SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1995, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 33-3442-LA
PCT HOLDINGS, INC.
(Name of small business issuer in its charter)
NEVADA 87-0431483
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
434 OLDS STATION ROAD
WENATCHEE, WASHINGTON 98801
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (509) 664-8000
Securities registered pursuant to Section 12(b) of the Exchange Act
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge,
<PAGE>2
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this Form 10-KSB. X
---
State issuer's revenues for its most recent fiscal year: $11,035,595
State the aggregate market value of the voting stock held by
non-affiliates, based on the closing price for the registrant's Common
Stock on the NASDAQ Electronic Bulletin Board, as of August 15, 1995:
approximately $13,935,531.50
State the number of shares of Common Stock outstanding at August 15, 1995:
5,332,008
Documents Incorporated by Reference: None
Transitional small business disclosure format: Yes No X
--- ---
<PAGE>i
TABLE OF CONTENTS
Item of Form 10-KSB Page
PART I..................................................................... 1
Item 1 - Description of Business.......................................... 1
Item 2 - Description of Property.......................................... 10
Item 3 - Legal Proceedings................................................ 11
Item 4 - Submission of Matters to a Vote of Security Holders.............. 12
PART II.................................................................... 12
Item 5 - Market for the Registrant's Common
Equity and Related Shareholder Matters........................... 12
Item 6 - Management's Discussion and Analysis
or Plan of Operation............................................. 12
Item 7 - Financial Statements............................................. 18
Item 8 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................... 38
PART III................................................................... 39
Item 9 - Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................ 39
Item 10 - Executive Compensation........................................... 42
Item 11 - Security Ownership of Certain Beneficial
Owners and Management............................................ 45
Item 12 - Certain Relationships and Related
Transactions..................................................... 47
Item 13 - Exhibits and Reports on Form 8-K................................. 49
SIGNATURES................................................................. 54
<PAGE>1
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Historical Development
PCT Holdings, Inc. (formerly known as Verazzana Ventures, Ltd.)
(the "Company") was organized under the laws of the State of Nevada on
January 31, 1986. From the time of the Company's incorporation to
February 17, 1995, the Company had no substantial operations. Its primary
activity during that time was seeking a possible acquisition opportunity.
Merger of PCT Holdings, Inc., a Washington Corporation, with a
Subsidiary of the Company
On February 15, 1995, the Company entered into an Agreement and
Plan of Merger, pursuant to which PCT Holdings, Inc., a Washington
corporation with two operating subsidiaries ("PCTH"), merged with and into
PCT Merger Corporation, a Washington corporation and a wholly owned
subsidiary of the Company that was formed for purposes of the merger ("PCT
Subsidiary"). PCT Subsidiary was the survivor in the merger (the "PCTH
Merger") and changed its name to PCT Holdings, Inc., a Washington
corporation. The PCTH Merger became effective on February 17, 1995, and was
accomplished by an exchange of 2,963,675 previously unissued shares of the
Company's common stock, $.001 par value ("Common Stock"), for all
outstanding shares of PCTH's common stock, no par value. Concurrently with
the PCTH Merger the Company changed its name from Verazzana Ventures, Ltd.
to PCT Holdings, Inc., a Nevada corporation.
Prior to the PCTH Merger, PCTH and its operating subsidiaries
were engaged in separate operations unrelated to the Company. There had
been no relationship between the Company or any of its affiliates, on one
hand, and PCTH or any of its affiliates, on the other hand.
Effective upon the PCTH Merger, there was a change in control of the
Company. Immediately after the effective date of the PCTH Merger, approximately
88% of the issued and outstanding shares of Common Stock of the Company were
held by former stockholders of PCTH. Additionally, the management of the
Company was replaced by former management of PCTH.
After the PCTH Merger, PCT Subsidiary continues to be a wholly
owned subsidiary of the Company. PCT Subsidiary owns two operating
subsidiaries, Pacific Coast Technologies, Inc. ("PCTI") and Cashmere
Manufacturing Co., Inc. ("CMC"), which continue to operate the businesses
operated by them prior to the PCTH Merger. PCTI and CMC were organized in
1990 and 1965, respectively, under Washington law. PCTI's
<PAGE>2
predecessor, Kyle Technology Corporation, a California corporation, was
organized in 1981. PCTH, which merged into PCT Subsidiary in the PCTH
Merger, was organized in May 1994 to hold the stock of PCTI and CMC.
Merger of Ceramic Devices, Inc. With a Subsidiary of the Company
On February 28, 1995, the Company entered into an Agreement and
Plan of Merger, pursuant to which Ceramic Devices, Inc., a California
corporation ("CDI Merged Corporation"), merged with and into Ceramic
Devices, Inc., a Washington corporation and wholly owned subsidiary of the
Company ("CDI"). The merger (the "CDI Merger") was effective for financial
reporting purposes on February 28, 1995, and was consummated under
California state law on May 10, 1995.
Prior to the CDI Merger, CDI Merged Corporation was engaged in
separate operations unrelated to the Company. There was no relationship
between the Company or any of its affiliates, on one hand, and CDI Merged
Corporation or any of its affiliates, on the other hand, prior to the CDI
Merger. CDI Merged Corporation was organized in 1982 in the State of
California.
Pursuant to the CDI Merger, CDI, as a matter of law, acquired all
of the assets and assumed all of the liabilities of CDI Merged Corporation.
After the consummation of the CDI Merger, CDI continued the business of CDI
Merged Corporation as a wholly owned subsidiary of the Company.
As consideration for the Company's acquisition by merger of the
business of CDI Merged Corporation, the Company tendered to the
shareholders of CDI Merged Corporation two promissory notes in the
aggregate principal amount of $600,000 and issued 133,333 shares of Common
Stock of the Company. The promissory notes are secured by a security
interest in all of the assets of CDI, subject to the right of the Company
to subordinate that lien, insofar as it pertains to assets of CDI
constituting inventory and accounts receivable, to the present and future
institutional and commercial lenders of CDI.
The total amount of consideration paid by the Company in
connection with the CDI Merger was approximately one and one-half times the
represented book value of CDI Merged Corporation. That total purchase price
was determined pursuant to arms-length negotiations between the Company and
CDI Merged Corporation. The Company intends to satisfy its obligations
under the promissory notes out of revenues from operations and investment
activities and anticipates timely payment of such obligations. The parties
valued the 133,333 shares of the Company's Common Stock at $6.00 per share
as of the date of the letter of intent in December 1994. Notwithstanding
this valuation by the parties, the Company valued the 133,333 shares issued
to the shareholders of CDI Merged Corporation, for financial accounting
purposes, at $4.80 per share, as of February 28, 1995. After the CDI
Merger, the former shareholders of CDI Merged Corporation owned 2.86% of
the total
<PAGE>3
4,669,008 shares of the Company's common stock issued and outstanding as of
the effective date of the CDI Merger.
Businesses of the Company
The Company, through its operating subsidiaries, PCTI, CMC and
CDI, conducts operations in three lines of business, which the Company
believes complement each other. PCTI designs, manufactures and markets
hermetically sealed electronic packages and interconnect devices, using its
proprietary KRYOFLEX hermetic sealant technology. Its products are
engineered to provide the ultimate protection for applications in harsh
environments, where extremes in temperature, pressure or corrosiveness
often cause electronic packaging failure. CMC operates a precision machine
shop that produces diversified components and assemblies for the aerospace
component, electronics and automotive industries. CDI designs and
manufactures specialized devices for use in filtering out electromagnetic
interference. CDI's products, like those of PCTI, are used in hostile
environments.
Pacific Coast Technologies, Inc.
Background. Electronic equipment is frequently required to
operate in hostile climates, including the depths of the oceans and the far
reaches of space. Electronic devices are also implanted in the human body,
which is a complex operating environment. The worst enemies of electronics
are extreme temperature, pressure and corrosion. Protection of electronic
packages becomes even more difficult when such electronic packages must be
connected by wires to something outside the confines of the enclosing
package. Electronic units are most vulnerable at points where connecting
wires pass from inside the package to the outside. For this reason, a
critical part of any electronic package is the sealant surrounding the
connecting wire (feedthrus).
Manufacturers of electronic equipment traditionally have used one
of two materials as sealants: glass or brazed ceramics. Both are effective
under relatively mild conditions. Each, however, has weaknesses in
environmental extremes. For example, glass is suitable as a sealant in many
applications, but at high temperatures it becomes a conductor of
electricity, causing short circuits. Glass is also brittle and highly
susceptible to shock, which causes fractures. Once a fracture is present it
tends to spread, rendering the glass useless as a hermetic sealant. In
addition, when a glass seal is implanted in the body, there is a tendency
for tree-like growths (dendrites) to develop that also cause short
circuits. Brazed ceramics work well under certain conditions, but being
inert they may not adhere to the materials involved. As a result they are
not compatible with many of the materials used in modern electronic
equipment.
PCTI Products. PCTI designs, manufactures and distributes
proprietary, hermetically sealed electrical connectors and instrument
packages primarily in the medical,
<PAGE>4
energy, aerospace and general electronics industries. Electronic equipment
manufactured by PCTI operates in every type of climate in the world, in the
oceans, in space and in situations where electronics must operate reliably
in otherwise hostile environments. The primary distinctive feature of
PCTI's products is their ability to operate in harsh environments in which
modern day electronics are used. KRYOFLEX is a sealant material which PCTI
owns and which forms a key component to its products. PCTI's patented
dissimilar metal connector technology is also utilized in several key
products. PCTI's products can be found in pacemakers, oil wells, aerospace
and defense products. PCTI also helped develop the world's first
hermetically sealed fiber optic connector used on the international space
station Alpha.
KRYOFLEX, the licensed proprietary sealant material used by PCTI,
is a multiple-phase derivative of ceramic oxide crystalline silicates,
which the Company believes provides the ultimate level in hermetic seal
protection. PCTI offers a variety of KRYOFLEX-based products. A typical
KRYOFLEX seal may be composed of a dozen different silicates and oxides,
and there can be as many as five distinctly different layers in any one
type of KRYOFLEX. A seal made of KRYOFLEX may be likened to a sheet of
bulletproof glass, in that the physical properties of each layer are
different from the next. A KRYOFLEX seal is able to overcome and operate
under any of the harsh environments known to the Company in which modern
day electronics operate. PCTI's products consist of electrical connectors,
feedthrus, and component packages and are marketed in the medical, energy,
aerospace and general electronic industries. For example, PCTI's feedthrus
are used in medical pacemakers; hermetic connectors are used in down-hole
drilling tools; hermetic fiber optic termini are used for the space
station; and Micro-D connectors are used in radar and general electronic
applications.
PCTI's Market. PCTI's customer base includes Fortune 1000
companies as well as smaller, specialized firms. Customers in the aerospace
market include such companies as Texas Instruments, Honeywell, McDonnell
Douglas, Boeing, Hughes, TRW, and Martin/Lockheed. Customers in the medical
market include Pacesetter, Advanced Bionics, MidiMed, and Electro Biology,
Inc. Customers in the energy market include Quartzdyne, Schlumberger, Baker
Hughes, and Western Atlas. PCTI's products are marketed domestically and in
the international marketplace. PCTI has created a network of sales
representatives to cover the United States, and internationally, a group of
distributors has been assigned to key customers and markets in Europe and
Asia. PCTI has a varied customer listing, and no single customer accounts
for more than 10% of its revenue on an annual basis. PCTI maintains a
number of customer and government approved ratings and qualifications, and
is continuously upgrading and refining these qualifications based upon
customer requirements and emerging technologies.
PCTI's Strategies. PCTI's overall strategy is to expand the
applications of its products in medical, energy, communications and
aerospace industries. PCTI plans to grow through internal product
development, aggressive marketing strategies, and the strategic
<PAGE>5
acquisition of additional high-end technologies, new operating subsidiaries
to complement PCTI's existing and planned product base and contribute to
the vertical integration and improve operating efficiency and profitability
of the Company.
PCTI's products were originally developed for medical
applications. PCTI continues to supply Pacesetter, an original account,
with products for its pacemaker line. It has also produced prototype
devices for application in an artificial heart. PCTI's business strategy
includes broadening the applications for its proprietary technologies. For
example, PCTI has identified that its sealant material may be useful for
certain new medical developments, including bone growth stimulators,
neurostimulators, pain repressors and audiostimulators. It is currently
producing parts for an audio implant to help the hearing impaired.
PCTI's strategy in the energy market is to continue to qualify
its devices on new tool designs. For example, a drilling log is a complex,
delicate and expensive electronics package. The log is lowered into newly
drilled oil and natural gas well shafts to take a geological and
geophysical look at the structure of a well. It is also used during the
drilling phase and after the well has been completed. It must operate at
pressures up to 20,000 pounds per square inch and in temperatures as great
as 800 degrees Fahrenheit, all the time being exposed to highly corrosive
substances. KRYOFLEX is used to make the pressure resistant connector seals
through which the data transmission wires pass. The materials that
interface with PCTI's connector seals degrade when subjected to pressure,
temperature and corrosion extremes, and must be periodically replaced.
Management believes that this creates the potential for additional business
for PCTI.
The aerospace and military support industries require smaller,
lighter, hermetically-sealed connectors with a record of proven performance
and reliability. PCTI believes that its KRYOFLEX sealants offer performance
improvement over standard sealants. Its Micro-D connector series meets or
exceeds the requirements of MIL-C-83513, providing an unsurpassed hermetic
seal. The Company believes the PCTI's Micro-D connector series is setting
the standard against which other connectors are evaluated. PCTI's SMA Smart
connectors meet MIL-C-39012 and are used extensively in the industry. Both
products can be laser-welded to ensure a permanent seal. Management
believes that there is significant potential for worldwide use of these
products in the aerospace and military industries.
PCTI's new aluminum compatible technology has resulted in initial
orders for connectors to be used in space, phased array radar, avionics,
countermeasures, and telecommunications applications. The electronic
packaging and modules market integrates PCTI's connectors and piece-parts
into hermetically sealed aluminum housings or modules, and is believed by
the Company to be an area of substantial growth for PCTI. One customer uses
a module incorporating a 16-pin in-line connector, a SSMA connector and
other components, all of which are integrated into a PCTI-supplied aluminum
housing.
<PAGE>6
Applications have been found in the HI-REL segment of the
aerospace, telecommunications, computer and military support industries.
PCTI is developing a series of semiconductor packages and large hybrid
enclosures for specific applications. PCTI has developed the technology to
hermetically seal copper alloy contacts, an industry-first capability that
is generating strong interest from avionics and electronics companies
having applications for power packages and modules. PCTI is also developing
a product family of sealable electronics packages using proprietary metal
matrix composites. PCTI recently received two new patents covering this
technology. PCTI plans to offer its connectors and standard aluminum or
metal matrix composite packages individually or as complete units.
PCTI Technologies. PCTI currently owns 27 United States patents
covering a variety of applications and product areas and has one
application pending for a U.S. patent. As PCTI's products evolve in the
field, it is expected that PCTI will continue to develop new technologies
and file for additional patents. PCTI's patents are as follows:
<TABLE>
<CAPTION>
Patent # Title Patent Issue Date
- -------- ----- -----------------
<S> <C> <C>
4,220,813 Terminal for Medical Instrument September 2, 1980
4,220,814 Terminal for Medical Instrument & Assembly September 2, 1980
4,352,951 Ceramic Seal October 5, 1982
4,371,588 Ceramic Seal February 1, 1983
4,401,766 Ceramic Seal August 30, 1983
4,411,680 Ceramic Seal October 25, 1983
4,421,947 Polycrystalline Insulating Material December 20, 1983
4,424,090 Insulating Material & Method of Making January 3, 1984
4,425,476 Progressively Fused Ceramic Seal January 10, 1984
4,436,955 Terminal Assembly March 13, 1984
4,456,786 Terminal Assembly for Heart Pacemaker June 26, 1984
4,461,926 Hermetically Sealed Insulating Assembly July 24, 1984
4,493,218 Transducer System January 15, 1985
4,493,378 Terminal Assembly January 15, 1985
4,507,522 Terminal Assembly March 26, 1985
4,514,207 Method for Making Terminal Assembly April 30, 1985
4,514,590 Electrical Terminal Assembly April 30, 1985
</TABLE>
<PAGE>7
<TABLE>
<CAPTION>
Patent # Title Patent Issue Date
- -------- ----- -----------------
<S> <C> <C>
4,512,791 Hermetically Sealed Insulating Assembly April 23, 1985
4,518,820 Terminal Assembly for Pacemakers May 21, 1985
4,593,758 Hermetically Sealed Insulating Assembly June 10, 1986
4,654,752 Terminal Assembly & Method of Making March 31, 1987
4,657,337 Electrical Connector & Production Method April 14, 1987
4,690,480 Tubular Bi-Metal Connector September 1, 1987
5,109,594 Method of Making a Sealed Transition Joint May 5, 1992
5,041,019 Transition Joint for Microwave Package August 20, 1991
5,298,683 Dissimilar Metal Connectors March 29, 1994
5,433,260 Sealable Electronics Packages and Method of July 18, 1995
Producing and Sealing Such Packages
</TABLE>
KRYOFLEX materials are protected by a family of patents. However,
even without patent protection, the Company believes that KRYOFLEX would be
extremely difficult to duplicate. The production of the sealant involves a
number of steps, each with different ingredients and processes. Qualitative
analysis could determine the ingredients of a particular KRYOFLEX, but
management does not believe that any analytical process can identify how
many steps are involved and what is done at each point in the process. Of
the many permutations and combinations involving the ingredients in
KRYOFLEX, only a very few would result in a usable product. The Company
believes that it has, and will continue to have, a secure position with
regard to the technology involved in sealing its products.
PCTI has three principal trademarks. One of the trademarks,
KRYOFLEX, is registered with the U.S. Patent and Trademark Office and is
used in connection with the Company's proprietary ceramic compounds. The
other marks, HERMETIC ADVANTAGE and PARTNERS WITH TOMORROW, are used with
PCTI's hermetic connectors. Applications to register these two marks are
pending at the Patent and Trademark Office.
Competition. The market for PCTI's products is highly
competitive. PCTI's top competitors include Balo Precision Parts,
Ampheno/Bendix, Hermetic Seal Corp., Hittman Materials, Kemlon Products,
ITT Canon and Alberox Corp. These companies compete with PCTI in the areas
of pricing, location, existing product line, quality, sales and engineering
support. Many of these companies have greater financial and technical
resources and are in better geographical locations than the Company. The
Company is aware of no competitors that compete across the breadth of
PCTI's product lines, although competitors do exist for each market segment
individually. See "Legal Proceedings" regarding litigation involving Balo
Precision Parts.
<PAGE>8
Other Items of Note. Competitive sources are generally available
to supply all of PCTI's needs for raw, processed and machined materials.
However, from time to time PCTI experiences delivery and quality problems
from its vendors. PCTI maintains a qualified, effective quality control
function to help manage this factor. PCTI also maintains a continuous
effort to improve its standard and custom products, and to respond to
customer demand for process and product research and development. These
efforts are closely aligned with standard production procedures for ease of
implementation, and consequently PCTI does not segregate these R&D costs.
The Company is not aware of any material violations of
environmental or safety laws or regulations with respect to PCTI. PCTI's
Safety Committee, comprised of management, production and quality control
personnel, meets regularly.
As of August 16, 1995, PCTI has 78 full-time employees. Twelve
are involved in SG & A functions, eight in engineering, and 58 in direct or
indirect support of manufacturing.
Cashmere Manufacturing Co., Inc.
CMC Products. CMC operates a precision machine shop that produces
diversified components and assemblies for the aerospace component,
electronics and automotive industries. Its operations use a full compliment
of CNC machines to handle a variety of applications. This mixture of light
to medium CNC machine equipment provides a wide range of engineering
capabilities. CMC produces components from the smallest connectors to very
complex assemblies. CMC has no proprietary technology.
CMC Market. Historically, CMC's sales have come almost
exclusively from the aerospace industry, with over 90% of its sales going
to Boeing. Since May 31, 1994, when CMC was acquired by PCTH and thereby
became affiliated with PCTI, CMC has been diversifying its customer base
and supporting the machining requirements of PCTI. Through access to the
broader customer base of PCTI, management is aggressively implementing
strategies to lower the dependency of CMC on one customer. During the
fiscal year ended May 31, 1995, 24.4% of CMC's sales were to companies
other than Boeing (including PCTI). CMC has no proprietary technology and
competes with many other companies in its industry.
Other Operational Factors. CMC currently operates as a job-shop
and does not maintain its own research and development effort, relying
primarily upon customer engineered machining specifications. CMC maintains
various levels of ratings and qualifications, including ISO 9000, and is
continuously upgrading quality control standards based upon customer
demands. Sources of supply for raw material requirements are readily
available through product distributors. Delivery and quality may vary or
change from time to time, depending upon aluminum source supplies. CMC
competes for qualified machinists
<PAGE>9
and is actively involved in internal training strategies to develop
employee capabilities and encourage longevity of employment.
The Company is not aware of any material violations of
environmental or safety laws or regulations with respect to CMC. CMC's
Safety Committee, comprised of management, production and quality control
personnel, meets regularly.
As of August 15, 1995, CMC employs 72 full-time persons, with six
in SG & A, eight in engineering, contracts and scheduling and 58 in
indirect and indirect support of manufacturing.
Ceramic Devices, Inc.
CDI Products. CDI designs and manufactures devices to filter out
electromagnetic interference ("EMI") and has been a military-qualified
supplier of ceramic filtering devices since 1982. EMI poses significant
problems for the manufacturers and users of high-performance, high
reliability electronic systems. EMI filters designed by CDI are for use
with electronic circuits operating in hostile environments. A fully
integrated filter manufacturer, CDI fabricates the high quality discoidal
multilayer capacitors and multilayer filters that meet stringent military
requirements and individualized customer specifications. CDI plans to
target the medical filter industry, custom filter assemblies and custom
capacitor arrays.
CDI Market. CDI markets and sells its products through a network
of manufacturers' representative organizations, generally established on a
geographic basis. CDI maintains an internal sales and customer service
staff and engineering capability to support customers' requirements for
technical support. The market for CDI's products is competitive, and market
share is maintained and expanded through providing a superior quality
product, with service and product design expertise required to satisfy
specialized needs. The customer base for CDI is generally the same as the
customer base of PCTI, including large defense oriented companies
manufacturing systems incorporating highly sophisticated electronic
packaging. No one customer currently accounts for more than 10% of CDI's
revenue base. CDI also maintains numerous qualifications requested by
customers as to the nature and scope of capabilities in product
specification and testing. CDI is DESC (Defense Electronic Supply Center)
approved for its manufactured products. DESC approval is a national
industry-wide specification.
Other Items of Note. CDI performs the majority of its
manufacturing to military specifications and customer specifications and
has very little company directed research and development. CDI has multiple
sources of supply for its raw, processed and machined materials and piece
parts. Quality and delivery of CDI's supplies tend to vary from time to
time and, consequently, CDI is constantly seeking secondary sources for its
outside
<PAGE>10
purchases. CDI competes with other manufacturers for semi-skilled and entry
level employees and depends upon internal training programs to maintain a
qualified work force.
The Company is not aware of any material violations of
environmental or safety laws or regulations with respect to CDI. CDI's
Safety Committee, comprised of management, production and quality control
personnel, meets regularly.
As of August 15, 1995, CDI has 28 full-time employees. Six are
engaged in SG&A support and 22 are employed in direct and indirect support
of manufacturing.
ITEM 2. DESCRIPTION OF PROPERTY
PCTI operates from offices in Wenatchee, Washington, where it
leases approximately 31,000 square feet under a lease with the Port of
Chelan County. This lease expires in the year 2003. PCTI has options to
renew the lease for two additional five-year terms. Base rent under the
lease is $13,250 per month.
CMC operates from facilities in nearby Cashmere, Washington,
where it leases approximately 42,000 square feet from a shareholder of the
Company for $9,000 per month. See "Certain Relationships and Related
Transactions." The lessor has agreed to terminate the lease in mid-October
1995, at which time CMC's operations are expected to be relocated to a new
42,000 square foot building adjacent to the PCTI facility. The new facility
will be operated under a lease with the Port of Chelan County, which lease
is for an initial 10-year term with two additional five-year terms. Base
rent under the Port of Chelan County lease will be approximately $13,000
per month, subject to adjustment based upon finalization of the project and
total project costs.
In May 1995, CMC entered into an agreement to reacquire from two
shareholders of the Company certain real property adjacent to the current
Cashmere manufacturing facility in exchange for the forgiveness of the
outstanding balance of a note payable by one of the shareholders to CMC and
assumption by the shareholders of the outstanding bank debt on the
Property. The property is currently listed for sale, and is being used by
the Company for storage. See "Certain Relationships and Related
Transactions."
CDI occupies approximately 9,900 square feet of office and
manufacturing space in two buildings located on Ronson Road in San Diego,
California. That leased property is subject to two commercial leases with a
common lessor, which leases expire on April 30, 1997. Each lease may be
extended for an additional three-year term. The total rent is $6,775 per
month. CDI's principal executive offices are located at the Company's
headquarters in Wenatchee, Washington. CDI is scheduled to relocate its
manufacturing operations to the Company's new facility in Wenatchee,
Washington during late 1995 and early 1996. The leased space in San Diego
is expected to be subleased in whole or in part through the end of the
initial lease term.
<PAGE>11
As noted above, the Company is currently engaged, through the
Port of Chelan County, in an approximately $2.5 million plant expansion.
Upon completion, the Company will have approximately 80,000 square feet of
manufacturing facility. By January 1996, the Company expects to consolidate
its subsidiaries, PCTI, CMC and CDI at its renovated and expanded
facilities.
All three current operating subsidiaries of the Company support
the machinery and equipment components of their operations through
purchases of equipment and leases from traditional equipment manufacturers.
Equipment required by the businesses is generally readily available within
a reasonably short time period. Customization of equipment is not extensive
and generally falls within the specifications offered by the manufacturer
to a broad range of customers in similar manufacturing environments. The
Company generally acquires its equipment through traditional bank, leasing
or vendor supported purchase contracts or lease financing arrangements.
ITEM 3. LEGAL PROCEEDINGS
In July 1992, Balo Precision Parts, Inc. ("Balo") informed PCTI
that Balo believed that PCTI's hermetic connectors infringed Balo's U.S.
Patent No. 5,110,307. Balo and PCTI were unable to resolve this matter and,
on May 17, 1993, PCTI requested the U.S. Patent and Trademark Office to
reexamine Balo's patent. The next day Balo filed a patent infringement
action against PCTI in the U.S. District Court for the District of New
Jersey. Balo's lawsuit was stayed pending the outcome of the Patent
Office's reexamination of Balo's patent.
The reexamination of Balo's patent has been concluded, and the
New Jersey lawsuit has resumed. PCTI has answered Balo's complaint, pursued
discovery and has brought a motion for summary judgment in its favor. PCTI
also filed a patent infringement action against Balo, which has been
consolidated with Balo's lawsuit. PCTI's lawsuit alleges that Balo's sales
of hermetic connectors infringes U.S. Patent Nos. 4,690,480 and 5,041,019,
both owned by PCTI. Balo and PCTI are seeking damages and an injunction
against each other's continued manufacture and sale of hermetic connectors.
The Company believes, and has been advised by its patent counsel,
that PCTI has meritorious defenses to Balo's claims and that Balo infringes
PCTI's patents. However, such opinions are not binding on the court, and it
is not possible to predict the outcome of this litigation with certainty.
If PCTI is not successful in this litigation, it could suffer a serious,
material adverse impact on its financial condition and its operations,
particularly its hermetic connector business.
<PAGE>12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SHAREHOLDER MATTERS.
Until March 13, 1995, there was no public market for the
Company's Common Stock. Since that date, the Company's Common Stock has
been quoted and traded on the NASDAQ Electronic Bulletin Board. There has
not been, however, a large volume of trading in the Company's shares. The
Company presently is in the process of applying for a NASDAQ SmallCap
listing. The listing, if obtained, will enhance the public market for its
securities by improving the liquidity of investments in the Company. There
can be no assurance that the Company will obtain a NASDAQ SmallCap listing
or that any public market for its securities will be sustained.
Because there was no established public market for the Company's
Common Stock prior to March 13, 1995, high and low bid information through
that date is not available. The following table sets forth the range of
high and low closing bid prices, as reported by the NASDAQ Electronic
Bulletin Board, for the quarter ended May 31, 1995. The high and low bid
prices on May 31, 1995 were both $5.50 per share. The prices reflect
inter-dealer prices, without retail mark-up, mark-down, or commission, and
may not represent actual transactions.
High Low
Fourth Quarter $8.00 $5.00
At the close of business on August 15, 1995, the Company had 893
shareholders of record. During the two most recent fiscal years, the
Company has not declared any dividends on its Common Stock. For the
foreseeable future, the Company intends to retain all earnings and does not
plan to declare any dividends on its Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
The following discussions should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
<PAGE>13
General
The Company's revenues are derived from its operating
subsidiaries, PCTI, CMC and CDI. PCTI and CMC are wholly owned subsidiaries
of PCT Holdings, Inc., a Washington corporation and wholly owned subsidiary
of the Company (referred to elsewhere in this report as "PCT Subsidiary").
CDI is a wholly owned subsidiary of the Company. See "Description of
Business - General History" for a discussion of when and how the operating
subsidiaries were acquired by the Company.
For the years ended May 31, 1993 and 1992, because the Company
had no operations (other than investigating and evaluating acquisition
opportunities) and because PCTH had not been formed and did not acquire CMC
until May 31, 1994, the revenues shown on the Company's financial
statements contained in this report were generated solely through PCTI.
PCTI's revenues were derived from the manufacture and sale of hermetically
sealed electronic connectors and electronic packages incorporating
technologies which are proprietary to the Company within the scope of its
patents and trade secrets and the design requirements of its customers. A
significant portion of these revenues was a direct result of short-run
prototype orders involving a high degree of engineering. The revenue
contribution of CMC during the year ended May 31, 1995 totalled $6,756,064.
CMC is a precision machine shop producing diversified machined components
(primarily aluminum) for the aerospace, electronics and automotive
industries. As of February 28, 1995, the Company acquired CDI, a
manufacturer of electronic filtering devices to filter electromagnetic
interference in high performance, high reliability electronic systems. The
three-month revenue contribution of CDI included in the year ended May 31,
1995 totalled $399,442.
On a comparative basis, PCTI's net sales were $3,880,089;
$2,940,019 and $2,804,332, respectively, for the years ended May 31, 1995,
1994 and 1993.
<PAGE>14
Selected Financial Data:
<TABLE>
PCT HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
Years Ended May 31
----------------------------------------------------------------------------
1995 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $11,035,595 $2,940,019 $2,804,332
Cost of Sales 9,092,157 2,859,791 2,760,477
Gross Profit 1,943,438 80,228 43,855
Operating Expenses 2,788,940 963,811 953,124
Loss from Operations (845,502) (883,583) (909,269)
Other Income and Expense
Interest Income 74,352 4,008 1,264
Interest Expense (356,360) (207,205) (365,770)
Other 13,835 (11,227) 225,853
---------- -----------
(268,173) (214,424) (138,653)
Loss Before Merger and
Equity Capital Costs (1,113,675) (1,098,007) (1,047,922)
Merger and Equity Capital Costs (538,040)
---------- ----------- -----------
Net Loss Before Income Tax (1,651,715) (1,098,007) (1,047,922)
Federal Income Tax Benefit 241,000
---------- ----------- -----------
Net Loss for the Period ($1,410,715) ($1,098, 007) ($1,047,922)
---------- ----------- -----------
Per Share of Common Stock ($0.41) ($0.60) ($0.17)
---------- ----------- -----------
Net Working Capital $1,758,782 ($1,236,571) ($1,480,860)
Total Assets $11,629,912 $7,893,531 $2,176,697
Long Term Liabilities $1,086,210 $934,736 $277,440
</TABLE>
<PAGE>15
Years Ended May 31, 1994 and 1993
Net sales increased $135,687, or 4.8%, in fiscal year 1994 versus
fiscal year 1993. The increase was due in part to larger order sizes and
additions to PCTI's customer base. The increase would have been larger but
for expenses incurred as a result of PCTI's move from Roseburg, Oregon to
its existing site in Wenatchee, Washington. The move caused a significant
interruption in revenues during the first and second quarters of fiscal
year 1994 while PCTI's current facility was being completed and the
manufacturing operation was located in temporary facilities. PCTI's
motivations for the move were to provide better access to an acceptable
work force, a more positive local economic environment for the day to day
operations of the Company, closer proximity to the Company's director and
shareholder group, and a location including regularly scheduled airline
service for more convenient customer access to the Company's engineering
and manufacturing operations.
Although gross profit for the two periods nearly doubled from
$43,855 in fiscal year 1993 to $80,228 in fiscal year 1994, gross margins
for both periods were negligible, again reflecting short-run prototype and
start-up orders which needed to be aggressively priced to attract
customers, but did not allow for production efficiencies. Interest expense
declined significantly, reflecting the small shareholder group's
willingness to exchange debt for equity. In fiscal year 1993, PCTI also
recognized a gain of $85,187 on the sale of its production and office
facilities in Roseburg, Oregon and gain on the forgiveness of debt of
$123,599 related to an agreement with a former stockholder of PCTI's
predecessor for reduced payment on a note payable and accrued royalties.
The net working capital position of the Company improved
substantially from a deficit of $1,480,860 to a deficit of $1,236,571,
reflecting balance sheet consolidation with CMC at May 31, 1994 and
investment by PCTH's shareholders through stock purchases and loans.
Years ended May 31, 1995 and 1994
Net sales increased a total of $8,095,576 during fiscal year
1995, $6,756,064 from the added increment of CMC, $399,442 from the added
increment of CDI, and an increase of $696,914, or 27.7%, from increased
revenues of PCTI ($2,940,019 in fiscal year 1994 increased to $3,880,089 in
fiscal year 1995). The PCTI increase reflects PCTI's ability to achieve a
larger average order size during fiscal year 1995. Management believes that
this is in part a result of PCTI's relocation to the current location,
which provides better access by customers for source inspection,
engineering design collaboration and manufacturing coordination. The
Company's addition of the CMC subsidiary also provides vendor support to
PCTI for machined aluminum electronic package bodies and parts, which PCTI
would otherwise need to purchase from outside vendors. Intercompany sales,
which were eliminated in consolidation and not included in the above
analysis, totalled $286,742 for fiscal year 1995, sales for CMC and
purchases by PCTI.
<PAGE>16
Gross profits increased substantially from fiscal year 1994 to
fiscal year 1995, from $80,228 in 1994, to $1,943,438 in 1995, or 17.6% of
sales. The increase in gross profit is attributable in part to the addition
of CMC and the improvement in margins by PCTI, with both operations
experiencing comparable margins during the year. CDI's contribution on
sales of $399,442 was negligible due to the costs of the CDI Merger and the
costs of integrating CDI into the Company's operations.
Interest income for fiscal year 1995 of $74,352 compared to
interest income for fiscal year 1994 of $4,008 is a direct result of a note
receivable on the sale of the CMC office and manufacturing facility to two
shareholders prior to the acquisition of CMC by PCTH in May 1994. The
interest income level is not expected to repeat in light of the Company's
reacquisition of a portion of the property in exchange for a portion of the
note receivable in late May 1995. Interest expense increased from $207,205
to $356,360 due to the debt assumed as a part of the CMC acquisition,
including a banking arrangement with a term loan secured by equipment of
$900,310 at May 31, 1994 and a short term working capital loan of
$1,388,779 at May 31, 1994 (under a short-term working capital note for
borrowings up to $1,500,000 secured by receivables and inventories).
Merger and equity capital costs incurred in fiscal year 1995
reflect conversion of warrants and options to common stock coincident with
the PCTH Merger transaction in February 1995 and acquisition costs associated
with the PCTH Merger and CDI Merger.
The federal income tax benefit in 1995 of $241,000 resulted from
estimated timing differences in book/tax depreciation methods of CMC
calculated at the acquisition date in May 1994 have been reversed for
financial statement reporting purposes during 1995.
Liquidity and Capital Resources
The Company (or its subsidiaries) has funded its operations over
the last three years primarily through the sale of equity securities,
primarily common stock privately placed and the Regulation S placement in
1995, and through bank indebtedness. During the past two fiscal years, the
Company (or its subsidiaries) has received proceeds totalling $5,730,064
from the sale of common stock ($4,582,858 in fiscal year 1995 and
$1,147,206 in fiscal year 1994) and $2,000,000 in fiscal year 1994 from a
Chelan County loan sponsored through the Washington State Department of
Trade and Economic Development. Generally, the proceeds have been used to
purchase patents which are the basis for the Company's technologies, to pay
down shareholder loans previously extended to support operations, to
purchase and to make down payments for equipment to support higher revenue
levels, and to fund operating losses. As noted in the above schedule of
selected financial data, the Company's working capital position at May 31,
1995 totalled $1,758,782. Coupled with a working capital and equipment term
loan arrangement with the Silicon Valley Bank (the "Bank"), under a Loan
and Security Agreement entered into on April 24, 1994 between the Bank and
<PAGE>17
the Company, PCTI, CMC and CDI, pursuant to which the Bank has agreed to
lend the Company and its subsidiaries up to $1,750,000, the Company expects
to be in a position to support current and expected levels of operations
for the foreseeable future. The Company is also working towards being in a
position to attract additional capital through additional sales of stock
for use in growth through strategic acquisitions.
<PAGE>18
ITEM 7. FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
PCT Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of PCT Holdings,
Inc. and Subsidiaries (the Company) as of May 31, 1995 and 1994, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PCT Holdings, Inc.
and Subsidiaries as of May 31, 1995 and 1994, and the results of their
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.
MOSS ADAMS LLP
Everett, Washington
July 14, 1995
<PAGE>19
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
------
<TABLE>
<CAPTION>
MAY 31,
------------------------
1995 1994
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,078,637 $ 27,208
Accounts receivable, net of allowances
for doubtful accounts and returns
of $45,000 and $30,000 1,075,999 923,894
Inventory 4,375,162 3,459,969
Prepaid expenses and other 39,721 62,242
Current portion of note receivable from
stockholder 278,795 23,000
------------ -----------
Total current assets 6,848,314 4,496,313
------------ -----------
PROPERTY AND EQUIPMENT, at cost, net 3,008,122 2,307,564
------------ -----------
OTHER ASSETS
Note receivable from stockholder, net of
current portion 952,207
Real estate held for resale 676,253
Patents, net of accumulated amortization
of $33,000 and $3,200 478,092 46,781
Costs in excess of net book value of
acquired subsidiary net of accumulated
amortization of $7,800 462,687
Non-compete agreement 100,000
Other 56,444 90,666
------------ -----------
1,773,476 1,089,654
------------ -----------
$ 11,629,912 $ 7,893,531
============ ===========
</TABLE>
(continued)
<PAGE>20
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
MAY 31,
----------------------------
1995 1994
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Note payable $ 1,388,779
Accounts payable $ 1,527,467 958,850
Accrued liabilities 518,065 371,417
Current portion of long-term debt 2,448,000 1,008,000
Current portion of notes payable to
stockholders 510,000 1,917,838
Current portion of capital lease
obligations 51,000 88,000
Current portion of non-compete
agreement payable 35,000
------------ ------------
Total current liabilities 5,089,532 5,732,884
LONG-TERM LIABILITIES
Long-term debt, net of current portion 319,574 415,329
Notes payable to stockholders, net of
current portion 457,644 160,000
Capital lease obligations, net of
current portion 115,281 73,407
Non-compete agreement payable, net of
current portion 65,000
Deferred income tax 241,000
Deferred rent 128,711 45,000
------------ ------------
Total liabilities 6,175,742 6,667,620
------------ ------------
COMMITMENTS AND CONTINGENCY (Notes 10 and 13)
STOCKHOLDERS' EQUITY
Common stock 11,018,406 5,379,432
Accumulated deficit (5,564,236) (4,153,521)
------------ ------------
5,454,170 1,225,911
------------ ------------
$ 11,629,912 $ 7,893,531
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>21
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
NET SALES $ 11,035,595 $ 2,940,019
COST OF SALES 9,092,157 2,859,791
------------ ------------
GROSS PROFIT 1,943,438 80,228
OPERATING EXPENSES 2,788,940 963,811
------------ ------------
LOSS FROM OPERATIONS (845,502) (883,583)
------------ ------------
OTHER INCOME AND EXPENSE
Interest income 74,352 4,008
Interest expense (356,360) (207,205)
Other 13,835 (11,227)
------------ ------------
(268,173) (214,424)
------------ ------------
LOSS BEFORE MERGER AND EQUITY
CAPITAL COSTS (1,113,675) (1,098,007)
MERGER AND EQUITY CAPITAL COSTS (538,040)
------------ ------------
LOSS BEFORE FEDERAL INCOME TAX (1,651,715) (1,098,007)
FEDERAL INCOME TAX BENEFIT 241,000
------------ ------------
NET LOSS $ (1,410,715) $ (1,098,007)
============ ============
LOSS PER SHARE OF COMMON STOCK $ (0.41) $ (0.60)
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>22
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------------------ --------------------------- Accumulated
Shares Amount Shares Amount Deficit
------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE, May 31, 1993
As previously reported,
retroactively adjusted for
effects of stock splits 1,092,592 $ 1,505,000 $ 383,000 $ 478,750 $ (2,790,554)
Pooling of interest with:
Pacific Coast Technologies,
Inc.
Verazzana Ventures, Ltd. 187,500 219,000 (219,000)
--------- ------------ ------------ ------------ ------------
Balance, as restated 1,280,092 1,724,000 383,000 478,750 (3,009,544)
Common stock issued 442,968 1,204,741
Dividend paid through issu-
ance of preferred stock 45,960 45,960 (45,960)
Exchange of preferred stock
for common stock 250,226 524,710 (428,960) (524,710)
Acquisition of Cashmere
Manufacturing Co., Inc. 791,666 1,925,981
Net loss (1,098,007)
--------- ------------ ------------ ------------ -----------
BALANCE, May 31, 1994 2,764,952 $ 5,379,432 -- -- (4,153,521)
Common stock issued 2,137,680 4,682,091
Stock options and warrants
exercised 160,043 316,883
Acquisition of Ceramic
Devices, Inc. 133,333 640,000
Net loss (1,410,715)
--------- ------------ ------------ ------------ -----------
BALANCE, May 31, 1995 5,196,008 $ 11,018,406 -- -- $ (5,564,236)
========= ============ ============ ============ ===========
</TABLE>
The Company has authorized 100,000,000 shares of common stock and 5,000,000
shares of preferred stock.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>23
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $ 11,151,726 $ 2,636,024
Cash paid to suppliers and employees (11,309,618) (3,791,763)
Interest paid (333,106) (122,930)
Interest received 74,352 4,008
------------ ------------
Net cash from operating activities (416,646) (1,274,661)
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (604,904) (81,189)
Proceeds from sale of property and
equipment 100,030
Purchase of patents (461,000)
Payments received on note receivable 20,159 --
------------ ------------
Net cash from investing activities (1,045,745) 18,841
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES
Net change in note payable (1,388,779) (287,344)
Proceeds from long-term debt 2,229,336 88,571
Payments on long-term debt and
capital lease obligations (1,299,601) (322,709)
Proceeds from notes payable to
stockholders 50,000 616,838
Payments on notes payable to
stockholders (1,659,994)
Sale of common stock 4,582,858 1,147,206
------------ ------------
Net cash from financing activities 2,513,820 1,242,562
------------ ------------
NET CHANGE IN CASH 1,051,429 (13,258)
CASH, beginning of year 27,208 40,466
------------ ------------
CASH, end of year $ 1,078,637 $ 27,208
============ ============
</TABLE>
(continued)
<PAGE>24
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------
1995 1994
---------- ----------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
FROM OPERATING ACTIVITIES
Net loss $(1,410,715) $(1,098,007)
Adjustments to reconcile net loss to
net cash from operating activities
Depreciation and amortization 408,541 144,655
Loss on sale of property and
equipment 15,526
Merger and equity capital costs
paid in common stock 336,888
Federal income tax benefit (241,000)
Changes in operating assets and
liabilities
Accounts receivable 102,296 (303,995)
Inventory (215,675) (190,136)
Prepaid expenses and other 70,965 (2,248)
Accounts payable and accrued
liabilities 532,054 159,544
----------- -----------
NET CASH FROM OPERATING ACTIVITIES $ (416,646) $(1,274,661)
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING ACTIVITIES
Acquisition of Subsidiaries (Note 1):
Fair value of assets acquired, other
than cash $ 1,589,374 $ 5,442,433
Liabilities assumed (370,346) (3,528,659)
Notes payable issued (600,000)
----------- -----------
Common stock issued $ 619,028 $ 1,913,774
=========== ===========
Payment of dividend through issuance
of preferred stock $ 45,960
Payment of interest through issuance
of common stock $ 69,742
Payment on note payable through
issuance of stock $ 100,200
Seller financed non-compete note payable $ 100,000
Collateral recovery of building for
note receivable $ 676,253
Seller financed purchase of property
and equipment $ 202,697
Equipment purchased through capital
leases $ 151,074
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>25
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995 AND 1994
NOTE 1 - FORMATION AND ACQUISITIONS
On February 15, 1995, PCT Holdings, Inc. (formerly Verazzana Ventures,
Ltd.), a Nevada corporation, (the Company) entered into an Agreement and Plan of
Merger for the merger of PCT Merger Corporation, a wholly-owned subsidiary
corporation of the Company (the Surviving Corporation) with PCT Holdings, Inc.,
a Washington corporation (the Merging Corporation). The business previously
conducted by the Merging Corporation and its operating subsidiaries is owned and
operated as a wholly-owned subsidiary of the Company following the exchange of
shares by the Surviving Corporation. The merger was accounted for as a pooling
of interests. Concurrent with the merger, the Company changed its name from
Verazzana Ventures, Ltd. to PCT Holdings, Inc.
The merger, effective February 17, 1995, was accomplished by an exchange of
2,963,675 shares of the Company's authorized, but previously unissued, common
stock for all issued and outstanding shares of the Merging Corporation as of the
date of the merger. Prior to the exchange of shares, there had been no
relationship between the Company or any of its affiliates and the Merging
Corporation or any of its affiliates. The Company had conducted only limited
business operations, consisting primarily of investigating and evaluating
acquisition opportunities. The Merging Corporation had conducted separate,
unrelated operations prior to the merger. These consolidated financial
statements report results of operations as if the Merging Corporation and the
Company were combined as of the beginning of the year ended May 31, 1994. A
finders and consulting fee related to the merger of $50,000 cash and 212,500
shares of the Company's common stock was paid to a consultant. Included in
merger and equity capital costs during the year ended May 31, 1995 is $155,000
related to the cash payment and the fair market value of the stock issued.
The Merging Corporation was organized on May 31, 1994 to acquire the
outstanding stock of Pacific Coast Technologies, Inc. (PCTI) and Cashmere
Manufacturing Co., Inc. (CMC). The stockholders of PCTI and CMC became the
stockholders of the Merging Corporation, and PCTI and CMC became wholly-owned
subsidiaries. The acquisition of PCTI was accounted for as a pooling of
interests, whereby the assets and liabilities of both companies were combined at
historical cost. These consolidated financial statements report results of
operations as if PCTI and the Merging Corporation were combined as of the
beginning of the year ended May 31, 1994.
<PAGE>26
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995 AND 1994
(continued)
The purchase method of accounting was used to account for the acquisition of
CMC. Management established the value of the stock issued as equivalent to CMC's
net book value (equity) of $1,925,981 at May 31, 1994. CMC's sales, costs and
expenses were not included in operating results for the year ended May 31, 1994.
On February 28, 1995, the Company acquired the outstanding stock of Ceramic
Devices, Inc. (CDI) for $1,240,000, consisting of 133,333 shares of the
Company's common stock at $4.80 per share, or $640,000, and notes payable
totaling $600,000 (Note 8). The acquisition, accounted for using the purchase
method of accounting, resulted in costs in excess of net book value of CDI of
$470,529 which are being amortized over 15 years. CDI's sales, costs and
expenses are included in the consolidated operating results for the three months
ended May 31, 1995.
Concurrent with the purchase of CDI, the Company entered into a non-compete
agreement with the president of CDI for $100,000, payable in annual installments
of $35,000 in February 1996 and 1997 and $30,000 in February 1998. The
non-compete agreement covers the three-year period following the termination of
employment of CDI's president, and is being amortized over 6 years which
management estimates to be the period of benefit of the agreement.
The following summary, prepared on a pro forma basis, combines the
consolidated condensed balance sheets and results of operations as if CMC and
CDI had been acquired as of the beginning of the year ended May 31, 1993. There
are no material adjustments which impact the summary.
<TABLE>
<CAPTION>
MAY 31,
------------------------------
1994 1993
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Inventories $ 4,139,000 $ 4,285,000
Other current assets 1,370,000 1,203,000
Property and equipment 2,457,000 3,764,000
Other non-current assets 1,699,000 1,012,000
----------- -----------
$ 9,665,000 $10,264,000
=========== ===========
Current liabilities $ 6,522,000 $ 5,441,000
Long-term liabilities 1,117,000 1,993,000
Stockholders' equity 2,026,000 2,830,000
----------- -----------
$ 9,665,000 $10,264,000
=========== ===========
</TABLE>
<PAGE>27
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995 AND 1994
(continued)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------------------------
1995 1994 1993
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 12,267,000 $ 9,217,000 $ 11,596,000
Loss from
operations $ (992,000) $ (1,174,000) $ (1,235,000)
Net loss $ (1,548,000) $ (1,486,000) $ (1,501,000)
Loss per common
share $ (0.45) $ (0.51) $ (0.53)
</TABLE>
NOTE 2 - OPERATIONS
The Company serves as a holding company for PCTI, CMC, and CDI. Its
fiscal year end is May 31.
PCTI, located in Wenatchee, Washington, manufactures and distributes
hermetically sealed connectors and components for the medical, energy,
aerospace, communications, and general electronics industries. PCTI's customers
are located throughout the United States and Europe.
CMC, located in Cashmere, Washington, manufactures machined aluminum parts
and sub-assemblies primarily for the aerospace industry. The majority of CMC's
customers are located in the Puget Sound region of Western Washington. Included
in accounts receivable at May 31, 1995 and 1994 is $134,000 and $180,000,
respectively, which is due from The Boeing Company. Sales to The Boeing Company
were approximately $5.3 million in the year ended May 31, 1995.
CDI, located in San Diego, California, designs, manufactures and
distributes ceramic capacitors and filters for the medical, space and defense
industries which reduce to tolerable levels electromagnetic interference in
sensitive electronic systems. CDI's customers are located throughout the United
States.
The Company plans to relocate CMC and CDI to Wenatchee, Washington
during the Fall of 1995 (Note 10).
<PAGE>28
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995 AND 1994
(continued)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
material intercompany transactions have been eliminated.
(b) Inventory - Inventory is generally stated at the lower of cost
(first-in, first-out method) or market.
(c) Depreciation - Property and equipment is depreciated for financial
reporting purposes using the straight-line method over the estimated useful
lives of the assets. For federal income tax purposes, accelerated methods are
used over statutory lives.
(d) Patents - Patents are recorded at cost less accumulated amortization
using the straight-line method over the estimated useful lives of the patents of
15 to 17 years.
(e) Federal income tax - The Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes in 1994. The effect of adopting SFAS No. 109 was not material to
the consolidated financial statements. SFAS No. 109 requires a company to
recognize deferred tax liabilities and assets for the expected future tax
consequences of events recognized in the financial statement and tax returns.
Deferred tax liabilities and assets are based on the difference between
financial statement carrying amounts and the tax bases of assets and liabilities
using enacted tax rates expected to be in effect in the years the differences
are anticipated to reverse.
(f) Retirement plan - The Company maintains a 401(k) plan covering all
eligible employees who meet service requirements as provided in the plan.
Company contributions to the profit sharing plan are determined annually by the
Board of Directors. No contributions were made to the plan during the years
ended May 31, 1995 and 1994.
(g) Per share information - Loss per share of common stock is based upon
the weighted average number of shares of common stock outstanding during the
period, retroactively adjusted for stock splits. The weighted average number of
shares outstanding was 3,468,741 and 1,826,423 during the year ended May 31,
1995 and 1994, respectively. Stock options which have been granted are not
included in the weighted average number of shares outstanding as their effect
would be anti-dilutive.
(h) Reclassifications - Certain 1994 amounts have been reclassified
to conform with the 1995 presentation.
<PAGE>29
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995 AND 1994
(continued)
NOTE 4 - INVENTORY
<TABLE>
<CAPTION>
MAY 31,
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
Raw materials $1,479,054 $1,526,768
Work in progress 1,142,701 651,528
Purchased and manufactured
components and finished goods 1,753,407 1,281,673
---------- ----------
$4,375,162 $3,459,969
========== ==========
</TABLE>
NOTE 5 - PROPERTY PLANT AND EQUIPMENT
Property and equipment, including assets under capital lease
arrangement, are as follows:
<TABLE>
<CAPTION>
Estimated
Useful MAY 31,
Life in -----------------------------
Years 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Machinery and equipment 5-20 $ 3,980,275 $ 3,295,096
Furniture and fixtures 5-10 478,226 380,915
Leasehold improvements 7 119,233 12,475
----------- -----------
4,577,734 3,688,486
Less accumulated
depreciation and
amortization 1,569,612 1,380,922
----------- -----------
$ 3,008,122 $ 2,307,564
=========== ===========
</TABLE>
Included in prepaid expenses at May 31, 1995 is $18,000 in deposits
related to equipment purchase commitments of approximately $221,000.
Machinery and equipment and furniture and fixtures at May 31, 1995 and
1994, includes $230,515 and $345,628, respectively, of assets acquired under
capital lease. Accumulated amortization related to leased assets was $33,714 and
$151,481, respectively.
The Company recognized depreciation of property and equipment of
$343,968 and $90,948 during the years ended May 31, 1995 and 1994, respectively,
and $27,042 and $50,571, respectively, of amortization of capital leases.
<PAGE>30
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995 AND 1994
(continued)
NOTE 6 - NOTE RECEIVABLE FROM STOCKHOLDER
In May 1994, CMC sold land and buildings which include the CMC
manufacturing facilities to a stockholder for $975,207. CMC received a note for
the sales price, due in monthly installments of $7,600 through May 2014,
including interest at 7 percent. The note was collateralized by the land and
buildings, subject to priority liens of a bank and an individual. No gain or
loss resulted from this transaction. The Company entered into an agreement to
lease the facilities from the majority stockholder (Note 10).
In May 1995, the Company reacquired an undivided interest in a portion
of the land and buildings from the stockholder. The portion acquired did not
include the part of the buildings that house the manufacturing facilities leased
by CMC. The outstanding note receivable due from the stockholder at the time of
the reacquisition was reduced to $284,839, and the remainder of that note was
exchanged for the land and buildings with a fair market value of $676,253. The
stockholder has agreed to assume the remaining note payable collateralized by
the land and building. Negotiations are not yet finalized to fully relieve the
Company of responsibility for the note payable (Note 9). The terms of the note
receivable mirror the terms of the note payable, with interest at 8.75 percent,
due in installments of $5,900 through February 1996 with the remaining balance
due in March 1996.
NOTE 7 - NOTE PAYABLE
CMC had an operating line of credit with a bank through April 1995 with
interest at the bank's prime rate plus 2 percent. On April 26, 1995, the line of
credit with the bank was repaid.
The Company and its subsidiaries are finalizing a new lending
arrangement with a bank for a line of credit of $2.5 million and a capital
equipment line of credit of up to $250,000. A standby letter of credit, which
will provide replacement collateral for borrowings from Chelan County, State of
Washington (Note 9), reduces funds available to the Company under the operating
line of credit to $1.5 million, as $1.0 million is to be considered applied
against the standby letter of credit. The Company will be required to establish
a $1.0 million certificate of deposit at the bank as security to issue the
letter of credit. Total borrowings under the line of credit are limited to a
variable collateral base consisting of 40 percent of the book value of the
Company's inventory to a maximum value of $1.0 million and 75 percent of
eligible accounts receivable. The operating line of credit arrangement is to be
available through April 1996. The capital equipment line of credit is to be
available until October 31, 1995, at which time any balance will be amortized
and paid over a three-year period. The loan agreement contains restrictive
covenants related to tangible net worth levels, certain other financial ratios,
and minimum profitability levels.
<PAGE>31
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995 AND 1994
(continued)
NOTE 8 - NOTES PAYABLE TO STOCKHOLDERS
<TABLE>
<CAPTION>
MAY 31,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
Note payable to stockholders in
November 1995, bearing interest
at 8 percent. Collateralized by assets
of CDI. $ 400,000
Note payable to stockholders in
installments of $50,000 in
February 1996 and $75,000 in
February 1997 and 1998, plus
interest at 8 percent. Collateralized
by assets of CDI. 200,000
Note payable to a stockholder, due
in monthly installments of $8,300,
including interest at 10.25 percent,
plus a balloon payment of $181,000
due February 1, 1998. Collateralized
by patents and accounts receivable
of PCTI. 367,644 $ 560,000
Notes payable to various stock-
holders which were paid in full
in June 1994. 1,517,838
---------- ----------
967,644 2,077,838
Current portion 510,000 1,917,838
---------- ----------
Long-term portion $ 457,644 $ 160,000
========== ==========
</TABLE>
Interest paid to stockholders was $30,644 and $69,742 for the years
ended May 31, 1995 and 1994, respectively. Interest in 1994 was paid through the
issuance of common stock.
Notes payable to stockholders mature as follows:
YEAR ENDING
MAY 31,
-----------
1996 $510,000
1997 146,000
1998 311,644
--------
$967,644
========
<PAGE>32
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995 AND 1994
(continued)
NOTE 9 - LONG-TERM DEBT
<TABLE>
<CAPTION>
MAY 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Chelan County, State of Washington
Principal amount is payable in June 1997,
however, the holder may demand payment at
any time. Interest is payable quarterly at
3 percent. Collateralized by all assets
of PCTI, a $2,000,000 letter of credit
and guarantees of certain stockholders
(Note 7). $2,000,000
Bank
Note payable in monthly installments of
$5,900, including interest at 8.75
percent through March 1996, at which time
the balance of $242,710 is due.
Collateralized by the real property
described in Note 6. 278,795 $ 323,207
Various
Notes payable in installments, plus interest
at 6 percent to 12.5 percent.
Collateralized by certain assets
of PCTI and guarantees of cer-
tain stockholders. 488,779 199,812
Bank
Note payable which was paid in
full in April 1995. 900,310
---------- ----------
2,767,574 1,423,329
Current portion 2,448,000 1,008,000
---------- ----------
Long-term portion $ 319,574 $ 415,329
========== ==========
</TABLE>
<PAGE>33
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995 AND 1994
(continued)
Long-term debt matures as follows:
YEAR ENDING
MAY 31, AMOUNT
----------- ------
1996 $ 2,448,000
1997 98,000
1998 75,000
1999 55,000
2000 91,574
-----------
$ 2,767,574
===========
NOTE 10 - LEASING ARRANGEMENTS AND COMMITMENTS
(a) Capital lease obligations - The Company is obligated under several
capital lease arrangements to finance the acquisition of machinery and office
equipment. Assets under capital leases are capitalized using interest rates
appropriate at the inception of the lease.
Minimum lease payments under the capital leases and the present value of
the minimum lease payments are as follows:
YEAR ENDING
MAY 31, AMOUNT
----------- ------
1996 $ 76,000
1997 71,000
1998 47,000
1999 15,000
2000 5,000
-----------
Total minimum lease payments 214,000
Less: Amount representing interest 47,719
-----------
Present value of minimum lease payments 166,281
Current portion 51,000
-----------
Long-term portion $ 115,281
===========
(b) Operating facility leases - During 1994, the Company entered into a
lease agreement for the manufacturing facility in which PCTI is located through
July 2003 with the Port of Chelan County. Rent payments for the first five years
of the lease are based on a percentage of the base rent, resulting in a deferred
rent liability. Rental expense is recorded ratably over the term of the lease.
Total rental expense related to this lease was $128,000 and $80,000 for the
years ended May 31, 1995 and 1994, respectively.
<PAGE>34
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995 AND 1994
(continued)
On May 31, 1994, the Company entered into an agreement to lease the
manufacturing facility in which CMC is located from a stockholder for three
years at $9,000 per month. In March 1995, the Company committed to lease new
space, for the CMC manufacturing operations, from the Port of Chelan County
(Note 2). The scheduled completion date of the building and anticipated
beginning of the lease term is September 1995. The Company and the stockholder
have agreed to cancel the existing lease on the CMC facility upon completion of
the building for $108,000, which has been paid and charged to operations in the
year ended May 31, 1995.
The Company leases the manufacturing facilities in which CDI is located
under two leases. Monthly payments on the leases are $6,700. The leases expire
in April 1997. Costs related to canceling the leases upon CDI's planned move to
Wenatchee, Washington have not been determined.
Minimum lease payments under these leases are as follows:
AMOUNT
-----------
Year ending May 31, 1996 $ 327,400
1997 391,700
1998 231,000
1999 202,000
2000 164,000
Thereafter 620,300
-----------
$ 1,936,400
===========
(c) Employment agreements - The Company has employment agreements with
certain officers and key employees. The agreements are generally for three year
terms and cancelable for cause. Compensation under the agreements includes base
compensation plus incentives including up to 159,999 stock options with exercise
prices ranging from $2 to $8 per share, based on the Company's performance. No
options under these agreements have been granted as of May 31, 1995.
NOTE 11 - FEDERAL INCOME TAX
The federal income tax benefit is based on the estimated effective
annual tax rate for the fiscal year. The benefit includes the tax effect of
anticipated differences between the financial reporting and tax basis of assets
and liabilities, and the expected utilization of net operating loss (NOL)
carryforwards. The benefit of $241,000 in the year ended May 31, 1995 represents
a reversal of temporary differences in book/tax depreciation methods of CMC
calculated at the acquisition date in May 1994.
<PAGE>35
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995 AND 1994
(continued)
The Company has NOL carryforwards of approximately $6.3 million
available for federal income tax purposes through 2010. As a result of the
greater than 50 percent change in ownership in the consolidated companies during
the year, the NOL's from the subsidiaries existing prior to the respective
acquisitions are limited to use by the subsidiary which originally generated the
NOL. These NOL's are further limited by the amount which can be utilized in
any one fiscal year. Approximately $4.8 million of the NOL's are limited to
offsetting future PCTI federal taxable income. The amount which can be utilized
each year is approximately $400,000.
The deferred tax liabilities (assets) are comprised of the tax effect of
the following at May 31:
1995 1994
--------- ---------
Inventory $ 185,000 $ 102,000
Depreciation (355,000) (346,000)
Other 55,000 58,000
Net operating loss carryforwards 2,130,000 1,620,000
Valuation allowance (2,015,000) (1,434,000)
--------- ---------
$ -- $ (241,000)
========= =========
SFAS No. 109 requires the Company to record a valuation allowance when
it is "more likely than not that some portion or all of the deferred tax assets
will not be realized." Management believes that some or all of the excess of NOL
carryforwards over temporary differences may be utilized in future periods.
However, due to the uncertainty of future federal taxable income, a valuation
allowance for the full amount of the deferred tax asset has been recorded at
May 31, 1995. Due to limitations on the use of NOL carryforwards the valuation
allowance at May 31, 1994 was established for the full amount of the net
deferred tax assets resulting from the temporary differences and NOL's of PCTI
only.
The Company will file a consolidated tax return for the year ended
May 31, 1995.
NOTE 12 - CAPITAL STOCK
On July 18, 1994, the Board of Directors approved a one-for-three
reverse split of the Company's common stock. This split resulted in a decrease
of 10,309,834 shares of common stock outstanding. On January 26, 1995, the
Company's Board of Directors approved a one-for-two reverse split of the
Company's common stock. This split resulted in a decrease of 2,963,675 shares of
common stock outstanding. All share and per share amounts have been restated to
retroactively reflect these stock splits.
<PAGE>36
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995 AND 1994
(continued)
NOTE 12 - CAPITAL STOCK (continued)
On January 12, 1995, the Company granted stock options for 160,000
shares of the Company's common stock to certain management employees,
exercisable at $2.00 per share. These shares are fully vested and exercisable.
Subsequent to May 31, 1995, the Company granted additional stock options for
125,000 shares of common stock to certain management employees with an exercise
price equal to the fair market value of the stock at the date of grant. The
stock options expire between December 2000 and February 2005.
During the year ended May 31, 1995, the Board of Directors gave all
option and warrant holders the choice of exercising options and warrants at
one-half the original exercise price, or exercise the options at no price and
receive one share of common stock for every four shares of options or warrants
held. Options and warrants totaling 94,444 and 292,965, respectively, were
exercised with resulting proceeds of $30,000 and $54,995, respectively. The
holders of the options and warrants received 48,610 and 111,433 shares of common
stock, respectively. The fair market value of the Company's common stock at the
date of exercise was $1.98 per share. Included in merger and equity capital
costs during the year ended May 31, 1995 is $231,888 related to the repricing of
the options. No options were exercised during the year ended May 31, 1994.
The Company entered into an agreement with a Swiss company to find
suitable and qualified investors for the purchase of up to 800,000 shares of the
Company's common stock at a price of not less than $5.00 per share in an
offering qualifying under Regulation S of the Securities Act of 1933. The Swiss
company received a minimum commission of 5 percent of the gross proceeds, plus
reimbursement of out-of-pocket costs and 1,000,000 shares of the Company's
common stock, which according to the agreement, were earned in fiscal 1995 and
are reflected as issued and outstanding in these consolidated financial
statements. The Company is awaiting instructions from the Swiss company as to
the actual preparation of the stock certificate(s) for the 1,000,000 shares of
stock, and will accommodate actual issuance within the scope of the agreement
and securities regulations for qualification under Regulation S.
During the year ended May 31, 1995, 699,000 shares of stock were sold
under the Swiss company agreement with net proceeds to the Company of
$3,595,667, or $5.14 per share. Using proceeds from the stock sales, the Company
paid off the CMC line of credit (Note 7) and the term loan collateralized by
equipment (Note 9).
NOTE 13 - MANAGEMENT'S PLAN FOR FUTURE OPERATIONS
As shown in the consolidated financial statements, the Company has
incurred net losses of $1,410,715 and $1,098,007 during the years ended May 31,
1995 and 1994, respectively. While current assets exceed current liabilities by
$1,758,782 as of May 31, 1995, the Company must maintain future cash flows
sufficient to meet its ongoing obligations while improving operating results.
<PAGE>37
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995 AND 1994
(continued)
Management has developed and is implementing its plan to improve
operating results and maintain cash flows during fiscal 1996. Significant
components of management's plans for operations include:
* Bringing each Subsidiary to profitable operating results on a
month-to-month basis through additional revenue opportunities with current
customers. Unaudited financial information prepared by management for June
1995 presents a consolidated operating loss of $34,700 during that month,
based on net revenues of $1,153,600.
* Consolidating manufacturing locations by relocating the manufacturing
facilities of CMC and CDI adjacent to PCTI in Wenatchee, Washington during
fiscal 1996. This facility consolidation is expected to provide significant
operating efficiencies and improved management control of operations.
* Recruiting management personnel to enhance manufacturing operations,
inventory control and marketing. PCTI hired a vice-president of
manufacturing who assumed responsibilities during March 1995.
* Building the sales backlog. The Company's consolidated sales backlog has
grown to nearly $10.5 million at August 1, 1995, compared with
approximately $7.5 million in January of 1995 and $5.5 million in August of
1994.
* Continuing revenue growth through internal product development, utilization
of the Company's patented technologies and strategic acquisitions. The
Company will continue to develop products and support customers in the
aerospace, transportation, communications, energy and medical industries.
To sustain operations and cash flows while operational improvements are
being implemented, the Company has historically been successful in maintaining
sufficient cash flow through equity and debt financing arrangements. Management
expects to continue to maintain liquidity as it has demonstrated in historical
periods. A summary of past financing results and future financing plans follows.
During fiscal 1995, the Company made significant progress in building
its equity base, reducing debt and creating an improved business environment by
trading its stock in the public market. Historical achievements include:
* Raising approximately $981,000 in a private stock placement during the Fall
of 1994 to support operations.
* Raising approximately $3,596,000 during fiscal 1995 in an offering of
800,000 shares qualifying under Regulation S under the Securities Act of
1933. Additional proceeds have
<PAGE>38
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995 AND 1994
(continued)
been received through this offering during
fiscal year 1996 bringing total net proceeds of the offering during fiscal
1995 and 1996 to approximately $4,107,000.
* Entering into and completing an Agreement and Plan of Merger with a public
shell corporation, resulting in the Company becoming publicly traded on the
bulletin board or "pink sheets."
* After completing the two equity offerings referred to above, repaying debt
of $2.2 million, developing a new banking relationship, purchasing
equipment to support operating activities, paying the costs associated
with merger transactions and providing working capital to support on-going
operations.
* Purchasing CDI in a stock transaction which provided vertical integration
for the Company's product base to its customers. CDI added an approximate
$1.5 million revenue base and growth opportunities within the existing PCT
Holdings, Inc. customer group.
* Achieving equity, asset and revenue levels to qualify the Company for
listing under the NASDAQ small cap market. The Company has made application
for listing.
* Arranging and currently in the process of finalizing a new lending
arrangement with a bank which includes a net operating line of credit of
$1.5 million, a capital equipment line of credit of $250,000, and a letter
of credit arrangement in support of the Chelan County loan (Note 7).
Management intends to consider additional stock offerings under
Regulation S as strategically necessary to support future working capital
requirements or merger opportunities.
Management believes the Company's historical achievements and future
plans for operations, improved equity base, reduction of debt, completion of a
new lending arrangement, and the addition of equity through the sale of common
stock will provide sufficient liquidity, debt and equity financing to permit the
Company to meet its future obligations.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
As disclosed in its Form 8-K filed with the Securities and
Exchange Commission ("SEC") on June 2, 1995, the Company's Board of
Directors dismissed the Company's principal independent accountant,
Schvaneveldt and Company, a Salt Lake City, Utah, certified public
accounting firm ("Schvaneveldt"). The purpose for dismissing Schvaneveldt
was to replace that firm with the Seattle, Washington-based certified
public accounting firm of Moss Adams LLP. Moss Adams had been the independent
accountant of
<PAGE>39
PCTH until it merged with PCT Subsidiary. Because prior to
the PCTH Merger the Company's sole business activity was seeking a possible
merger candidate, and because PCTH had significant pre-merger business
operations with which Moss Adams was familiar, the Board determined that it
would be in the best interests of the Company to engage Moss Adams to
continue as its independent certifying accountant after the merger.
Accordingly, at its June meeting, the Board voted to engage Moss Adams as
the Company's principal independent accountant as of February 17, 1995.
During the Company's past two fiscal years, Schvaneveldt prepared
no financial statement for the Company which contained an adverse opinion
or disclaimer of opinion, or was modified as to uncertainty, audit scope,
or accounting principles. At the time the Board acted to replace
Schvaneveldt with Moss Adams, Schvaneveldt was not preparing any financial
statements for the Company. There were no disagreements between the Company
and Schvaneveldt on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if
not resolved to Schvaneveldt's satisfaction, would have caused it to make
reference to the subject matter of such disagreement in connection with any
report it may have prepared.
Schvaneveldt furnished the Company a letter addressed to the SEC
stating that it agreed with the above statements. A copy of that letter,
dated June 20, 1995, is attached as Exhibit 16 to the Company's Form 8-K/A,
filed on June 22, 1995.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT
The following table sets forth information as of August 21, 1995
(unless otherwise noted) regarding the directors and executive officers of
the Company.
<TABLE>
<CAPTION>
Director or
Name Age Officer Since Position with Company
- ---- --- ------------- ---------------------
<S> <C> <C> <C>
Donald A. Wright 43 02/95 Chairman of the Board, Chief
Executive Officer and President
Herman L. "Jack" Jones 63 02/95 Executive Vice President and
Director
Roger P. Vallo 60 02/95 Secretary and Director
Robert L. Smith 80 02/95 Treasurer and Director
<PAGE>40
Nick A. Gerde 50 02/95 Vice President and Chief
Financial Officer
Arthur S. Robinson 60 02/95 Director
Donald B. Cotton 56 02/95 Director
Roger D. Dudley 43 02/95 Director
Allen W. Dahl, M.D. 67 02/95 Director
John M. Eder 52 02/95 Director
Ronald E. Marshall 52 02/95 Director (resigned effective
July 31, 1995)
</TABLE>
Donald A. Wright has been the Chief Executive Officer, President and a
Director of the Company since February 1995 and served PCTH in the same capacity
from May 1994 to February 1995. He has been an officer and director of PCTI and
its predecessor, Kyle Technology Corporation since 1990. Prior to that time, Mr.
Wright was the founder and president of a Washington-based high technology
corporation known as Component Concepts, Inc.
Herman L. "Jack" Jones has been the Executive Vice President and a
Director of the Company since February 1995 and served PCTH in the same capacity
from May 1994 to February 1995. He has also served as a director and officer of
CMC since 1969.
Roger P. Vallo has been a Director and the Secretary of the Company
since February 1995 and served in the same capacity with PCTH from May 1994 to
February 1995, and with PCTI from June 1993 to May 12, 1994. From 1990 he served
as a Director of the predecessor of PCTI and then subsequently as a Director of
PCTI. Since 1986, Mr. Vallo has been the President and Chief Executive Officer
of Prudential Preferred Properties in Everett, Washington, known formerly as
Duryee Realty.
Robert L. Smith has been Director and Treasurer of the Company since
February 1995 and served in the capacity with PCTH from May 1994 to February
1995. Prior to May 1994, he also served as a Director and officer of PCTI. Mr.
Smith has been engaged in the commercial real estate business for Prudential
Preferred Properties in Everett, Washington for many years.
Nick A. Gerde has been the Vice President of Finance and Chief
Financial Officer of the Company since February 1995 and served in the same
capacity with PCTH from August 1994 to February 1995. Mr. Gerde served as Vice
President/CFO with Print Northwest, Inc., a regional commercial printer located
in the Puget Sound region from 1986
<PAGE>41
through 1990; Controller/CFO with Hydraulic Repair & Design, Inc., a regional
hydraulic component repair and wholesale distribution company in Washington and
Oregon from 1990 through mid-1993; Business Development Specialist with the
Economic Development Council of North Central Washington from July 1993 to June
1994; and Vice President and a shareholder of Televar Northwest, Inc., a closely
held telecommunications company in North Central Washington from July 1994 to
March 1995. Mr. Gerde is a CPA with over twenty years of financial management
and business experience.
Arthur S. Robinson has been a Director of the Company since February
1995 and served in the same capacity with PCTH from May 1994 to February 1995.
He has also been a Director of PCTI since October 1993. For the past five years,
Mr. Robinson has been the chairman of the Robinson Group, an asset management
business consulting firm.
Donald B. Cotton has been a Director of the Company since February
1995 and served in the same capacity with PCTH from May 1994 to February 1995.
He has been a Director of PCTI since October 1993. Mr. Cotton retired from GTE
in 1993, where he had been employed from 1962 to retirement and served more
recently as a vice president. He is currently self-employed as a software
consultant.
Roger D. Dudley has been a Director of the Company since February
1995. Mr. Dudley serves as Vice President of Studdert Companies Corp., a Salt
Lake City, Utah based private investment company since February 1993. He also
serves as Director, Executive Vice President, Treasurer and Secretary of fonix
corporation (NASDAQ Bulletin Board "FONX") since October 1993. Mr. Dudley also
serves as Secretary of Capital International Fund Limited, an international
investment fund, and Executive Vice President of C.I. International Ltd., the
Fund's investment manager. Mr. Dudley also served as Executive Vice President
and Trustee of Pacific American Investors from June 1990 through April 1995.
Allen W. Dahl, M.D. has been a Director of the Company since February
1995 and served in the same capacity with PCTH since October 1994. Dr. Dahl is a
semi- retired physician, having been in practice since 1957 in the Puget Sound
region of Washington State.
John M. Eder has been a Director of the Company since February 1995.
Mr. Eder served in the same capacity with PCTH since May 1994. Mr. Eder has
served as Vice President and General Manager of CMC since May of 1989.
Ronald E. Marshall was a Director of the Company from February 1995
through July 31, 1995, and served in the same capacity with PCTH and PCTI since
1994. Since 1981, Mr. Marshall has been an owner of Marshall and Sullivan, Inc.,
an investment advisor in Washington State. On July 31, 1995, Mr. Marshall
tendered his resignation as a Director to the Company. Mr. Marshall's
resignation was for personal reasons and did not
<PAGE>42
result from any disagreement with the Board or management of the Company. A
replacement for the position held by Mr. Marshall has not yet been considered.
Directors of the Company hold office until the next annual meeting of
the Company's shareholders and until their successors have been elected and duly
qualified. Executive officers are elected by the Board of Directors of the
Company at the first meeting after each annual meeting of shareholders and hold
office until their successors are elected and duly qualified.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Act"),
requires the reporting persons (as defined in Section 16(a) of the Act) to file
reports of ownership and changes in ownership with the SEC. Such reporting
persons are required by the SEC regulations to provide the Company with copies
of all Section 16(a) reports they file.
Based solely on a review of the copies of the forms provided to the
Company, or written representations that no filing of forms was required, the
Company believes that during the fiscal year ended May 31, 1995, all Section
16(a) filing requirements applicable to such reporting persons were complied
with.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the annual
and long-term compensation for services in all capacities to the Company and its
subsidiaries, for the fiscal years indicated, of Messrs. Donald A. Wright and
Andrew A. Chudd ("Named Executives"). No other officer of the Company received
annual salary and bonuses exceeding $100,000 in the fiscal year ended May 31,
1995.
<TABLE>
<CAPTION>
Long Term Compensation
- -----------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
- ------------------------------------------------------------------------------------------------------------------------------------
Name and principal Year Salary ($) Bonus Other Restricted Securities LTIP All
position ($) Annual Stock Underlying Payouts Other
Compen- Awards Options/ ($) Com
sation($) ($) SARs ($) pen-
sation
($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald A. Wright(1) 1995 $100,000 - 0 - - 0 - - 0 - $350,000(4) - 0 - - 0 -
CEO and President 1994 N/A N/A N/A N/A N/A N/A N/A
1993 N/A N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Andrew A. Chudd(2) 1995 $2,000 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
President (CEO) 1994 $11,000(3)
====================================================================================================================================
<PAGE>43
<FN>
(1) Mr. Wright became the Chief Executive Officer of the Company in February 1995, upon effectiveness of the merger of
PCTH into PCT Subsidiary.
(2) Mr. Chudd resigned his position as President (CEO) of the Company in February 1995, upon effectiveness of the merger
of PCTH into PCT Subsidiary.
(3) Amount includes salary paid by the Company during the indicated fiscal year to Margaret A. Chudd, spouse of Mr.
Chudd and an officer of the Company. As of the filing date the Company does not have access to the information
regarding the allocation of the $11,000 paid in fiscal 1994 to Mr. and Mrs. Chudd.
(4) See "Aggregated Option/SAR Exercise and Fiscal Year-End Option/SAR Value Table," below. Represents the value of
unexercised, but exercisable, warrants to purchase Common Stock of the Company granted on December 24, 1994.
</TABLE>
Option Grants Table. The following table sets forth information on
grants of stock options or other similar rights during the last fiscal year to
the Named Executives.
<TABLE>
<CAPTION>
Name Number of securities Percent of total options/ Exercise or Expiration
underlying options/ SARs SARs granted to employees base price Date
granted (#) in fiscal year ($/Share)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Donald A. Wright 100,000(1) 80% $2.00 December 24,
2004
- -----------------------------------------------------------------------------------------------------------------------------
Andrew A. Chudd - 0 - - 0 - N/A N/A
=============================================================================================================================
<FN>
(1) Represents warrants to purchase 100,000 shares of Common Stock that were granted to Mr. Wright on December 24,
1994.
</TABLE>
Aggregated Option/SAR Exercise and Fiscal Year-End Option/SAR Value Table
- -------------------------------------------------------------------------
The following table sets forth information concerning exercise of
stock options and/or warrants during the last fiscal year by each Named
Executive and the fiscal year end value of unexercised options:
<TABLE>
<CAPTION>
Number of securities Value of unexercised
underlying unexercised in-the-money options/SARs
options/SARs at FY-end at fiscal year-end ($)
- ----------------------------------------------------------------------------------------------------------------------------------
Name Shares Acquired Value Exercisable Unexercisable Exercisable Unexercisable
on Exercise (#) Realized
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Donald A. Wright - 0 - - 0 - 100,000(1) - 0 - $350,000 - 0 -
- ----------------------------------------------------------------------------------------------------------------------------------
Andrew A. Chudd - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
==================================================================================================================================
<FN>
(1) Represents warrants to purchase 100,000 shares of Common Stock that were granted to Mr. Wright on December 24,
1994.
</TABLE>
Long-Term Incentive Plans - Awards in Last Fiscal Year
- ------------------------------------------------------
The following table sets forth information regarding each award made
to each Named Executive in the last fiscal year under any LTIP:
<PAGE>44
<TABLE>
<CAPTION>
Estimated Future Payouts under Non-Stock
Price-Based Plans
- --------------------------------------------------------------------------------------------------------------------------------
Name Number of Shares, Performance or Other
Units or Other Period Until Maturation Threshold Target Maximum
Rights (#) or Payout ($ or #) ($ or #) ($ or #)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Donald A. Wright - 0 - - 0 - - 0 - - 0 - - 0 -
- --------------------------------------------------------------------------------------------------------------------------------
Andrew A. Chudd - 0 - - 0 - - 0 - - 0 - - 0 -
================================================================================================================================
</TABLE>
No employee of the Company receives any additional compensation for
his services as a director. Non-management directors receive no salary for their
services as such and receive no fee for their participation in meetings. The
Board of Directors has authorized payment of reasonable travel or other
out-of-pocket expenses incurred by non-management directors in attending
meetings of the Board.
The Company has established a 401(k) plan for the benefit of its
employees, allowing for pre-tax contributions of a portion of gross compensation
within federal guidelines. The 401(k) plan allows, but does not require, Company
contributions on a non- discriminatory basis. The Company has not contributed to
the plan since its inception, but pays for the costs of administration. The
401(k) plan is intended to qualify under Section 401(k) of the Internal Revenue
Code of 1986, as amended, so that contributions to the plan by employees or by
the Company, and the investment earnings thereon, are not taxable to employees
until withdrawn from the 401(k) plan, and so that contributions by the Company,
if any, will be deductible by the Company when made.
Employment Agreements. Mr. Wright entered into an employment agreement
with PCTH, which agreement has been assumed by PCT Subsidiary. The agreement
requires that Mr. Wright devote his full business time to PCT Subsidiary. The
employment is for a period of three years, commencing on January 1, 1995, ending
on December 31, 1997, unless earlier terminated by PCT Subsidiary for "cause"
(as defined in the agreement). The agreement prohibits Mr. Wright from competing
with the Company for two years following termination of the agreement. Under the
agreement, Mr. Wright will receive an annual base salary of $100,000, $125,000
and $150,000 for calendar years ending 1995, 1996 and 1997. In addition, based
on his performance as judged by the Board of Directors, Mr. Wright may receive
stock options to purchase 15,000 shares of Common Stock per year at an exercise
price of $2.00 per share for each of the fiscal years ending 1995, 1996 and
1997. Finally, Mr. Wright may be eligible for bonuses for each of the fiscal
years ending 1995, 1996 and 1997 for up to $48,500 per year.
The Company and its operating subsidiaries have employment agreements
with a total of seven employees (including Mr. Wright). These employment
agreements generally have three-year terms and provide for annual salaries,
bonuses, and the grant of options based on performance.
<PAGE>45
Stock Incentive Plans
The Company does not currently have any stock incentive plans. PCTH
adopted its 1994 Stock Incentive Plan (the "1994 Plan") in May 1994. All options
outstanding under the 1994 Plan were converted to common stock of PCTH
immediately prior to the PCTH Merger. The 1994 Plan has been superseded by the
PCT Holdings, Inc. Amended and Restated Long-Term Stock Investment and Incentive
Plan (the "1995 Plan"), which was approved by the shareholders of PCTH on
February 8, 1995. Although the 1995 Plan is currently a plan of PCT Subsidiary,
management has proposed to the Board of Directors that the Company terminate the
1995 Plan as a plan of PCT Subsidiary and either adopt the 1995 Plan or a
similar plan and recommend such plan to the Company's shareholders at the next
annual meeting of shareholders.
The 1995 Plan provides for the issuance of up to 2,000,000 shares of
common stock of PCT Subsidiary pursuant to incentive stock options, nonqualified
stock options, and other types of awards and rights. Nonqualified stock options
may be granted to employees, directors and consultants of the Company and its
subsidiaries, while incentive stock options may be granted only to employees. No
options may be granted under the 1995 Plan subsequent to May 15, 2004. The 1995
Plan is required to be administered by a committee consisting of at least three
disinterested persons, at least two of whom must be directors. Among other
things, the committee has authority to determine the terms and conditions of the
options granted under the 1995 Plan, including the exercise price (which must be
100% of the fair market value of the common stock on the date of grant), number
of shares subject to the option, and the exercisability thereof. No options are
currently outstanding under the 1995 Plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGERS
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of August 15, 1995, by (i)
each person known by the Company to own beneficially more than 5% of the
Company's outstanding Common Stock, (ii) each of the Company's named executive
officers and directors, and (iii) all executive officers and directors as a
group. Shares not outstanding but deemed beneficially owned by virtue of the
right of an individual to acquire them within 60 days are treated as outstanding
only when determining the amount and percentage of Common Stock owned by such
individual. Shares for which beneficial ownership is disclaimed by an individual
are included for purposes of determining the amount, but not the percentage, of
Common Stock owned by such individual. Each person has sole voting and sole
investment power with respect to the shares shown except as noted.
<PAGE>46
<TABLE>
<CAPTION>
Name/Address of 5% Number of Percentage of
Beneficial Owner, Shares Class(1)
Director, Officer
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Melvin B. Hoelzle 380,500(2) 7.10%
8105 South Broadway
Everett, WA 98203
- -----------------------------------------------------------------------------------------------------------------------
Roger Vallo 242,526(3) 4.55%
2731 Wetmore Avenue
Everett, WA 98201
- -----------------------------------------------------------------------------------------------------------------------
Donald A. Wright 368,499(4) 6.78%
434 Olds Station Rd.
Wenatchee, WA 98801
- -----------------------------------------------------------------------------------------------------------------------
Herman L. "Jack" Jones 699,437 13.12%
102 Maple Street
Cashmere, WA 98815
- -----------------------------------------------------------------------------------------------------------------------
Arthur S. Robinson 127,086(5) 2.38%
P.O. Box 707
Snohomish, Washington 98291-0707
- -----------------------------------------------------------------------------------------------------------------------
Robert L. Smith 116,882 2.19%
20008 Grand Avenue, Apt. 201
Everett, Washington 98201
- -----------------------------------------------------------------------------------------------------------------------
Donald B. Cotton 102,110 1.92%
538 TimberRidge Drive
Trophy Club, Texas 76262
- -----------------------------------------------------------------------------------------------------------------------
John M. Eder 41,666 0.78%
4222 Knowles Road
Wenatchee, Washington 98801
- -----------------------------------------------------------------------------------------------------------------------
Allen W. Dahl 27,776 0.52%
7300 Madrona Drive N.E.
Bainbridge Island, Washington
98110
- -----------------------------------------------------------------------------------------------------------------------
Roger D. Dudley 266,043(6) 1.67%
60 East South Temple St., #1225
Salt Lake City, Utah 84111
- -----------------------------------------------------------------------------------------------------------------------
Gomez Stiftung 704,700 13.22%
Austrasse 15
Postfach 1117
FL/9490
Vaduz, Lichtenstein
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>47
<TABLE>
<CAPTION>
Name/Address of 5% Number of Percentage of
Beneficial Owner, Shares Class(1)
Director, Officer
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Officers and Directors 2,018,025(7) 33.74%
as a group (10 persons)
=======================================================================================================================
<FN>
(1) Rounded to the nearest 1/100 of one percent.
(2) Includes 83,333 shares held by Dain Bosworth, Incorporated, custodian for
Melvin B. Hoelzle IRA; and 2,083 shares held in the RHUC Trust, of which
Mr. Hoelzle disclaims ownership.
(3) Includes 241,666 shares held by Seattle-First National Bank, Custodian for
Roger P. Vallo, IRA.
(4) Includes 32,666 shares held by Dain Bosworth, Incorporated, custodian for
Donald A. Wright. Also includes warrants to purchase 100,000 shares, all of
which presently are exercisable.
(5) Includes 2,083 shares owned by Deborah K. Robinson.
(6) Includes 743 shares held by trusts of which Mr. Dudley and/or his spouse are
beneficiaries. Also includes 265,300 shares held by a limited liability
company of which another limited liability company owned by Mr. Dudley's
family holds a one-third interest. Mr. Dudley disclaims beneficial ownership
of the remaining two-thirds, or 176,867, of such shares.
(7) Includes 125,000 shares issuable upon the exercise of warrants that are fully
exercisable.
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 18, 1994, PCTH received a $2,000,000 loan from the County of
Chelan, Washington, pursuant to a Community Development Block Grant Float
Agreement by and among PCTH, the County of Chelan and the State of Washington
Department of Community, Trade and Economic Development. To secure that loan
from the County of Chelan, PCTH arranged for a Standby Letter of Credit from the
Frontier Bank of Everett, Washington. To secure PCTH's obligations under the
letter of credit, Melvin B. Hoelzle, a more than 5% beneficial owner of the
Company's stock, and Robert L. Smith, a director
<PAGE>48
of the Company and a more than 5% shareholder each agreed to provide a $500,000
certificate of deposit and to execute a guaranty for the entire amount of PCTH's
obligations, if any, under the letter of credit ($2,000,000). The Company
recently arranged, through alternate financing, to retire the obligations of
Messrs. Hoelzle and Smith with respect to the letter of credit and anticipates
such alternate financing to be available in the immediate future.
On May 31, 1994, PCTH acquired all of the outstanding shares of CMC
from the shareholders of CMC, in exchange for common stock of PCTH. Herman L.
"Jack" Jones, a shareholder, executive officer and director of the Company, and
John M. Eder, a shareholder and director of the Company, each received shares of
PCTH in that transaction.
In connection with the acquisition of CMC by PCTH in May 1994, CMC
sold the land and buildings, located in Cashmere, Washington, where its
manufacturing facilities are located, to Mr. Jones (95%) and Mr. Eder (5%) for
$975,207. CMC received a note from Mr. Jones for the sales price, payable in
monthly installments of $7,600 through May 2014, including interest at 7% per
annum. The note was collateralized by the land and the buildings which currently
house CMC's operations. No significant gain or loss to the Company resulted from
this transaction. CMC presently leases these premises for its operations from
Mr. Jones. That lease had a term of three years and provided for monthly lease
payments of $9,000. In May 1995, the Company and Messrs. Jones and Eder reached
an agreement for CMC to reacquire a portion of the land and buildings. Under
that agreement, CMC forgave the outstanding note receivable related to the
May 1994 purchase by Messrs. Jones and Eder, and Mr. Jones and Mr. Eder agreed
to assume from CMC certain bank debt related to the building. Mr. Jones also
agreed to terminate the lease upon completion of a new facility in Wenatchee,
Washington, for CMC's operations, which will be leased from the Port of Chelan
County. The Company paid Mr. Jones $108,000 in February 1995 for the
cancellation of the lease.
On January 3, 1995, PCTH entered into a funding agreement (the
"Funding Agreement") with Lysys Ltd., a Swiss limited liability company
("Lysys"). Under the Funding Agreement, Lysys agreed to use its best efforts to
find suitable and qualified investors to purchase up to $4 million of PCTH's
common stock after PCTH merged with or was acquired by a company whose shares
were publicly traded. In consideration for its efforts under the Funding
Agreement, PCTH agreed that Lysys would be entitled to receive 1,000,000 shares
of PCTH's post-merger common stock. Roger D. Dudley, one of the Company's
present directors, is associated with Lysys; however, he is not a director,
executive officer or equity owner of Lysys. Pursuant to Mr. Dudley's
relationship with Lysys, he has provided certain services to Lysys in connection
with its performance under the Funding Agreement. As compensation for such
services, 265,300 of the shares issuable to Lysys pursuant to the Funding
Agreement were issued to SMD Ltd., LLC, a limited liability company, one-third
of which is owned by another limited liability company owned by Mr. Dudley's
family. Mr. Dudley claims beneficial ownership of 88,433 of such shares, and
disclaims beneficial ownership of the remaining two-thirds, or 176,867 shares.
<PAGE>49
Roger D. Dudley is an executive officer of C.I. International Ltd.
("Manager"), which is the manager of Capital International Ltd. ("Fund"), a
foreign investment fund. While Mr. Dudley was serving in these capacities, the
Fund purchased 86,000 shares of the Company's Common Stock. Mr. Dudley has no
ownership interest in and, except as an executive officer of Manager, exercises
no control over the Manager or the Fund.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Document
- ------- --------
3.1.1 Articles of Incorporation of the Company as filed
on January 30, 1986 with the Secretary of State of
the State of Nevada.*
3.1.2 Certificate of Amendment to the Articles of
Incorporation of the Company as filed on
February 16, 1995 with the Secretary of State of
the State of Nevada.*
3.1.3 Bylaws of the Company.
4.1 Form of specimen certificate for common stock of
the Company.*
10.1.1 Stock Purchase Agreement, dated May 19, 1994, by
and between Cashmere Manufacturing Co., Inc.,
Herman L. Jones, John M. Eder, Fred R. Paquette,
Dan A. Paquette and PCT Holdings, Inc.
10.1.2 Exchange Agreement, dated May 31, 1994, by and
between PCT Holdings, Inc., and its shareholders.
10.1.3 Letter Agreement, dated January 3, 1995, by and
between PCT Holdings, Inc., and Lysys Ltd.
10.1.4 Agreement and Plan of Merger, dated February 15,
1995, among the Company, PCT Merger Corporation
and PCT Holdings, Inc.**
10.1.5 Agreement and Plan of Merger, dated February 28,
1995, among PCT Holdings, Inc., Ceramic Devices,
Inc. (a Washington corporation), and Ceramic
Devices, Inc. (a California corporation).***
<PAGE>50
10.1.6 Promissory Note, dated May 10, 1995, in the
principal amount of $200,000, payable by the
Company to William H. Payne, Ivan G. Sarda,
Elinor A. Walters and Katrina A. Knowles.
10.1.7 Promissory Note, dated May 10, 1995, in the
principal amount of $400,000, payable by the
Company to William H. Payne, Ivan G. Sarda,
Elinor A. Walters and Katrina A. Knowles.
10.1.8 Security Agreement, dated May 10, 1995, by and
between Ceramic Devices, Inc., and William H.
Payne, Ivan G. Sarda, Elinor A. Walters and
Katrina A. Knowles.
10.1.9 Intellectual Property Acquisition and License
Agreement, dated June 1, 1994, by and between
Pacific Coast Technologies, Inc., and James C.
Kyle.
10.1.10(a) Promissory Note, dated June 1, 1994, in the
principal amount of $400,000, payable by Pacific
Coast Technologies, Inc., to James C. Kyle and
Carol A. Kyle.
10.1.10(b)
Promissory Note Extension, dated January 1, 1995
in the principal amount of $387,800, payable by
Pacific Coast Technologies, Inc., to James C. Kyle
and Carol A. Kyle.
10.1.11 Loan and Security Agreement, dated April 24, 1995,
between Silicon Valley Bank and the Company,
Ceramic Devices, Inc., Cashmere Manufacturing Co.,
Inc., and Pacific Coast Technologies, Inc.
10.1.12 Community Development Block Grant Float Agreement,
dated May 18, 1994, by and among the State of
Washington Department of Community, Trade and
Economic Development, the County of Chelan, and
Pacific Coast Technologies, Inc.
10.1.13 Commercial Guaranty by Melvin B. Hoelzle to
Frontier Bank, dated May 18, 1994, on behalf of
Pacific Coast Technologies, Inc.
10.1.14 Commercial Guaranty by Robert L. Smith and Mary
Smith to Frontier Bank, dated May 18, 1994, on
behalf of Pacific Coast Technologies, Inc.
10.1.15 Lease Agreement, dated February 1, 1993, between
the Port of Chelan County and Pacific Coast
Technologies, Inc.
<PAGE>51
10.1.16 Addendum to Lease Agreement with Pacific Coast
Technologies, Inc., dated April 22, 1993, between
the Port of Chelan County and Pacific Coast
Technologies, Inc.
10.1.17 Lease dated May 31, 1994, by and between Herman L.
"Jack" Jones and Cashmere Manufacturing Co., Inc.
10.1.18 Standard Industrial Lease, dated April 20, 1994,
between The Manufacturers Life Insurance Company
and Ceramic Devices, Inc., for certain real
property situated at 8170 Ronson Road, San Diego,
Ca.
10.1.19 Standard Industrial Lease, dated April 20, 1994,
between The Manufacturers Life Insurance Company
and Ceramic Devices, Inc., for certain real
property situated at 8145 Ronson Road, San Diego,
Ca.
10.1.20 Employment and Non-competition Agreement, dated
May 31, 1994, by and between PCT Holdings, Inc.,
and Herman L. "Jack" Jones.
10.1.21 Employment and Non-competition Agreement, dated
May 18, 1994, by and between Cashmere
Manufacturing Co., Inc., and John M. Eder.
10.1.22 Employment Agreement, dated January 1, 1995, by
and between PCT Holdings, Inc., and Donald A.
Wright.
10.1.23 Employment Agreement, dated January 1, 1995, by
and between PCT Holdings, Inc., and Nick A. Gerde.
10.1.24 Employment Agreement, dated January 1, 1995, by
and between Pacific Coast Technologies, Inc., and
Edward A. Taylor.
10.1.25 Employment Agreement, dated April 3, 1995, by and
between Ceramic Devices, Inc., and Ivan G. Sarda.
10.1.26 Employment Agreement, dated March 1, 1995, by and
between Pacific Coast Technologies, Inc., and
Lewis L. Wear.
10.1.27 1994 Stock Incentive Plan, adopted by PCT
Holdings, Inc., on May 15, 1994.
10.1.28 Amended and Restated Long-Term Stock Investment
and Incentive Plan, approved by the shareholders
of PCT Holdings, Inc., on February 8, 1995.
11. Computation of per share earnings.
<PAGE>52
16. Letter from accountant regarding a change of
accountants.****
21. List of subsidiaries.
23. Consent of Moss Adams LLP.
27. Financial Data Schedule.
* Incorporation by reference from the Company's Form 8-A
filed on May 16, 1995 (SEC file No. 33-3442-LA)
** Incorporation by reference from the Company's Form 8-K
filed on March 1, 1995 (SEC file No. 33-3442-LA)
*** Incorporation by reference from the Company's Form 8-K
filed on May 10, 1995 (SEC file No. 33-3442-LA)
**** Incorporation by reference from the Company's Form 8-K/A
filed on June 22, 1995 (SEC file No. 33-3442-LA)
(b) Reports on Form 8-K.
On March 1, 1995, the Company filed a Form 8-K report
of the change in control of the registrant, Verazzana Ventures,
Ltd. The 8-K filing includes the Agreement and Plan of Merger
and audited financial statements of PCTH for the fiscal years
ended May 31, 1994, 1993 and 1992. That Form 8-K was
subsequently amended on March 16, 1995, to revise the schedule
of beneficial ownership reported under Item 1. On April 29,
1995, the Form 8-K report was again amended to include the pro
forma unaudited financial statements of the registrant that
reflected the merger of PCTH with PCT Subsidiary. The pro
forma financial statements consisted of balance sheets as of
February 28, 1995 and May 31, 1994, and 1993, and income
statements for the nine months ended February 28, 1995 and the
years ended May 31, 1994 and 1993.
On May 10, 1995, the Company filed a Form 8-K report
of the Agreement and Plan of Merger in connection with the
merger of CDI Merged Corporation with CDI. The merger
constitutes the acquisition of a significant amount of assets
other than in the ordinary course of business. Financial
statements of CDI Merged Corporation for the years ended
June 30, 1992, 1993 and 1994 were included in the filing. On
July 21, 1995, the Company filed a Form 8-K/A report to amend
the Form 8-K filed on May 10, 1995. By this amendment the
Company submitted an unaudited balance sheet, income state, and
statement of cash flow for Ceramic Devices, Inc., for the
eight-month period from July 1, 1994 to February 28, 1995.
<PAGE>53
On June 9, 1995, the Company filed a Form 8-K report
in which, under Item 4, it reported the change of accountant
and, under Item 8, the change of fiscal year from January 31 to
May 31.
On June 22, 1995, the Company filed a Form 8-K/A
report to amend Form 8-K filed on June 9, 1992. The amendment
included a statement from Schvaneveldt consenting to the
Company's characterization of termination of Schvaneveldt as
the Company's principal independent accountant.
<PAGE>54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PCT HOLDINGS, INC.
Date: August 29, 1995 By DONALD A. WRIGHT
------------------------
Donald A. Wright
President and Chief Executive
Officer
Pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, this report has been signed
below by the following persons on behalf of the registrant and
in the following capacities on August 29, 1995.
Signature Title
/s/ Donald A. Wright President, Chief Executive Officer,
- ---------------------------------- Chairman of the Board
Donald A. Wright (Principal Executive Officer)
/s/ Nick A. Gerde Vice President, Chief Financial
- ---------------------------------- Officer (Principal Financial
Nick A. Gerde and Accounting Officer)
/s/ Roger P. Vallo Secretary and Director
- ----------------------------------
Roger P. Vallo
/s/ Robert L. Smith Treasurer and Director
- ----------------------------------
Robert L. Smith
<PAGE>55
/s/ Jack Jones Executive Vice President and
- ---------------------------------- Director
Herman L. "Jack" Jones
/s/ Arthur S. Robinson Director
- ----------------------------------
Arthur S. Robinson
/s/ Donald B. Cotton Director
- ----------------------------------
Donald B. Cotton
/s/ Roger D. Dudley Director
- ----------------------------------
Roger D. Dudley
/s/ John M. Eder Director
- ----------------------------------
John M. Eder
/s/ Allen W. Dahl Director
- ----------------------------------
Allen W. Dahl
<PAGE>56
EXHIBIT INDEX
The following documents are filed herewith or have
been included as exhibits to previous filings with the
Securities and Exchange Commission and are incorporated by
reference as indicated below.
Sequential
Exhibit No. Document Page No.
- ----------- -------- ----------
3.1.1 Articles of Incorporation of the Company as filed
on January 30, 1986 with the Secretary of State of
the State of Nevada.*
3.1.2 Certificate of Amendment to the Articles of
Incorporation of the Company as filed on
February 16, 1995 with the Secretary of State
of the State of Nevada.*
3.1.3 Bylaws of the Company.
4.1
Form of specimen certificate for common stock
of the Company.*
10.1.1 Stock Purchase Agreement, dated May 19, 1994,
by and between Cashmere Manufacturing Co., Inc.,
Herman L. Jones, John M. Eder, Fred R. Paquette,
Dan A. Paquette and PCT Holdings, Inc.
10.1.2 Exchange Agreement, dated May 31, 1994, by and
between PCT Holdings, Inc., and its shareholders.
10.1.3 Letter Agreement, dated January 3, 1995, by and
between PCT Holdings, Inc., and Lysys Ltd.
10.1.4 Agreement and Plan of Merger, dated February 15,
1995, among the Company, PCT Merger Corporation
and PCT Holdings, Inc.**
10.1.5 Agreement and Plan of Merger, dated February 28,
1995, among PCT Holdings, Inc., Ceramic Devices,
Inc. (a Washington corporation), and Ceramic
Devices, Inc. (a California corporation).***
<PAGE>57
10.1.6 Promissory Note, dated May 10, 1995, in the
principal amount of $200,000, payable by the
Company to William H. Payne, Ivan G. Sarda,
Elinor A. Walters and Katrina A. Knowles.
10.1.7 Promissory Note, dated May 10, 1995, in the
principal amount of $400,000, payable by the
Company to William H. Payne, Ivan G. Sarda,
Elinor A. Walters and Katrina A. Knowles.
10.1.8 Security Agreement, dated May 10, 1995, by
and between Ceramic Devices, Inc., and
William H. Payne, Ivan G. Sarda, Elinor A.
Walters and Katrina A. Knowles.
10.1.9 Intellectual Property Acquisition and
License Agreement, dated June 1, 1994,
by and between Pacific Coast Technologies,
Inc., and James C. Kyle.
10.1.10(a) Promissory Note, dated June 1, 1994, in the
principal amount of $400,000, payable by
Pacific Coast Technologies, Inc., to
James C. Kyle and Carol A. Kyle.
10.1.10(b) Promissory Note Extension, dated January 1, 1995
in the principal amount of $387,800, payable
by Pacific Coast Technologies, Inc., to James
C. Kyle and Carol A. Kyle.
10.1.11 Loan and Security Agreement, dated April 24, 1995,
between Silicon Valley Bank and the Company,
Ceramic Devices, Inc., Cashmere Manufacturing
Co., Inc., and Pacific Coast Technologies, Inc.
10.1.12 Community Development Block Grant Float Agreement,
dated May 18, 1994, by and among the State of
Washington Department of Community, Trade and
Economic Development, the County of Chelan,
and Pacific Coast Technologies, Inc.
10.1.13 Commercial Guaranty by Melvin B. Hoelzle to
Frontier Bank, dated May 18, 1994, on behalf
of Pacific Coast Technologies, Inc.
<PAGE>58
10.1.14 Commercial Guaranty by Robert L. Smith and
Mary Smith to Frontier Bank, dated May 18, 1994,
on behalf of Pacific Coast Technologies, Inc.
10.1.15 Lease Agreement, dated February 1, 1993, between
the Port of Chelan County and Pacific Coast
Technologies, Inc.
10.1.16 Addendum to Lease Agreement with Pacific Coast
Technologies, Inc., dated April 22, 1993,
between the Port of Chelan County and Pacific
Coast Technologies, Inc.
10.1.17 Lease dated May 31, 1994, by and between
Herman L. "Jack" Jones and Cashmere
Manufacturing Co., Inc.
10.1.18 Standard Industrial Lease, dated April 20,
1994, between The Manufacturers Life Insurance
Company and Ceramic Devices, Inc., for certain
real property situated at 8170 Ronson Road,
San Diego, Ca.
10.1.19 Standard Industrial Lease, dated April 20, 1994,
between The Manufacturers Life Insurance Company
and Ceramic Devices, Inc., for certain real
property situated at 8145 Ronson Road, San Diego,
Ca.
10.1.20 Employment and Non-competition Agreement, dated
May 31, 1994, by and between PCT Holdings, Inc.,
and Herman L. "Jack" Jones.
10.1.21 Employment and Non-competition Agreement, dated
May 18, 1994, by and between Cashmere
Manufacturing Co., Inc., and John M. Eder.
10.1.22 Employment Agreement, dated January 1, 1995, by
and between PCT Holdings, Inc., and Donald A.
Wright.
10.1.23 Employment Agreement, dated January 1, 1995, by
and between PCT Holdings, Inc., and Nick A. Gerde.
10.1.24 Employment Agreement, dated January 1, 1995, by
and between Pacific Coast Technologies, Inc.,
and Edward A. Taylor.
<PAGE>59
10.1.25 Employment Agreement, dated April 3, 1995,
by and between Ceramic Devices, Inc., and
Ivan G. Sarda.
10.1.26 Employment Agreement, dated March 1, 1995, by
and between Pacific Coast Technologies, Inc.,
and Lewis L. Wear.
10.1.27 1994 Stock Incentive Plan, adopted by PCT
Holdings, Inc., on May 15, 1994.
10.1.28 Amended and Restated Long-Term Stock Investment
and Incentive Plan, approved by the shareholders
of PCT Holdings, Inc., on February 8, 1995.
11. Computation of per share earnings.
16. Letter from accountant regarding a change of
accountants.****
21. List of subsidiaries.
23. Consent of Moss Adams LLP.
27. Financial Data Schedule.
* Incorporation by reference from the Company's Form 8-A
filed on May 16, 1995 (SEC file No. 33-3442-LA)
** Incorporation by reference from the Company's Form 8-K
filed on March 1, 1995 (SEC file No. 33-3442-LA)
*** Incorporation by reference from the Company's Form 8-K
filed on May 10, 1995 (SEC file No. 33-3442-LA)
**** Incorporation by reference from the Company's Form 8-K/A
filed on June 22, 1995 (SEC file No. 33-3442-LA)
<PAGE>1
BYLAWS
OF
PCT HOLDINGS, INC.,
A Nevada Corporation
ARTICLE I
OFFICES
The principal office of the corporation in the State of Nevada shall be
located in Clark County, State of Nevada. The Board of Directors may change the
location of the principal office of the corporation and may, from time to time,
designate other offices within or without the State of Nevada as the business of
the corporation may require. The registered office of the corporation shall be
the office of the registered agent of the corporation as required by the Nevada
Revised Statutes Chapter 78 (the "Act"). The registered office of the
corporation shall be maintained in the State of Nevada and may be, but need not
be, identical with the principal office of the corporation in the State of
Nevada, and the address of such registered office of the corporation, the
agent's office, may be changed from time to time by the Board of Directors as
provided in Section 78.095 of the Act.
ARTICLE II
SHAREHOLDERS
1. Place of Shareholder Meetings. Shareholder meetings of
the corporation shall be held at such suitable place convenient
to the shareholders, either within the United States,
<PAGE>2
whether for any annual meeting or special meeting of the
shareholders called by the Board of Directors.
2. Annual Meeting. The annual meeting of the shareholders for the election
of directors and the transaction of such other business as may properly come
before it shall be held at such place within the United States as shall be set
forth in the notice of the meeting. The meeting shall be held on the first
Tuesday of November of each and every year at 10:00 a.m. or at such other time
as the directors shall designate.
3. Special Meetings. Special meetings of the shareholders, other than those
regulated by statute, for any purpose or purposes, may be called at any time by
a majority of the directors or the president, and must be called by the
president upon written request of the holders of ten percent (10%) of the
outstanding shares entitled to vote at such special meeting. Special meetings of
the shareholders shall be held within the United States as designated by the
Board of Directors in the notice for the meeting.
4. Notice of Shareholders' Meetings. The secretary of the corporation shall
give personally or by mail, not less than ten (10) nor more than sixty (60) days
before the date of the meeting to each shareholder entitled to vote at such
meeting, written notice of the annual or special shareholders' meetings stating
the place, date and hour of the meeting. In the case of a special shareholders'
meeting, the notice shall also state the purposes for which it is called and the
name of the person by
<PAGE>3
whom or at whose direction the meeting is called. If mailed, the notice shall be
addressed to the shareholder at his or her address as it appears on the record
of the shareholders of the corporation unless he or she shall have filed with
the secretary of the corporation a written request that notices intended for him
or her be mailed to a different address, in which case it shall be mailed to the
address designated in the request. In the case of a special shareholders'
meeting no business other than that specified in the notice of the meeting shall
be transacted at any such special meeting.
5. Waiver of Notice. Whenever under the provisions of these Bylaws or of any
statute any shareholder or director is entitled to notice of any regular or
special meeting or of any action to be taken by the corporation, such meeting
shall be held or such action may be taken without the giving of such notice,
provided every shareholder or director entitled to such notice in writing waives
the requirements of these Bylaws in respect thereto. Any notice of the annual or
any special shareholders' meeting may be waived by a shareholder by submitting a
signed waiver either before or after the meeting, or by the shareholder's
attendance without objection at such meeting. Pursuant to Section 78.320(4) of
the Act, any shareholder may attend and participate in an annual or special
meeting of the shareholders by telecommunication by which all persons
participating in the meeting can hear each other.
<PAGE>4
6. Record Date. For the purpose of determining the shareholders entitled to
notice of or to vote at any meeting of the shareholders or any adjournment
thereof, or shareholders entitled to receive payment of any dividend, and in
order to make a determination of shareholders for any other proper purpose, the
Board of Directors of the corporation may provide that the stock transfer books
shall be closed for an extended period but not to exceed in any case sixty (60)
days. If the stock transfer books shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten (10) days immediately preceding such
meeting. In lieu of closing the stock transfer books the Board of Directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than sixty (60) days and in
the case of a meeting of the shareholders, not less than ten (10) days prior to
the date on which the particular action requiring action such determination of
shareholders is to be taken. If the stock transfer books are not closed and no
record date is fixed for the determination of shareholders entitled to notice of
or to vote at any meeting of shareholders, or shareholders entitled to receive
payment of a dividend, the date on which the notice of the meeting is mailed or
the date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
<PAGE>5
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment thereof except where the
determination has been made through the closing of the stock transfer books and
the stated period of closing has expired.
7. Proxies. At all meetings of shareholders, a shareholder may vote either
in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. Every proxy must be dated and
signed by the shareholder or his attorney in fact. No proxy shall be valid after
the expiration of six (6) months from the date of its execution, unless, as
provided in such proxy, it is coupled with an interest or the shareholder
specifies the length of time for which it is to continue in force, which may not
exceed 7 years from the date of its creation. Every proxy shall be revocable at
the pleasure of the shareholder executing it, except where an irrevocable proxy
is permitted by statute.
8. Quorum. The presence in person or by proxy of the holders of a majority
of the outstanding shares entitled to vote thereat shall be necessary to
constitute a quorum for the transaction of business at all meetings of the
shareholders. If, however, such quorum shall not be present or represented at
any meeting of the shareholders, the shareholders entitled to vote thereat,
present and personally represented by proxy, shall have
<PAGE>6
the power to adjourn the meeting to a future date at which a quorum shall be
present or represented without further notice. At such adjourned meeting at
which a quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified. A
meeting at which a quorum is initially present may continue to transact
business, not withstanding the withdrawal of certain shareholders representing
enough shares to leave less than a quorum remaining. Such transacted business
shall become the act of the corporation if it is approved by at least a majority
of the required quorum for that meeting.
9. Voting of Shares. A shareholder entitled to vote at a meeting may vote at
such meeting in person or by proxy except as otherwise provided by law or the
Certificate of Incorporation. Every shareholder shall be entitled to one (1)
vote for each share standing in his or her name on the corporation's record of
shareholders as of the record date. Except as herein or in the Certificate of
Incorporation or by statute otherwise provided, all corporate action shall be
determined by vote of a majority of the votes cast at a meeting of the
shareholders at which a quorum is present by the holders of shares entitled to
vote thereon.
10. Voting of Shares by Certain Holders. Shares standing
in the name of another corporation may be voted by such officer,
agent or proxy of such other corporation as the bylaws of such
corporation may prescribe or, in the absence of such provision,
<PAGE>7
as the Board of Directors of such other corporation may determine. Shares held
by an administrator, executor, guardian or conservator may be voted by him or
her, either in person or by proxy, without a transfer of such shares into his or
her name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name as
trustee. Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of the receiver may be voted
by such receiver without the transfer thereof into his or her name if authority
so to do be contained in an appropriate order of the court by which such
receiver was appointed. The shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have been transferred into the
name of the pledgee, and thereafter the pledgee shall be entitled to vote the
shares so transferred. Shares of its own stock belonging to the corporation,
treasury shares, or shares of its own stock held by the corporation in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting
and shall not be counted in determining the total number of outstanding shares
at any given time.
11. Action Without Meeting by Consent of Required Majority.
Pursuant to all of the provisions of Section 78.320(2) and (3) of
the Act, whenever a provision of statute or of the Certificate of
Incorporation, or whenever by these Bylaws the vote of
<PAGE>8
shareholders is required or permitted to be taken at a meeting thereof in
connection with any corporate action, the meeting and the vote of shareholders
may be dispensed with if one or more consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or to
take the action at a meeting at which all shares entitled to vote thereon were
present and voted. In no instance where action is authorized by written consent
need a meeting of shareholders be called or notice given. The written consent
must be filed with the minutes of the shareholders' meeting.
ARTICLE III
BOARD OF DIRECTORS
1. Number and Qualifications. The number of directors, all of whom shall be
of age eighteen (18) years or older, of the corporation shall be not less than
one (1) nor more than thirteen (13). The number of directors within this range
may be fixed or changed from time to time by resolution of the directors.
Directors need not be shareholders of the corporation nor residents of the State
of Nevada. The shareholders may change the number of directors by amending the
Bylaws.
2. Manner of Election. The directors shall be elected at
the annual meeting of the shareholders by a majority of the votes
in favor of each director to be elected except as otherwise
prescribed by statute. There shall be no cumulative voting for
directors. Each shareholder entitled to vote at the election of
<PAGE>9
directors has the right to cast all of the votes to which the shareholder's
shares are entitled for as many persons as there are directors to be elected and
for whose election the shareholder has the right to vote.
3. Term of Office. The term of the office of each
director shall be until the next annual meeting of the
shareholders and until his or her successor has been duly elected
and has qualified.
4. Duties and Powers. The Board of Directors shall have under their
direction the control and management of the affairs and business of the
corporation. The directors shall in all cases act as a board, regularly
convened, and in the transaction of business the act of a majority present at a
meeting, except as otherwise provided by law or by the Certificate of
Incorporation, shall be the act of the board, provided a quorum is present.
Notwithstanding the foregoing, the directors may take action without a meeting
if, before or after the action, all members of the board consent to the action
in a writing signed by all the members of the board or committee pursuant to
Section 78.315 of the Act. Such written consent shall be filed with the minutes
of the board meeting. The directors may adopt such rules and regulations for the
conduct of their meetings and the management of the corporation as they may deem
proper, not inconsistent with law or the Certification of Incorporation or these
Bylaws.
<PAGE>10
5. Regular Meetings. A regular meeting of the Board of Directors shall be
held without other notice than this Bylaw immediately after, and at the same
place as the annual meeting of shareholders. The Board of Directors may provide
by resolution the time and place, within the United States, for the holding of
additional regular meetings without other notice than such resolution. Members
of the Board of Directors may participate in a board meeting by means of a
telephone conference or similar method of communication by which all persons
participating in the meeting can hear each other. Such participation constitutes
presence in person at the meeting.
6. Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the president or any two (2) directors. The
person or persons authorized to call special meetings of the Board of Directors
may fix any place, within the United States, as the place for holding any such
special meeting of the Board of Directors.
7. Notice of Meetings. No notice need be given of any regular meeting of the
board. Notice of special meetings shall be served upon each director in person
or by mail addressed to him or her at his or her last known post office address,
at least two (2) days prior to the date of such special meeting, specifying the
time and place of the meeting and the business to be transacted thereat. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States Mail so addressed with the postage prepaid thereon. Any director may
<PAGE>11
waive notice of any meeting by a signed writing. The attendance of a director at
a meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened, provided such objection is made by such director at the beginning of
the special directors' meeting.
8. Quorum. At any meeting of the Board of Directors, the presence of a
majority of the board shall be necessary to constitute a quorum for the
transaction of business. However, should a quorum not be present a lesser number
may adjourn the meeting to some further time, not more than seven (7) days
later, without further notice.
9. Voting. At all meetings of the Board of Directors,
each director shall have one (1) vote irrespective of the number
of shares that any director may hold.
10. Compensation. By resolution of the Board of Directors, the directors may
be paid their expenses, if any, of attendance at each meeting of the Board of
Directors, may be paid a fixed sum for attendance at such meeting of the Board
of Directors, or may be paid a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
11. Vacancies. Any vacancy occurring in the Board of
Directors by death, resignation or otherwise shall be filled
promptly by majority vote of the remaining directors at a special
<PAGE>12
meeting which shall be called for that purpose within thirty (30) days after the
occurrence of the vacancy. The director thus chosen shall hold office for the
unexpired term of his predecessor and the election and qualification of his
successor. Where a vacancy is required to be filled by reason of an increase in
the number of directors by shareholder action, then the vacant directorship(s)
shall be filled by majority vote of the shareholders at the meeting at which the
increased number of directorships is approved.
12. Removal of Directors. Any director may be removed either with or without
cause, at any time, by a vote of a majority of the shareholders who are entitled
to vote for the election of the directors sought to be removed, at any special
meeting called for that purpose, or at the annual meeting. Where a director is
removed by the shareholders, then the vacant directorship shall be filled by the
shareholders at the meeting at which the director or directors are so removed.
Except as otherwise prescribed by statute, a director may be removed for cause
by vote of a majority of the entire board. In such event the Board of Directors
shall choose a new director to fill such vacancy.
13. Resignation. Any director may resign his office at any
time. Such resignation shall be made in writing and shall take
effect immediately without acceptance.
ARTICLE IV
OFFICERS
<PAGE>13
1. Officers and Qualifications. The officers of the corporation shall be at
a minimum a president, a secretary and a treasurer. There may also be such other
officers as the Board of Directors may determine including, but not limited to,
one (1) or more vice presidents, assistant secretaries and assistant treasurers.
Any two (2) or more offices, except the offices of president and secretary, may
be held by the same natural person.
2. Election. All officers of the corporation shall be
elected annually by the Board of Directors at its meeting held
immediately after the annual meeting of shareholders.
3. Term of Office. Each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his or her death, or
until he or she shall resign or shall have been removed in the manner as
hereinafter provided. An officer or agent elected or appointed by the Board of
Directors may be removed either with or without cause by the vote of a majority
of the Board of Directors whenever, in the board's judgment, the best interests
of the corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the persons so removed.
4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled
by the Board of Directors for the unexpired portion of the term
of such office.
<PAGE>14
5. Duties of Officers. The duties and powers of the
officers of the corporation shall be as follows and as shall
hereafter be set by resolution of the Board of Directors:
PRESIDENT
A. The president shall be the principal executive officer of the
corporation, shall be subject to the control of the Board of Directors, and
shall in general supervise and control all of the business affairs of the
corporation. He or she shall, when present, preside at all meetings of the
shareholders and of the Board of Directors.
B. He or she shall present at each annual meeting of
the shareholders and directors a report of the condition of the
business of the corporation.
C. He or she shall cause to be called regular and
special meetings of the shareholders and directors in accordance
with the requirements of the statute and of these Bylaws.
D. He or she shall appoint, discharge and fix the compensation of all
employees and agents of the corporation other than the duly elected officers,
subject to the approval of the Board of Directors. He or she shall sign and
execute, with the secretary or any other proper officer of the corporation
thereunto authorized by the Board of Directors, all contracts in the name of the
corporation, and all notes, drafts or other orders for payment of money, any
deed, mortgages, bonds or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof
<PAGE>15
shall be expressly delegated by the Board of Directors or by these Bylaws to
some other officer or agent of the corporation, or shall be required by law to
be otherwise signed or executed.
E. He or she shall sign and execute, with the secretary or any other
proper officer of the corporation thereunto authorized by the Board of
Directors, certificates representing shares of the corporation.
F. He or she shall cause all books, reports,
statements and certificates to be properly kept and filed as
required by law.
G. He or she shall enforce these Bylaws and perform all the duties
incident to his or her office and which are required by law, and, generally, he
or she shall supervise and control the business and affairs of the corporation
and perform such other duties as may be prescribed by the Board of Directors
from time to time.
VICE PRESIDENT
During the absence or incapacity of the president, the vice president in
order of seniority of election shall perform the duties of the president, and
when so acting, he or she shall have all the powers and be subject to all the
responsibilities of the office of president and shall perform such other duties
and functions as the board may from time to time prescribe.
SECRETARY
<PAGE>16
A. The secretary shall keep the minutes of the
meetings of the Board of Directors and of the shareholders in
appropriate books.
B. He or she shall attend to the giving of notice of
special meetings of the Board of Directors and of all the
meetings of the shareholders of the corporation.
C. He or she shall be custodian of the records and seal of the
corporation and shall affix the seal to the certificates representing shares and
other corporate papers when required.
D. He or she shall keep in the principal office of the corporation a
book or record containing the names, alphabetically arranged, of all persons who
are shareholders of the corporation, showing their places of residence, the
number and class of shares held by them respectively, and the dates when they
respectively became owners of record thereof. He shall keep such book or record
and the minutes of the proceedings of its shareholders open daily during the
usual business hours, for inspection, within the limits prescribed by law, by
any person duly authorized to inspect such records. At the request of the person
entitled to an inspection thereof, he shall prepare and make available a current
list of the officers and directors of the corporation and their resident
addresses.
E. He or she shall sign all certificates representing
shares and affix the corporate seal thereto.
<PAGE>17
F. He or she shall attend to all correspondence and
present to the Board of Directors at its meetings all official
communications received by him or her.
G. He or she shall perform all the duties incident to the office of
secretary of the corporation and such other duties as from time to time may be
assigned to him or her by the president or by the Board of Directors.
TREASURER
A. The treasurer shall have the care and custody of and be responsible
for all the funds and securities of the corporation, and shall deposit such
funds and securities in the name of the corporation in such banks or safe
deposit companies as the Board of Directors may designate.
B. He or she shall make, sign and endorse in the name of the
corporation all checks, drafts, notes and other orders for payment of money, and
pay out and dispose of such under the direction of the president or the Board of
Directors.
C. He or she shall keep at the principal office of the corporation
accurate books of account of all its business transactions and shall at all
reasonable hours exhibit books and accounts to any director upon application at
the office of the corporation during business hours.
D. He or she shall render a report of the condition
of the finances of the corporation at each regular meeting of the
Board of Directors and at such other times as shall be required
<PAGE>18
of him or her, and he or she shall make a full financial report
at the annual meeting of the shareholders.
E. He or she shall further perform all duties incident to the office of
treasurer of the corporation and such other duties as from time to time may be
assigned to him or her by the president or by the Board of Directors.
F. If required by the Board of Directors, he or she
shall give such bond as the Board shall determine appropriate for
the faithful performance of his or her duties.
OTHER OFFICERS
Other officers shall perform such duties and have such powers as may be
assigned to them by the Board of Directors.
6. Vacancies. All vacancies in any office shall be filled
promptly by the Board of Directors, either at regular meetings or
at a meeting specially called for that purpose.
7. Compensation of Officers. The officers shall receive their salary or
compensation as may be fixed from time to time by the Board of Directors, and no
officer shall be prevented from receiving such salary by reason of the fact that
he or she is also a director of the corporation.
ARTICLE V
Officers' and Directors' Contracts
No contract or other transaction between this corporation and any other
corporation, limited liability company, association, partnership or business
shall be affected by the
<PAGE>19
fact that a director, officer, member, manager or partner of such other
corporation, limited liability company, association, partnership or business,
and any director or officer, individually or jointly, may be a party to, or may
be interested in, any business, partnership, association, limited liability
company, corporation or transaction of this corporation or in which this
corporation is interested; and no contract or other transaction of this
corporation with any person, firm, partnership, limited liability company, or
corporation shall be affected by the fact that any director or officer of this
corporation is a party to, or is interested in, such contract, act, or
transaction or in any way connected with such person, firm, partnership,
association, limited liability company, or corporation, and every person, who
may become a director or officer of this corporation, is hereby relieved from
liability that might otherwise exist from contracting with the corporation for
the benefit of himself or any person, firm, association, partnership, limited
liability company or corporation in which he may be in any way interested,
provided said director or officer acts in good faith.
ARTICLE VI
CONTRACTS, NOTES, CHECKS AND DEPOSITS
1. General. The execution of all bills payable, notes,
checks, drafts, warrants or other negotiable instruments of the
corporation shall be made in the name of the corporation and
shall be signed by such officer or officers as the Board of
<PAGE>20
Directors shall from time to time by resolution direct. No officer or agent of
the corporation, either singly or jointly with others, shall have the power to
make any bill payable, note, check, draft or warrant or other negotiable
instrument, or endorse the same in the name of the corporation, or contract or
cause to be contracted any debt or liability in the name and on behalf of the
corporation, except as herein expressly prescribed and provided.
2. Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract
or to execute and to deliver any instrument in the name and on
behalf of the corporation, and such authority may be general or
confined to specific instances.
3. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in
its name unless authorized by resolution of the Board of
Directors. Such authority may be general or confined to specific
instances.
4. Checks, Drafts, etc. All checks, drafts, or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
5. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of
<PAGE>21
the corporation in such banks, trust companies or other depositories as the
Board of Directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. Certificates. The shares of the corporation shall be represented by
certificates prepared by the Board of Directors and signed by the president or
the vice president, and by the secretary or an assistant secretary, and sealed
with the seal of the corporation or a facsimile. Subject to the restrictions of
and to the extent allowed by Section 78.235 of the Act, countersigned
certificates may have facsimile signatures. The certificates shall be numbered
consecutively and in the order in which they are issued; they shall be bound in
a book and shall be issued in consecutive order therefrom, and in the margin
thereof shall be entered the name and address of the person to whom the shares
represented by such certificate are issued, the number and class or series of
such shares, and the date of issue. Each certificate shall state the registered
holder's name, the number and class of shares represented thereby, the date of
issue, the par value of such shares, or that they are without par value.
Certificates of shares of the corporation may also be in such other form as
shall be determined by the Board of Directors hereafter. All certificates of
shares of the corporation surrendered to the corporation for transfer shall be
cancelled and no new certificates shall be issued until the former certificate
for a like number of shares shall have been
<PAGE>22
surrendered and cancelled, except in the case of a lost, destroyed or mutilated
certificate, a new one may be issued therefor upon such terms and indemnity to
the corporation as the Board of Directors may prescribe.
2. Subscriptions. Subscriptions to the shares shall be paid at such times
and in such installments as the Board of Directors may determine. If default
shall be made in the payment of any installment as required by such resolution,
the board may declare the shares and all previous payments thereon forfeited for
the use of the corporation, in the manner prescribed by statute.
3. Transfer of Shares. Transfer or assignment of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his or her legal representative, who shall furnish
proper evidence of authority to transfer, or by his or her attorney thereunto
authorized by power of attorney duly executed and filed with the secretary of
the corporation, and only upon surrender for cancellation of the certificate for
such shares duly and properly endorsed. The corporation shall issue a new
certificate for the shares surrendered to the person or persons entitled
thereto. The person in whose name the shares stand on the books of the
corporation shall be deemed by the corporation to be the owner thereof for all
purposes.
4. Returned Certificates. All certificates for shares
changed or returned to the corporation for transfer shall be
<PAGE>23
marked by the secretary "Cancelled", with the date of cancellation, and the
transaction shall be immediately recorded in the certificate book opposite the
memorandum of their issue. The returned certificate may be inserted in the
certificate book.
ARTICLE VIII
DIVIDENDS
The Board of Directors at any regular or special meeting may declare
dividends payable out of the surplus of the corporation, whenever in the
exercise of its discretion it may deem such declaration advisable. Such
dividends may be paid in cash, property, or shares of the corporation.
ARTICLE IX
SEAL
The Board of Directors may provide a corporate seal which shall be circular
in form and shall have inscribed thereon the name of the corporation and the
state of incorporation and the words "Corporate Seal". It may be affixed in such
manner and on such occasion as deemed advisable by the Board of Directors.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or director
of the corporation under the provisions of these Bylaws or under the provisions
of the Articles of Incorporation or under the provisions of the Act pursuant to
Sections 706, 823, and other Sections of the Act, then a waiver thereof in
writing, signed by the person or persons entitled to
<PAGE>24
such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XI
Restrictions on Transfers of Shares
No Shareholder shall have the right or power to pledge, sell or
otherwise dispose of or encumber any shares of stock in this corporation without
prior approval of the Board of Directors or without first offering such shares
for sale to the corporation. Such offer shall be made in writing, signed by the
shareholder, and mailed or delivered to the corporation at its principal place
of business, and may be accepted by the corporation at any time within thirty
(30) days from the date of mailing or delivery.
In the event the corporation fails to purchase said stock within the
thirty-day period, then the other stockholders of record, at the time thereof,
shall have the right to purchase said stock on the same terms and conditions as
those available to the corporation, and may elect to so purchase within thirty
(30) days after the expiration of the first thirty-day period. Should less than
all of the remaining shareholders desire to exercise their right of purchase,
those so desiring shall be allowed to purchase all of the selling shareholder's
stock so offered for sale in the proportion that the total shares then owned by
each respective buyer bears to the total number of shares of all such buyers. On
expiration of the second thirty-day period, any such stock not so disposed of
may be sold or
<PAGE>25
disposed of by the selling shareholder upon such terms and conditions as he or
she shall select, except that said shareholder may not sell or dispose of his
stock to third parties upon terms and conditions more favorable than first
offered to the corporation and other shareholders under this Article.
This provision shall also be binding upon any executor, administrator,
or other personal representative of any shareholder in case of the sale or
pledge of any share or shares of such stock by such executor, administrator, or
other legal representative, and reference to this provision shall be embodied in
writing, printed or stamped upon each certificate of stock and this provision
shall be part thereof, whether such stock was acquired by will or otherwise.
The shareholders may, by agreement, establish other conditions,
limitations, or requirements relating to the sale and/or transfer of shares.
ARTICLE XII
AMENDMENTS
The corporation's Articles of Incorporation may be amended, altered,
repealed, or added to according to the provisions of Section 78.390 of the Act.
These Bylaws may be amended, altered, repealed or added to by the affirmative
vote of the holders of a majority of the shares entitled to vote in the election
of any director at an annual meeting or at a special meeting called for that
purpose, provided that a written notice of such meeting shall have been sent to
each shareholder as required by these
<PAGE>26
Bylaws, which notice shall state the amendments, alterations, additions or other
changes which are proposed to be made in such Bylaws. Only such changes shall be
made as have been specified in the notice. The Bylaws may also be altered,
amended, repealed or new Bylaws adopted by majority of the entire Board of
Directors at a regular or special meeting of the board. However, any Bylaws
adopted by the board may be altered, amended or repealed by the shareholders.
DATED this 8th day of June, 1995.
-----
PCT HOLDINGS, INC.
By: ROGER P. VALLO
--------------------------------
Its: Secretary
<PAGE>1
STOCK PURCHASE AGREEMENT
CASHMERE MANUFACTURING CO., INC.
PCT HOLDINGS, INC.
HERMAN L. "JACK" JONES
JOHN M. EDER
FRED R. PAQUETTE
DAN A. PAQUETTE
MAY 19, 1994
<PAGE>2
TABLE OF CONTENTS
Page
----
ARTICLE 1 PURCHASE AND SALE OF SHARES . . . . . . . . . . . . 1
1.1 Share Exchange. . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 CLOSING . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Closing . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Deliveries at Closing . . . . . . . . . . . . . . . 2
ARTICLE 3 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . 2
3.1 Representations and Warranties of the
Company and Sellers . . . . . . . . . . . . . . . . 2
3.2 Representations and Warranties of Buyer . . . . . . 12
ARTICLE 4 COVENANTS . . . . . . . . . . . . . . . . . . . . . 15
4.1 Covenants of Sellers. . . . . . . . . . . . . . . . 15
4.2 Covenants of Buyer. . . . . . . . . . . . . . . . . 18
4.3 Post-Closing Covenant . . . . . . . . . . . . . . . 18
ARTICLE 5 CONDITIONS PRECEDENT TO CLOSING . . . . . . . . . . 19
5.1 Condition to Each Party's Obligations . . . . . . . 19
5.2 Conditions to Buyer's Obligations . . . . . . . . . 19
5.3 Conditions to Sellers' Obligations. . . . . . . . . 21
ARTICLE 6 TERMINATION . . . . . . . . . . . . . . . . . . . . 21
6.1 Right to Terminate. . . . . . . . . . . . . . . . . 21
6.2 Obligations to Cease. . . . . . . . . . . . . . . . 22
ARTICLE 7 INDEMNIFICATION . . . . . . . . . . . . . . . . . . 22
7.1 Definitions . . . . . . . . . . . . . . . . . . . . 22
7.2 Indemnification . . . . . . . . . . . . . . . . . . 22
7.3 Notice. . . . . . . . . . . . . . . . . . . . . . . 23
7.4 Limitation on Indemnification by the Company. . . . 23
ARTICLE 8 GENERAL PROVISIONS. . . . . . . . . . . . . . . . . 23
8.1 Survival of Representations and Warranties. . . . . 23
8.2 Reliance. . . . . . . . . . . . . . . . . . . . . . 23
8.3 Assignment. . . . . . . . . . . . . . . . . . . . . 24
8.4 Notices . . . . . . . . . . . . . . . . . . . . . . 24
<PAGE>3
8.5 Governing Law . . . . . . . . . . . . . . . . . . . 24
8.6 Counterparts. . . . . . . . . . . . . . . . . . . . 24
8.7 Severability. . . . . . . . . . . . . . . . . . . . 25
8.8 Amendment and Modification. . . . . . . . . . . . . 25
8.9 Waiver. . . . . . . . . . . . . . . . . . . . . . . 25
8.10 Binding Effect. . . . . . . . . . . . . . . . . . . 25
8.11 Further Assurances. . . . . . . . . . . . . . . . . 25
8.12 Transaction Expenses. . . . . . . . . . . . . . . . 25
8.13 Entire Agreement. . . . . . . . . . . . . . . . . . 25
8.14 Attorneys' Fees . . . . . . . . . . . . . . . . . . 25
<PAGE>4
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT is made as of May 19, 1994,
by and between CASHMERE MANUFACTURING CO., INC., a Washington
corporation (the "Company"), HERMAN L. "JACK" JONES, JOHN M.
EDER, FRED R. PAQUETTE and DAN A. PAQUETTE (individually,
"Seller" and collectively, "Sellers"), and PCT HOLDINGS, INC., a
Washington Corporation ("Buyer").
RECITALS
A. Sellers own 100% of the outstanding shares of common stock
of the Company.
B. Sellers desire to sell, and Buyer desires to purchase, all
of the shares of common stock of the Company, on the terms and
conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE OF SHARES
1.1 Share Exchange. Subject to the terms and conditions of this Agreement,
each Seller agrees to sell to Buyer, and Buyer agrees to purchase from each
Seller, at the Closing (as defined in Section 2.1), the number of shares of the
issued and outstanding shares of common stock of the Company set forth opposite
such Seller's name below. As consideration therefor, each Seller shall receive
such number of shares of common stock, no par value, of Buyer ("Buyer Common
Stock") set forth opposite such Seller's name.
No. of Shares of Common No. of Shares of Common
Seller Stock of the Company Sold Stock of Buyer Received
- ------ ------------------------- -----------------------
Herman L. "Jack" Jones 930 4,417,500
John M. Eder 50 237,500
Fred R. Paquette 10 47,500
Dan A. Paquette 10 47,500
TOTAL: 1,000 4,750,000
<PAGE>5
(The shares of common stock of the Company sold to Buyer are referred to as the
"Shares." The shares of Buyer Common Stock transferred to Sellers are referred
to as the "Buyer's Shares.")
ARTICLE 2
CLOSING
2.1 Closing. The closing of the transactions contemplated in this
Agreement (the "Closing") shall take place at the offices of Buyer's counsel,
Stoel Rives Boley Jones & Grey, at 3600 One Union Square, 600 University Street,
Seattle, Washington on May 31, 1994 (the "Closing Date"), or at such other place
and time as the parties may mutually agree.
2.2 Deliveries at Closing. At or prior to the Closing, the parties will
deliver or cause to be delivered all documents or instruments required to be
delivered by them pursuant to this Agreement. At the Closing, each Seller will
deliver to Buyer certificates representing the number of the Shares owned by
such Seller, as indicated in section 1.1 above, duly endorsed in blank or with
appropriate stock powers, and Buyer will deliver to each Seller a certificate in
such Seller's name representing the number of the Buyer's Shares to be issued as
indicated in Section 1.1 above.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company and Sellers. Each of the
Company and Sellers, jointly and severally, make the following representations
and warranties to Buyer:
3.1.1 Incorporation; Qualification; Articles and Bylaws. The Company
is a corporation duly organized and validly existing under the laws of the State
of Washington and has all requisite corporate power and authority to own,
operate, and lease its assets and properties and to carry on its business as it
is now being conducted and as proposed to be conducted. The Company is duly
qualified and in good standing as a foreign corporation in any jurisdiction
where the properties owned, leased or operated, or the business conducted, by it
require such qualification. The Company has delivered to Buyer complete and
accurate copies of its Articles of Incorporation and Bylaws.
3.1.2 Capitalization and Title to Outstanding Capital Stock. The
Company has authorized capital stock consisting of 1,000 shares of common stock,
no par value. On the date of this Agreement, 1,000 shares of such common stock
are outstanding. All of the outstanding shares of capital stock of the Company
have been duly authorized and are validly issued, fully paid and
<PAGE>6
nonassessable. No shares of capital stock of the Company have been issued in
violation of or are subject to any preemptive or similar rights granted to any
former or existing shareholder pursuant to law, the Company's Articles of
Incorporation, Bylaws or otherwise. Other than pursuant to this Agreement, (i)
there is no outstanding subscription, option, warrant, call, or other right,
binding upon the Company or any of Sellers (A) relating to the issuance, sale,
delivery, voting, transfer, or ownership of the Company's capital stock or (B)
relating to the payment of amounts measured by changes in the value or price of
any capital stock of the Company, and (ii) the Company has no obligation of any
kind to issue any additional securities. The Company has no outstanding
obligations to repurchase, redeem or otherwise acquire any of its outstanding
shares of capital stock. All of the outstanding shares of capital stock of the
Company are owned beneficially and of record by Sellers, free and clear of all
pledges, security interests, liens, charges, encumbrances, equities, claims,
options or limitations.
3.1.3 Title to Shares; Restricted Shares. At the Closing, Buyer will
acquire good title to the Shares, free and clear of all pledges, security
interests, liens, charges, encumbrances, equities, claims, options or
limitations of any nature. There is no public market for the Shares. The Shares
have not been registered under the federal Securities Act of 1933, as amended,
or any applicable state securities acts ("Acts"), and neither the Company nor
Sellers has any obligation or current intention to register the Shares under the
Acts.
3.1.4 No Subsidiaries. The Company does not have any
subsidiaries, and neither Sellers nor the Company has any
investments in any other corporation, partnership, association,
joint venture or entity.
3.1.5 Authority; Authorization. The Company has full corporate power
and corporate authority, and each Seller has full power and authority, to
execute and deliver this Agreement, to consummate the transactions contemplated
by this Agreement, and to carry out their obligations under this Agreement. This
Agreement has been duly and validly authorized by the Board of Directors of the
Company, has been duly and validly executed and delivered by the Company and
Sellers, and constitutes the valid and binding obligation of each of the Company
and Sellers, enforceable in accordance with its terms.
3.1.6 Financial Matters.
(a) Financial Statements. The Company has delivered
to Buyer true and correct copies of the Company's (a) unaudited
balance sheets and statements of income for the fiscal years
ended December 31, 1992 and 1993 (collectively, the "Historical
Financial Statements"), and (b) a balance sheet as
<PAGE>7
of March 31, 1994 (the "Current Balance Sheet") and the related statement of
income for the two months then ended (collectively, the "Current Financial
Statements"). The Historical Financial Statements and the Current Financial
Statements are collectively referred to as the "Company Financial Statements."
The Company Financial Statements are complete and accurate and, as of their
respective dates, present fairly the financial position, results of operations,
and changes in financial position of the Company as of the dates and for the
periods indicated therein in accordance with GAAP applied on a consistent basis.
(b) Absence of Undisclosed Liabilities. Except for current
liabilities incurred after March 31, 1994, in the ordinary course of business
and of a type and in an amount consistent with past practices, or as described
on Schedule 3.1.6(b), the Company does not have any liability or obligation
(whether absolute, accrued, contingent or otherwise, and whether due or to
become due) that is not accrued, reserved against, or disclosed in the Company
Financial Statements.
(c) Accounts Receivable. The Company has provided to Buyer a
complete and accurate list of all of the receivables of the Company (including
accounts receivable, notes receivable and advances) that are reflected in the
Current Balance Sheet or that have been billed since the date of the Current
Balance Sheet (collectively, the "Receivables"). All of the Receivables reflect
actual bona fide transactions and arose in the ordinary course of business. Each
of the Receivables can be fully collected when due within 120 days after
Closing, without resort to litigation and without offset, deduction or
counterclaim, except to the extent of any normal allowance for doubtful accounts
reflected in the Current Balance Sheet.
(d) Inventories. The inventories of the Company, whether
finished goods, work in process or raw materials, shown on the Current Balance
Sheet or thereafter acquired, are all usable or saleable in the ordinary course
of business. The present quantities of all inventory of the Company, taken as a
whole, are reasonable and warranted in the present circumstances of its
business, in accordance with the past practices of the Company.
3.1.7 Litigation. Except as disclosed on Schedule 3.1.7, there is no
claim, litigation, proceeding or investigation of any kind pending by the
Company or against the Company, or the officers or directors of the Company in
their capacities as such, or against the properties or business of the Company,
and, to the best knowledge of the Company and each Seller, no such claim,
litigation, proceeding or investigation has been threatened and there is no
basis for any such claim, litigation, proceeding or investigation. There are no
actions, proceedings, suits, investigations, or inquiries pending, or to the
best knowledge
<PAGE>8
of the Company and each Seller, threatened, that question the validity of
this Agreement or any actions taken or to be taken pursuant hereto.
3.1.8 Absence of Changes. Except as set forth on
Schedule 3.1.8, since March 31, 1994, the Company has not:
(a) Adverse Changes. Suffered or been threatened
with any adverse change in its business, results of operations,
financial condition, properties, assets or prospects;
(b) Damage. Suffered any damage, destruction,
taking or casualty loss, whether or not covered by insurance, of
or to any of its assets or properties;
(c) Dividends. Declared, set aside or paid any dividend or other
distribution (whether in cash, stock, property or any combination thereof) in
respect of its capital stock, or directly or indirectly repurchased, redeemed or
otherwise acquired any shares of its capital stock, or made any other payment to
or for the account of its shareholders;
(d) Compensation. Increased the rate or terms of compensation
payable or to become payable to any director, officer or key employee; changed
the rate or terms of any bonus, insurance, pension or other employee benefit
plan, payment, severance or arrangement made to, for or with any employee; paid
any special bonus or remuneration; executed or amended any written employment
contract, except an employment agreement with John M. Eder ("Eder") that was
approved in advance by Buyer; or made any change in personnel policies;
(e) Expenditures. Entered into any agreement, commitment or
transaction (including without limitation any borrowing, capital expenditure or
capital financing; any purchase, acquisition, sale or other disposition of
assets; any lease or sublease; any guaranty, assumption of payment or
performance of any loan or obligation of another; or any amendment, modification
or termination of any existing agreement, commitment or transaction), involving
an obligation to pay an amount greater than $10,000, except the commitment to
sell the premises in which the Company's business is operated, and related real
property, to Herman L. "Jack" Jones ("Jones") and to lease such premises back to
the Company;
(f) Accounting Changes. Made any change in
accounting methods, principles or practices;
(g) Sales of Stock. Issued or sold any capital
stock or issued or granted any option, warrant or right to
purchase any capital stock or any security exercisable for the
purchase of or convertible into capital stock;
<PAGE>9
(h) Certificates and Bylaws. Amended its Articles
of Incorporation or Bylaws;
(i) Business Not in the Ordinary Course. Conducted
any business outside the ordinary course of business;
(j) Liabilities. Incurred any liability which,
either individually or in the aggregate, is material to its
business, results of operations, financial condition, properties,
assets or prospects;
(k) Encumbrances. Encumbered or consented to the
encumbrance of any of its property or assets, except in the
ordinary course of business;
(l) Labor. Experienced any labor dispute,
organizational activities or disturbances that could affect in an
adverse manner its business, operations, financial condition,
assets or prospects;
(m) Customers. Received any indication from any
customer that such customer intends to or may terminate or
materially reduce its purchases from historical purchasing
patterns for any reason; or
(n) Further Adverse Changes. Experienced or been threatened with
any change in its assets, liabilities, licenses or permits, or in any agreement
to which it is a party or is bound, which, either individually or in the
aggregate, has had or reasonably could be expected to have a material adverse
effect on its business, operations, financial condition, properties, assets or
prospects.
3.1.9 Taxes. With respect to Taxes (as defined below):
(a) Returns. The Company has timely filed all returns,
declarations, reports, estimates, information returns and statements ("Returns")
required to be filed by it under federal, state, local or any foreign laws, and
all such Returns are true, correct and complete in all material respects. The
Company has delivered to Buyer true and complete copies of all federal, state
and foreign income tax returns filed by the Company for taxable years ending
December 31, 1993, 1992 and 1991.
(b) Payment. The Company has, within the time and in the manner
prescribed by law, paid all Taxes (as defined below) that are due and payable by
the Company. Either the statute of limitations for the assessment of Taxes has
expired for all applicable Returns of the Company or such returns have
<PAGE>10
been examined by the appropriate tax authorities for all periods through
December 31, 1990. No deficiency for any Taxes has been proposed, asserted or
assessed against the Company which has not been resolved and paid in full. No
outstanding waivers or comparable consents have been given by the Company
regarding the application of the statute of limitations with respect to any
Taxes or Returns.
(c) Tax Liens. There are no liens for Taxes upon
the assets of the Company, except liens for Taxes not yet due.
(d) Withholding. The Company has complied in all respects with
all applicable laws, rules and regulations relating to the payment and
withholding of Taxes and has, within the time and in the manner prescribed by
law, withheld from wages and other amounts paid or owing to any employee,
creditor, independent contractor or any third party, and has paid over to the
proper government authorities all amounts required to be withheld and paid over.
(e) Definition. For purposes of this Agreement, "Taxes" shall
mean all taxes, charges, fees, levies or other assessments (together with any
interest, penalties or additional amounts) imposed by any taxing authority
(domestic or foreign) upon or payable by the Company.
3.1.10 Compliance with Laws. The Company is not operating its
business in violation of any applicable laws or regulations. The Company is not
subject to any outstanding judgment, order, writ, injunction or decree and has
not been charged with, or threatened with a charge of, a violation of any
provision of any applicable law or regulation.
3.1.11 Contracts and Commitments; Absence of Defaults; Violation of
Agreements. The Company has provided Buyer with copies of all of the contracts
or agreements to which the Company is a party or by which the Company or any of
its properties is subject or bound (the "Contracts"), including without
limitation: (i) notes, mortgages, deeds of trust, loan agreements, security
agreements, guaranties, debentures, indentures, credit agreements and other
evidences of indebtedness; (ii) contracts or agreements with any director,
officer or shareholder; (iii) leases of real property and leases of equipment or
other personal property under which the Company is the lessor or the lessee;
(iv) letters of intent, commitments, option agreements, earnest money
agreements, or other similar agreements pertaining to the lease, purchase or
sale of any real property; and (v) licenses and sublicenses material to the
Company. Except as set forth on Schedule 3.1.11, (a) the Contracts are valid,
binding and enforceable in accordance with their terms, (b) the Company is not
in default under or in violation of any provision of any Contract; (c) no third
party has asserted any claim, dispute or controversy with
<PAGE>11
the Company or withheld payments from or performance to the Company with respect
to any Contract; (d) the Company has not received notice or warning of alleged
nonperformance or other noncompliance with respect to its obligations under any
Contract or any notice that any Contract may be totally or partially terminated
or suspended by the other party or parties thereto; and (e) the Company has not
entered into any contract or agreement containing covenants limiting its right
to compete in any business or with any person. Neither the execution and
delivery of this Agreement by the Company nor the consummation by it of the
transactions contemplated hereby will conflict with, violate, result in a breach
of, or constitute a default under any of the Contracts or result in the creation
of any lien or encumbrance upon the assets of the Company.
3.1.12 Intellectual Property. The Company owns, or has a valid and
binding license or licenses to use, all patents, trademarks, service marks,
trade names, copyrights, trade secrets, technology, know-how and other
intellectual property (the "Intellectual Property") necessary to or used in the
conduct of its business as now conducted and as proposed to be conducted.
Schedule 3.1.12 contains a complete and accurate list of all patents, patent
applications, trademarks and service marks and related applications, trade names
and copyrights owned by or licensed to the Company, including a description of
any agreements relating to the acquisition by or license to the Company of the
Intellectual Property. Schedule 3.1.12 also describes all licenses or other
agreements under which the Company has sold or granted a right to use any
Intellectual Property. All Intellectual Property owned by the Company is owned
by it free and clear of all liens, claims, encumbrances or adverse claims of any
third party. The conduct of the business of the Company does not conflict with
or infringe upon any Intellectual Property rights of any other person, and no
claims of conflict or infringement are pending or threatened against the
Company.
3.1.13 Insurance. The Company has provided Buyer with complete and
accurate copies of all insurance policies and all endorsements thereto
maintained by the Company. Except as set forth on Schedule 3.1.13, all such
policies are in full force and effect, all premiums have been paid when due, and
no notice of cancellation or termination has been received with respect to any
such policy.
3.1.14 Environmental Matters.
(a) Definitions. "Environmental Law" means any
federal, state or local statute, regulation or ordinance
pertaining to the protection of human health or the environment
and any applicable orders, judgments, decrees, permits, licenses
or other authorizations or mandates under such laws. "Hazardous
<PAGE>12
Substance" means any hazardous, toxic, radioactive or infectious substance,
material or waste as defined, listed or regulated under any Environmental Law,
and includes without limitation petroleum oil and its fractions, any material
containing more than one percent by weight of asbestos, and any other substance
that is prohibited or regulated by any applicable Environmental Law. "Real
Property" means any real property currently or previously owned, leased,
controlled, operated or occupied by the Company.
(b) Hazardous Substances. Except as disclosed on Schedule
3.1.14, no Hazardous Substance has been disposed of, spilled, leaked or
otherwise released in, on, under or from the Real Property. Except as described
on Schedule 3.1.14, no Hazardous Substance (a) is or has been used, treated,
stored, generated, manufactured or otherwise handled on the Real Property, or
(b) has otherwise come to be located in, on or under the Real Property. To the
best knowledge of the Company and each Seller, no Hazardous Substance has been
disposed of, spilled, leaked or otherwise released in, on, under or from
property adjacent to or in the immediate vicinity of the Real Property.
(c) Underground Storage Tanks. Except as set forth
on Schedule 3.1.14, there are no underground storage tanks on the
Real Property, whether in use, out of service, closed or
decommissioned in place.
(d) Waste Disposal. No wastes, including without limitation
garbage and refuse, have been disposed of on the Real Property. All wastes
generated by the business of the Company are and have been properly transported
off site and disposed of in compliance with all applicable Environmental Laws.
(e) Claims. Neither the Company nor Sellers have received
notice, or have knowledge, of any claim that the Company is a potentially
responsible party under any state or local Environmental Law.
(f) Environmental Reports. The Company has disclosed and made
available to Buyer true, complete and correct copies or results of any reports,
studies, analyses, tests or monitoring in the possession of or initiated by the
Company pertaining to the existence of Hazardous Substances and any other
environmental concerns relating to any of the Real Property, the Prior Property
or the business of the Company.
3.1.15 Labor Matters. The Company does not have a collective
bargaining agreement with any labor union. There has not been any strike,
slowdown, picketing or work stoppage by employees of the Company, nor has any
unfair labor practice charge, complaint or proceeding been brought against the
Company. The Company has complied in all material respects with all
<PAGE>13
material laws relating to employment, and no person has asserted, and to the
knowledge of the Company and each Seller there is no basis for any person to
assert, that the Company is liable in any material amount for any arrears of
wages, taxes, penalties or damages for failure to comply with any of the
foregoing.
3.1.16 Employee Benefit Matters. Schedule 3.1.16 includes a complete
list of all "employee benefit plans," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The Company is in
compliance in all material respects with all applicable provisions of ERISA and
the Internal Revenue Code of 1986, as amended, relating to employee benefits. No
"Reportable Event" within the terms of ERISA has occurred with respect to any
pension plan subject to Title IV of ERISA that is administered by it or any
administrator designated by it. Except as disclosed in Schedule 3.1.16, no
liabilities with respect to any employee benefit plan have been incurred or
threatened that would result in material liability to the Company.
3.1.17 Other Employee Matters. Except as set forth on Schedule
3.1.17, the Company is not bound by or liable for any employment contract,
commitment or arrangement, whether written or oral, entered into prior to the
Closing Date with respect to any employee, and all employees of the Company are
employees at will. The Company has provided Buyer with a list of all vacation,
holiday or sick leave policies or arrangement. The Company has also provided
Buyer with information regarding all employees of the Company, whether employed
directly by the Company or on behalf of the Company by any other company, their
salaries, wages, and any other compensation, including compensation in the form
of benefits, allowances, perquisites or otherwise, dates of employment,
positions and birthdates.
3.1.18 Title to and Condition of Real and Tangible
Personal Property.
(a) The Company has provided Buyer with a complete and accurate
list of all tangible personal property owned or leased by the Company (the
"Tangible Personal Property"). The Company has good and marketable title to all
of the Tangible Personal Property owned by it, free and clear of all liens,
mortgages, pledges, leases, restrictions and other claims and encumbrances of
any nature. The Tangible Personal Property is in good operating condition and
repair (ordinary wear and tear excepted), is performing satisfactorily, and is
adequate for the conduct of the business of the Company.
(b) Schedule 3.1.18(b) contains a list of all real property
owned or leased by the Company (the "Current Real Property"), including the
dates of and parties to all leases and any amendments thereof. The Company has
ordered a title report
<PAGE>14
for Buyer's benefit on the Current Real Property. The Company has good and
marketable fee simple title to any Current Real Property owned by it, free and
clear of all liens, mortgages, pledges, covenants, easements, restrictions,
leases, charges, and other claims and encumbrances of any nature, except for (i)
a certain Real Property Sale Agreement to be entered into between the Company
and Jones, a copy of which will be attached to Schedule 3.1.18(b) at or prior to
Closing, and (ii) covenants, easements and restrictions of record as shown in
the title report, and except as otherwise set forth on Schedule 3.1.18(b). All
Current Real Property (including improvements thereon) is in satisfactory
condition and repair. Neither the operations of the Company on any Current Real
Property, nor any improvements on the Current Real Property, violate any
applicable building or zoning code or regulation of any governmental authority
having jurisdiction.
3.1.19 Permits and Licenses. Schedule 3.1.19 contains a complete and
accurate list of all governmental licenses, permits, easements and
authorizations (collectively, "Permits") held by the Company. The Company holds,
and at all times has held, all Permits necessary for the lawful conduct of its
business pursuant to all applicable statutes, laws, ordinances, rules and
regulations of all governmental bodies, agencies and other authorities having
jurisdiction over it or any part of its operations. The Company is in compliance
with each of the terms of each of its Permits, and there are no claims of
violation by the Company of any Permit. Complete and accurate copies of all
Permits held by the Company have been delivered to Buyer.
3.1.20 Certain Interests. Except as set forth on Schedule 3.1.20,
neither Sellers nor any officer or director of the Company (or any entity owned
or controlled by one or more of such parties) (a) has any material interest in
any property, real or personal, tangible or intangible, used in or pertaining to
the business of the Company, (b) is indebted to the Company, or (c) has any
financial interest, direct or indirect, in any supplier or customer of, or other
outside business which has any transactions with, the Company. Except as set
forth on Schedule 3.1.20, the Company is not indebted to any of Sellers, or to
any director or officer of the Company (or any entity owned or controlled by one
or more of such parties), except for amounts due under normal salary
arrangements and for reimbursement of ordinary business expenses.
3.1.21 Consents and Approvals. Except as set forth on Schedule
3.1.21, no consent, approval, or authorization of, or filing or registration
with, any court, regulatory authority, governmental body, or any other entity or
person not a party to this Agreement is required for the consummation of the
transactions described in this Agreement by the Company or Sellers.
<PAGE>15
3.1.22 Records. The books of account, minute books, and stock records
of the Company are complete and accurate in all material respects. Complete and
accurate copies of such books and records have been provided to Buyer.
3.1.23 Bank Accounts. Schedule 3.1.23 contains a complete and
accurate list of all the banks or other financial institutions at which the
Company maintains accounts or safe deposit boxes, together with the numbers of
such accounts and boxes and the names of the persons authorized to draw thereon
or permitted access thereto. All cash in such accounts is held in demand
deposits and is not subject to any restriction or limitation as to withdrawal.
3.1.24 Product Warranties, Recalls and Liabili- ties. Schedule 3.1.24
contains any standard forms of product warranties provided by the Company. The
Company has not undertaken any performance obligations or made any warranties or
guarantees with respect to its products other than those disclosed in Schedule
3.1.24, and the aggregate cost to the Company to comply with its product
warranties has not and will not exceed $5,000 per year.
3.1.25 Brokers and Finders. Neither the Company nor Sellers or any
officer, director or employee of the Company has employed any broker, finder or
investment banker, or incurred any liability for any brokerage or investment
banking fees, commissions or finder's fees, in connection with the transactions
contemplated by this Agreement.
3.1.26 No Adverse Consequences. Neither the execution and delivery of
this Agreement by the Company nor the consummation of the transactions
contemplated in this Agreement will (i) result in the creation or imposition of
any lien, charge or encumbrance on any of the assets or properties of the
Company, (ii) violate any provision of the Articles of Incorporation or Bylaws
of the Company, (iii) violate any law, judgment, order, injunction, decree,
rule, regulation or ruling of any governmental authority applicable to the
Company, or (iv) either alone or with the giving of notice or the passage of
time or both, conflict with, constitute grounds for termination of, result in
the breach of the terms, conditions or provisions of, or constitute a default
under any agreement, instrument, license or permit to which the Company is a
party or by which it is bound.
3.2 Representations and Warranties of Buyer. Buyer makes the
following representations and warranties to Sellers and the
Company:
<PAGE>16
3.2.1 Existence. Buyer is a corporation duly organized and existing
under the laws of the State of Washington and has all requisite corporate power
and authority to own, operate and lease its assets and to carry on its business
as now conducted and as proposed to be conducted.
3.2.2 Authority and Validity. Buyer has full corporate power and
corporate authority to execute and deliver this Agreement, to consummate the
transactions contemplated by this Agreement, and to carry out its obligations
under this Agreement. This Agreement has been duly and validly authorized by the
Board of Directors of Buyer, has been duly and validly executed and delivered by
Buyer, and constitutes the valid and binding obligation of Buyer, enforceable in
accordance with its terms.
3.2.3 Capitalization and Capital Stock. Buyer has authorized capital
stock consisting of twenty-five million shares of common stock, no par value and
five million shares of preferred stock, no par value ("Buyer Preferred Stock").
On the date of this Agreement, prior to giving effect to the issuance of the
Buyer's Shares, no shares of Buyer Common Stock and no shares of Buyer Preferred
Stock are outstanding. Other than pursuant to this Agreement or the share
exchange between the shareholders of Pacific Coast Technologies, Inc. ("PCT")
and Buyer (the "Share Exchange") as set forth on Schedule 3.2.3, (i) there is no
subscription, option, warrant, call or other right binding upon Buyer or any
shareholders of Buyer (A) relating to the issuance, sale, delivery, voting,
transfer, or ownership of Buyer's capital stock or (B) relating to the payment
of amounts measured by changes in the value or price of any capital stock of
Buyer, and (ii) Buyer has no obligation of any kind to issue any additional
securities. Buyer has no outstanding obligations to repurchase, redeem or
otherwise acquire any of its outstanding shares of capital stock. Schedule 3.2.3
sets forth a complete and accurate list of all shareholders of PCT as of the
date hereof who, to the best of Buyer's knowledge, will on May 31, 1994, (i)
surrender their shares of common stock, no par value, of PCT in exchange for the
same number of shares of Buyer Common Stock; (ii) if applicable, surrender their
warrants to purchase shares of common stock of PCT in exchange for the warrants
to purchase the same number of shares of Buyer Common Stock under the same terms
and conditions ("Buyer Warrants"); and (iii) if applicable, surrender their
options to purchase shares of common stock of PCT and be granted options to
purchase the same number of shares of Buyer common stock ("Buyer Options").
Schedule 3.2.3 indicates the number of shares of Buyer Common Stock and Buyer
Warrants which may be issued to such shareholders on May 31, 1994 and the number
of Buyer Options that are to be granted on or immediately after that date.
<PAGE>17
3.2.4 Title to Shares; Restricted Shares. All of Buyer's Shares to be
issued pursuant to this Agreement, when issued, will be duly authorized and
validly issued, fully paid and nonassessable. At the Closing, Buyer will acquire
good title to the Buyer's Shares, free and clear of all pledges, security
interests, liens, charges, encumbrances, equities, claims, options or
limitations of any nature. There is no public market for the Buyer Shares. The
Buyer Shares have not been registered under the Acts, and Buyer has no
obligation or current intention to register the Buyer Shares.
3.2.5 No Subsidiaries. Buyer does not have any subsidiaries, and
Buyer does not have any investments in any corporation, partnership,
association, joint venture or entity, except that upon completion of the Share
Exchange and the transactions contemplated hereby, PCT and the Company will
become the subsidiaries of Buyer.
3.2.6 Financial Matters.
(a) Financial Statements. Buyer has delivered to Jones true and
correct copies of Buyer's (a) audited balance sheet and statement of income for
the fiscal year ended May 31, 1993 (collectively, the "Buyer Historical
Financial Statements"), and (b) a balance sheet as of April 30, 1994 (the "Buyer
Current Balance Sheet") and the related statement of income for the three
quarters then ended (collectively, the "Buyer Current Financial Statements").
The Buyer Historical Financial Statements and the Buyer Current Financial
Statements are collectively referred to as the "Buyer Financial Statements." The
Buyer Financial Statements are complete and accurate and, as of their respective
dates, present fairly the financial position, results of operations, and changes
in financial position of Buyer as of the dates and for the periods indicated
therein in accordance with GAAP applied on a consistent basis.
(b) Absence of Undisclosed Liabilities. Except for current
liabilities incurred after April 30, 1994, in the ordinary course of business
and of a type and in an amount consistent with past practices, or as described
on Schedule 3.2.6, Buyer does not have any liability or obligation (whether
absolute, accrued, contingent or otherwise, and whether due or to become due)
that is not accrued, reserved against, or disclosed in the Buyer Financial
Statements.
3.2.7 Litigation. Except as set forth on Schedule 3.2.7, there is no
claim, litigation, proceeding or investigation of any kind pending by Buyer or
against Buyer, or the officers or directors of Buyer in their capacities as
such, or against the properties or business of Buyer, and, to the best knowledge
of Buyer, no such claim, litigation, proceeding or investigation has been
threatened and there is no basis for any such claim,
<PAGE>18
litigation, proceeding or investigation. There are no actions, proceedings,
suits, investigations, or inquiries pending, or to the best knowledge of Buyer,
threatened, that question the validity of this Agreement or any actions taken or
to be taken pursuant hereto.
3.2.8 Compliance with Laws. Buyer is not operating its business in
violation of any applicable laws or regulations. Buyer is not subject to any
outstanding judgment, order, writ, injunction or decree and has not been charged
with, or threatened with a charge of, a violation of any provision of any
applicable law or regulation.
3.2.9 Consents and Approvals. Except as set forth on Schedule 3.2.9,
no consent, approval, or authorization of, or filing or registration with, any
court, regulatory authority, governmental body, or any other entity or person
not a party to this Agreement is required for the consummation of the
transactions described in this Agreement by Buyer.
3.2.10 Brokers and Finders. Neither Buyer nor any shareholder,
officer, director or employee of Buyer has employed any broker, finder or
investment banker, or incurred any liability for any brokerage or investment
banking fees, commissions or finder's fees, in connection with the transactions
contemplated by this Agreement.
ARTICLE 4
COVENANTS
4.1 Covenants of Sellers. Each of Sellers and the Company jointly and
severally agree that between the date of this Agreement and the Closing Date,
unless Buyer consents in writing:
4.1.1 Business Operations. The business of the Company will be
operated in the ordinary course consistent with past practice, and no new method
of operation will be introduced. Sellers and the Company will use their best
efforts to preserve the ongoing business and assets of the Company and will not
take any action that might impair the business, results of operations, financial
condition or prospects of the Company or take or fail to take any action that
would cause or permit the representations made by them in this Agreement to be
materially inaccurate on the Closing Date or preclude them from making such
representations and warranties at the Closing.
4.1.2 Access. Sellers and the Company will permit Buyer
and its authorized representatives full access to, and make
available for inspection, all of the assets and business of the
<PAGE>19
Company, including its employees, customers, suppliers and creditors. Sellers
and the Company will furnish to Buyer all documents, records and information
with respect to the affairs of the Company as Buyer and its representatives may
reasonably request.
4.1.3 Dividends; Changes in Capital Stock. The Company will not (i)
declare, set aside or pay any dividends on, or make any distributions in respect
of, any of its common stock, (ii) split, combine or reclassify any of its
capital stock or issue, authorize, or propose the issuance of any other
securities in respect of, in lieu of, or in substitution for shares of its
capital stock, or (iii) repurchase, redeem or otherwise acquire any shares of
its capital stock or any other outstanding securities.
4.1.4 No Issuance of Securities. The Company will not issue, deliver
or sell, or agree to or authorize or propose the issuance, delivery or sale of
(i) any shares of its capital stock or any other securities, or (ii) any rights,
warrants or options to acquire any such securities.
4.1.5 Articles and Bylaws. The Company will not amend or
propose to amend its Articles of Incorporation or Bylaws.
4.1.6 No Acquisitions. The Company will not acquire or agree to
acquire by merger or consolidation with, or by purchase of a substantial portion
of the assets of, or by any other manner, any business of any corporation,
partnership, association or other business organization or division thereof.
4.1.7 No Dispositions. The Company will not sell, lease, encumber,
pledge, grant a security interest in, or otherwise dispose of, or agree to sell,
lease or otherwise dispose of, any of its assets or any interest in any of its
assets, except in the ordinary course of business consistent with prior
practice.
4.1.8 Employee Compensation. The Company will not grant any increase
in the compensation or rate of compensation payable or to become payable to any
officer, employee or director without the prior consent of Buyer. No bonus,
profit sharing, retirement, insurance, death, fringe benefit, severance or other
extraordinary or indirect compensation shall accrue, be set aside, or be paid
to, for or on behalf on any such person, other than as required by plans or
agreements in effect on the date of this Agreement. The Company will not amend
or make any commitment to enter into or amend any employment, consulting,
employee benefit or other similar agreement.
<PAGE>20
4.1.9 Contracts. The Company will not waive any material right or
cancel any material contract, debt or claim or assume or enter into any
contract, lease, license, obligation, indebtedness, commitment, purchase or
sale, except in the ordinary course of business.
4.1.10 Confidentiality. Neither Sellers nor the Company will disclose
to any person other than their officers, directors, agents and representatives
(or cause or permit any of their respective affiliates, employees, officers,
directors, agents or other representatives to disclose) any of the terms or
conditions of this Agreement, except as may be approved by Buyer or required by
law, valid legal process or administrative order. If such disclosure is
required, Sellers will provide Buyer a copy of the proposed disclosure at least
two business days prior to making the disclosure.
4.1.11 No Solicitation. Neither Sellers nor the Company will,
directly or indirectly, solicit or encourage any person, entity or group (other
than Buyer) or enter into any negotiations, discussions or communications with
such persons, concerning any merger, sale of substantial assets not in the
ordinary course of business, or sale of any capital stock of the Company.
Sellers and the Company will each promptly communicate to Buyer the terms of any
proposal which they may receive in respect of any such transactions.
4.1.12 Material Changes. Until the Closing, Sellers and the Company
will promptly inform Buyer in writing of (i) any material adverse change (or any
condition, event or development that could cause a material adverse change) in
the business, properties, assets, liabilities, capitalization, shareholder's
equity, condition (financial or other), operations, or prospects of either of
the Company, (ii) any governmental complaints, investigations or hearings (or
threat thereof), and (iii) the institution or threat of litigation involving the
Company or any of its capital stock.
4.1.13 Failure to Fulfill Conditions. If either any of Sellers or the
Company determines that it will be unable to fulfill, at or before the Closing,
any of its obligations under this Agreement or any of its conditions to Closing,
it will promptly notify Buyer.
4.1.14 Consultation with Buyer. Until the Closing of this
transaction, Sellers and the Company will consult with Buyer with respect to (i)
cancellation, modification or continuation of contracts, agreements, commitments
or other understandings or arrangements; (ii) retention or termination of
employment of
<PAGE>21
employees; and (iii) cancellation, modification or continuation of purchasing,
pricing or selling policies.
4.2 Covenants of Buyer. Buyer agrees that between the date of this
Agreement and the Closing Date, unless Sellers consent in writing:
4.2.1 Confidentiality. Buyer will not disclose to any person other
than its officers, directors, agents and representatives (or cause or permit any
of its affiliates, employees, officers, directors, agents or other
representatives to disclose) any of the terms or conditions of this Agreement,
except as may be approved by Sellers or the Company or required by law, valid
legal process or administrative order. If such disclosure is required, Buyer
will provide Jones a copy of the proposed disclosure at least two business days
prior to making the disclosure.
4.2.2 Failure to Fulfill Conditions. If Buyer determines that it will
be unable to fulfill, on or before Closing, any of its obligations under this
Agreement or any of its conditions to Closing, it will promptly notify Sellers.
4.2.3 Issuance of Capital Stock. Buyer will not issue
any shares of Buyer Common or Preferred Stock, except pursuant to
the Share Exchange.
4.3 Post-Closing Covenant.
4.3.1 Election of Directors. Buyer and each Seller agree that after
Closing, unless the other otherwise agrees in writing, Buyer shall use its best
efforts to cause the shareholders of Buyer to vote their shares so that (i)
Jones would be a director for so long as he remains a shareholder of Buyer and
Buyer remains a private company; and (ii) Eder would be a director for so long
as he is employed by the Company or Buyer and a shareholder of Buyer, and for so
long as Buyer remains a private Company. In the event that Buyer becomes a
public company, the management of Buyer shall use its reasonable efforts to
cause Jones and Eder to be elected to the Board of Directors.
4.3.2 Shareholders Agreement. Each Seller agrees that upon Closing
and the consummation of the Share Exchange, he will become a party to a certain
Shareholders Agreement by and between PCT and the shareholders of PCT, dated
July 2, 1990, as amended and as assigned to Buyer (the "Shareholders Agreement")
and that he will comply with all obligations as a shareholder thereunder. A copy
of the Shareholders Agreement has been provided to each Seller. Subject to the
Closing and the consummation of the Share
<PAGE>22
Exchange, execution of this Agreement by each Seller shall be deemed to be his
execution of the Shareholders Agreement.
ARTICLE 5
CONDITIONS PRECEDENT TO CLOSING
5.1 Condition to Each Party's Obligations. The obligations of each party
hereunder are subject to the fulfillment, at or prior to Closing, of the
condition that there shall be no pending or threatened claim, action, suit,
investigation or proceeding against Buyer, any Seller, or the Company for the
purpose of enjoining or preventing the consummation of the transactions
contemplated in this Agreement or otherwise claiming that this Agreement or the
consummation of the transactions contemplated herein are illegal.
5.2 Conditions to Buyer's Obligations. The obligations of
Buyer hereunder are subject to the fulfillment, at or prior to
Closing, of the following conditions (unless waived in writing by
Buyer):
5.2.1 Representations and Warranties. The representations and
warranties of each Seller and the Company contained herein shall be true and
correct in all material respects as of the Closing as if made on and as of the
Closing Date, and each of Sellers and the Company shall have delivered to Buyer
a certificate, dated as of the Closing Date, with respect to their respective
representations and warranties. The Company's certificate shall be executed by a
person acceptable to Buyer.
5.2.2 Covenants. Each of Sellers and the Company shall have performed
and complied with all covenants or conditions required by this Agreement to be
performed and complied with by them prior to Closing, and each of Sellers and
the Company shall have delivered to Buyer a certificate, dated as of the Closing
Date, with respect to their respective covenants and conditions. The Company's
certificate shall be executed by a person acceptable to Buyer.
5.2.3 No Material Adverse Change. There shall not have been any
material adverse change (or any condition, event or development that could cause
a material adverse change) in the business, properties, assets, liabilities,
capitalization, shareholder's equity, condition (financial or other),
operations, or prospects of the Company between the date of this Agreement and
the Closing.
5.2.4 Consents. The Company and Sellers shall have
obtained all consents and approvals necessary to the execution,
<PAGE>23
delivery and performance of this Agreement by them. Such consents and approvals
shall include, but are not limited to, a consent from Cashmere Valley Bank,
consenting to the transactions contemplated in this Agreement and the transfer
and conveyance of the Current Real Property to Buyer.
5.2.5 Corporate Proceedings. All corporate proceedings necessary to
be taken by the Company in connection with the transactions contemplated in this
Agreement and all documents reflecting or evidencing such proceedings shall be
reasonably satisfactory to Buyer and its legal counsel, and Buyer and its legal
counsel shall have received all such counterpart original, certified or other
copies of such documents as they may reasonably request.
5.2.6 Employment Agreement. Jones and Eder shall each have executed
and delivered to Buyer an employment and noncompetition agreement with Buyer and
the Company, respectively, in substantially the forms attached as Exhibit A and
Exhibit B to this Agreement.
5.2.7 Due Diligence. Buyer shall have completed its due
diligence investigations with respect to the business and affairs
of the Company and shall be satisfied with the results.
5.2.8 Share Certificates. Each Seller shall have delivered to Buyer
certificates representing the number of Shares indicated in section 1.1, duly
endorsed in blank or with appropriate stock powers.
5.2.9 Sale of Current Real Property. Jones shall have executed and
delivered to the Company a Real Property Sale Agreement in connection with the
sale by the Company to Jones of the Current Real Property (the "Real Property
Sale Agreement"). The Real Property Sale Agreement, which shall be in a form and
on terms satisfactory to Buyer and its counsel and will be attached hereto as
Schedule 3.1.18(b).
5.2.10 Current Real Property Lease. Jones shall have executed and
delivered to the Company a lease (the "Lease") in a form satisfactory to Buyer
and its counsel, which shall provide that (i) the Company will lease from Jones
and Jones will lease to the Company, a portion of the Current Real Property
equal to approximately 42,000 square feet for a period of three years,
commencing as of the date of Closing, at a monthly rent of Nine Thousand Dollars
($9,000); and (ii) the Company shall have the right to offset any rent due
against the payment of the purchase price due under the Real Property Sale
Agreement, in the event that Jones is in default of the Real Property Sale
Agreement.
<PAGE>24
5.3 Conditions to Sellers' Obligations. The obligations of
Sellers and the Company hereunder are subject to the fulfillment,
at or prior to Closing, of the following conditions (unless
waived in writing by Sellers and the Company):
5.3.1 Representations and Warranties. The representations and
warranties of Buyer contained herein shall be true and correct in all material
respects as of the Closing as if made on and as of the Closing Date, and Buyer
shall have delivered to Sellers and the Company a certificate of its President,
dated as of the Closing Date, with respect to its representations and
warranties.
5.3.2 Covenants. Buyer shall have performed and complied with all
covenants or conditions required by this Agreement to be performed and complied
with by it prior to Closing, and Buyer shall have delivered to Sellers and the
Company a certificate of its President, dated as of the Closing Date, with
respect to its covenants and conditions.
5.3.3 Employment Agreement. Buyer shall have executed
and delivered to Jones an employment and noncompetition agreement
in substantially the form attached as Exhibit A.
5.3.4 Due Diligence. Sellers shall have completed their
due diligence investigations with respect to the business and
affairs of Buyer and shall be satisfied with the results.
5.3.5 Delivery of Stock Certificate. Buyer shall have delivered to
each Seller a stock certificate issued in the name of such Seller representing
the number of Buyer's Shares indicated in Section 1.1.
ARTICLE 6
TERMINATION
6.1 Right to Terminate. Notwithstanding anything to the contrary in this
Agreement, this Agreement may be terminated and the transactions contemplated
herein abandoned at any time prior to the Closing:
6.1.1 Mutual Agreement. By mutual agreement of Buyer and
the Company;
6.1.2 Delay. By either party if the Closing has not occurred by June
15, 1994, provided that the party seeking to terminate the Agreement did not
cause the delay.
<PAGE>25
6.1.3 Breach by Buyer. By Sellers if Buyer breaches any of Buyer's
representations and warranties in any material respect or fails to timely comply
in any material respect with any of Buyer's covenants or agreements contained
herein; or
6.1.4 Breach by Sellers or the Company. By Buyer if either any of
Sellers or the Company breaches any of its representations and warranties in any
material respect or fails to timely comply in any material respect with any of
its covenants or agreements contained herein.
6.2 Obligations to Cease. If this Agreement is terminated pursuant to
Section 6.1, all obligations of the parties to this Agreement shall terminate
and there shall be no liability of any party hereto to any other party except
(i) as set forth in Section 8.12 and (ii) that nothing herein will relieve any
party from liability for any willful breach of this Agreement.
ARTICLE 7
INDEMNIFICATION
7.1 Definitions. For the purpose of this Article 7, the "Indemnitor" shall
be either Sellers and the Company, jointly and severally, or Buyer, whichever is
obligated to the other under this Article 7, and the "Indemnitee" shall be the
party with the right to indemnification.
7.2 Indemnification. Subject to Section 8.1, the Indemnitor agrees to
defend, indemnify and hold harmless the Indemnitee and any of its subsidiaries,
affiliates, employees, officers, directors, agents, successors and assigns from
and against any loss, claim, cause of action, damage, liability, expense or cost
of any kind or amount, including without limitation any loss of earnings or
diminution in the fair market value of the Shares or Buyer's Shares, as the case
may be, or any taxes, reasonable attorneys', actuaries', and accountants' fees
and expenses, and liabilities arising under ERISA or the Code (collectively, the
"Claims"), which may be incurred by the Indemnitee, which results from: (i) any
breach of or inaccuracy in any representation, warranty or agreement made by or
on behalf of the Indemnitor; or (ii) any misrepresentations in or any omission
from any certificate or other document furnished or to be furnished by or on
behalf of the Indemnitor. The Indemnitor shall not be liable hereunder with
respect to amounts as to which a claim shall have not been made within the
appropriate period provided in Section 7.3 of this Agreement. However, except
for Receivables governed by Sections 3.1.6(c), no claim may be made with respect
to any breach, inaccuracy, misrepresentation or omission if the loss, claim,
cause of action, damage or liability
<PAGE>26
to the party claiming such loss (before the addition of any reasonable
attorneys' actuaries' or accountants' fees or other expenses incurred in
connection therewith) is less than $10,000, unless the aggregate amount of all
such claims exceeds $10,000.
7.3 Notice. The Indemnitee shall notify the Indemnitor in writing of any
claim for indemnification under this Agreement, specifying each breach,
misrepresentation, omission, exercise, pension claim, or failure forming the
basis for such claim, and the amount being claimed as a result thereof, which
notice shall be given within 90 days of the discovery of such breach,
misrepresentation, omission, exercise, pension claim, or failure and prior to
the expiration of the applicable survival period stated in Section 8.1. With
respect to any third-party claim, the parties hereto shall make mutually
available to each other all relevant information in their possession material to
any such claim. The Indemnitor shall have the right to defend at its expense any
such third-party claim against the Indemnitee, in which defense the Indemnitee
shall cooperate with the Indemnitor, and the Indemnitor shall have the right to
dispose of any such claim as it sees fit, as long as such disposition is without
prejudice to the Indemnitee or to any subsidiary or affiliate of the Indemnitee.
7.4 Limitation on Indemnification by the Company. The obligations of the
Company pursuant to this Article 7 to indemnify Buyer or any of Buyer's
subsidiaries, affiliates, employees, officers, directors, agents, successors and
assigns from and against any loss, claim, cause of action, damage, liability,
expense or cost shall terminate immediately upon the Closing, and such
termination shall have no effect upon the joint and several obligations of
Sellers pursuant to this Article 7.
ARTICLE 8
GENERAL PROVISIONS
8.1 Survival of Representations and Warranties. Except as stated below,
the representations and warranties contained in this Agreement shall survive for
a period of two years after the Closing Date. The representations and warranties
contained in Sections 3.1.10 (Taxes) and 3.1.15 (Environmental Matters) shall
survive for a period equal to the statute of limitations for such matters. From
and after the Closing, the representations and warranties contained in Section
3.1 shall be deemed to be representations of Sellers only.
8.2 Reliance. Sellers and the Company recognize and agree
that, notwithstanding any investigation by Buyer, Buyer and any
of its affiliates (including without limitation Buyer's parent
<PAGE>27
corporation) shall be entitled to rely upon their representations and warranties
set forth this Agreement.
8.3 Assignment. Neither this Agreement nor any right or obligation created
hereby may be assigned by any party without the prior written consent of the
other parties or their successors.
8.4 Notices. All notices or other communications required or permitted to
be given hereunder shall be in writing, shall be addressed as provided below and
shall be considered as properly given (i) if delivered in person, (ii) if sent
by overnight delivery service, (iii) if mailed by first-class United States
mail, postage prepaid, registered or certified with return receipt requested, or
(iv) if sent by prepaid telegram or by telex or facsimile copy and confirmed.
Notice so given shall be effective upon receipt by the addressee; provided,
however, that if any notice is tendered to an addressee and the delivery thereof
is refused by such addressee, such notice shall be effective upon tender. For
the purposes of notice, the addresses of the parties shall be as noted below;
provided that any party shall have the right to change its address for notice
hereunder by giving written notice to the other parties. The initial addresses
and facsimile numbers of the parties are as follows:
BUYER: Pacific Coast Technologies, Inc.
410 Olds Station Road
Wenatchee, WA 98801
Attn: Donald A. Wright, President
Fax No. (509) 664-6868
Copies to: Sheryl A. Symonds, Esq.
Stoel Rives Boley Jones & Grey
36th Floor One Union Square
600 University Street
Seattle, WA 98101-3197
Fax No. (206) 386-7500
Company and
Sellers: 102 Maple Street
Cashmere, WA 98815
Attn: Jack Jones
Fax No. (509) 782-2580
8.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington.
8.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and all of which together shall constitute a
single agreement.
<PAGE>28
8.7 Severability. If any provision of this Agreement shall be held to be
invalid, illegal or unenforceable, the same shall not affect any other provision
of this Agreement, but this Agreement shall be construed in a manner which, as
nearly as possible, reflects the original intent of the parties.
8.8 Amendment and Modification. This Agreement may be amended
or modified only by written agreement executed by all parties
hereto.
8.9 Waiver. Any waiver of any of the provisions or conditions of this
Agreement or any of the rights of a party hereto shall be valid only if set
forth in an instrument in writing signed by the party granting such waiver. Any
waiver or failure to insist upon strict compliance with any obligation,
covenant, agreement or condition shall not operate as a waiver of any other
provision.
8.10 Binding Effect. This Agreement shall inure to the benefit
of and be binding upon the parties, their legal representative,
successors, and permitted assigns.
8.11 Further Assurances. Subject to the terms and conditions of this
Agreement, each of the parties hereto will use its best 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 in this Agreement.
8.12 Transaction Expenses. Whether or not the transactions contemplated in
this Agreement are consummated, Buyer and each Seller shall each pay its own
costs and expenses (including without limitation attorneys' and accountants'
fees and expenses) and Sellers shall pay the costs and expenses of the Company
(including without limitation attorneys' and accountants' fees and expenses).
8.13 Entire Agreement. This Agreement, including the Schedules and the
Exhibits hereto, sets forth the entire understanding and agreement of the
parties relating to the purchase and sale of the Shares and supersedes any and
all other understandings, negotiations or agreements between the parties hereto
relating to the purchase and sale of the Shares.
8.14 Attorneys' Fees. In the event of a dispute between the
parties resulting in litigation with respect to the subject
matters hereof, the substantially prevailing party as determined
<PAGE>29
by a court shall be entitled to a judgment for its costs through appeal,
including reasonable attorneys' fees.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date set forth above.
BUYER:
PCT HOLDINGS, INC.
By /s/ DONALD A. WRIGHT
-----------------------------------
Its President
COMPANY:
CASHMERE MANUFACTURING CO., INC.
By /s/ JACK JONES
-----------------------------------
Its President
SELLERS:
/s/ JACK JONES
--------------------------------------
Herman L. "Jack" Jones
/s/ JOHN M. EDER
--------------------------------------
John M. Eder
/s/ FRED R. PAQUETTE
--------------------------------------
Fred R. Paquette
/s/ DAN A. PAQUETTE
--------------------------------------
Dan A. Paquette
<PAGE>30
EXHIBITS
--------
THE EXHIBITS AND SCHEDULES ACCOMPANYING THIS AGREEMENT
ARE IMMATERIAL AND THE FILING THEREOF HAS BEEN OMITTED
FROM THIS FORM 10-KSB
<PAGE>1
EXCHANGE AGREEMENT
This Exchange Agreement is made as of May 31, 1994, by and between
PCT HOLDINGS, INC., a Washington corporation (the "Company"), and each of the
persons or entities whose signatures appear below (collectively, the
"Shareholders" and individually the "Shareholder").
RECITALS
--------
WHEREAS, the Shareholders wish to exchange shares of common stock, no
par value (the "PCT Common Stock"), of Pacific Coast Technologies, Inc. ("PCT")
and/or warrants to purchase PCT Common Stock (the "PCT Warrants") for shares of
common stock, no par value, of the Company (the "Company Common Stock") and/or
warrants to purchase Company Common Stock (the transaction is referred to as the
"PCT Share Exchange"); and
WHEREAS, the Company believes that the PCT Share Exchange
is in the best interests of the Company;
NOW, THEREFORE, in consideration of the covenants contained in this
Agreement, the parties agree as follows:
1. Share Exchange.
(a) Each of the Shareholders hereby (i) transfers and assigns to
the Company his or her rights and title to the number of shares of PCT Common
Stock indicated opposite his or her name on Schedule A hereto; and (ii) agrees
to execute and deliver to the Company any and all documents deemed by the
Company to be necessary to effectuate such transfer and assignment. The Company
hereby agrees to deliver to each of the Shareholders a stock certificate in the
name of such Shareholder evidencing his or her ownership of the number of shares
of Company Common Stock indicated opposite his or her name on Schedule A as soon
as practical after the Company receives from such Shareholder any and all
documents deemed by the Company to be necessary to effectuate such transfer and
assignment.
(b) In the event that a Shareholder also holds PCT Warrants as
indicated on Schedule A, such Shareholder hereby transfers and assigns to the
Company all of his or her rights and title to such PCT Warrants. The Company
hereby agrees to grant to each such Shareholder warrants to purchase an equal
number of shares of PCT Common Stock (the "Company Warrants"), as indicated in
Schedule A. The Company Warrants shall have the same conditions and terms as
those of the PCT Warrants.
<PAGE>2
2. Representations and Warranties of Shareholders. Each
Shareholder represents and warrants that:
(a) Agreement. Shareholder has the legal capacity to enter into
this Agreement. This Agreement has been duly executed and delivered by
Shareholder and constitutes his or her legal and binding obligation enforceable
in accordance with its terms. No authorization, consent or approval of any third
party is necessary for the execution of this Agreement by Shareholder, the
consummation of the transactions contemplated hereby, or the performance of his
or her obligations hereunder.
(b) Title to the Shares of PCT Common Stock. With respect to the
shares of PCT Common Stock and/or PCT Warrants owned by such Shareholder, as
indicated on Schedule A, at the time of transfer and assignment by such
Shareholder to the Company of such shares of PCT Common Stock and/or PCT
Warrants, Shareholder has good title to such shares of PCT Common Stock and/or
PCT Warrants, free and clear of all pledges, security interests, liens, charges,
encumbrances, equities, claims, options or limitations of any nature.
(c) No Registration. Shareholder acknowledges that neither the
Company Common Stock nor the Company Warrants to be issued pursuant to this
Agreement have been registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws. Shareholder recognizes that he or she must
bear the economic risk of his or her investment for an indefinite period of time
because the securities cannot be sold, transferred or assigned except in
compliance with the registration provisions of the Act and applicable state
securities laws, or with an opinion of counsel satisfactory to the Company that
registration under the Act and applicable securities laws is not required if
disposition is made without such registration.
(d) Investment Intent. Shareholder is the sole party in interest
as to the ownership of the Company Common Stock and/or the Company Warrants
being purchased by him or her, and Shareholder is acquiring the Company Common
Stock and/or Company Warrants solely for investment for his or her own account,
without a view to sale or distribution. Shareholder has no present agreements,
understandings or arrangements to sell, assign, transfer or otherwise dispose of
all or any part of the shares to any other person.
(e) Legend. Shareholder consents to the placement of a legend on
the certificates for the Company Common Stock received by him or her, indicating
his or her investment intent and the restrictions on transfer of the Company
Common Stock, and also to the placement of a "stop transfer" order on
<PAGE>3
the transfer books of the Company until the Company Common Stock may be legally
resold or distributed.
(f) No Public Market. Shareholder understands that the Company
is not subject to, and may never be subject to, the periodic reporting
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"); that
there is no public market for the Company Common Stock or the Company Warrants
and there may never be a public market; and that, as a result, Shareholder may
not be able to rely on Rule 144 promulgated under the Exchange Act for the
resale of the Company Common Stock or Company Warrants. Shareholder acknowledges
that the Company has no obligation to register the Company Common Stock or the
Company Warrants with the Securities and Exchange Commission.
(g) Due Diligence; Suitability. Shareholder has had the
opportunity to inspect to his or her satisfaction the books and records of the
Company, and to ask questions of and receive answers from the Company concerning
the exchange of his or her PCT Common Stock and/or PCT Warrants for Company
Common Stock and/or Company Warrants. Shareholder has been furnished with all
information that he or she deems necessary to evaluate the merits and risks of
an investment in the Company. Shareholder has read and fully understands the
Offering Memorandum dated May 20, 1994, describing the Company and the Share
Exchange and the Cashmere Acquisition, and Shareholder believes that the
transactions described therein represent a suitable investment. Shareholder has
truthfully and accurately completed Schedule B attached to this Agreement.
(h) Risk Factors. Shareholder understands that an investment in
the Company may involve a high degree of risk, and that he or she is capable of
evaluating the merits and risks of his or her investment in the Company.
Shareholder is prepared to bear the economic risk of his or her investment for
an indefinite period of time and is able to withstand a total loss of his or her
investment. Shareholder understands that neither the Company nor PCT has a
history of being profitable, and there can be no assurance that either the
Company or PCT will become profitable in the future. Shareholder understands
that future operating results will depend on many factors, including the
Company's ability to obtain additional financing. Shareholder understands that
there can be no assurance that the Company will be able to obtain additional
financing that is currently required to fund operations of the Company or PCT
and to pay outstanding debts of PCT.
3. Representations, Warranties and Agreements of the
Company. The Company represents, warrants and agrees that:
(a) Organization and Qualification. The Company is
a corporation duly organized, validly existing and in good
standing under the laws of the State of Washington, and has all
<PAGE>4
requisite power and authority to own, lease and operate its properties and carry
on its business as it is now being conducted.
(b) Capitalization. The authorized capital stock of the Company
consists of 25,000,000 shares of common stock, no par value, none of which are
issued and outstanding, except for those issued or to be issued pursuant to the
PCT Share Exchange, or pursuant to a Stock Purchase Agreement with the
shareholders of Cashmere Manufacturing Co., Inc., a Washington corporation
("Cashmere Acquisition"); and 5,000,000 shares of preferred stock, no par value,
none of which is issued and outstanding or will be issued in the PCT Share
Exchange or the Cashmere Acquisition. Schedule A sets forth (i) the name of each
shareholder of PCT; (ii) the number of shares of PCT Common Stock and the number
of PCT Warrants which are to be transferred and assigned to the Company by each
Shareholder; and (iii) the number of shares of Company Common Stock and Company
Warrants which will be issued by the Company to Shareholders in the PCT Share
Exchange. Schedule A also sets forth the number of options to purchase PCT
Common Stock which are outstanding and which will be cancelled and the number of
options to purchase Company Common Stock which will be issued in the PCT Share
Exchange, subject to approval by the shareholders and the Board of Directors of
the Company of a stock incentive plan. Other than this Agreement, the Cashmere
Acquisition, and as set forth on Schedule A, there are no options, warrants,
calls, subscriptions, convertible securities, or other rights or agreements or
commitments of any character obligating the Company or any shareholder to issue
or sell any shares of the Company's capital stock or any securities convertible
into or exchangeable or exercisable for, or otherwise evidencing a right to
acquire, any shares of the Company's capital stock or other securities of any
kind of the Company.
(c) Agreement. The Company has corporate power and corporate
authority to enter into this Agreement. This Agreement has been duly executed
and delivered by the Company and constitutes the legal and binding obligation of
the Company enforceable in accordance with its terms. No authorization, consent
or approval of any third party is necessary for the execution of this Agreement
by the Company or its consummation of the transactions contemplated hereby or
the performance of its obligations hereunder.
4. Shareholders' Agreement. Each of the Shareholders consents to the
assignment by PCT to the Company of all of PCT's rights and obligations under
the Shareholders Agreement, dated July 2, 1990, as amended, by and among PCT and
the shareholders of PCT (the "Shareholders Agreement"). All references to PCT in
the Shareholders Agreement are hereby replaced and shall hereafter be deemed to
be references to the Company, and all Shareholders and the Company shall be
bound by the Shareholders Agreement. An addendum to the foregoing effect will be
added to
<PAGE>5
the Shareholders Agreement. In addition, any Shareholder who is
not concurrently a party to the Shareholders Agreement hereby
agrees, by executing this Agreement, to become a party to and be
bound by the Shareholders Agreement.
5. Assignments, Binding Effect. This Agreement may not be assigned by
any party hereto, nor may the performance of any of the duties hereunder be
delegated by any party hereto, without the written consent of the other parties.
This Agreement shall not be assignable by operation of law. This Agreement shall
be binding upon and inure to the benefit of the respective parties and their
executors, legal representatives, successors, assigns and heirs.
6. Amendment and/or Modification. Neither this Agreement nor any term
or provision hereof may be changed, waived, discharged, amended, modified or
terminated orally, or in any manner other than by an instrument in writing
signed by all of the parties hereto.
7. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be deemed to be an
original but all of which shall constitute one agreement.
8. Waiver of Breach. The failure of any party hereto to insist upon
strict performance of any of the covenants and agreements herein contained, or
to exercise any option or right herein conferred, in any one or more instances,
shall not be construed to be a waiver or relinquishment of any such option or
right, or of any other covenants or agreements, but the same shall be and remain
in full force and effect.
9. Independent Counsel. The parties hereto acknowledge and agree that
they have each had the opportunity to be represented in connection with this
Agreement by independent counsel of their choice, and that they have read this
Agreement or had the opportunity to have its contents fully explained to them by
such counsel and are fully aware of the contents hereof and of its legal effect.
10. Entire Agreement. This Agreement (and any attached exhibits and
schedules) contains the entire agreement and understanding of the parties with
respect to the PCT Share Exchange, and there are no representations,
inducements, promises or agreements, oral or otherwise, not embodied herein or
therein.
11. Law. This Agreement shall be governed by, construed
and enforced in accordance with the internal laws of the State of
Washington, without giving effect to principles of conflict or
choice of laws.
<PAGE>6
IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Agreement as of the date first above written.
COMPANY:
PCT HOLDINGS, INC.
By: /s/ DONALD A. WRIGHT
-----------------------------
Donald A. Wright, President
SHAREHOLDERS:
/s/ MELVIN B. HOELZLE
---------------------------------
Melvin B. Hoelzle
DAIN BOSWORTH INCORPORATED,
CUSTODIAN FOR MEL HOELZLE IRA
By: /s/ P.H. COLBERT
------------------------------
Its First Vice President
SEATTLE-FIRST NATIONAL BANK,
CUSTODIAN FOR ROGER P. VALLO, IRA
By: /s/ PETER G. ACKER
------------------------------
Its Vice President
/s/ ROBERT M. SMITH, attorney-in-fact
-------------------------------------
Randy M. Smith
/s/ ROBERT M. SMITH, attorney-in-fact
-------------------------------------
Linda H. Smith
/s/ RICHARD N. SMITH
---------------------------------
Richard N. Smith
/s/ MAYUMI N. SMITH
---------------------------------
Mayumi N. Smith
/s/ ROBERT B. SMITH
---------------------------------
Robert B. Smith
<PAGE>7
/s/ ROBERT L. SMITH
---------------------------------
Robert L. Smith
/s/ DONALD A. WRIGHT
---------------------------------
Donald A. Wright
/s/ ARTHUR S. ROBINSON
---------------------------------
Arthur S. Robinson
LINCOLN TRUST COMPANY, CUSTODIAN
FBO DONALD COTTON
By: /s/
------------------------------
Its_________________________
SMITH BROTHERS PARTNERSHIP
By:/s/ RICHARD SMITH
------------------------------
Its__________________________
/s/ RAYMOND F. CRERAND
---------------------------------
Raymond F. Crerand
/s/ DONALD B. COTTON
---------------------------------
Donald B. Cotton
DAIN BOSWORTH, INCORPORATED,
CUSTODIAN FOR DONALD A. WRIGHT
By:/s/ P.H. COLBERT
------------------------------
Its First Vice President
/s/ THOMAS H. ELZEY
---------------------------------
Thomas H. Elzey
/s/ JOHN J. FORD, JR.
---------------------------------
John J. Ford, Jr.
/s/ BENJAMIN C. HANSEN
---------------------------------
Benjamin C. Hansen
<PAGE>8
/s/ FLORENCE R. HANSEN
---------------------------------
Florence R. Hansen
RHUC TRUST
By:/s/ MELVIN B. HOELZLE
------------------------------
Melvin B. Hoelzle, Trustee
/s/ MICHAEL A. SHERRY
---------------------------------
Michael A. Sherry
/s/ RICHARD SMITH
---------------------------------
Richard Smith, Trustee for
Mariko Smith
/s/ RICHARD SMITH
---------------------------------
Richard Smith, Trustee for
Schuyler Smith
/s/ DEBORAH K. ROBINSON
---------------------------------
Deborah K. Robinson
/s/ ALLEN W. DAHL
---------------------------------
Allen W. Dahl
/s/ RONALD E. MARSHALL
---------------------------------
Ronald E. Marshall (JTWROS)
/s/ PATRICIA A. MARSHALL
---------------------------------
Patricia A. Marshall (JTWROS)
/s/ EVABLANCHE ARMSON
---------------------------------
Evablanche Armson
/s/ GREGORY S. ROBINSON
---------------------------------
Gregory S. Robinson (JTWROS)
/s/ KIMBERLY A. ROBINSON
---------------------------------
Kimberly A. Robinson (JTWROS)
/s/ GLENN F. BERG
---------------------------------
Glenn F. Berg
<PAGE>9
/s/ JOHN M. EDER
---------------------------------
John M. Eder
/s/ DAVID HEARN
---------------------------------
David Hearn
/s/ PAUL J. SHLESSGER
---------------------------------
Paul J. Shlessger (JTWROS)
/s/ BERNICE G. SHLESSGER
---------------------------------
Bernice G. Shlessger (JTWROS)
/s/ KENNETH L. ANDERSEN
---------------------------------
Kenneth L. Andersen
/s/ L. BRIEN ELVINS
---------------------------------
L. Brien Elvins (Co-Tenant)
/s/ DEBORAH A. ELVINS
---------------------------------
Deborah A. Elvins (Co-Tenant)
/s/ WALTER C. SAND
---------------------------------
Walter C. Sand (JTWROS)
/s/ HAZEL R. SAND
---------------------------------
Hazel R. Sand (JTWROS)
/s/ HARRY F. JOHNSON
---------------------------------
Harry F. Johnson (Joint-Tenant)
/s/ GLORIA J. JOHNSON
---------------------------------
Gloria J. Johnson (Joint-Tenant)
/s/ MICHAEL A. HENDRICKSON
---------------------------------
Michael A. Hendrickson
/s/
---------------------------------
Piper Jaffray as Custodian fbo
Robert E. Wendel
<PAGE>10
By /s/
-------------------------------
Its Managing Director
/s/ ROGER P. VALLO
---------------------------------
Roger P. Vallo
<PAGE>11
EXHIBITS
--------
THE EXHIBITS AND SCHEDULES ACCOMPANYING THIS
AGREEMENT ARE IMMATERIAL AND THE FILING THEREOF HAS
BEEN OMITTED FROM THIS FORM 10-KSB
<PAGE>1
January 3, 1995
PCT Holdings, Inc.
ATTENTION: Mr. Donald A. Wright
434 Olds Station Road
Wenatchee, Washington 98801
Dear Mr. Wright:
This will confirm the agreement and understanding made and entered this 4th
day of January, 1995 by and between PCT Holdings, Inc., a Washington corporation
(the "Company"), and Lysys Ltd., a Swiss limited company ("Lysys"), with
reference to proposed financing for the Company. This Agreement is accepted and
executed by Lysys in Salt Lake City, Utah.
Specifically, we agree as follows:
1. Lysys will use its best efforts to find suitable and qualifying
investors for the purchase of up to $4,000,000 of the Company's common stock, no
par value per share (the "Shares"), at a price of no less than $5.00 per Share
for up to 800,000 shares on terms and conditions mutually acceptable to the
parties hereto, in an offering qualifying under Regulation S promulgated under
the Securities Act of 1933, as amended (the "Act"), relating to exemptions from
registration of securities under such Act in connection with certain offers and
sales to non-U.S. investors. Such offers and sales shall be made by the Company
in accordance with the provisions of said Regulation S and all other applicable
provisions of the U.S. securities laws, including, but not limited to, the laws
and regulations governing disclosure of business and financial information to
prospective investors.
2. To induce Lysys to enter into this Agreement, the Company hereby
represents and warrants to and agrees with Lysys as follows:
a. at the time of the offer and sale under Regulation S, the
Company shall have completed a merger with a corporation whose shares are
traded on the public market and shall have applied for listing of its
Shares for trading on the Nasdaq Stock Market and such Shares shall be
trading at or above $8.00 per share in the over-the-counter market;
<PAGE>2
b. the Company shall be current in all reporting obligations as a
public company under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and nothing shall have occurred which would prevent its Shares
from being traded under the Act or the 1934 Act, as the case may be;
c. the Company shall have caused to be prepared a private
placement memorandum or similar offering document in accordance with the
Rules and Regulations promulgated under the Act and shall have delivered
the same to Lysys and to all prospective investors introduced to the
Company by Lysys in connection with this Agreement, and all statements of
material fact contained in such memorandum will be true and correct to the
best knowledge of the Company and the memorandum will not include any
untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading;
d. the financial statements of the Company together with related
notes as set forth therein will present fairly the financial condition of
the Company and have been or will have been at the time of the offer and
sale of the Shares prepared by an independent certified public accountant
within the meaning of the Act and in accordance with generally accepted
accounting principles consistently applied throughout the period concerned
except as otherwise stated therein;
e. subsequent to the dates as of which information is given in
the private placement memorandum and prior to the date funds are received
by the Company (i) there shall not be any material adverse change in the
condition, financial or otherwise, of the Company or in its business taken
as a whole; (ii) there shall not have been any material transaction entered
into by the Company other than transactions in the ordinary course of
business;(1) (iii) the Company shall not have incurred any material
obligations, contingent or otherwise, which are not disclosed in the
memorandum; (iv) there shall not have been nor will there be any change in
the capital stock(2) or long-term debt (except current payments) of the
Company; and (v) the Company has not and will not have paid or declared any
dividends or other distributions on its common stock;
f. the Company is not in any default which has not been
waived in the performance of any obligation, agreement or condition
contained in any debenture, note or other evidence of indebtedness or
any material indenture or loan agreement of the Company;
- -------------------------
(1) The Company has entered into a letter of intent to acquire a company
situated in San Diego, California. Subject to review of the final terms of said
acquisition, Lysys agrees that consummation of that transaction will not
constitute a breach or violation of section 2(e)(ii).
(2) The Company is presently negotiating with certain holders of warrants
and options to purchase its common stock in order to induce said holders to
exercise those warrants and options. The Company may agree to reduce the
exercise price of the warrants and options by as much as fifty percent (50%).
Subject to review of the final terms for exercise of said warrants and options
offered by the Company, Lysys agrees that the exercise of said
(continued...)
<PAGE>3
g. the Company is and will be duly incorporated and validly
existing in good standing as a corporation under the laws of the State of
Washington, with authorized and outstanding capital stock of 25,000,000
common and 5,000,000 preferred shares, respectively, with full power and
authority (corporate and other) to own its property and conduct its
business, present and proposed, in whatever jurisdiction the same shall be
located or conducted, as the case may be;
h. the Shares will be and the issued and outstanding
capital stock of the Company has been duly and validly authorized,
issued and fully paid and nonassessable and will conform to all
statements with regard thereto contained in the
- -------------------------
(...continued)
warrants and options by the holders and the resulting issuance of additional
shares of common stock will not constitute a breach or violation of section
2(e)(iv). The Company has also been engaged since July 18, 1994 in an offering
of its common stock pursuant to exemptions provided by Section 4(2) of the Act
and Regulation D thereunder. The Company has agreed to immediately terminate
said offering; provided, however, that any shares of common stock issued by the
Company pursuant to subscriptions made prior to the date hereof shall not
constitute a breach or violation of section 2(e)(iv).
(3) The Company is presently negotiating with a lending institution to
provide new long- and short-term credit facilities for the Company. Subject to
review of the final terms of said credit facility or facilities, Lysys agrees
that obtaining said credit facility in replacement of certain existing
indebtedness will not constitute a breach or violation of section 2(e)(iv).
(4) The Company believes that a wholly-owned subsidiary may be in technical
default under the terms of a loan agreement with a U.S. bank. The Company and
its subsidiary are currently negotiating to cure said default. Subject to the
curing of said default and review of the final terms whereby said default is
cured, Lysys agrees that said default shall not constitute a breach or violation
of section 2(f).
<PAGE>4
offering memorandum and no sales of securities have been made by the
Company in violation of the registration provisions of the Act; and
i. except as previously disclosed to Lysys and as disclosed in
the memorandum, there is and at the time of the offer and sale of the
Shares there will be no action, suit or proceeding before any court or
governmental agency, authority or body pending or to the knowledge of the
Company threatened which might result in judgments against the Company not
adequately covered by insurance or which collectively might result in any
material adverse change in the condition (financial or otherwise), the
business or the prospects of the Company, or would materially affect the
properties or assets of the Company.
3. In consideration of Lysys' efforts hereunder, the Company agrees that it
shall (a) pay Lysys an amount equal to a minimum of five percent (5%) of the
gross proceeds from the sale of the Shares and (b) convey to Lysys or its
assigns 1,000,000 shares of the Company's common stock issued under Regulation S
promulgated under the Act, which shares shall be due Lysys at closing of the
merger with the public corporation. Lysys shall not sell or transfer any of the
Shares to any person, regardless of the residence of such person, for a period
of thirty (30) days following the approval of Sellers' application for listing
of its common stock on the NASDAQ Stock Market or until September 1, 1995,
whichever occurs first. At the time of execution of this Agreement, the Company
shall pay Lysys an expense allowance of $25,000, which allowance shall be used
as a retainer for its legal counsel. Furthermore, the Company shall reimburse
Lysys within ten (10) days after billing for each and every expense it may
incur, including administrative cost and professional fees, mailing, telephone,
travel, clerical or other office costs incurred by Lysys or its personnel in
connection with this matter. Unless otherwise agreed and exclusive of Lysys
professional fees (legal and accounting), the Company shall not be obligated to
reimburse Lysys for its expenses and administrative fees in excess of
$50,000.00. If at any time the Company does not or cannot proceed with the
offering of the Shares, or the covenants or representations set out in this
Agreement are not materially correct or cannot be complied with, or if there is
a material change in the financial condition, business, prospects or obligations
of the Company (of which the Company will notify Lysys promptly), the Company
shall immediately reimburse Lysys in full for its accountable out-of-pocket
expenses, including legal fees and disbursements, subject to this paragraph.
4. The Company covenants and agrees with Lysys that:
a. following the date of this Agreement, the Company will
not use any offering materials or supplement or amend any such materials
unless and until a copy of such materials, as amended or supplemented,
shall first be furnished to Lysys within
<PAGE>5
a reasonable time period prior to the proposed use thereof, or of which
Lysys or counsel for Lysys has reasonably objected, in writing, on the
ground that such materials are not in compliance with the Act or the Rules
and Regulations thereunder;
b. the Company, at its own expense, will prepare and give and
will continue to give such financial statements and other information to
and as may be required by the Securities and Exchange Commission (the
"Commission") or the proper public bodies of the states in which the Shares
may be qualified;
c. during the three (3) years following the offer and sale as
contemplated hereunder, the Company will deliver to Lysys copies of all
reports, other communications and financial statements furnished to its
stockholders and deliver to Lysys as soon as available all reports and
financial statements furnished to or filed with the Commission and, as soon
as practicable and to the extent the Company has knowledge of such
information, every press release and every material news item and article
in respect of the Company or its affairs and such additional information
concerning the business and financial condition of the Company as Lysys may
from time to time reasonably request;
d. the Company will pay, whether or not the transactions
contemplated hereunder are consummated or this Agreement is prevented from
becoming effective or is terminated, all costs and expenses incident to the
performance of its obligations under this Agreement, including all expenses
incident to the offer and sale of the Shares, fees incident to the filing
of the application for and obtaining approval of listing with Nasdaq, the
costs and counsel fees and disbursements of counsel and accountants for the
Company, costs for preparing and printing the memorandum, the cost and
charges of any transfer agent or registrar, travel and other related costs
incurred in due diligence, and all other direct and indirect costs and
expenses incident to the performance of the obligations of the Company not
otherwise specifically provided in this section, and will furnish Lysys and
its attorneys with a completed bound volume, prepared by the Company and
its counsel, containing all appropriate documents relating to the merger of
the Company and the offering contemplated by this Agreement;
e. the Company shall supply Lysys with such financial statements,
contracts and other corporate records and documents as Lysys shall deem
necessary and it shall supply Lysys' counsel or such parties performing due
diligence functions for Lysys with all corporate papers, contracts,
documents and information as may be required by them in connection with
their examination; Lysys shall be entitled to receive interim
<PAGE>6
financial statements and other information from the Company upon reasonable
request after consummation of the transactions contemplated herein and in
addition, Lysys and its counsel and any accounting experts it deems
necessary shall have the right to examine the audits and working papers of
the Company and to meet with the Company's independent accountants; at all
times the Company will cooperate with Lysys in such investigation as Lysys
may make or cause to be made of all the properties, business and operations
of the Company; and
f. prior to commencement of the offering of Shares described in
section 1 hereof, the Company shall reduce the number of members of its
Board of Directors from nine (9) to seven (7) and one (1) person nominated
by Lysys shall be selected as a member thereof to serve a term of not less
than three (3) years.
5. The Company agrees to indemnify and hold harmless Lysys and each person,
if any, who controls Lysys, against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act or any other statute or at common law and to reimburse the persons
indemnified as above for any legal or other expenses (including the cost of any
investigation and preparation) incurred by them in connection with any
litigation, whether or not resulting in any liability, but only insofar as such
losses, claims, damages, liabilities and litigation arise out of or are based
upon any untrue statement or alleged untrue statement or the omission or alleged
omission of any material fact. Lysys shall notify the Company within ten (10)
days after the receipt by it of any action against Lysys or any of the aforesaid
persons, in respect of which indemnity may be sought from the Company on account
of this agreement, to notify the Company in writing of the commencement of such
an action.
6. Lysys agrees to indemnify and hold harmless the Company and each person,
if any, who controls the Company, against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act or any other statute or at common law and to reimburse the persons
indemnified as above for any legal or other expenses (including the cost of any
investigation and preparation) incurred by them in connection with any
litigation, whether or not resulting in any liability, but only insofar as such
losses, claims, damages, liabilities and litigation arise out of or are based
upon any untrue statement or alleged untrue statement or the omission or alleged
omission of any material fact. The Company shall notify Lysys within ten (10)
days after the receipt by it of any action against the Company or any of the
aforesaid persons, in respect of which indemnity may be sought from Lysys on
account of this agreement, to notify Lysys in writing of the commencement of
such an action.
<PAGE>7
7. The Company agrees, at its expense, to provide such opinions of
counsel and letters of its auditors as Lysys may reasonably request in
connection with the condition of the Company prior to the offer and sale of any
of the Shares. In addition, the Company shall provide certificates from its
officers and Chairman of its Board of Directors as reasonably requested by
Lysys, in connection with the representations and warranties of the Company
contained in this Agreement and the representations and disclosures contained in
any memorandum or other document prepared in connection with the offer and sale
of the Shares.
8. This Agreement shall remain in force and effect for a term of six
(6) months from the date of the execution of this writing and may be extended
for additional thirty (30) day periods in a writing between the parties attached
hereto. The Agreement may be terminated by either party by notice to the other
if the Company shall have failed or been unable to comply with any of the terms,
conditions or provisions of this Agreement.
9. Any termination of this Agreement shall be without liability of any
character on the part of any party hereto, except that the Company shall remain
obligated to pay the costs and expenses provided to be paid by it specified
hereinabove and the Company and Lysys shall remain obligated under the covenants
of indemnification in sections 5 and 6, above.
10. Both parties shall be given notice for the purpose of this
Agreement at the address stated below the authorized signatures for such parties
on the last page hereof; provided that should a party change its address, it
shall provide the other party with notice of such change and attach onto this
Agreement a certificate of such change of address. All notice shall be given in
writing and in the English language. This writing constitutes the entire
Agreement between Lysys and the Company with regard to the subject matter hereof
and it shall not be amended or expanded by parol evidence and may be changed
only in a writing attached hereto, signed by both parties. A copy of each notice
to Lysys shall also be delivered to its counsel, Jeffrey M. Jones, Esq., Durham,
Evans, Jones & Pinegar, 50 South Main Street, Suite 850, Salt Lake City, UT
84144.
11. This Agreement is made solely for the benefit of the named parties
hereto, their respective officers and directors and controlling person referred
to in Section 15 of the Act, and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. The term "successor" or the term "successors and assigns" as used in
this Agreement shall not include any purchasers, as such, of any of the Shares.
The respective indemnities, agreements, representations, warranties, covenants
and other statements of the Company or its officers as set forth in or made
pursuant to this Agreement and the indemnity agreement of the Company in section
6, above, shall survive and remain in full force and effect, regardless of
delivery of or payment for the Shares, and any successor of the Company
<PAGE>8
and Lysys shall be entitled to the benefits hereof. This Agreement is accepted
and entered into by the Company and Lysys in Utah, U.S.A. It shall be controlled
and governed by Utah law. If this Agreement is translated into a language other
than English and there are discrepancies or differences between the English
language version of the text and the foreign language version, the English
language version shall prevail. Should any part or provision of this Agreement
be found void or voidable, the balance shall be given reasonable interpretation
and implied so far as possible. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
Please indicate your acceptance and agreement with the terms of this
letter by signing the enclosed copies and the original hereof and returning the
original and one or more signed copies to the undersigned.
Very truly yours,
Lysys Ltd.
/s/ ROGER DUDLEY
---------------------------------------
By: Roger Dudley
Its: Agent
ADDRESS: c/o Studdert Companies Corp.
1225 Eagle Gate Tower
60 East South Temple
Salt Lake City, Utah 84111
ATTENTION: Roger D. Dudley
We hereby confirm as of the date hereof that the above letter sets forth the
agreement between the Company and Lysys:
PCT Holdings, Inc.
/s/ DONALD A. WRIGHT
------------------------
By: Donald A. Wright
Title: President
ADDRESS: 434 Olds Station Road
Wenatchee, Washington 98801
Attention: Donald A. Wright
<PAGE>1
$200,000.00 May 10, 1995
PROMISSORY NOTE
FOR VALUE RECEIVED, PCT HOLDINGS, INC., a Nevada corporation
(hereinafter "Borrower"), promises to William H. Payne, Ivan G.
Sarda, Elinor A. Walters and Katrina A. Knowles, (hereinafter
collectively "Lenders") as follows:
1. Principal and Interest. Borrower promises to pay to Lenders or order at
c/o William H. Payne, 4274 Pt. Loma Avenue, San Diego, California, in lawful
money of the United States of America, the principal sum of TWO HUNDRED THOUSAND
DOLLARS ($200,000.00) together with interest on the unpaid principal balance
thereon from the date hereof until paid in full at a rate of eight percent
(8.0%) per annum.
2. Nature of Indebtedness. This Note evidences a portion of the
consideration to Lender due from Borrower in connection with the merger of
Ceramic Devices, Inc., a California corporation, of which Lenders are the sole
shareholders, into and with Ceramic Devices, Inc., a Washington corporation and
a wholly-owned subsidiary of Borrower ("CDI") under the terms of an Agreement
and Plan of Merger (the "Merger Agreement") dated February 28, 1995.
3. Repayment. Borrower shall pay principal and interest
as follows:
a. On the following dates, Borrower shall make
the following installments of principal, together with accrued
interest:
Date Amount of Payment
---- -----------------
2/28/96 $ 50,000.00, plus accrued interest
2/28/97 75,000.00, plus accrued interest
<PAGE>2
2/28/98 75,000.00, plus accrued interest
----------
Total: $200,000.00, plus accrued interest
b. The entire unpaid principal balance, together with accrued
interest thereon, shall be due and payable on or before February 28, 1998. All
payments received shall be applied first to accrued interest, then to the costs
of collection and the balance, if any, to the reduction of principal.
c. Borrower may prepay the obligation evidenced
by this Note at any time.
4. Collateral. As collateral for the performance of all
obligations and liabilities hereunder, Borrower shall and does
hereby grant or shall cause to be granted to Lenders a security
interest in:
(a) All furniture, leasehold improvements, motor vehicles, appliances,
fixtures, furnishings, tools, machinery and equipment and other goods of Debtor,
now owned or hereafter acquired, and all additions and accessions thereto and
replacements therefor;
(b) All supplies and materials of Debtor now owned or hereafter
acquired, together with all additions and accessions thereto and replacements
therefor;
(c) All accounts, accounts receivable, negotiable documents, notes,
drafts, acceptances, claims, lease rights, securities, instruments, choses in
action, whether in contract or in tort, proceeds of lawsuits, and general
intangibles of Debtor (including, but not limited to goodwill, permits,
licenses, trademarks, trade names and trade secrets), and all other rights of
Debtor to the payment of money, now existing or hereafter arising;
(d) All deposit accounts of Debtor maintained with any
bank or other financial institution;
<PAGE>3
(e) All records, papers and books of account or other documents or
papers relating to, affecting or describing any of the foregoing Collateral, in
whatever form, including without limitation all computerized records, diskettes,
programs, etc. relating thereto;
(f) All of Debtor's contract rights and insurance
policies, including that certain life insurance policy issued by
Transamerica Occidental in the face amount of $2,000,000.00
(Policy No. 9242497) (the "Policy"); and
(g) All proceeds of the foregoing Collateral. For purposes of this
Security Agreement, the term "proceeds" includes whatever is receivable or
received when Collateral or proceeds is sold, collected, exchanged or otherwise
disposed of, whether such disposition is voluntary or involuntary, and includes,
without limitation, all rights to payment, including return premiums, with
respect to any insurance relating thereto. All of the foregoing is collectively
referred to as the "Collateral". Lenders' security interest shall be further
evidenced by and subject to the terms of financing statements and such other
documents as Lenders may request.
5. Events of Default. An Event of Default shall occur if
any of the following events shall occur:
a. Failure to pay any principal or interest
hereunder within 30 days after such payment becomes due.
b. Any of the documents executed and delivered
in connection herewith shall for any reason cease to be in full
force and effect.
c. An assignment by Borrower for the benefit
of its creditors.
d. Any uncured default or breach of the Merger
Agreement or any other document or instrument executed or
delivered in connection therewith, including but
<PAGE>4
not limited to Promissory Note I and Promissory Note II referred to in the
Merger Agreement.
e. Filing by Borrower of a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization, adjustment, readjustment of debts or
any other relief under the Bankruptcy Code as amended or any insolvency act or
law, state or federal, now or hereafter existing.
f. Filing of an involuntary petition against Borrower in
bankruptcy or seeking reorganization, arrangement, readjustment of debts or any
other relief under the Bankruptcy Code as amended or under any other insolvency
act or law, state or federal, now or hereafter existing, and the continuance
thereof for 60 days undismissed, unbonded, or undischarged.
g. All or any substantial part of the property of Borrower shall
be condemned, seized or otherwise appropriated or custody or control of such
property shall be assumed by any governmental agency or any court of competent
jurisdiction and shall be retained for a period of 30 days.
h. There is a default in any term, condition,
or covenant hereof, or contained in any document given in
connection herewith.
i. There is a material default in any term, condition or covenant
contained in any document representing an obligation in favor of any third party
which is secured by the Collateral or any other default as a result of which
said third party declares a default and exercised any remedies affecting the
Collateral.
6. Remedies. Upon default by Borrower as defined above,
Lenders may declare the entire unpaid balance, together with
accrued interest, to be immediately due and payable without
presentment, demand, protest or other notice of any kind. To the
extent permitted
<PAGE>5
by law, Borrower waives any rights to presentment, demand, protest, or notice of
any kind in connection with this Note. No failure or delay on the part of
Lenders in exercising any right, power, or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power,
or privilege provided at law, in equity, or by contract. The rights and remedies
provided herein are cumulative and not exclusive of any other rights or
remedies. Borrower agrees to pay all costs of collection incurred by reason of
the default, including court costs, and reasonable attorney's fees (whether or
not the attorney is a salaried employee of Lenders), including such expenses
incurred before legal action or bankruptcy proceedings, during the pendency
thereof, and continuing to all such expenses in connection with appeals to high
courts arising out of matters associated herewith. If the attorney is a salaried
employee of Lenders, a reasonable attorney's fee will be an amount charged by
attorneys in private practice for similar services.
7. General Provisions. This Note shall be binding upon
Borrower, its successors and assigns. This Note and all
documents and instruments associated herewith shall be governed
by and construed and interpreted in accordance with the laws of
the State of Washington. Time is of the essence hereof.
8. Entire Agreement in Writing. This written agreement, and any other
documents executed in connection herewith, are the final expression of the
agreement and understanding of Borrower and Lenders with respect to the general
subject matter hereof and supersede any previous understandings, negotiations or
discussions, whether written or oral. This written agreement, and any other
documents executed in connection herewith, may not be contradicted by evidence
of any alleged oral agreement.
DATED as of the date first above written.
<PAGE>6
PCT HOLDINGS, INC., a Nevada corporation
By: /s/ DONALD A. WRIGHT
------------------------------------
Donald A. Wright, President
<PAGE>1
$400,000.00 May 10, 1995
PROMISSORY NOTE
FOR VALUE RECEIVED, PCT HOLDINGS, INC., a Nevada corporation
(hereinafter "Borrower"), promises to William H. Payne, Ivan G.
Sarda, Elinor A. Walters and Katrina A. Knowles, (hereinafter
collectively "Lenders") as follows:
1. Principal and Interest. Borrower promises to pay to Lenders or order at
c/o William H. Payne, 4274 Pt. Loma Avenue, San Diego, California, in lawful
money of the United States of America, the principal sum of FOUR HUNDRED
THOUSAND DOLLARS ($400,000.00) together with interest on the unpaid principal
balance thereon from the date hereof until paid in full at a rate of eight
percent (8.0%) per annum.
2. Nature of Indebtedness. This Note evidences a portion of the
consideration to Lender due from Borrower in connection with the merger of
Ceramic Devices, Inc., a California corporation, of which Lenders are the sole
shareholders, into and with Ceramic Devices, Inc., a Washington corporation and
a wholly-owned subsidiary of Borrower ("CDI") under the terms of an Agreement
and Plan of Merger (the "Merger Agreement") dated February 28, 1995.
3. Repayment. Borrower shall pay principal and all
accrued interest in full on November 30, 1995.
All payments received shall be applied first to accrued interest, then
to costs of collection, and the balance, if any, to the reduction of principal.
Borrower may prepay the obligation evidenced by this Note at any time.
4. Collateral. As collateral for the performance of all
obligations and liabilities hereunder, Borrower shall and does
hereby grant or shall cause to be granted to Lenders a security
interest in: (a) All furniture, leasehold improvements, motor
vehicles, appliances,
<PAGE>2
fixtures, furnishings, tools, machinery and equipment and other goods of Debtor,
now owned or hereafter acquired, and all additions and accessions thereto and
replacements therefor;
(b) All supplies and materials of Debtor now owned or hereafter
acquired, together with all additions and accessions thereto and replacements
therefor;
(c) All accounts, accounts receivable, negotiable documents, notes,
drafts, acceptances, claims, , lease rights, securities, instruments, choses in
action, whether in contract or in tort, proceeds of lawsuits, and general
intangibles of Debtor (including, but not limited to goodwill, permits,
licenses, trademarks, trade names and trade secrets), and all other rights of
Debtor to the payment of money, now existing or hereafter arising;
(d) All deposit accounts of Debtor maintained with any
bank or other financial institution;
(e) All records, papers and books of account or other documents or
papers relating to, affecting or describing any of the foregoing Collateral, in
whatever form, including without limitation all computerized records, diskettes,
programs, etc. relating thereto;
(f) All of Debtor's contract rights and insurance
policies, including that certain life insurance policy issued by
Transamerica Occidental in the face amount of $2,000,000.00
(Policy No. 9242497) (the "Policy"); and
(g) All proceeds of the foregoing Collateral. For purposes of this
Security Agreement, the term "proceeds" includes whatever is receivable or
received when Collateral or proceeds is sold, collected, exchanged or otherwise
disposed of, whether such disposition is voluntary or involuntary, and includes,
without limitation, all rights to payment, including return premiums, with
respect to any insurance relating thereto. All of the foregoing is collectively
referred to as the "Collateral". Lenders' security interest shall be further
evidenced by and subject to the terms of financing statements and such other
documents as Lenders may request.
<PAGE>3
5. Events of Default. An Event of Default shall occur if
any of the following events shall occur:
a. Failure to pay any principal or interest
hereunder within 30 days after such payment becomes due.
b. Any of the documents executed and delivered
in connection herewith shall for any reason cease to be in full
force and effect.
c. An assignment by Borrower for the benefit
of its creditors.
d. Any uncured default or breach of the Merger Agreement or any
other document or instrument executed or delivered in connection therewith,
including but not limited to Promissory Note I and Promissory Note II referred
to in the Merger Agreement.
e. Filing by Borrower of a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization, adjustment, readjustment of debts or
any other relief under the Bankruptcy Code as amended or any insolvency act or
law, state or federal, now or hereafter existing.
f. Filing of an involuntary petition against Borrower in
bankruptcy or seeking reorganization, arrangement, readjustment of debts or any
other relief under the Bankruptcy Code as amended or under any other insolvency
act or law, state or federal, now or hereafter existing, and the continuance
thereof for 60 days undismissed, unbonded, or undischarged.
g. All or any substantial part of the property of Borrower shall
be condemned, seized or otherwise appropriated or custody or control of such
property shall be assumed by any governmental agency or any court of competent
jurisdiction and shall be retained for a period of 30 days.
h. There is a default in any term, condition,
or covenant hereof, or contained in any document given in
connection herewith.
<PAGE>4
i. There is a material default in any term, condition or covenant
contained in any document representing an obligation in favor of any third party
which is secured by the Collateral or any other default as a result of which
said third party declares a default and exercised any remedies affecting the
Collateral.
6. Remedies. Upon default by Borrower as defined above, Lenders may declare
the entire unpaid balance, together with accrued interest, to be immediately due
and payable without presentment, demand, protest or other notice of any kind. To
the extent permitted by law, Borrower waives any rights to presentment, demand,
protest, or notice of any kind in connection with this Note. No failure or delay
on the part of Lenders in exercising any right, power, or privilege hereunder
shall preclude any other or further exercise thereof or the exercise of any
other right, power, or privilege provided at law, in equity, or by contract. The
rights and remedies provided herein are cumulative and not exclusive of any
other rights or remedies. Borrower agrees to pay all costs of collection
incurred by reason of the default, including court costs, and reasonable
attorney's fees (whether or not the attorney is a salaried employee of Lenders),
including such expenses incurred before legal action or bankruptcy proceedings,
during the pendency thereof, and continuing to all such expenses in connection
with appeals to high courts arising out of matters associated herewith. If the
attorney is a salaried employee of Lenders, a reasonable attorney's fee will be
an amount charged by attorneys in private practice for similar services.
7. General Provisions. This Note shall be binding upon
Borrower, its successors and assigns. This Note and all
documents and instruments associated herewith shall be governed
by and construed and interpreted in accordance with the laws of
the State of Washington. Time is of the essence hereof.
8. Entire Agreement in Writing. This written agreement,
and any other documents executed in connection herewith, are the
final expression of the agreement and understanding of Borrower
and Lenders with respect to the general subject matter hereof and
<PAGE>5
supersede any previous understandings, negotiations or discussions, whether
written or oral. This written agreement, and any other documents executed in
connection herewith, may not be contradicted by evidence of any alleged oral
agreement.
DATED as of the date first above written.
PCT HOLDINGS, INC., a Nevada corporation
By: /s/ DONALD A. WRIGHT
---------------------------------------
Donald A. Wright, President
<PAGE>1
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into May 10, 1995, by and
between WILLIAM H. PAYNE, IVAN G. SARDA, ELINOR A. WALTERS and KATRINA A.
KNOWLES (hereinafter collectively "Secured Party") and CERAMIC DEVICES, INC.,
a Washington corporation ("Debtor").
1. Debtor, a wholly-owned subsidiary of PCT Holdings, Inc., a Nevada
corporation ("Borrower"), at the direction of and as an accommodation to
Borrower, hereby grants to Secured Party a security interest in all of the
following described assets (the "Collateral") to secure payment to Secured Party
of all promissory notes and other obligations of Borrower executed and delivered
concurrently herewith (the "Obligations"), including those referred to in that
certain Agreement and Plan of Merger (the "Merger Agreement") dated February 28,
1995 between and among Borrower, Debtor and Ceramic Devices, Inc., a California
corporation:
(a) All furniture, leasehold improvements, motor vehicles,
appliances, fixtures, furnishings, tools, machinery and
equipment and other goods of Debtor, now owned or hereafter
acquired, and all additions and accessions thereto and
replacements therefor;
(b) All supplies and materials of Debtor now owned or hereafter
acquired, together with all additions and accessions thereto
and replacements therefor;
(c) All accounts, accounts receivable, negotiable documents,
notes, drafts, acceptances, claims, lease rights,
securities, instruments, choses in action, whether in
contract or in tort, proceeds of lawsuits, and general
intangibles of Debtor (including, but not limited to
goodwill, permits, licenses, trademarks, trade names and
trade secrets), and all other rights of Debtor to the
payment of money, now existing or hereafter arising;
(d) All deposit accounts of Debtor maintained with any bank or
other financial institution;
(e) All records, papers and books of account or other documents or
papers relating to, affecting or describing any of the
foregoing Collateral, in whatever form, including without
limitation all computerized records, diskettes, programs, etc.
relating thereto;
(f) All of Debtor's contract rights and insurance policies,
including that certain life insurance policy issued by
Transamerica Occidental in the
<PAGE>2
face amount of $2,000,000.00 (Policy No. 9242497)
(the "Policy"); and
(g) All proceeds of the foregoing Collateral. For purposes of
this Security Agreement, the term "proceeds" includes
whatever is receivable or received when Collateral or
proceeds is sold, collected, exchanged or otherwise disposed
of, whether such disposition is voluntary or involuntary,
and includes, without limitation, all rights to payment,
including return premiums, with respect to any insurance
relating thereto.
2. Debtor has full power and authority to execute this Security Agreement,
to perform Debtor's obligations hereunder, and to subject the Collateral to the
security interest created hereby.
3. Debtor has acquired title to and will at all times keep the Collateral
free of all liens and encumbrances, except the security interest created hereby;
provided, however, that Borrower and Debtor may subject that part and/or portion
of the Collateral which constitutes accounts receivables and inventory to a lien
and security interest in favor of Borrower's institutional lender(s). In
connection therewith, Secured Party agrees that the amount of financing
(principal plus interest) provided by Borrower's institutional lender(s) shall
be a lien and charge upon Debtor's inventory and accounts receivable prior and
superior to the lien and charge thereon created by this Security Agreement.
Secured Party further agrees to execute and deliver such subordination
agreements and other documents hereafter and during the term of this Security
Agreement as Borrower and its institutional lender(s) reasonably require to
effect said subordination and to do so promptly upon the request of Borrower
and/or Debtor. Debtor further promises:
(a) To make all payments due under the Obligations to Secured
Party and perform all the obligations to Secured Party in
a timely manner;
(b) To furnish Secured party with such information concerning
Debtor and the Collateral as Secured Party may from time to
time reasonably request, including, but not limited to,
current financial statements; and
(c) To maintain the Collateral in good condition and not use the
Collateral for any unlawful purpose or in any way that would
void an effective insurance policy.
<PAGE>3
4. Unless Debtor is in default hereunder, Debtor may sell, transfer,
convey, encumber and/or hypothecate the Collateral, other than the Policy and
manufacturing and testing equipment, in the normal course of its business.
5. Debtor will pay promptly when due all taxes and assessments upon the
Collateral or for its use or operation or upon this Security Agreement or upon
any note or notes evidencing the secured obligations, if any. Further, Debtor
will promptly pay all obligations regarding or relating to the Collateral
necessary to maintain and preserve Debtor's rights and interests therein,
including premiums hereafter due and owing under the terms of the Policy.
6. Debtor will not use or permit use of the Collateral in violation
of any statute, ordinance, or state or federal regulation.
7. The following shall constitute events of default ("Events of
Default") under this Security Agreement:
(a) The Debtor's failure to make any payment to Secured Party when
due, or to perform any other obligations in a timely manner,
including all of Borrower's obligations under the Merger
Agreement;
(b) The Debtor's breach of this Security Agreement, or any present
or future rider or supplement to this Security Agreement, or
any other agreement between Debtor and Secured Party
evidencing the Obligations or securing them, including the
Merger Agreement;
(c) That any warranty, representation, or statement, made by or
on behalf of Debtor in or with respect to this Security
Agreement, is false; and
(d) The Debtor becomes insolvent, or is adjudged bankrupt, or
application for appointment of a receiver for the debts of
Debtor is made, or Debtor requests an extension or arrangement
from Debtor's creditors, including an assignment for the
benefit of creditors, or if Secured Party deems itself
insecure.
8. Upon the occurrence of an Event of Default Secured Party, at its
option, may:
(a) Declare the Obligations immediately due and payable without
demand, presentment, protest or notice to Debtor, all of which
Debtor expressly waives;
(b) Exercise all rights and remedies available to a secured
creditor after default, including but not limited to the
rights and remedies of secured creditors under the Uniform
Commercial Code;
<PAGE>4
(c) Perform any of Debtor's obligations under this Security
Agreement for Debtor's account. Any money expended or
obligations incurred in doing so, including reasonably
attorneys' fees and interest at the highest rate permitted by
law, will be charged to Debtor and added to the Obligations
secured by this Agreement; and/or
(d) Secured Party may take possession of the Collateral and may
demand payment of, institute, and maintain suits for, compound
or compromise any and all sums due or to become due as
proceeds of the Collateral in its own name or in the name of
Debtor, and otherwise avail itself of any action it deems
necessary.
9. Debtor agrees to execute all financing statements and other necessary
documents to perfect Secured Party's interest in the Collateral as set forth
herein.
10. No delay or failure by Secured Party in the exercise of any right or
remedy shall constitute a waiver thereof, and no single or partial exercise by
Secured Party of any right or remedy shall preclude other or further exercise
thereof or the exercise of any other right or remedy. Secured Party shall not be
deemed to have waived any of Secured Party's rights hereunder or under any other
writing signed by Debtor unless such waiver be in writing and signed by Secured
Party. No consent or waiver, express or implied, by any party to, or of any
breach or default by any other party in, the performance of its obligations
hereunder shall be deemed or construed to be a consent to or waiver of any other
breach or default in the performance by such other party of the same or any
other obligations hereunder. Failure on the part of a party to complain of any
act of the other party or to declare a party in default, irrespective of how
long such failure continues, shall not constitute a waiver of such party of its
rights hereunder. All Secured Party's rights and remedies, whether evidenced
hereby or by any other writings, statutes or case law, shall be cumulative and
may be exercised singularly or concurrently. Any demand upon or notice to Debtor
that Secured Party may elect to give shall be effective when deposited in the
mails or delivered to Debtor. If at any time or times by assignment or otherwise
Secured Party transfers any obligations and collateral therefor, such transfer
shall carry with it Secured Party's powers and rights under this Agreement with
respect to the obligations and collateral transferred and
<PAGE>5
the transferee shall become vested with said powers and rights, whether or not
they are specifically referred to in the transfer. This Agreement shall be
governed by the laws of the State of Washington and is intended to take effect
when signed by Debtor and delivered to Secured Party.
11. Except for any notice required under applicable law to be given in
another manner, any notice or other communication required or permitted to be
given hereunder and any approval by any party shall be in writing and shall be
personally delivered or delivered by overnight courier in each case with receipt
acknowledged, or deposited in an official depository of the United States Postal
Service, first-class postage prepaid, by registered or certified mail, return
receipt requested, to the other party or parties at the addresses listed below.
All notices and other communications shall be deemed to have been duly given on
(a) the date of receipt thereof (including all required copies thereof as set
forth below) if delivered personally or by overnight courier or (b) five (5)
business days after the date of mailing thereof (including all required copies
thereof as set forth below) if transmitted by mail. Each party may change its
address for receipt of notices by a notice given to the other parties in
accordance with this provision. Notices shall be addressed as follows:
To the Debtor:
Ceramic Devices, Inc.
c/o PCT Holdings, Inc.
434 Olds Station Road
Wenatchee, Washington 98801
With a copy to:
Durham, Evans, Jones & Pinegar, P.C.
Attention: Jeffrey M. Jones
50 South Main, Suite 850
Salt Lake City, Utah 84144
To the Secured Party:
William H. Payne, Ivan G. Sarda, Elinor A. Walters
and Katrina A. Knowles
c/o William H. Payne
4274 Pt. Loma Avenue
<PAGE>6
San Diego, California 92107
With a copy to:
Reish & Luftman
Attention: Jonathan A. Karp
11755 Wilshire Boulevard, Tenth Floor
Los Angeles, California 90025-1516
12. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law
but, if any provision of this Agreement shall be prohibited or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
13. This Agreement, together with the agreements and warranties herein
contained, shall inure to the benefit of Secured Party and it successors and
assigns and shall be binding upon Debtor and his respective heirs, successors
and assigns.
14. This Agreement inures to the benefit of the Secured Party, its
successors and assigns, and shall bind (as may be applicable) the respective
heirs, personal representatives, successors and assigns of Debtor, and if more
than one party shall sign this Agreement, the term "Debtor" shall mean all such
parties, and each of them, and all such parties shall be jointly and severally
obligated hereunder. Words used herein shall take the singular or plural number,
and such gender, as the number and gender of parties Debtor herein shall
require.
15. Debtor agrees to pay upon demand all of Secured Party's costs and
expenses, including reasonable attorneys' fees and legal expenses, incurred in
connection with the enforcement of this Security Agreement. Secured Party may
pay someone else to help enforce this Security Agreement, and Debtor shall pay
the costs and expenses of such enforcement. Costs and expenses include Secured
Party's reasonable attorneys' fees and legal expenses whether or not performed
by a salaried employee of Secured Party and whether or not there is a lawsuit,
including reasonable attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay or
<PAGE>7
injunction), all appearances in bankruptcy or insolvency proceedings, fees and
expenses incurred in connection with the appointment of a receiver, appeals, and
any anticipated post-judgment collection services. Debtor also shall pay all
court costs and such additional fees as may be directed by the court.
16. This Security Agreement may be executed in one or more counterparts,
any one of which, if originally executed, shall be binding upon each of the
parties signing thereon, and all of which taken together shall constitute one
and the same instrument. One or more photostatic copies of this Security
Agreement may be originally executed by the parties hereto, and such photostatic
copies shall be deemed originals and shall be valid, binding and enforceable in
accordance with their terms.
17. The parties hereto represent and warrant that they have full power,
authority and legal right to execute and deliver, and to perform and observe the
provisions of, this Security Agreement and to carry out the transactions
contemplated hereby. The execution, delivery and performance by the parties of
this Security Agreement have been duly authorized by all necessary legal action
and the parties have obtained any necessary consent, approval of, notice to, or
any action by, and person, firm, corporation or governmental entity or agency
necessary or appropriate to consummate the transaction contemplated hereby.
18. Each party agrees and covenants that it will at any time and from time
to time, upon the request of the other execute, acknowledge, deliver or perform
all such further acts, deeds, assignments, transfers, conveyances and assurances
as may be required to carry out the terms and provisions of this Security
Agreement.
19. The rights and remedies of the parties hereunder shall not be mutually
exclusive, and the exercise by any party of any right to which he or it is
entitled shall not preclude the exercise of any other right he or it may have.
<PAGE>8
IN WITNESS WHEREOF, this Agreement has been executed on the day and date
first above written.
"SECURED PARTY"
WILLIAM H. PAYNE, IVAN G. SARDA,
ELINOR A. WALTERS and
KATRINA KNOWLES
By: /s/
---------------------------------
"DEBTOR"
CERAMIC DEVICES, INC., a Washington
corporation
By: /s/ IVAN G. SARDA
---------------------------------
President
<PAGE>1
INTELLECTUAL PROPERTY ACQUISITION
AND LICENSE AGREEMENT
THIS INTELLECTUAL PROPERTY ACQUISITION AND LICENSE AGREEMENT (the
"Agreement") is entered into as of June 1, 1994, by and between PACIFIC COAST
TECHNOLOGIES, INC., a Washington Corporation (the "Company"), and JAMES C. KYLE
("Kyle").
WHEREAS, the Company currently licenses from Kyle and Kyle licenses to the
Company certain patents, trade secrets and technologies pursuant to a certain
Technology License Agreement (the "License Agreement"), dated as of April 5,
1990, by and between Kyle and Kyle Technology Corporation, the predecessor of
the Company;
WHEREAS, the Company wishes to purchase from Kyle and Kyle wishes to sell
to the Company certain patents, trade secrets and technologies, subject to the
terms and conditions set forth hereinafter;
WHEREAS, the parties also wish to settle other obligations of the Company
to Kyle under the License Agreement and modify the License Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained, in this Agreement, the parties agree as follows:
1. DEFINITIONS.
"Technology" means Patents, Trade Secrets, and Know How as defined herein,
and all other information and expertise relating to Components and Finished
Products, and methods for making Components and Finished Products.
"Patents" means the U.S. Patents listed on Exhibit A, attached hereto.
Patents shall include any corresponding foreign patents and applications
relating to the Technology.
"Trade Secrets" means information developed by or in the possession of Kyle
and used by Kyle in connection with Components and Finished Products consisting
of drawings, cost data, customer lists, formulae, patterns, compilations,
programs, devices, methods, techniques, processes and other information that:
(a) derive independent economic value from their disclosure or use; and (b) at
the subject of efforts that are reasonable under the circumstances to maintain
their secrecy.
"Code" means information which (a) was developed by or is in
the possession of Kyle relating to certain chemical formulations,
<PAGE>2
methods and codes used in manufacturing KRYOFLEX ceramic compositions for use in
Components and Finished Products; and (b) is contained in a confidential Code
Book, copies of which are in the Company's possession. The Code is included
within the definition of Trade Secrets herein, except where it is expressly
excluded.
"Know-How" means information which is not a Trade Secret and not described
or claimed in Patents, but which relates to the practice of the Technology.
Know-How includes information, techniques, materials methods and other
technologies described in pending and abandoned patent applications, manuals,
test data and procedures, flow charts, apparatus plans, drawings, designs and
other information. Know-How specifically includes information contained in
certain procedure manuals, code books, as well as certain materials and methods
developed by Kyle to: (a) facilitate diffusion plating of nickel and other
materials onto a surface; (b) facilitate the drilling of holes; (c) manufacture
integrated circuit chips and enclosures; and (d) clean surfaces.
"Components" are electrical connectors, insulating ceramics, integrated
circuit chip carriers, electrical terminal assemblies, hermetic electrical
seals, electrical enclosures and related components. All Components under this
Agreement either: (a) incorporate a KRYOFLEX ceramic composition and utilize
Trade Secrets; or (b) are encompassed by a valid, enforceable claim of one or
more of the Patents.
"Finished Products" means devices incorporating one or more Components
as parts of more complex assembly. All Finished Products under this Agreement
either: (a) incorporate a KRYOFLEX ceramic composition and utilize Trade
Secrets; or (b) are encompassed by or contain a Component that is encompassed by
a valid, enforceable claim of one or more of the Patents.
"Improvements" means all developments made by Kyle with respect to
Technology, whether or not patentable, prior to and as of the date hereof.
2. Acquisition of Intellectual Property.
(a) Kyle hereby sells, conveys, assigns, transfers and delivers to the
Company, and the Company hereby purchases and accepts from Kyle, all of Kyle's
right, title and interest in and to the Patents, Trade Secrets, Know-How, Code
and Improvements (the Patents, Trade Secrets, Know-How, Code and Improvements
are collectively referred to as the "Intellectual Property").
(b) Pending/Future Patents. Kyle will grant the Company "First Right
of Refusal" for any future or pending patents that are issued within 48 months
of the date of this Agreement. The Company shall have the right to exclusively
License these patents within ninety days after notification of an issued patent
by Kyle at a mutually agreed to Royalty rate.
<PAGE>3
Or the Company may negotiate with Kyle for purchase of the patent or match any
legitimate offer that Kyle has received in writing.
(c) Kyle shall retain the right to use Patent #4,425,476 (Progressive
Fused Ceramic seals between spaced members), #4,436,955 (Terminal Assembly),
#4,493,378 (Terminal Assembly), #4,654,752 (Terminal Assembly & Method of
Making), #4,935,583 (Insulated conductor with ceramic-connector elements) for
the development of future patents and products that may be licensed or purchased
by the Company according to the conditions of paragraph 2b of this agreement.
3. Instruments of Conveyance and Transfer. The sale, conveyance,
assignment, transfer and delivery of the Intellectual Property are being
effected simultaneously with the execution of this Agreement (the "Closing") by
the Company's payment of the consideration set forth in Section 6 below and
Kyle's execution and delivery to the Company of a bill of sale in substantially
the form of the Assignment and Bill of Sale attached hereto as Exhibit B, an
Assignment of Patents in the form attached hereto as Exhibit B, and such other
bills of sale, endorsements, assignments and other instruments of transfer and
conveyance, in form and substance sufficient to vest in the Company all of
Kyle's right, title and interest in and to the Intellectual Property, as may be
reasonably requested by the Company or its counsel. Kyle may substitute a like
form if acceptable by both parties.
4. Delivery of Intellectual Property. Any part of the Intellectual Property
that is in the Company's possession pursuant to the License Agreement shall be
deemed to be delivered, effective as of the Closing, without any further action
by Kyle other than the execution of the Assignment of Patents.
5. Discharge of the Company's Obligations to Kyle. Subject to all the terms
and conditions of this Agreement and for the consideration herein stated, Kyle
hereby forever discharges and releases the Company from its obligations under
the License Agreement to pay Kyle any accrued and unpaid royalties existing on
the date of this Agreement (the "Company Obligations").
6. Consideration. As consideration for Kyle's (a) sale, conveyance,
assignment transfer and delivery of the Intellectual Property, and (b) discharge
of the Company Obligations, the Company shall pay Kyle Four Hundred Fifty
Thousand Dollars ($450,000) in cash or readily available funds at the Closing.
7. Representation and Warranties of the Company. The
Company makes the following representations and warranties to
Kyle:
<PAGE>4
(a) Existence. The Company is a corporation duly organized and
existing under the laws of the State of Washington and has all requisite
corporate power and authority to own, operate and lease its assets and carry on
its business as now conducted and as proposed to be conducted.
(b) Authority and Validity. The Company has full corporate power and
corporate authority to execute and deliver this Agreement, to consummate the
transactions contemplated by this Agreement, and to carry out its obligations
under this Agreement. This Agreement has been duly and validly authorized by the
Board of Directors of the Company, and has been duly and validly executed and
delivered by the Company, and constitutes the valid and binding obligation of
the Company, enforceable in accordance with its terms.
8. Representation and Warranties of Kyle. Kyle makes the
following representations and warranties to the Company:
(a) Title to Intellectual Property. Kyle is (a) the sole inventor and
the exclusive owner and owner of record in the U.S. Patent and Trademark Office
of all Patents; (b) the sole and exclusive owner of all Trade Secrets, Know-How,
Code and Improvements. Kyle has had and will have, on or as of Closing, good and
marketable title to the Intellectual Property, legal and equitable, free and
clear of all pledges, security interests, liens, charges, encumbrances,
equities, claims, options or limitations of any nature, and on the Closing, Kyle
will transfer to the Company and the Company will acquire from Kyle such good
and marketable title to the Intellectual Property. To the best of his knowledge
all Patents are valid and enforceable. Except for the licenses granted to the
Company under the License Agreement, there are no licenses granted or promised
to be granted by Kyle with respect to the Technology to any person or entity as
of the date hereof.
(b) No Claims. To the best of his knowledge, there is no claim or
allegation made by or threatened to be made by third parties that Components or
Finished Products infringe the patent or proprietary rights of third parties, or
that Patents are invalid or unenforceable or that Trade Secrets have been
misappropriated or are known to the public.
(c) Non-Disclosure. Except as set forth in Exhibit E, Kyle has
maintained as confidential and has not disclosed to any person or entity (other
than the Company or the individuals specifically designated by the Company) any
Trade Secret, Know- How and Code information relating the Technology.
(d) Maintenance of Patents. Kyle has maintained and has paid all
maintenance fees on the Patents, and except as set forth in Exhibit F, none of
the Patents has lapsed.
<PAGE>5
9. Covenant of Kyle. Kyle agrees that he will not disclose any information
relating to Trade Secrets, Know-How, Code or Improvements to any person or
entity and shall not and will not use such information for any purpose,
including research, development or commercialization, except as stated in
paragraph 2C of this document.
10. General Provisions.
(a) Survival of Representations and Warranties. The representations
and warranties contained in this Agreement shall survive the Closing of the
transactions contemplated hereby.
(b) Notices. All notices required hereunder shall be in writing, and
shall be sent by registered or certified mail, postage prepaid and return
receipt requested. All documentation, reports, correspondence and notices to the
Company shall be addressed to:
Pacific Coast Technologies, Inc.
434 Olds Station Road
Wenatchee, Washington 98801
Attention: Donald A. Wright
cc: Sheryl A. Symonds, Esq.
Stoel Rives
600 University Street, 36th Floor
Seattle, Washington 98101-3197
All documentation, reports, correspondence and notices to Kyle shall be
addressed to:
James C. Kyle
2547 Fisher Road
Roseburg, Oregon 97470
cc: ------------------------------------
------------------------------------
(c) Integration. This Agreement contains the entire understanding of
the parties and is intended as a final expression of their agreement. This
Agreement superseded all previous discussions and agreements concerning the
subject matter contained herein. This Agreement shall not be modified,
supplemented or amended except in writing signed by duly authorized
representatives of the parties hereto.
(d) Waiver. Any waiver of any of the provisions or
conditions of this Agreement or any of the rights of a party
<PAGE>7
hereto shall be valid only if set forth in an instrument in writing signed by
the party granting such waiver. Any waiver or failure to insist upon strict
compliance with any obligation, covenant, agreement or condition shall not
operate as a waiver of any other provision.
(e) Attorneys' Fees. In the event of a dispute between the parties
resulting in litigation with respect to the subject matter hereof, the
substantially prevailing party as determined by the court shall be entitled to a
judgment for its costs through appeal, including reasonable attorneys' fees.
(f) Applicable Law. This Agreement shall be interpreted and governed
according to the laws of the State of Washington, except for United States
federal laws applicable, in which case this Agreement shall be governed by and
interpreted in accordance with such federal laws.
(g) Execution in Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original and all of which together shall constitute one and the same instrument.
(h) Divisible. This Agreement is and shall be construed to be
divisible and separable with the effect that if any provision or provisions
hereof shall at any time be found or declared invalid or unenforceable by
competent judicial authority, such finding or declaration shall not impair the
remaining provisions hereof, but the same shall remain valid and enforceable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
PACIFIC COAST TECHNOLOGIES, INC.
By /s/ DONALD A. WRIGHT
-----------------------------
Donald A. Wright
Its President
/s/ JAMES C. KYLE
- -------------------------------
JAMES C. KYLE
<PAGE>8
In connection with the foregoing Intellectual Property Acquisition and
License Agreement, Carol A. Kyle hereby acknowledges that she has no claim to or
interest in the Technology as defined therein.
/s/ CAROL A. KYLE
-------------------------------
CAROL A. KYLE
DATE: 28 May 1994
<PAGE>9
KYLE PATENTS
Exhibit A
Patent Number Patent Description
- ------------- ------------------
4,220,813 TERMINAL FOR MEDICAL INSTRUMENT
4,220,814 TERMINAL FOR MEDICAL INSTRUMENT & ASSEMBLY
4,352,951 CERAMIC SEAL
4,371,588 CERAMIC SEAL
4,401,766 CERAMIC SEAL
4,411,680 CERAMIC SEAL
4,421,947 POLYCRYSTALLINE INSULATING MATERIAL
4,424,090 INSULATING MATERIAL & METHOD OF MAKING
4,425,476 PROGRESSIVELY FUSED CERAMIC SEAL
4,436,955 TERMINAL ASSEMBLY
4,456,786 TERMINAL ASSEMBLY FOR HEART PACEMAKER
4,461,926 HERMETICALLY SEALED INSULATING ASSEMBLY
4,493,378 TERMINAL ASSEMBLY
4,507,522 TERMINAL ASSEMBLY
4,514,207 METHOD FOR MAKING TERMINAL ASSEMBLY
4,514,590 ELECTRICAL TERMINAL ASSEMBLY
4,512,791 HERMETICALLY SEALED INSULATING ASSEMBLY
4,518,820 TERMINAL ASSEMBLY FOR HEART PACEMAKER
4,593,758 HERMETICALLY SEALED INSULATING ASSEMBLY
4,654,752 TERMINAL ASSEMBLY & METHOD OF MAKING
4,657,337 ELECTRICAL CONNECTOR & PRODUCTION METHOD
4,935,583 INSULATED CONDUCTOR/CERAMIC CONNECTED
ELEMENTS
Pacific Coast Technologies, Inc.
By /s/ DONALD A. WRIGHT /s/ JAMES C. KYLE
--------------------------- --------------------------
Donald A. Wright JAMES C. KYLE
President
<PAGE>10
ASSIGNMENT AND BILL OF SALE
Exhibit B
This Assignment and Bill of Sale is given as of the 28th day
of May, 1994, by JAMES C. KYLE ("Kyle"), to PACIFIC COAST TECHNOLOGIES, INC., a
Washington corporation ("Buyer"), pursuant to Section 2 of that certain
Intellectual Property Acquisition Agreement dated as of the 28th day of May,
1994 (the "Agreement"), by and between Kyle and Buyer, whereby Kyle is to sell,
convey, assign, transfer, and deliver to Buyer all of his Secrets, Know-How,
Code and Improvements as those terms are defined in the Agreement (the
"Intellectual Property").
WHEREAS, Section 3 of the Agreement provides for the execution
and delivery of an Assignment and Bill of Sale evidencing the transfer of such
right, title and interest;
NOW, THEREFORE, in accordance with and subject to the
Agreement, and for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Kyle hereby sells, conveys, assigns,
transfers, and delivers to Buyer all of Kyle's right, title and interest, legal
and equitable, in and to all of the Intellectual Property referred to in Section
2 of the Agreement.
TO HAVE AND TO HOLD the Intellectual Property unto Buyer and
its successors and assigns forever. Kyle agrees to execute any additional
instruments, documents, and certificates needed to effect the transfer of and to
vest title in the Intellectual Property in buyer on the terms set forth above.
This Assignment and Bill of Sale shall be binding on, inure to
the benefit of, and be enforceable by and against Kyle and Buyer and their
respective successors and assigns. This Assignment and Bill of Sale shall be
construed and enforced in accordance with the laws of the State of Washington.
IN WITNESS WHEREOF, Kyle has executed this Assignment and Bill
of Sale as of the date first set forth above.
/s/JAMES C. KYLE
- ------------------------------
JAMES C. KYLE
<PAGE>1
PROMISSORY NOTE
$400,000.00 June 1, 1994
For value received Pacific Coast Technologies, Inc. agrees to pay
James C. Kyle and Carol A. Kyle the sum of $400,000 under the
following terms and conditions.
1. It is understood that this amount ($400,000) is the balance of a
negotiated sum of $560,000 [due] the Kyles from the original purchase
of the Company (KTC) by Mr.
Wright in 1990.
2. This negotiated sum of $560,000 includes all principal
and interest due and past due the Kyles.
3. The Kyles agree to make an effort to purchase $100,200 worth of common
stock from PCT Holdings, Inc. per the company's private placement to
occur within sixty days of the date of this document.
If for any reason the Kyles do not purchase this stock. The balance of $160,000
will become a separate note effective August 1, 1994. The note will bear
interest at 8.5% interest (annual rate) with interest only payable on a monthly
basis. The principal amount of $160,000 will be due in one lump sum payment on
June 1, 1995.
4. The original note balance of $400,000 shall bear interest at 8.5%
(annual rate) payable interest only on a monthly basis until October
21, 1994.
A principal payment of $200,000 will be paid on October 21, 1994.
Interest only payments on the balance of $200,000 will be made monthly at 8.5%
interest (annual rate) until January 3, 1995 when the remaining balance of
$200,000 will be paid in full.
5. The Patents purchased by this agreement as well as the Company's
receivables and inventory shall serve as collateral for this Loan
subject to subordination to the Company's senior lender or
institution.
6. The payment on any and all monthly interest to the Kyles by Pacific
Coast Technology will not be subject to any subordination as agreed by
telecon and fax May 27, 1994.
7. The Term of this note is from June 1, 1994 until
January 3, 1995.
Pacific Coast Technologies, Inc.
By: /s/ JAMES C. KYLE By: /s/ DON A. WRIGHT
------------------------- -----------------------------
James C. Kyle Donald A. Wright, President
By: /s/ CAROL A. KYLE
-------------------------
Carol A. Kyle
<PAGE>
PROMISSORY NOTE
EXTENSION
$387,800.00 January 1, 1995
For value received Pacific Coast Technologies, Inc. agrees to pay
James C. Kyle and Carol A. Kyle the sum of $387,800.00 under the
following terms and conditions.
1. It is understood that this amount ($387,800.00) is the
balance of a negotiated sum of $560,000 due the Kyles
from the original purchase of the Company (Kyle
Technology Corporation) by Mr. Wright in 1990.
2. All rights of the Kyles and all collateral associated
with the original note issued for the purchase of Kyle
Technology Corporation in 1990 remain unchanged and are
an integral part of this note.
3. In addition to the original collateral as referenced
above, the patents purchased May 28, 1994 as well as
Pacific Coast Technologies, Inc.'s receivables and
inventory shall serve as collateral for the loan
subject to subordination to the Company's senior lender
or institution, provided that the monthly payments of
principal and interest will not be subject to any
subordination.
4. The note balance of $387,800.00 shall bear interest at
10.25 percent (nominal annual rate) payable in equal
monthly payments of principal and interest in the
amount of $8,287.39 for thirty-six (36) months
beginning February 1, 1995. The final payment of
principal and interest of $180,676.63 will be payable
on February 1, 1998.
Pacific Coast Technologies, INc.
By: /s/ JAMES C. KYLE By: /s/ DON A. WRIGHT
------------------------- ------------------------------
James C. Kyle Donald A. Wright, President
By: /s/ CAROL A. KYLE
-------------------------
Carol A. Kyle
<PAGE>1
SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
Co-Borrowers: PCT Holdings, Inc.
a Nevada corporation
Ceramic Devices, Inc.
a California corporation
Cashmere Manufacturing Co., Inc.
a Washington corporation
Pacific Coast Technologies, Inc.
a Washington corporation
Address: c/o PCT Holdings, Inc.
434 Olds Station Road
Wenatchee, WA 98801
Date: April 24, 1995
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date
between SILICON VALLEY BANK ("Silicon"), whose address is 3000 Lakeside Drive,
Santa Clara, California 95054-2895 and the co-borrowers named above (each, a
"Borrower", and collectively, the "Borrowers"), whose chief executive office is
located at the above address ("Borrowers' Address").
PCT Holdings, Inc. owns a majority of the outstanding
capital stock of Ceramic Devices, Inc., Cashmere Manufacturing
Co., Inc., and Pacific Coast Technologies, Inc. (collectively,
the "Subsidiaries"). From time to time, PCT Holdings, Inc.
provides management expertise to the Subsidiaries. Borrowers are
entering into this Loan and Security Agreement as co-borrowers
since they will benefit from the use of the proceeds of the loans
described in this Agreement.
1. LOANS.
1.1 Loans. Silicon will make loans to the Borrowers (the "Loans") in
amounts determined by Silicon in its discretion up to the amount (the "Credit
Limit") shown on the Schedule to this Agreement (the "Schedule"), the terms of
which are incorporated into this Agreement. The Borrowers are responsible for
monitoring the total amount of Loans and other Obligations outstanding from time
to time, and the Borrowers shall not permit that amount, at any time, to exceed
the Credit Limit. If at any time the total of all outstanding Loans and all
other Obligations
<PAGE>2
exceeds the Credit Limit, the Borrowers shall immediately pay the amount of the
excess to Silicon, without notice or demand.
1.2 Interest; Debit to Deposit Accounts. All Loans and all other
monetary Obligations shall bear interest at the rate shown on the Schedule
hereto. Interest shall be payable monthly, on the due date shown on the monthly
billing from Silicon to the Borrowers. The Borrowers shall regularly deposit all
funds received from their business activities in accounts maintained by the
Borrowers at Silicon. The Borrowers hereby request and authorize Silicon to
debit any of the Borrowers' accounts with Silicon, including without limitation
account no. 09002758-70, for payments of interest and principal due on the Loans
and all other obligations owing by the Borrowers to Silicon. Silicon shall
promptly notify the Borrowers of all debits which Silicon makes against the
Borrowers' accounts. Any such debit against the Borrowers' accounts shall in no
way be deemed a set-off by Silicon
1.3 Fees. The Borrowers shall pay to Silicon loan fees in the amounts
shown on the Schedule hereto. These fees are in addition to all interest and
other sums payable to Silicon and are not refundable.
2. GRANT OF SECURITY INTEREST.
2.1 Obligations. The term "Obligations" as used in this Agreement
means the following: the obligation to pay all Loans and all interest thereon
when due, and to pay and perform when due all other present and future
indebtedness, liabilities, obligations, guarantees, covenants, agreements,
warranties and representations of the Borrowers to Silicon, whether joint or
several, monetary or non-monetary, and whether created pursuant to this
Agreement or any other present or future agreement or otherwise. Silicon may, in
its discretion, require that the Borrowers pay monetary Obligations in cash to
Silicon, or charge them to Borrowers' Loan account, in which event they shall
bear interest at the same rate applicable to the Loans.
2.2 Collateral. As security for all Obligations, the Borrowers each
hereby grant Silicon a continuing security interest in all of each Borrower's
assets, including but not limited to all of each Borrowers' interest in the
types of property described below, whether now owned or hereafter acquired, and
wherever located (collectively, the "Collateral"): (a) All accounts, contract
rights, chattel paper, letters of credit, documents, securities, money, and
instruments, and all other obligations now or in the future owing to the
Borrowers; (b) All inventory, goods, merchandise, materials, raw materials, work
in process, finished goods, farm products, advertising, packaging and shipping
materials, supplies, and all other tangible personal property which is held for
sale or lease or
<PAGE>3
furnished under contracts of service or consumed in any Borrower's business, and
all warehouse receipts and other documents; (c) All equipment, including without
limitation all machinery, fixtures, trade fixtures, vehicles, furnishings,
furniture, materials, tools, machine tools, office equipment, computers and
peripheral devices, appliances, apparatus, parts, dies, and jigs; (d) All
general intangibles including, but not limited to, deposit accounts, goodwill,
names, trade names, trademarks and the goodwill of the business symbolized
thereby, trademark applications, trade secrets, drawings, blueprints, customer
lists, patents, patent applications, copyrights, copyright applications,
security deposits, loan commitment fees, federal, state and local tax refunds
and claims, all rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all judgments now
or hereafter arising therefrom, all claims of any Borrower against Silicon, all
rights to purchase or sell real or personal property, all rights as a licensor
or licensee of any kind, all royalties, licenses, processes, telephone numbers,
proprietary information, purchase orders, and all insurance policies and claims
(including without limitation credit, liability, property and other insurance),
and all other rights, privileges and franchises of every kind; (e) All books and
records, whether stored on computers or otherwise maintained; (f) All of each
Borrower's cash; (g) A $1,000,000 certificate of deposit pledged by any Borrower
or a third party; and (h) All substitutions, additions and accessions to any of
the foregoing, and all products, proceeds and insurance proceeds of the
foregoing, and all guaranties of and security for the foregoing; and all books
and records relating to any of the foregoing. Silicon's security interest in any
present or future technology (including patents, trade secrets, and other
technology) shall be subject to any licenses or rights now or in the future
granted by the Borrowers to any third parties in the ordinary course of the
Borrowers' business; provided that if the Borrowers proposed to sell, license or
grant any other rights with respect to any technology in a transaction that, in
substance, conveys a major part of the economic value of that technology,
Silicon shall first be requested to release its security interest in the same,
and Silicon may withhold such release in its discretion The Borrowers shall not,
either directly or through any agent, employee, licensee or designee, (a) file
an application for the registration of any patent, trademark or copyright with
the U.S. Patent and Trademark Office, the U.S. Copyright Office, or any similar
office or agency in any other country, state, or any political subdivision (the
"Offices"), or (b) file any assignment of any patent, trademark, or copyright
which any Borrower may acquire from a third party with any one of the Offices
unless the Borrowers shall, on or prior to the date of such filing, notify
Silicon thereof; and, upon request of Silicon, execute and deliver any and all
assignments, agreements, instruments, documents and papers as Silicon may
request to evidence Silicon's
<PAGE>4
interest in such patents, trademarks, or copyrights, as the case may be,
including the goodwill and general intangibles of the Borrowers relating thereto
or represented thereby, and the Borrowers authorize Silicon to amend any
applicable notice of security interest or assignment executed pursuant to
Section 4.9 of this Agreement without first obtaining the Borrowers' approval of
or signature to such amendment and to record such assignment with one or more of
the Offices.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
BORROWERS.
The Borrowers represent and warrant to Silicon as follows, and the
Borrowers covenant that the following representations shall continue to be true,
and that the Borrowers shall comply with all of the following covenants:
3.1 Corporate Existence and Authority. PCT Holdings, Inc.
is and shall continue to be duly authorized, validly existing and
in good standing under the laws of the state of Washington.
Ceramic Devices, Inc. is and shall continue to be duly
authorized, validly existing and in good standing under the laws
of the state of California. Cashmere Manufacturing Co., Inc. is
and shall continue to be duly authorized, validly existing and in
good standing under the laws of the state of Washington. Pacific
Coast Technologies, Inc. is and shall continue to be duly
authorized, validly existing and in good standing under the laws
of the state of Washington. The Borrowers are and shall continue
to be qualified and licensed to do business in all jurisdictions
in which any failure to do so would have a material adverse
effect on any Borrower. The execution, delivery and performance
by the Borrowers of this Agreement, and all other documents
contemplated hereby have been duly and validly authorized, are
enforceable against the Borrowers in accordance with their terms,
and do not violate any law or any provision of; and are not
grounds for acceleration under, any agreement or instrument which
is binding upon any Borrower.
3.2 Name, Trade Names and Styles. The name of each Borrower set forth in
the heading to this Agreement is its correct name. Listed on the Schedule hereto
are all prior names of the Borrowers and all of the Borrowers' present and prior
trade names. Each Borrower shall give Silicon 15 days' prior written notice
before changing its name or doing business under any other name. The Borrowers
have complied, and shall in the future comply, with all laws relating to the
conduct of business under a fictitious business name.
3.3 Place of Business: Location of Collateral. The
address set forth in the heading to this Agreement is the chief
executive office for each Borrower. In addition, the Borrowers
have places of business only at, and Collateral of any Borrower
<PAGE>5
is located only at, the locations set forth on the Schedule to this Agreement.
Each Borrower shall give Silicon at least 15 days prior written notice before
changing its chief executive office or moving the Collateral to any other
location.
3.4 Title to Collateral: Permitted Liens. The Borrowers are now, and
shall at all times in the future be, the sole owner of all the Collateral,
except for items of equipment which are leased by the Borrowers. The Collateral
now is and shall remain free and clear of any and all liens, charges, security
interests, encumbrances and adverse claims, except for the following ("Permitted
Liens"): (i) purchase money security interests in specific items of equipment;
(ii) leases of specific items of equipment; (iii) liens for taxes not yet
payable; (iv) additional security interests and liens consented to in writing by
Silicon in its sole discretion; and (v) security interests being terminated
substantially concurrently with this Agreement Silicon shall have the right to
require, as a condition to its consent under subparagraph (iv) above, that the
holder of the additional security interest or lien sign an intercreditor
agreement on terms satisfactory to Silicon in its sole discretion, acknowledge
that the holder's security interest is subordinate to the security interest in
favor of Silicon, and that the Borrowers agree that any uncured default in any
obligation secured by the subordinate security interest shall also constitute an
Event of Default under this Agreement. Silicon now has, and shall continue to
have, a first priority, perfected and enforceable security interest in all of
the Collateral. The Collateral shall not be subject to any other liens or
security interests of any type except for the Permitted Liens. The Borrowers
shall at all times defend Silicon and the Collateral against all claims of
others. None of the Collateral now is or shall be affixed to any real property
in such a manner, or with such intent, as to become a fixture.
3.5 Maintenance of Collateral. The Borrowers shall maintain the
Collateral in good working condition. The Borrowers shall not use the Collateral
for any unlawful purpose. The Borrowers shall immediately advise Silicon in
writing of any material loss or damage to the Collateral.
3.6 Books and Records. The Borrowers have maintained and shall
maintain at the Borrowers' Address complete and accurate books and records,
comprising an accounting system in accordance with generally accepted accounting
principles.
3.7 Financial Condition and Statements. All financial statements now
or in the future delivered to Silicon have been, and shall be, prepared in
conformity with generally accepted accounting principles and now and in the
future shall completely and accurately reflect the financial condition of the
Borrowers, on a consolidated and consolidating basis, at the times and for
<PAGE>6
the periods therein stated. Since the last date covered by any such statement,
there has been no material adverse change in the financial condition or business
of the Borrowers. Each Borrower is now and shall continue to be solvent. Each
Borrower shall provide Silicon: (i) within 30 days after the end of each month,
a monthly financial statement (consisting of a income statement and a balance
sheet) prepared by each Borrower; (ii) within 15 days after the end of each
month, an accounts receivable report, an accounts payable report and an
inventory listing in such form as Silicon shall reasonably specify; (iii) within
15 days after the end of each month, a Borrowing Base Certificate in the form
attached to this Agreement as Exhibit A, as Silicon may reasonably modify such
Certificate from time to time, signed by the Chief Financial Officer of each
Borrower; (iv) within 30 days after the end of each of the first three calendar
quarters of each year and within 90 days after the end of the fourth quarter, a
Compliance Certificate in such form as Silicon shall reasonably specify, signed
by the Chief Financial Officer of each Borrower, certifying that throughout such
quarter each Borrower was in full compliance with all of the terms and
conditions of this Agreement, and setting forth calculations showing compliance
with the financial covenants set forth on the Schedule hereto and such other
information as Silicon shall reasonably request; and (v) within 90 days
following the end of the Borrowers' fiscal year, complete annual audited
financial statements, together with an unqualified opinion of the auditors, such
audit being conducted by independent certified public accountants reasonably
acceptable to Silicon.
3.8 Tax Returns and Payments: Pension Contributions. The Borrowers
have timely filed, and shall timely file, all tax returns and reports required
by foreign, federal, state and local law. The Borrowers have timely paid, and
shall timely pay, all foreign, federal, state and local taxes, assessments,
deposits and contributions now or in the future owed by the Borrowers. The
Borrowers may, however, defer payment of any contested tax, provided that the
Borrowers (i) in good faith contests the Borrowers' obligation to pay the taxes
by appropriate proceedings promptly and diligently instituted and conducted,
(ii) notify Silicon in writing of the commencement of, and any material
development in, the proceedings, and (iii) post bonds or take any other steps
required to keep the contested taxes from becoming a lien upon any of the
Collateral. The Borrowers are unaware of any claims or adjustments proposed for
any of the Borrowers' prior tax years which could result in additional taxes
becoming due and payable by the Borrowers. The Borrowers have paid, and shall
continue to pay all amounts necessary to fund all present and future pension,
profit sharing and deferred compensation plans in accordance with their terms.
The Borrowers have not and shall not withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other
<PAGE>7
event with respect to, any such plan which could result in any liability of the
Borrowers, including, without limitation, any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
3.9 Compliance with Law. The Borrowers have complied, and shall
comply, in all material respects, with all provisions of all foreign, federal,
state and local laws and regulations relating to the Borrowers, including, but
not limited to, those relating to ownership of real or personal property,
conduct and licensing of each Borrower's business, and environmental matters.
3.10 Litigation. Except as disclosed in the Schedule hereto, there is
no claim, suit, litigation, proceeding or investigation pending or (to best of
each Borrower's knowledge) threatened by or against or affecting any Borrower in
any court or before any governmental agency (or any basis therefor known to any
Borrower) which may result, either separately or in the aggregates in any
material adverse change in the financial condition or business of any Borrower,
or in any material impairment in the ability of the Borrowers to carry on its
business in substantially the same manner as it is now being conducted. The
Borrowers shall promptly inform Silicon in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
the Borrowers or any of them involving amounts in excess of $100,000.
3.11 Use of Proceeds. All proceeds of all Loans shall
be used solely for lawful business purposes.
3.12 No Patents or Trademarks. None of the Borrowers own, and none of
the Borrowers have pending any application for the registration of, any patent
or trademark with the U.S. Patent and Trademark Office or any similar office or
agency of any state, of the United States of America or of any foreign
jurisdiction except as disclosed in the Schedule.
3.13 Hazardous Substances. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in this
Agreement, shall have the same meanings as set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, 42
U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation
and Recovery Act, 49 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of
Division 20 of the California Health and Safety Code, Section 25100, et seq., or
other applicable state or Federal laws, rules, or regulations adopted pursuant
to any of the foregoing. The Borrowers represent and warrant that: (a) the
Borrowers have no knowledge of (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous waste or
<PAGE>8
substance by any prior owners or occupants of any of the properties, or (ii) any
actual or threatened litigation or claims of any kind by any person relating to
such matters; (b) none of the Borrowers nor any subtenant, contractor, agent or
other user authorized by any of the Borrowers of any of the properties shall
use, generate, manufacture, store, treat, dispose of; or release any hazardous
waste or substance on, under, or about any of the properties owned or operated
by the Borrowers; and any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances described
above. The Borrowers authorize Silicon and its agents, upon 24 hours prior
notice (which need not be in writing), to enter upon the properties to make such
inspections and tests as Silicon may deem appropriate to determine compliance of
the properties owned or operated by the Borrowers with this section of the
Agreement. Any inspections or tests made by Silicon shall be for Silicon's
purposes only and shall not be construed to create any responsibility or
liability on the part of Silicon to the Borrowers or to any other person. The
Borrowers hereby (a) release and waive any future claims against Silicon for
indemnity or contribution in the event the Borrowers become liable for cleanup
or other costs under any such laws, and (b) agree to indemnity and hold harmless
Silicon against any and all losses, liabilities, damages, penalties, and
expenses which Silicon may directly or indirectly sustain or suffer resulting
from a breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened release
occurring prior to the Borrowers' ownership or interest in the properties,
whether or not the same was or should have been known to the Borrowers. The
provisions of this section of the Agreement, including the obligation to
indemnity, shall survive the payment of the Indebtedness and the termination or
expiration of this Agreement and shall not be affected by Silicon's acquisition
of any interest in any of the properties, whether by foreclosure or otherwise.
4. ADDITIONAL DUTIES OF THE BORROWERS.
4.1 Financial and Other Covenants. The Borrowers
shall at all times comply with the financial and other covenants
set forth in the Schedule to this Agreement.
4.2 Overadvance; Proceeds of Accounts. If for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit, without
limiting Silicon's other remedies, and whether or not Silicon declares an Event
of Default, the Borrowers shall remit to Silicon all checks and other proceeds
of the Borrowers' accounts and general intangibles, in the same form as received
by the Borrowers, within one business day after the Borrowers' receipt of the
same,
<PAGE>9
to be applied to the Obligations in such order as Silicon shall
determine in its discretion.
4.3 Insurance. The Borrowers shall at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require. All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole and absolute discretion, except that,
provided no Event of Default has occurred, Silicon shall release to the
Borrowers insurance proceeds with respect to equipment totalling less than
$100,000, which shall be utilized by the Borrowers for the replacement of the
equipment with respect to which the insurance proceeds were paid. Silicon may
require reasonable assurance that the insurance proceeds so released shall be so
used. If the Borrowers fail to provide or pay for any insurance, Silicon may,
but is not obligated to, obtain the same at the Borrowers' expense. The
Borrowers shall promptly deliver to Silicon copies of all reports made to
insurance companies.
4.4 Report. The Borrowers shall provide Silicon with such written reports
with respect to the Borrowers, as Silicon shall from time to time reasonably
specify.
4.5 Access to Collateral, Books and Records. At all reasonable times, and
upon one business day notice, Silicon, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy the Borrowers'
accounting books, records, ledgers, journals, or registers and the Borrowers'
books and records relating to the Collateral. Silicon shall take reasonable
steps to keep confidential all information obtained in any such inspection or
audit, but Silicon shall have the right to disclose any such information to its
auditors, regulatory agencies and attorneys, and pursuant to any subpoena or
other legal process. The Borrowers shall reimburse Silicon for Silicon's actual
costs (up to $1,250 per audit) for conducting two audits per year. Silicon may
debit the Borrowers' deposit accounts with Silicon for the cost of such accounts
receivable audits (up to the limit stated above), in which event Silicon shall
send notification thereof to the Borrowers. Notwithstanding the foregoing,
during the continuation of an Event of Default all audits shall be at the
Borrower's expense.
4.6 Negative Covenants. Except as may be permitted in the
Schedule hereto, the Borrowers shall not, without Silicon's prior
written consent, do any of the following: (i) pledge or otherwise
encumber the collateral of Borrower other than to Silicon; (ii)
<PAGE>10
merge or consolidate with another corporation, except that any Borrower may
merge or consolidate with another corporation if that Borrower is the surviving
corporation in the merger and the aggregate value of the assets acquired in the
merger do not exceed 25% of that Borrower's Tangible Net Worth (as defined in
the Schedule hereto) as of the end of the month prior to the effective date of
the merger, and the assets of the corporation acquired in the merger are not
subject to any liens or encumbrances, except Permitted Liens; (iii) acquire any
assets, including stock of any other entity, outside the ordinary course of
business for an aggregate purchase price (whether paid in cash, in stock of any
Borrower or other consideration) exceeding 25% of such Borrower's Tangible Net
Worth (as defined in the Schedule hereto) as of the end of the month prior to
the effective date of the acquisition; (iv) enter into any other transaction
outside the ordinary course of business (except as permitted by the other
provisions of this Section); (v) sell or transfer any Collateral, except for the
sale of finished inventory in the ordinary course of the Borrowers' business,
and except for the sale of obsolete or unneeded equipment in the ordinary course
of business; (vi) make any loans of any money or any other assets to
shareholders, employees or any other person except in the ordinary course of
business; (vii) incur any debts that are outside the ordinary course of business
or that would have a material, adverse effect on the Borrowers or on the
prospect of repayment of the Obligations; (viii) guarantee or otherwise become
liable with respect to the obligations of another party or entity; (ix) pay or
declare any dividends on the stock of any Borrower (except for dividends payable
solely in stock of the Borrowers); (x) redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of the stock of any Borrower; (xi) make any
change in any Borrower's capital structure which has a material adverse effect
on that Borrower or on the prospect of repayment of the Obligations; or (xii)
dissolve or elect to dissolve. Except as may be permitted in the Schedule
hereto, PCT Holdings, Inc. shall not sell or transfer any stock it owns of any
of the Borrowers. Transactions permitted by the foregoing provisions of this
Section are only permitted if no Event of Default and no event which (with
notice or passage of time or both) would constitute an Event of Default would
occur as a result of such transaction.
4.7 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to the Borrowers, the Borrowers shall, without expense to Silicon, make
available the Borrowers and their officers, employees and agents and the
Borrowers' books and records to the extent that Silicon may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
<PAGE>11
4.8 Verification. Silicon may, from time to time, following prior
notification to the Borrowers, verify directly with the respective account
debtors the validity, amount and other matters relating to the Borrowers'
accounts, by means of mail, telephone or otherwise, either in the name of any
Borrower or Silicon or such other name as Silicon may reasonably choose,
provided that no prior notification shall be required following an Event of
Default. Silicon shall not be required to obtain any Borrower's consent prior to
any such verification of accounts, whether or not an Event of Default has
occurred.
4.9 Execute Additional Documentation. The Borrowers agree, at their
expense, on request by Silicon, to execute from time to time all documents in
form satisfactory to Silicon, as Silicon may deem reasonably necessary or useful
in order to perfect and maintain Silicon's perfected security interest in the
Collateral, and in order to fully consummate all of the transactions
contemplated by this Agreement.
5. TERM
5.1 Maturity Date. This Agreement shall continue in effect until the
payment in full of the Obligations, provided, however, that the Borrowers shall
repay in full each Loan not later than the Maturity Date for such Loan as stated
in the Schedule.
5.2 Early Termination. Subject to Section 5.3, this Agreement may be
terminated, without penalty, prior to the Maturity Date as follows: (i) by the
Borrowers, effective three business days after written notice of termination is
given to Silicon; or (ii) by Silicon at any time after the occurrence of an
Event of Default, without notice, effective immediately.
5.3 Payment of Obligations. On the due dates stated in the Schedule, or on
any earlier effective date of termination, the Borrowers shall pay and perform
in full all Obligations, whether evidenced by installment notes or otherwise,
and whether or not all or any part of such obligations are otherwise then due
and payable. Notwithstanding any termination of this Agreement, all of Silicon's
security interests in all of the Collateral and all of the terms and provisions
of this Agreement shall continue in full force and effect until all Obligations
have been paid and performed in full; provided that, without limiting the fact
that Loans are discretionary on the part of Silicon, Silicon may, in its sole
discretion, refuse to make any further Loans after termination. No termination
shall in any way affect or impair any right or remedy of Silicon, nor shall any
such termination relieve the Borrowers of any Obligation to Silicon, until all
of the Obligations have been paid and performed in full. Upon payment and
performance in full of all the Obligations, Silicon shall promptly deliver to
the Borrowers termination statements,
<PAGE>12
requests for reconveyances and such other documents as may be required to fully
terminate any of Silicon's security interests.
6. EVENTS OF DEFAULT AND REMEDIES.
6.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and the Borrowers shall
give Silicon immediate written notice thereof: (a) any warranty, representation,
statement, report or certificate made or delivered to Silicon by any Borrower or
any of the Borrowers' officers or employees, now or in the future, shall be
untrue or misleading in any material respect; or (b) any Borrower shall fail to
pay when due any Loan or any interest thereon or any other monetary Obligation;
or (c) the total Loans and other Obligations outstanding at any time exceed the
Credit Limit; or (d) any Borrower shall fail to comply with any of the financial
covenants set forth in the Schedule to this Agreement or shall fail to perform
any other non-monetary Obligation which by its nature cannot be cured; or (e)
any Borrower shall fail to pay or perform any other non-monetary Obligation,
under this Agreement or any other agreement or document relating to the Loans;
or (f) any levy, assessment, attachment, seizure, lien or encumbrance is made on
all or any part of the Collateral; or (g) dissolution, termination of existence,
insolvency or business failure of any Borrower, or appointment of a receiver,
trustee or custodian, for all or any part of the property of; assignment for the
benefit of creditors by, or the commencement of any proceeding by any of the
Borrowers under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect; or (h) the commencement of any
proceeding against any of the Borrowers or any guarantor of any of the
Obligations under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 30 days after the date commenced; or (i) revocation or
termination of, or limitation of liability upon, any guaranty of the
Obligations; or (j) commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or (k) any Borrower makes
any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations, unless such payment is permitted in the
applicable subordination agreement, or if any person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; (l)any of the Borrowers shall generally not pay its debts as they
become due; or any of the Borrowers shall conceal, remove or transfer any part
of its property, with intent to hinder, delay or defraud its creditors, or make
or suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or (m) any of the Borrowers
<PAGE>13
or any other party thereto shall breach any subordination agreement executed in
connection with the Loans. If any of the foregoing defaults, other than a
failure to pay money, is curable and no Borrower has been given a notice of a
similar default within the preceding twelve months, it may be cured (and no
Event of Default shall have occurred) if the Borrower, after receiving written
notice from Lender demanding cure of such default cures the failure within
fifteen days. Silicon may cease making any Loans hereunder during any of the
above cure periods, and thereafter if an Event of Default has occurred.
6.2 Remedies. Upon the occurrence of any Event of Default and the
expiration of any applicable cure period under Section 6.1, and at any time
thereafter, Silicon, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by the Borrowers), may do any one or
more of the following: (a) Cease making Loans or otherwise extending credit to
the Borrowers under this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations to be immediately
due, payable, and performable, notwithstanding any deferred or installment
payments allowed by any instrument evidencing or relating to any Obligation; (c)
Take possession of any or all of the Collateral wherever it may be found, and
for that purpose the Borrowers hereby authorize Silicon without judicial process
to enter onto any of the Borrowers' premises without interference to search for,
take possession of, keep, store, or remove any of the Collateral, and remain on
the premises or cause a custodian to remain on the premises in exclusive control
thereof without charge for so long as Silicon deems it reasonably necessary in
order to complete the enforcement of its rights under this Agreement or any
other agreement; provided, however, that should Silicon seek to take possession
of any or all of the Collateral by Court process, the Borrowers hereby
irrevocably waive: (i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession; (ii) any demand for possession prior to the commencement of any suit
or action to recover possession thereof; and (iii) any requirement that Silicon
retain possession of and not dispose of any such Collateral until after trial or
final judgment; (d) Require the Borrowers to assemble any or all of the
Collateral and make it available to Silicon at places designated by Silicon
which are reasonably convenient to Silicon and the Borrowers, and to remove the
Collateral to such locations as Silicon may deem advisable; (e) Require the
Borrowers to deliver to Silicon, in kind, all checks and other payments received
with respect to all accounts and general intangibles, together with any
necessary indorsements, within one day after the date received by the Borrowers;
(f) Complete the processing, manufacturing or repair of any Collateral prior to
a disposition thereof and, for such purpose and for the purpose of removal,
Silicon shall have the right to use the Borrowers' premises,
<PAGE>14
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (g) Sell, lease or otherwise dispose of any of the Collateral in its
condition at the time Silicon obtains possession of it or after further
manufacturing, processing or repair, at any one or more public and/or private
sales, in lots or in bulk, for cash, exchange or other property, or on credit,
and to adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Silicon shall have the right to
conduct such disposition on the Borrowers' premises without charge, for such
time or times as Silicon deems reasonable, or on Silicon's premises, or
elsewhere and the Collateral need not be located at the place of disposition.
Silicon may directly or through any affiliated company, purchase or lease any
Collateral at any such public disposition, and if permissible under applicable
law, at any private disposition. Any sale or other disposition of Collateral
shall not relieve the Borrowers of any liability the Borrowers may have if any
Collateral is defective as to title or physical condition or otherwise at the
time of sale; (h) Demand payment of, and collect any accounts and general
intangibles comprising Collateral and, in connection therewith, the Borrowers
irrevocably authorize Silicon to endorse or sign any of the Borrower's names on
all collections, receipts, instruments and other documents, to take possession
of and open mail addressed to the Borrowers and remove therefrom payments made
with respect to any item of the Collateral or proceeds thereof, and, in
Silicon's sole discretion, to grant extensions of time to pay, compromise claims
and settle accounts and the like for less than face value; (i) Offset against
any sums in any general, special or other deposit accounts maintained by any
Borrower with Silicon; and (j) Demand and receive possession of any of the
Borrowers' federal and state income tax and the books and records utilized in
the preparation thereof or referring thereto. All reasonable fees of
professionals (including attorneys' fees), expenses, costs, liabilities and
obligations incurred by Silicon with respect to the foregoing shall be added to
and become part of the Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations. Without limiting any of Silicon's rights and remedies, from and
after the occurrence of any Event of Default, the interest rate applicable to
the Obligations shall be increased by an additional four percent per annum
6.3 Standards for Determining Commercial Reasonableness. The Borrowers and
Silicon agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards shall conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to the
Borrowers at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale
<PAGE>15
describes the Collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by Silicon, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m; (v)
Payment of the purchase price in cash or by cashier's check or wire transfer is
required; (vi) With respect to any sale of any of the Collateral, Silicon may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from the Borrowers any and all information concerning the same. Silicon may
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.
6.4 Power of Attorney. Upon the occurrence of any Event of Default, without
limiting Silicon's other rights and remedies, the Borrowers each grant to
Silicon an irrevocable power of attorney coupled with an interest, authorizing
and permitting Silicon (acting through any of its employees, attorneys or
agents) at any time, at its option, but without obligation, with or without
notice to the Borrowers, and at the Borrowers' expense, to do any or all of the
following, in the Borrowers' name or otherwise: (a) Execute on behalf of the
Borrowers any documents that Silicon may, in its sole and absolute discretion,
deem advisable in order to perfect and maintain Silicon's security interest in
the Collateral, or in order to exercise a right of the Borrowers or Silicon, or
in order to fully consummate all the transactions contemplated under this
Agreement, and all other present and future agreements; (b) Execute on behalf of
the Borrowers any document exercising, transferring or assigning any option to
purchase, sell or otherwise dispose of or to lease (as lessor or lessee) any
real or personal property which is part of Silicon's Collateral or in which
Silicon has an interest; (c) Execute on behalf of the Borrowers, any invoices
relating to any account, any draft against any account debtor and any notice to
any account debtor, any proof of claim in bankruptcy, any Notice of Lien, claim
of mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien; (d) Take control in any manner of any
cash or non-cash items of payment or proceeds of Collateral; endorse the name of
the Borrowers upon any instruments, or documents, evidence of payment or
Collateral that may come into Silicon's possession; (e) Endorse all checks and
other forms of remittances received by Silicon; (f) Pay, contest or settle any
lien, charge, encumbrance, security interest and adverse claim in or to any of
the Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (g) Grant extensions of time to pay, compromise
claims and settle accounts and general intangibles for less than face value and
execute all releases and other documents in connection therewith; (h) Pay any
sums required on account of the Borrowers' taxes or to secure the release of any
liens therefor, or both; (i) Settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and
<PAGE>16
obtain payment therefor; (j) Instruct any third party having custody or control
of any books or records belonging to, or relating to, the Borrowers to give
Silicon the same rights of access and other rights with respect thereto as
Silicon has under this Agreement; and (k) Take any action or pay any sum
required of the Borrowers pursuant to this Agreement and any other present or
future agreements. Silicon shall exercise the foregoing powers in a commercially
reasonable manner. Any and all reasonable sums paid and any and all reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. In no event
shall Silicon's rights under the foregoing power of attorney or any of Silicon's
other rights under this Agreement be deemed to indicate that Silicon is in
control of the business, management or properties of the Borrowers.
6.5 Application of Proceeds. All proceeds realized as the result of any
sale of the Collateral shall be applied by Silicon first to the costs, expenses,
liabilities, obligations and attorneys' fees incurred by Silicon in the exercise
of its rights under this Agreement, second to the interest due upon any of the
Obligations, and third to the principal of the Obligations, in such order as
Silicon shall determine in its sole discretion. Any surplus shall be paid to the
Borrowers or other persons legally entitled thereto; the Borrowers shall remain
liable to Silicon for any deficiency. If Silicon, in its sole discretion,
directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale or other disposition of Collateral,
Silicon shall have the option, exercisable at any time, in its sole discretion,
of either reducing the Obligations by the principal amount of purchase price or
deferring the reduction of the Obligations until the actual receipt by Silicon
of the cash therefor.
6.6 Remedies Cumulative. In addition to the rights and remedies set forth
in this Agreement, Silicon shall have all the other rights and remedies accorded
a secured patty under the Washington Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and any Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any rights
or remedies shall not operate as a waiver thereof; but all rights and remedies
shall continue in full force and effect until all of the Obligations have been
fully paid and performed.
<PAGE>17
7. GENERAL PROVISIONS
7.1 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by regular first-class mail, or
certified mail return receipt requested, addressed to Silicon or the Borrowers
at the addresses shown in the heading to this Agreement, or at any other address
designated in writing by one party to the other party. All notices shall be
deemed to have been given upon delivery in the case of notices personally
delivered to the Borrowers or to Silicon, or at the expiration of two business
days following the deposit thereof in the United States mail, with postage
prepaid.
7.2 Severability. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
7.3 Intention. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between the Borrower and Silicon and supersede all prior
and contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. ORAL AGREEMENTS OR ORAL
COMMITMENTS TO LOAN MONEY AND CREDIT OR FORBEAR FROM ENFORCING REPAYMENT OF A
DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
7.4 Waivers. The failure of Silicon at any time or times to require the
Borrowers to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between the Borrowers and Silicon shall not
waive or diminish any right of Silicon later to demand and receive strict
compliance therewith. Any waiver of any default shall not waive or affect any
other default, whether prior or subsequent thereto. None of the provisions of
this Agreement or any other agreement now or in the future executed by the
Borrowers and delivered to Silicon shall be deemed to have been waived by any
act or knowledge of Silicon or its agents or employees, but only by a specific
written waiver signed by an officer of Silicon and delivered to the Borrowers.
The Borrowers waive demand, protest, notice of protest and notice of default or
dishonor, notice of payment and nonpayment, release, compromise, settlement,
extension or renewal of any commercial paper, instrument, account, general
intangible, document or guaranty at any time held by Silicon on which the
Borrowers are or may in any way be liable, and notice of any action taken by
Silicon, unless expressly required by this Agreement.
7.5 No Liability for Ordinary Negligence. Neither Silicon,
nor any of its directors, officers, employees, agents, attorneys
<PAGE>18
or any other person affiliated with or representing Silicon shall be liable for
any claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by the Borrowers or any other party through the ordinary
negligence of Silicon, or any of its directors, officers, employees, agents,
attorneys or any other person dated with or representing Silicon.
7.6 Amendment. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by the Borrowers and a duly authorized
officer of Silicon.
7.7 Time of Essence. Time is of the essence in the
performance by the Borrowers of each and every obligation under
this Agreement.
7.8 Attorneys' Fees and Costs. The Borrowers shall reimburse Silicon for
all reasonable attorneys' fees and fees of other professionals, and all filing,
recording, search, title insurance, appraisal, audit, and other reasonable costs
incurred by Silicon, pursuant to, or in connection with, or relating to this
Agreement (whether or not a lawsuit is filed), including, but not limited to,
any reasonable attorneys' fees and costs Silicon incurs in order to do the
following: prepare and negotiate this Agreement and the documents relating to
this Agreement; obtain legal advice in connection with this Agreement; enforce,
or seek to enforce, any of its rights; prosecute actions against, or defend
actions by, account debtors; commence, intervene in, or defend any action or
proceeding; initiate any complaint to be relieved of the automatic stay in
bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party
claim, or other claim; examine, audit, copy, and inspect any of the Collateral
or any of the Borrowers' books and records; protect, obtain possession of,
lease, dispose of, or otherwise enforce Silicon's security interest in, the
Collateral and otherwise represent Silicon in any litigation relating to the
Borrowers. If either Silicon or the Borrowers file any lawsuit against the other
predicated on a breach of this Agreement, the prevailing party in such action
shall be entitled to recover its reasonable costs and professionals' fees,
including (but not limited to) reasonable attorneys' fees and costs incurred in
the enforcement of, execution upon or defense of any order, decree, award or
judgment. All fees and costs to which Silicon may be entitled pursuant to this
Paragraph shall immediately become part of the Borrowers' Obligations, shall be
due on demand, and shall bear interest at a rate equal to the highest interest
rate applicable to any of the Obligations.
7.9 Benefit of Agreement. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of the parties hereto; provided, however, that
the Borrowers may not assign or transfer any of their rights under this
Agreement
<PAGE>19
without the prior written consent of Silicon, and any prohibited assignment
shall be void. No consent by Silicon to any assignment shall release the
Borrowers from their liability for the Obligations. The Borrowers agree and
consent to Lender's sale or transfer, whether now or later, of one or more
participation interests in the Loans to one or more purchasers, whether related
or unrelated to Silicon. Silicon may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Silicon may have about the Borrowers or about any other matter
relating to the Loans and the Borrowers hereby waive any rights to privacy it
may have with respect to such matters. The Borrowers additionally waive any and
all notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. The Borrowers also agree that the
purchasers of any such participation interests shall be considered as the
absolute owners of such interests in the Loans and shall have all the rights
granted under the participation agreement or agreements governing the sale of
such participation interests.
7.10 Joint and Several Liability. The liability of the Borrowers under this
Agreement shall be joint and several, and the compromise of any claim with, or
the release of, any Borrower shall not constitute a compromise with, or a
release of, any other Borrower. Each Borrower agrees to repay the Loans made to
that Borrower or any of the other Borrowers, and acknowledges that all of the
Obligations are secured by all of the assets of each of the Borrowers.
7.11 Paragraph Heading; Construction. Paragraph headings are only used in
this Agreement for convenience. The Borrowers acknowledges that the headings may
not describe completely the subject matter of the applicable paragraph, and the
headings shall not be used in any manner to construe, limit, define or interpret
any term or provision of this Agreement. This Agreement has been fully reviewed
and negotiated between the parties and no uncertainty or ambiguity in any term
or provision of this Agreement shall be construed strictly against Silicon or
the Borrowers under any rule of construction or other.
7.12 Mutual Waiver of Jury Trial. The Borrowers and Silicon each hereby
waive the right to trial by jury in any action or proceeding based upon, arising
out of, or in any way relating to, this Agreement or any other present or future
instrument or agreement between Silicon and the Borrowers, or any conduct, acts
or omissions of Silicon or the Borrowers or any of their directors, officers,
employees, agents, attorneys or any other persons affiliated with Silicon or the
Borrowers, in all of the foregoing cases, whether sounding in contract or tort
or otherwise.
<PAGE>20
7.13 Governing Law: Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and the
Borrower shall be governed by, and construed in accordance with, the laws of the
State of Washington. Any undefined term used in this Agreement that is defined
in the Washington Uniform Commercial Code shall have the meaning assigned to
that term in the Washington Uniform Commercial Code. As a material part of the
consideration to Silicon to enter into this Agreement, the Borrower (i) agrees
that all actions and proceedings relating directly or indirectly hereto shall at
Silicon's option, be litigated in courts located within Washington, and that the
exclusive venue therefor shall be, at Silicon's option, King County or the
county in which the Borrower's chief executive office is located; (ii) consents
to the jurisdiction and venue of any such court and consents to service of
process in any such action or proceeding by personal delivery or any other
method permitted by law; and (iii) waives any and all rights the Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
Borrowers:
PCT HOLDINGS, INC.
By: /s/ DONALD A. WRIGHT
------------------------------------
Title: President
CERAMIC DEVICES, INC.
By: /s/ DONALD A. WRIGHT
------------------------------------
Title: CEO
CASHMERE MANUFACTURING CO., INC.
By: /s/ DONALD A. WRIGHT
------------------------------------
Title: CEO
PACIFIC COAST TECHNOLOGIES, INC.
By: /s/ DONALD A. WRIGHT
------------------------------------
Title: President
<PAGE>21
Silicon:
SILICON VALLEY BANK
By: /s/ J. BAUMGARDNER
------------------------------------
Title: Vice President
<PAGE>22
SCHEDULE TO LOAN AND SECURITY AGREEMENT
Co-Borrowers: PCT Holdings, Inc.
Ceramic Devices, Inc.
Cashmere Manufacturing Co., Inc.
Pacific Coast Technologies, Inc.
Address: 434 Olds Station Road
Wenatchee, WA 98801
Date: April 24, 1995
Secured Accounts Receivable Line of Credit
Credit Limit:
(Section 1.1) An amount not to exceed the lesser of: (i)
$2,500,000.00 at any one time outstanding; or
(ii) the amount of the "Borrowing Base", as
defined below. For purposes of this Schedule,
the "Borrowing Base" shall mean the sum of (a)
75% of the Net Amount of Borrowers' eligible
accounts receivable; plus (b) 40% of the book
value of Borrowers' eligible inventory, as
defined below, as reported to Silicon on a
monthly basis, up to a maximum advance of
$1,000,000. "Net Amount" means the gross amount
of the account, minus all applicable sales, use,
excise and other similar taxes and minus all
discounts, credits and allowances of any nature
granted or claimed. The amount of all letters of
credit issued by Silicon at the request of the
Borrowers (other than the $2,000,000 Standby
Letter of Credit described below) shall reduce,
dollar for dollar, the amount otherwise available
to be borrowed under the formula described in
this paragraph. With respect to the Standby
Letter of Credit, $1,000,000 of this Secured
Accounts Receivable Line of Credit shall be held
in reserve against during all periods in which
the Standby Letter of Credit has been issued and
remains in effect.
Without limiting the fact that the determination of which
accounts are eligible for borrowing is a matter of Silicon's
discretion, the following shall not be deemed eligible for
borrowing: accounts outstanding for more than 90 days from the
invoice date, accounts subject to any contingencies, accounts
owing from an account debtor outside the United States (except
for those backed by a letter of credit in form and substance
<PAGE>23
satisfactory to Silicon), accounts owing from governmental
agencies, accounts owing from one account debtor to the extent
they exceed 25% of the total eligible accounts outstanding (35%
on accounts receivable from Boeing), accounts owing from one
Borrower to another or owing from an affiliate of a Borrower, and
accounts owing from an account debtor to whom a Borrower is or
may be liable for goods purchased from such account debtor or
otherwise. In addition, if more than 50% of the accounts owing
from an account debtor are outstanding more than 90 days from the
invoice date or are otherwise not eligible accounts, then all
accounts owing from that account debtor shall be deemed
ineligible for borrowing.
Without limiting the fact that the determination of which
inventory is eligible for borrowing is a matter of Silicon's
discretion, the following shall not be deemed eligible for
borrowing: any inventory other than raw material or finished
goods that are owned by a Borrower and located in Wenatchee,
Washington, Cashmere, Washington and San Diego, California,
inventory that is used, obsolete or returned goods, inventory
that is stored at a location other than the Borrowers' Address or
any location owned, leased or rented by Borrowers and previously
identified to Silicon, inventory that is subject to a landlord's
lien, and inventory that is not in the possession of the
Borrowers.
Interest Rate:
(Section 1.2) The interest rate applicable to the Secured
Accounts Receivable Line of Credit shall be a
rate equal to the "Prime Rate" in effect from
time to time, plus 1.0% per annum. Interest
calculations shall be made on the basis of a 360-
day year and the actual number of days elapsed.
"Prime Rate" means the rate announced from time
to time by Silicon as its "prime rate"; it is a
base rate upon which other rates charged by
Silicon are based, and it is not necessarily the
best rate available at Silicon. The interest
rate applicable to the Obligations shall change
on each date there is a change in the Prime Rate.
Commitment Fee:
(Section 1.3) $12,500, which is fully earned and payable at closing. (Any
Commitment Fee previously paid by the Borrowers in connection
with this Loan shall be credited against this Fee.)
<PAGE>24
Amortization: Borrowers shall pay Silicon monthly payments of
interest on or before the last day of each month,
commencing May 31,1995.
Maturity Date:
(Section 1.3) One year from the date of this Agreement, at which time all
unpaid principal and accrued but unpaid interest shall be due and
payable.
Maturities of
Letters of
Credit: Commercial or standby letters of credit issued by
Silicon shall have a maximum maturity of not
later than the Maturity Date.
Repayment: The Borrowers shall repay on demand any amount
drawn on a letter of credit issued by Silicon.
Silicon may, but is not obligated to, add to the
principal amount outstanding under the Secured
Accounts Receivable Line of Credit any amount
drawn on a letter of credit issued by Silicon.
Any such amount shall be subject to the terms
applicable to the Secured Accounts Receivable
Line of Credit.
Issuance: The issuance of any letter of credit under this
Agreement is subject to Silicon's written
approval and must be in form and content
satisfactory to Silicon and in favor of a
beneficiary reasonably acceptable to Silicon.
The Borrowers shall execute Silicon's then-
current application forms, reimbursement
agreement and related documents as a condition to
Silicon's issuance of any letter of credit.
Fees: The Borrowers shall pay Silicon the fees and
costs customarily charged by Silicon (at the time
of issuance of the letter of credit) with respect
to the issuance of letters of credit.
Secured Equipment Revolving Term Loan
Credit Limit: An amount not to exceed (i) $250,000.00 at any
one time outstanding; or (ii) the amount of the
"Equipment Borrowing Base", as defined below.
For purposes of this Schedule, the "Equipment
Borrowing Base" shall mean 80% of the invoice
value of equipment purchased by Borrower after
the date of this Agreement. Silicon shall have
no obligation to advance against taxes, freight
charges, installation charges or other similar
<PAGE>25
amounts relating to Borrower's equipment, whether or not such
amounts are identified on the invoices submitted to Silicon.
Equipment to be included in the Equipment Borrowing Base must be
new equipment, at the time of purchase by Borrower, owned by
Borrower, in good working order, must not be subject to any liens
in favor of any person or entity other than Silicon, and must be
subject to a first perfected security interest in favor of
Silicon. Silicon shall make advances under this Secured Equipment
Line of Credit from time to time, based on invoices and other
documentation as shall be requested by Silicon to support such
advances.
Borrower shall submit to Silicon such invoices, advance requests
and other information, in form acceptable to Silicon, as Silicon
shall require from time to time.
Once the total amount of the principal has been advanced under
this Secured Equipment Revolving Term Loan, Borrower is no longer
entitled to further advances. Advances may be requested in
writing by Borrower or an authorized person. Silicon may, but
need not, require that all oral requests be confirmed in writing.
The unpaid principal balance owing on this Secured Equipment Line
of Credit at any time may be evidenced by endorsements to this
Schedule or by Silicon's internal records, including daily
computer printouts.
Purpose: Borrowers shall use the proceeds of this
Revolving Term Loan to finance the purchase of
capital equipment.
Interest Rate: The interest rate applicable to the Secured Equipment
Revolving Term Loan shall be a rate equal to the "Prime Rate" (as
defined above) in effect from time to time, plus 1.75% per annum.
Interest calculations shall be made on the basis of a 360-day
year and the actual number of days elapsed.
Revolving
Period: The Revolving Period shall be from the date of
closing until September 30, 1995.
Term Period: The Term Period shall be the period from
September 30, 1995 to September 30, 1998.
<PAGE>26
Amortization: Borrowers shall pay Silicon monthly payments of
interest only during the Revolving Period.
Commencing on October 31, 1995, the Borrowers
shall pay Silicon 36 equal monthly payments of
principal, in the amount necessary to repay fully
the outstanding principal of Secured Equipment
Revolving Term Loan in 36 payments, plus interest
calculated as provided in this Schedule.
Subsequent payments are due on the last day of
each month after October 31, 1995.
Maturity Date: September 30, 1998, at which time all unpaid
principal and accrued but unpaid interest shall
be due and payable.
Commitment Fee
(Section 1.3) $1,250.00, which is fully earned and payable at closing.
(Any Commitment Fee previously paid by the Borrowers in
connection with this loan shall be credited against this Fee.)
Standby Letter of Credit
Credit Limit: $2,000,000.
Purpose: To provide credit enhancement to Chelan County and/or the State
of Washington Department of Community Trade and Economic
Development, replacing the existing standby letter of credit
issued by Frontier Bank.
Maturity Date: The Standby Letter of Credit shall have a maximum
maturity of not later than April ___, 1996.
Repayment: The Borrowers shall repay on demand any amount
drawn on the Standby Letter of Credit. Silicon
may, but is not obligated to, add to the
principal amount outstanding under the Secured
Accounts Receivable Line of Credit any amount
drawn on a letter of credit issued by Silicon.
Any such amount shall be subject to the terms
applicable to the Secured Accounts Receivable
Line of Credit.
Issuance: The issuance of the Standby Letter of Credit must
be in form and content satisfactory to Silicon
and in favor of a beneficiary reasonably
acceptable to Silicon. The Borrowers shall
execute Silicon's then-current application forms,
reimbursement agreement and related documents as
a condition to Silicon's issuance of the Standby
Letter of Credit.
<PAGE>27
Commitment
Fee: $20,000, which is fully earned and payable at
closing. (Any Commitment Fee previously paid by
the Borrowers in connection with this Standby
Letter of Credit shall be credited against this
Fee.)
Prior Names
of Borrowers:
(Section 3.2) See attached Exhibit B
Trade Names of
Borrowers:
(Section 3.2) See attached Exhibit B
Trademarks of
Borrowers: See attached Exhibit B
Other Locations
and Addresses:
(Section 3.3) See attached Exhibit B
Material Adverse
Litigation:
(Section 3.10) None.
Financial
Covenants:
(Section 4.1) The Borrowers shall comply with all of the following
covenants, all of which shall be determined and measured on a
consolidated basis in accordance with generally accepted
accounting principles, except as otherwise stated below:
Tangible Net
Worth: The Borrowers shall at all times maintain a Tangible Net Worth
(defined below) of not less than $3,650,000, plus 50% of all new
equity contributed to a Borrower in excess of $3,000,000 raised
in the Equity Offering (see below), measured quarterly.
Debt to Tangible
Net Worth
Ratio: The Borrowers shall at all times maintain a ratio of total
liabilities (excluding deferred revenues and subordinated debt)
to Tangible Net Worth of not more than 1.5:1.0, measured
quarterly.
Current
Ratio: The Borrowers shall at all times maintain a ratio
of current assets to current liabilities of not
<PAGE>28
less than 1.75:1.0, measured quarterly. The note payable to the
County of Chelan for $2,000,000 shall not be considered a current
liability solely due to its demand provisions, but rather shall
be characterized as a current or long term liability based upon
its maturity date. "Current assets" and "current liabilities"
shall be determined in accordance with generally accepted
accounting principles.
Debt Service
Coverage
Ratio: The Borrowers shall at all times maintain a ratio of earnings
before interest, taxes, depreciation and amortization ("EBITDA")
to current maturities of long-term debt plus interest in excess
of 1.25:1.0, measured quarterly by annualizing EBITDA, beginning
with the year ending May 31, 1996.
Profit-
ability: The Borrowers shall not incur a quarterly loss after tax in
excess of $100,000, beginning with the quarter ending May 31,
1995. For purposes of this paragraph, "loss" means net sales
less costs of goods sold less operating expenses less
nonrecurring expenses less tax expenses.
Definitions: "Tangible Net Worth" means stockholders' equity
plus debt that has been subordinated to the Loans
on terms satisfactory to Silicon, and accrued
interest thereon, less goodwill, patents,
capitalized software costs, deferred
organizational costs, tradenames, trademarks, and
all other assets which would be classified as
intangible assets under generally accepted
accounting principles.
Other
Covenants:
(Section 4.1) The Borrowers shall at all times comply with all of the
following additional covenants:
1. Banking Relationship. The Borrowers shall maintain their
primary banking relationship with Silicon until such time as the
Secured Operating Line of Credit described in this Schedule has
been repaid in full and Silicon's obligations with respect to the
Secured Operating Line of Credit under the Agreement and this
Schedule have been terminated.
<PAGE>29
Conditions to
Closing: Before requesting any advance under this Agree-
ment, the Borrowers shall satisfy each of the
following conditions:
1. Loan Documents:
Silicon shall have received the Agreement and this Schedule, and
such other loan documents as Silicon shall require, each duly
executed and delivered by the Borrowers, a Patent and Trademark
Security and Conditional Assignment.
2. Documents Relating
to Authority, Etc:
Silicon shall have received each of the following in form and
substance satisfactory to it:
(a) Certified copies of the Articles of
Incorporation and Bylaws of the Borrowers;
(b) A Certificate of good standing issued
by the Secretary of State of the Borrowers'
state of incorporation with respect to the
Borrowers;
(c) A certified copy of a resolution adopted by the Board of
Directors of the Borrowers authorizing the execution,
delivery and performance of the Agreement, and any other
documents or certificates to be executed by the Borrowers in
connection with this transaction; and
(d) Incumbency certificates describing the
office and identifying the specimen
signatures of the individuals signing all
such loan documents on behalf of the
Borrowers.
3. Perfection and
Priority of
Security: Silicon shall have received evidence
satisfactory to it that its security
interest in the Collateral has been duly
perfected and that such security interest is
prior to all other liens, charges, security
interests, encumbrances and adverse claims
in or to the Collateral other than Permitted
Liens, which evidence shall include, without
limitation, evidence from the Washington
Department of
<PAGE>30
Licensing showing the due filing of the UCC Financing
Statements to be signed by the Borrowers covering the
Collateral and evidence of the first priority of Silicon's
security interests in the Collateral as required under the
Agreement.
4. Insurance: Silicon shall have received evidence
satisfactory to it that all insurance
required by the Agreement is in full force
and effect, with loss payee designations and
additional insured designations as required
by the Agreement.
5. Equity Offering:
Borrower shall have completed its current equity offering in
an amount of not less than $3,000,000 and provided
Borrower's legal counsel shall have provided Silicon with
written notification and assurances that at least $3,000,000
in cash has been raised, that such cash has been collected
and is available for immediate use by Borrower.
5. Other Information:
Silicon shall have received such other
statements, opinions, certificates, documents and
information with respect to matters contemplated by the
Agreement as it may reasonably request.
Silicon and the Borrowers agree that the terms of this Schedule supplement
the Loan and Security Agreement between Silicon and the Borrowers and agree to
be bound by the terms of this Schedule.
Borrowers:
PCT Holdings, Inc.
By: /s/ DONALD A. WRIGHT
------------------------------------
Title: President
Ceramic Devices, Inc.
By: /s/ DONALD A. WRIGHT
------------------------------------
Title: CEO
<PAGE>31
Cashmere Manufacturing Co., Inc
By: /s/ DONALD A. WRIGHT
------------------------------------
Title: CEO
Pacific Coast Technologies, Inc
By: /s/ DONALD A. WRIGHT
------------------------------------
Title: President
Silicon:
Silicon Valley Bank
By: /s/ J. BAUMGARDNER
------------------------------------
Title: Vice President
<PAGE>32
Exhibit A
[Insert Borrowing Base Certificate]
<PAGE>33
EXHIBIT B
[Insert List of Tradenames, Trademarks and other
Locations and Addresses]
<PAGE>1
DEPARTMENT OF COMMUNITY, TRADE AND ECONOMIC DEVELOPMENT
Community Development Block Grant Float Agreement
-------------------------------------------------
THIS COMMUNITY DEVELOPMENT BLOCK GRANT FLOAT AGREEMENT (the "Agreement") is
made and entered into this day of 18th day of May, 1994, by and among the State
of Washington Department of Community, Trade and Economic Development (the
"Department"), the County of Chelan (the "County"), and Pacific Coast
Technologies, Inc. (the "Borrower") (collectively the "Parties").
RECITALS
--------
A. The Department receives federal Community Development Block
Grant (CDBG) funds and is authorized to approve applications
from local governments for these funds.
B. The Department desires to make such funds available to private borrowers
through local governments in order to encourage and increase the employment
of members of lower-income households.
C. The Department has determined that the County's application
on behalf of the Borrower for a loan meets the Department's
requirements.
D. The County's grant application to the Department, on behalf
of the Borrower, has been approved by the Department.
E. The Borrower has obtained from Frontier Bank, a banking corporation doing
business at Everett, Washington, (the "Bank"), a commitment for a two
million dollar ($2,000,000) irrevocable, unconditional sight letter of
credit to secure a loan made by the jurisdiction, and which has been
approved by the Department.
F. The Department has obtained a Programmatic Revision to its
CDBG Program to enable the Department to implement the
Community Development Block Grant Float Interim Loan Program
(the "Program").
G. The Program establishes a policy of utilizing allocated, but unspent (not
drawn down) CDBG funds, hereinafter referred to as "CDBG funds" for the
development of qualified projects.
H. The CDBG funds have been made available to the County on the condition that
the CDBG funds, notwithstanding the loan of same to the Borrower, shall as
necessary, be at all times immediately available for such purposes as may
from time to
<PAGE>2
time be determined by the County, Department, and the U.S.
Department of Housing and Urban Development (HUD).
I. Based upon the scope of work submitted to the Department by the Borrower,
the County acknowledges that it is unable to demonstrate that Program
income will be used to continue the specific activity from which such
income was derived.
J. The County recognizes and affirms that to maintain the viability and
integrity of the interim use of CDBG funds and to preserve the benefit of
this program for all eligible Washington communities, it waives the right
to lay claim to any and all funds allocated for specific uses under the
interim use of CDBG Program funds by the Department.
K. The County desires to loan funds to the Borrower, and the Borrower desires
to borrow funds from the County under the terms and conditions set forth in
this Agreement, which is intended to control the relationship among the
Parties.
L. It is understood by all Parties that the loan proceeds will
be used by the Borrower for working capital requirements and
equipment needs (the "Project").
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises contained in this
Agreement, the Parties agree as follows:
1. LOAN BY THE COUNTY. Under this Agreement, the County will
lend two million dollars ($2,000,000) to the Borrower at an
interest rate of three percent (3 percent) per annum with
funds received from a grant from the Department. The purpose
of the Loan is for the Borrower to finance the Project and
for no other purpose;
2. LOAN REPAYMENT. In consideration of the undertakings of the
County and of the ban made hereunder, the Borrower hereby
agrees to pay to the County or its order the sum of two
million dollars ($2,000,000), including interest thereon at
the rate of three percent (3 percent) per annum, payable as
set forth in the Promissory Note (the "Note") of even date
herewith, in the form attached hereto and incorporated
herein as Exhibit A and by this reference incorporated
herein, made and executed by the Borrower to the order of
the County;
3. SECURITY AND SOURCE OF PAYMENT. Payment of principal and
interest hereunder and under the Note shall be secured by an
unconditional, irrevocable, sight letter of credit,
hereinafter referred to as "letter of Credit," in the amount
of two million dollars ($2,000,000) in form and substance
<PAGE>3
satisfactory to the County and/or Department from the Bank addressed to the
County and the Department as cobeneficiaries. Payment of the Letter of
Credit shall not be conditioned upon any action or omission to take such
action on the part of the County, whether under this Agreement, under the
terms of any document executed or delivered hereunder or otherwise. Neither
the acceptance of, the transfer of, or receipt of monies under the Letter
of Credit shall in any manner relieve the Borrower of any obligation
hereunder or under the terms of any document executed or given herewith,
except to the extent of the payment actually received under the Letter of
Credit.
4. COUNTY'S ASSIGNMENT. Concurrent with the execution of the
note, the County shall execute an assignment of its right to
receive the Note Repayments in favor of the Department,
substantially in the same form as Exhibit B attached hereto
and incorporated herein by this reference; the County shall
continue to own the Promissory Note in all other respects.
In consideration of this assignment, the Department agrees
that its acceptance of Promissory Note repayments shall
constitute a waiver of its right to an equal amount of Grant
Income repayment due from the County under Section 13.
Following the Department's receipt of all Note repayments
under this Agreement, the repayment of Grant Income shall be
deemed to be waived in full by the Department.
5. BORROWER'S REPRESENTATION, WARRANTIES, AND COVENANTS. To
induce the other Parties to enter into this Agreement, the
Borrower hereby makes the following representations,
warranties, and covenants:
a. Authority. The Borrower represents and warrants that it
is duly organized, validly existing, and in good
standing under the laws of the State of Washington in
force as of the date of this Agreement; that it has the
legal power to enter into this Agreement; and that all
corporate and other actions required to authorize the
mailing, execution, and performance of this Agreement
have been duly taken;
b. Lower-Income Employees. The Borrower covenants and
agrees that, for job openings related to the Project,
to the extent allowed by applicable employment laws, it
will make its best efforts to employ members of
households whose income, prior to being employed by the
Borrower for the Project, does not exceed eighty
percent (80 percent) of the median family income for
the area, as determined by HUD, with adjustments for
smaller and larger families. The Borrower will comply
with all terms of the Employment and Training Agreement by and
<PAGE>4
between the Borrower, County, and Employment
Security Department of even date herewith;
c. Government Relations. The Borrower covenants and
agrees that it will comply with all applicable state
and local laws, regulations, and requirements, and
acknowledges that some or all of those laws,
regulations, and requirements outlined in Exhibits C
and D attached hereto and incorporated herein by this
reference may be applicable to Borrower, as they
pertain to the design, implementation, and
administration of the Project; and
d. Use of Funds. The Borrower covenants and agrees that it
will use the proceeds of the loan for the purposes of
the Project only.
6. COUNTY'S REPRESENTATIONS, WARRANTIES AND COVENANTS. To
induce the other parties to enter into this Agreement, the
County hereby makes the following representations and
warranties:
a. Public Participation and Resolution by Board of County
Commissioners. The County represents and warrants
that, at a meeting held in compliance with Chapter
42.30 RCW, it adopted Resolution No. 94-93, authorizing
the County to enter into this Agreement and to extend
the loan to the Borrower;
b. Public Meeting. The County represents and warrants that
at least two (2) public meetings have been held with
regard to the County's participation in the loan in the
Borrower, and that all interested parties received
adequate notice of the hearing and were given adequate
opportunity to present their views; and
c. Government Regulations. The County covenants and agrees that it will
comply with all applicable state and local laws, regulations, and
requirements, and with those laws, regulations, and requirements
outlined in Exhibits C and D attached hereto and incorporated herein
by this reference, as they pertain to the County's loan.
7. COMPLIANCE REPORT.
a. Monitoring. The County agrees upon request from the
Department to monitor the Borrower's compliance with
the covenants contained in Sections 5 of this Agreement
(the "Section Five Covenants"). Not less frequently
than once every six (6) months while any balance of the
Loan remains outstanding, the County shall take
<PAGE>5
affirmative steps to ascertain whether or not the Borrower has
breached any of the Section Five Covenants. The Department agrees to
assist the County in establishing its monitoring procedures and files.
b. Report. If requested by the Department, the County
shall issue a Compliance Report to the Department,
which shall state whether or not the Borrower is in
compliance with each Section Five Covenant. If the
Borrower has breached any Section Five Covenant, the
Compliance Report shall describe the Borrower's breach
with sufficient specificity for the Department to
determine whether or not the breach is a material
breach.
8. CONDITIONS TO THE COUNTY MAKING LOAN. The obligation of the
County to make any advance under this Agreement shall at all
times be conditioned for the sole benefit of the County
upon:
a. The execution of this Agreement by the County, the
Department, and the Borrower;
b. The receipt by the County and/or the Department of the
Letter of Credit;
c. The receipt by the County of such documents,
certifications, and opinions as may be reasonably
satisfactory to the County and the Department,
evidencing that this Agreement, the Note, the Letter of
Credit, and all other documents given or executed in
connection herewith are duly and validly executed by
and on behalf of and constitute the valid and
enforceable obligation of the Borrower thereunder,
pursuant to the respective terms of each, and that the
execution and delivery of the Agreement, the Note, the
Letter of Credit, and all other documents executed, or
given hereunder and the performances by the Borrower
thereunder will not breach or violate any articles of
incorporation, any bylaw restriction, or any law or
governmental regulation, or constitute any breach of
default under any instrument or agreement to which the
Borrower may be a party.
d. The availability to the County of two million dollars
($2,000,000) in proceeds of allocated, but not drawn-
down CDBG funds.
9. OBLIGATIONS OF BORROWER UNCONDITIONAL. The obligations of
the Borrower to make payments required in Section 2 hereof
("Loan Repayment") shall be absolute and unconditional, and
<PAGE>6
until such time as the principal of and interest on the Note shall have
been fully paid, Borrower:
a. Will use the funds for working capital requirements and
equipment needs;
b. Will not suspend or discontinue any payment for which
provision is made in this Agreement or in any other
document executed hereunder in connection herewith; and
c. Will not terminate or suspend this agreement or the
payment of any obligations hereunder or any other
document executed hereunder or in connection herewith
for any cause, including without limiting the
generality of the foregoing, any acts or circumstances
that may constitute failure of consideration,
commercial frustration of purpose, or any duty,
liability, or obligation arising out of or connected
with this Agreement or any document executed hereunder
or in connection herewith (except with respect to the
foregoing, those arising from a failure by the County
to make the Loan pursuant to Paragraph 1 hereof ["Loan
by the County"]).
10. DEFAULT AND REMEDIES.
a. Default. The failure of the Borrower to pay or perform any obligation
hereunder or under the terms of any documents executed in connection
herewith or the falsity of any representation or breach of any
warranty or covenant made by the Borrower under the terms of any
document executed in connection herewith, shall constitute a default
hereunder.
b. Remedies. Upon the occurrence of a default by the
Borrower, the County or Department may take any one or
more of the following steps:
(1) Declare the entire principal balance then unpaid under the terms
of this Agreement and evidenced by the Note, together with unpaid
interest immediately due and payable, which sums thereafter shall
bear interest at the rate of PRIME (the PRIME Rate published in
the Wall Street Journal) + 2 percent per annum, compounded
monthly, from the date of such declaration until paid in full;
(2) Take any or all actions necessary in accordance with the terms of
the Letter of Credit to secure payment from the issuing bank of
the Letter of Credit of all or any part of the outstanding
<PAGE>7
obligations arising out of this agreement existing
at the time of default;
(3) To take any and all actions and do any and all things which are
allowed, permitted, or provided by law to enforce or rely upon
the Letter of Credit. At the direction of the Department, the
County shall take any and all actions necessary to transfer the
proceeds of the Letter of Credit to the Department;
(4) Take whatever action at law or in equity as may appear necessary
or desirable, in the sole discretion of the County or Department
to collect the amounts then due and thereafter to become due or
to enforce performance and observance of any obligation,
agreement, or covenant of the Borrower under this Agreement or
under any other document executed in connection herewith;
(5) Institute any action or proceeding at law or in equity for the
collection of the sums so due and unpaid and to prosecute any
such action or proceeding to judgment or final decree and to
enforce any such judgment or final decree and collect, in a
manner provided by law, the monies adjudged or decreed to be
payable; and
(6) If there shall be pending, at any time, proceedings pertaining to
the bankruptcy or reorganization of the Borrower under the
federal bankruptcy laws or any other applicable law, or in the
case of a receiver, trustee, or custodian shall have been
appointed for the property of the Borrower in the case of any
other similar judicial proceeding relative to the Borrower or its
creditors, the County or Department shall be entitled and
empowered by intervention in such proceedings or otherwise to
file and prove a claim for the whole amount owing and unpaid
pursuant to the Agreement and evidenced by the Note and, in the
case of any judicial proceedings, to file such proof of claim and
other papers or documents as may be necessary or advisable in
order to have the claims of the County or Department allowed in
such judicial proceeding relative to the Borrower and to collect
and receive any monies or other property payable or deliverable
on any such claims.
c. No remedy exclusive. No remedy herein conferred upon or
reserved to the County or Department is intended to
<PAGE>8
be exclusive of any other available remedy or remedies, but each and
every such remedy shall be cumulative and shall be in addition to
every other remedy given under this Agreement or now existing at law
or in equity or by statute and may be exercised in such number, at
such times and in such order as the County or Department may determine
in its discretion. No delay or omission to exercise any right or power
securing upon any default shall impair any such right or power or
shall be construed to be a waiver thereof, but any such right and
power may be exercised from time to time and as often as may be deemed
expedient by the County or Department. In order to entitle the County
or Department to exercise any right or remedy reserved to it under
this Agreement, it shall not be necessary to give notice, other than
notices expressly required herein.
11. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. In the event
the County or Department utilizes the services of an
attorney in an attempt to collect any sums due under this
Agreement or any other documents executed in connection with
this Agreement, or if the County or Department becomes a
party plaintiff or defendant or otherwise appears in any
legal proceeding relating to this Agreement or any documents
issued hereunder or in connection herewith, the Borrower
shall pay to the County or Department all costs and expenses
as incurred, including reasonable attorneys' fees. The term
costs shall include those fees, expenses, and attorneys'
fees incurred after the filing by or against the Borrower of
any proceedings under any federal or state laws relating to
bankruptcy or insolvency and whether incurred in connection
with the involvement of the County or Department as a
creditor in such proceeding or otherwise.
12. COSTS AND EXPENSES OF THE COUNTY. The Department, after receipt from the
County of satisfactory evidence and/or County certification, shall pay or
reimburse to the County costs incurred by the County in connection with
this Agreement, including without limitation all legal, monitoring, or
auditing expenses up to One Thousand Dollars ($1,000).
13. GRANT INCOME. Subject to the Agreement included in Section
4, upon the County's receipt of Note Repayments, the County
shall remit to the Department all Grant Income; in no
instance shall the County be obligated to remit to the
Department a larger sum than it receives in each instance
from the Borrower. All Grant Income remitted to the
Department pursuant to this Section 13 shall be sent by
check within three (3) business days of the County's receipt
of such funds from the Borrower.
<PAGE>9
14. CONFLICT OF INTEREST, NO INDIVIDUAL LIABILITY. No official
or employee of the County shall have any personal interest,
direct or indirect, in this Agreement, nor shall any
official or employee of the County participate in any
decision relating to this Agreement which affects such
official's or employee's pecuniary interest in any
corporation, partnership, or association in which such
official or employee is directly or indirectly interested.
No official or employee of the County shall be personally
liable in the event of any default or breach of this
Agreement by the County.
15. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable shall be prohibited or
unenforceable without invalidating the remaining provision
hereof. To the extent permitted by law, the Borrower hereby
waives any provision of law which renders any provision
thereof prohibited or unenforceable.
16. AMENDMENTS, CHANGES AND MODIFICATIONS. This Agreement may
not be amended, changed, modified, altered, or terminated
without the prior written consent of the County, the
Department, and the Borrower.
17. RELATIONSHIP BETWEEN PARTIES. This Agreement is solely for
the benefit of the Parties to the Agreement and gives no
right to any other party. The Borrower acknowledges that
the County and the Department are acting only as lenders and
are not in any way directing or controlling its business as
a manager, partner, owner, principal, or otherwise. No
joint venture, association, or partnership is formed as a
result of this Agreement.
18. INDEMNITY. Each party shall be responsible for its own
wrongful and negligent acts or omissions, or those of its
officers, agents, or employees to the fullest extent
required by law, and shall indemnify, defend, and hold the
other parties harmless from any such liability. In the case
of negligence of more than one party, any damages allowed
shall be levied in proportion to the percentage of
negligence attributable to each party and each party shall
have the right to seek contribution from each of the other
parties in proportion to the percentage of negligence
attributable to each of the other parties.
19. NOTICE.
a. All notices required or permitted under this Agreement
shall be in writing and personally delivered or mailed
to the offices set forth below by certified mail,
<PAGE>10
return receipt requested, postage prepaid, addressed to
the Parties as follows:
To the Department: Development Loan Fund Manager, CPD
Dept. of Community, Trade and
Economic Development
906 Columbia Street Southwest
Post Office Box 48300
Olympia, Washington 98504-8300
To the County: Attention: Chairman, Chelan County
Commissioners
Chelan County Courthouse
350 Orondo Street
Wenatchee, Washington 98801
To the Borrower: Attention: Don Wright, President
Pacific Coast Technologies, Inc.
434 Olds Station Road
Wenatchee, Washington 98801
A copy shall be sent to the financial institution providing the Letter
of Credit addressed as follows:
Frontier Bank
332 Southwest Everett Mall Way
Everett, Washington 98204
b. Any party may from time to time change the address to which its
notices are to be sent by written notice to all other Parties pursuant
to this Section.
c. Whenever notice is required or permitted to be given to fewer than all
the Parties, copies of the notice shall also be mailed to all other
Parties.
20. NOTICE OF MANDATORY PREPAYMENT. It is acknowledged by the
Parties hereto that the County or Department may require
prepayment (either in whole or in part) of the monies loaned
hereunder. Prior to calling for any Prepayment, and as a
condition precedent thereto, either the County or the
Department shall give the Borrower at least ten (10) days
prior written notice, which notice shall set forth the date
and amount of such Prepayment.
21. GOVERNING LAW. This agreement shall be governed by the laws
of the State of Washington. Venue shall lie in Thurston
County, Washington.
<PAGE>11
IN WITNESS WHEREOF, the Parties have executed this Loan Agreement the date and
year first above written.
THE COUNTY OF CHELAN
By: /s/ 17 May 94
----------------------------------------
PACIFIC COAST TECHNOLOGIES, INC.
By: /s/ DON WRIGHT
----------------------------------------
Don Wright, President
DEPARTMENT OF COMMUNITY, TRADE
AND ECONOMIC DEVELOPMENT
By: _____________________________________
Mike Fitzgerald, Director
Approved As To Form:
/s/ SUZANNE SHAW 4/29/94
- -------------------------- ---------------------------------
Suzanne Shaw Date
Assistant Attorney General
<PAGE>12
WASHINGTON STATE DEPARTMENT OF COMMUNITY TRADE AND
ECONOMIC DEVELOPMENT LOAN PROGRAMS
EMPLOYMENT AND TRAINING AGREEMENT
The Parties of this agreement are:
County of Chelan (Jurisdiction);
Pacific Coast Technologies, Inc. (Business);
Washington State Employment Security Department (ESD); and
Washington State Department of Community, Trade
and Economic Development (DCTED)
PURPOSE
The purpose of this agreement is to provide qualified, lower-income individuals
who may be eligible for various federal, state, and local training and job
placement programs, first opportunity for employment for positions generated as
the result of funding through one of the following programs:
1. ____ Washington State Development Loan Fund Program
(DLF)
2. X Washington State Community Development Block Grant
---- (CDBG) Float Program (Float)
3. ____ Washington State Revolving loan Fund Program (RLP)
4. ____ Washington State Revolving Technical Assistance
Loan Fund Program (RTA)
Please indicate which program is being utilized by the business listed above.
The Business recognizes that if the DLF or Float Program is being utilized, the
public funds are being loaned by the Jurisdiction to the Business, and if the
RLF or RTA Program is being utilized, the public funds are being loaned by the
Washington State Department of Community Development (DCTED) to the business.
The business recognizes the Jurisdiction/State's desire to increase employment
opportunities for qualified people by lending these public funds to the business
at a special interest rate or term. The Business' job creation/retention goals
are outlined in Exhibit A, attached.
TERMS
The Jurisdiction/State and Business recognize that the ESD has the capacity to
meet the training and placement service needs of qualified individuals. The
Jurisdiction/State and the Business agree that the ESD will be the designated
organization for the purpose of carrying out the terms of this agreement.
<PAGE>13
This agreement becomes effective upon execution by all the parties and shall
remain in effect until the ESD receives notice from the DCTED that the
employment goals for the business for the above indicated program have been met.
The Business agrees to report for a maximum of two years or until such time that
the DCTED has determined that the Business has met its projected job creation
goal specified in Exhibit A. The Business agrees to forward all applicant
certification forms to the DCTED on a quarterly basis, along with a properly
completed Quarterly Job Report. At the end of the reporting period, the Business
agrees to properly complete a Necessary and Appropriate Certification.
The Business shall notify the ESD of its need for new or replacement employees
as soon as the Business decides to hire new or replacement employees. The notice
shall describe the nature of the job, estimated hours, wages, skills required,
number of employees sought, number of referrals requested for each position,
etc. Job openings filled by internal promotion within the Business' work force
shall not be subject to this recruitment process.
The ESD will refer applicants according to the qualifications set forth by the
Business. Only the number of applicants requested by the Business will be
referred. The final hiring decision for each job created shall be the
responsibility of the Business, but in any event, the Business will make a good
faith effort to hire individuals referred through the ESD.
Pursuant with RCW 50.13.090, the ESD will make records of applicants available
to the DCTED upon request by the DCTED. The ESD will provide a certification
form, designed and provided by the DCTED, to all applicants referred to the
Business. The applicant will take the certification form to the Business at the
time of the applicant interview and leave the form with the Business.
SIGNATURES
JURISDICTION: By: /s/
---------------------------------
Title: Chairman
Date: May 17, 1994
BUSINESS: By: /s/ Don A. Wright
---------------------------------
<PAGE>14
Title: President
Date: May 18, 1994
ESD: By: _________________________________
Title: _________________________________
Date: _________________________________
DCTED: By: _________________________________
Title: _________________________________
Date: _________________________________
<PAGE>15
Exhibit A
PROMISSORY NOTE
---------------
$2,000,000
FOR VALUE RECEIVED, the undersigned, Pacific Coast Technologies, Inc.,
("Maker"), having offices at Wenatchee, Washington 98801, promises to pay to the
order of the County of Chelan ("Holder"), a body corporate and politic of the
State of Washington, the principal sum of two million dollars ($2,000,000) as
follows: principal repayment in full of two million dollars ($2,000,000) will be
due on the loan's third anniversary. Interest shall be calculated at three
percent (3 percent) per annum and payable quarterly. Principal and interest
payments shall be made payable to the Department of Community, Trade and
Economic Development in behalf of the County of Chelan. All accrued and unpaid
interest shall be due and payable on demand, but not later than the maturity
date of the Note.
The Maker shall, upon demand by the Holder hereof, make and pay to the Holder
hereof, Mandatory Prepayments (as hereinafter defined) of principal at such
times and in such amounts as the Holder, in its discretion, may determine from
time to time. Mandatory Prepayment is herein defined to mean a call for
prepayment by the County of Chelan or the Department of Community, Trade and
Economic Development, co-beneficiaries of the letter of credit, for the partial
or total prepayment of the loan evidenced by this Note. The Holder shall give
the Maker ten (10) days prior written notice of any Mandatory Prepayment. The
Maker may, at any time prior to maturity, provided that this Note shall not be
in default, prepay the principal balance of the Note, either in whole or in
part, together with accrued interest, without penalty.
The Maker and endorsers hereof waive grace, presentment, notice of dishonor, and
protest. In the event of default in the payment of principal or interest
hereunder, the Holder hereof shall be entitled to all costs incurred in
connection therewith, including without limitation, reasonable attorneys fees.
In the event of default hereunder, the Holder hereof, among other remedies, may
declare the unpaid balance hereof, together with unpaid interest on the original
principal balance hereunder, immediately due and payable, which sums shall
thereafter bear interest at the rate of PRIME + 2 percent per annum, compounded
monthly, from the date of such declaration until paid in full.
<PAGE>16
This Promissory Note is given pursuant to the terms of, and is secured in the
manner provided by, a Community Development Block Grant Float Agreement of even
date by and between the Maker and Holder and an irrevocable, clean, sight letter
of credit, issued by Frontier Bank in favor of the co-beneficiaries.
This Note is to be governed by and construed in accordance with the laws of the
State of Washington and the Community Development Block Grant Float Agreement.
DATED: May 18, 1994 PACIFIC COAST TECHNOLOGIES, INC.
("MAKER")
By: /s/ Don A. Wright, President
------------------------------
<PAGE>17
EXHIBIT C
---------
The following governmental regulations are those referred to in the attached
Development Loan Fund Agreement:
1. Public Law 88-352, Title VI of the Civil Rights Act of 1964
(42 U.S.C. 2000d et seq.) (24 CFR Part 1). The Borrower
shall comply with the provisions of "Public Law 88-352,"
which refers to Title VI of the Civil Rights Act of 1964 (42
U.S.C. 2000d et seq.). The law provides that no person in
the United States shall, on the grounds of race, color, or
national origin, be denied the benefits of, be excluded from
participation in, or be subjected to discrimination under
any program or activity receiving federal financial
assistance.
2. Public Law 90-284, Title VIII of the Civil Rights Act of
1968 (42 U.S.C. 3601 et seq.). The Borrower shall comply
with the provisions of "Public Law 90-284," which refers to
Title VIII of the Civil Rights Act of 1968 (42 U.S.C. 3601
et seq.). The law states that it is the policy of the
United States to provide, within constitutional limitation,
for fair housing throughout the United States, and prohibits
any person from discriminating in the sale or rental of
housing, the financing of housing or the provisions of
brokerage services, including in any way making unavailable
or denying a dwelling to any person, because of race, color,
religion, sex or national origin. The Borrower must also
administer programs and activities relating to housing and
urban development in a manner that affirmatively promotes
fair housing and furthers the purposes of Title VIII.
3. Executive Order 11063, As Amended by Executive Order 12259
(24 CFR Part 197). The Borrower shall comply with the
provisions of Executive Order 11063, as amended by Executive
Order 12259, which directs Borrower to take all action
necessary and appropriate to prevent discrimination because
of race, color, religion, creed,sex or national origin in
the sale, leasing, rental and other disposition of
residential property and related facilities (including land
to be developed for residential use), or in the use or
occupancy thereof, if such property and related facilities
are, among other things provided in whole or in part with
the aid of loans, advances, grants or contributions from the
federal government.
4. Section 109 of the Housing and Community Development Act of 1974, As
Amended through 1981. The Borrower shall comply with the provisions of
Section 109 of the Housing and Community Development Act of 1974, as
amended through 1981, which require that no person in the United States
shall, on
<PAGE>18
the grounds of race, color, national origin or sex be excluded from
participation in, be denied the benefits of, or be subjected to
discrimination under any program or activity funded in whole or in part
with federal community development funds made available pursuant to Title I
of the Act.
5. Age Discrimination Act of 1975, As Amended (42 U.S.C. 6101 et seq.). The
Borrower shall comply with the Age Discrimination Act of 1975, as amended,
which provides that no person shall be excluded from participation, denied
program benefits or subject to discrimination on the basis of age under any
program or activity receiving federal funding assistance.
6. Section 504 of the Rehabilitation Act of 1973, As Amended
(29 U.S.C. 794). The Borrower shall comply with Section 504
of the Rehabilitation Act of 1973, as amended, which
provides that no otherwise qualified individual shall,
solely by reason of his or her handicap, be excluded from
participation (including employment), denied program
benefits or subjected to discrimination under any program or
activity receiving federal assistance funds.
7. Section 3 of the Housing and Urban Development Act of 1968
(12 U.S.C. 1701u) (24 CFR Part 135). The Borrower shall
comply with the provisions of Section 3 of the Housing and
Urban Development Act of 1968 which require, in connection
with the planning and carrying out of any project assisted
under the Act, to the greatest extent feasible, that
opportunities for training and employment be given to lower-
income persons residing within the unit of local government
or the non-metropolitan county in which the project is
located, and that contracts for work in connection with the
project be awarded to eligible business concerns which are
located in, or owned in substantial part by persons residing
in, the project area. The Borrower must assure good faith
efforts toward compliance with the statutory directive of
Section 3.
8. Executive Order 11246, As Amended by Executive Order 11375.
The Borrower shall comply with Executive Order 11246 as
amended, which applies to all federally assisted
construction contracts and subcontracts. The Borrower and
subcontractors, if any, shall not discriminate against any
employee or applicant for employment because of race, color,
religion, sex or national origin. Borrower and
subcontractors, if any, shall take affirmative action to
ensure that applicants are employed, and that employees are
treated, during employment, without regard to their race,
color, religion, sex or national origin. Such action shall
include, but shall not be limited to, the following:
<PAGE>19
employment, upgrading, demotion or transfer; recruitment or recruitment
advertising; layoff or termination; rate of pay or other forms of
compensation; and selection for training, including apprenticeship.
Borrower and subcontractors shall post in conspicuous places, available to
employees and applicants for employment, notices to be provided setting
forth the provisions of this nondiscrimination clause. For contracts over
$10,000, the Borrower or subcontractors shall send to each applicable labor
union a notice of the above requirements. The Borrower and subcontractors
shall comply with relevant rules, regulations and orders of the U.S.
Secretary of Labor. The Borrower or subcontractors will make their books
and records available to city, state, and federal officials for purposes of
investigation to ascertain compliance.
9. Davis-Bacon Act, As Amended (40 U.S.C. 276a-276a-5). The
Borrower shall comply with the provisions of the Davis-
Bacon Act, as amended. This Act mandates that all laborers
and mechanics be paid unconditionally and not less often
than once a week, and without subsequent deduction or rebate
on any account except "permissible" salary deductions, the
full amounts due at the time of payments, computed at wage
rates not less than those contained in the wage
determination issued by the U.S. Department of Labor. Weekly
certified payrolls are required to be submitted to the
federally-funded recipient by the contractor. These
requirements apply to rehabilitation of residential property
only if such property is designed for residential use for
eight or more families.
10. Copeland Act (Anti-Kickback Act) (40 U.S.C. 276c). The
Borrower shall comply with the Copeland Act, which makes it
a criminal offense for any person to induce, by any manner
whatsoever, any other person employed in the construction,
prosecution, completion, or repair of any public building,
public work or building, or work financed in whole or in
part by loans or grants from the United States, to give up
any part of the compensation to which he or she is entitled
under his or her contract of employment. Compensation shall
consist of wages and approved fringe benefits.
11. Contract Work Hours and Safety Standards Act (40 U.S.C. 327
et seq.). The Borrower shall comply with the provisions of
the Contract Work Hours and Safety Standards Act. According
to this Act, no contract work may involve or require
laborers or mechanics to work in excess of eight hours in a
calendar day, or in excess of 40 hours in a work week,
unless compensation of not less than one and one-half times
the basic rate is paid for the overtime hours. If this Act
is violated, the contractor or subcontractor shall be liable
to any affected employee for unpaid damages as well as to
<PAGE>20
the United States for liquidated damages. These requirements apply to
rehabilitation of residential property only if such property is designed
for residential use for eight or more families.
12. The National Environmental Policy Act of 1969 (42 U.S.C.
4321 et seq., and 24 CFR Part 58). The Borrower shall
comply with the provisions of the National Environmental
Policy Act of 1969. The purpose of this Act is to attain the
widest use of the environment without degradation, risk to
health or safety or other undesirable and unintended
consequences. Environmental review procedures, including
determining and publishing a Finding of Significance or of
No Significance for a proposal, are a necessary part of this
process. Pursuant to these provisions, the Borrower shall
certify that the proposed project will not significantly
impact the environment and that the Borrower has complied
with environmental regulations and fulfilled its obligations
to give public notice of the funding request, environmental
findings, and compliance performance.
13. The Clean Air Act. As Amended (4, U.S.C. 7401 et seq.). The
Borrower shall comply with the Clean Air Act which prohibits
(1) engaging in, (2) supporting in any way or providing
financial assistance for, (3) licensing or permitting, or
(4) approving any activity which does not conform to the
state implementation plan for natural primary and secondary
ambient air quality standards. The Borrower shall ensure
that the facilities under its ownership, lease, or
supervision which shall be utilized in the accomplishment of
the program are not listed on the U.S. Environmental
Protection Agency's (EPA) list of Violating Facilities. The
Borrower shall notify the Agency of the receipt of any
communication from the Director of the EPA Office of Federal
Activities indicating that a facility to be used in the
project is under consideration for listing by EPA.
14. HUD Environmental Criteria and Standards (24 CFR Part 51).
The borrower shall comply with the Department of Housing and
Urban Development ("HUD") noise abatement and control
standards, which prohibit HUD support for most new
construction of noise-sensitive uses on sites having
unacceptable noise exposure. HUD assistance for the
construction of new noise-sensitive uses is prohibited in
general for projects with unacceptable noise exposures and
is discouraged for projects with normally unacceptable noise
exposure.
15. Executive Order 11990, May 24, 1977: Protection of Wetlands (42 F.R 26961
et seq.). The Borrower shall comply with Executive Order 11990, the intent
of which is, (1) to avoid, to the extent possible, adverse impacts
associated with the
<PAGE>21
destruction or modification of wetlands, and (2) to avoid direct or
indirect support of new construction in wetlands wherever there is a
practical alternative. The Borrower, to the extent permitted by law, must
avoid undertaking or providing assistance for new construction located in
wetlands, unless there is no practical alternative to such construction and
the proposed action includes all practical measures to minimize harm to
wetlands which may result form such use. In making this determination, the
Borrower may take into account economic, environmental, and other pertinent
factors.
16. The Wild and Scenic Rivers Act of 1968, As Amended (16
U.S.C. 1271 et seq.). The Borrower shall comply with the
Wild and Scenic Rivers Act. The purpose of this Act is to
preserve selected rivers or section of rivers in their free-
flowing condition, to protect the water quality of such
rivers and to fulfill other vital national conservation
goals. Federal assistance by loan, grant, license, or other
mechanism can not be provided to water resources
construction projects that would have a direct and adverse
effect on any river included or designed for study or
inclusion in the National Wild and Scenic River System.
17. Executive Order 11988, May 24, 1977: Floodplain Management
(42 F.R. 26951 et seq.). The Borrower shall comply with the
provisions of Executive Order 11988. The intent of this
Executive Order is to avoid, to the extent possible, adverse
impacts associated with the occupancy and modification of
floodplains, and to avoid direct or indirect support of
floodplain development wherever there is a practical
alternative. If the Borrower proposes to conduct, support,
or allow an action to be located in the floodplain, the
Borrower must consider alternatives to avoid adverse effects
and incompatible involvement in the floodplains. If sitting
in a floodplain is the only practical alternative, the
Borrower must, prior to taking any action, design or modify
its actions in order to minimize a potential harm to the
floodplains, and prepare and circulate a notice containing
an explanation of why the action is proposed to be located
in a floodplain.
18. Coastal Zone Management Act of 1972, As Amended (16 U.S.C.
1451 et seq.). The Borrower shall comply with the Coastal
Zone Management Act of 1972, as amended. The intent of this
Act is to preserve, protect, develop, and where possible,
restore or enhance the resources of the nation's coastal
zone. Federal agencies cannot approve assistance for
proposed projects that are inconsistent with the state's
coastal management program, except upon a finding by the
U.S. Secretary of Commerce that such a project is consistent
<PAGE>22
with the purpose of this chapter or necessary in the
interests of national security.
19. The Endangered Species Act of 1973, As Amended (16 U.S.C.
1531 et seq.). The Borrower shall comply with the Endangered
Species Act of 1973, as amended. The intent of this Act is
to ensure that all federally-assisted projects seek to
preserve endangered or threatened species. Federally
authorized and funded projects may not jeopardize the
continued existence of endangered and threatened species or
result in the destruction of or modification of habitat of
such species which is determined by the U.S. Department of
the Interior, after consultation with the state, to be
critical.
20. The Reservoir Salvage Act of 1960, As Amended by the
Archaeological and Historic Preservation Act of 1974 (16
U.S.C. 469 et seq.). Under the Reservoir Salvage Act, the
Borrower must comply with provisions for the preservation of
historical and archaeological data (including relics and
specimens) that might otherwise be irreparably lost or
destroyed as a result of any alteration of the terrain
caused as a result of any federal construction project or
federally-licensed activity or program. Whenever any
federal agency finds, or is notified in writing by an
appropriate historical or archaeological authority, that its
activities in connection with any federal construction
project or federally-licensed project, activity or program
may cause irreparable loss or destruction of significant
scientific, prehistoric, historical or archaeological data,
the federal agency must notify the U.S. Secretary of
Interior in writing and provide appropriate information
concerning the project, program or activity.
21. The Safe Drinking Water Act of 1974, As Amended (42 U.S.C.
201,300(f) et seq. and U.S.C. Section 349. The Borrower
must comply with the Safe Drinking Water Act, as amended,
which is intended to protect underground sources of water.
No commitment for federal financial assistance, according to
this Act, shall be entered into for any project which the
U.S. Environmental Protection Agency determines may
contaminate an aquifer which is the sole or principal
drinking water source for an area.
<PAGE>23
22. The Federal Water Pollution Control Act of 1972, As Amended
including the Clean Water Act of 1977. Public law 92-212
(33 U.S.C. 1251 et seq.). The Borrower shall assure
compliance with the Water Pollution Control Act, as amended,
which provides for the restoration of chemical, physical and
biological integrity of the nation's water.
23. The Solid Waste Disposal Act, As Amended by the Resource
Conversation and Recovery Act of 1976 (42 U.S.C. 6901 et
seq.). The Borrower shall assure compliance with The Solid
Waste Disposal Act, as amended. The purpose of this Act is
to promote the protection of health and the environment and
to conserve valuable material and energy resources.
24. The Fish and Wildlife Coordination Act of 1958, As Amended (16 U.S.C. 661
et seq.). The Borrower shall assure compliance with the Fish and Wildlife
Coordination Act, as amended. The Act assures that wildlife conservation
received equal consideration and is coordinated with other features of
water resource development programs.
25. The National Historic Preservation Act of 1966 (16 U.S.C. 470). The
Borrower shall evaluate the effects of its activity on any district, site,
building, structure, and object listed in, or eligible for, the National
Register of Historic Places, and shall give the state Office of Archaeology
and Historical Preservation a reasonable opportunity to comment on the
proposed activity.
26. The Archaeological and Historical Data Preservation Act of 1974 (16 U.S.C.
469a-1 et seq.). The Borrower shall comply with the Archaeological and
Historical Data Preservation Act, which provides for the preservation of
historic and archaeological information that would be lost due to
development and construction activities as a result of federally-funded
activities.
27. Executive Order 11593, Protection and Enhancement of the Cultural
Environment, May 13, 1971. The Borrower shall assure that plans for
federally-funded projects contribute to the preservation and enhancement of
sites, structures, and objects of historical, architectural, or
archaeological significance.
28. Title II and III of the Uniform Relocation Assistance and
Real Property Acquisition Policies Act of 1970 (42 U.S.C.
4630). The Borrower shall comply with Sections 301 and 302
of Title III (Uniform Real Property Acquisition Policy) of
the Uniform Relocation Assistance and Real Property Policies
Act of 1970 and shall comply with Section 303 and 304 of the
Title III, and HUD implementing instructions contained in 24
CFR Part 42. The Borrower shall inform affected persons of
their rights and of the acquisition policies and procedures
set forth in the regulations of 24 CFR Part 42 and 24 CFR
570.602(b). The Borrower shall comply with Title II (Uniform
Relocation Assistance) of the Uniform Relocation Assistance
and Property Acquisition Act of 1970 and HUD implementing
regulations of 24 CFR Part 42 and 24 CFR 570.602(a) which
require the Borrower to provide relocation
<PAGE>24
payments and offer relocation assistance as described in Section 205 of the
Uniform Relocation Assistance Act to all persons displaced as a result of
acquisition of real property for an activity assisted under the Community
Development Block Grant Program. Such payments and assistance shall be
provided in a fair, consistent and equitable manner that ensures that the
relocation process does not result in a different or separate treatment of
such persons on account of race, color, religion, national origin, sex or
source of income. The Borrower shall assure that, within a reasonable
period of time prior to displacement, decent, safe and sanitary replacement
dwellings will be available to all displaced families and individuals and
that the range of choices available to such persons will not vary on
account of their race, color, religion, national origin, sex or source of
income.
29. Title IV of the Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 4831
et seq.). The Borrower shall comply with the provision of the Title IV of
the Lead-Based Point Poisoning Prevention Act, which prohibits the use of
lead-based paint in residential structures constructed or rehabilitated
with federal assistance of any kind.
30. The Americans with Disabilities Act of 1990, Public Law 101- 336, also
referred to as "ADA" 28 CFR Part 35. The grantee must comply with the ADA,
which provides comprehensive civil rights protection to individuals with
disabilities in the areas of employment, public accommodations, state and
local government services, and telecommunication.
<PAGE>25
EXHIBIT D
The following governmental regulations are those referred to in the attached
Development Loan Fund Agreement:
1. U.S. Office of Management and Budget Circular A-87, Principles for
Determining Costs Applicable to Grants and Contracts with State, Local, and
Federally Recognized Indian Tribal Governments. The Local Government shall
comply with the guidelines of Federal Circular A-87, which set forth
principles and standards for determining the costs allowable under grants
and contracts involving federal funds.
2. U.S. Office of Management and Budget Circular A-102 Uniform
Administrative Requirements for Grants-in-Aid to State and
Local Governments. The Local Government shall comply with
the requirements of Office of Management and Budget (OMB)
Circular A-102, or any equivalent procedures and
requirements that the state may prescribe. The Circular is
the basis for a number of specific requirements on the
financial management and recordkeeping of CDBG funds. The
directive applies to cash depositories, bonding and
insurance, record keeping, program income, property
management, procurement, close-out, audit, and other
requirements. The following Attachments to OMB Circular A-
102 do not specifically apply to the Borrower's project:
"Attachment D-Waiver of Single State Agency Requirements,"
"Attachment F-Matching Share," and "Attachment M-Standard
Forms for Application."
<PAGE>26
Exhibit A
PROMISSORY NOTE
---------------
$2,000,000
FOR VALUE RECEIVED, the undersigned, Pacific Coast Technologies, Inc.,
("Maker"), having offices at Wenatchee, Washington 98801, promises to pay to the
order of the County of Chelan ("Holder"), a body corporate and politic of the
State of Washington, the principal sum of two million dollars ($2,000,000) as
follows: principal repayment in full of two million dollars ($2,000,000) will be
due on the loan's third anniversary. Interest shall be calculated at three
percent (3 percent) per annum and payable quarterly. Principal and interest
payments shall be made payable to the Department of Community, Trade and
Economic Development in behalf of the County of Chelan. All accrued and unpaid
interest shall be due and payable on demand, but not later than the maturity
date of the Note.
The Maker shall, upon demand by the Holder hereof, make and pay to the Holder
hereof, Mandatory Prepayments (as hereinafter defined) of principal at such
times and in such amounts as the Holder, in its discretion, may determine from
time to time. Mandatory Prepayment is herein defined to mean a call for
prepayment by the County of Chelan or the Department of Community, Trade and
Economic Development, co-beneficiaries of the letter of credit, for the partial
or total prepayment of the loan evidenced by this Note. The Holder shall give
the Maker ten (10) days prior written notice of any Mandatory Prepayment. The
Maker may, at any time prior to maturity, provided that this Note shall not be
in default, prepay the principal balance of the Note, either in whole or in
part, together with accrued interest, without penalty.
The Maker and endorsers hereof waive grace, presentment, notice of dishonor, and
protest. In the event of default in the payment of principal or interest
hereunder, the Holder hereof shall be entitled to all costs incurred in
connection therewith, including without limitation, reasonable attorneys fees.
In the event of default hereunder, the Holder hereof, among other remedies, may
declare the unpaid balance hereof, together with unpaid interest on the original
principal balance hereunder, immediately due and payable, which sums shall
thereafter bear interest at the rate of PRIME + 2 percent per annum, compounded
monthly, from the date of such declaration until paid in full.
This Promissory Note is given pursuant to the terms of, and is secured in the
manner provided by, a Community Development Block
<PAGE>27
Grant Float Agreement of even date by and between the Maker and Holder and an
irrevocable, clean, sight letter of credit, issued by Frontier Bank in favor of
the co-beneficiaries.
This Note is to be governed by and construed in accordance with the laws of the
State of Washington and the Community Development Block Grant Float Agreement.
DATED: May 18, 1994 PACIFIC COAST TECHNOLOGIES, INC.
("MAKER")
By: /s/ DON A. WRIGHT, President
---------------------------------
<PAGE>1
COMMERCIAL GUARANTY
Borrower: PACIFIC COAST TECHNOLOGIES, INC. Lender: FRONTIER BANK
434 OLDS STATION ROAD EVERGREEN WAY OFFICE
WENATCHEE, WA 98801 P.O. BOX 2215
EVERETT, WA 98203
Guarantor: MELVIN B. HOELZLE
8015 BROADWAY AVE.
EVERETT, WA 98201
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including without
limitation the principal Note amount of Two Million & 00/100 Dollars
($2,000,000.00).
GUARANTY. For good and valuable consideration, MELVIN B. HOELZLE ("Guarantor")
absolutely and unconditionally guarantees and promises to pay to FRONTIER BANK
("Lender") or its order, in legal tender of the United States of America, the
Indebtedness (as that term is defined below) of PACIFIC COAST TECHNOLOGIES, INC.
("Borrower") to Lender on the terms and conditions set forth in this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used
in this Guaranty:
Borrower. The word "Borrower" means PACIFIC COAST TECHNOLOGIES, INC.
Guarantor. The word "Guarantor" means MELVIN B. HOELZLE.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated May 18, 1994.
Indebtedness. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals and any anticipated
post-Judgment collection services.
Lender. The word "Lender" means FRONTIER BANK, its successors and
assigns.
Note. The word "Note" means the promissory note or credit agreement dated
May 18, 1994, in the original principal amount of $2,000,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
guaranties, security agreements, mortgages, deeds of trust, and all other
instruments, agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty shall
not exceed at any one time the amount of the Indebtedness described above, plus
all costs and expenses of (a) enforcement of this Guaranty and (b) collection
and sale of any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount of the
indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all Indebtedness within the limits set forth in
the preceding section of this Guaranty. Any married person who signs this
Guaranty as the Guarantor hereby expressly agrees that recourse under this
agreement may be had against both his or her separate property and community
property, whether now owned or hereafter acquired.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty.
<PAGE>2
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, wIthout notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the indebtedness or any part of the indebtedness, including increases
and decreases of the rate of interest on the Indebtedness; extensions may be
repeated and may be for longer than the original loan term; (c) to take and hold
security for the payment of this Guaranty or the Indebtedness, and exchange,
enforce, waive, fail or decide not to perfect, and release any such security,
with or without the substitution of new collateral; (d) to release, substitute,
agree not to sue, or deal with any one or more of Borrower's sureties,
endorsers, or other guarantors on any terms or in any manner Lender may choose;
(e) to determine how, when and what application of payments and credits shall be
made on the indebtedness; (f) to apply such security and direct the order or
manner of sale thereof, including without limitation, any nonjudicial sale
permitted by the terms of the controlling security agreement or dead of trust,
as Lender in its discretion may determine; (g) to sell, transfer, assign, or
grant participations in all or any part of the Indebtedness; and (h) to assign
or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has not and will not, without the prior written consent of
Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantor's assets, or any interest
therein; (d) Lender has made no representation to Guarantor as to the
creditworthiness of Borrower; (e) upon Lender's request, Guarantor will provide
to Lender financial and credit information in form acceptable to Lender, and all
such financial information provided to Lender is true and correct in all
material respects and fairly presents the financial condition of Guarantor as of
the dates thereof, and no material adverse change has occurred in the financial
condition of Guarantor since the date of the financial statements; and (f)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition. Guarantor
agrees to keep adequately informed from such means of any facts, events, or
circumstances which might in any way effect Guarantor's risks under this
Guaranty, and Guarantor further agrees that, absent a request for information,
Lender shall have no obligation to disclose to Guarantor any information or
documents acquired by Lender in the course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to pursue
any other remedy within Lender's power; or (f) to commit any act or omission of
any kind, or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. Section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the indebtedness on the
basis of unjustified impairment of any collateral for indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by any third party, on the Indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
<PAGE>3
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in end to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
Jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute end file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve end enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Guaranty:
Amendments. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
Applicable Law. This Guaranty has been delivered to Lender and accepted by
Lender in the State of Washington. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of
SNOHOMISH County, State of Washington. This Guaranty shall be governed by
and construed in accordance with the laws of the State of Washington.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
Notices. All notices required to be given by either party to the other
under this Guaranty shall be in writing and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier, or when deposited in the United States mail, first class postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above or to such other addresses as either party may
designate to the other in writing. If there is more than one Guarantor,
notice to any Guarantor will constitute notice to all Guarantors. For
notice purposes, Guarantor agrees to keep Lender informed at all times of
Guarantor's current address.
Interpretation. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall
<PAGE>4
remain valid and enforceable. If any one or more of Borrower or Guarantor
are corporations or partnerships, it is not necessary for Lender to inquire
into the powers of Borrower or Guarantor or of the officers, directors,
partners, or agents acting or purporting to act on their behalf, and any
indebtedness made or created in reliance upon the professed exercise of
such powers shall be guaranteed under this Guaranty.
Waiver. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or of any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER' IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE, THIS
GUARANTY IS DATED MAY 10,1984.
GUARANTOR:
X /s/ MELVIN B. HOELZLE
----------------------------------
MELVIN B. HOELZLE
<PAGE>1
COMMERCIAL GUARANTY
Borrower: PACIFIC COAST TECHNOLOGIES, INC. Lender: FRONTIER BANK
434 OLDS STATION ROAD EVERGREEN WAY OFFICE
WENATCHEE, WA 98801 P.O. BOX 2215
EVERETT, WA 98203
Guarantor: ROBERT L. SMITH and MARY SMITH
2008 GRAND AVE
EVERETT, WA 98201
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including without
limitation the principal Note amount of Two Million & 00/100 Dollars
($2,000,000.00).
GUARANTY. For good and valuable consideration, ROBERT L. SMITH and MARY SMITH
("Guarantor") absolutely and unconditionally guarantee and promise to pay,
Jointly and severally, to FRONTIER BANK ("Lender") or its order, in legal tender
of the United States of America, the Indebtedness (as that term is defined
below) of PACIFIC COAST TECHNOLOGIES, INC. ("Borrower") to Lender on the terms
and conditions set forth in this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
Borrower. The word "Borrower" means PACIFIC COAST TECHNOLOGIES, INC.
Guarantor. The word "Guarantor" means ROBERT L. SMITH and MARY SMITH, who
are signing this Guaranty jointly and severally.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated May 18, 1994.
Indebtedness. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the Note
or to any collateral for the Note. Collection costs and expenses include
without limitation all of Lender's attorneys' fees and Lender's legal
expenses, whether or not suit is instituted, and attorneys' fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services.
Lender. The word "Lender" means FRONTIER BANK, its successors and assigns.
Note. The word "Note" means the promissory note or credit agreement dated
May 18, 1994, in the original principal amount of $2,000,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for
the promissory note or agreement.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
guaranties, security agreements, mortgages, deeds of trust, and all other
instruments, agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty shall
not exceed at any one time the amount of the Indebtedness described above, plus
all costs and expenses of (a) enforcement of this Guaranty and (b) collection
and sale of any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount of the
indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all indebtedness within the limits set forth in
the preceding section of this Guaranty. Any married person who signs this
Guaranty as the Guarantor hereby expressly agrees that recourse under this
agreement may be had against both his or her separate property and community
property, whether now owned or hereafter acquired. The obligations of Guarantors
shall be joint and several. Lender may proceed against any of the Guarantors
individually, against any group of Guarantors, or against all the Guarantors in
one action, without affecting the right of Lender to proceed against other
Guarantors for amounts that are covered by this Guaranty. Any inability of
Lender to proceed against any Guarantor (whether caused by actions of a
Guarantor or of Lender) will not affect Lender's right to proceed against any or
all remaining Guarantors for all or part of the amounts covered by this
Guaranty.
<PAGE>2
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all indebtedness shall have
boon fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the indebtedness or any part of the indebtedness, including increases
and decreases of the rate of interest on the indebtedness; extensions may be
repeated and may be for longer than the original loan term; (c) to take and hold
security for the payment of this Guaranty or the indebtedness, and exchange,
enforce, waive, fail or decide not to perfect, and release any such security,
with or without the substitution of new collateral; (d) to release, substitute,
agree not to sue, or deal with any one or more of Borrower's sureties,
endorsers, or other guarantors on any terms or in any manner Lender may choose;
(e) to determine how, when and what application of payments and credits shall be
made on the indebtedness; (f) to apply such security and direct the order or
manner of sale thereof, including without limitation, any nonjudicial sale
permitted by the terms of the controlling security agreement or deed of trust,
as Lender in its discretion may determine; (g) to sell, transfer, assign, or
grant participations in all or any part of the indebtedness; and (h) to assign
or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has not and will not, without the prior written consent of
Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantor's assets, or any interest
therein; (d) Lender has made no representation to Guarantor as to the
creditworthiness of Borrower; (e) upon Lender's request, Guarantor will provide
to Lender financial and credit information in form acceptable to Lender, and all
such financial information provided to Lender is true and correct in all
material respects and fairly presents the financial condition of Guarantor as of
the dates thereof, and no material adverse change has occurred in the financial
condition of guarantor since the date of the financial statements; and (f)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition. Guarantor
agrees to keep adequately informed from such means of any facts, events, or
circumstances which might in any way affect Guarantor's risks under this
guaranty, and Guarantor further agrees that, absent a request for information,
Lender shall have no obligation to disclose to guarantor any information or
documents acquired by Lender in the course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to pursue
any other remedy within Lender's power; or (f) to commit any act or omission of
any kind, or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the indebtedness on the
basis of unjustified impairment of any collateral for the indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the indebtedness. If payment is made by Borrower, whether
voluntarily or otherwise, or by any third party, on the indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty.
<PAGE>3
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shalt continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
Amendments. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty shall
be effective unless given in writing and signed by the party or parties
sought to be charged or bound by the alteration or amendment.
Applicable Law. This Guaranty has been delivered to Lender and accepted by
Lender in the State of Washington. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of
SNOHOMISH County, State of Washington. This Guaranty shall be governed by
and construed in accordance with the laws of the State of Washington.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Guarantor also shall pay all court costs and such additional fees as may be
directed by the court.
Notices. All notices required to be given by either party to the other under
this Guaranty shall be in writing and shall be effective when actually
delivered or when deposited with a nationally recognized overnight courier,
or when deposited in the United States mail, first class postage prepaid,
addressed to the party to whom the notice is to be given at the address
shown above or to such other addresses as either party may designate to the
other in writing. If there is more than one Guarantor, notice to any
Guarantor will constitute notice to all Guarantors. For notice purposes,
Guarantor agrees to keep Lender informed at all times of Guarantor's current
address.
Interpretation. in all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and
<PAGE>4
where there is more than one Borrower named in this Guaranty or when this
Guaranty is executed by more than one Guarantor, the words "Borrower" and
"Guarantor" respectively shall mean all and any one or more of them. The
words "Guarantor," "Borrower," and 'Lender' include the heirs, successors,
assigns, and transferees of each of them. Caption headings in this Guaranty
are for convenience purposes only and are not to be used to interpret or
define the provisions of this Guaranty. If a court of competent jurisdiction
finds any provision of this Guaranty to be invalid or unenforceable as to
any person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances, and all
provisions of this Guaranty in all other respects shall remain valid and
enforceable. if any one or more of Borrower or Guarantor are corporations or
partnerships, it is not necessary for Lender to inquire into the powers of
Borrower or Guarantor or of the officers, directors, partners, or agents
acting or purporting to act on their behalf, and any indebtedness made or
created in reliance upon the professed exercise of such powers shall be
guaranteed under this Guaranty.
Waiver. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver of
any of Lender's rights or of any of Guarantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED MAY 18, 1994.
GUARANTOR:
/s/ ROBERT L. SMITH /s/ MARY SMITH
- --------------------------------- ------------------------------------
ROBERT L. SMITH MARY SMITH
<PAGE>1
LEASE AGREEMENT
PACIFIC COAST TECHNOLOGIES, INC.
1993
THIS LEASE is entered into this date, between PORT OF CHELAN COUNTY, a
Washington municipal corporation, hereafter referred to as "Landlord," and
PACIFIC COAST TECHNOLOGIES, INC., a Washington corporation, hereafter referred
to as "Tenant."
1. PREMISES. Landlord hereby leases to Tenant, and
Tenant leases from Landlord, upon the terms and conditions
included in this lease, the following described Property
consisting of approximately two acres:
See attached Exhibit "A"
The above-described property along with all the buildings and other
improvements now or hereafter placed on it are hereafter called the "Property,"
"Leased Premises" or "Premises."
2. TERM OF LEASE. This lease shall be for a term of
ten (l0) years commencing on August 1, 1993, and ending on
July 31, 2003.
If the Landlord does not deliver substantial possession (such that the
Tenant can move in and prepare for initial operations) of the Leased Premises at
the commencement of the term of this lease, rent shall be abated, or pro rated
if only part of the premises are delivered, until substantial possession is
tendered by the Landlord. This lease shall remain in full force and effect in
all other respects and the lease term shall be extended thereby.
If Landlord offers possession of the Leased Premises prior to the
lease's commencement and if Tenant accepts early possession, then both parties
shall be bound by all the covenants and terms contained in this lease, including
rent payment for the period of early possession.
3. OPTION TO RENEW. Tenant shall have the option to renew this lease
for two additional five (5) year periods, each term to commence immediately upon
the expiration of the preceding term. The option to renew shall be exercised in
writing and delivered to Landlord not less than one hundred and twenty (120)
days prior to the expiration of the current lease term. Such renewal term shall
be on the same terms and conditions applicable to the original lease term,
except for the rent which shall be adjusted as provided for in paragraph 4.5.
<PAGE>2
Landlord shall not be obligated to renew this Lease, if at the time of
the exercise of the option, or if at the time the renewal term is to begin,
Tenant is in default under this Lease, which default is not cured within a
reasonable time, not exceeding the time for cure set out in paragraph 26, or if,
during the Lease Tenant has been in default on five (5) or more occasions when
Landlord has given written notice of such default to Tenant, and which default
has not been cured within a reasonable time, not to exceed the time for cure set
out in paragraph 26. Landlord shall annually provide a written report to Tenant
of the number of Tenant's defaults not cured within the time allowed, if any. If
Tenant disputes the number designated in the Landlord's notice it shall so
advise the Landlord in writing within ten (10) days of receipt of the annual
report. Final determination of whether or not such default actually occurred
without timely cure shall be made by arbitration as set out in paragraph 31, if
it becomes an issue at the time of exercise of the option.
4. RENT. During the Lease's initial term and any renewal term, Tenant
shall pay Landlord monthly rental based on the amount determined as set out
below in paragraph 4.2 ("Base Rent"), adjusted as set forth in paragraphs 4.1 -
4.7 below, payable in lawful money of the United States. Rent shall be paid in
equal installments in advance on the first day of each month of the lease term
and any renewals thereof.
4.1 RENT SCHEDULE FOR FIRST FIVE YEARS. During
the first five lease years, Tenant shall pay the percent of Base
Rent as follows:
Year 1 25% of Base Rent
Year 2 50% of Base Rent
Year 3 125% of Base Rent
Year 4 150% of Base Rent
Year 5 150% of Base Rent
4.2 BASE RENT. The actual Base Rent amount will be determined
when the cost of construction is fixed. The Base Rent will be an amount equal to
the monthly payment necessary to amortize the costs of construction, together
with the value of the land described above at $2.50 per square foot for $217,800
for the two acres leased, over twenty (20) years at an interest rate of seven
(7) percent per annum, payable monthly, with the resulting amount being
converted to a per square foot per month cost for the basic building and then
being reduced by an amount equal to five cents per square foot per month for the
basic building. The cost of construction is defined in the Construction
Agreement of even date executed between Port of Chelan County and Pacific Coast
Technologies, Inc., and is incorporated by this reference. Base Rent does not
include
<PAGE>3
leasehold tax. If the Base Rent exceeds 35.45 cents per square foot per month,
so that Base Rent together with the leasehold tax due as set out in paragraph
4.3 exceeds 40 cents per square foot per month for the basic building (35.45
plus the leasehold tax of 12.84% of 35.45 equals 40 cents), the amount of the
Base Rent for the basic building, as calculated herein, shall be reduced to
35.45 cents per square foot per month so that the total amount of Base Rent,
before the reduction set out above or any increases set out below, plus
leasehold tax, equals 40 cents per square foot per month.
4.3 LEASEHOLD TAX. In addition to Rent, Tenant shall pay to the
Landlord such sums as may be required by law for payment of leasehold tax as
required by the State of Washington or other tax entity, as such laws now exists
or as they hereafter be amended (such leasehold tax currently being 12.84%). If
leasehold tax is increased or decreased, the total amount payable for Rent plus
leasehold tax shall increase or decrease, but the amount of Rent shall not be
changed.
4.4 PRO RATA RENT. In the event the lease term commences or
terminates on a date that is not the first or last day of the month,
respectively, Tenant shall pay a pro-rated monthly installment, in advance, on
the first day of the lease term or the first day of the last month of the lease
term, respectively, at the then current rate, based on the number of days of
actual occupancy during the first or last calendar month of the lease term.
In the event some but not all of the premises are delivered by
Landlord for occupancy, rent shall be adjusted to reflect a pro-rata amount for
the portion delivered.
4.5 INCREASE TO BASE RENT IN YEARS SIX THROUGH NINE, BEFORE
CONSUMER PRICE INDEX ADJUSTMENTS. In years six through nine the Base Rent shall
be increased as set forth below, before the Consumer Price Index (CPI)
adjustments called for in paragraph 4.6 below are made (the Base Rent after the
increase is referred to as the "Adjusted Base Rent.")
Lease Year Increase Over Base Rent
6 1 cent
7 2 cents
8 3.5 cents
9 5 cents
(For example, if Base Rent is 31 cents per square foot per month, then Adjusted
Base Rent in year 6 will be 32 cents per square foot per month and in year 9
Adjusted Base Rent will be 36 cents per square foot per month.)
<PAGE>4
4.6 CONSUMER PRICE INDEX.
4.6.1 Beginning with the first month of the sixth year of the
Lease, and again on the first month of each year thereafter, including each year
of a renewal term, if the Lease is renewed (the "adjustment years"), the
Adjusted Base Rent as determined in paragraph 4.5 for the adjustment year in
question, but without reduction allowed in paragraph 4.1, shall be adjusted in
accordance with the Consumer Price Index to the amount determined as hereafter
set out.
The Adjusted Base Rent shall be further adjusted to an amount equal to
the product obtained by multiplying the full Adjusted Base Rent calculated as
set out in paragraph 4.5, by a fraction, the denominator of which is the
semi-annual data for the half year ending December, 1992, from the "Consumer
Price Indexes Pacific Cities and U.S. City Average" for "All Items Indexes" for
"All Urban Consumers (1982-84 = 100)", published by the Bureau of Labor
Statistics of the United States Department of Labor, as adjusted semi-annually
for the Seattle area ("CPI-U"), and the numerator of which is the CPI-U for the
half year period ending the December closest to and before the first month of
the period for which the adjustment is then being made; provided however, that
in the event the period designated above shall not be listed in the Index, the
closest period, or month if the reporting data is monthly, preceding December
shall be used; and provided that rent shall not fall below the amount calculated
in paragraph 4.2 above.
By way of example, the CPI adjustment for the monthly rent shall be
calculated as follows:
Semi-annual CPI-U
for the December
ending closest to
and before the
first month of the Monthly rent
period for which The Adjusted beginning
the adjustment is Base Rent as with the
being made, for calculated in first month
Seattle X paragraph 4.5 = of the app-
_______________ licable ad-
justment yr
Semi-annual CPI-U
ending 12-92 for
Seattle
4.6.2 The Rent payable after the fifth lease year shall be the
Adjusted Base Rent, as it is adjusted for the CPI pursuant to paragraph 4.6.1.
<PAGE>5
4.6.3 Notwithstanding the foregoing, the maximum increase in Rent in
any one year shall be the greater of 4% or 2/3 of the amount of the increase
calculated according to the formula set forth in paragraph 4.6.1 (eg If the
percent increase is 4% or less, rent will increase by the full percentage
amount. If the percent increase exceeds 4%, rent will be capped at 4% until the
increase exceeds 6%, and above 6% the increase will be 2/3 of the actual
increase).
4.6.4 If the U.S. Department of Labor, Bureau of Labor Statistics,
shall discontinue publication of the Consumer Price Index, then another index
generally recognized as authoritative shall be substituted by agreement, and if
the parties should not agree, such substituted index shall be selected by the
then presiding Judge of the, Chelan County Superior Court upon the application
of either party.
4.7 Example - First five years. The following is an example of the Rent
schedule payable for the first five years. Assume the cost of construction plus
the land value is such that the monthly payment necessary to amortize the cost
at 7% per annum over twenty years is $10,800, and assume the basic building is
30,000 square feet. Dividing $10,800 by 30,000 square feet to arrive at the cost
per square foot per month, results in a figure of 36 cents per square foot per
month. This 36 cents shall be reduced to 31 cents which results in the Base Rent
of $9,300 per month. In the first five years Rent would be payable as follows,
in this example:
Year Formula From Paragraph 4.1 Monthly Rental
1 $9,300 x 25% $ 2,325
2 $9,300 x 50% $ 4,650
3 $9,300 x 125% $11,625
4 $9,300 x 150% $13,950
5 $9,300 x 150% $13,950
Leasehold tax would be payable in addition to the above rental.
4.8 Example - Years six through nine. The following are two
examples for rent which would be payable in the sixth and ninth year of the
Lease term, assuming a Base Rent of 31 cents per square foot per month for a
30,000 square foot building, and assuming a constant CPI increase of 3% per year
(12-92 being equal to 100).
4.8.1 Year 6:
115.927 (12-97 CPI-U) x 9600 ($.32 per sq. ft.) = $11,128.99 (mo.
rent)
100(12-92 CPI-U)
<PAGE>6
4.8.2 Year 9:
126.677 (12-00 CPI-U) x 10,800 ($.36 per sq.ft.) $13,681.11
(mo.rent)
100(12-92 CPI-U)
4.9 TAXES. Tenant shall pay, before the same become delinquent,
all taxes assessed against Tenant's personal property, furniture, fixtures,
equipment, inventory and other property mentioned on the Leased Premises.
Any tax related to the value of the property that may be assessed
against Landlord or Tenant during the term of this Lease will be paid by Tenant,
upon demand by Landlord.
4.10 NET LEASE. Landlord shall have no obligation relative to the
property for such things as repair, upkeep, snow removal, standby water, fire
protection costs, utilities, taxes, assessments, inspections (e.g. fire alarm
and sprinkler systems) and the pro-rata share of irrigation water and fire
protection, etc., unless set out herein, and Tenant shall pay and be responsible
for all expenses associated with the property.
4.11 DEPOSIT. Tenant shall deposit with Landlord a security
deposit in the amount of $150,000, in the form of a bond or other deposit
acceptable to Landlord, to be held by Landlord as security for the full and
faithful performance by Tenant of each and every term, covenant and condition of
the lease.
If Tenant breaches any of the lease terms, including the obligation to
pay Rent, Landlord may, at Landlord's option, make demand upon such security and
apply the proceeds thereof to cure the breach.
4.12 LATE CHARGE. In the event any rental amount called for
herein, including the leasehold tax, is not paid within ten (10) days from the
date it is due Tenant shall pay to Landlord a late charge of five percent (5%)
of the rental amount per month for each unpaid lease payment until such payment
is paid.
The late charge is due immediately and is in addition to all of
Landlord's other rights in this lease.
In the event Landlord gives written notice of Tenant's default,
delinquency or other lease violations, Tenant agrees to pay Landlord's actual
costs and attorneys' fees reasonably incurred in providing such notice, in
addition to the late charge and all other payments and obligations called for
herein.
<PAGE>7
5. CONSTRUCTION COMMENCEMENT. The Leased Premises currently consist of
vacant land. Landlord agrees to construct a multipurpose building consistent
with plans and specifications prepared, after consulting with the Landlord and
Tenant, by the Landlord's engineer (the "Facility"). The terms of the agreement
between Landlord and Tenant regarding construction of the building are set out
in a "Construction Agreement" which is incorporated herein by this reference.
The building of this date shall be generally as depicted on the attached
Drawing, labeled Exhibit "B".
6. PLANS AND SPECIFICATIONS. Upon Landlord's and
Tenant's acceptance of the plans and specifications, those plans
shall be incorporated herein by reference. The plans and
specifications are subject to amendment by agreement of the
parties.
7. DELIVERY OF POSSESSION. Landlord and Tenant understand and
acknowledge that it is unlikely all of the Premises will be complete or
available for occupancy by August 1, 1993, Landlord and Tenant agree to
cooperate in good faith within the time frames established by this lease and the
Construction Agreement. The Landlord agrees to work in good faith and with
reasonable diligence to complete construction of the Facility within a
reasonable time in order to facilitate occupancy by Tenant of the Leased
Premises.
7.1 Interim Lease. In recognition of these time constraints, the
Landlord agrees to rent to Tenant approximately 3800 square feet in another
building located on property owned by Landlord, other than the Property
described in paragraph 1, at 30 cents per square foot per month ("Interim
Facility"). In addition to Rent for the Interim Facility, Tenant shall pay to
the Landlord such sums as may be required by law for payment of leasehold tax as
required by the State of Washington or other tax entity, as such laws now exist
or as they hereafter be amended (such leasehold tax currently being 12.84%). The
Interim Facility is immediately available for occupancy and use by the Tenant.
The rental period shall begin upon occupancy by Tenant of the Interim Facility,
and shall end upon Tenant's vacating it for occupancy of the Leased Premises.
The parties will execute a different lease, consistent with the provisions of
this Agreement, for the Interim Facility.
7.2 Possession as of August 1, 1993. Possession of that portion
of the Property to be used by Tenant for its production and machine shop area,
as will be designated on the plans and specifications ("Production Area"), shall
be delivered to Tenant upon substantial completion of the Production Area. For
purposes of this sub-paragraph, the Production Area shall be substantially
completed when the Tenant can occupy the Production Area for purposes of
installing its equipment and operating its
<PAGE>8
business, even if the Production Area is not totally complete, understanding
that Tenant's business operations may encounter inconvenience until final
completion, as provided for in paragraph 7.3.
In the event the Production area is not suitably, substantially
completed for Tenant to begin installation of its equipment and operation of its
business on August 1, 1993, Landlord and Tenant agree that Tenant will suffer
damages that are difficult to determine and both parties wish to liquidate those
damages. For each day after August 1, 1993, that Landlord is unable to deliver
possession of the premises to Tenant for conduct of Tenant's business as set
forth in this sub-paragraph, Landlord shall pay Tenant as liquidated damages the
sum of $600.00, up to a maximum of seventy-five (75) days. Such liquidated
damages are Tenant's sole and exclusive remedy in the event Landlord fails to
deliver possession for conduct of Tenant's business as set forth in this
sub-paragraph by August 1, 1993. In the event the Property is not substantially
complete for delivery upon the expiration of the period during which liquidated
damages are present, this lease shall terminate and the parties shall have their
remedies at law.
7.3 Possession as of October 15, 1993. Possession of the entire
Facility shall be delivered upon substantial completion of the Facility in
accordance with the plans and specifications for the entire Facility. For
purposes of this sub-paragraph, the entire Facility shall be substantially
completed when the Facility may by occupied by the Tenant for purposes of
operating its business, understanding that Tenant's business operations may
encounter inconvenience until final completion.
In the event the Property is not suitably, substantially completed for
Tenant to operate its business on October 15, 1993, Landlord and Tenant agree
that Tenant will suffer damages that are difficult to determine and both parties
wish to liquidate those damages, for each day after October 15, 1993, that
Landlord is unable to deliver possession of the premises to Tenant for conduct
of Tenant's business as set forth in this sub-paragraph, Landlord shall pay
Tenant as liquidated damages the sum of $600.00, up to a maximum of twenty-five
(25) days. Such liquidated damages are in addition to those set out in paragraph
7.2 and are Tenant's sole and exclusive remedy in the event Landlord fails to
deliver possession for conduct of Tenant's business as set forth in this
sub-paragraph by October 15, 1993. In the event the Facility is not
substantially complete for delivery upon the expiration of the period during
which liquidated damages are present, this lease shall terminate and the parties
shall have their remedies at law.
<PAGE>9
7.4 Lease Construction. The provisions of this lease shall be
construed so that they apply reasonably to the actual occupancy and use of the
Property, or any portion of the Property actually occupied, in whole or in part,
by Tenant. In the event of a dispute as to how the parties should resolve an
issue, because of the occupancy of less than the entire Facility, the dispute
shall be resolved by arbitration as set out herein.
8. TENANT'S ACCEPTANCE. The parties understand the Tenant may be in
possession of some or all of the Leased Premises prior to Landlord finally
accepting the building from Contractor. Landlord shall give written notice to
Tenant of its intent to finally accept the building prior to actual acceptance
as provided in the Construction Agreement.
No representation, statement or warranty, expressed or implied, is or
shall be made by or on behalf of the Landlord as to the building's condition, or
as to the use that may be made of such building unless specifically set forth in
writing. Tenant releases Landlord from any responsibility for any representation
that may have been made to the Tenant about the property that is not
specifically set out in this Lease Agreement.
9. USE OF LEASED PREMISES. The Leased Premises shall be used by Tenant
for the purpose of manufacturing, warehousing and distributing hermetic
connectors, semiconductors and hybrid microelectronic packages and other
electronic packaging products in the Leased Premises and for no other purpose
unless agreed to in advance by Landlord.
Further, the Tenant agrees that:
9.1 Tenant shall not allow the use of the Leased Premises in a
manner which would increase Landlord's insurance premiums unless Tenant agrees
to reimburse Landlord for such increase, or for any illegal purpose.
9.2 Tenant shall comply with all laws and shall observe all
applicable ordinances, including the Protective Covenants for Olds Station
Industrial Park, and any amendments thereto ("Protective Covenants") a copy of
which has been received and reviewed by Tenant and which Protective Covenants
are incorporated herein by this reference, related to the use of the Leased
Premises. Landlord shall not be responsible to Tenant for the nonperformance by
any other Tenant or occupant of the Olds Station Industrial Park of any said
rules and regulations.
10. SERVICES AND UTILITIES. Tenant shall make all
arrangements for and pay all utilities, including, but not
limited to: gas, electricity, water, waste treatment, garbage,
<PAGE>10
telephone and all other utilities furnished to the Leased
Premises.
Landlord does not warrant that any utilities and services will be free
from interruption. The Landlord shall not be liable to Tenant for any loss or
damage caused by or resulting from any variation, interruption, or failure of
heat or any utility services due to any cause, other than Landlord's negligent
or willful acts. No temporary interruption or failure of services due to the
making of repairs, alterations, or improvements, or due to accident, strike or
conditions or events beyond Landlord's control shall be deemed an eviction of
Tenant or relieve Tenant from any of Tenant's obligations under this lease.
11. ALTERATIONS AND IMPROVEMENTS. Landlord
acknowledges that the tenant may need to make alterations within
portions of the Leased Premises. Tenant shall make no changes,
improvements or alterations, to the Leased Premises without the
Landlord's prior written consent.
Landlord agrees not to unreasonably deny approval for changes,
improvements or alterations; provided design plans are submitted to Landlord for
review and approval. Approval for structural changes must be approved in advance
by Landlord's engineer. Tenant shall bear Landlord's reasonable costs of
investigation for requested changes, including engineer's and other expert's
fees.
All such approved changes, shall be at the Tenant's sole cost and
expense; and Tenant shall use a licensed and bonded contractor or contractors
for such alterations. Tenant agrees that any alterations or improvements made
shall not abate the rent. In the performance of such work, Tenant agrees to
comply with all laws and ordinances and to hold Landlord harmless from any
damage, loss or expense caused by work performed by Tenant.
Any alterations of the Leased Premises shall become at once a part of
the realty and belong to the Landlord, except trade fixtures supplied and paid
for by the Tenant subject to the Tenant's duty to remove as set out in this
Agreement.
At Landlord's request, within thirty (30) days prior to the Lease's
termination, Tenant shall restore the Leased Premises to the condition that
existed at the commencement of the Lease, except for normal wear and tear.
Tenant shall keep the Leased Premises free from any liens, and shall
indemnify and hold Landlord harmless and defend it from any liens or
encumbrances, damage, loss or expense arising out of any work performed or
materials furnished by or at the direction of Tenant, or otherwise, to the
Leased Premises.
<PAGE>11
12. TRADE FIXTURES. Tenant may install on the Leased Premises such
equipment as is customarily used in the type of business conducted by Tenant. At
the termination of this lease, at the direction of the Landlord, Tenant shall,
or at Tenant's option Tenant may, remove from the Leased Premises all such
equipment and all other property of Tenant provided that Tenant repairs the
damage caused by the removal or restores, at the Tenant's sole cost and expense,
the Leased Premises, consistent with paragraph 12. Any equipment or fixtures not
removed by the expiration or sooner termination of this Lease or any renewal
period, shall at the option of the Landlord become the property of the Landlord.
13. REPAIR AND MAINTENANCE. Unless otherwise agreed, Tenant shall, at
its own expense, make all necessary repairs and replacement to the Leased
Premises. Tenant shall be responsible for all maintenance and repair, including,
but not limited to: the piping, heating system, window glass, fixtures,
electrical and mechanical systems, and all other appliances and equipment used
in connection with the Leased Premises. Such repairs and replacements, interior
and exterior, structural and non-structural, shall be made promptly as and when
necessary. All repairs and replacements shall be approved in advance by Landlord
and must be of quality and class at least equal to the original work as
reasonably determined by Landlord.
On default of the Tenant in making such repairs or replacements, the
Landlord may, but shall not be required to, make such repairs and replacements
for the Tenant's account, and the expense thereof shall constitute and be
collectible as additional rent.
Notwithstanding the foregoing, Landlord shall be responsible for the
repair and maintenance of the roof and structural damage to the Leased Premises
to the extent not necessitated or caused by Tenant's negligence or conduct;
provided that Tenant shall be responsible for removal of snow or other
accumulations on the roof, including ice and water, and shall be responsible and
pay for any damage occurring because of such accumulations. It is the intention
of this Agreement that except for roof and structural repair stated above and
Landlord's share of Capital Expense set out below, Landlord shall have no
obligation for expenses associated with the building beyond its own debt
payments, except as otherwise provided herein.
Capital improvements, replacements or repairs ("Capital Expense") not
necessitated or caused by Tenant's neglect or conduct, shall be made by
Landlord. "Capital Expense" means a repair or replacement not normally occurring
during the ordinary useful life of the item being repaired or replaced, and
which repair or replacement has a useful life extending beyond the then
<PAGE>12
existing lease term. For example, replacement of a toilet seat, fan belt on a
motor, light ballast or carpeting, repair of a gouge in the floor or wall, minor
repair of exterior walls, or repainting are not "Capital Expenses." Repair of
major damage to the building's exterior is a "Capital Expense." Cost of the
Capital Expense shall be amortized over the reasonably expected useful life of
the Capital item, as determined in good faith by the Landlord after consulting
with its engineer. Tenant shall pay, as additional rent, a pro-rated amount of
the Capital Expense each month, equal to the total Capital Expense divided by
the number of months of useful life of the Capital Expense.
Landlord shall not be obligated to repair or replace any fixtures or
equipment installed by Tenant and Landlord shall not be obligated to make any
repair or replacement occasioned by any act or omission of Tenant, its
employees, agents, invitees or licensees.
14. RIGHT OF ENTRY. Landlord may enter the Leased Premises at all
times for emergencies, and at reasonable times, after reasonable notice, during
or after business hours, for the purpose of inspecting, cleaning, repairing,
altering, improving or exhibiting the Leased Premises, but nothing in this lease
shall be construed as imposing any obligation on the Landlord to perform any
such work.
Landlord may place "FOR RENT" or "FOR SALE" signs on the exterior of
the Leased Premises and after reasonable notice may enter the Leased Premises
for purposes of showing the Leased Premises to prospective tenants, purchasers
and lenders.
15. DAMAGE OR DESTRUCTION.
15.1 DAMAGE. All damage or injury done to the Leased Premises by
Tenant or by any persons who may be in or upon the Leased Premises shall be paid
for by Tenant.
15.2 DESTRUCTION. If the Property or the Leased Premises are
destroyed or damaged by fire or any other casualty to the extent that a
substantial part of the Property or the Leased Premises is rendered
untenantable, or if the uninsured portion of the cost of repairing the damage to
the Property or Leased Premises exceeds $50,000, either Landlord or Tenant may
terminate this lease by notice in writing to the other within sixty (60) days
after the destruction or damage, unless Landlord agrees in writing within 30
days after the destruction to pay the uninsured portion of the cost of repair,
in which case the lease shall not terminate. The notice shall be effective
thirty (30) days after receipt.
15.3 PARTIAL DESTRUCTION. If the Leased Premises
shall be partially destroyed or rendered partially untenantable
<PAGE>13
and if the lease is not terminated by Landlord, Landlord shall restore the
Leased Premises to its previous condition, and in the meantime the monthly rent
shall be abated in the same proportion as the untenantable portion of the Leased
Premises bears to the whole of the Leased Premises.
Notwithstanding the foregoing, Landlord shall have no obligation to
repair, reconstruct, or restore the Leased Premises when the damage or
destruction occurs during the last twelve (12) months of either the initial or
first renewal lease term, if Tenant has not exercised a renewal option, or,
within 12 months of the last renewal lease term.
15.4 LIMIT OF LANDLORD LIABILITY. Landlord's
liability shall be limited to its contractual obligation in this
lease, its negligent or otherwise wrongful conduct.
16. INDEMNITY. The Tenant shall indemnify the Landlord from and
against any and all claims, demands, cause of actions, suits or judgments
(including fees, costs and expenses [including attorney fees] incurred in
connection therewith and in enforcing the indemnity) for deaths or injuries to
persons or for loss of or damage to property arising out of or in connection
with the condition, use or occupancy of the Leased Premises or any improvements
thereon; or by Tenant's non-observance or nonperformance of any law, ordinance
or regulation applicable to the Lease Premises; or incurred in obtaining
possession of the Leased Premises after a default by the Tenant, or after the
Tenant's default in surrendering possession upon expiration or earlier
termination of the term of the lease, or enforcing any of the Tenant's covenants
in this lease. This includes, without limitation, any liability or injury to the
person or property of Tenant, its agents, officers, employees, or invitee. The
tenant specifically waives any immunity provided by Washington's Industrial
Insurance Act. This indemnification covers claims by Tenant's own employees.
In the event of any such claims made or suits filed, Landlord shall
give Tenant prompt written notice thereof and Tenant shall have the right to
defend or settle the same to the extent of its interests thereunder.
Tenant, as a material part of the consideration to be rendered to
Landlord, waives all claims against Landlord for damages to goods, wares,
merchandise and loss of business in, upon or about the Leased Premises and for
injury to Tenant, its agents, employees, invitee or their persons in or about
the Leased Premises from any cause arising at any time, including Landlord's
breach of this lease.
17. INSURANCE. Tenant shall provide its own property
damage insurance.
<PAGE>14
From and after the commencement date of the term of this lease, Tenant
shall insure the Leased Premises, at its sole cost and expense, against claim
for personal injury and property damage under a policy of general liability
insurance, with limits of $1,000,000.00 single limit or its equivalent for
bodily injury, and $500,000.00 for property damage. Such policy shall name
Landlord and Tenant as insureds. Before taking possession of the Leased
Premises, the Tenant shall furnish the Landlord with a certificate evidencing
the aforesaid insurance coverage.
The aforementioned minimum limits of policies shall in no event limit
the liability of Tenant hereunder. No policy of Tenant's insurance shall be
cancelable or subject to reduction of coverage or other modification except
after thirty (30) days prior written notice to Landlord by the insurer. Tenant
shall, at least thirty (30) days prior to the expiration of the policies,
furnish Landlord with renewals or binders.
Tenant shall insure the Leased Premises to the full replacement value
with an "all risk" or equivalent policy of property insurance, naming Landlord
as insured. Landlord may provide Tenant the option of insuring the building
through Landlord's carrier, and reimbursing Landlord for the cost of such
insurance.
The insurance shall be issued by carriers acceptable to the Landlord,
and Landlord's approval shall not be unreasonably withheld.
The Tenant agrees that if Tenant does not take out and maintain such
insurance, Landlord may (but shall not be required to) procure such insurance on
Tenant's behalf and charge Tenant the premiums together with a twenty-five
percent (25%) handling charge, payable upon demand.
18. MUTUAL RELEASE. In addition to, and not by way of limitation of,
the tenant's obligation to indemnify Landlord, Landlord and Tenant hereby
mutually waive their respective rights of recovery against each other for any
loss insured by fire, extended coverage, and other property insurance policies
existing for the benefit of the respective parties. Each party shall obtain any
special endorsements, if required, by their insurer to evidence compliance with
the waiver.
Each insurance policy obtained by the Landlord and Tenant shall
provide that the insurance company waives all rights of recovery by way of
subrogation against either party in connection with any damage covered by the
policy. Neither party shall be liable to the other for any damage caused by fire
or any other risk insured against under any property insurance policy
<PAGE>15
carried under the terms of this lease to the extent of such
insurance.
If an additional premium is required to be paid to obtain a waiver of
subrogation, the applicant shall, within ten (10) days after notice to it of the
required premium, give written notice of the additional premium to the one to
whom the waiver would apply, and the one to whom the waiver would apply shall
either pay the additional premium or this mutual release shall not be applicable
to damages covered by that insurance policy. (e.g. If Landlord's insurance
carrier requires an additional premium, Tenant would be required to pay the
additional premium or this paragraph would not release Tenant. Tenant would then
be subject to suit and liable for damages caused by Tenant, whether or not
Landlord's loss was covered by insurance.)
19. ASSIGNMENT AND SUBLETTING. The Tenant may assign, transfer,
mortgage, pledge, hypothecate or encumber this lease or any interest therein,
and may sublet the Leased Premises or any part thereof, upon receiving prior
written consent from Landlord. If Tenant intends to mortgage, pledge, encumber
or hypothecate this lease or the Leased Premises or any interest therein,
Landlord shall not unreasonably withhold consent, provided such action in no way
restricts Landlord in executing its rights, or purports to grant to any third
party rights in excess of those rights of Tenant under this Lease Agreement. If
Tenant intends to transfer, assign or sublet the Lease Premises or any interest
therein to another tenant, Landlord will not unreasonably withhold its consent.
Any attempt to assign or sublet without such consent shall be null and void and
shall constitute a breach of this lease. if the Landlord does give written
consent to an assignment or sublet, Tenant shall still be liable for full
performance of all the Tenant's obligations in this lease.
In the event Landlord is desirous of leasing the Leased Premises to a
third party on terms and conditions acceptable to the Landlord (which include
the terms and conditions of this lease) during a time when Tenant has vacated or
abandoned the premises, Tenant agrees to terminate this lease effective the date
the new tenant takes possession of the Leased Premises if Landlord so requests.
Upon such termination, Landlord and Tenant agree that all rights and
responsibilities of this lease shall end as though the lease had ended according
to its terms effective that date. Landlord agrees to give Tenant at least thirty
(30) days notice of a potential subtenant or replacement tenant. In the event
Tenant determines it desires to retain full possession and control of the Leased
Premises in order to continue its business operations on the Leased Premises
after a period of time not to exceed nine (9) months from the date of vacation
or abandonment, then Tenant shall provide written
<PAGE>16
notice, within fifteen (15) days following receipt of notice from Landlord of
the prospective subtenant or replacement tenant, that the Tenant desires to
continue in sole possession and control of the Leased Premises and to reject the
subtenant or replacement tenant and will agree to reoccupy and reuse the Leased
Premises for its manufacturing and assembling operation, or such other
operations as may be agreed to between Landlord and Tenant, within a period of
time not to exceed nine (9) months from the date of vacation or abandonment.
Failure of the Tenant to commence such reuse of the premises within the nine (9)
month period is a default by Tenant and a breach of the lease.
An assignment or sublet includes the following: (1) any action which
causes a change in control of the Tenant corporation at any time during the
Term; (2) if all or substantially all of the assets of Tenant shall be sold,
assigned or transferred with or without a specific assignment of the Lease; or
(3) if Tenant shall merge or consolidate with any firm or corporation.
Landlord, at its option, may, by giving sixty (60) days prior written
notice to Tenant after discovery of the action, declare such change to be an
assignment or subletting in violation of this Lease, subject to the remedies
provided for in event of breach of this Lease.
20. QUIET ENJOYMENT. Landlord covenants that Tenant, upon performance
of all Tenant's obligations under this lease, shall lawfully and quietly hold,
occupy and enjoy the Leased Premises during the term of this lease without
disturbance by the Landlord or from any person claiming through the Landlord.
21. SIGNS. All signs must comply with sign ordinances
and be placed in accordance with the required permits and be
consistent with the Olds Station Protective Covenants.
The Landlord may demand the removal of any signs which do not receive
its prior written approval. Tenant's failure to comply with Landlord's demand to
remove within forty-eight (48) hours of such demand shall constitute a breach of
this paragraph and shall entitle the Landlord to cause the sign to be removed
and the building repaired at the Tenant's sole expense.
At the termination of this lease, Tenant shall remove all signs placed
by it upon the Leased Premises, and shall repair any damage caused by such
removal.
22. VACATING UPON TERMINATION. Tenant covenants and agrees that upon
the expiration of the lease or renewal term, or upon the termination of the
Lease for any cause, Tenant shall at once peacefully surrender and deliver the
whole of the above-described Leased Premises together with all improvements,
except trade fixtures, thereon to the Landlord, Landlord's agents or
<PAGE>17
assigns unless Tenant shall have expressly acquired the right to remain through
another written extension of this Lease.
23. PRESENCE AND USE OF HAZARDOUS SUBSTANCES. Tenant shall not,
without Landlord's prior written consent, keep on or around the Leased Premises,
for use, disposal, treatment, generation, storage or sale, any substances
designated as, or containing designated as hazardous, dangerous, toxic or
harmful (collectively referred to as "Hazardous Substances"), and/or which are
subject to regulation by any federal, state or local law, regulation, statute or
ordinance.
23.1 With respect to any Hazardous Substance,
Tenant shall:
23.1.1 Comply promptly, timely, and completely with all
governmental requirements for reporting, keeping and submitting manifests, and
obtaining and keeping current identification numbers;
23.1.2 Submit to Landlord true and correct copies of all
reports, manifests and identification numbers at the same time as they are
required to be and/or submitted to the appropriate governmental authorities;
23.1.3 Within five (5) days of Landlord's request, submit
written reports to Landlord regarding Tenant's use, storage, treatment,
transportation, generation, disposal or sale of Hazardous Substances and provide
evidence satisfactory to Landlord of Tenant's compliance with the applicable
governmental regulation;
23.1.4 Allow Landlord or Landlord's agents or
representatives to come on the Leased Premises at all times, after reasonable
notice, to check Tenant's compliance with all applicable governmental
regulations regarding Hazardous Substances;
23.1.5 Comply with minimum levels, standards or other
performance standards or requirements which may be set forth or established for
certain Hazardous Substances (if minimum standards or levels are applicable to
Hazardous Substances present on the Leased Premises, these levels or standards
shall be established by an on-site inspection by the appropriate governmental
authorities and shall be set forth in an addendum to this Lease); and
23.1.6 Comply with all governmental rules, regulations and
requirements regarding the proper and lawful use, sale, transportation,
generation, treatment and disposal of Hazardous Substances.
<PAGE>18
23.1.7 Landlord shall have the right, at reasonable times
and upon reasonable notice to Tenant, to inspect the Leased Premises to monitor
Tenant's compliance with this section. Landlord shall pay and be responsible for
the costs of its own inspection. Notwithstanding the foregoing, if an inspection
reveals the use or presence of Hazardous Substances requiring clean-up or other
action, then Tenant shall pay, as part of the clean-up cost incorporated in
Paragraph 24.2 below, Landlord's actual costs, including reasonable attorney's
fees and costs, incurred in making or providing for such inspection and any
follow-up inspections.
23.2 CLEANUP COSTS. DEFAULT AND INDEMNIFICATION.
23.2.1 Tenant shall be fully and completely liable to
Landlord for any and all clean-up costs and any and all charges, fees, penalties
(civil and criminal) imposed by any governmental authority with respect to
Tenant's use, disposal, transportation, generation and/or sale of Hazardous
Substances, in or about the Leased Premises.
23.2.2 Tenant shall indemnify, defend and hold Landlord
harmless from any and all costs, fees, penalties and charges assessed against or
imposed upon Landlord including reasonable Landlord's attorneys' fees and costs
as a result of Tenant's use, disposal, transportation, generation and/or sale of
Hazardous Substances.
23.2.3 Upon Tenant's default under this Article, in addition
to the rights and remedies set forth elsewhere in this Lease, Landlord shall be
entitled to the following rights and remedies.
23.2.3.1 At Landlord's option, to
terminate this Lease immediately; and
23.2.3.2 To recover any and all damage
associated with the default, including, but not limited to clean-up costs and
charges, civil and criminal penalties and fees, loss of business and sales by
Landlord and any and all damages and claims asserted by third parties together
with reasonable attorneys' fees and costs.
24. LICENSES AND PERMITS. Tenant, at its sole expense, shall obtain
all licenses or permits which may be required for conducting its business within
the terms of this lease, or for the making of repairs, alterations, improvements
or additions, and the Landlord, when necessary, will join with the Tenant in
applying for all such permits and licenses.
25. DEFAULT AND RE-ENTRY. If Tenant defaults in any
rent payment due under the terms of this lease, and such default
<PAGE>19
is not cured within ten (10) calendar days after written notice from Landlord or
within thirty (30) calendar days after written notice from Landlord if the
default is other than the payment of rent, Landlord may terminate this lease and
re-enter the Leased Premises; or Landlord may, without terminating this lease,
re-enter said Leased Premises, and relet the whole or any part upon as favorable
terms and conditions as the market will allow for the balance of the lease term.
Notwithstanding any re-entry, the liability of the Tenant for the full
amounts payable by the Tenant under this lease shall not be extinguished for the
balance of the lease or renewal term. Tenant shall make good to Landlord any
deficiency arising from a reletting of the Leased Premises at a lesser rental or
on different economic terms plus the reasonable costs and expenses of re-letting
the Leased Premises including, but not limited, to commissions, advertising,
attorney's fees, and the costs of renovating or altering the Leased Premises.
At Landlord's sole option, the deficiency between the amount to be
received by the relet and the amount to be received if Tenant had fulfilled the
lease may be reduced to present cash value based on a six percent (6%) yield,
and be declared due and owing, at any time after the property is relet. Tenant
shall pay such amount upon demand. If Landlord elects this remedy, Landlord
shall have no other remedy against Tenant for rent. Alternatively Tenant shall
pay any deficiency caused by Tenant's default each month. The ability of
Landlord to re-enter and relet shall not impose upon Landlord the obligation to
do so.
Each of the following events is a default by Tenant and a breach of
this lease:
25.1 Any failure by Tenant to make any payment required to be
made by Tenant on or before the time the payment is due.
25.2 The abandonment or vacation of the Leased
Premises by the Tenant.
25.3 A failure by Tenant to observe and perform any provisions of
this lease which is to be observed or performed by the Tenant.
25.4 The appointment of a receiver to take
possession of all or substantially all the assets of the Tenant.
25.5 A general assignment by Tenant for the
benefit of creditors.
25.6 Any action taken or suffered by Tenant under
any insolvency or bankruptcy act. If Tenant becomes insolvent,
<PAGE>20
bankrupt, or if a receiver, assignee, or other liquidating officer is appointed
for the Tenant's business, Landlord may cancel this lease, subject to Section
365 of Bankruptcy Code, 11 U.S.C. 365.
26. LANDLORD'S EXPENSES ON TENANT'S DEFAULT. If either party to this
lease fails (the "Defaulting Party") to make any payment or perform any
obligations under this lease, the non-defaulting party, with reasonable notice
to or demand upon the Defaulting Party and without waiving or releasing the
Defaulting Party from any obligations under this lease, may make any payment or
perform any other obligation of the Defaulting Party, in such manner and to such
extent as the non-defaulting party deems desirable. All costs and expenses paid
by the non-defaulting party in connection with the performance of any such
obligations, together with interest at the rate of 12% per annum, compounded
annually, from the date of making such expenditure by the non-defaulting party,
shall be payable to the non-defaulting party upon demand.
27. REMOVAL OF PROPERTY. If the Landlord, after Tenant's default,
lawfully re-enters the Leased Premises, Landlord shall have the right, but not
the obligation, to remove all property located therein and to place such
property in storage at the Tenant's expense and risk. If the Tenant does not pay
the storage cost, after it has been stored for a period of thirty (30) calendar
days or more and after giving Tenant ten (10) days written notice of sale,
Landlord may, at its sole discretion, sell, or permit to be sold, any or all of
the property at public or private sale.
Landlord, at its sole discretion, may retain any trade fixtures and
other items of Tenant's property, which are not removed by the Tenant at the
expiration of the lease term or any renewal period or at such earlier time as
Tenant's rights under this lease may be terminated for default. At Landlord's
option, title to the fixtures and other property shall be vested in the Landlord
without any duty to account or pay to Tenant for the value of the property or
for any other matter in connection for the Landlord's acquisition of the
fixtures and attached property.
28. HOLDOVER. If Tenant, with the implied or expressed consent of the
Landlord, shall holdover after the expiration of the term of this lease, Tenant,
shall remain bound by all this lease's covenants and agreements, except that the
tenancy shall be from month to month, and the monthly rent shall be the rent
amount due the last month of the immediately preceding term plus fifteen percent
(15 percent).
If Tenant should holdover beyond the expiration of this lease term, or
the renewal thereof, without consent of the Landlord, Tenant shall pay as
liquidated damages a sum equal to
<PAGE>21
double the rent amount due the last month of the immediately preceding term.
This paragraph shall not affect any of the Landlord's rights to terminate this
lease and declare a forfeiture or to otherwise take possession of the Leased
Premises.
29. NON-WAIVER OF COVENANTS. The Landlord's failure to insist upon the
strict performance of any provision of this lease shall not be construed as
depriving the Landlord of the right to insist on strict performance of such
provision in the future. The subsequent acceptance of rent, whether full or
partial payment, by the Landlord shall not be deemed a waiver of any preceding
breach by the Tenant of any term, covenant, or condition of this lease, other
than the failure of the Tenant to pay the particular part of the rent accepted,
regardless of the Landlord's knowledge of the proceeding breach at the time of
the acceptance of that part of the rent.
30. ARBITRATION. In the event that the parties cannot
agree on any matter of this agreement, they shall consult
together with a view of resolving the dispute. In the event they
cannot agree upon a resolution to the dispute, the same shall be
settled pursuant to RCW Chapter 7.04 et. seq. except as herein
modified.
Such arbitration shall be before one disinterested arbitrator, if one
can be agreed upon, otherwise before three disinterested arbitrators, one named
by the Landlord, one by the Tenant, and one by the two thus chosen. If all
arbitrators have not been appointed within fifteen (15) days after demand for
arbitration, then either side may apply to the Chelan County Superior Court,
upon ten (10) days notice to the other, for appointment of the necessary
arbitrators remaining to be appointed, and the judicial appointment shall be
binding and final. The arbitrator or arbitrators shall determine the controversy
in accordance with the laws of the State of Washington as applied to the facts
found by him or them. The arbitrator or arbitrators may grant injunctions or
other relief in such controversy or claims.
The decision of the arbitrator or arbitrators shall be final,
conclusive and binding on the parties and a judgment may be obtained thereon in
any Court having jurisdiction. Landlord and Tenant shall each pay one-half of
the cost and expenses of such arbitration, and each party shall separately pay
for its own attorneys' fees and expenses.
31. COST AND ATTORNEY'S FEES. In the event it is
necessary for either party to utilize the services of an attorney
to enforce any of the terms of this agreement, such enforcing
party shall be entitled to compensation for its reasonable
attorney's fees and costs. In the event of litigation regarding
<PAGE>22
any of the terms of this agreement, the prevailing party shall be entitled, in
addition to other relief, to such reasonable attorney's fees and costs as
determined by the court.
32. CONDEMNATION. If all the Leased Premises are
taken by any public authority under the power of eminent domain,
this lease shall terminate as of the date possession by said
public authority.
A condemnation or taking by public authority shall not be grounds for
terminating this lease unless twenty five percent (25%) or more of the Property
is taken. No award for any partial or entire taking shall be apportioned.
However, the Tenant will not be required to give or assign the Landlord any
interest in any award made to the Tenant for the taking of personal property and
fixtures belonging to the Tenant or for the interruption or damage to Tenant's
business or for Tenant's unamortized cost of any leasehold improvements.
In the event of a partial taking which does not result in the
termination of this lease, rent shall be proportionately abated based on the
amount of Leased Premises made unusable.
33. FORCE MAJEURE. Landlord's or Tenant's failure to perform any of
its obligations under this lease shall be excused if due to causes beyond the
control of Landlord or Tenant, including but not restricted to acts of God, acts
of the public enemy, acts of any government, fires, floods, earthquakes,
epidemics and strikes.
34. LIGHT, AIR AND VIEW. Landlord does not guarantee
the continued present status of light, air or view over any
premises adjoining or in the vicinity of the Industrial Building.
35. CAPTIONS AND CONSTRUCTION. The titles to sections
of the lease are not a part of this lease and shall have no
effect upon the construction and interpretation of any part of
the lease.
36. TIME. TIME IS OF THE ESSENCE IN THIS LEASE.
37. BINDING ON HEIRS, SUCCESSORS AND ASSIGNS. All the covenants,
agreement terms and conditions contained in this lease shall apply to and be
binding upon Landlord and Tenant and their respective heirs, executors,
administrators, successors and assigns, except as may be provided to the
contrary in other sections of this lease.
38. SAVINGS CLAUSE. Nothing in this Lease shall be
construed so as to require the commission of any act contrary to
law, and wherever there is any conflict between any provisions
of this Lease and any statute, law, public regulation or
<PAGE>23
ordinance, the latter shall prevail, but in such event, the provisions of this
Lease affected shall be curtailed and limited only to the extent necessary to
bring it within legal requirements.
39. INCORPORATION. This agreement represents the entire agreement of
the parties. Unless set forth herein in writing, neither party shall be bound by
any statements or representations made, and each agrees that there are no such
statements or representations being relied upon in making this lease. No
alterations, changes, or amendments to this lease will be binding upon either
party unless such party has executed a written statement acknowledging such
alteration, change or amendment.
40. GOVERNING LAW. This lease shall be governed by
the law of the State of Washington and venue for any action
arising from this Lease shall be in Chelan County, Washington.
41. REMEDIES CUMULATIVE. The specified remedies to which the Landlord
may resort under the terms of this lease are cumulative and are not intended to
be exclusive of any other remedies or means of redress to which the Landlord may
be lawfully entitled in case of any breach or threatened breach by Tenant of any
provision of this lease. In addition to the other remedies provided in this
lease, Landlord shall be entitled to the restraint by injunction of the
violation, or attempted or threatened violation, of any of the covenants,
conditions, or provisions of this lease.
The Landlord's selection of one or more remedies shall not constitute
an election of remedies to the exclusion of any other remedies.
42. LEASE YEAR. As used herein, the term "lease year" shall mean a
twelve month period commencing on the date the term of this lease commences and
each twelve month period thereafter commencing on each anniversary of the
commencement date.
43. CONFLICT OF PROVISIONS. In case of conflict, the
more specific provisions of this lease shall control.
44. STATUS OF A CORPORATION. Each individual executing this lease on
behalf of Tenant corporation represents and warrants that he is duly authorized
to execute and deliver this lease on behalf of said corporation in accordance
with a duly adopted resolution of the Board of Directors or in accordance with
the Bylaws of said corporation, and that this lease is binding upon said
corporation in accordance with its terms.
<PAGE>24
45. NOTICES. Any notices shall be effective if
personally served upon the other party or if mailed by registered
or certified mail, return receipt requested, to the following
addresses:
Landlord:
Port of Chelan County
Post Office Box 849
Wenatchee, Washington 98807-0849
Tenant:
Pacific Coast Technologies, Inc.
Upon possession by Tenant of premises, notices shall be sent to new
address of tenant in the leased premises.
Notices mailed shall be deemed given on the date of mailing. Landlord
and Tenant shall notify each other of any change of address.
46. INTERPRETATION. This lease has been submitted to
the scrutiny of all parties and their counsel, if desired, and it
shall be given a fair and reasonable interpretation in accordance
with its words, without consideration to or weight given to its
being drafted by any party or its counsel.
All words used in the singular shall include the plural; the present
tense shall include the future tense; and the masculine gender shall include the
feminine and neuter genders.
IN WITNESS WHEREOF, the parties have set their hands this 1st day of
February, 1993, and state that they are authorized to execute this agreement.
LANDLORD TENANT
Port of Chelan County Pacific Coast Technologies, Inc.
By: /s/ RICHARD C. HARRIS By: /s/ DON A. WRIGHT
---------------------- ---------------------------
Its: Manager Its: President
STATE OF WASHINGTON )
)ss.
County of Chelan )
I certify that I know or have satisfactory evidence
that Richard C. Harris is the person who appeared before me, and
<PAGE>25
said person acknowledged that he/she signed this instrument, on oath stated that
he/she was authorized to execute the instrument and acknowledged it as the
Manager of Port of Chelan County to be the free and voluntary act of such party
for the uses and purposes mentioned in the instrument.
Dated this 1 day of February, 1993.
/s/ DAYLE S. RUSHING
----------------------------------
NOTARY PUBLIC, State of Washington
My appointment expires 3-3-93
STATE OF WASHINGTON )
)ss.
County of Chelan )
I certify that I know or have satisfactory evidence that Don A. Wright is
the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the President of Pacific Coast Technologies to
be the free and voluntary act of such party for the uses and purposes mentioned
in the instrument.
Dated this 1 day of February, 1993.
/s/ DAYLE S. RUSHING
----------------------------------
NOTARY PUBLIC, State of Washington
My appointment expires 3-3-93
<PAGE>1
ADDENDUM TO LEASE AGREEMENT
WITH
PACIFIC COAST TECHNOLOGIES, INC.
1993
THIS ADDENDUM to the Lease Agreement, which was executed on February 1,
1993, ("Lease") is entered into this date, between the Port of Chelan County, a
Washington municipal corporation, ("Landlord"), and Pacific Coast Technologies,
Inc., a Washington corporation, ("Tenant"), sometimes collectively referred to
as the "Parties."
The Parties agree as follows:
1. Paragraph 4.2 of the Lease, entitled "Base Rent" provides that the Base
Rent will be an amount, excluding leasehold tax, equal to the monthly payment
necessary to amortize the cost of construction of the basic building, together
with the value of land described in paragraph 1 of the Lease, over twenty (20)
years at an interest rate of seven percent (7%) per annum. The cost of
construction is defined in the Construction Agreement dated February 1, 1993,
which is incorporated by reference into the Lease.
2. The basic building does not include the cost of the following items: air
distribution system; electrical services to equipment; additional requirements
of heating, ventilation, and air conditioning ("HVAC") system beyond that
originally contemplated; chemical storage; sign and flag pole; relights; a
suspended ceiling in the production area and the built in Lobby reception
counter and office fixtures (collectively referred to as the "Improvements").
The Tenant agrees that in addition to the Base Rent as defined in the Lease,
Tenant shall pay an additional rental amount ("Additional Rent") based on the
cost of the Improvements as set forth below. Landlord agrees to include the
Improvements as part of the total construction package submitted for competitive
bidding and require that each Improvement be bid as a separate line item, except
for the additional HVAC requirements, which could not be separately set out. The
cost of the additional HVAC will be determined by agreement between Landlord and
Tenant, after consulting with the Contractor, and if a dispute arises the cost
shall be determined as set forth in paragraph 9 of the Construction Agreement
between the Parties dated February 1, 1993.
3. The Additional Rent shall be determined by calculating the total cost of
the Improvements, plus sales tax ("Cost of Improvements"). The Cost of
Improvements shall then be amortized over twenty (20) years at seven percent
(7%) interest per annum, payable monthly, with the resulting monthly amount
being the Additional Rent. During the first five (5) years of the Lease,
<PAGE>2
Tenant shall pay the same percent of Additional Rent as it pays of Base Rent, as
set out in paragraph 4.1 of the Lease. The Additional Rent shall not be subject
to the increase set forth in paragraph 4.2 of the Lease during the Initial Lease
Term or any renewals thereof. Tenant agrees to pay leasehold tax on the
Additional Rent payment.
4. In the event Tenant does not renew the Lease for additional terms
totalling ten (lO) years, for a total Lease Term of twenty (20) years, Tenant
agrees to pay a Lease Cancellation Fee of an amount equal to the unamortized
portion of the Cost of Improvements based on the calculations utilized to arrive
at the Additional Rent; due and payable at the termination of the Lease.
5. The other provisions of the Lease are incorporated
herein, ratified and reaffirmed and remain in full force and
effect.
DATED this 22nd day of April 1993.
LANDLORD: TENANT:
Port of Chelan County Pacific Coast Technologies, Inc.
By: /s/ RICHARD C. HARRIS By: /s/ DONALD WRIGHT
------------------------ -----------------------------
RICHARD C. HARRIS DONALD WRIGHT
Manager President
STATE OF WASHINGTON )
) ss.
County of Chelan )
I certify that I know or have satisfactory evidence that RICHARD C. HARRIS
is the person who appeared before me, and said person acknowledged that he
signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Manager of the PORT OF CHELAN COUNTY to be
the free and voluntary act of such party for the uses' and purposes mentioned in
the instrument.
DATED this 22nd day of April, 1993.
/s/ CRICKET BRUNZ
----------------------------------
NOTARY PUBLIC, State of Washington
My appointment expires 12/9/96
STATE OF WASHINGTON )
) ss.
County of Chelan )
<PAGE>3
I certify that I know or have satisfactory evidence that DONALD WRIGHT is
the person who appeared before me, and said person acknowledged that he signed
this instrument, on oath stated that he was authorized to execute the instrument
and acknowledged it as the President of PACIFIC COAST TECHNOLOGIES to be the
free and voluntary act of such party for the uses and purposes mentioned in the
instrument.
DATED this 22nd day of April, 1993.
/s/ CRICKET BRUNZ
----------------------------------
NOTARY PUBLIC, State of Washington
My appointment expires 12/9/96
<PAGE>1
LEASE
THIS LEASE is made and entered into as of May 31, 1994, by and between
HERMAN L. "JACK" JONES (the "Lessor") and CASHMERE MANUFACTURING CO., INC., a
Washington corporation (the "Lessee").
RECITALS
A. Lessor is the owner of certain real property including all buildings,
fixtures and improvements located thereon situated in Chelan County, Washington,
and described in Exhibit A attached hereto (the "Property").
B. Lessee desires to lease a part of the Property described in Exhibit B
attached hereto (the "Premises") from Lessor, and Lessor desires to lease the
Premises to Lessee.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Agreement to Lease; Term. Lessor hereby
leases to Lessee and Lessee hereby leases from Lessor the
Premises, commencing as of the date hereof and terminating on
June 30, 1997 (the "Lease Term").
2. Rent. In consideration of the performance of Lessor's covenants,
Lessee agrees to pay Lessor, at such place as Lessor may from time to time
designate in writing, the sum of Nine Thousand Dollars ($9,000) per month,
commencing with the date hereof and continuing on the first day of every month
until the end of the Lease Term.
3. Delivery and Acceptance. Lessor agrees to deliver the Premises to
Lessee in good condition, suitable for Lessee's business purposes and all
activities related thereto. The Premises shall be suitable for Lessee's business
purposes if they are reasonably clean and free from obstruction, are in full
compliance with all local building, zoning, health, fire, safety, occupancy and
similar regulations and ordinances in light of Lessee's intended use of the
Premises, and are in full compliance with federal, state and other similar
occupational safety and health acts, including, but not limited to, what is
commonly termed and referred to as "OSHA." The parties agree that if, when
Lessee first uses any equipment or any part of the Premises, it is not in good
working condition, or if any other defect is not likely to be discovered until
the happening of some event (such as a leaking roof following rain), such shall
be deemed to have existed prior to the term of this lease and Lessor shall be
responsible for promptly repairing such equipment or defects.
<PAGE>2
4. Use of Premises and Lease. Lessee shall have the right to use the
Premises for any lawful business purpose. Lessor agrees to execute amendments to
this lease and estoppel certificates confirming the validity of this lease, the
status of rents, non-existence of defaults and granting the Lessee's lender
reasonable opportunity to cure defaults, all to the extent required by Lessee's
lender, provided that no such amendments or certificates materially affect any
of the Lessor's rights herein.
5. Alterations and Substitutions. Lessor grants Lessee the right to
make such alterations, additions and substitutions to the Premises as Lessee's
business may from time to time require, at Lessee's sole cost and expense. Any
such alterations, additions and substitutions shall become the property of
Lessor upon termination of this lease.
6. Signs and Advertisements. Lessor grants Lessee the right to erect
and maintain upon the Premises such signs or other means of identifying or
advertising its business as Lessee may from time to time deem appropriate,
provided the same comply with all applicable laws, ordinances and regulations
and do no permanent injury or damage to the Premises.
7. Repairs and Maintenance. Lessor shall (a) maintain the foundations,
roof, exterior walls, gutters and downspouts of the Premises in good condition
and repair, (b) maintain the sewer, water, gas, telephone and power lines and
meters serving the Premises in good condition and repair, (c) maintain the
electrical, plumbing, heating, ventilating and air-conditioning equipment, ducts
and appurtenances in good condition and repair; (d) make such repairs to the
Premises as may be required or become necessary because of any defects therein
which exist as of the first day of the term hereof or because of faulty
workmanship or the use of faulty materials, and (e) make such repairs and
alterations as may be required by federal, state or local laws, ordinances or
regulations. Notwithstanding the foregoing, it shall be the duty of Lessee to
make all repairs to the Premises required because of (a) the negligence of
Lessee or any of Lessee's agents or employees, (b) the construction,
installation, maintenance, operation, repair, replacement or removal of any
sign, trade fixture or equipment which Lessee may cause to be installed and
maintained in, on or about the Premises, or (c) any change, alteration or
improvement made by Lessee in and to the Premises. Subject to such duties and
obligations of Lessor, Lessee shall and covenants and agrees to keep and
maintain the Premises in such condition and repair as to enable Lessee to employ
the same for the operation of its business, ordinary wear and tear, damage by
casualty, and any defects existing as of the first day of the term of this lease
excepted.
<PAGE>3
8. Destruction or Damage to the Premises. In the event the Premises or
any part thereof are substantially damaged by fire or other casualty, this lease
shall be subject to cancellation at the option of either party. If this lease is
so cancelled, all rent or other sums paid in advance by Lessee not earned as of
the date of such damage shall be refunded to Lessee. If this lease is not so
cancelled, Lessor shall proceed, at its sole cost and expense and with due
diligence to restore the damaged property to substantially the same condition
existing immediately prior to such damage, and from and after the date of such
damage to the date of completion of the repairs, the rent and other payments
required by Lessee under this lease shall abate. For the purposes of this
paragraph, the Premises shall be deemed substantially damaged if such damage
materially interferes with the operation of Lessee's business and is not capable
of being repaired within thirty (30) days following the date of the casualty.
If at any time during the term of this lease the Premises are damaged
by fire or other casualty and are fully restored and ready for Lessee's
occupancy within thirty (30) days following the date of the casualty, this lease
shall remain in full force and effect. Lessor shall proceed with due diligence
to repair and restore the Premises to the condition existing prior to such
damage, and from the date of the damage to the date of completion of said
repairs the rent payable by Lessee hereunder shall abate to the extent the
Premises are unusable for Lessee's business.
9. Insurance. Lessor shall, during the entire term of this lease, keep
the Premises constantly insured, with a company licensed to do business in the
State of Washington against fire, lightning and such other risk and perils as
may from time to time be included under the extended coverage insurance
endorsement then in use in the State of Washington, in an amount equal to the
actual cash value thereof, less reasonable loss deductible provisions. The
proceeds of all casualty insurance policies shall be used to restore the
Premises to substantially the same condition existing immediately prior to the
damage unless this lease is cancelled, in which event any proceeds shall belong
to Lessor. Lessor shall in all events be entitled to any proceeds in excess of
what is necessary to restore the Premises. Lessee shall carry and pay for public
liability insurance in an insurance company licensed to do business in the State
of Washington during the entire term of this lease in amounts not less than
$__________ for injury to persons and $_______ for damage to property arising
from any claim made against Lessor or Lessee and which is related to the
Premises or the use thereof.
10. Subrogation. As a part of the consideration of
this lease, each of the parties hereto releases the other from
<PAGE>4
all liability for damage due to any act or neglect the other party caused to
property owned by said parties which is the result of fire or other casualty
covered by insurance carried at the time of such casualty by either party
hereto; provided, however, the releases herein contained shall not apply to loss
or damage resulting from the willful or premeditated acts of either of the
parties hereto, their agents or employees; and provided further, nothing in this
paragraph shall be interpreted or have the effect of relieving or modifying any
obligation of any insurance company. Any party required by this lease to
maintain any casualty insurance shall make reasonable attempts to obtain the
written consent to this waiver of subrogation from its insurer.
11. Lessee's Property. Lessor shall not be responsible for loss or
damage to the personal property of Lessee, its sublessees, employees, customers
or invitees, in the absence of the receipt of an insurance payment by Lessor
attributable to such loss (in which event said payment shall be delivered
forthwith to Lessee), or unless such loss or damage was occasioned by the
intentional or reckless act of Lessor, its agents, servants or employees.
12. Taxes and Assessments. All property taxes
levied against the Premises or any portion thereof shall be paid
by Lessor.
13. Utilities. The bills for all utilities
used by Lessee during the term of this lease shall be paid by
Lessee.
14. Condemnation. In the event that a portion or all of the Premises
are taken or condemned by any public or quasi-public authority having the power
of eminent domain, or if the grade of any street or alley adjacent to the
Premises is changed by any competent authority and such change of grade makes it
necessary or desirable to remodel the Premises to conform to the changed grade,
or should the uses to which the Premises may be placed become in any manner
restricted, and, in the reasonable opinion of Lessee, any of the foregoing
substantially interferes with Lessee's business or use of the Premises, Lessee
shall have the option of cancelling this lease by affording Lessor written
notice to that effect within thirty (30) days of the effective date of such
condemnation, interference or use restriction. In such event rent shall abate as
of the date of such condemnation, interference or restriction, and all rent paid
in advance by Lessee not actually earned as of said date shall be refunded to
Lessee. If this lease is not so cancelled, Lessor shall promptly restore the
Premises to the condition existing immediately prior to such condemnation or as
similar thereto as is practicable, and from and after the date of the
condemnation the rent and other payment obligations of Lessee hereunder shall be
adjusted based upon that portion of the Premises taken and/or the Lessee's use
<PAGE>5
thereof altered or restricted. Lessee shall be entitled to all condemnation
awards which are attributable to or made on account of any interest, loss or
expense of Lessee, including the value of this lease, Lessee's moving expenses,
and the unamortized value of Lessee's improvements to the Premises which are not
capable of being moved by Lessee.
15. Default. In the event that Lessee defaults in the performance of
any covenant applicable to it under this lease, Lessor shall have the right to
cancel this tenancy; provided, however, that Lessee shall be afforded written
notice of such default and shall be given an opportunity to cure the same within
ten (10) days of its receipt of such notice if the default is for failure to pay
rent or any other sum, or within thirty (30) days of its receipt of such notice
if the default is of any other nature. If Lessee is not able, with reasonable
effort, to cure a default, other than a default for failure to pay rent or any
other sum, within said 30-day period, Lessor shall not cancel this lease if
Lessee undertakes to cure the same within thirty (30) days and proceeds to
effect such cure with due diligence. Any default by Lessor hereunder which is
not cured within the same grace periods and conditions shall afford Lessee the
right to cancel this lease.
16. Lessee's Ability to Cure Defaults. In the event that Lessor fails
or neglects to perform or observe any of its covenants herein, Lessee shall have
the right (but not the duty), upon ten (10) days' notice to Lessor, to remedy
such default. All sums expended by Lessee to remedy such default, together with
interest thereon from the date of expenditure at the rate of twelve per cent
(12%) per annum, but not to exceed the maximum interest rate permitted by law,
shall, at Lessee's option, be deemed to constitute prepaid rent or be refunded
to Lessee on demand.
17. Hazardous Materials of Lessor. Lessor represents and warrants that
it has not received notification of any kind from any governmental agency
regarding actual, potential, or threatened contamination of the Property by
Hazardous Substances. Lessor agrees to indemnify and hold Lessee harmless
against any and all losses, liabilities, suits, obligations, fines, damages,
judgments, penalties, claims, costs and expenses (including attorneys' fees and
disbursements) which may be imposed on, incurred or paid by or asserted against
Lessee, including without limitation, all costs of any governmentally required
remedial action or cleanup suffered or incurred by Lessee, arising out of or
related to any use of the Premises or Property or presence of asbestos or
Hazardous Substances in Premises or Property or portion thereof occurring prior
to the date hereof.
The term "Hazardous Substances" shall mean any and all hazardous,
toxic, infectious, or radioactive substances, wastes,
<PAGE>6
or materials listed or defined by any Environmental Law and include without
limitation petroleum oil and its fractions, any material containing more than
one percent by weight of asbestos, and any other substance that is prohibited or
regulated by any applicable Environmental Law. The term "Environmental Laws"
means any and all federal, state, and local statutes, regulations, and
ordinances pertaining to the protection of human health or the environment and
any applicable orders, judgements, decrees, permits, licenses or other
authorizations or mandates under such laws.
18. Hazardous Substances of Lessee. Lessor acknowledges that Lessee
may, in the conduct of its manufacturing business, use, generate, transport,
store, or otherwise handle Hazardous Substances on the Premises. Upon expiration
or termination of this lease for any reason, Lessee shall remove all Hazardous
Substances and their containers from the Premises that were placed there by
Lessee or resulted from Lessee's use of the Premises, and, upon request of
Lessor, Lessee shall certify in writing to Lessor that during the term of the
lease no Hazardous Substance has been leaked, spilled, released or disposed of
and still remains on the Premises. Lessee agrees to indemnify and hold Lessor
harmless against any and all losses, liabilities, suits, obligations, fines,
damages, judgments, penalties, claims, costs and expenses (including attorneys'
fees and disbursements) which may be imposed on, incurred or paid by or asserted
against Lessor as a result of Lessee's use, generation, transportation, storage
or handling of Hazardous Substances on the Premises during the term of this
lease.
19. Encumbrances. Lessor shall not and hereby covenants and agrees not
to encumber or permit the filing of any lien against the Premises or any part
thereof except for such liens or encumbrances disclosed to and permitted by
Lessee. Unless otherwise agreed to by Lessee, any such encumbrance shall be
subject and subordinate to this lease.
20. Quiet Enjoyment. Lessor hereby covenants and represents that it is
the owner of marketable fee title to the Premises and that it has full right,
title, power and authority to make, execute and deliver this lease. Except for
the exceptions to title set forth on Exhibit C, Lessor agrees that so long as
Lessee is in compliance with the terms hereof, Lessee shall peaceably and
quietly have, hold and enjoy the Premises for the Lease Term and for the term of
any extension or renewals of this lease, and Lessor shall not do anything or
fail to perform any obligation which would substantially interfere with or
disrupt Lessee's business or frustrate Lessee's business purpose. With respect
to all mortgage or deed of trust on the Premises as of the date of this lease,
Lessor shall provide Lessee with a separate nondisturbance agreement executed by
Lessor and the holder of such mortgage or deed of trust which preserves the
<PAGE>7
right of Lessee under this lease and contains the agreement of such holder that
so long as Lessee is not in default hereunder this lease shall not be divested
or in any way affected by a foreclosure, deed in lieu of foreclosure or any
other post- default remedy or proceeding under such mortgage or deed of trust.
21. Americans with Disabilities Act. Lessor warrants that as of the
date hereof, the Premises complies with the Americans with Disabilities Act of
1990 and any related rules and regulations, as amended from time to time
("ADA"). Lessor shall perform and pay for compliance that is required by changes
to the ADA enacted or promulgated after the date of this lease. Throughout the
term of this Lease, Lessor shall also perform and pay for compliance with the
ADA outside of the Premises, including without limitation, provision of an
accessible path of travel to the Premises. To the extent applicable, Lessee
shall perform and pay for compliance with the ADA affecting the Premises that is
required by actions taken by Lessee to alter or remodel the Premises.
22. Legal Relationship of the Parties. This
lease shall not be interpreted or construed as establishing a
partnership or joint venture between Lessor and Lessee, and
neither party shall be liable for the debts or obligations of the
other.
23. Assignments and Subleasing. Lessee shall not assign, sublease,
mortgage, pledge, sell or in any other manner transfer, convey or dispose of
this lease or any interest therein or part thereof, whether the same be
voluntary, involuntary or by operation of law, without first receiving the
express written consent of Lessor in each instance, which consent shall not be
unreasonably withheld. No assignment, mortgage, pledge, sale, other transfer,
conveyance or disposition or sublease shall release or discharge Lessee from
Lessee's duties and obligations under this lease.
24. Notices. Any and all notices required by this lease or given
pursuant thereto shall be in writing, and shall be personally delivered or
forwarded by certified or registered U.S. mail, return receipt requested, with
postage prepaid. Notice to Lessor shall be given where rent is payable, and to
Lessee at 434 Olds Station Road, Wenatchee, Washington 98801, or at such other
place as Lessee may from time to time designate in writing. Except as otherwise
provided herein, notices shall be effective when personally delivered or as of
the date of the deposit of same in the United States mail.
25. Holdover. In the event that Lessee continues to
occupy the Premises after the last day of the Lease Term or any
subsequent lease term, and if Lessor elects to accept rent
<PAGE>8
thereafter, only a month-to-month tenancy shall be thereby
created.
26. Invalidity of Portions of Lease. If for
any reason any provision of this lease is determined to be
invalid or unenforceable, the validity and effect of the other
provisions shall not be affected thereby.
27. Waiver of Breach. No waiver of any breach
or breaches of any covenant or condition contained in this lease
shall operate as a waiver of any subsequent breach of the same
or any other covenant or condition.
28. Costs of Suit. In the event that any action is brought to recover
any sums due under this lease or as a result of any breach of any covenant
contained herein, the substantially prevailing party shall be entitled to
recover from the other its costs of suit in such action, including reasonable
attorneys' fees, and including such costs and fees incurred on appeal.
29. Entire Agreement. This lease contains the
entire agreement between the parties hereto, and no modification
hereof shall be binding upon the parties unless evidenced by an
agreement in writing signed by Lessor and Lessee.
30. Covenants Run With the Land. The covenants
and conditions contained in this lease shall run with the
Premises and shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
31. Controlling Law; Venue. This lease shall
be governed and construed in accordance with the laws of the
State of Washington, and the venue of any action brought to
interpret or enforce this lease shall be laid in Chelan County,
Washington.
32. Recordation. The parties hereto agree to
execute and cause to be properly recorded a memorandum of this
lease, which shall include the commencement and expiration dates
of this lease and the description of the Premises.
<PAGE>9
IN WITNESS WHEREOF, the parties have executed this lease as of the
date first above written.
LESSOR:
/s/ JACK JONES
-------------------------------
HERMAN L. "JACK" JONES
LESSEE:
CASHMERE MANUFACTURING CO., INC.
a Washington corporation
By /s/ JACK JONES
------------------------------
Its: President
<PAGE>10
EXHIBITS
--------
THE EXHIBITS AND SCHEDULES
ACCOMPANYING THIS AGREEMENTARE
IMMATERIAL AND THE FILING THEREOF
HAS BEEN OMITTED FROM THIS FORM 10-KSB
<PAGE>1
STANDARD INDUSTRIAL LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Parties. This Lease, dated, for reference purposes only,
April 20, 1994, is made by and between THE MANUFACTURERS LIFE
INSURANCE COMPANY (herein called "Lessor") and CERAMIC DEVICES,
INCORPORATED (herein called "Lessee").
2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of San Diego, State of California,
commonly known as 8170 Ronson Road, Suites L, M, N and O, San Diego, CA 92111,
and described as approximately 3,040 Square Feet Rentable in Kearney Mesa #9
Business Park. Said real property including the land and all improvements
therein, is herein called "the Premises".
3. Term.
3.1 Term. The term of this Lease shall be for Thirty-six (36) Months
commencing on May 1, 1994 and ending on April 30, 1997 unless sooner terminated
pursuant to any provision hereof.
3.2 Delay In Possession. Notwithstanding said commencement date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date,
Lessor shall not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease or the obligations of Lessee hereunder or
extend the term hereof, but in such case, Lessee shall not be obligated to pay
rent until possession of the Premises is tendered to Lessee; provided, however,
that If Lessor shall not have delivered possession of the Premises within sixty
(60) days from said commencement date, Lessee may, at Lessee's option, by notice
in writing to Lessor within ten (10) days thereafter, cancel this Lease, in
which event the parties shall be discharged from all obligations hereunder;
provided further, however, that if such written notice of Lessee is not received
by Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect.
3.3 Early Possession. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. Rent. Lessee shall pay to Lessor as rent for the Premises,
monthly payments of $2,050.00, in advance, on the 1st day of each
<PAGE>2
month of the term hereof. Lessee shall pay Lessor on May 1, 1994 $2,050.00 as
rent for May 1, 1994 through May 31, 1994. Rent for the Term of the Lease shall
be $2.050.00 per month. Rent for any period during the term hereof which is for
less than one month shall be a pro rata portion of the monthly installment. Rent
shall be payable in lawful money of the United States to Lessor at the address
stated herein or to such other persons or at such other places as Lessor may
designate in writing.
5. Security Deposit. Lessee has on deposit with Lessor $1,680.00 as security for
Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails
to pay rent or other charges due hereunder, or otherwise defaults with respect
to any provision of this Lease, Lessor may use, apply or retain all or any
portion of said deposit for the payment of any rent or other charge in default
or for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies all or any portion of
said deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount hereinabove stated and Lessee's failure to do so shall be a material
breach of this Lease. If the monthly rent shall, from time to time, increase
during the term of this Lease, Lessee shall thereupon deposit with Lessor
additional security deposit so that the amount of security deposit held by
Lessor shall at all times bear the same proportion to current rent as the
original security deposit bears to the original monthly rent set forth in
paragraph 4 hereof. Lessor shall not be required to keep said deposit separate
from its general accounts. If Lessee performs all of Lessee's obligations
hereunder, said deposit, or so much thereof as has not theretofore been applied
by Lessor, shall be returned, without payment of interest or other increment for
its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein between
Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for general office,
light manufacturing and assembly, or any other use which is reasonably
comparable and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in its state existing
on the date that the Lease term commences, but without regard to the use for
which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any
<PAGE>3
applicable building code, regulation or ordinance in effect on such Lease term
commencement date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor, after written notice
from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such
violation. In the event Lessee does not give to Lessor written notice of the
violation of this warranty within six months from the date that the Lease term
commences, the correction of same shall be the obligation of the Lessee at
Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of
no force or effect if, prior to the date of this Lease, Lessee was the owner or
occupant of the Premises, and, in such event, Lessee shall correct any such
violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof, regulating the use by
Lessee of the Premises. Lessee shall not use nor permit the use of the Premises
in any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant in the building containing the Premises, shall tend to
disturb such other tenants.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession) and
Lessor further warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any
<PAGE>4
exhibits attached hereto, Lessee acknowledges that neither Lessor nor Lessor's
agent has made any representation or warranty as to the present or future
suitability of the Premises for the conduct of Lessee's business.
7. Maintenance, Repairs and Alterations.
7.1 Lessor's Obligations. Subject to the provisions of Paragraphs 6,7.2, and
9 and except for damage caused by any negligent or intentional act or omission
of Lessee, Lessee's agents, employees, or invitees in which event Lessee shall
repair the damage, Lessor, at Lessor's expense, shall keep in good order,
condition and repair the foundations, exterior walls and the exterior roof of
the Premises. Lessor shall not, however, be obligated to paint such exterior,
nor shall Lessor be required to maintain the interior surface of exterior walls,
windows, doors or plate glass. Lessor shall have no obligation to make repairs
under this Paragraph 7.1 until a reasonable time after receipt of written notice
of the need for such repairs. Lessee expressly waives the benefits of any
statute now or hereafter in effect which would otherwise afford Lessee the right
to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 6,7.1 and 9, Lessee, at
Lessee's expense, shall keep in good order, condition and repair the Premises
and every part thereof (whether or not the damaged portion of the Premises or
the means of repairing the same are reasonably or readily accessible to Lessee)
including, without limiting the generality of the foregoing, all plumbing,
heating, air conditioning, (Lessee shall procure and maintain, at Lessee's
expense, an air conditioning system maintenance contract) ventilating,
electrical and lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surface of exterior walls, ceilings, windows, doors,
plate glass, and skylights, located within the Premises.
(b) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor's
option enter upon the Premises after 10 days' prior written notice to Lessee
(except in the case of emergency, in which case no notice shall be required),
perform such obligations on Lessee's behalf and put the Premises in good order,
condition and repair, and the cost thereof together with interest thereon at the
maximum rate then allowable by law shall be due and payable as additional rent
to Lessor together with Lessee's next rental installment.
(c) On the last day of the term hereof, or on any
sooner termination, Lessee shall surrender the Premises to Lessor
<PAGE>5
in the same condition as received, ordinary wear and tear excepted, clean and
free of debris. Lessee shall repair any damage to the Premises occasioned by the
installation or removal of its trade fixtures, furnishings and equipment.
Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee
shall leave the air lines, power panels, electrical distribution systems,
lighting fixtures, space heaters, air conditioning, plumbing and fencing on the
Premises in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event, whether or not in
excess of $2,500 in cumulative cost, Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior written consent. As used in this Paragraph 7.3
the term "Utility Installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term, and restore the Premises to their
prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may require that
Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in, or about the Premises that Lessee shall desire to make and which requires
the consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent, the consent shall be
deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not
<PAGE>6
less than ten (10) days' notice prior to the commencement of any work in the
Premises, and Lessor shall have the right to post notices of non-responsibility
in or on the Premises as provided by law. If Lessee shall, in good faith,
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend itself and Lessor against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises, upon the condition that
if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorneys fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in
Paragraph 7.3(a), all alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall become the
property of Lessor and remain upon and be surrendered with the Premises at the
expiration of the term. Notwithstanding the provisions of this Paragraph 7.3(d),
Lessee's machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the Premises,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of Paragraph 7.2(c).
8. Insurance; Indemnity.
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Combined Single
Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor
against any liability arising out of the use, occupancy or maintenance of the
Premises and all other areas appurtenant thereto. Such insurance shall be in an
amount not less than $500,000 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this Paragraph 8. The
limits of said insurance shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto in an amount not less than $500,000
per occurrence.
<PAGE>7
8.3 Property Insurance. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Premises, but not Lessee's fixtures, equipment or tenant improvements in an
amount not to exceed the full replacement value thereof, as the same may exist
from time to time, providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief, flood
(in the event same is required by a lender having a lien on the Premises)
special extended perils ("all risk", as such term is used in the insurance
industry) but not plate glass insurance. In addition, the Lessor shall obtain
and keep in force, during the term of this Lease, a policy of rental value
insurance covering a period of one year, with loss payable to Lessor, which
insurance shall also cover all real estate taxes and insurance costs for said
period.
8.4 Payment of Premium Increase.
(a) Lessee shall pay to Lessor, during the term hereof, in addition to
the rent, the amount of any increase in premiums for the insurance required
under Paragraphs 8.2 and 8.3 over and above such premiums paid during the Base
Period, as hereinafter defined, whether such premium increase shall be the
result of the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the Premises,
increased valuation of the Premises, or general rate increases. In the event
that the Premises have been occupied previously, the words "Base Period" shall
mean the last twelve months of the prior occupancy. In the event that the
Premises have never been previously occupied, the premiums during the "Base
Period" shall be deemed to be the lowest premiums reasonably obtainable for said
insurance assuming the most nominal use of the Premises. Provided, however, in
lieu of the Base Period, the parties may insert a dollar amount at the end of
this sentence which figure shall be considered as the insurance premium for the
Base Period: $184.00. In no event, however, shall Lessee be responsible for any
portion of the premium cost attributable to liability insurance coverage in
excess of $1,000,000 procured under paragraph 8.2.
(b) Lessee shall pay any such premium increases to Lessor within 30
days after receipt by Lessee of a copy of the premium statement or other
satisfactory evidence of the amount due. If the insurance policies maintained
hereunder cover other improvements in addition to the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such increase attributable
to the Premises and showing in reasonable detail, the manner in which such
amount was computed. If the term of this Lease shall not expire concurrently
with the expiration of the period covered by such insurance, Lessee's liability
for premium increases shall be prorated on an annual basis.
<PAGE>8
(c) If the Premises are part of a larger building, then Lessee shall
not be responsible for paying any increase in the property insurance premium
caused by the acts or omissions of any other tenant of the building of which the
Premises are a part.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the Premises, as set
forth in the most current issue of "Best's Insurance Guide". Lessee shall
deliver to Lessor copies of policies of liability insurance required under
Paragraph 8.1 or certificates evidencing the existence and amounts of such
insurance. No such policy shall be cancellable or subject to reduction of
coverage or other modification except after thirty (30) days' prior written
notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with renewals or "binders" thereof,
or Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee upon demand. Lessee shall not do or permit to
be done anything which shall invalidate the insurance policies referred to in
Paragraph 8.3.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and relieve
the other, and waive their entire right of recovery against the other for loss
or damage arising out of or incident to the perils insured against under
paragraph 8.3, which perils occur in, on or about the Premises, whether due to
the negligence of Lessor or Lessee or their agents, employees, contractors
and/or invitees. Lessee and Lessor shall, upon obtaining the policies of
insurance required hereunder, give notice to the insurance carrier or carriers
that the foregoing mutual waiver of subrogation is contained in this Lease.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnity and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises
<PAGE>9
arising from any cause and Lessee hereby waives all claims in respect thereof
against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall herein mean damage or destruction
to the Premises to the extent that the cost of repair is less than 50% of the
fair market value of the Premises immediately prior to such damage or
destruction. "Premises Building Partial Damage" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is less than 50% of the fair market value of such building as
a whole immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or more
of the fair market value of the Premises immediately prior to such damage or
destruction. "Premises Building Total Destruction" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is 50% or more of the fair market value of such building as a
whole immediately prior to such damage or destruction.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8.
<PAGE>10
9.2 Partial Damage - Insured Loss. Subject to the provisions of paragraphs
9.4,9.5 and 9.6, if at any time during the term of this Lease there is damage
which is an Insured Loss and which falls into the classification of Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect.
9.3 Partial Damage - Uninsured Loss. Subject to the provisions of Paragraphs
9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage
which is not an Insured Loss and which falls within the classification of
Premises Partial Damage or Premises Building Partial Damage, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make the repairs
at Lessee's expense), Lessor may at Lessor's option either (i) repair such
damage as soon as reasonably possible at Lessor's expense, in which event this
Lease shall continue in full force and effect, or (ii) give written notice to
Lessee within thirty (30) days after the date of the occurrence of such damage
of Lessor's intention to cancel and terminate this Lease, as of the date of the
occurrence of such damage. In the event Lessor elects to give such notice of
Lessor's intention to cancel and terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possible. If Lessee does not give such notice within such
10-day period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.4 Total Destruction. If at any time during the term of this Lease there is
damage, whether or not an Insured Loss. (including destruction required by any
authorized public authority), which falls into the classification of Premises
Total Destruction or Premises Building Total Destruction, this Lease shall
automatically terminate as of the date of such total destruction.
9.5 Damage Near End of Term.
(a) If at any time during the last six months of the term of this Lease
there is damage, whether or not an Insured Loss, which falls within the
classification of Premises Partial Damage, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
<PAGE>11
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than 20 days after the occurrence of an Insured
Loss falling within the classification of Premises Partial Damage during the
last six months of the term of this Lease. If Lessee duly exercises such option
during said 20 day period, Lessor shall, at Lessor's expense, repair such damage
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said 20 day period, then
Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said 20 day period by giving written notice to Lessee of Lessor's
election to do so within 10 days after the expiration of said 20 day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and
Lessor or Lessee repairs or restores the Premises pursuant to the provisions of
this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of rent, if any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence such repair or
restoration within 90 days after such obligations shall accrue, Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written notice
of Lessee's election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
9.7 Termination - Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.8 Waiver. Lessor and Lessee waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
<PAGE>12
10.1 Payment of Tax Increase. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Premises; provided, however, that
Lessor shall pay, in addition to rent, the amount, if any, by which real
property taxes applicable to the Premises increase over the fiscal real estate
tax year 1994 - 1995. Such payment shall be made by Lessee within thirty (30)
days after receipt of Lessor's written statement setting forth the amount of
such increase and the computation thereof. If the term of this Lease shall not
expire concurrently with the expiration of the tax fiscal year, Lessee's
liability for increased taxes for the last partial lease year shall be prorated
on an annual basis.
10.2 Additional Improvements. Notwithstanding paragraph 10.1 hereof, Lessee
shall pay to Lessor upon demand therefor the entirety of any increase in real
property tax if assessed solely by reason of additional improvements placed upon
the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the Premises are not separately assessed, Lessee's
liability shall be an equitable proportion of the real property taxes for all of
the land and improvements included within the tax parcel assessed, such
proportion to be determined by Lessor from the respective valuations assigned in
<PAGE>13
the assessor's work sheets or such other information as may be reasonably
available. Lessor's reasonable determination thereof, in good faith, shall be
conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay for all gas, heat, light, power, telephone and
other utilities and services supplied to the Premises, together with any taxes
thereon. If any such services are not separately metered to Lessee, Lessee shall
pay a reasonable proportion to be determined by Lessor of all charges jointly
metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
or any part of Lessee's interest in this Lease or in the Premises, without
Lessor's prior written consent, which Lessor shall not unreasonably withhold.
Lessor shall respond to Lessee's request for consent hereunder in a timely
manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease
<PAGE>14
are materially changed or altered without the consent of Lessee, the consent of
whom shall not be necessary.
12.3 No Release of Lessee. Regardless of Lessor's consent, no subletting or
assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee, in the performance of any of the terms
hereof, Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Lessee, without notifying Lessee, or any successor of
Lessee, and without obtaining its or their consent thereto and such action shall
not relieve Lessee of liability under this Lease.
12.4 Attorney's Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. Defaults; Remedies.
13.1 Defaults. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by
Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three days after written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice
to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (b) above, where such failure shall continue
for a period of 30 days after written notice thereof from Lessor to
<PAGE>15
Lessee; provided, however, that if the nature of Lessee's default is such that
more than 30 days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure within said 30-day period
and thereafter diligently prosecutes such cure to completion.
(d)(i) The making by Lessee of any general arrangement or assignment
for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within 60 days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within 30 days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within 30 days. Provided, however, in the event that
any provision of this paragraph 13.1(d) is contrary to any applicable law, such
provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor
in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any
of them, was materially false.
13.2 Remedies. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
<PAGE>16
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 6% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of rent, then rent shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any
other provision of this Lease to the contrary.
<PAGE>17
13.5 Impounds. In the event that a late charge is payable hereunder, whether
or not collected, for three (3) installments of rent or any other monetary
obligation of Lessee under the terms of this Lease, Lessee shall pay to Lessor,
if Lessor shall so request, in addition to any other payments required under
this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and Insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however,
<PAGE>18
that Lessee shall be entitled to any award for loss of or damage to Lessee's
trade fixtures and removable personal property. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of
severance damages received by Lessor in connection with such condemnation,
repair any damage to the Premises caused by such condemnation except to the
extent that Lessee has been reimbursed therefor by the condemning authority.
Lessee shall pay any amount in excess of such severance damages required to
complete such repair.
15. Broker's Fee. (Intentionally deleted.)
16. Estoppel Certificate.
(a) Lessee shall at any time upon not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be conclusive
upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises or
any part hereof, Lessee hereby agrees to deliver to any Lender or purchaser
designated by lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements shall
be received by lessor and such lender or purchaser in confidence and shall be
used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15, in the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be
<PAGE>19
relieved from and after the date of such transfer of all liability as respects
Lessor's obligations thereafter to be performed, provided that any funds in the
hands of Lessor or the then grantor at the time of such transfer, in which
Lessee has an interest, shall be delivered to the grantee. The obligations
contained in this Lease to be performed by Lessor shall, subject as aforesaid,
be binding on Lessor's successors and assigns, only during their respective
periods of ownership.
18. Severability. The invalidity of any provision of this Lease
as determined by a court of competent jurisdiction, shall in no
way affect the validity of any other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence.
21. Additional Rent. Any monetary obligations of Lessee to
Lessor under the terms of this Lease shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
<PAGE>20
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of any act,
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of
the other, execute, acknowledge and deliver to the other a "short
form" memorandum of this Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall
be deemed exclusive but shall, wherever possible, be cumulative
with all other remedies at law or in equity.
28. Covenants and Conditions. Each provision of this Lease
performable by Lessee shall be deemed both a covenant and a
condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. Subordination.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all
<PAGE>21
advances made on the security thereof and to all renewals, modifications,
consolidations, replacements and extensions thereof. Notwithstanding such
subordination, Lessee's right to quiet possession of the Premises shall not be
disturbed if Lessee is not in default and so long as Lessee shall pay the rent
and observe and perform all of the provisions of this Lease, unless this Lease
is otherwise terminated pursuant to its terms. If any mortgagee, trustee or
ground lessor shall elect to have this Lease prior to the lien of its mortgage,
deed of trust or ground lease, and shall give written notice thereof to Lessee,
this Lease shall be deemed prior to such mortgage, deed of trust, or ground
lease, whether this Lease is dated prior or subsequent to the date of said
mortgage, deed of trust or ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to
execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessees
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. Attorney's Fee. If either party or the broker named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be
conducted, either voluntarily or involuntarily, any auction upon
the Premises without first having obtained Lessor's prior written
consent. Notwithstanding anything to the contrary in this Lease,
<PAGE>22
Lessor shall not be obligated to exercise any standard of reasonableness in
determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraph 33 hereof, wherever in this
Lease the consent of one party is required to an act of the other
party, such consent shall not be unreasonably withheld.
37. Guarantor. In the event that there is a guarantor of this
Lease, said guarantor shall have the same obligations as Lessee
under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized end legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Premises.
39. Options.
39.1 Definition. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
<PAGE>23
39.2 Options Personal. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to lessee
are not assignable separate and apart from this Lease.
39.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said
notice of default is cured, or (ii) during the period of time commencing on the
day after a monetary obligation to Lessor is due from Lessee and unpaid (without
any necessity for notice thereof to Lessee) continuing until the obligation is
paid, or (iii) at any time after an event of default described in paragraphs
13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of
such default to Lessee), or (iv) in the event that Lessor has given to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
becomes payable under paragraph 13.4 for each of such defaults, or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period prior
to the time that Lessee intends to exercise the Subject Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 30 days after such obligation becomes due (without any necessity
of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1(c) within 30 days after the date that
Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to
diligently prosecute said cure to completion, or (iii) Lessee commits a default
described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of
Lessor to give notice of such
<PAGE>24
default to Lessee), or (iv) Lessor gives to Lessee three or more notices of
default under paragraph 13.1(b), where a late charge becomes payable under
paragraph 13.4 for each such default, or paragraph 13.1(c), whether or not the
defaults are cured.
40. Multiple Tenant Building. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. Easements. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. Authority. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
<PAGE>25
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. Conflict. Any conflict between the printed provisions of
this Lease and the typewritten or handwritten provisions shall be
controlled by the typewritten or handwritten provisions.
46. Addendum. Attached hereto is an addendum or addenda
containing paragraphs 47 through 51 which constitutes a part of
this Lease.
47. HAZARDOUS WASTE is attached hereto and is made a part of
this Lease.
48. REPAIRS is attached hereto and is made a part of this Lease.
49. PARKING is attached hereto and is made a part of this Lease.
50. OPTION TO RENEW is attached hereto and is made a part of
this Lease.
51. EXHIBITS "A", "B" and "C" are attached hereto and are made a
part of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRE- SENTATION OR RECOMMENDATION IS MADE BY
THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER
OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL
AND TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
Executed at THE MANUFACTURERS LIFE INSURANCE
San Diego, California COMPANY
on April 30, 1994
<PAGE>26
Address: By: /s/ Robertson Schaefer
7510 Clairemont Mesa Blvd., --------------------------------
Suite 211 Robertson Schaefer, Director
San Diego, CA 92111 "LESSOR" (Corporate seal)
CERAMIC DEVICES INCORPORATED
By: /s/ Ivan Sarda
--------------------------------
Ivan Sarda, President
"LESSEE" (Corporate seal)
<PAGE>27
47. HAZARDOUS WASTE.
Neither Lessee nor its Agents shall cause or permit the generation,
transportation, use, storage, handling or disposal of any materials or
substances which are now or hereafter may be designated as, or containing
components designated as, hazardous, dangerous, toxic or harmful materials
and/or substances under any rules, regulations, laws or ordinances of any
governmental or quasi-governmental body or regulatory authority ("Hazardous
Waste") in, on, about or under the Premises, without Landlord's prior written
consent, which may not be unreasonably withheld provided all such materials: 1)
are in small quantities; 2) are necessary for conduct of Lessee's business; 3)
are maintained in safe, closed containers; 4) are not prohibited by law or
Landlord's insurance carrier, and does not result in any increase in the cost of
Landlord's insurance. If Landlord consents to Hazardous Waste being on the
Premises, they must be used and disposed of in compliance with all laws and
regulations. Lessee shall, at its sole expense, promptly cause such Hazardous
Waste, if any, to be promptly removed from the Premises at the expiration or
earlier termination of this Lease, or earlier upon Landlord's request, in full
compliance with all applicable rules, regulations, laws and ordinances, and if
Lessee fails to do so, Landlord shall have the right, but not the obligation, to
do so at Lessee's sole cost and expense. Lessee shall promptly notify Landlord
of any breach of this Section and the existence of Hazardous Waste in, on, about
or under the Premises as soon as Lessee becomes aware thereof. Lessee shall, at
its sole cost and expense, promptly take all corrective action required by any
governmental or quasi-governmental agency or by Landlord as a result of Lessee's
or its Agent's breach of this Section. If Lessee fails to take any such
corrective action, then Landlord shall have the right, but not the obligation,
to take such corrective action and all costs and expenses thereof shall be
immediately payable by Lessee to Landlord. Lessee shall indemnify, defend and
hold Landlord harmless from and against any and all claims, costs and
liabilities (including, without limitation, the costs of investigation, testing,
removal and clean-up) in any way related to the presence or disposal of any
Hazardous Waste on or about the Premises, except for hazardous waste released on
the premises prior to Lessee's occupancy. Lessee's obligations under this lease
shall survive the expiration or earlier termination of this Lease. As used in
this Lease, an "Agent" of Lessee shall include, without limitation any
contractor, employee, agent, subtenant, partner, customer, licensee or Invitee
of Lessee.
Notwithstanding the foregoing, Lessee may utilize materials and substances,
such as common office and copier supplies, warehouse maintenance items and/or
substances used in the maintenance of warehouse equipment including propane fuel
to operate warehouse fork lift trucks, items as stated are now used
<PAGE>28
in the ordinary course of Lessee's business. See attached exhibit
for approved materials.
<PAGE>29
HAZARDOUS MATERIAL EXHIBIT
The following is a list of approved chemicals to be used on the Premises by the
Tenant or its Agents, provided the same are permitted under law.
Chemical Name Max. Qty. on Premises
- ------------- ---------------------
Isopropyl Alcohol 10 Gallons
Mineral Spirits 5 Gallons
Kerosene 1 Liter
Ethylbenzene 1 Liter
Trichloroethane (1,11)* 1.5 110 Gallons
d-Limonene 1 Gallon
Propylene Glycol Monomethyl ether 1 Gallon
Monoethanolamine 1 Gallon
Methyl Ethyl Ketone 100 Gallons
Terpineol 1 Pint
Dibutyl Phthalate 1 Liter
Lauryl Alcohol 1 Liter
Butyl Benzyl Phthalate 1 Gallon
Butyl Phenylmethyl Ester 1 Gallon
Benzenenedicarboxylic Acid 1 Gallon
Methylene Chloride 3 Gallons
Freon 3 Gallons
Diesel 250 Gallons
Amino Ethanol 2 Gallons
Flourinert 1 Gallon
Haptene 10 Gallons
Nitric Acid 1 Gallon
Hydrochloric Acid 1 Gallon
Sulfuric Acid 1 Gallon
Trichlorethylene 1.5 100 Gallons
Lessor /s/ ROBERTSON SCHAEFER Date April 30, 1994
--------------------------
Lessee /s/ IVAN SARA Date April 30, 1994
--------------------------
*Until EPA Phase-out (December 31, 1995 Estimated)
48. REPAIRS
In the case of air conditioning equipment, maintenance shall include
servicing of equipment at the least four times a year. Such service shall be
provided by a reputable maintenance service company acceptable to Lessor.
Evidence of a service contract shall be provided to Lessor. In the event Lessee
does not obtain such a service contract, Lessee, upon Lessor's request, agrees
to pay Lessor as additional rent the cost of maintenance contract
<PAGE>30
for the air conditioning equipment. Said additional rent shall be paid monthly
along with the rent premises stipulated in paragraph 4 of this lease. The
additional rent may be adjusted annually to reflect any changes in the
prevailing cost of this service.
49. PARKING
Lessee agrees not to overburden the parking facilities and agrees to
cooperate with Lessor and other Lessees in the use of parking facilities. Lessor
reserves the right in its absolute discretion to determine whether parking
facilities are becoming crowded and, in such event to allocate parking space
among Lessee and other Lessees. Lessee shall not permit business vehicles to be
parked or stored in the parking lot that are not in operable condition and
Lessee understands that vehicles may not be repaired in the parking lot. Lessee
and/or employees of the Lessee further understand that personal vehicles are not
permitted to be stored in the parking lot at any time. Lessee further
understands that work conducted outside the leased premises and/or in the
parking lot is not permitted at anytime.
50. OPTION TO RENEW
(A) The Lessor covenants with the Lessee that if the Lessee duly and
regularly pays the Rent and any and all amounts required to be paid pursuant to
this Lease and performs each and every covenant, proviso and agreement on the
part of the Lessee to be paid, rendered, observed and performed herein, the
Lessor will at the expiration of the Term on written notice by the Lessee to the
Lessor given by the Lessee not less than Ninety (90) days prior to the
expiration of the Term, grant to the Lessee a Thirty-six (36) Month renewal of
Lease of the Leased Premises (the "Renewal Term") on the same general terms and
conditions as in the lease then, at the commencement of the Renewal Term, being
used by the Lessor for the Building.
(B) The Rent for the first year of the Renewal Term shall be determined by
negotiations between the parties hereto, and it is agreed that during such
negotiations they will be guided by the then market rate for similar premises in
similar buildings in the Kearny Mesa area of San Diego prevailing at the
beginning of the Renewal Term. If the parties hereto are unable to agree in
writing as to the Rent for the Renewal Term prior to Sixty (60) Days from the
expiry of the Lease, this Lease shall end on the expiry of the Term without any
option to renew.
<PAGE>31
EXHIBIT "A"
760 square feet 760 square feet 760 square feet 760 square feet
O N M L
980 square feet P K 980 square feet
980 square feet Q J 980 square feet
980 square feet R H 980 square feet
980 square feet S G 980 square feet
980 square feet T F 980 square feet
980 square feet U E 980 square feet
A B C D
1225 square feet 1225 square feet 1225 square feet 1155 square feet
8170 RONSON ROAD
KEARNY MESA #9 BUSINESS PARK
BUILDING NO. 2
<PAGE>32
EXHIBIT "B"
SIGN STANDARDS
--------------
KEARNY MESA #9 AND KEARNY MESA #7
SAN DIEGO, CALIFORNIA
Effective this date, the following standards are established to govern all
exterior signs.
It is the purpose of these sign standards to protect and enhance the
appearance of the development to the benefit of all occupants.
1. All signs submitted for approval shall be subject to
these standards.
2. All sign work shall be done at the sole expense of
Lessee.
3. Lessor will provide one wooden sign plaque.
4. Gold leaf or black lettering on the interior window or door glass, of
up to one hundred forty four (144) square inches of gross area and with
letters not more than three (3) inches in height may be installed upon
Lessor's written approval.
5. Lessee's name in black three (3) inch block letters may be painted over
the rear truck entrance upon written approval of Lessor.
6. An accurate rendering of all proposed sign work (including lettering on
glass) must be submitted to and approved by Lessor in writing before
installation. The rendering must provide complete data concerning the
size, color, letter style, material and such other information as may
be required by Lessor.
7. Sign copy shall be limited to company name only, unless
otherwise approved.
8. Placement of the sign and method of attachment shall be
as directed by Lessor.
9. No advertising, placard, pennant, banner, insignia,
trademark or lettering of any type shall be affixed or
maintained upon the glass panes or exterior walls of
<PAGE>33
the building other than the signs specifically
authorized by Lessor in writing.
10. Any sign or lettering installed without Lessor's specific written
approval, as herein provided, or which is not in strict compliance with
the rendering approved by Lessor, shall be subject to immediate removal
by Lessor, the cost of such removal shall be assessed to Lessee.
<PAGE>34
PROJECT: KEARNY MESA #9 BUSINESS PARK DATE: April 20, 1994
LESSEE: CERAMIC DEVICES, INCORPORATED
UNIT ADDRESS: 8170 Ronson Road, Suites L, M, N, 0
San Diego, CA 92111 BLDG./SUITE: 2-L, M, N, O
EXHIBIT "C"
IMPROVEMENTS
Quantity and/or Size, Height, Length, Etc.
ITEM:
PARTITIONS:
CEILINGS:
DOORS:
FLOOR:
LESSEE ACCEPTS THE PREMISES IN "AS IS" CONDITION
WITH THE LESSOR COVENANTING TO PERFORM THE
PLUMBING:
FOLLOWING:
LIGHTS:
Electrical:
1) upgrade Suite L to 100 amp_3ph circuit and panel
SWITCHES:
2) upgrade Suite M to 100 amp_3ph circuit and panel
3) upgrade Suite N to 100 amp 3ph circuit and panel
<PAGE>
<PAGE>35
WALL ELEC. OUTLETS:
4) install larger circuit box in Suite O so that it
will be able to accommodate additional circuits
if needed by Lessee.
PHONE OUTLETS:
A/C OR VENT FAN:
A/C HOOK-UP:
WATER HEATER:
PAINTING:
OTHER:
Unless otherwise stated, the improvements listed above will be final. Any
additions will be paid for by Lessee.
<PAGE>1
STANDARD INDUSTRIAL LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Parties. This Lease, dated, for reference purposes only,
April 20, 1994, is made by and between THE MANUFACTURERS LIFE
INSURANCE COMPANY (herein called "Lessor") and CERAMIC DEVICES,
INCORPORATED (herein called "Lessee").
2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of San Diego, State of California,
commonly known as 8145 Ronson Road, Suites D, E, F, G, H and I, San Diego, CA
92111 and described as approximately 6,886 Square Feet Rentable (SFR) in
Manulife Business Center. Said real property including the land and all
improvements therein, is herein called "the Premises".
3. Term.
3.1 Term. The term of this Lease shall be for Thirty-six (36) Months
commencing on May 1, 1994 and ending on April 30, 1997 unless sooner terminated
pursuant to any provision hereof.
3.2 Delay in Possession. Notwithstanding said commencement date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date,
Lessor shall not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease or the obligations of Lessee hereunder or
extend the term hereof, but in such case, Lessee shall not be obligated to pay
rent until possession of the Premises is tendered to Lessee; provided, however,
that if Lessor shall not have delivered possession of the Premises within sixty
(60) days from said commencement date. Lessee may, at Lessee's option, by notice
in writing to Lessor within ten (10) days thereafter, cancel this Lease, in
which event the parties shall be discharged from all obligations hereunder;
provided further, however, that if such written notice of Lessee is not received
by Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect.
3.3 Early Possession. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. Rent. Lessee shall pay to Lessor as rent for the Premises,
monthly payments of $4,650.00, in advance, on the 1st day of each
<PAGE>2
month of the term hereof. Lessee shall pay Lessor on May 1, 1994 $4,650.00 as
rent for May 1, 1994 through May 31, 1994. Rent for the term of the Lease shall
be $4,650.00 per month. Rent for any period during the term hereof which is for
less than one month shall be a pro rata portion of the monthly installment. Rent
shall be payable in lawful money of the United States to Lessor at the address
stated herein or to such other persons or at such other places as Lessor may
designate in writing.
5. Security Deposit. Lessee has on deposit with Lessor $3,800.00 as security for
Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails
to pay rent or other charges due hereunder, or otherwise defaults with respect
to any provision of this Lease, Lessor may use, apply or retain all or any
portion of said deposit for the payment of any rent or other charge in default
or for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies all or any portion of
said deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount hereinabove stated and Lessee's failure to do so shall be a material
breach of this Lease. If the monthly rent shall, from time to time, increase
during the term of this Lease, Lessee shall thereupon deposit with Lessor
additional security deposit so that the amount of security deposit held by
Lessor shall at all times bear the same proportion to current rent as the
original security deposit bears to the original monthly rent set forth in
paragraph 4 hereof. Lessor shall not be required to keep said deposit separate
from its general accounts. If Lessee performs all of Lessee's obligations
hereunder, said deposit, or so much thereof as has not theretofore been applied
by Lessor, shall be returned, without payment of interest or other increment for
its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein between
Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for general office,
light manufacturing and assembly, or any other use which is reasonably
comparable and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in its state existing
on the date that the Lease term commences, but without regard to the use for
which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any
<PAGE>3
applicable building code, regulation or ordinance in effect on such Lease term
commencement date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor, after written notice
from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such
violation. In the event Lessee does not give to Lessor written notice of the
violation of this warranty within six months from the date that the Lease term
commences, the correction of same shall be the obligation of the Lessee at
Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of
no force or effect if, prior to the date of this Lease, Lessee was the owner or
occupant of the Premises, and, in such event. Lessee shall correct any such
violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense. comply promptly with all applicable statutes. ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof, regulating the use by
Lessee of the Premises. Lessee shall not use nor permit the use of the Premises
in any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant in the building containing the Premises, shall tend to
disturb such other tenants.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession) and
Lessor further warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any
<PAGE>4
exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's
agent has made any representation or warranty as to the present or future
suitability of the Premises for the conduct of Lessee's business.
7. Maintenance, Repairs and Alterations.
7.1 Lessor's Obligations. Subject to the provisions of Paragraphs 6, 7.2,
and 9 and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's agents, employees, or invitees in which event
Lessee shall repair the damage, Lessor, at Lessor's expense, shall keep in good
order, condition and repair the foundations, exterior walls and the exterior
roof of the Premises. Lessor shall not, however, be obligated to paint such
exterior, nor shall Lessor be required to maintain the interior surface of
exterior walls, windows, doors or plate glass. Lessor shall have no obligation
to make repairs under this Paragraph 7.1 until a reasonable time after receipt
of written notice of the need for such repairs. Lessee expressly waives the
benefits of any statute now or hereafter in effect which would otherwise afford
Lessee the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Premises in good order, condition and
repair.
7.2 Lessee's Obligations,
(a) Subject to the provisions of Paragraphs 6,7.1 and 9, Lessee, at
Lessee's expense, shall keep in good order, condition and repair the Premises
and every part thereof (whether or not the damaged portion of the Premises or
the means of repairing the same are reasonably or readily accessible to Lessee)
including, without limiting the generality of the foregoing, all plumbing,
heating, air conditioning, (Lessee shall procure and maintain at Lessee's
expense, an air conditioning system maintenance contract) ventilating,
electrical and lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surface of exterior walls, ceilings, windows, doors,
plate glass, and skylights, located within the Premises.
(b) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor's
option enter upon the Premises after 10 days' prior written notice to Lessee
(except in the case of emergency, in which case no notice shall be required),
perform such obligations on Lessee's behalf and put the Premises in good order,
condition and repair, and the cost thereof together with interest thereon at the
maximum rate then allowable by law shall be due and payable as additional rent
to Lessor together with Lessee's next rental installment.
<PAGE>5
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Lessee shall repair
any damage to the Premises occasioned by the installation or removal of its
trade fixtures, furnishings and equipment. Notwithstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines, power
panels, electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing and fencing on the premises in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event, whether or not in
excess of $2,500 in cumulative cost, Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior written consent. As used in this Paragraph 7.3
the term "Utility Installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
installations at the expiration of the term, and restore the Premises to their
prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may require that
Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in, or about the Premises that Lessee shall desire to make and which requires
the consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent, the consent shall be
deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may
<PAGE>6
be secured by any mechanics' or materialmen's lien against the Premises or any
interest therein. Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises as provided by
law. If Lessee shall, in good faith, contest the validity of any such lien,
claim or demand, then Lessee shall, at its sole expense defend itself and Lessor
against the same and shall pay and satisfy and such adverse judgment that may be
rendered thereon before the enforcement thereof against the Lessor or the
Premises, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
(d) Unless Lessor requires their removal, as set forth in
Paragraph 7.3(a), all alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall become the
property of Lessor and remain upon and be surrendered with the Premises at the
expiration of the term. Notwithstanding the provisions of this Paragraph 7.3(d),
Lessee's machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the Premises,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of Paragraph 7.2(c).
8. Insurance; Indemnity.
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Combined Single
Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor
against any liability arising out of the use, occupancy or maintenance of the
Premises and all other areas appurtenant thereto. Such insurance shall be in an
amount not less than $500,000 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this Paragraph 8. The
limits of said insurance shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto in an amount not less than $500,000
per occurrence.
<PAGE>7
8.3 Property Insurance. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Premises, but not Lessee's fixtures, equipment or tenant improvements in an
amount not to exceed the full replacement value thereof, as the same may exist
from time to time, providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief, flood
(in the event same is required by a lender having a lien on the Premises)
special extended perils ("all risk", as such term is used in the insurance
industry) but not plate glass insurance. In addition, the Lessor shall obtain
and keep in force, during the term of this Lease, a policy of rental value
Insurance covering a period of one year, with loss payable to Lessor, which
insurance shall also cover all real estate taxes and insurance costs for said
period.
8.4 Payment of Premium Increase.
(a) Lessee shall pay to Lessor, during the term hereof, in addition to
the rent, the amount of any increase in premiums for the insurance required
under Paragraphs 8.2 and 8.3 over and above such premiums paid during the Base
Period, as hereinafter defined, whether such premium increase shall be the
result of the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the Premises,
increased valuation of the Premises, or general rate increases. In the event
that the Premises have been occupied previously, the words "Base Period" shall
mean the last twelve months of the prior occupancy. In the event that the
Premises have never been previously occupied, the premiums during the "Base
Period" shall be deemed to be the lowest premiums reasonably obtainable for said
insurance assuming the most nominal use of the Premises. Provided, however, in
lieu of the Base Period, the parties may insert a dollar amount at the end of
this sentence which figure shall be considered as the insurance premium for the
Base Period: $114.00. In no event, however, shall Lessee be responsible for any
portion of the premium cost attributable to liability insurance coverage in
excess of $1,000,000 procured under paragraph 8.2.
(b) Lessee shall pay any such premium increases to Lessor within 30
days after receipt by Lessee of a copy of the premium statement or other
satisfactory evidence of the amount due. If the insurance policies maintained
hereunder cover other improvements in addition to the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such increase attributable
to the Premises and showing in reasonable detail, the manner in which such
amount was computed. If the term of this Lease shall not expire concurrently
with the expiration of the
<PAGE>8
period covered by such insurance, Lessee's liability for premium increases shall
be prorated on an annual basis.
(c) If the Premises are part of a larger building, then Lessee shall
not be responsible for paying any increase in the property insurance premium
caused by the acts or omissions of any other tenant of the building of which the
Premises are a part.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the Premises, as set
forth in the most current issue of "Best's Insurance Guide". Lessee shall
deliver to Lessor copies of policies of liability insurance required under
Paragraph 8.1 or certificates evidencing the existence and amounts of such
insurance. No such policy shall be cancellable or subject to reduction of
coverage or other modification except after thirty (30) days' prior written
notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with renewals or "binders" thereof,
or Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee upon demand. Lessee shall not do or permit to
be done anything which shall invalidate the insurance policies referred to in
Paragraph 8.3.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and relieve
the other, and waive their entire right to recovery against the other for loss
or damage arising out of or incident to the perils insured against under
paragraph 8.3, which perils occur in, on or about the Premises, whether due to
the negligence of Lessor or Lessee or their agents, employees, contractors
and/or invitees. Lessee and Lessor shall, upon obtaining the policies of
insurance required hereunder, give notice to the insurance carrier or carriers
that the foregoing mutual waiver of subrogation is contained in this Lease.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnity and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of
<PAGE>9
the consideration to Lessor, hereby assumes all risk of damage to property or
injury to persons, in, upon or about the Premises arising from any cause and
Lessee hereby waives all claims in respect thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall herein mean damage or destruction
to the Premises to the extent that the cost of repair is less than 50 percent of
the fair market value of the Premises immediately prior to such damage or
destruction. "Premises Building Partial Damage" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is less than 50 percent of the fair market value of such
building as a whole immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50 percent
or more of the fair market value of the Premises immediately prior to such
damage or destruction. "Premises Building Total Destruction" shall herein mean
damage or destruction to the building of which the Premises are a part to the
extent that the cost of repair is 50 percent or more of the fair market value of
such building as a whole immediately prior to such damage or destruction.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8.
<PAGE>10
9.2 Partial Damage - Insured Loss. Subject to the provisions of paragraphs
9.4,9.5 and 9.6, if at any time during the term of this Lease there is damage
which is an Insured Loss and which falls into the classification of Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect.
9.3 Partial Damage - Uninsured Loss. Subject to the provisions of Paragraphs
9.4,9.5 and 9.6, if at any time during the term of this Lease there is damage
which is not an Insured Loss and which falls within the classification of
Premises Partial Damage or Premises Building Partial Damage, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make the repairs
at Lessee's expense), Lessor may at Lessor's option either (i) repair such
damage as soon as reasonably possible at Lessor's expense, in which event this
Lease shall continue in full force and effect, or (ii) give written notice to
Lessee within thirty (30) days after the date of the occurrence of such damage
of Lessor's intention to cancel and terminate this Lease, as of the date of the
occurrence of such damage. In the event Lessor elects to give such notice of
Lessor's intention to cancel and terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possible. If Lessee does not give such notice within such
10-day period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.4 Total Destruction. If at any time during the term of this Lease there is
damage, whether or not an Insured Loss, (including destruction required by any
authorized public authority), which falls into the classification of Premises
Total Destruction or Premises Building Total Destruction, this Lease shall
automatically terminate as of the date of such total destruction.
9.5 Damage Near End of Term.
(a) If at any time during the last six months of the term of this Lease
there is damage, whether or not an Insured Loss, which falls within the
classification of Premises Partial Damage, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
<PAGE>11
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than 20 days after the occurrence of an Insured
Loss falling within the classification of Premises Partial Damage during the
last six months of the term of this Lease. If Lessee duly exercises such option
during said 20 day period, Lessor shall, at Lessor's expense, repair such damage
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said 20 day period, then
Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said 20 day period by giving written notice to Lessee of Lessor's
election to do so within 10 days after the expiration of said 20 day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and
Lessor or Lessee repairs or restores the Premises pursuant to the provisions of
this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of rent, if any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence such repair or
restoration within 90 days after such obligations shall accrue, Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written notice
of Lessee's election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
9.7 Termination - Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.8 Waiver. Lessor and Lessee waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
<PAGE>12
10. Real Property Taxes.
10.1 Payment of Tax Increase. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Premises; provided, however, that
Lessor shall pay, in addition to rent, the amount, if any, by which real
property taxes applicable to the Premises increase over the fiscal real estate
tax year 1994 - 1995. Such payment shall be made by Lessee within thirty (30)
days after receipt of Lessor's written statement setting forth the amount of
such increase and the computation thereof. If the term of this Lease shall not
expire concurrently with the expiration of the tax fiscal year, Lessee's
liability for increased taxes for the last partial lease year shall be prorated
on an annual basis.
10.2 Additional improvements. Notwithstanding paragraph 10.1 hereof, Lessee
shall pay to Lessor upon demand therefor the entirety of any increase in real
property tax if assessed solely by reason of additional improvements placed upon
the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1,1978,
or, if previously charged, has been increased since June 1,1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the Premises are not separately
assessed, Lessee's liability shall be an equitable proportion of
the real property taxes for all of the land and improvements
<PAGE>13
included within the tax parcel assessed, such proportion to be determined by
Lessor from the respective valuations assigned in the assessor's work sheets or
such other information as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) if any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay for all gas, heat, light, power, telephone and
other utilities and services supplied to the Premises, together with any taxes
thereon. If any such services are not separately metered to Lessee, Lessee shall
pay a reasonable proportion to be determined by Lessor of all charges jointly
metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
or any part of Lessee's interest in this Lease or in the Premises, without
Lessor's prior written consent, which Lessor shall not unreasonably withhold.
Lessor shall respond to Lessee's request for consent hereunder in a timely
manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way affect or limit the liability of Lessee under the terms of this Lease even
<PAGE>14
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 No Release of Lessee. Regardless of Lessor's consent, no subletting or
assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee, in the performance of any of the terms
hereof, Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Lessee, without notifying Lessee, or any successor of
Lessee, and without obtaining its or their consent thereto and such action shall
not relieve Lessee of liability under this Lease.
12.4 Attorney's Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. Defaults; Remedies.
13.1 Defaults. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by
Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three days after written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice
to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (b) above, where such failure shall continue
for a
<PAGE>15
period of 30 days after written notice thereof from Lessor to Lessee; provided,
however, that if the nature of Lessee's default is such that more than 30 days
are reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commenced such cure within said 30-day period and thereafter
diligently prosecutes such cure to completion.
(d)(i) The making by Lessee of any general arrangement or assignment
for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within 60 days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within 30 days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within 30 days. Provided, however, in the event that
any provision of this paragraph 13.1(d) is contrary to any applicable law, such
provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor
in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any
of them, was materially false.
13.2 Remedies. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
<PAGE>16
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 6 percent of such overdue amount. The parties hereby agree
that such late charge represents a fair and reasonable estimate of the costs
Lessor will incur by reason of late payment by Lessee. Acceptance of such late
charge by Lessor shall in no event constitute a waiver of Lessee's default with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of rent, then rent shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any
other provision of this Lease to the contrary.
<PAGE>17
13.5 Impounds. In the event that a late charge is payable hereunder, whether
or not collected, for three (3) installments of rent or any other monetary
obligation of Lessee under the terms of this Lease, Lessee shall pay to Lessor,
if Lessor shall so request, in addition to any other payments required under
this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10 percent of the floor area of
the building on the Premises, or more than 25 percent of the land area of the
Premises which is not occupied by any building, is taken by condemnation, Lessee
may, at Lessee's option, to be exercised in writing only within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent shall be
reduced in the proportion that the floor area of the building taken bears to the
total floor area of the building situated on the Premises. No reduction of rent
shall occur if the only area taken is that which does not have a building
located thereon. Any award for the taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of Lessor, whether such award shall
be made as compensation for diminution in value of the leasehold or for the
taking of the fee, or as severance damages; provided, however,
<PAGE>18
that Lessee shall be entitled to an award for loss of or damage to Lessee's
trade fixtures and removable personal property. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of
severance damages received by Lessor in connection with such condemnation,
repair any damage to the Premises caused by such condemnation except to the
extent that Lessee has been reimbursed therefor by the condemning authority.
Lessee shall pay any amount in excess of such severance damages required to
complete such repair.
15. Broker's Fee. (intentionally deleted)
16. Estoppel Certificate.
(a) Lessee shall at any time upon not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be conclusive
upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises or
any part hereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
thee years' financial statements of Lessee. All such financial statements shall
be received by lessor and such lender or purchaser in confidence and shall be
used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15, in the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall
<PAGE>19
be relieved from and after the date of such transfer of all liability as
respects Lessor's obligations thereafter to be performed, provided that any
funds in the hands of Lessor or the then grantor at the time of such transfer,
in which Lessee has an interest, shall be delivered to the grantee. The
obligations contained in this Lease to be performed by Lessor shall, subject as
aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease
as determined by a court of competent jurisdiction, shall in no
way affect the validity of any other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence.
21. Additional Rent. Any monetary obligations of Lessee to
Lessor under the terms of this Lease shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
<PAGE>20
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of any act,
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of
the other, execute, acknowledge and deliver to the other a "short
form" memorandum of this Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall
be deemed exclusive but shall, wherever possible, be cumulative
with all other remedies at law or in equity.
28. Covenants and Conditions. Each provision of this Lease
performable by Lessee shall be deemed both a covenant and a
condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. Subordination.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all
<PAGE>21
advances made on the security thereof and to all renewals, modifications,
consolidations, replacements and extensions thereof. Notwithstanding such
subordination, Lessee's right to quiet possession of the Premises shall not be
disturbed if Lessee is not in default and so long as Lessee shall pay the rent
and observe and perform all of the provisions of this Lease, unless this Lease
is otherwise terminated pursuant to its terms. If any mortgagee, trustee or
ground lessor shall elect to have this Lease prior to the lien of its mortgage,
deed of trust or ground lease, and shall give written notice thereof to Lessee,
this Lease shall be deemed prior to such mortgage, deed of trust, or ground
lease, whether this Lease is dated prior or subsequent to the date of said
mortgage, deed of trust or ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to
execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessees
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. Attorney's Fee. If either party or the broker named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be
conducted, either voluntarily or involuntarily, any auction upon
the Premises without first having obtained Lessor's prior written
consent. Notwithstanding anything to the contrary in this Lease,
<PAGE>22
Lessor shall not be obligated to exercise any standard of reasonableness in
determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraph 33 hereof, wherever in this
Lease the consent of one party is required to an act of the other
party, such consent shall not be unreasonably withheld.
37. Guarantor. In the event that there is a guarantor of this
Lease, said guarantor shall have the same obligations as Lessee
under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized end legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Premises.
39. Options.
39.1 Definition. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
<PAGE>23
39.2 Options Personal. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to lessee
are not assignable separate and apart from this Lease.
39.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said
notice of default is cured, or (ii) during the period of time commencing on the
day after a monetary obligation to Lessor is due from Lessee and unpaid (without
any necessity for notice thereof to Lessee) continuing until the obligation is
paid, or (iii) at any time after an event of default described in paragraphs
13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of
such default to Lessee), or (iv) in the event that Lessor has given to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
becomes payable under paragraph 13.4 for each of such defaults, or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period prior
to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 30 days after such obligation becomes due (without any necessity
of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1(c) within 30 days after the date that
Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to
diligently prosecute said cure to completion, or (iii) Lessee commits a default
described in paragraph 13,1(a), 13.1(d) or 13.1(e) (without any necessity of
Lessor to give notice of such
<PAGE>24
default to Lessee), or (iv) Lessor gives to Lessee three or more notices of
default under paragraph 13.1(b), where a late charge becomes payable under
paragraph 13.4 for each such default, or paragraph 13.1(c), whether or not the
defaults are cured.
40. Multiple Tenant Building. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee,
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. Easements. Lessor reserves to itself the right, from time to lime, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. Authority. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
<PAGE>25
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. Conflict. Any conflict between the printed provisions of
this Lease and the typewritten or handwritten provisions shall be
controlled by the typewritten or handwritten provisions.
46. Addendum. Attached hereto is an addendum or addenda
containing paragraphs 47 through 52 which constitutes a part of
this Lease.
47. HAZARDOUS WASTE is attached hereto and is made a part of
this Lease.
48. REPAIRS is attached hereto and is made a part of this Lease.
49. PARKING is attached hereto and is made a part of this Lease.
50. OPTION TO RENEW is attached hereto and is made a part of
this Lease.
51. TERMINATION OF LEASE is attached hereto and is made a part
of this Lease.
52. EXHIBITS "A", "B" and "C" are attached hereto and are made a
part of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER
OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL
AND TAX CONSEQUENCES OF THIS LEASE.
<PAGE>26
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
Executed at THE MANUFACTURERS LIFE INSURANCE
San Diego, California COMPANY
on April 20, 1994
Address: By: /s/ ROBERTSON SCHAEFER
7510 Clairemont Mesa Blvd., ------------------------------
Suite 211 Robertson Schaefer, Director
San Diego, CA 92111 "LESSOR" (Corporate seal)
CERAMIC DEVICES INCORPORATED
By: /s/ Ivan Sarda
------------------------------
Ivan Sarda, President
"LESSEE" (Corporate seal)
<PAGE>27
47. HAZARDOUS WASTE. Neither Lessee nor its Agents shall cause or permit the
generation, transportation, use, storage, handling or disposal of any materials
or substances which are now or hereafter may be designated as, or containing
components designated as, hazardous, dangerous, toxic or harmful materials
and/or substances under any rules, regulations, laws or ordinances of any
governmental or quasi-governmental body or regulatory authority ("Hazardous
Waste") in, on, about or under the Premises, without Landlord's prior written
consent, which may not be unreasonably withheld provided all such materials: 1)
are in small quantities; 2) are necessary for conduct of Lessee's business; 3)
are maintained in safe, closed containers; 4) are not prohibited by law or
Landlord's insurance carrier, and does not result in any increase in the cost of
Landlord's insurance. If Landlord consents to Hazardous Waste being on the
Premises, they must be used and disposed of in compliance with all laws and
regulations. Lessee shall, at its sole expense, promptly cause such Hazardous
Waste, if any, to be promptly removed from the Premises at the expiration or
earlier termination of this Lease, or earlier upon Landlord's request, in full
compliance with all applicable rules, regulations, laws and ordinances, and if
Lessee fails to do so, Landlord shall have the right, but not the obligation, to
do so at Lessee's sole cost and expense. Lessee shall promptly notify Landlord
of any breach of this Section and the existence of Hazardous Waste in, on, about
or under the Premises as soon as Lessee becomes aware thereof. Lessee shall, at
its sole cost and expense, promptly take all corrective action required by any
governmental or quasi-governmental agency or by Landlord as a result of Lessee's
or its Agent's breach of this Section. If Lessee fails to take any such
corrective action, then Landlord shall have the right, but not the obligation,
to take such corrective action and all costs and expenses thereof shall be
immediately payable by Lessee to Landlord. Lessee shall indemnify, defend and
hold Landlord harmless from and against any and all claims, costs and
liabilities (including, without limitation, the costs of investigation, testing,
removal and clean-up) in any way related to the presence or disposal of any
Hazardous Waste on or about the Premises, except for hazardous waste released on
the premises prior to Lessee's occupancy. Lessee's obligations under this lease
shall survive the expiration or earlier termination of this Lease. As used in
this Lease, an "Agent" of Lessee shall include, without limitation any
contractor, employee, agent, subtenant, partner, customer, licensee or invitee
of Lessee.
Notwithstanding the foregoing, Lessee may utilize materials and
substances, such as common office and copier supplies, warehouse maintenance
items and/or substances used in the maintenance of warehouse equipment including
propane fuel to operate warehouse fork lift trucks, items as stated are now used
in the ordinary course of Lessee's business. See attached exhibit for approved
materials.
<PAGE>28
HAZARDOUS MATERIAL EXHIBIT
--------------------------
The following is a list of approved chemicals to be used on the Premises by the
Tenant or its Agents, provided the same are permitted under law.
Chemical Name Max. Qty. on Premises
Isopropyl Alcohol 10 Gallons
Mineral Spirits 5 Gallons
Kerosene 1 Liter
Ethylbenzene 1 Liter
Trichloroethane (1.1.1)* 110 Gallons
d-Limonene 1 Gallon
Propylene Glycol Monomethyl
ether 1 Gallon
Monoethanolamine 1 Gallon
Methyl Ethyl Ketone 100 Gallons
Terpineol 1 Pint
Dibutyl Phthalate 1 Liter
Lauryl Alcohol 1 Liter
Butyl Benzyl Phthalate 1 Gallon
Butyl Phenylmethyl Ester 1 Gallon
Benzenenedicarboxylic Acid 1 Gallon
Methylene Chloride 3 Gallons
Freon 3 Gallons
Diesel 250 Gallons
Amino Ethanol 2 Gallons
Flourinert 1 Gallon
Heptane 10 Gallons
Nitric Acid 1 Gallon
Hydrochloric Acid 1 Gallon
Sulphuric Acid 1 Gallon
Trichlorethylene 1.5 100 Gallons
Lessor /s/ Robertson Schaefer Date 4/30 , 1994
---------------------- ----------
Lessee /s/ Ivan Sarda Date 4/30 , 1994
----------------------- ----------
* until EPA phase-out (31 Dec '95 estimated)
<PAGE>29
48. REPAIRS. In the case of air conditioning equipment, maintenance shall
include servicing of the equipment at least four times a year. Such service
shall be provided by a reputable maintenance service company acceptable to
Lessor. Evidence of a service contract shall be provided to Lessor. In the event
Lessee does not obtain such a service contract, Lessee, upon Lessor's request,
agrees to pay Lessor as additional rent the cost of maintenance contract for
the air conditioning equipment. Said additional rent shall be paid monthly along
with the rent premises stipulated in Paragraph 4 of this lease. The additional
rent may be adjusted annually to reflect any changes in the prevailing cost of
this service.
49. PARKING. Lessee agrees not to overburden the parking facilities
and agrees to cooperate with Lessor and other Lessees in the use of parking
facilities. Lessor reserves the right in its absolute discretion to determine
whether parking facilities are becoming crowded and, in such event to allocate
parking space among Lessee and other Lessees. Lessee shall not permit business
vehicles to be parked or stored in the parking lot that are not in operable
condition and Lessee understands that vehicles may not be repaired in the
parking lot. Lessee and/or employees of the Lessee further understand that
personal vehicles are not permitted to be stored in the parking lot at any time.
Lessee further understands that work conducted outside the leased premises
and/or in the parking lot is not permitted at anytime.
50. OPTION TO RENEW.
(A) The Lessor covenants with the Lessee that if the Lessee duly and
regularly pays the Rent and any and all amounts required to be paid pursuant to
this Lease and performs each and every covenant, proviso and agreement on the
part of the Lessee to be paid, rendered, observed and performed herein, the
Lessor will at the expiration of the Term on written notice by the Lessee to the
Lessor given by the Lessee not less than Ninety (90) days prior to the
expiration of the Term, grant to the Lessee a Thirty-six (36) Month renewal of
Lease of the Leased Premises (the "Renewal Term") on the same general terms and
conditions as in the lease then, at the commencement of the Renewal Term, being
used by the Lessor for the Building.
(B) The Rent for the first year of the Renewal Term shall be determined
by negotiations between the parties hereto, and it is agreed that during such
negotiations they will be guided by the then market rate for similar premises in
similar buildings in the Kearny Mesa area of San Diego prevailing at the
beginning of the Renewal Term. If the parties hereto are unable to agree in
writing as to the Rent for the Renewal Term prior to Sixty (60) Days from the
expiry of the Lease, this Lease shall end on the expiry of the Term without any
option to renew.
51. TERMINATION OF LEASE. Upon the commencement date of this
Lease, the lease dated January 7, 1993, for the premises at 8145 Ronson
Road, Suites C through K, shall be terminated by mutual consent.
<PAGE>30
EXHIBIT "A"
-----------
Plan not included.
MANULIFE BUSINESS CENTER
BUILDING NO. 1
<PAGE>31
EXHIBIT "B"
SIGN STANDARDS
--------------
MANULIFE BUSINESS CENTER
SAN DIEGO, CALIFORNIA
1. SIGN CRITERIA
This criteria has been established for the purpose of maintaining overall
appearance of the Manulife Business Center. Conformance will be strictly
enforced. Any sign installed without approval of the Lessor will be brought
into conformity at the expense of the Lessee.
A. General Requirements:
1. Lessee shall submit a sketch of his proposed sign insert
to the Lessor for approval.
2. A sign blank shall be furnished and installed by Lessor.
3. A nominal sign charge shall be imposed by Lessor to defray the
cost of painting the sign insert in accordance with Paragraph 1.
4. Lessee shall be responsible for the fulfillment of all
requirements of this criteria.
B. General Specifications:
1. No electrical or audible signs will be permitted.
2. The sign blank's dimensions shall be one foot high
by four feet wide.
3. A larger sign may be requested. Larger signs in most
instances will be limited to those tenants leasing a
single building.
4. The style and size of the individual company's name painted on the
insert may vary. The color of the individual company's name
painted on the insert shall be white or beige.
5. The sign insert must have a size, shape,
composition, design and color provided.
<PAGE>32
6. Placement of the sign and method of attachment to the
building will be directed by the Lessor.
7. The sign blank shall not be removed from the building. The sign
insert may be removed by the Lessee when the premises are vacated
at the end of the lease term.
8. Those tenants who do not wish an exterior sign may place gold leaf
lettering on the interior window area, not to exceed more than one
hundred forty-four (144) square inches (gross area). The letters
are not to exceed three (3) inches in height.
9. Three (3) inch high black, block type letters identifying the
tenant's business may be painted on the rear door of the premises.
The name is to be centered on the door and located five (5) to six
(6) feet from the bottom of the door.
10. Except as provided herein, no advertising, placards, banners,
pennants, names, insignia, trademarks, or other descriptive
material shall be affixed or maintained upon the glass panes or
the exterior walls of the building, landscaped areas, streets, or
parking areas.
<PAGE>33
PROJECT: MANULIFE BUSINESS CENTER DATE: April 20, 1994
LESSEE: CERAMIC DEVICES, INCORPORATED
UNIT ADDRESS: 8145 Ronson Road, Suites D, E, F, G, H, I
San Diego, CA 92111, BLDG./SUITE:1-D,E,F,G,H,I
EXHIBIT "C"
IMPROVEMENTS
Quantity and/or Size, Height, Length, Etc.
ITEM:
PARTITIONS:
CEILINGS:
DOORS:
FLOOR:
LESSEE ACCEPTS THE PREMISES IN "AS IS" CONDITION
PLUMBING: WITH THE LESSOR COVENANTING TO PERFORM THE
FOLLOWING:
LIGHTS:
Lessor to install five (5) ton air-conditioning unit to
Suites D & I.
SWITCHES:
WALL ELEC. OUTLETS:
PHONE OUTLETS:
A/C OR VENT FAN:
A/C HOOK-UP:
WATER HEATER:
PAINTING:
OTHER:
Unless otherwise stated, the improvements listed above will be final. Any
additions will be paid for by Lessee.
<PAGE>1
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT (the
"Agreement") is made and entered into as of May 31, 1994, by
and between PCT HOLDINGS, INC. a Washington corporation (the
"Company") and Herman L. "Jack" Jones (the "Employee").
RECITALS
--------
A. Employee is the majority shareholder and an officer
and director of Cashmere Manufacturing Co., Inc., a Washington
corporation ("CMC").
B. CMC, Employee, the Company, John M. Eder, Fred R. Paquette and Dan A.
Paquette have entered into a Stock Purchase Agreement dated as of May 19, 1994
(the "Purchase Agreement"), pursuant to which the Company is purchasing from
Employee and the others all of the outstanding shares of capital stock of CMC
(the "Shares").
C. Employee has knowledge of the affairs, operations, trade secrets,
customers and other proprietary information and data of CMC and has developed a
unique and special expertise in CMC's business, and the execution of this
Agreement by Employee is a material inducement for the Company's execution of
the Purchase Agreement and purchase of the Shares.
D. The Company desires to retain Employee's services, and Employee desires
to provide such services to the Company, on the terms and conditions set forth
in this Agreement.
F. The Company requires that Employee not compete with
the Company or CMC, on the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the covenants and promises
contained in this Agreement, the parties agree as follows:
1. Employment. The Company employs Employee and
Employee accepts such employment, upon the terms and conditions
of this Agreement.
2. Term. The term of Employee's employment under this Agreement (the
"Term") shall begin on the date of this Agreement and continue through the third
anniversary of this Agreement, or the date on which such employment is earlier
terminated as set forth below.
<PAGE>2
3. Salary. For services rendered by Employee under this Agreement, the
Company agrees to pay Employee, and Employee agrees to accept, during the term
of his employment, salary at the rate of $7,500 per month, less all amounts
required by law to be withheld, deducted or collected, payable in accordance
with the Company's payroll policies, as such policies may be changed from time
to time.
4. Benefits. The Company shall make available to Employee, during the
term of his employment, all employee benefits made available by the Company to
its employees having comparable responsibility as Employee, or to its employees
generally, provided that Employee qualifies therefor, on the same basis with
respect to requirements for employee contributions as are applicable to other
employees of the Company.
5. Expenses. The Company shall pay or reimburse
Employee for reasonable out-of-pocket expenses required by the
Company in connection with the performance of his services
under this Agreement upon presentation of appropriate
documentation.
6. Duties. Employee agrees to perform such duties
for the Company or any of its affiliates as may reasonably be
prescribed from time to time by the officers and directors of
the Company, commensurate with the abilities, experience and
know-how of Employee.
7. Termination of Employment. Employee's
employment may be terminated at any time by mutual agreement of
the parties, or as otherwise provided in this section.
7.1 Termination for Cause. The Company may terminate Employee's
employment without notice at any time for cause. For purposes of this Agreement,
cause for termination shall include: continued neglect, after notice thereof, or
willful misconduct by Employee with respect to his duties and obligations under
this Agreement; unauthorized expenditure of the Company's funds; unethical
business practices in connection with the Company's business; misappropriation
of the Company's assets; any material breach by Employee of any term or
provision of this Agreement; any act or action of Employee during the term of
this Agreement involving embezzlement, dishonesty related to the Company or the
Company's business, or habitual use of alcohol or drugs; conviction of any
felony; or any similar or related act or failure to act by Employee. Upon
termination for cause, Employee shall not be entitled to payment of any
compensation other than salary and accrued benefits under this Agreement earned
up to the date of such termination.
7.2 No Other Cause for Termination.
Employee's employment may not otherwise be terminated for any
reason, including Employee's death or disability, whether
temporary or permanent. In the event of Employee's disability
or death during
<PAGE>3
the term of his employment, the Company shall pay to Employee or the estate of
Employee, as the case may be, salary and applicable benefits through the term of
this Agreement in the same amounts and at the same intervals as if Employee were
fully employed pursuant to this Agreement.
8. Confidentiality. Employee agrees not to directly or indirectly
disclose or make available for use to anyone other than the Company, either
during or after the Term, any Confidential Information (as defined below) known
to Employee as a result of his relationship with the Company or CMC, except as
required in Employee's performance of services for the Company or as authorized
in writing by the Company. "Confidential Information" means, but is not limited
to, all designs, know-how, software, hardware, manuals, drawings, trade secrets,
calculations, research, specifications, customer lists, supplier lists, costs,
marketing materials, business and financial records, and all other information
related to the business or prospective business of the Company or CMC.
Confidential Information does not include information that is (i) generally or
readily available to the public, (ii) publicly known or becomes publicly known
through no fault of Employee, or (iii) received from a third party without
violation of a nondisclosure obligation.
9. Return of Confidential Records. All tangible forms of information
and all physical property made or compiled by Employee prior to or during the
Term containing or relating in any way to Confidential Information shall be the
Company's exclusive property. All such materials and any copies thereof shall be
held by Employee in trust and solely for the benefit of the Company and shall be
delivered to the Company upon termination of Employee's relationship with the
Company or at any other time upon the Company's request.
10. Noncompetition Covenant; Payment for
Noncompetition Covenant.
10.1 Noncompetition. For a period of ten years, commencing as of
the date hereof, Employee agrees that he will not directly or indirectly engage
in or perform any services, whether on an employment, consulting or advisory
basis, or own, manage, operate, control, be employed by, participate in or be
connected in any manner with the ownership, management, operation or control of
any business or undertaking that is competitive with the business of the Company
or CMC in the United States.
10.2 Consideration. As consideration for the noncompetition
covenant contained in Section 10.1, the Company shall pay Employee Sixty Five
Thousand Dollars ($65,000) per year for a period of ten years (the
"Noncompetition Payment"). The Noncompetition Payment shall be payable in equal
monthly
<PAGE>4
installments of $5,416.67, with the first monthly installment being due thirty
days after the date hereof.
11. Nonsolicitation Covenant. During the Term, and for two years
thereafter, Employee agrees that he will not directly or indirectly solicit,
divert, take away or attempt to solicit, divert or take away any customers,
clients or business of the Company or CMC or endeavor to entice away from the
Company or CMC any of the employees of the Company or CMC with whom Employee had
dealings during the Term.
12. Remedies.
12.1 Equitable Relief. The parties agree that damages would be
an inadequate remedy for any violation by Employee of Sections 8, 9, 10 and 11
above, and Employee specifically agrees that injunctive or other equitable
relief, including without limitation specific performance, would be appropriate,
and consents to the same in the event of a material breach of Sections 8, 9, 10
and 11.
12.2 Other Remedies. In addition to the remedies set forth in
Section 12.1, the Company shall be entitled to pursue any remedies available in
law or equity in the event of any material breach by Employee of any of the
provisions of this Agreement.
13. Right to Offset. In the event that any amount that becomes due and
payable to Employee pursuant to this Agreement is not paid by the Company within
five business days after it is due, Employee shall have the right to offset such
amount against any amounts owed by Employee to the Company.
14. Governing Law. This Agreement shall be governed
by, construed and enforced in accordance with the laws of the
State of Washington.
15. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and personally delivered, sent by
facsimile transmission, or mailed by registered or certified mail, return
receipt requested, to a party at the address or number set forth for the party
below, or to such other address or number as may be designated from time to time
by written notice.
16. Attorneys' Fees. In the event of any dispute
between the parties concerning the subject matter of this
Agreement, the substantially prevailing party shall be entitled
to an award of costs and reasonable attorneys' fees.
17. Amendments and Waivers. This Agreement may not
be amended or otherwise modified, except in a writing executed
by both parties. No provision of this Agreement may be waived
<PAGE>5
except in a writing executed by the party waiving such provision, and no waiver
of breach shall constitute a subsequent waiver of the same or another breach.
18. No Assignment. Neither this Agreement nor the rights or duties of
either party may be assigned by either party without the prior written consent
of the other party, except that the Company may assign its rights and
obligations hereunder without consent to an affiliate or successor or to a third
party in the event of the sale of substantially all of the capital stock or
assets of the Company.
19. Entire Agreement; Separability. This Agreement reflects the entire
understanding of the parties with respect to the subject matter hereof. Any term
or provision of this Agreement that is found to be invalid or unenforceable by a
court of competent jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement.
This Agreement has been executed as of the date set forth above.
EMPLOYEE:
/s/ JACK JONES
-------------------------------
HERMAN L. "JACK" JONES
Address: 102 Maple Street
Cashmere, WA 98815
THE COMPANY:
PCT HOLDINGS, INC.
By /s/ DONALD A. WRIGHT
-----------------------------
Donald A. Wright
Its President
Address: 434 Olds Station Road
Wenatchee, WA 98801
<PAGE>1
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT (the "Agreement") is made
and entered into as of May 18, 1994, by and between Cashmere Manufacturing Co.,
Inc., a Washington corporation (the "Company"), and John M. Eder (the
"Employee").
RECITALS
A. Employee is a shareholder and an employee of the
Company.
B. PCT Holdings, Inc., a Washington corporation ("PCT
Holdings"), the Company, Employee, Herman L. "Jack" Jones, Fred
R. Paquette and Dan A. Paquette have entered into a Stock
Purchase Agreement dated as of May 19, 1994 (the "Purchase
Agreement"), pursuant to which PCT Holdings is purchasing from
Employee and others all of the outstanding shares of capital
stock of the Company (the "Shares").
C. Employee has knowledge of the affairs, operations, trade secrets,
customers and other proprietary information and data of the Company and has
developed a unique and special expertise in the Company's business, and the
execution of this Agreement by Employee is a material inducement for PCT
Holdings' execution of the Purchase Agreement and purchase of the Shares.
D. The Company desires to retain Employee's services, and Employee desires
to provide such services to the Company, on the terms and conditions set forth
in this Agreement.
F. The Company requires that Employee not compete with
the Company or its affiliates, on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the covenants and promises
contained in this Agreement, the parties agree as follows:
1. Employment. The Company employs Employee and
Employee accepts such employment, upon the terms and conditions
of this Agreement.
2. Term. The term of Employee's employment under this Agreement (the
"Term") shall begin on the date of this Agreement and continue through the third
anniversary of this Agreement, or the date on which such employment is earlier
terminated as set forth below.
<PAGE>2
3. Salary. For services rendered by Employee under this Agreement, the
Company agrees to pay Employee, and Employee agrees to accept, during the term
of his employment, salary at the rate of $6,500 per month, less all amounts
required by law to be withheld, deducted or collected, payable in accordance
with the Company's payroll policies, as such policies may be changed from time
to time.
4. Transportation. The Company will provide
transportation for Mr. Eder at company expense as necessary to
perform his executive duties and sales function.
5. Benefits. The Company shall make available to Employee, during the
term of his employment, all employee benefits made available by the Company to
its employees having comparable responsibility as Employee, or to its employees
generally, provided that Employee qualifies therefor, on the same basis with
respect to requirements for employee contributions as are applicable to other
employees of the Company.
6. Expenses. The Company shall pay or reimburse
Employee for reasonable out-of-pocket expenses required by the
Company in connection with the performance of his services
under this Agreement upon presentation of appropriate
documentation.
7. Duties. Employee agrees to perform such duties
as may reasonably be prescribed from time to time by the
officers and directors of the Company, commensurate with the
abilities, experience and know-how of Employee.
8. Termination of Employment. Employee's
employment may be terminated at any time by mutual agreement of
the parties, or as otherwise provided in this section.
8.1 Termination for Cause. The Company may terminate Employee's
employment without notice at any time for cause. For purposes of this Agreement,
cause for termination shall include: continued neglect, after notice thereof, or
willful misconduct by Employee with respect to his duties and obligation under
this Agreement; unauthorized expenditure of the Company's funds; unethical
business practices in connection with the Company's business; misappropriation
of the Company's assets; any material breach by Employee of any term or
provision of this Agreement; any act or action of Employee during the term of
this Agreement involving embezzlement, dishonesty related to the Company or the
Company's business, or habitual use of alcohol or drugs; conviction of any
felony; or any similar or related act or failure to act by Employee. Upon
termination for cause, Employee shall not be entitled to payment of any
compensation other than salary and accrued benefits under this Agreement earned
up to the date of such termination.
<PAGE>3
8.2 Death. In the event of Employee's death while he is
employed by the Company pursuant to this Agreement, the Company shall have no
further obligations under this Agreement, other than to pay to the estate of
Employee any unpaid compensation through the last day on which he performed
services for the Company.
8.3 Permanent Disability. In the event of the Permanent
Disability (as defined below) of Employee during the term of this Agreement, the
Company shall have the right, by giving written notice to Employee after the
Company's long-term disability plan has taken effect, to terminate Employee's
employment, effective upon receipt of such notice. Upon such termination, the
Company shall have no further obligations under this Agreement, other than to
pay any unpaid compensation through the date of termination. "Permanent
Disability" shall be deemed to occur upon the first to occur of any of the
following:
(a) The receipt by the Company of a written certificate from
a physician approved by the Company stating that, based upon examination of
Employee by such physician, it is the physician's opinion that, for a period of
at least three consecutive months from the date of certification, Employee is
and will be substantially unable to perform his customary duties for the Company
or that it would seriously impair Employee's physical or mental health to
perform such duties. The Company may require in writing that Employee submit to
such examinations by giving written notice thereof to Employee. The expense of
any such examinations will be borne by the party requesting the examinations.
(b) The failure or refusal of Employee to submit to any
examination required by the Company pursuant to clause (a) above within 15 days
after the date on which Employee receives a written notice from the Company.
(c) The adjudication of Employee as incompetent or disabled
and the appointment of a conservator or guardian for Employee or Employee's
property by a court of competent jurisdiction.
9. Confidentiality. Employee agrees not to directly or indirectly
disclose or make available for use to anyone other than the Company or its
affiliates, either during or after the Term, any Confidential Information (as
defined below) known to Employee as a result of his relationship with the
Company or its affiliates, except as required in Employee's performance of
services for the Company or as authorized in writing by the Company.
"Confidential Information" means, but is not limited to, all designs, know-how,
software, hardware, manuals, drawings, trade secrets, calculations, research,
specifications, customer lists, supplier lists, costs, marketing materials,
business and financial records, and all other information related to the
<PAGE>4
business or prospective business of the Company or its affiliates. Confidential
Information does not include information that is (i) generally or readily
available to the public, (ii) publicly known or becomes publicly known through
no fault of Employee, or (iii) received from a third party without violation of
a nondisclosure obligation.
10. Return of Confidential Records. All tangible forms of information
and all physical property made or compiled by Employee prior to or during the
Term containing or relating in any way to Confidential Information shall be the
Company's exclusive property. All such materials and any copies thereof shall be
held by Employee in trust and solely for the benefit of the Company and shall be
delivered to the Company upon termination of Employee's relationship with the
Company or at any other time upon the Company's request.
11. Noncompetition Covenant. During the Term and for a period of one
year thereafter, Employee agrees that he will not directly or indirectly engage
in or perform any services, whether an employment, consulting or advisory basis,
or own, manage, operate, control, be employed by, participate in or be connected
in any manner with the ownership, management, operation or control of any
business or undertaking that is competitive with the business of the Company or
any of its affiliates in the United States.
12. Nonsolicitation Covenant. During the Term, and for two years
thereafter, Employee agrees that he will not directly or indirectly solicit,
divert, take away or attempt to solicit, divert or take away any customers,
clients or business of the Company or its affiliates or endeavor to entice away
from the Company or its affiliates any of the employees of the Company or its
affiliates with whom Employee had dealings during the Term.
13. Remedies.
13.1 Equitable Relief. The parties agree that damages would be
an inadequate remedy for any violation by Employee of Sections 8, 9, 10 and 11
above, and Employee specifically agrees that injunctive or other equitable
relief, including without limitation specific performance, would be appropriate,
and consents to the same in the event of a material breach of Sections 8, 9, 10
and 11.
13.2 Other Remedies. In addition to the
remedies set forth in Section 13.1, the Company shall be
entitled to pursue any remedies available in law or equity in
the event of any material breach by Employee of any of the
provisions of this Agreement.
<PAGE>5
14. Governing Law. This Agreement shall be governed
by, construed and enforced in accordance with the laws of the
State of Washington.
15. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient in writing and personally delivered, sent by
facsimile transmission, or mailed by registered or certified mail, return
receipt requested, to a party at the address or number set forth for the party
below, or to such other address or number as may be designated from time to time
by written notice.
16. Attorneys' Fees. In the event of any dispute
between the parties concerning the subject matter of this
Agreement, the substantially prevailing party shall be entitled
to an award of costs and reasonable attorneys' fees.
17. Amendments and Waivers. This Agreement may not
be amended or otherwise modified, except in a writing executed
by both parties. No provision of this Agreement may be waived
and no waiver of breach shall constitute a subsequent waiver
of the same or another breach.
18. No Assignment. Neither this Agreement nor the rights or duties of
either party may be assigned by either party without the prior written consent
of the other party, except that the Company may assign its rights and
obligations hereunder without consent to an affiliate or successor or to a third
party in the event of the sale of substantially all of the capital stock or
assets of the Company.
19. Entire Agreement; Separability. This Agreement reflects the entire
understanding of the parties with respect to the subject matter hereof. Any term
or provision of this Agreement that is found to be invalid or unenforceable by a
court of competent jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement.
This Agreement has been executed as of the date set forth above.
EMPLOYEE:
/s/ JOHN M. EDER
-------------------------------
JOHN M. EDER
Address: 4222 Knowles Road
Wenatchee, WA 98801
<PAGE>6
THE COMPANY:
CASHMERE MANUFACTURING, INC.
By /s/ JACK JONES
-----------------------------
JACK JONES
PRESIDENT
Address: 102 Maple Street
Cashmere, WA 98815
WITNESS:
PCT HOLDINGS, INC.
By /s/ DONALD A. WRIGHT
-----------------------------
Its President
Address: 434 Olds Station
Wenatchee, WA 98801
<PAGE>1
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, effective as of the 1st day of January, 1995, is made
by and between PCT HOLDINGS, INC., a Washington corporation having its principal
place of business in Wenatchee, Washington (the "Company"), and DONALD A.
WRIGHT, a resident of Washington (the "Executive").
RECITALS:
A. The Company desires to continue the services of the
Executive, presently a shareholder, officer and director of the
Company, and the Executive is willing to render such services, in
accordance with the terms hereinafter set forth; and
B. The Board of Directors of the Company (the "Board") by
appropriate resolutions authorized the employment of the
Executive as provided for in this Agreement.
Accordingly, the Company and the Executive agree as follows:
ARTICLE I
Duties
1.1 Duties. The Executive shall be a President of the Company. The
duties to be performed by the Executive under this Agreement are as specified in
the Company's Bylaws, if applicable, and/or as assigned as of the date hereof by
the Board. During the Contract Term, and excluding any periods of vacation, sick
leave or disability to which the Executive is entitled, the Executive agrees to
devote the Executive's full attention and time to the business and affairs of
the Company
<PAGE>2
and, to the extent necessary to discharge the duties assigned to the Executive
hereunder, to use the Executive's best efforts to perform faithfully and
efficiently such duties.
ARTICLE II
Term of Agreement
The term of this Agreement shall commence on the date hereof and end
on December 31, 1997 (the "Contract Term").
ARTICLE III
Compensation
During the Contract Term, the Company shall pay or cause to be paid to
the Executive in cash in accordance with the normal payroll practices of the
Company for peer executives, including deductions, withholdings and collections
as required by law, in installments not less frequently than monthly, an annual
base salary ("Annual Base Salary") as follows:
Year Annual Base Salary
---- ------------------
1/1/95 - 12/31/95 $100,000
1/1/96 - 12/31/96 $125,000
1/1/97 - 12/31/97 $150,000
The Company may from time to time increase the Executive's Annual Base Salary,
provided that it shall not be reduced after any such increase, and the term
Annual Base Salary as used in this Agreement shall refer to the Annual Base
Salary as so increased.
ARTICLE IV
Other Benefits
4.1 Incentive, Savings and Retirement Plans. In
addition to Annual Base Salary, the Executive shall be entitled
<PAGE>3
to participate during the Contract Term in all bonuses and incentive (including
annual and long-term incentives), savings and retirement plans, practices,
policies and programs applicable to other peer executives of the Company.
Attached hereto as Exhibit "A" is a description of bonus and stock option
benefits for the Executive during the Contract Term.
4.2 Welfare Benefits. During the Contract Term, the Executive and/or
the Executive's family, as the case may be, shall be eligible for participation
in and shall receive all benefits under welfare benefit plans, practices,
policies and programs provided by the Company (including, and without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, dependent life, accidental death and travel accident
insurance plans and programs) and applicable to other peer executives of the
Company.
4.3 Fringe Benefits. During the Contract Term, the
Executive shall be entitled to fringe benefits applicable to
other peer executives of the Company.
4.4 Expenses. During the Contract Term, the Executive shall be
entitled to receive prompt reimbursement for all reasonable employment-related
expenses incurred by the Executive upon the Company's receipt of accountings in
accordance with practices, policies and procedures applicable to peer executives
of the Company.
4.5 Office and Support Staff. During the Contract
Term, the Executive shall be entitled to an office or offices of
<PAGE>4
a size and with furnishings and other appointments, and to personal secretarial
and other assistance, provided with respect to other peer executives of the
Company.
4.6 Vacation. During the Contract Term, the Executive shall be
entitled to paid vacation time in accordance with the plans, policies, and
programs applicable to other peer executives of the Company.
4.7 Automobile. During the Contract Term, the Executive shall have the
use of an automobile of make, size and model reasonably satisfactory to the
Executive and the Company. The Company shall pay all acquisition or rental costs
thereof as well as costs of operation, maintenance and insurance.
ARTICLE V
Restrictive Covenants
5.1 Trade Secrets, Confidential and Proprietary
Business Information.
(a) The Company has advised the Executive and the Executive
acknowledged that it is the policy of the Company to maintain as secret and
confidential all Protected Information (as defined below), and that Protected
Information has been and will be developed at substantial cost and effort to the
Company. "Protected Information" means trade secrets, confidential and propriety
business information of the Company, any information of the Company other than
information which has entered the public domain (unless such information entered
the public domain through effects of or on account of the Executive), and all
valuable and
<PAGE>5
unique information and techniques acquired, developed or used by the Company
relating to its business, operations, employees, customers and suppliers, which
give the Company a competitive advantage over those who do not know the
information and techniques and which are protected by the Company from
unauthorized disclosure, including but not limited to, customer lists (including
potential customers), sources of supply, processes, plan, materials, pricing
information, internal memoranda, marketing plans, internal policies, and
products and services which may be developed from time to time by the Company
and its agents or employees.
(b) The Executive acknowledges that the Executive will acquire
Protected Information with respect to the Company and its successors in
interest, which information is a valuable, special and unique asset of the
Company's business and operations and that disclosure of such Protected
Information would cause irreparable damage to the Company.
(c) Either during or after termination of employment by the
Company, the Executive shall not, directly or indirectly, divulge, furnish or
make accessible to any person, firm, corporation, association or other entity
(otherwise than as may be required in the regular course of the Executive's
employment) nor use in any manner, any Protected Information, or cause any such
information of the Company to enter the public domain.
<PAGE>6
5.2 Non-Competition.
(a) The Executive agrees that the Executive shall not during the
Executive's employment with the Company, and, for a period of two (2) years
after the termination of this Agreement, directly or indirectly, in any
capacity, engage or participate in, or become employed by or render advisory or
consulting or other services in connection with any Prohibited Business as
defined in Section 5.2(c).
(b) The Executive agrees that the Executive shall not during the
Executive's employment with the Company, and, for a period of two (2) years
after the termination of this Agreement, make any financial investment, whether
in the form of equity or debt, or own any interest, directly or indirectly, in
any Prohibited Business. Nothing in this Section 5.2(b) shall, however, restrict
the Executive from making any investment in any company whose stock is listed on
a national securities exchange or actively traded in the over-the-counter
market; provided that (i) such investment does not give the Executive the right
or ability to control or influence the policy decisions of any Prohibited
Business, and (ii) such investment does not create a conflict of interest
between the Executive's duties hereunder and the Executive's interest in such
investment.
(c) For purposes of this Section 5.2, "Prohibited Business" shall
be defined as any business and any branch, office or operation thereof, which is
a competitor of the Company and which has established or seeks to establish
contact, in whatever
<PAGE>7
form (including but not limited to solicitation of sales, or the receipt or
submission of bids), with any entity who is at any time a client, customer or
supplier of the Company (including but not limited to all subdivisions of the
federal government.)
5.3 Non-Solicitation. From the date hereof until two (2) years after
the Executive's termination of employment with the Company, the Executive shall
not, directly or indirectly: (a) encourage any employee or supplier of the
Company or its successors in interest to leave his or her employment with the
Company or its successors in interest; (b) employ, hire, solicit or cause to be
employed, hired or solicited (other than by the Company or its successors in
interest), or encourage others to employ or hire any person who within two (2)
years prior thereto was employed by the Company or its successors in interest;
or (c) establish a business with, or encourage others to establish a business
with, any person who within two (2) years prior thereto was an employee or
supplier of the Company or its successors in interest.
5.4 Disclosure of Employee-Created Trade Secrets, Confidential and
Propriety Business Information. The Executive agrees to promptly disclose to the
Company all Protected Information developed in whole or in part by the Executive
during the Executive's employment with the Company and which relates to the
Company's business. Such Protected Information is, and shall remain, the
exclusive property of the Company. All writings created during the Executive's
employment with the Company
<PAGE>8
(excluding writings unrelated to the Company's business) are considered to be
"works-for-hire" for the benefit of the Company and the Company shall own all
rights in such writings.
5.5 Survival of Undertakings and Injunctive Relief.
(a) The provisions of Sections 5.1, 5.2, 5.3 and 5.4 shall
survive the termination of the Executive's employment with the Company
irrespective of the reasons therefor.
(b) The Executive acknowledges and agrees that the restrictions
imposed upon the Executive by Sections 5.1, 5.2, 5.3 and 5.4 and the purpose of
such restrictions are reasonable and are designed to protect the Protected
Information and the continued success of the Company without unduly restricting
the Executive's future employment by others. Furthermore, the Executive
acknowledges that, in view of the Protected Information which the Executive has
or will acquire or has or will have access to and in view of the necessity of
the restrictions contained in Sections 5.1, 5.2, 5.3 and 5.4, any violation of
any provision of Sections 5.1, 5.2, 5.3 and 5.4 hereof would cause irreparable
injury to the Company and its successors in interest with respect to the
resulting disruption in their operations. By reason of the foregoing, the
Executive consents and agrees that if the Executive violates any of the
provisions of Sections 5.1, 5.2, 5.3 or 5.4 of this Agreement, the Company and
its successors in interest, as the case may be, shall be entitled,
to any other remedies that they may have, including money damages, to an
injunction to be issued by a court of competent
<PAGE>9
jurisdiction, restraining the Executive from committing or continuing any
violation of such Sections of this Agreement.
In the event of any such violation of Sections 5.1, 5.2, 5.3 and 5.4
of this Agreement, the Executive further agrees that the time periods set forth
in such Sections shall be extended by the period of such violation.
ARTICLE VI
Termination
6.1 Termination of Employment. The Executive's employment may be
terminated at any time during the Contract Term by mutual agreement of the
parties, or as otherwise provided in this Article.
(a) Termination for Cause. The Company may terminate the
Executive's employment without notice at any time for cause. For purposes of
this Agreement, cause for termination shall include: continued neglect, after
notice thereof, or willful misconduct by the Executive with respect to his
duties and obligations under this Agreement; unauthorized expenditure of the
Company's funds; unethical business practices in connection with the Company's
business; misappropriation of the Company's assets; any material breach by the
Executive of any term or provision of this Agreement; any act or action of the
Executive during the term of this Agreement involving embezzlement, dishonesty
related to the Company or the Company's business, or habitual use of alcohol or
drugs; conviction of any felony; or any similar or related act or failure to act
by the Executive.
<PAGE>10
Upon termination for cause, the Executive shall not be entitled to payment of
any compensation other than salary and accrued benefits under this Agreement
earned up to the date of such termination.
ARTICLE VII
Miscellaneous
7.1 Assignment, Successors. The Company may freely assign its
respective rights and obligations under this Agreement to a successor of the
Company's business, without the prior written consent of the Executive. This
Agreement shall be binding upon and inure to the benefit of the Executive and
the Executive's estate and the Company and any assignee of or successor to the
Company.
7.2 Beneficiary. If the Executive dies prior to receiving all of the
salary payable hereunder, such salary shall be paid in a lump sum payment to the
beneficiary designated in writing by the Executive ("Beneficiary") and if no
such Beneficiary is designated, to the Executive's estate.
7.3 Nonalienation of Benefits. Benefits payable under this Agreement
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or involuntary, prior to actually being received by the
Executive, and any such attempt to dispose of any right to benefits payable
hereunder shall be void.
<PAGE>11
7.4 Severability. If all or any part of this Agreement is declared by
any court or governmental authority to be unlawful or invalid, such unlawfulness
or invalidity shall not serve to invalidate any portion of this Agreement not
declared to be unlawful or invalid. Any paragraph or part of a paragraph so
declared to be unlawful or invalid shall, if possible, be construed in a manner
which will give effect to the terms of such paragraph or part of a paragraph to
the fullest extent possible while remaining lawful and valid.
7.5 Amendment and Waiver. This Agreement shall not be altered, amended
or modified except by written instrument executed by the Company and the
Executive. A waiver of any term, covenant, agreement or condition contained in
this Agreement shall not be deemed a waiver of any other term, covenant,
agreement or condition, and any waiver of any other term, covenant, agreement or
condition, and any waiver of any default in any such term, covenant, agreement
or condition shall not be deemed a waiver of any later default thereof or of any
other term, covenant, agreement or condition.
7.6 Notices. All notices and other communications hereunder shall be
in writing and delivered by hand or by first class registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Company: PCT HOLDINGS, INC.
434 Olds Station Road
Wenatchee, WA 98801
Attn: Mr. Roger Vallo, Secty.
<PAGE>12
If to the Executive: Mr. Donald A. Wright
150 Manhattan Square
East Wenatchee, WA 98802
Either party may from time to time designate a new address by notice given in
accordance with this Section. Notice and communications shall be effective when
actually received by the addressee.
7.7 Counterpart Originals. This Agreement may be
executed in several counterparts, each of which shall be deemed
to be an original but all of which together will constitute one
and the same instrument.
7.8 Entire Agreement. This Agreement forms the entire agreement
between the parties hereto with respect to any severance payment and with
respect to the subject matter contained in the Agreement.
7.9 Applicable Law. The provisions of this Agreement
shall be interpreted and construed in accordance with the laws of
the State of Washington, without regard to its choice of law
principles.
7.10 Effect on Other Agreements. This Agreement shall supersede all
prior agreements, promises and representations regarding employment by the
Company and severance or other payments contingent upon termination of
employment. Notwithstanding the foregoing, the Executive shall be entitled to
any other severance plan applicable to other peer executives of the Company.
<PAGE>13
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
The Executive:
/s/ DONALD A. WRIGHT
- -----------------------------------
DONALD A. WRIGHT
The Company:
PCT Holdings, Inc.
/s/ ROGER VALLO
- -----------------------------------
ROGER VALLO, SECRETARY & DIRECTOR
Witness:
/s/ NICK A. GERDE
- -----------------------------------
NICK A. GERDE, VICE PRESIDENT FINANCE
<PAGE>14
EXHIBIT "A" TO EMPLOYMENT AGREEMENT
FOR DONALD A. WRIGHT
STOCK OPTIONS
- -------------
Based upon the Employee's performance, as judged by the Board of Directors,
stock options may be awarded at the end of each fiscal year under the terms of
the Company's Qualified Stock Option Plan. Said Options expire ten (10) years
from date of Grant.
Maximum
# of Shares(1) Otion Price Fiscal Year
----------- ------------ -----------
15,000 $2.00/share 1995
15,000 $2.00/share 1996
15,000 $2.00/share 1997
BONUS (paid at end of the fiscal year)
- -----
Bonus monies are comprised of three (3) parts, each of which will be
considered annually:
* Top Line (Net Sales)(2)
* Bottom Line (Net Profit/Income)
* Booked Back Log
Top Line Amount
- -------- ------
Greater than 5 percent Below Approved Budget $ 0
Plus or Minus 5 percent of Approved Budget 7,000
Greater than 5 percent Above Approved Budget 17,000
Bottom Line Amount
- ----------- ------
Greater than 5 percent Below Approved Budget $ 0
Plus or Minus 5 percent of Approved Budget 12,000
Greater than 5 percent Above Approved Budget 22,000
Back Log Amount
- -------- ------
Less than 9 Months "of Average of last 6 months" $ 0
10-17 Months "of Average of last 6 Months" 4,500
Greater than 18 Months "of Average of last 6 Months" 7,000
Greater than 24 Months "of Average of last 6 Months" 9,500
<PAGE>15
INITIALS:
Executive /s/ DAW
--------------
Company /s/ RV
---------------
Witness /s/ NAG
---------------
(1) Share amounts contemplate post-split effect of proposed 1 for 2 stock
split and merger into PCT Holdings, Inc., a Nevada Corporation.
(2) Any bonus amounts earned for achieving or exceeding top line or back
log goals will be incrementally reduced for falling below the bottom line goal.
The amount of percentage to be reduced will be set by the Board of Directors.
<PAGE>1
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, effective as of the 1st day of January, 1995, is made
by and between PCT Holdings, Inc., a Washington corporation having its principal
place of business in Wenatchee, Washington (the "Company"), and NICK A. GERDE, a
resident of Washington (the "Executive").
RECITALS:
A. The Company desires to continue the services of the
Executive, presently an officer of the Company, and the Executive
is willing to render such services, in accordance with the terms
hereinafter set forth; and
B. The Board of Directors of the Company (the "Board") by
appropriate resolutions has authorized the employment of the
Executive as provided for in this Agreement.
Accordingly, the Company and the Executive agree as follows:
ARTICLE I.
Duties
1.1 Duties. The Executive shall be a Vice-President and Chief Financial
Officer of the Company. The duties to be performed by the Executive under this
Agreement are as specified in the Company's Bylaws, if applicable, and/or as
assigned as of the date hereof by the Board. During the Contract Term, and
excluding any periods of vacation, sick leave or disability to which the
Executive is entitled, the Executive agrees to devote the Executive's full
attention and time to the business and
<PAGE>2
affairs of the Company and, to the extent necessary to discharge the duties
assigned to the Executive hereunder, to use the Executive's best efforts to
perform faithfully and efficiently such duties.
ARTICLE II.
Term of Agreement
The term of this Agreement shall commence on the date hereof and end
on December 31, 1997 (the "Contract Term").
ARTICLE III.
Compensation
During the Contract Term, the Company shall pay or cause to be paid to
the Executive in cash in accordance with the normal payroll practices of the
Company for peer executives, including deductions, withholdings and collections
as required by law, in installments not less frequently than monthly, an annual
base salary ("Annual Base Salary") as follows:
Year Annual Base Salary
---- ------------------
1/1/95 - 12/31/95 $50,000
1/1/96 - 12/31/96 60,000
1/1/97 - 12/31/97 90,000
The Company may from time to time increase the Executive's Annual Base Salary,
provided that it shall not be reduced after any such increase, and the term
Annual Base Salary as used in this Agreement shall refer to the Annual Base
Salary as so increased.
<PAGE>3
ARTICLE IV.
Other Benefits
4.1 Incentive, Savings and Retirement Plans. In addition to Annual Base
Salary, the Executive shall be entitled to participate during the Contract Term
in all bonuses and incentives (including annual and long-term incentives),
savings and retirement plans, practices, policies and programs applicable to
other peer executives of the Company. Attached hereto as Exhibit "A" is a
description of bonus and stock option benefits for the Executive during the
Contract Term.
4.2 Welfare Benefits. During the Contract Term, the Executive and/or the
Executive's family, as the case may be, shall be eligible for participation in
and shall receive all benefits under welfare benefit plans, practices, policies
and programs provided by the Company (including, and without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, dependent life, accidental death and travel accident insurance plans
and programs) and applicable to other peer executives of the Company.
4.3 Fringe Benefits. During the Contract Term, the
Executive shall be entitled to fringe benefits applicable to
other peer executives of the Company.
4.4 Expenses. During the Contract Term, the Executive shall be entitled to
receive prompt reimbursement for all reasonable employment-related expenses
incurred by the Executive upon the Company's receipt of accountings in
accordance with
<PAGE>4
practices, policies and procedures applicable to peer executives
of the Company.
4.5 Office and Support Staff. During the Contract Term, the Executive shall
be entitled to an office or offices of a size and with furnishings and other
appointments, and to personal secretarial and other assistance, provided with
respect to other peer executives of the Company.
4.6 Vacation. During the Contract Term, the Executive shall be entitled to
be paid vacation time in accordance with the plans, policies, and programs
applicable to other peer executives of the Company.
ARTICLE V.
Restrictive Covenants
5.1 Trade Secrets, Confidential and Proprietary Business
Information.
a. The Company has advised the Executive and the Executive
acknowledged that it is the policy of the Company to maintain as secret and
confidential all Protected Information (as defined below), and that Protected
Information has been and will be developed at substantial cost and effort to the
Company. "Protected Information" means trade secrets, confidential and propriety
business information of the Company, any information of the Company other than
information which has entered the public domain (unless such information entered
the public domain through effects of or on account of the Executive), and all
valuable and unique information and techniques acquired, developed or used by
<PAGE>5
the Company relating to its business, operations, employees, customers and
suppliers, which give the Company a competitive advantage over those who do not
know the information and techniques and which are protected by the Company from
unauthorized disclosure, including but not limited to, customer lists (including
potential customers), sources of supply, processes, plans, materials, pricing
information, internal memoranda, marketing plans, internal policies, and
products and services which may be developed from time to time by the Company
and its agents or employees.
b. The Executive acknowledges that the Executive will acquire
Protected Information with respect to the Company and its successors in
interest, which information is a valuable, special and unique asset of the
Company's business and operations and that disclosure of such Protected
Information would cause irreparable damage to the Company.
c. Either during or after termination of employment by the Company,
the Executive shall not, directly or indirectly, divulge, furnish or make
accessible to any person, firm, corporation, association or other entity
(otherwise than as may be required in the regular course of the Executive's
employment) nor use in any manner, any Protected Information, or cause any such
information of the Company to enter the public domain.
5.2 Non-Competition.
a. The Executive agrees that the Executive shall not
during the Executive's employment with the Company, and, for a
<PAGE>6
period of two (2) years after the termination of this Agreement, directly or
indirectly, in any capacity, engage or participate in, or become employed by or
render advisory or consulting or other services in connection with any
Prohibited Business as defined in Section 5.2(c).
b. The Executive agrees that the Executive shall not during the
Executive's employment with the Company, and, for a period of two (2) years
after the termination of this Agreement, make any financial investment, whether
in the form of equity or debt, or own any interest, directly or indirectly, in
any Prohibited Business. Nothing in this Section 5.2(b) shall, however, restrict
the Executive from making any investment in any company whose stock is listed on
a national securities exchange or actively traded on the over-the-counter
market; provided that: (i) such investment does not give the Executive the right
or ability to control or influence the policy decisions of any Prohibited
Business; and (ii) such investment does not create a conflict of interest
between the Executive's duties hereunder and the Executive's interest in such
investment.
c. For purposes of this Section 5.2, "Prohibited Business" shall be
defined as any business and any branch, office or operation thereof, which is a
competitor of the Company and which has established or seeks to establish
contact, in whatever form (including but not limited to solicitation of sales,
or the receipt or submission of bids), with any entity who is at any
<PAGE>7
time a client, customer or supplier of the Company (including but not limited to
all subdivisions of the federal government).
5.3 Non-Solicitation. From the date hereof until two (2) years after the
Executive's termination of employment with the Company, the Executive shall not,
directly or indirectly: (a) encourage any employee or supplier of the Company or
its successors in interest to leave his or her employment with the Company or
its successors in interest; (b) employ, hire, solicit or cause to be employed,
hired or solicited (other than by the Company or its successors in interest), or
encourage others to employ or hire any person who within two (2) years prior
thereto was employed by the Company or its successors in interest; or (c)
establish a business with, or encourage others to establish a business with, any
person who within two (2) years prior thereto was an employee or supplier of the
Company or its successors in interest.
5.4 Disclosure of Employee-Created Trade Secrets, Confidential and
Proprietary Business Information. The Executive agrees to promptly disclose to
the Company all Protected Information developed in whole or in part by the
Executive during the Executive's employment with the Company and which relates
to the Company's business. Such Protected Information is, and shall remain, the
exclusive property of the Company. All writings created during the Executive's
employment with the Company (excluding writings unrelated to the Company's
business) are
<PAGE>8
considered to be "works-for-hire" for the benefit of the Company
and the Company shall own all rights in such writings.
5.5 Survival of Undertakings and Injunctive Relief.
a. The provisions of Sections 5.1, 5.2, 5.3 and 5.4 shall survive the
termination of the Executive's employment with the Company irrespective of the
reasons therefor.
b. The Executive acknowledges and agrees that the restrictions imposed
upon the Executive by Sections 5.1, 5.2, 5.3 and 5.4 and the purpose of such
restrictions are reasonable and are designed to protect the Protected
Information and the continued success of the Company without unduly restricting
the Executive's future employment by others. Furthermore, the Executive
acknowledges that, in view of the Protected Information which the Executive has
or will acquire or has or will have access to and in view of the necessity of
the restrictions contained in Sections 5.1, 5.2, 5.3 and 5.4, any violation of
any provision of Sections 5.1, 5.2, 5.3 and 5.4 hereof would cause irreparable
injury to the Company and its successors in interest with respect to the
resulting disruption in their operations. By reason of the foregoing, the
Executive consents and agrees that if the Executive violates any of the
provisions of Sections 5.1, 5.2, 5.3 or 5.4 of this Agreement, the Company and
its successors in interest, as the case may be, shall be entitled, in addition
to any other remedies that they may have, including money damages, to an
injunction to be issued by a court of competent
<PAGE>9
jurisdiction, restraining the Executive from committing or continuing any
violation of such Sections of this Agreement.
In the event of any such violation of Sections 5.1, 5.2, 5.3 and 5.4
of this Agreement, the Executive further agrees that the time periods set forth
in such Sections shall be extended by the period of such violation.
ARTICLE VI.
Termination
6.1 Termination of Employment. The Executive's employment may be terminated
at any time during the Contract Term by mutual agreement of the parties, or as
otherwise provided in this Article.
6.2 Termination for Cause. The Company may terminate Executive's employment
without notice at any time for cause. For purposes of this Agreement, cause for
termination shall include: continued neglect, after notice thereof, or willful
misconduct by the Executive with respect to his duties and obligations under
this Agreement; unauthorized expenditure of the Company's funds; unethical
business practices in connection with the Company's business; misappropriation
of the Company's assets; any material breach by the Executive of any term or
provision of this Agreement; any act or action of the Executive during the term
of this Agreement involving embezzlement, dishonesty related to the Company or
the Company's business, or habitual use of alcohol or drugs; conviction of any
felony; or any similar or related act or failure to act by the Executive. Upon
termination for cause, the
<PAGE>10
Executive shall not be entitled to payment of any compensation other than salary
and accrued benefits under this Agreement earned up to the date of such
termination.
ARTICLE VII.
Miscellaneous
7.1 Assignment, Successors. The Company may freely assign its respective
rights and obligations under this Agreement to a successor of the Company's
business, without the prior written consent of the Executive. This Agreement
shall be binding upon and inure to the benefit of the Executive and the
Executive's estate and the Company and any assignee of or successor to the
Company.
7.2 Beneficiary. If the Executive dies prior to receiving all of the salary
payable hereunder, such salary shall be paid in a lump sum payment to the
beneficiary designated in writing by the Executive ("Beneficiary") and if no
such Beneficiary is designated, to the Executive's estate.
7.3 Nonalienation of Benefits. Benefits payable under this Agreement shall
not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution of levy of any
kind, either voluntary or involuntary, prior to actually being received by the
Executive, and any such attempt to dispose of any right to benefits payable
hereunder shall be void.
7.4 Severability. If all or any part of this Agreement is
declared by any court or governmental authority to be unlawful or
<PAGE>11
invalid, such unlawfulness or invalidity shall not serve to invalidate any
portion of this Agreement not declared to be unlawful or invalid. Any paragraph
or part of a paragraph so declared to be unlawful or invalid shall, if possible,
be construed in a manner which will give effect to the terms of such paragraph
or part of a paragraph to the fullest extent possible while remaining lawful and
valid.
7.5 Amendment and Waiver. This Agreement shall not be altered, amended or
modified except by written instrument executed by the Company and the Executive.
A waiver of any term, covenant, agreement or condition contained in this
Agreement shall not be deemed a waiver of any other term, covenant, agreement or
condition, and any waiver of any other term, covenant, agreement or condition,
and any waiver of any default in any such term, covenant, agreement or condition
shall not be deemed a waiver of any later default thereof or of any other term,
covenant, agreement or condition.
7.6 Notices. All notices and other communications hereunder shall be in
writing and delivered by hand or by first class registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Company: Pacific Coast Technologies, Inc.
434 Olds Station Road
Wenatchee, Washington 98801
Attn: Donald A. Wright, President
If to the Executive: Mr. Nick A. Gerde
1906 Rocklund Drive
Wenatchee, Washington 98801
<PAGE>12
Either party may from time to time designate a new address by notice given in
accordance with this Section. Notice and communications shall be effective when
actually received by the addressee.
7.7 Counterpart Originals. This Agreement may be executed
in several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
7.8 Entire Agreement. This Agreement forms the entire agreement between the
parties hereto with respect to any severance payment and with respect to the
subject matter contained in the Agreement.
7.9 Applicable Law. The provisions of this Agreement shall
be interpreted and construed in accordance with the laws of the
State of Washington, without regard to its choice of law
principles.
7.10 Effect on Other Agreements. This Agreement shall supersede all prior
agreements, promises and representations regarding employment by the Company and
severance or other payments contingent upon termination of employment.
Notwithstanding the foregoing, the Executive shall be entitled to any other
severance plan applicable to other peer executives of the Company.
<PAGE>13
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
The Executive:
/s/ NICK A. GERDE
- -----------------------------------
Nick A. Gerde
The Company:
PCT Holdings, Inc.
/s/ DONALD A. WRIGHT
- -----------------------------------
Donald A. Wright, President/CEO
Witness:
/s/ JACK JONES
- -----------------------------------
Jack Jones, Vice President
<PAGE>14
EXHIBIT "A" TO EMPLOYMENT AGREEMENT
FOR NICK A. GERDE
STOCK OPTIONS
- -------------
Based upon the Employee's performance, as judged by the Board of Directors,
stock options may be awarded at the end of each fiscal year under the terms of
the Company's Qualified Stock Option Plan. Said Options expire ten (10) years
from date of Grant.
Maximum
# of Shares(1) Option Price Fiscal Year
----------- ------------ -----------
8,333 $2.00/share 1995
8,333 $2.00/share 1996
8,333 $2.00/share 1997
BONUS (paid at end of the fiscal year)
- -----
Bonus monies are comprised of three (3) parts, each of which will be
considered annually:
* Top Line (Net Sales)(2)
* Bottom Line (Net Profit/Income)
* Booked Back Log
Top Line Amount
- -------- ------
Greater than 5 percent Below Approved Budget $ 0
Plus or Minus 5 percent of Approved Budget 3,000
Plus or Minus 5 percent of Approved Budget 9,000
Bottom Line Amount
- ----------- ------
Greater than 5 percent Below Approved Budget $ 0
Plus or Minus 5 percent of Approved Budget 5,000
Greater than 5 percent Above Approved Budget 10,000
<PAGE>15
Back Log Amount
- -------- ------
Less than 9 Months "of Average of Last 6 months" $ 0
10-17 Months "of Average of last 6 Months" 1,500
Greater than 18 Months "of Average of last 6 Months" 5,000
Greater than 24 Months "of Average of last 6 Months" 6,000
- --------------------
(1) Share amounts contemplate post-split effect of proposed 1 for 2 stock
split and merger into PCT Holdings, Inc., a Nevada corporation.
(2) Any bonus amounts earned for achieving or exceeding top line or back
log goals will be incrementally reduced for falling below the bottom line goal.
The amount of percentage to be reduced will be set by the Board of Directors.
INITIALS:
Executive /s/ NAG
---------------
Company /s/ DAW
---------------
Witness /s/ JJ
---------------
<PAGE>1
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, effective as of the 1st day of January, 1995, is made
by and between PACIFIC COAST TECHNOLOGIES, INC., a Washington corporation having
its principal place of business in Wenatchee, Washington (the "Company"), and
EDWARD A. TAYLOR, a resident of Washington (the "Executive").
RECITALS:
A. The Company desires to continue the services of the
Executive, presently an officer of the Company, and the Executive
is willing to render such services, in accordance with the terms
hereinafter set forth; and
B. The Board of Directors of the Company (the "Board") by
appropriate resolutions authorized the employment of the
Executive as provided for in this Agreement.
Accordingly, the Company and the Executive agree as follows:
ARTICLE I.
Duties
1.1 Duties. The Executive shall be a Vice-President - Engineering
Technology of the Company. The duties to be performed by the Executive under
this Agreement are as specified in the Company's Bylaws, if applicable, and/or
as assigned as of the date hereof by the Board. During the Contract Term, and
excluding any periods of vacation, sick leave or disability to which the
Executive is entitled, the Executive agrees to devote the Executive's full
attention and time to the business and
<PAGE>2
affairs of the Company and, to the extent necessary to discharge the duties
assigned to the Executive hereunder, to use the Executive's best efforts to
perform faithfully and efficiently such duties.
ARTICLE II.
Term of Agreement
The term of this Agreement shall commence on the date hereof and end
on December 31, 1997 (the "Contract Term").
ARTICLE III.
Compensation
During the Contract Term, the Company shall pay or cause to be paid to
the Executive in cash in accordance with the normal payroll practices of the
Company for peer executives, including deductions, withholdings and collections
as required by law, in installments not less frequently than monthly, an annual
base salary ("Annual Base Salary") as follows:
Year Annual Base Salary
---- ------------------
1/1/95 - 12/31/95 $52,500
1/1/96 - 12/31/96 58,000
1/1/97 - 12/31/97 65,000
The Company may from time to time increase the Executive's Annual Base Salary,
provided that it shall not be reduced after any such increase, and the term
Annual Base Salary as used in this Agreement shall refer to the Annual Base
Salary as so increased.
<PAGE>3
ARTICLE IV.
Other Benefits
4.1 Incentive, Savings and Retirement Plans. In addition to Annual Base
Salary, the Executive shall be entitled to participate during the Contract Term
in all bonuses and incentive (including annual and long-term incentives),
savings and retirement plans, practices, policies and programs applicable to
other peer executives of the Company. Attached hereto as Exhibit "A" is a
description of bonus benefits for Executive during the Contract Term.
4.2 Welfare Benefits. During the Contract Term, the Executive and/or the
Executive's family, as the case may be, shall be eligible for participation in
and shall receive all benefits under welfare benefit plans, practices, policies
and programs provided by the Company (including, and without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, dependent life, accidental death and travel accident insurance plans
and programs) and applicable to other peer executives of the Company.
4.3 Fringe Benefits. During the Contract Term, the
Executive shall be entitled to fringe benefits applicable to
other peer executives of the Company.
4.4 Expenses. During the Contract Term, the Executive shall be entitled to
receive prompt reimbursement for all reasonable employment-related expenses
incurred by the Executive upon the Company's receipt of accountings in
accordance with
<PAGE>4
practices, policies and procedures applicable to peer executives
of the Company.
4.5 Office and Support Staff. During the Contract Term, the Executive shall
be entitled to an office or offices of a size and with furnishings and other
appointments, and to personal secretarial and other assistance, provided with
respect to other peer executives of the Company.
4.6 Vacation. During the Contract Term, the Executive shall be entitled to
be paid vacation time in accordance with the plans, policies, and programs
applicable to other peer executives of the Company.
ARTICLE V.
Restrictive Covenants
5.1 Trade Secrets, Confidential and Proprietary Business Information.
a. The Company has advised the Executive and the Executive
acknowledged that it is the policy of the Company to maintain as secret and
confidential all Protected Information (as defined below), and that Protected
Information has been and will be developed at substantial cost and effort to the
Company. "Protected Information" means trade secrets, confidential and propriety
business information of the Company, any information of the Company other than
information which has entered the public domain (unless such information entered
the public domain through effects of or on account of the Executive), and all
valuable and unique information and techniques acquired, developed or used by
<PAGE>5
the Company relating to its business, operations, employees, customers and
suppliers, which give the Company a competitive advantage over those who do not
know the information and techniques and which are protected by the Company from
unauthorized disclosure, including but not limited to, customer lists (including
potential customers), sources of supply, processes, plans, materials, pricing
information, internal memoranda, marketing plans, internal policies, and
products and services which may be developed from time to time by the Company
and its agents or employees.
b. The Executive acknowledges that the Executive will acquire
Protected Information with respect to the Company and its successors in
interest, which information is a valuable, special and unique asset of the
Company's business and operations and that disclosure of such Protected
Information would cause irreparable damage to the Company.
c. Either during or after termination of employment by the
Company, the Executive shall not, directly or indirectly, divulge, furnish or
make accessible to any person, firm, corporation, association or other entity
(otherwise than as may be required in the regular course of the Executive's
employment) nor use in any manner, any Protected Information, or cause any such
information of the Company to enter the public domain.
<PAGE>6
5.2 Non-Competition.
a. The Executive agrees that the Executive shall not during the
Executive's employment with the Company, and, for a period of two (2) years
after the termination of this Agreement, directly or indirectly, in any
capacity, engage or participate in, or become employed by or render advisory or
consulting or other services in connection with any Prohibited Business as
defined in Section 5.2(c).
b. The Executive agrees that the Executive shall not during the
Executive's employment with the Company, and, for a period of two (2) years
after the termination of this Agreement, make any financial investment, whether
in the form of equity or debt, or own any interest, directly or indirectly, in
any Prohibited Business. Nothing in this Section 5.2(b) shall, however, restrict
the Executive from making any investment in any company whose stock is listed on
a national securities exchange or actively traded in the over-the-counter
market; provided that: (i) such investment does not give the Executive the right
or ability to control or influence the policy decisions of any Prohibited
Business; and (ii) such investment does not create a conflict of interest
between the Executive's duties hereunder and the Executive's interest in such
investment.
c. For purposes of this Section 5.2, "Prohibited Business" shall
be defined as any business and any branch, office or operation thereof, which is
a competitor of the Company and which has established or seeks to establish
contact, in whatever
<PAGE>7
form (including but not limited to solicitation of sales, or the receipt or
submission of bids), with any entity who is at any time a client, customer or
supplier of the Company (including but not limited to all subdivisions of the
federal government).
5.3 Non-Solicitation. From the date hereof until two (2) years after the
Executive's termination of employment with the Company, the Executive shall not,
directly or indirectly; (a) encourage any employee or supplier of the Company or
its successors in interest to leave his or her employment with the Company or
its successors in interest; (b) employ, hire, solicit or cause to be employed,
hired or solicited (other than by the Company or its successors in interest), or
encourage others to employ or hire any person who within two (2) years prior
thereto was employed by the Company or its successors in interest; or (c)
establish a business with, or encourage others to establish a business with, any
person who within two (2) years prior thereto was an employee or supplier of the
Company or its successors in interest.
5.4 Disclosure of Employee-Created Trade Secrets, Confidential and
Propriety Business Information. The Executive agrees to promptly disclose to the
Company all Protected Information developed in whole or in part by the Executive
during the Executive's employment with the Company and which relates to the
Company's business. Such Protected Information is, and shall remain, the
exclusive property of the Company. All writings created during the Executive's
employment with the Company
<PAGE>8
(excluding writings unrelated to the Company's business) are considered to be
"works-for-hire" for the benefit of the Company and the Company shall own all
rights in such writings.
5.5 Survival of Undertakings and Injunctive Relief.
a. The provisions of Sections 5.1, 5.2, 5.3 and 5.4 shall survive
the termination of the Executive's employment with the Company irrespective of
the reasons therefor.
b. The Executive acknowledges and agrees that the restrictions
imposed upon the Executive by Sections 5.1, 5.2, 5.3 and 5.4 and the purpose of
such restrictions are reasonable and are designed to protect the Protected
Information and the continued success of the Company without unduly restricting
the Executive's future employment by others. Furthermore, the Executive
acknowledges that, in view of the Protected Information which the Executive has
or will acquire or has or will have access to and in view of the necessity of
the restrictions contained in Sections 5.1, 5.2, 5.3 and 5.4, any violation of
any provision of Sections 5.1, 5.2, 5.3 and 5.4 hereof would cause irreparable
injury to the Company and its successors in interest with respect to the
resulting disruption in their operations. By reason of the foregoing, the
Executive consents and agrees that if the Executive violates any of the
provisions of Sections 5.1, 5.2, 5.3 or 5.4 of this Agreement, the Company and
its successors in interest, as the case may be, shall be entitled, in addition
to any other remedies that they may have, including money damages, to an
injunction to be issued by a court of competent
<PAGE>9
jurisdiction, restraining the Executive from committing or continuing any
violation of such Sections of this Agreement.
In the event of any such violation of Sections 5.1, 5.2, 5.3 and 5.4
of this Agreement, the Executive further agrees that the time periods set forth
in such Sections shall be extended by the period of such violation.
ARTICLE VI.
Termination
6.1 Termination of Employment. The Executive's employment may be terminated
at any time during the Contract Term by mutual agreement of the parties, or as
otherwise provided in this Article.
6.2 Termination for Cause. The Company may terminate the Executive's
employment without notice at any time for cause. For purposes of this Agreement,
cause for termination shall include: continued neglect, after notice thereof, or
willful misconduct by the Executive with respect to his duties and obligations
under this Agreement; unauthorized expenditure of the Company's funds; unethical
business practices in connection with the Company's business; misappropriation
of the Company's assets; any material breach by the Executive of any term or
provision of this Agreement; any act or action of the Executive during the term
of this Agreement involving embezzlement, dishonesty related to the Company or
the Company's business, or habitual use of alcohol or drugs; conviction of any
felony; or any similar or related act or failure to act by the Executive. Upon
termination for cause, the
<PAGE>10
Executive shall not be entitled to payment of any compensation other than salary
and accrued benefits under this Agreement earned up to the date of such
termination.
ARTICLE VII.
Miscellaneous
7.1 Assignment, Successors. The Company may freely assign its respective
rights and obligations under this Agreement to a successor of the Company's
business, without the prior written consent of the Executive. This Agreement
shall be binding upon and inure to the benefit of the Executive and the
Executive's estate and the Company and any assignee of or successor to the
Company.
7.2 Beneficiary. If the Executive dies prior to receiving all of the salary
payable hereunder, such salary shall be paid in a lump sum payment to the
beneficiary designated in writing by the Executive ("Beneficiary") and if no
such Beneficiary is designated, to the Executive's estate.
7.3 Nonalienation of Benefits. Benefits payable under this Agreement shall
not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution of levy of any
kind, either voluntary or involuntary, prior to actually being received by the
Executive, and any such attempt to dispose of any right to benefits payable
hereunder shall be void.
7.4 Severability. If all or any part of this Agreement is
declared by any court or governmental authority to be unlawful or
<PAGE>11
invalid, such unlawfulness or invalidity shall not serve to invalidate any
portion of this Agreement not declared to be unlawful or invalid. Any paragraph
or part of a paragraph so declared to be unlawful or invalid shall, if possible,
be construed in a manner which will give effect to the terms of such paragraph
or part of a paragraph to the fullest extent possible while remaining lawful and
valid.
7.5 Amendment and Waiver. This Agreement shall not be altered, amended or
modified except by written instrument executed by the Company and the Executive.
A waiver of any term, covenant, agreement or condition contained in this
Agreement shall not be deemed a waiver of any other term, covenant, agreement or
condition, and any waiver of any other term, covenant, agreement or condition,
and any waiver of any default in any such term, covenant, agreement or condition
shall not be deemed a waiver of any later default thereof or of any other term,
covenant, agreement or condition.
7.6 Notices. All notices and other communications hereunder shall be in
writing and delivered by hand or by first class registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Company: Pacific Coast Technologies, Inc.
434 Olds Station Road
Wenatchee, WA 98801
Attn: Donald A. Wright, President
If to the Executive: Mr. Edward A. Taylor
333 14th Street NE
East Wenatchee, WA 98802
<PAGE>12
Either party may from time to time designate a new address by notice given in
accordance with this Section. Notice and communications shall be effective when
actually received by the addressee.
7.7 Counterpart Originals. This Agreement may be executed
in several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
7.8 Entire Agreement. This Agreement forms the entire agreement between the
parties hereto with respect to any severance payment and with respect to the
subject matter contained in the Agreement.
7.9 Applicable Law. The provisions of this Agreement shall
be interpreted and construed in accordance with the laws of the
State of Washington, without regard to its choice of law
principles.
7.10 Effect on Other Agreements. This Agreement shall supersede all prior
agreements, promises and representations regarding employment by the Company and
severance or other payments contingent upon termination of employment.
Notwithstanding the foregoing, the Executive shall be entitled to any other
severance plan applicable to other peer executives of the Company.
<PAGE>13
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
The Executive:
/s/ EDWARD A. TAYLOR
- ------------------------------
Edward A. Taylor
The Company:
Pacific Coast Technologies, Inc.
/s/ DONALD A. WRIGHT
- ------------------------------
Donald A. Wright, President
Witness:
/s/ NICK A. GERDE
- ------------------------------
Nick A. Gerde, Vice
President Finance
As per paragraph 7.2 Beneficiary: I hereby designate my beneficiaries under this
contract to be my two (2) sons, Kenneth D. Taylor and Bradley A. Taylor, at a
rate of 50% each.
/s/ EDWARD A. TAYLOR
------------------------------
Edward A. Taylor
<PAGE>14
EXHIBIT "A" TO EMPLOYMENT AGREEMENT
FOR EDWARD A. TAYLOR
BONUS (paid at end of the fiscal year)
- -----
Bonus monies are comprised of three (3) parts, each of which will be
considered annually:
* Top Line (Net Sales)(1)
* Bottom Line (Net Profit/Income)
* Booked Back Log
Top Line Amount
- -------- ------
Greater than 5 percent Below Approved Budget $ 0
Plus or Minus 5 percent of Approved Budget 1,500
Greater than 5 percent Above Approved Budget 5,000
Bottom Line Amount
- ----------- ------
Greater than 5 percent Below Approved Budget $ 0
Plus or Minus 5 percent of Approved Budget 1,000
Greater than 5 percent Above Approved Budget 2,500
Back Log Amount
- -------- ------
Less than 9 Months "of Average of Last 6 months" $ 0
10-17 Months "of Average of Last 6 Months" 1,000
Greater than 18 Months "of Average of Last 6 Months" 2,500
Greater than 24 Months "of Average of Last 6 Months" 3,000
INITIALS:
Executive /s/ EAT
---------------
Company /s/ DAW
---------------
Witness /s/ NAG
---------------
(1) Any bonus amounts earned for achieving or exceeding top line or back
log goals will be incrementally reduced for falling below the bottom line goal.
The amount of percentage to be reduced will be set by the Board of Directors.
<PAGE>1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of the 8th day of April, 1995, is made by
and between CERAMIC DEVICES, INC., a Washington corporation having its principal
place of business in San Diego, California (the "Company"), and IVAN G. SARDA, a
resident of California (the "Executive").
RECITALS:
A. The Company desires to continue the services of the
Executive, presently an officer of the Company, and the Executive
is willing to render such services, in accordance with the terms
hereinafter set forth; and
B. The Board of Directors of the Company (the "Board") by
appropriate resolutions authorized the employment of the
Executive as provided for in this Agreement.
Accordingly, the Company and the Executive agree as follows:
ARTICLE I
Duties
1.01 Duties. The Executive shall be the President and Chief Executive
Officer of the Company. The duties to be performed by the Executive under this
Agreement are as specified in the Company's By-Laws, if applicable, and/or as
assigned as of the date hereof by the Board. During the Contract Term, and
excluding any periods of vacation, sick leave or disability to which the
Executive is entitled, the Executive agrees to devote the Executive's full
attention and time to the business and affairs of the Company and, to the extent
necessary to discharge the duties assigned to the Executive hereunder, to use
the Executive's best efforts to perform faithfully and efficiently such duties.
ARTICLE II
Term of Agreement
The term of this Agreement shall commence on the date hereof and end on
April 30, 1998 (the "Contract Term").
<PAGE>2
ARTICLE III
Compensation
During the Contract Term, the Company shall pay or cause to be paid to the
Executive in cash in accordance with the normal payroll practices for peer
executives in the Company and those employed by its parent and/or affiliate
corporations (the "Affiliates"), including deductions, withholdings and
collections as required by law, in installments not less frequently than
monthly, an annual base salary ("Annual Base Salary") of $78,000.00. The Company
may from time to time increase the Executive's Annual Base Salary, provided that
it shall not be reduced after any such increase, and the term Annual Base Salary
as used in this Agreement shall refer to the Annual Base Salary as so increased.
ARTICLE IV
Other Benefits
4.01 Incentive, Savings and Retirement Plans. In addition to Annual Base
Salary, the executive shall be entitled to participate during the Contract Term
in all bonuses and incentive (including annual and long-term incentives),
savings and retirement plans, practices, policies and programs applicable to
other peer executives of the Company and the Affiliates. Attached hereto as
Exhibit "A" is a description of bonus and stock option benefits for Executive
during the Contract Term.
4.02 Welfare Benefits. During the Contract Term, the Executive and/or the
Executive's family, as the case may be, shall be eligible for participation in
and shall receive all benefits under welfare benefit plans, practices, policies
and programs provided by the Company (including, and without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, dependent life, accidental death and travel accident
<PAGE>3
insurance plans and programs) and applicable to other peer executives
of the Company and the Affiliates.
4.03 Fringe Benefits. During the Contract Term, the
Executive shall be entitled to fringe benefits applicable to
other peer executives of the Company and the Affiliates.
4.04 Expenses. During the Contract Term, the Executive shall be entitled to
receive prompt reimbursement for all reasonable employment-related expenses
incurred by the Executive upon the Company's receipt of accountings in
accordance with practices, policies and procedures applicable to peer executives
of the Company and the Affiliates.
4.05 Office and Support Staff. During the Contract Term, the Executive
shall be entitled to an office or offices of a size and with furnishings and
other appointments, and to personal secretarial and other assistance, provided
with respect to other peer executives of the Company and the Affiliates.
4.06 Vacation. During the Contract Term, the Executive shall be entitled to
paid vacation time in accordance with the plans, policies, and programs
applicable to other peer executives of the Company and the Affiliates.
<PAGE>4
ARTICLE V
Restrictive Covenants
5.01 Trade Secrets, Confidential and Propriety Business
Information.
(a) The Company has advised the Executive and the Executive has
acknowledged that it is the policy of the Company to maintain as secret and
confidential all Protected Information (as defined below), and that Protected
Information has been and will be developed at substantial cost and effort to the
Company. "Protected Information" means trade secrets, confidential and propriety
business information of the Company, any information of the Company other than
information which has entered the public domain (unless such information entered
the public domain through effects of or on account of the Executive), and all
valuable and unique information and techniques acquired, developed or used by
the Company relating to its business, operations, employees, customers and
suppliers, which give the Company a competitive advantage over those who do not
know the information and techniques and which are protected by the Company from
unauthorized disclosure, including but not limited to, customer lists (including
potential customers), sources of supply, processes, plans, materials, pricing
information, internal memoranda, marketing plans, internal policies, and
products and services which may be developed from time to time by the Company
and its agent or employees.
(b) The Executive acknowledges that the Executive will acquire
Protected Information with respect to the Company and its successors in
interest, which information is a valuable, special and unique asset of the
Company's business and operations and that disclosure of such Protected
Information would cause irreparable damage to the Company.
(c) Either during or after termination of employment by the Company,
the Executive shall not, directly or indirectly, divulge, furnish or make
accessible to any person, firm, corporation, association or other entity
(otherwise than as may be required in the
<PAGE>5
regular course of the Executive's employment) nor use in any manner, any
Protected Information of the Company or its predecessors, or cause any such
information of the Company or its predecessors to enter the public domain.
5.02 Disclosure of Employee-Created Trade Secrets, Confidential and
Propriety Business Information. The Executive agrees to promptly disclose to the
Company all Protected Information developed in whole or in part by the Executive
during the Executive's employment with the Company and which relate to the
Company's business. Such Protected Information is, and shall remain, the
exclusive property of the Company. All writings created during the Executive's
employment with the Company (excluding writings unrelated to the Company's
business) are considered to be "works-for-hire" for the benefit of the Company
and the Company shall own all rights in such writings.
5.03 Survival of Undertakings and Injunctive Relief.
(a) The provisions of Sections 5.01 and 5.02 shall survive the
termination of the Executive's employment with the Company irrespective of the
reasons therefor.
(b) The Executive acknowledges and agrees that the restrictions
imposed upon the Executive by Sections 5.01 and 5.02 and the purpose of such
restrictions are reasonable and are designed to protect the Protected
Information and the continued success of the Company without unduly restricting
the Executive's future employment by others. Furthermore, the Executive
acknowledges that, in view of the Protected Information which the Executive has
or will acquire or has or will have access to and in view of the necessity of
the restrictions contained in Sections 5.01 and 5.02, any violation of any
provision of Sections 5.01 or 5.02 hereof would cause irreparable injury to the
Company and its successors in interest with respect to the resulting disruption
in their operations. By reason of the foregoing, the Executive consents and
agrees that if the Executive violates any of the provisions of Sections 5.01 or
5.02 of this Agreement, the Company and its successors in interest as the case
may be, shall be entitled, in addition to any other remedies that they may
<PAGE>6
have, including money damages, to an injunction to be issued by a court of
competent jurisdiction, restraining the Executive from committing or continuing
any violation of such Sections of this Agreement.
ARTICLE VI
Termination
6.01 Termination of Employment. Executive's employment may be terminated at
any time during the Contract Term by mutual agreement of the parties, or as
otherwise provided in this Article.
6.02 Termination for Cause. The Company may terminate Executive's
employment without notice at any time for cause. For purposes of this Agreement,
cause for termination shall include: continued neglect, after notice thereof, or
willful misconduct by Executive with respect to his duties and obligations under
this Agreement; unauthorized expenditure of the Company's funds; unethical
business practices in connection with the Company's business; misappropriation
of the Company's assets; any material breach by Executive of any term or
provision of this Agreement; any act or action of Executive during the term of
this Agreement involving embezzlement, dishonesty related to the Company or the
Company's business, or habitual use of alcohol or drugs; conviction of any
felony; or any similar or related act or failure to act by Executive. Upon
termination for cause, Executive shall not be entitled to payment of any
compensation other than salary and accrued benefits under this Agreement earned
up to the date of such termination.
ARTICLE VII
Miscellaneous
7.01 Assignment, Successors. The Company may freely assign
its respective rights and obligations under this Agreement to a
successor of the Company's business, without the prior written
consent of the Executive. This Agreement shall be binding upon
and insure
<PAGE>7
to the benefit of the Executive and the Executive's estate and the
Company and any assignee of or successor to the Company.
7.02 Beneficiary. If the Executive dies prior to receiving all of the
salary payable hereunder, the unpaid balance of such salary shall be paid in a
lump sum payment to the beneficiary designated in writing by the Executive
("Beneficiary") and if no such Beneficiary is designated, to the Executive's
estate.
7.03 Nonalienation of Benefits. Benefits payable under this Agreement shall
not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or involuntary, prior to actually being received by the
Executive, and any such attempt to dispose of any right to benefits payable
hereunder shall be void.
7.04 Severability. If all or any part of this Agreement is declared by any
court or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of this Agreement not
declared to be unlawful or invalid. Any paragraph or part of a paragraph so
declared to be unlawful or invalid shall, if possible, be construed in a manner
which will give effect to the terms of such paragraph or part of a paragraph to
the fullest extent possible while remaining lawful and valid.
7.05 Amendment and Waiver. This Agreement shall not be altered, amended or
modified except by written instrument executed by the Company and the Executive.
A waiver of any term, covenant, agreement or condition contained in this
Agreement shall not be deemed a waiver of any other term, covenant, agreement or
condition, and any waiver of any other term, covenant, agreement or condition,
and any waiver of any default in any such term, covenant, agreement or condition
shall not be deemed a waiver of any later default thereof or of any other term,
covenant, agreement or condition.
<PAGE>8
7.06 Notices. All notices and other communications hereunder shall be in
writing and delivered by hand or by first class registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Company: CERAMIC DEVICES, INC.
434 Olds Station Road
Wenatchee, Washington 98801
Attn: Donald A. Wright, Chairman
If to the Executive: Mr. Ivan G. Sarda
4871 Campanile Drive
San Diego, California 92115
Either party may from time to time designate a new address by notice given in
accordance with this Section. Notice and communications shall be effective when
actually received by the addressee.
7.07 Counterpart Originals. This Agreement may be executed
in several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
7.08 Entire Agreement. This Agreement forms the entire agreement between
the parties hereto with respect to any severance payment and with respect to the
subject matter contained in the Agreement.
7.09 Applicable Law. The provisions of this Agreement
shall be interpreted and construed in accordance with the laws of
the state of Washington, without regard to its choice of law
principles.
7.10 Effect on Other Agreements. This Agreement shall supersede all prior
agreements, promises and representations regarding employment by the Company and
severance or other payments contingent upon termination of employment.
Notwithstanding the foregoing, the Executive shall be entitled to any other
severance plan applicable to other peer executives of the Company.
<PAGE>9
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
CERAMIC DEVICES, INC.
By /s/ DONALD A. WRIGHT
------------------------------------
Donald A. Wright, Chairman
/s/ IVAN G. SARDA
----------------------------------
Ivan G. Sarda
<PAGE>10
EXHIBIT "A" TO EMPLOYMENT AGREEMENT
FOR IVAN G. SARDA
STOCK OPTIONS
Based upon the Employee's performance, as judged by the Board of
Directors, stock options may be awarded at the end of each fiscal year under the
terms of the Company's Qualified Stock Option Plan. Said Options expire ten (10)
years from date of grant.
Maximum
# of Shares Option Price Fiscal Year
----------- ------------ -----------
5,000 $8.00/share 1995
10,000 $8.00/share 1996
10,000 $8.00/share 1997
BONUS (paid at end of the fiscal year)
Bonus monies are comprised of three (3) parts, each of which will be
considered annually:
* Top Line (Net Sales)(1)
* Bottom Line (Net Profit/Income)
* Booked Back Log
Top Line Amount
-------- ------
Greater than 5 percent Below Approved Budget $ 0
Plus or Minus 5 percent of Approved Budget 1,500
Greater than 5 percent Above Approved Budget 4,500
Bottom Line Amount
----------- ------
Greater than 5 percent Below Approved Budget $ 0
Plus or Minus 5 percent of Approved Budget 2,500
Greater than 5 percent Above Approved Budget 5,000
Back Log Amount
-------- ------
Less than 9 months "of Average of Last 6 months" $ 0
10-17 Months "of Average of Last 6 Months" 750
Greater than 18 Months "of Average of Last 6 Months" 2,500
Greater than 24 Months "of Average of Last 6 Months" 3,000
- ------------------------
(1) Any bonus amounts earned for achieving or exceeding top line or back log
goals will be incrementally reduced for falling below the bottom line. The
amount of percentage will be set by the Board of Directors.
<PAGE>1
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, effective as of the 1st day of March, 1995, is made by
and between PACIFIC COAST TECHNOLOGIES, INC., a Washington corporation having
its principal place of business in Wenatchee, Washington (the "Company"), and
LEWIS L. WEAR, a resident of California (the "Executive").
RECITALS:
A. The Company desires to obtain the services of the
Executive, and the Executive is willing to render such services,
in accordance with the terms hereinafter set forth; and
B. The Board of Directors of the Company (the "Board") by
appropriate resolutions has authorized the employment of the
Executive as provided for in this Agreement.
Accordingly, the Company and the Executive agree as follows:
ARTICLE I.
Duties
1.1 Duties. The Executive shall be a Vice-President and General Manager of
the Company. The duties to be performed by the Executive under this Agreement
are as specified in the Company's Bylaws, if applicable, and/or as assigned as
of the date hereof by the Board. During the Contract Term, and excluding any
periods of vacation, sick leave or disability to which the Executive is
entitled, the Executive agrees to devote the Executive's full attention and time
to the business and
<PAGE>2
affairs of the Company and, to the extent necessary to discharge the duties
assigned to the Executive hereunder, to use the Executive's best efforts to
perform faithfully and efficiently such duties.
ARTICLE II.
Term of Agreement
The term of this Agreement shall commence on the date hereof and end
on February 28, 1998 (the "Contract Term").
ARTICLE III.
Compensation
During the Contract Term, the Company shall pay or cause to be paid to
the Executive in cash in accordance with the normal payroll practices of the
Company for peer executives, including deductions, withholdings and collections
as required by law, in installments not less frequently than monthly, an annual
base salary ("Annual Base Salary") as follows:
Year Annual Base Salary
---- ------------------
03/01/95 - 02/28/96 $78,000
03/01/96 - 02/28/97 84,000
03/01/97 - 02/28/98 90,000
The Company may from time to time increase the Executive's Annual Base Salary,
provided that it shall not be reduced after any such increase, and the term
Annual Base Salary as used in this Agreement shall refer to the Annual Base
Salary as so increased.
<PAGE>3
ARTICLE IV.
Other Benefits
4.1 Incentive, Savings and Retirement Plans. In addition to Annual Base
Salary, the Executive shall be entitled to participate during the Contract Term
in all bonuses and incentives (including annual and long-term incentives),
savings and retirement plans, practices, policies and programs applicable to
other peer executives of the Company. Attached hereto as Exhibit "A" is a
description of stock option benefits for the Executive during the Contract Term.
4.2 Welfare Benefits. During the Contract Term, the Executive and/or the
Executive's family, as the case may be, shall be eligible for participation in
and shall receive all benefits under welfare benefit plans, practices, policies
and programs provided by the Company (including, and without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, dependent life, accidental death and travel accident insurance plans
and programs) and applicable to other peer executives of the Company.
4.3 Fringe Benefits. During the Contract Term, the
Executive shall be entitled to fringe benefits applicable to
other peer executives of the Company.
4.4 Expenses. During the Contract Term, the Executive shall be entitled to
receive prompt reimbursement for all reasonable employment-related expenses
incurred by the Executive upon the Company's receipt of accountings in
accordance with
<PAGE>4
practices, policies and procedures applicable to peer executives
of the Company.
4.5 Office and Support Staff. During the Contract Term, the Executive shall
be entitled to an office or offices of a size and with furnishings and other
appointments, and to personal secretarial and other assistance, provided with
respect to other peer executives of the Company.
4.6 Vacation. During the Contract Term, the Executive shall be entitled to
be paid vacation time in accordance with the plans, policies, and programs
applicable to other peer executives of the Company.
ARTICLE V.
Restrictive Covenants
5.1 Trade Secrets, Confidential and Proprietary Business
Information.
a. The Company has advised the Executive and the Executive
acknowledged that it is the policy of the Company to maintain as secret and
confidential all Protected Information (as defined below), and that Protected
Information has been and will be developed at substantial cost and effort to the
Company. "Protected Information" means trade secrets, confidential and propriety
business information of the Company, any information of the Company other than
information which has entered the public domain (unless such information entered
the public domain through effects of or on account of the Executive), and all
valuable and unique information and techniques acquired, developed or used by
<PAGE>5
the Company relating to its business, operations, employees, customers and
suppliers, which give the Company a competitive advantage over those who do not
know the information and techniques and which are protected by the Company from
unauthorized disclosure, including but not limited to, customer lists (including
potential customers), sources of supply, processes, plan, materials, pricing
information, internal memoranda, marketing plans, internal policies, and
products and services which may be developed from time to time by the Company
and its agents or employees.
b. The Executive acknowledges that the Executive will acquire
Protected Information with respect to the Company and its successors in
interest, which information is a valuable, special and unique asset of the
Company's business and operations and that disclosure of such Protected
Information would cause irreparable damage to the Company.
c. Either during or after termination of employment by the
Company, the Executive shall not, directly or indirectly, divulge, furnish or
make accessible to any person, firm, corporation, association or other entity
(otherwise than as may be required in the regular course of the Executive's
employment) nor use in any manner, any Protected Information, or cause any such
information of the Company to enter the public domain.
<PAGE>6
5.2 Non-Competition.
a. The Executive agrees that the Executive shall not during the
Executive's employment with the Company, and, for a period of two (2) years
after the termination of this Agreement, directly or indirectly, in any
capacity, engage or participate in, or become employed by or render advisory or
consulting or other services in connection with any Prohibited Business as
defined in Section 5.2(c).
b. The Executive agrees that the Executive shall not during the
Executive's employment with the Company, and, for a period of two (2) years
after the termination of this Agreement, make any financial investment, whether
in the form of equity or debt, or own any interest, directly or indirectly, in
any Prohibited Business. Nothing in this Section 5.2(b) shall, however, restrict
the Executive from making any investment in any company whose stock is listed on
a national securities exchange or actively traded in the over-the-counter
market; provided that: (i) such investment does not give the Executive the right
or ability to control or influence the policy decisions of any Prohibited
Business; and (ii) such investment does not create a conflict of interest
between the Executive's duties hereunder and the Executive's interest in such
investment.
c. For purposes of this Section 5.2, "Prohibited Business" shall
be defined as any business and any branch, office or operation thereof, which is
a competitor of the Company and which has established or seeks to establish
contact, in whatever
<PAGE>7
form (including but not limited to solicitation of sales, or the receipt or
submission of bids), with any entity who is at any time a client, customer or
supplier of the Company (including but not limited to all subdivisions of the
federal government).
5.3 Non-Solicitation. From the date hereof until two (2) years after the
Executive's termination of employment with the Company, the Executive shall not,
directly or indirectly: (a) encourage any employee or supplier of the Company or
its successors in interest to leave his or her employment with the Company or
its successors in interest; (b) employ, hire, solicit or cause to be employed,
hired or solicited (other than by the Company or its successors in interest), or
encourage others to employ or hire any person who within two (2) years prior
thereto was employed by the Company or its successors in interest; or (c)
establish a business with, or encourage others to establish a business with, any
person who within two (2) years prior thereto was an employee or supplier of the
Company or its successors in interest.
5.4 Disclosure of Employee-Created Trade Secrets, Confidential and
Propriety Business Information. The Executive agrees to promptly disclose to the
Company all Protected Information developed in whole or in part by the Executive
during the Executive's employment with the Company and which relates to the
Company's business. Such Protected Information is, and shall remain, the
exclusive property of the Company. All writings created during the Executive's
employment with the Company
<PAGE>8
(excluding writings unrelated to the Company's business) are considered to be
"works-for-hire" for the benefit of the Company and the Company shall own all
rights in such writings.
5.5 Survival of Undertakings and Injunctive Relief.
a. The provisions of Sections 5.1, 5.2, 5.3 and 5.4 shall survive
the termination of the Executive's employment with the Company irrespective of
the reasons therefor.
b. The Executive acknowledges and agrees that the restrictions
imposed upon the Executive by Sections 5.1, 5.2, 5.3 and 5.4 and the purpose of
such restrictions are reasonable and are designed to protect the Protected
Information and the continued success of the Company without unduly restricting
the Executive's future employment by others. Furthermore, the Executive
acknowledges that, in view of the Protected Information which the Executive has
or will acquire or has or will have access to and in view of the necessity of
the restrictions contained in Sections 5.1, 5.2, 5.3 and 5.4, any violation of
any provision of Sections 5.1, 5.2, 5.3 and 5.4 hereof would cause irreparable
injury to the Company and its successors in interest with respect to the
resulting disruption in their operations. By reason of the foregoing, the
Executive consents and agrees that if the Executive violates any of the
provisions of Sections 5.1, 5.2, 5.3 or 5.4 of this Agreement, the Company and
its successors in interest, as the case may be, shall be entitled, in addition
to any other remedies that they may have, including money damages, to an
injunction to be issued by a court of competent
<PAGE>9
jurisdiction, restraining the Executive from committing or continuing any
violation of such Sections of this Agreement.
In the event of any such violation of Sections 5.1, 5.2, 5.3 and 5.4
of this Agreement, the Executive further agrees that the time periods set forth
in such Sections shall be extended by the period of such violation.
ARTICLE VI.
Termination
6.1 Termination of Employment. The Executive's employment may be terminated
at any time during the Contract Term by mutual agreement of the parties, or as
otherwise provided in this Article.
6.2 Termination for Cause. The Company may terminate the Executive's
employment without notice at any time for cause. For purposes of this Agreement,
cause for termination shall include: continued neglect, after notice thereof, or
willful misconduct by the Executive with respect to his duties and obligations
under this Agreement; unauthorized expenditure of the Company's funds; unethical
business practices in connection with the Company's business; misappropriation
of the Company's assets; any material breach by the Executive of any term or
provision of this Agreement; any act or action of the Executive during the term
of this Agreement involving embezzlement, dishonesty related to the Company or
the Company's business, or habitual use of alcohol or drugs; conviction of any
felony; or any similar or related act or failure to act by the Executive. Upon
termination for cause, the
<PAGE>10
Executive shall not be entitled to payment of any compensation other than salary
and accrued benefits under this Agreement earned up to the date of such
termination.
ARTICLE VII.
Miscellaneous
7.1 Assignment, Successors. The Company may freely assign its respective
rights and obligations under this Agreement to a successor of the Company's
business, without the prior written consent of the Executive. This Agreement
shall be binding upon and inure to the benefit of the Executive and the
Executive's estate and the Company and any assignee of or successor to the
Company.
7.2 Beneficiary. If the Executive dies prior to receiving all of the salary
payable hereunder, such salary shall be paid in a lump sum payment to the
beneficiary designated in writing by the Executive ("Beneficiary") and if no
such Beneficiary is designated, to the Executive's estate.
7.3 Nonalienation of Benefits. Benefits payable under this Agreement shall
not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution of levy of any
kind, either voluntary or involuntary, prior to actually being received by the
Executive, and any such attempt to dispose of any right to benefits payable
hereunder shall be void.
7.4 Severability. If all or any part of this Agreement is
declared by any court or governmental authority to be unlawful or
<PAGE>11
invalid, such unlawfulness or invalidity shall not serve to invalidate any
portion of this Agreement not declared to be unlawful or invalid. Any paragraph
or part of a paragraph so declared to be unlawful or invalid shall, if possible,
be construed in a manner which will give effect to the terms of such paragraph
or part of a paragraph to the fullest extent possible while remaining lawful and
valid.
7.5 Amendment and Waiver. This Agreement shall not be altered, amended or
modified except by written instrument executed by the Company and the Executive.
A waiver of any term, covenant, agreement or condition contained in this
Agreement shall not be deemed a waiver of any other term, covenant, agreement or
condition, and any waiver of any other term, covenant, agreement or condition,
and any waiver of any default in any such term, covenant, agreement or condition
shall not be deemed a waiver of any later default thereof or of any other term,
covenant, agreement or condition.
7.6 Notices. All notices and other communications hereunder shall be in
writing and delivered by hand or by first class registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Company: Pacific Coast Technologies, Inc.
434 Olds Station Road
Wenatchee, Washington 98801
Attn: Donald A. Wright, President
If to the Executive: Mr. Lewis L. Wear
17031 Saga Drive
Yorba Linda, California 92686
<PAGE>12
Either party may from time to time designate a new address by notice given in
accordance with this Section. Notice and communications shall be effective when
actually received by the addressee.
7.7 Counterpart Originals. This Agreement may be executed
in several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
7.8 Entire Agreement. This Agreement forms the entire agreement between the
parties hereto with respect to any severance payment and with respect to the
subject matter contained in the Agreement.
7.9 Applicable Law. The provisions of this Agreement shall
be interpreted and construed in accordance with the laws of the
State of Washington, without regard to its choice of law
principles.
7.10 Effect on Other Agreements. This Agreement shall supersede all prior
agreements, promises and representations regarding employment by the Company and
severance or other payments contingent upon termination of employment.
Notwithstanding the foregoing, the Executive shall be entitled to any other
severance plan applicable to other peer executives of the Company.
<PAGE>13
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
PACIFIC COAST TECHNOLOGIES
/s/ By: /s/ DONALD A. WRIGHT
- ---------------------------- --------------------------------
Witness Donald A. Wright, President
/s/ /s/ LEWIS L. WEAR
- ---------------------------- -----------------------------------
Witness Lewis L. Wear
<PAGE>14
EXHIBIT "A" TO EMPLOYMENT AGREEMENT
FOR LEWIS L. WEAR
STOCK OPTIONS
- -------------
Based upon the Employee's performance, as judged by the President and the
Board of Directors, stock options may be awarded at the end of each fiscal year
under the terms of the Qualified Stock Option Plan of PCT HOLDINGS, INC. Said
Options expire ten (10) years from date of grant.
Maximum
# of Shares(1) Option Price Fiscal Year
----------- ------------ -----------
5,000 $4.00/share 1996
10,000 $4.00/share 1997
15,000 $4.00/share 1998
INITIALS:
Executive /s/ LLW
-------------
Company /s/ DAW
-------------
Witness /s/
-------------
- --------------------
(1) Share amounts contemplate post-split effect of proposed 1 for 2 stock split
and the merger of PCT Holdings, Inc., a Washington corporation, into PCT
Holdings, Inc., a Nevada corporation.
<PAGE>1
PCT HOLDINGS, INC.
1994 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to
enable PCT Holdings, Inc. (the "Company") and its subsidiaries to attract and
retain experienced and able directors, officers, employees and other key
contributors (including consultants and non-employee agents) and to provide
additional incentive to these individuals to exert their best efforts for the
Company and its shareholders.
2. Administration.
2.1 Board of Directors. The Plan shall be administered by the board of
directors of the Company (the "Board of Directors"). The Board of Directors
shall determine and designate from time to time the persons to whom grants and
awards shall be made and the amounts, terms and conditions of those grants and
awards. The decisions of the Board of Directors within its authority shall be
final and binding on all parties. Subject to the provisions of the Plan, the
Board of Directors may from time to time adopt or amend rules and regulations
relating to administration of the Plan, and the interpretation and construction
of the provisions of the Plan by the Board of Directors shall be final and
conclusive. Whenever operation of the Plan requires that the fair market value
of the Company's common stock ("Stock") be determined, fair market value shall
be determined by, or in a manner approved by, the Board of Directors.
2.2 Committee. The Board of Directors may delegate to a committee of
the Board of Directors (the "Committee") any and all authority for
administration of the Plan. If a Committee is appointed, all references to the
Board of Directors in the Plan shall mean and relate to the Committee, except
that only the Board of Directors may amend, modify or terminate the Plan as
provided in paragraph 11. The decisions of the Committee within its authority
shall be final and binding on all parties. The Committee shall have at least
three members.
3. Eligibility.
3.1 General Rule. Except as provided in paragraph
3.2, grants and awards may be made under the Plan to directors,
officers, and key employees of the Company or of any parent or
subsidiary of the Company, and other key individuals such as
consultants and nonemployee agents to the Company whom the Board
<PAGE>2
of Directors believes have made or will make an essential
contribution to the Company.
3.2 Incentive Stock Option Eligibility.
3.2.1 Only employees of the Company or any parent or subsidiary
of the Company shall be eligible to receive an Incentive Stock Option under the
Plan.
3.2.2 Any employee who owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company shall be
eligible to receive an Incentive Stock Option only if both (i) the option price
at the time of grant is at least 110% of fair market value, and (ii) the option
is not exercisable more than five years from the date of the grant.
3.2.3 Limitation on Amount of Grants. No employee may be granted
Incentive Stock Options under the Plan such that the aggregate fair market
value, on the date of grant, of the Stock with respect to which Incentive Stock
Options are exercisable for the first time by that employee during any calendar
year, under the Plan and under any other incentive stock option plan (within the
meaning of I.R.C. Section 422A) of the Company or any parent or subsidiary of
the Company, exceeds $100,000.
4. Shares Subject to the Plan. Except as provided in paragraph 9, the total
number of shares of Stock that may be issued (i) upon exercise of all options
and stock appreciation rights granted under the Plan, (ii) as bonuses under the
Plan and (iii) pursuant to sales under the Plan, shall not exceed, in the
aggregate, 2,000,000 shares. If any option under the Plan or stock appreciation
right granted without a related option expires or is cancelled or terminated and
is unexercised in whole or in part, the shares allocable to the unexercised
portion shall again become available for awards under the Plan, except that
shares issued on exercise of a stock appreciation right that were allocable to
an option, or portion thereof, surrendered in connection with exercise of the
stock appreciation right shall not again become available for awards under the
Plan. If Stock sold or awarded as a bonus under the Plan is forfeited to the
Company or repurchased by the Company pursuant to applicable restrictions, the
number of shares forfeited or repurchased shall again be available under the
Plan. Stock issued under the Plan may be subject to such restrictions on
transfer, repurchase rights, or other restrictions as are determined by the
Board of Directors. The certificates representing such Stock shall bear such
legends as are determined by the Board of Directors.
<PAGE>3
5. Effective Date and Duration of Plan.
5.1 Effective Date. The Plan shall become effective when adopted by
the Board of Directors (the "Effective Date"). Options and stock appreciation
rights may be granted and stock may be awarded as bonuses or sold under the Plan
at any time after the Effective Date and before termination of the Plan.
5.2 Duration of the Plan. The Plan shall continue until, in the
aggregate, options and stock appreciation rights have been granted and exercised
and Stock has been awarded as a bonus or sold and the restrictions on any such
Stock have lapsed with respect to all shares subject to the Plan under paragraph
4 (subject to any adjustments under paragraph 9); provided, however, that no
Incentive Stock Option may be granted on or after the tenth anniversary of the
date of adoption of the Plan. The Board of Directors may suspend or terminate
the Plan at any time except with respect to options, stock appreciation rights,
bonus rights, and Stock subject to restrictions previously issued under the
Plan. Termination shall not affect any right or obligation of the Company to
repurchase, or the forfeitability of, shares issued pursuant to the Plan.
6. Grants, Awards and Sales.
6.1 Type of Stock Incentive. The Board of Directors may, from time to
time, take the following actions, separately or in combination, under the Plan:
(i) grant Incentive Stock Options, as defined in Section 422A of the Internal
Revenue Code of 1986, as amended ("I.R.C."); (ii) grant options other than
Incentive Stock Options (hereinafter "Non-Statutory Stock Options"); (iii) grant
stock appreciation rights or bonus rights; (iv) award bonuses of Stock; and (v)
sell Stock subject to restrictions. The Board of Directors shall specify in
writing the action taken with respect to each grant, award or sale of any option
or Stock under the Plan and shall specifically designate each option granted
under the Plan as an Incentive Stock Option or a Non-Statutory Stock Option.
6.2 General Rules Relating to Options.
6.2.1 Time of Exercise. Except as provided in paragraph 8,
options granted under the Plan may be exercised over the period stated in each
option in amounts and at times prescribed by the Board of Directors and stated
in the option, provided that options shall not be exercised for fractional
shares. Unless otherwise specified by an agreement between the
<PAGE>4
Company and the optionee with respect to the option, if the optionee does not
exercise an option in any period with respect to the full number of shares to
which the optionee is entitled in that period, the optionee's rights shall be
cumulative and the optionee may purchase those shares in any subsequent period
during the term of the option.
6.2.2 Purchase of Shares.
6.2.2.1 Notice of Intent to Exercise. Shares may be
purchased or acquired pursuant to an option granted under the Plan only on
receipt by the Company of notice in writing from the optionee of the optionee's
intention to exercise. The notice shall (i) specify the number of shares the
optionee desires to purchase, (ii) specify the date on which the optionee
desires to complete the transaction, which may not be more than 30 days after
receipt of the notice by the Company, and (iii) include a representation that
the optionee intends to acquire the shares for investment and not with a view to
distribution, unless in the opinion of counsel for the Company such a
representation is not required to comply with the Securities Act of 1933, as
amended.
6.2.2.2 Payment. On or before the date specified for
completion of the purchase, the optionee must have paid the Company the full
purchase price in cash, including cash that may be the proceeds of a loan from
the Company, or, if permitted by the option, in shares of Stock previously
acquired by the optionee valued at fair market value or in any combination of
cash and such shares of Stock. No shares shall be issued until full payment
therefor has been made.
6.2.2.3 Withholding. Each optionee who has exercised an
option shall, on notification of the amount due, if any, and before or
concurrently with delivery of the certificates representing the shares for which
the option was exercised, pay to the Company amounts necessary to satisfy any
applicable federal, state, and local withholding tax requirements. If additional
withholding becomes required beyond any amount deposited before delivery of the
certificates, the optionee shall pay such amount to the Company on demand. If
the employee fails to pay the amount demanded, the Company shall have the right
to withhold that amount from other amounts payable by the Company to the
optionee, including salary, subject to applicable law.
6.3 Incentive Stock Options. Incentive Stock Options
shall be subject to the following additional terms and
conditions:
<PAGE>5
6.3.1 Option Price. The option price per share under each
Incentive Stock Option granted under the Plan shall be determined by the
Committee, but shall be not less than 100 percent of the fair market value of
the shares covered by the option on the date the option is granted.
6.3.2 Duration of Options. Subject to paragraphs 6.3.4 and 8,
each Incentive Stock Option granted under the Plan shall continue in effect for
the period fixed by the Committee, but shall provide that it is not exercisable
after the expiration of 10 years from the date it is granted.
6.3.3 Limitations on Grants to 10 Percent Shareholders. An
Incentive Stock Option may be granted under the Plan to an employee possessing
more than 10 percent of the total combined voting power of all classes of stock
of the Company, or of any parent or subsidiary of the Company, only if the
option price is at least 110 percent of the fair market value of the Stock
subject to the option on the date it is granted and the option by its terms is
not exercisable after the expiration of five years from the date it is granted.
6.3.4 Eligibility for Incentive Stock Option.
Eligibility for Incentive Stock Options is limited as provided
in paragraph 3.2.
6.4 Non-Statutory Stock Options. Non-Statutory Stock
Options shall be subject to the following additional terms and
conditions:
6.4.1 Option Price. The option price per share
under each Non-Statutory Stock Option granted under the Plan
shall be determined by the Board of Directors.
6.4.2 Duration of Options. Non-Statutory Stock Options granted
under the Plan shall continue in effect for the period fixed by the Board of
Directors.
6.5 Stock Bonuses.
6.5.1 Terms, Conditions, and Restrictions. Stock awarded as a
bonus shall be subject to the terms, conditions, and restrictions determined by
the Board of Directors at the time of the award. The Board of Directors may
require the recipient to sign an agreement as a condition of the award. The
agreement may contain such terms, conditions, representations, and warranties as
the Board of Directors may require.
<PAGE>6
6.5.2 Withholding. Each employee who is awarded a stock bonus
shall, on notification of the amount due, if any, and before or concurrently
with delivery of the certificates representing the award, pay to the Company
amounts necessary to satisfy any applicable federal, state, and local
withholding tax requirements. If additional withholding becomes required beyond
any amount deposited before delivery of the certificates, the employee shall pay
such amount to the Company on demand. If the employee fails to pay the amount
demanded, the Company shall have the right to withhold that amount from other
amounts payable by the Company to the employee, including salary, subject to
applicable law.
6.6 Restricted Stock.
6.6.1 Terms, Conditions, and Restrictions. The Board of Directors
may issue shares of Stock under the Plan for such consideration (including
promissory notes and services) as it determines in accordance with the law and
with such restrictions as it determines concerning transferability, repurchase
by the Company, or forfeiture. In addition, all shares of Stock issued pursuant
to this paragraph 6.6 shall be subject to a restrictive stock transfer
agreement, which shall be executed by the Company and the prospective recipient
of the Stock before delivery of certificates representing the Stock to the
recipient. The restrictive stock transfer agreement shall contain such terms and
conditions and representations and warranties as the Board of Directors shall
require.
6.6.2 Withholding. Each employee to whom shares of Stock are
issued pursuant to this paragraph 6.6 shall, on notification of the amount due,
if any, and before or concurrently with delivery of the certificates
representing the shares, pay to the Company amounts necessary to satisfy any
applicable federal, state, and local withholding tax requirements. If additional
withholding becomes required beyond any amount deposited before delivery of the
certificates, the employee shall pay such amount to the Company on demand. If
the employee fails to pay the amount demanded, the Company shall have the right
to withhold that amount from other amounts payable by the Company to the
employee, including salary, subject to applicable law.
6.7 Stock Appreciation Rights.
6.7.1 Description. Each stock appreciation right
shall entitle the holder, on exercise, to receive from the
Company in exchange therefor an amount equal in value to the
<PAGE>7
excess of the fair market value on the date of exercise of one share of Stock
over its fair market value on the date of grant (or, in the case of a stock
appreciation right granted in connection with an option, the option price per
share under the option to which the stock appreciation right relates),
multiplied by the number of shares covered by the stock appreciation right or
the option, or portion thereof, that is surrendered.
6.7.2 Exercise. A stock appreciation right shall be exercisable
only at the time or times established by the Board of Directors. If a stock
appreciation right is granted in connection with an option, then it shall be
exercisable only to the extent and on the same conditions that the related
option is exercisable. Upon exercise of a stock appreciation right, any option
or portion thereof to which the stock appreciation right relates must be
surrendered unexercised.
6.7.3 Payment. Payment by the Company upon exercise of a stock
appreciation right may be made in shares of Stock valued at fair market value,
in cash, or partly in Stock and partly in cash, as determined by the Committee.
No fractional shares shall be issued upon exercise of a stock appreciation
right. In lieu thereof, cash may be paid in an amount equal to the value of the
fraction or, in the discretion of the Board of Directors, the number of shares
may be rounded to the next whole share.
6.7.4 Withholding. If payment by the Company of the stock
appreciation right is in cash, or partly in cash, the Company shall have the
right to withhold the amount of cash necessary to satisfy any applicable
federal, state or local withholding tax requirements. If payment by the Company
of the stock appreciation right is solely in shares of Stock or if the amount of
the payment in cash is insufficient to satisfy the withholding requirements, the
employee shall, on notification of the amount due, and before or concurrently
with delivery of the certificates representing the shares, pay to the Company
the amounts necessary to satisfy the withholding requirements. If additional
withholding becomes required beyond any amount deposited before delivery of the
certificates, the employee shall pay such amount to the Company on demand. If
the employee fails to pay the amount demanded, the Company shall have the right
to withhold that amount from other amounts payable by the Company to the
employee, including salary, subject to applicable law.
6.7.5 Adjustment. In the event of any adjustment
pursuant to paragraph 9 in the number of shares of Stock subject
to an option granted under the Plan, any stock appreciation right
<PAGE>8
granted hereunder in connection with such option shall be
proportionately adjusted.
6.8 Cash Bonus Rights.
6.8.1 Grant. The Board of Directors may grant bonus rights under
the Plan in connection with (i) an option or stock appreciation right granted or
previously granted, (ii) Stock awarded, or previously awarded, as a bonus, and
(iii) Stock sold, or previously sold, under the Plan. Bonus rights will be
subject to rules, terms, and conditions as the Committee may prescribe.
6.8.2 Bonus Rights in Connection with Options and Stock
Appreciation Rights. A bonus right granted in connection with an option will
entitle an optionee to a cash bonus when the related option is exercised (or
surrendered in connection with exercise of a stock appreciation right related to
the option) in whole or in part. A bonus right granted in connection with a
stock appreciation right will entitle the holder to a cash bonus when the stock
appreciation right is exercised. Upon exercise of an option, the amount of the
bonus shall be determined by multiplying the amount by which the total fair
market value of the shares to be acquired upon the exercise exceeds the total
option price for the shares by the applicable bonus percentage. Upon exercise of
a stock appreciation right, the bonus shall be determined by multiplying the
total fair market value of the shares or cash received pursuant to the exercise
of the stock appreciation right by the applicable bonus percentage. The bonus
percentage applicable to a bonus right shall be determined from time to time by
the Board of Directors but shall in no event exceed thirty percent.
6.8.3 Bonus Rights in Connection with Stock Bonus. A bonus right
granted in connection with Stock awarded as a bonus will entitle the person
awarded such Stock to a cash bonus either at the time the Stock is awarded or at
such time as restrictions, if any, to which the Stock is subject lapse. If Stock
awarded is subject to restrictions and is repurchased by the Company or
forfeited by the holder, the bonus right granted in connection with such Stock
shall terminate and may not be exercised. Whether any cash bonus is to be
awarded and, if so, the amount and timing of such cash bonus shall be determined
from time to time by the Board of Directors.
6.8.4 Bonus Rights in Connection with Stock
Purchase. A bonus right granted in connection with Stock purchased
hereunder (excluding Stock purchased pursuant to an
<PAGE>9
option) shall terminate and may not be exercised in the event the Stock is
repurchased by the Company or forfeited by the holder pursuant to restrictions
applicable to the Stock. The amount of cash bonus to be awarded and the time
such cash bonus is to be paid shall be determined from time to time by the Board
of Directors.
6.8.5 Withholding. The Company shall have the right to withhold
from the bonus the amount of cash necessary to satisfy any applicable federal,
state and local withholding tax requirements. If the amount of the payment in
cash is insufficient to satisfy the withholding requirements, the employee
shall, on notification of the amount due, and before or concurrently with
delivery of the certificates representing the shares, pay to the Company the
amounts necessary to satisfy the withholding requirements. If additional
withholding becomes required beyond any amount deposited before delivery of the
certificates, the employee shall pay such amount to the Company on demand. If
the employee fails to pay the amount demanded, the Company shall have the right
to withhold that amount from other amounts payable by the Company to the
employee, including salary, subject to applicable law.
7. Nontransferability. Each option and, unless otherwise determined by the
Board of Directors, each stock appreciation right or cash bonus right granted
under the Plan by its terms shall be nonassignable and nontransferable by the
holder except by will or by the laws of descent and distribution of the state or
country of the holder's domicile at the time of death. Each option and, unless
otherwise determined by the Board of Directors, each stock appreciation right or
cash bonus right by its terms shall be exercisable during the holder's lifetime
only by the holder.
8. Termination of Employment.
8.1 Retirement or General Termination. If an employee's employment by
the Company or any parent or subsidiary of the Company is terminated by
retirement or for any reason other than in the circumstances specified in 8.2
below, any option, stock appreciation right or cash bonus right held by the
employee may be exercised at any time prior to its expiration date or the
expiration of 30 days after the date of the termination, whichever is the
shorter period, but only if and to the extent the employee was entitled to
exercise the option, stock appreciation right or cash bonus right on the date of
termination. The Board of Directors may, in its discretion, extend the
expiration period beyond 30 days. Transfer of an
<PAGE>10
employee by the Company or any parent or subsidiary of the Company to the
Company or any parent or subsidiary of the Company shall not be considered a
termination for purposes of the Plan.
8.2 Death or Disability. If an employee's employment by the Company or
any parent or subsidiary of the Company is terminated because of death or
physical disability (within the meaning of I.R.C. Section 22(e)(3)), any option,
stock appreciation right or cash bonus right held by the employee may be
exercised at any time prior to its expiration date or the expiration of one year
after the date of termination, whichever is the shorter period, for the greater
of (i) the number of remaining shares for which the employee was entitled to
exercise the option, stock appreciation right or cash bonus right on the date of
termination or (ii) the number of remaining shares for which the employee would
have been entitled to exercise the option, stock appreciation right or cash
bonus right if such option or right had been 50 percent exercisable on the date
of termination. If an employee's employment is terminated by death, any option,
stock appreciation right or cash bonus right held by the employee shall be
exercisable only by the person or persons to whom the employee's rights under
the option, stock appreciation right or cash bonus right pass by the employee's
will or by the laws of descent and distribution of the state or country of the
employee's domicile at the time of death.
8.3 Termination of Unexercised Rights. To the extent an option, stock
appreciation right or cash bonus right held by any deceased employee or by any
employee whose employment is terminated is not exercised within the limited
periods provided above, all further rights to exercise the option, stock
appreciation right or cash bonus right shall terminate at the expiration of such
periods.
8.4 Termination of Non-Employees. With respect to options, stock
appreciation rights and cash bonus rights granted to persons who are not
employees of the Company, the Board of Directors may establish provisions
relating to the termination of those persons' status with the Company.
9. Changes in Capital Structure.
9.1 General Rule. If the outstanding shares of Stock are increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company or of another corporation, by reason of any
reorganization, merger, consolidation, plan of exchange, recapitalization,
reclassification, stock split, combination of
<PAGE>11
shares, or stock dividend, appropriate adjustment shall be made by the Board of
Directors in the number and kind of shares for the purchase of which options or
stock appreciation rights may be granted and for which Stock may be awarded as
bonuses or sold subject to restrictions under the Plan. In addition, subject to
paragraph 9.2, the Board of Directors shall make appropriate adjustments in the
number and kind of shares as to which outstanding options, or portions thereof
then unexercised, shall be exercisable and the number and kind of shares covered
by outstanding stock appreciation rights to the end that each optionee's
proportionate interest shall be maintained as before the occurrence of such
event. Adjustments in outstanding stock appreciation rights shall be made
without change in their total value. Any such adjustment made by the Board of
Directors shall be conclusive. In the event of dissolution or liquidation of the
Company or a merger, consolidation, or plan of exchange affecting the Company,
in lieu of making adjustments as provided for above in this paragraph 9, the
Board of Directors may, in its sole discretion, provide a 30-day period prior to
such event during which optionees shall have the right to exercise options or
stock appreciation rights and, upon expiration of such 30-day period, all
options and stock appreciation rights shall terminate.
9.2 Incentive Stock Options. Adjustments in outstanding Incentive
Stock Options shall be made without change in the total price applicable to the
unexercised portion of any option and with a corresponding adjustment in the
option price per share; provided, however, (i) the excess of the aggregate fair
market value of the shares subject to the option immediately after the
adjustment over the aggregate option price of those shares shall not be more
than the excess of the aggregate fair market value of the shares subject to the
option immediately before the adjustment over the aggregate option price of
those shares, (ii) the adjusted option shall not give the optionee additional
benefits that the optionee did not have before the adjustment, and (iii) on a
share-by-share comparison, the ratio of the option price to the fair market
value of the shares subject to the option immediately after the adjustment shall
be no more favorable to the optionee than the ratio of the option price to the
fair market value of the shares subject to the option immediately before the
adjustment.
10. Corporate Mergers, Acquisitions, Etc. The Board of Directors may also
grant options and stock appreciation rights having terms and provisions which
vary from those specified in this Plan provided that any options and stock
appreciation rights granted pursuant to this section are granted in substitution
for, or in connection with the assumption of, existing options and
<PAGE>12
stock appreciation rights granted by another corporation and assumed or
otherwise agreed to be provided for by the Company pursuant to or by reason of a
transaction involving a corporate merger, consolidation, acquisition of property
or stock, separation, reorganization or liquidation to which the Company or a
subsidiary is a party.
11. Amendment of Plan.
11.1 General Amendments. Subject to paragraphs 11.2 and 11.3, the
Board of Directors may at any time and from time to time modify or amend the
Plan in such respects as it deems advisable because of changes in the law while
the Plan is in effect or for any other reason.
11.2 Outstanding Options and Awards. After the Plan has been approved
by the shareholders and except as provided in paragraph 9, no change in an
option or stock appreciation right already granted to any person shall be made
without the written consent of such person.
11.3 Shareholder Approval. Unless approved at an annual meeting or a
special meeting by the shareholders of the Company entitled to vote thereon, no
amendment or change shall be made in the Plan (i) increasing the total number of
shares that may be issued under the Plan, or (ii) changing the class of persons
eligible to receive options under the Plan.
12. Approvals. The obligations of the Company under the Plan are subject to
the approval of state and federal authorities or agencies with jurisdiction in
the matter. The Company will use its best efforts to take steps required by
state or federal law or applicable regulations, including rules and regulations
of the Securities and Exchange Commission in connection with the granting of any
option or the issuance or sale of any shares under the Plan; provided that the
Company shall not be required to register any options or Shares under federal or
state securities laws. The foregoing notwithstanding, the Company shall not be
obligated to issue or deliver shares of Stock under the Plan if the Company is
advised by its legal counsel that such issuance or delivery would violate
applicable state or federal laws.
13. Employment Rights. Nothing in the Plan or any grant
pursuant to the Plan shall confer on any employee any right to
be continued in the employment of the Company or any parent or
subsidiary of the Company or shall interfere in any way with the
right of the Company or any parent or subsidiary of the Company
<PAGE>13
by whom such employee is employed to terminate such employee's employment at any
time, with or without cause.
14. Rights as a Shareholder. A holder of an option or a stock appreciation
right, a recipient of Stock awarded as a bonus, or a purchaser of Stock shall
have no rights as a shareholder with respect to any shares covered by any
option, stock appreciation right, bonus award, or stock purchase agreement until
the date of issue of a stock certificate to him or her for such shares. Except
as otherwise provided in the Plan, no adjustment shall be made for dividends or
other rights for which the record date is prior to the date such stock
certificate is issued.
Effective Date: May 15, 1994.
<PAGE>1
PCT Holdings, Inc.
Amended and Restated
Long-Term Stock Investment and Incentive Plan
ARTICLE I
GENERAL
1.01. Purpose.
This Amended and Restated Executive Long-Term Stock Investment Plan (the
"Plan") amends, restates and supercedes all of the provisions of the PCT
Holdings, Inc. 1994 Stock Incentive Plan which has an effective date of May 15,
1994. The purposes of the Plan are to: (1) closely associate the interests of
the management of PCT Holdings, Inc. and its Parent and Subsidiary Corporations
and Affiliates (collectively referred to as the "Company") with the shareholders
of the Company by reinforcing the relationship between participants' rewards and
shareholder gains; (2) provide management with an equity ownership in the
Company commensurate with Company performance, as reflected in increased
shareholder value; (3) maintain competitive compensation levels; and (4) provide
an incentive to management to remain in continuing employment with the Company
and to put forth maximum efforts for the success of its business.
1.02. Administration.
(a) The Board of Directors of PCT Holdings, Inc., (the "Board") shall
appoint a Committee of at least three (3) disinterested persons to administer
the Plan (the "Committee"), as constituted from time to time. The Committee
shall consist of at least two members of the Board. During the one year prior to
commencement of service on the Committee, the Committee members will not have
participated in, and while serving and for one year after serving on the
Committee, such members shall not be eligible for selection as persons to whom
stock may be allocated or to whom Options or Stock Appreciation Rights may be
granted under the Plan or any other discretionary plan of the Company under
which participants are entitled to acquire stock, Options or Stock Appreciation
Rights of the Company.
Once appointed, the Committee shall continue to serve until otherwise
directed by the Board. From time to time, the Board may increase or change the
size of the Committee, and appoint new members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, or remove all members of the Committee; provided, however, that
at no time shall any person administer the Plan who is not otherwise
"disinterested" as that term is defined in Rule 16 b-3(c)(2)(i) promulgated
under the Securities Exchange Act of 1934 (the "1934 Act"). Members of the Board
who are either presently eligible or who have been eligible at any time within
the preceding year for Options or Stock Appreciation Rights may not vote on any
matters affecting the administration of the Plan nor to the grant of any Options
or Stock Appreciation Rights pursuant to the Plan.
(b) The Committee shall have the authority without limitation, in its sole
discretion, subject to and not inconsistent with the express provisions of the
Plan, and from time to time, to:
<PAGE>2
(i) administer the Plan and to exercise all the powers and
authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan;
(ii) designate the employees or classes of employees eligible
to participate in the Plan;
(iii) grant awards provided in the Plan in such form, amount and
under such terms as the Committee shall determine;
(iv) determine the purchase price of shares of Common Stock
covered by each Option (the "Option Price");
(v) determine the Fair Market Value of Common Stock for purposes of
Options or of determining the appreciation of Common Stock with
respect to Stock Appreciation Rights;
(vi) determine the time or times at which Options and/or
Stock Appreciation Rights shall be granted;
(vii) determine the terms and provisions of the Option or Stock
Appreciation Rights Agreements (neither of which need be identical
or uniform) evidencing Options or Stock Appreciation Rights granted
under the Plan and to impose such limitations, restrictions and
conditions upon any such award as the Committee shall deem
appropriate; and
(viii) interpret the Plan, adopt, amend and rescind rules and
regulations relating to the Plan, and make all other determinations
and take all other action necessary or advisable for the
implementation and administration of the Plan.
The Committee may delegate to one or more of its members or to one or more
agents such administrative duties as it may deem advisable, and the
Committee or any delegate may employ one or more persons to render advice
with respect to any responsibility the Committee or such person may have
under the Plan.
(c) All decisions, determinations and interpretations of the Committee on
all matters relating to the Plan shall be in its sole discretion and shall be
final, binding and conclusive on all Optionees and the Company.
(d) One member of the Committee shall be elected by the Board as chairman.
The Committee shall hold its meetings at such times and places as it shall deem
advisable. All determinations of the Committee shall be made by a majority of
its members either present in person or participating by conference telephone at
a meeting or by written consent. The Committee may appoint a secretary and make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings.
(e) No member of the Board or Committee shall be liable for any action
taken or decision or determination made in good faith with respect to any
Option, Stock Appreciation Right, the Plan, or any award thereunder.
<PAGE>3
1.03. Eligibility for Participation
Participants in the Plan shall be selected by the Committee, and awards
under the Plan, as described in Section 1.04 below, may be granted to directors,
officers and key employees of the Company and to other key individuals such as
consultants, and nonemployee agents to the Company whom the Committee believes
have made or will make an essential contribution to the Company; provided,
however, that Incentive Stock Options may only be granted to executive officers
and other key employees of the Company who occupy responsible managerial or
professional positions, who have the capability of making a substantial
contribution to the success of the Company, and who agree, in writing, to remain
in the employ of, and to render services to, the Company for a period of at
least one (1) year from the date of the grant of the award. The Committee has
the authority to select particular employees within the eligible group to
receive awards under the Plan. In making this selection and in determining the
persons to whom awards under the Plan shall be granted and the form and amount
of awards under the Plan, the Committee shall consider any factors deemed
relevant in connection with accomplishing the purposes of the Plan, including
the duties of the respective persons and the value of their present and
potential services and contributions to the success, profitability and sound
growth of the Company. A person to whom an award has been granted is sometimes
referred to herein as an "Optionee." An Optionee shall be eligible to receive
more than one Option and/or Stock Appreciation Rights during the term of the
Plan, but only on the terms and subject to the restrictions hereinafter set
forth.
1.04. Types of Awards Under Plan.
Awards under the Plan may be in the form of any one or more of the
following:
(i) "Stock Options" which are nonqualified stock options, the tax
consequences of which are governed by the provisions of Section 83 of the
Internal Revenue Code (the "Code"), as described in Article II;
(ii) "Incentive Stock Options" which are statutory stock options, the tax
consequences of which are governed by Section 422 of the Code, as
described in Article III;
(iii) "Reload Options" which are also nonqualified stock options, the tax
consequences of which are governed by Section 83 of the Code, as described
in Article IV;
(iv) "Alternate Rights" which are Stock Appreciation Rights, the tax
consequences of which are governed by Section 83 of the Code, as described
in Article V; and/or
(v) "Limited Rights" which are also Stock Appreciation Rights, the tax
consequences of which are governed by Section 83 of the Code, as described
in Article VI.
<PAGE>4
(vi) "Stock Bonuses" which are compensation, the tax consequences of which
are governed by Section 83 of the Code, as described in Article VII.
(vii) "Cash Bonuses" which are compensation, the tax consequences of which
are governed by Section 61 of the Code, as described in Article VIII.
1.05. Aggregate Limitation on Awards.
(a) Except as may be adjusted pursuant to Section 9.12(i) below, shares of
stock which may be issued as Stock Bonuses or upon exercise of Options or
Alternate Rights under the Plan shall be authorized and unissued or treasury
shares of Common Stock of PCT Holdings, Inc. ("Common Stock"). The number of
shares of Common Stock PCT Holdings, Inc. shall reserve for issuance as Stock
Bonuses or upon exercise of Options or Alternate Rights to be granted from time
to time under the Plan, and the maximum number of shares of Common Stock which
may be issued under the Plan, shall not exceed in the aggregate 2,000,000
shares. In the absence of an effective registration statement under the
Securities Act of 1933 (the "Act"), all Stock Bonuses, Options and Stock
Appreciation Rights granted and shares of Common Stock subject to their exercise
will be restricted as to subsequent resale or transfer, pursuant to the
provisions of Rule 144, promulgated under the Act.
(b) For purposes of calculating the maximum number of shares of Common
Stock which may be issued under the Plan:
(i) all the shares issued (including the shares, if any, withheld for tax
withholding requirements) shall be counted when cash is used as full
payment for shares issued upon exercise of an Option;
(ii) only the shares issued (including the shares, if any, withheld for
tax withholding requirements) as a result of an exercise of Alternate
Rights shall be counted; and
(iii) only the net shares issued (including the shares, if any, withheld
for tax withholding requirements) shall be counted when shares of Common
Stock are used as full or partial payment for shares issued upon exercise
of an Option.
(iv) all shares issued (including the shares, if any, withheld for tax
withholding requirements as Stock Bonuses shall be counted.
(c) In addition to shares of Common Stock actually issued pursuant to
Stock Bonuses or the exercise of Options or Alternate Rights, there shall be
deemed to have been issued a number of shares equal to the number of shares of
Common Stock in respect of which Limited Rights shall have been exercised.
(d) Shares tendered by a participant as payment for shares issued upon
exercise of an Option shall be available for issuance under the Plan. Any shares
of Common Stock subject to an Option or Stock Appreciation Right granted without
a related Option, which for any reason is cancelled, terminated, unexercised or
expires in whole or in part shall again be available for issuance under the
Plan, but shares subject to an Option or Alternate Right which are not issued as
a result of the exercise of Limited Rights shall not again be available for
issuance under the Plan.
<PAGE>5
1.06. Effective Date and Term of Plan.
(a) The Plan shall become effective as of May 15, 1994, the date the
original 1994 Stock Incentive Plan was adopted by a majority of the Board (the
"Effective Date"), but shall be subject to approval by the holders of a majority
of the issued and outstanding shares of PCT Holdings, Inc. Common Stock present
in person or by proxy and entitled to vote at the earlier of either a Special
Meeting of Shareholders called for that purpose or the 1995 Annual Meeting of
Shareholders of PCT Holdings, Inc., which meeting shall in any event, be held
not more than twelve (12) months after adoption of the original 1994 Stock
Incentive Plan on May 15, 1994 the Board.
(b) No awards shall be granted under the Plan after or on May 15, 2004
which dated is ten (10) years after the Effective Date (the "Plan Termination
Date"). Provided, however, that the Plan and all awards made under the Plan
prior to such Plan Termination Date shall remain in effect until such awards
have been satisfied or terminated in accordance with the Plan and the terms of
such awards.
ARTICLE II
STOCK OPTIONS
2.01. Award of Stock Options.
The Committee may from time to time, and subject to the provisions of the
Plan, and such other terms and conditions as the Committee may prescribe, grant
to any participant in the Plan one or more options to purchase for cash or for
Company shares the number of shares of Common Stock allotted by the Committee
("Stock Options"). The date a Stock Option is granted shall mean the date
selected by the Committee as of which the Committee allots a specific number of
shares to a participant pursuant to the Plan.
2.02. Stock Option Agreements.
The grant of a Stock Option shall be evidenced by a written Stock Option
Agreement, executed by the Company and the holder of a Stock Option (the
"Optionee"), stating the number of shares of Common Stock subject to the Stock
Option evidenced thereby, and in such form as the Committee may from time to
time determine.
2.03 Stock Option Price.
The Option Price per share of Common Stock deliverable upon the exercise
of a Stock Option shall be 100 percent of the Fair Market Value of a share of
Common Stock on the date the Stock Option is granted.
2.04. Term and Exercise.
Each Stock Option shall be fully exercisable at any time within the period
beginning not earlier than six months after the date of its grant and, unless a
shorter period is provided by the Committee or by another Section of this Plan,
ending not later than ten years after the date of grant thereof (the "Option
Term"). No Stock Option shall be exercisable after the expiration of its Option
Term.
<PAGE>6
2.05 Manner of Payment.
Each Stock Option Agreement shall set forth the procedure governing the
exercise of the Stock Option granted thereunder, and shall provide that, upon
such exercise in respect of any shares of Common Stock subject thereto, the
Optionee shall pay to the Company, in full, the Option Price for such shares
with cash or with Common Stock previously owned by Optionee.
2.06 Restrictions on Certain Shares.
As soon as practicable after receipt of payment, the Company shall deliver
to the Optionee a certificate or certificates for such shares of Common Stock.
Upon receipt, the Optionee shall become a shareholder of the Company with
respect to Common Stock represented by share certificates so issued and as such
shall be fully entitled to receive dividends, to vote and to exercise all other
rights of a shareholder. Notwithstanding the foregoing, a number of shares of
Common Stock received upon the exercise of the Stock Options shall be subject to
certain restrictions. The number of shares subject to the restrictions shall be
equal to the total number of shares received in the exercise of the Stock
Options minus (i) the number of shares which have a Fair Market Value on the
date of the Stock Option exercise equal to the total Option Price for all the
shares received in the Stock Option exercise and (ii) the number of shares which
have a Fair Market Value on the date of the Stock Option exercise equal to the
applicable federal, state and local withholding tax on the total Stock Option
exercise and any brokerage commission or interest charges, if applicable, to the
exercise. The restrictions on these shares of Common Stock shall be as follows:
(a) The Optionee shall be prohibited from the sale, exchange, transfer,
pledge, hypothecation, gift or other disposition of such shares of Common Stock
until the earlier of the expiration of the Option Term or termination of the
Optionee's employment for any reason. Notwithstanding the foregoing, such shares
of Common Stock may be used as payment of the Option Price of shares issued upon
the exercise of other Stock Options.
(b) The restrictions shall apply to any new, additional or different
securities the Optionee may become entitled to receive with respect to such
shares by virtue of a stock spilt or stock dividend or any other change in the
corporate or capital structure of the Company.
(c) Until such time as the restrictions hereunder lapse, the share
certificate representing such shares shall contain a restrictive legend
evidencing said restrictions. Alternatively, the Optionee shall be required to
deposit the share certificate with the Company or its agent, endorsed in blank
of accompanied by a duly executed irrevocable stock power or other instrument of
transfer.
2.07. Death of Optionee.
(a) Upon the death of the Optionee, any rights to the extent exercisable
on the date of death may be exercised by the Optionee's estate, or by a person
who acquires the right to exercise such Stock Option by bequest or inheritance
or by reason of the death of the Optionee, provided that such exercise occurs
within both the remaining effective term of the Stock Option and one year after
the Optionee's death.
<PAGE>7
(b) The provisions of this Section shall apply notwithstanding the fact
that the Optionee's employment may have terminated prior to death, but only to
the extent of any rights exercisable on the date of death.
2.08 Retirement or Disability.
Upon termination of the Optionee's employment by reason of retirement or
permanent disability (as each is determined by the Committee), the Optionee may,
within 36 months from the date of termination, exercise any Stock Options to the
extent such options are exercisable during such 36- month period.
2.09 Termination for Other Reasons.
Except as provided in Sections 2.07 and 2.08, or except as otherwise
determined by the Committee, all Stock Options shall terminate three months
after the termination of the Optionee's employment.
2.10 Effect of Exercise.
The exercise of any Stock Option shall cancel that number of related
Alternate Rights and/or Limited Rights, if any, which is equal to the number of
shares of Common Stock purchased pursuant to said Stock Option.
ARTICLE III
INCENTIVE STOCK OPTIONS
3.01 Award of Incentive Stock Options.
The Committee may, from time to time and subject to the provisions of the
Plan and such other terms and conditions as the Committee may prescribe, grant
to any participant in the Plan one or more "incentive stock options" which are
intended to qualify as such under the provisions of Section 422 of the Code, to
purchase for cash or for Company shares the number of shares of Common Stock
allotted by the Committee ("Incentive Stock Options"). The date an Incentive
Stock Option is granted shall mean the date selected by the Committee as of
which the Committee shall allot a specific number of shares to a participant
pursuant to the Plan.
3.02 Incentive Stock Option Agreements.
The grant of an Incentive Stock Option shall be evidenced by a written
Incentive Stock Option Agreement, executed by the Company and the holder of an
Incentive Stock Option (the "Optionee"), stating the number of shares of Common
Stock subject to the Incentive Stock Option evidenced thereby, and in such from
as the Committee may from time to time determine.
<PAGE>8
3.03 Incentive Stock Option Price.
Except as provided in Section 3.10 below, the Option Price per share of
Common Stock deliverable upon the exercise of an Incentive Stock Option shall be
100 percent of the Fair Market Value of a share of Common Stock on the date the
Incentive Stock Option is granted.
3.04 Term and Exercise.
Except as provided in Section 3.10 below, each Incentive Stock Option
shall be fully exercisable at any time within the period beginning not earlier
than six months after the date of its grant and, unless a shorter period is
provided by the Committee or another Section of this Plan, ending not later than
ten years after the date of grant thereof (the "Option Term"). No Incentive
Stock Option shall be exercisable after the expiration of its Option Term.
3.05 Maximum Amount of Incentive Stock Option Grant.
The aggregate Fair Market Value (determined on the date the Incentive
Stock Option is granted) of Common Stock subject to an Incentive Stock Option
granted to any Optionee by the Committee in any calendar year shall not exceed
$100,000. Multiple Incentive Stock Options may be granted to an Optionee in any
calendar year, which Incentive Stock Options may in the aggregate exceed such
$100,000 Fair Market Value limitation, so long as each such Incentive Stock
Option does not exceed such $100,000 Fair Market Value limitation and so long as
no two such Incentive Stock Options may be first exercised by the Optionee in
the same calendar year.
3.06 Death of Optionee.
(a) Upon the death of the Optionee, any Incentive Stock Option exercisable
on the date of death may be exercised by the Optionee's estate or by a person
who acquires the right to exercise such Incentive Stock Option by bequest or
inheritance or by reason of the death of the Optionee, provided that such
exercise occurs within both the remaining Option Term of the Incentive Stock
Option and one year after the Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the fact
that the Optionee's employment may have terminated prior to death, but only to
the extent of any Incentive Stock Options exercisable on the date of death.
3.07 Retirement or Disability.
Upon the termination of the Optionee's employment by reason of permanent
disability or retirement (as each is determined by the Committee), the Optionee
may, within 36 months from the date of such termination of employment, exercise
any Incentive Stock Options to the extent such Incentive Stock Options were
exercisable at the date of such termination of employment. Notwithstanding the
foregoing, the tax treatment available pursuant to Section 422 of the Code, upon
the exercise of an Incentive Stock Option will not be available to an Optionee
who exercises any Incentive Stock Options more than (i) 12 months after the date
of termination of employment due to permanent disability or (ii) three months
after the date of termination of employment due to retirement.
<PAGE>9
3.08 Termination for Other Reasons.
Except as provided in Sections 3.06 and 3.07 or except as otherwise
determined by the Committee, all Incentive Stock Options shall terminate three
months after the date of termination of the Optionee's employment.
3.09 Applicability of Stock Options Sections and Other Restrictions.
Sections 2.05, Manner of Payment; 2.06, Restrictions on Certain Shares;
and 2.10, Effect of Exercise, applicable to Stock Options, shall apply equally
to Incentive Stock Options. Said Sections are incorporated by reference in this
Article III as though fully set forth herein. In addition, the Optionee shall be
prohibited from the sale, exchange, transfer, pledge, hypothecation, gift or
other disposition of the shares of Common Stock underlying the Incentive Stock
Options until the later of either two (2) years after the date of granting the
Incentive Stock Option or one (1) year after the transfer to the Optionee of
such underlying Common Stock after the Optionee's exercise of such Incentive
Stock Options.
3.10 Employee/Ten Percent Shareholders.
In the event the Committee determines to grant an Incentive Stock Option
to an employee who is also a Ten Percent Stockholder, as defined in 9.07(i)
below, (i) the Option Price shall not be less than 110 percent of the Fair
Market Value of the shares of Common Stock of the Company on the date of grant
of such Incentive Stock Option, and (ii) the exercise period shall not exceed 5
years from the date of grant of such Incentive Stock Option. Fair Market Value
shall be as defined in 7.07(c) below.
ARTICLE IV
RELOAD OPTIONS
4.01. Authorization of Reload Options.
Concurrently with the award of Stock Options and/or the award of Incentive
Stock Options to any participant in the Plan, the Committee may, subject to the
provisions of the Plan, particularly the provisions of Section 7.12 below, and
such other terms and conditions as the Committee may prescribe, authorize reload
options to purchase for cash or for Company shares a number of shares of Common
Stock allotted by the Committee ("Reload Options"). The number of Reload Options
shall equal (i) the number of shares of Common Stock used to exercise the
underlying Stock Options or Incentive Stock Options and (ii) to the extent
authorized by the Committee, the number of shares of Common Stock used to
satisfy any tax withholding requirement incident to the exercise of the
underlying Stock Options or Incentive Stock Options. The grant of a Reload
Option will become effective upon the exercise of underlying Stock Options,
Incentive Stock Options or other Reload Options through the use of shares of
Common Stock held by the Optionee for at least 12 months. Notwithstanding the
fact that the underlying Option may be an Incentive Stock Option, a Reload
Option is not intended to qualify as an "incentive stock option" under Section
422 of the Code.
<PAGE>10
4.02. Reload Option Amendment.
Each Stock Option Agreement and Incentive Stock Option Agreement shall
state whether the Committee has authorized Reload Options with respect to the
underlying Stock Options and/or Incentive Stock Options. Upon the exercise of an
underlying Stock Option, Incentive Stock Option or other Reload Option, the
Reload Option will be evidenced by an amendment to the underlying Stock Option
Agreement or Incentive Stock Option Agreement.
4.03. Reload Option Price.
The Option Price per share of Common Stock deliverable upon the exercise
of a Reload Option shall be the Fair Market Value of a share of Common Stock on
the date the grant of the Reload Option becomes effective.
4.04. Term and Exercise.
Each Reload Option is fully exercisable not earlier than six months from
the effective date of grant. The term of each Reload Option shall be equal to
the remaining Option Term of the underlying Stock Option and/or Incentive Stock
Option.
4.05. Termination of Employment.
No additional Reload Options shall be granted to Optionees when Stock
Options, Incentive Stock Options and/or Reload Options are exercised pursuant to
the terms of this Plan following termination of the Optionee's employment.
4.06. Applicability of Stock Options Sections.
Sections 2.05, Manner of Payment; 2.06, Restrictions on Certain Shares;
2.07, Death of Optionee; 2.08, Retirement or Disability; 2.09, Termination for
Other Reasons; and 2.10, Effect of Exercise, applicable to Stock Options, shall
apply equally to Reload Options. Said Sections are incorporated by reference in
this Article IV as though fully set forth herein.
ARTICLE V
ALTERNATE STOCK APPRECIATION RIGHTS
5.01. Award of Alternate Rights.
Concurrently with or subsequent to the award of any Option to purchase one
or more shares of Common Stock, the Committee may, subject to the provisions of
the Plan and such other terms and conditions as the Committee may prescribe,
award to the Optionee with respect to each share of Common Stock, a related
alternate stock appreciation right, permitting the Optionee to be paid the
appreciation on the Option in Common Stock in lieu of exercising the Option
("Alternate Right").
<PAGE>11
5.02. Alternate Rights Agreement.
Alternate Rights shall be evidenced by written agreements in such form as
the Committee may from time to time determine.
5.03. Term and Exercise.
An Optionee who has been granted Alternate Rights may, from time to time,
in lieu of the exercise of an equal number of Options, elect to exercise one or
more Alternate Rights and thereby become entitled to receive from the Company
payment in Common Stock the number of shares determined pursuant to Sections
5.04 and 5.05. Alternate Rights shall be exercisable only to the same extent and
subject to the same conditions and within the same Option Terms as the Options
related thereto are exercisable, as provided in this Plan. The Committee may, in
its discretion, prescribe additional conditions to the exercise of any Alternate
Rights.
5.04. Amount of Payment.
The amount of payment to which an Optionee shall be entitled upon the
exercise of each Alternate Right shall be equal to 100 percent of the amount, if
any, by which the Fair Market Value of a share of Common Stock on the exercise
date exceeds the Fair Market Value of a share of Common Stock on the date the
Option related to said Alternate Right was granted or became effective, as the
case may be.
5.05. Form of Payment.
Upon exercise of Alternate Rights, the Company shall pay Optionee the
amount of payment determined pursuant to Section 5.04 in Common Stock. The
number of shares to be paid shall be determined by dividing the amount of
payment determined pursuant to Section 5.04 by the Fair Market Value of a share
of Common Stock on the exercise date of such Alternate Rights. As soon as
practicable after exercise, the Company shall deliver to the Optionee a
certificate or certificates for such shares of Common Stock. All such shares
shall be issued with the rights and restrictions specified in Section 2.06.
5.06. Effect of Exercise.
The exercise of any Alternate Rights shall cancel an equal number of Stock
Options, Incentive Stock Options, Reload Options and Limited Rights, if any,
related to said Alternate Rights.
5.07. Retirement or Disability.
Upon termination of the Optionee's employment (including employment as a
director of the Company after an Optionee terminates employment as an officer or
key employee of the Company) by reason of permanent disability or retirement (as
each is determined by the Committee), the Optionee may, within six months from
the date of such termination, exercise any Alternate Rights to the extent such
Alternate Rights are exercisable during such six-month period.
<PAGE>12
5.08. Death of Optionee or Termination for Other Reasons.
Except as provided in Section 5.07, or except as otherwise determined by
the Committee, all Alternate Rights shall terminate three months after the date
of termination of the Optionee's employment or upon the death of the Optionee.
ARTICLE VI
LIMITED RIGHTS
6.01. Award of Limited Rights.
Concurrently with or subsequent to the award of an Option or Alternate
Right, the Committee may, subject to the provisions of the Plan and such other
terms and conditions as the Committee may prescribe, award to the Optionee with
respect to each share of Common Stock underlying such Option or Alternate Right,
a related limited right permitting the Optionee, during a specified limited time
period, to be paid the appreciation on the Option in cash in lieu of exercising
the Option ("Limited Right").
6.02. Limited Rights Agreement.
Limited Rights granted under the Plan shall be evidenced by written
agreements in such form as the Committee may from time to time determine.
6.03. Term and Exercise.
An Optionee who has been granted Limited Rights may, from time to time, in
lieu of the exercise of an equal number of options and Alternate Rights related
thereto, elect to exercise one or more Limited Rights and thereby become
entitled to receive from the Company payment in cash the amount determined
pursuant to Sections 6.04 and 6.05. Limited Rights shall be exercisable only to
the same extent and subject to the same conditions and within the same Option
Terms as the Options related thereto are exercisable, as provided in this Plan.
The Committee may, in its discretion, prescribe additional conditions to the
exercise of any Limited Rights.
Notwithstanding anything above to the contrary, Limited Rights are
exercisable in full for a period of seven months following the date of a Change
in Control of the Company, (the "Exercise Period"); provided, however, that
Limited Rights may not be exercised under any circumstances until the expiration
of the six-month period following the date of grant.
As used in the Plan, a "Change of Control" shall be deemed to have
occurred if (a) individuals who are currently directors of PCT Holdings, Inc.
immediately prior to a Control Transaction shall cease, within one year of such
Control Transaction, to constitute a majority of the Board (or of the Board of
Directors of any successor to PCT Holdings, Inc. or to all or substantially all
of its assets), or any entity, person or Group other than PCT Holdings, Inc. or
a Subsidiary Corporation of PCT Holdings, Inc. acquires shares of PCT Holdings,
Inc. in a transaction or series of transactions that result in such entity,
person or Group directly or indirectly owning beneficially fifty-one percent (51
percent) or more of the outstanding shares of PCT Holdings, Inc.
<PAGE>13
As used herein, "Control Transaction" shall be (i) any tender offer for or
acquisition of capital stock of PCT Holdings, Inc., (ii) any merger,
consolidation, reorganization or sale of all or substantially all of the assets
of PCT Holdings, Inc. which has been approved by the shareholders, (iii) any
contested election of directors of PCT Holdings, Inc. or (iv) any combination of
the foregoing which results in a change in voting power sufficient to elect a
majority of the Board. As used herein, "Group" shall mean persons who act in
concert as described in Sections 13(d)(3) and/or 14(d)(2) of the Securities
Exchange Act of 1934, as amended.
6.04. Amount of Payment.
The amount of payment to which an Optionee shall be entitled upon the
exercise of each Limited Right shall be equal to 100 percent of the amount, if
any, which is equal to the difference between the Fair Market Value per share of
Common Stock covered by the related Option on the date the Option was granted
and the Fair Market Value per share of such Common Stock on the exercise date.
6.05. Form of Payment.
Payment of the amount to which an Optionee is entitled upon the exercise
of Limited Rights, as determined pursuant to Section 6.04, shall be paid by the
Company solely in cash.
6.06. Effect of Exercise.
If Limited Rights are exercised, the Options and Alternate Rights, if any,
related to such Limited Rights cease to be exercisable to the extent of the
number of shares with respect to which the Limited Rights were exercised. Upon
the exercise or termination of the Options and Alternate Rights, if any, related
to such Limited Rights, the Limited Rights granted with respect thereto
terminate to the extent of the number of shares as to which the related Options
and Alternate Rights were exercised or terminated.
6.07. Retirement or Disability.
Upon termination of the Optionee's employment (including employment as a
director of this Company after an Optionee terminates employment as an officer
or key employee of this Company) by reason of permanent disability or retirement
(as each is determined by the Committee), the Optionee may, within six months
from the date of termination, exercise any Limited Right to the extent such
Limited Right is exercisable during such six-month period.
6.08. Death of Optionee or Termination for Other Reasons.
Except as provided in Sections 6.07 and 6.09, or except as otherwise
determined by the Committee, all Limited Rights granted under the Plan shall
terminate three months after the date of termination of the Optionee's
employment or upon the death of the Optionee.
6.09. Termination Related to a Change in Control.
The requirement that an Optionee be terminated by reason of retirement or
permanent disability or be employed by the Company at the time of exercise
pursuant to Sections 6.07 and 6.08 respectively, is waived during the Exercise
Period as to any Optionee who (i) was employed by the Company at the time of the
Change in Control and (ii) is subsequently
<PAGE>14
terminated by the Company other than for just cause or who voluntarily
terminates if such termination was the result of a good faith determination by
the Optionee that as a result of the Change in Control he is unable to
effectively discharge his present duties or the duties of the position which he
occupied just prior to the Change in Control. As used herein "just cause" shall
mean willful misconduct or dishonesty or conviction of or failure to contest
prosecution for a felony, or excessive absenteeism unrelated to illness.
ARTICLE VII
STOCK BONUSES
7.01 Terms, Conditions and Restrictions.
The Committee may from time to time, and subject to the provisions of the
Plan and such other terms and conditions as the Committee may prescribe, grant
to any participant in the Plan one or more Stock Bonuses as compensation the
number of shares of Common Stock allotted by the Committee ("Stock Bonuses").
Stock awarded as a Stock Bonus shall be subject to the terms, conditions and
restrictions determined by the Committee at the time of the award. The Committee
may require the recipient to sign an agreement as a condition of the award.
The agreement may contain such terms, conditions, representations, and
warranties as the Committee may require.
ARTICLE VIII
CASH BONUSES
8.01 Grant.
The Committee may from time to time, and subject to the provisions of the
Plan and such other terms and conditions as the Committee may prescribe, grant
to any participant in the Plan one or more cash bonuses as compensation ("Cash
Bonuses"). The Committee may grant Cash Bonuses under the Plan outright or in
connection with (i) an Option or Stock Appreciation Right granted or previously
granted or (ii) a Stock Bonus awarded, or previously awarded. Bonuses will be
subject to rules, terms, and conditions as the Committee may prescribe.
8.02 Cash Bonuses in Connection with Options and Stock Appreciation
Rights.
Cash Bonuses granted in connection with Options will entitle an Optionee
to a Cash Bonus when the related Option is exercised (or surrendered in
connection with exercise of a Stock Appreciation Right related to the option) in
whole or in part. Cash Bonuses granted in connection with Stock Appreciation
Rights will entitle the holder to a Cash Bonus when the Stock Appreciation Right
is exercised. Upon exercise of an Option, the amount of the Cash Bonus shall be
determined by multiplying the amount by which the total Fair Market Value of the
shares to be acquired upon the exercise exceeds the total Option Price for the
shares by the applicable bonus percentage. Upon exercise of a Stock Appreciation
Right, the cash bonus shall be determined by multiplying the total Fair Market
Value of the shares or cash received pursuant to the exercise of the Stock
Appreciation Right by the applicable
<PAGE>15
bonus percentage. The bonus percentage applicable to a Cash Bonus shall be
determined from time to time by the Committee but shall in no event exceed
thirty percent.
8.03 Cash Bonuses in Connection with Stock Bonuses.
Cash Bonuses granted in connection with Stock Bonuses will entitle the
person awarded such Stock Bonuses to a Cash Bonus either at the time the Stock
Bonus is awarded or at such time as restrictions, if any, to which the Stock
Bonus is subject lapse. If a Stock Bonus awarded is subject to restrictions and
is repurchased by the Company or forfeited by the holder, the Cash Bonus granted
in connection with such Stock Bonus shall terminate and may not be exercised.
Whether any Cash Bonus is to be awarded and, if so, the amount and timing of
such Cash Bonus shall be determined from time to time by the Committee.
ARTICLE IX
MISCELLANEOUS
9.01. General Restriction.
Each award under the Plan shall be subject to the requirement that, if at
any time the Committee shall determine that (i) the listing, registration or
qualification of the shares of Common Stock subject or related thereto upon any
securities exchange or under any state or Federal law, or (ii) the consent or
approval of any government regulatory body, or (iii) an agreement by the grantee
of an award with respect to the disposition of shares of Common Stock, is
necessary or desirable as a condition of, or in connection with, the granting of
such award or the issue or purchase of shares of Common Stock thereunder, such
award may not be exercised or consummated in whole or in part unless and until
such listing, registration, qualification, consent, approval or agreement shall
have been effected or obtained free of any conditions not acceptable to the
Committee.
9.02. Non-Assignability.
No award under the Plan shall be assignable or transferable by the
recipient thereof, except by Will or by the laws of descent and distribution.
During the life of the recipient, such award shall be exercisable only by such
person or by such person's guardian or legal representative.
9.03. Withholding Taxes.
Whenever the Company proposes or is required to issue or transfer shares
of Common Stock under the Plan, the Company shall, to the extent permitted or
required by law, have the right to require the grantee, as a condition of
issuance of a Stock Bonus or exercise of its Options or Stock Appreciation
Rights, to remit to the Company no later than the date of issuance or exercise,
or make arrangements satisfactory to the Committee regarding payment of, any
amount sufficient to satisfy any Federal, state and/or local taxes of any kind,
including, but not limited to, withholding tax requirements prior to the
delivery of any certificate or certificates for such shares. If the participant
fails to pay the amount required by the Committee, the Company shall have the
right to withhold such amount from other amounts payable by the Company to the
participant, including but not limited to, salary, fees or benefits, subject to
applicable law. Alternatively, the Company may issue
<PAGE>16
or transfer such shares of Common Stock net of the number of shares sufficient
to satisfy any such taxes, including, but not limited to, the withholding tax
requirements. For withholding tax purposes, the shares of Common Stock shall be
valued on the date the withholding obligation is incurred.
9.04. Right to Terminate Employment.
Nothing in the Plan or in any agreement entered into pursuant to the Plan
shall confer upon any participant the right to continue in the employment of the
Company or effect any right which the Company may have to terminate the
employment of such participant.
9.05. Non-Uniform Determinations.
The Committee's determinations under the Plan (including without
limitation determinations of the persons to receive awards, the form, amount and
timing of such awards, the terms and provisions of such awards and the
agreements evidencing same) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, awards under
the Plan, whether or not such persons are similarly situated.
9.06. Rights as a Shareholder.
The recipient of any award under the Plan shall have no rights as a
shareholder with respect thereto unless and until certificates for shares of
Common Stock are issued to him or her.
9.07. Definitions.
As used in this Plan, the following words and phrases shall have the
meanings indicated in the following definitions:
(a) "AFFILIATE" means any person or entity which directly, or indirectly
through one or more intermediaries, controls, is controlled by, or
is under common control with PCT Holdings, Inc.
(b) "DISABILITY" shall mean an Optionee's inability to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in
death or that has lasted or can be expected to last for a continuous
period of not less than one year.
(c) "FAIR MARKET VALUE" per share in respect of any share of Common
Stock as of any particular date shall mean (i) the closing
sales price per share of Common Stock reflected on a national
securities exchange for the last preceding date on which there
was a sale of such Common Stock on such exchange; or (ii) if
the shares of Common Stock are then traded on an over-the-
counter market, the average of the closing bid and asked prices
for the shares of Common Stock in such over-the-counter market
for the last preceding date on which there was a sale of such
Common Stock in such market; or (iii) in case no reported sale
takes place, the average of the closing bid and asked prices on
the National Association of Securities Dealers'
<PAGE>17
Automated Quotations System ("NASDAQ") or any comparable system, or
if the shares of Common Stock are not listed on NASDAQ or comparable
system, the closing sale price or, in case no reported sale takes
place, the average of the closing bid and asked prices, as furnished
by any member of the National Association of Securities Dealers,
Inc. selected from time to time by the Company for that purpose; or
(iv) if the shares of Common Stock are not then listed on a national
securities exchange or traded in an over-the-counter market, such
value as the Committee in its discretion may determine in any such
other manner as the Committee may deem appropriate. In no event
shall the Fair Market Value of any share of Common Stock be less
than its par value.
(d) "OPTION" means Stock Option, Incentive Stock Option or Reload
Option.
(e) "OPTION PRICE" means the purchase price per share of Common Stock
deliverable upon the exercise of an Option.
(f) "PARENT CORPORATION" shall mean any corporation (other than PCT
Holdings, Inc.) in an unbroken chain of corporations ending
with the Optionee's employer corporation if, at the time of
granting an Option, each of the corporations other than the
Optionee's employer corporation owns stock possessing 50
percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such
chain.
(g) "STOCK APPRECIATION RIGHT" shall mean Alternate Right or
Limited Right.
(h) "SUBSIDIARY CORPORATION" shall mean any corporation (other than
PCT Holdings, Inc.) in an unbroken chain of corporations
beginning with the Optionee's employer corporation if, at the
time of granting an Option, each of the corporations other than
the last corporation in the unbroken chain owns stock
possessing 50 percent or more of the total combined voting
power of all classes of stock in one of the other corporations
in such chain.
(i) "TEN PERCENT STOCKHOLDER" shall mean an Optionee who, at the time an
Incentive Stock Option is granted, is an employee of the Company who
owns stock possessing more than ten percent (10 percent) of the
total combined voting power of all classes of stock of the Company
or of its Parent or Subsidiary Corporations.
9.08. Leaves of Absence and Performance Targets.
The Committee shall be entitled to make such rules, regulations and
determinations as it deems appropriate under the Plan in respect of any leave of
absence taken by the recipient of any award. Without limiting the generality of
the foregoing, the Committee shall be entitled to determine (i) whether or not
any such leave of absence shall constitute a termination of employment within
the meaning of the Plan and (ii) the impact, if any, of such leave of absence on
awards under the Plan theretofore made to any recipient who takes such leave of
absence. The Committee shall also be entitled to make such determination of
<PAGE>18
performance targets, if any, as it deems appropriate and to impose them upon an
Optionee as a condition of continued employment.
9.09. Newly Eligible Employees.
The Committee shall be entitled to make such rules, regulations,
determinations and awards as it deems appropriate in respect of any employee who
becomes eligible to participate in the Plan or any portion thereof, after the
commencement of an award or incentive period.
9.10. Adjustments.
In the event of any change in the outstanding Common Stock by reason of a
stock dividend or distribution, recapitalization, merger, consolidation,
split-up, combination, exchange of shares or the like, the Committee may
appropriately adjust the number of shares of Common Stock which may be issued
under the Plan, the number of shares of Common Stock subject to Options
theretofore granted under the Plan, the Option Price of Options theretofore
granted under the Plan, the amount of Restricted Stock Units theretofore awarded
under the Plan, the performance targets referred to in Section 9.08 and any and
all other matters deemed appropriate by the Committee.
9.11. Amendment of the Plan.
(a) The Committee may, without further action by the shareholders and
without receiving further consideration from the participants, amend this Plan
or condition or modify awards under this Plan in response to changes in
securities, tax or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock exchange
rules or requirements.
(b) The Committee may at any time and from time to time terminate or
modify or amend the Plan in any respect, except that without shareholder
approval the Committee may not (i) increase the maximum number of shares of
Common Stock which may be issued under the Plan (other than increases pursuant
to Section 9.10), (ii) extend the period during which any award may be granted
or exercised, or (iii) extend the term of the Plan. The termination or any
modification or amendment of the Plan, except as provided in subsection (a),
shall not without the consent of a participant, affect his other rights under an
award previously granted to him or her.
9.12. General Terms and Conditions of Options.
Each Option shall be evidenced by a written Option Agreement between the
Company and the Optionee, which agreement, unless otherwise stated in Articles
II, III or IV of the Plan, shall comply with and be subject to the following
terms and conditions:
(a) Number of Shares. Each Option Agreement shall state the number
of shares of Common Stock to which the Option relates.
(b) Type of Option. Each Option Agreement shall specifically
identify the portion, if any, of the Option which constitutes an Incentive
Stock Option and the portion, if any, which constitutes a Non-qualified
Stock Option in the form of either a Stock Option or a Reload Option.
<PAGE>19
(c) Option Price. Each Option Agreement shall state the Option Price
which, in the case of Incentive Stock Options (except to the extent
provided in Article III above), shall be not less than 100 percent of the
Fair Market Value of the shares of Common Stock of the Company on the date
of grant of the Option. The Option Price shall be subject to adjustment as
provided in 9.12(i) hereof. The date on which the Committee adopts a
resolution expressly granting an Option shall be considered the day on
which such Option is granted. No Options shall be granted under the Plan
more than 10 years after the date of adoption of the Plan by the Board,
but the validity of Options previously granted may extend and be validly
exercised beyond that date. Except as provided in Section 3.10 above,
Options granted under the Plan shall be for a period determined by the
Committee as provided in Section 9.12(e), below.
(d) Medium and Time of Payment. The Option Price shall be paid in
full at the time of exercise in cash or in shares of Common Stock having a
Fair Market Value equal to such Option Price or in a combination of cash
and such shares, and may be effected in whole or in part (i) with monies
received from the Company at the time of exercise as a compensatory cash
payment, or (ii) with monies borrowed from the Company pursuant to
repayment terms and conditions as shall be determined from time to time by
the Committee, in its discretion, separately with respect to each exercise
of Options and each Optionee; provided, however, that each such method and
time for payment and each such borrowing and terms and conditions of
repayment shall be permitted by and be in compliance with applicable law,
and provided, further, if the Option Price is paid with monies borrowed
from the Company, such fact shall be noted conspicuously on the
certificate evidencing such shares in accordance with applicable law.
(e) Term and Exercise of Options. Options shall be exercisable over
the exercise period as and at the times and upon the conditions that the
Committee may determine, as reflected in the Option Agreement; provided,
however, that the Committee shall have the authority to accelerate the
exercisability of any outstanding Option at such time and under such
circumstances, as it, in its sole discretion, deems appropriate. The
exercise period shall be determined by the Committee for all Options;
provided, however that such exercise period shall not exceed 10 years from
the date of grant of such Option. The exercise period shall be subject to
earlier termination as provided in Sections 9.12(f) and 9.12(g) hereof. An
Option may be exercised, as to any or all full shares of Common Stock as
to which the Option has become exercisable, by giving written notice of
such exercise to the Committee; provided, however, that an Option may not
be exercised at any one time as to fewer than 100 shares (or such number
of shares as to which the Option is then exercisable if such number of
shares is less than 100).
(f) Termination. Except as provided in Section 9.12(e) and in this
Section 9.12(f) hereof, an Option may not be exercised unless the Optionee
is then in the employ of the Company or a Parent, division or Subsidiary
Corporation (or a corporation issuing or assuming the Option in a
transaction to which Code Section 424(a) applies), and unless the Optionee
has remained continuously so employed since the date of grant of the
Option. If the employment of an Optionee shall terminate (other than by
reason of death, disability or retirement), all Options of such Optionee
that are exercisable at the time of such termination may, unless earlier
terminated
<PAGE>20
in accordance with their terms, be exercised within three months after
such termination; provided, however, that if the employment of an Optionee
shall terminate for cause, all Options theretofore granted to such
Optionee shall, to the extent not theretofore exercised, terminate
forthwith. Nothing in the Plan or in any Option shall limit the Company's
rights under Section 9.04 above. No Option may be exercised after the
expiration of its term.
(g) Death, Disability or Retirement. If an Optionee shall die while
employed by the Company, a Parent or a Subsidiary Corporation thereof, or
die within three months after the termination of such Optionee's
employment other than for cause, or if the Optionee's employment shall
terminate by reason of disability or retirement, all Options theretofore
granted to such Optionee (to the extent otherwise exercisable) may, unless
earlier terminated in accordance with their terms, be exercised by the
Optionee or by the Optionee's estate or by a person who acquired the right
to exercise such Option by bequest or inheritance or otherwise by reason
of the death or disability of the Optionee, at any time within one year
after the date of death, disability or retirement of the Optionee.
(h) Non-transferability of Options. Options granted under the Plan
shall not be transferable otherwise than (i) by will; (ii) by the laws of
descent and distribution; or (iii) to a revocable inter vivos trust for
the primary benefit of the Optionee and his or her spouse. Options may be
exercised, during the lifetime of the Optionee, only by the Optionee, his
or her guardian, legal representative or the Trustee of an above described
trust. Except as permitted by the preceding sentences, no Option granted
under the Plan or any of the rights and privileges thereby conferred shall
be transferred, assigned, pledged, or hypothecated in any way (whether by
operation of law or otherwise), and no such Option, right, or privilege
shall be subject to execution, attachment, or similar process. Upon any
attempt so to transfer, assign, pledge, hypothecate, or otherwise dispose
of the Option, or of any right or privilege conferred thereby, contrary to
the provisions of this Plan, or upon the levy of any attachment or similar
process upon such Option, right, or privilege, the Option and such rights
and privileges shall immediately become null and void.
(i) Effect of Certain Changes.
(i) If there is any change in the number of shares of Common
Stock through the declaration of stock dividends, or through
recapitalization resulting in stock splits, or combinations or
exchanges of such shares, the number of shares of Common Stock
available for awards under the Plan pursuant to Section 1.05 above,
the number of such shares covered by the outstanding Options and the
price per share of such Options shall be proportionately adjusted by
the Committee to reflect any increase or decrease in the number of
issued shares of Common Stock; provided, however, that any
fractional shares resulting from such adjustment shall be
eliminated.
(ii) In the event of the proposed dissolution or liquidation
of the Company, in the event of any corporate separation or
division, including, but not limited to split-up, split-off or
spin-off, or in the event of a merger, consolidation or other
reorganization of the Corporation with another corporation, the
Committee may provide that the holder of each Option then
exercisable shall have the right to exercise such Option (at its
then Option
<PAGE>21
Price) solely for the kind and amount of shares of stock and other
securities, property, cash or any combination thereof receivable
upon such dissolution, liquidation, or corporate separation or
division, or merger, consolidation or other reorganization by a
holder of the number of shares of Common Stock for which such Option
might have been exercised immediately prior to such dissolution,
liquidation, or corporate separation or division, or merger,
consolidation or other reorganization; or the Committee may provide,
in the alternative, that each Option granted under the Plan shall
terminate as of a date to be fixed by the Committee; provided,
however, that not less than 90- days' written notice of the date so
fixed shall be given to each Optionee, who shall have the right,
during the period of 90 days preceding such termination, to exercise
the Options as to all or any part of the shares of Common Stock
covered thereby, including shares as to which such Options would not
otherwise be exercisable; provided, further, that failure to provide
such notice shall not invalidate or affect the action with respect
to which such notice was required.
(iii) If while unexercised Options remain outstanding under
the Plan, the stockholders of the Corporation approve a definitive
agreement to merge, consolidate or otherwise reorganize the Company
with or into another corporation or to sell or otherwise dispose of
all or substantially all of its assets, or adopt a plan of
liquidation (each, a "Disposition Transaction"), then the Committee
may a) make an appropriate adjustment to the number and class of
shares available for awards under the Plan pursuant to Section 1.05
above, and to the amount and kind of shares or other securities or
property (including cash) receivable upon exercise of any
outstanding options after the effective date of such transaction,
and the price thereof, or, in lieu of such adjustment, provide for
the cancellation of all options outstanding at or prior to the
effective date of such transaction; b) provide that exercisability
of all Options shall be accelerated, whether or not otherwise
exercisable; or c) in its discretion, permit Optionees to surrender
outstanding options for cancellation; provided, however, that if the
stockholders approve such Disposition Transaction within five (5)
years of the date of adoption of this Plan and before the Company is
taken public, the Committee shall provide for the alternative in b)
above. Upon any cancellation of an outstanding Option pursuant to
this 9.12(i)(iii), the Optionee shall be entitled to receive, in
exchange therefor, a cash payment under any such Option is an amount
per share determined by the Committee in its sole discretion, but
not less than the difference between the per share exercise price of
such Option and the Fair Market Value of a share of Company Common
Stock on such date as the Committee shall determine:
(iv) Paragraphs (ii) and (iii) of this Section 9.12(i) shall
not apply to a merger, consolidation or other reorganization in
which the Company is the surviving corporation and shares of Common
Stock are not converted into or exchanged for stock, securities of
any other corporation, cash or any other thing of value.
Notwithstanding the preceding sentence, in case of any
consolidation, merger or other reorganization of another corporation
into the Company in which the Company is the surviving corporation
and in which there is a reclassification or change (including a
change to the right to receive cash or other property) of the shares
of Common Stock (other than a change
<PAGE>22
in par value, or from par value to no par value, or as a result of a
subdivision or combination, but including any change in such shares
into two or more classes or series of shares), the Committee may
provide that the holder of each Option then exercisable shall have
the right to exercise such Option solely for the kind and amount of
shares of stock and other securities (including those of any new
direct or indirect parent of the Company), property, cash or any
combination thereof receivable upon such reclassification, change,
consolidation or merger by the holder of the number of shares of
Common Stock for which such Option might have been exercised.
(v) In the event of a change in the Common Stock of the
Company as presently constituted which is limited to a change of all
of its authorized shares with par value into the same number of
shares with a different par value or without par value, the shares
resulting from any such change shall be deemed to be the Common
Stock within the meaning of the Plan.
(vi) To the extent that the foregoing adjustments relate to
stock or securities of the Company, such adjustments shall be made
by the Committee, whose determination in that respect shall be
final, binding and conclusive, provided that each Incentive Stock
Option granted pursuant to Article III of this Plan shall not be
adjusted in a manner that causes such option to fail to continue to
qualify as an Incentive Stock Option within the meaning of Section
422 of the Code.
(vii) Except as hereinbefore expressly provided in this
Section 9.12(i), the Optionee shall have no rights by reason of any
subdivision or consolidation of shares of stock or any class or the
payment of any stock dividend or any other increase or decrease in
the number of shares of stock of any class or by reason of any
dissolution, liquidation, merger, consolidation or other
reorganization or spin-off of assets or stock of another
corporation; and any issue by the Company of shares of stock of any
class shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number of price of shares of Common Stock
subject to the Option. The grant of an Option pursuant to the Plan
shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of
its capital or business structures or to merge or to consolidate or
to dissolve, liquidate or sell, or transfer all or part of its
business or assets.
(j) Rights as a Shareholder. An Optionee or a transferee of an
Option shall have no right as a shareholder with respect to any shares
covered by the Option until the date of the issuance of a certificate
evidencing such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property)
or distribution of other rights for which the record date is prior to the
date such certificate is issued, except as provided in Section 9.12(i)
hereof.
(k) Other Provisions. The Option Agreement authorized under the Plan
shall contain such other provisions, including, without limitation, (i)
the imposition of restrictions upon the exercise of an Option; (ii) in the
case of an Incentive Stock Option, the inclusion of any condition not
inconsistent with such Option qualifying as an Incentive Stock Option; and
(iii) conditions relating to compliance with applicable federal and state
securities laws, as the Committee shall deem advisable.
<PAGE>23
9.13. Effects of Headings
The Section and Subsection headings contained herein are for convenience
only and shall not affect the construction hereof.
APPROVED BY THE SHAREHOLDERS ON THE 8TH DAY OF FEBRUARY, 1995.
/s/ NICKOLAI A. GERDE
---------------------------------------
Nickolai A. Gerde
Vice President and
Chief Financial Officer
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
CALCULATION OF LOSS PER SHARE
YEAR
ENDED
MAY 31,
1995 1994
------------ ------------
NET LOSS $(1,410,715) $(1,098,007)
NET LOSS PER SHARE $ (0.41) $ (0.60)
------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON 3,468,741 1,826,423
SHARES OUTSTANDING
<PAGE>1
Exhibit 21
LIST OF SUBSIDIARIES
PCT Holdings, Inc., a Washington corporation and a wholly-owned subsidiary of
the Company ("PCTH-Washington").
Cashmere Manufacturing Co., Inc., a Washington corporation and wholly-owned
subsidiary of PCTH-Washington.
Pacific Coast Technologies, Inc., a Washington corporation and wholly-owned
subsidiary of PCTH-Washington.
Ceramic Devices, Inc., a Washington corporation and a wholly-owned subsidiary of
the Company.
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Annual Report of PCT Holdings, Inc., on
Form 10-KSB of our report dated July 14, 1995, incorporated by reference
and included as part of this Annual Report.
MOSS ADAMS LLP
Everett, Washington
August 25, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE AUDITED FINANCIAL STATEMENTS OF PCT HOLDINGS, INC. AND
ITS SUBSIDIARIES FOR THE TWELVE MONTH PERIOD ENDED MAY 31,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> MAY-31-1995
<CASH> 1,078,637
<SECURITIES> 0
<RECEIVABLES> 1,075,999
<ALLOWANCES> 45,000
<INVENTORY> 4,375,162
<CURRENT-ASSETS> 6,848,314
<PP&E> 4,577,734
<DEPRECIATION> 1,569,612
<TOTAL-ASSETS> 11,629,912
<CURRENT-LIABILITIES> 5,089,532
<BONDS> 1,086,210
<COMMON> 11,018,406
0
0
<OTHER-SE> (5,564,236)
<TOTAL-LIABILITY-AND-EQUITY> 11,629,912
<SALES> 11,035,595
<TOTAL-REVENUES> 11,035,595
<CGS> 9,092,157
<TOTAL-COSTS> 11,881,097
<OTHER-EXPENSES> 806,213
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 356,360
<INCOME-PRETAX> (845,502)
<INCOME-TAX> (241,000)
<INCOME-CONTINUING> (1,410,715)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,410,715)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
