October 21, 1997
PLACEMENT AGREEMENT
Xx. Xxx Xxxxxxx
Lysys Ltd.
Xxxxxxxxxxx 00
X.X. Xxx XX-0000
Xxxxxx, Xxxxxxxxxxx
Re: Private Placement of Common Stock and Notes
Dear Xx. Xxxxxxx:
Pacific Aerospace & Electronics, Inc., a Washington corporation (the
"Company"), proposes to borrow up to $7.5 million (the "Debt Offering") from
certain investors to be identified by you (the "Investors"). The Debt Offering
would be made pursuant to promissory notes to be executed by the Company,
bearing an interest rate of 6.75% per annum, with interest only to be paid in
cash quarterly and all outstanding principal and interest to be repaid in cash
on October 31, 2001. The Company also proposes to offer to sell to the
Investors, or to other acceptable investors identified by you, up to 750,000
shares (the "Shares") of the Company's common stock, $.001 par value (the
"Common Stock"), at a per share price (the "Purchase Price") of U.S. $4.50, for
a total Purchase Price of up to approximately $3.4 million (the "Equity
Offering"). The Purchase Price was set on September 26, 1997, the date on which
we orally agreed on the terms of the proposed Equity Offering.
The Debt Offering and the Equity Offering (together, the "Offering") will
be made only to institutional or other accredited investors, in reliance on Rule
506 under Regulation D ("Regulation D") promulgated under the United States
Securities Act of 1933, as amended (the "Securities Act"). This Agreement sets
forth the agreement between the Company and Lysys with regard to the Offering.
1. The Offering.
(a) Appointment as Placement Agent. The Company appoints Lysys Ltd., a
Swiss limited company, as the Company's placement agent (the "Placement Agent")
with regard to the Offering, and the Placement Agent accepts such appointment.
The Company grants to the Placement Agent the non-exclusive right, on the
Company's behalf, to identify Investors to make loans to the Company pursuant to
the Debt Offering upon terms acceptable to the Company and
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to solicit offers from those Investors to purchase Shares, at the Purchase
Price, or at such other price as may be satisfactory to the Company in its sole
discretion, in compliance with the provisions of Regulation D. The Company
expressly acknowledges and agrees that the execution of this Agreement is not a
commitment by the Placement Agent to make any loans or to purchase any Shares
and does not ensure the successful completion of the Offering or any portion
thereof.
(b) Placement of Notes and Shares. It shall be the Placement Agent's sole
responsibility to ensure that offers are made only to accredited investors, as
defined in Regulation D, and to ensure that all potential Investors receive
copies of the Company's Annual Report on Form 10-KSB for the Company's fiscal
year ended May 31, 1997 and the Company's Quarterly Report on Form 10-QSB for
the quarter ended August 31, 1997 (the "Offering Materials"). The Placement
Agent shall promptly notify the Company as any and all commitments in the
Offering are received. The Debt Offering shall be made by the Company against
receipt of funds, pursuant to notes in the form attached as Exhibit A (the
"Notes"), and the Equity Offering shall be made directly by the Company under
the terms of a subscription agreement, in substantially the form attached as
Exhibit B (the "Purchase Agreement"). Only Investors who loan funds to the
Company in the Debt Offering will be entitled to purchase Shares in the Equity
Offering. Each such Investor will be entitled to purchase Shares in proportion
to the percentage of the funds loaned by such Investor to the Company in the
Debt Offering.
2. COMPENSATION. As consideration for the Placement Agent's services under this
Agreement, the Company shall pay to the Placement Agent a commission of $500,000
out of the proceeds of the Equity Offering. Payment of the commission shall be
made within five business days after the closing of the Offering.
3. TERMINATION OF AGREEMENT.
(a) Automatic Termination. This Agreement shall automatically terminate on
the earlier of (i) the date on which the Company has raised total gross proceeds
of $10 million in the Offering, or (ii) November 30, 1997, unless extended by
mutual written agreement.
(b) Voluntary Termination. Either party may voluntarily terminate this
Agreement if (i) any of the other party's representations or warranties
contained in this Agreement are found to be incorrect or misleading in any
material respect, or (ii) the other party fails, refuses, or is unable to
perform in any material respect any of its covenants or agreements under this
Agreement, after notice and reasonable opportunity to cure.
(c) Survival. Notwithstanding Sections 3(a) and 3(b), all of the
representations, warranties, and agreements contained in this Agreement,
including, without limitation, the provisions of Sections 2 and 5, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Placement Agent or the Company, and shall survive delivery
of the Notes and the Shares or termination of this Agreement.
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4. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) By the Company. The Company represents, warrants and covenants to the
Placement Agent as follows:
i. Corporate Organization; Authorization. The Company is duly
incorporated, validly existing and in good standing as a corporation under the
laws of the State of Washington and has full corporate power and corporate
authority to conduct all of the activities conducted by it as contemplated by
this Agreement. This Agreement has been duly authorized, executed, and delivered
by the Company and constitutes a valid and binding agreement of the Company
enforceable in accordance with its terms.
ii. Capital Stock. The Company has authorized capital stock consisting
of 100,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock.
As of October 7, 1997, the Company had outstanding 11,415,155 shares of Common
Stock and 10,585 shares of Series A Convertible Preferred Stock. The Shares,
when issued, will be duly and validly issued, fully paid and nonassessable.
iii. Compliance with Securities Laws. The Company will not take any
action that would cause the Offering to fail to be exempt from registration
under Regulation D. The Company shall take (or shall refrain from taking) such
actions as the Placement Agent may reasonably request in order to ensure the
availability of such exemption.
iv. Accuracy of Offering Materials. The Offering Materials fairly
present the financial condition of the Company as of the dates of any financial
statements contained therein, and did not, as of their dates, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. However, this
representation and warranty does not apply to any statements or omissions in the
Offering Materials made in reliance upon, and in conformity with, information
given to the Company by or on behalf of the Placement Agent.
(b) By the Placement Agent. The Placement Agent represents, warrants, and
covenants to the Company as follows:
i. Corporate Organization; Authorization. The Placement Agent is a
Swiss limited company, duly organized, validly existing, and in good standing
under the laws of Switzerland, and has full power and authority to conduct all
of the activities to be conducted by it as contemplated by this Agreement. This
Agreement has been duly authorized, executed, and delivered by the Placement
Agent and constitutes a valid and binding agreement of the Placement Agent
enforceable in accordance with its terms.
ii. Placement Agent Registration. The Placement Agent is duly licensed
or qualified to do business, and in good standing as a foreign corporation and
as a licensed or registered broker/dealer, in all jurisdictions in which the
nature of the activities conducted or contemplated by it or the character of the
assets owned or leased by it makes such license or
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registration necessary, or where the failure to be so licensed or registered
would have a material adverse effect on its ability to carry out its obligations
under this Agreement.
iii. Compliance with Securities Laws. The Placement Agent will not
take any action that would cause the Offering to fail to be exempt from
registration under Regulation D. The Placement Agent shall take (or shall
refrain from taking) such actions as the Company may reasonably request in order
to ensure the availability of such exemption. Without limiting the foregoing,
the Placement Agent will offer Shares only to accredited investors, as such term
is defined in Regulation D, and will promptly notify the Company if the
Placement Agent at any time before closing of the Offering no longer reasonably
believes that an Investor is an accredited investor. The Placement Agent will
advise each Investor prior to the sale of any Shares to that Investor that the
Shares will not be registered under the Securities Act and that the Investor
will not be entitled to sell or otherwise transfer the Shares unless the Shares
are so registered or an exemption from registration is available.
5. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification by Company.
i. Scope of Indemnity. The Company agrees to indemnify, defend, and
hold harmless the Placement Agent and its officers, directors, managers, agents,
and employees against any losses, claims, damages or liabilities, joint or
several, to which the Placement Agent may become subject under the Securities
Act or otherwise, that arise out of or are based upon (a) any untrue statement
or alleged untrue statement of any material fact made by the Company in this
Agreement, the Offering Materials, or any reporting document filed subsequently
by the Company with the SEC (each a "Report"), or (b) the omission or alleged
omission of any material fact from the Offering Materials or any such Report
which is required to be stated or necessary to make the statements therein not
misleading.
ii. Exclusions. Notwithstanding the above indemnity, the Company will
not be liable under this Section 5(a) for any loss, claim, damage, or liability
that (a) arises out of statements or omissions made in the Offering Materials or
any Report in reliance upon and in conformity with information given to the
Company by the Placement Agent, (b) constitutes or arises out of a breach of any
of the Placement Agent's representations, warranties, and agreements contained
in this Agreement, (c) results directly from the Placement Agent's gross
negligence or wilful misconduct in the performance of its services under this
Agreement, (d) relates directly to information provided by the Placement Agent
to Investors that is not contained in the Offering Materials and has not been
approved in writing for distribution by the Company, or (e) exceeds the amount
of the compensation paid to the Placement Agent under this Agreement.
(b) Indemnification by Placement Agent. The Placement Agent agrees to
indemnify and hold harmless the Company, its officers, directors, managers,
agents, and employees, against any losses, claims, damages, or liabilities,
joint or several, to which the Company or any such person may become subject
under the Securities Act or otherwise insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or are based upon
(i) the breach by the Placement Agent of its representations, warranties, or
agreements contained in this
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Agreement; (ii) the gross negligence or willful misconduct of the Placement
Agent, or (iii) information provided by the Placement Agent to Investors that is
not contained in the Offering Materials and has not been approved in writing for
distribution by the Company.
6. MISCELLANEOUS.
(a) Notices. All communications under this Agreement shall be in writing
and shall be delivered in person, by overnight courier, first-class postage
prepaid mail, or by facsimile transmission, as follows, or to such other address
as any party shall have designated in writing. Notices shall be deemed to have
been given only upon receipt.
If to the Placement Agent: Lysys Ltd.
Xxxxxxxxxxx 00
X.X. Xxx XX-0000
Xxxxxx, Xxxxxxxxxxx
Attention: Xx. Xxx Xxxxxxx
Fax: 000-00-0-000-0000
If to the Company: Pacific Aerospace & Electronics, Inc.
000 Xxxx Xxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxx
Fax: (000) 000-0000
(b) Assignment; Successors. This Agreement shall not be assigned by any
party without the prior written consent of the other party. Subject to the
above, this Agreement shall be binding upon, and shall inure solely to the
benefit of, the parties and their respective successors-in-interest. No other
person shall have or be construed to have any legal or equitable right, remedy,
or claim under, or in respect or by virtue of, this Agreement.
(c) Translations. If this Agreement is translated into a language other
than English and there are discrepancies or differences between the English
language version of the text and the foreign language version, the English
language version shall prevail.
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington, without giving effect to
rules regarding conflicts of laws.
(e) Entire Agreement; Severability. This Agreement constitutes the entire
agreement of the parties, and supersedes all prior oral and written agreements,
as to the subject matter hereof. This Agreement may not be modified except in
writing signed by both parties. If any provision of this Agreement is found by a
court of competent jurisdiction not to be enforceable, the remainder of this
Agreement shall continue in full force and effect to the extent possible.
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(f) Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original, and which together shall constitute but one and the
same instrument.
If the foregoing correctly sets forth the understanding between the
Company and the Placement Agent, please sign the confirmation provided below for
that purpose. Upon the Company's receipt of such confirmation, this Agreement
shall constitute the binding agreement of the parties as of the date first above
written.
Very truly yours,
PACIFIC AEROSPACE & ELECTRONICS,
INC.
By: XXXXXX X. XXXXXX
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Xxxxxx X. Xxxxxx
President & CEO
Accepted and agreed to as of the
date first above written:
LYSYS LTD.
a Swiss limited company
By: /s/ XXX XXXXXXX
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Its:
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