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Exhibit 2.1
STOCK PURCHASE AGREEMENT
between
SANDRA L. DAVIS, ROBERT W. DAVIS
and
PACIFIC AEROSPACE & ELECTRONICS, INC.
Dated as of June 1, 1999
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TABLE OF CONTENTS
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SECTION 1 PURCHASE AND SALE OF SHARES....................................... 1
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1.1 Shares............................................................. 1
1.2 Purchase Price..................................................... 1
1.3 Closing............................................................ 1
1.3.1 Sellers' Deliveries............................................. 1
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1.3.2 Buyer's Deliveries.............................................. 2
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1.3.3 Effective Date.................................................. 2
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1.4 Further Assurances................................................. 2
SECTION 2 REPRESENTATIONS AND WARRANTIES OF SELLERS........................ 2
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2.1 Corporate Existence................................................ 3
2.2 Authority.......................................................... 3
2.3 Capitalization..................................................... 3
2.4 Consents........................................................... 3
2.5 No Violation....................................................... 3
2.6 Financial Statements............................................... 3
2.7 Books and Records.................................................. 4
2.8 Taxes.............................................................. 4
2.9 Absence of Indebtedness and Other Obligations...................... 4
2.10 Assets............................................................. 4
2.10.1 Real Property.................................................... 4
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2.10.2 Personal Property................................................ 4
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2.10.3 Inventories...................................................... 5
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2.10.4 Contracts........................................................ 5
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2.10.5 Intellectual Property Rights..................................... 5
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2.10.6 Accounts Receivable.............................................. 6
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2.10.7 Customer and Supplier Lists...................................... 6
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2.11 Compliance......................................................... 6
2.12 Certain Interests.................................................. 6
2.13 Employment Matters................................................. 6
2.14 Labor Matters...................................................... 7
2.15 Environmental Matters.............................................. 7
2.16 Insurance.......................................................... 8
2.17 Litigation......................................................... 8
2.18 Letters of Credit and Powers of Attorney........................... 8
2.19 Banks.............................................................. 8
2.20 Y2K Compliance..................................................... 8
2.21 Brokers............................................................ 8
2.22 Reliance........................................................... 8
2.23 Undisclosed Liabilities............................................ 8
2.24 Absence of Certain Changes or Events............................... 9
2.24.1 Adverse Changes.................................................. 9
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2.24.2 Dividends........................................................ 9
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2.24.3 Damage........................................................... 9
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2.24.4 Increased Compensation........................................... 9
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2.24.5 Expenditures..................................................... 9
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2.24.6 Accounting Changes............................................... 9
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2.24.7 Sales of Stock................................................... 9
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2.24.8 Options.......................................................... 9
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2.24.9 Business Not in the Ordinary Course............................. 10
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2.24.10 Acquisitions or Sales........................................... 10
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2.24.11 Liabilities..................................................... 10
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2.24.12 Encumbrances.................................................... 10
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2.24.13 Adverse Changes................................................. 10
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2.25 Disclosure.......................................................... 10
2.26 Knowledge........................................................... 10
SECTION 3 REPRESENTATIONS AND WARRANTIES OF BUYER.......................... 10
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3.1 Authorization....................................................... 10
3.2 Consents............................................................ 11
3.3 No Violations....................................................... 11
3.4 Investment Intent................................................... 11
3.5 Brokers............................................................. 11
SECTION 4 SURVIVAL; INDEMNIFICATION........................................ 11
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4.1 Survival........................................................... 11
4.2 Indemnifications by Seller......................................... 11
4.3 Indemnification by Buyer............................................ 12
4.4 Indemnification Period.............................................. 12
4.5 Threshold Amount.................................................... 12
4.6 Indemnification Procedures.......................................... 12
4.6.1 Claim Notice.................................................... 12
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4.6.2 Third-Party Claims.............................................. 12
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4.6.3 Claims Other Than Third-Party Claims............................ 13
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SECTION 5 OTHER PROVISIONS................................................. 13
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5.1 Expenses............................................................ 13
5.2 Assignment; Benefit................................................. 13
5.3 Amendment; Waiver................................................... 13
5.4 Severability........................................................ 13
5.5 Governing Law....................................................... 13
5.6 Independent Counsel................................................. 14
5.7 Notices............................................................. 14
5.8 Attorneys' Fees..................................................... 14
5.9 Entire Agreement.................................................... 14
5.10 Counterparts........................................................ 14
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Exhibits
A Employment Agreement
Schedules
Sellers:
2.4 Consents
2.5 No Violations
2.9 Indebtedness and Other Obligations
2.10.1 Real Property
2.10.2 Personal Property
2.10.4 Contracts
2.10.6 Accounts Receivable
2.10.7 Customer and Supplier Lists
2.11 Compliance
2.12 Certain Interests
2.13 Employment Matters
2.14 Labor Matters
2.15 Environmental Matters
2.17 Litigation
2.19 Banks
2.20 Y2K Compliance
2.24 Certain Changes or Events
Buyer:
3.2 Consents
4.3 Indemnification by Buyer
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STOCK PURCHASE AGREEMENT
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THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into as of June 1,
1999, by and between SANDRA L. DAVIS (the "Shareholder") and ROBERT W. DAVIS
("R. Davis"), and PACIFIC AEROSPACE & ELECTRONICS, INC., a Washington
corporation ("Buyer"). R. Davis and the Shareholder are husband and wife and are
referred to together in this Agreement as the "Sellers."
RECITALS
A. The Shareholder desires to sell, and Buyer desires to purchase, all of
the issued and outstanding shares (the "Shares") of capital stock of Skagit
Engineering & Manufacturing Inc., a Washington corporation (the "Company"), on
the terms and conditions set forth in this Agreement.
B. R. Davis is the President and CEO of the Company and the Shareholder
is an officer and the sole shareholder of the Company.
AGREEMENT
In consideration of the covenants in this Agreement, the parties agree as
follows:
Section 1
Purchase and Sale of Shares
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1.1 Shares. Simultaneously with the execution and delivery of this
Agreement, the Shareholder hereby sells and transfers the Shares to Buyer, and
Buyer hereby purchases the Shares from the Shareholder.
1.2 Purchase Price. The purchase price for the Shares, which is being paid
by Buyer to the Shareholder by wire transfer simultaneously with the execution
of this Agreement, is $1.3 million (the "Purchase Price").
1.3 Closing. The Closing of the purchase and sale provided for in this
Agreement (the "Closing") is taking place at the offices of Buyer at 110 Main
Street, Suite 100, Edmonds, Washington, at 10:00 a.m. on Wednesday, June 2, 1999
(the "Closing Date").
1.3.1 Sellers' Deliveries. At the Closing, Sellers are delivering to
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Buyer:
(a) a certificate or certificates representing all of the
Shares, accompanied by stock powers duly executed by the
Shareholder, for transfer to Buyer;
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(b) an employment agreement in the form of Exhibit A, executed
by R. Davis (the "Employment Agreement");
(c) a certificate executed by each of Sellers, warranting that
each of Seller's representations and warranties in this
Agreement is accurate in all respects as of the Closing
Date;
(d) the Company's original Articles of Incorporation, Bylaws,
minute books and stock records;
(e) any consents required to be obtained to effect this
transaction;
(f) a certificate of existence from the Secretary of State of
the State of Washington, dated within one week prior to the
Closing Date;
(g) evidence that the relationship between the Company and The
Jake-Meyer Corporation ("Jake") has been terminated and that
the Company has returned all items requested by Jake and has
no further obligations to Jake; and
(g) such other documents as Buyer's counsel may reasonably
require.
1.3.2 Buyer's Deliveries. At the Closing, Buyer is delivering to
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Sellers:
(a) the Purchase Price, by wire transfer to an account specified
prior to Closing by the Shareholder;
(b) the Employment Agreement, executed by Buyer;
(c) a certificate executed by an officer of Buyer, warranting
that each of Buyer's representations and warranties in this
Agreement is accurate in all respects as of the Closing
Date; and
(d) such other documents as Seller's counsel may reasonably
require.
1.3.3 Effective Date. The transaction contemplated in this Agreement
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will be effective as of 12:01 a.m. on June 1, 1999.
1.4 Further Assurances. Upon Buyer's request, and without further
consideration, Sellers will take such further actions and will execute such
further documents, on and after the Closing Date, as are reasonably necessary to
complete the transactions described in this Agreement and to comply with all
laws and regulations applicable to such transactions.
Section 2
Representations and Warranties of Sellers
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Sellers represent and warrant, jointly and severally, to Buyer that the
following are true and correct as of the date of this Agreement and as of the
Closing Date:
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2.1 Corporate Existence. The Company is a corporation, duly organized and
validly existing under the laws of the State of Washington, and the Company has
all necessary corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as now conducted and as
proposed to be conducted. The Company is qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which it owns or
leases property or does business, except in those jurisdictions where the
failure to be so qualified would not have a material adverse effect on the
Company. The Company has no subsidiaries and no partnership, joint venture or
other similar relationships with any other person or entity.
2.2 Authority. Sellers have the absolute and unrestricted power, authority
and capacity to enter into, and to carry out their obligations under, this
Agreement. Sellers have each duly executed and delivered this Agreement, and
this Agreement is a valid and binding obligation of Sellers, enforceable against
each of them in accordance with its terms.
2.3 Capitalization. The Shareholder owns 100% of the issued and
outstanding shares of capital stock of the Company, free and clear of any
pledges, security interests, liens, charges, encumbrances, equities, claims, or
options. The authorized capital stock of the Company consists of 50,000 shares
of common stock, no par value, 100 shares of which are issued and outstanding
and constitute the Shares. All of the Shares are validly issued, fully paid and
nonassessable. There is no subscription, option, warrant, preemptive right or
other right or agreement relating to the issuance, sale, delivery, or transfer
of the Company's capital stock, other than this Agreement. At the Closing, Buyer
is acquiring good title to the Shares, free and clear of all pledges, security
interests, liens, charges, encumbrances, equities, claims, options, or
limitations of any nature.
2.4 Consents. Except as set forth on Schedule 2.4, no consent or approval
by any third person or public authority is required to authorize, or is required
in connection with the sale of the Shares or the execution, delivery or
performance of this Agreement by Sellers.
2.5 No Violations. Except for any required consents set forth on Schedule
2.5, the execution and delivery of this Agreement by Sellers, and the
performance of their obligations hereunder, will not conflict with, result in
the breach of, or constitute a default under (a) the Company's Articles of
Incorporation or Bylaws; (b) any note, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which Sellers or the Company is a
party or by which Sellers or the Company is bound other than notes or loan
agreements that are to be paid by Buyer at or immediately following Closing; or
(c) any statute, order, injunction, judgment, decree, rule or regulation of any
court or regulatory authority or governmental body applicable to Sellers or the
Company.
2.6 Financial Statements. Sellers have furnished to Buyer complete and
accurate copies of (a) the Company's interim financial statements dated April
30, 1999, and (b) the Company's financial statements for the fiscal year ended
March 31, 1999 (collectively, the "Company Financial Statements"). The Company
Financial Statements (i) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods specified, and (ii) fairly present the financial condition of the
Company as of the dates specified and the results of its operations for the
periods specified, except that
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the interim financial statements have been prepared internally for management
purposes and may not conform in all respects to generally accepted accounting
principles.
2.7 Books and Records. The books of account, minute books, stock record
books, and other records of the Company, all of which have been made available
to Buyer, are complete and correct to the best of Sellers" knowledge. At the
Closing, all of the Company's books and records will be in the possession of the
Company.
2.8 Taxes. The Company has timely paid all federal, state, local or
foreign taxes, assessments, fees, imposts, levies and other charges that have
become due and payable, including without limitation all income, sales, use,
business and occupation, withholding, payroll, employment, excise or property
taxes or assessments, and interest and penalties thereon (collectively,
"Taxes"). The Company has timely filed all required returns and reports with
respect to such Taxes. The Company has not waived any statute of limitations
relating to Taxes. The Company is not subject to any dispute, audit or
proceeding regarding Taxes that might adversely affect the financial condition
of the Company.
2.9 Absence of Indebtedness and Other Obligations. Except as set forth in
the Company Financial Statements, as of the date thereof, or on Schedule 2.9,
the Company has no (a) Indebtedness (as defined below) of a material nature, or
(b) other obligations of a material nature, whether accrued, absolute,
contingent or otherwise (including without limitation liabilities as a surety or
guarantor) and whether due or to become due, including without limitation any
liabilities for Taxes. "Indebtedness" means (i) all indebtedness of the Company
for borrowed money or for the deferred purchase price of property or services,
including without limitation any indebtedness of the Company with respect to any
employee or other affiliate of the Company and any indebtedness incurred by the
Company, and (ii) any other indebtedness of the Company which is evidenced by a
note, bond, debenture or similar instrument, except indebtedness of the Company
to Buyer.
2.10 Assets.
2.10.1 Real Property. Schedule 2.10.1 sets forth a complete and
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correct description of all of the Company's interests in real property (the
"Real Property"), including but not limited to all leasehold interests and
interests as a lessor or a lessee. Except as set forth on Schedule 2.10.1,
Seller is not a party to any lease of real property, either as lessee or lessor,
and Seller owns no Real Property. Except as described on Schedule 2.10.1, all of
the Company's interests in Real Property are free and clear of all mortgages,
pledges, liens, sales agreements (conditional or otherwise), leases or other
encumbrances of any kind. The Real Property (including improvements thereon) is
in satisfactory condition and repair consistent with its present use, and is
available for immediate use in the conduct of the Company's business. To
Sellers' knowledge, neither the operations of the Company on the Real Property,
nor any improvements on the Real Property, violate any applicable building or
zoning code or regulation of any governmental authority having jurisdiction.
2.10.2 Personal Property. Sellers have provided Buyer with lists
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describing in reasonable detail the Company's tangible personal property (the
"Personal Property"), including but not limited to manufacturing and office
equipment, vehicles, inventory (whether
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raw materials, work in process, or finished goods), furniture, fixtures,
drawings, designs and blueprints, materials and supplies, and spare and
replacement parts, whether owned or leased by the Company. Except as set forth
on Schedule 2.10.2, (a) the Company is not a party to any lease of personal
property, either as lessee or lessor, (b) the Company has good and marketable
title to all of the Personal Property, free and clear of all liabilities,
claims, liens, sales agreements (conditional or otherwise), leases, or other
encumbrances of any kind, and (c) all of the Personal Property necessary for the
proper conduct of the Company's business is in good operating condition,
ordinary wear and tear excepted, free from material defects, and is sufficient
for the continued conduct of the Company's business after Closing in
substantially the same manner as conducted prior to Closing.
2.10.3 Inventories. The Company's inventories shown on the most
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recent Company Financial Statements or thereafter acquired are all items of a
quality usable or saleable in the ordinary course of the Company's business,
except for inventory items that have been written down to an amount not in
excess of realizable market value or for which adequate reserves or allowances
have been provided.
2.10.4 Contracts. Except as set forth in Schedule 2.10.4, (a) all of
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the Company's contracts, agreements, commitments, leases, licenses, purchase
orders, sales orders, and insurance policies (the "Contracts") are valid,
binding and enforceable in accordance with their terms; (b) the Company has
performed, or is now performing, its obligations, and is not in material default
(and would not by the lapse of time or the giving of notice be in material
default) under, any Contracts; (c) no party has raised any claim, dispute or
controversy or withheld payments from the Company with respect to any Contracts,
which claim, dispute, controversy or withholding of payment could, if such party
were to prevail, have a material adverse effect, either individually or in the
aggregate, on the Contracts; (d) to the knowledge of Sellers, no other party to
a Contract is in material default or has breached any material term or provision
of such Contract that has not previously been cured; and (e) the Company has not
received notice or warning of alleged nonperformance, delay in delivery or other
noncompliance with respect to any of the Contracts, nor any notice that the
other parties may totally or partially terminate any of the Contracts.
2.10.5 Intellectual Property Rights. The Company owns or has the
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right to use all intellectual property used in the conduct of the Company's
business, including without limitation patents, copyrights, trademarks, service
marks and trade names, including the exclusive right to use the name "Skagit
Engineering & Manufacturing Inc.," and all derivatives thereof; all
registrations therefor; all applications pending or allowed therefor; and all
other proprietary rights and intangible property, such as trade secrets,
technology, software, operating systems, customer and supplier lists, know-how,
formulae, slogans, processes and operating rights (the "Intellectual Property").
The Intellectual Property is free and clear of all liabilities, claims, liens,
licenses, or other encumbrances of any kind, except the License Agreement
between the Company and Buyer dated April 9, 1999 (the "License Agreement"). The
use by the Company of the Intellectual Property has not conflicted with or
infringed, and no one has asserted that such use conflicts with or infringes,
upon any proprietary rights owned, possessed or used by any third party. There
are no claims, disputes, actions, proceedings, suits or appeals pending with
respect to any of the Intellectual Property, and none has been threatened. The
Company has not licensed to others or agreed to license any
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Intellectual Property, except pursuant to the License Agreement, and the Company
has not entered into any contracts with respect thereto.
2.10.6 Accounts Receivable. Seller has furnished to Buyer a complete
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and accurate aging of the Company's Accounts Receivable as of May 31, 1999 (the
"Accounts Receivable"). Except as set forth on Schedule 2.10.6, the Accounts
Receivable (a) have arisen in the ordinary course of the Company's business; (b)
represent valid obligations due to the Company, enforceable in accordance with
their terms, except as enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally or (ii) general principles of equity
which are within the discretion of courts of applicable jurisdiction; (c) have
been collected or will be collected in the ordinary course of the Company's
business, subject only to reserves for bad debts set forth on the Company
Financial Statements, and (d) will not be subject to any recoupments, setoffs or
counterclaims.
2.10.7 Customer and Supplier Lists. Schedule 2.10.7 sets forth (a) a
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true and correct list of the Company's ten largest customers in terms of sales,
and (b) a true and correct list of the Company's ten largest suppliers, in terms
of purchases, during the 12 months ended April 30, 1999. There has not been any
material adverse change in the business relationship of the Company with any
such customer or supplier since May 31, 1998. Sellers have no reason to believe
that any such customer or supplier intends to cancel any existing orders or
materially reduce the amount of business it conducts with the Company.
2.11 Compliance. Schedule 2.11 sets forth all governmental permits,
registrations, authorizations and other approvals required in order to operate
the Company's business. Except as set forth on Schedule 2.11, the Company has
all such permits, registrations, authorizations, and other approvals. The
Company has at all times maintained and operated its business in material
compliance with all applicable laws, ordinances, codes and regulations. Except
as set forth on Schedule 2.11, the Company has not received any notice of
violation of (a) any applicable governmental permit, zoning regulation or
ordinance, (b) Environmental Law (as defined in Section 2.15), Federal
Occupational, Safety and Health Act, or comparable state laws, regulations and
rulings, or (c) other law, order, regulation or requirement relating to the
operation of the Company's business, and, to the best knowledge of Sellers,
there is no such violation
2.12 Certain Interests. Except as set forth on Schedule 2.12, no current or
former shareholder, director or officer of the Company and no entity owned or
controlled by any of them (a) has any material interest in the Company's assets,
(b) is indebted to the Company, or (c) has any financial interest, direct or
indirect, in any supplier or customer of, or other outside business which has
any transactions with, the Company. Except as set forth on Schedule 2.12, the
Company is not indebted to the Shareholder or any officer, director or employee
of the Company, except for amounts due under normal compensation arrangements or
for reimbursement of ordinary business expenses.
2.13 Employment Matters. Except as set forth on Schedule 2.13, the Company
is not a party to or bound by any employment, commission, or consulting
agreement, and each of the Company's employees is an "at-will" employee.
Schedule 2.13 contains a true and
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complete list of all names, positions and current salaries of its employees and
the names and addresses of any agency that currently supplies the Company with
temporary workers. Schedule 2.13 contains a true and complete list of each plan,
program, agreement or arrangement relating to bonuses, deferred compensation,
incentive compensation, stock purchases, stock options, severance or termination
pay, hospitalization or other medical, dental, life or other insurance,
supplemental unemployment benefits, profit-sharing, savings, pensions or
retirement (collectively, the "Plans"), sponsored, maintained or contributed to
or required to be contributed to by the Company for the benefit of any employee
or former employee. Each of the Plans has been and is maintained, operated and
administered in all material respects in compliance with its terms and any
related documents or agreements and in accordance with all applicable laws. The
Company has paid all salaries, vacation pay, medical and other employment
benefits or severance payments due to be paid. The Company has provided Buyer
with copies of all relevant information regarding current (a) vacation, holiday
or sick leave policies or arrangements with employees, and (b) compensation
arrangements with employees and any consultants. The Company has also provided
Buyer true and complete copies of all employment manuals and policies currently
in force. Sellers acknowledge that Buyer may elect to change any of the
foregoing Plans or policies after Closing. The Company has operated the business
at all times in compliance with laws and regulations related to employment
practices, terms and conditions of employment, and wages and hours.
2.14 Labor Matters. The Company is not a party to or bound by any
collective bargaining agreement and, except as described in Schedule 2.14, has
never been subject to any union organizing effort, unfair labor practice
complaint, labor strike, employee slowdown or work stoppage, representation
petition brought before the National Labor Relations Board, or grievance or
arbitration proceeding arising out of or under any collective bargaining
agreements. Except as described on Schedule 2.14, to the best knowledge of
Sellers, no union organizing effort has been or is currently being proposed by
any employees of the Company.
2.15 Environmental Matters. Except as described on Schedule 2.15 or in any
environmental assessment obtained by Buyer prior to Closing, (i) no Hazardous
Substance has been released or spilled by Seller or any other person on the Real
Property and (ii) the permits described in Schedule 2.11 include all the permits
and authorizations currently required by Environmental Law for the operation of
the Company's business and the current use, occupancy or condition of the Real
Property. All wastes generated by the Company's business have been properly
transported off site and disposed of or recycled in compliance with all
applicable Environmental Laws. Schedule 2.15 contains a list of the size,
location, construction, date of installation, use and testing history of any
underground storage tanks (whether or not excluded from regulation under any
Environmental Law) known to Sellers on the Real Property, including all
underground storage tanks in use, out of service, closed or decommissioned. No
solid wastes have been disposed of on the Real Property by the Company or any
other person, and no petroleum oil or fraction has been spilled, released or
disposed of on the Real Property by the Company or any other person. "Hazardous
Substance" means any hazardous, toxic, radioactive or infectious substance,
material or waste as defined or listed under any Environmental Law.
"Environmental Law" means any federal, state or local statute, regulation or
ordinance pertaining to the protection of human health or the environment.
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2.16 Insurance. Sellers have provided Buyer a complete list and copies of
all insurance policies maintained by the Company and the annual premium for each
such policy. All premiums owing on such polices are paid in full, and no notice
of cancellation or termination has been received with respect to any such
policies. Such policies (a) are in full force and effect, (b) are sufficient for
compliance with all material requirements of law and of material agreements to
which the Company is a party, and (c) provide insurance coverage for the assets
and operations of the Company comparable to that of companies similarly
situated. The Company has not been refused any insurance with respect to its
real or personal properties or its operations nor had its coverage limited by
any insurance carrier.
2.17 Litigation. Except as described on Schedule 2.17, there is no action,
dispute, claim, proceeding, suit, appeal or investigation pending or threatened
against the Company that involves the assets or the business of the Company or
that questions the validity of this Agreement. To Sellers" knowledge, there are
no facts that could reasonably be expected to result in a judgment or other
determination that would have a material adverse effect on the assets or the
business of the Company, or that would cause this Agreement to be prohibited or
enjoined.
2.18 Letters of Credit and Powers of Attorney. The Company does not have
outstanding letters of credit or powers of attorney which relate to or could in
any way affect the value of its assets.
2.19 Banks. Schedule 2.19 contains a complete and accurate list of all
banks in which the Company has an account or safe deposit box, and the names of
all persons authorized to draw thereon or have access thereto.
2.20 Y2K Compliance. Except as described on Schedule 2.20, to the best of
Sellers' knowledge, any computer or computer related hardware or software that
is used in the Company's business (the "Computer System") is millenium
compliant. "Millenium Compliant" is defined to mean that the Computer System (a)
allows for the input of all dates in a four-digit format; (b) provides date
output in a four-digit format; (c) accommodates same century and multi-century
date related formulas and calculations; (d) functions and will function
accurately and without interruption before, during and after January 1, 2000;
and (e) responds to two-digit date input in a way that resolves any ambiguity as
to century.
2.21 Brokers. Neither the Company nor either of Sellers 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. Sellers
shall indemnify Buyer against any claim for payment of such fee or any other
claim for a fee in connection with this transaction.
2.22 Reliance. Sellers recognize and agree that Buyer is relying upon the
representations and warranties made by Sellers in this Agreement,
notwithstanding any investigation by Buyer.
2.23 Undisclosed Liabilities. The Company has no liability or obligation
(whether absolute, accrued, contingent or other, and whether due or to become
due) not otherwise disclosed on the attached Schedules, or accrued, reserved
against, or otherwise disclosed in the
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most recent Company Financial Statements, except liabilities in an amount less
than $5,000 incurred in the ordinary course of business within 60 days prior to
the Closing Date, for which the Company was not invoiced by such date.
2.24 Absence of Certain Changes or Events. Except as described on Schedule
2.24, since March 31, 1999, there has not been:
2.24.1 Adverse Changes. Any materially adverse change in the
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business, results of operations, financial condition or prospects of the
Company;
2.24.2 Dividends. Any direct or indirect declaration, setting aside
---------
or payment of any dividend or other distribution (whether in cash, stock,
property or any combination thereof) in respect of the Company's common stock or
any direct or indirect repurchase, redemption or other acquisition by the
Company of any shares of its capital stock, or any payment by the Company to or
for the account of either of Sellers other than under normal compensation
arrangements or for reimbursement of ordinary business expenses;
2.24.3 Damage. Any material damage, destruction or casualty loss,
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whether insured against or not, to any of the assets or properties of the
Company;
2.24.4 Increased Compensation. Any increase in the rate or terms of
----------------------
compensation payable or to become payable by the Company to its directors,
officers or key employees; any increase in the rate or terms of any bonus,
insurance, pension or other employee benefit plan, payment or arrangement made
to, for or with any such directors, officers or key employees; any special bonus
or remuneration paid; or any written employment contract executed or amended;
2.24.5 Expenditures. Any entry into any agreement, commitment or
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transaction (including without limitation any borrowing, capital expenditure or
capital financing or any amendment, modification or termination of any existing
agreement, commitment or transaction) by the Company that is material to the
business, results of operations, financial condition or prospects of the
Company, except (i) agreements, commitments or transactions in the ordinary
course of business or as contemplated in this Agreement, and (ii) the Operating
Agreement between the Company and Buyer dated April 30, 1999 (the "Operating
Agreement") and the Demand Promissory Note dated April 27, 1999 and related loan
documents executed by the Company in favor of Buyer (collectively, the "Loan
Documents");
2.24.6 Accounting Changes. Any change by the Company in accounting
------------------
methods, principles or practices;
2.24.7 Sales of Stock. Any issuance or sale of any capital stock of
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the Company;
2.24.8 Options. Any option or right granted to purchase any capital
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stock of the Company;
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2.24.9 Business Not in the Ordinary Course. Any conduct of business
-----------------------------------
which is outside the ordinary course of business or not substantially in the
manner that the Company previously conducted its business;
2.24.10 Acquisitions or Sales. Any purchase or other acquisition of
---------------------
property, or any sale, lease or other disposition of property, except (i) in the
ordinary course of business and in an amount not exceeding $10,000, or (ii) with
the consent of Buyer pursuant to the Operating Agreement;
2.24.11 Liabilities. Any incurrence of any liability which, either
-----------
singly or in the aggregate, could materially and adversely affect the business,
results of operations, financial condition or prospects of the Company, except
pursuant to the Loan Documents;
2.24.12 Encumbrances. Any encumbrance or consent to encumbrance of
------------
any property or assets, except (i) in the ordinary course of business or (ii)
pursuant to the Loan Documents; or
2.24.13 Adverse Changes. Any change in the assets, liabilities,
---------------
licenses, permits or franchises of the Company, or in any agreement to which the
Company is a party or is bound, which has had or reasonably could be expected to
have a materially adverse effect on the business, results of operations,
financial condition or prospects of the Company.
2.25 Disclosure. No representation or warranty made by Sellers in this
Agreement, or in any certificate furnished or to be furnished by Sellers to
Buyer in connection with the transaction contemplated by this Agreement,
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading.
2.26 Knowledge. For purposes of this Section 2, Sellers' knowledge
includes knowledge of either of the Sellers, and notice to the Company includes
notice received by the Company or by either of Sellers.
Section 3
Representations and Warranties of Buyer
---------------------------------------
Buyer represents and warrants to Sellers that the following are true and
correct as of the date of this Agreement and as of the Closing Date:
3.1 Authorization. Buyer is a corporation, duly organized and validly
existing under the laws of Washington. Buyer has taken all corporate action
necessary to authorize execution and delivery of, and performance of its
obligations under, this Agreement. Buyer has full corporate power and authority
to enter into, and to carry out the terms of, this Agreement. Buyer has duly
executed and delivered this Agreement, and this Agreement is a valid and binding
obligation of Buyer, enforceable in accordance with its terms.
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3.2 Consents. Except as set forth on Schedule 3.2, no consent or approval
by any third person or public authority is required to authorize, or is required
in connection with the purchase of the Shares or the execution, delivery or
performance of this Agreement by Buyer.
3.3 No Violations. Except for any required consents set forth on Schedule
3.2, the execution and delivery of this Agreement by Buyer, and the performance
of its obligations hereunder, will not conflict with, result in the breach of,
or constitute a default under: (a) the Articles of Incorporation or Bylaws of
Buyer; (b) any material note, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which Buyer is a party or by which Buyer is
bound; or (c) any statute, order, injunction, judgment, decree, rule or
regulation of any court or regulatory authority or governmental body applicable
to Buyer.
3.4 Investment Intent. Buyer is acquiring the Shares for its own account
and not with a view to their distribution within the meaning of Section 2(11) of
the Securities Act of 1933, as amended.
3.5 Brokers. Buyer has not entered into or authorized any arrangements
with any broker, finder, or investment banker that will result in payment of a
fee in connection with this transaction.
Section 4
Survival; Indemnification
-------------------------
4.1 Survival. The representations, warranties, covenants and agreements of
the parties contained in this Agreement or in any certificate or agreement
delivered in accordance with this Agreement shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of any party, and
the consummation of the transactions contemplated hereby.
4.2 Indemnifications by Seller. Sellers, jointly and severally, shall
indemnify Buyer and any of Buyer"s subsidiaries, affiliates, directors,
officers, employees and agents, and hold each of them harmless from and against
all losses, costs, expenses, damages or liabilities, including reasonable
attorneys" fees (collectively, "Damages"), incurred by any of them as the result
of or directly related to: (a) any breach or inaccuracy of any representation or
warranty of Sellers made in this Agreement; (b) any liability or obligation of
the Company to any third party not accounted for in the Company Financial
Statements or otherwise disclosed in this Agreement or the Schedules to this
Agreement in accordance with the terms of this Agreement; (c) any governmentally
required remedial action or cleanup of the Real Property, to the extent that
such cleanup arises out of or is directly related to use of the Real Property
occurring before the Closing Date; and (d) any liability related to the Jake-
Meyer Corporation.
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4.3 Indemnification by Buyer. Buyer will indemnify Sellers and hold them
harmless from and against all Damages incurred by Sellers as the result of or
directly related to: (a) any breach or inaccuracy in any representation or
warranty of Buyer made in this Agreement, and (b) any environmental liability
arising out of Buyer"s use of the Real Property occurring after the Closing
Date. Buyer will indemnify Sellers and hold them harmless from and against all
Damages (as defined in Section 4.2 above) related to the guarantees described on
Schedule 4.3.
4.4 Indemnification Period. Except as otherwise specified in this
Agreement, no claim for indemnification under this Section 4 will be effective
if not made within three years after the Closing Date (the "Indemnification
Period"). Notwithstanding the foregoing, claims based upon the assertion that
either of Sellers had actual knowledge that a representation or warranty made by
either of them in this Agreement was materially false when made or was made with
the intent to deceive, and claims based on Sections 2.8, 2.10.1, 2.10.2, 2.15,
4.2.1(c) or 4.3, may be made at any time up to the expiration of the applicable
statute of limitations.
4.5 Threshold Amount. No party that is entitled to indemnification under
this Agreement shall be indemnified unless and until the aggregate of all of
such party"s claims for indemnification exceed $10,000, which shall act as a
threshold to discourage the pursuing of insubstantial claims, and not as a
deductible. The maximum liability of any party under this Section 4 shall be the
Purchase Price.
4.6 Indemnification Procedures.
4.6.1 Claim Notice. Any claim for indemnification must be made in
------------
writing, with notice delivered by the party seeking indemnification to the party
from whom indemnification is sought within the Indemnification Period. The claim
notice must specify in reasonable detail the nature and estimated amount of the
claim.
4.6.2 Third-Party Claims. If the claim specified in the claim notice
------------------
relates to a third-party claim, the indemnifying person shall have 15 days after
its receipt of the claim notice to notify the indemnified person whether the
indemnifying person agrees that the claim is subject to indemnification pursuant
to this Section 4 and whether the indemnifying person elects to defend such
third-party claim at its own expense. If the claim relates to a third-party
claim that the indemnifying person elects to defend, the indemnifying person
shall control the defense or settlement of the claim and the indemnified person
shall not consent to the entry of any judgement or settle the claim and shall
reasonably cooperate with such defense or settlement. The indemnified person
shall, however, be entitled to participate in the defense or settlement of such
a third-party claim through its own counsel and at its own expense and shall be
entitled to approve or disapprove any proposed settlement that would impose a
duty or obligation on the indemnified person. If the indemnifying person does
not timely elect to defend a third-party claim, or if the indemnifying person
fails to conduct such defense with reasonable diligence, the indemnified party
may conduct the defense of, or settle, such claim at the risk and expense of the
indemnifying person. If the indemnifying person does not timely elect to defend
a third-party claim, it can later assume the defense of such claim. In such
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event, the indemnifying person will reimburse the indemnified person for all
costs and expenses of defense (including attorneys" fees) incurred by the
indemnified person to defend the claim through the date the defense is assumed.
4.6.3 Claims Other Than Third-Party Claims. If the claim does not
------------------------------------
relate to a third-party claim, the indemnifying person shall have 30 days after
receipt of the claim notice to notify the indemnified person in writing whether
the indemnifying person accepts liability for all or any part of the claim and
the method and timing of any proposed payment. If the indemnifying person does
not so notify the indemnified party, the indemnifying persons shall be deemed to
have accepted liability for all damages described in the claim notice if: (i)
the claim notice contains a statement that failure to respond will constitute
acceptance of liability; (ii) the indemnified person sends a second claim notice
by certified mail giving the indemnifying persons an additional 10 days in which
to respond and the indemnifying persons do not deny liability within the 10-day
period; and (iii) the indemnified person sends a copy of the second claim notice
to the indemnified person"s legal counsel named in this Agreement.
Section 5
Other Provisions
----------------
5.1 Expenses. The parties each agree to bear their own costs and expenses,
including without limitation all fees of attorneys, accountants, environmental
consultants, and other service providers that are incurred in connection with
the negotiation and preparation of this Agreement, and with respect to any due
diligence conducted and documents required to be executed in connection with
this Agreement and the consummation of the transaction contemplated in this
Agreement.
5.2 Assignment; Benefit. No party may voluntarily or involuntarily assign
its interest under this Agreement without the prior written consent of the other
parties. Subject to the foregoing, this Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
assigns.
5.3 Amendment; Waiver. The provisions of this Agreement, or of any
agreement or document executed in connection with this Agreement, may be amended
or waived only in a written agreement signed by the party against which
enforcement of such amendment or waiver is sought. Any waiver of any right or
breach under this Agreement shall not be construed as a waiver of any other or
any subsequent right or breach.
5.4 Severability. If any portion of this Agreement is held to be invalid
by a court of competent jurisdiction, the remaining terms of this Agreement
shall remain in full force and effect to the extent possible.
5.5 Governing Law. The construction and performance of this Agreement will
be governed by the laws of the State of Washington (except for the choice of law
provisions thereof).
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<PAGE>
5.6 Independent Counsel. Each party acknowledges that it has been
represented by independent legal counsel with regard to this Agreement, and has
had an adequate opportunity to seek independent legal counsel with regard to all
documents executed in connection with this Agreement.
5.7 Notices. The parties shall deliver any notices required under this
Agreement in writing by personal or courier delivery, facsimile transmission, or
by registered or certified U.S. mail, return receipt requested, postage prepaid,
to the addresses or facsimile numbers set forth below, or to such other address
or facsimile number as may be specified by a party in writing. Notices shall be
deemed effective as of the date of personal or courier delivery, confirmed
facsimile transmission, or three days after the date on the U.S. postmark
affixed to the notice.
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If to Buyer: With a copy to:
-----------------------------------------------------------------------------
Pacific Aerospace & Electronics, Inc. Stoel Rives LLP
110 Main St., Suite 100 600 University St., Suite 3600
Edmonds, WA 98020 Seattle, WA 98101-3197
Facsimile: (425) 774-0103 Facsimile: (206) 386-7500
--------- ---------
Attention: Sheryl A. Symonds, Attention: L. John Stevenson, Jr.
--------- ---------
Vice President Administration &
General Counsel
-----------------------------------------------------------------------------
If to Sellers or Shareholder: With a copy to:
-----------------------------------------------------------------------------
Robert and Sandra Davis Simonarson, Visser, Zender & Thurston
5335 Hoogdal Branch Lane 1700 D Street
Sedro-Woolley, WA 98284 PO Box 5226
Bellingham, WA 98227
Facsimile:_______________________
---------
Facsimile: (360) 647-1501
---------
Attention: Laughlan H. Clark
---------
-----------------------------------------------------------------------------
5.8 Attorneys" Fees. The prevailing party in any arbitration or litigation
concerning this Agreement is entitled to reimbursement of its reasonable
attorneys" fees, costs and expenses from the non-prevailing party, including
fees, costs and expenses incurred on appeal or in bankruptcy proceedings.
5.9 Entire Agreement. This Agreement, its attached schedules and exhibits,
and the documents executed in connection with this Agreement, contain the entire
agreement of the parties with respect to the subject matter of this Agreement,
and supersede any and all prior agreements, written or oral, relating to their
subject matter.
5.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
will constitute the same instrument.
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<PAGE>
Executed as of the first date written above.
BUYER: PACIFIC AEROSPACE & ELECTRONICS, INC.
By /s/ Donald A. Wright
----------------------------------
Donald A. Wright
Its: President and CEO
THE SHAREHOLDER:
/s/ Sandra L. Davis
-------------------------------------
SANDRA L. DAVIS
R. DAVIS:
/s/ Robert W. Davis
-------------------------------------
ROBERT W. DAVIS
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<PAGE>
The following Exhibit and Schedules are omitted from the Stock Purchase
Agreement, dated as of June 1, 1999, between Pacific Aerospace & Electronics,
Inc., Sandra L. Davis, and Robert W. Davis, filed as Exhibit 2.1 to the
foregoing report on Form 10-K, pursuant to Regulation S-K, item 601(b)(2). The
Company agrees to furnish supplementally a copy of the omitted exhibit to the
Securities and Exchange Commission upon request.
Exhibit A - Employment Agreement
Schedules
2.4 Consents
2.6 No Violations
2.9 Indebtedness and Other Obligations
2.10.1 Real Property
2.10.2 Personal Property
2.10.4 Contracts
2.10.6 Accounts Receivable
2.10.7 Customer and Supplier Lists
2.11 Compliance
2.12 Certain Interests
2.13 Employment Matters
2.14 Labor Matters
2.15 Environmental Matters
2.17 Litigation
2.19 Banks
2.20 Y2K Compliance
2.24 Certain Changes or Events
3.3 Consents
4.3 Indemnification by Buyer
