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): February 10, 1997
PACIFIC AEROSPACE & ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Washington 0-26088 91-1744587
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation or
organization)
434 Olds Station Road, Wenatchee, WA 98801
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number,
including area code: (509) 664-8000
(Former name or former address, if changed since last report)
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Item 5. Other Events.
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A. Private Placement of Series A Convertible Preferred Stock.
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Effective as of February 28, 1997, Pacific Aerospace & Electronic, Inc.
(the "Company") completed a private placement of 50,000 shares of Series A
Convertible Preferred Stock, $.001 par value (the "Preferred Stock"), to 11
accredited investors, at a total offering price of $5,000,000. Pacific
Continental Securities Corp. received $375,000 as a commission as placement
agent. The offering was exempt from registration under the Securities Act of
1933 pursuant to Rule 506 of Regulation D.
At the closing of the offering, the Company entered into a Registration
Rights Agreement with the holders of the Preferred Stock by which it is obliged
to file a registration statement on Form S-3 to register for resale the shares
of Common Stock underlying the Preferred Stock. Under the terms of the
agreement, the registration statement must be effective by June 13, 1997.
The holders of the Preferred Stock will not have voting rights unless
required by law and are not entitled to receive dividends except on an
as-converted basis with the holders of the Company's common stock, $.001 par
value ("Common Stock"). On certain events, the holders of Preferred Stock are
entitled to a liquidation preference equal to the purchase price per share, plus
any accrued but unpaid dividends.
The holders may convert their shares of Preferred Stock to Common Stock at
any time after the earlier of (i) June 13, 1997, or (ii) the date that a
registration statement covering the underlying shares of Common Stock is
declared effective. The Company may cause the conversion of the Preferred Stock
to Common Stock after fifteen days' notice to the holders if (i) the average
closing bid prices of the Common Stock for 20 consecutive trading days is
greater than $6.11, and (ii) the underlying shares of Common Stock are
registered or qualified for resale under federal and state securities laws and
listed or quoted for trading on the Nasdaq National Market System or such other
securities exchange or quotation system on which the Company's Common Stock is
then traded. If not sooner converted, the shares of Preferred Stock will be
automatically converted to Common Stock on February 28, 1999.
On conversion of a share of Preferred Stock, the holder will receive a
number of shares of Common Stock equal to $100 divided by the conversion price
of the Preferred Stock. The conversion price will be the lower of (i) $3.49 or
(ii) 85% of the average closing bid price per share of the Common Stock over the
five days before conversion. As of February 28, 1997, the closing date,
1,432,665 shares of Common Stock would have been issuable on conversion of all
of the Preferred Stock, and 9,742,609 shares of Common Stock were issued and
outstanding. The Company may issue up to approximately 1.95 million shares of
Common Stock on conversion, and must redeem any Preferred Stock that it is not
permitted to convert.
The Company intends to use the proceeds of the private placement for
strategic acquisitions, manufacturing equipment and facilities expansion and
working capital.
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B. Proposed Acquisition.
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On February 10, 1997, the Company entered into a nonbinding letter of
intent with Northwest Technical Industries, Inc., a Washington corporation based
in Sequim, Washington ("NTI"), pursuant to which the Company plans to acquire,
through a wholly owned subsidiary, substantially all of the assets of NTI. NTI
manufactures explosively formed and clad dissimilar metals.
In consideration for substantially all of the assets of NTI, the Company
would assume certain liabilities of NTI, would pay to NTI $1 million in cash,
and would issue to NTI 245,154 newly issued and unregistered shares of Common
Stock. Alan Hare, the President of NTI, would enter into an employment and
noncompetition agreement with the Company at closing.
The obligations of the Company and NTI to complete the transaction are
subject to a number of conditions, including: the satisfactory completion of a
due diligence review by each party; negotiation and execution of a definitive,
mutually acceptable Purchase Agreement containing customary representations,
warranties, covenants, conditions, and indemnification provisions; the approval
of the transaction by the Boards of Directors of the Company, its subsidiary,
and NTI; the approval of the transaction by the shareholders of NTI; and the
receipt of any necessary licenses or approvals from third parties.
The acquisition is currently expected to close on or about April 30, 1997,
if the foregoing conditions have been met.
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Item 7. Financial Statements and Exhibits
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A. Financial Statements
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None required.
B. Exhibits
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The following are filed as exhibits to this Current Report:
3.1 Amendment to Articles of Incorporation of Pacific Aerospace &
Electronics, Inc., as filed on February 27, 1997 and corrected on
March 3, 1997 with the Secretary of State of the State of
Washington
4.1 Form of specimen certificate for the Preferred Stock
4.2 Registration Rights Agreement dated as of February 27, 1997
10.1 Series A Convertible Preferred Stock Purchase Agreement dated as
of February 27, 1997
10.2 Letter of Intent with Northwest Technical Industries, Inc. dated
February 10, 1997
99.1 Press Release dated March 1, 1997
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SIGNATURES
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.
PACIFIC AEROSPACE & ELECTRONICS, INC.
By: DONALD A. WRIGHT
-------------------------------------
Donald A. Wright
President and Chief Executive Officer
(Principal Executive Officer)
Dated: March 11, 1997
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EXHIBIT INDEX
Exhibit
Number Description
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3.1 Amendment to Articles of Incorporation of Pacific Aerospace &
Electronics, Inc., as filed on February 27, 1997 and corrected on
March 3, 1997 with the Secretary of State of the State of Washington
4.1 Form of specimen certificate for the Preferred Stock
4.2 Registration Rights Agreement dated as of February 27, 1997
10.1 Series A Convertible Preferred Stock Purchase Agreement dated as of
February 27, 1997
10.2 Letter of Intent with Northwest Technical Industries, Inc. dated
February 10, 1997
99.1 Press Release dated March 1, 1997
ARTICLES OF AMENDMENT
OF
PACIFIC AEROSPACE & ELECTRONICS, INC.
Pursuant to RCW 23B.06.020, Pacific Aerospace & Electronics, Inc., a
Washington corporation, by its undersigned officer, hereby delivers the
following Articles of Amendment to its Articles of Incorporation to the
Secretary of State for filing:
Article 1: The name of the corporation is Pacific Aerospace & Electronics,
Inc.
Article 2: The text of the amendment setting forth the rights and
preferences of the Series A Convertible Preferred Stock of the corporation is
attached hereto as Exhibit A.
Article 3: The amendment was duly adopted by the Board of Directors on
February 26, 1997. Pursuant to RCW 23B.06.020(1), approval of the shareholders
of the corporation was not required.
February 27, 1997
PACIFIC AEROSPACE & ELECTRONICS, INC.
By DONALD A. WRIGHT
--------------------------------------
Donald A. Wright
President and Chief Executive Officer
<PAGE>
DESIGNATION OF RIGHTS AND PREFERENCES
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
PACIFIC AEROSPACE & ELECTRONICS, INC.
1. Designation. The Series A Convertible Preferred Stock of Pacific Aerospace
& Electronics, Inc. (the "Corporation") shall consist of 50,000 shares, par
value $0.001 per share, and shall be designated the "Series A Convertible
Preferred Stock" (the "Series A Stock").
2. Dividends. Dividends shall be declared and set aside, out of funds or
assets of the Corporation legally available therefor, for any shares of
Series A Stock only on resolution of the Board of Directors in its sole
discretion; provided, however:
(a) no dividend may be declared or paid on shares of Common Stock if
the net assets of the Corporation thereafter would be insufficient to make
the liquidation payment described in Section 3(a) on all outstanding shares
of Series A Stock;
(b) if the Board of Directors declares a dividend payable on the
outstanding shares of Common Stock, other than a dividend payable in shares
of Common Stock, the holders of Series A Stock shall be entitled to a
dividend per share of Series A Stock that would be payable on the number of
shares of Common Stock into which a share of Series A Stock could be
converted (as of the record date for the determination of holders of Common
Stock entitled to receive such dividend) pursuant to Section 5 hereof; and
(c) if the Board of Directors declares a dividend in respect of the
outstanding Common Stock payable in shares of the Corporation's Common
Stock, the number of shares of Common Stock to be received on the
conversion of Series A Stock shall be adjusted as described in Section
5(d)(i).
3. Liquidation, Dissolution, or Winding Up.
(a) Treatment at Liquidation, Dissolution, or Winding Up. In the event
of any liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary, the holders of Series A Stock shall be entitled
to be paid, before any sums are paid or any assets distributed among the
holders of the shares of Common Stock or any junior series or class of
preferred stock, out of the assets of the Corporation available for
distribution to holders of the Corporation's capital stock, the sum of
$100.00 (plus
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any declared but unpaid dividends) per share of Series A Stock (which
amount shall be subject to proportionate adjustment on any stock split,
combination, reclassification, or other similar event involving the Series
A Stock).
If the assets of the Corporation are insufficient to permit payment in
full to the holders of Series A Stock as provided in this subsection (a),
then the entire assets of the Corporation available for such distribution
shall be distributed ratably among the holders of Series A Stock and any
other class or series of capital stock having parity with the Series A
Stock in respect of such distributions according to the respective amounts
that would be payable in respect of the shares held by them on such
distribution if all amounts payable on or with respect to said shares were
paid in full. After payment is made in full to the holders of Series A
Stock, or funds needed for such payments shall have been set aside by the
Corporation in trust for the account of holders of Series A Stock so as to
be available for such payments, all remaining assets available for
distribution to shareholders shall be distributed ratably solely among
holders of shares of other shares of capital stock of the Corporation to
the exclusion of the holders of shares of Series A Stock.
(b) Consolidations, Mergers, and Sales of Assets.
(i) At least 20 days before the consolidation or merger of the
Corporation into or with another corporation, as a result of which the
holders of more than 50% of the shares of Common Stock receive cash,
securities of another entity, or other property in exchange for their
shares, or a sale of all or substantially all of the assets of the
Corporation, the Corporation shall notify the holders of Series A Stock
thereof in writing, and the closing of such event shall be regarded as a
liquidation, dissolution, or winding up of the affairs of the Corporation
within the meaning of Section 3(a); provided, however, that for 20 days
after the date of such notice, each holder of Series A Stock shall have the
right, exercisable by written notice to the Corporation, to elect the
benefits of Section 3(b)(ii) hereof in lieu of receiving payment in
liquidation, dissolution, or winding up of the Corporation pursuant to this
Section 3(b)(i).
(ii) As part of any consolidation, merger, or sale of assets
described in Section 3(b)(i), provision shall be made so that each holder
of Series A Stock shall be entitled to elect to receive in such transaction
for or in respect of the Series A Stock held by such holder, the number of
shares of stock or other securities or property to which such holder would
have been entitled if such holder had converted its shares of Series A
Stock immediately before the closing of such consolidation, merger, or sale
of assets.
(c) Distribution Other Than Cash. If the distribution provided for in
this Section 3 is to be paid in property other than cash, the value of such
distribution shall
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be the fair market value of such property as determined in good faith by
the Board of Directors of the Corporation.
4. Voting Rights.
(a) Series Voting Rights. So long as any shares of the Series A Stock
remain outstanding, the Corporation shall not, without the affirmative vote
or consent of the holders of at least two-thirds of the shares of the
Series A Stock outstanding at the time, given in person or by proxy, either
in writing or at a meeting in which the holders of the Series A Stock vote
separately as a voting group: (i) authorize, create, or issue or increase
the authorized or issued amount of, any class or series of stock ranking
prior to the Series A Stock, with respect to the payment of dividends or
the distribution of assets on liquidation, dissolution, or winding up; (ii)
amend, alter, or repeal the rights and preferences of the Series A Stock or
the Articles of Incorporation or the Bylaws of the Corporation so as to
affect materially and adversely any right, preference, privilege or voting
power of the Series A Stock, provided, however, that any creation and
issuance of other series of preferred stock having liquidation and dividend
preferences on a parity with or subordinate to the Series A Stock shall not
be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers; (iii) effect any distribution with respect to
any other class of the Corporation's capital stock of (A) shares of any
class of its capital stock (other than a dividend or other distribution of
Common Stock payable to the holders of Common Stock), (B) rights to
purchase any class of its capital stock, or (C) other securities
convertible into any class of its capital stock; or (iv) reclassify the
Corporation's outstanding securities.
(b) No General Voting Rights. Except with respect to transactions on
which the Series A Stock is entitled to vote separately as a voting group
pursuant to Section 4(a) above or as otherwise required by Washington law,
the holders of shares of Series A Stock shall not be entitled to vote.
5. Conversion. The holders of shares of Series A Stock shall have the
following rights with respect to the conversion of shares of Series A Stock
into shares of Common Stock ("Conversion Rights"):
(a) Voluntary Conversion. At any time or from time to time after the
earlier of June 13, 1997, or the date on which the Corporation's
registration statement registering the shares of Common Stock into which
the shares of Series A Stock may be converted is declared effective by the
Securities and Exchange Commission (the "Commission"), any holder of Series
A Stock may elect to convert all or any portion of his or her shares of
Series A Stock, subject to subsections (e) and (f) below, into a number of
fully paid and nonassessable shares of Common Stock equal to the quotient
that results when $100.00 is divided by the Conversion Price (as defined
below) then in
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effect for each share of Series A Stock so converted. Such right may be
exercised by giving, at any time during normal business hours at the office
of the Corporation, written notice of such holder's election to convert, in
a form required by the Corporation (a "Conversion Notice"), accompanied (or
if the Conversion Notice is delivered by verifiable facsimile transmission,
followed within 48 hours thereafter) by delivery of (i) the certificates
evidencing the shares of Series A Stock to be converted, (ii) if so
required by the Corporation, instruments of transfer, in form satisfactory
to the Corporation, duly executed by the registered holder or its duly
authorized attorney, and (iii) transfer tax stamps or funds therefor, if
required pursuant to Section 5(i). The Conversion Notice shall also state
the name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable on such conversion shall
be issued. The date of such exercise shall be the "Voluntary Conversion
Date."
(b) Mandatory Conversion.
(i) If a Mandatory Conversion Event (as defined in subsection
(ii) below) occurs, then, subject to subsection (f), each share of Series A
Stock outstanding on the date of such Mandatory Conversion Event (a
"Mandatory Conversion Date") shall, automatically and without any action on
the part of the holder thereof, convert into a number of fully paid and
nonassessable shares of Common Stock equal to the quotient of $100.00
divided by the Conversion Price in effect on the Mandatory Conversion Date.
(ii) As used herein, a "Mandatory Conversion Event" shall be
deemed to have occurred on the earlier of:
(A) two years from the date of issuance of the Series A
Stock (the "Issuance Date"); or
(B) the date that is 15 days after the Corporation shall
have irrevocably elected to give notice, in accordance with Section
5(j) hereof, to each holder of record of Series A Stock that the
Corporation is declaring a Mandatory Conversion Event pursuant to
Section 5(b)(iii) hereof.
(iii) The Corporation may elect to give the notice specified in
Section 5(b)(ii)(B) only if all of the following conditions have been met:
(A) the average of the closing bid prices of the Common
Stock, as (i) quoted on the Nasdaq National Market System ("Nasdaq
NMS"), (ii) otherwise quoted on the Nasdaq System, or (iii) reported
by the National Quotation Bureau, Inc. or quoted on the Electronic
Bulletin or the "Pink Sheets", as the case may be, for the 20
consecutive trading days before the date of such notice shall have
been greater than the number that is equal to 175% of the Maximum
Conversion Price (as defined in
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subsection(c)(ii) below) (such number as adjusted from time to time as
provided herein is the "Mandatory Conversion Threshold");
(B) the shares of Common Stock issuable on conversion of
shares of Series A Stock shall have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a registration statement declared effective under the Securities Act
by the Commission and such registration shall have been continuously
available for use under the Securities Act at all times since the
start of the 20 consecutive trading days referred to in Section
5(b)(iii)(A); and
(C) on the Mandatory Conversion Date, all shares of Common
Stock issuable on the conversion of shares of Series A Stock shall
have been qualified for resale by the holders of such shares under any
applicable state securities laws and shall have been listed or
approved for trading on, as applicable, Nasdaq NMS or such other
securities exchange or quotation system on which such shares of Common
Stock are then traded or quoted.
(iv) On the occurrence of a Mandatory Conversion Event, subject
to subsection (f) below, all outstanding shares of Series A Stock shall be
converted automatically without any further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent. On the automatic
conversion of the Series A Stock, the holders of the Series A Stock shall
surrender the certificates representing such shares at the office of the
Corporation. Thereupon, the Corporation shall issue and deliver to each
such holder, in its name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of
Common Stock into which the shares of Series A Stock surrendered were
convertible on the Mandatory Conversion Date. However, the Corporation need
not issue certificates evidencing the shares of Common Stock issuable on
conversion of any shares of Series A Stock unless certificates evidencing
such shares of Series A Stock are either delivered to the Corporation or
the holder has notified the Corporation that such certificates have been
lost, stolen, or destroyed and has executed an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by it
in connection therewith.
(c) Conversion Price.
(i) The term "Average Share Price" shall mean the average of the
closing bid prices of the Corporation's shares of Common Stock as (i)
quoted on Nasdaq NMS, (ii) otherwise quoted on the Nasdaq System, or (iii)
reported by the National Quotation Bureau, Inc. or quoted on the Electronic
Bulletin or the "Pink Sheets", as the case may be, for the five consecutive
trading days before the date of, as applicable, the Issuance Date, any
Voluntary Conversion Date or the Mandatory Conversion Date.
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(ii) The term "Conversion Price" shall mean, with respect to any
conversion of Series A Stock, the lesser of (A) $3.49 (deemed to be the
Average Share Price of the Corporation's Common Stock on the Issuance Date)
(the "Maximum Conversion Price") or (B) 85% of the Average Share Price as
of the Voluntary Conversion Date or Mandatory Conversion Date for such
conversion, as applicable.
(d) Adjustments of Conversion Price and Mandatory Conversion
Threshold.
(i) Adjustments for Stock Splits, Stock Dividends, and
Combinations. If the Corporation shall, at any time or from time to time
after the Issuance Date, effect a stock split of the outstanding Common
Stock or issue additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock of the Corporation, the applicable
Mandatory Conversion Threshold and Maximum Conversion Price in effect
immediately before such stock split, dividend, or distribution shall be
proportionately decreased. If the Corporation shall at any time or from
time to time after the Issuance Date, combine the outstanding shares of
Common Stock, the applicable Mandatory Conversion Threshold and Maximum
Conversion Price in effect immediately before the combination shall be
proportionately increased. Any adjustments under this Section 5(d)(i) shall
be effective at the close of business on the date of such stock split,
dividend, distribution, or combination.
(ii) Adjustments for Reclassification, Exchange, or Substitution.
If the Common Stock issuable on conversion of the Series A Stock at any
time or from time to time after the Issuance Date is changed into the same
or a different number of shares of any class or classes of stock, whether
by reclassification, exchange, substitution, or otherwise (other than by
way of a stock split or combination of shares or stock dividend provided
for in Section 5(d)(i), or a reorganization, merger, consolidation, or sale
of assets provided for in Section 5(d)(iii)), then, and in each event, an
appropriate revision to the Mandatory Conversion Threshold and Maximum
Conversion Price shall be made and provisions shall be made (by adjustment
of the Conversion Price or otherwise) so that the holder of each share of
Series A Stock shall have the right thereafter to convert such share of
Series A Stock into the kind and amount of shares of stock and other
securities receivable on reclassification, exchange, substitution, or other
change, by holders of the number of shares of Common Stock into which such
share of Series A Stock might have been converted immediately before such
reclassification, exchange, substitution, or other change, all subject to
further adjustment as provided herein.
(iii) Adjustments for Reorganization, Merger, Consolidation, or
Sale of Assets. If at any time or from time to time after the Issuance Date
there is a capital reorganization of the Corporation (other than by way of
a stock split or combination of shares or stock dividends or distributions
provided for in Section 5(d)(i), or a reclassification, exchange, or
substitution of shares provided for in Section 5(d)(ii)), or
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a merger or consolidation of the Corporation with or into another
corporation, or the sale of all or substantially all of the Corporation's
properties or assets to any other person, then as a part of such
reorganization, merger, consolidation, or sale, an appropriate revision to
the Mandatory Conversion Threshold and Maximum Conversion Price shall be
made and provision shall be made (by adjustment of the Conversion Price or
otherwise) so that the holder of each share of Series A Stock shall have
the right thereafter to convert such share of Series A Stock into the kind
and amount of shares of stock and other securities or property of the
Corporation or any successor corporation resulting from such
reorganization, merger, consolidation, or sale, to which a holder of Common
Stock deliverable on conversion of such shares would have been entitled on
such reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of this Section
5(d)(iii) with respect to the rights of the holders of the Series A Stock
after the reorganization, merger, consolidation, or sale to the end that
the provisions of this Section 5(d)(iii) (including any adjustment in the
applicable Conversion Price then in effect and the number of shares of
stock or other securities deliverable on conversion of the Series A Stock)
shall be applied after that event in as nearly an equivalent manner as may
be practicable.
(e) Restriction on Number of Shares Converted. No holder of Series A
Stock shall be entitled to convert voluntarily more than the number of
shares of Series A Stock that, when converted, would result in such holder
owning at any one time five percent or more of the total number of the
outstanding shares of Common Stock.
(f) Mandatory Redemption. If (i): (x) the holders of Series A Stock
are entitled to a Voluntary Conversion and one or more such holders deliver
Conversion Notices and other required items in proper form to the
Corporation, or (y) a Mandatory Conversion Event occurs, and (ii) in either
case such conversion would result in the Corporation's having issued to the
holders of Series A Stock a number of shares of Common Stock equivalent to
twenty percent or more of the number of shares of issued and outstanding
Common Stock on the day immediately before the Issuance Date, and (iii) the
Corporation would be required, as a result of the foregoing, under its
Nasdaq maintenance requirements, to obtain or to have obtained shareholder
approval for such issuance and has not obtained such approval, then the
Corporation shall convert to Common Stock only that number of shares of
Series A Stock that would result in its issuing no more than the number of
shares of Common Stock that it is permitted to issue without such
shareholder approval, and the Corporation shall redeem from the holders of
Series A Stock whose shares are to be converted any shares of Series A
Stock in excess of that number that would otherwise be converted under
clause (i) (the "Redeemed Shares"). In payment for such redemption, the
Corporation shall promptly pay to the holder $115.00 for each Redeemed
Share (which is the purchase price for such shares set forth in the Series
A Convertible Preferred Stock Purchase Agreement dated February 27, 1997
plus 15%) (plus any declared but unpaid dividends) (which amount shall
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be subject to proportionate adjustment on any stock split, combination,
reclassification, or other similar event involving the Series A Stock). If
a Voluntary Conversion Date or Mandatory Conversion Event occurs
simultaneously with respect to two or more holders of Series A Stock that
would result in the Corporation's redemption of Series A Stock pursuant to
this subsection (f), then the Corporation shall redeem the Redeemed Shares
ratably from each such holder in proportion to their holdings of Series A
Stock. Notwithstanding any other provision of this Designation of Rights
and Preferences, the redemption of Series A Stock pursuant to this
subsection (f) shall not be a failure to convert such shares for purposes
of the penalty described in subsection (o) hereof.
(g) No Impairment. The Corporation shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities,
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the Corporation, but will at all times in good faith assist in the
performance of all the provisions of this Section 5 and in the taking of
all such action needed to protect the Conversion Rights of the holders of
the Series A Stock against impairment.
(h) Certificate as to Adjustments. On occurrence of each adjustment or
readjustment of the Conversion Price, Mandatory Conversion Threshold,
Maximum Conversion Price, or number of shares of Common Stock issuable on
conversion of the Series A Stock pursuant to this Section 5, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof. At the request of any
holder of Series A Stock, the Corporation shall give such holder a
certificate from the Corporation's independent auditors setting forth such
adjustment and readjustment, showing in detail the facts on which such
adjustment or readjustment is based, the applicable Conversion Price,
Mandatory Conversion Threshold, and/or Maximum Conversion Price in effect
at the time and the number of shares of Common Stock and the amount, if
any, of other securities or property that at the time would be received on
the conversion of a share of such Series A Stock. Notwithstanding the
foregoing, the Corporation need not deliver a certificate unless such
certificate would reflect an increase or decrease of at least one percent
of such adjusted number of shares or amount since the last request from
such holder.
(i) Issue Taxes. The Corporation shall pay any and all issue, stamp,
documentary and other taxes, excluding federal, state, or local income
taxes, that may be payable in respect of any issuance or delivery of shares
of Common Stock on conversion of shares of Series A Stock pursuant hereto;
provided, however that the Corporation need not pay any transfer taxes
resulting from any transfer requested by any holder in connection with any
such conversion.
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(j) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by
verifiable facsimile or three business days after being mailed by certified
or registered mail, postage prepaid, return-receipt requested, addressed to
the Corporation at its offices or to the holder of record at its address
appearing on the books of the Corporation, as applicable.
(k) Fractional Shares. The Corporation shall not be required to issue
fractional shares of Common Stock on conversion of the Series A Stock. In
lieu of any fractional shares to which the holder would otherwise be
entitled, the Corporation may at its option pay cash equal to the product
of such fraction multiplied by the Conversion Price on the Voluntary
Conversion Date or Mandatory Conversion Date, as applicable.
(l) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available, out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the
Series A Stock, the full number of shares deliverable on conversion of all
the shares of Series A Stock from time to time outstanding.
(m) Retirement of Series A Stock. Conversion or redemption of Series A
Stock shall be deemed to have been effected on the applicable Voluntary
Conversion Date or Mandatory Conversion Date, and such date is referred to
herein as the "Conversion Date." The converting holder shall be deemed to
have become a stockholder of record on the applicable Conversion Date of
the Common Stock into which the Series A Stock is converted. On conversion
or redemption of only a portion of the number of shares of Series A Stock
represented by a certificate surrendered for conversion, the Corporation
shall issue and deliver to such holder, at the expense of the Corporation,
a new certificate covering the number of shares of Series A Stock
representing the unconverted and unredeemed portion of the certificate so
surrendered.
(n) Regulatory Compliance. If any shares of Common Stock to be
reserved for the purpose of conversion of Series A Stock require
registration or listing with or approval of any governmental authority,
stock exchange, or other regulatory body under any federal or state law or
regulation or otherwise before such shares may be validly issued or
delivered on conversion, the Corporation shall, at its sole cost and
expense, in good faith and as expeditiously as possible, endeavor to secure
such registration, listing, or approval, as the case may be.
(o) Late Fee. If, for any reason other than the failure of a holder of
Series A Stock to comply with its obligations or any applicable
restrictions hereunder, the Corporation neither converts shares of Series A
Stock to Common Stock nor redeems them pursuant to subsection (f) within
five business days after receipt of a Conversion Notice in proper form and
the related stock certificate and other items required by the
-10-
<PAGE>
Corporation for conversion from a holder of Series A Stock then entitled to
convert such shares, the holder thereof shall be entitled to receive from
the Corporation a payment equal to 2% of the liquidation preference of such
shares for each month (or a ratable portion thereof for any fractional
month) the conversion or redemption is delayed.
6. No Preemptive Rights. Except as specifically provided herein, no holder of
Series A Stock shall be entitled to subscribe for, purchase, or receive any
part of any new or additional shares of any class, whether now or
hereinafter authorized, or of bonds or debentures, or other evidences of
indebtedness convertible into or exchangeable for shares of any class, but
all such new or additional shares of any class or bond or debentures, or
other evidences of indebtedness convertible into or exchangeable for
shares, may be issued and disposed of by the Board of Directors on such
terms and for such consideration (to the extent permitted by law), and to
such person or persons as the Board of Directors in their absolute
discretion may deem advisable.
7. No Redemptions. Except as specifically described herein, the Corporation
shall not be entitled to redeem or retire all or any part of the Series A
Stock without the consent or affirmative vote of the holder of record of
each share so as to be redeemed or retired.
8. Amendment; Waivers. Any provision of this Designation of Rights and
Preferences may be waived (i) by any individual holder of Series A Stock,
with respect to such holder; or (ii) by the consent of the holders of
two-thirds of all outstanding shares of Series A Stock, with respect to all
holders of Series A Stock. Any provision of this Designation of Rights and
Preferences may be amended by the vote or consent, either in writing or at
a meeting, of the holders of two-thirds of the shares of Series A Stock
represented at the meeting at which such amendment is presented to such
holders, and the presence, in person or by proxy, of the holders of a
majority of the outstanding shares of Series A Stock shall constitute a
quorum for such purposes.
-11-
<PAGE>
ARTICLES OF CORRECTION
TO THE ARTICLES OF AMENDMENT
OF PACIFIC AEROSPACE & ELECTRONICS, INC.
These Articles of Correction to the Articles of Amendment adopting the
Designation of Rights and Preferences of the Series A Convertible Preferred
Stock of Pacific Aerospace & Electronics, Inc., a Washington corporation (the
"Corporation"), are hereby executed by said Corporation in accordance with the
provisions of RCW 23B.01.240.
1. The name of the Corporation is Pacific Aerospace & Electronics, Inc.
2. These Articles of Correction are being filed to correct an incorrect
statement in the terms of the Preferred Stock designated as Series A Convertible
Preferred Stock of the Corporation.
3. Articles of Amendment to the Articles of Incorporation of the
Corporation adopting the Designation of Rights and Preferences of the Series A
Convertible Preferred Stock of the Corporation were filed with the Secretary of
State of the State of Washington on February 27, 1997.
These Articles of Correction are being filed to correct an incorrect
statement in the terms of the Series A Convertible Preferred Stock set forth in
the earlier-filed Articles of Amendment. The statement, contained in Section
5(c) of the Designation of Rights and Preferences, is incorrect because it
reflects a mutual mistake of the parties in the conversion price of the Series A
Convertible Preferred Stock. The error is corrected by amending Section 5(c)(ii)
(beginning on page 7 of the Designation of Rights and Preferences) to read in
its entirety as follows:
(ii) The term "Conversion Price" shall mean, with respect to any
conversion of Series A Stock, the lesser of (A) $3.49 (deemed to be the
Average Share Price of the Corporation's Common Stock on the Issuance Date)
(the "Maximum Conversion Price") or (B) 85% of the Average Share Price as
of the Voluntary Conversion Date or Mandatory Conversion Date for such
conversion, as applicable.
February 28, 1997
PACIFIC AEROSPACE & ELECTRONICS, INC.
By: DONALD A. WRIGHT
-------------------------------------
Donald A. Wright, President
- -PA-#- -SHARE NO.-
PACIFIC AEROSPACE & ELECTRONICS, INC.
Organized Under the Laws of the State of Washington
Authorized Capital: 100,000,000 Shares of Common Stock, $.001 Par Value
5,000,000 Shares of Preferred Stock, $.001 Par Value
THIS CERTIFIES THAT [STOCKHOLDER] is the registered holder of [number of shares]
of the Series A Convertible Preferred Stock, $.001 par value, of Pacific
Aerospace & Electronics, Inc. transferable only on the books of the Corporation
by the holder hereof in person or by attorney upon surrender of this Certificate
properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ___ day of [month][year]
DONALD A. WRIGHT SHERYL A. SYMONDS
President Secretary
SEE RESTRICTIONS ON REVERSE SIDE
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS, OR PACIFIC AEROSPACE & ELECTRONICS, INC. RECEIVES AN OPINION OF
COUNSEL ACCEPTABLE TO IT THAT REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS
NOT REQUIRED.
THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE
A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE
RIGHTS OF THE SHARES OF EACH CLASS AUTHORIZED TO BE ISSUED BY THE CORPORATION
AND OF THE VARIATIONS IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES
OF EACH SERIES OF EACH CLASS SO AUTHORIZED, SO FAR AS THE SAME HAVE BEEN FIXED
AND DETERMINED AND THE AUTHORITY OF THE BOARD OF DIRECTORS OF THE CORPORATION TO
FIX AND DETERMINE THE RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES.
REGISTRATION RIGHTS AGREEMENT
dated as of
February 27, 1997
among
PACIFIC AEROSPACE & ELECTRONICS, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A HERETO
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS.......................................................1
1.1 Definitions.......................................................1
ARTICLE 2 REGISTRATION RIGHTS...............................................3
2.1 Securities Subject to this Agreement..............................3
2.2 Registration......................................................3
2.3 Registration Procedures...........................................5
2.4 Preparation; Reasonable Investigation.............................8
2.5 Certain Rights of Holders.........................................9
2.6 Registration Expenses.............................................9
2.7 Indemnification; Contribution....................................10
2.8 Participation in Underwritten Registrations......................11
2.9 Selection of Underwriters........................................12
ARTICLE 3 LIQUIDATED DAMAGES...............................................12
ARTICLE 4 RULE 144A........................................................13
ARTICLE 5 MISCELLANEOUS....................................................13
5.1 Entire Agreement.................................................13
5.2 Successors and Assigns...........................................13
5.3 Notices..........................................................13
5.4 Headings.........................................................14
5.5 Counterparts.....................................................14
5.6 Applicable Law...................................................14
5.7 Specific Enforcement.............................................14
5.8 Amendment and Waivers............................................14
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of February
27, 1997, by and among PACIFIC AEROSPACE & ELECTRONICS, INC., a Washington
corporation (the "Company") and each of the purchasers of shares of Series A
Convertible Preferred Stock of the Company whose names are set forth on Exhibit
A hereto (each individually, a "Purchaser" and collectively, the "Purchasers").
RECITALS
A. The Purchasers and the Company have entered into a Series A Convertible
Preferred Stock Purchase Agreement dated as of February 27, 1997 (the "Stock
Purchase Agreement"), pursuant to which the Purchasers are purchasing a total of
50,000 shares of the Company's Series A Convertible Preferred Stock.
B. It is a condition precedent to the obligations of each Purchaser under
the Stock Purchase Agreement that the Company grant registration rights with
respect to the shares of the Company's Common Stock issuable upon conversion of
the Series A Convertible Preferred Stock, on the terms and conditions set forth
in this Agreement.
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the following
meanings.
"Board" means the Board of Directors of the Company.
"Business Day" means any day except a Saturday, Sunday or other day on
which banks in Salt Lake City (or in such other city as may be the headquarters
of the Company's transfer agent) are authorized by law to close.
"Closing Date" shall mean the Closing Date determined pursuant to the
Stock Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.001 per share, of
the Company.
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"Company" means Pacific Aerospace & Electronics, Inc., a Washington
corporation.
"Effective Time" means the date of effectiveness of the Registration
Statement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Form S-3" means such form under the Securities Act as now in effect
or any successor registration form to Form S-3 under the Securities Act.
"Holders" has the meaning given to it in Section 2.1(b) hereof.
"NASD" means the National Association of Securities Dealers, Inc.
"Person" means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Preferred Stock" means the Series A Convertible Preferred Stock, par
value $0.001 per share, of the Company.
"Prospectus" means the prospectus included in the Registration
Statement, as amended or supplemented by any prospectus supplement and by all
other amendments thereto, including post-effective amendments, and all material
incorporated by reference into such Prospectus.
"Registration Statement" means the registration statement of the
Company relating to the registration for resale of Restricted Securities
contemplated by Section 2.2, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
"Restricted Securities" means the Preferred Stock or any Securities
until (i) with respect to Securities, a Registration Statement covering such
Securities has been declared effective by the Commission and such Securities
have been disposed of pursuant to such effective Registration Statement, (ii)
such Preferred Stock or Securities are permitted to be sold under circumstances
in which all the applicable conditions of Rule 144 (or any similar provisions
then in force) under the Securities Act are met, or such Preferred Stock or
Securities are permitted to be sold pursuant to Rule 144(k) (or any similar
provision then in force) under the Securities Act, and are freely tradeable
after such sale by the transferee, (iii) such Preferred Stock or Securities are
otherwise transferred, the Company has delivered a new certificate or other
evidence of ownership for such Preferred Stock or Securities not bearing a
legend restricting further transfer and such Preferred Stock or Securities may
be resold without registration under the Securities Act, or (iv) such Preferred
Stock or Securities shall have ceased to be outstanding.
2
<PAGE>
"Securities" means the Company's Common Stock issuable upon conversion
of the Preferred Stock.
"Securities Act" means the Securities Act of 1933, as amended.
"Stock Purchase Agreement" has the meaning given to it in the recitals
to this Agreement.
As used in this Agreement, words in the singular include the plural, and in
the plural include the singular.
ARTICLE 2
REGISTRATION RIGHTS
2.1 Securities Subject to this Agreement.
(a) The Securities are entitled to the benefits of this Agreement, but
only for so long as they remain Restricted Securities.
(b) A Person is deemed to be a "Holder" whenever such Person is the
registered holder of Preferred Stock or Securities.
2.2 Registration.
(a) The Company shall:
(i) as expeditiously as practicable, cause to be filed a
Registration Statement on Form S-3 and pursuant to Rule 415 under the
Securities Act, as applicable, which Registration Statement shall permit
resales of all Securities; provided that the Holders whose Securities are
covered by the Registration Statement shall have provided the information
required pursuant to Section 2.2(d); and
(ii) use its best efforts to cause such Registration Statement to
be declared effective by the Commission by June 13, 1997.
(b) The Company may elect to file the Registration Statement on a form
other than Form S-3 if the Company determines that doing so would be in its best
interests, so long as the Holders would receive at least the same rights of
resale as would have been available if the Registration Statement were filed on
Form S-3.
(c) In connection with the Registration Statement, the Company shall
comply with all the provisions of Section 2.3 below and shall use its reasonable
best efforts to effect such registration to permit the resale of the Securities
in accordance with the intended method
3
<PAGE>
or methods of distribution thereof (as indicated in the information furnished to
the Company pursuant to Section 2.2(d)). Subject to Section 2.2(e), the Company
shall use its reasonable best efforts to keep such Registration Statement
continuously effective, supplemented and amended to the extent necessary to
ensure that it is available for resales of Securities by the Holders, and to
ensure that it conforms with the requirements of this Agreement, the Securities
Act and the policies, rules and regulations of the Commission as announced from
time to time, for a period of two (2) years after the Effective Time or such
longer period as required by Section 2.2(e) or such shorter period that will
terminate when all the Securities covered by the Registration Statement have
been sold pursuant to the Registration Statement or otherwise cease to be
Restricted Securities. The Company shall be obligated to effect only one
registration pursuant to this Agreement. Upon the occurrence of any event that
would cause the Registration Statement or the Prospectus contained therein (i)
to contain a material misstatement or omission or (ii) not to be effective and
usable for resale of Securities during the period required by this Agreement,
the Company shall file promptly an appropriate amendment to such Registration
Statement or the related Prospectus or any document incorporated therein by
reference, in the case of clause (i), correcting any such misstatement or
omission, and, in the case of either clause (i) or (ii), use its reasonable best
efforts to cause such amendment to be declared effective and such Registration
Statement and the related Prospectus to become usable for its intended
purpose(s) as soon as practicable thereafter. The Company shall give each holder
of Restricted Securities a copy of such amendment promptly after its filing.
(d) No Holder may include any of its Securities in the Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 10 Business Days after receipt of a written
request therefor, the information specified in Item 507 of Regulation S-K under
the Securities Act and such other information as the Company may reasonably
request for use in connection with the Registration Statement or Prospectus or
preliminary Prospectus included therein and in any application to the NASD or
Nasdaq. Each Holder as to which the Registration Statement is being effected
agrees to furnish promptly to the Company all information required to be
disclosed in order to make the information previously furnished to the Company
by such Holder not materially misleading.
(e) Notwithstanding anything to the contrary contained herein, if (i)
the Board determines in good faith that the registration and distribution of
Securities (or the use of such Registration Statement or the Prospectus
contained therein) would interfere with any proposed or pending material
corporate transaction involving the Company or any of its subsidiaries or would
require premature disclosure thereof or would require the Company to disclose
information that the Company has not otherwise made public and that the Company
reasonably determines is in the best interests of the Company not to disclose at
such time, and (ii) the Company notifies the Holders in writing not later than
five (5) Business Days after such determination (such notice shall be a
"Blackout Notice"), the Company may (A) postpone the filing of the Registration
Statement, or (B) allow the Registration Statement to fail to be effective and
usable or elect that the Registration Statement shall not be usable for a
reasonable period of time, but not in excess of 90 days (a "Blackout Period");
provided, however, that the aggregate number of days included in all Blackout
Periods shall not exceed 90 during any
4
<PAGE>
consecutive 12 months and shall not exceed 180 during the period specified in
Section 2.2(c) of this Agreement; and provided, further, that the period
referred to in Section 2.2(c) during which the Registration Statement is
required to be effective and usable shall be extended by the aggregate number of
days during which the Registration Statement was not effective or usable
pursuant to the foregoing provisions.
2.3 Registration Procedures. In connection with the Registration Statement
and any Prospectus required by this Agreement to permit the resale of
Securities, the Company shall:
(a) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the applicable period set forth in
Section 2.2(c); cause the Prospectus to be supplemented by any required
Prospectus supplement; and as so supplemented to be filed pursuant to Rule 424
under the Securities Act, and to comply fully with the applicable provisions of
Rules 424 and 430A, as applicable, under the Securities Act in a timely manner;
and comply with the provisions of the Securities Act with respect to the
disposition of all Securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration Statement or
supplement or the Prospectus;
(b) advise the Holders of Securities covered by such Registration
Statement and, if requested by such Holders, confirm such advice in writing, (i)
when the Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and when the same has become effective, (ii) of any request by the
Commission for post-effective amendments to such Registration Statement or
post-effective amendments or supplements to the Prospectus or for additional
information relating thereto, (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of any such Registration Statement under
the Securities Act or of the suspension by any state securities commission of
the qualification of the Securities for offering or sale in any jurisdiction, or
the initiation of any proceeding for any of the preceding purposes, and (iv) of
the existence of any fact or the happening of any event that makes any statement
of a material fact made in any such Registration Statement, the related
Prospectus, any amendment or supplement thereto, or any document incorporated by
reference therein untrue, or that requires the making of any additions to or
changes in any such Registration Statement or the related Prospectus to make the
statements therein not materially misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of such Registration
Statement, or any state securities commission or other regulatory authority
shall issue an order suspending the qualification or exemption from
qualification of the Securities under state securities or Blue Sky laws, the
Company shall use its reasonable efforts to obtain the withdrawal or lifting of
such order at the earliest possible time;
(c) promptly furnish to each Holder whose Securities are covered by
the Registration Statement, and each underwriter, if any, without charge, at
least one conformed copy of any Registration Statement, as first filed with the
Commission, and of each amendment thereto, including all documents incorporated
by reference therein and all exhibits (including
5
<PAGE>
exhibits incorporated therein by reference) and such other documents as such
Holder may reasonably request;
(d) deliver to each Holder whose Securities are covered by the
Registration Statement, and each underwriter, if any, without charge, as many
copies of the Prospectus (including each preliminary Prospectus) and any
amendment or supplement thereto as such person reasonably may request;
(e) enter into such customary agreements and take all such other
reasonable action in connection therewith (including those reasonably requested
by the selling Holders or the underwriter(s), if any) required to expedite or
facilitate the disposition of such Securities pursuant to such Registration
Statement, including, but not limited to, dispositions pursuant to an
underwritten registration, and in such connection:
(i) make such representations and warranties to the selling
Holders and underwriter(s), if any, in form, substance and scope as are
customarily made by issuers in underwritten offerings (whether or not sales
of securities pursuant to the Registration Statement are to be to an
underwriter(s)) and confirm the same if and when requested;
(ii) obtain opinions of counsel to the Company addressed to each
selling Holder and underwriter, if any, covering the matters customarily
covered in opinions requested in underwritten offerings (whether or not
sales of securities pursuant to such Registration Statement are to be made
to an underwriter(s)) and dated the date of effectiveness of the
Registration Statement (and, in the case of any underwritten sale of
securities pursuant to the Registration Statement, each closing date of
sales to the underwriter(s) pursuant thereto);
(iii) use its reasonable best efforts to obtain comfort letters
dated the date of effectiveness of the Registration Statement (and, in the
case of any underwritten sale of securities pursuant to the Registration
Statement, each closing date of sales to the underwriter(s) pursuant
thereto) from the independent certified public accountants of the Company
addressed to each selling Holder and underwriter, if any, such letters to
be in customary form and covering matters of the type customarily covered
in comfort letters in connection with underwritten offerings (whether or
not sales of securities pursuant to such Registration Statement are to be
made to an underwriter(s));
(iv) provide the indemnification provisions and procedures of
Section 2.7 hereof with respect to selling Holders and the underwriter(s),
if any; and
(v) deliver such documents and certificates as may be reasonably
requested by the selling Holders or the underwriter(s), if any, and which
are customarily delivered in underwritten offerings (whether of not sales
of securities pursuant to such Registration Statement are to be made to an
underwriter(s)), such documents and certificates to be dated the date of
effectiveness of the Registration Statement.
6
<PAGE>
The actions required by clauses (i) through (v) above shall be done at each
closing under such underwriting or similar agreement, as and to the extent
required thereunder; provided that the Company shall not be required to
participate in more than one closing in any 180-day period;
(f) prior to any public offering of Securities, cooperate with the
selling Holders, the underwriter(s), if any, and their respective counsel in
connection with the registration and qualification of the Securities under the
securities or Blue Sky laws of such U.S. jurisdictions as the selling Holders or
underwriter(s), if any, may reasonably request in writing by the time any
Registration Statement is declared effective by the Commission, and do any and
all other acts or filings necessary or advisable to allow the disposition in
such U.S. jurisdictions of the Securities covered by the Registration Statement
and to file such consents to service of process or other documents needed to
effect such registration or qualification; provided, however, that the Company
shall not be required to register or qualify as a foreign corporation in any
jurisdiction where it is not then so qualified or as a dealer in securities in
any jurisdiction where it would not otherwise be required to register or qualify
but for this Section 2.3, or to take any action that would subject it to the
service of process in suits or to taxation, in any jurisdiction where it is not
then so subject;
(g) in connection with any sale of Securities that will result in such
Securities no longer being Restricted Securities, cooperate with the selling
Holders and the underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing Securities to be sold and not bearing any
restrictive legends; and enable such Securities to be in such denominations and
registered in such names as the Holders or the underwriter(s), if any, may
request at least two (2) Business Days prior to any sale of Securities made by
such underwriters;
(h) use its reasonable best efforts to cause the disposition of the
Securities covered by the Registration Statement to be registered with or
approved by such other U.S. governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriter(s), if any,
to consummate the disposition of such Securities, subject to the proviso
contained in Section 2.3(f);
(i) if any fact or event contemplated by Section 2.3(b) shall exist or
have occurred, prepare a supplemental or post-effective amendment to any
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact necessary
to make the statement therein not misleading;
(j) cooperate and assist in the performance of any due diligence
investigation by any underwriter (including any "qualified independent
underwriter") that is required to be retained in accordance with the rules and
regulations of the NASD, and use its reasonable best efforts to cause the
Registration Statement to become effective and approved by such U.S.
7
<PAGE>
governmental agencies or authorities as may be necessary to permit the Holders
selling Securities to consummate the disposition of such Securities;
(k) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to its security holders with regard to the Registration Statement, as soon as
practicable, a consolidated earnings statement meeting the requirements of Rule
158 (which need not be audited) for the twelve-month period (i) commencing at
the end of any fiscal quarter in which Securities are sold to an underwriter in
a firm or best efforts underwritten offering or (ii) if not sold to an
underwriter in such an offering, beginning with the first month of the Company's
first fiscal quarter commencing after the effective date of any Registration
Statement;
(l) use its reasonable best efforts to list or have accepted for
quotation, not later than the effective date of the Registration Statement, all
Securities covered by the Registration Statement on the Nasdaq National Market
System or any other trading market on which the Common Stock is then admitted or
quoted for trading; and
(m) provide promptly to each Holder of Securities covered by the
Registration Statement upon request each document filed with the Commission
pursuant to the requirements of Section 12 and Section 14 of the Exchange Act.
Each Holder agrees by acquisition of a Restricted Security that, upon
receipt of any notice from the Company of the existence of any fact of the kind
described in Section 2.3(b)(iv) or the commencement of a Black-Out Period, such
Holder will forthwith discontinue disposition of Securities pursuant to the
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 2.3(i), or until it
is advised in writing (in accordance with the notice provisions of Section
5.3)(the "Advice") by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus. If so directed by the Company, each
Holder will deliver to the Company all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Securities
that was current at the time of receipt of such notice. If the Company shall
give any such notice, the time period regarding the effectiveness of the
Registration Statement set forth in Section 2.2(c) shall be extended by the
number of days during the period from and including the date of the giving of
such notice pursuant to Section 2.3(b)(iv) or the commencement of a Black-Out
Period until the date that the Company gives notice that the Registration
Statement (as it may then have been amended or supplemented) is again effective
or usable.
2.4 Preparation; Reasonable Investigation. In connection with preparation
and filing of the Registration Statement under the Securities Act, the Company
will give the Holders of Securities registered under the Registration Statement,
their underwriter, if any, and their respective counsel and accountants, the
opportunity to participate at their own expense in the preparation of the
Registration Statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them
8
<PAGE>
access to its books and records and such opportunities to discuss the business,
finances and accounts of the Company and its subsidiaries with its officers,
directors and the independent public accountants who have certified its
financial statements as shall be reasonably necessary, in the opinion of such
Holders and such underwriter's respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
2.5 Certain Rights of Holders. Except as otherwise required by applicable
law or regulation, the Company will not file any registration statement under
the Securities Act that refers to any Holder of Securities by name or otherwise
without the prior written approval of such Holder, which may not be unreasonably
withheld.
2.6 Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses (including filings
made with the NASD and Nasdaq and counsel fees in connection therewith); (ii)
all fees and expenses of compliance with federal securities and state Blue Sky
or securities laws (including all reasonable fees and expenses of one counsel to
the underwriter(s) in any underwriting) in connection with compliance with state
Blue Sky or securities laws; (iii) all expenses of printing, messenger and
delivery services and telephone calls; (iv) all fees and disbursements of
counsel for the Company; and (v) all fees and disbursements of independent
certified public accountants of the Company (including the expenses of any
special audit and comfort letters required by or incident to such performance),
but excluding from this paragraph, fees and expenses of any underwriters or
counsel to the underwriter(s), if any, unless otherwise set forth herein.
(b) In addition, in connection with the filing of the Registration
Statement required to be filed by this Agreement, the Company will reimburse the
Holders of the Securities being registered pursuant to any Registration
Statement, as a group, for the reasonable fees and disbursements of not more
than one counsel to review such Registration Statement.
(c) Notwithstanding the foregoing, the Company will not be responsible
for any underwriting discounts, commissions or fees attributable to the sale of
Securities or any legal fees or disbursements (other than any such fees or
disbursements relating to Blue Sky compliance or otherwise as set forth under
Section 2.6(a)) incurred by any underwriter(s) in any underwritten offering if
the underwriter(s) participate in such underwritten offering at the request of
the Holders, or any transfer taxes that may be imposed in connection with a sale
or transfer of Securities. The Company may withdraw the registration statement
at the request of the Holders of two-thirds of the Securities covered thereby,
and in such case shall not be required to pay any expenses of any registration
proceedings begun pursuant to this Agreement, and Holders participating in the
withdrawal request shall bear such expenses.
9
<PAGE>
(d) The Company shall, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
2.7 Indemnification; Contribution.
(a) The Company agrees to indemnify and hold harmless (i) each Holder
of Securities covered by the Registration Statement, (ii) each other Person who
participates as an underwriter in the offering or sale of Securities pursuant to
the Registration Statement, (iii) each person, if any who controls (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
any such Holder or underwriter (any of the persons referred to in this clause
(iii) being hereinafter referred to as a "controlling person"), and (iv) the
respective officers, directors, partners, employees, representatives and agents
of any such Holder or underwriter or any controlling person (any person referred
to in clause (i), (ii), (iii) or (iv) may hereinafter be referred to as an
"Indemnified Person"), from and against any and all losses, claims, damages,
liabilities, judgments or expenses (including, without limitation, reasonable
attorneys' fees and disbursements), joint or several (or actions or proceedings,
whether commenced or threatened, in respect thereof) (collectively, "Claims"),
to which such Indemnified Person may become subject under either Section 15 of
the Securities Act or Section 20 of the Exchange Act, insofar as such Claims
arise out of or are based upon or caused by any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
Prospectus (or any amendment or supplement thereto), or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any state securities law, or any rule or
regulation promulgated under the Securities Act or any state securities law, or
any other law applicable to the Company relating to any such registration or
qualification, except insofar as such losses, claims, damages, liabilities,
judgments or expenses (including, without limitation, reasonable attorneys' fees
and disbursements) of any such Indemnified Person: (x) are caused by any such
untrue statement or omission or alleged untrue statement or omission that is
based upon information relating to such Indemnified Person furnished in writing
to the Company by or on behalf of any of such Indemnified Person expressly for
use therein; (y) with respect to the preliminary Prospectus, result from the
fact that such Holder sold Securities or Restricted Securities to a person to
whom there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the Prospectus, as amended or supplemented, if the Company
shall have previously furnished copies thereof to such Holder in accordance with
this Agreement and the Prospectus, as amended or supplemented; or (z) are a
result of the use by an Indemnified Person of any Prospectus when, upon receipt
of a BlackOut Notice or a notice from the Company of the existence of any fact
of the kind described in Section 2.3(b)(iv), the Indemnified Person or the
related Holder was not permitted to do so. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of any
Indemnified Person and shall survive the transfer of such Securities by such
Holder.
10
<PAGE>
If any action shall be brought or asserted against any Indemnified Person
with respect to which indemnity may be sought against the Company, such
Indemnified Person shall promptly notify the Company and the Company shall
assume the defense thereof. Such Indemnified Person shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the Indemnified Person unless (i) the employment of such counsel shall have been
specifically authorized in writing by the Company, (ii) the Company shall have
failed to assume the defense and employ counsel, or (iii) the named parties to
any such action include both the Indemnified Person and the Company and the
Indemnified Person shall have been advised in writing by its counsel that there
may be one or more legal defenses available to it that are different from or
additional to those available to the Company (in which case the Company shall
not have the right to assume the defense of such action on behalf of the
Indemnified Person), it being understood, however, that the Company shall not,
in connection with such action or similar or related actions or proceedings
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for all the Indemnified Persons,
which firm shall be (A) designated by such Indemnified Persons and (B)
reasonably satisfactory to the Company. The Company shall not be liable for any
settlement of any such action or proceeding effected without the Company's prior
written consent, which consent shall not be withheld unreasonably, and the
Company agrees to indemnify and hold harmless any Indemnified Person from and
against any loss, claim, damage, liability, judgment or expense by reason of any
settlement of any action effected with the written consent of the Company. The
Company shall not, without the prior written consent of each Indemnified Person,
settle or compromise or consent to the entry of judgment on or otherwise seek to
terminate any pending or threatened action, claim, litigation or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not any Indemnified Person is a party thereto), unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Person from all liability arising out of such action, claim,
litigation or proceeding.
(b) Each Holder of Securities covered by any Registration Statement
agrees, severally and not jointly, to indemnify and hold harmless the Company
and its directors, officers and any person controlling (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) the Company,
its subsidiaries and their respective officers, directors, partners, employees,
representatives and agents of each such person, to the same extent as the
foregoing indemnity from the Company to each of the Indemnified Persons, but
only with respect to actions based on Claims referred to in clauses (x), (y) or
(z) of Section 2.7(a), and subject to the limitation that no Holder's liability
for such indemnification shall be greater than an amount equal to the total
original purchase price of the Preferred Stock purchased by such Holder pursuant
to the Stock Purchase Agreement, as set forth on Exhibit A attached hereto. If
any action or proceeding shall be brought against the Company, any of its
subsidiaries or any of their respective directors or officers or any such
controlling person in respect of which indemnity may be sought against a Holder
of Securities covered by any Registration Statement, such Holder shall have the
rights and duties given the Company in Section 2.7(a) (except that the Holder
may but shall not be required to assume the defense thereof), and the Company or
11
<PAGE>
such subsidiary, its directors or officers or such controlling person shall have
the rights and duties given to each Holder by Section 2.7(a).
2.8 Participation in Underwritten Registrations. No Holder may participate
in any underwritten registration hereunder unless such Holder (a) agrees to sell
such Holder's Securities on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements, and (b)
completes and executes all reasonable questionnaires, powers of attorney,
indemnities, underwriting agreements, lock-up letters and other documents
required under the terms of such underwriting arrangements.
2.9 Selection of Underwriters. The Holders of Securities covered by any
Registration Statement who desire to do so may sell such Securities in an
underwritten offering. In any such underwritten offering, the investment banker
or investment bankers and manager or managers that will administer the offering
will be selected by the Holders of a majority of the Securities included in such
offering and the terms of such offering shall be reasonably satisfactory to such
Holders; provided, however, that such investment bankers and managers and the
terms of the underwriting must be reasonably satisfactory to the Company. Such
investment bankers and managers are referred to herein as the "underwriters."
ARTICLE 3
LIQUIDATED DAMAGES
Each of the Company and the Purchasers (on behalf of themselves and each
subsequent Holder of Restricted Securities) agrees that each Holder of
Restricted Securities will suffer damages if the Registration Statement is not
filed with and declared effective by the Commission and maintained in the manner
and within the time period contemplated by Article 2 hereof and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
subject to adjustment for any Blackout Period, if (i) the Registration Statement
is not filed with the Commission and declared effective by June 13, 1997, or
(ii) the Registration Statement is filed and declared effective but shall
thereafter cease to be effective (without being succeeded immediately by an
additional Registration Statement filed and declared effective) for a period of
time that shall exceed 90 days in the aggregate per year (defined as a period of
365 days commencing on the date the Registration Statement is declared
effective) (each such event referred to in clauses (i) and (ii), a "Registration
Default"), except as a result of extraordinary circumstances beyond the
Company's control, then the Company shall pay as Liquidated Damages to each
Holder of Restricted Securities who has complied with such Holder's obligations
hereunder an amount equal to 2% per month of the liquidation preference of the
Preferred Stock in cash (subject to adjustment in the event of stock splits,
stock recombinations, stock dividends and the like), ratably according to the
number of shares of Preferred Stock held by such Holder or previously converted
to Securities held by such Holder, immediately following the occurrence of such
Registration Default and continuing until such Registration Default is cured.
12
<PAGE>
ARTICLE 4
RULE 144A
The Company hereby agrees with each Holder of Restricted Securities,
beginning on June 13, 1997 and for so long as a Registration Statement is not
effective and any of the Restricted Securities remain outstanding and continue
to be "restricted securities" within the meaning of Rule 144 under the Act, and
during any period in which the Company is not subject to Section 13 or 15(d) of
the Exchange Act, to make available to the Holders of Restricted Securities the
information required by Rule 144A(d)(4) under the Act in order to permit resales
of such Restricted Securities pursuant to Rule 144A.
ARTICLE 5
MISCELLANEOUS
5.1 Entire Agreement. This Agreement, together with the Stock Purchase
Agreement (including the exhibits and schedules thereto), constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter hereof.
5.2 Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation, subsequent Holders of Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and then only to the extent such
successor or assign acquired Restricted Securities from such Holder at a time
when such Holder could not transfer such Restricted Securities pursuant to any
Registration Statement or pursuant to Rule 144 under the Securities Act as
contemplated by clause (ii) of the definition of Restricted Securities.
5.3 Notices. All notices and other communications given or made pursuant
hereto, unless otherwise specified, shall be in writing and shall be deemed to
have been duly given or made if delivered personally, by confirmed facsimile
transmission, or by overnight courier or sent by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the facsimile
number, if any, or address set forth below or at such other numbers or addresses
as shall be furnished by the parties by like notice. Notices sent by facsimile
shall be effective when receipt is confirmed, notices delivered personally or by
overnight courier shall be effective upon receipt and notices sent by registered
or certified mail shall be effective three days after mailing:
13
<PAGE>
If to a Holder: To such Holder at the address set forth in Exhibit A.
In addition, copies of all such notices or other
communications shall be concurrently delivered by the
person giving the same to each person who has been
identified to the Company by such Holder as a person who is
to receive copies of such notice.
If to the Company: Donald A. Wright
Pacific Aerospace & Electronics, Inc.
434 Olds Station Road
Wenatchee, Washington 98801
Fax: (509) 664-6868
With a copy to: Sheryl A. Symonds
Stoel Rives LLP
One Union Square
600 University Street, Suite 3600
Seattle, Washington 98101-3197
Fax: (206) 386-7500
5.4 Headings. The headings contained in this Agreement are for convenience
only and shall not affect the meaning or interpretation of this Agreement.
5.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
5.6 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF WASHINGTON, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CHOICE OF LAW.
5.7 Specific Enforcement. Each party hereto acknowledges that the remedies
at law of the other parties for a breach or threatened breach of this Agreement
would be inadequate, and, in recognition of this fact, any party to this
Agreement, without posting any bond, and in addition to all other remedies that
may be available, shall be entitled to obtain equitable relief in the form of
specific performance, a temporary restraining order, a temporary or permanent
injunction or any other equitable remedy that may then be available.
5.8 Amendment and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority in interest of the Restricted
Securities.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
THE COMPANY:
PACIFIC AEROSPACE & ELECTRONICS, INC.
By DONALD A. WRIGHT
------------------------------------
Donald A. Wright
President and Chief Executive Officer
15
<PAGE>
AG SUPER FUND INTERNATIONAL
PARTNERS, L.P.
By Angelo, Gordon & Co., L.P.
Its General Partner
By MICHAEL L. GORDON
-------------------------------
Michael L. Gordon
Chief Operating Officer
GAM ARBITRAGE INVESTMENTS, INC.
By Angelo, Gordon & Co., L.P.
Investment Advisor
By MICHAEL L. GORDON
-------------------------------
Michael L. Gordon
Chief Operating Officer
PARESCO, INC. THE CHERYL STROME LIVING TRUST
DATED 11/26/96
By SAM BOHRA By CHERYL STROME
------------------------------- ----------------------------------
Its Chief Financial Officer Cheryl Strome, Trustee
------------------------------
STROME GLOBAL INCOME FUND STROME PARTNERS, L.P.
By JEFF LAMBERT By JEFF LAMBERT
------------------------------- ----------------------------------
Its Director Its Chief Financial Officer of its
------------------------------ General Partner
---------------------------------
STROME OFFSHORE, LTD. STROME SUSSKIND HEDGECAP, L.P.
By JEFF LAMBERT By JEFF LAMBERT
------------------------------- ----------------------------------
Its Director Its Chief Financial Officer of its
------------------------------- General Partner
---------------------------------
16
<PAGE>
STROME FAMILY FOUNDATION MARK STROME, IRA
By JEFF LAMBERT By MARK STROME
------------------------------- ----------------------------------
Its Secretary
------------------------------
17
<PAGE>
LEONARDO, L.P.
By Angelo, Gordon & Co., L.P.
Its General Partner
By MICHAEL L. GORDON
-------------------------------
Michael L. Gordon
Chief Operating Officer
18
<PAGE>
[EXHIBIT OMITTED AS NOT MATERIAL]
SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
Dated as of February 27, 1997
among
PACIFIC AEROSPACE & ELECTRONICS, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. Purchase and Sale of Preferred Stock...........................1
1.1 Purchase and Sale of Stock..........................................1
1.2 The Conversion Shares...............................................1
1.3 Closing.............................................................2
ARTICLE II. Representations and Warranties.................................2
2.1 Representation and Warranties of the Company........................2
(a) Organization, Good Standing and Power........................2
(b) Authorization; Enforcement...................................2
(c) Capitalization...............................................3
(d) Issuance of Shares...........................................3
(e) Subsidiaries.................................................3
(f) No Conflicts.................................................4
(g) Commission Documents, Financial Statement....................5
(h) No Material Adverse Change...................................5
(i) No Undisclosed Liabilities...................................5
(j) No Undisclosed Events or Circumstances.......................5
(k) Indebtedness.................................................6
(l) Title to Assets..............................................6
(m) Actions Pending..............................................6
(n) Compliance with Law..........................................6
(o) Taxes........................................................7
(p) Certain Fees.................................................7
(q) Disclosure...................................................7
(r) Operation of Business........................................7
(s) Environmental Compliance.....................................8
(t) Books and Records............................................8
(u) Material Agreements..........................................8
(v) Transactions with Affiliates.................................8
(w) Securities Act...............................................9
(x) Approvals....................................................9
(y) Employees....................................................9
(z) Absence of Certain Developments.............................10
(aa) Public Utility Holding Company Act and
Investment Company Act Status...............................10
i
<PAGE>
2.2 Representations and Warranties of the Purchasers...................10
(a) Organization and Standing of the Purchasers.................10
(b) Authorization; Power........................................11
(c) No Conflicts................................................11
(d) Acquisition for Investment..................................12
(e) Accredited Purchasers.......................................12
(f) Rule 144....................................................12
(g) Reliance....................................................12
(h) No Brokers..................................................12
(i) Disclosure..................................................12
ARTICLE III. Covenants.....................................................12
3.1 Securities Compliance..............................................13
3.2 Conversion Notice..................................................13
3.3 Registration and Listing...........................................13
3.4 Inspection Rights..................................................13
3.5 Reporting Requirements.............................................14
3.6 Other Agreements...................................................14
3.7 Rule 144; Rule 144A................................................14
3.8 Regulation S.......................................................14
3.9 Use of Proceeds....................................................14
3.10 Right of First Refusal.............................................14
ARTICLE IV. Conditions....................................................15
4.1 Conditions Precedent to the Obligation of the Company
to Sell the Shares.................................................15
(a) Accuracy of the Purchasers' Representations and Warranties..15
(b) Performance by the Purchasers...............................15
(c) No Injunction...............................................15
(d) No Proceedings or Litigation................................15
(e) Opinion of Counsel; Closing Documents.......................16
(f) Purchase Price..............................................16
(g) Minimum Purchase............................................16
4.2 Conditions Precedent to the Obligation of the Purchasers
to Purchase the Shares.............................................16
(a) Accuracy of the Company's Representations and Warranties....16
(b) Performance by the Company..................................16
(c) No Suspension, etc..........................................17
(d) No Injunction...............................................17
(e) No Proceedings or Litigation................................17
(f) Designation of Rights and Preferences.......................17
ii
<PAGE>
(g) Opinion of Counsel; Closing Documents.......................17
(h) Registration Rights Agreement...............................17
ARTICLE V. Registration Rights...........................................17
ARTICLE VI. Stock Certificate Legend......................................18
ARTICLE VII. Termination...................................................18
7.1 Termination by Mutual Consent......................................18
7.2 Other Termination..................................................18
7.3 Effect of Termination..............................................19
ARTICLE VIII. Indemnification...............................................19
8.1 General Indemnity..................................................19
8.2 Indemnification Procedure..........................................20
ARTICLE IX. Miscellaneous.................................................20
9.1 Fees and Expenses..................................................20
9.2 Specific Enforcement, Consent to Jurisdiction......................21
9.3 Entire Agreement; Amendment........................................21
9.4 Notices............................................................22
9.5 Waivers............................................................22
9.6 Headings...........................................................22
9.7 Successors and Assigns.............................................22
9.8 No Third Party Beneficiaries.......................................22
9.9 Governing Law......................................................23
9.10 Survival...........................................................23
9.11 Counterparts.......................................................23
9.12 Publicity..........................................................23
9.13 Severability.......................................................23
9.14 Further Assurances.................................................23
EXHIBITS
- --------
Exhibit A List of Purchasers
Exhibit B Designation of Rights and Preferences
Exhibit C Registration Rights Agreement
Exhibit D Form of Notice of Conversion
Exhibit E Opinion of Counsel to the Purchasers
Exhibit F Opinion of Stoel Rives LLP
iii
<PAGE>
SCHEDULES
- ---------
Schedule 2.1(c) Capitalization
Schedule 2.1(e) Subsidiaries
Schedule 2.1(g) Exchange Act Filings
Schedule 2(i) Undisclosed Liabilities Since November 30, 1996
Schedule 2.1(k) Indebtedness
Schedule 2.1(l) Permitted Liens
Schedule 2.1(m) Actions Pending
Schedule 2.1(n) Compliance with Law
Schedule 2.1(s) Environmental Compliance
Schedule 2.1(u) Material Agreements
Schedule 2.1(v) Transactions with Affiliates
Schedule 2.1(x) Required Approvals
Schedule 2.1(z) Absences of Certain Developments Since November 30, 1996
iv
<PAGE>
SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
This SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is made as of February 27, 1997, by and among PACIFIC AEROSPACE &
ELECTRONICS, INC., a Washington corporation (the "Company"), and each of the
purchasers of shares of Series A Convertible Preferred Stock whose names are set
forth on Exhibit A hereto (each individually, a "Purchaser" and collectively,
the "Purchasers").
The parties hereto agree as follows:
ARTICLE I.
Purchase and Sale of Preferred Stock
1.1 Purchase and Sale of Stock. Upon and subject to the terms and
conditions set forth in this Agreement, the Company agrees to issue and sell to
the Purchasers, and each Purchaser severally agrees to purchase from the
Company, the number of shares of the Company's Series A Convertible Preferred
Stock, par value $0.001 per share (the "Preferred Shares") set forth with
respect to such Purchaser on Exhibit A hereto, at a purchase price of $100.00
per share. The designation, rights, preferences and other terms and provisions
of the Series A Convertible Preferred Stock, as of the Closing (as defined in
Section 1.3), will be as set forth in the Designation of Rights and Preferences
of the Series A Convertible Preferred Stock (the "Designation of Rights and
Preferences") contained in Exhibit B hereto.
1.2 The Conversion Shares. Prior to the Closing, the Company shall have
authorized and reserved, free of preemptive rights and other similar contractual
rights of stockholders, a sufficient number of authorized but unissued shares of
its Common Stock, par value $0.001 per share (the "Common Stock"), to satisfy
the rights of conversion of the holders of the Preferred Shares. Any shares of
Common Stock issuable upon conversion of the Preferred Shares (and such shares
when issued) are herein referred to as the "Conversion Shares." The Preferred
Shares and the Conversion Shares are sometimes collectively referred to as the
"Shares."
1.3 Closing. The closing of the purchase and sale of the Preferred Shares
to be acquired by the Purchasers from the Company under this Agreement shall
take place at the offices of Stoel Rives LLP, 3600 One Union Square, 600
University Street, Seattle, WA 98101 at 10:00 a.m. P.S.T. on the date on which
the last of the closing conditions set forth in Article IV hereof have been
fulfilled or waived, or at such other time, date and place as the Purchasers and
the Company may agree (the "Closing Date"). On the Closing Date, the Company
shall deliver to each Purchaser certificates for the number of Preferred Shares
set forth opposite such Purchaser's name on Exhibit A hereto, registered in such
Purchaser's name (or
1
<PAGE>
the name of its nominee), against delivery of a check or checks payable to the
order of the Company, or a transfer of funds to an account designated in writing
by the Company, representing the cash consideration set forth opposite each such
Purchaser's name on Exhibit A. In addition, each party shall deliver all
documents, instruments and writings required to be delivered by such party
pursuant to this Agreement at or prior to the Closing.
ARTICLE II.
Representations and Warranties
2.1 Representation and Warranties of the Company. The Company hereby makes
the following representations and warranties to the Purchasers:
(a) Organization, Good Standing and Power. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Washington and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company is duly qualified as a foreign corporation to
do business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except for any jurisdiction in which the failure to be so qualified
will not have a material adverse effect on the Company's financial condition.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into this Agreement and the Registration
Rights Agreement attached hereto as Exhibit C (the "Registration Rights
Agreement") and to perform its obligations hereunder and thereunder, including
without limitation to issue and sell the Shares in accordance with the terms of
this Agreement. The execution and delivery of this Agreement and the
Registration Rights Agreement, and the performance by the Company of its
obligations hereunder and thereunder, including the consummation by it of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors or stockholders is required. This Agreement
has been duly executed and delivered by the Company. The Registration Rights
Agreement will have been duly executed and delivered by the Company at the
Closing. This Agreement constitutes, and the Registration Rights Agreement when
executed and delivered shall constitute, a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
the foregoing may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, or other similar laws relating to or affecting
generally the rights of creditors, or by equitable principles, including those
limiting the availability of specific performance, injunctive relief, and other
equitable remedies.
(c) Capitalization. The authorized capital stock of the Company and
the shares thereof issued and outstanding as of February 17, 1997, are set forth
on Schedule 2.1(c) hereto. All of the outstanding shares of the Company's Common
Stock have been duly and validly authorized. Except as required by this
Agreement and the Registration Rights Agreement or as
2
<PAGE>
described on Schedule 2.1(c) hereto, no shares of Common Stock are entitled to
preemptive rights and there are no outstanding options, warrants, scrip, rights
to subscribe to, calls or commitments of any character to issue, or securities
or rights convertible into, any shares of capital stock of the Company, or
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of capital stock of the Company
or options, securities or rights convertible into shares of capital stock of the
Company, or contracts, commitments, understandings, or arrangements by which the
Company is or may become bound to issue additional shares of capital stock of
the Company or options, warrants, scrip, rights to subscribe to, or commitments
to purchase or acquire, any shares, or securities or rights convertible into
shares, of capital stock of the Company. Except as described on Schedule 2.1(c)
hereto, the Company is not a party to any agreement granting registration rights
to any person with respect to any of its equity or debt securities. The Company
has furnished or made available to the Purchasers true and correct copies of the
Company's Articles of Incorporation, as in effect on the date hereof (the
"Articles"), and the Company's Bylaws, as in effect on the date hereof (the
"Bylaws").
(d) Issuance of Shares. The Preferred Shares to be issued at the
Closing have been duly authorized by all necessary corporate action and, when
paid for, issued and delivered in accordance with the terms hereof, the
Preferred Shares shall be validly issued, fully paid and non-assessable and
entitled to the rights and preferences set forth in Exhibit B hereto. When the
Conversion Shares are issued in accordance with the terms of Exhibit B hereto,
such shares will be duly authorized by all necessary corporate action and
validly issued, fully paid and non-assessable, and the holders shall be entitled
to all rights accorded to holders of Common Stock.
(e) Subsidiaries. Schedule 2.1(e) contains a complete list of each
subsidiary of the Company (the "Subsidiaries"). Each of the Subsidiaries is a
Washington corporation that is wholly owned by the Company. "Subsidiary" shall
mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other Subsidiaries. All of the outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly issued, and are
fully paid and non-assessable. There are no outstanding preemptive, conversion
or other rights, options, warrants or agreements granted or issued by or binding
upon any Subsidiary for the purchase or acquisition of any shares of capital
stock of any Subsidiary or any other securities convertible into, exchangeable
for or evidencing the rights to subscribe for any shares of such capital stock.
Except as set forth on Schedule 2.1(e), neither the Company nor any Subsidiary
is party to, or has any knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of any Subsidiary.
(f) No Conflicts. Neither the execution or delivery of this Agreement
or the Registration Rights Agreement by the Company, nor the performance by the
Company of its obligations thereunder, will (i) result in a violation of the
Company's Articles or Bylaws, (ii) violate, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration
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or cancellation of, any agreement, mortgage, deed of trust, indenture, note,
bond, license, lease agreement or instrument or obligation to which the Company
is a party, (iii) create or impose a lien, charge or encumbrance on any property
of the Company under any agreement or any commitment to which the Company is a
party or by which the Company or any of its properties or assets are bound, (iv)
result in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected, except for violations, defaults, terminations, amendments,
acceleration, and cancellations that would not, individually or in the
aggregate, have a Material Adverse Effect. "Material Adverse Effect" means any
adverse effect on the business, operations, properties, prospects, or condition
(financial or otherwise) of the Company that is material to the Company and the
Subsidiaries taken as a whole. The business of the Company and its Subsidiaries
is not being conducted in violation of any law, ordinance, rule or regulation of
any governmental entity, except for possible violations that singly or in the
aggregate do not and will not have a Material Adverse Effect. The Company is not
required under federal, state or local law, rule or regulation in the United
States to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency for it to execute, deliver
or perform any of its obligations under this Agreement and the Registration
Rights Agreement or issue and sell the Shares in accordance with the terms
hereof or thereof (other than the filing with or delivery to the Securities and
Exchange Commission (the "Commission"), Nasdaq, NASD or state securities
agencies of notices or filings that may be required to be made by the Company
prior to or subsequent to the Closing, any registration statement that may be
filed pursuant to the Registration Rights Agreement and the filing of the
Designation of Rights and Preferences set forth on Exhibit B with the Secretary
of State of the State of Washington); provided that, for purpose of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Purchasers
herein.
(g) Commission Documents, Financial Statement. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Except as set forth on Schedule
2.1(g), the Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with the Commission pursuant to
the reporting requirements of the Exchange Act, including material filed
pursuant to Section 13(a) or 15(b) for the period of at least twelve calendar
months prior to the date of this Agreement (all of the foregoing, including
filings incorporated by reference therein, being referred to herein as the
"Commission Documents"). The Company has delivered or made available to each of
the Purchasers true and complete copies of the Commission Documents filed with
the Commission since June 1, 1996. As of their respective dates, the Company's
Annual Report on Form 10-KSB for the year ended May 31, 1996 (the "Form 10-KSB")
and its Quarterly Reports on Form 10-QSB for the periods ended August 31, 1996
and November 30, 1996 (the "Forms 10-QSB") complied in all material respects
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder and other federal and state
laws, rules and regulations applicable thereto, and, as of their respective
dates, none of the Form 10-KSB and the Forms 10-QSB contained
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any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Form 10-KSB
and the Forms 10-QSB comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(h) No Material Adverse Change. Since November 30, 1996, the end of
the last quarter for which the Company has prepared and filed a quarterly report
on Form 10-QSB with the Commission, a copy of which is included in the
Commission Documents, the Company has not experienced or suffered any Material
Adverse Effect.
(i) No Undisclosed Liabilities. Except as disclosed on Schedule 2(i)
hereto, neither the Company nor any of its Subsidiaries has any liabilities,
obligations, claims or losses (whether liquidated or unliquidated, secured or
unsecured, absolute, accrued, contingent or otherwise) that would be required to
be disclosed on a consolidated balance sheet of the Company and its Subsidiaries
(including the notes thereto) prepared in conformity with GAAP that are not
disclosed in the Commission Documents, other than those incurred in the ordinary
course of business consistent with past practices since November 30, 1996 that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Company and its Subsidiaries taken as whole.
(j) No Undisclosed Events or Circumstances. No event or circumstance
has occurred or exists with respect to the Company or its Subsidiaries or their
respective businesses, properties, prospects, operations or condition (financial
or otherwise), that, under applicable law, rule or regulation, should have been
publicly disclosed or announced by the Company before the date of this Agreement
but that has not been so publicly announced or disclosed.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the date
hereof all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments that are
not disclosed in the Form 10-KSB or the Forms 10-QSB. "Indebtedness" shall mean,
in an amount in excess of $250,000, (i) any liability for borrowed money or
evidenced by a promissory note or similar written obligation given in connection
with the acquisition of any property or other assets (other than trade accounts
payable incurred in the ordinary course of business), (ii) all guaranties,
endorsements and other contingent obligations, in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar
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transactions in the ordinary course of business consistent with past practices,
and (iii) the present value of any lease payments due under leases required to
be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary
is in default in any material respect with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the Subsidiaries has good
and marketable title to all of the real and personal property owned by it, free
of any mortgages, pledges, charges, liens, security interests or other
encumbrances, except for those indicated on Schedule 2.1(l) hereto or in the
Form 10-KSB or Forms 10-QSB or such that would not reasonably be expected to
have a Material Adverse Effect. The Company and each of its Subsidiaries enjoy
peaceful and undisturbed possession under all leases under which they are
operating, and all said leases are valid and subsisting and in full force and
effect.
(m) Actions Pending. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company threatened, against the
Company or any Subsidiary that questions the validity of this Agreement or the
Registration Rights Agreement or the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth on Schedule 2.1(m) hereto, there is no material action, suit,
investigation or proceeding pending or, to the knowledge of the Company
threatened, against or involving the Company, any Subsidiary or any of their
respective properties or assets. There are no material outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any Subsidiary.
(n) Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted in compliance with all
applicable federal, state, and local governmental laws, rules, regulations and
ordinances, except as would not reasonably be expected to have Material Adverse
Effect. Except as described on Schedule 2.1(n), the Company and each of its
Subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals needed to conduct their
respective businesses as now being conducted by them unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. The Company and, to the best of the Company's knowledge,
each of the Subsidiaries have accurately prepared and filed all federal, state,
local, foreign and other tax returns required by law to be filed by them and
have paid or made provisions for the payment of all taxes shown to be due and
all additional assessments, and adequate provisions have been and are reflected
in the financial statements of the Company and the Subsidiaries for all current
taxes to which the Company or any Subsidiary is subject and that are not
currently due and payable. The Company has no knowledge of any assessments,
adjustments or contingent tax liability (whether federal or state) pending or
threatened against the Company or
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any Subsidiary for any period, nor of any reasonable basis for any such
assessment, adjustment or contingency.
(p) Certain Fees. Except with respect to fees payable by the Company
to Pacific Continental Securities, Inc. at the Closing, no brokers', finders' or
financial advisory fees or commissions will be payable by the Company, any
Subsidiary or, to the Company's knowledge any Purchaser, with respect to the
transactions contemplated by this Agreement.
(q) Disclosure. Neither this Agreement nor the Schedules hereto nor
any other document, certificate or instrument furnished to the Purchasers by or
on behalf of the Company or any Subsidiary in connection with the transactions
contemplated by this Agreement, when all of the foregoing are considered
together, contains any untrue statement of a material fact or omits to state a
material fact needed to make the statements made herein or therein, in the light
of the circumstances under which they were made, not misleading.
(r) Operation of Business. The Company and the Subsidiaries own or
possess all material patents, trademarks, service marks, trade names,
copyrights, and licenses or all rights with respect to the foregoing, needed to
conduct their respective businesses as they are now conducted.
(s) Environmental Compliance. Except as disclosed on Schedule 2.1(s)
hereto, the Company and each of its Subsidiaries have obtained all material
approvals, certificates, consents, licenses, orders and permits or other similar
authorizations of all federal, state, and local authorities that are required
under any Environmental Laws. "Environmental Laws" shall mean all applicable
federal, state, and local laws relating to the protection of the environment
including, without limitation, all requirements: (i) pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions,
discharges, releases or threatened releases of hazardous substances, chemical
substances pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land; or (ii) relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
hazardous substances, chemical substances, pollutants, contaminants or toxic
substances, material or wastes, whether solid, liquid or gaseous in nature.
Except as described on Schedule 2.1(s) hereto, and except for such instances
that would not reasonably be expected, individually or in the aggregate, to have
a Material Adverse Effect, the Company does not know of any past or present
events, conditions, circumstances, incidents, actions or omissions relating to
or in any way affecting the Company or its Subsidiaries that would cause a
violation of any Environmental Law after the Closing or that may give rise to
any material Environmental Liability, or otherwise form the basis of any claim,
action, demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance. "Environmental
Liabilities" means all liabilities of the Company or any of its Subsidiaries
(whether such liabilities are owed
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by such person to governmental authorities, third parties or otherwise), whether
now in existence or arising hereafter, that arise under or relate to any
Environmental Law.
(t) Books and Records. The records and documents of the Company and
the Subsidiaries accurately reflect in all material respects information
relating to the business of the Company and the Subsidiaries, the location and
collection of their assets, and the nature of all transactions giving rise to
the obligations or accounts receivable of the Company or any Subsidiary.
(u) Material Agreements. Except as disclosed in the Commission
Documents (subject to any applicable confidential treatment granted by the
Commission) or on Schedule 2.1(u) hereto, neither the Company nor any Subsidiary
is a party to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be filed
with the Commission as an exhibit to a registration statement on Form S-3 if the
Company or any subsidiary were registering securities on such form under the
Securities Act of 1933, as amended (the "Securities Act"). The Company, each
Subsidiary and, to the best of the Company's knowledge, each other party
thereto, have performed all the obligations required to be performed by them to
date under any leases, contracts, or other agreements of the Company or its
Subsidiaries, and the Company has not received any notice of default and is not
in default under any lease, contract or agreement now in effect to which the
Company or any Subsidiary is a party or by which it or its property may be
bound, the result of any of which could reasonably be expected to cause a
Material Adverse Effect.
(v) Transactions with Affiliates. Except as set forth in the Form
10-KSB or on Schedule 2.1(v) hereto, there are no loans, leases, agreements
(other than employment contracts, stock options, or warrant agreements),
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions involving amounts exceeding $250,000 between (a) the
Company, any Subsidiary or any of their respective customers or suppliers on the
one hand, and (b) any officer, employee, consultant or director of the Company,
or any member of the immediate family of any such officer, employee, consultant,
or director or any corporation or other entity controlled by such officer,
employee, consultant, or director or a member of their immediate family on the
other hand.
(w) Securities Act. Assuming the truthfulness of all representations
made by the Purchasers in this Agreement, the Company has complied and will
comply in all material respects with all applicable federal and state securities
laws in connection with the offer, issuance and sale of the Shares hereunder.
Neither the Company nor anyone acting on its behalf, directly or indirectly, has
sold, offered to sell or solicited offers to buy, or will sell, offer to sell or
solicit offers to buy the Shares or similar securities to any person, so as to
require the registration of the Shares under the Securities Act and applicable
state securities laws, except in accordance with the Registration Rights
Agreement. None of the Company, nor any of its affiliates, nor any person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the Securities
Act) in connection with the offer or sale of the Shares.
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(x) Approvals. Except for the filing or delivery of any notices or
other documents prior or subsequent to the Closing that may be required under
applicable state or federal securities laws or by Nasdaq (which if required,
shall be filed on a timely basis), the filing of the Designation of Rights and
Preferences set forth in Exhibit B, or as set forth in Schedule 2.1(x), no
authorization, consent, approval, license, filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or from any other third party, is or will
be necessary for or in connection with the execution or delivery of the Shares,
or for the performance by the Company of its obligations under this Agreement.
(y) Employees. Neither the Company nor any Subsidiary has any
collective bargaining agreements covering any of its employees. To the best of
the Company's knowledge, no employee of the Company is in violation of any term
of any employment contract, patent or other proprietary information agreement or
any other contract or agreement relating to the right of any such employee to be
employed by the Company because of the nature of the business conducted or
proposed to be conducted by the Company or any other reason. Since November 30,
1996, no officer, consultant or key employee of the Company or any Subsidiary
whose termination, either individually or in the aggregate, could have a
Material Adverse Effect, has terminated or, to the knowledge of the Company has
any present intention of terminating, his or her employment or engagement with
the Company or any Subsidiary.
(z) Absence of Certain Developments. Except as provided in Schedule
2.1(z) hereto, since November 30, 1996, neither the Company nor any Subsidiary
has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
(ii) borrowed any amount in excess of $250,000 or incurred or
become subject to any material liabilities (absolute or contingent) except
liabilities incurred in the ordinary course of business consistent with
past practices;
(iii) discharged or satisfied any material lien or encumbrance or
paid any material obligation or liability (absolute or contingent), other
than current liabilities paid in the ordinary course of business consistent
with past practices;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business
consistent with past practices;
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(vi) sold, assigned or transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, except in the ordinary course of business
consistent with past practices;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of existing business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $250,000;
(x) made charitable contributions or pledges in excess of $25,000
in total;
(xi) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance; or
(xii) experienced any material problems with labor or management
in connection with the terms and conditions of their employment.
(aa) Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately after the
Closing will not be, an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. Such Purchaser is a
corporation or partnership duly incorporated or organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization; Power. Such Purchaser has the requisite power and
authority to enter into this Agreement and the Registration Rights Agreement and
to perform its obligations hereunder and thereunder, including without
limitation, to purchase the Shares being sold to it hereunder. The execution and
delivery of this Agreement and the Registration Rights Agreement by such
Purchaser, and the performance by the Purchaser of its obligations hereunder and
thereunder, including the consummation by it of the transactions contemplated
hereby and
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thereby, have been duly authorized by all necessary corporate or partnership
action, and no further consent or authorization of such Purchaser or its Board
of Directors, stockholders, or partners, as the case may be, is required. This
Agreement has been duly executed and delivered by such Purchaser. The
Registration Rights Agreement will have been duly executed and delivered by such
Purchaser at the Closing. Assuming the due authorization, execution and delivery
hereof and thereof by the other parties hereto and thereto, this Agreement
constitutes, and the Registration Rights Agreement shall constitute when
executed and delivered, a valid and binding obligation of the Purchaser
enforceable against such Purchaser in accordance with its terms, except as the
foregoing may be limited by applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, or other similar laws relating to or
affecting generally the rights of creditors or by other equitable principles
including those limiting the availability of specific performance, injunctive
relief, and other equitable remedies.
(c) No Conflicts. Neither the execution or delivery of this Agreement
or the Registration Rights Agreement by the Purchaser, nor the performance by
such Purchaser of its obligations hereunder and thereunder, will (i) result in a
violation of such Purchaser's charter or other organizational documents or
bylaws (ii) violate, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of any agreement,
indenture, note, bond, license agreement, or instrument to which such Purchaser
is a party, or (iii) result in a violation of any federal, state, local or
foreign statute, rule, regulation, order, judgment or decree applicable to such
Purchaser or its properties or by which any property or asset of such Purchaser
is bound or affected (except in the case of each of clauses (i), (ii) and (iii)
for conflicts, defaults and violations that would not, individually or in the
aggregate have a Material Adverse Effect on such Purchaser). Such Purchaser is
not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency for it to execute,
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or purchase the Shares in accordance with the
terms hereof, provided that for purposes of the representation made in this
sentence, such Purchaser is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
(d) Acquisition for Investment. Such Purchaser is purchasing the
Preferred Shares solely for its own account for the purpose of investment and
not as a nominee or agent or with a view to or for sale in connection with any
distribution. Such Purchaser does not have a present intention to sell the
Preferred Shares or the Conversion Shares, nor a present contract, undertaking,
agreement or arrangement (whether or not legally binding) to any person, and the
Purchaser does not have any present intention to effect any distribution of the
Preferred Shares or the Conversion Shares, to or through any person or entity;
provided, however, that by making the representations herein, such Purchaser
does not agree to hold the Preferred Shares or the Conversion Shares for any
minimum or other specific term and reserves the right to dispose of the
Preferred Shares or the Conversion Shares at any time in accordance with federal
and state securities laws applicable to such disposition. Such Purchaser is not
a broker-dealer. Such Purchaser acknowledges that it is able to bear the
financial risks associated with an investment
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in the Preferred Shares and that it can bear the loss of its entire investment.
Such Purchaser represents that it was not organized solely for the purpose of
making an investment in the Company. Such Purchaser acknowledges that it has
been given full access to such records of the Company and the Subsidiaries and
to the officers of the Company and the Subsidiaries as it has deemed necessary
and appropriate to conduct and complete its due diligence investigation.
(e) Accredited Purchasers. Such Purchaser is an "accredited investor"
as defined in Regulation D promulgated under the Securities Act.
(f) Rule 144. Such Purchaser understands that the Shares must be held
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available. Such Purchaser acknowledges that it is
familiar with Rule 144 of the rules and regulations of the Commission, as
amended, promulgated pursuant to the Securities Act ("Rule 144"), and that it
has been advised that Rule 144 permits, only under certain circumstances, the
resale of restricted securities such as the Shares being purchased hereunder,
but that Rule 144 is not now available to permit resales by such person of any
of the Shares.
(g) Reliance. Each Purchaser understands that the Shares are being
offered and sold in reliance on exemptions from the registration requirements of
federal and state securities laws and that the Company is relying upon the truth
and accuracy of the representations, warranties, agreements, acknowledgments and
understandings of the Purchasers set forth herein to determine the applicability
of such exemptions and the suitability of such Purchasers to acquire the Shares.
(h) No Brokers. Except as described in Section 2.1(p), no brokers',
finders' or financial advisory fees or commissions will be payable by the
Purchaser or, to the Purchaser's knowledge, by the Company or any Subsidiary
with respect to the transactions contemplated by this Agreement.
(i) Disclosure. Neither this Agreement nor any other document,
certificate or instrument furnished to the Company by or on behalf of the
Purchaser in connection with the transactions contemplated by this Agreement,
contains any untrue statement of a material fact or omits to state a material
fact needed to make the statements made herein or therein, in the light of the
circumstances under which they were made, not misleading.
ARTICLE III.
Covenants
The Company covenants with each of the Purchasers as follows:
3.1 Securities Compliance. The Company shall notify the Commission and
Nasdaq, if applicable, in accordance with their requirements, of the
transactions contemplated by this Agreement and the Registration Rights
Agreement, and shall take any other action required by
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applicable law, rule or regulation for the legal and valid issuance of the
Shares to the Purchasers.
3.2 Conversion Notice. If the Company receives a Conversion Notice in the
form attached as Exhibit D duly executed by a holder of Preferred Shares then
entitled to convert such shares to Common Stock and accompanied by the
certificate or certificates representing such Preferred Shares and such other
documents as may be required by the Company in accordance with the Designation
of Rights and Preferences, then, unless the Preferred Shares are redeemed by the
Company pursuant to the Designation of Rights and Preferences, the Company shall
cause its transfer agent to issue certificates for the Conversion Shares to the
holder within five business days after such receipt.
3.3 Registration and Listing. The Company will cause its Common Stock to
continue to be registered under Sections 12(b) or 12(g) of the Exchange Act,
will comply in all respects with its reporting and filing obligations under the
Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to the Registration Rights Agreement and will not take
any action or file any document (whether or not permitted by the Securities Act
or the rules promulgated thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said Acts,
except as permitted herein. The Company will take all action necessary to
continue the quotation or trading of its Common Stock on the Nasdaq system and
will comply in all material respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the NASD and the Nasdaq system.
3.4 Inspection Rights. The Company shall permit, during normal business
hours and upon no less than 5 days' written notice, each Purchaser or any
employees, agents or representatives thereof, so long as such Purchaser shall be
obliged hereunder to purchase the Preferred Shares or shall beneficially own
Preferred Shares or Shares that, in the aggregate, represent more than 5% of the
total combined voting power of all voting securities then outstanding, to visit
and inspect the properties, assets, operations and business of the Company and
any Subsidiary, and to discuss the affairs, finances and accounts of the Company
and any Subsidiary with any of its officers, consultants, directors, and key
employees, subject to appropriate confidentiality obligations.
3.5 Reporting Requirements. The Company shall furnish the following to each
Purchaser so long as such Purchaser shall be obliged hereunder to purchase the
Preferred Shares or shall beneficially own Preferred Shares:
(a) Quarterly Reports filed with the Commission on Form 10-Q or Form
10-QSB, as the case may be, as soon as available, and in any event within 50
days after the end of each of the first three fiscal quarters of the Company;
and
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(b) Annual Reports filed with the Commission on Form 10-K or Form 10-
KSB, as the case may be, as soon as available, and in any event within 95 days
after the end of each fiscal year of the Company.
3.6 Other Agreements. The Company shall not enter into any agreement that
would materially restrict or materially impair the rights of the Purchasers
under this Agreement, the Registration Rights Agreement or the Articles, except
as otherwise permitted in such agreements and the Articles.
3.7 Rule 144; Rule 144A. The Company covenants and agrees that if the
Company fails to register the Conversion Shares by June 13, 1997 under the terms
and conditions of the Registration Rights Agreement that, for so long as any of
the Shares remain outstanding and continue to be "restricted securities" within
the meaning of Rule 144 under the Securities Act, the Company shall make
available to any Purchaser who is a "qualified institutional buyer" within the
meaning set forth in Rule 144A(a) under the Securities Act, in connection with
any sale thereof, the information required by Rule 144A(d)(4) under the
Securities Act to permit resales of the Conversion Shares pursuant to Rule 144A.
3.8 Regulation S. The Company covenants and agrees that if the Company
fails to register the Conversion Shares by June 13, 1997 under the terms and
conditions of the Registration Rights Agreement that, for so long as any of the
Shares remain outstanding and continue to be "restricted securities" within the
meaning of Rule 144 under the Securities Act, the Company shall, to permit
resales of the Conversion Shares pursuant to Regulation S under the Securities
Act, (i) continue to file all material required to be filed pursuant to Sections
13(a) or 15(d) of the Exchange Act and (ii) not knowingly engage in directed
selling efforts in connection with the resale of securities by any Purchaser
under Regulation S.
3.9 Use of Proceeds. The proceeds from the sale of the Preferred Shares
will be used by the Company and its Subsidiaries primarily for (i) new
manufacturing equipment to support growth, allocated primarily to Pacific Coast
Technologies, Inc. in the electronics division and Cashmere Manufacturing Co.,
Inc. in the aerospace division, (ii) acquisitions, and (iii) working capital
purposes.
3.10 Right of First Refusal. The Company agrees that, for a period of one
year from the date of this Agreement, it will not issue in any capital-raising
transaction any series of preferred shares having rights senior to or equal to
the Preferred Shares with respect to the distribution of assets on liquidation,
dissolution, or winding up without giving each Purchaser at least twenty days'
prior notice of such issuance. For ten days after the receipt of such notice,
each Purchaser shall have a right of first refusal, exercisable by written
notice to the Company, to purchase in such offering that number of such shares,
at a purchase price per share equal to the proposed purchase price in such
offering, that have a total purchase price up to the purchase price paid by such
Purchaser for the Preferred Shares purchased by it hereunder. This right of
first refusal shall otherwise be subject to all of the same terms and conditions
of such offering. If a Purchaser does not timely give notice of its intent to
exercise such right of first refusal, the
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Purchaser's right of first refusal shall be deemed to have terminated and
Company may proceed to issue all such shares to other purchasers, free and clear
of such right of first refusal, at a price not less than that offered to the
Purchaser. However, this right of first refusal shall not apply to the issuance
by the Company in a public or private offering of shares of (i) common stock;
(ii) debt securities; or (iii) the first issuance by the Company after the
Closing of preferred stock in an amount yielding gross proceeds to the Company
of up to $5,000,000.
ARTICLE IV.
Conditions
4.1 Conditions Precedent to the Obligation of the Company to Sell the
Shares. The obligation hereunder of the Company to issue and/or sell the
Preferred Shares to the Purchasers is subject to the satisfaction or waiver, at
or before the Closing, of each of the conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties. Each
of the representations and warranties of the Purchasers shall be true and
correct in all material respects as of the date made and as of the Closing as
though made at that time, and the Company shall have received a certificate from
each Purchaser to that effect.
(b) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all material
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Purchaser at or prior to the Closing and the
Company shall have received a certificate from each Purchaser to that effect.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement.
(d) No Proceedings or Litigation. No action, suit, investigation or
proceeding before or by any arbitrator or any governmental authority shall have
been commenced or threatened against the Company or any Subsidiary, or any of
the officers, directors or affiliates of the Company or any Subsidiary, seeking
to restrain, prevent or change the transactions contemplated by this Agreement
or the Registration Rights Agreement, or seeking damages in connection with such
transactions.
(e) Opinion of Counsel; Closing Documents. At the Closing, the Company
shall have received an opinion of counsel to each of the Purchasers, in the form
of Exhibit E
15
<PAGE>
hereto and such other certificates and documents as the Company and its counsel
shall reasonably require incident to the Closing.
(f) Purchase Price. At the Closing, the Company shall have received
payment of the purchase price for the Preferred Shares.
(g) Minimum Purchase. Under the terms and conditions of this
Agreement, the Company shall make sales of the Preferred Shares to the
Purchasers resulting in gross proceeds of $5,000,000 to the Company, less fees
and legal expenses payable to Pacific Continental Securities Corporation
pursuant to a written agreement outlining said fees.
4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase
the Shares. The obligation hereunder of each Purchaser to acquire and pay for
the Preferred Shares is subject to the satisfaction or waiver, at or before the
Closing, of each of the conditions set forth below. These conditions are for
each Purchaser's sole benefit and may be waived by such Purchaser at any time in
its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company shall be true and correct in
all material respects as of the date made and as of the Closing as though made
at that time (except for representations and warranties that speak as of a
particular date), and the Purchasers shall have received a certificate from the
Company to that effect.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing, and the Purchasers shall have
received a certificate from the Company to that effect.
(c) No Suspension, etc. From the date hereof to the Closing Date,
trading in the Company's Common Stock shall not have been suspended by the
Commission or Nasdaq (except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated prior to
Closing), and, at any time from the date hereof to the Closing, trading in
securities generally as reported by Nasdaq shall not have been suspended or
limited or minimum prices shall not have been established on securities whose
trades are reported by Nasdaq, nor shall trading in securities on the New York
Stock Exchange have been suspended nor minimum prices established on the New
York Stock Exchange, nor shall a banking moratorium have been declared either by
the United States or New York State authorities, nor shall there have occurred
any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in, any financial market that, in each case, in the
reasonable judgment of such Purchaser, makes it impracticable or inadvisable to
purchase the Shares.
16
<PAGE>
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement.
(e) No Proceedings or Litigation. No action, suit, investigation or
proceeding before or by any arbitrator or any governmental authority shall have
been commenced or threatened against the Company or any Subsidiary, or any of
the officers, directors or affiliates of the Company or any Subsidiary, seeking
to restrain, prevent or change the transactions contemplated by this Agreement
or the Registration Rights Agreement, or seeking damages in connection with such
transactions.
(f) Designation of Rights and Preferences. The Amendment to the
Articles containing the Designation of Rights and Preferences shall have been
filed with the Secretary of State of Washington.
(g) Opinion of Counsel; Closing Documents. At the Closing, the
Purchasers shall have received an opinion of Stoel Rives LLP, counsel to the
Company, dated the date of Closing, in the form of Exhibit F hereto and such
other certificates and documents as the Purchasers and their counsel shall
reasonably require incident to the Closing.
(h) Registration Rights Agreement. At the Closing the Company shall
have executed and delivered the Registration Rights Agreement to each Purchaser.
ARTICLE V.
Registration Rights
At the Closing, the Company and the Purchasers shall enter into the
Registration Rights Agreement.
ARTICLE VI.
Stock Certificate Legend
Each certificate representing the Shares, and, if appropriate, any
securities issued upon conversion thereof, shall be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required by applicable state securities or "blue sky" or other laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
17
<PAGE>
REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAWS, OR
PACIFIC AEROSPACE & ELECTRONICS, INC. (THE "COMPANY") SHALL HAVE RECEIVED
AN OPINION OF COUNSEL ACCEPTABLE TO IT THAT REGISTRATION OF SUCH SECURITIES
UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to cause its transfer agent to reissue certificates
representing the Shares, without the legend set forth above, if prior to making
any transfer of any Shares, the holder thereof shall give written notice to the
Company describing the manner and terms of the proposed transfer and providing
the Company with such other information as the Company may reasonably request
and: (a) the Company has notified such holder that either (i) in the opinion of
Company counsel, the registration of such Shares under the Securities Act is not
required in connection with such proposed transfer; or (ii) a registration
statement under the Securities Act covering such proposed disposition has been
filed by the Company with the Commission and has become effective under the
Securities Act; and (b) the Company has notified such holder that either: (i) in
the opinion of Company counsel, the registration or qualification under the
securities of "blue sky" laws of any state is not required in connection with
such proposed disposition; or (ii) compliance with applicable state securities
or "blue sky" laws has been effected. The Company will use its best efforts to
respond to any such notice from a holder within ten (10) days. In the case of
any proposed transfer under this Article VI, the Company will use reasonable
efforts to comply with any such applicable state securities or "blue sky" laws,
but shall in no event be required, in connection therewith, to qualify to do
business in any state where it is not then qualified or to take any action that
would subject it to tax or to the general service of process in any state where
it is not then subject. The restrictions on transfer contained in this Article
VI shall be in addition to, and not by way of limitation of, any other
restrictions on transfer contained in any other section of this Agreement.
ARTICLE VII.
Termination
7.1 Termination by Mutual Consent. This Agreement may be terminated at any
time prior to the Closing by the mutual written consent of the Company and the
Purchasers.
7.2 Other Termination. This Agreement may be terminated by the action of
the Board of Directors of the Company or by any one or more of the Purchasers at
any time, prior to the Closing if the Closing shall not have been consummated
within 30 days after execution of this Agreement.
7.3 Effect of Termination. In the event of termination by the Company or
any one or more of the Purchasers, written notice thereof shall forthwith be
given to the other parties and the transactions contemplated by this Agreement
and the Registration Rights Agreement shall be terminated, without further
action by either party. If this Agreement is terminated as provided
18
<PAGE>
in Sections 7.1 or 7.2 this Agreement shall become void and of no further force
and effect, except for Sections 9.1, 9.2 and Article 8.
ARTICLE VIII.
Indemnification
8.1 General Indemnity. The Company agrees to indemnify and hold harmless
the Purchasers (and their respective directors, officers, partners, affiliates,
agents, successors and assigns) from and against any and all claims, losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
them as a result of any breach of the representations, warranties or covenants
made by the Company herein. Each Purchaser severally but not jointly agrees to
indemnify and hold harmless the Company and its directors, officers, affiliates,
agents, successors and assigns from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys' fees, charges and disbursements) incurred by them as
result of any material breach of the representations, warranties or covenants
made by such Purchaser herein.
8.2 Indemnification Procedure. Any party entitled to indemnification under
this Article 8 (an "indemnified party") will give written notice to the
indemnifying party of any matters giving rise to a claim for indemnification;
provided that the failure of any party entitled to indemnification hereunder to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under this Article 8 except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. Notwithstanding
anything else in this paragraph, no party shall have a claim for indemnification
hereunder if the indemnifying party has not been given notice by the indemnified
party of the claim by the date that is one year after the earlier of (i) the
effective date of the registration statement filed by the Company pursuant to
the Registration Rights Agreement or (ii) the date that the party seeking
indemnification ceases to hold Preferred Shares or Conversion Shares. If any
action, proceeding or claim is brought against an indemnified party in respect
of which indemnification is sought hereunder, the indemnifying party shall be
entitled to participate in and, unless in the reasonable judgment of the
indemnified party a conflict of interest between it and the indemnifying party
may exist in respect of such action, proceeding or claim, to assume the defense
thereof, with counsel reasonably satisfactory to the indemnified party. If the
indemnifying party advises an indemnified party that it will contest such a
claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the indemnified party may, at its option, defend,
settle or otherwise compromise or pay such action or claim. In any event, unless
and until the indemnifying party elects in writing to assume and does so assume
the defense of any such claim, proceeding or action, the indemnified party's
costs and expenses arising out of the defense, settlement or compromise of any
such action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party
19
<PAGE>
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim. The indemnifying party shall
furnish to the indemnifying party all information reasonably available to the
indemnified party that relates to such action or claim. The indemnifying party
shall keep the indemnified party fully apprised at all times as to the status of
the defense or any settlement negotiations with respect thereto. If the
indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. Notwithstanding anything in this
Article 8 to the contrary, the indemnifying party shall not, without the
indemnified party's prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof that imposes any future
obligation on the indemnified party or that does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party, a release from all liability in respect of such claim. The
indemnification required by this Article 8 shall be made by periodic payments of
the amount thereof during the course of investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred so long as
the indemnified party irrevocably agrees to refund such moneys if it is
ultimately determined by a court of competent jurisdiction that such party was
not entitled to indemnification. The indemnity agreements contained herein shall
be in addition to (a) any cause of action or similar rights of the indemnified
party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE IX.
Miscellaneous
9.1 Fees and Expenses. Except as otherwise set forth in the Registration
Rights Agreement or the Designation of Rights and Preferences, each party shall
pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement,
provided that the Company shall pay, at the Closing, all due diligence fees and
attorneys' fees and expenses incurred by Pacific Continental Securities
Corporation, up to the maximum stated in the final letter agreement dated
February 13, 1997, between the Company and Pacific Continental Securities
Corporation.
9.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur if any of the provisions of this Agreement or the
Registration Rights Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
material breaches of the provisions of this Agreement or the Registration Rights
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
20
<PAGE>
(b) Each of the Company and the Purchasers (i) hereby irrevocably
submits to the jurisdiction of the United States District Court and other courts
of the United States sitting in King County, Washington for the purposes of any
suit, action or proceeding arising out of or relating to this Agreement or the
Registration Rights Agreement and (ii) hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper.
9.3 Entire Agreement; Amendment. This Agreement (including the Exhibits and
Schedules hereto) contains the entire understanding of the parties with respect
to the matters covered hereby and, except as specifically set forth herein
(including the Exhibits and Schedules hereto) or in the Registration Rights
Agreement or the Designation of Rights and Preferences, neither the Company nor
any of the Purchasers makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by a written instrument signed by (i) the Company,
if enforcement of any such amendment or waiver is sought against the Company;
(ii) an individual Purchaser, if enforcement of an amendment or waiver is sought
solely with respect to such Purchaser; or (iii) the Purchasers of two-thirds of
all of the Preferred Stock, if enforcement of an amendment or waiver is sought
with respect to all of the Purchasers.
9.4 Notices. Any notice, demand, request, waiver or other communication
required to permitted to be given hereunder shall be in writing and shall be
effective (a) upon hand delivery or by confirmed facsimile transmission at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received), or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur, or (c) three days after mailed by certified or
registered U.S. mail. The addresses for such communications shall be:
If to the Company: Donald A. Wright
Pacific Aerospace & Electronics, Inc.
434 Olds Station Road
Wenatchee, Washington 98801
Fax: (509) 664-6868
with copies to: Sheryl A. Symonds
Stoel Rives LLP
One Union Square
600 University Street, Suite 3600
Seattle, Washington 98101-3197
Fax: (206) 386-7500
21
<PAGE>
If to any Purchasers: At the address of such Purchaser set forth on
Exhibit A to this Agreement, with copies to
Purchaser's counsel as set forth on Exhibit A or as
specified in writing by such Purchaser
with copies to: James A. Allen
Pacific Continental Securities Corporation
8484 Wilshire Blvd., Suite 744
Beverly Hills, CA 90211
Fax: (213) 653-1262
with copies to: Lawrence I. Washor
Washor & Newman
2049 Century Park East, Suite 1100
Los Angeles, CA 90067
Fax: (310) 277-1723
Any party hereto may from time to time change its address for notices by
giving at least five (5) days' written notice of such changed address to the
other party hereto.
9.5 Waivers. No waiver by either party of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right accruing to
it thereafter.
9.6 Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
9.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. After Closing,
the assignment by a party to this Agreement of any rights hereunder shall not
affect the obligations of such party under this Agreement.
9.8 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by any other person.
9.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF WASHINGTON, WITHOUT GIVING
EFFECT TO THE CHOICE OF LAW PROVISIONS.
22
<PAGE>
9.10 Survival. The representations and warranties of the Company and the
Purchasers contained in Article II shall survive the execution and delivery
hereof and the Closing until the date that is one year from the earlier of (i)
the effective date of the registration statement filed by the Company pursuant
to the Registration Rights Agreement or (ii) the date that the party seeking
indemnification ceases to hold Preferred Shares or Conversion Shares, and the
agreements and covenants set forth in Articles I, III, V, and VIII of this
Agreement shall survive the execution and delivery hereof and the Closing
hereunder until the registration statement required by Section 2.2 of the
Registration Rights Agreement is no longer required to be effective under its
terms and conditions.
9.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. If any signature is delivered by
facsimile transmission, the party using such means of delivery shall cause four
additional executed signature pages to be physically delivered to the other
parties within five days after the execution and delivery hereof; provided that
failure to transmit such original signature pages shall not invalidate that
party's signature.
9.12 Publicity. The Company agrees that, without the consent of each
Purchaser, it will not disclose, and will not include in any public
announcement, the name of such Purchaser, unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
9.13 Severability. The provisions of this Agreement, the Designation of
Rights and Preferences and the Registration Rights Agreement are severable and,
if any court of competent jurisdiction shall determine that any one or more of
the provisions or part of a provision contained in this Agreement, the
Designation of Rights and Preferences or the Registration Rights Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, the Designation of
Rights and Preferences or the Registration Rights Agreement shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or part
of a provision, had never been contained herein, and such provisions or part
reformed so that it would be valid, legal and enforceable to the maximum extent
possible.
9.14 Further Assurances. From and after the date of this Agreement, upon
the request of any Purchaser or the Company, each of the Company and the
Purchasers shall execute and deliver such instrument, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer or other agent as of the
date hereof.
THE COMPANY:
PACIFIC AEROSPACE &
ELECTRONICS, INC.
By DONALD A. WRIGHT
---------------------------------
Donald A. Wright
President and Chief Executive Officer
24
<PAGE>
AG SUPER FUND INTERNATIONAL
PARTNERS, L.P.
By Angelo, Gordon & Co., L.P.
Its General Partner
By MICHAEL L. GORDON
---------------------------------
Michael L. Gordon
Chief Operating Officer
GAM ARBITRAGE INVESTMENTS,
INC.
By Angelo, Gordon & Co., L.P.
Investment Advisor
By MICHAEL L. GORDON
---------------------------------
Michael L. Gordon
Chief Operating Officer
PARESCO, INC. THE CHERYL STROME LIVING TRUST
DATED 11/26/96
By SAM BOHRA By CHERYL STROME
--------------------------------- -----------------------------------
Its Chief Financial Officer Cheryl Strome, Trustee
--------------------------------
STROME GLOBAL INCOME FUND STROME PARTNERS, L.P.
By JEFF LAMBERT By JEFF LAMBERT
--------------------------------- -----------------------------------
Its Director Its CFO of its General Partner
-------------------------------- ----------------------------------
STROME OFFSHORE, LTD. STROME SUSSKIND HEDGECAP, L.P.
By JEFF LAMBERT By JEFF LAMBERT
--------------------------------- -----------------------------------
Its Director Its CFO of its General Partner
-------------------------------- ----------------------------------
25
<PAGE>
STROME FAMILY FOUNDATION MARK STROME, IRA
By JEFF LAMBERT By MARK STROME
--------------------------------- -----------------------------------
Its Secretary
--------------------------------
26
<PAGE>
LEONARDO, L.P.
By Angelo, Gordon & Co., L.P.
Its General Partner
By MICHAEL L. GORDON
---------------------------------
Michael L. Gordon
Chief Operating Officer
27
<PAGE>
[EXHIBITS AND SCHEDULES OMITTED AS NOT MATERIAL]
February 10, 1997
Mr. Alan Hare
President
Northwest Technical Industries, Inc.
547 Diamond Point Road
Sequim, WA 98382
Re: Proposed Purchase of Assets of Northwest Technical Industries
Dear Alan:
The purpose of this letter is to outline the manner in which Pacific
Aerospace & Electronics, Inc., a Washington corporation ("PA&E"), through a
wholly owned subsidiary to be formed ("Buyer"), proposes to acquire
substantially all of the assets of Northwest Technical Industries, Inc., a
Washington corporation (the "Company").
The parties recognize that the transaction will require further
documentation and approvals, including the preparation and approval of a formal
agreement setting forth the terms and conditions of the proposed purchase (the
"Purchase Agreement"). Nevertheless, the parties execute this letter to evidence
their intention to proceed in mutual good faith to negotiate terms of a Purchase
Agreement that are consistent with this letter.
The proposed terms and conditions include, but are not limited to, the
following:
1. Purchase of Assets. Buyer would purchase substantially all of the assets of
both divisions of the Company, whether real or personal property, and whether
tangible or intangible, and would assume certain of the Company's liabilities to
be mutually agreed upon by Buyer and the Company. As consideration therefor,
Buyer and PA&E would pay to the Company the following:
(a) Cash. $1 million would be paid in cash or other immediately available
funds at the closing of the proposed transaction.
(b) Stock. 246,154 newly issued unregistered shares of common stock of PA&E
(the "Shares"), would be issued to the Company on the closing date.
<PAGE>
Mr. Alan Hare
February 10, 1997
Page 2
2. Access.
(a) PA&E and Buyer. To permit PA&E and Buyer to conduct their due diligence
investigation, as long as this letter remains in effect, the Company will permit
PA&E, Buyer and their agents to have reasonable access to the premises in which
the Company conducts its business and to all of its books, records, and
personnel files and will furnish to PA&E and Buyer such financial data,
operating data, and other information as they shall reasonably request.
(b) The Company. To permit the Company to conduct its due diligence
investigation, as long as this letter remains in effect, PA&E will provide the
Company and its agents with access to any of its public filings with the
Securities & Exchange Commission, will permit the Company and its agents to have
reasonable access to the premises in which the Company conducts its business,
and will furnish to Seller such financial data, operating data, and other
information as Seller shall reasonably request.
(c) Confidentiality. Buyer, PA&E and the Company agree to retain all
information obtained pursuant to this paragraph 2 on a confidential basis and to
enter into a separate confidentiality agreement (the "Confidentiality
Agreement") with respect to such information. Upon the termination of this
letter for any reason, in addition to any other duties contained in the
Confidentiality Agreement, each party shall return promptly to the other all
printed information received by it in connection with the proposed transaction.
3. Conditions to Closing. The closing of the transaction would be subject to
certain conditions, including without limitation the following:
(a) Definitive Agreement. Buyer, PA&E and the Company must have prepared
and executed a definitive Purchase Agreement with terms satisfactory to all
parties, containing provisions not inconsistent with the basic understanding set
forth in this letter. The Purchase Agreement shall also contain representations,
warranties, covenants, conditions, and indemnification provisions customary in
transactions of this type, including without limitation provisions as to matters
such as financial condition, taxes, title to assets, and absence of material
damage, litigation, new obligations, environmental liabilities, or similar
matters (except liabilities accepted by Buyer).
(b) Audit. If PA&E and its independent accountants determine that it is
necessary or appropriate, the Company shall have permitted the audit of its
financial statements for the most recent three fiscal years, or such shorter
period as may be appropriate, by an independent public accounting firm
satisfactory to Buyer.
<PAGE>
Mr. Alan Hare
February 10, 1997
Page 3
(c) Corporate Approval. The transaction shall have been approved by the
Boards of Directors of Buyer, PA&E and the Company, and by the shareholders of
the Company.
(d) Government Approval. Any required approvals, consents and
authorizations of state and federal regulatory authorities shall have been
received.
(e) Consents. Any required consents of third parties shall have been
obtained.
(f) Due Diligence. Buyer and the Company shall have completed their
respective due diligence reviews of the assets and business of the other
satisfactory to each of them in its sole discretion.
(g) Environmental Assignment. If it elects to do so, PA&E shall have
obtained an environmental assessment of the Company's real property, and the
results of the assessment shall be acceptable to PA&E.
4. News Release; Confidentiality. Except as otherwise required by law, neither
Buyer, PA&E, nor the Company, nor any person affiliated with any of them, will
issue or approve a news release or other announcement concerning the transaction
without the prior approval of the other party as to the contents of the
announcement and its release. Except as otherwise required by law or as agreed
by the parties, the existence and terms of this letter will be confidential.
5. Negotiations with Others. Until such time as a Purchase Agreement has been
executed or this letter has been terminated, neither the Company nor any person
affiliated with the Company will solicit or entertain any offers for the
purchase of the stock or assets of the Company or for a merger or other similar
transactions.
6. Conduct of Business; Interim Operations. During the preparation of a
Purchase Agreement and through the closing, the Company will conduct its
business in a reasonable and prudent manner in accordance with past practices,
and will use its best efforts to preserve its existing business and
relationships with its employees, customers, suppliers, and others, to preserve
and protect its properties, and to conduct its business in compliance with all
applicable laws and regulations. The Company will not make any material
divestitures of assets, will make no distributions or dividend payments to
shareholders, and will not engage in any long-term borrowings.
<PAGE>
Mr. Alan Hare
February 10, 1997
Page 4
7. Related Agreements.
(a) Employment Agreements; Covenant Not to Compete. Buyer and Alan Hare
would enter into an employment agreement at closing, pursuant to which Buyer
would employ Mr. Hare on a part-time basis for two years from closing for a
salary of $60,000 per year. The employment agreement would also provide that Mr.
Hare would receive options to purchase PA&E's common stock as follows:
<TABLE>
<CAPTION>
No. of Shares
Subject to Condition for Grant of
Option Date of Grant Option
------------- ------------- ----------------------
<S> <C> <C>
6,250 after 6/1/98 Buyer's sales exceed
$3.5 million for fiscal
year ending 5/31/98.
6,250 after 6/1/98 Buyer's profit exceed 5%
of sales for fiscal year
ending 5/31/98.
6,250 after 6/1/99 Buyer's sales exceed
$5 million for fiscal year
ending 5/31/99.
6,250 after 6/1/99 Buyer's profit exceed 5%
of sales for fiscal year
ending 5/31/99.
</TABLE>
Mr. Hare will agree that he will not, directly or indirectly, through a
subsidiary or otherwise, compete with Buyer or any of its subsidiaries during
the term of the employment agreement or for a period of three years after
termination of his employment thereunder. In addition, Buyer may enter into
employment agreements with certain key employees of the Company.
(b) Right of First Refusal. Buyer and the Company would enter into an
agreement providing to the Company a right of first refusal to purchase the real
property that would be transferred to Buyer in the transaction contemplated in
this letter, at any time, within five years after the closing date, that Buyer
elects to sell the real property.
<PAGE>
Mr. Alan Hare
February 10, 1997
Page 5
8. Closing Date. The closing date under the Purchase Agreement will be on a
date to be mutually agreed by Buyer and the Company, upon satisfaction or waiver
of each condition to closing set forth in the Purchase Agreement. The parties
currently contemplate that the closing date would be on or about April 30, 1997.
9. Brokers' Fees. Neither the Company, PA&E, nor Buyer has entered into or
authorized any arrangements with any broker, finder, or investment banker that
will result in payment of a fee in connection with this transaction, except that
the Company has agreed to pay a fee to Mr. Ed Worrall, which will be paid by the
Company at closing out of the cash portion of the purchase price.
10. Effect of this Letter. This letter sets forth the intent of the parties
only, is not binding on the parties, and may not be relied on as the basis for a
contract by estoppel or be the basis for a claim based on detrimental reliance
or any other theory; provided that paragraphs 4 and 5, the confidentiality and
document return provisions of paragraph 2, and this paragraph 10 will be
enforceable in accordance with their terms. With the exception of paragraphs 2,
4, 5 and this paragraph 10, the parties understand that no party shall be bound
unless and until a Purchase Agreement has been negotiated, executed, and
delivered and has been approved by the Boards of Directors of Buyer and the
Company and the shareholders of the Company.
11. Termination of Negotiations. This letter may be terminated at any time by
either party giving written notice to the other. After notice is given, the
parties shall be bound only by paragraphs 4, 5 and 10, and the confidentiality
and document return provisions of paragraph 2.
12. Entire Agreement; Expenses. This letter, when executed, supersedes any
prior discussions concerning the transactions contemplated herein. The Company,
PA&E and Buyer shall each be responsible for payment of their own expenses with
respect to the negotiation of this letter, negotiation and execution of the
Purchase Agreement, and closing of the transactions contemplated herein.
<PAGE>
Mr. Alan Hare
February 10, 1997
Page 6
If this letter sets forth your intent to proceed in good faith
substantially in the manner outlined in this letter, please sign a copy of this
letter and return it to PA&E. This letter of intent shall be of no further force
and effect if it is not signed and returned to PA&E by the close of business on
February 12, 1997.
Very truly yours,
PACIFIC AEROSPACE & ELECTRONICS, INC.
By: DONALD A. WRIGHT
---------------------------------
Donald A. Wright, President
Accepted and agreed to:
Date: ____________________, 1997
NORTHWEST TECHNICAL INDUSTRIES, INC.
By: ALAN HARE
--------------------------------
Alan Hare, President
FOR IMMEDIATE RELEASE
- ---------------------
Contact: Donald A. Wright, President/CEO
Nick A. Gerde, Vice President/CFO
Phone: (509) 664-8000 Fax: (509) 664-6868
Richmont Consulting International
Edda Brown, President
Phone: (213) 658-8088 Fax: (213) 658-9075
PACIFIC AEROSPACE & ELECTRONICS ANNOUNCES
A PROPOSED ACQUISITION AND AN EQUITY PRIVATE
PLACEMENT
Wenatchee, Washington, March 1, 1997. Pacific Aerospace & Electronics, Inc.
(NASDAQ: "PCTH" and "PCTHW") announced today that it has signed a letter of
intent to acquire all of the assets of Northwest Technical Industries, Inc
("NTI") of Sequim, Washington. The transaction is valued at approximately $2.0
million in cash and common stock. NTI manufactures explosively formed and clad
dissimilar metals. It is currently a key supplier to the Electronics Group of
the Company. President & CEO Don Wright said: "The NTI acquisition is part of
our strategy to vertically integrate our technologies and production
capabilities. We are very fortunate to have the opportunity to acquire a company
like NTI that is both profitable and growing. We look forward to welcoming NTI
President, Alan Hare, and his staff to the Pacific Aerospace & Electronics
family, and we anticipate no significant changes in management or staffing at
NTI after the closing."
In conjunction with this acquisition agreement, the Company also announced that
it has just completed a private placement of a new series of convertible
preferred stock with gross proceeds to the Company of $5.0 million. President &
CEO Don Wright stated: "We are currently seeing growth across all of our market
segments, and the Company is enjoying a record backlog of over $35 million. This
placement of equity allows us to continue to support that growth. The proceeds
of the offering will be allocated primarily towards strategic acquisitions like
NTI, additional capital equipment and facilities expansion."
<PAGE>
Pacific Aerospace & Electronics, Inc. develops, manufactures, markets and sells
a broad range of precision components and electronic assemblies designed to
operate with a high degree of reliability in harsh environments such as the
ocean, space and the human body, incorporating the Company's proprietary and
patented technologies. The Company has two operating groups in the aerospace and
electronics industries. Markets served by the Company include the aerospace,
space, defense, medical, energy, transportation and general electronics
industries. The Company's common stock trades on the NASDAQ National Market
System under symbol "PCTH," and its warrants trade under the symbol "PCTHW."
