,707
COSTS AND EXPENSES 11,317,356 10,156,565
----------- -----------
Earnings from operations before
income tax expense 1,153,888 425,142
INCOME TAX EXPENSE 180,000 230,000
----------- -----------
NET EARNINGS $ 973,888 $ 195,142
----------- -----------
----------- -----------
</TABLE>
<PAGE>
AERO-GO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED APRIL 30, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Cumulative Total
of Common Retained translation stockholders'
shares stock earnings adjustment equity
------ ------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, May 1, 1995 2,149,194 $ 746,634 $1,667,501 $ 119,196 $2,533,331
Net earnings 195,142 195,142
Stock options exercised 58,306 62,116 62,116
Acquistion and retirement of stock (640,000) (256,000) (239,000) (495,000)
Translation adjustment (62,285) (62,285)
--------- --------- ---------- ---------- ----------
BALANCE, April 30, 1996 1,567,500 552,750 1,623,643 56,911 2,233,304
Net earnings 973,888 973,888
Translation adjustment (112,904) (112,904)
--------- --------- ---------- ---------- ----------
BALANCE, April 30, 1997 1,567,500 $ 552,750 $2,597,531 $ (55,993) $3,094,288
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
</TABLE>
<PAGE>
AERO-GO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 973,888 $ 195,142
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 283,654 292,100
Cash provided (used) by change in assets and liabilities:
Accounts receivable (498,682) 149,453
Inventories 40,892 (379,625)
Accounts payable 478,319 (197,870)
Salaries and commissions payable 154,203 (106,024)
Income taxes (79,015) 56,182
Prepaid expenses 7,158 (11,777)
Advances in excess of related costs 30,116 38,630
---------- ---------
Net cash provided by operating activities 1,390,533 36,211
INVESTING ACTIVITIES:
Additions to leasehold improvements and equipment (111,135) (104,790)
FINANCING ACTIVITIES:
Payments on long-term debt (248,554) (192,272)
Common stock issued 62,116
Retirement of common stock (72,000)
---------- ---------
Net cash used by financing activities (248,554) (202,156)
Effect of exchange rate changes on cash 5,189 16,060
---------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,036,033 (254,675)
CASH AND CASH EQUIVALENTS:
Beginning of year 319,298 573,973
---------- ---------
End of year $1,355,331 $ 319,298
---------- ---------
---------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for income taxes $ 259,015 $ 173,819
Cash paid during the year for interest 42,766 38,861
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
Note payable to former stockholder to acquire and retire stock 423,000
</TABLE>
<PAGE>
AERO-GO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1997 AND 1996
- -------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: Aero-Go, Inc. and subsidiaries (The Company) are
principally engaged in the design, development, manufacture, and sale of
material handling systems.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company's wholly owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
FOREIGN CURRENCY TRANSLATION: Foreign currency assets and liabilities are
translated into their U.S. dollar equivalents based on year end exchange
rates. Revenue and expense accounts are generally translated at average
exchange rates for the appropriate fiscal year. Aggregate exchange gains
and losses arising from the translation of foreign assets and liabilities
are included in stockholders' equity when significant. Transaction gains
and losses are included in income and have not been significant in amount.
INVENTORIES: The Company has stated inventories of materials used in
production of standard products at the lower of cost (first-in, first-out
method) or market.
LEASEHOLD IMPROVEMENTS AND EQUIPMENT: Leasehold improvements are
amortized on the straight-line method over the term of the lease.
Equipment is depreciated on the straight-line method based upon estimated
useful lives of three to five years.
GOODWILL: The cost in excess of the fair value of net assets acquired in
a business combination is being amortized to expense over ten years using
the straight-line method.
REVENUE RECOGNITION: Sales are recorded at time of shipment for equipment
and for special orders with relatively short production time
requirements. On long-term contracts, sales are recorded based on the
percentage that incurred costs bear to the total estimated costs at
completion. Estimated losses are recorded in total when they become
evident.
CASH AND CASH EQUIVALENTS: Cash in excess of daily requirements is
invested in interest-bearing instruments with maturities of three months
or less. Such investments are considered to be cash equivalents.
USE OF ESTIMATES: The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect amounts reported
in the financial statements. Changes in these estimates and assumptions
are considered reasonably possible and may have a material impact on the
financial statements. The Company has used estimates in determining the
allowance for bad debts, sales for long-term contracts, tax liabilities
and other contingencies.
<PAGE>
NOTE 2: INVENTORIES
Inventories consist of the following at April 30:
1997 1996
------ ------
Finished goods $ 509,199 $ 467,457
Work in process 208,452 293,311
Raw materials 549,464 604,012
---------- ----------
$1,267,115 $1,364,780
---------- ----------
---------- ----------
NOTE 3: LINE OF CREDIT
The Company has an agreement with a bank to provide a revolving line of
credit up to $500,000 which expires August 1, 1997. Borrowings under this
agreement bear interest equal to the bank's prime interest rate plus .25%
(8.75% at April 30,1997). The line of credit is secured by accounts
receivable and inventory. There were no amounts outstanding under this
agreement at April 30, 1997.
Under this same agreement, the Company has standby letters of credit totalling
$213,250 outstanding as of April 30, 1997. These standby letters of credit
expire through July 30, 1997.
The Company's foreign subsidiary, AeroGo Europe, has an agreement with a bank
to provide a revolving line of credit up to Belgium Francs 10,000,000
($279,800 based on exchange rates at April 30, 1997). Borrowings under this
agreement bear interest equal to the bank's prime rate plus 1.25% (7% at
April 30, 1997). The line of credit is secured by accounts receivable and
inventory. At April 30, 1997, there was BEF3,327,339 ($93,099) outstanding
under this agreement.
NOTE 4: LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Noninterest bearing promissory note to a former stockholder
with a $504,000 face value net of an $81,000 discount for
imputed interest. Payable in annual installments (including principal
and imputed interest) of $144,000 on May 1, 1997,1998 and
1999. Interest expense of $35,300 and $12,300 was recorded
in 1997 and 1996 based on an imputed interest rate of 10% $363,300 $423,000
Note payable to the former owneres of M. Claessens N.V. in annual
installments of $146,982 plus interest at 9%. Note secured
by shares of stock of the Company. The note is denominated
in Belgian Francs 146,982
Other 30,812 68,603
-------- --------
394,112 638,585
Less current portion, due within one year 125,287 239,672
-------- --------
$268,825 $398,913
-------- --------
</TABLE>
<PAGE>
Maturities of long-term debt are as follows:
Year ending April 30,
---------------------
1998 $125,286
1999 132,512
2000 136,314
--------
$394,112
--------
--------
NOTE 5: FEDERAL INCOME TAXES
The provision for federal taxes on income is more than that which results
from application of the statutory corporate tax rate due to the following:
1997 1996
---- ----
Continuing operations:
Expected taxes at statutory rate $392,000 $144,000
Business meals 3,000 3,000
Asset write-off related to foreign
subsidiary (322,000)
Foreign sales corporation (70,000) (42,000)
Nonrecognition of benefit from net
operating loss of foreign subsidiary 177,000 125,000
---------- ----------
$180,000 $230,000
---------- ----------
---------- ----------
The provision for federal income taxes consisted of the following:
1997 1996
---- ----
Current income taxes $179,000 $217,000
Change in deferred income taxes 1,000 13,000
---------- ----------
$180,000 $230,000
---------- ----------
---------- ----------
Deferred federal income tax is provided for differences in the reporting of
income and expenses for financial statement and income tax purposes.
Components of the Company's net liability (deferred income tax asset) at
April 30, 1997 and 1996, were:
1997 1996
---- ----
Depreciation $ 17,000 $ 16,000
Allowance for bad debts (12,000) (12,000)
---------- ----------
$ 5,000 $ 4,000
---------- ----------
---------- ----------
At April 30, 1997 and 1996, the Company had net operating loss carryforwards
for income tax purposes attributable to its foreign subsidiary of $1,181,000
and $989,000, respectively. This net operating loss may be carried forward
indefinitely.
<PAGE>
NOTE 6: COMMITMENTS
The Company leases its manufacturing and administrative facilities under a
noncancellable operating lease which expires April 30, 1999. Annual rental
expense under this lease for the years ended April 30, 1997 and 1996, was
$215,000 and $235,000, respectively.
Minimum annual rental expense for the remaining term of the lease is $215,000.
The Company leases its facilities in Belgium under a noncancellable operating
lease which expires October 31, 1998. Annual rental expense under this lease
for the years ended April 30, 1997 and 1996, was $76,000 and $81,000,
respectively.
Minimum annual rental expense for the remaining term of the lease is $78,000.
NOTE 7: GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense charged directly to earnings for the years
ended April 30, 1997 and 1996, was $1,103,400 and $986,392, respectively.
NOTE 8: STOCKHOLDERS' EQUITY
The Company has an incentive stock option plan which reserves 500,000 shares
of common stock for issuance to officers and key employees. Under the plan,
options to purchase 342,500 shares have been granted ($.82 -- $1.12 per share)
and are currently outstanding. The options become exercisable ratably over a
four-year period beginning one year after date of grant. According to the
terms of the stock option plan, all shares that have been granted become
exercisable immediately upon change in control of the Company. The options
expire five years after date of grant. A summary of options granted and
exercised under this plan is as follows:
Number Weighted average
of option exercise price of
shares option shares
------ -------------
Outstanding, May 1, 1995 310,000 $ .96
Granted 100,000 1.12
Exercised (58,306) 1.06
Forfeited (9,194) 1.08
-------
Outstanding, April 30, 1996 342,500 .98
Granted
Exercised -------
Outstanding, April 30, 1997 342,500 .98
-------
-------
<PAGE>
Financial data pertaining to outstanding stock options at April 30, 1997,
were as follows:
Weighted
Weighted Weighted average
average average exercise Number of exercise price
Ranges of remaining price of exercisable of exercisable
exercise prices contractual life option shares option shares option shares
- --------------- ---------------- ------------- ------------- --------------
$.82-$1.12 2.12 $.98 186,250 $.97
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for the Plan. No compensation cost has been
recognized for the incentive stock option plan for the years ended April 30,
1997 and 1996. The Company estimates the fair value of its stock options
using the Black-Scholes option-pricing model. Had compensation cost for the
Company been determined based on the fair value at the grant dates consistent
with the FASB's Statement of Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, the impact on net income would not have been
significant for the years ended April 30, 1997 and 1996.
NOTE 9: SIGNIFICANT CUSTOMERS
During the fiscal years ended April 30, 1997 and 1996, approximately 13% and
7% respectively, of the Company's revenues resulted from sales to one customer
NOTE 10: RETIREMENT PLAN
The Company has a defined contribution retirement plan covering employees who
have met certain minimum requirements as to age and length of service and who
elect to participate in the plan. For the years ended April 30, 1997 and
1996, annual contributions equal to a maximum of 3% of each participant's
compensation were made by the Company. Retirement plan expenses were
approximately $110,000 and $65,000 for the years ended April 30, 1997 and
1996, respectively.
<PAGE>
SI TECHNOLOGIES, INC.
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited pro forma combined condensed financial statements
have been derived from the historical results of operations of SI
Technologies, Inc. ("SI") and AeroGo, Inc. ("AeroGo") for the year ended July
31, 1996 and the nine months ended April 30, 1997 and financial position as
of April 30, 1997. The operations of AeroGo Europe, which were sold
immediately prior to the acquisition, are considered diposed of for the
purpose of this presentation.
The unaudited pro forma combined condensed financial statements are presented
for informational purposes only and do not purport to be indicative of the
operating results that actually would have occurred if the acquisition had
been consummated on August 1, 1995, nor which may result from future
operations. The pro forma adjustments are based on available information and
certain assumptions that the Company believes are reasonable. The
acquisition has been accounted for using the purchase method of accounting.
These pro forma financial statements should be read in conjunction with the
historical financial statements and related notes of the Company and the
acquisition document.
<PAGE>
SI TECHNOLOGIES, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
APRIL 30, 1997
ASSETS
PRO FORMA
SI AEROGO ADJUSTMENTS COMBINED
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 107,281 $ 1,323,966 $ - $ 1,431,247
Trade accounts receivable, less allowance
for doubtful accounts of $106,166
and $35,000 respectively 1,973,699 1,532,138 - 3,505,837
Inventories 2,007,590 928,181 - 2,935,771
Deferred tax asset 289,000 - - 289,000
Other current assets 314,007 45,742 - 359,749
--------------------------------- ---------------------------------
Total current assets 4,691,577 3,830,027 - 8,521,604
Property and equipment, less accumulated
depreciation and amortization 829,814 183,744 50,000 (1) 1,063,558
Other assets:
Intangible assets, net 3,187,605 - 3,738,620 (2) 6,926,225
Other 428,944 - - 428,944
--------------------------------- ---------------------------------
TOTAL ASSETS $ 9,137,940 $ 4,013,771 $ 3,788,620 $ 16,940,331
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ - $ - $ - $ -
Current maturities of long term debt 100,000 108,700 3,271,428 (3) 3,480,128
Put option obligation - current 385,000 - - 385,000
Trade accounts payable 1,046,235 770,214 250,000 (4) 2,066,449
Income taxes payable 6,225 - 6,225
Accrued liabilities 545,682 412,652 - 958,334
--------------------------------- ---------------------------------
Total current liabilities 2,076,917 1,297,791 3,521,428 6,896,136
Long-term debt, less current maturities 1,788,090 254,600 2,728,572 (3) 4,771,262
Deferred taxes 83,000 - - 83,000
Stockholders' equity: 5,189,933 2,461,380 (2,461,380)(5) 5,189,933
--------------------------------- ---------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 9,137,940 $ 4,013,771 $ 3,788,620 $ 16,940,331
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
</TABLE>
See notes to pro forma combined condensed balance sheet.
<PAGE>
SI TECHNOLOGIES, INC.
NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
(1) Revaluation to fair value of acquired property and equipment.
(2) Increase to intangible assets (goodwill). The goodwill associated with the
AeroGo acquisition will be amortized over a period of 25 years.
(3) Increase to long term debt associated with the acquisition financing of
AeroGo.
(4) Adjustments to record accrued expenses associated with the acquisition.
(5) Elimination of AeroGo stockholders' equity.
<PAGE>
SI TECHNOLOGIES, INC.
PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
FOR THE NINE MONTHS ENDED
APRIL 30, 1997
PRO FORMA
SI AEROGO ADJUSTMENTS COMBINED
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Net sales $ 8,256,987 $ 6,702,155 $ - $ 14,959,142
Cost of sales 4,621,468 3,348,654 5,250 (1) 7,975,372
--------------------------------- ---------------------------------
Gross profit 3,635,519 3,353,501 (5,250) 6,983,770
Operating expenses:
Selling, service, general and administrative 2,518,813 1,860,470 2,250 (1) 4,381,533
Research, development and engineering 529,484 358,400 - 887,884
Amortization of intangibles 83,173 - 113,000 (2) 196,173
--------------------------------- ---------------------------------
Total operating expenses 3,131,470 2,218,870 115,250 5,465,590
--------------------------------- ---------------------------------
Earnings from operations 504,049 1,134,631 (120,500) 1,518,180
Interest expense (154,926) (29,171) (628,000)(3) (812,097)
Other income (expense), net (725) 21,212 - 20,487
--------------------------------- ---------------------------------
Net earnings before income taxes 348,398 1,126,672 (748,500) 726,570
Income tax (expense) benefit (128,907) (338,000) 216,000 (4) (250,907)
--------------------------------- ---------------------------------
Net earnings (loss) $ 219,491 $ 788,672 $ (532,500) $ 475,663
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
Net earnings per common and
common equivalent share $ .09 $ .19
------------- -------------
------------- -------------
Weighted average common and common
equivalent shares outstanding 2,440,501 2,440,501
</TABLE>
See notes to pro forma combined condensed statements of earnings.
<PAGE>
SI TECHNOLOGIES, INC.
PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
FOR THE TWELVE MONTHS ENDED
JULY 31, 1996
PRO FORMA
SI AEROGO ADJUSTMENTS COMBINED
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Net sales $ 11,087,537 $ 8,490,484 $ - $ 19,578,021
Cost of sales 5,771,310 4,208,877 7,000 (1) 9,987,187
--------------------------------- ---------------------------------
Gross profit 5,316,227 4,281,607 (7,000) 9,590,834
Operating expenses:
Selling, service, general and administrative 3,329,126 2,526,538 3,000 (1) 5,858,664
Research, development and engineering 904,655 418,437 - 1,323,092
Amortization of intangibles 96,774 - 150,000 (2) 246,774
--------------------------------- ---------------------------------
Total operating expenses 4,330,555 2,944,975 153,000 7,428,530
--------------------------------- ---------------------------------
Earnings from operations 985,672 1,336,632 (160,000) 2,162,304
Interest expense (112,355) (24,592) (873,000)(3) (1,009,947)
Other income (expense), net 57,288 1,081 - 58,369
--------------------------------- ---------------------------------
Net earnings before income taxes 930,605 1,313,121 (1,033,000) 1,210,726
Income tax (expense) benefit (349,416) (390,000) 300,000 (4) (439,416)
--------------------------------- ---------------------------------
Net earnings (loss) $ 581,189 $ 923,121 $ (733,000) $ 771,310
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
Net earnings per common and
common equivalent share $ .24 $ .32
------------- -------------
------------- -------------
Weighted average common and common
equivalent shares outstanding 2,426,088 2,426,501
</TABLE>
See notes to pro forma combined condensed statements of earnings.
<PAGE>
SI TECHNOLOGIES, INC.
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
(1) Adjustment to increase depreciation expense resulting from the revaluation
of acquired property and equipment. The acquired assets will be
depreciated over service lives from two years to seven years.
(2) Amortization of amounts assigned to intangible assets acquired in the
acquisition of AeroGo. The full adjustment amount to intangible assets is
assigned to goodwill and will be amortized over a period of 25 years.
(3) Adjustment to reflect the increased interest expense associated with the
debt financing of the AeroGo acquisition. The acquisition financing
includes a one year term loan that is assumed to be renewed
substantially under its current terms.
(4) Tax effects of pro forma adjustments.
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ACQUISITION AGREEMENT
AMONG
SI TECHNOLOGIES, INC.,
SI ACQUISITION CORPORATION
AEROGO, INC.
AND
KURTIS V. KOSTY, PETER J. BURGER,
STANLEY B. MCDONALD, ROBERT J. BEHNKE
AND T. EVANS WYCKOFF
July 21, 1997
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TABLE OF CONTENTS
ARTICLE 1 THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Effective Time of the Merger.. . . . . . . . . . . . . . . . 1
1.2 Effects of the Merger. . . . . . . . . . . . . . . . . . . . 2
1.3 Board of Directors.. . . . . . . . . . . . . . . . . . . . . 2
1.4 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES . . . . . 2
2.1 Effect on Capital Stock. . . . . . . . . . . . . . . . . . . 2
ARTICLE 3 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 4
3.1 Representations and Warranties of the Company .. . . . . . . 4
3.2 Representations and Warranties of Acquiror and Acqcorp. . . . 15
3.3 Representations and Warranties of the Shareholders. . . . . . 16
ARTICLE 4 COVENANTS. . . . . . . . . . . . . .. . . . . . . . . . . . . 17
4.1 Covenants of the Company Relating to Conduct of Business. . . 17
4.2 Access to Information . . . . . . . . . . . . . . . . . . . . 19
4.3 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.4 Additional Agreements . . . . . . . . . . . . . . . . . . . . 20
4.5 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . 20
4.6 Current Information--the Company . . . . . . . . . . . . . . 21
4.7 Disposition of European Subsidiary. . . . . . . . . . . . . . 21
4.8 Failure to Fulfill Conditions . . . . . . . . . . . . . . . . 21
ARTICLE 5 CONDITIONS PRECEDENT TO CLOSING. . . . . . . . . . . . . . . 22
5.1 Conditions to Each Party's Obligations to Effect the Merger .22
5.2 Conditions of Obligations of Acquiror and Acqcorp . . . . . .22
5.3 Conditions of Obligations of the Company. . . . . . . . . . .24
ARTICLE 6 TERMINATION, AMENDMENT AND WAIVER. . . . . . . . . . . . . . 25
6.1 Termination . . . . . . .. . . . . . . . . . . . . . . . . . 25
6.2 Effect of Termination . .. . . . . . . . . . . . . . . . . . 25
6.3 Amendment . . . . . . . .. . . . . . . . . . . . . . . . . . 26
6.4 Extension; Waiver . . . .. . . . . . . . . . . . . . . . . . 26
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ARTICLE 7 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . 26
7.1 Limited Survival of Representations, Warranties
and Agreements. . . .. . . . . . . . . . . . . . . . . . . . 26
7.2 Indemnification Escrow. .. . . . . . . . . . . . . . . . . . 26
7.3 Indemnification by the Company. . . . . . . . . . . . . . . 27
7.4 Indemnification by Shareholders . . . . . . . . . . . . . . 27
7.5 Indemnification by Acquiror or Acqcorp. . . . . . . . . . . 27
7.6. Insurance . . . . . . . . . . . . . . . . . . . .. . . . . . 28
7.7 Attorneys' Fees . . . . . . . . . . . . . . . . .. . . . . . 29
7.8 Notices . . . . . . . . . . . . . . . . . . . . .. . . . . . 29
7.9 Interpretation. . . . . . . . . . . . . . . . . .. . . . . . 30
7.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 30
7.11 Entire Agreement; No Third-Party Beneficiaries. . . . . . . 30
7.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 31
7.13 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.14 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . 31
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LIST OF EXHIBITS
Exhibit Agreement Section
- ------- -----------------
1. Plan of Merger 1.1
2. Directors of Surviving Corporation 1.3
3. Officers of Surviving Corporation 1.4
4. Closing and Indemnification Escrow Agreement 2.4
5. Consulting and Non-Competition Agreement 5.2(d)
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ACQUISITION AGREEMENT
ACQUISITION AGREEMENT, dated as of July 21, 1997, among SI TECHNOLOGIES,
INC., a Delaware Corporation ("Acquiror"), SI ACQUISITION CORPORATION, a
Washington corporation and a wholly owned subsidiary of Acquiror ("Acqcorp"),
AEROGO, INC., a Washington corporation (the "Company"), and KURTIS V. KOSTY,
PETER J. BURGER, STANLEY B. MCDONALD, ROBERT J. BEHNKE and T. EVANS WYCKOFF
("Shareholders").
RECITALS
A. Acquiror is engaged in the electronic weighing device and on-board
computers industry throughout the world;
B. The Company is engaged in the engineering and manufacturing of air
and water bearing systems and the Shareholders are directors of the Company
and own or are affiliated with owners of an aggregate of 76.26% of the
outstanding capital stock of the Company as of July 21, 1997;
C. Acquiror and Acqcorp desire to acquire from Shareholders and other
shareholders of the Company, and Shareholders desire to sell, or cause to be
sold, to Acquiror and Acqcorp, all of the capital stock of the Company.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE 1
THE MERGER
1.1 EFFECTIVE TIME OF THE MERGER. Subject to the provisions hereof,
articles of merger containing a Plan of Merger in substantially the form of
Exhibit 1 attached hereto, and any other required documents, in such form as
required by, and executed in accordance with, the relevant provisions of the
Washington Business Corporation Act (the "Washington Law") (together, the
"Merger Documents") shall be duly delivered to the Secretary of State of the
State of Washington for filing, as provided in the Washington Law, as soon as
practicable after satisfaction of the latest to occur of the conditions set
forth in Article 5. The Merger shall become effective upon the filing of the
Merger Documents by the Secretary of State of the State of Washington. The term
"Effective Time of the Merger" shall mean the date and time when the Merger
becomes effective. A closing (the "Closing") shall take place on July 21, 1997
at the offices of Graham & James/Riddell Williams or at such other place, at
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such other time, or on such other date as Acquiror, Acqcorp and the Company
may mutually agree upon for the Closing to take place. At the Closing there
shall be delivered to Acquiror, Acqcorp and the Company the opinions,
certificates and other documents and instruments required to be delivered
under Article 5 hereof.
1.2 EFFECTS OF THE MERGER. At the Effective Time of the Merger, (i) the
separate existence of Acqcorp shall cease and Acqcorp shall be merged with
and into the Company (Acqcorp and the Company are sometimes referred to
herein as the "Constituent Corporations" and the Company is sometimes
referred to herein as the "Surviving Corporation"), pursuant to the Plan of
Merger, and (ii) the Articles of Incorporation and the Bylaws of Acqcorp as
in effect immediately prior to the Effective Time of the Merger shall be the
Articles of Incorporation and the Bylaws of the Surviving Corporation until
thereafter amended as provided by law.
1.3 BOARD OF DIRECTORS. Upon the effectiveness of the Merger, the
members of the Board of Directors of the Surviving Corporation shall be as
set forth in Exhibit 2.
1.4 OFFICERS. Upon the effectiveness of the Merger, the officers of the
Surviving Corporation shall be set forth on Exhibit 3.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 EFFECT ON CAPITAL STOCK. As of the Effective Time of the Merger, by
virtue of the Merger and without any further action on the part of the holder
of any shares of common stock of the Company,
(a) CAPITAL STOCK OF ACQCORP. Each issued and outstanding share of
the capital stock of Acqcorp shall be converted into and become one fully
paid and nonassessable share of common stock of the Surviving Corporation
(the "Surviving Corporation Common Stock"). From and after the Effective
Time of the Merger, each outstanding certificate theretofore representing
shares of capital stock of Acqcorp shall be deemed for all purposes to
evidence ownership of and to represent the number of shares of Surviving
Corporation Common Stock into which such shares of capital stock of Acqcorp
shall have been converted. Promptly after the Effective Time of the Merger,
the Surviving Corporation shall issue, on a share for share basis, to the
stockholder of Acqcorp a stock certificate or certificates representing
shares of Surviving Corporation Common Stock in exchange for the certificate
or certificates which formerly represented shares of capital stock of
Acqcorp, which shall be canceled.
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(b) RIGHT OF HOLDERS OF SHARES TO RECEIVE CASH All of the issued
and outstanding shares of common stock of the Company (the "Shares") as a
class shall be converted into the right to receive the Merger Consideration
as hereinafter provided and subject to the provisions of Section 7.3.
(c) NO FURTHER OWNERSHIP RIGHTS IN THE SHARES. All consideration
paid upon the surrender of the Shares in accordance with the terms hereof
shall be deemed to have been paid in full satisfaction of all rights
pertaining to such Shares, and after the Effective Time of the Merger there
shall be no registration of transfers on the stock transfer books of the
Surviving Corporation of the Shares which were outstanding immediately prior
to the Effective Time of the Merger. If, after the Effective Time of the
Merger, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article 2.
2.2 EFFECT ON STOCK OPTIONS. Each outstanding option to purchase common
stock of the Company shall terminate as of the Effective Time of the Merger,
provided however that the holder of an option may exercise it and become a
shareholder of the Company prior to the Closing. Payment of the exercise
price to the Company prior to the Closing shall not be necessary for the
optionee to become a shareholder, but in such event, the unpaid exercise
price shall be deducted from the portion of the Merger Consideration such
shareholder would have received if the exercise price had been paid and
shall be reallocated to the shareholders of record immediately prior to the
Effective Time in proportion to their shareholdings on that date.
2.3 PAYMENT SCHEDULE Prior to the Closing, the Company shall prepare a
list of the shareholders (the "Payment Schedule") showing the portions of the
Merger Consideration to which each shareholder is entitled after taking
Section 2.2. into account, the resulting percentage of the Merger
Consideration (the "Percentage Share") to which each is entitled, and the
amounts, if any, to be withheld for income and employment taxes with respect
to each shareholder.
2.4 PAYMENT OF MERGER CONSIDERATION At Closing, the Acquiror shall pay
the Merger Consideration to the Escrow Agent pursuant to the Closing and
Indemnification Escrow Agreement between the Acquiror, the Company, Kurt
Kosty and Stanley B. McDonald (collectively, the "Shareholder
Representative") as representatives of the Company's shareholders, and First
Trust, National Association (the "Escrow Agent") as Escrow Agent attached as
Exhibit 2.4. The Escrow Agent shall disburse the Merger Consideration in
accordance with said Escrow Agreement, including paying the amounts to be
withheld, as indicated in the Payment Schedule, to the Company for remittance
to the appropriate taxing authorities. The portion of the Merger
Consideration which is to be held back pursuant to Section 7.2 ("the Escrowed
Funds") shall be held and disbursed by the Escrow Agent as Escrow Agent
pursuant to the Escrow Agreement.
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2.5 DISTRIBUTION OF EXCESS CASH Prior to Closing, the Company shall
distribute its cash in excess of $1,000,000 (the "Excess Cash") to its
shareholders of record immediately prior to the Effective Time of the Merger
in proportion to their respective shareholdings, as of that date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Acquiror and Acqcorp, except as otherwise
disclosed on the Disclosure Schedule, as follows:
(a) ORGANIZATION, STANDING AND POWER. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Washington. The Company has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties or assets makes such licensing or
qualification necessary, except where failure to be so licensed or qualified
would not have a material adverse effect on the Company. Complete and
correct copies of the Articles of Incorporation and Bylaws of the Company as
amended to the date hereof are attached hereto as Exhibit 3.1A and 3.1B,
respectively, to the Disclosure Statement.
(b) CAPITAL STRUCTURE. The authorized capital stock of the Company
consists of 8,000,000 shares of common stock, $.25 par value per share, of
which on the date hereof 1,567,500 shares of common stock are issued and
outstanding. All outstanding shares of the Company's capital stock are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as set forth in the Disclosure Schedule, there are
no options, warrants, calls, rights, commitments or agreements of any
character to which the Company is a party or by which it is bound obligating
the Company to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of the Company or obligating the
Company to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement. All options, warrants, calls, rights, commitments
or agreements listed in the Disclosure Schedule, at or prior to Closing,
shall have been (i) exercised and converted into shares of the Company's
common stock, or (ii) canceled or otherwise terminated. Except as listed in
the Disclosure Schedule, there are no outstanding or authorized stock
appreciation, phantom stock, profit participation or similar rights with
respect to the Company, nor is the Company under any obligation to issue any
such rights, and all of those listed in the Disclosure Schedule shall have
been discharged by the Company at or prior to the Closing. There are no
voting trusts or other agreements or understandings to which the Company or
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any Shareholder is a party with respect to the voting of the capital stock of
the Company.
(c) AUTHORITY. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and subject to approval of
the Merger by the shareholders of the Company to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of the Company, subject to approval of the Merger by the shareholders of
the Company prior to the Closing. The Company has complied with all
applicable laws with respect to solicitation of shareholder approval of the
Merger, and, except for statutory dissenters' rights, no Shareholder is
entitled to make any claim against the Company with respect thereto.
(d) BINDING OBLIGATION. This Agreement has been duly executed and
delivered by the Company and, subject to approval of the Merger by the
shareholders of the Company prior to the Closing, constitutes a valid and
binding obligation of the Company enforceable in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' right generally, and
except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
(e) NO DEFAULT. Except as set forth in the Disclosure Schedule,
the execution and delivery of this Agreement by the Company do not, and the
consummation by the Company of the transactions contemplated hereby and
compliance by the Company with the provisions hereof will not, conflict with,
or result in any violation of, or default (with or without notice or lapse of
time, or both) under, give rise to a right of termination, cancellation or
acceleration of any obligation under, or result in the creation of any lien,
security interest, charge or other encumbrance upon any of the respective
properties or assets of the Company under any of the terms, conditions or
provisions of the Articles of Incorporation or Bylaws of the Company or any
loan or credit agreement, note, bond, mortgage, indenture, lease, conditional
sale or other agreement, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule, regulation, code,
writ or injunction applicable to the Company, or its properties or assets,
other than such conflicts, violations, defaults, terminations, cancellations
or accelerations which individually or in the aggregate do not have a
material adverse effect on the financial condition of the Company.
(f) CONSENTS. No exemption, consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality domestic or foreign (a "Governmental Entity"), or of the
shareholders of the Company or of any
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other third party is required by, or with respect to, the Company, in
connection with the execution and delivery of this Agreement by the Company
or the consummation by the Company of the transactions contemplated hereby,
except for (i) the approval of the Merger by the shareholders of the Company
prior to the Closing, and (ii) the filing of the Merger Documents with the
Secretary of State of the State of Washington and appropriate documents with
the relevant authorities of other states in which the Company is qualified to
do business.
(g) FINANCIAL STATEMENTS AND REPORTS. The Company has furnished
Acquiror with true copies of balance sheets of the Company as of April 30,
1997, and the related statements of income, changes in stockholders' equity,
and changes in financial position for each of the years then ended, in each
case as audited by Deloitte & Touche, certified public accountants, and an
interim balance sheet as of June 30, 1997, together with the related
statement of income for the two -month period then ended. (Such balance
sheets and related statements of income, changes in stockholders' equity (for
the year-end statements only), and changes in financial position (for the
year-end statements only), are sometimes referred to together as the "Company
Financial Statements.") Except to the extent stated therein, the Company
Financial Statements have been prepared in accordance with generally accepted
accounting principles (except for the omission of notes to interim statements
and year-end adjustments to interim results), applied on a consistent basis
with all prior periods and fairly presented the financial position of the
Company as of the dates indicated and the results of operations and changes
in financial position for the periods indicated, subject, in the case of
interim financial statements, to normal year-end adjustments. The Company
does not have any liability or obligation which is not accrued or reserved
against in the Company Financial Statements and is required to be so accrued
or reserved.
(h) LIABILITIES. The Company has no liabilities or obligations of
any nature or of any amount whatsoever, whether accrued, absolute, liquidated
or unliquidated, contingent or otherwise, and there is no basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against the Company which might give rise to
obligations or liabilities of the Company, except:
(i) to the extent reflected in the Company Financial
Statements and not already paid or discharged;
(ii) to the extent disclosed in this Agreement and the
schedules hereto; and
(iii) those expressly approved in writing by Acquiror and
Acqcorp.
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(i) COMPLIANCE WITH APPLICABLE LAWS. The Company holds, and at all
times relevant hereto has held, all material licenses, franchises, permits
and authorizations necessary for the lawful conduct of its business under and
pursuant to all, and has complied with and is not in default in any respect
under any applicable law, ordinance, regulation, statute, order, rule,
policy, or guideline of any Governmental Entity, except for possible
violations which individually or in the aggregate do not have a material
adverse effect on the financial condition of the Company. No investigation
or review by any Governmental Entity of the Company is pending or, to the
knowledge of the Company, threatened, nor has any Governmental Entity
indicated to the Company an intention to conduct the same.
(j) LITIGATION. Except as set forth in the Disclosure Schedule,
the Company is not a party to any, and there are no pending or, to the best
of the Company's knowledge, threatened, material legal, administrative,
arbitral or other proceedings, claims, actions or governmental investigations
of any nature against the Company or challenging the validity or propriety of
the transactions contemplated by this Agreement and, to the best of the
Company's knowledge, there is no reasonable basis for any other material
proceeding, claim, action or governmental investigation against the Company.
The Company is not a party to any order, judgment or decree which will, or
might reasonably be expected to, materially adversely affect the business,
operations, properties, assets or financial condition of the Company.
(k) CERTAIN AGREEMENTS. Except as set forth in the Disclosure
Schedule, the Company is not a party to:
(i) Any agreement (or group of related agreements) for the
lease of personal property to or from any person providing for lease payments
in excess of $10,000 per year;
(ii) Any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products or other
personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of time of more than one year,
result in a material loss to the Company, or involve the payment of
consideration in excess of $10,000 during the term of such agreement;
(iii) Any agreement concerning a partnership or joint venture;
(iv) Any agreement (or group of related agreements) under which
the Company has created, incurred, assumed or guaranteed any indebtedness for
borrowed money, or any lease obligation, in excess of $10,000 or under which
it has imposed or granted a security interest on any of its assets, tangible
or intangible;
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(v) Any agreement concerning confidentiality or noncompetition;
(vi) Any agreement with any of the Shareholders;
(vii) Any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or arrangement
for the benefit of its current or former directors, officers or employees;
(viii) Any collective bargaining agreement;
(ix) Any agreement for the employment of any individual on a
full-time, part-time, consulting or other basis providing annual compensation
in excess of $10,000, or providing severance benefits, or which requires more
than thirty (30) days notice of termination;
(x) Any agreement under which it has advanced or loaned any
amount to any of its directors, officers and employees;
(xi) Any agreement under which the consequences of the default
or termination could have a material adverse affect on the business,
financial condition, operations, results of operations or future prospects of
the Company; or
(xii) Any other agreement (or group of related agreements), the
performance of which involves consideration in excess of $10,000.
The Company has delivered to Acquiror a correct and complete copy of each
written agreement listed in the Disclosure Schedule and a written summary
setting forth the terms and conditions of each oral agreement (if any)
referred to in the Disclosure Schedule. With respect to each such agreement:
(i) with respect to the Company, the agreement is legal, valid, binding,
enforceable and in full force and effect, and to the Company's knowledge, the
agreement is legal, valid, binding, enforceable and in full force and effect
with respect to each other party to the agreement; (ii) the agreement will
continue to be legal, valid, binding, enforceable and in full force and
effect on identical terms following the consummation of the transactions
contemplated in this agreement; (iii) the Company is not in breach or default
under any such agreement, and to the Company's knowledge, no other party is
in breach or default under such agreement and no events or circumstances have
occurred which could reasonably be anticipated to create a default under any
such agreement; and (iv) to the Company's knowledge, no party has repudiated
any provision of the agreement.
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(l) CUSTOMERS AND SUPPLIERS. The Disclosure Schedule contains a
true and complete list of all customers to which the Company provided goods
or services invoiced at $10,000 or more in the aggregate in the one-year
period ended April 30, 1997 and thereafter through the date of this
Agreement. The Disclosure Schedule contains a true and complete list of all
persons who provided goods or services to the Company in the one-year period
ended April 30, 1997 and thereafter through the date of this Agreement, to
which the Company paid or is committed to pay $10,000 (or any lesser amount
paid other than in the ordinary course of business) or more in the aggregate
since the beginning of said period. The Company's relations with the
foregoing customers and suppliers are good and except as described in the
Disclosure Schedule, there are no disputes between the Company and any of
such customers and suppliers outstanding, or to the Company's knowledge,
pending or threatened. The Company's business with such customers and
suppliers is current and to the Company's knowledge, expected to continue.
True and complete copies of all contracts with the foregoing customers and
suppliers have been delivered to Acquiror and are in full force and effect in
accordance with their terms and there are no defaults or assertions of
default thereunder.
(m) TITLE TO PERSONAL PROPERTY. Except as disclosed on the
Disclosure Schedule, the Company has good and marketable title to all
personal property and assets of every type and description used by it in its
business, free and clear of any and all mortgages, liens, pledges,
privileges, charges or encumbrances of every kind, nature and description;
all properties and assets of the Company are in its possession or custody or
under its control; and all of its operating assets are in good operating
condition and repair, ordinary wear and tear excepted. Except as disclosed
on the Disclosure Schedule, the Company owns all of the personal property and
other assets necessary for the operation of its business as it is currently
being conducted.
(n) ACCOUNTS RECEIVABLE. All the accounts receivable of the
Company reflected in the Company Financial Statements have been collected or
are good and collectable in the aggregate recorded amounts thereof (less a
reasonable amount for doubtful accounts as reflected in the Company Financial
Statements), can reasonably be anticipated to be paid in full after good
faith collection efforts, and are subject to no setoffs or counterclaims.
(o) INVENTORY. All of the inventory of the Company reflected in the
Company Financial Statements was in existence at the date thereof. All such
inventory and all inventory items acquired since June 30, 1997 are of good and
merchantable quality and are usable in the ordinary course of the Company's
business except for damage or deterioration adequately covered by insurance or
by claims against financially responsible third parties, and subject to the
reserve for obsolescence set forth in the Company Financial Statements. Such
inventories were valued at the lower of cost or net realizable value and were
determined in accordance with generally accepted accounting principles
consistently applied.
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(p) INTELLECTUAL PROPERTIES. The Company owns or has the right to
use pursuant to license, sublicense, agreement or permission all patents,
patent rights, licenses, trademarks, trademark rights, trade names, trade
name rights, service marks, service mark rights, copyrights and similar
rights necessary for and material to the operation of its business as
currently conducted. Each item of intellectual property owned or used by the
Company immediately prior to the Effective Time of the Merger will be owned
or available for use by the Company on identical terms and conditions
immediately following the Effective Time of the Merger. The Company has
taken all reasonably necessary action to maintain and protect each item of
intellectual property that it owns or uses. The Disclosure Schedule
identifies all material patents, patent rights, licenses, trademarks,
trademark rights, trade names, trade name rights, service marks, service mark
rights, copyrights and similar rights used by the Company in its business.
The Company has delivered to Acquiror true, correct and complete copies of
all registrations, applications, licenses, agreements and permission for the
intellectual property rights described in the Disclosure Schedule. The
Company is not infringing or otherwise acting adversely to the right of any
other person under or in respect to, any patent, license, trademark, trade
name service mark, copyright or similar intangible right, except as disclosed
in the Disclosure Schedule.
(q) EMPLOYEES AND BENEFITS. The Disclosure Schedule lists all
employee benefit plans covering the Company's employees and all collective
bargaining or union agreements to which the Company is a party. The Company
is not a party to any multiemployer pension or other employee benefit plan
subject to the Employment Retirement Security Act of 1974, as amended.
Except as identified on the Disclosure Schedule, the Company has no written
or oral employment agreements with any of its employees. The Company has
timely paid all withholding, FICA and other taxes required to be paid by it
on behalf of its employees.
(r) LABOR MATTERS. The Disclosure Schedule lists all employees of
the Company, their current compensation level and all accrued vacation and
sick pay. The Company is in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, the failure to comply with
which would have a material adverse effect on the financial condition of the
Company; there is no unfair labor practice complaint served against the
Company; no grievance or arbitration proceeding is pending against the
Company; no representation petition has been filed with the National Labor
Relations Board and no organizational activity, to the knowledge of the
Company, is occurring respecting the employees of the Company; and the
Company has not experienced any work stoppage.
(s) CONDUCT OF BUSINESS, LICENSES, ETC. The Disclosure Schedule
describes all permits, licenses, approvals and other authorizations from and
registrations with federal, territorial, state, local and other governmental
agencies necessary for the Company to conduct its business, all of which have
been secured,
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are valid and in full force and effect and are renewable in the ordinary
course of business. None of such permits, licenses, approvals or other
authorizations and registrations shall be invalidated or become voidable as a
result of the consummation of the transactions contemplated hereby. No
consent, approval or notice is necessary in connection with the consummation
of the transactions contemplated hereby in order to maintain in full force
and effect all of said permits, licenses, approvals, authorizations and
registrations. The operation of the Company in the past three years has not
violated or infringed in any material respect any of said permits, licenses,
approvals, authorizations, and registrations, and the Company has not been
subject to any investigation, proceeding or action by any federal,
territorial, state, local or other governmental agency resulting in any
penalty, fine or other adverse ruling, order or report. The products sold by
the Company comply with all applicable regulatory approvals, all of which are
currently in full force and effect. The Disclosure Schedule lists all states
in which the Company has qualified to do business as a foreign corporation.
(t) BANK ACCOUNTS. The Disclosure Schedule sets forth a complete
and correct list of all bank accounts and safe deposit boxes of the Company.
Except as set forth on such schedule, the Company has no other bank accounts,
safe deposit boxes or other time or demand deposits, investment accounts or
other liquid assets. Such schedule shows the name of each such bank,
financial institution or other depository, the address of same, and the
account number and names of all persons authorized to draw thereon or who
have access thereto.
(u) BANK LOANS. The Disclosure Schedule lists each of the loans and
other agreements between the Company and Seafirst (the "Bank Loans"). With
respect to each such agreement: (i) with respect to the Company, the
agreement is legal, valid, binding, enforceable and in full force and effect,
and to the Company's knowledge, the agreement is legal, valid, binding,
enforceable and in full force and effect with respect to Seafirst; (ii) the
agreement will continue to be legal, valid, binding, enforceable and in full
force and effect on identical terms following the consummation of the
transactions contemplated in this agreement and Seafirst has consented to
such continuation; (iii) the Company is not in breach or default under any
such agreement; and (iv) to the Company's knowledge, Seafirst has not
repudiated any provision of the agreement. The Company has no outstanding
loans or agreements with any other bank except as listed in the Disclosure
Schedule.
(v) CONDITION OF BUILDINGS AND EQUIPMENT. All of the buildings and
equipment of the Company are in reasonably good working condition and repair,
ordinary wear and tear excepted, and to the Company's knowledge are in
conformity with all applicable ordinances and regulations and building,
zoning, and other laws. The Company shall, until the Effective Time of the
Merger, continue to maintain all of its material assets in conformity with
its present practices and cause it to continue to carry its existing
insurance on such assets.
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(w) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as contemplated by
this Agreement, since April 30, 1997, the Company, has conducted its business
only in the ordinary course, and there has not been (i) any material adverse
change with respect to the business, operations, prospects, properties,
assets or financial condition or results of operations of the Company, (ii)
any damage, destruction or loss, whether covered by insurance or not, which
has or will have a material adverse effect on the financial condition of the
Company, or (iii) except as approved by Acquiror any declaration, setting
aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to any of the Company's capital stock or any
redemption or other acquisition by the Company of capital stock or any
agreement entered into with respect thereto.
(x) INSURANCE. The Company has furnished Acquiror with a complete
list and brief description of all insurance policies carried by the Company
as of the date hereof, which policies are maintained in full force and effect
and provide for coverages which are usual and customary in the business of
the Company as to amount and scope and as to which no notice of cancellation
has been received.
(y) TAXES. The Company has filed all tax returns and reports as
required by law and has paid all taxes and other assessments, including
withholding, Social Security taxes, unemployment insurance, and workers'
compensation premiums, by their respective due dates (including extensions
thereof), except where any failure to file or pay, taken individually or in
the aggregate, would not have a material adverse effect on the financial
condition of the Company. Each such return is true and correct in all
material respects. The provision for taxes of the Company as shown in the
Company Financial Statements is adequate for taxes due or accrued in
accordance with generally accepted accounting principles and there is no
audit exam, notice of deficiency, refund litigation, tax claim, or notice of
assessment or proposed assessment pending or which the Company has received
which is not included in such provision and the Company does not have any
additional material liability for taxes. The Company has not been audited by
the Internal Revenue Service since the tax year ended April 30, 1990, or any
agency of the State of Washington since June 1993. The Company has not
granted or been requested to grant waivers of any statute of limitations
applicable to any claim for taxes.
(z) BROKERS. Except as set forth in the Disclosure Schedule,
neither the Company, nor any of its officers or directors has retained, hired
or employed any broker, investment banker or other firm or person in
connection with the transactions contemplated hereby and, except as set forth
in the Disclosure Schedule, no such agent, broker, banker, firm or person is
or will be entitled to any broker's or finder's fee or any other commission
or similar fee in connection with any of the transactions contemplated by
this Agreement.
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(aa) SAFETY LAWS. The Company has not violated any applicable
statute, law or regulation relating to occupational health and safety
("Safety Law") which will or could be reasonably anticipated to, have a
material adverse effect on the Company's business, assets, liabilities,
financial condition or operations and no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
(ab) MANUFACTURING AND MARKETING RIGHTS. Except as set forth in the
Disclosure Schedule, the Company has not granted rights to manufacture,
produce, assemble, license, market, or sell its products to any other person
and is not bound by any agreement that affects the Company's exclusive right
to develop, manufacture, assemble, distribute, market, or sell its products.
(ac) PRODUCT WARRANTY. Each product manufactured, sold, leased, or
delivered by the Company has been in conformity with all applicable
contractual commitments and all express and implied warranties in all
material respects. Subject to any reserve for such claims set forth in the
most recent balance sheet of the Company furnished to the Purchasers, the
Company does not have any liability (contingent or accrued) for, and there is
no basis for any present or future claim or action against the Company for,
replacement or repair thereof or other damages or liability in connection
with the manufacture, sale or use thereof. Except as stated in the
Disclosure Schedule, no product manufactured, sold, leased, or delivered by
the Company is subject to any guaranty, warranty, or other indemnity beyond
the applicable standard terms and conditions of sale or lease. The
Disclosure Schedule sets forth the material standard terms and conditions of
sale or lease customarily used by the Company.
(ad) PRODUCT LIABILITY. The Seller does not have any liability (and
there is no basis for any present or future action against it giving rise to
any such liability) arising out of any injury to individuals or property as a
result of the ownership, possession, or use of any product manufactured,
sold, leased, or delivered by the Company or any predecessor of the Company,
other than liability in an amount less than $10,000 in any one case or in the
aggregate. The Company has no knowledge or reason to believe that any such
action may be brought or threatened against the Company. The Disclosure
Schedule sets forth a list of all claims brought against the Company with
respect to product liability within the last three years and the resolution
of all such claims.
(ae) MINUTE BOOKS. The minute books of the Company contain complete
and accurate records of all meetings and other corporate actions held or
taken, since its formation, of its shareholders and of its Board of Directors
(including committees of the Board of Directors where significant action were
taken). True and complete copies of such minute books have been furnished to
Acquiror.
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(af) AFFILIATE TRANSACTIONS. Except as specifically contemplated by
this Agreement, or as reflected on the Disclosure Schedule, since April 30,
1997, the Company has not engaged in, or agreed to engage in (whether in
writing or orally), any transaction with any director or officer of the
Company or any "affiliate" or "associate" (as such terms are defined in Rule
405 promulgated under the Securities Act) involving aggregate payments by or
to the Company of $10,000 or more during any consecutive 12-month period.
(ag) ENVIRONMENTAL COMPLIANCE. The Company's operations do not
violate any applicable federal, state or local law, regulation, rule or order
relating to air, water, or noise pollution, employee health or safety, or the
production, storage, labeling, transportation or disposition of waste or
hazardous toxic substances (collectively, "Environmental Law"). Except as
set forth on the Disclosure Schedule, no licenses or permits are required to
be filed by the Company under any applicable Environmental Law with respect
to the Company's operations. The Company has no knowledge that any other
person has stored any chemical or hazardous substances, including any
"Hazardous Substances," "Pollutants" or "Contaminants" (as such terms are
defined in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA")), asbestos, petroleum products,
or polychlorinated biphenyls (collectively referred to herein as "Hazardous
Substances") on, beneath or about any of the owned or leased properties of
the Company or on, beneath or about any other property previously owned or
leased by the Company. The Company knows of no condition relating to or
resulting from a release or discharge which has resulted or could result in
any damage, loss, cost expense, claim, demand, order or liability to or
against the Company or Acquiror or Acqcorp by any governmental authority or
other third party relating to or resulting from the Company's operations.
The Company has not received any notice from any governmental authority or
private or public entity advising the Company that it is potentially
responsible for response costs with respect to a release or threatened
release of any Hazardous Substances. The Company has no knowledge that any
other person has, buried, dumped or otherwise disposed of any Hazardous
Substances on, beneath or about any of the owned or leased properties of the
Company or on, beneath or about any other property previously owned or leased
by the Company. The Company has not received notice of any violation of any
Environmental Law or zoning or land use ordinance, law or regulation relating
to the Company's operations including, but not limited to, CERCLA, the Toxic
Substances Control Act of 1976, as amended, the Resource Conservation
Recovery Act of 1976, as amended, the Clean Air Act, as amended, the Federal
Water Pollution Control Act, as amended, or the Occupational Safety and
health Act of 1970, as amended, nor is the Company aware of any such
violation.
(ah) DISCLOSURE. None of the statements or information made or
contained in any of the representations or warranties of the Company set
forth or to be set forth in this Agreement or in any of the schedules,
exhibits, lists, certificates
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or other documents specifically referred to herein and delivered by or on
behalf of the Company to the Acquiror pursuant to this Agreement in
connection with the transactions contemplated hereby, contains or will
contain any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated herein or therein or necessary
to make the statements or information contained herein or therein in light of
the circumstances under which they are made, not misleading in any material
respect.
3.2 REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND ACQCORP. Acquiror and
Acqcorp jointly and severally represent and warrant to the Company as follows:
(a) ORGANIZATION, STANDING AND POWER. Each of Acquiror and Acqcorp
(collectively sometimes herein referred to as the "SI Group") is a
corporation duly authorized, validly existing and in good standing under
Delaware and Washington law, respectively. Each has all requisite corporate
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties or assets makes such licensing or
qualification necessary, except where failure to be so licensed or qualified
would not have a material adverse effect on SI. Acquiror has delivered to
the Company complete and correct copies of the Articles of Incorporation and
Bylaws of each company in the SI Group as amended to the date hereof.
(b) AUTHORITY. Acquiror and Acqcorp each has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by Acquiror and Acqcorp and the consummation by Acquiror
and Acqcorp of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Acquiror and Acqcorp. This
Agreement has been duly executed and delivered by Acquiror and Acqcorp and
constitutes a valid and binding obligation of Acquiror and Acqcorp
enforceable in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally, and except that the availability
of equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceeding therefor may be brought.
The execution and delivery of this Agreement do not, and the consummation of
the transactions contemplated hereby and the compliance with the provisions
hereof will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation under,
any provisions of the laws of the United States or the State of Washington,
including laws against fraudulent conveyances, the Articles of Incorporation
or By-Laws of Acquiror and Acqcorp. No exemption, consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity or any other third party is required by, or with respect
to, Acquiror or Acqcorp
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in connection with the execution and delivery of this Agreement by Acquiror
and Acqcorp or the consummation by Acquiror and Acqcorp of the transactions
contemplated hereby, except for the filing of the Merger Documents with the
Secretary of State of the State of Washington.
(c) BROKERS. Except as set forth in the Disclosure Schedule,
neither Acquiror nor any of its officers or directors has retained, hired or
employed any broker, investment banker or other firm or person in connection
with the transactions contemplated hereby and no such agent, broker, banker,
firm or person is or will be entitled to any broker's or finder's fee or any
other commission or similar fee in connection with any of the transactions
contemplated by this Agreement.
3.3 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each Shareholder
represents and warrants that
(a) shares of the Company which he owns and shares of the Company
owned by persons or entities with which he is affiliated, as disclosed in the
Disclosure Schedule, are owned free and clear of all liens, claims and
encumbrances, and are subject to no options, warrants, contracts, purchase
rights or agreements of any kind, except for this Agreement,
(b) he has the power to enter into this Agreement and to carry out
his obligations hereunder,
(c) the execution and performance of this Agreement do not violate,
or result in a breach of, or constitute any default under any judgment, order
or decree to which such Shareholder may be subject or constitute a violation
of or conflict with any duty to which such Shareholder is subject,
(d) the approval of the Plan of Merger and the surrender of shares
of the Company pursuance thereto by any shareholder with which the
Shareholder is affiliated that is not a natural person has been duly
authorized by all necessary action on the part of such shareholder and does
not violate, or result in a breach of, or constitute any default under, any
judgment, order or decree to which such shareholder may be subject or
constitute a violation of, or conflict with any duty to which such
shareholder is subject,
(e) there is no pending or threatened material, legal,
administrative, arbitral or other proceeding, claim, action or governmental
investigation against him or any shareholder with which he is affiliated
challenging the transactions contemplated by this Agreement,
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(f) neither he nor any shareholder with which he is affiliated has
retained, hired or employed any broker, investment banker or other firm or
person in connection with the transactions contemplated hereby and, except as
set forth in the Disclosure Schedule, no agent, broker, banker, firm or
person is or will be entitled to any broker's or finder's fee or any other
commission or similar fee in connection with any of the transactions
contemplated by this Agreement.
The liability of any Shareholder for the foregoing representations and
warranties is individual and not joint and several, is limited to the
consideration received by such Shareholder and by any shareholder with which
he is affiliated and is limited to claims made within one year after the
effective date of the Merger.
ARTICLE 4
COVENANTS
4.1 COVENANTS OF THE COMPANY RELATING TO CONDUCT OF BUSINESS. During the
period from the date of this Agreement and continuing until the Effective
Time of the Merger (except as Acquiror shall consent in writing, which
consent shall not be unreasonably withheld), the Company and the Shareholders
agree that
(a) ORDINARY COURSE. Except as provided in paragraph (b) of this
Section 4.1, the Company shall carry on its respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business and
except as provided in paragraph (b) of this Section 4.1, use its best efforts
to preserve intact its present business organizations, keep available the
services of its present employees and preserve its relationships with
customers, depositors, suppliers and others having business dealings with it
to the end that its goodwill and ongoing businesses shall be unimpaired at
the Effective Time of the Merger. The Company will not enter into any
merger, consolidation or other business combination, or agreement therefor,
with any entity, nor make available to any person not affiliated with it any
information about its business or organization that is not routinely made
available to the public generally, except as may be required by law or
regulation or pursuant to this Agreement.
(b) DIVIDENDS; CHANGES IN STOCK. The Company shall not (i) declare,
set aside or pay any dividends on, or make other distributions in respect of,
any of its capital stock, if such dividend or distribution would preclude the
Company from satisfying the conditions of Section 5.2(j), (ii) split, combine
or reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of the Company, or (iii) repurchase, redeem or
otherwise acquire, any shares of its capital stock or any of its other
outstanding securities.
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(c) ISSUANCE OR SALE OF SECURITIES. Except, in connection with
employees exercising their stock options, the Company will not issue, deliver
or sell, or authorize or propose the issuance, delivery or sale of, any
shares of its capital stock of any class, or any securities convertible into,
or any rights, warrants or options to acquire, any such shares or convertible
securities, or enter into any agreement obligating the Company to issue,
deliver or sell any such shares, rights, warrants, options or securities, and
the Shareholders shall not enter any agreement with respect to the sale of
the Shares or any warrants, options or other rights to purchase any
securities of the Company.
(d) CHARTER DOCUMENTS. The Company shall not amend or propose to
amend its Articles of Incorporation or Bylaws.
(e) NO ACQUISITIONS. The Company shall not organize, acquire or
agree to acquire by merging or consolidating with, or by purchasing 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 assets which
are material, individually or in the aggregate, to the Company other than in
the ordinary course of business.
(f) NO DISPOSITIONS. The Company shall not sell, lease, encumber,
pledge, grant a security interest in, or otherwise dispose of, or agree to
sell, lease or otherwise dispose of, any of its assets (including any
interest therein) which are material, individually or in the aggregate, to
the Company, other than in the ordinary course of business consistent with
past practices and policies; PROVIDED HOWEVER, that Company shall, prior to
the Closing, close down or dispose of its European subsidiary, Aero-Go Europe
N.V.
(g) COMPENSATION AND BENEFITS. The Company shall not grant any
officer, employee or director any increase in compensation or in severance or
termination pay, or enter into or amend or make any commitment to enter into
or amend any employment, consulting, severance or salary continuation
agreement with any officer, employee or director or any bonus, incentive
compensation, deferred compensation, profit sharing, retirement, pension,
group insurance or other benefit plan, or any policies or past practices with
respect to vacation, termination, severance, and leave pay and benefits,
except as may be required under employment or termination agreements in
effect on the date of this Agreement or pursuant to this Agreement and except
in accordance with the Company's established policies with respect to timing
and amounts of such increases or the payment of bonuses; or to negotiate or
otherwise make any commitment or incur any liability or obligation, to any
labor organization not binding and enforceable against the Company and its
subsidiaries on the date of this Agreement.
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(h) CAPITAL EXPENDITURES. The Company shall not make any capital
expenditures in excess of (i) $5,000 per project or related series of
projects, or (ii) $20,000 in the aggregate, other than pursuant to binding
commitments existing on the date hereof and other than expenditures necessary
to maintain existing assets in good repair.
(i) DEBT. The Company shall not incur debt other than in the
ordinary course of business.
(j) GOOD REPAIR. The Company shall not fail to maintain all of its
properties in good repair, order and condition; or fail to maintain insurance
upon all of its properties and with respect to the conduct of its business in
amount and kind as now in existence if available at rates substantially
similar to those now in effect and, if not available at such rates, in such
amount and kind as would be appropriate in the exercise of good business
judgment.
(k) COMMITMENTS. The Company shall not, except as otherwise
contemplated hereby, enter into any other agreements, commitments or
contracts which, individually or in the aggregate, are material to the
Company except agreements, commitments or contracts entered into in the
ordinary course of business.
(l) REAL ESTATE. The Company shall not make any investment or
commitment to invest in real estate.
(m) OTHER ACTIONS. Neither the Company nor the Shareholders shall
take any action that would result in any of the representations and
warranties of the Company set forth in this Agreement becoming untrue in any
material respect or in any of the conditions to the Merger set forth in
Article V not being satisfied in any material respect, except as otherwise
contemplated or required by this Agreement.
4.2 ACCESS TO INFORMATION.
(a) The Company and the Shareholders shall afford to Acquiror and
to Acquiror's accountants, counsel and other representatives access during
normal business hours during the period prior to the Effective Time of the
Merger, subject to reasonable notice, to all its properties, books,
contracts, commitments, records, reports and other information, including the
work papers of the Company's accountants, any reviews, examinations, or
reports by such accountants, for the purpose of conducting an investigation
of the Company related to the Merger on an ongoing basis until the Effective
Time of the Merger; provided, however, that such investigation shall be
conducted in a manner that does not unreasonably interfere with the normal
operations and employee relations of the Company. Acquiror and Acqcorp on
the one hand, and Company and the Shareholders on the other, will hold
nonpublic information received from the other ("Confidential Information") in
confidence until
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such time as such information otherwise becomes publicly available. In the
event of termination of this Agreement for any reason each shall promptly
return all documents containing Confidential Information obtained from the
other and any copies made of such documents. This covenant of
confidentiality shall survive any termination of this Agreement, any other
provision notwithstanding provided, however, that the obligation to keep such
Confidential Information confidential shall not apply to (i) any information
which (A) a party can establish by convincing evidence was already in its
possession prior to the disclosure thereof by the other; (B) was then
generally known to the public; (C) became known to the public other than as a
result of actions by the other; or (D) was disclosed by a third party not
bound by an obligation of confidentiality; or (ii) disclosures in accordance
with the federal securities laws or pursuant to an order of a court of
competent jurisdiction.
4.3 EXPENSES. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses, provided, however, that any expenses incurred by the Company
related to closing down or disposing of its European subsidiary, or legal,
accounting, financial or advisory services incurred in connection with the
transactions contemplated herein in excess of $150,000 and any excise,
transfer and other similar taxes or assessments applicable to the
transactions contemplated herein shall be considered expenses of the Aero-Go
shareholders and shall be deducted (without reference to the proviso to
Section 7.2) from the aggregate consideration payable pursuant to Section
2.1(b) hereof, or, with the consent of Acquiror, such amount, or any portion
thereof, shall be added to the amount of cash required to be reflected on the
Closing Balance Sheet.
4.4 ADDITIONAL AGREEMENTS. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement. In case at any time after the Effective Time of the Merger any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of either of
the Constituent Corporations, the proper officers and directors of each
corporation that is a party to this Agreement shall take all such necessary
action.
4.5 NO SOLICITATION. Neither the Shareholders nor the Company shall,
directly or indirectly, encourage or solicit or, subject to the fiduciary
duties of the Board of Directors of the Company, hold discussions or
negotiations with, or provide any information to, any person, entity or group
(other than Acquiror and Acqcorp) concerning any merger, sale of substantial
assets not in the ordinary course of business, sale of shares of capital
stock or similar transactions involving the Company or securities of the
Company held by the Shareholders or their affiliates. The
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Shareholders and the Company will use their best efforts to cause its
officers, directors, employees, representatives, agents, or other persons
controlled by the Company to abide by the foregoing restrictions. The
Shareholders and the Company will promptly communicate to Acquiror the terms
of any proposal which it may receive in respect of any such transaction.
4.6 CURRENT INFORMATION--THE COMPANY. During the period from the date of
this Agreement to the Effective Time of the Merger, the Company will cause
one or more of its designated representatives to confer on a regular basis
with representatives of Acquiror to report the general status of the ongoing
operations of the Company. The Company will promptly notify Acquiror of any
material change in the normal course of business or in the operation of the
properties of the Company and of any governmental complaints, investigations
or hearings (or communications indicating that the same be contemplated), or
the institution or the threat of significant litigation involving the Company
and will keep Acquiror fully informed of such events.
4.7 DISPOSITION OF EUROPEAN SUBSIDIARY. Prior to the Closing, the
Company shall have closed down or disposed of its European subsidiary,
Aero-Go Europe N.V. Except as provided in Section 4.3, the Company shall
bear all expenses related to such termination.
4.8 FAILURE TO FULFILL CONDITIONS. If any of the Shareholders, or the
Company, determines that it will be unable to fulfill on or prior to the date
set forth in Section 6.1(b) any of the material obligations required to be
fulfilled as a condition to any other party's obligation to consummate the
transactions contemplated hereby, such party will promptly notify the other
parties.
4.9 PURCHASE OF ACQUIROR COMMON STOCK. The Company and each of the
Shareholders agree (and will cause each of the Company's directors and
officers to agree) that, neither it nor any of its affiliates, nor any
Shareholder, director or officer, shall engage in any purchase or sale of
Acquiror's Common Stock (or any contract for or interest therein) at any time
(a) between execution of this Agreement and the earlier of the date of filing
of Acquiror's Form 8-K regarding the transaction contemplated herein, or the
date of filing of Acquiror's first quarterly or annual report after the
Closing, or (b) after the Closing if such Shareholders are then in possession
of material non-public information concerning Acquiror or its business or
plans.
<PAGE>
ARTICLE 5
CONDITIONS PRECEDENT TO CLOSING
5.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger are subject to the
satisfaction prior to the Effective Time of the Merger of the following
conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger and the
transaction contemplated hereby, to the extent required, shall have been
approved and adopted by the affirmative vote of the shareholders of the
Company as required by the Washington Law.
(b) OTHER APPROVALS. All authorizations, consents, orders or
approvals of, or declaration or filings with, or expirations of waiting
periods imposed by, any Governmental Entity (the "Governmental Approvals")
necessary for the consummation of the transactions contemplated by this
Agreement shall have been filed, occurred or been obtained, as the case may
be, and no action, suit or proceeding by any Governmental Entity shall have
been commenced for the purpose of postponing or preventing consummation of
the Merger or the transactions contemplated hereby.
(c) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction shall be in effect, and no statute, rule, regulation
or order of any Governmental Entity shall have been enacted, promulgated or
issued preventing consummation of the Merger or the transactions contemplated
hereby.
5.2 CONDITIONS OF OBLIGATIONS OF ACQUIROR AND ACQCORP. The obligations
of Acquiror and Acqcorp to effect the Merger and the transactions
contemplated hereby are also subject to the satisfaction or waiver prior to
the Effective Time of the Merger of the following conditions:
(a) The representations and warranties of the Company and the
Shareholders contained in this Agreement shall be true and correct in all
material respects as of and at the Effective Time of the Merger and shall
have been true in all material respects at the date hereof, except for any
changes approved by Acquiror in writing;
(b) The Company and the Shareholders shall have performed and
complied in all material respects with all covenants, agreements, obligations
and conditions contained in this Agreement that are required to be performed
or complied with by it on or before the Effective Time of the Merger;
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(c) The Chief Executive Officer of the Company shall have delivered
to Acquiror at the Effective Time of the Merger a certificate certifying that
the conditions specified in paragraphs (a) and (b) of this Section 5.2 have
been fulfilled;
(d) Kurtis V. Kosty and Peter J. Burger ("Key Employees") each
shall execute and deliver to Acqcorp the Employment Consulting and
Noncompetition Agreement substantially in the form of Exhibit 4(a) and 4(b),
respectively, attached hereto;
(e) The Company shall have disposed of its subsidiary, Aero-Go
Europe N.V.
(f) Acquiror shall have received from counsel for the Company, an
opinion dated as of the Effective Time of the Merger as to the matters set
forth in Sections 3.1(a), (b), (c) and (d) and to the knowledge of such
counsel, Sections 3.1(e) and (f) in form and substance reasonably
satisfactory to Acquiror and its counsel;
(g) All corporate proceedings in connection with the Merger and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Acquiror and its counsel and they shall have received all such
counterpart original and certified or other copies of such documents as they
may reasonably request;
(h) Any consents, waivers, clearances, approvals and authorizations
of regulatory or governmental bodies which are necessary in connection with
the consummation of the transactions contemplated hereby shall have been
obtained, and none of such consents, waivers, clearances, approvals or
authorizations shall contain or impose any term, cost or condition which
would, individually or in the aggregate, have a material adverse effect on
the business, operations, properties, assets or financial condition of the
Company or Acquiror and its subsidiaries taken as a whole.
(i) In addition to the approvals of any Governmental Entity
described Section 5.1(b), Acquiror or the Company shall have obtained all
necessary third-party consents or approvals reasonably required by the
Acquiror in connection with or to consummate the Merger and the transactions
contemplated hereby, and to retain the benefits and rights held by the
Company, including without limitation any consents or assignments reasonably
necessary in connection with any contract, agreement, or lease; except for
any such consents or approvals the failure to obtain which, individually or
in the aggregate, would not have a materially adverse effect on the
operations or financial condition of the Company.
(j) The Company shall have delivered to Acquiror a Balance Sheet,
dated as of the closing date (the "Closing Balance Sheet"), which shall
reflect that the Company has (i) $1 million in cash (including amounts
payable to the Company pursuant to the Letter of credit set forth on the
Disclosure Statement), (ii) shareholder
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equity of not less than $2,000,000 and; (iii) long-term debt, including the
current portion of any bank debt, not to exceed $400,000 in the aggregate, as
of the Closing Balance Sheet date. The Closing Balance Sheet shall be
prepared in accordance with generally accepted accounting principles, applied
on a consistent basis with the Company Financial Statements and shall fairly
present the financial position of the Company as of the Closing Date.
5.3 CONDITIONS OF OBLIGATIONS OF THE COMPANY. The obligations of the
Company and Shareholders to effect the Merger are also subject to the
satisfaction or waiver prior to the Effective Time of the Merger of the
following conditions:
(a) The representations and warranties of Acquiror and Acqcorp
contained in this Agreement shall be true and correct in all material
respects as of and at the Effective Time of the Merger and shall have been
true in all respects at the date hereof, except for any changes approved by
the Company in writing;
(b) Acquiror and Acqcorp shall have performed and complied in all
material respects with all covenants, agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied
with by them on or before the Effective Time of the Merger;
(c) Duly authorized officers of Acquiror and Acqcorp shall have
delivered to the Company at the Effective Time of the Merger a certificate
certifying that the conditions specified in paragraphs (a) and (b) of this
Section 5.3 have been fulfilled; and
(d) Any consents, waivers, clearances, approvals and authorizations
of regulatory or governmental bodies which are necessary in connection with
the consummation of the transactions contemplated hereby shall have been
obtained, and none of such consents, waivers, clearances, approvals or
authorizations shall contain or impose any term, cost or condition which
would, individually or in the aggregate, have a material adverse effect on
the business, operations, properties, assets or financial condition of
Acquiror and its subsidiaries, including the Surviving Corporation, taken as
a whole.
(e) In addition to the approvals of any Governmental Entity
described in Section 5.1(b), Acquiror or the Company shall have obtained all
necessary third-party consents or approvals reasonably required in connection
with or to consummate the Merger and the transactions contemplated hereby,
and to retain the benefits and rights held by the Company, including without
limitation any consents or assignments reasonably necessary in connection
with any contract, agreement, or lease; except for any such consents or
approvals the failure to obtain which, individually or in the aggregate,
would not have a materially adverse effect on the
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operations or financial condition of Acquiror and its subsidiaries, including
the Surviving Corporation, taken as a whole.
ARTICLE 6
TERMINATION, AMENDMENT AND WAIVER
6.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time of the Merger, whether before or after approval of matters
presented in connection with the Merger by the shareholders of the Company:
(a) By mutual consent of Acquiror, Acqcorp and the Company;
(b) By any party if the Effective Time of the Merger shall not have
occurred on or prior to July 22, 1997, unless the failure of such occurrence
shall be due to the failure of the party seeking to terminate this Agreement
to perform or observe its agreements and conditions set forth herein to be
performed or observed by such party on or before the Effective Time if the
Merger;
(c) by Acquiror (i) if at the time of such termination there shall
be a material adverse change in the financial condition of the Company from
that existing on the date of this Agreement, except for any changes permitted
by this Agreement, it being understood that any of the matters disclosed
herein are not deemed to be a material adverse change for the purposes of
this paragraph (c); or (ii) if there shall have been any material breach of
any obligation of the Company or the Shareholders hereunder and such breach
shall have not been remedied within 30 days after receipt by the Company of
notice in writing from Acquiror specifying the nature of such breach and
requesting that it be remedied; and
(d) by the Company, (i) if at the time of such termination there
shall be a material adverse change in the consolidated financial condition of
Acquiror from that existing on the date of this Agreement, except for any
changes permitted by this Agreement, it being understood that any of the
matters disclosed herein are not deemed to be a material adverse change for
purposes of this paragraph (d); or (ii) if there shall have been any material
breach of any obligation of Acquiror or Acqcorp hereunder and such breach
shall not have been remedied within 30 days after receipt by Acquiror of
notice in writing from the Company specifying the nature of such breach and
requesting that it be remedied.
6.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 6.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Acquiror,
Acqcorp, or the Company or their respective officers or directors except as
set forth in Sections 4.2 and 4.9 and except
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<PAGE>
to the extent that such termination results from the breach by a party hereto
of any of its representations, warranties, covenants or agreements set forth
in this Agreement which arose out of acts occurring prior to termination, or
arises out of, the termination
6.3 AMENDMENT. This Agreement may be amended by mutual consent of the
parties hereto at any time before or after the approval of the Merger by the
shareholders of the Company but, after any such approval, no amendment shall
be made which reduces the amount or changes the form of consideration to be
paid to the shareholders without further approval by such shareholders. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
6.4 EXTENSION; WAIVER. At any time prior to the Effective Time of the
Merger, the parties hereto may, to the extent legally allowed, (a) extend the
time for the performance of any of the obligations or other acts of the other
parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE 7
GENERAL PROVISIONS
7.1 LIMITED SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Representations, warranties, covenants and agreements in this Agreement and
in any instrument delivered pursuant to this Agreement shall survive the
Effective Time of the Merger for two (2) years (except for Section 3.1(y) as
it relates to matters set forth in the Consent of Shareholder Representation
dated as of the date hereof, as to which the indemnification obligation shall
be limited to a maximum of $300,000, and which shall survive so long as any
funds remain held subject to the terms of the Escrow Agreement) provided,
that liability for breaches of the representations and warranties in Article
3 of this Agreement shall be satisfied solely by recovery of the funds held
in escrow. In addition, claims not made prior to expiration of the relevant
representations and warranties shall be barred.
7.2 INDEMNIFICATION ESCROW. The sum of $750,000 shall be retained in
escrow from the funds due to Aero-Go shareholders under Section 2.1(b) after
the Effective Date of the Merger to secure the indemnification obligations of
the Company under Section 7.3. The term, conditions and duration of the
escrow shall be as set forth in the Escrow Agreement.
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7.3 INDEMNIFICATION BY THE COMPANY. Subject to the limitations of
Section 7, the Company hereby agrees to indemnify Acquiror and Acqcorp
promptly against, and to hold them harmless from, any and all liability,
loss, damage or injury, together with all reasonable costs and expenses
relating thereto, including all reasonable legal and accounting fees and
expenses, incurred or sustained by them arising from (i) any failure to
fulfill, or other breach of, any representation or warranty of the Company or
the Shareholders, or (ii) failure of the Company or the Shareholders to
perform or to fulfill, or other breach or violation of, any covenant,
agreement or other term obligating the Company or the Shareholders set forth
in this Agreement, irrespective of any investigation that may be or may have
been made by or for Acquiror or Acqcorp prior to the Effective Time of the
Merger; provided, however, no claim for indemnification (aside from any
expenses due from the Company pursuant to Section 4.3) may be made unless the
aggregate amount of all indemnification claims exceeds $50,000.
7.4 INDEMNIFICATION BY SHAREHOLDERS. Subject to the limitations of
Section 3.3 and Section 7.1, the Shareholders hereby agree to indemnify
Acquiror and Acqcorp promptly against, and to hold them harmless from, any
and all liability, loss, damage or injury, together with all reasonable costs
and expenses relating thereto, including all reasonable legal and accounting
fees and expenses, incurred or sustained by them arising from (i) any failure
to fulfill, or other breach of, any representation or warranty of the
Shareholders, or (ii) failure of the Shareholders to perform or to fulfill,
or other breach or violation of, any covenant, agreement or other term
obligating the Shareholders set forth in this Agreement, irrespective of any
investigation that may be or may have been made by or for Acquiror or Acqcorp
prior to the Effective Time of the Merger.
7.5 INDEMNIFICATION BY ACQUIROR OR ACQCORP. Acquiror and Acqcorp hereby
agree to indemnify the Company and the shareholders of the Company promptly
against, and to hold them harmless from any and all liability, loss, damage
or injury together with all reasonable costs and expenses relating thereto,
including all reasonable legal and accounting fees and expenses, incurred or
sustained by them arising from any failure by Acquiror or Acqcorp to fulfill
or other breach of any representation or warranty, or failure to perform or
to fulfill or other breach or violation of, any covenant, agreement or other
term obligating Acquiror or Acqcorp set forth in this Agreement, irrespective
of any investigation that may be or may have been made by or for the Company
or said shareholders prior to the Effective Time of the Merger.
7.6 INDEMNIFICATION PROCEDURE. (a) Following notice of a Claim, the
Shareholder Representative, as appointed pursuant to the Escrow Agreement
shall, using commercially reasonable efforts and at the expense of the
shareholders, defend, contest or otherwise protect against such legal action,
claim or proceeding with legal counsel of its own selection. Acquiror shall
have the right, but not the obligation, to participate, at its own expense,
in the defense thereof through counsel of its own
27
<PAGE>
choice and shall have the right but not the obligation, to assert any and all
cross claims or counterclaims it may have. So long as the Shareholder
Representative is using commercially reasonable efforts to defend any such
legal action, claim or proceeding, Acquiror shall at all times cooperate in
all reasonable ways with, make its relevant files and records available for
inspection and copying by, and make its and the Company's employees available
or otherwise render reasonable assistance to the Shareholder Representative
in connection with the defense of such legal action, claim or proceeding and
shall not without the prior written consent of the Shareholder Representative
settle such action, claim or proceeding for which indemnification is sought
under Section 7.3 of this Agreement. In the event that the Shareholder
Representative fails to use commercially reasonable efforts to timely defend,
contest or otherwise protect against any such legal action, claim or
proceeding, Acquiror shall have the right, but not the obligation, to defend,
contest or otherwise protect against such legal action, claim or proceeding
and claim any compromise or settlement thereof from the amounts held pursuant
to the Escrow Agreement, including, without limitation, reasonable attorneys'
fees, disbursements, and all amounts paid as a result of such legal action,
claim or proceeding or any compromise or settlement thereof. The Shareholder
Representative shall not compromise or settle any matter if such compromise
or settlement would have a material adverse effect on the Company or its
business without the prior written consent of Acquiror, which consent shall
not be unreasonably withheld.
(b) TAX MATTERS. Notwithstanding any of the foregoing, Acquiror
shall have the sole right to conduct any tax audit or other tax contest
relating to Acquiror's and the Company's tax returns after the Closing Date,
provided, that Acquiror will not amend the Company's tax returns for periods
prior to the Effective Time without the written consent of the Shareholder
Representative, nor shall Acquiror or the Company file any tax returns
relating to periods prior to the Effective Time of the Merger without the
consent of the Shareholder Representative, which will not be unreasonably
withheld. In the event any indemnifiable loss arises out of any such tax
audits, Acquiror will notify the Shareholder Representative and allow them to
comment on any written submissions relating to indemnifiable Losses. No such
tax contest or proceeding shall be paid, compromised or settled without the
written consent of the Shareholder Representative, which consent shall not be
unreasonably withheld; the fact that the settlement of a tax contest, or
filing or amendment of a tax return, may result in a loss to or an
indemnification Claim by Acquiror shall not, absent a bona fide dispute with
respect to the underlying tax liability giving rise thereto, constitute
reasonable grounds to withhold consent. Acquiror shall conduct any tax
audits in good faith in order to minimize any indemnifiable losses payable by
the shareholders.
7.6. INSURANCE. The Acquiror shall not make a claim for indemnification
under Article 7 hereof without first using commercially reasonable efforts to
obtain defense and/or indemnification under its insurance policies or those
of the Company. Any such claim shall be accompanied by an assignment to the
Shareholder Representative
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<PAGE>
of relevant insurance coverage. Acquiror shall not cancel any Directors and
Officers liability insurance policies of the Company in force at the
Effective Time of the Merger prior to their normal renewal dates.
7.7 ATTORNEYS' FEES. In the event it is necessary for any party to
engage an attorney to enforce the terms of this Agreement, the prevailing
party shall, in addition to any other relief, be entitled to recover from the
party in default attorneys' fees and costs, including any on appeal.
7.8 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
(a) If to Acquiror or Acqcorp, to
SI Technologies, Inc.
4611 South 134th Place
Seattle, Washington 98168
Attention: Rick Beets, President and CEO
With copy to:
Benjamin F. Stephens
Graham & James LLP/Riddell Williams P.S.
1001 4th Avenue Plaza, Suite 4500
Seattle, Washington 98154-1065
(b) If to the Company, to
AeroGo, Inc.
1170 Andover Park West
Seattle, Washington 98188
Attn: Kurtis V. Kosty, President and CEO
With copy to:
Wilbert C. Anderson
Stoel Rives LLP
600 University Street, Suite 3600
Seattle, Washington 98101-3197
and
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Wiley P. Kitchell
The Commerce Bank
601 Union St.
Suite 3600
Seattle, WA 98101
(c) If to the Shareholder Representative, to
Kurtis V. Kosty
AeroGo, Inc.
1170 Andover Park West
Seattle, Washington 98188
and
Stanley B. McDonald
520 Pike Street
Seattle, Washington 98101
(d) if to a former shareholder of the Company, to the address at
which payments to such shareholder, under the notes provided for in Sections
2.1(b) and (c) hereof, are to be or were last made.
7.9 INTERPRETATION. When a reference is made in this Agreement to
Sections, Schedules or Exhibits, such reference shall be to a Section,
Schedule or Exhibit to this Agreement unless otherwise indicated. The
headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," and "including" are used in this Agreement,
they shall be deemed to be followed by the words "without limitation." The
term "to our knowledge" or similar terms mean the actual knowledge of facts
or other information by the maker of the representation or warranty in which
the term appears.
7.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
7.11 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
(including the documents and instruments referred to herein) (a) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof and (b) is not
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intended to confer upon any person other than the parties hereto any rights
or remedies hereunder.
7.12 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.
7.13 PUBLICITY. So long as this Agreement is in effect, no party to this
Agreement shall, or shall permit any of its officers, directors or
representatives to, issue or cause the publication of any press release,
public announcement or other public statement with respect to the
transactions contemplated by this Agreement without the prior consent of the
other parties to this Agreement, which consent shall not be unreasonably
withheld; provided, that without limiting the obligations of the parties to
use their best efforts to consult with each other prior to any public
announcement nothing contained herein shall restrict the ability of any party
to issue any such announcement which such party believes in good faith to be
required by law.
7.14 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto
without the prior written consent of the other parties, except that Acqcorp
may assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to Acquiror or to any direct or indirect wholly owned
subsidiary of Acquiror. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the
parties and their respective successors and assigns.
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IN WITNESS WHEREOF, Acquiror, Acqcorp, and the Company have caused this
Acquisition Agreement to be signed by their respective officers hereunto duly
authorized and Shareholders have signed all as of the date first written
above.
SI TECHNOLOGIES, INC., a Delaware
corporation
By Rick A. Beets
---------------------------------------
Its Pres. & CEO
--------------------------------------
SI ACQUISITION CORPORATION, a
Washington corporation
By Rick A. Beets
----------------------------------------
Its President
---------------------------------------
AEROGO, INC., a Washington corporation
By Kurtis V. Kosty
----------------------------------------
Its President
---------------------------------------
Kurtis V. Kosty
--------------------------------------------
Kurtis V. Kosty
Peter J. Burger
--------------------------------------------
Peter J. Burger
Stanley B. McDonald
--------------------------------------------
Stanley B. McDonald
32
<PAGE>
Robert J. Behnke
--------------------------------------------
Robert J. Behnke
T. Evans Wyckoff
--------------------------------------------
T. Evans Wyckoff
33
<PAGE>
CLOSING AND INDEMNIFICATION ESCROW AGREEMENT
THIS CLOSING AND INDEMNIFICATION ESCROW AGREEMENT ("Agreement") is made
as of July 21, 1997, by SI TECHNOLOGIES INC., a Delaware corporation ("SI"),
AeroGo, Inc., a Washington corporation ("Surviving Corporation"), Kurt Kosty
and Stanley B. McDonald as representatives of the Shareholders of the
Surviving Corporation ("SA") and FIRST TRUST National Association, as the
Escrow Agent hereunder (the "Escrow Agent").
RECITALS
A. SI, SI Acquisition Corp., a Washington corporation, which is a
wholly-owned subsidiary of SI and AeroGo, Inc., a Washington corporation
("Surviving Corporation") entered into an Acquisition Agreement including a
Plan of Merger, dated as of July 21, 1997, as amended (the "Merger
Agreement").
B. A true copy of the Merger Agreement has been delivered to the Escrow
Agent.
C. Terms used herein and defined in the Merger Agreement shall wherever
capitalized in this Agreement have the same meanings as in the Merger
Agreement, except as otherwise defined herein or where the context clearly
requires otherwise.
D. The Merger Agreement provides that as soon as practical after
Closing, but no later than July 22, 1997, SF shall pay to Escrow Agent
sufficient funds to cover the payments to the Surviving Corporation's
shareholders provided for in the Merger Agreement, which funds are to be held
and disbursed by the Escrow Agent in accordance with this Agreement.
E. Section 7.3 of the Merger Agreement provides that, at the Effective
Time, $750,000 withheld from the amounts payable to the holders of Surviving
Corporation Stock shall be deposited into escrow and shall be held and
disbursed by the Escrow Agent in accordance with the indemnification
provisions of this Escrow Agreement. SCHEDULE 1 hereto contains a list of
each such holder of Surviving Corporation Stock, setting forth for each such
holder (hereinafter "Shareholder") the amount deposited (the "Shareholder
Deposit"), such Shareholder's percentage share of the aggregate Shareholder
Deposits ("Percentage Share"), and the address of each Shareholder as shown
on Surviving Corporation's stock records, and the amount of each payment to
be distributed to each Shareholder, subject to adjustment for indemnification
claims pursuant to Section 7 of the Merger Agreement.
F. The purpose of this Agreement is to provide for the payment of the
merger consideration provided for in the Merger Agreement and to secure any
claims that SI may have against the Surviving Corporation after Closing for
which SI is entitled to indemnification pursuant to Article 7 of the Merger
Agreement.
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<PAGE>
G. Pursuant to the Merger Agreement, SA is appointed the representative
of the Shareholders for the purposes of this Escrow Agreement.
THEREFORE, in consideration of the mutual covenants contained in this
Agreement and in the Merger Agreement, the parties hereby agree as follows:
1. ESTABLISHMENT OF FUND.
1.1 As soon as practical after Closing, but no later than the
Effective Time of the Merger, SI will deliver to Escrow Agent Six Million
Dollars ($6,000,000) as the Merger Consideration to cover the payments
provided in the Merger Agreement (the "Funds"), in immediately available
funds by electronic bank fund transfer to:
First Bank N.A.
ABA #091000022
Beneficiary: First Trust
Credit Account #180121167365
For further Credit to Account 47300029
Re: SI Technologies, Inc.
Attn: Seattle Office/(Linda Houston 461-4105)
to be disbursed, in accordance with the Merger Agreement and this Agreement.
1.2 By executing this Agreement, (i) Escrow Agent agrees to receive,
hold and disburse the Escrowed Funds, subject to the terms and conditions of
this Agreement; and (ii) SA agrees to act as representative of the
Shareholders subject to the terms and conditions of this Agreement.
2. INVESTMENT OF FUNDS. The Escrow Agent shall establish an account in
the name of itself as Escrow Agent.
2.1 Funds will be invested in First American Managed Mutual Funds
Treasury Obligations Fund. Parties hereto acknowledge their receipt of the
prospectus for the fund. Interest earned in the escrow account will be
reinvested. All entities entitled to receive interest from the escrow
account will provide Escrow Agent with a W-9 or W-8 IRS tax form prior to the
disbursement of interest. SA will be entitled to exercise all voting rights
for the funds.
2.2 Escrow Agent shall hold any income, interest or accretion with
respect to the Funds as part of the Funds to be disposed of in such manner as
the principal amount of the Funds. For the purposes of this Agreement, the
term "Funds" includes all the funds held hereunder, including the principal
amount of the Funds and any income, interest or accretion with respect to
such Funds.
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3. ALLOCATION OF MERGER CONSIDERATION. The Merger Agreement provides
that the Merger Consideration shall be $6,000,000. The Merger Agreement
further provides that each share of common stock, $.25 par value, of
Surviving Corporation ("Surviving Corporation Common Stock") that is issued
and outstanding immediately prior to the Effective Time shall be entitled to
receive, upon tender of the certificate representing such share, the amounts
set forth on the attached Payment Schedule.
4. RELEASE OF FUNDS. The Escrow Agent shall hold the Funds and any
interest earned thereon and make disbursements as follows:
4.1 PAYMENT TO SHAREHOLDERS. SI shall, immediately after the Closing
Date, send to each holder of shares of Surviving Corporation Common Stock a
transmittal letter satisfactory to SI and Escrow Agent instructing such
holder how to tender such holder's shares after the Effective Time. During
the period commencing with the first business day following the Effective
Time and continuing for six months after the Effective Time (the "Surrender
Period"), each such holder of shares of Surviving Corporation Common Stock
shall have the right to surrender for cancellation the certificate or
certificates representing such shares to the Escrow Agent. Attached hereto
as SCHEDULE 1 (based on the Payment Schedule and approved by SI, SA and
Surviving Corporation) is a list of all holders of Surviving Corporation
Common Stock showing the certificate number, the number of Shares represented
by such certificate, each holder's share of the Escrowed Funds, the amount of
tax to be withheld, if any, and the net amount payable to each such holder.
Upon surrender of any such certificate or certificates, such holder shall
have the right to receive payment of the cash consideration for such shares
in the amount set forth on the Payment Schedule, less amounts to be held in
the Escrow subject to Article 7 of the Merger Agreement (the "Indemnification
Funds"). If any cash consideration is to be paid to a person other than the
person to whom the certificate surrendered in exchange therefor is
registered, it shall be a condition of the payment that the certificate so
surrendered shall be properly endorsed and otherwise in proper form for
transfer, and that the person requesting such exchange pay to Escrow Agent
any applicable transfer or other taxes required by reason of the transfer.
The Escrow Agent shall accept, in lieu of the surrender of certificates
representing shares of Surviving Corporation Common Stock as provided above,
affidavits of the holders of any such shares that such certificates were
lost, stolen or mutilated, together with such documentation and
indemnification from such holders substantially in the form attached hereto
as EXHIBIT A. Upon delivery of the appropriate documents as provided above
to the Escrow Agent, the Escrow Agent shall, as soon as practicable, but no
later than August 22, 1997 (or, if delivery is made on or after August 22,
1997, the next business day after delivery or the second business day
following delivery of Schedule 1, whichever is later), deposit in the U.S.
mails addressed to the appropriate payee (as provided above) the cash
consideration provided for above.
4.2 The Indemnification Funds are held in Escrow hereunder as
security for the indemnity obligations of Surviving Corporation under Article
7 of the Merger Agreement. Payment for any amounts determined to be payable
to SI shall be made out of the Indemnification Funds. Upon Proper
Authorization (as defined in Subsection 4.6 below)
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advising Escrow Agent that SI is entitled to an indemnification payment in
accordance with Article 7 of the Merger Agreement, and PROVIDED THAT Escrow
Agent has not received a written objection to such disbursement from SA
within 30 days after SA's receipt of Proper Authorization, Escrow Agent shall
on the following business day disburse from the Indemnification Funds the
amount of such payment in accordance with disbursement instructions furnished
by SI. If Escrow Agent receives timely written objection to such
disbursement from SA, Escrow Agent (1) will pay SI the portion of the
disbursement not contested by SA and (2) will hold the remaining amounts
pending resolution pursuant to Subsection 4.7.
4.3 As provided in Article 7 of the Merger Agreement, pursuant to a
Proper Authorization delivered by SI pursuant to Subsection 4.2 above prior
to such anniversary, the Shareholders are entitled to receive $200,000 of the
Escrowed Funds on the first anniversary of the Closing Date ("the First
Payment Date") and $250,000 on the second anniversary of the Closing Date
("the Second Payment Date"), which amounts shall be reduced by the following:
(i) any amounts paid prior to such anniversary pursuant to Subsection 4.2
above; and (ii) any amounts subject to pending resolution on such anniversary
pursuant to Subsection 4.7 below. On the business day following the First or
Second Payment Date, upon Proper Authorization advising Escrow Agent that the
Shareholders are entitled to the amount determined in this Subsection 4.3,
and PROVIDED THAT Escrow Agent has not received a written objection to such
disbursement from SI within 30 days after SI's receipt of Proper
Authorization, Escrow Agent shall disburse such amount to the Shareholders in
accordance with disbursement instructions furnished by SA. All disbursements
to the Shareholders shall be made in proportion to their Percentage Share, as
set forth on the Payment Schedule. If Escrow Agent receives timely written
objection to such disbursement from SI, Escrow Agent (1) will pay to the
Shareholders, in accordance with disbursement instructions furnished by SA,
the portion of the disbursement not contested by SI and (2) will hold the
remaining amounts pending resolution of the objection pursuant to Subsection
4.7.
4.4 As provided in Article 7 of the Merger Agreement, the
Shareholders are entitled to all the Funds remaining in Escrow, less any
unresolved tax deficiencies or assessments and less any amounts subject to
pending resolution pursuant to Subsection 4.7, on a date jointly specified in
writing to the Escrow Agent by SI and SA (the "Final Payment Date"). The
Final Payment Date shall be no later than the earlier of (a) the date on
which the statute of limitations shall have expired with respect to the
Surviving Corporation's federal income tax return for the period ending July
31, 1997, including any extensions or suspensions of such assessment period,
or (b) 90 days after the Internal Revenue Service has given the Surviving
Corporation notice of a deficiency in taxes reported on the later of the
federal income tax return for the Surviving Corporations (i) tax year ended
April 30, 1997, and (ii) the period ended July 31, 1997. On the business day
following the Final Payment Date, upon a Proper Authorization delivered to it
by SI pursuant to Subsection 4.2 advising the Escrow Agent that the
Shareholders are entitled to disbursement of all remaining Funds, except
amounts reserved for unresolved taxes and other matters, in accordance with
Section 7 of the Merger Agreement, and PROVIDED THAT Escrow Agent has not
received a written objection to such disbursement from SI within 30 days
after SI's receipt of Proper Authorization, Escrow Agent shall disburse such
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amount to the Shareholders in accordance with disbursement instructions
furnished by SA. All disbursements to the Shareholders shall be made in
proportion to their Percentage Share, as set forth on the Payment Schedule.
If Escrow Agent receives timely written objection to such disbursement from
SI, Escrow Agent (1) will pay SA the portion of the disbursement not
contested by SI and (2) will hold the remaining amounts pending resolution of
the objection pursuant to Subsection 4.7.
4.5 When all Funds have been disbursed in accordance herewith, this
Agreement shall terminate (except for any amounts then owed to Escrow Agent
under the indemnification set forth in Section 9) and the Escrow shall be
closed.
4.6 For purposes of this Agreement, "Proper Authorization" means:
(i) with respect to disbursements to SI under Subsection 4.2,
an assignment of any relevant insurance coverage, and a written statement
signed by SI specifying (a) that SI is entitled to an indemnification payment
in accordance with Article 7 of the Merger Agreement, (b) the amount thereof
and the party to which such disbursement is to be made, (c) setting forth in
reasonable detail the basis of the claim of indemnity and the basis and
manner of calculating the amount thereof, in accordance with Article 7 of the
Merger Agreement, and (d) that SI has delivered or is concurrently delivering
to SA (specifying the manner and date of delivery) a copy of the written
statement submitted to Escrow Agent and specifying the date on which such
copies shall be deemed to be received by SA in accordance with Subsection
12.1. SI shall deliver Proper Authorization for disbursement under
Subsection 4.2 as promptly as practicable whenever an SI Indemnified Party
shall have determined there are facts or circumstances that give rise to
indemnification rights under Article 7 of the Merger Agreement (a "Claim");
provided, however, that the failure to give a timely notice of a Claim for
indemnification shall not limit the indemnification obligations hereunder
except to the extent that the delay in giving such notice materially
adversely affects the ability of SA on behalf of the Surviving Corporation
and the Shareholders to either defend against a Third Party Claim or mitigate
Damages with respect to any Claim. No Proper Authorization given by SI after
the Final Payment Date shall be effective. In the event of any Claim
involving an action by a third party, SI, Surviving Corporation and SA shall
cooperate in the prosecution or defense of the action in accordance with the
provisions set forth in Article 7 of the Merger Agreement, and SI shall
notify SA of the progress of any such Claim, shall permit SA to participate
in such prosecution or defense as provided in Article 7 of the Merger
Agreement and shall provide SA with reasonable access to all relevant
information and documentation relating to the Claim and SI's and Surviving
Corporation's prosecution or defense thereof.
(ii) with respect to a disbursement to Shareholders under
Subsections 4.3 or 4.4 hereof, a written statement by SA specifying (a) the
Shareholders are entitled to a release of a certain portion of the
Indemnification Funds in accordance with Section 7 of the Merger Agreement;
(b) the amount of the release to which the Shareholders are entitled; and (c)
that SA has delivered or is concurrently delivering to SI (specifying the
manner and date of
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delivery) a copy of the written statement submitted to Escrow Agent and
specifying the date on which such copies shall be deemed to be received by SI
in accordance with Subsection 12.1;
(iii) with respect to any other disbursement or otherwise,
written instructions signed on behalf of SI and SA authorizing Escrow Agent
to undertake an action (and in the case of a disbursement, specifying the
amount thereof and the party to which a disbursement is to be made), or a
certified copy of an arbitration award or judgment of a court of competent
jurisdiction in any action or proceeding arising out of Article 7 of the
Merger Agreement or this Agreement.
4.7 In the event that an objection to disbursement under
Subsections 4.2, 4.3 or 4.4 hereof is timely made as provided therein, the
parties will negotiate in good faith to resolve the controversy that is the
subject of the objection. If, within 30 days after an objection was received
by SI or SA, as the case may be, SI and SA (on behalf of the Shareholders)
have not arrived at a settlement agreement, SI and SA (on behalf of the
Shareholders) shall promptly submit the dispute to binding, final and
unappealable arbitration, to be held in Seattle, Washington, as follows:
(i) SI shall select one arbitrator, SA shall select one
arbitrator and SI and SA together shall select a third arbitrator. (If SI
and SA cannot select a third arbitrator within five business days, the two
arbitrators individually chosen by SI and SA shall select promptly the third
arbitrator.) Provided, however, that no arbitrator shall have rendered
services, or shall be associated with any accounting firm, law firm or other
company that has rendered services within the last three years to SI or to
any Shareholder;
(ii) The arbitration shall be resolved in accordance with the
Commercial Arbitration Rules of the American Arbitration Association;
(iii) Judgment may be rendered upon the award rendered by the
arbitrators in any court having jurisdiction thereof;
(iv) Within 10 business days of receiving notice of an
arbitration award, together with certified copies of the arbitration award and
the judgment rendered thereon, unless restrained by court order, Escrow Agent
shall act according to the mandate of such arbitration award, without liability
to SI or SA.
(v) The prevailing party shall be entitled to receive its
reasonable attorneys' fees in any such arbitration, and the non-prevailing
party shall pay (or reimburse the prevailing party its portion of) the fees
of the arbitrators, all as the arbitrators shall decide. Any such award
against SA shall be satisfied only out of the Indemnification Funds available
for distribution to the Shareholders pursuant to Section 3.3, and not by SA
individually acting in such role.
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4.8 To the extent deemed necessary by the Escrow Agent, all parties
to whom a distribution may be made shall have submitted to Escrow Agent a
properly completed current Form W-9 or Form W-8 or Escrow Agent shall make
appropriate withholdings.
4.9 UNCLAIMED FUNDS AND INTEREST. All interest earned on the Funds
shall become Indemnification Funds attributable to the shareholders as to which
Funds had been deposited under this Agreement in proportion to the amounts of
their respective deposits and shall be held and disbursed in the same manner as
other Indemnification Funds under this Agreement. Any Funds that remain
unclaimed within six months after the Effective Time shall be similarly
allocated to the shareholders.
4.10 DISBURSEMENT BY WIRE TRANSFER. Parties hereto may elect to
request transfer of funds by Fedwire from time to time, subject to the
conditions stated herein. Parties hereto agree that the wire transfer
security procedures identified on the attached Exhibit A-4.10 to this
agreement are commercially reasonable. Parties hereto further agree that
Escrow Agent should use these procedures to detect unauthorized wire transfer
payment requests prior to executing such requests and further agree that any
request acted upon by the Escrow Agent in compliance with these security
procedures, whether or not authorized, shall be treated as an authorized
request. Parties hereto agree that the Escrow Agent has the right to change
the wire transfer security procedures from time to time and that use of any
changed procedures evidences the acceptance of the commercial reasonability
of such change by the parties hereto.
5. TERM. This Agreement shall terminate upon the disbursement of all the
Funds provided that the indemnification set forth in Section 10 shall survive
termination of this Agreement.
6. INSPECTION OF RECORDS. SI or SA may, at any time, during normal
business hours after reasonable notice to Escrow Agent, inspect the records
of the Escrow Agent, insofar as they solely relate to this Agreement, for the
purpose of determining compliance with and conformance to the provisions of
this Agreement.
7. DUTY AND LIABILITY OF THE ESCROW AGENT.
7.1 The duties and obligations of the Escrow Agent shall be limited
to and determined solely by the express provisions of this Agreement and no
implied duties or obligations shall be read into this Agreement against the
Escrow Agent. The sole duty of the Escrow Agent, other than as herein
specified, shall be to receive the Funds and hold them, subject to release in
accordance with the terms of this Agreement.
7.2 SI and SA may from time to time prepare, execute and deliver to
the Escrow Agent joint supplemental escrow instructions containing such terms
and conditions not inconsistent with this Escrow Agreement as the Escrow
Agent may reasonably require, which escrow instructions shall be binding upon
the parties.
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7.3 The Escrow Agent shall not be responsible for or be required to
enforce any of the terms or conditions of any agreement between SI and SA.
7.4 The Escrow Agent shall not be responsible or liable in any manner
whatsoever for the performance or compliance of or by any party of their
respective obligations under this Agreement, nor shall the Escrow Agent be
responsible or liable in any manner whatsoever for the failure of any third
party to honor any of the provisions of this Agreement.
7.5 The Escrow Agent is not bound by and is under no duty to
inquire into the terms or validity of any other agreements or documents,
including any agreements or documents which may be related to, referred to in
or deposited with the Escrow Agent in connection with this Agreement.
7.6 The Escrow Agent shall be entitled to rely upon and shall be
protected in acting in reliance upon any instruction, notice, information,
certificate, instrument, or other document which is submitted to it in
connection with its duties under this Agreement and which the Escrow Agent in
good faith believes to have been signed or presented by the proper party or
parties. The Escrow Agent may assume that any person purporting to give any
notice or make any statement in connection with the provisions hereof has
been duly authorized to do so. The Escrow Agent shall have no liability with
respect to the form, execution, validity or authenticity thereof.
7.7 The Escrow Agent shall not be liable for any act which the
Escrow Agent may do or omit to do hereunder, or for any mistake of fact or
law, or for any error of judgment, or for the misconduct of any employee,
agent or attorney appointed by it, while acting in good faith, unless caused
by or arising from its own gross negligence or willful misconduct.
7.8 The Escrow Agent shall be entitled to consult with counsel of
its own selection and the opinion of such counsel shall be full and complete
authorization and protection to the Escrow Agent in respect of any action
taken or omitted by the Escrow Agent hereunder in good faith and in
accordance with the opinion of such counsel.
7.9 So long as Escrow Agent acts consistent with its duties and
liabilities specified in this Agreement, Escrow Agent shall not be
responsible or liable for any losses resulting from the investment of the
Funds or for obtaining any specific level or percentage of earnings on such
investment.
7.10 The Escrow Agent shall have no responsibility for the tax
consequences of this Agreement. The Escrow Agent hereby advises each party
to this Agreement to consult with independent legal counsel concerning the
tax ramifications of this transaction.
8. RESIGNATION AND TERMINATION OF ESCROW AGENT. Escrow Agent may, upon
providing fifteen (15) days' written notice, resign its position and
terminate its liabilities and obligations hereunder. In the event Escrow
Agent is not notified within fifteen days of the
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Successor Escrow Agent, Escrow Agent shall be entitled to transfer all funds
and assets to a court of competent jurisdiction with a request to have a
successor appointed. Upon filing such action and delivering such assets,
Escrow Agent's obligations and responsibilities shall cease. Similarly, SA &
SI may also jointly terminate Escrow Agent and appoint a Successor Escrow
Agent by providing fifteen (15) days written notice to Escrow Agent.
9. ESCROW AGENT'S FEE. Escrow Agent shall be paid for services
hereunder in accordance with the attached fee schedule and shall be
reimbursed for its out of pocket expenses for fees of counsel in setting up
the escrow. Payments of all fees shall be the joint and several
responsibility of SI and the Shareholders and may, to the extent of unpaid
fees and expenses, be deducted from any property placed within the escrow
with Escrow Agent. In the event that Escrow Agent is made a party to
litigation with respect to the property held hereunder, or brings an action
in interpleader or in the event that the conditions of this escrow are not
promptly fulfilled, or Escrow Agent is required to render any service not
provided for in this agreement and fee schedule, or there is any assignment
of the interest of this escrow or any modification hereof, Escrow Agent shall
be entitled to reasonable compensation for such extraordinary services and
reimbursement for all fees, costs, liability and expenses, including attorney
fees. The Escrow Agent may amend its fee schedule from time to time on 60
days prior written notice to the parties.
9.1 INDEMNIFICATION.
9.2 SI agrees to indemnify and hold the Escrow Agent harmless from
and against any and all liabilities, causes of action, claims, demands,
judgments, damages, costs and expenses (including reasonable attorneys fees
and expenses) whether foreseen or unforeseen, whether known or unknown,
whether liquidated or unliquidated, that at any time may arise out of or in
connection with the Escrow Agent's acceptance of or performance of its duties
and obligations under this Agreement.
9.3 The Escrow Agent shall be under no duty to institute any suit,
or to take any remedial procedures under this Agreement, or to enter any
appearance or in any way defend any suit in which it be made a defendant
hereunder until it shall be indemnified as provided above.
10. DISPUTES WITH RESPECT TO INSTRUCTIONS.
10.1 In the event that the instructions provided herein fail to
address any unforeseen circumstance, resulting in ambiguity of the Agreement,
or the Escrow Agent shall receive instructions with respect to the Funds
which, in its discretion, are in conflict either with other instructions
received by it or with any provision of this Agreement, the Escrow Agent
shall continue to hold the Funds, until new instructions executed by SI and
SA are delivered to the Escrow Agent, PROVIDED HOWEVER that the Escrow Agent
may suspend further performance under this Agreement (except for the
safekeeping of any Funds) until the resolution of such unforeseen
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circumstance to the Escrow Agent's sole satisfaction by final judgment of a
court of competent jurisdiction or otherwise.
10.2 In the event that any controversy arises between one or more of
the parties hereto or any other party with respect to this Agreement, the
Merger Agreement or the Funds, the Escrow Agent shall not be required to
determine the proper resolution of such controversy or the proper disposition
of the Funds and shall have the absolute right, in its discretion, to deposit
the Funds with the Clerk of a court of competent jurisdiction, file suit and
obtain an order from the court requiring all parties involved to litigate in
such court their respective claims arising out of or in connection with the
Funds. Upon the deposit by the Escrow Agent of the Funds with the clerk of a
court of competent jurisdiction in accordance with this provision, the Escrow
Agent shall be relieved of all further obligations and released from all
liability hereunder.
11. SA.
11.1 SA is appointed the representative of the Shareholders pursuant
to the Merger Agreement as their exclusive agent and attorney-in-fact on
behalf of each of them in respect to all matters which are the subject of
this Agreement, including, without limitation, (i) receiving or giving all
notices, instructions, communications, consents or agreements that may be
necessary, required or given under this Agreement and (ii) asserting,
settling, compromising, defending or determining not to assert, settle,
compromise or defend any claims that SI may assert or have the right to
assert under this Agreement. SA shall have unlimited authority and power to
act on behalf of each Shareholder with respect to this Agreement and the
disposition and other handling of all claims, rights or obligations under
this Agreement so long as all Shareholders are treated in the same manner.
The Shareholders shall be bound by all actions taken by SA in connection with
this Agreement, and SI and Escrow Agent shall be entitled to rely on any
action or decision of SA. SA shall not be liable to any Shareholders for any
act or failure to act, or for any mistake of fact or law, or for any error of
judgment, or for the misconduct of any employee, agent or attorney appointed
by SA, while acting in good faith, unless caused by SA's willful misconduct.
The duties and obligations of SA shall be limited to and determined solely by
the express provisions of this Agreement and no implied duties or obligations
shall be read into this Agreement against SA. SA shall be entitled to
consult with counsel of SA's own selection and the opinion of such counsel
shall be full and complete authorization and protection to SA in respect to
any action taken or omitted by SA hereunder in good faith and in accordance
with the opinion of such counsel. Kurt Kosty and Stanley B. McDonald hereby
accept such authorization and appointment.
11.2 SUBSTITUTION. Either Mr. Kosty or Mr. McDonald may resign as
SA, effective upon a new SA appointed to act as SA by the written consent of
Shareholders who hold at least a majority of the Percentage Shares (a
"Majority Consent"). Such person who is acting as SA shall cease being the
SA upon such person's death or disability, in such event the Shareholders
shall appoint a substitute SA by Majority Consent. In addition, a person may
be substituted as SA by Majority Consent. The term "SA" as used herein
refers to Kurt Kosty and
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Stanley B. McDonald, acting together, or, if any person is substituted in
accordance herewith as SA in place of either of them, to such persons acting
together. Upon written notice to Escrow Agent by the substitute SA, Escrow
Agent shall be entitled to rely on the authority of the substitute SA to act
as SA hereunder.
11.3 SA shall not be entitled to receive any compensation for
performing SA's duties under this Agreement. SA shall be reimbursed out of the
Escrowed Funds for any out-of-pocket costs and expenses reasonably incurred by
SA in connection with actions taken pursuant to the terms of this Agreement.
12. MISCELLANEOUS.
12.1 NOTICE. All notices, requests and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given (i) when delivered by hand to a party; (ii)
the next business day following facsimile transmission to the party to whom
addressed (with evidence of receipt thereof) to the facsimile number shown
below; or (iii) three business days after delivery into the United States
mail, postage prepaid, as certified mail, return receipt requested, to the
party to whom addressed at the address shown below:
If to SI, to:
SI Technologies, Inc.
4611 South 134th Place
Seattle, Washington 98168
Attention: Rick Beets, President and CEO
(206) 244-6100
with a copy to
Benjamin F. Stephens
Graham & James LLP/Riddell Williams P.S.
1001 4th Avenue Plaza, Suite 4500
Seattle, Washington 98154-1065
(206) 624-3600
If to the Escrow Agent, to:
First Trust National Association
601 Union Street, Suite 2120
Seattle, WA 98101
Telephone: (206) 461-4105
Facsimile: (206) 461-4175
Attention: Linda Houston
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If to the Shareholder Representative, to:
Kurt Kosty
c/o AeroGo, Inc.
1170 Andover Park West
Seattle, Washington 98188
and
Stanley B. McDonald
520 Pike Street
Seattle, Washington 98101
With a copy to
Wilbert C. Anderson
Stoel Rives LLP
600 University Street, Suite 3600
Seattle, Washington 98101-3197
or such other address(es) or facsimile number(s) as any party may designate by
written notice given in accordance with this paragraph.
12.2 SUCCESSORS AND ASSIGNS. All the terms and conditions of this
Agreement shall be binding upon, and inure to the benefit of and be
enforceable by, the parties and their respective successors, assigns, heirs
and legal representatives. No person, firm or corporation will be recognized
by Escrow Agent as a successor, heir or personal representative of any party
until there shall be presented to Escrow Agent evidence reasonably
satisfactory to it of such succession.
12.3 ATTORNEYS' FEES. If suit or action is filed by any party to
enforce the provisions of this Agreement or otherwise with respect to the
subject matter of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees as fixed by the trial court and, if any
appeal is taken from any decision of the trial court, reasonable attorneys'
fees as fixed by the appellate court.
12.4 GOVERNING LAW. The laws of the State of Washington shall
govern the validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the parties.
12.5 HEADINGS. Section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
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12.6 GENDER. All personal pronouns used in this Agreement shall
include the other gender, whether used in the masculine, feminine or neuter
gender, and the singular shall include the plural, and vice versa, whenever
and as often as may be appropriate.
12.7 SEVERABILITY. Each provision of this Agreement is intended to
be severable. In the event that any one or more of the provisions contained
in this Agreement shall for any reason be held to be invalid, illegal or
unenforceable, the same shall not affect any other provisions of this
Agreement, but this Agreement shall be construed as if such invalid, illegal
or unenforceable provisions had never been contained in this Agreement.
12.8 INTEGRATED AGREEMENT. This Agreement and the Merger Agreement
constitute the entire understanding and agreement among the parties with
respect to the subject matter of this Agreement, and there are no agreements,
understandings, restrictions, representations or warranties among the parties
other than those set forth or provided for in this Agreement and the Merger
Agreement.
12.9 BINDING AGREEMENT. This Agreement shall be binding upon the
assigns, successors, personal representatives and heirs of the parties, and
shall be effective as of the day accepted by Escrow Agent.
12.10 MERGER OR CONSOLIDATION. Any company into which Escrow Agent
may be merged or converted or with which it may be consolidated or any
company resulting from any merger conversion or consolidation to which it
shall be a party or any company to which Escrow Agent may sell or transfer
all or substantially all of its corporate trust business, provided such
company shall be a bank or trust company organized under the laws of any
state of the United States of America or a national banking association and
shall be authorized by law to perform all the duties imposed upon it by this
Agreement, shall be the successor to Escrow Agent without the execution or
filling of any paper or the performance of any further act.
12.11 DISCLOSURE. The parties hereto hereby agree not to use the
name of FIRST TRUST NATIONAL ASSOCIATION to imply an association with the
transaction other than that of a legal escrow agent.
12.12 BROKERAGE CONFIRMATIONS. The parties acknowledge that to the
extent regulations of the Comptroller of Currency or other applicable
regulatory entity grant a right to receive brokerage confirmations of
security transactions of the escrow, the parties waive receipt of such
confirmations, to the extent permitted by law. The Escrow Agent shall
furnish a statement of security transactions on its regular monthly reports.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
AEROGO, INC., A WASHINGTON FIRST TRUST NATIONAL
CORPORATION ASSOCIATION, AS ESCROW AGENT
By: RICK A. BEETS By:
------------------------------- --------------------------------
Its: CHAIRMAN
------------------------------- Title:
------------------------------
KURT KOSTY
- ---------------------------------- By:
Kurt Kosty -------------------------------
Title:
Stanley B. McDonald -------------------------------
- ----------------------------------
Stanley B. McDonald
SI TECHNOLOGIES, INC., A
DELAWARE CORPORATION
By: RICK BEETS
-------------------------------
Rick Beets
Title: President and Chief Executive
Officer
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