-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SIMFrHOsIjHlM7dnkYVIqSI7gY/dUBbIvDcPcsYrSCngCGM282x43WhK8sG4RsnG RgSRorTxD5SrK5eTNwYtzw== 0000916797-97-000002.txt : 19970306 0000916797-97-000002.hdr.sgml : 19970306 ACCESSION NUMBER: 0000916797-97-000002 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970224 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Other events FILED AS OF DATE: 19970305 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRONIC FAB TECHNOLOGY CORP CENTRAL INDEX KEY: 0000916797 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 840854616 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23332 FILM NUMBER: 97551205 BUSINESS ADDRESS: STREET 1: 7251 WEST 4TH ST CITY: GREELEY STATE: CO ZIP: 80634-9763 BUSINESS PHONE: 3033533100 8-K 1 UNITED STATES 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 FEBRUARY 24, 1997 (Date of earliest event reported) ELECTRONIC FAB TECHNOLOGY CORP. (Exact name of registrant as specified in its charter) Commission file number: 0-23332 Colorado 84-0854616 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7251 West 4th Street Greeley, Colorado 80634-9763 (Address of principal executive offices) (970) 353-3100 (Registrant's telephone number, including area code) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On February 24th, 1997, pursuant to an Agreement and Plan of Merger, dated as of January 15, 1997 (the "Merger Agreement"), and a Share Purchase Agreement, dated as of January 15, 1997 (the "Share Purchase Agreement"), Electronic Fab Technology Corp., a Colorado corporation (the "Company"), completed its acquisition of Current Electronics, Inc., an Oregon corporation ("CEI"), and its affiliate, Current Electronics (Washington), Inc., a Washington corporation ("CEWI"). The acquisition included (1) the merger of CEI with and into Current Merger Corp., an Oregon corporation and a wholly owned subsidiary of the Company, in exchange for a cash payment of $3.37 million and 1,980,000 shares of the Company's Common Stock, par value $.01 per share ("the Common Stock"), and (2) the payment of $1.53 million to the existing shareholders of CEWI in exchange for all of the outstanding capital stock of CEWI. The issuance of the shares of Common Stock that constituted a portion of the consideration paid under the Merger Agreement was approved and adopted by the requisite votes of the Company's stockholders at a special meeting held on February 24, 1997. The aggregate cash consideration of $3.37 million received by the former holders of the common stock of CEI is subject to certain future adjustments, which may increase or decrease the aggregate amount of such consideration. The acquisitions of CEI and CEWI will be accounted for using the purchase method of accounting. Mr. Gregory Hewitson, Mr. Matthew Hewitson, and Mr. Charles Hewitson: the principal shareholders of CEI prior to its acquisition by the Company, have been appointed to the Company's Board of Directors. In Connection with the acquisitions of CEI and CEWI, (a) pursuant to a Registration Rights Agreement, dated as of February 24, 1997 (the "Registration Rights Agreement"), the company agreed to register the resale of Mr. Gregory Hewitson's, Mr. Matthew Hewitson's and Mr. Charles Hewitson's shares of Common Stock under the Securities Act of 1933 under certain circumstances and (b) pursuant to an Indemnification Agreement, dated as of February 24, 1997 (the "Indemnification Agreement"), the shareholders of CEI and CEWI agreed to indemnify the Company against certain damages that could result from breaches of certain covenants and representations and warranties set forth in the Merger Agreement and the Share Purchase Agreement. The foregoing discussion of the Merger Agreement, the Share Purchase Agreement, the Registration Rights Agreement and the Indemnification Agreement are qualified in their entirety by reference to the terms of such agreements, which constitute exhibits hereto and are incorporated herein by reference. The Company also finalized an unsecured short term bridge facility and an amendment to its revolving line of credit with Bank One in order to finance this acquisition. The amended line of credit has substantially the same terms as the prior existing line, except that the total amount available thereunder has increased to $15,000,000. The short term bridge facility in the amount of $4,900,000 was used to pay the cash portion of the consideration under the Merger Agreement and the Share Purchase Agreement and has a term of 90 days. The Company is engaged in discussions for the issuance of convertible debt, preferred stock or other securities, the proceeds of which will be used to repay the bridge facility. Prior to the acquisition, CEI and CEWI were independent providers of manufacturing services, cables and wire harnesses to OEMs primarily in the aerospace/avionics, instrumentation, telecommunications and computer peripherals industries. CEI operates a campus, including manufacturing facilities comprising 47,000 square feet in Newberg, Oregon and employs approximately 290 people. CEWI operates a 20,000 square feet manufacturing facility in Moses Lake, Washington, and employs approximately 50 people. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements of businesses acquired The following financial statements of CEI and CEWI (together with the related independent auditors' report) will be filed on or prior to the 60th day after the date that this initial report on Form 8-K was required to be filed, approximately May 9,1997. i. Combined Statements of Income and Retained Earnings for the years ended September 30, 1996, 1995, and 1994; ii. Combined Balance Sheets as of September 30, 1996 and 1995; iii. Combined Statement of Cash Flows for the years ended September 30, 1996, 1995, and 1994. (b) Pro forma financial information The following unaudited pro forma condensed financial statements of the Company and related notes to unaudited pro forma condensed financial statements are incorporated by reference from the section captioned "UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION" of the Company's Proxy Statement dated February 11, 1997 relating to the special meeting of the Company's shareholders held on February 24, 1997: i. Unaudited Pro Forma Condensed Statement of Operations for the Nine Months Ended September 30, 1996; ii.i. Unaudited Pro Forma Condensed Statement of Operations for the Year Ended December 31,1995; iii.i. Unaudited Pro Forma Condensed Balance Sheet as of September 30, 1996. (c) Exhibits The following exhibits are filed herewith or incorporated by reference: 2.1 Agreement and Plan of Merger among Electronic Fab Technology Corp., Current Merger Corp., and Current Electronic, Inc., dated as of January 15, 1997 (Pursuant to Item 601(b)(2) of Regulation S-K, the Company agrees to furnish supplementally to the Commission upon request a copy of any schedule or exhibit omitted from such Agreement and Plan of Merger as filed herewith.) 2.2 Share Purchase Agreement, dated as of January 15, 1997, among the Company and the shareholders of Current Electronics (Washington), Inc. (Pursuant to Item 601(b)(2) of Regulation S-K, the Company agrees to furnish supplementally to the Commission upon request a copy of any schedule or exhibit omitted from such Share Purchase Agreement as filed herewith.) 10.1 Registration Rights Agreement, dated as of February 24,1997, among the Company, Charles E. Hewitson, Matthew J. Hewitson, and Gregory Hewitson and certain other parties. 10.2 Indemnification Agreement, dated as of February 24, 1997, among the shareholders of Current Electronics, Inc. party thereto, the shareholders of Current Electronics (Washington), Inc. party thereto and the Company. 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. Electronic Fab Technology Corp. Stuart Fuhlendorf Date: March 5, 1997 Stuart Fuhlendorf V.P. Finance and CFO EX-2 2 APPENDIX A CONFORMED COPY ================================================================ AGREEMENT AND PLAN OF MERGER among ELECTRONIC FAB TECHNOLOGY CORP., CURRENT MERGER CORP. and CURRENT ELECTRONICS, INC. January 15, 1997 ========================================================================= TABLE OF CONTENTS
Page ---- RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.4 Certain Tax Positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.5 Taking of Necessary Action; Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II SURVIVING CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.1 Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.3 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.4 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE III EFFECT OF MERGER ON CAPITAL STOCK OF MERGER SUB AND TARGET . . . . . . . . . . . . . . . . . . . . . 2 3.1 Effect on Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.2 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.3 No Further Ownership Rights in Target Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.4 Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.5 Stock Subject to Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TARGET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4.2 Capitalization; Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 4.4 Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 4.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 4.6 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.7 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.9 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.10 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.11 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.12 Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.13 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.14 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.15 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.16 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.17 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 4.18 Interested Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.20 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.21 Major Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.22 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.23 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
A-i 95 4.24 Product Warranty and Product Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.25 Minutes Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.26 Brokers' and Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.27 Section 60.835 of OBCA Not Applicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.28 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.29 Regulation D Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.30 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB . . . . . . . . . . . . . . . . . . . . . . 17 5.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.3 Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.4 SEC Documents; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.5 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.6 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.7 Board Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.8 Brokers' and Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE VI CONDUCT PRIOR TO EFFECTIVE TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.1 Conduct of Business of Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.2 No Solicitation; Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.3 Notice of Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE VII ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.1 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.2 Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.3 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.5 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.6 Filings; Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.7 Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.8 Director Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.9 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.10 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE VIII CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 8.1 Conditions to Obligations of Each Party to Effect the Merger . . . . . . . . . . . . . . . . . . . . 23 8.2 Additional Conditions to Obligations of Target to Effect the Merger . . . . . . . . . . . . . . . . 23 8.3 Additional Conditions to the Obligations of Parent and Merger Sub to Effect the Merger . . . . . . . 24 ARTICLE IX RESTRICTIONS ON TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 9.1 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 9.2 Notice of Proposed Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE X TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 10.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 10.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE XI GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 11.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
A-ii 96 11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 11.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 11.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 11.5 Entire Agreement; Nonassignability; Parties in Interest . . . . . . . . . . . . . . . . . . . . . . 28 11.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 11.7 Remedies Cumulative; No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 11.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 11.9 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 11.10 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 11.11 Attorneys Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
A-iii 97 EXHIBITS Exhibit 7.7A Consulting Agreement Exhibit 7.7B Employment Agreement Exhibit 8.2(c) Opinion of Counsel to Parent Exhibit 8.2(e) Registration Rights Agreement Exhibit 8.3(c) Opinion of Counsel to Target and Shareholders of CEWI Exhibit 8.3(g) Indemnification Agreement Exhibit 8.3(h) Tax Letter SCHEDULES Schedule 3.1(b)-1 Schedule 3.1(b)-2 Schedule 8.2(f) Target Disclosure Schedule Parent Disclosure Schedule A-iv 98 INDEX OF DEFINED TERMS
Page ---- 1994 Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 AA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Adjusted Debt Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Annual Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 business combination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Cash Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 CEWI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Combined Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 COBRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Designees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Environmental Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ERISA Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Governmental Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Hewitson Consulting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Indemnification Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Interim Target Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 include . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 includes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 including . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Materials of Environmental Concern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 multiemployer plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 made available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Merger Sub Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 no action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 NASD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 OBCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A-v 99 Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Parent Balance Sheet Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Parent Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Parent Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Parent Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Parent SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Parent Shareholders Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Parent Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Per Share Cash Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Proprietary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 prohibited transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 reportable event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECURITIES ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Stock Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Stock Price Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Target Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Target Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Target Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Target Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Tax authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Team Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Third Party Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Voting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
A-vi 100 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of January 15, 1997, is among ELECTRONIC FAB TECHNOLOGY CORP., a Colorado corporation ("Parent"), CURRENT MERGER CORP., an Oregon corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and CURRENT ELECTRONICS, INC., an Oregon corporation ("Target"). RECITALS A. The Boards of Directors of Parent and Target have determined that a business combination between Parent and Target is in the best interests of their respective companies and shareholders, and accordingly have approved this Agreement and the merger provided for herein whereupon Target shall merge with and into Merger Sub upon the terms, and subject to the conditions, set forth herein. In addition, each shareholder of Target has approved this Agreement and the merger provided for herein. B. The merger is intended to qualify, for federal income tax purposes, as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). C. Parent, Merger Sub and Target desire to make certain representations, warranties and agreements in connection with the merger. AGREEMENT NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I MERGER 1.1 The Merger. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.3), Target shall be merged with and into Merger Sub in accordance herewith and the separate corporate existence of Target shall thereupon cease (the "Merger"). Merger Sub shall be the surviving corporation in the Merger and, therefore, is sometimes hereinafter referred to as "Surviving Corporation." The Merger shall have the effects specified in Section 60.497 of the Oregon Business Corporation Act (the "OBCA"). 1.2 The Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the "Closing") shall take place (a) at the offices of Holme Roberts & Owen LLP, 1700 Lincoln Street, Suite 4100, Denver, Colorado 80203, at 10:00 a.m., local time, within three business days following the day on which the conditions set forth in Article VIII shall be fulfilled or waived in accordance herewith or (b) at such other time, date or place as Parent and Target agree. The date on which the Closing occurs is hereinafter referred to as the "Closing Date." 1.3 Effective Time. If all the conditions to the Merger set forth in Article VIII shall have been fulfilled or waived in accordance herewith and this Agreement shall not have been terminated as provided in Article X, the parties hereto shall cause Articles of Merger meeting the requirements of Section 60.494 of the OBCA to be properly executed and duly filed in accordance with the OBCA on the Closing Date. The Merger shall become effective at the time when the Articles of Merger are so filed or at such later time that the parties hereto agree and is designated in such Articles of Merger (the "Effective Time"). 101 1.4 Certain Tax Positions. The parties hereto intend the Merger to qualify, and will take the position for tax purposes that the Merger qualifies, as a non-taxable reorganization under Sections 368(a)(1)(A) and (a)(2)(D) of the Code. Neither party hereto nor any affiliate thereof will take any action that would cause the Merger not to qualify as a reorganization under those sections. 1.5 Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of Target and Merger Sub, the officers and directors of Target and Merger Sub are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action consistent with this Agreement. ARTICLE II SURVIVING CORPORATION 2.1 Articles of Incorporation. The Articles of Incorporation of Merger Sub in effect immediately prior to the Effective Time shall be the Articles of Incorporation of Surviving Corporation until duly amended in accordance with applicable law, except that Article I of the Articles of Incorporation of Surviving Corporation shall be amended to read as follows: "The name of the corporation is 'Current Electronics, Inc.'" 2.2 Bylaws. The Bylaws of Merger Sub in effect immediately prior to the Effective Time shall be the Bylaws of Surviving Corporation until duly amended in accordance with applicable law. 2.3 Directors. The directors of Merger Sub immediately prior to the Effective Time shall be the directors of Surviving Corporation until their respective successors are duly elected or appointed and qualified. 2.4 Officers. The officers of Merger Sub immediately prior to the Effective Time shall be the officers of Surviving Corporation until their respective successors are duly elected or appointed and qualified. ARTICLE III EFFECT OF MERGER ON CAPITAL STOCK OF MERGER SUB AND TARGET 3.1 Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, Target or the holders of any of the following securities all of the following shall occur: (a) Cancellation of Target Common Stock Owned by Parent or Target. All shares of Common Stock, $.01 par value, of Target ("Target Common Stock") that are owned by Target, and all shares of Target Common Stock owned by Parent, Merger Sub or any other subsidiary of Parent immediately prior to the Effective Time shall be canceled. (b) Conversion of Target Common Stock. (i) Each issued and outstanding share of Target Common Stock (other than Dissenting Shares (as defined in Section 3.1(f)) shall be converted into the right to receive cash or cash and shares of Common Stock, $.01 par value, of Parent ("Parent Common Stock") in accordance with this Section 3.1(b). The consideration to be received by the holders of Target Common Stock pursuant to the Merger is hereinafter referred to as the "Merger Consideration." The aggregate Merger Consideration to be received by all shares of Target Common Stock (assuming there are no Dissenting Shares) shall be equal to $3,370,000, adjusted as provided in A-2 102 Section 3.1(c)(as so adjusted, the "Cash Amount"), and the Stock Amount (as defined in Section 3.1(b)(ii)). Subject to Section 3.1(c), (A) each shareholder of Target Common Stock listed on Schedule 3.1(b)-1 shall be entitled to receive with respect to the shares of Target Common Stock held by it an amount of cash equal to the Per Share Cash Amount (as defined in Section 3.1(b)(ii)) times the number of shares of Target Common Stock so held, and (B) each shareholder of Target Common Stock listed on Schedule 3.1(b)-2 shall be entitled to receive with respect to the shares of Target Common Stock held by the him the portion of the Cash Amount not to be received by the shareholders of Target Common Stock pursuant to clause (A) and the Stock Amount, such cash and shares of Parent Common Stock included in the Stock Amount to be allocated among such shareholders pro rata in accordance with the number of shares of Target Common Stock so held. (ii) The "Per Share Cash Amount" shall be equal to the sum of the Cash Amount and the Stock Price Amount (as defined in this Section 3.1(b)(ii)) divided by 30,000 (adjusted to reflect fully the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into target Common Stock), subdivision, reclassification, combination, exchange, reorganization, recapitalization or other similar transaction with respect to Target Common Stock occurring after the date hereof and prior to the date of determination). The "Stock Price Amount" shall be equal to the last closing sale price of Parent Common Stock on the Nasdaq National Market on the trading day immediately preceding the Closing Date times the Stock Amount. The "Stock Amount" shall be 1,980,000 shares of Parent Common Stock (adjusted to reflect fully the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock or Target Common Stock), subdivision, reclassification, combination, exchange, reorganization, recapitalization or other similar transaction with respect to Parent Common Stock or Target Common Stock occurring after the date hereof and prior to date of determination). (c) Adjustments to Merger Consideration. (i) The Cash Amount will be $3,370,000 (A) increased by the amount by which the interest bearing indebtedness for borrowed money of Target ("Debt") as of the Effective Time is less than the Adjusted Debt Amount (as defined in this Section 3.1(c)(i)), (B) reduced by the amount by which Debt as of the Effective Time exceeds the Adjusted Debt Amount and (C) if the total combined stockholders' equity of Target and Current Electronics (Washington), Inc., a Washington corporation ("CEWI"), as of the Effective Time ("Combined Equity") is less than $4.0 million, reduced or increased, as the case may be, by the amount by which the total shareholders' equity of Target as of the Effective Time ("Equity") is less or more than $3,715,000. For purposes of the foregoing calculation, (x) "Adjusted Debt Amount" shall be $2.0 million, increased by the amount of any bonuses (not to exceed $180,000) paid to Target's leadership team pursuant to Section 6.1(b)(vi) hereof (the "Team Bonuses") and by the amount of any additional Debt outstanding as of the Effective Time that has been authorized by Parent under Section 3(c)(ii), (y) Equity and Combined Equity shall be determined without deduction for (i) the amount of any Team Bonuses, (ii) the fees and expenses of the accountants of conducting the audit of the 1994 fiscal year of Target and CEWI requested by Parent (the "1994 Audit Fees"), (iii) any writedown or writeoff of leasehold improvements of Target's Newberg, Oregon facility or any reserves relating to any move from such facility of Target's operations that is contemplated by Parent, or (iv) such other reserves, writedowns or adjustments as may be approved in writing by Parent, and (z) Equity and Combined Equity shall be reduced (regardless of when paid or accrued) by (i) the amount of any legal and accounting fees and expenses incurred by CEWI or Target, as the case may be, with their present counsel and accountants that relate to the transactions contemplated by this Agreement and the Purchase Agreement (as defined in Section 8.1(d)) and any other similar expenses that relate to the representation of the interests of the present shareholders of CEWI or Target with respect to such transactions (other than the 1994 Audit Fees), and (ii) the amount of any fees and expenses incurred to Pacific Crest Securities, Inc. as contemplated by the letter agreement identified in Section 4.26 of this Agreement. Any Debt owed by CEWI to Target, and any Debt owed by Target to CEWI, shall be ignored in determining the Adjusted Debt Amount and the amount of Debt outstanding. For the avoidance of doubt, the term Debt shall not include the then outstanding balances of two accounts payable owed by CEWI to Allied Signal in the approximate amounts of $676,000 and $180,000 as of December 31, 1996. The amount of Debt outstanding, the Adjusted Debt Amount and the amount of Equity as of the Effective Time shall be determined as provided in Section 3(c)(iv). A-3 103 (ii) Target may request that Parent consent to an increase in the Adjusted Debt Amount to permit borrowings by Target to fund actual or expected increased sales volumes and related working capital and capital equipment requirements. Such request may be made by giving written notice to Parent, accompanied by appropriate information supporting such request. Parent shall respond to any such request promptly, and shall not unreasonably withhold its consent where such borrowings would be necessary to fund working capital and capital equipment requirements prudently required in connection with increases in product sales by Target. (iii) Target shall prepare and submit to Parent, not later than five days prior to the Closing Date, a written estimate of the Cash Amount as of the Closing Date. The estimate shall be based upon the books and records of Target and shall be accompanied by (A) a statement setting forth in reasonable detail the calculation of the estimate and (B) a certificate signed by Target confirming that the estimate was calculated in accordance with this Article I. Target shall also deliver to Parent such other information as may be reasonably requested by Parent to verify the estimate of the Cash Amount provided. The amount paid at the Closing based upon the Cash Amount under Section 3.1(b) shall be equal to the estimate provided by Target, absent reasonable objection by Parent, in which event the amount paid at the Closing shall be equal to such reasonable amount as may be specified by Parent. Within 30 days after the Closing Date, Parent shall deliver to the Representative (as defined in the Indemnification Agreement to be delivered pursuant to Section 8.3(g)) a statement calculating the Cash Amount as of the Closing Date in accordance with this Section 3.1. Such calculation shall be made in accordance with generally accepted accounting principles consistently applied, except as otherwise specified herein. Parent's statement and report shall be final and binding on the parties unless the Representative delivers a notice to Parent disputing any matter including in such statement and stating the Representative's position with respect to the disputed matter. If the Representative delivers such notice and the parties are unable to resolve all disputed matters within 30 additional days, Parent or the Representative may elect to submit the disputed matter to Arthur Andersen & Co., independent certified public accountants ("AA"), for determination. The determination of all disputed matters pursuant to the preceding sentence shall be final and binding on the parties and the fees and expenses of AA shall be borne by Parent and the shareholders of Target receiving shares of Parent Common Stock in the Merger (the "Shareholders") in proportion to the amount by which the determination of all matters varies from the positions of Parent and the Shareholders on all matters. Promptly following the determination of matters by AA, Parent shall pay to the Shareholders or the Shareholders shall pay to Parent, as appropriate, the amount, if any, determined to have been overpaid or underpaid at the Closing. (d) Fractional Shares. No fraction of a share of Parent Common Stock will be issued, but in lieu thereof each holder of shares of Target Common Stock who would otherwise be entitled to a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock to be received by such holder) shall receive from Parent an additional share of Parent Common Stock. (e) Capital Stock of Merger Sub. Each issued and outstanding share of Common Stock, $.01 par value, of Merger Sub ("Merger Sub Common Stock") shall be unaffected by the Merger and shall remain issued and outstanding. (f) Dissenting Shares. All issued and outstanding shares of Target Common Stock of any holder who has properly exercised his dissenters' rights with respect thereto in accordance with Sections 60.551 et sec. of the OBCA and who, as of the Effective Time, has not effectively withdrawn or lost such rights (the "Dissenting Shares") will not be converted into the right to receive the Merger Consideration pursuant to Section 3.1(b) or any other amount otherwise payable to such holder hereunder, and the holder thereof will have such rights as are granted by the OBCA only. If, after the Effective Time, any such holder effectively withdraws or loses such rights, the holder's Dissenting Shares thereupon will be treated as if they had been converted, at the Effective Time, into the right to receive the Merger Consideration and any other amount otherwise payable to such holder hereunder, without interest thereon. Target will give Parent prompt notice of any payment demand received by Target for any shares of Target Common Stock, any withdrawal of such demands and any other document or instrument received by Target in connection therewith. Parent will have the right to participate in all negotiations A-4 104 and proceedings with respect to any such demand and Target will not, except with the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demand. 3.2 Exchange of Certificates. (a) Exchange; Payment. At the Closing and against surrender to Parent by any holder of record of a certificate or certificates that prior to the Effective Time represented shares of Target Common Stock (the "Certificates"), Parent shall cause to be paid or delivered to the holder of record of such Certificates, without interest thereon, the Merger Consideration to be received by such holder as specified in Section 3.1. Notwithstanding anything in the foregoing to the contrary, Certificates may be surrendered after the Closing, but until so surrendered, Parent shall not cause to be paid or delivered to the holder of record of such Certificates the shares or cash amounts referred to in the previous sentence and each outstanding Certificate that prior to the Effective Time represented shares of Target Common Stock will be deemed from and after the Effective Time, for all corporate purposes, other than the payment of dividends, to evidence the right to receive the Merger Consideration, the right to receive an additional share of Parent Common Stock in lieu of the issuance of any fractional shares in accordance with Section 3.1(d) and the right to receive unpaid dividends and distributions, if any, that such holder has the right to receive in respect of such Parent Common Stock, after giving effect to any required withholding tax, in each case without interest thereon. The shares represented by the Certificates surrendered to Parent shall forthwith be canceled. The risk of loss and title to the Certificates shall pass only upon receipt by Parent of the Certificates. (b) Distributions with respect to Unexchanged Shares. No dividends or other distributions with respect to Parent Common Stock with a record date after the Effective Time will be paid to the holder of any Certificate until such Certificate is surrendered for exchange as provided herein. Subject to applicable law, following surrender of any such Certificate, there shall be paid to the holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable (but for the provisions of this Section 3.2(b)) with respect to such shares of Parent Common Stock and not paid, less the amount of any withholding taxes that may be required thereon. (c) Transfers. At or after the Effective Time, there shall be no transfers on the stock transfer books of Target of the shares of Target Common Stock that were outstanding immediately prior to the Effective Time. If, at or after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be canceled and exchanged for certificates of shares of Parent Common Stock deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Article III. Certificates surrendered for exchange by any person shall not be exchanged until Parent has received confirmation of the continued accuracy of the Investor Questionnaire and the Investor Letter, Indemnification Agreement and Registration Rights Agreement (each as defined in Section 8.3) from such person. (d) No Liability. Notwithstanding anything to the contrary in this Section 3.2, neither the Surviving Corporation nor any party hereto shall be liable to any person for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. 3.3 No Further Ownership Rights in Target Common Stock. All shares of Parent Common Stock issued upon surrender for exchange of shares of Target Common Stock in accordance with the terms hereof (including any additional share of Parent Common Stock issued in lieu of fractional shares) shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Target Common Stock, and there shall be no further registration of transfers on the records of Surviving Corporation of shares of Target Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article III. A-5 105 3.4 Lost, Stolen or Destroyed Certificates. If any Certificate is lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificate, upon the making of an affidavit of that fact by the holder thereof, such shares of Parent Common Stock (and cash in lieu of fractional shares) as may be required pursuant to Section 3.1, except that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent, Surviving Corporation or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed. 3.5 Stock Subject to Conditions. All shares of Parent Common Stock that are received in the Merger in exchange for shares of Target Common Stock, which, under agreements with Target, are unvested and which, by their terms, do not terminate due to the Merger will also be unvested, and the certificates evidencing such shares will be marked with appropriate legends. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TARGET Except as disclosed in a document of even date herewith and delivered by Target to Parent prior to the execution and delivery of this Agreement and referring to the representations and warranties in this Agreement (the "Target Disclosure Schedule"), Target represents and warrants to Parent and Merger Sub as follows: 4.1 Organization, Standing and Power. Target is a corporation duly organized and validly existing under the laws of the State of Oregon, has the full corporate power to own its properties and to carry on its business as now being conducted and as proposed to be conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified and in good standing would have a Material Adverse Effect (as defined in Section 11.3) on Target. Target has delivered to Parent a true and correct copy of its Articles of Incorporation and Bylaws, each as amended to date. Target is not in violation of any of the provisions of its Articles of Incorporation or Bylaws or equivalent organizational documents. 4.2 Capitalization; Shareholders. (a) The authorized capital stock of Target consists of 2,000,000 shares of Target Common Stock and 1,000,000 shares of Preferred Stock, $.01 par value, of which there are issued and outstanding 30,000 shares of Target Common Stock and no shares of Preferred Stock. There are no other outstanding shares of capital stock or other securities of Target and no outstanding subscriptions, options, warrants, puts, calls, purchase or sale rights, exchangeable or convertible securities or other commitments or agreements of any nature relating to the capital stock or other securities of Target, or otherwise obligating Target to issue, transfer, sell, purchase, redeem or otherwise acquire such stock or securities. All outstanding shares of Target Common Stock are duly authorized, validly issued, fully paid and non-assessable and are free and clear of any mortgage, pledge, lien, encumbrance, charge or other security interest (a "Lien"), except Liens created by or imposed upon the holders thereof, and are not subject to preemptive rights or rights of first refusal created by statute, the Articles of Incorporation or Bylaws of Target or any agreement to which Target is a party or by which it is bound. There are no contracts, commitments or agreements relating to voting, purchase or sale of Target's capital stock (i) between or among Target and any of its shareholders and (ii) to the Target's knowledge, between or among any of Target's shareholders, except for the shareholders named in Schedule 4.2 of the Target Disclosure Schedule. (b) Schedule 4.2 of the Target Disclosure Schedule sets forth a true and complete list of the names of all the record holders of Target Common Stock, together with the number of shares of Target Common Stock held by each such holder. Except as set forth in Schedule 4.2 of the Target Disclosure Schedule, each holder so listed that is an individual is a competent adult or nonprofit corporation and is the record and the beneficial owner of all shares or other equity securities so listed in his or her name, with the sole right to vote, dispose of, and receive A-6 106 dividends or distributions with respect to such shares. Except as set forth in Schedule 4.2 of the Target Disclosure Schedule, each holder so listed that is an entity is the record and the beneficial owner of all shares or other equity securities so listed in its name, has the sole right to vote, dispose of, and receive dividends or distributions with respect to such shares, has the full power and authority, and has or will be fully empowered and authorized as of the Effective Time, to consummate the matters contemplated to be consummated by such holder herein. 4.3 Subsidiaries. Target does not directly or indirectly own any equity or similar interest in, or any interest convertible or exchangeable or exercisable for, any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity. 4.4 Due Authorization. (a) Target has the full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Target, subject only to the approval of the Merger by Target's shareholders as contemplated by Section 7.2. This Agreement has been duly executed and delivered by Target and constitutes the valid and binding obligation of Target enforceable against Target in accordance with its terms. The execution and delivery of this Agreement by Target do not, and the consummation of the transactions contemplated hereby will not, (i) conflict with or violate any provision of the Articles of Incorporation or Bylaws of Target, (ii) violate or conflict with any permit, order, license, decree, judgment, statute, law, ordinance, rule or regulation applicable to Target or the properties or assets of Target, or (iii) result in any breach or violation of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of, or result in the creation of any Lien on any of the properties or assets of Target pursuant to or require the consent or approval of any party to any mortgage, indenture, lease, contract or other agreement or instrument, bond, note, concession or franchise applicable to Target or any of its properties or assets, except, in the case of this clause (iii) only, where such conflict, violation, default, termination, cancellation or acceleration would not have and could not reasonably be expected to have a Material Adverse Effect on Target or prevent the consummation of the transactions contemplated hereby. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality ("Governmental Entity") is required by or with respect to Target in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for the filing of the Articles of Merger as provided in Section 1.3 and such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not have a Material Adverse Effect on Target or prevent the consummation of transactions contemplated hereby. (b) All holders of Target Common Stock have approved, by written consent or otherwise, this Agreement and the Merger in accordance with applicable law, and no other consent or approval of any holder of Target Common Stock or other equity securities of Target is required for Target to execute and deliver this Agreement and consummate the transaction contemplated hereby. By virtue of such approval, no holder of Target Common Stock or other equity securities of Target has any right to dissent and obtain payment for such holder's shares under applicable law. 4.5 Financial Statements. Target has heretofore delivered to Parent true and complete copies of audited balance sheet, and the related statements of operations and stockholders' equity and of cash flows at September 30, 1996 on a combined basis with CEWI, with separate disclosure of the balance sheet and income and retained earnings of Target (the "Annual Financial Statements"), with an opinion of Target's independent public accountants. Target also has heretofore delivered to Parent true copies of the unaudited balance sheet of Target at November 30, 1996 and the related unaudited statements of income for the two months then ended (the "Interim Target Financial Statements"). The Annual Financial Statements and the Interim Target Financial Statements were prepared in accordance with generally accepted accounting principles applied on a basis consistent throughout the periods indicated and consistent with each other (except as indicated in the notes thereto and, in the case of the A-7 107 Interim Target Financial Statements, that no notes are included) and fairly present the consolidated financial condition and operating results of Target (combined with CEWI to the extent applicable) at the dates and during the periods indicated therein, subject, in the case of the Interim Target Financial Statements, to normal, recurring year-end audit adjustments. 4.6 Absence of Certain Changes. Except as specifically permitted by this Agreement or as set forth in Schedule 4.6 of the Target Disclosure Schedule, since September 30, 1996, Target has conducted its business in the ordinary course consistent with past practice and there has not occurred: (a) any change, event or condition (whether covered by insurance) that has resulted in, or might reasonably be expected to result in, a Material Adverse Effect on Target; (b) any sale, lease or other transfer or disposition of any property or asset of Target, except for the sale of inventory in the ordinary course of business; (c) any change in accounting methods, practices or policies (including any change in depreciation or amortization policies or rates) by Target or any revaluation by Target of any of its assets, except as described in the notes to the Annual Financial Statements; (d) any declaration, setting aside, or payment of any dividend or other distribution to Target's shareholders, or any direct or indirect redemption, retirement, purchase or other acquisition by Target of any of its capital stock or other securities or options, warrants or other rights to acquire capital stock; (e) any entering into, amendment or termination of, or default under, by Target of any contract to which Target is a party or by which it is bound other than in the ordinary course of business and as provided to Parent; (f) any damage, destruction or loss (whether or not covered by insurance) to the properties and assets of Target; (g) any commitment or transaction (including any capital expenditure, capital financing or sale of assets) by Target for any amount that requires or could require payments in excess of $50,000 with respect to any individual contract or a series of related contracts; (h) any Lien on any asset allowed to exist by Target; (i) any cancellation of any debt or waiver or release of any right or claim by Target; (j) any payment, discharge or satisfaction of any claim, liability or obligation by Target, other than as reflected or reserved against in the Annual Financial Statements or the Interim Target Financial Statements or in the ordinary course of business consistent with past practice; (k) to Target's knowledge, any labor dispute, litigation or governmental investigation affecting the business or financial condition of Target; (l) any issuance or sale of capital stock or other securities, exchangeable or convertible securities, options, warrants, puts, calls or other rights to acquire capital stock or other securities of Target; (m) any indebtedness for borrowed money incurred, assumed or guaranteed by Target; (n) any loan or advance (other than advances to employees in the ordinary course of business for travel and entertainment in accordance with past practice) to any person; A-8 108 (o) any increase in any salary, wage, benefit or other remuneration payable or to become payable to any current or former officer, director, employee or agent of Target or any bonus or severance payment or arrangement made to, for or with any officer, director, employee or agent of Target or any supplemental retirement plan or other program or special remuneration for any officer, director, employee or agent of Target, except for (i) the Team Bonuses and (ii) normal salary or wage increases relating to periodic performance reviews and annual bonuses consistent with past practice of Target where such increases or bonuses are not given to Target's shareholders or their relations or members of the leadership team of Target or CEWI; (p) any grant of credit to any customer on terms or in amounts more favorable than those which have been extended to such customer in the past, any other change in the terms of any credit heretofore extended or any other change in the policies or practices of Target with respect to the granting of credit; (q) any delay in the payment of any trade or other payables other than in the ordinary course of business consistent with past practice; or (r) any agreement, whether in writing or otherwise, by Target to do any of the foregoing. 4.7 Liabilities. Except as set forth in the Annual Financial Statements, the Interim Target Financial Statements, Schedule 4.7 of the Target Disclosure Schedule or any other Schedule of the Target Disclosure Schedule and except for liabilities or obligations arising in the ordinary course and consistent with past practice and those incurred in connection herewith, Target does not have any liability or obligation of any nature, whether due or to become due, fixed or contingent. 4.8 Litigation. There is no private or governmental action, suit, proceeding, claim, arbitration or investigation pending before any agency, court or tribunal, foreign or domestic, or, to the knowledge of Target, threatened against Target or any of its assets and properties or any of its officers or directors (in their capacities as such) that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on Target. There is no judgment, decree or order against Target, or, to the knowledge of Target, any of its directors or officers (in their capacities as such), that could prevent consummation of the transactions contemplated by this Agreement, or that could reasonably be expected to have a Material Adverse Effect on Target. 4.9 Restrictions on Business Activities. There is no material agreement, judgment, injunction, order or decree binding upon Target which has or reasonably could be expected to have the effect of prohibiting or materially impairing any current or proposed business practice of Target, any acquisition of property by Target or the conduct of business by Target as currently conducted or as proposed to be conducted by Target. 4.10 Governmental Authorization. Target has obtained each federal, state, county, local or foreign governmental consent, license, permit, grant, or other authorization that are necessary for Target to own or lease, operate and use its respective assets and properties and to carry on business as currently conducted or as proposed to be conducted (collectively "Target Authorizations"), Target has performed and fulfilled its obligations under the Target Authorizations, and all the Target Authorizations are in full force and effect, except where the failure to obtain or have any of such Target Authorizations could not reasonably be expected to have a Material Adverse Effect on Target. 4.11 Contracts and Commitments. Except as set forth in Schedule 4.11 of the Target Disclosure Schedule, Target is not a party to any oral or written (a)(i) obligation for borrowed money, (ii) obligation evidenced by bonds, debentures, notes or other similar instruments, (iii) obligation to pay the deferred purchase price of property or services (other than trade accounts arising in the ordinary course of business), (iv) obligation under capital leases, (v) debt of others secured by a Lien on its property, (vi) guaranty of liabilities or obligations of others, (vii) agreement under which Target is obligated to make or expects to receive payments in excess of $50,000 or (viii) agreement granting any person a Lien on any of its properties or assets (except purchase money security interests created in the ordinary course of business consistent with past practice); (b)(i) employment agreement or A-9 109 collective bargaining agreement or (ii) agreements that limits the right of Target, or any of its employees to compete in any line of business; or (c) agreement which, after giving effect to the transactions contemplated hereby, purports to restrict or bind Parent or any of its subsidiaries, other than Surviving Corporation, in any respect. True and complete copies of all agreements described in Schedule 4.11 of the Target Disclosure Schedule or any other section thereto have been delivered to Parent. Target has fulfilled, or taken all actions necessary to enable it to fulfill when due, its obligations under each of such agreements. All parties thereto have complied in all material respects with the provisions thereof and no party is in breach or violation of, or in default (with or without notice or lapse of time, or both) under such agreements. With respect to such agreements, Target has not received any notice of termination, cancellation or acceleration or any notice of breach, violation or default thereof. 4.12 Title to Property. Except as set forth in Schedule 4.12 of the Target Disclosure Schedule, Target has good and marketable title to all of its respective properties and assets, or in the case of leased properties and assets, valid leasehold interests in such properties, free and clear of any Lien. The plants, property and equipment of Target that are used in the operations of its business are in good operating condition and repair. All plants, property and equipment have been well maintained and conform (to Target's knowledge) with all applicable ordinances, regulations and zoning and other laws and do not encroach on the property of others. There is no pending or, to Target's knowledge, threatened change in any such ordinance, regulation or zoning or other law, and there is no pending or, to Target's knowledge, threatened condemnation of any such building, machinery or equipment. The properties and assets of Target include all rights, properties, interests in properties and assets necessary to permit Surviving Corporation to conduct its business as currently conducted or as proposed to be conducted. Schedule 4.12 of the Target Disclosure Schedule identifies each parcel of real property owned or leased by Target. 4.13 Intellectual Property. (a) Target owns, or is licensed or otherwise possesses legally enforceable rights to use, all patents, trademarks, trade names, service marks, copyrights, and any applications therefor, maskworks, net lists, schematics, technology, know-how, trade secrets, inventory, ideas, algorithms, processes, computer software programs or applications (in both source code and object code form), and tangible or intangible proprietary information or material ("Intellectual Property") that are used or proposed to be used in the business of Target as currently conducted or as proposed to be conducted, except to the extent that the failure to have such rights has not and could not reasonably be expected to have a Material Adverse Effect on Target. (b) Schedule 4.13 of the Target Disclosure Schedule lists (i) all patents and patent applications and all registered and unregistered trademarks, trade names and service marks, registered and unregistered copyrights, and maskworks, which Target considers to be material to its business and included in the Intellectual Property, including the jurisdictions in which each such Intellectual Property right has been issued or registered or in which any application for such issuance and registration has been filed, (ii) all material licenses, sublicenses and other agreements as to which Target is a party and pursuant to which any person is authorized to use any Intellectual Property, and (iii) all material licenses, sublicenses and other agreements as to which Target is a party and pursuant to which Target is authorized to use any third party patents, trademarks or copyrights, including software ("Third Party Intellectual Property Rights"), in each case which are incorporated in, are, or form a part of any product or service of Target. (c) To the knowledge of Target, there is no unauthorized use, disclosure, infringement or misappropriation of any Intellectual Property rights of Target, any trade secret material to Target, or any Third Party Intellectual Property Right, by any third party, including any employee or former employee of Target. Target has not entered into any agreement to indemnify any other person against any charge of infringement of any Intellectual Property, other than indemnification provisions contained in purchase orders arising in the ordinary course of business. A-10 110 (d) Target is not, and will not be as a result of the execution and delivery of this Agreement or the performance of Target's obligations under this Agreement be, in breach of any license, sublicense or other agreement relating to the Intellectual Property or Third Party Intellectual Property Rights, the breach of which could have a Material Adverse Effect on Target. (e) All patents, registered trademarks, service marks and copyrights held by Target are valid and subsisting. Target (i) has not been sued in any suit, action or proceeding which involves a claim of infringement of any patents, trademarks, service marks, copyrights or violation of any trade secret or other proprietary right of any third party or (ii) has not brought any action, suit or proceeding for infringement of Intellectual Property or breach of any license or agreement involving Intellectual Property against any third party. The manufacture, marketing, licensing or sale of the products and services of Target does not infringe any patent, trademark, service mark, copyright, trade secret or other proprietary right of any third party. (f) Target has secured valid written assignments from all consultants and employees who contributed to the creation or development of Intellectual Property of the rights to such contributions that Target does not already own by operation of law. (g) Target has taken all reasonable and appropriate steps to protect and preserve the confidentiality of all Intellectual Property not otherwise protected by patents, or patent applications or copyright ("Confidential Information"). All use, disclosure or appropriation of Confidential Information owned by Target by or to a third party has been pursuant to the terms of a written agreement with such third party. All use, disclosure or appropriation of Confidential Information not owned by Target has been pursuant to the terms of a written agreement with the owner of such Confidential Information, or is otherwise lawful. 4.14 Environmental Matters. (a) Target has complied with, and is in compliance with, all Environmental Laws (as defined in this Section 4.14(a)) applicable to its business, properties and assets. Target has, and Target has provided to Parent true and complete copies of, all permits, approvals, registrations, licenses and other authorizations required by any Governmental Entity pursuant to any Environmental Law applicable to its business, properties and assets, the absence of which would have a Material Adverse Effect on Target. There is no pending or, to Target's knowledge, threatened civil or criminal litigation, written notice of violation, formal administrative proceeding, or investigation, inquiry or information request by any Governmental Entity, relating to any Environmental Law to which Target is a party or, to Target's knowledge, threatened to be made a party. For purposes of this Agreement, "Environmental Law" means any federal, state or local law, statute, rule or regulation or the common law relating to the environment or occupational health and safety, including any statute, regulation or order pertaining to (i) treatment, storage, disposal, generation and transportation of industrial, toxic or hazardous substances or solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater and solid contamination; (iv) the release or threatened release into the environment of industrial, toxic or hazardous substances, or solid or hazardous waste, including without limitation emissions, discharges, injections, spills, escapes or dumping of pollutants, contaminants or chemicals; (v) the protection of wild life, marine sanctuaries and wetlands, including without limitation all endangered and threatened species; (vi) storage tanks, vessels and containers; (vii) underground and other storage tanks or vessels, abandoned, disposed or discarded barrels, containers and other closed receptacles; (viii) health and safety of employees and other persons; and (ix) manufacture, processing, use, distribution, treatment, storage, disposal, transportation or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or oil or petroleum products or solid or hazardous waste. As used herein, the terms "release" and "environment" have the meanings set forth in the federal Comprehensive Environmental Compensation, Liability and Response Act of 1980 ("CERCLA"). (b) There have been no releases of any Materials of Environmental Concern (as defined in this Section 4.14(b)) into the environment at any parcel of real property or any facility presently or formerly owned by Target or by Target at any parcel of real property or any facility presently or formerly leased, operated or A-11 111 controlled by Target. With respect to any such releases of Materials of Environmental Concern, Target has given all required notices to government authorities, copies of which have been provided to Parent. Target is not aware of any releases of Materials of Environmental Concern at parcels of real property or facilities other than those presently or formerly owned, leased, operated or controlled by Target that could reasonably be expected to have an impact on the real property or facilities owned, leased, operated or controlled by Target. For purposes of this Agreement, "Materials of Environmental Concern" means any chemicals, pollutants or contaminants, hazardous substances (as such term is defined under CERCLA), solid wastes and hazardous wastes (as such terms are defined under the Federal Resources Conservation and Recovery Act), toxic materials, oil or petroleum and petroleum products. (c) Set forth in Schedule 4.14 of the Target Disclosure Schedule is a list of all environmental reports, investigations and audits in the possession of Target with respect to the operations of, or real property leased by Target (whether conducted by or on behalf of Target or a third party and whether done at the initiative of Target or directed by a Governmental Entity or other third party). True and complete copies of each such report, or the results of each such investigation or audit, have been provided to Parent. (d) Target is not aware of any material environmental liability arising out of the utilization by Target of any solid and hazardous waste transporter or treatment, storage and disposal facility. 4.15 Taxes. Target, and any consolidated, combined, unitary or aggregate group for Tax (as defined in this Section 4.15) purposes of which Target is or has been a member have timely filed all Tax Returns (as defined in this Section 4.15) required to be filed by it taking into account extensions of due dates, have paid all Taxes shown thereon to be due and has provided adequate accruals in accordance with generally accepted accounting principles in its financial statements for any Taxes that have not been paid, whether shown as being due on any Tax returns. Target has withheld and paid over all Taxes required to have been withheld and paid over (including any estimated taxes), and has complied with all information reporting and backup withholding requirements, including maintenance of required records with respect thereto, in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party. Target does not have any liability under Treasury Regulation Section 1.1502-6 or any analogous state, local or foreign law by reason of having been a member of any consolidated, combined or unitary group. Target does not have any liability under Treasury Regulation Section 1.1502-6 or any analogous state, local or foreign law by reason of having been a member of any consolidated, combined or unitary group. Except as disclosed in Schedule 4.15 of the Target Disclosure Schedule, (a) no material claim for Taxes has become a Lien against the property of Target or is being asserted against Target other than Liens for Taxes not yet due and payable, (b) no audit of any Tax Return of Target is being conducted by a Tax authority, (c) no Tax authority is now asserting, or to the knowledge of Target, threatening to assert against Target any deficiency or claim for additional Taxes, and there are no requests for information from a Tax authority currently outstanding that could affect the Taxes of Target, (d) no extension of the statute of limitations on the assessment of any Taxes has been granted by Target and is currently in effect, (e) Target has not entered into any compensatory agreements with respect to the performance of services which payment thereunder would result in a nondeductible expense pursuant to Sections 162(m) or 280G of the Code, (f) no action has been taken that would have the effect of deferring any liability for Taxes for Target from any period prior to the Effective Date to any period after the Effective Date, (g) Target has never been included in an affiliated group of corporations, within the meaning of Section 1504 of the Code, (h) Target is not (nor has it ever been) a party to any Tax sharing agreement, (i) no consent under Section 341(f) of the Code has been filed with respect to Target, (j) Target has not disposed of any property that has been accounted for under the installment method, (k) Target is not a party to any interest rate swap, currency swap or similar transaction, (l) Target is not a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code, (m) Target is not subject to any joint venture, partnership or other arrangement or contract that is treated as a partnership for federal income tax purposes, (n) Target has not made any of the foregoing elections and is not required to apply any of the foregoing rules under any comparable state or local income tax provisions, and (o) the transactions contemplated herein are not subject to the tax withholding provisions of Section 3406 of the Code, or of Subchapter A of Chapter 3 of the Code, or of any other provision of law. Target will not be required to include any material adjustment in Taxable income for any Tax period (or portion thereof) ending after A-12 112 the Effective Time attributable to adjustments made prior to the Merger pursuant to Section 481 or 263A of the Code or any comparable provision of any state or foreign Tax law. Schedule 4.15 of the Target Disclosure Schedule contains accurate and complete information with respect to: (w) all material tax elections in effect with respect to Target, (x) the current tax basis of the assets of Target, (y) the current and accumulated earnings and profits of Target, and (z) the tax credit carry overs of Target. As used herein, "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means (i) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, business and occupations, occupation, premium, property, environmental or windfall profit tax, custom, duty, or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any Governmental Entity (a "Tax authority") responsible for the imposition of any such tax (domestic or foreign), (ii) any liability for the payment of any amounts of the type described in clause (i) as a result of being a member of an affiliated, consolidated, combined or unitary group for any Taxable period and (iii) any liability for the payment of any amounts of the type described in clause (i) or (ii) as a result of any express or implied obligation to indemnify any other person. As used herein, "Tax Return" shall mean any return, statement, report or form (including, without limitation,) estimated Tax returns and reports, withholding Tax returns and reports and information reports and returns required to be filed with respect to Taxes. Target is in full compliance with all terms and conditions of any Tax exemptions or other Tax-sharing agreement or order of a foreign government and the consummation of the Merger shall not have any adverse effect on the continued validity and effectiveness of such Tax exemptions or other Tax-sharing agreement or order. 4.16 Employee Benefit Plans. (a) Schedule 4.16 of the Target Disclosure Schedule lists, with respect to Target, and any trade or business (whether or not incorporated) which is treated as a single employer with Target (an "ERISA Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all material employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), (ii) each loan to a non-officer employee in excess of $50,000, loans to officers and directors and any stock option, stock purchase, phantom stock, stock appreciation right, supplemental retirement, severance, sabbatical, medical, dental, vision care, disability, employee relocation, cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life insurance or accident insurance plans, programs or arrangements, (iii) all bonus, pension, profit sharing, savings, deferred compensation or incentive plans, programs or arrangements, (iv) other fringe or employee benefit plans, programs or arrangements that apply to senior management and that do not generally apply to all employees, and (v) any current or former employment or executive compensation or severance agreements, written or otherwise, as to which unsatisfied obligations of greater than $50,000 remain for the benefit of, or relating to, any present or former employee, consultant or director (collectively, the "Target Employee Plans"). (b) Target has furnished to Parent a copy of each of the Target Employee Plans and related plan documents (including trust documents, insurance policies or contracts, employee booklets, summary plan descriptions and other authorizing documents, and, to the extent still in its possession, any material employee communications relating thereto) and has, with respect to each Target Employee Plan which is subject to ERISA reporting requirements, provided copies of the Form 5500, including all schedules attached thereto and actuarial reports, if any, filed for the last three Plan years. Any Target Employee Plan intended to be qualified under Sections 401(a) or 501(c)(9) of the Code has either obtained from the Internal Revenue Service a favorable determination letter as to its qualified status under the Tax Reform Act of 1986 and subsequent legislation, or has applied to the Internal Revenue Service for such a determination letter prior to the expiration of the requisite period under applicable Treasury Regulations or Internal Revenue Service pronouncements in which to apply for such determination letter and to make any amendments necessary to obtain a favorable determination. Target has also furnished Parent with the most recent Internal Revenue Service determination letter issued with respect to each such Target Employee Plan (and nothing has occurred since the issuance of each such letter which could reasonably be expected to cause the loss of the tax-qualified status of any Target Employee Plan subject to Code Section 401(a)), and all prohibited transaction exemptions (or requests for such exemptions), private letter rulings, opinions, A-13 113 information letters or compliance statements issued with respect to any plan described in Section 4.16(a) by the Internal Revenue Service, the Department of Labor or the Pension Benefit Guaranty Corporation. (c) (i) None of the Target Employee Plans promises or provides retiree medical or other retiree welfare benefits to any person; (ii) there has been no "prohibited transaction," as such term is defined in Section 406 of ERISA and Section 4975 of the Code, with respect to any Target Employee Plan, which could reasonably be expected to have, in the aggregate, a Material Adverse Effect; (iii) each Target Employee Plan has been administered in accordance with its terms and in compliance with the requirements prescribed by any and all statutes, rules and regulations (including ERISA and the Code), except as would not have a Material Adverse Effect on Target, and Target and each ERISA Affiliate have performed all obligations required to be performed by them under, are not in any respect in default under or violation of, and have no knowledge of any default or violation by any other party to, any of the Target Employee Plans, which default or violation could reasonably be expected to have a Material Adverse Effect on Target; (iv) neither Target nor any ERISA Affiliate is subject to any liability or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any of the Target Employee Plans which have a Material Adverse Effect on any such parties; (v) all material contributions required to be made by Target or any ERISA Affiliate to any Target Employee Plan have been made on or before its due dates and a reasonable amount has been accrued for contributions to each Target Employee Plan for the current plan years; (vi) with respect to each Target Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA (excluding any such event for which the 30-day notice requirement has been waived under the regulations to Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA has occurred; and (vii) no Target Employee Plan is covered by, and neither Target nor any ERISA Affiliate has incurred or expects to incur any liability under Title IV of ERISA or Section 412 of the Code. With respect to each Target Employee Plan subject to ERISA as either an employee pension plan within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan within the meaning of Section 3(1) of ERISA, Target has prepared in good faith and timely filed all requisite governmental reports (which were true and correct as of the date filed) and has properly and timely filed and distributed or posted all notices and reports to employees required to be filed, distributed or posted with respect to each such Target Employee Plan except where the failure to timely file, distribute or post such documents would not, in the aggregate, have a Material Adverse Effect on Target. No suit, administrative proceeding, action or other litigation has been brought, or to the knowledge of Target, is threatened, against or with respect to any such Target Employee Plan, including any audit or inquiry by the Internal Revenue Service or United States Department of Labor. Neither Target nor any ERISA Affiliate is a party to, or has made any contribution to or otherwise incurred any obligation under, any "multiemployer plan" as defined in Section 3(37) of ERISA. (d) With respect to each Target Employee Plan, Target has complied with (i) the applicable health care continuation and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the proposed regulations thereunder and (ii) the applicable requirements of the Family and Medical Leave Act of 1993 and the regulations thereunder, except to the extent that such failure to comply would not, in the aggregate, have a Material Adverse Effect on Target. (e) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (i) entitle any current or former employee or other service provider or any director of Target, or any ERISA Affiliate to severance benefits or any other payment (including unemployment compensation, golden parachute, bonus or otherwise), (ii) increase any benefits otherwise payable or (iii) accelerate the time of payment or vesting, or increase the amount of compensation due any such employee, service provider or director. (f) There has been no amendment to, written interpretation or announcement (whether or not written) by Target, or any ERISA Affiliate relating to, or change in participation or coverage under, any Target Employee Plan which would materially increase the expense of maintaining such Plan above the level of expense incurred with respect to that Plan for the most recent fiscal year included in the Annual Financial Statements. 4.17 Employee Matters. Schedule 4.17 of the Target Disclosure Schedule lists all employees of Target and the remuneration and benefits to which such employees are entitled. Schedule 4.17 also lists all employment A-14 114 contracts and collective bargaining agreements, and all pension, bonus, profit sharing, or other agreements or arrangements providing for employee remuneration or benefits to which Target is a party or by which it is bound; all of these contracts and arrangements are in full force and effect, and neither Target nor any other party is in default under them. There have been no claims of defaults and, to Target's knowledge there are no facts or conditions which if continued, or on notice, will result in a default under these contracts or arrangements. There is no pending or, to Target's knowledge, threatened labor dispute, strike, or work stoppage that would have a Material Adverse Effect on Target. Target is in compliance in all respects with all current applicable laws and regulations respecting employment, discrimination in employment, terms and conditions of employment, wages, hours and occupational safety and health and employment practices, and are not engaged in any unfair labor practice. There are no pending claims against Target under any workers compensation plan or policy or for long term disability. Target does not have any obligations under COBRA with respect to any former employees or qualifying beneficiaries thereunder. 4.18 Interested Party Transactions. Except as disclosed in Schedule 4.18 of the Target Disclosure Schedule, Target is not indebted to any shareholder, director, officer, employee or agent of Target (except for amounts due as normal salaries and bonuses and in reimbursement of ordinary expenses), and no such person is indebted to Target, and there have been no other transactions of the type required to be disclosed pursuant to Items 402 and 404 of Regulation S-K under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. 4.19 Insurance. Target has policies of insurance and bonds of the type and in amounts customarily carried by persons conducting businesses or owning assets similar to those of Target. Schedule 4.19 of the Target Disclosure Schedule sets forth a true and complete listing of all such policies, including in each case applicable coverage limits, deductibles and policy expiration dates. There is no material claim pending under any of such policies or bond as to which Target has received a denial, or, to Target's knowledge, which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and Target is otherwise in compliance in all material respects with the terms of such policies and bonds. Target has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. Each policy or bond is legal, valid, binding, enforceable and in full force and effect and will continue to be legal, valid, binding, enforceable and in full force and effect following the consummation of the transactions contemplated hereby. 4.20 Compliance With Laws. Target has complied with, is not in violation of, and has not received any notices of violation with respect to, any federal, state, local or foreign statute, law or regulation with respect to the conduct of its business, or the ownership or operation of its business, except for such violations or failures to comply as could not be reasonably expected to have a Material Adverse Effect on Target. 4.21 Major Customers. Schedule 4.21 of the Target Disclosure Schedule contains a list of the customers of Target for each of the two most recent fiscal years, which individually accounted for more than five percent of the total dollar amount of net sales, showing the total dollar amount of net sales to each such customer during each such year. Target has no knowledge or information of any facts indicating, nor any other reason to believe, that any of the customers listed in such Schedule 4.21 will not continue to be customers of Target after the Closing at substantially the same level of purchases. 4.22 Suppliers. As of the date hereof, no supplier of Target has indicated to Target that it will stop, or decrease the rate of, supplying materials, products or service to Target. Target has not knowingly breached, so as to provide a benefit to Target that was not intended by the parties, any agreement with, or engaged in any fraudulent conduct with respect to, any customer or supplier of Target. 4.23 Inventory. All inventories of raw materials, work-in process and finished goods (including all such in transit) of Target, together with related packaging materials (collectively, "Inventory"), reflected in the Interim Target Financial Statements consist of a quality and quantity usable and saleable in the ordinary course of A-15 115 business, have commercial values at least equal to the value shown on such balance sheet or are subject to purchase obligations by customers or suppliers at such value and is valued in accordance with generally accepted accounting principles at the lower of cost (on a first in first out basis) or market. All Inventory purchased since the date of such balance sheet consists of a quality and quantity usable and saleable in the ordinary course of business. Except as set forth in Schedule 4.23 of the Target Disclosure Schedule, all Inventory is located on premises owned or leased by Target. All work-in process contained in Inventory constitutes items in process of production pursuant to contracts or open orders taken in the ordinary course of business, from regular customers of Target with no recent history of credit problems with respect to Target; neither Target nor any such customer is in material breach of the terms of any obligation to the other, and, based on Target's knowledge or what Target reasonably should know, valid grounds exist for any counterclaim or set-off of amounts billable to such customers upon the completion of orders to which work-in-process relates. All work-in process is of a quality ordinarily produced in accordance with the requirements of the orders to which such work-in-process is identified, and will require no rework with respect to work performed prior to Closing. 4.24 Product Warranty and Product Liability. Schedule 4.24 of the Target Disclosure Schedule contains a true and complete copy of Target's standard warranty or warranties for its manufacturing services. There has been no variation from such warranties, except as set forth in Schedule 4.24 of the Target Disclosure Schedule. Except as stated therein, there are no warranties, commitments or obligations with respect to Target's performance of services. Schedule 4.24 of the Target Disclosure Schedule contains a description of all product liability claims and similar claims, actions, litigation and other proceedings relating to services rendered, which are presently pending or, to Target's knowledge, threatened, or which have been asserted or commenced against Target within the last five years, in which a party thereto either requests injunctive relief (whether temporary or permanent) or alleges damages (whether or not covered by insurance). There are no defects in Target's manufacturing services that would adversely affect performance of products Target manufactures or create an unusual risk of injury to persons or property. Target's manufacturing services have been designed or performed so as to meet and comply with all governmental standards and specifications currently in effect, and have received all governmental approvals necessary to allow its performance. 4.25 Minutes Books. The minute books of Target made available to Parent contain true and complete summaries of all meetings of directors and shareholders or actions by written consent since the time of incorporation of Target, and reflect all transactions referred to in such minutes accurately in all material respects. 4.26 Brokers' and Finders' Fees. Except for the letter agreement, dated August 23, 1996 between Target and Pacific Crest Securities, Inc., Target has not incurred, and will not incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement or any transaction contemplated hereby. 4.27 Section 60.835 of OBCA Not Applicable. The Board of Directors of Target has taken all actions, including the approval of the Merger, so that the restrictions contained in Section 60.835 of the OBCA applicable to a "business combination" (as defined in Section 60.825 of the OBCA) will not apply to the execution, delivery or performance of this Agreement or the consummation of the Merger or the other transactions contemplated by this Agreement. 4.28 Proxy Statement. The information supplied by Target for inclusion in the proxy statement to be sent to the shareholders of Parent in connection with the meeting of Parent's shareholders (the "Parent Shareholders Meeting") to consider the Merger (such proxy statement as amended or supplemented is referred to herein as the "Proxy Statement") shall not, on the date the Proxy Statement is first mailed, at the time of the Parent Shareholders Meeting and at the Effective Time, contain any statement which, at such time, is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they are made, not false or misleading; or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Parent Shareholders Meeting which has become false or misleading. A-16 116 4.29 Regulation D Offering. To Target's knowledge, the information provided to Parent by the holders of shares of Target Common Stock, which information is set forth in each such holder's Voting Agreement (as defined in Section 8.3(g)) delivered to Parent, is true and correct in all material respects. 4.30 Disclosure. None of the representations or warranties made by Target herein or in the Target Disclosure Schedule, or in any certificate furnished by Target pursuant to this Agreement, when all such documents are read together in their entirety, contain or will contain at the Effective Time any untrue statement of a material fact, or omit or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. Target has delivered or made available true and complete copies of each document that has been requested by Parent or its counsel in connection with their legal and accounting review of Target. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Except as disclosed in a document of even date herewith and delivered by Parent to Target prior to the execution and delivery of this Agreement and referring to the representations and warranties in this Agreement (the "Parent Disclosure Schedule"), Parent and Merger Sub represent and warrant to Target as follows: 5.1 Organization, Standing and Power. Each of Parent and its subsidiaries, including Merger Sub, is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, has the corporate power to own its properties and to carry on its business as now being conducted and as proposed to be conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified and in good standing would have a Material Adverse Effect on Parent. Merger Sub has not engaged in any business (other than certain organizational matters) since the date of its incorporation. 5.2 Capitalization. As of September 30, 1996, the authorized capital stock of Parent consisted of 45,000,000 shares of Parent Common Stock and 5,000,000 shares of Preferred Stock, $.01 par value, of which there were issued and outstanding 3,942,660 shares of Parent Common Stock and no shares of Preferred Stock. There are no other outstanding shares of capital stock or other securities of Parent other than shares of Parent Common Stock issued after September 30, 1996 upon the exercise of options issued under Parent's 1993 Incentive Stock Option Plan and its Stock Option Plan for Non-Employee Directors (collectively, the "Parent Stock Option Plans") and other outstanding stock options granted by Parent to its employees. The authorized capital stock of Merger Sub consists of 1,000 shares of Merger Sub Common Stock, all of which are issued and outstanding and are held by Parent. All outstanding shares of Parent and Merger Sub have been duly authorized, validly issued, fully paid and are non-assessable and free and clear of any Lien, except Liens created by or imposed upon the holders thereof. As of September 30, 1996, Parent has reserved (a) 405,000 shares of Parent Common Stock for issuance to employees, directors and independent contractors pursuant to the Parent Stock Option Plans, (b) 267,800 shares of Parent Common Stock for issuance pursuant to other outstanding stock options granted to its employees. Other than this Agreement, as disclosed in the immediately preceding sentence or as to additional shares to be authorized under employee benefit plans of Parent, there are no other options, warrants, puts, calls, rights, exchangeable or convertible securities or other commitments or agreements of any nature to which Parent or Merger Sub is a party or by which either of them is bound obligating Parent or Merger Sub to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, or repurchased, any shares of the capital stock of Parent or Merger Sub or obligating Parent or Merger Sub to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. The shares of Parent Common Stock to be issued pursuant to the Merger will, when issued, be duly authorized, validly issued, fully paid, and non-assessable. 5.3 Due Authorization. Parent and Merger Sub have the full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this A-17 117 Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub, subject only to the approval of the Merger by Parent's shareholders as contemplated by Section 7.2. This Agreement has been duly executed and delivered by Parent and Merger Sub and constitutes the valid and binding obligations of Parent and Merger Sub. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby will not, (a) conflict with or violate any provision of the Amended and Restated Articles of Incorporation or Amended and Restated Bylaws of Parent, as amended, or equivalent charter documents of any of its subsidiaries, as amended, (b) violate or conflict with any permit, order, license, decree, judgment, statute, law, ordinance, rule or regulation applicable to Parent or any of its subsidiaries or the properties or assets of Parent or any of its subsidiaries, or (c) result in any breach or violation of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to any right of termination, cancellation or acceleration of, or result in the creation of any Lien on any of the properties or assets of Parent or any of its subsidiaries pursuant to any mortgage, indenture, lease, contract or other agreement or instrument, bond, note, concession or franchise applicable to Parent or any of its subsidiaries or their properties or assets, except, in the case of this clause (c) only, where such conflict, violation, default, termination, cancellation or acceleration would not have and could not reasonably be expected to have a Material Adverse Effect on Parent. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to Parent or any of its subsidiaries in connection with the execution and delivery of this Agreement by Parent and Merger Sub or the consummation by Parent and Merger Sub of the transactions contemplated hereby, except for (i) the filing of the Articles of Merger as provided in Section 1.3, (ii) the filing with the Securities and Exchange Commission (the "SEC") and the National Association of Securities Dealers, Inc. ("NASD") of the Proxy Statement relating to the Parent Shareholders Meeting, (iii) the filing of a Form 8-K with the SEC and NASD within 15 days after the Closing Date, (iv) any filings as may be required under applicable state securities laws and the securities laws of any foreign country, and (v) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not have a Material Adverse Effect on Parent and would not prevent or materially alter or delay any of the transactions contemplated by this Agreement. 5.4 SEC Documents; Financial Statements. Parent has furnished Target with true and complete copies of its (a) Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the SEC, (b) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996, June 30, 1996, and September 30, 1996, as filed with the SEC, (c) proxy statements related to all meetings of its shareholders (whether annual or special) since December 31, 1994, and (d) all other reports and registration statements filed by Parent with the SEC since December 31, 1994, except registration statements on Form S-8 relating to employee benefit plans (collectively, the "Parent SEC Documents"). As of their respective filing dates, the Parent SEC Documents prepared in all material respects in accordance with the requirements of the Exchange Act or the Securities Act, as applicable, and the rules and regulations of the SEC thereunder applicable to such Parent SEC Documents. As of their respective filing dates, none of the Parent SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading, except to the extent corrected by a subsequently filed Parent SEC Document. The financial statements of Parent, including the notes thereto, included in the Parent SEC Documents (the "Parent Financial Statements"), complied as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto as of their respective dates, and were prepared in accordance with generally accepted accounting principles applied on a basis consistent throughout the periods indicated and consistent with each other (except as may be indicated in the notes thereto or, in the case of unaudited statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q of the SEC), and fairly present the consolidated financial condition and operating results of Parent and its subsidiaries at the dates thereof and during the periods indicated therein (subject, in the case of unaudited statements, to normal, recurring year-end audit adjustments). 5.5 Absence of Certain Changes. Except as disclosed in the Parent SEC Documents filed with the SEC prior to the date hereof, since September 30, 1996 (the "Parent Balance Sheet Date"), each of Parent and its subsidiaries has conducted its business in the ordinary course consistent with past practice and there has not A-18 118 occurred: (a) any change, event or condition (whether or not covered by insurance) that has resulted in, or might reasonably be expected to result in, a Material Adverse Effect on Parent or (b) any declaration, setting aside, or payment of a dividend or other distribution with respect to the shares of Parent, or any direct or indirect redemption, retirement, purchase or other acquisition by Parent of any of its capital stock. Except as disclosed in such Parent SEC Documents, Parent is not aware of any facts which are reasonably likely to have a Material Adverse Effect on Parent. 5.6 Compliance with Laws. Each of Parent and its subsidiaries has complied with, is not in violation of, and have not received any notices of violation with respect to, any federal, state, local or foreign statute, law or regulation with respect to the conduct of its business, or the ownership or operation of its business, except for such violations or failures to comply as could not be reasonably expected to have a Material Adverse Effect on Parent. 5.7 Board Approval. The Boards of Directors of Parent and Merger Sub have (a) approved this Agreement and the Merger, (b) determined that the Merger is in the best interests of their respective shareholders and is on terms that are fair to such shareholders and (c) recommended that the shareholders of Parent and Merger Sub approve this Agreement and the Merger. 5.8 Brokers' and Finders' Fees. Parent has not incurred, and will not incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement or any transaction contemplated hereby. ARTICLE VI CONDUCT PRIOR TO EFFECTIVE TIME 6.1 Conduct of Business of Target. Prior to the Effective Time, except as expressly contemplated by this Agreement or as agreed in writing by Parent: (a) Affirmative Covenants. Target will: (i) carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and use its best efforts to preserve intact its present business organizations, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, to the end that its goodwill and ongoing businesses shall be unimpaired at the Effective Time; (ii) maintain insurance coverages and its books, accounts and records in the usual manner consistent with past practice; (iii) comply in all material respects with all laws and regulations of any Governmental Entity applicable to it; (iv) maintain and keep its plants, property and equipment in good repair, working order and condition, ordinary wear and tear excepted; (v) perform in all material respects its obligations under all contracts and commitments to which it is a party or by which it is bound; (vi) notify Parent of any event or occurrence not in the ordinary course of its business, and of any event which could have a Material Adverse Effect on Target; or A-19 119 (vii) pay, consistent with past practice, all accounts payable that arise in the ordinary course of its business except to the extent that the amount owing is being duly contested by Target and such contest does not have a Material Adverse Effect on Target and adequate reserves therefor are reflected on the Annual Financial Statements or the Interim Target Financial Statements. (b) Negative Covenants. Target will not do any of the things enumerated in Section 4.6. In addition, but without limiting the generality of the foregoing, Target will not: (i) cause or permit any amendments to its Articles of Incorporation or Bylaws or equivalent charter documents; (ii) accelerate, amend or change the period of exercisability or vesting of options or other rights granted under its employee stock plans or director stock plans or authorize cash payments in exchange for any options or other rights granted under any of such plans; (iii) transfer to any person or entity any rights to its Intellectual Property; (iv) enter into or amend any agreements pursuant to which any other party is granted exclusive marketing or other exclusive rights of any type or scope with respect to any of its products or technology; (v) enter into any operating lease providing for payments in excess of an aggregate of $50,000; (vi) adopt or amend any employee benefit or stock purchase or option plan, or hire any new director level or officer level employee (other than in the ordinary course of business), pay any special bonus or special remuneration to any employee or director, or increase the salaries or wage rates of its employees, except for (A) the Team Bonuses and (B) normal salary or wage increases relating to periodic performance reviews and annual bonuses consistent with past practices of Target where such increases or bonuses are not given to Target's shareholders or their relations or members of the leadership team of Target or CEWI; (vii) commence a lawsuit other than (A) for the routine collection of bills, (B) in such cases where it in good faith determines that failure to commence suit would result in the material impairment of a valuable aspect of its business, provided that it consults with Parent prior to the filing of such a suit, or (C) for a breach of this Agreement; (viii) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets, other than in the ordinary course of business consistent with past practice; (ix) other than in the ordinary course of business, make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, file any material Tax Return or any amendment to a material Tax Return, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; (x) revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business; (xi) take, or agree in writing or otherwise to take, any other action that would make any of its representations or warranties contained in this Agreement untrue; or A-20 120 (xii) agree, whether in writing or otherwise, to do any of the foregoing. 6.2 No Solicitation; Acquisition Proposals. Subject to the fiduciary duties of Target's Board of Directors under applicable law, as advised by counsel, Target shall not, directly or indirectly, through any officer, director, employee, representative, agent, financial advisor or otherwise, solicit, initiate or encourage inquiries or submission of proposals or offers from any person relating to any sale of all or any portion of the assets, business, properties of (other than immaterial or insubstantial assets or inventory in the ordinary course of business), or any equity interest in, Target or any business combination with Target whether by merger, purchase of assets, tender offer or otherwise or participate in any negotiation regarding, or furnishing to any other person any information with respect to, or otherwise cooperate in any way with, or assist in, facilitate or encourage, any effort or attempt by any other person to do or seek to do any of the foregoing, and Target will notify Parent immediately if any inquiries or proposals are received by, any information is requested from, or any negotiations or discussions are sought to be initiated or continued with Target, in each case in connection with any of the foregoing. Target shall use its best efforts to cause all confidential materials previously furnished to any third parties in connection with any of the foregoing to be promptly returned to Target and shall cease any negotiations conducted in connection therewith or otherwise conducted with any such parties. 6.3 Notice of Breach. Each party hereto shall promptly give written notice to the others upon becoming aware of the occurrence or, to its knowledge, impending or threatened occurrence, of any event that could cause or constitute a breach of any of its representations, warranties or covenants hereunder. ARTICLE VII ADDITIONAL COVENANTS 7.1 Proxy Statement. As promptly as practicable after the execution of this Agreement, Parent shall prepare and file with the SEC preliminary proxy materials relating to the approval of the Merger and the transactions contemplated hereby by the shareholders of Parent. 7.2 Meetings of Shareholders. (a) Parent Shareholders Meeting. As promptly as practicable after the date hereof, Parent shall take all action necessary in accordance with applicable law and its Articles of Incorporation and Bylaws to convene the Parent Shareholders Meeting. Subject to Section 7.1, Parent shall use its reasonable efforts to solicit from shareholders proxies in favor of the Merger and shall take all other action necessary or advisable to secure the vote or consent of shareholders required to effect the Merger. The Board of Directors of Parent shall recommend a vote in favor of the Merger. (b) Target Shareholders Meeting. Target shall take all action necessary in accordance with applicable law and its Articles of Incorporation and Bylaws within 30 days after the date hereof either (i) to obtain the written consent of the shareholders of Target to this Agreement and the transactions contemplated hereby or (ii) to convene a special meeting of its shareholders and solicit from shareholders proxies in favor of the Merger. In any event, Target shall take all action necessary or advisable to secure the vote or consent of shareholders required to effect the Merger, and subject to the fiduciary duties of Target's Board of Directors under applicable law, as advised by counsel, the Board of Directors of Target shall recommend a consent or vote in favor of the Merger. 7.3 Access to Information. Target shall afford Parent and its accountants, counsel and other representatives full access during normal business hours (and at such other times as the parties hereto agree) during the period prior to the Effective Time to (a) all of Target's properties, books, contracts, commitments and records, and (b) all other information concerning the business, properties and personnel of Target as Parent may reasonably request. Target agrees to provide to Parent and its accountants, counsel and other representatives copies of internal A-21 121 financial statements promptly upon request. Parent shall cooperate with Target with its due diligence review of Parent to the extent necessary to confirm the accuracy of Parent's and Merger Sub's representations and warranties. Subject to compliance with applicable law, from the date hereof until the Effective Time, each of Parent and Target shall confer on a regular and frequent basis with one or more representatives of the other party to report operational matters of materiality and the general status of ongoing operations. No information or knowledge obtained in any investigation pursuant to this Section 7.3 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties hereto to consummate the Merger. 7.4 Confidentiality. The parties hereto will treat as confidential and hold in confidence all information concerning the businesses and affairs of Target and the business and affairs of Parent and Merger Sub that is not already generally available to the public and is not otherwise known to the party to whom it was disclosed on a non- confidential basis ("Proprietary Information") and refrain from using any Proprietary Information except in furtherance of this Agreement or as required by law. For avoidance of doubt, the letter agreement between Parent and Pacific Crest Securities Inc., dated October 2, 1996, relating to the disclosure of Target's confidential information and Section 11 of letter agreement, dated December 18, 1996, among Target, CEWI and Parent shall cease to have any further force or effect. 7.5 Publicity. Target shall not, and shall use its reasonable efforts to cause its shareholders not to, issue, or cause or permit to be issued, any press release or otherwise make any public statement regarding the terms of this Agreement or the transactions contemplated hereby without Parent's prior written consent. Parent and Merger Sub shall consult with Target before issuing any press release or otherwise making any public statement regarding the terms of this Agreement or the transactions contemplated hereby, except as required by law or its other legal obligations. 7.6 Filings; Cooperation. Parent and Target shall make, and cause their affiliates to make, all necessary filings with respect to the Merger and the other transactions contemplated hereby including those required under the Securities Act and the Exchange Act and the rules and regulations thereunder, and under applicable Blue Sky or similar securities laws, and shall use all reasonable efforts to obtain required approvals and clearances with respect thereto to (a) comply as promptly as practicable with all governmental requirements applicable to the transaction and (b) obtain promptly all necessary permits, orders and other consents of Governmental Entities and consents of third parties necessary for the consummation of the Merger. 7.7 Employment Matters. At the Effective Time, Parent will enter into consulting agreements with each of Messrs. Charles E. Hewitson, Greg Hewitson and Matthew J. Hewitson (the "Hewitson Consulting Agreements"), which Hewitson Consulting Agreements shall be substantially in the form attached hereto as Exhibit 7.7A, and Parent will offer to enter into an employment agreement with each member of the Target leadership team identified and at the same salary level as currently compensated as disclosed to Parent, which employment agreement shall be substantially in the form attached hereto as Exhibit 7.7B. Target shall cause the employment arrangements of each person that is related to a Target shareholder to be terminated (other than the employment of Chris Hewitson, which is to continue), such terminations to be effective at the Effective Time and without liability to Target in any respect. 7.8 Director Nominees. At the Effective Time, Parent shall take such action as is necessary in order to enable three individuals designated by Target to be elected to Parent's Board of Directors (the "Designees"). Target has selected as the Designees Messrs. Charles E. Hewitson, Greg Hewitson and Matthew J. Hewitson. 7.9 Further Assurances. (a) Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including using all reasonable efforts to obtain all necessary waivers, A-22 122 consents and approvals, to effect all necessary registrations and filings (including, but not limited to, filings with all applicable Governmental Entities) and to lift any injunction or other legal bar to the Merger (and, in such case, to proceed with the Merger as expeditiously as possible). (b) In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and/or directors of Parent and the Surviving Corporation shall take all such necessary action. (c) Target and its shareholders shall confirm and represent to Parent, by signed certificates, such factual matters as Parent may reasonably request in order for Parent to confirm that the Merger will qualify as a nontaxable reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. 7.10 Certain Tax Matters. Parent shall continue at least one significant historical business line of Target, or shall use at least a significant portion of Target's historical business assets in a business, in each case within the meaning of Treasury Regulation Section 1.368-1(d). ARTICLE VIII CONDITIONS PRECEDENT 8.1 Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of each party hereto to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, by agreement of the parties hereto: (a) This Agreement and the Merger shall have been approved and adopted by the requisite vote of the holders of Parent Common Stock and by the requisite vote of the holders of Target Common Stock. (b) No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Merger, nor any proceeding brought by an administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing, shall be pending; nor shall there be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger, which makes the consummation of the Merger illegal. (c) Parent, Target and Merger Sub and their respective subsidiaries, if any, shall have timely obtained from each Governmental Entity all approvals, waivers and consents, if any, necessary for consummation of or in connection with the Merger and the several transactions contemplated hereby, including such approvals, waivers and consents as may be required under the federal securities and state Blue Sky laws. (d) Simultaneous with the occurrence of the Closing hereunder, the Closing shall have occurred under the Share Purchase Agreement, dated as of January 15, 1997, among Parent and the shareholders of CEWI (the "Purchase Agreement"). 8.2 Additional Conditions to Obligations of Target to Effect the Merger. The obligations of Target to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, by Target: (a) Parent and Merger Sub shall have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed and complied with by them on A-23 123 or prior to the Effective Time and the representations and warranties of Parent and Merger Sub in this Agreement shall be true and correct in all material respects (or in all respects in the case of any representation or warranty that is qualified by its terms by a reference to Material Adverse Effect or otherwise the concept of materiality) when made and on and as of the Effective Time as though such representations and warranties were made on and as of such date. (b) Target shall have received a certificate executed on behalf of Parent by its Chief Financial Officer certifying that the conditions specified in Section 8.2(a) have been fulfilled. (c) Target shall have received a legal opinion of Holme Roberts & Owen LLP, counsel to Parent, substantially in the form attached hereto as Exhibit 8.2(c). (d) The guaranties given by Messrs. Charles E. Hewitson, Greg Hewitson and Matthew J. Hewitson as contemplated by that certain Loan Agreement between First Interstate Bank of Oregon, N.A. and Target, dated May 30, 1996 shall have been terminated or Messrs. Charles E. Hewitson, Greg Hewitson and Matthew J. Hewitson shall have been released from all liability thereunder as a result of repayment of the related credit facilities or otherwise. (e) Parent shall have executed and delivered to the holders of Target Common Stock an agreement with respect to demand and piggyback registration rights of such holders (the "Registration Rights Agreement"), which Registration Rights Agreement shall be substantially in the form of Exhibit 8.2(e) attached hereto. (f) Parent shall have granted to the members of Target's management identified on Schedule 8.2(f) the employee stock options specified in such schedule. 8.3 Additional Conditions to the Obligations of Parent and Merger Sub to Effect the Merger. The obligations of Parent and Merger Sub to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, by Parent: (a) Target shall have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed and complied with by it on or prior to the Effective Time and the representations and warranties of Target in this Agreement shall be true and correct in all material respects (or in all respects in the case of any representation or warranty that is qualified by its terms by a reference to Material Adverse Effect or otherwise by the concept of materiality) when made and on and as of the Effective Time as though such representations and warranties were made on and as of such time. (b) Parent shall have received a certificate, dated as of the Effective Time, executed on behalf of Target by its President and its Chief Financial Officer certifying that the conditions specified in Section 8.3(a) have been fulfilled. (c) Parent shall have received a legal opinion from Hershner, Hunter, Andrews, Neill & Smith, LLP, legal counsel to Target, substantially in form attached hereto as Exhibit 8.3(c). (d) Parent shall have been furnished with evidence satisfactory to it of the consent or approval of those persons whose consent or approval shall be required in connection with the Merger under any material contract of Target otherwise. (e) There shall not have occurred any Material Adverse Effect on Target. A-24 124 (f) Parent shall have received letters of resignation, effective as of the Effective Time, executed and tendered by each of the then incumbent directors of Target. (g) The Voting Agreement, dated the date hereof (the "Voting Agreement"), among Messrs. Charles E. Hewitson, Greg Hewitson and Matthew J. Hewitson and Target shall be in full force and effect as of the Effective Time and Messrs. Charles E. Hewitson, Greg Hewitson and Matthew J. Hewitson shall have performed and complied in all material respects with all covenants, obligations and conditions of the Voting Agreement required to be performed or complied with by them. Messrs. Charles E. Hewitson, Greg Hewitson and Matthew J. Hewitson shall have executed and delivered to Parent (i) a certificate confirming the continued accuracy of the representations and warranties given by them under the Voting Agreement; (ii) an agreement with respect to indemnification of Parent and Merger Sub with respect to breaches of terms and conditions of this Agreement (the "Indemnification Agreement"), which Indemnification Agreement shall be substantially in the form of Exhibit 8.3(g) attached hereto; (iii) the Registration Rights Agreement; and (iv) the Hewitson Consulting Agreements. (h) Parent shall have received from each of the holders of Target Common Stock who are receiving Parent Common Stock in the Merger a letter substantially in the form of Exhibit 8.3(h) attached hereto, and Parent shall have confirmed, to its reasonable satisfaction, that the Merger will qualify as a nontaxable reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. (i) All shareholders of Target expressly shall have consented to the specific arrangement specified in Section 3.1(b) for the conversion of their shares of Target Common Stock into Merger Consideration. ARTICLE IX RESTRICTIONS ON TRANSFER 9.1 Legends. Each certificate representing shares of Parent Common Stock issued in connection with the Merger (the "Restricted Securities") shall bear a legend to the following effect: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THESE SECURITIES CANNOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH RESTRICTIONS ON THE TRANSFERABILITY CONTAINED IN AN AGREEMENT RELATING TO THE SECURITIES AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS AND NO TRANSFER WILL BE RECOGNIZED UNLESS MADE IN COMPLIANCE WITH SUCH LAWS." Any holder of Restricted Securities (a "Holder") who disposes of Restricted Securities in accordance with Section 9.2 shall be entitled to have Parent cause new unlegended certificates to be issued promptly to the Holder in exchange for outstanding legended certificates representing the disposed shares if (a) the opinion to counsel referred to in Section 9.2 is to the further effect that such legend is not required in order to establish compliance with any provisions of the Securities Act; (b) the transfer is in connection with a transaction intended to comply with Rule 144 and Rule 145 as promulgated by the SEC under the Securities Act. as such Rules may be amended from time to time, or any similar successor rule that may be promulgated by the SEC, or (c) an appropriate registration statement with respect to such Restricted Securities has been filed by Parent with the SEC and has been declared effective by the SEC. 9.2 Notice of Proposed Dispositions. Each Holder of Restricted Securities by acceptance thereof shall agree to comply in all respects with the provisions of this Section 9.2. Prior to any proposed disposition of any Restricted Securities (unless there is in effect a registration statement under the Securities Act covering such A-25 125 proposed disposition and such disposition is made in accordance with such registration statement) the holder thereof shall give written notice to Parent of such Holder's intention to effect such disposition. Each such notice shall describe the manner and circumstances of the proposed disposition and shall be accompanied by either (a) a written opinion of legal counsel addressed to Parent and reasonably satisfactory in form and substance to Parent, to the effect that the proposed disposition of Restricted Securities may be effected without registration of such Restricted Securities or (b) a "no action" letter from the SEC to the effect that such disposition without registration of such Restricted Securities will not result in recommendation by the staff of the SEC that enforcement action be taken with respect thereto, whereupon the Holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the Holder to Parent. The provisions of this Section 9.2 shall not apply to Restricted Securities that are then freely tradeable pursuant to Rule 144(k) under the Securities Act, as amended from time to time, or any similar successor rule that may be promulgated by the SEC. ARTICLE X TERMINATION, AMENDMENT AND WAIVER 10.1 Termination. At any time prior to the Effective Time, whether before or after approval of the matters presented in connection with the Merger by the shareholders of Target and Parent, this Agreement may be terminated: (a) by mutual consent of Parent and Target; (b) by either Parent or Target, if, without fault of the terminating party, the Closing shall not have occurred on or before April 30, 1997, or such later date as may be agreed upon in writing by the parties hereto; (c) by Parent, if any of the conditions specified in Section 8.3 have not been satisfied or waived at such time as such condition is no longer capable of satisfaction; (d) by Target, if any of the conditions specified in Section 8.2 have not been satisfied or waived at such time as such condition is no longer capable of satisfaction; (e) by either Parent or Target if the other shall have breached its respective representations, warranties or other obligations under Articles IV through VII in any material respect and such breach continues for a period of 10 days after receipt of notice of the breach from the non-breaching party hereto. 10.2 Effect of Termination. In the event of termination of this Agreement as provided in Section 10.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Merger Sub or Target or their respective officers, directors, shareholders or affiliates, except to the extent that such termination results from the breach by a party hereto of any of its representations, warranties or covenants set forth in this Agreement; provided that, the provisions of this Section 10.2 and Section 7.4 (Confidentiality) and Article XI (General Provisions) shall remain in full force and effect and survive any termination of this Agreement. 10.3 Amendment. The respective Boards of Directors of the parties hereto may cause this Agreement to be amended at any time by execution of an instrument in writing signed on behalf of each of the parties hereto; provided that an amendment made subsequent to adoption of the Agreement by the shareholders of Target or Merger Sub shall not (a) alter or change the amount or kind of consideration to be received on conversion of the Target Common Stock, (b) alter or change any term of the Articles of Incorporation of Surviving Corporation to be effected by the Merger, or (c) alter or change any of the terms and conditions of this Agreement if such alteration or change would adversely affect the holders of Target Common Stock or Parent. A-26 126 10.4 Extension; Waiver. At any time prior to the Effective Time any party hereto may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE XI GENERAL PROVISIONS 11.1 Survival of Representations and Warranties. The representations and warranties of Target in Sections 4.1 - 4.14 and 4.16 - 4.30 shall survive the Merger and continue in full force and effect for one year after the Effective Time. All the other representations and warranties of Target, including those in Section 4.15, shall survive the Merger and continue in full force and effect forever after the Effective Time (subject to any applicable statute of limitations). The representations and warranties of Parent and Merger Sub shall not survive the Merger. 11.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail, return receipt requested, or sent via facsimile, with confirmation of receipt, to the parties at the following address or at such other address for a party as shall be specified by notice hereunder: (a) if to Parent or Merger Sub, to: Electronic Fab Technology Corp. 7241 West 4th Street Greeley, Colorado 80634 Attention: Stuart W. Fuhlendorf Facsimile No.: (303) 892-4306 with a copy to: Holme Roberts & Owen LLP 1700 Lincoln, Suite 4100 Denver, Colorado 80203 Attention: Francis R. Wheeler Facsimile No.: (303) 866-0200 A-27 127 (b) if to Target, to: Current Electronics, Inc. 125 Elliott Road Newberg, Oregon 97132 Attention: Charles E. Hewitson Facsimile No.: (503) 537-9926 with a copy to: Hershner, Hunter, Andrews, Neill & Smith LLP 180 East 11th Avenue Eugene, Oregon 97440 Attention: Robert Stout, Esq. Facsimile No.: (541) 344-2025 11.3 Interpretation. When a reference is made in this Agreement to Exhibits, Articles or Sections, such reference shall be to an Exhibit, Article or Section to this Agreement unless otherwise indicated. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party hereto to whom such information is to be made available. The table of contents and Article and Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. In this Agreement, any reference to any event, change, condition or effect being "material" with respect to any entity or group of entities means any material event, change, condition or effect related to the condition (financial or otherwise), properties, assets (including intangible assets), liabilities, business, operations or results of operations of such entity or group of entities. In this Agreement, any reference to a "Material Adverse Effect" with respect to any entity or group of entities means any event, change or effect that is materially adverse to the condition (financial or otherwise), properties, assets, liabilities, business, operations or results of operations of such entity and its subsidiaries, taken as a whole. In this Agreement, any reference to a party's "knowledge" means such party's actual knowledge after due and diligent inquiry of officers, directors and other employees of such party reasonably believed to have knowledge of such matters. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. 11.4 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other parties hereto, it being understood that all parties hereto need not sign the same counterpart. 11.5 Entire Agreement; Nonassignability; Parties in Interest. This Agreement and the documents and instruments and other agreements specifically referred to herein or delivered pursuant hereto, including the Exhibits, the Target Disclosure Schedule and the Parent Disclosure Schedule (a) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties hereto with respect to the subject matter hereof; (b) are not intended to confer upon any other person any rights or remedies hereunder; and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided. 11.6 Severability. In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties hereto A-28 128 further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 11.7 Remedies Cumulative; No Waiver. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. 11.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Oregon (without regard to the principles of conflicts of law thereof). 11.9 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 11.10 Expenses. Whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby (including, without limitation, the fees and expenses of its advisers, accountants and legal counsel) shall be paid by the party incurring such expense. 11.11 Attorneys Fees. In the event of any proceeding to enforce this Agreement, the prevailing party shall be entitled to receive from the losing party all reasonable costs and expenses, including the reasonable fees of attorneys, accountants and other experts, incurred by the prevailing party in investigating and prosecuting (or defending) such action at trial or upon any appeal. IN WITNESS WHEREOF, Target, Parent and Merger Sub have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized, all as of the date first written above. ELECTRONIC FAB TECHNOLOGY CORP. By: /s/ Stuart Fuhlendorf ------------------------------- CURRENT MERGER CORP. By: /s/ Stuart Fuhlendorf ------------------------------- CURRENT ELECTRONICS, INC. By: /s/ Charles E. Hewitson VP ------------------------------- EX-10 3 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of February 24, 1997, is among ELECTRONIC FAB TECHNOLOGY CORP., a Colorado corporation ("Parent"), and the undersigned SHAREHOLDERS (individually a "Shareholder" and together, the "Shareholders") of Parent. RECITALS A. Parent, Current Merger Corp., an Oregon corporation ("Merger Sub"), and Current Electronics, Inc., an Oregon corporation ("Target"), have entered into the Agreement and Plan of Merger, dated as of January 15, 1997 (the "Merger Agreement"), pursuant to which Target was merged with and into Merger Sub and the Shareholders received in consideration therefor, among other things, shares of Common Stock, $.01 par value, of Parent ("Parent Common Stock"). B. This Agreement is executed and delivered pursuant to Sections 8.2(e) of the Merger Agreement and sets forth the terms on which the Shareholders may require Parent to register securities of Parent owned by them under the Securities Act (as defined in Article I). AGREEMENT NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I DEFINITIONS The following terms shall have the following meanings as used in this Agreement: 1.1 "Agreement" has the meaning set forth in the opening statement of this Agreement. 1.2 "Demand Registration" has the meaning set forth in Section 2.1. 1.3 "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the SEC thereunder. 1.4 "Indemnified Party" has the meaning set forth in Section 8.2. 1.5 "Indemnifying Party" has the meaning set forth in Section 8.2. 1.6 "Losses" has the meaning set forth in Section 8.1. 1.7 "Merger Agreement" has the meaning set forth in Recital A. 1.8 "Merger Sub" has the meaning set forth in Recital A. 1.9 "Parent" has the meaning set forth in the opening statement of this Agreement. 1.10 "Parent Common Stock" has the meaning set forth in Recital A. 1.11 "Person" means any individual, corporation, partnership, trust, organization, association, governmental body or agency. 1.12 "Piggyback Registration" has the meaning set forth in Section 3.1. 1.13 "Pro Rata Share" has the meaning set forth in Section 8.2. 1.14 "Registrable Securities" means any outstanding shares of Parent Common Stock held by the Shareholders on the date hereof and any securities issued or issuable with respect thereto by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, reclassification or other reorganization. A Registrable Security shall cease to be a Registrable Security when: (a) a Registration Statement with respect to the sale of such security shall have become effective under the Securities Act and such security shall have been disposed of in accordance with such Registration Statement; (b) such security shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act; (c) such security shall have been otherwise transferred, new certificates for which, not bearing a legend restricting further transfer, shall have been delivered by Parent and subsequent disposition of the security shall not require registration or qualification of such security under the Securities Act or any similar state law then in force or (d) such security shall have ceased to be outstanding. 1.15 "Registration Expenses" means all expenses incident to Parent's performance of or compliance with this Agreement, including, all registration and filing fees, fees and expenses of compliance with federal and state securities laws, printing expenses, messenger and delivery expenses, and fees and disbursements of counsel for Parent and all independent certified public accountants, underwriters (excluding underwriting discounts, commissions spreads or fees of underwriters, selling brokers, dealer managers or similar securities industry professionals), and other Persons retained by Parent for the purpose of fulfilling its obligations under this Agreement. 1.16 "Registration Statement" means any registration statement or comparable document under section 5 of the Securities Act through which a public sale or disposition of Registrable Securities may be registered. 1.17 "SEC" means the Securities and Exchange Commission or any other federal agency administering the Securities Act. 1.18 "Securities Act" means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the SEC thereunder. 1.19 "Shareholder" and the "Shareholders" have the meanings set forth in the opening statement of this Agreement. 1.20 "Target" has the meaning set forth in Recital A. ARTICLE II DEMAND REGISTRATION 2.1 Request for Registration. At any time beginning two years after the date hereof, the holders of more than 40% of the then outstanding Registrable Securities, on one occasion, may request registration under the Securities Act of all or part of their Registrable Securities. Such holders may exercise their right under this Section 2.1 by giving a written request to Parent signed by them specifying the number of shares of Registrable Securities requested to be included and the intended method of disposition thereof. Within ten days after receipt of the request, Parent will give written notice of the request to all other holders of Registrable Securities and will include in such registration (a "Demand Registration") all Registrable Securities for which Parent has received written requests for inclusion within 15 days after Parent's notice is given to the holders pursuant to this Section 2.1, so long as the aggregate amount of Registrable Securities that the holders request be included in such registration has a fair market value at the time of the request equal to $3,000,000 ($1,000,000 if Parent can use Form S-3 or its equivalent to effect such registration). The holders of Registrable Securities will be entitled to only one Demand Registration. 2.2 Underwritten Offerings; Priority on Demand Registrations. If the holders of a majority of the Registrable Securities requested to be included so elect, the Demand Registration may be in the form of an underwritten offering. If the Demand Registration is an underwritten offering, Parent shall select the managing underwriters for the offering and Parent may elect to include other securities in such registration on the same terms and conditions as the Registrable Securities to be included in such registration; provided however, if the managing underwriters advise Parent in writing that in their opinion the number of Registrable Securities and other securities to be included in the registration exceeds the number that can be sold in such offering at a price satisfactory to the holders of a majority of the Registrable Securities requested to be included in such registration, Parent will give priority for inclusion in such registration: (a) first, to the Registrable Securities requested to be included in such registration (or to such lesser number of Registrable Securities that is equal to the number that, in the opinion of the managing underwriters, can be sold, pro rata among the holders thereof based on the number of Registrable Securities owned), (b) second, to the securities, if any, requested to be included in such registration pursuant to warrants or options issued to the representatives of the underwriters with respect thereto; (c) third, to the securities Parent proposes to include in such registration; (d) fourth, to the securities that Parent is otherwise obligated to include in such registration; and (e) fifth, to other securities that Parent may desire to include in such registration. 2.3 Restrictions on Demand Registration. Notwithstanding anything in this Article II to the contrary, if Parent shall furnish to the holders of Registrable Securities requesting registration a certificate signed by the Chief Executive Officer or President of Parent stating that, in the good faith reasonable judgment of the Board of Directors of Parent, such registration of Registrable Securities would materially interfere with, or require premature disclosure of, any financing, acquisition or reorganization involving Parent or any of its wholly-owned subsidiaries or would otherwise have a material adverse effect on Parent or the selling holders if undertaken at the time requested, Parent shall have the right to defer taking action with respect to such filing for a period of not more than 90 days after receipt of the request of the holders of Registrable Securities; provided, however, that Parent may not utilize this right more than once in any 12 month period. 2.4 Expenses. Except as otherwise provided in this Article II, Parent will pay all Registration Expenses in connection with a Demand Registration. In a Demand Registration that is an underwritten offering, all underwriting discounts, commissions spreads or fees of underwriters, selling brokers, dealer managers or similar securities industry professionals relating to the Registrable Securities being offered thereby will be paid by the holders thereof pro rata based on the number of Registrable Securities that each such holder has requested be registered. 2.5 Payment of Expenses by Holders. A majority of the holders of Registrable Securities requesting registration under Section 2.1 may request that a Demand Registration as to which no sale of Registrable Securities has been made thereunder be withdrawn by Parent. If such requesting holders elect not to have such registration counted as a Demand Registration under Section 2.1, the requesting holders shall pay, pro rata with in accordance with the number of Registrable Securities requested to be included in such registration, all Registration Expenses of such registration. ARTICLE III PIGGYBACK REGISTRATION 3.1 Right to Piggyback. Whenever Parent proposes to register any of its securities under the Securities Act (other than as (a) a Demand Registration; (b) a registration of securities in connection with a merger, an acquisition, an exchange offer, other business combination or an employee benefit plan maintained by Parent or its subsidiaries; or (c) a registration of securities on Form S-4 or S-8 or any successor or similar form) and the registration form to be used may be used for the registration of Registrable Securities (a "Piggyback Registration"), Parent will give prompt written notice to all holders of Registrable Securities of its intention to effect such a registration and will include in such registration, subject to Section 3.3, all Registrable Securities with respect to which Parent has received written requests for Piggyback Registration within 15 days after Parent's notice is given to the holders of Registrable Securities. 3.2 Piggyback Expenses. Parent will pay all Registration Expenses in connection with a Piggyback Registration. In a Piggyback Registration that is an underwritten offering, all underwriting discounts, commissions spreads or fees of underwriters, selling brokers, dealer managers or similar securities industry professionals relating to the Registrable Securities being offered thereby will be paid by the holders thereof pro rata based on the number of Registrable Securities that each such holder has requested be registered. 3.3 Restrictions on Piggyback Registrations. Notwithstanding anything to the contrary in this Article III, (a) if, at any time after receiving such requests and prior to the effective date of the Registration Statement filed in connection with the Piggyback Registration, Parent for any reason decides not to register securities of Parent, Parent will give written notice of its decision to the holders of Registrable Securities and thereupon be relieved of its obligation to register any Registrable Securities in connection with such registration and (b) if Parent determines for any reason to delay a Piggyback Registration, Parent may do so by giving written notice of its decision to the holders of Registrable Securities. 3.4 Priority on Underwritten Primary Registrations. If a Piggyback Registration is an underwritten offering initiated on behalf of Parent and the managing underwriters advise Parent in writing that in their opinion the number of securities to be included in such registration exceeds the number that can be sold in such offering at a price satisfactory to Parent, Parent will give priority for inclusion in such registration: (a) first, to the securities Parent proposes to include in such registration; (b) second, to the securities, if any, requested to be included in such registration pursuant to warrants or options issued to the representatives of the underwriters with respect thereto; (c) third, to the Registrable Securities requested to be included in such registration and any other securities that Parent is obligated to included in such registration (or to such lesser number of Registrable Securities and other securities, which is equal to the number that, in the opinion of the managing underwriters, can be sold, pro rata among the holders thereof based on the number of Registrable Securities and other securities owned), and (d) fourth, to other securities that Parent may desire to include in such registration. 3.5 Priority on Underwritten Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of Parent's securities, and the managing underwriters advise Parent in writing that in their opinion the number of securities requested to be included in the registration exceeds the number that can be sold in the offering, Parent will give priority for inclusion in such registration (a) first, to the securities requested to be included by the holders requesting such registration, (b) second, to the securities sought to be included in such registration pursuant to the warrants or options issued to the representatives of the underwriters with respect thereto; (c) third, to the Registrable Securities requested to be included in such registration (or to such lesser number of Registrable Securities, which is equal to the number that, in the opinion of the managing underwriters, can be sold, pro rata among the holders thereof based on the number of Registrable Securities owned), and (d) fourth, to other securities that Parent may desire to include in such registration. ARTICLE IV REGISTRATION PROCEDURES 4.1 Procedures Parent Will Follow. Whenever the holders of the Registrable Securities duly request that any Registrable Securities be registered pursuant to this Agreement, Parent will use its best efforts to effect the registration of the Registrable Securities on an available form for which Parent then qualifies and that counsel for Parent deems appropriate and which form is available for the sale of the Registrable Securities in accordance with the intended method of disposition, and pursuant thereto Parent will do the following as expeditiously as possible: (a) Registration Statement. Parent will prepare and file with the SEC, and use its best efforts to cause to become effective, a Registration Statement with respect to the Registrable Securities Parent has been so requested to register on an available form for which Parent then qualifies and that counsel for Parent deems appropriate and which form is available for the sale of the Registrable Securities in accordance with the intended method of disposition. (b) Maintenance of Effectiveness. Parent will prepare and file with the SEC such amendments and supplements to the Registration Statement and prospectus used for the sale of the Registrable Securities as may be necessary to keep the Registration Statement effective until the earlier of (i) the date on which the sale of the Registrable Securities is completed and (ii) the date 90 days after the Registration Statement with respect to the Registrable Securities becomes effective, and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by the Registration Statement during its effectiveness in accordance with the intended methods of disposition of such securities. (c) Copies of Prospectuses. Parent will furnish to the holders the number of copies of the Registration Statement, each amendment and supplement thereto, the prospectus included in the Registration Statement (including each preliminary prospectus) and such other documents that the holders may reasonably request to facilitate the disposition of the Registrable Securities Parent has been so requested to register. At any time when a prospectus with respect to the Registrable Securities is required to be delivered under the Securities Act, Parent will notify the holders of the occurrence of any material change in the information contained in the prospectus included in the Registration Statement. Whenever in Parent's judgment it is necessary, Parent will prepare a supplement or amendment to the prospectus so that, as thereafter delivered to the proposed purchasers of the Registrable Securities, the prospectus will not contain, to Parent's knowledge, any untrue statement of material fact or omit to state any fact necessary to make the statements in it not misleading, and the holders will discontinue disposition of the Registrable Securities until the holders are advised in writing by Parent that the use of the prospectus may be resumed and are furnished with a supplement or amendment to the prospectus. If Parent shall give any notice to suspend the disposition of Registrable Securities pursuant to a prospectus, Parent shall extend the period of time during which Parent is required to maintain the Registration Statement effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice through and including the date the holders are advised by Parent that the use of the prospectus may be resumed or receive the copies of the supplement or amendment to the prospectus. (d) Blue Sky Compliance. Parent will use its best efforts to register or qualify the Registrable Securities Parent has been so requested to register under the securities or blue sky laws of such jurisdictions within the United States of America as any holder of Registrable Securities selling Registrable Securities in connection with the registration reasonably requests, and do any and all other acts and things reasonably necessary or advisable to enable the holder to dispose of the holder's Registrable Securities in such jurisdictions; except Parent will not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) consent to, or take any action that would subject it to, general service of process or taxation in any jurisdiction where it is not then so subject. (e) Listing; Transfer Agent. Parent will use its best efforts to cause all such Registrable Securities to be listed on all securities exchanges or quoted on all automated quotation systems on which securities of the same class issued by Parent are then listed or quoted and will provide a transfer agent and registrar for all such Registrable Securities no later than the effective date of the Registration Statement. (f) Customary Agreements. In the case of an underwritten offering, Parent will enter into customary agreements, including an underwriting agreement in customary form, as the holders of a majority of the Registrable Securities being registered or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of the Registrable Securities being so registered. (g) Certain Information. Parent will make available for inspection upon reasonable request by any holder of Registrable Securities being registered, any underwriter participating in any disposition pursuant to the Registration Statement, and any attorney, accountant or other agent retained by the holder or underwriter, all financial and other records, pertinent corporate documents and properties of Parent, and cause Parent's officers, directors and employees to supply all information reasonably requested by the holder, underwriter, attorney, accountant or agent in connection with the Registration Statement, upon receipt by Parent of confidentiality agreements satisfactory to Parent. (h) Compliance with Law. Parent will comply with all rules and regulations of the SEC and applicable state securities laws governing the manner of sale of securities in connection with the disposition of any Registrable Securities pursuant to any Registration Statement. (i) Stop-Orders. Parent will promptly notify all holders of Registrable Securities being registered of its receipt of (i) any stop-order, injunction or order suspending the effectiveness of any Registration Statement covering any Registrable Securities or, to Parent's knowledge, the initiation of any proceeding for that purpose, or (ii) any notification with respect to the limitation, restriction or suspension of the offer or sale of any Registrable Securities in any jurisdiction in which the Registrable Securities were qualified to be sold or, to Parent's knowledge any proceeding for that purpose. If Parent notifies the holders of any such event, the holders will immediately discontinue all sales or other dispositions of the Registrable Securities pursuant to the Registration Statement until Parent notifies the holders that such stop-order, injunction, order, limitation, restriction or suspension has been lifted, except, unless Parent notifies the holders otherwise, if a stop-order, injunction, order, limitation, restriction or suspension issued by a state securities or blue sky administrator applies only to offers and sales in such state, the holders will immediately discontinue all sales and other disposition of the Registrable Securities in such state. Parent, with cooperation of the holders, will use its reasonable efforts to contest any such proceeding and to obtain the withdrawal of any such stop-order, injunction, order, limitation, restriction or suspension. 4.2 Procedures Holders of Registrable Securities Will Follow. Whenever the holders of the Registrable Securities duly request that any Registrable Securities be registered pursuant to this Agreement, the holders will do the following as expeditiously as possible: (a) Certain Information. The holders will provide Parent with such information and affidavits about the holders and the intended manner of disposition of the Registrable Securities and otherwise use their best efforts to cooperate with Parent and the underwriters, if any, Parent may require to satisfy any obligation of Parent under this Agreement to register the Registrable Securities under federal and state securities laws and otherwise take actions related thereto. If the holders fail to provide the information required under this Section 4.2(a), Parent may delay the registration until the information is provided and the holders agree to pay Parent its out-of-pocket expenses that arise from the failure to provide such information. The holders will notify Parent of the occurrence of any material change in the information provided by them that is contained in the prospectus included in the Registration Statement, as then in effect. Whenever in Parent's judgment it is necessary, Parent will prepare a supplement or amendment to the prospectus so that, as thereafter delivered to the proposed purchasers of the Registrable Securities, the prospectus will not contain, to Parent's knowledge, any untrue statement of material fact or omit to state any fact necessary to make the statements in it not misleading, and the holders will discontinue disposition of the Registrable Securities until the holders are advised in writing by Parent that the use of the prospectus may be resumed and are furnished with a supplement or amendment to the prospectus. If Parent shall give any notice to suspend the disposition of Registrable Securities pursuant to a prospectus, Parent shall extend the period of time during which Parent is required to maintain the Registration Statement effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice through and including the date the holders are advised by Parent that the use of the prospectus may be resumed or receive the copies of the supplement or amendment to the prospectus. (b) Compliance with Law. The holders will comply with all rules and regulations of the SEC and applicable state securities laws governing the manner of sale of securities in connection with the disposition of any Registrable Securities pursuant to any Registration Statement. (c) Participation in Underwritten Offerings. No holder of Registrable Securities may participate in any underwritten offering hereunder unless such holder (i) agrees to sell such holder's securities on the basis provided in any underwriting arrangements approved, subject to the terms and conditions hereof, by the holders of a majority (by number of shares) of Registrable Securities to be included in such underwritten offering and (ii) completes and executes all questionnaires, indemnities, underwriting agreements and other documents (other than powers of attorney) reasonably required under the terms of such underwriting arrangements. ARTICLE V BLACK OUT PERIODS 5.1 Restrictions on Public Sale by Holders. Whenever Parent proposes to register any of its securities under the Securities Act in an underwritten offering (other than as (a) a Demand Registration; (b) a registration of securities in connection with a merger, an acquisition, an exchange offer, other business combination or an employee benefit plan maintained by Parent or its subsidiaries; or (c) a registration of securities on Form S-4 or S-8 or any successor or similar form) and if requested by the managing underwriters and the Shareholder then beneficially owns more than 2% of the outstanding Parent Common Stock, such holder of Registrable Securities will not effect any public sale or disposition of securities of Parent the same as or similar to those being registered, or any securities convertible into or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 under the Securities Act, except as part of such registration, during the 14-day period prior to, and during the 90-day period (or, with respect to a Piggyback Registration, such longer period of up to 120 days as may reasonably be requested by such managing underwriters) beginning on the effective date of the related Registration Statement, to the extent timely notified in writing by Parent or the managing underwriters. 5.2 Restrictions on Public Sale by Parent and Others. In connection with any Demand Registration that is an underwritten offering and if requested by the managing underwriters, Parent will not effect any public sale or disposition of any securities the same as or similar to those being registered by Parent, except as part of such registration, during the 14-day period prior to, and during the 90-day period beginning on the effective date of the related Registration Statement to the extent timely notified in writing by the managing underwriters. Notwithstanding anything to the contrary in the foregoing, the restrictions under this Section 6.2 shall not limit the issuance of securities of Parent, or options or warrants to purchase such securities, that Parent is required to issue pursuant to (a) any employee stock option plan or non-employee director stock option plan in effect at the time Parent receives a request for Demand Registration, (b) the exercise of any outstanding options or warrants with respect to securities of Parent, (c) the exercise of any conversion or exchange right in accordance with the terms of any other outstanding security convertible into or exchangeable for securities of Parent, and (d) the terms of any business combination. ARTICLE VI INDEMNIFICATION 6.1 Indemnification by Parent. Parent will indemnify and hold harmless, to the extent permitted by law, each each holder of Registrable Securities and, if applicable, the officers and directors of the holder, and each Person who controls the holder (within the meaning of the Securities Act or the Exchange Act) from and against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, injunction, judgment, order, decree, ruling, damage, dues, penalty, fines, costs, amounts paid in settlement, liabilities, obligations, losses, expenses and fees, including court costs and attorneys' fees and expenses (collectively, "Losses") that the holder and, if applicable, the officers and directors of the holder, and each Person who controls the holder may suffer through and after the date of the claim for indemnification caused by or arising out of any untrue or alleged untrue statement of material fact contained in any Registration Statement, prospectus, preliminary prospectus, or other related filing with the SEC or any other federal or state governmental agency, 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, except insofar as the same are caused by or contained in any information furnished in writing to Parent by any holder of Registrable Securities expressly for use therein or by any holder's failure to comply with any legal requirement applicable to such holder and not contractually assumed by Parent to deliver a copy of the Registration Statement or prospectus or any amendments or supplements thereto after Parent has furnished the holder with a sufficient number of copies of the same. In connection with an underwritten offering, Parent shall indemnify the underwriters, their officers and directors, and each Person who controls the underwriters (within the meaning of the Securities Act or the Exchange Act) to the extent customary. 6.2 Indemnification by Holders. In connection with any registration in which a holder of Registrable Securities is participating, each such Holder will indemnify and hold harmless, to the extent permitted by law, Parent, its directors and officers and each Person who controls Parent (within the meaning of the Securities Act or the Exchange Act) from and against the holder's Pro Rata Share (as defined in this Section 6.2) of all Losses that Parent, its directors and officers and each Person who controls Parent may suffer through and after the date of the claim for indemnification caused by or arising out of any untrue or alleged untrue statement of material fact contained in any Registration Statement, prospectus, preliminary prospectus, or other related filing with the SEC or any other federal or state governmental agency, 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, but only to the extent that the same are caused by or contained in any information furnished in writing to Parent by such holder of Registrable Securities expressly for use therein or by any holder's failure to comply with any legal requirement applicable to such holder and not contractually assumed by Parent to deliver a copy of the Registration Statement or prospectus or any amendments or supplements thereto after Parent has furnished the holder with a sufficient number of copies of the same. For purposes of the foregoing, a holder's "Pro Rata Share" means that fraction equal to the amount of the proceeds received or to be received by the holder in connection with the registration over the total proceeds received or to be received by all holders in connection with the registration. 6.3 Indemnification Procedure. If any Person has a claim for Losses hereunder (an "Indemnified Party"), the Indemnified Party will (a) notify the party or parties hereto from which it is entitled to make such claim (individually, an "Indemnifying Party" and, together, the "Indemnifying Parties") of such claim, specifying the nature of the Losses and the amount or estimated amount thereof if feasible and (b) unless in the Indemnified Party's reasonable judgment (based on written advice of counsel) a conflict of interest between the Indemnified Party and the Indemnifying Parties may exist with respect to the matter giving rise to such claim, permit the Indemnifying Party to assume and thereafter conduct the defense of the matter with counsel of the Indemnifying Party's choice reasonably satisfactory to the Indemnified Party. If the defense is so assumed, the Indemnifying Party will not be subject to any liability for any settlement made with respect to such claim by the Indemnified Party without its consent, which will not be unreasonably withheld. An Indemnifying Party who is not entitled to or elects not to assume the defense of a claim, will not be obligated to pay the fees and expenses of more than one counsel for all parties it indemnifies with respect to such claim, unless in the reasonable judgment of any Indemnified Party (based on written advice of counsel) a conflict of interest may exist between such Indemnified Party and any other Indemnified Parties with respect to such claim. ARTICLE VII RESTRICTIONS ON TRANSFER 7.1 Legends. Each certificate representing Registrable Securities shall bear a legend to the following effect: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THESE SECURITIES CANNOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH RESTRICTIONS ON THE TRANSFERABILITY CONTAINED IN AN AGREEMENT RELATING TO THE SECURITIES AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS AND NO TRANSFER WILL BE RECOGNIZED UNLESS MADE IN COMPLIANCE WITH SUCH LAWS." Any holder of Registrable Securities who disposes of Registrable Securities in accordance with Section 7.2 shall be entitled to have Parent cause new unlegended certificates to be issued promptly to the holder in exchange for outstanding legended certificates representing the disposed shares if (a) the opinion to counsel referred to in Section 7.2 is to the further effect that such legend is not required in order to establish compliance with any provisions of the Securities Act or (b) such Registrable Securities cease to be Registrable Securities for any of the reasons set forth in clauses (a) or (b) of Section 1.14. 7.2 Notice of Proposed Dispositions. Prior to any proposed disposition of any Registrable Securities (unless there is proposed to be in effect a Registration Statement with respect to the sale of such securities and such securities will be disposed of in accordance with such Registration Statement), the holder thereof shall give written notice to Parent of such holder's intention to effect such disposition. Each such notice shall describe the manner and circumstances of the proposed disposition and shall be accompanied by either (a) a written opinion of legal counsel addressed to Parent and reasonably satisfactory in form and substance to Parent, to the effect that the proposed disposition of Registrable Securities may be effected without registration of such Registrable Securities or (b) a "no action" letter from the SEC to the effect that such disposition without registration of such Registrable Securities will not result in recommendation by the staff of the SEC that enforcement action be taken with respect thereto, whereupon the holder of such Registrable Securities shall be entitled to transfer such Registrable Securities in accordance with the terms of the notice delivered by the holder to Parent. The provisions of this Section 7.2 shall not apply to any securities that cease to be Registrable Securities. ARTICLE VIII GENERAL PROVISIONS 8.1 Remedies. Any Person having rights under this Agreement will be entitled to enforce them specifically, to recover damages caused by reason of any breach of any provision of this Agreement, and to exercise all other rights granted by law. 8.2 Successors and Assigns. This Agreement will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed. Any provision of this Agreement for the benefit of the holders of Registrable Securities are also for the benefit of, and enforceable by, any subsequent holder of Registrable Securities to which the subsequent holder has been expressly assigned such rights at the time of the transfer of the Registrable Securities to him, but not otherwise. 8.3 Term; Effect of Expiration or Termination. This Agreement shall be effective as of the date hereof, and unless earlier terminated in accordance with this Agreement, shall expire on the earliest of: (a) 10 years from the date of this Agreement or (b) such time as all Registrable Securities have been sold pursuant to an effective Registration Statement under the Securities Act or may be publicly sold without registration. Moreover, the obligation of Parent to register its securities under this Agreement as to any Shareholder shall terminate at such time as such Shareholder can then publicly sell all of its Registrable Securities without registration under the Securities Act during a three-month period pursuant to Rule 144 under the Securities Act or otherwise. In the event of termination or expiration of this Agreement, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of the parties hereto, except the provisions of Article VI (Indemnification) and this Article VII (General Provisions) shall remain in full force and effect and survive any termination of this Agreement. 8.4 Amendments; Modifications. This Agreement may be amended or modified in writing by Parent and the holders of a majority of the Registrable Securities at the time of such amendment or modification. 8.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail, return receipt requested, or sent via facsimile, with confirmation of receipt, to the parties at the following address or at such other address for a party as shall be specified by notice hereunder: (a) if to Parent, to: Electronic Fab Technology Corp. 7241 West 4th Street Greeley, Colorado 80634 Attention: Stuart W. Fuhlendorf Facsimile No.: (303) 892-4306 (b) if to the Shareholders, to: Charles E. Hewitson 2709 S.E. Balboa Drive Vancouver, Washington 98683 Facsimile No.: (503) 538-6610 and Matthew J. Hewitson 13801 S.E. 35th Street Vancouver, Washington 98683 Facsimile No.: (360) 883-6717 and Greg Hewitson 15905 S.W. Oswego Shore Ct. Lake Oswego, Oregon 97034 Facsimile No.: (503) 697-3646 8.6 Entire Agreement. This Agreement and the documents and instruments and other agreements specifically referred to herein or delivered pursuant hereto constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties hereto with respect to the subject matter hereof. 8.7 Severability. In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties hereto further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 8.8 Remedies Cumulative; No Waiver. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. 8.9 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado (without regard to the principles of conflicts of law thereof). 8.10 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 8.11 Interpretation. When a reference is made in this Agreement to Articles, Recitals or Sections, such reference shall be to an Article, Recital or Section to this Agreement unless otherwise indicated. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party hereto to whom such information is to be made available. The table of contents and Article and Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. In this Agreement, any reference to a party's "knowledge" means such party's actual knowledge after due and diligent inquiry of officers, directors and other employees of such party reasonably believed to have knowledge of such matters. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. 8.12 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other parties hereto, it being understood that all parties hereto need not sign the same counterpart. 8.13 Attorneys Fees. In the event of any proceeding to enforce this Agreement, the prevailing party shall be entitled to receive from the losing party all reasonable costs and expenses, including the reasonable fees of attorneys, accountants and other experts, incurred by the prevailing party in investigating and prosecuting (or defending) such action at trial or upon any appeal. IN WITNESS WHEREOF, the parties hereto have duly executed this Registration Rights Agreement as of the date first written above. Parent: ELECTRONIC FAB TECHNOLOGY CORP. By: _______________________________ Shareholders: _____________________________________ Charles E. Hewitson _____________________________________ Matthew J. Hewitson _____________________________________ Greg Hewitson The undersigned persons join in this Agreement to the extent of any community property interest held by them and consent hereto with respect to such interest. _____________________________________ Christie Hewitson _____________________________________ Marsha Hewitson _____________________________________ Linda Hewitson EX-2 4 CONFORMED COPY SHARE PURCHASE AGREEMENT between ELECTRONIC FAB TECHNOLOGY CORP. and THE SHAREHOLDERS OF CURRENT ELECTRONICS (WASHINGTON), INC. January 15, 1997 TABLE OF CONTENTS Page RECITAL. . . . . . . . . . . . . . . . . . . . . . . .1 AGREEMENT. . . . . . . . . . . . . . . . . . . . . . .1 ARTICLE I PURCHASE AND SALE. . . . . . . . . . . . . .1 1.1 Purchase and Sale of Stock. . . . . . .1 1.2 Purchase Price. . . . . . . . . . . . .1 1.3 The Closing . . . . . . . . . . . . . .2 ARTICLE II REPRESENTATIONS AND WARRANTIES CONCERNING THE SHAREHOLDERS . . . . . . . . . . .3 2.1 Due Authorization. . . . . . . . . . . . . .4 2.3 Brokers' and Finders' Fees . . . . . . . . .4 ARTICLE III REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY. . . . . . . . . . . . . .5 3.1 Organization and Standing. . . . . . . . . .5 3.2 Capitalization . . . . . . . . . . . . . . .5 3.3 Subsidiaries . . . . . . . . . . . . . . . .5 3.4 No Conflicts . . . . . . . . . . . . . . . .5 3.5 Financial Statements . . . . . . . . . . . .6 3.6 Absence of Certain Changes . . . . . . . . .6 3.7 Liabilities. . . . . . . . . . . . . . . . .8 3.8 Litigation . . . . . . . . . . . . . . . . .8 3.9 Restrictions on Business Activities. . . . .8 3.10 Governmental Authorization. . . . . . .8 3.11 Contracts and Commitments . . . . . . .9 3.12 Title to Property . . . . . . . . . . .9 3.13 Intellectual Property . . . . . . . . 10 3.14 Environmental Matters . . . . . . . . 11 3.15 Taxes . . . . . . . . . . . . . . . . 12 3.16 Employee Benefit Plans. . . . . . . . 14 3.17 Employee Matters. . . . . . . . . . . 16 3.18 Interested Party Transactions . . . . 16 3.19 Insurance . . . . . . . . . . . . . . 16 3.20 Compliance With Laws. . . . . . . . . 17 3.21 Major Customers . . . . . . . . . . . 17 3.22 Suppliers . . . . . . . . . . . . . . 17 3.23 Inventory . . . . . . . . . . . . . . 17 3.24 Product Warranty and Product Liability18 Page 3.25 Minutes Books . . . . . . . . . . . . 18 3.26 Brokers' and Finders' Fees. . . . . . 18 3.28 Disclosure. . . . . . . . . . . . . . 19 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT19 4.1 Organization . . . . . . . . . . . . . . . 19 4.2 Due Authorization. . . . . . . . . . . . . 19 ARTICLE V CONDUCT PENDING THE CLOSING. . . . . . . . 20 5.1 Conduct of Business of the Company . . . . 20 5.2 No Solicitation; Acquisition Proposals . . 22 5.3 Notice of Breach . . . . . . . . . . . . . 22 ARTICLE VI OTHER COVENANTS . . . . . . . . . . . 22 6.1 Access to Information. . . . . . . . . . . 22 6.2 Confidentiality. . . . . . . . . . . . . . 23 6.3 Publicity. . . . . . . . . . . . . . . . . 23 6.4 Filings; Cooperation . . . . . . . . . . . 23 6.5 Employment Matters . . . . . . . . . . . . 23 6.6 Further Assurances . . . . . . . . . . . . 23 ARTICLE VI CONDITIONS PRECEDENT. . . . . . . . . 24 7.1 Conditions to Obligations of Each Party. . 24 7.2 Additional Conditions to Obligations of Shareholders24 7.3 Additional Conditions to the Obligations of Parent25 ARTICLE VIII TAX MATTERS . . . . . . . . . . . . . 26 8.1 Section 338(h)(10) Election. . . . . . . . 26 ARTICLE IX TERMINATION, AMENDMENT AND WAIVER . . 27 9.1 Termination. . . . . . . . . . . . . . . . 27 9.2 Effect of Termination. . . . . . . . . . . 27 9.3 Amendment; Waiver. . . . . . . . . . . . . 27 ARTICLE X GENERAL PROVISIONS . . . . . . . . . . . . 28 10.1 Survival of Representations and Warranties28 10.2 Notices . . . . . . . . . . . . . . . 28 10.3 Interpretation. . . . . . . . . . . . 29 10.4 Counterparts. . . . . . . . . . . . . 30 10.5 Entire Agreement; Nonassignability; Parties in Interest. . . . . . . . . . . . . . . 30 10.6 Severability. . . . . . . . . . . . . 30 10.7 Remedies Cumulative; No Waiver. . . . 30 10.8 Governing Law . . . . . . . . . . . . 30 Page 10.9 Rules of Construction . . . . . . . . 30 10.10 Expenses. . . . . . . . . . . . . . 30 INDEX OF DEFINED TERMS Page 1994 Audit Fees . . . . . . . . . . . . . . . . .2 AA. . . . . . . . . . . . . . . . . . . . . . . .3 Adjusted Debt Amount. . . . . . . . . . . . . . .1 Adjusted Purchase Price . . . . . . . . . . . . .2 Adverse Consequence . . . . . . . . . . . . . . 26 Agreement . . . . . . . . . . . . . . . . . . . .1 Annual Financial Statements . . . . . . . . . . .6 CERCLA. . . . . . . . . . . . . . . . . . . . . 12 Closing . . . . . . . . . . . . . . . . . . . . .2 Closing Date. . . . . . . . . . . . . . . . . . .2 COBRA . . . . . . . . . . . . . . . . . . . . . 15 Code. . . . . . . . . . . . . . . . . . . . . . 12 Combined Equity . . . . . . . . . . . . . . . . .1 Company . . . . . . . . . . . . . . . . . . . . .1 Company Authorizations. . . . . . . . . . . . . .9 Confidential Information. . . . . . . . . . . . 11 Debt. . . . . . . . . . . . . . . . . . . . . . .1 Disclosure Schedule . . . . . . . . . . . . . . .5 Employee Plans. . . . . . . . . . . . . . . . . 14 Environmental Law . . . . . . . . . . . . . . . 11 Equity. . . . . . . . . . . . . . . . . . . . . .1 ERISA . . . . . . . . . . . . . . . . . . . . . 14 ERISA Affiliate . . . . . . . . . . . . . . . . 14 Exchange Act. . . . . . . . . . . . . . . . . . 16 environment . . . . . . . . . . . . . . . . . . 11 Governmental Entity . . . . . . . . . . . . . . .4 Indemnification Agreement . . . . . . . . . . . 26 Intellectual Property . . . . . . . . . . . . . 10 Interim Financial Statements. . . . . . . . . . .6 Inventory . . . . . . . . . . . . . . . . . . . 17 include . . . . . . . . . . . . . . . . . . . . 29 includes. . . . . . . . . . . . . . . . . . . . 29 including . . . . . . . . . . . . . . . . . . . 29 knowledge . . . . . . . . . . . . . . . . . . . 29 Lien. . . . . . . . . . . . . . . . . . . . . . .4 Material Adverse Effect . . . . . . . . . . . . 29 Materials of Environmental Concern. . . . . . . 12 Merger Agreement. . . . . . . . . . . . . . . . 26 made available. . . . . . . . . . . . . . . . . 29 material. . . . . . . . . . . . . . . . . . . . 29 Page multiemployer plan. . . . . . . . . . . . . . . 15 prohibited transaction. . . . . . . . . . . . . 15 Parent. . . . . . . . . . . . . . . . . . . . . .1 Parent Shareholders Meeting . . . . . . . . . . 18 Proprietary Information . . . . . . . . . . . . 23 Proxy Statement . . . . . . . . . . . . . . . . 18 release . . . . . . . . . . . . . . . . . . . . 11 reportable event. . . . . . . . . . . . . . . . 15 Section 338(h)(10) Election . . . . . . . . . . 26 Securities Act. . . . . . . . . . . . . . . . . .4 Shareholder . . . . . . . . . . . . . . . . . . .1 Shareholders. . . . . . . . . . . . . . . . . . .1 Stock . . . . . . . . . . . . . . . . . . . . . .1 Target. . . . . . . . . . . . . . . . . . . . . .1 Tax . . . . . . . . . . . . . . . . . . . . . . 13 Tax authority . . . . . . . . . . . . . . . . . 13 Tax Return. . . . . . . . . . . . . . . . . . . 13 Taxable . . . . . . . . . . . . . . . . . . . . 13 Taxes . . . . . . . . . . . . . . . . . . . . . 13 Third Party Intellectual Property Rights. . . . 10 SHARE PURCHASE AGREEMENT THIS SHARE PURCHASE AGREEMENT (this "Agreement") dated as of January 15, 1997, is among ELECTRONIC FAB TECHNOLOGY CORP., a Colorado corporation ("Parent"), and the undersigned SHAREHOLDERS (individually a "Shareholder" and together, the "Shareholders") of CURRENT ELECTRONICS (WASHINGTON), INC., a Washington corporation (the "Company"). RECITAL The Shareholders own all of the issued and outstanding shares of Common Stock, $.01 par value, of the Company ("Stock"). Parent desires to purchase from the Shareholders, and the Shareholders desire to sell to Parent, and Parent desires to purchase from Shareholders, all Stock subject to the terms and conditions set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I PURCHASE AND SALE 1.1 Purchase and Sale of Stock. Upon the terms and subject to the conditions of this Agreement, the Shareholders will sell to Parent, and Parent will purchase from the Shareholders all shares of Stock. 1.2 Purchase Price. As payment for the purchase price of Company Stock, Parent will pay to the Shareholders the aggregate amount of $1,530,000, which amount will be (a) increased by the amount by which the interest bearing indebtedness for money borrowed of the Company ("Debt") outstanding as of the Closing Date (as defined in Section 1.3) is less than the Adjusted Debt Amount (as defined in this Section 1.2), (b) reduced by the amount by which Debt as of the Closing Date exceeds the Adjusted Debt Amount, and (c) if the total combined shareholders' equity of the Company and Current Electronics, Inc., an Oregon corporation ("Target"), as of the Closing Date ("Combined Equity"), is less than $4.0 million, reduced or increased, as the case may be, by the amount by which the total shareholders' equity of the Company as of the Closing Date ("Equity") is less or more than $285,000. For purposes of the foregoing calculation, (x) "Adjusted Debt Amount" shall be zero, increased by the amount of any additional Debt outstanding as of the Closing Date that has been authorized by Parent under Section 1.5, (y) Equity and Combined Equity shall be determined without deduction for (i) the amount of any bonuses (not to exceed $180,000) paid to Target's leadership team pursuant to Section 6.1(b)(vi) of the Merger Agreement, (ii) the fees and expenses of the accountants of conducting the audit of the 1994 fiscal year of Target and the Company requested by Parent (the "1994 Audit Fees"), (iii) any writedown or writeoff of leasehold improvements of Target's Newberg, Oregon facility or any reserves relating to any move from such facility of Target's operations that is contemplated by Parent, or (iv) such other reserves, writedowns or adjustments as may be approved in writing by Parent, and (z) Equity and Combined Equity shall be reduced (regardless of when paid or accrued) by (i) the amount of any legal and accounting fees and expenses incurred by the Company or Target, as the case may be, with their present counsel and accountants that relate to the transactions contemplated by this Agreement and the Merger Agreement and any other similar expenses that relate to the representation of the interests of the present shareholders of the Company or Target with respect to such transactions (other than the 1994 Audit Fees) and (ii) the amount of any fees and expenses incurred to Pacific Crest Securities, Inc. as contemplated by the letter agreement identified in Section 3.26 of this Agreement. Any Debt owed by the Company to Target, and any Debt owed by Target to the Company, shall be ignored in determining the Adjusted Debt Amount and the amount of Debt outstanding. The amount of Debt outstanding, the Adjusted Debt Amount and the amount of Equity as of the Closing Date shall be determined as provided in Section 1.4. The purchase price as so adjusted is referred to herein as the "Adjusted Purchase Price." For the avoidance of doubt, the term Debt shall not include the then outstanding balances of two accounts payable owed by the Company to Allied Signal in the approximate amounts of $676,000 and $180,000 as of December 31, 1996. 1.3 The Closing. (a) Subject to the terms and conditions of this Agreement, the closing of the purchase by Parent of the Stock in exchange for payment of the Adjusted Purchase Price (the "Closing") shall take place (i) at the offices of Holme Roberts & Owen LLP, 1700 Lincoln Street, Suite 4100, Denver, Colorado 80203, at 10:00 a.m., local time, within three business days following the day on which the conditions set forth in Article VIII shall be fulfilled or waived in accordance herewith or (ii) at such other time, date or place as the parties hereto agree. The date on which the Closing occurs is hereinafter referred to as the "Closing Date." (b) At the Closing, (i) each Shareholder shall deliver to Parent the certificates representing shares of Stock to be sold by such Shareholder in negotiable form, duly endorsed in blank, or with separate notarized stock transfer powers attached thereto and signed in blank, and the various certificates and documents described in Section 7.3, and (ii) Parent in exchange therefor shall wire transfer to such Shareholder an amount equal to the Adjusted Purchase Price multiplied by the number of shares of Stock owned by such Shareholder over the total number of shares of Stock and shall deliver the various certificates and documents described in Section 7.2. 1.4 Determinations as of Closing Date; Subsequent Adjustments. (a) The Company shall prepare and submit to Parent, not later than five days prior to the Closing Date, a written estimate of the Adjusted Purchase Price as of the Closing Date. The estimate shall be based upon the books and records of the Company and shall be accompanied by (i) a statement setting forth in reasonable detail the calculation of the estimate and (ii) a certificate signed by the Company confirming that the estimate was calculated in accordance with this Article I. The Company shall also deliver to Parent such other information as may be reasonably requested by Parent to verify the estimate of the Adjusted Purchase Price provided. The amount paid at the Closing as the Adjusted Purchase Price under Section 1.3 shall be equal to the estimate provided by the Company, absent reasonable objection by Parent, in which event the amount paid at the Closing shall be equal to such reasonable amount as may be specified by Parent. (b) Within 30 days after the Closing Date, Parent shall deliver to the Shareholders a statement calculating the Adjusted Purchase Price as of the Closing Date in accordance with this Article I. Such calculation shall be made in accordance with generally accepted accounting principles consistently applied, except as otherwise specified herein. Parent's statement and report shall be final and binding on the parties unless the Shareholders deliver a notice to Parent disputing any matter including in such statement and stating the Shareholders' position with respect to the disputed matter. If the Shareholders deliver such notice and the parties are unable to resolve all disputed matters within 30 additional days, Parent or the Shareholders may elect to submit the disputed matter to Arthur Andersen & Co., independent certified public accountants ("AA"), for determination. The determination of all disputed matters pursuant to the preceding sentence shall be final and binding on the parties and the fees and expenses of AA shall be borne by Parent and the Shareholders in proportion to the amount by which the determination of all matters varies from the positions of Parent and the Shareholders on all matters. (c) Promptly following the determination of matters by AA, Parent shall pay to the Shareholders or the Shareholders shall pay to Parent, as appropriate, the amount, if any, determined to have been overpaid or underpaid at the Closing. 1.5 Increase in Adjusted Debt Amount. The Shareholders may request that Parent consent to an increase in the Adjusted Debt Amount to permit borrowings by the Company to fund actual or expected increased sales volumes and related working capital and capital equipment requirements. Such request may be made by giving written notice to Parent, accompanied by appropriate information supporting such request. Parent shall respond to any such request promptly, and shall not unreasonably withhold its consent where such borrowings would be necessary to fund working capital and capital equipment requirements prudently required in connection with increases in product sales by the Company. ARTICLE II REPRESENTATIONS AND WARRANTIES CONCERNING THE SHAREHOLDERS Each of the Shareholders represents and warrants to Parent with respect to such Shareholder as follows: 2.1 Due Authorization. The Shareholder has the full power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby and has taken all actions necessary to secure all approvals required in connection therewith. This Agreement has been duly executed and delivered by the Shareholder and constitutes the valid and binding obligation of the Shareholder enforceable against the Shareholder in accordance with its terms. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby will not, (a) violate or conflict with any permit, order, license, decree, judgment, statute, law, ordinance, rule or regulation applicable to the Shareholder or (b) result in any breach or violation of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of, or result in the creation of any mortgage, pledge, lien, encumbrance, charge, or other security interest (a "Lien") on any of the properties or assets of the Shareholder pursuant to, or require the consent of any party to any mortgage, indenture, lease, contract or other agreement or instrument, bond, note, concession or franchise applicable to the Shareholder or any of its properties or assets, except, in the case of this clause (b) only, where such conflict, violation, default, termination, cancellation or acceleration would not have and could not reasonably be expected to prevent the consummation of the transactions contemplated hereby. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality ("Governmental Entity") is required by or with respect to the Shareholder in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 2.2 Stock. The Shareholder has good and marketable title to the number of shares of Stock set forth next to the Shareholder's name on Schedule 2.2 of the Disclosure Schedule (as defined in Article III), free and clear of any restrictions on transfer (other than any restrictions under the Securities Act of 1933, as amended (the "Securities Act") and state securities laws); Taxes (as defined in Section 3.15); any Lien; and any option, warrant, put, call, purchase right, equity, claim, demand, or other commitment or agreement of any nature. The Shareholder is not a party to any option, warrant, put, call, purchase right or other commitment or agreement that could require the Shareholder to sell, transfer or otherwise convey any Stock, other than pursuant to this Agreement. Except as set forth in Schedule 2.2 of the Disclosure Schedule, the Shareholder is a competent adult and is the record and the beneficial owner of the Stock so listed in the Shareholder's name, with the sole right to vote, dispose of, and receive dividends or distributions with respect to such Stock. 2.3 Brokers' and Finders' Fees. The Shareholder has not incurred, or will not incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement or any transaction contemplated hereby. ARTICLE III REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY Except as disclosed in a document of even date herewith and delivered by Shareholders to Parent prior to the execution and delivery of this Agreement and referring to the representations and warranties in this Agreement (the "Disclosure Schedule"), the Shareholders represent and warrant to Parent as follows: 3.1 Organization and Standing. The Company is a corporation duly organized and validly existing and in good standing under the laws of the State of Washington, has the full corporate power to own its properties and to carry on its business as now being conducted and as proposed to be conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified and in good standing would have a Material Adverse Effect (as defined in Section 10.3) on the Company. The Company has delivered to Parent a true and correct copy of it Articles of Incorporation and Bylaws, each as amended to date. The Company is not in violation of any of the provisions of its Articles of Incorporation or Bylaws or equivalent organizational documents. 3.2 Capitalization. The authorized capital stock of the Company consists of 2,000,000 shares of Stock and 1,000,000 shares of Preferred Stock, $.01 par value, of which there are issued and outstanding 300 shares of Stock and no shares of Preferred Stock. There are no other outstanding shares of capital stock or other securities of the Company and no outstanding subscriptions, options, warrants, puts, calls, rights, exchangeable or convertible securities or other commitments or agreements of any nature relating to the capital stock or other securities of the Company, or otherwise obligating the Company to issue, transfer, sell, purchase, redeem or otherwise acquire such stock or securities. All outstanding shares of Stock are duly authorized, validly issued, fully paid and non-assessable and are free and clear of any Lien and are not subject to preemptive rights or rights of first refusal created by statute, the Articles of Incorporation or Bylaws of the Company or any agreement to which the Company or any Shareholder is a party or by which it is bound. 3.3 Subsidiaries. The Company does not directly or indirectly own any equity or similar interest in, or any interest convertible or exchangeable or exercisable for, any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity. 3.4 No Conflicts. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby will not, (a) conflict with or violate any provision of the Articles of Incorporation or Bylaws of the Company, (b) violate or conflict with any permit, order, license, decree, judgment, statute, law, ordinance, rule or regulation applicable to the Company or the properties or assets of the Company, or (c) result in any breach or violation of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of, or result in the creation of any Lien on any of the properties or assets of the Company pursuant to, or require the consent of any party to any mortgage, indenture, lease, contract or other agreement or instrument, bond, note, concession or franchise applicable to the Company or any of its properties or assets, except, in the case of this clause (c) only, where such conflict, violation, default, termination, cancellation or acceleration would not have and could not reasonably be expected to have a Material Adverse Effect on the Company. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to the Company in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 3.5 Financial Statements. The Company has heretofore delivered to Parent true and complete copies of an audited balance sheet, and the related statements of operations and stockholders' equity and of cash flows at September 30, 1996 on a combined basis with Target with separate disclosure of the balance sheet and income and retained earnings of the Company (the "Annual Financial Statements"), with an opinion of the Company's independent public accountants. The Company also has heretofore delivered to Parent true copies of the unaudited balance sheet of the Company at November 30, 1996, and the related unaudited statements of income for the two months then ended (the "Interim Financial Statements"). The Annual Financial Statements and the Interim Financial Statements were prepared in accordance with generally accepted accounting principles applied on a basis consistent throughout the periods indicated and consistent with each other (except as indicated in the notes thereto and, in the case of the Interim Financial Statements, that no notes are included) and fairly present the financial condition and operating results of the Company (combined with Target to the extent applicable) at the dates and during the periods indicated therein, subject, in the case of the Interim Financial Statements, to normal, recurring year-end audit adjustments. 3.6 Absence of Certain Changes. Except as specifically permitted by this Agreement or as set forth in Schedule 3.6 of the Disclosure Schedule, since September 30, 1996, the Company has conducted its business in the ordinary course consistent with past practice and there has not occurred: (a) any change, event or condition (whether covered by insurance) that has resulted in, or might reasonably be expected to result in, a Material Adverse Effect on the Company; (b) any sale, lease or other transfer or disposition of any property or asset of the Company, except for the sale of inventory in the ordinary course of business; (c) any change in accounting methods, practices or policies (including any change in depreciation or amortization policies or rates) by the Company or any revaluation by the Company of any of its assets, except as described in the notes to the Annual Financial Statements; (d) any declaration, setting aside, or payment of any dividend or other distribution to the Company's shareholders (other than declaration or payment of dividends or other distributions to the Shareholders in the amount of $300,000 on December 13, 1996 and immediately prior to the Closing, the estimated amount of federal and state income tax to be imposed on the Shareholders on income earned by the Company from January 1, 1996 through the Closing, assuming such shareholders are subject to the maximum effective combined Oregon and federal income tax rates then in effect), or any direct or indirect redemption, retirement, purchase or other acquisition by the Company of any of its capital stock or other securities or options, warrants or other rights to acquire capital stock; (e) any entering into, amendment or termination of, or default under, by the Company of any contract to which the Company is a party or by which it or any of them is bound other than in the ordinary course of business and as provided to Parent; (f) any damage, destruction or loss (whether or not covered by insurance) to the properties and assets of the Company; (g) any commitment or transaction (including any capital expenditure, capital financing or sale of assets) by the Company for any amount that requires or could require payments in excess of $50,000 with respect to any individual contract or a series of related contracts; (h) any Lien on any asset allowed to exist by the Company; (i) any cancellation of any debt or waiver or release of any right or claim by the Company; (j) any payment, discharge or satisfaction of any claim, liability or obligation by the Company, other than as reflected or reserved against in the Annual Financial Statements or the Interim Financial Statements or in the ordinary course of business consistent with past practice; (k) to the Shareholders' knowledge, any labor dispute, litigation or governmental investigation affecting the business or financial condition of the Company; (l) any issuance or sale of capital stock or other securities, exchangeable or convertible securities, options, warrants, puts, calls or other rights to acquire capital stock or other securities of the Company; (m) any indebtedness for borrowed money incurred, assumed or guaranteed by the Company; (n) any loan or advance (other than advances to employees in the ordinary course of business for travel and entertainment in accordance with past practice) to any person; (o) any increase in any salary, wage, benefit or other remuneration payable or to become payable to any current or former officer, director, employee or agent of the Company or any bonus or severance payment or arrangement made to, for or with any officer, director, employee or agent of the Company or any supplemental retirement plan or other program or special remuneration for any officer, director, employee or agent of the Company, except for normal salary or wage increases relating to periodic performance reviews and annual bonuses consistent with past practices of the Company where such increases or bonuses are not given to Shareholders or their relations or members of the leadership team of the Company or Target. (p) any grant of credit to any customer on terms or in amounts more favorable than those which have been extended to such customer in the past, any other change in the terms of any credit heretofore extended or any other change in the policies or practices of the Company with respect to the granting of credit; (q) any delay in the payment of any trade or other payables other than in the ordinary course of business consistent with past practice; or (r) any agreement, whether in writing or otherwise, by the Company to do any of the foregoing. 3.7 Liabilities. Except as set forth in the Annual Financial Statements, the Interim Financial Statements, Schedule 3.7 of the Disclosure Schedule or any other Schedule of the Disclosure Schedule and except for liabilities or obligations arising in the ordinary course and consistent with past practice and those incurred in connection herewith, neither the Company has any liability or obligation of any nature, whether due or to become due, fixed or contingent. 3.8 Litigation. There is no private or governmental action, suit, proceeding, claim, arbitration or investigation pending before any agency, court or tribunal, foreign or domestic, or, to the knowledge of any Shareholder, threatened against the Company or any of its assets and properties or any of its officers or directors (in their capacities as such) that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on the Company. There is no judgment, decree or order against the Company or any Shareholder, or, to the knowledge of any Shareholder, any of the Company's directors or officers (in their capacities as such), that could prevent consummation of the transactions contemplated by this Agreement, or that could reasonably be expected to have a Material Adverse Effect on the Company. 3.9 Restrictions on Business Activities. There is no material agreement, judgment, injunction, order or decree binding upon the Company which has or reasonably could be expected to have the effect of prohibiting or materially impairing any current or proposed business practice of the Company, any acquisition of property by the Company or the conduct of business by the Company as currently conducted or as proposed to be conducted by the Company. 3.10 Governmental Authorization. The Company has obtained each federal, state, county, local or foreign governmental consent, license, permit, grant, or other authorization that are necessary for the Company to own or lease, operate and use its assets and properties and to carry on its business as currently conducted or as proposed to be conducted (collectively, the "Company Authorizations"), the Company has performed and fulfilled its obligations under the Company Authorizations, and all the Company Authorizations are in full force and effect, except where the failure to obtain or have any of such Company Authorizations could not reasonably be expected to have a Material Adverse Effect on the Company. 3.11 Contracts and Commitments. Except as set forth in Schedule 3.11 of the Disclosure Schedule, neither the Company is a party to any oral or written (a)(i) obligation for borrowed money, (ii) obligation evidenced by bonds, debentures, notes or other similar instruments, (iii) obligation to pay the deferred purchase price of property or services (other than trade accounts arising in the ordinary course of business), (iv) obligation under capital leases, (v) debt of others secured by a Lien on its property, (vi) guaranty of liabilities or obligations of others, (vii) agreement under which the Company is obligated to make or expects to receive payments in excess of $10,000 or (viii) agreement granting any person a Lien on any of its properties or assets (except purchase money security interests created in the ordinary course of business consistent with past practice); (b)(i) employment agreement or collective bargaining agreement or (ii) agreements that limits the right of the Company or any of its employees to compete in any line of business; or (c) agreement which, after giving effect to the transactions contemplated hereby, purports to restrict or bind Parent or any of its subsidiaries, other than the Company and Target, in any respect. True and complete copies of all agreements described in Schedule 3.11 of the Disclosure Schedule or any other section thereto have been delivered to Parent. The Company has fulfilled, or taken all actions necessary to enable it to fulfill when due, its obligations under each of such agreements. All parties thereto have complied in all material respects with the provisions thereof and no party is in breach or violation of, or in default (with or without notice or lapse of time, or both) under such agreements. With respect to such agreements, the Company has not received any notice of termination, cancellation or acceleration or any notice of breach, violation or default thereof. 3.12 Title to Property. Except as set forth in Schedule 3.12 of the Disclosure Schedule, the Company has good and marketable title to all of their respective properties and assets, or in the case of leased properties and assets, valid leasehold interests in such properties, free and clear of any Lien. The plants, property and equipment of the Company that are used in the operations of their business are in good operating condition and repair. All plants, property and equipment have been well maintained and conform (to the Shareholders' actual knowledge as to leased real property) with all applicable ordinances, regulations and zoning and other laws and do not encroach on the property of others. There is no pending or, to the knowledge of the Shareholders, threatened change in any such ordinance, regulation or zoning or other law, and there is no pending or, to the knowledge of the Shareholders, threatened condemnation of any such building, machinery or equipment. The properties and assets of the Company include all rights, properties, interests in properties and assets necessary to permit the Company to conduct its business as currently conducted or as proposed to be conducted. Schedule 3.12 of the Disclosure Schedule identifies each parcel of real property owned or leased by the Company. 3.13 Intellectual Property. (a) The Company owns, or is licensed or otherwise possess legally enforceable rights to use, all patents, trademarks, trade names, service marks, copyrights, and any applications therefor, maskworks, net lists, schematics, technology, know-how, trade secrets, inventory, ideas, algorithms, processes, computer software programs or applications (in both source code and object code form), and tangible or intangible proprietary information or material ("Intellectual Property") that are used or proposed to be used in the business of the Company as currently conducted or as proposed to be conducted, except to the extent that the failure to have such rights have not and could not reasonably be expected to have a Material Adverse Effect on the Company. (b) Schedule 3.13 of the Disclosure Schedule lists (i) all patents and patent applications and all registered and unregistered trademarks, trade names and service marks, registered and unregistered copyrights, and maskworks, which the Company considers to be material to its business and included in the Intellectual Property, including the jurisdictions in which each such Intellectual Property right has been issued or registered or in which any application for such issuance and registration has been filed, (ii) all material licenses, sublicenses and other agreements as to which the Company is a party and pursuant to which any person is authorized to use any Intellectual Property, and (iii) all material licenses, sublicenses and other agreements as to which the Company is a party and pursuant to which the Company is authorized to use any third party patents, trademarks or copyrights, including software ("Third Party Intellectual Property Rights"), in each case which are incorporated in, are, or form a part of any product or service of the Company. (c) To the knowledge of the Company, there is no unauthorized use, disclosure, infringement or misappropriation of any Intellectual Property rights of the Company, any trade secret material to the Company, or any Third Party Intellectual Property Right, by any third party, including any employee or former employee of the Company. The Company has not entered into any agreement to indemnify any other person against any charge of infringement of any Intellectual Property, other than indemnification provisions contained in purchase orders arising in the ordinary course of business. (d) The Company is not, and will not as a result of the execution and delivery of this Agreement or the performance of the Company's obligations under this Agreement be, in breach of any license, sublicense or other agreement relating to the Intellectual Property or Third Party Intellectual Property Rights, the breach of which could have a Material Adverse Effect on the Company. (e) All patents, registered trademarks, service marks and copyrights held by the Company are valid and subsisting. The Company (i) has not been sued in any suit, action or proceeding which involves a claim of infringement of any patents, trademarks, service marks, copyrights or violation of any trade secret or other proprietary right of any third party or (ii) has not brought any action, suit or proceeding for infringement of Intellectual Property or breach of any license or agreement involving Intellectual Property against any third party. The manufacture, marketing, licensing or sale of the products and services of the Company do not infringe any patent, trademark, service mark, copyright, trade secret or other proprietary right of any third party. (f) The Company has secured valid written assignments from all consultants and employees who contributed to the creation or development of Intellectual Property of the rights to such contributions that the Company does not already own by operation of law. (g) The Company has taken all reasonable and appropriate steps to protect and preserve the confidentiality of all Intellectual Property not otherwise protected by patents, or patent applications or copyright ("Confidential Information"). All use, disclosure or appropriation of Confidential Information owned by the Company by or to a third party has been pursuant to the terms of a written agreement with such third party. All use, disclosure or appropriation of Confidential Information not owned by the Company has been pursuant to the terms of a written agreement with the owner of such Confidential Information, or is otherwise lawful. 3.14 Environmental Matters. (a) The Company has complied with, and is in compliance with, all Environmental Laws (as defined in this Section 3.14(a)) applicable to its business, properties and assets. The Company has, and the Company has provided to Parent true and complete copies of, all permits, approvals, registrations, licenses and other authorizations required by any Governmental Entity pursuant to any Environmental Law applicable to its business, properties and assets, the absence of which would have a Material Adverse Effect on the Company. There is no pending or, to the knowledge of the Shareholders, threatened civil or criminal litigation, written notice of violation, formal administrative proceeding, or investigation, inquiry or information request by any Governmental Entity, relating to any Environmental Law to which the Company is a party or, to the knowledge of the Shareholders, threatened to be made a party. For purposes of this Agreement, "Environmental Law" means any federal, state or local law, statute, rule or regulation or the common law relating to the environment or occupational health and safety, including any statute, regulation or order pertaining to (i) treatment, storage, disposal, generation and transportation of industrial, toxic or hazardous substances or solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater and solid contamination; (iv) the release or threatened release into the environment of industrial, toxic or hazardous substances, or solid or hazardous waste, including without limitation emissions, discharges, injections, spills, escapes or dumping of pollutants, contaminants or chemicals; (v) the protection of wild life, marine sanctuaries and wetlands, including without limitation all endangered and threatened species; (vi) storage tanks, vessels and containers; (vii) underground and other storage tanks or vessels, abandoned, disposed or discarded barrels, containers and other closed receptacles; (viii) health and safety of employees and other persons; and (ix) manufacture, processing, use, distribution, treatment, storage, disposal, transportation or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or oil or petroleum products or solid or hazardous waste. As used herein, the terms "release" and "environment" have the meanings set forth in the federal Comprehensive Environmental Compensation, Liability and Response Act of 1980 ("CERCLA"). (b) There have been no releases of any Materials of Environmental Concern (as defined in this Section 3.14(b)) into the environment at any parcel of real property or any facility presently or formerly owned by the Company or by the Company at any parcel of real property or any facility presently or formerly leased, operated or controlled by the Company. With respect to any such releases of Materials of Environmental Concern, the Company has given all required notices to government authorities, copies of which have been provided to Parent. The Shareholders are not aware of any releases of Materials of Environmental Concern at parcels of real property or facilities other than those presently or formerly owned, leased, operated or controlled by the Company that could reasonably be expected to have an impact on the real property or facilities owned, leased, operated or controlled by the Company. For purposes of this Agreement, "Materials of Environmental Concern" means any chemicals, pollutants or contaminants, hazardous substances (as such term is defined under CERCLA), solid wastes and hazardous wastes (as such terms are defined under the Federal Resources Conservation and Recovery Act), toxic materials, oil or petroleum and petroleum products. (c) Set forth in Schedule 3.14 of the Disclosure Schedule is a list of all environmental reports, investigations and audits in the possession of the Company with respect to the operations of, or real property leased by the Company (whether conducted by or on behalf of the Company or a third party and whether done at the initiative of the Company or directed by a Governmental Entity or other third party). True and complete copies of each such report, or the results of each such investigation or audit, have been provided to Parent. (d) The Shareholders are not aware of any material environmental liability arising out of the utilization by the Company of any solid and hazardous waste transporter or treatment, storage and disposal facility. 3.15 Taxes. The Company is, and has been for all taxable periods since its formation, treated as an S Corporation as defined in Section 1361(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). The Company, and any consolidated, combined, unitary or aggregate group for Tax (as defined in this Section 3.15) purposes of which the Company is or has been a member have timely filed all Tax Returns (as defined in this Section 3.15) required to be filed by it taking into account extensions of due dates, have paid all Taxes shown thereon to be due and has provided adequate accruals in accordance with generally accepted accounting principles in its financial statements for any Taxes that have not been paid, whether shown as being due on any Tax returns. The Company has withheld and paid over all Taxes required to have been withheld and paid over (including any estimated taxes), and has complied with all information reporting and backup withholding requirements, including maintenance of required records with respect thereto, in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party. The Company does not have any liability under Treasury Regulation 1.1502-6 or any analogous state, local or foreign law by reason of having been a member of any consolidated, combined or unitary group. The Company does not do business in or derive income from any state, local, territorial or foreign taxing jurisdiction other than those for which Returns have been furnished to Parent. Except as disclosed in Schedule 3.15 of the Disclosure Schedule, (a) no material claim for Taxes has become a Lien against the property of the Company or is being asserted against the Company other than Liens for Taxes not yet due and payable, (b) no audit of any Tax Return of the Company is being conducted by a Tax authority, (c) no Tax authority is now asserting, or to the knowledge of the Shareholders, threatening to assert against the Company any deficiency or claim for additional Taxes, and there are no requests for information from a Tax authority currently outstanding that could affect the Taxes of the Company, (d) no extension of the statute of limitations on the assessment of any Taxes has been granted by the Company and is currently in effect, and (e) the Company has not entered into any compensatory agreements with respect to the performance of services which payment thereunder would result in a nondeductible expense pursuant to Sections 162(m) or 280G of the Code, (f) no action has been taken that would have the effect of deferring any liability for Taxes for the Company from any period prior to the Effective Date to any period after the Effective Date, (g) the Company has never been included in an affiliated group of corporations, within the meaning of Section 1504 of the Code, (h) the Company is not (nor has it ever been) a party to any Tax sharing agreement, (i) no consent under Section 341(f) of the Code has been filed with respect to the Company, (j) the Company has not disposed of any property that has been accounted for under the installment method, (k) the Company is not a party to any interest rate swap, currency swap or similar transaction, (l) the Company is not a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code, (m) the Company is not subject to any joint venture, partnership or other arrangement or contract that is treated as a partnership for federal income tax purposes, (n) the Company has not made any of the foregoing elections and is not required to apply any of the foregoing rules under any comparable state or local income tax provisions, and (o) the transactions contemplated herein are not subject to the tax withholding provisions of Section 3406 of the Code, or of Subchapter A of Chapter 3 of the Code, or of any other provision of law. The Company will not be required to include any material adjustment in Taxable income for any Tax period (or portion thereof) ending after the Closing Date attributable to adjustments made prior to the Closing Date pursuant to Section 481 or 263A of the Code or any comparable provision of any state or foreign Tax law. Schedule 3.15 of the Disclosure Schedule contains accurate and complete information with respect to: (w) all material tax elections in effect with respect to the Company, (x) the current tax basis of the assets of the Company, (y) the current and accumulated earnings and profits of the Company, and (z) the tax credit carry overs of the Company. As used herein, "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means (i) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, business and occupations, occupation, premium, property, environmental or windfall profit tax, custom, duty, or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any Governmental Entity (a "Tax authority") responsible for the imposition of any such tax (domestic or foreign), (ii) any liability for the payment of any amounts of the type described in clause (i) as a result of being a member of an affiliated, consolidated, combined or unitary group for any Taxable period and (iii) any liability for the payment of any amounts of the type described in clause (i) or (ii) as a result of any express or implied obligation to indemnify any other person. As used herein, "Tax Return" shall mean any return, statement, report or form (including, without limitation,) estimated Tax returns and reports, withholding Tax returns and reports and information reports and returns required to be filed with respect to Taxes. The Company is in full compliance with all terms and conditions of any Tax exemptions or other Tax-sharing agreement or order of a foreign government and the consummation of the transaction contemplated hereby will not have any adverse effect on the continued validity and effectiveness of such Tax exemptions or other Tax-sharing agreement or order. 3.16 Employee Benefit Plans. (a) Schedule 3.16 of the Disclosure Schedule lists, with respect to the Company and any trade or business (whether or not incorporated) which is treated as a single employer with the Company (an "ERISA Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all material employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), (ii) each loan to a non-officer employee in excess of $10,000, loans to officers and directors and any stock option, stock purchase, phantom stock, stock appreciation right, supplemental retirement, severance, sabbatical, medical, dental, vision care, disability, employee relocation, cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life insurance or accident insurance plans, programs or arrangements, (iii) all bonus, pension, profit sharing, savings, deferred compensation or incentive plans, programs or arrangements, (iv) other fringe or employee benefit plans, programs or arrangements that apply to senior management and that do not generally apply to all employees, and (v) any current or former employment or executive compensation or severance agreements, written or otherwise, as to which unsatisfied obligations of greater than $10,000 remain for the benefit of, or relating to, any present or former employee, consultant or director (collectively, the "Employee Plans"). (b) The Company has furnished to Parent a copy of each of the Employee Plans and related plan documents (including trust documents, insurance policies or contracts, employee booklets, summary plan descriptions and other authorizing documents, and, to the extent still in its possession, any material employee communications relating thereto) and has, with respect to each Employee Plan which is subject to ERISA reporting requirements, provided copies of the Form 5500, including all schedules attached thereto and actuarial reports, if any, filed for the last three Plan years. Any Employee Plan intended to be qualified under Sections 401(a) or 501(c)(9) of the Code has either obtained from the Internal Revenue Service a favorable determination letter as to its qualified status under the Tax Reform Act of 1986 and subsequent legislation, or has applied to the Internal Revenue Service for such a determination letter prior to the expiration of the requisite period under applicable Treasury Regulations or Internal Revenue Service pronouncements in which to apply for such determination letter and to make any amendments necessary to obtain a favorable determination. The Company has also furnished Parent with the most recent Internal Revenue Service determination letter issued with respect to each such Employee Plan (and nothing has occurred since the issuance of each such letter which could reasonably be expected to cause the loss of the tax-qualified status of any Employee Plan subject to Code Section 401(a)), and all prohibited transaction exemptions (or requests for such exemptions), private letter rulings, opinions, information letters or compliance statements issued with respect to any plan described in Section 3.16(a) by the Internal Revenue Service, the Department of Labor or the Pension Benefit Guaranty Corporation. (c) (i) None of the Employee Plans promises or provides retiree medical or other retiree welfare benefits to any person; (ii) there has been no "prohibited transaction," as such term is defined in Section 406 of ERISA and Section 4975 of the Code, with respect to any Employee Plan, which could reasonably be expected to have, in the aggregate, a Material Adverse Effect; (iii) each Employee Plan has been administered in accordance with its terms and in compliance with the requirements prescribed by any and all statutes, rules and regulations (including ERISA and the Code), except as would not have a Material Adverse Effect on the Company, and the Company or ERISA Affiliate have performed all obligations required to be performed by them under, are not in any respect in default under or violation of, and have no knowledge of any default or violation by any other party to, any of the Employee Plans, which default or violation could reasonably be expected to have a Material Adverse Effect on the Company; (iv) neither the Company nor any ERISA Affiliate is subject to any liability or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any of the Employee Plans which have a Material Adverse Effect on any such parties; (v) all material contributions required to be made by the Company or any ERISA Affiliate to any Employee Plan have been made on or before their due dates and a reasonable amount has been accrued for contributions to each Employee Plan for the current plan years; (vi) with respect to each Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA (excluding any such event for which the 30-day notice requirement has been waived under the regulations to Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA has occurred; and (vii) no Employee Plan is covered by, and neither the Company nor any ERISA Affiliate has incurred or expects to incur any liability under Title IV of ERISA or Section 412 of the Code. With respect to each Employee Plan subject to ERISA as either an employee pension plan within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan within the meaning of Section 3(1) of ERISA, the Company has prepared in good faith and timely filed all requisite governmental reports (which were true and correct as of the date filed) and has properly and timely filed and distributed or posted all notices and reports to employees required to be filed, distributed or posted with respect to each such Employee Plan except where the failure to timely file, distribute or post such documents would not, in the aggregate, have a Material Adverse Effect on the Company. No suit, administrative proceeding, action or other litigation has been brought, or to the knowledge of the Shareholders, is threatened, against or with respect to any such Employee Plan, including any audit or inquiry by the Internal Revenue Service or United States Department of Labor. Neither the Company nor any ERISA Affiliate is a party to, or has made any contribution to or otherwise incurred any obligation under, any "multiemployer plan" as defined in Section 3(37) of ERISA. (d) With respect to each Employee Plan, the Company has complied with (i) the applicable health care continuation and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the proposed regulations thereunder and (ii) the applicable requirements of the Family and Medical Leave Act of 1993 and the regulations thereunder, except to the extent that such failure to comply would not, in the aggregate, have a Material Adverse Effect on the Company. (e) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (i) entitle any current or former employee or other service provider or any director of the Company or any ERISA Affiliate to severance benefits or any other payment (including unemployment compensation, golden parachute, bonus or otherwise), (ii) increase any benefits otherwise payable or (iii) accelerate the time of payment or vesting, or increase the amount of compensation due any such employee, service provider or director. (f) There has been no amendment to, written interpretation or announcement (whether or not written) by the Company or ERISA Affiliate relating to, or change in participation or coverage under, any Employee Plan which would materially increase the expense of maintaining such Plan above the level of expense incurred with respect to that Plan for the most recent fiscal year included in the Annual Financial Statements. 3.17 Employee Matters. Schedule 3.17 of the Disclosure Schedule lists all employees of the Company and the remuneration and benefits to which such employees are entitled. Schedule 3.17 also lists all employment contracts and collective bargaining agreements, and all pension, bonus, profit sharing, or other agreements or arrangements providing for employee remuneration or benefits to which the Company is a party or by which it is bound; all of these contracts and arrangements are in full force and effect, and neither the Company nor any other party is in default under them. There have been no claims of defaults and, to the knowledge of the Shareholders, there are no facts or conditions which if continued, or on notice, will result in a default under these contracts or arrangements. There is no pending or, to the knowledge of the Shareholders, threatened labor dispute, strike, or work stoppage that would have a Material Adverse Effect on the Company. The Company is in compliance in all respects with all current applicable laws and regulations respecting employment, discrimination in employment, terms and conditions of employment, wages, hours and occupational safety and health and employment practices, and are not engaged in any unfair labor practice. There are no pending claims against the Company under any workers compensation plan or policy or for long term disability. The Company does not have any obligations under COBRA with respect to any former employees or qualifying beneficiaries thereunder. 3.18 Interested Party Transactions. Except as disclosed in Schedule 3.18 of the Disclosure Schedule, the Company is not indebted to any shareholder, director, officer, employee or agent of the Company (except for amounts due as normal salaries and bonuses and in reimbursement of ordinary expenses), and no such person is indebted to the Company, and there have been no other transactions of the type required to be disclosed pursuant to Items 402 and 404 of Regulation S-K under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 3.19 Insurance. The Company has policies of insurance and bonds of the type and in amounts customarily carried by persons conducting businesses or owning assets similar to those of the Company. Schedule 3.19 of the Disclosure Schedule sets forth a true and complete listing of all such policies, including in each case applicable coverage limits, deductibles and policy expiration dates. There is no material claim pending under any of such policies or bond as to which the Company has received a denial, or, to the knowledge of the Shareholders, which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and the Company is otherwise in compliance in all material respects with the terms of such policies and bonds. The Shareholders have no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. Each policy or bond is legal, valid, binding, enforceable and in full force and effect and will continue to be legal, valid, binding, enforceable and in full force and effect following the consummation of the transactions contemplated hereby. 3.20 Compliance With Laws. The Company has complied with, is not in violation of, and has not received any notices of violation with respect to, any federal, state, local or foreign statute, law or regulation with respect to the conduct of its business, or the ownership or operation of its business, except for such violations or failures to comply as could not be reasonably expected to have a Material Adverse Effect on the Company. 3.21 Major Customers. Schedule 3.21 of the Disclosure Schedule contains a list of the customers of the Company for each of the two most recent fiscal years, which individually accounted for more than five percent of the total dollar amount of net sales, showing the total dollar amount of net sales to each such customer during each such year. The Shareholders have no knowledge or information of any facts indicating, nor any other reason to believe, that any of the customers listed in such Schedule 3.21 will not continue to be customers of the Company after the Closing at substantially the same level of purchases. 3.22 Suppliers. As of the date hereof, no supplier of the Company has indicated to the Company that it will stop, or decrease the rate of, supplying materials, products or service to the Company. The Company has not knowingly breached, so as to provide a benefit to the Company that was not intended by the parties, any agreement with, or engaged in any fraudulent conduct with respect to, any customer or supplier of the Company. 3.23 Inventory. All inventories of raw materials, work-in process and finished goods (including all such in transit) of the Company, together with related packaging materials (collectively, "Inventory"), reflected in the Annual and Interim Financial Statements consist of a quality and quantity usable and saleable in the ordinary course of business, have commercial values at least equal to the value shown on such balance sheet or are subject to purchase obligations by customers or suppliers at such value and is valued in accordance with generally accepted accounting principles at the lower of cost (on a first in first out basis) or market. All Inventory purchased since the date of such balance sheet consists of a quality and quantity usable and saleable in the ordinary course of business. Except as set forth in Schedule 3.23 of the Disclosure Schedule, all Inventory is located on premises owned or leased by the Company. All work-in process contained in Inventory constitutes items in process of production pursuant to contracts or open orders taken in the ordinary course of business, from regular customers of the Company with no recent history of credit problems with respect to the Company; neither the Company nor any such customer is in material breach of the terms of any obligation to the other, and, based on the knowledge of the Shareholders, valid grounds exist for any counterclaim or set-off of amounts billable to such customers upon the completion of orders to which work-in-process relates. All work-in process is of a quality ordinarily produced in accordance with the requirements of the orders to which such work-in-process is identified, and will require no rework with respect to work performed prior to Closing. 3.24 Product Warranty and Product Liability. Schedule 3.24 of the Disclosure Schedule contains a true and complete copy of the Company's standard warranty or warranties for its manufacturing services. There has been no variation from such warranties, except as set forth in Schedule 3.24 of the Disclosure Schedule. Except as stated therein, there are no warranties, commitments or obligations with respect to the Company's performance of services. Schedule 3.24 of the Disclosure Schedule contains a description of all product liability claims and similar claims, actions, litigation and other proceedings relating to services rendered, which are presently pending or, to the knowledge of the Shareholders, threatened, or which have been asserted or commenced against the Company within the last five years, in which a party thereto either requests injunctive relief (whether temporary or permanent) or alleges damages (whether or not covered by insurance). There are no defects in the Company's manufacturing services which would adversely affect performance of products the Company manufactures or create an unusual risk of injury to persons or property. The Company's manufacturing services have been designed or performed so as to meet and comply with all governmental standards and specifications currently in effect, and have received all governmental approvals necessary to allow their performance. 3.25 Minutes Books. The minute books of the Company made available to Parent contain true and complete summaries of all meetings of directors and shareholders or actions by written consent since the time of incorporation of the Company, and reflect all transactions referred to in such minutes accurately in all material respects. 3.26 Brokers' and Finders' Fees. Except for the letter agreement, dated August 23, 1996, between Target and Pacific Crest Securities, Inc., neither the Company nor any Shareholder has incurred, or will incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement or any transaction contemplated hereby. 3.27 Proxy Statement. The information supplied by the Company for inclusion in the proxy statement to be sent to the shareholders of Parent in connection with the meeting of Parent's shareholders (the "Parent Shareholders Meeting") to consider the Merger (such proxy statement as amended or supplemented is referred to herein as the "Proxy Statement") shall not, on the date the Proxy Statement is first mailed, at the time of the Parent Shareholders Meeting and at the Closing Date, contain any statement which, at such time, is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they are made, not false or misleading; or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Parent Shareholders Meeting which has become false or misleading. 3.28 Disclosure. None of the representations or warranties made by Shareholders herein or in the Disclosure Schedule, or in any certificate furnished by Shareholders pursuant to this Agreement, when all such documents are read together in their entirety, contain or will contain at the Closing Date any untrue statement of a material fact, or omit or will omit at the Closing Date to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. The Company and Shareholders have delivered or made available true and complete copies of each document that has been requested by Parent or its counsel in connection with their legal and accounting review of the Company. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT Parent represents and warrants to the Shareholders as follows: 4.1 Organization. Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado. 4.2 Due Authorization. Parent has the full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Parent and constitutes the valid and binding obligation of Parent enforceable against Parent in accordance with its terms. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby will not, (a) violate or conflict with any permit, order, license, decree, judgment, statute, law, ordinance, rule or regulation applicable to Parent or (b) result in any breach or violation of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of, or result in the creation of any Lien on any of the properties or assets of Parent pursuant to, or require the consent of any party to any mortgage, indenture, lease, contract or other agreement or instrument, bond, note, concession or franchise applicable to Parent or any of its properties or assets, except, in the case of this clause (b) only, where such conflict, violation, default, termination, cancellation or acceleration would not have and could not reasonably be expected to prevent the consummation of the transactions contemplated hereby. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to Parent in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 4.3 Brokers' and Finders' Fees. Parent has not incurred, and will not incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement or any transaction contemplated hereby. 4.4 Investment. Parent is not acquiring the Stock with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act. ARTICLE V CONDUCT PENDING THE CLOSING 5.1 Conduct of Business of the Company. Prior to the Closing, except as expressly contemplated by this Agreement or as agreed in writing by Parent: (a) Affirmative Covenants. The Shareholders will cause each of the Company to: (i) carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and use its best efforts to preserve intact its present business organizations, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, to the end that its goodwill and ongoing businesses shall be unimpaired at the Closing; (ii) maintain insurance coverages and its books, accounts and records in the usual manner consistent with past practice; (iii) comply in all material respects with all laws and regulations of any Governmental Entity applicable to it; (iv) maintain and keep its plants, property and equipment in good repair, working order and condition, ordinary wear and tear excepted; (v) perform in all material respects its obligations under all contracts and commitments to which it is a party or by which it is bound; (vi) notify Parent of any event or occurrence not in the ordinary course of its business, and of any event which could have a Material Adverse Effect on the Company; or (vii) pay, consistent with past practice, all accounts payable that arise in the ordinary course of its business except to the extent that the amount owing is being duly contested by the Company and such contest does not have a Material Adverse Effect on the Company and adequate reserves therefor are reflected on the Annual Financial Statements or the Interim Financial Statements. (b) Negative Covenants. The Shareholders will cause each of the Company not to do any of the things enumerated in Section 3.6. In addition, but without limiting the generality of the foregoing, the Shareholders will cause each of the Company not to: (i) cause or permit any amendments to its Articles of Incorporation or Bylaws or equivalent charter documents; (ii) accelerate, amend or change the period of exercisability or vesting of options or other rights granted under its employee stock plans or director stock plans or authorize cash payments in exchange for any options or other rights granted under any of such plans; (iii) transfer to any person or entity any rights to its Intellectual Property; (iv) enter into or amend any agreements pursuant to which any other party is granted exclusive marketing or other exclusive rights of any type or scope with respect to any of its products or technology; (v) enter into any operating lease providing for payments in excess of an aggregate of $10,000; (vi) adopt or amend any employee benefit or stock purchase or option plan, or hire any new director level or officer level employee (other than in the ordinary course of business), pay any special bonus or special remuneration to any employee or director, or increase the salaries or wage rates of its employees, except for normal salary or wage increases relating to periodic performance reviews and annual bonuses consistent with past practices of the Company where such increases or bonuses are not given to Shareholders or their relations or members of the leadership team of the Company or Target. (vii) commence a lawsuit other than (A) for the routine collection of bills or (B) in such cases where it in good faith determines that failure to commence suit would result in the material impairment of a valuable aspect of its business, provided that it consults with Parent prior to the filing of such a suit; (viii) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets, other than in the ordinary course of business consistent with past practice; (ix) other than in the ordinary course of business, make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, file any material Tax Return or any amendment to a material Tax Return, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; (x) revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business; (xi) take, or agree in writing or otherwise to take, any other action that would make any of its representations or warranties contained in this Agreement untrue; or (xii) agree, whether in writing or otherwise, to do any of the foregoing. 5.2 No Solicitation; Acquisition Proposals. The Shareholders will (and the Shareholders will cause each of the Company to) not, directly or indirectly, through any officer, director, employee, representative, agent, financial advisor or otherwise, solicit, initiate or encourage inquiries or submission of proposals or offers from any person relating to any sale of all or any portion of the assets, business, properties of (other than immaterial or insubstantial assets or inventory in the ordinary course of business), or any equity interest in, the Company or any business combination with the Company whether by merger, purchase of assets, tender offer or otherwise or participate in any negotiation regarding, or furnishing to any other person any information with respect to, or otherwise cooperate in any way with, or assist in, facilitate or encourage, any effort or attempt by any other person to do or seek to do any of the foregoing. None of the Shareholders will vote their Stock in favor of any transaction of the nature described in this Section 5.2. The Shareholders will notify Parent immediately if any inquiries or proposals are received by, any information is requested from, or any negotiations or discussions are sought to be initiated or continued with the Company or any Shareholder, in each case in connection with any of the foregoing. The Shareholders shall use their best efforts to cause all confidential materials previously furnished to any third parties in connection with any of the foregoing to be promptly returned to the Company and shall cease, or cause the Company to cease, any negotiations conducted in connection therewith or otherwise conducted with any such parties. 5.3 Notice of Breach. Each party hereto shall promptly give written notice to the others upon becoming aware of the occurrence or, to its knowledge, impending or threatened occurrence, of any event that could cause or constitute a breach of any of its representations, warranties or covenants hereunder. ARTICLE VI OTHER COVENANTS 6.1 Access to Information. The Shareholders will afford, and will cause the Company to afford, Parent and its accountants, counsel and other representatives full access during normal business hours (and at such other times as the parties hereto agree) during the period prior to the Closing to (a) all of the Company's properties, books, contracts, commitments and records, and (b) all other information concerning the business, properties and personnel of the Company as Parent may reasonably request. The Shareholders will provide, and will cause each of the Company to provide, to Parent and its accountants, counsel and other representatives copies of internal financial statements promptly upon request. Parent shall cooperate with the Shareholders with their due diligence review of Parent to the extent necessary to confirm the accuracy of Parent's representations and warranties. Subject to compliance with applicable law, from the date hereof until the Closing, each of Parent and the Company shall confer on a regular and frequent basis with one or more representatives of the other party to report operational matters of materiality and the general status of ongoing operations. No information or knowledge obtained in any investigation pursuant to this Section 6.1 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties hereto to consummate the transactions contemplated hereby. 6.2 Confidentiality. The parties hereto will treat as confidential and hold in confidence all information concerning the businesses and affairs of the Company and the business and affairs of Parent that is not already generally available to the public and is not otherwise known to the party to whom it was disclosed on a non-confidential basis ("Proprietary Information") and refrain from using any Confidential Information except in furtherance of this Agreement or as required by law. For avoidance of doubt, the letter agreement between Parent and Pacific Crest Securities Inc., dated October 2, 1996, relating to the disclosure of the Company's confidential information and Section 11 of letter agreement, dated December 18, 1996, among Current Electronics, Inc., the Company and Parent shall cease to have any further force or effect. 6.3 Publicity. The Shareholders will not, and will cause each of the Company not to, issue, or cause or permit to be issued, any press release or otherwise make any public statement regarding the terms of this Agreement or the transactions contemplated hereby without Parent's prior written consent. Parent shall consult with the Company before issuing any press release or otherwise making any public statement regarding the terms of this Agreement or the transactions contemplated hereby, except as required by law or its other legal obligations. 6.4 Filings; Cooperation. The parties hereto shall make, and cause their affiliates to make, all necessary filings with respect to the transactions contemplated hereby including those required under the Securities Act and the Exchange Act and the rules and regulations thereunder, and under applicable Blue Sky or similar securities laws, and shall use all reasonable efforts to obtain required approvals and clearances with respect thereto to (a) comply as promptly as practicable with all governmental requirements applicable to the transaction and (b) obtain promptly all necessary permits, orders and other consents of Governmental Entities and consents of third parties necessary for the consummation of the transactions contemplated hereby. 6.5 Employment Matters. The Shareholders shall cause the employment arrangements of each person that is related to a Shareholder to be terminated, such terminations to be effective at the Closing and be without liability to the Company in any respect. 6.6 Further Assurances. (a) Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including using all reasonable efforts to obtain all necessary waivers, consents and approvals, to effect all necessary registrations and filings (including, but not limited to, filings with all applicable Governmental Entities) and to lift any injunction or other legal bar to the transactions contemplated hereby (and, in such case, to proceed with the such transactions as expeditiously as possible). (b) In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and/or directors of Parent and the Shareholders shall take all such necessary action. ARTICLE VII CONDITIONS PRECEDENT 7.1 Conditions to Obligations of Each Party. The respective obligations of each party hereto to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing Date of each of the following conditions, any of which may be waived, in writing, by agreement of Parent and Shareholders holding a majority in interest of the Stock: (a) This Agreement and the transactions contemplated hereby shall have been approved and adopted by the requisite vote of the shareholders of Parent. (b) No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the transactions contemplated hereby, nor any proceeding brought by an administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing, shall be pending; nor shall there be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to such transactions, which makes the consummation of such transactions illegal. (c) The parties hereto shall have timely obtained from each Governmental Entity all approvals, waivers and consents, if any, necessary for consummation of or in connection with the Merger and the several transactions contemplated hereby, including such approvals, waivers and consents as may be required under the federal securities and state Blue Sky laws. 7.2 Additional Conditions to Obligations of Shareholders. The obligations of the Shareholders to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, by Shareholders holding a majority in interest of the Stock: (a) Parent shall have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed and complied with by them on or prior to the Closing and the representations and warranties of Parent in this Agreement shall be true and correct in all material respects (or in all respects in the case of any representation or warranty that is qualified by its terms by a reference to Material Adverse Effect or otherwise the concept of materiality) when made and on and as of the Closing Date as though such representations and warranties were made on and as of such date. (b) The Shareholders shall have received a certificate executed on behalf of Parent by its Chief Financial Officer certifying that the conditions specified in Section 7.2(a) have been fulfilled. (c) The Shareholders shall have received a legal opinion of Holme Roberts & Owen LLP, counsel to Parent, substantially in the form attached to the Merger Agreement as Exhibit 8.2(c). 7.3 Additional Conditions to the Obligations of Parent. The obligations of Parent to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, by Parent: (a) The Shareholders shall have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed and complied with by them on or prior to the Closing Date and the representations and warranties of the Shareholders in this Agreement shall be true and correct in all material respects (or in all respects in the case of any representation or warranty that is qualified by its terms by a reference to Material Adverse Effect or otherwise by the concept of materiality) when made and on and as of the Closing Date as though such representations and warranties were made on and as of such time. (b) Parent shall have received a certificate, dated as of the Closing Date, from each Shareholder certifying that the conditions specified in Section 7.3(a) have been fulfilled. (c) Parent shall have received a legal opinion from Hershner, Hunter, Andrews, Neill & Smith, LLP, legal counsel to the Shareholders, substantially in form attached to the Merger Agreement as Exhibit 8.3(c). (d) Parent shall have been furnished with evidence satisfactory to it of the consent or approval of those persons whose consent or approval shall be required in connection with the transactions contemplated hereby under any material contract of the Company or otherwise. (e) There shall not have occurred any Material Adverse Effect on the Company. (f) Parent shall have received letters of resignation, effective as of the Closing Date, executed and tendered by each of the then incumbent directors of the Company. (g) All of the transactions contemplated by the Agreement and Plan of Merger, dated as of January 15, 1997, among Parent, Current Merger Corp. and Target (the "Merger Agreement") shall have been completed, including the execution and delivery by each Shareholder of an agreement with respect to indemnification of Parent and Merger Sub with respect to breaches of terms and conditions of this Agreement (the "Indemnification Agreement"), which Indemnification Agreement shall be substantially in the form attached to the Merger Agreement as Exhibit 8.3(g). (h) The transactions hereunder shall qualify for a Section 338(h)(10) Election (as hereinafter defined) under the applicable provisions of the Code and the Treasury Regulations and under the state income tax laws of the states in which the Company is required to file tax returns. ARTICLE VIII TAX MATTERS 8.1 Section 338(h)(10) Election. Each Shareholder will, if so directed by Parent, join with Parent in making an election under Section 338(h)(10) of the Code (and any corresponding elections under state, local or foreign tax law) (collectively, a "Section 338(h)(10) Election") with respect to the purchase and sale of the Stock pursuant to this Agreement. The Shareholders will pay any Tax, including any liability of the Company for Tax resulting from the application to it of Treasury Regulation 1.338(h)(10)-1(f)(5), attributable to the making of the Section 338(h)(10) Election and will indemnify Parent and the Company against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, injunction, judgment, order, decree, ruling, damage, dues, penalty, fines, costs, amounts paid in settlement, liabilities, obligations, Taxes, Liens, losses, expenses and fees, including court costs and attorneys' fees and expenses (an "Adverse Consequence") arising out of any failure to pay such Taxes. The Shareholders shall also pay any state, local, or foreign Taxes (and indemnify Parent and the Company against any loss or damage arising out of any failure to pay such Taxes) attributable to an election under state, local or foreign law similar to the election available under Section 338(g) of the Code (or which results from the making of an election under Section 338(g) of the Code) with respect to the purchase and sale of the stock of the Company and any such election shall be included within the term "Section 338(h)(10) Election" for purposes of this Agreement. Parent shall be responsible for, and control, the preparation and filing of forms and documents with respect to the Section 338(h)(10) Election. The Shareholders shall timely execute and deliver to Parents such documents and forms as Parent may request with respect to the Section 338(h)(10) Election. The Shareholders agree not to take any action to change the election or the contents of any forms filed with any taxing authority without Parent's prior written consent. ARTICLE IX TERMINATION, AMENDMENT AND WAIVER 9.1 Termination. At any time prior to the Closing Date, whether before or after approval of the matters presented in connection with this Agreement by the shareholders of Parent, this Agreement may be terminated: (a) by mutual consent of Parent and the Shareholders holding a majority in interest of the Stock; (b) by either Parent or all Shareholders, if, without fault of the terminating party, the Closing shall not have occurred on or before April 30, 1997, or such later date as may be agreed upon in writing by the parties hereto; (c) by Parent, (i) if any of the conditions specified in Section 7.3 have not been satisfied or waived at such time as such condition is no longer capable of satisfaction or (ii) if any of the Shareholders shall have breached its respective representations, warranties or other obligations under Articles II, III, V and VI in any material respect and such breach continues for a period of 10 days after Shareholders holding a majority in interest of the Stock receive notice of the breach from Parent; (d) by Shareholders holding a majority in interest of the Stock, if (i) any of the conditions specified in Section 7.2 have not been satisfied or waived at such time as such condition is no longer capable of satisfaction or (ii) if Parent shall have breached its respective representations, warranties or other obligations under Articles IV and VI in any material respect and such breach continues for a period of 10 days after Parent receives notice of the breach from the Shareholders. 9.2 Effect of Termination. In the event of termination of this Agreement as provided in Section 9.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of the parties hereto, except to the extent that such termination results from the breach by a party hereto of any of its representations, warranties or covenants set forth in this Agreement; provided that, the provisions of this Section 9.2 and Section 6.2(Confidentiality) and Article X (General Provisions) shall remain in full force and effect and survive any termination of this Agreement. 9.3 Amendment; Waiver. The parties hereto may cause this Agreement to be amended at any time by execution of an instrument in writing signed by Parent and Shareholders holding a majority in interest of the Stock. Any agreement on the part of a party hereto to any such waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE X GENERAL PROVISIONS 10.1 Survival of Representations and Warranties. The representations and warranties of the Shareholders in Sections 3.1 - 3.14 and 3.16 - 3.28 shall survive the Closing and continue in full force and effect for one year after the Closing Date. All the other representations and warranties of the Shareholders, including those in Article II and Sections 3.15, shall survive the Closing and continue in full force and effect forever after the Closing Date (subject to any applicable statute of limitations). The representations and warranties of Parent shall not survive the Closing. 10.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail, return receipt requested, or sent via facsimile, with confirmation of receipt, to the parties at the following address or at such other address for a party as shall be specified by notice hereunder: (a) if to Parent, to: Electronic Fab Technology Corp. 7241 West 4th Street Greeley, Colorado 80634 Attention: Stuart W. Fuhlendorf Facsimile No.: (303) 892-4306 with a copy to: Holme Roberts & Owen LLP 1700 Lincoln, Suite 4100 Denver, Colorado 80203 Attention: Francis R. Wheeler Facsimile No.: (303) 866 0200 (b) if to the Shareholders, to: Christie Hewitson 2709 S.E. Balboa Drive Vancouver, Washington 98683 Facsimile No.: (503) 538-6610 and Marsha Hewitson 13801 S.E. 35th Street Vancouver, Washington 98683 Facsimile No.: (360) 883-6717 and Linda Hewitson 15905 S.W. Oswego Shore Ct. Lake Oswego, Oregon 97034 Facsimile No.: (503) 697-3646 with a copy to: Hershner, Hunter, Andrews, Neill & Smith, LLP 180 East 11th Avenue Eugene, Oregon 97440 Attention: Robert Stout, Esq. Facsimile No.: (541) 344-2025 10.3 Interpretation. When a reference is made in this Agreement to Exhibits, Articles or Sections, such reference shall be to an Exhibit, Article or Section to this Agreement unless otherwise indicated. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party hereto to whom such information is to be made available. The table of contents and Article and Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. In this Agreement, any reference to any event, change, condition or effect being "material" with respect to any entity or group of entities means any material event, change, condition or effect related to the condition (financial or otherwise), properties, assets (including intangible assets), liabilities, business, operations or results of operations of such entity or group of entities. In this Agreement, any reference to a "Material Adverse Effect" with respect to any entity or group of entities means any event, change or effect that is materially adverse to the condition (financial or otherwise), properties, assets, liabilities, business, operations or results of operations of such entity and its subsidiaries, taken as a whole. In this Agreement, any reference to a party's "knowledge" means such party's actual knowledge after due and diligent inquiry of officers, directors and other employees of such party reasonably believed to have knowledge of such matters. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. 10.4 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other parties hereto, it being understood that all parties hereto need not sign the same counterpart. 10.5 Entire Agreement; Nonassignability; Parties in Interest. This Agreement and the documents and instruments and other agreements specifically referred to herein or delivered pursuant hereto, including the Exhibits and the Disclosure Schedule (a) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties hereto with respect to the subject matter hereof; (b) are not intended to confer upon any other person any rights or remedies hereunder; and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided. 10.6 Severability. In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties hereto further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 10.7 Remedies Cumulative; No Waiver. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. 10.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado (without regard to the principles of conflicts of law thereof). 10.9 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 10.10 Expenses. Whether or not the transactions contemplated hereby are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby (including, without limitation, the fees and expenses of its advisers, accountants and legal counsel) shall be paid by the party incurring such expense. 11.11 Attorneys Fees. In the event of any proceeding to enforce this Agreement, the prevailing party shall be entitled to receive from the losing party all reasonable costs and expenses, including the reasonable fees of attorneys, accountants and other experts, incurred by the prevailing party in investigating and prosecuting (or defending) such action at trial or upon any appeal. IN WITNESS WHEREOF, the parties hereto have caused this Share Purchase Agreement to be executed and delivered by their respective officers thereunto duly authorized, all as of the date first written above. Parent: ELECTRONIC FAB TECHNOLOGY CORP. By: Shareholders: Christie Hewitson Christie Hewitson Marsha Hewitson Marsha Hewitson Linda Hewitson Linda Hewitson The undersigned persons join in this Agreement to the extent of any community property interest held by them and consent hereto with respect to such interest. Charles E. Hewitson Charles E. Hewitson Matthew J. Hewitson Matthew J. Hewitson Greg Hewitson Greg Hewitson EX-10 5 INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT (this "Agreement"), dated February 24 , 1997 is among the undersigned shareholders of Current Electronics, Inc., a Oregon corporation ("Target") (individually, a "Target Shareholder" and, collectively, "Target Shareholders"), the undersigned shareholders of Current Electronics Washington, Inc. a Washington corporation (the "Company") (individually, a "Company Shareholder" and, collectively, the "Company Shareholders") and Electronic Fab Technology Corp. ("Parent"), a Colorado corporation. Target Shareholders and Company Shareholders are sometimes referred to herein, individually, as a "Shareholder" and, collectively, as the "Shareholders." RECITALS A. In accordance with the Agreement and Plan of Merger, dated as of January 15, 1997 (the "Merger Agreement") among Parent, Merger Sub and Target, Target Shareholders received shares of Common Stock, $.01 par value, of Parent ("Parent Common Stock") in exchange for their shares of Common Stock, $.01 par value, of Target ("Target Common Stock"). In connection with the Merger Agreement, Parent granted Target Shareholders demand and piggyback registration rights pursuant to the Registration Rights Agreement of even date herewith (the "Registration Rights Agreement"). B. Company Shareholders received cash in exchange for shares of Common Stock, $.01 par value, of the Company (the "Company Common Stock"), in accordance with the Stock Purchase Agreement, dated as of January 15, 1997 (the "Stock Purchase Agreement"), among Parent and the Company Shareholders. C. In consideration of Parent entering the Merger Agreement, the Registration Rights Agreement and the Stock Purchase Agreement and to induce Parent to consummate the transactions contemplated thereby, the Shareholders are making certain representations and warranties set forth herein and indemnifying Parent with respect to certain matters under the Merger Agreement and the Stock Purchase Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing, and of the representations, covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I REPRESENTATIONS AND WARRANTIES 1.1 Due Authorization; Enforceability; No Conflict. Each of the Shareholders represents and warrants to Parent with respect to such Shareholder that the Shareholder has the full power and authority to execute and deliver this Agreement and to perform its obligations hereunder and has taken all actions necessary to secure all approvals required in connection therewith. The Shareholder is a competent adult. This Agreement has been duly executed and delivered by the Shareholder and constitutes the valid and binding obligation of the Shareholder enforceable against the Shareholder in accordance with its terms. The execution and delivery of this Agreement do not, and the performance will not, (a) violate or conflict with any permit, order, license, decree, judgment, statute, law, ordinance, rule or regulation applicable to the Shareholder or (b) result in any breach or violation of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of, or result in the creation of any mortgage, pledge, lien, encumbrance, charge, or other security interest (a "Lien") on any of the properties or assets of the Shareholder pursuant to, or require the consent of any party to any mortgage, indenture, lease, contract or other agreement or instrument, bond, note, concession or franchise applicable to the Shareholder or any of its properties or assets, except, in the case of this clause (c) only, where such conflict, violation, default, termination, cancellation or acceleration would not have and could not reasonably be expected to prevent the consummation of the transactions contemplated hereby. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality ("Governmental Entity") is required by or with respect to the Shareholder in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 1.2 Other Representations and Warranties of Target Shareholders. Each of the Target Shareholders represents and warrants to Parent with respect to such Target Shareholder that the representations and warranties in Sections 1(c) and 1(d) of the Voting Agreement, dated as of January 15, 1997, among the Target Shareholders and Parent are true and correct in all respects. The Target Shareholder has not incurred, or will not incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement or any transaction contemplated hereby. ARTICLE II SURVIVAL; INDEMNIFICATION 2.1 Indemnities by Shareholders. (a) If Target breaches any covenant in the Merger Agreement, the Company Shareholders breach any covenant in the Stock Purchase Agreement (other than the covenant under Section 1.1 (Purchase and Sale of Stock) of the Stock Purchase Agreement), any representation or warranty of Target in the Merger Agreement is inaccurate (and if there is an applicable survival period pursuant to Section 11.1 (Survival of Representations and Warranties) of the Merger Agreement, provided Parent makes a written claim for indemnification against any Shareholder within the applicable survival period) or any representation or warranty of the Company Shareholders in Article III (Representations and Warranties Concerning the Company and its Subsidiaries) of the Stock Purchase Agreement is inaccurate (and if there is an applicable survival period pursuant to Section 10.1 (Survival of Representations and Warranties) of the Stock Purchase Agreement, provided Parent makes a written claim for indemnification against any Company Shareholder within the applicable survival period), then each Shareholder shall indemnify and hold Parent harmless from and against the Shareholder's Pro Rata Share (as defined in Section 2.1(b)) of any action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, injunction, judgment, order, decree, ruling, damage, dues, penalty, fines, costs, amounts paid in settlement, liabilities, obligations, Taxes (as defined in Section 2.1(b)), Liens, losses, expenses and fees, including court costs and attorneys' fees and expenses (collectively, "Losses") that Parent or any of its subsidiaries may suffer through and after the date of the claim for indemnification (including any Losses Parent or its subsidiaries suffer after the end of any applicable survival period) caused by or arising out of any such breach or inaccuracy; except that the Shareholders will not have any obligation to indemnify Parent from and against any Losses caused by or arising out of any such breach or inaccuracy (i) until Parent or its subsidiaries have suffered Losses by reason thereof in excess of a $100,000 aggregate threshold (at which point the Shareholders will indemnify Parent relating back to the first such Losses and any further such Losses) or thereafter and (ii) to the extent the Losses Parent has suffered by reason of all such breaches and inaccuracies exceeds a $750,000 aggregate ceiling (after which the Shareholders will have no obligation to indemnify Parent from and against any further such Losses, unless such Losses are caused by or arise out of any inaccuracy of which the Shareholder (or his or her spouse on the date hereof) had actual knowledge at the time the representation was made or deemed made, in which case an aggregate ceiling shall apply to such Shareholder and spouse in an amount equal to the Consideration (as defined below) received by such Shareholder and spouse plus their Pro Rata Share of the amount of cash received pursuant to the Merger Agreement by other shareholders of Target who are not parties to this Agreement. Such $100,000 aggregate threshold shall be increased and the amount of Losses to be paid by the Shareholders hereunder shall be reduced by the amount of any net recovery by Target above the book value at the Effective Time (as defined in the Merger Agreement) for Target's account receivable from Tapistron International, Inc. If any Shareholder breaches any of such Shareholder's covenants herein, any representation or warranty of the Shareholder herein is inaccurate, any Company Shareholder breaches the covenants in Section 1.1 of the Stock Purchase Agreement or any representation or warranty of the Company Shareholder in Article II (Representations and Warranties Concerning the Shareholders) of the Stock Purchase Agreement is inaccurate, then each Shareholder shall indemnify Parent from and against the Shareholder's Pro Rata Share of the entirety of any Losses Parent or its subsidiaries may suffer through and after the date of the claim for indemnification caused by or arising out of any such breach or inaccuracy. (b) The "Shareholder's Pro Rata Share" means that fraction equal to the amount of Consideration received by the Shareholder over the Total Consideration, where "Consideration" with respect to any Company Shareholder means the amount of cash received by the Company Shareholder pursuant to the Stock Purchase Agreement and, with respect to any Target Shareholder means the number of shares of Parent Common Stock received by the Target Shareholder times the last sale price of Parent Common Stock on the Nasdaq National Market on the date hereof, plus the amount of cash, if any, received by the Target Shareholder pursuant to the Merger Agreement and, "Total Consideration" means the sum of the Consideration received by all Shareholders. (c) If Parent has a claim for Losses pursuant to this Article II that does not involve a Third Party Claim (as defined in Section 2.2(a)), Parent shall notify the Representative (as defined in Section 2.3(a)) of such claim, specifying the nature of the Losses and the amount or estimated amount thereof if feasible. If the Representative does not notify Parent within 30 days from the date it receives such notice that the Representative disputes such claim, the amount of such claim shall be conclusively deemed a liability of the Shareholders under this Agreement. Nothing herein shall be deemed to prevent Parent from making a claim for potential or contingent Losses. 2.2 Third Party Claims. (a) If any third party shall notify Parent with respect to any matter (a "Third Party Claim") that may give rise to a claim for indemnification against any Shareholder under this Article II, then Parent shall promptly notify the Representative thereof in writing (a "Claim Notice"). The Representative will have the right to assume and thereafter conduct the defense of the Third Party Claim with counsel of the Representative's choice reasonably satisfactory to Parent so long as (i) the Representative notifies Parent in writing within 10 days after Parent has given notice of the Third Party Claim that the Shareholders will indemnify the Parent from and against the entirety of any Losses Parent may suffer caused by or arising from the Third Party Claim, (ii) the Representative provides Parent with evidence reasonably acceptable to Parent that the Shareholders will have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations hereunder, (iii) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, (iv) settlement of, or an adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of Parent, likely to establish a precedential custom or practice materially adverse to the continuing business, operations, assets, prospects or interests of Parent or its subsidiaries and (v) the Representative conducts the defense of the Third Party Claim actively and diligently. In the event of a Third Party Claim that seeks an injunction or other equitable relief, the Representative will be entitled to participate with Parent in the defense of such Third Party Claim. (b) While the Representative is conducting the defense of the Third Party Claim in accordance herewith, (i) Parent may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim, (ii) Parent will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Representative and (iii) the Representative will not consent to the entry of any judgment or enter any settlement with respect to the Third Party Claim without the prior written consent of Parent. (c) If any condition under Section 2.2(a) is or becomes unsatisfied, (i) Parent may defend against the Third Party Claim in any manner it reasonably may deem appropriate, (ii) Parent may consent to entry of any judgment or enter into any settlement that is consented to by the Representative or to which the Shareholders could not reasonably object, (iii) each Shareholder will reimburse Parent the Shareholder's Pro Rata Share promptly and upon request of Parent for the costs of defending against the Third Party Claim, including reasonable attorneys' fees and expenses, and (iv) the Shareholders will remain responsible for any Losses Parent may suffer caused by or arising from the Third Party Claim to the fullest extent provided by this Article II. The Shareholders and the Representative agree to consent to any entry of judgment or the entering into of any settlement under clause (ii) reasonably appropriate in the circumstances. 2.3 Representative. (a) To the fullest extent permitted by law, each Shareholder hereby irrevocably constitutes and appoints Charles E. Hewitson as its attorney-in-fact and legal and judicial representative (the "Representative"), with full power of substitution, for the purposes of (i) receiving all notices and communications directed to any Shareholder under this Agreement and taking any action (or determining to take no action) with respect thereto as the Representative may deem appropriate, including the settlement or compromise on behalf of any Shareholder of any Third Party Claim or Losses, and (ii) executing and delivering on behalf of any Shareholder all instruments and documents of every kind the Representative may deem necessary or advisable to accomplish the foregoing. Each Shareholder hereby ratifies and confirms, as the Shareholder's own act, all that the Representative shall do or cause to be done pursuant to this Agreement. (b) If the Representative resigns, the resigning Representative shall appoint as successor either another Shareholder or a third party reasonably acceptable to Parent (a "Successor Representative"). The resigning Representative's resignation shall not be effective until a Successor Representative shall have agreed in writing to accept such appointment. If the Representative should die or become incapacitated, a Successor Representative shall be appointed within 30 days of the Representative's death or incapacity by the Shareholders that received a majority of Total Consideration. Upon acceptance by a Successor Representative of the Successor Representative's appointment, the appointment shall be final and binding on the Shareholders. (c) Each Shareholder irrevocably agrees that with respect to any Third Party Claim or any claim for indemnification hereunder any service of process, writ, judgment or other notice of legal process shall be deemed and held in every respect to be effectively served upon the Shareholder if delivered by registered, certified or first class mail, postage prepaid to the Representative at such person's address set forth in Section 4.1, whom each Shareholder irrevocably appoints as its authorized agent for service of process. (d) The death or incapacity of any Shareholder shall not terminate the authority and agency of the Representative. (e) Each Shareholder hereby agrees to indemnify the Representative and to hold the Representative harmless against any loss, liability or expense incurred without negligent conduct or bad faith on the part of the Representative and arising out of or in connection with his duties as Representative, including court costs and attorneys' fees and expenses incurred by the Representative in defending against any Third Party Claim or Losses in connection with this Agreement. 2.4 Payment Terms. If all or part of any indemnification obligation under this Agreement is not paid when due, the Shareholders shall pay Parent interest thereon for each day from the date the amount became due until the date of payment in full, payable on demand, at a rate of 10% per annum. 2.5 Other Indemnification Matters. Parent's claims pursuant to the foregoing indemnification provisions shall not be limited by any examination made by or on behalf of Parent or its subsidiaries, the knowledge of Parent or it subsidiaries or any of their respective officers, directors, stockholders, employees or agents, or the acceptance by Parent of any certificate or opinion. ARTICLE III DISPUTE RESOLUTION 3.1 Remedies. Parent may proceed to enforce the obligations of the Shareholders hereunder in any court or other tribunal by an action at law, suit in equity or other appropriate proceedings, whether for damages, for the specific performance of any term hereof, or otherwise, or in aid of the exercise of any power granted hereby or by law. In the event of any such proceeding, the prevailing party in such proceeding shall be entitled to receive from the losing party all reasonable costs and expenses, including the reasonable fees of attorneys, accountants, and other experts, incurred by the prevailing party in investigating and prosecuting (or defending) such action at trial or upon any appeal. Any amount awarded hereunder shall not be subject to the limitations on liability contained in Section 2.1. 3.2 Jurisdiction and Consent to Suit. Any action, suit or proceeding by Parent to enforce this Agreement may be brought in the District Court in and for the City and County of Denver, State of Colorado, in the United States District Court for the District of Colorado or in any other court in which venue and jurisdiction are proper. Each Shareholder and the Representative consent and submit to the non-exclusive jurisdiction in personam of any such court in respect of any such action, suit or proceeding. ARTICLE IV GENERAL PROVISIONS 4.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail, return receipt requested, or sent via facsimile, with confirmation of receipt, to the parties at the following address or at such other address for a party as shall be specified by notice hereunder: (a) if to Parent, to: Electronic Fab Technology Corp. 7241 West 4th Street Greeley, Colorado 80634 Attention: Stuart W. Fuhlendorf Facsimile No.: (303) 892-4306 with a copy to: Holme Roberts & Owen LLP 1700 Lincoln, Suite 4100 Denver, Colorado 80203 Attention: Francis R. Wheeler Facsimile No.: (303) 866 0200 (b) if to the Shareholders, to the Representative: Charles E. Hewitson 2709 S.E. Balboa Drive Vancouver, Washington 98683 Facsimile No.: (503) 538-6610 with a copy to: Hershner, Hunter, Andrews, Neill & Smith, LLP 180 East 11th Avenue Eugene, Oregon 97440 Attention: Robert Stout, Esq. Facsimile: (541) 344-2025 4.2 Interpretation. When a reference is made in this Agreement to Articles or Sections, such reference shall be to an Article or Section to this Agreement unless otherwise indicated. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and Article and Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. In this Agreement, any reference to any event, change, condition or effect being "material" with respect to any entity or group of entities means any material event, change, condition or effect related to the condition (financial or otherwise), properties, assets (including intangible assets), liabilities, business, operations or results of operations of such entity or group of entities. In this Agreement, any reference to a party's "knowledge" means such party's actual knowledge after due and diligent inquiry of officers, directors and other employees of such party reasonably believed to have knowledge of such matters. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms, and with respect to the parties shall include where the context does not prohibit, their respective permitted successors and assigns. 4.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other parties hereto, it being understood that all parties hereto need not sign the same counterpart. 4.4 Entire Agreement; Nonassignability; Parties in Interest. This Agreement and the documents and instruments and other agreements specifically referred to herein or delivered pursuant hereto (a) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties hereto with respect to the subject matter hereof; (b) are not intended to confer upon any other person any rights or remedies hereunder; and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided. This Agreement will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed. 4.5 Severability. In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties hereto further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 4.6 Remedies Cumulative; No Waiver. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. 4.7 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado (without regard to the principles of conflicts of law thereof). 4.8 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. IN WITNESS WHEREOF, the parties hereto have caused this Indemnification Agreement to be executed and delivered as of the date first written above. Parent: ELECTRONIC FAB TECHNOLOGY CORP. By: Shareholders: _____Charles E. Hewitson _____________ Charles E. Hewitson ______Matthew J. Hewitson______________ Matthew J. Hewitson ______Greg Hewitson__________________ Greg Hewitson ______Christie Hewitson________________ Christie Hewitson ______Marsha Hewitson_________________ Marsha Hewitson ______Linda Hewitson___________________ Linda Hewitson Representative: ______Charles E. Hewitson_______________ Charles E. 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