<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1996
REGISTRATION NO. 333-5011
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PCT HOLDINGS, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
NEVADA 3679 87-0431483
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation)
</TABLE>
434 OLDS STATION ROAD, WENATCHEE, WASHINGTON 98801
(509) 664-8000
(Address and telephone number of
Registrant's principal executive offices and principal place of business)
DONALD A. WRIGHT
PRESIDENT
434 OLDS STATION ROAD
WENATCHEE, WASHINGTON 98801
(509) 664-8000
(Name, address, and telephone number of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
Sheryl A. Symonds Mark A. von Bergen
L. John Stevenson, Jr. W. Wells Talmadge
Eugenie D. Mansfield Weiss, Jensen, Ellis & Howard
Stoel Rives LLP 2300 U.S. Bancorp Tower
3600 Union Square 111 S.W. Fifth Avenue
600 University Street Portland, Oregon 97204
Seattle, Washington 98101-3197
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. If any of the securities being registered on
this form are to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act, check the following box. /X/
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
JUNE 19, 1996
2,250,000 UNITS
[LOGO]
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE COMMON STOCK PURCHASE WARRANT
PCT HOLDINGS, INC., a Nevada corporation (the "Company"), is hereby offering
2,250,000 units (the "Units"), each Unit consisting of one share (the "Shares")
of the Company's common stock, $.001 par value (the "Common Stock"), and one
warrant to purchase one share of Common Stock (the "Warrants"), for the initial
offering price of $ per Unit (the "Unit Offering Price"). The Units will
separate immediately upon issuance, and the Common Stock and Warrants that make
up the Units will trade only as separate securities. Each Warrant initially
entitles the holder thereof to purchase one share of Common Stock at an exercise
price of $ per share (150% of the Unit Offering Price), subject to certain
adjustments including, if the Company's audited fiscal 1997 net income (adjusted
to exclude any expense relating to the vesting of any employee options or
warrants) does not exceed $1.5 million, a one-time downward adjustment of the
exercise price to (a) 125% of the Unit Offering Price if such net income is
$800,000 to $1.5 million, (b) 100% of the Unit Offering Price if such net income
is $500,000 to $799,999, and (c) 75% of the Unit Offering Price if such net
income is less than $500,000. The Warrants are exercisable at any time, unless
previously redeemed, until the fifth anniversary of the effective date of this
Prospectus, subject to certain conditions. The Company may redeem the Warrants,
in whole or in part, at any time upon at least 30 days prior written notice to
the registered holders thereof, at a price of $.25 per Warrant, provided that
the closing bid price of the Common Stock has been at least 200% of the
then-current exercise price of the Warrants for each of the 20 consecutive
trading days immediately preceding the date of the notice of redemption.
The Common Stock is included in the Nasdaq Small Cap Market System ("Nasdaq
- - -- Small Cap") under the symbol "PCTH." On June 17, 1996, the last reported sale
price of the Common Stock on Nasdaq -- Small Cap was $4.50 per share. Before
this Offering, there has been only a limited market for the Common Stock and no
market for the Warrants, and there is no assurance that an active public market
will develop or that, if it does develop, it will be sustained. The Company has
applied for listing on the Nasdaq National Market System under the symbols
"PCTH" and "PCTHW" for the Common Stock and the Warrants, respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING AT PAGE 6.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Unit........................ $ $ $
Total(3)........................ $ $ $
</TABLE>
(SEE ACCOMPANYING FOOTNOTES ON NEXT PAGE.)
The Units are offered by the several Underwriters, subject to prior sale,
when, as, and if delivered to and accepted by the Underwriters, and subject to
their right to reject orders in whole or in part. It is expected that delivery
of the Units will be made in New York, New York, on or about , 1996.
------------------------
PAULSON INVESTMENT COMPANY, INC. COHIG & ASSOCIATES, INC.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
- - ------------------------
(1) Excludes a nonaccountable expense allowance payable by the Company to
Paulson Investment Company, Inc., and Cohig & Associates, Inc., the
representatives (the "Representatives") of the several underwriters (the
"Underwriters"), equal to 3% of the aggregate Unit Offering Price. The
Company has also agreed (i) to issue to the Representatives warrants (the
"Representatives' Warrants") to purchase an aggregate of up to 225,000
Units, exercisable at $ per Unit (120% of the Unit Offering Price),
and (ii) to grant certain registration rights with respect to the securities
underlying the Representatives' Warrants. The Company has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses of this Offering payable by the Company estimated
at $985,000, including the Representatives' nonaccountable expense
allowance.
(3) The Company has granted the Underwriters a 45-day option (the
"Overallotment Option") to purchase up to 337,500 additional Units on the
same terms and conditions as set forth above, solely for the purpose of
covering overallotments, if any. If the Overallotment Option is exercised in
full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
Kryoflex-Registered Trademark- is a registered trademark and Partners with
Tomorrow-TM- and Northridge Valve-TM- are trademarks of the Company.
------------------------
The Company is subject to the reporting and other requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Company intends to furnish its shareholders with annual reports containing
audited financial statements and quarterly reports containing unaudited
financial information for each of the first three quarters of each fiscal year.
------------------------
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request of such person, a copy of any of the
information that is incorporated by reference in the Prospectus (not including
exhibits to the information that is incorporated by reference unless the
exhibits are themselves specifically incorporated by reference) and the address
(including title and department) and telephone number to which such request is
to be directed.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMPANY'S
SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PICTURE SUMMARIES
1. [Picture of various EMI filters surrounding a dime to indicate relative
size]
Miniature solder-in EMI filters for feedthru applications
2. [Picture of several discoidal capacitors next to a nickel to indicate
relative size]
Multi-layer ceramic discoidal capacitors for EMI filter applications
3. [Picture of many EMI filters]
High reliability screw-in low pass EMI filters
4. [Picture of a worker pouring molten metal into a mold]
Pouring of a sandcasting mold
5. [Picture of aluminum castings]
High volume precision aluminum castings
6. [Picture showing equipment in Cashmere machine shop]
Precision machine shop
7. [Picture of emergency exit window frame for passenger aircraft]
Emergency exit window frame for passenger aircraft
8. [Picture of the reset mechanism used in the Seismic valve]
Seismic's valve includes a patented mechanism for resetting the valve
without special tools
9. [Picture of the Seismic natural gas shut-off valve]
Seismic's natural gas shut-off valve is manufactured by Cashmere
10. [Picture of the Seismic residential natural gas shut-off valve and its
packaging]
Seismic markets its residential valve under the brand name "Northridge
Valve-TM-"
11. [Picture of electronic components welded onto an aluminum housing]
Lightweight components laser welded into an aluminum housing for aircraft
applications
12. [Picture of five electrical connectors made for the International Space
Station]
Connectors for International Space Station
13. [Picture of two aluminum Aamram missile modules]
Aluminum Aamram missile modules with laser welded hermetic connectors
14. [Reproduction of the Company's logo including the words "Partners With
Tomorrow-TM-"]
Partners With Tomorrow
15. [Picture of the Company's facility in Wenatchee, Washington]
A substantial percentage of the Company's customers consists of large
manufacturing companies in the aerospace, defense, energy, medical and
general electronics industries. The Company also markets and sells its
products to a variety of smaller specialized electronics companies and has
recently entered the consumer home improvement market with its natural gas
shut-off valves.
16. [Picture of four hermetic electronic packages]
Laser welded hermetic electronic packages are used in sophisticated
communications and radar equipment
17. [Picture of various electrical connectors]
Space-age connectors involve many complex machined shapes and sizes
18. [Picture of several formulations of Kryoflex-Registered Trademark-
materials]
Proprietary Kryoflex-Registered Trademark- materials are produced in many
different formulations
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
OVERALLOTMENT OPTION, THE WARRANTS OR THE REPRESENTATIVES' WARRANTS. SEE
"DESCRIPTION OF SECURITIES" AND "UNDERWRITING." UNLESS THE CONTEXT INDICATES
OTHERWISE, REFERENCES HEREIN TO THE "COMPANY" ARE TO PCT HOLDINGS, INC. AND ITS
CONSOLIDATED SUBSIDIARIES.
THE COMPANY
PCT Holdings, Inc. (the "Company") develops, manufactures, markets and sells
a broad range of precision electronic components designed to operate with a high
degree of reliability in harsh environments such as the ocean, space and the
human body. These environments experience extremes in temperature, pressure and
corrosiveness that can make product repair or replacement difficult or
impossible. The Company uses its patented technologies to produce electronic
components for a wide variety of applications in the aerospace, defense, energy,
medical and general electronics industries.
The Company operates through five wholly owned subsidiaries. Two of these
businesses are engaged in the production of electronic devices, with one
producing a variety of electronics packages and connectors shielded from their
environment by the Company's proprietary ceramic seals, and the other producing
devices designed to filter out electromagnetic interference detrimental to other
electronic devices. The Company has recently acquired a business that designs,
manufactures and sells automatic natural gas shut-off valves for use in
earthquake sensitive areas. The Company also has two businesses that manufacture
machined or cast metal products for many applications, including products that
are incorporated into or complementary with the products of its other
subsidiaries.
A substantial percentage of the Company's customers for its electronic
products consists of large manufacturing companies in the aerospace, defense,
energy, medical and general electronics industries. These include Hughes
Aircraft Company, Honeywell Inc.'s Military Avionics Division, Lockheed Martin
Corporation, Northrop Grumman Corporation, Space Systems/Loral, Inc.,
Westinghouse Electric Corporation and TRW, Inc. The Company's metal products
customers include The Boeing Company, Kawasaki Heavy Industries, Ltd., Deere &
Company, Northrop Grumman Corporation and PACCAR Inc. The Company also markets
and sells its products to a variety of smaller, specialized electronics
companies. The Company, with its natural gas shut-off valves, has recently
entered the consumer home improvement market and has received initial orders for
its valves from home improvement centers such as Eagle Hardware & Garden Inc.,
Ernst Home Center, Inc., HomeBase Inc., Home Depot U.S.A., Inc. and Ace Hardware
Corp.
The Company's strategy is to expand the range of products it offers within
its core areas of competence, and to produce a larger portion of the customer's
total product requirement, through internal growth and the acquisition or
development of new technologies. The Company has recently experienced
significant growth in revenues, as a result of both the acquisition of
complementary businesses and internal growth within each of its operating
subsidiaries. The Company hopes to continue to experience growth and to exploit
both technological and marketing synergies resulting from the integration of the
businesses it has acquired and other businesses or technologies that it may
acquire in the future.
The Company is incorporated under the laws of the State of Nevada. Its
corporate offices are located at 434 Olds Station Road, Wenatchee, Washington,
and its telephone number is (509) 664-8000.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities offered................ 2,250,000 Units, each Unit consisting of one share of
Common Stock and one Warrant to acquire one share of
Common Stock. The Common Stock and Warrants will be
separately transferrable immediately upon commencement
of trading.
Common Stock to be outstanding
after the Offering.............. 9,728,309 shares.(1)
Use of proceeds................... To repay indebtedness, acquire equipment, expand facili-
ties, fund potential acquisitions, and provide working
capital. See "Use of Proceeds."
Risk factors...................... Investment in the Units involves a high degree of risk.
See "Risk Factors."
Proposed Nasdaq National Market
System symbols.................. Common Stock ...................................... PCTH
Warrants ......................................... PCTHW
</TABLE>
- - ------------------------
(1) Excludes 642,783 shares of Common Stock issuable upon exercise of stock
options and warrants at a weighted average exercise price of $4.174 per
share outstanding at May 31, 1996. Also excludes 845,000 shares of Common
Stock issuable upon the exercise of a stock option that the Company has
agreed to grant to Donald A. Wright on the effective date of this Prospectus
at 150% of the Unit Offering Price, but not less than $3.75 per share. An
additional 9,717 shares of Common Stock are reserved for issuance under the
Company's 1995 Stock Incentive Plan and an additional 91,000 shares of
Common Stock are reserved for issuance under the Company's Independent
Director Stock Plan. See "Capitalization," "Management -- Benefit Plans" and
"Description of Securities -- Stock Options."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Net sales.................................................................... $ 2,940 $ 11,035 $ 20,725
Gross profit................................................................. 80 1,943 4,286
Loss from operations......................................................... (884) (846) (479)
Net loss..................................................................... (1,098) (1,411) (999)
Loss per share of Common Stock............................................... (.60) (.41) (.16)
Shares used in computation of loss per share................................. 1,826 3,469 6,209
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1996
-------------------------
ACTUAL AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................................... $ 952 $ 9,181
Total assets......................................................................... 27,649 35,859
Short-term debt...................................................................... 8,005 4,449
Long-term debt....................................................................... 1,961 1,961
Stockholders' equity................................................................. 12,539 20,768
</TABLE>
- - ------------------------
(1) The increases in net sales are attributable to acquisitions by the Company
and internal growth. See "Acquisition History" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(2) Adjusted to reflect the sale of the Units offered hereby, assuming the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
Does not include proceeds that would be received upon exercise of stock
options and warrants outstanding at May 31, 1996, to acquire an aggregate of
642,783 shares of Common Stock, or the proceeds that would be received upon
the exercise of a stock option that the Company has agreed to grant to
Donald A. Wright on the effective date of this Prospectus to purchase
845,000 shares of Common Stock. See "Capitalization," "Management -- Benefit
Plans" and "Description of Securities -- Stock Options."
5
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE
ACT. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF THE RISK FACTORS SET FORTH
BELOW AND INFORMATION ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, INVESTORS SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS:
HISTORY OF NET LOSSES. The Company reported net losses of $1,098,000 in
fiscal 1994, $1,411,000 in fiscal 1995, and $999,000 in fiscal 1996. The Company
has not demonstrated an ability to achieve substantial profitable operations.
There is no assurance that profitable operations will be achieved in fiscal 1997
or at any time thereafter or that any profitable operations will be sustained.
The Company's ability to achieve a profitable level of operations in the future
will depend on many factors, including the Company's ability to assimilate its
recent and potential future acquisitions and to finance its subsidiaries'
production, the degree of market penetration of its products, its ability to
develop new products, the degree of market acceptance of new products, and the
level of competition in those markets in which the Company operates. The Company
is currently experiencing growth in orders and backlog, which will require
additional expenditures to support a higher level of inventory and operations.
These requirements will affect cash flow and results of operations over the
short term and may result in significant future losses if anticipated growth is
not sustained.
NEED FOR IMMEDIATE ADDITIONAL CAPITAL. The Company is experiencing an
immediate need for additional capital to fund its current operations and to
repay matured and maturing debt. The Company also needs to refinance certain of
its existing indebtedness. The Company's primary line of credit expired on May
26, 1996, at which time the Company was in default under one of its covenants.
The Company owed $1,224,000 under that line of credit as of the expiration date,
and is currently negotiating to obtain renewal of that line of credit with
revised covenants. The Company has recently incurred $1,350,000 in short-term
debt maturing in September 1996 which the Company plans to repay using a portion
of the proceeds of this Offering. See "Use of Proceeds." The Company has also
extended the repayment time on a number of its accounts payable. The Company has
obtained a waiver, until September 1, 1996, of defaults under certain financial
and funding covenants with the Morel subsidiary's bank lender, and has obtained
a repayment extension for a $313,000 short-term debt obligation of the Morel
subsidiary, in anticipation of the closing of this Offering. Although the
Company believes it will be able to obtain satisfactory lending arrangements
from bank or other institutional lenders, there is no assurance that its primary
line of credit will be renewed, that alternative financing will be available, or
that any available financing will be on favorable terms. The audit opinion with
respect to the Company's fiscal 1996 financial statements will be qualified as
to the Company's ability to continue as a going concern if this Offering does
not close. The Company believes that the proceeds of this Offering will allow it
to repay necessary debt obligations and accounts payable, and to fund its
ongoing operations for at least the next 12 months. However, the Company may
need to raise additional capital in the future. See "Risk Factors -- Need for
Additional Long-Term Capital," "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
INTEGRATION OF ACQUISITIONS; MANAGEMENT OF GROWTH. As part of its business
strategy, the Company has recently experienced rapid growth as a result of
several acquisitions that have placed, and will continue to place, a significant
strain on its management, financial and other resources. The Company intends to
continue to evaluate opportunities for growth through expansion of current
operations and the acquisition of other entities, products or technology,
although no material acquisitions are currently planned. There is no assurance
that the Company will be able to implement its growth strategy or that such
strategy ultimately will prove successful. Recent and any future acquisitions
may subject the Company to many risks, including risks relating to integrating
and managing the operations and personnel of acquired companies, maintaining
uniform standards, controls, procedures and policies, potential disruption of
the Company's ongoing business, and possible impairment of relationships with
employees and customers as a result of the integration of any new management
6
<PAGE>
or other personnel. Any future acquisitions could adversely affect the Company's
results of operations due to the risks of assessing the value, strengths, and
weaknesses of acquisition candidates or new products, diversion of management
attention from the Company's existing businesses, reduction of the Company's
cash, disruption of product development cycles, dilution of earnings per share
or other factors. The Company's ability to manage its current and future growth
will require it to implement and improve its operational, financial, budgeting,
management information and internal control systems. The success of the Company
will depend on the ability of management to implement effectively these changes
and to manage the Company's operations over the long term. The Company's
historical acquisitions have been made, and any future acquisitions will be
made, on the assumption that certain synergies and other operating efficiencies
can be achieved in the combined operation. While the Company believes that it
has experienced some of the anticipated benefits from its acquisitions, there is
no assurance that all of the expected benefits will be achieved or that any
benefits will be sustained. A failure to achieve or sustain the anticipated
benefits of any acquisition could result in that acquisition having a
detrimental effect on the Company's results of operations, cash flow and
financial condition. See "Acquisition History" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON SIGNIFICANT CUSTOMERS. The Cashmere subsidiary of the Company
historically has been almost entirely dependent upon The Boeing Company
("Boeing"), although the percentage of its Boeing sales decreased to
approximately 73% of Cashmere's total net sales in fiscal 1996. Sales by
Cashmere and other Company subsidiaries to Boeing constituted approximately 28%
of the Company's consolidated net sales for fiscal 1996. As a result, general
economic conditions and events affecting Boeing, all of which are outside the
control of the Company, may have a significant impact on Cashmere's sales and
consequently on the overall results of operations of the Company. For example, a
change in inventory practices at Boeing and a general downturn in the aerospace
market led to an almost 50% drop in Cashmere's sales in calendar year 1993. A
machinist's union strike at Boeing during the winter of 1995-1996 adversely
affected Cashmere sales to Boeing, although such sales have recently begun to
increase. Cashmere has entered into contracts with Boeing which extend beyond
one year to supply parts at fixed prices, and, accordingly, aluminum or other
metal price increases or other cost increases can adversely affect Cashmere's
margins on the sale of those parts. The Morel subsidiary, which was acquired by
the Company in December 1995, is dependent on PACCAR Inc., including its
Kenworth and Peterbilt divisions (collectively, "PACCAR"). Net sales to PACCAR
constituted 75% of Morel's net sales in fiscal 1995. Net sales to PACCAR in the
last six months of fiscal 1996 constituted 15% of the Company's consolidated net
sales for that period. PACCAR has reported that its first quarter 1996 net sales
declined 9% from first quarter 1995 net sales, due to an industry-wide decrease
in demand for trucks from the record sales levels of 1995. PACCAR has no
contractual obligation to continue to place orders for products of Morel, and
Boeing has considerable flexibility under its contracts with Cashmere to reduce
its level of orders or to cease ordering products from Cashmere. Both Cashmere
and Morel have developed and are implementing strategies intended to decrease
their reliance on sales to these primary customers. However, there is no
assurance that either Cashmere or Morel can successfully reduce its reliance on
Boeing and PACCAR, respectively, to a degree that will protect the Company in
the event of unexpected decreases in sales to these primary customers. See
"Business."
NEED FOR ADDITIONAL LONG-TERM CAPITAL. The Company anticipates that, if its
primary line of credit is renewed or replaced on satisfactory terms, the
Company's existing capital resources and expected revenue from operations,
together with the net proceeds of this Offering, will be adequate to satisfy its
capital requirements for at least the next 12 months. The Company's actual
capital needs, however, will depend upon numerous factors, including the amount
of revenue generated from operations, the cost of increasing the Company's sales
and marketing activities, the ability of third-party suppliers to meet product
commitments, the willingness of the Company's primary lender to renew its line
of credit, and any future acquisitions, none of which can be predicted with
certainty. There is no assurance that the Company's primary line of credit will
be renewed or that the Company will not require additional capital sooner than
currently anticipated. The Company may receive
7
<PAGE>
additional funds upon exercise of the Warrants and other outstanding warrants
and stock options, but there is no assurance that any such warrants or stock
options will be exercised. As a result of these and other factors, the Company
is unable to predict accurately the amount or timing of future capital that it
will require. There is no assurance that any additional financing will be
available to the Company on acceptable terms, or at all, when required by the
Company. The inability to obtain necessary financing could materially and
adversely affect the Company's business and results of operations. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
COMPETITION. The Company operates in highly competitive markets. Most of
its competitors have greater financial resources, broader experience, better
name recognition and more substantial marketing operations than does the
Company, and represent substantial long-term competition. The industries in
which the Company competes are characterized by ongoing product development
efforts and evolving technology, and success depends in part upon the ability to
gain a competitive advantage through proprietary technology. Although the
Company believes that its proprietary technology may give it a competitive
advantage with respect to its technology-based products, new developments by
competitors are expected to continue. The Company's competitors may develop
products that are viewed by customers as more effective or more economic than
the Company's product lines. There is no assurance that the Company will be able
to compete successfully against current and future competitors or that the
competitive pressures faced by the Company will not materially or adversely
affect the Company's business and results of operations. See "Business --
Competition."
RECENT INTRODUCTION OF NEW PRODUCT INTO NEW MARKET. Unlike the other
businesses acquired by the Company, there had been no sales of the Seismic
subsidiary's natural gas shut-off valve before the Company acquired the
technology for that product in November 1995. In addition, the natural gas
shut-off valve is intended for consumer use and is being marketed to retail
distributors of home improvement products and to natural gas utilities for sale
to consumers. This represents a different type of product than the Company has
previously manufactured, and a different kind of market than the markets in
which the Company's other subsidiaries operate. The Company began marketing the
natural gas shut-off valve in December 1995, and received initial orders for the
product beginning in March 1996. There is no assurance that this product will
achieve market acceptance, or that the Company will be able to market the
product successfully or to compete in this new market. Failure of the natural
gas shut-off valve to achieve market acceptance and to compete successfully
could have a material adverse effect on the Company's business and results of
operation. See "Business -- Seismic Safety Products, Inc."
TECHNOLOGICAL CHANGE; DEVELOPMENT OF NEW PRODUCTS. The market for the
Company's products is characterized by steadily evolving technology and industry
standards, changes in customer needs and new product introductions. The
Company's success will depend on its ability to enhance its current products,
develop new products that meet changing customer needs, advertise and market its
products, and respond to evolving industry standards and other technological
changes on a timely and cost-effective basis. There is no assurance that the
Company will be successful in developing new products or enhancing its existing
products on a timely basis, or that such new products or enhancements will
achieve market acceptance. Furthermore, from time to time the Company and others
may announce new products, enhancements or technologies that have the potential
to replace or render obsolete the Company's existing products. Any failure by
the Company to anticipate or respond adequately to changes in technology and
customer preferences, the introduction of new products or enhancements by others
or any significant delays in the development or introduction of new products by
the Company could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business."
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent on the Company's Chief Executive Officer and President, Donald A. Wright,
and a small number of other senior management and operational personnel. The
loss of the services of any of these employees could have a material adverse
effect on the ability of the Company to achieve its business objectives. The
8
<PAGE>
Company has key man life insurance policies on the life of Mr. Wright in the
aggregate amount of $3 million. The Company's growth and future success will
depend in large part upon its ability to attract and retain additional senior
management and highly skilled personnel to provide management and technological
depth and support, to enhance and market its existing products and to develop
new products. Competition for skilled management, technical, marketing and sales
personnel is intense. There is no assurance that the Company will be successful
in attracting and retaining the key management, technical, marketing and sales
personnel necessary to support the Company's business and its recent and future
acquisitions, and its failure to do so would materially and adversely affect the
Company's business and results of operations. See "Management."
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY. The Company regards elements
of its technology as proprietary and relies primarily on a combination of
patent, trade secret, copyright and trademark laws, confidentiality procedures,
and other intellectual property protection methods to protect its proprietary
technology. The Company has 32 United States patents, two United States patent
applications pending and one international patent application pending relating
to certain of its technology and products. There is no assurance that the
Company's patent applications will result in issued patents, that the Company's
existing patents or any future patents will provide the Company with any
competitive advantages for its products or technology, or that, if challenged,
the Company's patents will be held valid and enforceable. Despite the
precautions taken by the Company, unauthorized parties may attempt to copy
aspects of the Company's products or obtain and use information that the Company
regards as proprietary, and existing intellectual property laws afford only
limited protection. Policing violations of such laws is difficult. The laws of
certain countries in which the Company's products are or may be distributed do
not protect the Company's products and intellectual property rights to the same
extent as do the laws of the United States. There is no assurance that these
protections will be adequate or that the Company's competitors will not
independently develop similar technology, gain access to the Company's trade
secrets or other proprietary information, or design around the Company's
patents. The Company may be required to enter into costly litigation to enforce
its intellectual property rights or to defend infringement claims by others.
Such infringement claims could require the Company to license the intellectual
property rights of third parties. There is no assurance that such licenses would
be available on reasonable terms, or at all. The Company has recently settled
patent infringement litigation instituted by a competitor by purchasing two
patents and granting the competitor a license to use these and certain other
related patents of the Company. The Company's issued patents expire at various
times over the next 16 years beginning in September 1997. Although the Company
believes that the manufacturing processes of much of its technology that is
currently protected by patents, particularly that of its Pacific Coast
subsidiary, are sufficiently complex that competing products made with the same
technology are unlikely, there is no assurance that the Company's competitors
will not design competing products using the same or similar technology once
these patents have expired. See "Business -- Proprietary Rights."
ENVIRONMENTAL MATTERS. The Company is subject to federal, state and local
laws, regulations and ordinances concerning solid waste disposal, hazardous
materials storage, use and disposal, air emissions, waste water and storm water
disposal, employee health and other environmental matters (together,
"Environmental Laws"). Proper waste disposal and environmental regulation are
major considerations for the Company because certain metals and chemicals used
in its manufacturing processes are classified as hazardous substances. Since the
Company's acquisition of the Morel subsidiary in December 1995, the Company has
initiated an environmental compliance program for the Morel facility, which
includes obtaining all permits necessary for that facility to operate in
compliance with applicable Environmental Laws. As part of this program, Morel in
January 1996 obtained a permit to discharge air emissions. Morel is operating
without a permit required under Environmental Laws to discharge waste water and
storm water. In May 1996, Morel submitted an application to the State of
Washington for this permit. A failure by Morel to obtain the required permit
could result in regulatory authorities imposing fines on Morel or ordering Morel
to cease operations or both. The Company is obtaining the necessary
environmental data to support the permit application and expects to submit such
data in July 1996. Although the Company believes that the necessary
9
<PAGE>
permit will be issued in the first quarter of fiscal 1997, there is no assurance
that such permit will be issued, and the failure to obtain such permit would
have a material adverse effect on the Company. From time to time, the Company's
operations may result in other noncompliance with Environmental Laws. If any
violations of Environmental Laws occur, the Company could be liable for damages
and for the costs of remedial actions and could also be subject to revocation of
permits necessary to conduct its business. Any such revocation could require the
Company to cease or limit production at one or more of its facilities, which
could have a material adverse effect on the Company. As a generator of hazardous
materials, the Company is subject to financial exposure even if it fully
complies with these laws. Environmental Laws could become more stringent over
time, imposing greater compliance costs and increasing risks and penalties
associated with any violations. There is no assurance that any present or future
noncompliance with Environmental Laws will not have a material adverse effect on
the Company's results of operations or financial condition. See "Business --
Environmental Matters."
GOVERNMENT REGULATION. Certain of the Company's products are manufactured
and sold under United States government contracts or subcontracts. As with all
companies that provide products or services to the federal government, the
Company is directly and indirectly subject to various federal rules, regulations
and orders applicable to government contractors. Certain of these government
regulations relate specifically to the vendor-vendee relationship with the
government, such as the bidding and pricing rules. Under regulations of this
type, the Company must observe certain pricing restrictions, produce and
maintain detailed accounting data, and meet various other requirements. The
Company is also subject to a number of regulations affecting the conduct of its
business generally. For example, the Company must adhere to federal acquisition
requirements and to standards established by the Occupational Safety and Health
Act relating to labor practices and occupational safety standards. Violation of
applicable government rules and regulations could result in civil liability, in
cancellation or suspension of existing contracts or in ineligibility for future
contracts or subcontracts funded in whole or in part with federal funds. See
"Business -- Government Regulation."
AVAILABILITY AND COST OF MATERIALS. The Company does not have fixed price
contracts or arrangements for all of the raw materials and other supplies it
purchases. The Company generally has readily available sources of raw materials
and other supplies required for the manufacture of its products and, where
possible, the Company maintains alternate sources of supply. However, shortages
of, and price increases for, certain raw materials and supplies used by the
Company have occurred in the past and may occur in the future. Future shortages
or price fluctuations could have a material adverse effect on the Company's
ability to manufacture and sell its products in a timely and cost effective
manner. See "Business -- Supplies and Production."
PRODUCT LIABILITY. The Company is subject to the risk of product liability
claims and lawsuits for harm caused by products of the Company. The Company
maintains product liability insurance with a maximum coverage of $2 million.
However, there is no assurance that the Company's insurance will be sufficient
to cover any claims that may arise. A successful product liability claim in
excess of the Company's insurance coverage could have a material adverse effect
on the Company.
NO LIQUID MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; DILUTION. Prior to
this Offering, there has been a limited public market for the Common Stock and
no public market for the Warrants. There is no assurance that an active trading
market for the Common Stock or the Warrants will develop or be sustained after
this Offering. The Unit Offering Price for the Units being sold by the Company
in this Offering has been determined by negotiations between the Company and the
Representatives of the Underwriters. See "Underwriting." The trading price of
the Common Stock and Warrants could be subject to significant fluctuations in
response to factors such as, among others, variations in the Company's
anticipated or actual results of operations, announcements of new products or
technological innovations by the Company or its competitors, and changes in
earnings estimates by analysts. In addition, the stock market is subject to
price and volume fluctuations that affect the market prices for companies in
general, and small capitalization, emerging growth companies in particular, and
are often unrelated to their operating performance. These broad market
fluctuations may adversely affect
10
<PAGE>
the market prices of the Common Stock or the Warrants. Purchasers of the Units
will incur an immediate book value dilution, and certain events, such as the
issuance of Common Stock pursuant to the exercise of outstanding warrants and
stock options, could result in additional dilution. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE. Sale of substantial amounts of the
Company's Common Stock in the public market or the prospect of such sales could
materially and adversely affect the market price of the Common Stock and the
Warrants. Upon completion of this Offering, the Company will have outstanding
9,728,309 shares of Common Stock. The 2,250,000 shares of Common Stock contained
in the Units offered hereby, and the 125,000 shares sold in the Company's first
public offering, will be immediately eligible for sale in the public market
without restriction on the date of this Prospectus. The 2,408,170 shares that
were issued by the Company in connection with two offerings under Regulation S
("Regulation S") of the Securities Act, in July 1995 and November 1995, to the
extent not previously resold into the United States, are available for resale
into the United States without restriction at such time as an exemption from
registration under the Securities Act is or becomes available. The 490,000
shares that were issued by the Company in connection with a third Regulation S
offering in May 1996 will become available for resale into the United States
without restriction at such time as an exemption from registration under the
Securities Act is or becomes available, but not sooner than December 16, 1996,
under the terms of a lock-up agreement. An additional 4,446,058 shares are
restricted shares ("Restricted Shares") subject to the restrictions upon resale
under Rule 144 of the Securities Act. Of the Restricted Shares, the 62,500
shares issued to the Company's original shareholders are eligible for immediate
resale in the public market pursuant to Rule 144(k). An aggregate of 3,176,175
shares issued in connection with the Verazzana merger (see "Acquisition History
- - -- Acquisition of Cashmere") will become eligible for resale on February 17,
1997; 295,300 shares issued in connection with the Company's first Regulation S
offering will be available for resale in July 1997 (see "Certain Transactions");
and 325,000 shares issued in connection with the Morel acquisition which are not
subject to registration rights will become eligible for resale on December 1,
1997. Another 587,083 shares of the Restricted Shares and a warrant to purchase
37,500 shares are subject to registration rights, which have been waived for
this Offering but which if exercised subsequently would become eligible for
resale upon the effectiveness of a future registration statement covering such
shares. The 300,000 shares of Common Stock issuable to UTCO Associates, Ltd.
under a currently exercisable warrant to purchase such shares, are being
registered by the Registration Statement of which this Prospectus is a part.
However, those shares are subject to a lock-up agreement and, once issued, will
first become eligible for sale in the public market 180 days after the date of
this Prospectus. See "Selling Shareholder." Shortly after this Offering, the
Company intends to file a registration statement under the Securities Act to
register approximately 1,260,000 shares reserved for issuance under the
Company's outstanding stock options and warrants, stock option plans, and stock
option commitments, of which 172,723 shares will be exercisable and eligible for
sale upon the expiration of lock-up agreements six months after the date of this
Prospectus, and of which 845,000 shares will be exercisable and eligible for
sale upon the expiration of a contractual restriction on sale expiring one year
from the date of this Prospectus. See "Description of Securities -- Stock
Options" and "Management -- Benefit Plans." Sales in the public market of
substantial amounts of Common Stock or the perception that such sales could
occur could depress prevailing market prices for the Common Stock and Warrants.
See "Description of Securities" and "Shares Eligible for Future Sale."
11
<PAGE>
ACQUISITION HISTORY
The Company is the result of an initial acquisition in 1990, four additional
acquisitions that have occurred since May 1994, and a merger with a
non-operating public company in February 1995.
ACQUISITION OF PACIFIC COAST. Donald A. Wright purchased Pacific Coast
Technologies, Inc. ("Pacific Coast") in April 1990. Pacific Coast designs,
manufactures and markets hermetically sealed electrical connectors, electronic
sealants and instrument packages, using patented and proprietary technology. Mr.
Wright acquired Pacific Coast in exchange for cash and a promissory note to the
sellers. In May 1994, PCT Holdings, Inc., a Washington corporation ("Original
PCTH"), was formed to hold the stock of Pacific Coast and to acquire Cashmere
Manufacturing Co., Inc. ("Cashmere"). See "Acquisition of Cashmere," below. The
formation of Original PCTH was treated as if a pooling of interests for
accounting purposes. In 1994, Mr. Wright initiated a series of strategic
acquisitions of companies whose operations and products the Company believes are
complementary to the products designed, manufactured and marketed by Pacific
Coast.
ACQUISITION OF CASHMERE. The first such company acquired was Cashmere in
May 1994. Cashmere operates a precision machine shop that produces diversified
components and assemblies for the aerospace, defense, electronics and
transportation industries, including products and services provided to the
Company's other subsidiaries. Cashmere was acquired in May 1994 by Original PCTH
in exchange for common stock of Original PCTH. The transaction was treated as a
purchase for accounting purposes. In February 1995, Original PCTH was merged
into a wholly owned subsidiary of Verazzana Ventures, Ltd., an inactive public
company (the "Verazzana merger"). In that merger, the Original PCTH stock paid
as consideration for the Cashmere acquisition was converted into 791,666 shares
of the Company's Common Stock. The successor to Original PCTH was dissolved in
May 1996, leaving Pacific Coast and Cashmere as subsidiaries of the Company.
ACQUISITION OF CERAMIC DEVICES. The Company acquired Ceramic Devices, Inc.
("Ceramic Devices") in April 1995 (effective for accounting purposes as of
February 28, 1995). Ceramic Devices designs and manufactures a line of
specialized filtering devices for use with electronic circuits operating in
hostile environments and has a customer base similar to that of Pacific Coast.
The purchase price for the Ceramic Devices acquisition was the issuance by the
Company to the sellers of two promissory notes totaling $600,000 in principal
amount and 133,333 shares of the Company's Common Stock. The transaction was
treated as a purchase for accounting purposes.
ACQUISITION OF SEISMIC. In November 1995, the Company formed Seismic Safety
Products, Inc. ("Seismic"), which acquired substantially all of the assets of a
Florida corporation of the same name and certain patents from affiliates of the
Florida corporation. Seismic develops and markets automatic natural gas shut-off
valves activated by earthquakes and plans to market other earthquake safety
products. Cashmere manufactures the natural gas shut-off valve for Seismic. The
purchase price for the Seismic asset and patent acquisition was cash, certain
deferred payment obligations and 128,750 shares of the Company's Common Stock.
The transaction was treated as a purchase for accounting purposes.
ACQUISITION OF MOREL. Most recently, the Company acquired Morel Industries,
Inc. ("Morel") in December 1995 (effective for accounting purposes as of
November 30, 1995). Morel manufactures precision cast aluminum parts used
principally in the transportation, heavy trucking and aerospace industries. The
purchase price for the Morel acquisition was the issuance of 650,000 shares of
the Company's Common Stock, after certain post-closing adjustments. The
transaction was treated as a purchase for accounting purposes.
The Company intends to continue to evaluate opportunities for growth through
expansion of current operations, or through the acquisition of other entities or
lines of business, or both, although no material expansions or acquisitions are
currently planned.
12
<PAGE>
USE OF PROCEEDS
The net proceeds of this Offering are estimated to be approximately
$8,229,000 (approximately $9,661,000 if the Overallotment Option is exercised in
full) assuming a Unit Offering Price of $4.50, and after deducting the
underwriting discount and estimated offering expenses.
The Company intends to use a portion of the net proceeds to repay
approximately $3,556,500 of indebtedness. Of that amount, approximately
$2,206,500 represents the following indebtedness that was incurred or acquired
in connection with acquisitions by the Company: approximately $312,500 under a
promissory note to certain individual lenders to Morel, due on September 1, 1996
and bearing interest at the rate of 15% per annum; approximately $1,367,000
under an industrial revenue bond of Morel, due on November 16, 1996 and bearing
interest at the rate of 8.12% per annum; approximately $177,000 under a
promissory note held by a title company in connection with Morel's facility due
on February 14, 1997 and bearing interest at the rate of 12% per annum;
approximately $150,000 under a promissory note held by the individuals who sold
Ceramic Devices to the Company, due on August 31, 1996 and bearing interest at
the rate of 10% per annum; and obligations of approximately $200,000 of the
purchase price for the Seismic patent acquisition, due on November 30, 1996,
which do not bear interest. The remaining approximately $1,350,000 in
indebtedness to be repaid from net proceeds of this Offering represents
short-term debt recently incurred by the Company, including $150,000 owed to
Robert L. Smith, a director of the Company, due on September 27, 1996, and
bearing interest at the rate of 18% per annum, and $1,200,000 owed to UTCO
Associates, Ltd., due on the earlier of the closing of this Offering or
September 1, 1996, and bearing interest at the rate of 18% per annum. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments," "Selling Shareholder" and "Certain
Transactions."
The Company intends to use the balance of the net proceeds of this Offering
primarily to acquire additional processing and manufacturing equipment, to fund
certain facilities expansion, to fund potential acquisitions, and to increase
working capital. If the net proceeds are insufficient to accomplish all of the
purposes set forth above, the proceeds will be applied first to repay the
foregoing indebtedness, and then in an order of priority determined by the
Company. Pending the foregoing uses, the Company may invest the net proceeds in
short-term, interest-bearing obligations.
The Company expects that, if its primary line of credit is renewed or
replaced on satisfactory terms, the net proceeds from this Offering will allow
the Company to fund operations for at least the next 12 months. The Company
expects that additional capital will be required to fund longer-term operations
and acquisitions. There is no assurance that the Company will be able to obtain
such financing or that such financing will be available on favorable terms. See
"Risk Factors -- Need for Immediate Additional Capital," "Risk Factors -- Need
for Additional Long-Term Capital" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
13
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Until March 13, 1995, there was no public market for the Common Stock. From
that date through September 14, 1995, the Common Stock was listed on the Nasdaq
Electronic Bulletin Board. Since September 15, 1995, the Common Stock has been
traded on Nasdaq -- Small Cap under the symbol "PCTH."
The Units will separate immediately upon issuance, and the Common Stock and
Warrants that make up the Units will trade only as separate securities. The
Company has applied for listing of the Common Stock and the Warrants on the
Nasdaq National Market System on the effectiveness of this Offering under the
symbols "PCTH" for the Common Stock and "PCTHW" for the Warrants.
The following table shows the range of high and low sales prices reported by
Nasdaq for the Common Stock for each period in the calendar years shown below.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- - ------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1995
First Quarter (from March 13, 1995).................................................. $ 6.00 $ 5.00
Second Quarter....................................................................... 8.00 5.00
Third Quarter........................................................................ 8.00 5.00
Fourth Quarter....................................................................... 6.00 4.00
1996
First Quarter........................................................................ 4.375 3.75
Second Quarter (through June 17, 1996)............................................... 5.00 2.75
</TABLE>
As of June 17, 1996, the closing sales price on Nasdaq - Small Cap for the
Common Stock was $4.50 per share.
As of June 17, 1996, there were 857 holders of record of 7,478,309 shares of
Common Stock.
The Company has never declared or paid cash dividends on the Common Stock.
The Company currently anticipates that it will retain all future earnings to
fund the operation of its business and does not anticipate paying dividends on
the Common Stock in the foreseeable future. The Company's agreement with its
principal lender restricts the Company's ability to pay dividends.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of May
31, 1996, and as adjusted to give effect to the issuance of 2,250,000 Units (at
an assumed Unit Offering Price of $4.50 per Unit offered hereby), and receipt of
the net proceeds therefrom, after deducting the estimated underwriting discount
and offering expenses.
<TABLE>
<CAPTION>
MAY 31, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt................................................................ $ 8,005 $ 4,449
Long-term debt................................................................. 1,961 1,961
Stockholders' equity
Common Stock, par value $.001, 100,000,000 shares authorized, 7,478,309
shares issued(1)............................................................ 19,102 27,331
Accumulated deficit.......................................................... (6,563) (6,563)
Total stockholders' equity..................................................... 12,539 20,768
Total capitalization........................................................... 22,505 27,178
</TABLE>
- - ------------------------
(1) Does not include 642,783 shares of Common Stock issuable upon exercise of
stock options and warrants outstanding at May 31, 1996. Also excludes an
option to purchase 845,000 shares of Common Stock that the Company has
agreed to grant to Donald A. Wright on the effective date of this
Prospectus. See "Description of Securities -- Stock Options" and "Management
-- Benefit Plans."
15
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock as of May 31, 1996
was approximately $8,686,000, or approximately $1.16 per share. Net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities divided by the 7,478,309 shares of Common Stock
outstanding as of May 31, 1996.
Net tangible book value dilution per share represents the difference between
the amount per share paid by new investors who purchase Units in this Offering
and the net tangible book value per share of Common Stock immediately after
completion of this Offering. After giving effect to the sale by the Company of
2,250,000 Units in this Offering at an estimated Unit Offering Price of $4.50
per Unit and the receipt of the estimated proceeds therefrom (after deduction of
estimated underwriting discounts and offering expenses and attributing no
portion of the value of a Unit to a Warrant), the net tangible book value of the
Company as of May 31, 1996 would have been approximately $16,915,000 or $1.74
per share. This represents an immediate increase in net book value of $.58 per
share to existing shareholders and an immediate dilution in net tangible book
value of $2.76 per share to new investors purchasing Units in this Offering, as
illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $ 4.50
Net tangible book value per share at May 31, 1996.................. $ 1.16
Increase per share attributable to new investors................... .58
---------
Pro forma net tangible book value per share after this Offering...... 1.74
---------
Net tangible book value dilution per share to new investors.......... $ 2.76
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of May 31, 1996 to
reflect the same adjustments described above, the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share paid by (i) the existing holders of Common Stock and (ii) the
new investors in this Offering, assuming the sale of 2,250,000 Units by the
Company hereby at a Unit Offering Price of $4.50 per Unit. The calculations are
based upon total consideration given by new and existing shareholders (after
deduction of estimated underwriting discounts and offering expenses and
attributing no portion of the value of a Unit to a Warrant).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- ---------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders................... 7,478,309 77% $ 19,102,000 70% $ 2.55
New investors........................... 2,250,000 23% 8,229,000 30% $ 3.66
----------- --- -------------- ---
TOTAL............................... 9,728,309 100% $ 27,331,000 100%
----------- --- -------------- ---
----------- --- -------------- ---
</TABLE>
The above computations assume no exercise of the following warrants and
stock options: (i) warrants held by Donald A. Wright, Nick A. Gerde and an
employee of Pacific Coast to purchase 160,000 shares of Common Stock at an
exercise price of $2.00 per share, (ii) outstanding options to purchase 145,283
shares of Common Stock at a weighted average exercise price of $5.09 per share,
(iii) an option to purchase 845,000 shares of Common Stock at 150% of the Unit
Offering Price, but no less than $3.75 per share, that the Company has agreed to
grant to Mr. Wright on the effective date of this Prospectus; and (iv) warrants
held by the Selling Shareholder and Robert L. Smith, a director of the Company,
to purchase an aggregate of 337,500 shares of Common Stock at an exercise price
of $4.80 per share. To the extent that such warrants and options are exercised,
there may be further dilution to investors in this Offering. See "Description of
Securities," "Management -- Benefit Plans" and "Certain Transactions."
16
<PAGE>
SELECTED FINANCIAL INFORMATION
(in thousands, except per share data)
The following table presents selected historical information of the Company.
The selected financial information as of and for the years ended May 31, 1995
and 1996 is derived from and should be read in conjunction with the information
set forth in the audited financial statements and related notes of the Company
included in this Prospectus. The selected financial information as of and for
the year ended May 31, 1994 has been derived from audited financial statements
of the Company not presented herein. This information should be read in
conjunction with the financial statements and other financial information
included in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................................................... $ 2,940 $ 11,035 $ 20,725
Gross profit................................................................... 80 1,943 4,286
Loss from operations........................................................... (884) (846) (479)
Net loss....................................................................... (1,098) (1,411) (999)
Loss per share of Common Stock................................................. (.60) (.41) (.16)
Shares used in computation of loss per share................................... 1,826 3,469 6,209
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
MAY 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
BALANCE SHEET DATA:
Working capital (deficit)...................................................... $ (1,237) $ 1,375 $ 952
Total assets................................................................... 7,894 11,630 27,649
Short-term debt................................................................ 4,403 3,009 8,005
Long-term debt................................................................. 649 743 1,961
Stockholders' equity........................................................... 1,226 5,454 12,539
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below and in "Use of Proceeds"
and "Business" includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, and is
subject to the safe harbor created by those sections. Factors that realistically
could cause results to differ materially from those projected in the
forward-looking statements are set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" below and in "Risk
Factors."
OVERVIEW
The Company's financial condition and results of operations have been
substantially affected by a corporate acquisition at the end of fiscal 1994,
another acquisition in fiscal 1995 and two additional acquisitions in fiscal
1996. These acquisitions, as well as internal growth in the Company's existing
business and the acquired businesses, have resulted in substantial increases in
net sales from $3,456,000 in the first quarter of fiscal 1995 to $7,238,000 in
the fourth quarter of fiscal 1996. Approximately $2,891,000 of this growth in
net sales resulted from the acquisitions and approximately $891,000 resulted
from internal growth.
Operating expenses and margins have also been substantially affected by
acquisitions. Expenses directly associated with acquisitions, including
transaction-related legal, accounting and other expenses and merger and equity
capital costs, amounted to approximately $538,000 in fiscal 1995 and
approximately $104,000 in fiscal 1996. The Company has also experienced
substantial increases in all other expense categories as a result of the
increase in operations. A portion of these expenses can be attributed to the
assimilation of acquired operations into the existing business.
The Company's electronic products business is characterized by relatively
low volumes and high margins, as compared with its metal products business where
volumes have historically been higher and margins lower than in the electronic
products business. The Company believes that margins will remain higher for
electronic products than for metal products, although products incorporating
both electronic and metal parts are expected to generate margins closer to
electronic product margins. As a result of margin differences, changes in
product mix between electronic and metal products can be expected to affect
overall margins for the Company. Due to the lack of sales history for its
natural gas shut-off valves, the Company is unable to assess accurately the
effect that product line may have on margins.
As a result of the foregoing factors, the Company's historical results of
operations are not necessarily indicative of future operating performance.
The Company's net sales for the six months ended May 31, 1996 were
approximately $13,594,000. Of that amount, Pacific Coast's net sales were
$3,874,000, or 29%; Ceramic Devices' net sales were $1,029,000, or 8%; Seismic's
net sales were $190,000, or 1%; Cashmere's net sales were $3,213,000, or 23%;
and Morel's net sales were $5,288,000, or 39%. The Company expects that the most
substantial rates of growth in revenue, if any, in the future will come
principally from the Pacific Coast and Seismic operations.
The Company and certain of its subsidiaries have relied on commercial
borrowing arrangements, as well as equity infusions, to supply significant
portions of their required working capital. The Company's working capital
requirements have been substantially increased by the growth in its operations
and by the significant transaction-related expenses associated with
acquisitions. The Company's principal operating line of credit expired on May
26, 1996, and the Company is in default on one of its covenants to that lender.
The audit opinion with respect to the Company's fiscal 1996 financial statements
will be qualified as to the Company's ability to continue as a going concern if
this Offering does not close. In March and May 1996, the Company received
aggregate net proceeds of
18
<PAGE>
approximately $1,270,000 from the issuance of additional short-term debt. The
proceeds were used principally to repay indebtedness to an existing lender and
for operating capital. In May 1996, the Company also closed a Regulation S
offering pursuant to which the Company raised proceeds, net of commissions, of
approximately $1,340,000. The proceeds of that offering were used primarily for
working capital and to retire short-term debt. The Company believes that the net
proceeds from this Offering, together with credit facilities that it expects
will be available to it upon receipt of such proceeds, will be sufficient to
meet its budgeted working capital requirements for at least the next 12 months.
However, there is no assurance that commercial credit will be available to the
Company following this Offering or that the Company's working capital
requirements will not exceed those currently budgeted.
The Company has not experienced any material seasonality in its operations.
The Company has evaluated the effect of the recent accounting pronouncements,
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" and SFAS No. 123 "Accounting for
Stock-Based Compensation." The Company will implement SFAS No. 121 in fiscal
1997. Implementation is not expected to have a material impact on the Company's
financial statements. The Company intends to continue to apply APB Opinion No.
25 in accounting for stock-based compensation for purposes of determining net
income and to adopt the pro forma disclosure requirements of SFAS No. 123 in
fiscal 1997.
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $7,848,000, the benefits of which expire beginning in
fiscal 2001 through fiscal 2011. The net operating losses created by the
subsidiaries prior to their acquisition are limited to use by the subsidiary
which originally generated the net operating loss, and may be further limited as
to the amount which may be used in any one year. The following approximate net
operating losses are available on an individual company basis, without taking
into account these expirations or limitations: PCT Holdings, Inc. $126,000,
Pacific Coast $5,657,000, Ceramic Devices $306,000, Cashmere $737,000, Morel
$934,000, and Seismic $88,000. If the subsidiaries achieve profitable
operations, the net operating loss carryforwards available should reduce the
federal income taxes due in future years.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MAY 31, 1996 AND 1995
The Company acquired Ceramic Devices in fiscal 1995 and acquired Seismic and
Morel in fiscal 1996. Accordingly, the Company's results of operations for
fiscal 1995 included a full year of operations at Pacific Coast and Cashmere and
three months at Ceramic Devices. Fiscal 1996 operations included a full year of
operations at Pacific Coast, Cashmere and Ceramic Devices and six months at
Seismic and Morel.
The Company's net sales increased a total of $9,690,000 in fiscal 1996 from
fiscal 1995. Of that increase, $2,509,000 resulted from increased revenue of
Pacific Coast; $147,000 resulted from increased revenue of Cashmere; $1,555,000
was from a full year of operations of Ceramic Devices; $190,000 was from the
addition of Seismic; and $5,289,000 was from the addition of Morel.
Net sales of Pacific Coast in fiscal 1996 were 64.7% higher than net sales
of that subsidiary in the prior year. The Company believes that this increase is
a result of a variety of factors, including larger order sizes, broader market
acceptance of the Company's proprietary technologies, increased sales of higher
priced products, the addition of new customers, and improved engineering, design
and manufacturing capabilities. Cashmere's net sales in fiscal 1996 increased by
2.6% over net sales in 1995. Net sales of Ceramic Devices in fiscal 1996 were
$1,954,000, compared with net sales of $399,000 for the three months during
which the Company owned Ceramic Devices in fiscal 1995. The Company believes
that the increase in net sales of Ceramic Devices is due primarily to increasing
order sizes from existing customers.
19
<PAGE>
Intercompany sales, which were eliminated in consolidation and not included
in the above analysis, totaled $723,000 for fiscal 1996. Intercompany sales in
fiscal 1996 were made by Cashmere to Pacific Coast ($375,000), Seismic
($124,000) and Morel ($224,000). In comparison, intercompany sales
for fiscal 1995 totaled $287,000, which represented sales by Cashmere to Pacific
Coast.
Gross profit of the Company increased from $1,943,000 in fiscal 1995 to
$4,286,000 in fiscal 1996. This represents an increase from 17.6% of net sales
in fiscal 1995 to 20.7% of net sales in fiscal 1996. The increase in gross
profit margin is primarily attributable to increased margins at Pacific Coast,
which the Company believes resulted principally from larger order quantities and
improved manufacturing efficiencies at Pacific Coast.
Interest income decreased to $37,000 in fiscal 1996 from $74,000 in fiscal
1995, primarily as the result of a reduction in a note receivable of Cashmere
related to Cashmere's reacquisition of a portion of the Cashmere manufacturing
facility in May 1995. Interest income in fiscal 1996 resulted primarily from
earnings on a $1,000,000 certificate of deposit held as collateral for Pacific
Coast's Community Development Block Grant loan from Washington State and Chelan
County. Interest expense increased in fiscal 1996 to $535,000 from $356,000 in
fiscal 1995, primarily as a result of debt acquired upon the acquisition of
Morel. Interest expense attributable to Morel in fiscal 1996, from December 1,
1995, when the Company acquired Morel, totaled $205,000. Merger and equity
capital costs of $104,000 in fiscal 1996 represent expenses related to the
acquisitions of Morel and Seismic. Merger and equity capital costs of $538,000
in fiscal 1995 represent the cost of converting options and warrants of Original
PCTH to common stock immediately prior to the Verazzana merger, the acquisition
costs associated with that merger, and the Ceramic Devices acquisition in April
1995. See "Acquisition History."
The federal income tax benefits of $67,000 for fiscal 1996 and $241,000 for
fiscal 1995 resulted from recording deferred tax assets for net operating losses
generated during those periods.
The Company has determined that it operates in two business segments within
the guidelines of SFAS No. 14. These business segments are "Electronic and
Safety Products" (Pacific Coast, Ceramic Devices and Seismic) and "Machined and
Cast Metal Products" (Cashmere and Morel). Accordingly, the Company has included
the appropriate disclosure in Note 17, Business Segment Information, in its
audited financial statements. See "Index to Financial Statements -- PCT
Holdings, Inc. and Subsidiaries Consolidated Financial Statements."
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1996, the Company had $13,009,000 in total current assets and
$12,057,000 in total current liabilities, resulting in net working capital of
$952,000 and a current ratio of 1.08 to 1.00. At May 31, 1995, the Company had
$6,614,000 in current assets and $5,239,000 in current liabilities, resulting in
net working capital of $1,375,000 and a current ratio of 1.26 to 1.00. The
Company has renegotiated and refinanced certain loans that were due during
fiscal 1996 so that $1,663,000 in principal amount plus accrued interest will be
due on August 31, 1996 and September 1, 1996 to certain lenders to Ceramic
Devices and Morel. The Company intends to use a portion of the net proceeds from
this Offering to pay those obligations. See "Use of Proceeds." The Company is
experiencing an immediate need for additional capital to fund its current
operations. The Company's primary line of credit expired on May 26, 1996, at
which time the Company was in default under one of its covenants. The Company
owed $1,224,000 under that line of credit as of the expiration date, and is
currently negotiating renewal of that line of credit with revised covenants. The
Company has obtained a waiver, until September 1, 1996, of defaults under
certain financial and funding covenants with Morel's bank lender. The Company
has also extended the repayment time on a number of its accounts payable.
Although the Company believes it will be able to obtain satisfactory lending
arrangements from bank or other institutional lenders, there is no assurance
that its primary line of credit will be renewed, that alternative financing will
be available, or that any available financing will be on favorable terms.
Inability to renew or replace the Company's line of credit on satisfactory terms
and failure to obtain the additional capital it needs to pay its obligations and
fund the growth of its
20
<PAGE>
operations could have a material adverse effect on the Company's business and
results of operations. See "Risk Factors -- Need for Immediate Additional
Capital" and "Risk Factors -- Need for Additional Long-Term Capital."
The Company currently has no material purchase commitments for capital
equipment. Additions and replacements of plant and equipment are generally
funded through working capital, trade-in credits for the replaced equipment, or
capital leases or long-term notes secured by the equipment purchased. The
Company may use a portion of the net proceeds of this Offering to acquire
additional processing and manufacturing equipment and to fund certain facilities
expansion. See "Use of Proceeds."
RECENT DEVELOPMENTS
In the fourth quarter of fiscal 1996, the Company obtained an aggregate of
$2,690,000 in additional debt and equity financing. In March 1996, the Company
borrowed $150,000 from Robert L. Smith, a director of the Company, pursuant to a
promissory note that accrues interest at 18% per annum and is due in full on
September 27, 1996. The Company issued Mr. Smith a warrant to purchase 37,500
shares of Common Stock at an exercise price of $4.80 per share, expiring on May
22, 2001, as additional consideration for this loan. See "Certain Transactions."
In May 1996, the Company borrowed $1,200,000 from the Selling Shareholder
pursuant to a promissory note that accrues interest at 18% per annum, and is due
in full on the earlier of the closing of this Offering or September 1, 1996,
with monthly extensions to December 1, 1996 available for additional fees. The
Company issued the Selling Shareholder a warrant to purchase 300,000 shares of
Common Stock at an exercise price of $4.80 per share, expiring on May 22, 2001,
as additional consideration for this loan. See "Selling Shareholder." The
proceeds from these loans were used to pay off a line of credit from a bank
lender to Morel and to provide working capital. These loans are expected to be
repaid using a portion of the proceeds of this Offering. See "Use of Proceeds."
In May 1996, the Company sold 490,000 shares of Common Stock in a Regulation S
offering to Swiss investors at prices of $2.54 and $3.00 per share, raising
proceeds, net of commissions, of approximately $1,340,000. The proceeds of this
Regulation S offering were used to pay approximately $500,000 in principal and
accrued interest on two promissory notes incurred in connection with the
acquisition of Ceramic Devices, to pay $250,000 in principal and accrued
interest on a $500,000 promissory note acquired upon the acquisition of Morel,
and to provide working capital.
21
<PAGE>
BUSINESS
The Company develops, manufactures, markets and sells a broad range of
precision electronic components designed to operate with a high degree of
reliability in harsh environments such as the ocean, space and the human body.
These environments experience extremes in temperature, pressure and
corrosiveness that can make product repair or replacement difficult or
impossible. The Company uses its patented technologies to produce electronic
components for a wide variety of applications in the aerospace, defense, energy,
medical and general electronics industries.
The Company operates through five wholly owned subsidiaries. Two of these
businesses are engaged in the production of electronic devices, with one
producing a variety of electronics packages and connectors shielded from their
environment by the Company's proprietary ceramic seals, and the other producing
devices designed to filter out electromagnetic interference detrimental to other
electronic devices. The Company has recently acquired a business that designs,
manufactures and sells automatic natural gas shut-off valves for use in
earthquake sensitive areas. The Company also has two businesses that manufacture
machined or cast metal products for many applications, including products that
are incorporated into or complementary with the products of its other
subsidiaries.
A substantial percentage of the Company's customers for its electronic
products consists of large manufacturing companies in the aerospace, defense,
energy, medical and general electronics industries. These include Hughes
Aircraft Company ("Hughes Aircraft"), Honeywell Inc.'s Military Avionics
Division, Lockheed Martin Corporation ("Lockheed Martin"), Northrop Grumman
Corporation ("Northrop Grumman"), Space Systems/Loral, Inc., Westinghouse
Electric Corporation and TRW, Inc. The Company's metal products customers
include Boeing, Kawasaki Heavy Industries, Ltd., Deere & Company, Northrop
Grumman and PACCAR. The Company also markets and sells its products to a variety
of smaller, specialized electronics companies. The Company, with its natural gas
shut-off valves, has recently entered the consumer home improvement market and
has received initial orders for its valves from home improvement centers such as
Eagle Hardware & Garden Inc., Ernst Home Center, Inc., HomeBase Inc., Home Depot
U.S.A., Inc. and Ace Hardware Corp.
The Company's strategy is to expand the range of products it offers within
its core areas of competence, and to produce a larger portion of the customer's
total product requirement, through internal growth and the acquisition or
development of new technologies. The Company has recently experienced
significant growth in revenues, as a result of both the acquisition of
complementary businesses and internal growth within each of its operating
subsidiaries. The Company hopes to continue to experience growth and to exploit
both technological and marketing synergies resulting from the integration of the
businesses it has acquired and other businesses or technologies that it may
acquire in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of the Company's business
segments.
PACIFIC COAST TECHNOLOGIES, INC.
PRODUCTS. Pacific Coast designs, manufactures and markets hermetically
sealed electrical connectors, electronic sealants and instrument packages, using
patented and proprietary technology. Pacific Coast was founded in 1976, and was
acquired by Mr. Wright in 1990. See "Acquisition History." Pacific Coast's
products are specifically designed for use in applications that operate in harsh
environments, such as the ocean, space and the human body, which experience
extremes in temperature, pressure or corrosiveness. Pacific Coast distributes
its products primarily to the defense, aerospace, and communications industry,
the energy industry, and the medical industry. In the aerospace, defense and
communications industry, Pacific Coast's largest customer group, its products
are used in radar, avionics, and telecommunications applications. Pacific Coast
participated in the production of the world's first hermetically sealed fiber
optic connector for use on the international space station Alpha. In the energy
industry, Pacific Coast's products are used in tools for drilling oil wells. In
the medical industry, Pacific Coast's products can be found in pacemakers, bone
growth stimulators and other implantable electronic devices such as audio
implants for the hearing impaired. Pacific Coast's products generally range in
price from approximately $50 to $1,000.
22
<PAGE>
Pacific Coast uses its proprietary hermetic sealant, Kryoflex, in many of
its products to provide a high level of hermetic seal protection in harsh
environments. Kryoflex is a multiple-phase derivative of ceramic oxide
crystalline silicate. A Kryoflex seal is mechanically stronger, and withstands
and dissipates more heat, than the glass or brazed ceramic seals used by many of
Pacific Coast's competitors. Unlike many of its competitors, a Kryoflex seal can
bond to a number of different metals and can bond dissimilar metals. The
composition and method of making Kryoflex is a proprietary trade secret of
Pacific Coast.
Pacific Coast has patented its technology in the field of explosively bonded
metals. This technology allows dissimilar metals to be welded together to make
electronic connectors and packages. The resulting devices are lighter than those
made entirely of stainless steel but have equivalent hermetic seal protection.
This technology makes Pacific Coast products competitive where light weight is a
requirement, such as in space applications.
Pacific Coast has recently patented several metal matrix composite
technologies. Metal matrix composites allow Pacific Coast to make lighter, more
durable electronic packages. In March 1996, Hughes Aircraft, an existing
customer of Pacific Coast, placed the first order for products utilizing the
Company's metal matrix composite technology. Pacific Coast intends to make this
technology available to Morel for use in casting sealed electronic packaging for
customers of Pacific Coast.
Pacific Coast generally develops new products from its existing technologies
in response to specific customer needs, with such development almost exclusively
funded by its customers. Pacific Coast plans to continue developing new
technologies to meet the changing requirements of its customers and, where
appropriate, to file additional patent applications for those new technologies.
Pacific Coast may also purchase additional strategic proprietary technology from
third-party developers. Pacific Coast does not expect to devote substantial
resources to research and development that is not funded by customers.
CUSTOMERS. Pacific Coast's customer base includes Fortune 1000 companies as
well as smaller, specialized firms. For fiscal 1996, Pacific Coast's major
customers in the defense, aerospace and communications market included ST
Olektron Corp., Honeywell Inc.'s Military Avionics Division, Amphenol
Corporation, AlliedSignal Inc.'s Aerospace Equipment Systems division, Space
Systems/ Loral, Inc., Hughes Aircraft, Westinghouse Electric Corporation, TRW
Space and Electronics Group, and Lockheed Martin. Pacific Coast's major
customers in the energy market during that period included Schlumberger
Industries, Inc. and its French parent company (collectively, "Schlumberger"),
Baker Hughes, INTEQ and Western Atlas International, Inc. Pacific Coast's major
customers in the medical market during that year were Advanced Bionics
Corporation and Electro-Biology, Inc. Pacific Coast has a varied customer base,
and no single customer accounted for more than 10% of its net sales for fiscal
1996, except for ST Olektron Corp. (13.7%) and Schlumberger (10.8%).
STRATEGY. Pacific Coast's strategy is to increase its sales and market
share by developing increasingly sophisticated electronic packages, modules and
subsystems that integrate its proprietary technology and products made by the
Company's other subsidiaries. Pacific Coast also plans to expand its
cross-marketing with the Company's other subsidiaries. As sales volumes
increase, Pacific Coast intends to increase its automation in order to obtain
additional efficiencies. In addition, Pacific Coast is developing a number of
standard products that it believes can be produced and sold more cost
effectively than custom products. In the aerospace and defense industries, the
Company believes that there is a significant potential for increased use of its
products in satellite and ground-based radar applications. In the communications
industry, Pacific Coast believes that there is similar potential for use of its
products in radio frequency applications. In the energy market, Pacific Coast
plans to continue to develop new devices to be incorporated on oil drilling
tools in order to take advantage of the emerging development of oil fields in
Russia, China, and other areas. In the medical devices market, Pacific Coast
expects to develop standard and custom devices to support more sophisticated
audio implants, bone growth stimulators, pacemakers and other implantable
electronic devices.
23
<PAGE>
CERAMIC DEVICES, INC.
PRODUCTS. Ceramic Devices designs and manufactures a line of specialized
filtering devices for use with electronic circuits operating in hostile
environments. Ceramic Devices was founded in 1982, and the Company purchased it
in February 1995 to obtain a source of ceramic filters for Pacific Coast's
connectors and electronic products. Ceramic Devices' products filter out
electromagnetic interference and other electrical signals that pose significant
problems for the manufacturers and users of high-performance, high-reliability
electronic systems. Ceramic Devices is an approved supplier of ceramic filtering
devices to military contractors. Ceramic Devices fabricates all components of
its multilayer capacitors and filters to military requirements and
individualized customer specifications. Ceramic Devices' product development is
generally funded by its customers. Ceramic Devices' products generally range in
price from approximately $5 to $100.
CUSTOMERS. Ceramic Devices' customer base is generally the same as the
customer base of Pacific Coast, including large defense, aerospace and
communications companies. Such customers purchase Ceramic Devices products for
incorporation into sophisticated electronic systems. Ceramic Devices' major
customers include Hughes Electro-Optical Operations, Inc., Hughes Aircraft,
Lockheed Martin, Rockwell International Corporation, AlliedSignal Inc.'s
Aerospace Equipment Systems division, and EMS Technologies, Inc. No one customer
accounted for more than 10% of Ceramic Devices' net sales for fiscal 1996,
except for Lockheed Martin (13.9%) and Hughes Aircraft (12%). Because the
customer base of Pacific Coast represents potential customers for Ceramic
Devices, the companies use the same direct sales force and manufacturers'
representative group.
STRATEGY. The Ceramic Devices growth strategy includes increasing its
marketing efforts to existing and potential customers in the defense, aerospace
and communications industries, and targeting customers of Pacific Coast in the
medical industry. In May 1996, Ceramic Devices completed its move from San
Diego, California to the Pacific Coast facility in Wenatchee, Washington. The
Ceramic Devices strategy also includes increasing the efficiency of its
production process through interaction with Pacific Coast, combining its filters
with Pacific Coast products, and marketing Ceramic Devices products together
with products of Pacific Coast.
SEISMIC SAFETY PRODUCTS, INC.
PRODUCTS. Seismic develops and markets natural gas shut-off valves that are
automatically activated by earthquakes, and plans to market other earthquake
safety products for use in residential applications. Cashmere manufactures the
natural gas shut-off valve for Seismic, using patented technology that Seismic
purchased in November 1995 from the inventors after six years of development.
The technology for a commercial version of this valve is currently being
completed by Seismic. Seismic's valves are designed to be installed in new and
existing natural gas lines and to automatically shut off the supply of gas in an
earthquake. The valve may also be used as a manual natural gas shut-off valve to
avert fires in other emergency situations. Significant patented features of the
valve include a mechanism for manual reset of the shut-off valve without special
tools and a seamless design to prevent potential leakage. Seismic's natural gas
shut-off valve is certified by the American Gas Association and the State of
California. The price for Seismic's residential natural gas shut-off valve
generally ranges from approximately $100 wholesale to $200 retail.
CUSTOMERS. Seismic began marketing its residential valve in December 1995
under the brand name "Northridge Valve." Beginning in March 1996, Seismic
received initial orders from several large home improvement centers, including
Eagle Hardware & Garden Inc., HomeBase Inc., Ernst Home Center, Inc., Home Depot
U.S.A., Inc. and Ace Hardware Corp. Southern California Gas Company and
Northwest Water Heater have purchased initial quantities of the shut-off valves
in order to evaluate the product's potential for distribution to their
customers. Prospective purchasers of Seismic's valve include builders, plumbers,
security companies and utility companies.
24
<PAGE>
STRATEGY. Seismic's strategy is to sell its gas shut-off valve to large
home improvement centers and other consumer outlets, and to utility companies
for distribution to their customers, in earthquake-prone areas. The City of Los
Angeles requires that new construction have an automatic natural gas shut-off
valve installed. The Company believes that similar regulations may appear
elsewhere on the West Coast due to its relatively high potential for seismic
activity. The Seismic patents and patent applications extend beyond the current
product to cover other possible products, such as a commercial version of the
natural gas shut-off valve and an electrical shut-off product currently under
development. Future production plans may include the use of aluminum cast
components made by Morel, which the Company believes may reduce production
costs, in addition to the precision machined parts currently made by Cashmere
which are included in the shut-off valve.
CASHMERE MANUFACTURING CO., INC.
PRODUCTS. Cashmere operates a precision machine shop that produces
diversified components and assemblies for the aerospace, defense, electronics
and transportation industries. Cashmere was founded in 1969, and the Company
purchased it in 1994 to provide precision machined products initially for
Pacific Coast. Cashmere now provides products for other subsidiaries of the
Company as well. Cashmere produces principally aluminum products, ranging from
small connectors to very complex assemblies. Cashmere builds to order only, in
conformance with the machining specifications of its customers. Cashmere is ISO
9000 approved, which qualifies it to perform work for most aerospace and general
electronic companies. Cashmere's products generally range in price from
approximately $10 to $200.
CUSTOMERS. Prior to fiscal 1995, Cashmere's sales were almost exclusively
to Boeing. Through a diversification program, the percentage of Cashmere's sales
to Boeing was approximately 73% for fiscal 1996. Sales to Boeing by Cashmere and
other Company subsidiaries constituted approximately 28% of the Company's
consolidated net sales for that year. See "Risk Factors -- Dependence on
Significant Customers." At May 31, 1996, Cashmere's major customers were Boeing,
Pacific Coast, Nissho Iwai American Corporation, Kawasaki Heavy Industries, Ltd.
and Northrop Grumman. Pacific Coast, Morel, and Seismic together accounted for
9.4% of Cashmere's sales for fiscal 1996. Cashmere manufactures a variety of
aluminum and stainless steel connector shells and electronic packages for
Pacific Coast, machines cast parts for Morel, and is the sole manufacturer of
the natural gas shut-off valve marketed by Seismic.
STRATEGY. Through access to the customer base of Pacific Coast, Cashmere is
pursuing strategies intended to continue reducing its dependency on Boeing.
Cashmere plans to expand its direct sales effort, concentrate on customer
service, and offer additional value-added services. Most Pacific Coast products
require machining which is increasingly being provided by Cashmere, allowing
Cashmere to benefit from the sales and marketing efforts of Pacific Coast. Morel
is also currently a customer of Cashmere. Cashmere, together with Morel, has
recently implemented direct sales coverage in the Pacific Northwest and Southern
California in an effort to expand the market for products of both companies.
MOREL INDUSTRIES, INC.
PRODUCTS. Morel manufactures precision cast aluminum parts used principally
in the transportation, heavy trucking and aerospace industries. Morel was
founded in 1909, and the Company purchased Morel in 1995 to provide cast parts
for its other subsidiaries and to expand its presence in the transportation
industry. Morel uses sand castings, lost foam and permanent molds to contain and
shape molten aluminum. These components are often further shaped or patterned on
Morel's milling equipment to meet a customer's specific needs. Morel also
provides additional services such as painting, machining and general assembly
work. Morel is currently operating at less than full capacity and believes that
it could use its remaining capacity without significant additional capital
expenditures. Morel's products generally range in price from approximately $5 to
$100.
25
<PAGE>
CUSTOMERS. Morel is dependent on sales to PACCAR, which constituted 75% of
Morel's net sales in fiscal year 1995. Net sales to PACCAR in the last six
months of fiscal 1996 constituted 15% of the Company's consolidated net sales
for that period. See "Risk Factors -- Dependence on Significant Customers."
Morel's other major customers include Deere & Company, Accra Manufacturing, Inc.
and Boeing.
STRATEGY. Morel's customers are increasingly requesting products that are
cast and machined by a single provider. The Company believes that Morel's
ability to machine its aluminum parts, combined with additional capacity at
Cashmere, will increase its ability to compete for finished cast aluminum
business. The Company plans to diversify Morel's customer base by taking
advantage of its access to the customers and marketing of the Company's other
subsidiaries. The Company also has plans to provide Morel access to proprietary
technology, such as the metal matrix composite technology recently patented by
Pacific Coast, in order to enhance Morel's competitive advantages in its
industry. The Company believes the recent addition of direct sale
representatives in the Pacific Northwest and Southern California for Morel and
Cashmere will allow Morel to diversify its customer base and reduce its
dependence on PACCAR.
MARKETING
PACIFIC COAST AND CERAMIC DEVICES. Pacific Coast and Ceramic Devices market
their products in the United States, Europe and Japan through a network of 22
manufacturer representatives and resellers as of May 31, 1996, generally
established on a geographic basis. These representatives and resellers are
subject to agreements that prevent them from selling the products of competitors
of Pacific Coast and Ceramic Devices. In addition, Pacific Coast and Ceramic
Devices maintain a joint internal sales and customer service staff and
engineering capability to meet customer requirements for technical support.
SEISMIC. The Company currently markets Seismic's natural gas shut-off valve
in California, Oregon, Utah and Washington. In addition, the Company believes
that there is a significant market for Seismic's valves in other
earthquake-prone areas, such as Japan. Seismic's strategy is to increase its
marketing efforts in two domestic distribution channels: large regional natural
gas utilities for direct sales to their customers and large home improvement
centers for sales to consumers. Seismic also intends to implement a direct mail
program as part of its marketing campaign. In the future,
Seismic may enter into a strategic arrangement with a Japanese firm to market
Seismic's natural gas shut-off valve in Japan.
CASHMERE AND MOREL. Cashmere and Morel have a similar existing and
potential customer base and use the same direct sales approach and personnel.
They currently have direct regional sales personnel covering the West Coast. The
Company expects to engage additional salespeople for other geographic regions as
business warrants.
COMPETITION
PACIFIC COAST AND CERAMIC DEVICES. The market for Pacific Coast and Ceramic
Devices products is highly competitive and is composed of numerous competitors,
none of which dominates the market. Competition is based primarily on product
quality, price, custom product development capability, and technical support.
Pacific Coast's principal competitors include Balo Precision Parts, Inc.
("Balo"), Amphenol Corporation, Hermetic Seal Corporation, Kemlon Products and
Development Co., ITT Cannon Inc. and Alberox Corporation. Pacific Coast recently
purchased two patents from Balo and licensed certain rights under these and
certain other related patents of the Company to Balo under the terms of a
settlement agreement between Pacific Coast and Balo. See "Business --
Proprietary Rights." Pacific Coast is not aware of any competitor that competes
with all of its product lines, although competitors do exist in each market.
Ceramic Devices' principal competitors in all of its markets include AVX
Corporation, Spectrum Control, Inc. and Maxwell Laboratories, Inc.'s Sierra
Capacitor/Filter Division. Many of these companies have greater financial and
technical resources
26
<PAGE>
than the Company. The Company believes that Pacific Coast and Ceramic Devices
products are positioned to be competitive in these markets due to the quality of
the products, the proprietary and patented technology, and their custom product
development capability.
SEISMIC. The market for Seismic's natural gas shut-off valve includes
several principal competitors, such as Safe T Quake Corporation, Engdahl
Enterprises and Pacific Seismic Valves, Inc. The Company believes that its
valve's rugged construction, ease of installation, easy reset feature, and
pricing should allow it to be competitive in this market.
CASHMERE AND MOREL. The market for Cashmere and Morel products is very
competitive on a regional basis. The Company expects that access to Pacific
Coast's proprietary technology and customer base will provide Cashmere and Morel
with a competitive advantage in their industries. In addition, the Company
believes that modernization accomplished when Morel purchased its current
facilities in March 1994 enables Morel to produce its products more efficiently.
The Company believes that the ability to offer combined and complementary
products and value-added services with the Company's other subsidiaries will
enhance the ability of Cashmere and Morel to compete in this market. See "Risk
Factors -- Competition."
SUPPLIERS AND PRODUCTION
PACIFIC COAST AND CERAMIC DEVICES. Pacific Coast and Ceramic Devices have
multiple competitive sources generally available to supply all of their needs
for raw, processed and machined materials. However, Pacific Coast and Ceramic
Devices occasionally experience delivery and quality difficulties with their
vendors, and maintain secondary sources of supply for outside purchases. Pacific
Coast and Ceramic Devices also maintain a quality control program to monitor
supplier compliance with their supply requirements.
CASHMERE, MOREL AND SEISMIC. Cashmere has a readily available source of
supply for the raw materials it requires through numerous product distributors.
Morel has several suppliers of aluminum for its casting process, including
Aluminum Company of America, Inc. (ALCOA), Morel's largest supplier, which has a
supply facility located within approximately 35 miles of Morel's facility.
However, delivery and quality of supplies may vary or change from time to time.
In addition, the price of aluminum fluctuates with the market, which is
generally absorbed by Cashmere but which Morel can generally pass through to its
customers. All of Seismic's products are supplied by Cashmere. See "Risk Factors
- - -- Availability and Cost of Materials."
PROPRIETARY RIGHTS
The Company relies primarily on a combination of patent, trade secret,
copyright and trademark laws, confidentiality procedures, and other intellectual
property protection methods to protect its proprietary technology. The Company
currently holds 32 United States patents and has three patent applications
pending. Of these, Pacific Coast owns 28 patents and has one patent application
pending, and Seismic owns three patents, has one United States patent
application pending and has one international patent application pending that
designates Japan and Europe as jurisdictions in which patent protection is
sought.
The Company's issued patents will expire at various times over the next 16
years, beginning in September 1997. Although the Company believes that the
manufacturing processes of its technology that is currently protected by
patents, particularly that of Pacific Coast, are sufficiently complex that
competing products made with the same technology are unlikely, there is no
assurance that the Company's competitors will not design competing products
using the same or similar technology once these patents have expired.
There is no assurance that the patent applications by Pacific Coast and
Seismic will result in issued patents, that the existing patents or any future
patents issued to the Company or its subsidiaries will provide any competitive
advantages for their products or technology, or that, if challenged, the patents
issued to the Company or its subsidiaries will be held valid and enforceable.
Despite the
27
<PAGE>
precautions taken by the Company, unauthorized parties may attempt to copy
aspects of the Company's products or obtain and use information that the Company
regards as proprietary, and existing intellectual property laws afford only
limited protection. Policing violations of such laws is difficult. The laws of
certain countries in which the Company's products are or may be distributed do
not protect the Company's products and intellectual property rights to the same
extent as do the laws of the United States. There is no assurance that these
protections will be adequate or that the Company's competitors will not
independently develop similar technology, gain access to the Company's trade
secrets or other proprietary information, or design around the Company's
patents.
The Company may be required to enter into costly litigation to enforce its
intellectual property rights or to defend infringement claims by others. Such
infringement claims could require the Company to license the intellectual
property rights of third parties. There is no assurance that such licenses would
be available on reasonable terms, or at all. The Company recently settled
litigation with Balo, a competitor of Pacific Coast, involving patent
infringement claims by and against Balo. As a result of the settlement, Pacific
Coast acquired two patents from Balo in the field of explosively bonded hermetic
connectors and packages, which was the subject of the litigation, and granted
Balo a license to use these and certain other related patents of the Company.
See "Risk Factors -- Limited Protection of Proprietary Technology."
GOVERNMENT REGULATION
Certain of the Company's products are manufactured and sold under United
States government contracts or subcontracts. As with all companies that provide
products or services to the federal government, the Company is directly and
indirectly subject to various federal rules, regulations and orders applicable
to government contractors. Certain of these government regulations relate
specifically to the vendor-vendee relationship with the government, such as the
bidding and pricing rules. Under regulations of this type, the Company must
observe certain pricing restrictions, produce and maintain detailed accounting
data, and meet various other requirements. The Company is also subject to a
number of regulations affecting the conduct of its business generally. For
example, the Company must adhere to federal acquisition requirements and to
standards established by the Occupational Safety and Health Act relating to
labor practices and occupational safety standards. Violation of applicable
government rules and regulations could result in civil liability, in
cancellation or suspension of existing contracts or in ineligibility for future
contracts or subcontracts funded in whole or in part with federal funds. See
"Risk Factors -- Governmental Regulation."
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances concerning solid waste disposal, hazardous materials storage, use and
disposal, air emissions, waste water and storm water disposal, employee health
and other environmental matters (together, "Environmental Laws"). Proper waste
disposal and environmental regulation are major considerations for the Company
because certain metals and chemicals used in its manufacturing processes are
classified as hazardous substances.
Since the Company's acquisition of Morel in December 1995, the Company has
initiated an environmental compliance program for the Morel facility, which
includes obtaining all permits necessary for that facility to operate in
compliance with applicable Environmental Laws. As part of this program, Morel in
January 1996 obtained a permit to discharge air emissions. Morel is operating
without a permit required by Environmental Laws to discharge waste water and
storm water. In May 1996, Morel submitted an application to the State of
Washington for this permit. A failure by Morel to obtain the required permit
could result in regulatory authorities imposing fines on Morel or ordering Morel
to cease operations or both. The Company is obtaining the necessary
environmental data to support the permit application and expects to submit such
data in July 1996. Although the Company believes that the necessary permit will
be issued in the first quarter of fiscal 1997, there is no assurance that such
permit will be issued, and the failure to obtain such permit would have a
material adverse effect on the Company.
28
<PAGE>
From time to time, the Company's operations may result in other
noncompliance with Environmental Laws. If any violations of Environmental Laws
occur, the Company could be liable for damages and for the costs of remedial
actions and could also be subject to revocation of permits necessary to conduct
its business. Any such revocation could require the Company to cease or limit
production at one or more of its facilities, which could have a material adverse
effect on the Company. As a generator of hazardous materials, the Company is
subject to financial exposure even if it fully complies with these laws.
Environmental Laws could become more stringent over time, imposing greater
compliance costs and increasing risks and penalties associated with any
violations. There is no assurance that any present or future noncompliance with
Environmental Laws will not have a material adverse effect on the Company's
results of operations or financial condition. See "Risk Factors -- Environmental
Matters."
FACILITIES
All of the Company's subsidiaries are now located in the greater Wenatchee,
Washington area. All of the operating subsidiaries except Morel operate from
adjacent buildings in Wenatchee, and Morel is located 15 miles away in Entiat.
The close proximity of the operating subsidiaries is part of the Company's
strategy to enhance the efficiencies between these companies.
Pacific Coast operates from facilities in Wenatchee, Washington of
approximately 31,000 square feet, which it has leased from the Port of Chelan
County since September 1994. An additional 7,500 square feet were added to the
lease in January 1996 to house Ceramic Devices' operations. Ceramic Devices
completed its move to Wenatchee from San Diego, California in May 1996. Cashmere
and Seismic operate from an adjacent facility of approximately 42,000 square
feet which Cashmere has leased from the Port of Chelan County since October
1995. This facility was built to suit Cashmere by the Port of Chelan. The leases
for these facilities expire in the year 2005 and both contain options to renew
for two additional five-year terms. Total lease costs for these facilities are
$342,000 per year.
Morel operates from facilities in Entiat, Washington of approximately 84,000
square feet. Morel purchased these facilities and relocated from Seattle in
August 1994, at which time the facilities were renovated into a modern foundry
operation.
Cashmere owns a portion of its previous facility of approximately 46,000
square feet located in nearby Cashmere, Washington. Although the Company held
this property for sale during a portion of fiscal 1996, it is currently using
the property for staging and storage. The Company is assessing its long-term
plans for the property, including retaining the property as an operating asset.
Ceramic Devices is subject to two leases for its previous facilities in San
Diego, California. Those facilities total approximately 9,900 square feet of
office and manufacturing space in two buildings. Both leases expire on April 30,
1997, and the total rent is $6,775 per month. Ceramic Devices is seeking to
sublease this space through the end of the lease term.
EMPLOYEES
As of June 1, 1996, the Company and its subsidiaries had a total of 352
full-time employees, of which 298 were in manufacturing and quality assurance,
14 were in customer service, marketing and sales, 12 were in engineering, 25
were in administration, and 3 were in customer-sponsored product development.
None of the Company's employees is covered by an ongoing collective bargaining
agreement, the Company has experienced no work stoppages, and the Company
believes that its relationship with its employees is good.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ---------------------------------- --- ------------------------------------------------------------------------
<S> <C> <C>
Donald A. Wright(1) 44 Chairman of the Board, Chief Executive Officer and President
Herman L. "Jack" Jones 65 Executive Vice President, Chief Operating Officer and Director
Nick A. Gerde 51 Vice President Finance and Chief Financial Officer
Roger P. Vallo(1)(2)(3)(4) 61 Secretary and Director
Robert L. Smith(1)(4) 81 Treasurer and Director
Donald B. Cotton(2)(4) 58 Director
Allen W. Dahl, M.D.(1)(2)(3) 68 Director
Paul Schmidhauser(3) 47 Director
</TABLE>
- - ------------------------
(1) Member of the Nominating Committee
(2) Member of the Compensation Committee
(3) Member of the Option Committee
(4) Member of the Finance and Audit Committee
Donald A. Wright has been the Chairman of the Board, Chief Executive Officer
and President of the Company since February 1995, and held those same positions
with Original PCTH and its successor from May 1994 until the successor was
dissolved in May 1996. Mr. Wright has been an officer and director of Pacific
Coast and its predecessor, Kyle Technology Corporation, since 1990. Mr. Wright
also has been an officer and director of each of the Company's other operating
subsidiaries since their respective acquisitions by the Company.
Herman L. "Jack" Jones has been Executive Vice President, Chief Operating
Officer and a director of the Company since February 1995, and held those same
positions with Original PCTH and its successor from May 1994 until the successor
was dissolved. Mr. Jones also has served as a director of Pacific Coast since
April 1994, a director of Morel since December 1995 and a director of Seismic
since October 1995. Mr. Jones founded Cashmere and has served as President and a
director of Cashmere since 1969.
Nick A. Gerde has been the Vice President Finance and Chief Financial
Officer of the Company since February 1995. Mr. Gerde is also an officer and
director of each of the Company's operating subsidiaries. Mr. Gerde served as
Controller/CFO of Hydraulic Repair & Design, Inc., a regional hydraulic
component repair and wholesale distribution company, from March 1990 through
April 1993; Business Development Specialist with the Economic Development
Council of North Central Washington from July 1993 to June 1994; and vice
president of Televar Northwest, Inc., a closely held telecommunications company,
from July 1994 to February 1995. Mr. Gerde is a certified public accountant.
Roger P. Vallo has been a director and the Secretary of the Company since
February 1995, and held those same positions with Original PCTH and its
successor from May 1994 until the successor was dissolved. Mr. Vallo served as a
director of Pacific Coast from February 1991 to November 1995 and as Secretary
from July 1993 to October 1994. From 1990, he served as a director of the
predecessor of Pacific Coast and subsequently as a director of Pacific Coast.
Mr. Vallo also is the President and Chief Executive Officer of Prudential
Preferred Properties in Everett, Washington.
30
<PAGE>
Robert L. Smith has been a director and the Treasurer of the Company since
February 1995, and those same positions with Original PCTH and its successor
from May 1994 until the successor was dissolved. Prior to May 1994, he served as
a director and officer of Pacific Coast. Mr. Smith is engaged in the commercial
real estate business for Prudential Preferred Properties in Everett, Washington.
Donald B. Cotton has been a director of the Company since February 1995, and
was a director of Original PCTH and its successor from May 1994 until the
successor was dissolved. He was a director of Pacific Coast from October 1993 to
October 1994. Mr. Cotton retired from GTE in 1993, where he served most recently
as a vice president. He is currently self-employed as a software consultant.
Allen W. Dahl, M.D. has been a director of the Company since February 1995,
and was a director of Original PCTH and its successor from October 1994 until
the successor was dissolved. Dr. Dahl is a semi-retired physician, practicing in
the Puget Sound region of Washington.
Paul Schmidhauser has been a director of the Company since November 1995.
Mr. Schmidhauser currently manages SIR Schmidhauser Industrial Representations
AG, a Swiss company. From January 1994 to January 1995, Mr. Schmidhauser was a
private investor. Prior to January 1994, Mr. Schmidhauser was a Vice President
of ABB W&E Umwelttechnik AG, a Swiss company.
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. Under the terms of an agreement between Lysys Ltd. ("Lysys") and the
Company, dated January 3, 1995, Lysys has the right to nominate one of the
Company's Board members, until July 1998. Mr. Schmidhauser is the current
designee of Lysys to the Board of Directors. See "Certain Transactions."
Executive officers are elected by the Board of Directors of the Company at the
first Board meeting after each annual meeting of shareholders and hold office
until their successors are elected and duly qualified.
SIGNIFICANT EMPLOYEES
John M. Eder, 52, has been President and a director of Seismic since October
1995. He also has served as Executive Vice President of Cashmere since September
1990, and as a director of Cashmere since October 1994.
Stephen L. Morel, 43, has been President of Morel since February 1989, and a
director of Morel since May 1976. Stephen Morel and Mark Morel, below, are
brothers.
Mark Morel, 44, has been Vice President of Sales of Morel since July 1989,
and a director of Morel since December 1988.
Ivan G. Sarda, 63, has been President and a director of Ceramic Devices
since April 1995. Before the Company's acquisition of Ceramic Devices, Mr. Sarda
was a founder and served as President and a director of Ceramic Devices'
predecessor.
Lewis L. Wear, 55, has been President of Pacific Coast since February 1996,
and a director of Pacific Coast since November 1995. He also has been a director
of Ceramic Devices since November 1995. Prior to November 1995, Mr. Wear was
Vice President of Sales for Vacuum Atmospheres, a division of WEMS, Inc.
DIRECTOR COMPENSATION
The Independent Director Stock Plan, approved by the shareholders of the
Company in November 1995, provides for an initial award of 500 shares of Common
Stock and an annual award of $5,000 worth of Common Stock to each non-employee
director. Each non-employee director who serves on a committee of the Board of
Directors is entitled to receive a fee of $1,000 per year for each committee on
which that director serves, and the chairperson of each committee is entitled to
receive an additional $500 fee per year. In addition, each non-employee director
of a subsidiary of the Company, who is not a director of the Company, will
receive a fee of up to $1,000 per year. At the Board's option, persons who serve
as directors of a subsidiary of the Company may be eligible for additional fees.
Each of the cash fees may be paid, at the Board's option, in shares of Common
Stock. Non-employee directors receive
31
<PAGE>
no salary for their services and receive no fee from the Company for their
participation in meetings, although all directors are reimbursed for reasonable
travel and other out-of-pocket expenses incurred in attending meetings of the
Board. As of May 31, 1996, 9,000 shares have been issued to Directors under the
Independent Director Plan, with 6,000 shares subject to forfeiture if certain
conditions are not met. See "Management -- Benefit Plans."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table sets forth the annual and
long-term compensation of Donald A. Wright ("Named Executive") for services in
all capacities to the Company for the last three fiscal years. No other officer
of the Company received annual salary and bonuses exceeding $100,000 in the
fiscal year ended May 31, 1996. This table and the following tables do not
include a stock option that the Company has agreed to grant to Mr. Wright in
fiscal 1997 on the effective date of this Prospectus for 845,000 shares of
Common Stock at 150% of the Unit Offering Price, but not less than $3.75 per
share.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------------
--------------------------------------------- SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/
NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS SARS
PRINCIPAL POSITION YEAR(1) ($) ($) ($) ($) (#)
- - ------------------------------- ----------- --------- ------ ------------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald A. Wright(2)(3) 1996 110,577 0 0 0 112,560
CEO and President 1995 83,654 0 0 0 100,000(4)
1994 75,000 0 0 0 0
<CAPTION>
PAYOUTS
-------------
LTIP ALL OTHER
NAME AND PAYOUTS COMPENSATION
PRINCIPAL POSITION ($) ($)
- - ------------------------------- ------------- ----------------
<S> <C> <C>
Donald A. Wright(2)(3) 0 400(5)
CEO and President 0 0
0 0
</TABLE>
- - ------------------------
(1) Information is shown for the May 31 fiscal years of the Company and, prior
to February 1995, Original PCTH, which employed Mr. Wright during the
relevant periods.
(2) Mr. Wright became the Chief Executive Officer of the Company in February
1995, upon effectiveness of the merger of Original PCTH into a wholly owned
subsidiary of the Company. See "Acquisition History."
(3) The compensation shown for Mr. Wright for the fiscal year ended May 31,
1994 was paid by Original PCTH.
(4) Represents unexercised, but exercisable, warrants to purchase 100,000
shares of Common Stock. See "Aggregated Option/SAR Exercises and Fiscal
Year-End Option/SAR Values," below.
(5) Represents estimated value of the personal use of a company car.
OPTION GRANTS. The following table sets forth information on grants of
stock options or other similar rights by the Company during the last fiscal year
to the Named Executive.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL MARKET PRICE
SECURITIES OPTIONS/SARS EXERCISE OR ON DATE OF
UNDERLYING OPTIONS/ GRANTED TO EMPLOYEES BASE PRICE GRANT EXPIRATION
NAME SARS GRANTED (#) IN FISCAL YEAR ($/SHARE) ($/SHARE) DATE
- - ---------------------------- ------------------- ------------------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Donald A. Wright 97,560 67% 5.125 5.125 10/30/2005
15,000 10% 4.875 4.875 11/28/2005
</TABLE>
32
<PAGE>
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES. The
following table sets forth information concerning exercise of stock options and
warrants during the last fiscal year by the Named Executive and the fiscal year
end value of unexercised options:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
OPTIONS/SARS AT FY-END (#) SARS AT FY-END ($)
SHARES ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---------------------------- --------------------- ------------- ------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Donald A. Wright 0 0 134,512(1) 78,048 209,000 N/A
</TABLE>
- - ------------------------
(1) Includes warrants that were granted by Original PCTH on December 24, 1994,
and converted by the Company, as of February 17, 1995, into warrants to
purchase 100,000 shares of Common Stock at $2.00 per share, which are
currently exercisable in full.
EMPLOYMENT AGREEMENTS
Mr. Wright has been employed by the Company pursuant to an Employment
Agreement dated January 1, 1995, as amended on March 1, 1996 (the "Recent
Employment Agreement"). The Recent Employment Agreement was superseded by an
Employment Agreement dated as of June 1, 1996 (the "New Employment Agreement").
The New Employment Agreement has a term of two years, ending on May 31, 1998,
unless terminated earlier for "cause" (as defined in the New Employment
Agreement). Both employment agreements prohibit Mr. Wright from competing with
the Company for two years following termination. Under the Recent Employment
Agreement, Mr. Wright received an annual base salary of $100,000 for calendar
year 1995, and salary at an annual rate of $125,000 for the first five months of
calendar year 1996. Under the New Employment Agreement, Mr. Wright receives an
annual base salary of $160,000 and $175,000 for fiscal years 1997 and 1998,
respectively, subject to any increase that may be determined to be appropriate
by the Board of Directors. Based on Mr. Wright's performance as judged by the
Board of Directors, Mr. Wright also may be entitled to receive stock options to
purchase 15,000 shares of Common Stock per year at an exercise price equal to
the fair market value of the Common Stock on the date of grant for each of the
fiscal years 1996, 1997 and 1998. The Board of Directors awarded Mr. Wright
options to purchase up to 15,000 shares of Common Stock at $4.875 per share for
his performance during fiscal year 1995. In addition, under the New Employment
Agreement, if a "change of control" of the Company occurs and within six months
thereafter Mr. Wright is terminated without "cause" or terminates his employment
for "good reason" (as such terms are defined in the New Employment Agreement),
Mr. Wright would be entitled to receive a severance payment equal to twice his
annual base salary then in effect, subject to certain exceptions provided in the
New Employment Agreement. The term "change of control" includes the following
events: (i) a change in composition of the Board of Directors over any two-year
period such that the directors at the beginning of the period, together with
directors subsequently approved by the continuing directors, no longer
constituted a majority of the Board, or (ii) any person becoming the beneficial
owner of securities having 30% or more of the voting power of the Company's
outstanding voting securities, subject to certain exceptions in the New
Employment Agreement. Any such severance payment under the New Employment
Agreement would be reduced to the extent necessary to avoid subjecting the
payment to penalty taxes on parachute payments. In addition to such severance
payment, Mr. Wright and his family would be entitled to continue to participate
for one year after such termination in employee health and medical benefits
plans and programs in which they were participants when employment terminated,
to the extent permitted by such plans and programs.
BENEFIT PLANS
1995 STOCK INCENTIVE PLAN
The Company's 1995 Stock Incentive Plan (the "Plan") provides for the award
of incentive stock options ("ISOs") to key employees and the award of
non-qualified stock options ("NSOs"), stock appreciation rights ("SARs"), bonus
rights, and other incentive grants to employees and certain non-employees (other
than non-employee directors) who have important relationships with the Company
or its subsidiaries.
33
<PAGE>
ADMINISTRATION. The Plan may be administered by the Board of Directors or
by a committee of directors or officers of the Company. The Board of Directors
has designated an Option Committee to administer the Plan. The Option Committee
determines and designates the individuals to whom awards under the Plan should
be made and the amount and terms and conditions of the awards, except that if
officers of the Company serve on the Option Committee it may not grant options
to such officers. The Option Committee may adopt and amend rules relating to the
administration of the Plan, but only the Board of Directors may amend or
terminate the Plan. The Plan is administered in accordance with Rule 16b-3
adopted under the Exchange Act.
ELIGIBILITY. Awards under the Plan may be made to employees, including
employee directors, of the Company and its subsidiaries, and to nonemployee
agents, consultants, advisors, and other persons (but not including nonemployee
directors) that the Option Committee believes have made or will make an
important contribution to the Company or any subsidiary thereof.
SHARES AVAILABLE. Subject to adjustment as provided in the Plan, a maximum
of 1,000,000 shares of Common Stock are reserved for issuance thereunder. If an
option, SAR or performance unit granted under the Plan expires or is terminated
or canceled, the unissued shares subject to such option, SAR or performance unit
are again available under the Plan. In addition, if shares sold or awarded as a
bonus under the Plan are forfeited to the Company or repurchased thereby, the
number of shares forfeited or repurchased are again available under the Plan.
TERM. Unless earlier terminated by the Board, the Plan will continue in
effect until the earlier of: (i) ten years from the date on which the Plan is
adopted by the Board, and (ii) the date on which all shares available for
issuance under the Plan have been issued and all restrictions on such shares
have lapsed. The Board may suspend or terminate the Plan at any time except with
respect to options, performance units, and shares subject to restrictions then
outstanding under the Plan.
STOCK OPTION GRANTS. The Option Committee may grant ISOs and NSOs under the
Plan. With respect to each option grant, the Option Committee determines the
number of shares subject to the option, the option price, the period of the
option, the time or times at which the option may be exercised (including
whether the option will be subject to any vesting requirements and whether there
will be any conditions precedent to exercise of the option), and the other terms
and conditions of the option.
ISOs are subject to special terms and conditions. The aggregate fair market
value, on the date of the grant, of the Common Stock for which an ISO is
exercisable for the first time by the optionee during any calendar year, may not
exceed $100,000. An ISO may not be granted to an employee who possesses more
than 10% of the total voting power of the Company's stock unless the option
price is at least 110% of the fair market value of the Common Stock subject to
the option on the date it is granted and the option is not exercisable five
years after the date of grant. No ISO may be exercisable after ten years from
the date of grant. The option price may not be less than 100% of the fair market
value of the Common Stock covered by the option at the date of grant.
In general, no vested option may be exercised unless at the time of such
exercise the optionee is employed by or in the service of the Company or any
subsidiary thereof, within 12 months following termination of employment by
reason of death or disability, or within three months following termination for
any other reason except for cause. Options are nonassignable and nontransferable
by the optionee except by will or by the laws of descent and distribution at the
time of the optionee's death. No shares may be issued pursuant to the exercise
of an option until full payment therefor has been made. Upon the exercise of an
option, the number of shares reserved for issuance under the Plan will be
reduced by the number of shares issued upon exercise of the option. Options to
purchase an aggregate of 145,283 shares of Common Stock have been granted under
the Plan, and the Company has agreed to issue Mr. Wright an option under the
Plan to purchase 845,000 shares upon the effective date of this Prospectus. See
"Description of Securities -- Stock Options."
34
<PAGE>
STOCK APPRECIATION RIGHTS. The Option Committee may grant SARs under the
Plan. Each SAR entitles the holder, upon exercise, to receive from the Company
an amount equal to the excess of the fair market value on the date of exercise
of one share of Common Stock of the Company over its fair market value on the
date of grant (or, in the case of a SAR granted in connection with an option,
the excess of the fair market value of one share of Common Stock of the Company
over the option price per share under the option to which the SAR relates),
multiplied by the number of shares covered by the SAR or the option. Payment by
the Company upon exercise of a SAR may be made in Common Stock, in cash, or by a
combination of Common Stock and cash.
If a SAR is granted in connection with an option, the following rules shall
apply: (i) the SAR shall be exercisable only to the extent and on the same
conditions that the related option could be exercised; (ii) the SAR shall be
exercisable only when the fair market value of the stock exceeds the option
price of the related option; (iii) the SAR shall be for no more than 100% of the
excess of the fair market value of the stock at the time of exercise over the
option price; (iv) upon exercise of the SAR, the option or portion thereof to
which the SAR relates terminates; and (v) upon exercise of the option, the
related SAR or portion thereof terminates.
Each SAR is nonassignable and nontransferable by the holder except by will
or by the laws of descent and distribution at the time of the holder's death.
Upon the exercise of a SAR for shares, the number of shares reserved for
issuance under the Plan will be reduced by the number of shares issued. Cash
payments of SARs will not reduce the number of shares of Common Stock reserved
for issuance under the Plan. No SARs have been granted under the Plan.
RESTRICTED STOCK. The Option Committee may issue shares of Common Stock
under the Plan subject to the terms, conditions, and restrictions determined
thereby. Upon the issuance of restricted stock, the number of shares reserved
for issuance under the Plan shall be reduced by the number of shares issued. No
restricted shares have been granted under the Plan.
STOCK BONUS AWARDS. The Option Committee may award shares of Common Stock
as a stock bonus under the Plan. The Option Committee may determine the
recipients of the awards, the number of shares to be awarded, and the time of
the award. Stock received as a stock bonus is subject to the terms, conditions,
and restrictions determined by the Option Committee at the time the stock is
awarded. No stock bonus awards have been granted under the Plan.
CASH BONUS RIGHTS. The Option Committee may grant cash bonus rights under
the Plan in connection with (i) options granted or previously granted, (ii) SARs
granted or previously granted, (iii) stock bonuses awarded or previously
awarded, and (iv) shares issued under the Plan. Bonus rights granted in
connection with options entitle the optionee to a cash bonus if and when the
related option is exercised. The amount of the bonus is determined by
multiplying the excess of the total fair market value of the shares acquired
upon the exercise over the total option price for the shares by the applicable
bonus percentage. The bonus rights granted in connection with a SAR entitle the
holder to a cash bonus when the SAR is exercised. The amount of the bonus is
determined by multiplying the total fair market value of the shares or cash
received pursuant to the exercise of the SAR by the applicable percentage. The
bonus percentage applicable to any bonus right is determined by the Option
Committee but may in no event exceed 75%. Bonus rights granted in connection
with stock bonuses entitle the recipient to a cash bonus, in an amount
determined by the Option Committee, when the stock is awarded or purchased or
any restrictions to which the stock is subject lapse. No bonus rights have been
granted under the Plan.
PERFORMANCE UNITS. The Option Committee may grant performance units
consisting of monetary units which may be earned if the Company achieves certain
goals established by the Committee over a designated period of time. The goals
established by the Option Committee may include earnings per share, return on
shareholders' equity, return on invested capital, and similar benchmarks.
Payment of an award earned may be in cash or in Common Stock or partly in both,
and may be made when earned, or vested and deferred, as the Option Committee
determines. Each performance unit will be
35
<PAGE>
nonassignable and nontransferable by the holder except by will or by the laws of
descent and distribution at the time of the holder's death. The number of shares
reserved for issuance under the Plan shall be reduced by the number of shares
issued upon payment of an award. No performance units have been granted under
the Plan.
CHANGES IN CAPITAL STRUCTURE. The Plan provides that if the outstanding
Common Stock of the Company is 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 recapitalization, stock split
or certain other transactions, appropriate adjustment will be made by the Option
Committee in the number and kind of shares available for grants under the Plan.
In addition, the Option Committee will make appropriate adjustments in the
number and kind of shares as to which outstanding options will be exercisable.
In the event of a merger, consolidation or other fundamental corporate
transformation, the Board may, in its sole discretion, permit outstanding
options to remain in effect in accordance with their terms; to be converted into
options to purchase stock in the surviving or acquiring corporation in the
transaction; or to be exercised, to the extent then exercisable, during a 30-day
period prior to the consummation of the transaction.
INDEPENDENT DIRECTOR STOCK PLAN
The Company's Independent Director Stock Plan (the "Director Plan") provides
for the award of shares of Common Stock to non-employee directors of the Company
to attract, reward, and retain qualified individuals to serve as directors and
to provide added incentive to such persons by increasing their ownership
interest in the Company.
ADMINISTRATION. The Director Plan may be administered by the Board of
Directors or by a committee of directors and officers of the Company. The Board
has delegated to the Compensation Committee the responsibility of administering
the Director Plan. Subject to the requirements of the Director Plan, the
Compensation Committee has the authority to, among other things, determine the
fair market value of the Common Stock, interpret the Director Plan and
prescribe, amend, and rescind rules and regulations relating thereto, and make
all determinations deemed necessary or advisable to administer the Director
Plan, except that only the Board of Directors may suspend, amend or terminate
the Director Plan. No director may vote on any action by the Board of Directors
with respect to any matter relating to an award held by such director. The
Director Plan is administered in accordance with Rule 16b-3 adopted under the
Exchange Act.
ELIGIBILITY. Shares may be awarded under the Director Plan only to
Independent Directors. The term "Independent Director" means a director who is
not an employee of the Company or any of its subsidiaries.
SHARES AVAILABLE. The total number of shares of Common Stock that may be
awarded as bonuses under the Director Plan may not exceed 100,000 shares. If any
share awarded under the Director Plan is forfeited, such share will again be
available for purposes of the Director Plan.
TERM. Unless earlier suspended or terminated by the Board, the Director
Plan will continue in effect until the earlier of: (i) ten years from the date
on which it is adopted by the Board, and (ii) the date on which all shares
available for issuance under the Director Plan have been issued.
INITIAL AWARD. The Independent Directors who were elected at the 1995
annual shareholders meeting each received 500 shares of Common Stock (the
"Initial Award") for a total of 3,000 shares. In the future, each new
Independent Director will receive an Initial Award upon such Independent
Director's first election or appointment to the Board.
ANNUAL AWARD. Each Independent Director also will be awarded additional
shares (the "Annual Award") in an amount determined in accordance with the
formula set forth below, on an annual basis, each time he or she is elected to
the Board (or, if directors are elected to serve terms longer than one year, as
of the date of each annual shareholders' meeting during that term). The number
of shares awarded in the Annual Award will be equivalent to the result of $5,000
divided by the fair market
36
<PAGE>
value of a share on the date of the award, rounded to the nearest 100 shares (or
a fraction thereof if the Independent Director is elected or appointed to the
Board at any time other than at the annual meeting of shareholders). Each of the
Independent Directors elected at the 1995 annual shareholders meeting received
an Annual Award of 1,000 shares of Common Stock for a total of 6,000 shares.
VESTING AND FORFEITURE. Shares issued pursuant to an Initial Award are
fully vested upon the date of the award. Shares issued pursuant to an Annual
Award vest in full on the first anniversary following the date of the Annual
Award if the Independent Director has attended at least 75% of the regularly
scheduled meetings of the Board during that year (the "Vesting Period"). If an
Independent Director does not attend at least 75% of the regularly scheduled
meetings of the Board during the Vesting Period, the shares issued pursuant to
that Annual Award will expire and be forfeited without having vested. If a
Director ceases to be an Independent Director for any reason other than death or
disability before his or her last Annual Award vests, the shares issued pursuant
to that Annual Award will be forfeited. If an Independent Director is unable to
continue his or her service as a director as a result of his or her disability
or death, unvested shares of such Independent Director will immediately become
vested as of the date of disability or death. In the event of a merger,
consolidation or plan of exchange to which the Company is a party and in which
the Company is not the survivor, or a sale of all or substantially all of the
Company's assets, any unvested shares will vest automatically upon the closing
of such transaction.
STATUS BEFORE VESTING. Each Independent Director will be a shareholder of
record with respect to all shares awarded under the Director Plan, whether or
not vested. No Independent Director may transfer any interest in unvested shares
to any person other than to the Company.
CERTAIN TAX CONSIDERATIONS RELATED TO EXECUTIVE COMPENSATION
As a result of Section 162(m) of the Internal Revenue Code of 1986, as
amended, in the event that compensation paid by the Company to a "covered
employee" (the chief executive officer and the next four highest paid employees)
in a year were to exceed an aggregate of $1,000,000, the Company's deduction for
such compensation could be limited to $1,000,000.
37
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table shows, to the best of the Company's knowledge based on
the records of the Company's transfer agent and the Company's records on
issuances of shares, as adjusted to reflect changes in ownership documented in
filings with the Securities and Exchange Commission made by certain shareholders
and provided to the Company pursuant to Section 16 of the Exchange Act and
statements provided to the Company by certain shareholders, Common Stock
ownership on May 31, 1996, by (i) each person known by the Company to own
beneficially more than 5% of the Company's outstanding Common Stock ("Principal
Shareholder"), (ii) each of the Company's directors, (iii) the Named Executive
in the Summary Compensation Table, and (iv) all executive officers and directors
of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK (2)
AMOUNT AND NATURE OF --------------------------
BENEFICIAL BEFORE AFTER
NAMES AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP (1) OFFERING OFFERING
- - --------------------------------------------------------------------- ---------------------- ------------ ------------
<S> <C> <C> <C>
Donald A. Wright (3)
c/o PCT Holdings, Inc.
434 Olds Station Road
Wenatchee, WA 98801................................................. 1,245,850 14.7% 11.6%
Herman L. "Jack" Jones
c/o PCT Holdings, Inc.
432 Olds Station Road
Wenatchee, WA 98801................................................. 701,437 9.4% 7.2%
Pensionfund of the Siemens
Companies in Switzerland
CH 8047
Zurich, Switzerland................................................. 650,000 8.7% 6.7%
Stephen Morel
224 Stoneybrook Lane
Wenatchee, WA 98801................................................. 398,433 5.3% 4.1%
Melvin B. Hoelzle (4)
8105 South Broadway
Everett, WA 98203................................................... 380,500 5.1% 3.9%
Roger Vallo (5)
2707 Colby Avenue
Suite 1101
Everett, WA 98201................................................... 219,026 2.9% 2.3%
Robert L. Smith (6)
20008 Grand Avenue, Apt. 201
Everett, WA 98201................................................... 161,887 2.2% 1.7%
Donald B. Cotton (7)
538 Timber Ridge Drive
Trophy Club, TX 76262............................................... 103,609 1.4% 1.1%
Allen W. Dahl
7300 Madrona Drive N.E.
Bainbridge Island, WA 98110......................................... 29,276 * *
Paul Schmidhauser
Rebbergstrasse 28
CH-8112 Otelfingen, Switzerland..................................... 1,500 * *
All Executive Officers and Directors
as a group (eight persons)(8)....................................... 2,503,946 29.3% 23.2%
</TABLE>
- - ------------------------
* Less than 1%.
38
<PAGE>
(1) 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
for determining the amount and percentage of Common Stock owned by such
individual. Shares for which beneficial ownership is disclaimed by an
individual also are included for purposes of determining the amount and
percentage of Common Stock owned by such individual. To the Company's
knowledge, each person has sole voting and sole investment power with
respect to the shares shown except as noted, subject to community property
laws, where applicable.
(2) Rounded to the nearest 1/10th of one percent, based on 7,478,309 shares of
Common Stock outstanding before this Offering and 9,728,309 shares of Common
Stock outstanding after this Offering.
(3) Includes 34,666 shares held by Ragen MacKenzie, Incorporated, custodian for
Donald A. Wright, in two IRA accounts. Also includes currently exercisable
warrants to purchase 100,000 shares of Common Stock, and currently
exercisable options to purchase 34,512 shares of Common Stock. Also includes
an option to purchase 845,000 shares of Common Stock that the Company has
agreed to grant to Mr. Wright on the effective date of this Prospectus.
(4) Includes 85,416 shares held by Dain Bosworth, Incorporated, custodian for
Melvin B. Hoelzle IRA.
(5) Includes 216,666 shares held by or on behalf of Seattle-First National
Bank, custodian for Roger P. Vallo IRA.
(6) Includes a currently exercisable warrant to purchase 37,500 shares of
Common Stock.
(7) Includes 69,443 shares held by Lincoln Trust Company, custodian for Donald
B. Cotton IRA.
(8) Includes currently exercisable warrants to purchase up to 162,500 shares of
Common Stock, and currently exercisable options to purchase up to 47,723
shares of Common Stock. Also includes an option to purchase 845,000 shares
of Common Stock that the Company has agreed to grant to Mr. Wright on the
effective date of this Prospectus.
39
<PAGE>
SELLING SHAREHOLDER
The table below sets forth certain information as of May 31, 1996 with
respect to the beneficial ownership of Common Stock by UTCO Associates, Ltd., a
Utah limited partnership (the "Selling Shareholder"). Other than providing
short-term financing to the Company in May 1996, the Selling Shareholder has not
had any position, office or other material relationship with the Company within
the past three years.
The shares of Common Stock offered by the Selling Shareholder may be offered
for sale, beginning 180 days after the date of this Prospectus, from time to
time at market prices prevailing at the time of sale or at negotiated prices,
and without payment of any underwriting discounts or commissions except for
usual and customary selling commissions paid to brokers or dealers. The Company
will not receive any proceeds from the sale of the Common Stock by the Selling
Shareholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING SHARES OFFERED OWNED AFTER OFFERING
------------------------------ BY SELLING --------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER(1) PERCENTAGE(2) SHAREHOLDER(1) NUMBER(3) PERCENTAGE(3)
- - ----------------------------------------- ----------- ----------------- -------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
UTCO Associates, Ltd. ................... 300,000 3.9% 300,000 0 0%
230 West 200 South, Suite 2601
Salt Lake City, Utah 84101
</TABLE>
- - ------------------------
(1) Represents shares issuable upon exercise of a warrant held by the Selling
Shareholder issued in connection with the short-term financing referenced
above. The warrant is exercisable at $4.80 per share and is immediately
exercisable in full. The warrant and a promissory note were issued by the
Company to the Selling Shareholder in May 1996. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Recent
Developments." See "Use of Proceeds" as to the repayment of the promissory
note.
(2) Excludes any shares of Common Stock issuable upon exercise of any
outstanding stock options and warrants of the Company, other than the
warrant held by the Selling Shareholder, and excludes 845,000 shares of
Common Stock issuable upon the exercise of an option that the Company has
agreed to grant to Donald A. Wright on the effective date of this
Prospectus. See "Description of Securities -- Stock Options."
(3) Assumes the exercise of the Selling Shareholder's warrant to purchase
300,000 shares of Common Stock at an exercise price of $4.80 per share and
the sale by the Selling Shareholder of all shares of Common Stock issued
pursuant to such exercise.
40
<PAGE>
CERTAIN TRANSACTIONS
On May 18, 1994, Pacific Coast received a $2,000,000 loan from the County of
Chelan, Washington, secured by a standby letter of credit from the Frontier Bank
of Everett, Washington. To secure the Company's obligations under the letter of
credit, Melvin B. Hoelzle, a Principal Shareholder, and Robert L. Smith, a
director of the Company, each provided a certificate of deposit and executed a
guaranty. The Company retired the letter of credit and the obligations of
Messrs. Hoelzle and Smith on September 21, 1995.
On May 31, 1994, Original PCTH acquired all of the outstanding shares of
Cashmere from the shareholders of Cashmere, in exchange for common stock of
Original PCTH. Herman L. "Jack" Jones, a Principal Shareholder, executive
officer, and director of the Company received shares of Original PCTH in that
transaction, which were later exchanged for 791,666 shares of the Company. In
connection with the acquisition, Cashmere sold the land and buildings, located
in Cashmere, Washington, where its manufacturing facilities were then located,
to Mr. Jones and John M. Eder, a former director of the Company and presently an
Executive Vice President of Cashmere and President of Seismic, for $975,207.
Cashmere 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 that then housed
Cashmere's operations. No significant gain or loss to the Company resulted from
this transaction. Cashmere leased these premises from Mr. Jones for a term of
three years with monthly lease payments of $9,000. In May 1995, the Company and
Messrs. Jones and Eder reached an agreement for Cashmere to reacquire a portion
of the land and buildings. Under that agreement, Cashmere canceled $673,990 of
the outstanding note from Mr. Jones, Mr. Jones agreed to assume the payment
obligation of Cashmere under certain bank debt related to the property, although
Cashmere remains an obligor under that bank debt, and Cashmere renewed the
$278,795 balance of the note from Mr. Jones under the same terms as the bank
debt. Mr. Jones is negotiating to refinance the bank debt in his name and remove
Cashmere as an obligor. There is no assurance that Cashmere will be removed as
an obligor on the bank debt. The Company paid Mr. Jones $108,000 in May 1995 for
the cancellation of the lease, which was terminated upon completion of
Cashmere's new facility in Wenatchee, Washington.
On January 3, 1995, Original PCTH entered into a funding agreement (the
"Funding Agreement") with Lysys Ltd. ("Lysys"). Under the Funding Agreement,
Lysys agreed to use its best efforts to find suitable and qualified investors to
purchase the Company's Common Stock. Subsequent to the Verazzana merger, Lysys
facilitated the sale by the Company of 800,000 shares of Common Stock pursuant
to the Funding Agreement in an offering exempt from registration under
Regulation S of the Securities Act, which raised approximately $4.6 million. As
compensation for its services, Lysys was paid a commission of $478,400 in cash
and 739,700 shares of the Company's Common Stock were issued to designees of
Lysys. Pensionfund of the Siemens Companies in Switzerland ("Siemens"), a
Principal Shareholder, purchased 150,000 shares in the offering.
Under the Funding Agreement, Lysys has the right to nominate one of the
Company's Board members until July 1998. Paul Schmidhauser, who was elected as a
director of the Company at the 1995 annual shareholders meeting, was nominated
as a director by Lysys. Mr. Schmidhauser has no ownership or other pecuniary
interest in or association with Lysys. See "Management -- Directors and
Executive Officers."
Roger D. Dudley, one of the Company's directors from February 1995 to
November 1995, is associated with Lysys although he is not a director, executive
officer or equity owner of Lysys. Mr. Dudley provided certain services to Lysys
in connection with its performance under the Funding Agreement. As compensation
for such services, 295,300 of the shares of Common Stock 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
shares.
41
<PAGE>
Mr. Dudley is also an executive officer of C.I. International Limited, which
is the manager of Capital International Fund Limited, a foreign investment fund.
While Mr. Dudley was a director of the Company, Capital International Fund
Limited purchased 86,000 shares of Common Stock on February 15, 1995 and 64,000
shares on July 12, 1995. Mr. Dudley has no ownership interest in these shares
and, except in his capacity as an executive officer of C.I. International
Limited, exercises no control over C.I. International Limited or Capital
International Fund Limited.
In February 1995, Arthur S. Robinson, a director of the Company from
February 1995 to April 1996 and of Original PCTH and its successor from May 1994
to April 1996, exchanged his rights in a consulting contract with Original PCTH
for shares of common stock of Original PCTH, which were subsequently converted
to 17,361 shares of the Company's Common Stock.
The Company entered into another agreement with Lysys on November 3, 1995,
as amended on January 19, 1996 (the "Placement Agreement"), pursuant to which
Lysys facilitated the sale by the Company of 838,470 shares of Common Stock in
an offering exempt from registration under Regulation S of the Securities Act.
The Company raised approximately $3.4 million from the offering, from which
Lysys was paid a commission of $234,772. Pursuant to the Placement Agreement,
the Company issued 30,000 shares of Common Stock to an affiliate of Lysys as
additional compensation in connection with the offering. Siemens, a Principal
Shareholder, purchased 500,000 shares of Common Stock in the offering.
On October 9, 1995, Allen W. Dahl, a director of the Company, loaned Morel
$100,000 pursuant to the terms of a promissory note, for working capital until
consummation of the Morel Merger, as defined in the following paragraph. All
amounts due under this note were paid in full by Morel in December 1995.
On December 1, 1995 (effective for accounting purposes on November 30,
1995), the Company effected a merger between a subsidiary of the Company that
was formed for such purpose and Morel (the "Morel merger"). See "Acquisition
History." As consideration for the Morel merger, the Company, after certain
post-closing adjustments, issued 650,000 shares of Common Stock to Stephen L.
Morel and Mark Morel (the "Morel Shareholders"). As a result, the Morel
Shareholders own an aggregate of approximately 9% of the outstanding Common
Stock prior to this Offering. Also in connection with the Morel merger, the
Company entered into a registration rights agreement with the Morel
Shareholders, pursuant to which the Morel Shareholders were granted the right,
under certain circumstances, to have up to 50% of their shares registered, at
the Company's expense, on an equal basis with other shareholders of the Company
within two years after the date of closing. These registration rights have been
waived as to this Offering. See "Description of Securities -- Registration
Rights." Prior to the Morel merger, no material relationship existed between
Morel and the Company or any of its affiliates, directors, officers, or their
associates, except that Morel and certain subsidiaries of the Company transacted
business from time to time in the ordinary course of business.
On March 28, 1996, Robert L. Smith, a director of the Company, loaned the
Company $150,000 pursuant to a promissory note from the Company to Mr. Smith
that accrues interest at 18% per annum and is due in full on September 27, 1996.
The Company expects to use a portion of the net proceeds of this Offering to
repay that note. See "Use of Proceeds." The Company also issued Mr. Smith a
warrant to purchase 37,500 shares of Common Stock at $4.80 per share that is
immediately exercisable, but those shares cannot be sold until the expiration of
a lock-up period of 180 days from the date of this Prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Recent Developments." In addition, the warrant grants Mr. Smith certain rights
to register the shares issuable upon exercise of the warrant. Mr. Smith has
waived his rights to register those shares in this Offering. See "Description of
Securities -- Registration Rights."
42
<PAGE>
DESCRIPTION OF SECURITIES
UNITS
The Common Stock and the Warrants offered hereby will be sold only in Units.
Each Unit consists of one share of Common Stock and one Warrant. The Units will
separate immediately upon issuance, and the Common Stock and Warrants that make
up the Units will trade only as separate securities.
COMMON STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, $.001 par value per share. As of June 17, 1996, there were
7,478,309 shares of Common Stock, fully paid and nonassessable, outstanding.
Each share of outstanding Common Stock is entitled to participate equally in
dividends as and when declared by the Board of Directors of the Company, out of
funds legally available therefor, and is entitled to participate equally in any
distribution of net assets made to the Company's shareholders in liquidation of
the Company after payment to all creditors thereof. There are no preemptive
rights or rights to convert Common Stock into any other securities. The holders
of the Common Stock are entitled to one vote for each share held of record on
all matters voted upon by the Company's shareholders and may not cumulate votes
for the election of directors. Thus, the owners of a majority of the shares of
the Common Stock outstanding may elect all of the directors of the Company and
the owners of the balance of the shares of the Common Stock would not be able to
elect any directors of the Company.
WARRANTS
REPRESENTATIVES' WARRANTS. In connection with this Offering, the Company
has authorized the issuance of the Representatives' Warrants and has reserved
450,000 shares of Common Stock for issuance upon exercise of such warrants
(including the Warrants issuable upon exercise of the Representatives'
Warrants). The Representatives' Warrants will entitle the holders to acquire
225,000 Units at an exercise price of $ per Unit (120% of the Unit Offering
Price). The Representatives' Warrants will be exercisable at any time from the
first anniversary of the date of this Prospectus until the fifth anniversary of
the date of this Prospectus.
THE WARRANTS. Each Warrant will entitle the holder to purchase one share of
Common Stock at a price of $ per share (150% of the Unit Offering Price),
subject to certain adjustments including, if the Company's audited fiscal 1997
net income does not exceed $1.5 million, a one-time downward adjustment of the
exercise price to (a) 125% of the Unit Offering Price if such net income is
$800,000 to $1.5 million, (b) 100% of the Unit Offering Price if such net income
is $500,000 to $799,000, and (c) 75% of the Unit Offering Price if such net
income is less than $500,000. The vesting of one outstanding warrant is
dependent upon Pacific Coast being issued a patent, which occurred in fiscal
1996, and meeting or exceeding certain gross sales benchmarks for calendar years
1996 and 1997. See "Other Warrants" below. The Company may grant additional
performance-based options or warrants to its employees. The vesting of
performance-based options or warrants may result in certain expenses that would
reduce net income for financial accounting purposes. Solely for the purpose of
determining whether a downward adjustment to the exercise price of the Warrants
will be made based on fiscal 1997 net income, any expense relating to the
vesting of any performance-based options or warrants held by employees
(including any amortization of capitalized patent costs relating to such
warrants or options) will be excluded in determining fiscal 1997 net income. The
Warrants will, subject to certain conditions, be exercisable at any time until
the fifth anniversary of the date of this Prospectus, unless earlier redeemed.
The Warrants are redeemable by the Company, at $.25 per Warrant, upon at least
30 days prior written notice to the registered holders, if the closing bid price
(as defined in the Warrant Agreement described below) per share of Common Stock
for the 20 consecutive trading days immediately preceding the date notice of
redemption is given equals or exceeds 200% of the then-current exercise price of
the Warrants. If the Company gives notice of its intention to redeem, a holder
would be forced either to exercise his or her Warrant before the date specified
in the redemption notice or accept the redemption price.
43
<PAGE>
The Warrants will be issued in registered form under a Warrant Agreement
(the "Warrant Agreement") between the Company and Interwest Transfer Co., Inc.,
as warrant agent (the "Warrant Agent"). The shares of Common Stock underlying
the Warrants, when issued upon exercise of a Warrant, will be fully paid and
nonassessable, and the Company will pay any transfer tax incurred as a result of
the issuance of Common Stock to the holder upon its exercise.
The Warrants and the Representatives' Warrants contain provisions that
protect the holders against dilution by adjustment of the exercise price. Such
adjustment will occur in the event, among others, that the Company makes certain
distributions to holders of its Common Stock. The Company is not required to
issue fractional shares upon the exercise of a Warrant or the Representatives'
Warrants. The holder of a Warrant or Representatives' Warrants will not possess
any rights as a shareholder of the Company until such holder exercises the
Warrant or Representatives' Warrants.
A Warrant may be exercised upon surrender of the Warrant certificate on or
before the expiration date of the Warrant at the offices of the Warrant Agent,
with the form of "Election To Purchase" on the reverse side of the Warrant
certificate completed and executed as indicated, accompanied by payment of the
exercise price (by certified or bank check payable to the order of the Company)
for the number of shares with respect to which the Warrant is being exercised.
For a holder to exercise the Warrants, there must be a current registration
statement in effect with the Securities and Exchange Commission and
qualification in effect under applicable state securities laws (or applicable
exemptions from state qualification requirements) with respect to the issuance
of shares or other securities underlying the Warrants. The Company has agreed to
use all commercially reasonable efforts to cause a registration statement with
respect to such securities under the Securities Act to be filed and to become
and remain effective in anticipation of and prior to the exercise of the
Warrants and to take such other actions under the laws of various states as may
be required to cause the sale of Common Stock (or other securities) upon
exercise of Warrants to be lawful. If a current registration statement is not in
effect at the time a Warrant is exercised, the Company may at its option redeem
the Warrant by paying to the holder cash equal to the difference between the
market price of the Common Stock on the exercise date and the exercise price of
the Warrant. The Company will not be required to honor the exercise of Warrants
if, in the opinion of the Company's Board of Directors upon advice of counsel,
the sale of securities upon exercise would be unlawful.
The foregoing discussion of certain terms and provisions of the Warrants and
Representatives' Warrants is qualified in its entirety by reference to the
detailed provisions of the Warrant Agreement and the purchase warrant issued to
the Representatives, respectively, the form of each of which has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
For the life of the Warrants and Representatives' Warrants, the holders
thereof have the opportunity to profit from a rise in the market price of the
Common Stock without assuming the risk of ownership of the shares of Common
Stock issuable upon the exercise of the Warrants. The Warrant holders may be
expected to exercise their Warrants at a time when the Company would, in all
likelihood, be able to obtain any needed capital by an offering of Common Stock
on terms more favorable than those provided for by the Warrants. Further, the
terms on which the Company could obtain additional capital during the life of
the Warrants may be adversely affected.
OTHER WARRANTS. As of May 31, 1996, the Company had outstanding warrants to
purchase 497,500 shares of Common Stock. A warrant to purchase 100,000 shares is
held by Donald A. Wright and a warrant to purchase 25,000 shares is held by Nick
A. Gerde. These warrants are immediately exercisable in full at an exercise
price of $2.00 per share and will expire in 2004. A warrant to purchase 35,000
shares was issued to an employee of Pacific Coast, in connection with an
assignment of certain technology to the Company. This warrant has an exercise
price of $2.00 per share and expires December 31, 2000. Under this warrant,
15,000 shares of Common Stock are currently exercisable, and an additional
10,000 shares may vest on each of January 1997 and January 1998, if Pacific
Coast meets or exceeds certain gross sales benchmarks for calendar years 1996
and 1997. In connection with
44
<PAGE>
certain short-term debt incurred by the Company in March 1996 and May 1996,
respectively, the Company issued to Robert L. Smith, a director of the Company,
a warrant to purchase 37,500 shares of Common Stock, and issued to the Selling
Shareholder a warrant to purchase 300,000 shares of Common Stock. Each of these
warrants is currently exercisable in full at an exercise price of $4.80 per
share, and expires May 22, 2001. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Recent Developments" and
"Selling Shareholder."
STOCK OPTIONS
The Company has stock options outstanding under the Plan to purchase up to
145,283 shares of Common Stock at exercise prices of between $4.875 and $5.125
per share. Of these, options to purchase up to 47,723 shares are currently
exercisable and will expire in November 2005. The remainder of those options
vest, if at all, in increments of 24,390 shares on each of June 1, 1997, 1998,
1999 and 2000, and also will expire in November 2005. The Company has also
agreed to grant Mr. Wright an option under the Plan to purchase 845,000 shares
of Common Stock upon the effective date of this Prospectus, at an exercise price
of $ (150% of the Unit Offering Price), but not less than $3.75 per
share, which will expire ten years from the effective date of this Prospectus.
The shares issuable upon exercise of this option will be subject to a
contractual restriction on sale, expiring one year after the date of this
Prospectus. See "Management -- Benefit Plans."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion sets forth certain U.S. federal income tax
consequences, under current law, relating to the purchase and ownership of the
Units and the Common Stock and Warrants constituting the Units. The discussion
is a summary and does not purport to deal with all aspects of federal taxation
that may be applicable to an investor, nor does it consider specific facts and
circumstances that may be relevant to a particular investor's tax position.
Certain holders (such as dealers in securities, insurance companies, tax exempt
organizations, and those holding Common Stock or Warrants as part of a straddle
or hedge transaction) may be subject to special rules that are not addressed in
this discussion. This discussion is based on current provisions of the U.S.
Internal Revenue Code of 1986, as amended, and on administrative and judicial
interpretations as of the date hereof, all of which are subject to change
retroactively and prospectively. ALL INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THIS OFFERING, INCLUDING
THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
ALLOCATION OF PURCHASE PRICE. Each Unit as a whole will have a tax basis
equal to the cost of the Unit. The measure of income or loss from certain
transactions described below depends upon the tax basis in each of the Warrants
and the Common Stock comprising the Unit. The tax basis for each of the Warrants
and the Common Stock will be determined by allocating the cost of the Unit among
the securities which comprise the Unit in proportion to the relative fair market
values of those elements at the time of acquisition.
U.S. HOLDERS OF COMMON STOCK OR WARRANTS
The following discussion concerns the material U.S. federal income tax
consequences of the ownership and disposition of Common Stock or Warrants
applicable to a U.S. Holder of such Common Stock or Warrants. In general, a
"U.S. Holder" is (i) a citizen or resident of the U.S., (ii) a corporation or
partnership created or organized in the U.S. or under the laws of the U.S. or
any state, or (iii) an estate or trust whose income is includable in gross
income for U.S. federal income tax purposes regardless of its source.
DIVIDENDS. Dividends, if any, paid to a U.S. Holder generally will be
includable in the gross income of such U.S. Holder as ordinary income to the
extent of such U.S. Holder's share of the Company's current or accumulated
earnings and profits. See "Price Range of Common Stock and Dividend Policy."
45
<PAGE>
SALE OF COMMON STOCK. The sale of Common Stock should generally result in
the recognition of gain or loss to a U.S. Holder thereof in an amount equal to
the difference between the amount realized and such U.S. Holder's tax basis in
the Common Stock. If the Common Stock constitutes a capital asset in the hands
of a U.S. Holder, gain or loss upon the sale of the Common Stock will be
characterized as long-term or short-term capital gain or loss, depending on
whether the Common Stock has been held for more than one year.
EXERCISE AND SALE OF WARRANTS. No gain or loss will be recognized by a U.S.
Holder of a Warrant on the purchase of shares of Common Stock for cash pursuant
to an exercise of a Warrant (except that gain will be recognized to the extent
cash is received in lieu of fractional shares). The tax basis of Common Stock
received upon the exercise of a Warrant will equal the sum of the U.S. Holder's
tax basis for the exercised Warrant and the exercise price. The holding period
of the Common Stock acquired upon the exercise of the Warrant will begin on the
date the Warrant is exercised and the Common Stock is purchased (i.e., it does
not include the period during which the Warrant was held).
Gain or loss from the sale or other disposition of a Warrant (or loss in the
event that the Warrant expires unexercised as discussed below), other than
pursuant to a redemption by the Company, will be capital gain or loss to its
U.S. Holder if the Common Stock to which the Warrant relates would have been a
capital asset in the hands of such holder. Such capital gain or loss will be
long-term capital gain or loss if the U.S. Holder has held the Warrant for more
than one year at the time of the sale, disposition or lapse. It is unclear
whether the redemption of a Warrant by the Company would generate ordinary or
capital income or loss.
EXPIRATION OF WARRANTS WITHOUT EXERCISE. If a holder of a Warrant allows it
to expire without exercise, the expiration will be treated as a sale or exchange
of the Warrant on the expiration date. The U.S. Holder will have a taxable loss
equal to the amount of such U.S. Holder's tax basis in the lapsed Warrant. If
the Warrant constitutes a capital asset in the hands of the U.S. Holder, such
taxable loss will be characterized as long-term or short-term capital loss
depending upon whether the Warrant was held for the required long-term holding
period.
BACKUP WITHHOLDING. A shareholder who is a U.S. Holder may be subject to
backup withholding at the rate of 31% in connection with distributions received
with respect to his or her shares, unless the shareholder (i) is a corporation
or comes within certain other exempt categories and, when required, demonstrates
this fact or (ii) provides a correct taxpayer identification number, certifies
as to no loss of exemption for backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. Any amount paid as
backup withholding will be creditable against such shareholder's income tax
liability. The Company will report to the shareholders and the I.R.S. the amount
of any "reportable payments" distributed and the amount of tax withheld, if any,
with respect to the shares.
NON-U.S. HOLDERS OF COMMON STOCK OR WARRANTS
The following discussion concerns the material U.S. federal income and
estate tax consequences of the ownership and disposition of shares of Common
Stock or Warrants applicable to Non-U.S. Holders of such shares of Common Stock
or Warrants. In general, a "Non-U.S. Holder" is any holder other than a U.S.
Holder, as defined in the preceding section.
DIVIDENDS. Dividends, if any, paid to a Non-U.S. Holder generally will be
subject to U.S. withholding tax at a 30% rate (or a lower rate as may be
prescribed by an applicable tax treaty) unless the dividends are effectively
connected with a trade or business of the Non-U.S. Holder within the United
States. See "Price Range of Common Stock and Dividend Policy." Dividends
effectively connected with such a trade or business will generally not be
subject to withholding (if the Non-U.S. Holder properly files an executed IRS
Form 4224 with the payor of the dividend) and generally will be subject to
federal income tax on a net income basis at regular graduated rates. In the case
of a Non-U.S. Holder which is a corporation, such effectively connected income
also may be subject to the branch profits tax (which is generally imposed on a
foreign corporation on the repatriation from the U.S. of
46
<PAGE>
effectively connected earnings and profits). The branch profits tax may not
apply if the recipient is a qualified resident of certain countries with which
the U.S. has an income tax treaty. To determine the applicability of a tax
treaty providing for a lower rate of withholding, dividends paid to an address
in a foreign country are presumed, under the current I.R.S. position, to be paid
to a resident of that country, unless the payor had definite knowledge that such
presumption is not warranted or an applicable tax treaty (or U.S. Treasury
Regulations thereunder) requires some other method for determining a Non-U.S.
Holder's treaty status. The Company must report annually to the I.R.S. and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of these information returns also may be made available under the
provisions of a specific treaty or agreement to the tax authorities in the
country in which the Non-U.S. Holder resides.
SALE OF COMMON STOCK. Generally, a Non-U.S. Holder will not be subject to
federal income tax on any gain realized upon the disposition of such holder's
shares of Common Stock unless (i) the gain is effectively connected with a trade
or business carried on by the Non-U.S. Holder within the U.S. (in which case the
branch profits tax may apply); (ii) the Non-U.S. Holder is an individual who
holds the shares of Common Stock as a capital asset and is present in the U.S.
for 183 days or more in the taxable year of the disposition and to whom such
gain is U.S. source; (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of U.S. tax law applicable to certain former U.S. citizens or
residents; or (iv) the Company is or has been a "U.S. real property holding
corporation" for federal income tax purposes (which the Company does not believe
that it is or is likely to become) at any time during the five-year period
ending on the date of disposition (or such shorter period that such shares were
held) and, subject to certain exceptions, the Non-U.S. Holder held, directly or
indirectly, more than 5% of the Common Stock.
EXERCISE AND SALE OF WARRANTS. Generally, a Non-U.S. Holder who recognizes
capital gain from the sale of a Warrant, other than pursuant to a redemption by
the Company, will not be subject to U.S. federal income tax unless (i) the gain
is effectively connected with a trade or business carried on by the Non-U.S.
Holder within the United States (in which case the branch profits tax may
apply); (ii) the Non-U.S. Holder is an individual who is present in the U.S. for
183 days or more in the taxable year of sale and to whom the gain is U.S.
source; (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions
of U.S. law applicable to certain former U.S. citizens or residents; or (iv) the
Company is or has been a "U.S. real property holding corporation" for federal
income tax purposes (which the Company does not believe it is or is likely to
become) at any time during the five-year period ending on the date of sale (or
such shorter period such Warrants were held) and, subject to certain exceptions,
the Non-U.S. Holder held, directly or indirectly more than 5% of the Warrants.
ESTATE TAX. Shares of Common Stock and Warrants owned or treated as owned
by an individual who is not a citizen or resident (as specially defined for U.S.
federal estate tax purposes) of the U.S. at the time of death will be includable
in the individual's gross estate for U.S. federal estate tax purposes, unless an
applicable tax treaty provides otherwise, and may be subject to U.S. federal
estate tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Under current U.S. federal
income tax law, backup withholding tax (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain required information) and information reporting apply to payments of
dividends (actual and constructive) made to certain non-corporate U.S. persons.
The backup withholding tax and information reporting requirements applicable to
U.S. persons will generally not apply to dividends paid on Common Stock to a
Non-U.S. Holder at an address outside the U.S., although dividends paid to
Non-U.S. Holders will be reported and taxed as described above under
"Dividends."
The payment of the proceeds from the disposition of shares of Common Stock
or Warrants through the U.S. office of a broker will be subject to information
reporting and backup withholding unless the holder, under penalties of perjury,
certifies, among other things, its status as a Non-U.S.
47
<PAGE>
Holder or otherwise establishes an exemption. Generally, the payment of the
proceeds from the disposition of shares of Common Stock or Warrants to or
through a non-U.S. office of a broker will not be subject to backup withholding
and will not be subject to information reporting. In the case of the payment of
proceeds from the disposition of shares of Common Stock or Warrants through a
non-U.S. office of a broker that is a U.S. person or a "U.S.-related person,"
existing regulations require information reporting (but not backup withholding)
on the payment unless the broker receives a statement from the owner, signed
under penalties of perjury, certifying, among other things, its status as a
non-U.S. Holder or the broker has documentary evidence in its files that the
owner is a Non-U.S. Holder and the broker has no actual knowledge to the
contrary. For this purpose, a "U.S.-related person" is (i) a "controlled foreign
corporation" for U.S. federal income tax purposes or (ii) a foreign person 50%
or more of whose gross income from all sources for the three-year period ending
with the close of its taxable year preceding the payment (or for such part of
the period that the broker has been in existence) is derived from activities
that are effectively connected with the conduct of a U.S. trade or business.
Any amounts withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such holder's U.S. federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the I.R.S. Non-U.S. Holders should consult
their tax advisors regarding the application of these rules to their particular
situations, the availability of an exemption therefrom and the procedure for
obtaining such an exemption, if available.
REGISTRATION RIGHTS
REPRESENTATIVES' WARRANTS. The Representatives' Warrants provides certain
rights with respect to the registration under the Securities Act of the 450,000
shares issuable upon exercise thereof (including the Warrants included therein).
The Company has agreed that during the period between the first anniversary and
fifth anniversary after the date of this Prospectus it will register the
issuance of such shares upon the exercise of the Representatives' Warrants (and,
if necessary, their resale) so as to permit their public resale without
restriction. These registration rights could result in substantial future
expense to the Company and could adversely affect the Company's ability to
complete future equity or debt financings. Furthermore, the registration and
sale of Common Stock of the Company held by or issuable to the holders of
registration rights, or even the potential of such sales, could have an adverse
effect on the market price of the securities offered hereby.
OTHER REGISTRATION RIGHTS. Holders of 587,083 shares of Common Stock and
warrants to purchase 337,500 shares of Common Stock (collectively, the
"Registrable Shares"), or their transferees, are entitled to certain rights with
respect to the registration of such shares under the Securities Act. Under the
terms of agreements between the Company and such holders, if the Company
proposes to register any of its Common Stock under the Securities Act in
connection with a public offering thereof, either for its own account or for the
account of others, such holders are, with limited exceptions, entitled to notice
of such registration and to include their Registrable Shares therein.
In addition, once the Company is eligible to use a Form S-3 Registration
Statement, holders of 133,333 of the Registrable Shares may require the Company
to file, on not more than one occasion, a registration statement under the
Securities Act at the Company's expense with respect to such Registrable Shares,
and the Company is required to use its reasonable efforts to effect such
registration, subject to certain conditions and limitations. Such holders are
also entitled to registration rights on an equal basis with any other
shareholders to whom the Company grants registration rights.
These rights are subject to certain conditions, including the right of the
underwriters of any offering by the Company to limit the number of Registrable
Shares included in such registration. Holders of 624,583 of the Registrable
Shares have agreed to waive their registration rights with respect to this
Offering. The remaining 300,000 Registrable Shares are being registered by the
48
<PAGE>
Registration Statement of which this Prospectus is a part, but the Selling
Shareholder has agreed not to sell such shares for a period of 180 days from the
effective date of this Prospectus. See "Selling Shareholder."
ANTI-TAKEOVER LAWS
The Company, as a Nevada corporation, is subject to certain provisions of
Nevada law governing the exercise of powers by the Board of Directors, certain
combinations with interested stockholders, and certain acquisitions of a
controlling interest in the Company. In addition, the Company is also subject to
certain provisions of Washington law regarding significant business transactions
and certain "fair price restrictions." These statutes may have the effect of
delaying or deterring a hostile takeover of the Company.
NEVADA STATUTE ON EXERCISE OF POWERS OF DIRECTORS AND OFFICERS. Nevada's
"Exercise of Directors' and Officers' Powers" statute (Nevada Revised Statutes
Section 78.138) provides that directors and officers, in exercising their
respective powers with a view to the interests of the corporation, may consider
the following factors: (a) the interests of the corporation's employees,
suppliers, creditors and customers; (b) the economy of Nevada and the nation;
(c) the interests of the community and of society; and (d) the long-term as well
as short-term interests of the corporation and its stockholders, including the
possibility that these interests may be best served by the continued
independence of the corporation. This statute also provides that directors may
resist a change or potential change in control of the corporation if the
directors by a majority vote of a quorum determine that the change or potential
change is opposed to or not in the best interest of the corporation: (i) upon
consideration of the interests of the corporation's stockholders and any of the
foregoing factors or (ii) because the amount or nature of the indebtedness and
other obligations to which the corporation or any successor may become subject
in connection with the change or potential change in control provides reasonable
grounds to believe that within a reasonable time the corporation would become
insolvent or a bankruptcy petition concerning the corporation would be
commenced.
NEVADA COMBINATION WITH INTERESTED STOCKHOLDERS STATUTE. Nevada's
"Combination with Interested Stockholders" statute (Nevada Revised Statutes
SectionSection 78.411-78.444) applies to Nevada public corporations having at
least 200 stockholders, which includes the Company. This statute prohibits a
corporation from entering into any "combination" with an "interested
stockholder" (defined as (a) a person who beneficially owns 10% or more of the
corporation's voting securities, or (b) an affiliate or associate of the
corporation who, in the three years preceding the transaction, beneficially
owned 10% or more of the corporation's voting securities) for a period of three
years after such person becomes an interested stockholder, unless the Board of
Directors approved the combination or the share acquisition before the
interested stockholder acquired the shares. After such three-year period has
elapsed, combinations with an interested stockholder remain prohibited unless
the combination meets any applicable requirements of the corporation's articles
of incorporation, and (i) the Board of Directors approved the combination or the
share acquisition before the interested stockholder's acquisition of the shares,
or (ii) a majority of the disinterested stockholders vote to approve the
combination at a meeting called after such three-year period has elapsed, or
(iii) the aggregate amount of cash and the market value of non-cash
consideration to be received by the disinterested stockholders meets certain
minimum requirements, and, prior to the consummation of the combination, the
interested stockholder has not become the beneficial owner of additional voting
shares of the corporation, except in limited circumstances. For purposes of this
statute, the term "combination" includes a merger or consolidation of the
corporation and the interested stockholder or its affiliate, or any sale, lease,
exchange, mortgage, pledge, transfer or other disposition to or with an
interested stockholder or its affiliate in excess of certain dollar thresholds.
NEVADA ACQUISITION OF CONTROLLING INTEREST STATUTE. Nevada's "Acquisition
of Controlling Interest Statute" (Nevada Revised Statutes SectionSection
78.378-78.3793) applies to Nevada corporations that have at least 200
stockholders, at least 100 of whom are Nevada residents, and that do business
directly or indirectly in Nevada. If the Company is determined to be "doing
business" in Nevada (a term that is
49
<PAGE>
not defined in the statute), and has more than 100 Nevada residents that are
stockholders, it will become subject to the statute. The statute prohibits an
acquiror from voting shares of a target corporation's stock after exceeding
certain threshold ownership percentages, until the acquiror provides certain
information to the corporation and a majority of the disinterested stockholders
vote to restore the voting rights of the acquiror's shares at a meeting called
at the request and expense of the acquiror. If the voting rights of such shares
are restored, stockholders voting against such restoration may demand payment
for the "fair value" of their shares (which is generally equal to the highest
price paid in the transaction subjecting the stockholder to the statute). If the
stockholders fail to restore the voting rights of the acquiror's shares or if
the acquiror fails to timely deliver the required information, then the
corporation may call such shares for redemption by the corporation, if so
provided in the corporation's articles of incorporation or bylaws. The Company's
articles of incorporation and bylaws do not currently permit it to call an
acquiror's shares for redemption.
WASHINGTON ANTI-TAKEOVER STATUTE. Washington's "Significant Business
Transactions Statute" (Chapter 23B.19 of the Washington Business Corporation
Act) applies to foreign corporations, such as the Company, (i) that have a class
of voting shares registered pursuant to Section 12 or 15 of the Exchange Act;
(ii) that have their principal executive offices in the state; (iii) more than
10% of whose shares are owned of record by residents of the state; (iv) a
majority of whose employees reside in the state; and (v) a majority of whose
tangible assets are located in the state. The statute prohibits, subject to
certain exceptions, a corporation from entering into any "significant business
transactions" with an "Acquiring Person" (defined generally as a person who or
an affiliated group that beneficially owns 10% or more of the outstanding voting
securities of a corporation) for a period of five years after such person or
affiliated group becomes an Acquiring Person unless the transaction or share
acquisition made by the Acquiring Person is approved prior to the share
acquisition by a majority of the target corporation's directors. In addition,
this statute prohibits a corporation subject thereto from entering into a
significant business transaction with an Acquiring Person unless the
consideration to be received by the corporation's shareholders in connection
with the proposed transaction satisfies the "fair price" provisions set forth in
the statute.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's securities is Interwest
Transfer Co., Inc.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
9,728,309 shares of Common Stock, assuming no exercise of the Overallotment
Option, the Warrants, the Representatives' Warrants or any other options or
warrants. The following shares will be freely tradeable without restriction
under Securities Act: the 2,250,000 shares of Common Stock which are included in
the Units and sold in this Offering (plus up to 337,500 shares that may be sold
in the Units as a result of exercise of the Overallotment Option); the 2,250,000
shares of Common Stock issuable upon exercise of the Warrants (plus up to
337,500 shares issuable upon the exercise of Warrants subject to the
Overallotment Option); the 125,000 shares of Common Stock issued in the
Company's 1986 public offering; and, commencing approximately 12 months after
the date of this Prospectus, up to 450,000 shares of Common Stock that are
issuable upon exercise of the Representatives' Warrants (including exercise of
the Warrants included therein). The 300,000 shares of Common Stock underlying
the warrant held by the Selling Shareholder are subject to a lock-up agreement,
and will first become eligible for sale in the public market 180 days after the
date of this Prospectus. However, any shares purchased by an "affiliate" of the
Company (as that term is defined in Rule 144 under the Securities Act), subject
to certain conditions, will be subject to the resale limitations of Rule 144.
The 2,408,170 shares of Common Stock issued by the Company in connection
with two Regulation S offerings to Swiss investors in July 1995 and November
1995, to the extent not previously resold into the United States, are available
for resale into the United States without restriction at such time as an
exemption from registration under the Securities Act is or becomes available.
The 490,000 shares of Common Stock issued by the Company in connection with a
Regulation S offering in May 1996 are subject to a lock-up agreement until
December 16, 1996, and will be available for resale into the United States after
that date without restriction at such time as an exemption from registration is
or becomes available.
The remaining 4,446,058 shares of Common Stock are "restricted" shares
subject to the restrictions upon resale under Rule 144 under the Securities Act
(the "Restricted Shares"). Of this number, the 62,500 shares issued to the
Company's original shareholders are eligible for immediate resale in the public
market pursuant to Rule 144(k), described below. An aggregate of 3,176,175
shares issued by the Company to the security holders of Original PCTH and others
in connection with the Verazzana merger will become eligible for sale under Rule
144 on February 17, 1997. See "Acquisition History." Another 295,300 shares of
Restricted Shares issued in July 1995 in connection with the Company's first
Regulation S offering, will become eligible for sale under Rule 144 in July
1997.
An aggregate of 587,083 shares of the Restricted Shares issued in connection
with the Company's acquisitions of Ceramic Devices, Seismic and Morel and 37,500
shares issuable upon the exercise of a warrant held by Robert L. Smith, a
director of the Company, are subject to certain registration rights which may
subsequently permit such shares to be registered under the Securities Act. In
the absence of such registration, such shares would become eligible for sale
under Rule 144 as follows: 133,333 shares on April 27, 1997; 128,750 on November
30, 1997; 325,000 on December 1, 1997; and 37,500 on a date two years after
exercise of Mr. Smith's warrant. All of the holders of these registration rights
have waived their right to participate in this Offering. However, if such
registration rights are exercised subsequently, those shares would become
eligible for resale upon the effectiveness of a future registration statement
covering such shares. Another 325,000 shares of the Restricted Shares which were
issued in the Company's acquisition of Morel, but which are not subject to
registration rights, will become eligible for sale under Rule 144 on December 1,
1997.
In general, under Rule 144, as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of the Company's Common Stock (approximately 97,283 shares immediately after
this Offering) or (ii) the average weekly trading volume of the Company's Common
Stock during the four calendar weeks immediately preceding the date on which
notice of the sale is filed with the
51
<PAGE>
Securities and Exchange Commission. Sales pursuant to Rule 144 also are subject
to certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person who is not deemed to have
been an affiliate of the Company at any time during the three months immediately
preceding the sale and whose Restricted Shares have been fully paid for three
years since the later of the date on which they were acquired from the Company
or from an affiliate of the Company may sell such Restricted Shares under Rule
144(k) without regard to the limitations and requirements described above.
Shortly after this Offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock reserved for
issuance under the Company's 1995 Stock Incentive Plan and Independent Director
Stock Plan, and under warrants issued to Mr. Wright, Mr. Gerde and an employee
of Pacific Coast in connection with their employment. Based on the number of
shares reserved for issuance under such stock plans, warrants and options, the
registration statement would cover approximately 1,260,000 shares. Such
registration statement will automatically become effective upon filing. Of the
shares held by officers issuable under such stock plans and warrants, 270,283
shares are subject to a six-month lock-up period following the date of this
Prospectus, and 845,000 shares of Common Stock issuable upon exercise of an
option which the Company has agreed to issue under the Plan to Mr. Wright upon
the effective date of this Prospectus are subject to a contractual restriction
on sale, expiring one year after the date of this Prospectus. See "Description
of Securities -- Stock Options" and "Management -- Benefit Plans."
Prior to this Offering, there has been only a limited public market for the
Common Stock and no public market for the Warrants. No prediction can be made of
the effect, if any, that future market sales of shares that are subject to Rule
144 or that were sold pursuant to Regulation S, or the availability of such
shares for sale, will have on the market price of the Common Stock or the
Warrants prevailing from time to time after this Offering. The Company is unable
to estimate the number of such shares that may be sold in the public market,
because such amount will depend on the trading volume in, and the market price
for, the Common Stock, the Warrants and other factors. Nevertheless, sales of
substantial amounts of such shares in the public market, or the perception that
such sales could occur, following this Offering could adversely affect the
prevailing market price of the Common Stock and the Warrants.
52
<PAGE>
UNDERWRITING
The Underwriters named below, acting through Paulson Investment Company,
Inc. and Cohig & Associates, Inc., as Representatives, have agreed, severally
and not jointly, subject to the terms and conditions contained in an
Underwriting Agreement dated the date hereof, to purchase the Units offered
hereby from the Company in the amounts set forth below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF UNITS
- - ----------------------------------------------------------------------------- ---------------
<S> <C>
Paulson Investment Company, Inc. ............................................
Cohig & Associates, Inc. ....................................................
Total.................................................................... 2,250,000
---------------
---------------
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the Units offered hereby, if any are purchased. The Company has
been advised by the Representatives that the Underwriters propose to offer the
Units to the public initially at the offering price set forth on the cover page
of this Prospectus, and to selected dealers, including Underwriters, at that
price less a concession in an amount to be determined by the Representatives.
After the initial public offering of the Units, the public offering price and
other offering terms may vary.
The Underwriting Agreement provides that the Underwriters will purchase the
Units (including the Units subject to the Overallotment Option) offered hereby
for $ per Unit, representing a discount of nine percent from the Unit
Offering Price.
The Company has granted the Underwriters an Overallotment Option,
exercisable during the 45-day period after the date of this Prospectus, to
purchase up to a maximum of an additional 337,500 Units on the same terms as the
Units being purchased by the Underwriters from the Company. The Underwriters may
exercise the Overallotment Option only to cover overallotments made in
connection with this Offering.
The Company has agreed to sell and issue to the Representatives warrants
(the "Representatives' Warrants") to purchase up to 225,000 Units. The
Representatives' Warrants are exercisable for a period of four years beginning
one year from the date of this Prospectus. The Representatives' Warrants are
exercisable at a price of $ per Unit (120% of the Unit Offering Price). The
Representatives' Warrants are nontransferable except to one of the Underwriters
or to any individual who is either a partner or an officer of an Underwriter, or
by will or the laws of descent and distribution. The holders of the
Representatives' Warrants will have, in that capacity, no voting, dividend, or
other shareholder rights. Any profit realized by the Representatives on the sale
of the securities issuable upon exercise of the Representatives' Warrants may be
deemed to be additional underwriting compensation.
53
<PAGE>
The Representatives will also receive at closing a nonaccountable expense
allowance equal to three percent of the aggregate Unit Offering Price of the
Units sold in this Offering, reduced by $35,000 previously paid by the Company
as an advance against this allowance.
The securities underlying the Representatives' Warrants are being registered
on the Registration Statement of which this Prospectus is a part. The Company
has agreed to maintain an effective registration statement at its expense to
permit the sale of the securities underlying the Representatives' Warrants at
any time during the period in which the Representatives' Warrants are
exercisable.
By virtue of holding the Representatives' Warrants, the Representatives have
the opportunity to profit, at a nominal cost, from an increase in the market
price of the Company's securities. Furthermore, the exercise of the
Representatives' Warrants could dilute the interests of the holders of Common
Stock and the existence of the Representatives' Warrants may make it more
difficult for the Company to raise additional equity capital. Although the
Company will obtain additional equity capital upon exercise of the
Representatives' Warrants, it is likely that the Company could then raise
additional capital on more favorable terms than those of the Representatives'
Warrants.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act and to contribute in
certain events to any liabilities incurred by the Underwriters in connection
with the sale of the Units. The Company and its executive officers and directors
and certain other holders have agreed with the Representatives that, without its
written consent, neither the Company nor such persons will sell shares of Common
Stock for a period of six months from the date hereof.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be passed
upon for the Company by Lionel Sawyer & Collins of Reno, Nevada. Certain legal
matters related to this Offering will be passed upon for the Company by Stoel
Rives LLP of Seattle, Washington. Certain legal matters related to this Offering
will be passed upon for the Underwriters by Weiss, Jensen, Ellis & Howard of
Portland, Oregon.
EXPERTS
The consolidated financial statements of the Company as of May 31, 1996 and
1995, and for the years then ended, have been audited by Moss Adams LLP,
independent public accountants. The consolidated financial statements as of May
31, 1996 and 1995 appear in this Prospectus and the Registration Statement. The
auditor's reports with respect to the consolidated financial statements of the
Company as of May 31, 1996 and 1995 and for the years then ended are included in
reliance upon the authority of said firm as experts in auditing and accounting
in giving said reports.
The financial statements of Morel included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such reports given upon the authority of said firm
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form SB-2 (the
"Registration Statement") under the Securities Act with respect to the
securities offered hereby. This Prospectus, filed as part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain portions of which have
been omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement and to the
54
<PAGE>
exhibits and schedules thereto, which may be inspected at the Commission's
offices without charge, or copies of which may be obtained from the Commission
upon payment of the prescribed fees. Statements made in this Prospectus as to
the contents of any contract, agreement, or document referred to are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, and each such statement is qualified in its entirety by such
reference.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports and other information with the
Commission via electronic filing. Reports, proxy statements, and other
information filed by the Company with the Commission pursuant to the information
requirements of the Exchange Act may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza
Building, 450 Fifth Street, N.W., Washington, D. C. 20549 and the regional
offices of the Commission located at 75 Park Place, 14th Floor, New York, New
York 10007 and 500 West Madison Street, 14th Floor, Chicago, Illinois 60661.
Copies of such material may be obtained at prescribed rates from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza Building, 450
Fifth Street, N.W., Washington, D.C. 20549 or from the Commission's Web site at
"http://www.sec.gov".
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PCT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditor's Report.............................................................................. F-2
Consolidated Balance Sheet as of May 31, 1996 and 1995.................................................... F-3
Consolidated Statement of Operations for the years ended May 31, 1996 and 1995............................ F-4
Consolidated Statement of Changes in Stockholders' Equity for the years ended May 31, 1996 and 1995....... F-5
Consolidated Statement of Cash Flows for the years ended May 31, 1996 and 1995............................ F-6
Notes to Consolidated Financial Statements................................................................ F-8
PCT HOLDINGS, INC. AND SUBSIDIARIES PRO FORMA COMBINED FINANCIAL STATEMENT
Pro Forma Combined Financial Statement -- Notes and Management's Statement................................ F-22
Pro Forma Combined Statement of Operations for the year ended May 31, 1996................................ F-23
MOREL INDUSTRIES, INC. FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants........................................................ F-24
Balance Sheets as of June 30, 1995 and 1994............................................................... F-25
Statements of Income for the years ended June 30, 1995 and 1994........................................... F-26
Statements of Stockholders' Equity for the years ended June 30, 1995 and 1994............................. F-27
Statements of Cash Flow for the years ended June 30, 1995 and 1994........................................ F-28
Summary of Accounting Policies and Notes to Financial Statements.......................................... F-29
MOREL INDUSTRIES, INC. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheet as of September 30, 1995.................................................................... F-34
Statements of Operations for the three months ended September 30, 1995 and 1994........................... F-35
Statements of Cash Flow for the three months ended September 30, 1995 and 1994............................ F-36
Notes to Interim Financial Statements..................................................................... F-37
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
PCT Holdings, Inc. and Subsidiaries
The Company's ability to meet certain of its debt obligations is in doubt,
as is its ability to continue as a going concern. Payment of certain of these
obligations is expected from proceeds of the Company's Registration Statement
No. 333-5011 for the proposed sale of 2,250,000 Units, consisting of one share
of common stock and one warrant to purchase a share of common stock. Upon
execution of the underwriting agreement referred to in Note 15 to the financial
statements, our opinion will read as follows:
"We have audited the accompanying consolidated balance sheet of PCT
Holdings, Inc. and Subsidiaries (the Company) as of May 31, 1996 and 1995, 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, 1996 and 1995, 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
June 15, 1996
F-2
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
MAY 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash........................................................................... $ 725,000 $ 1,079,000
Restricted cash................................................................ 1,000,000
Stock subscriptions receivable................................................. 1,030,000
Accounts receivable............................................................ 3,359,000 1,076,000
Inventory...................................................................... 6,699,000 4,375,000
Current portion of note receivable from related party.......................... 52,000 44,000
Prepaid expenses and other..................................................... 144,000 40,000
-------------- --------------
Total current assets......................................................... 13,009,000 6,614,000
-------------- --------------
PROPERTY AND EQUIPMENT........................................................... 10,656,000 3,684,000
-------------- --------------
OTHER ASSETS
Notes receivable from related party, net of current portion.................... 183,000 235,000
Costs in excess of net book value of acquired subsidiaries..................... 1,938,000 463,000
Patents........................................................................ 1,387,000 478,000
Non-compete agreement.......................................................... 79,000 100,000
Other.......................................................................... 397,000 56,000
-------------- --------------
Total other assets........................................................... 3,984,000 1,332,000
-------------- --------------
TOTAL ASSETS............................................................... $ 27,649,000 $ 11,630,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable.................................................................. $ 2,438,000 $ 600,000
Bank line of credit............................................................ 1,224,000
Accounts payable............................................................... 3,142,000 1,527,000
Accrued liabilities............................................................ 840,000 518,000
Current portion of long-term debt.............................................. 4,290,000 2,508,000
Current portion of capital lease obligations................................... 53,000 51,000
Current portion of non-compete agreement payable............................... 70,000 35,000
-------------- --------------
Total current liabilities.................................................... 12,057,000 5,239,000
LONG-TERM LIABILITIES
Long-term debt, net of current portion......................................... 1,809,000 628,000
Capital lease obligations, net of current portion.............................. 152,000 115,000
Non-compete agreement payable, net of current portion.......................... 30,000 65,000
Deferred income tax............................................................ 592,000
Deferred rent and other........................................................ 470,000 129,000
-------------- --------------
Total liabilities............................................................ 15,110,000 6,176,000
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock................................................................... 19,102,000 11,018,000
Accumulated deficit............................................................ (6,563,000) (5,564,000)
-------------- --------------
Total stockholders' equity................................................... 12,539,000 5,454,000
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................. $ 27,649,000 $ 11,630,000
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
NET SALES........................................................................ $ 20,725,000 $ 11,035,000
COST OF SALES.................................................................... 16,439,000 9,092,000
-------------- --------------
GROSS PROFIT..................................................................... 4,286,000 1,943,000
OPERATING EXPENSES............................................................... 4,765,000 2,789,000
-------------- --------------
LOSS FROM OPERATIONS............................................................. (479,000) (846,000)
-------------- --------------
OTHER INCOME AND EXPENSE
Interest income................................................................ 37,000 74,000
Interest expense............................................................... (535,000) (356,000)
Merger, acquisition and capital costs.......................................... (104,000) (538,000)
Other.......................................................................... 15,000 14,000
-------------- --------------
(587,000) (806,000)
-------------- --------------
LOSS BEFORE FEDERAL INCOME TAX................................................... (1,066,000) (1,652,000)
FEDERAL INCOME TAX BENEFIT....................................................... 67,000 241,000
-------------- --------------
NET LOSS......................................................................... $ (999,000) $ (1,411,000)
-------------- --------------
-------------- --------------
LOSS PER SHARE OF COMMON STOCK................................................... $ (0.16) $ (0.41)
-------------- --------------
WEIGHTED AVERAGE SHARES OUTSTANDING DURING THE PERIOD............................ 6,209,000 3,469,000
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------- ACCUMULATED
SHARES AMOUNT DEFICIT
----------- -------------- --------------
<S> <C> <C> <C>
BALANCE, May 31, 1994............................................... 2,764,952 $ 5,379,000 $ (4,153,000)
Common stock issued............................................... 2,137,680 4,682,000
Stock options and warrants exercised.............................. 160,043 317,000
Acquisition of Ceramic Devices, Inc............................... 133,333 640,000
Net loss.......................................................... (1,411,000)
----------- -------------- --------------
BALANCE, May 31, 1995............................................... 5,196,008 11,018,000 (5,564,000)
Common stock issued............................................... 1,503,551 4,932,000
Stock warrant issued for patents.................................. 57,000
Acquisition of Seismic Safety Products, Inc....................... 128,750 483,000
Acquisition of Morel Industries, Inc.............................. 650,000 2,600,000
Warrants issued for bridge financing.............................. 12,000
Net loss.......................................................... (999,000)
----------- -------------- --------------
BALANCE, May 31, 1996............................................... 7,478,309 $ 19,102,000 $ (6,563,000)
----------- -------------- --------------
----------- -------------- --------------
The Company has authorized 100,000,000 shares of common stock.
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers................................................. $ 19,730,000 $ 11,152,000
Cash paid to suppliers and employees......................................... (21,801,000) (11,310,000)
Interest paid................................................................ (658,000) (333,000)
Interest received............................................................ 37,000 74,000
--------------- ---------------
Net cash from operating activities......................................... (2,692,000) (417,000)
--------------- ---------------
CASH FLOW FROM INVESTING ACTIVITIES
Transfer of cash to restricted cash.......................................... (1,000,000)
Purchase of property and equipment........................................... (754,000) (605,000)
Proceeds from sale of property and equipment................................. 9,000
Purchase of patents.......................................................... (400,000) (461,000)
Payments received on note receivable from related party...................... 44,000 20,000
Increase in other assets, net................................................ (79,000)
--------------- ---------------
Net cash from investing activities......................................... (2,180,000) (1,046,000)
--------------- ---------------
CASH FLOW FROM FINANCING ACTIVITIES
Net change in bank line of credit............................................ 308,000 (1,387,000)
Proceeds from long-term debt................................................. 767,000 2,229,000
Payments on long-term debt and capital lease obligations..................... (1,457,000) (1,299,000)
Proceeds from notes payable.................................................. 1,338,000 50,000
Payments on notes payable to stockholders.................................... (1,660,000)
Sale of common stock......................................................... 3,878,000 4,582,000
Sale of warrants............................................................. 12,000
Increase in stock issue costs................................................ (328,000)
--------------- ---------------
Net cash from financing activities......................................... 4,518,000 2,515,000
--------------- ---------------
NET CHANGE IN CASH............................................................. (354,000) 1,052,000
CASH, beginning of year........................................................ 1,079,000 27,000
--------------- ---------------
CASH, end of year.............................................................. $ 725,000 $ 1,079,000
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH FROM OPERATING ACTIVITIES
Net loss........................................................................ $ (999,000) $ (1,411,000)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation and amortization................................................. 871,000 408,000
Loss on sale of property and equipment........................................ 8,000
Merger, acquisition and capital costs paid in common stock.................... 337,000
Director compensation paid in common stock.................................... 24,000
Federal income tax benefit.................................................... (67,000) (241,000)
Changes in operating assets and liabilities
Accounts receivable......................................................... (1,018,000) 102,000
Inventory................................................................... (1,303,000) (215,000)
Prepaid expenses and other.................................................. 8,000 71,000
Accounts payable and accrued liabilities.................................... (216,000) 532,000
-------------- --------------
NET CASH FROM OPERATING ACTIVITIES................................................ $ (2,692,000) $ (417,000)
-------------- --------------
-------------- --------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of Subsidiaries (Note 1):
Fair value of assets acquired, other than cash................................ $ 10,286,000 $ 1,589,000
Liabilities assumed........................................................... (7,203,000) (370,000)
Notes payable issued.......................................................... (600,000)
-------------- --------------
Common stock issued........................................................... $ 3,083,000 $ 619,000
-------------- --------------
-------------- --------------
Stock subscriptions receivable for issuance of common stock..................... $ 1,030,000
Seller financed purchase of property and equipment.............................. $ 389,000 $ 203,000
Equipment purchased through capital leases...................................... $ 150,000 $ 151,000
Seller financed purchase of patents............................................. $ 520,000
Patent acquired through issuance of warrant..................................... $ 57,000
Note payable reduction through issuance of stock................................ $ 100,000
Seller financed non-compete agreement payable................................... $ 100,000
Collateral recovery of building for note receivable............................. $ 673,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
NOTE 1 -- FORMATION AND ACQUISITIONS
During the year ended May 31, 1995, the original PCT Holdings, Inc., a
Washington corporation (Original PCTH), merged with PCT Merger Corporation, a
Washington corporation and wholly owned subsidiary of an inactive public
company, Verazzana Ventures, Ltd. (Verazzana). Subsequent to the merger
Verazzana changed its name to PCT Holdings, Inc., a Nevada corporation (the
Company) and PCT Merger Corporation changed its name to PCT Holdings, Inc., a
Washington corporation (PCTH Washington). As consideration for the merger,
2,963,675 shares of the Company's authorized, but previously unissued, common
stock were issued to the shareholders of Original PCTH. 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, acquisition and
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 merger was accounted
for as if a pooling of interests. These consolidated financial statements report
results of operations as if the business combination occurred as of the
beginning of the year ended May 31, 1995.
Effective for accounting purposes as of February 28, 1995, the Company
acquired and took control of Ceramic Devices, Inc., a California corporation.
The acquisition was accomplished through the merger of the California
corporation into Ceramic Devices, Inc., a newly formed Washington corporation
and wholly owned subsidiary of the Company (Ceramic Devices), that closed in
April 1995. As consideration for the merger, the Company paid the California
corporation's shareholders $1.24 million, consisting of 133,333 shares of the
Company's common stock valued at $4.80 per share, or $640,000, and notes payable
totaling $600,000 (Note 8). The merger resulted in costs in excess of net book
value of Ceramic Devices of $471,000.
In November 1995, Seismic Safety Products, Inc. (Seismic), a newly formed
Washington corporation wholly owned by PCTH Washington, acquired all of the
assets of Seismic Safety Products, Inc., a Florida corporation. The asset
purchase price consisted of $70,000 in cash and 128,750 shares of the Company's
common stock valued at $3.75 per share, or $483,000, for a total of $553,000. In
connection with the transaction, Seismic acquired from related parties of the
Florida corporation certain patents for a total consideration of $520,000 (Note
9). Costs in excess of net book value of $535,000 were recorded as a result of
this acquisition.
During the year ended May 31, 1996, the Company acquired Morel Industries,
Inc. (Morel) through the merger of Morel Acquisition Corporation, a newly formed
Washington corporation wholly owned by the Company, into Morel. The transaction
was effective for accounting purposes as of November 30, 1995 and the Company
issued 650,000 shares of common stock, after certain post-closing adjustments,
valued at $4.00 per share for a total purchase price of approximately $2.6
million. Costs in excess of net book value of $939,000 were recorded as a result
of this merger.
The Seismic acquisition and the Ceramic Devices and Morel mergers described
above were accounted for by the purchase method. Accordingly, assets and
liabilities have been reflected at fair value. The operating results of these
acquired companies are included in the consolidated statements of operations
from their respective acquisition dates. Any costs in excess of net book value
as a result of these transactions are being amortized over 15 years.
In May 1996, PCTH Washington transferred its sole assets, the stock of
Pacific Coast Technologies, Inc. (Pacific Coast), Cashmere Manufacturing Co.,
Inc. (Cashmere) and Seismic to the Company, and was dissolved. There was no
effect on these consolidated financial statements and there were no federal
income tax consequences as a result of the dissolution.
F-8
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 1 -- FORMATION AND ACQUISITIONS (CONTINUED)
The following summary, prepared on a pro forma basis, combines the
consolidated condensed results of operations as if Ceramic Devices, Morel and
Seismic had been acquired as of the beginning of the year ended May 31, 1995.
There are no material adjustments which impact the summary.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------
1996 1995
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Net sales.............................................................. $ 25,217,000 $ 22,779,000
Loss from operations................................................... $ (961,000) $ (1,086,000)
Net loss............................................................... $ (1,704,000) $ (1,480,000)
Loss per share of common stock......................................... $ (0.27) $ (0.43)
Weighted average shares outstanding during the period.................. 6,209,000 4,119,000
</TABLE>
The pro forma results are not necessarily indicative of the actual results
of operations that would have occurred had the transactions been consummated as
indicated nor are they intended to indicate results that may occur in the
future.
NOTE 2 -- OPERATIONS
The Company is located in Wenatchee, Washington. Its fiscal year end is May
31.
The Company operates through five wholly owned subsidiaries. Two of these
businesses are engaged in the production of electronic devices, with Pacific
Coast producing a variety of electronics packages and connectors shielded from
their environment by the Company's proprietary ceramic seals, and Ceramic
Devices producing devices designed to filter out electromagnetic interference
detrimental to other electronic devices. Seismic designs, manufactures and sells
automatic natural gas shut-off valves for use in earthquake sensitive
environments. Cashmere and Morel manufacture machined or cast metal products for
many applications, including products that are incorporated into or
complementary with the products of other subsidiaries of the Company.
The Company's customers are located throughout the United States and Europe.
Included in accounts receivable at May 31, 1996 are $250,000 and $569,000 which
are due from The Boeing Company and PACCAR, respectively. Included in accounts
receivable at May 31, 1995 is $134,000, which is due from The Boeing Company.
Sales to The Boeing Company were approximately $5.9 million and $5.3 million in
the years ended May 31, 1996 and 1995, respectively. Sales to PACCAR were
approximately $3.1 million in the year ended May 31, 1996.
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 and balances 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 Purchased patents are recorded at cost. Developed patents are
recorded at the value of related compensation awarded. Patents are amortized on
the straight-line basis over the estimated useful lives of the patents of 11 to
17 years.
F-9
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) EXCESS PURCHASE PRICE Costs in excess of the net book value of
acquired subsidiaries is amortized over 15 years. The Company assesses the
recoverability of this intangible asset on a regular basis by determining
whether the amortization of the balance over its remaining life can be recovered
through projected undiscounted future cash flows.
(f) STOCK ISSUANCE COSTS During 1996, the Company incurred $318,000 of
costs related to the issuance of common stock in a proposed public offering.
These costs were deferred as of May 31, 1996 and are included in other assets.
These costs will be charged against the proceeds of the stock offering.
(g) FEDERAL INCOME TAX Deferred tax assets and liabilities are recognized
for the expected tax consequences of temporary differences between the tax bases
of assets and liabilities and their reported amounts. The Company and its
subsidiaries file a consolidated federal income tax return.
(h) 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 6,209,000 and 3,469,000 during the years ended May 31, 1996 and
1995, 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.
(i) FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value amounts
have been determined by the Company, using available market information and
appropriate valuation methodologies. The carrying amounts of cash, accounts
receivable, other noncurrent assets, accounts payable, accrued expenses and
notes payable are a reasonable estimate of their fair value. The carrying value
of long-term debt differs from the estimated fair value as follows:
<TABLE>
<CAPTION>
MAY 31, 1996 MAY 31, 1995
---------------------------- ----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Long-term debt............................. $ 6,099,000 $ 5,999,000 $ 3,136,000 $ 2,946,000
</TABLE>
The estimated fair values may not be representative of actual values of the
financial instruments that could have been realized as of the year end or that
will be realized in the future.
(j) USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
(k) REVENUE RECOGNITION Revenue is recognized when products are shipped to
customers.
(l) RECLASSIFICATIONS Certain 1995 amounts have been reclassified to
conform with the 1996 presentation.
F-10
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 4 -- INVENTORY
<TABLE>
<CAPTION>
MAY 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Raw materials............................................................. $ 1,900,000 $ 1,479,000
Work in progress.......................................................... 2,134,000 1,143,000
Purchased and manufactured
components and finished goods............................................ 2,665,000 1,753,000
------------- -------------
$ 6,699,000 $ 4,375,000
------------- -------------
------------- -------------
</TABLE>
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment, including assets under capital lease arrangement,
are as follows:
<TABLE>
<CAPTION>
ESTIMATED MAY 31,
USEFUL LIFE -----------------------------
IN YEARS 1996 1995
----------- -------------- -------------
<S> <C> <C> <C>
Land........................................................ $ 470,000 $ 230,000
Buildings................................................... 20-39 3,915,000 446,000
Machinery and equipment..................................... 5-20 7,376,000 3,981,000
Furniture and fixtures...................................... 3-15 854,000 478,000
Leasehold improvements...................................... 7-31 273,000 119,000
-------------- -------------
12,888,000 5,254,000
Less accumulated depreciation and amortization.............. 2,232,000 1,570,000
-------------- -------------
$ 10,656,000 $ 3,684,000
-------------- -------------
-------------- -------------
</TABLE>
Machinery and equipment and furniture and fixtures at May 31, 1996 and 1995,
includes $226,000 and $230,000, respectively, of assets acquired under capital
lease. Accumulated amortization related to leased assets was $44,000 and $34,000
for the years ended May 31, 1996 and 1995, respectively.
The Company recognized depreciation of property and equipment of $670,000
and $344,000 during the years ended May 31, 1996 and 1995, respectively.
Amortization of intangible assets was recognized in the amount of $201,000 and
$64,000, of which capital lease amortization was $26,000 and $27,000,
respectively, for the years ended May 31, 1996 and 1995, respectively.
In October 1995, the Company began to utilize a building located in
Cashmere, Washington which had previously been considered real estate held for
resale. The asset was reclassified to an operating asset during the year ended
May 31, 1996, and the May 31, 1995 balance sheet was reclassified to conform to
the 1996 presentation.
NOTE 6 -- NOTE RECEIVABLE FROM RELATED PARTY
In May 1995, the Company reacquired a portion of land and buildings
originally sold to two stockholders during the year ended May 31, 1994. At the
time of the repurchase, a note receivable which was part of the original sale
transaction and due from one stockholder was reduced to $282,000, and the
remainder of that note was canceled in exchange for the land and buildings based
on a negotiated fair market value of $673,000. The stockholder agreed to assume
the remaining note payable collateralized by the land and building. The terms of
the note receivable mirror the terms of the note payable, with interest at a
designee's prime rate (8.25% at May 31, 1996) plus 1%, due in installments of
$5,900 to the maturity date of the note payable in March 1999 (Note 9).
F-11
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 7 -- BANK LINE OF CREDIT
The Company is negotiating to renew a bank line of credit arrangement which
expired May 26, 1996. The interest on the outstanding balance owing at May 31,
1996 is being paid monthly at the bank's prime rate (8.25% at May 31, 1996) plus
2%. The bank has issued a standby letter of credit which provides collateral for
borrowings from Chelan County, State of Washington (Note 9). The Company has
established a $1.0 million certificate of deposit at the bank as security for
the letter of credit which expires September 18, 1996. The security for
obligations under the expired loan agreement is all of the assets of the
Company, Pacific Coast, Cashmere and Ceramic Devices.
NOTE 8 -- NOTES PAYABLE
<TABLE>
<CAPTION>
MAY 31,
--------------------------
1996 1995
------------- -----------
<S> <C> <C>
Former stockholders of Ceramic Devices
Notes payable bearing interest at 10% with principal and interest all due August
1996. Collateralized by the assets of Ceramic Devices............................... $ 600,000 $ 600,000
UTCO Associates, Ltd.
Note payable, net of original issue discount of $12,000, in monthly interest only
payments at 18% through September 1996 at which time the principal balance is due.
The note provides, with certain contingencies, renewal options through December
1996. Collateralized by all of the personal property assets of the Company, Pacific
Coast, Cashmere, Morel and Seismic.................................................. 1,188,000
Individual
Note payable in monthly installments of $20,000 plus interest at 15% through
September 1996. Collateralized by the real property of Morel, subordinate to the
industrial revenue bond debt (Note 9), and all personal property of Morel, of which
accounts receivable and inventory are subordinate to the security interests of UTCO
Associates, Ltd..................................................................... 500,000
Related party
Note payable bearing interest at 18% with principal and interest all due September
1996 and unsecured.................................................................. 150,000
------------- -----------
$ 2,438,000 $ 600,000
------------- -----------
------------- -----------
</TABLE>
In connection with the UTCO and related party loans above, the Company
issued the lenders warrants to purchase 337,500 shares of common stock at an
exercise price of $4.80 per share. The warrants expire in five years and were
independently valued at approximately $12,000. This amount represents original
issue discount which is expected to be charged to operations in the first
quarter of fiscal 1997.
F-12
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MAY 31, 1996 AND 1995
NOTE 9 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
MAY 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Chelan County, State of Washington
Principal amount is payable in June 1997. Holder may demand payment at any time.
Interest is payable quarterly at 3%. Collateralized by a $2,000,000 million letter
of credit and personal guarantees of certain stockholders (Note 7)................ $ 2,000,000 $ 2,000,000
Bank
Industrial revenue bond payable in monthly installments of $19,200, including
interest at 8.12% through November 2009. Collateralized by land, building and
equipment of Morel, personal guarantees of certain stockholders and the guarantee
of the Company.................................................................... 1,367,000
City of Entiat
Note payable in monthly installments of $7,300, including interest at 8% through
May 2001 at which time the balance of $200,100 will be due. Collateralized by
accounts receivable, inventory, equipment and real property of Morel and the
guarantee of the Company. Subordinated to the bank industrial revenue bond
debt.............................................................................. 600,000
Individual
Note payable in monthly installments of $8,300, including interest at 10.25% until
February 1998 at which time the balance of $179,000 will be due. Collateralized by
patents and accounts receivable of Pacific Coast.................................. 303,000 368,000
Bank
Note payable in monthly installments of $5,900, including interest at a designee's
prime rate plus 1% through March 1999, at which time the balance of $82,000 is
due. Collateralized by real property of Cashmere and personal guarantee of a
certain stockholder (Note 6)...................................................... 235,000 279,000
Bank
Note payable in monthly installments of $7,800, plus interest at the bank's prime
rate plus 1.75% through September 1998. Cross collateralized and cross-defaulted
with bank loan agreement (Note 7)................................................. 219,000
Corporation
Note payable in quarterly installments of $12,200, including interest at 8%
through March 2001. Collateralized by various patents............................. 200,000
Various
Notes payable in total monthly installments of $15,000, including interest at 9%
to 14%. Collateralized by equipment of the Company................................ 621,000 489,000
Title Company
Note payable in quarterly interest only payments at 12% through February 1997 at
which time the balance of $177,000 will be due. Collateralized by the real and
personal property of Morel. Subordinated to certain other debt.................... 177,000
</TABLE>
F-13
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 9 -- LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
MAY 31,
----------------------------
1996 1995
------------- -------------
Quest for Economic Development
Note payable in monthly installments of $1,700 including interest at 10.5% through
April 2000 at which time the balance of $58,000 will be due. Collateralized by the
personal residences and guarantees of certain stockholders........................ 92,000
<S> <C> <C>
Former stockholders of Seismic (Florida corporation)
Notes payable due November 1996, unsecured........................................ 200,000
Former stockholder of Seismic (Florida corporation)
Note payable in monthly installments of $5,000 through October 1997, unsecured.... 85,000
------------- -------------
6,099,000 3,136,000
Less current portion................................................................ 4,290,000 2,508,000
------------- -------------
Long-term portion................................................................... $ 1,809,000 $ 628,000
------------- -------------
------------- -------------
</TABLE>
The industrial revenue bond agreements require, among other matters, that
the Company maintain minimum working capital, tangible net worth and debt to
tangible net worth ratios. In conjunction with the merger of Morel, the bank
restructured the covenants through the expiration of the agreements. The Company
was not in compliance with the covenants at May 31, 1996. The bank has provided
a waiver of the covenants through September 1, 1996 at which time the entire
balance due under the bond agreements is callable. The outstanding principal
balance has been classified as a current liability.
Long-term debt matures as follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31, AMOUNT
- - ------------------------------------------------------------------------ -------------
<S> <C>
1997.................................................................... $ 4,290,000
1998.................................................................... 677,000
1999.................................................................... 346,000
2000.................................................................... 265,000
2001.................................................................... 153,000
Thereafter.............................................................. 368,000
-------------
$ 6,099,000
-------------
-------------
</TABLE>
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.
F-14
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 10 -- LEASING ARRANGEMENTS AND COMMITMENTS (CONTINUED)
Minimum lease payments under the capital leases and the present value of the
minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31, AMOUNT
- - --------------------------------------------------------------------------------- -----------
<S> <C>
1997............................................................................. $ 79,000
1998............................................................................. 64,000
1999............................................................................. 56,000
2000............................................................................. 45,000
2001............................................................................. 25,000
Thereafter....................................................................... 16,000
-----------
Total minimum lease payments..................................................... 285,000
Less: Amount representing interest............................................... 80,000
-----------
Present value of minimum lease payments.......................................... 205,000
Current portion.................................................................. 53,000
-----------
Long-term portion................................................................ $ 152,000
-----------
-----------
</TABLE>
(b) OPERATING LEASES -- The Company leases the manufacturing facilities in
which Pacific Coast, Cashmere, Ceramic Devices and Seismic are located through
November 2005 from the Port of Chelan County. Rent payments through September
2000 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.
Beginning in October 1998, the base rent is subject to annual adjustments for
increases in the Consumer Price Index.
In February 1995, the Company agreed to cancel the existing lease on the
Cashmere facility with a shareholder upon completion of the new facilities to be
leased from the Port of Chelan County. A lease cancellation fee of $108,000 was
paid and charged to operations in the year ended May 31, 1995.
In April 1996, the Company moved the manufacturing facilities of Ceramic
Devices to Wenatchee. The Company remains obligated under two leases which
housed Ceramic Devices' manufacturing facilities in San Diego through April
1997. Monthly payments on the leases are $6,775. While the Company is attempting
to sublease the space, there is no assurance that the Company will be
successful. The Company has recorded a loss of $73,000 in the year ended May 31,
1996 for the remaining lease payments under the leases.
The Company has several vehicle and equipment leases with minimum monthly
lease payments in the aggregate of approximately $2,700. The lease terms range
from three to six years.
Total rental expense was $516,000 and $421,000 for the years ended May 31,
1996 and 1995, respectively.
F-15
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 10 -- LEASING ARRANGEMENTS AND COMMITMENTS (CONTINUED)
Minimum lease payments under these leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31, AMOUNT
- - ------------------------------------------------------------------------ -------------
<S> <C>
1997.................................................................... $ 389,000
1998.................................................................... 349,000
1999.................................................................... 357,000
2000.................................................................... 331,000
2001.................................................................... 323,000
Thereafter.............................................................. 1,380,000
-------------
$ 3,129,000
-------------
-------------
</TABLE>
NOTE 11 -- FEDERAL INCOME TAX
The federal income tax benefit represents the expected utilization of net
operating loss (NOL) carryforwards generated subsequent to the Morel and
Cashmere mergers. Loss carryforwards generated by the Company prior to such
mergers may, subject to certain limitations, reduce tax liabilities on future
earnings, or in part, reduce remaining deferred tax liabilities by reduction of
the costs in excess of net book value of acquired assets in the Morel merger.
The benefits of $67,000 and $241,000 recognized in the years ended May 31, 1996
and 1995, respectively, resulted from recording net operating losses available
to offset deferred tax liabilities. The income tax benefit reflected in the
statement of operations is less than the statutory rate of 34% because of
certain nondeductible expenses and limitations on the utilization of net
operating losses.
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $7,848,000, the benefits of which expire in the tax
year 2001 through the tax year 2011. The net operating losses created by the
subsidiaries prior to their acquisition and the net operating losses created as
a consolidated group or groups subsequent to a qualifying tax free merger or
acquisition, have limitations related to the amount of usage by each subsidiary
or taxable consolidated group as described in the Internal Revenue Code. The
following approximate net operating losses are available on an individual
company basis, without taking into account the aforementioned expirations or
limitations: PCT Holdings, Inc. $126,000, Pacific Coast $5,657,000, Ceramic
Devices $306,000, Morel $934,000, Seismic $88,000, and Cashmere $737,000. If the
subsidiaries achieve profitable operations, the net operating loss carryforwards
available should reduce the federal income taxes due in future tax years.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
MAY 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Deferred tax assets
Inventory................................................... $ 85,000 $ 185,000
Net operating loss carryforward............................. 2,668,000 2,130,000
Other....................................................... 131,000 55,000
Valuation allowances........................................ (1,986,000) (2,015,000)
-------------- --------------
898,000 355,000
Deferred tax liabilities
Depreciation................................................ 1,490,000 355,000
-------------- --------------
Net deferred tax liability.................................... $ 592,000 $ --
-------------- --------------
-------------- --------------
</TABLE>
F-16
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 11 -- FEDERAL INCOME TAX (CONTINUED)
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 net deferred tax asset has been recorded at
May 31, 1996 and 1995. Due to limitations on the availability of certain of the
NOL's referred to above, deferred tax liabilities associated with fixed assets
acquired in the Morel merger have not been used to fully offset depreciation
differences.
NOTE 12 -- COMPENSATION PLANS AND COMMITMENTS
LONG-TERM INVESTMENT AND INCENTIVE PLAN. The Company has a long-term stock
investment and incentive plan (the Option Plan) under which directors, officers,
key employees and other key individuals may be awarded stock options, stock
appreciation rights, stock bonuses and cash bonuses. Under the plan, the option
exercise price is generally no less than fair market value at the date of grant.
Options expire no later than ten years from the grant date.
The Company has evaluated the effect of the recent accounting pronouncement,
SFAS No. 123 "Accounting for Stock-Based Compensation." The Company intends to
continue to apply APB Opinion No. 25 in accounting for stock-based compensation
for purposes of determining net income and to adopt the pro forma disclosure
requirements of SFAS No. 123 in the year ending May 31, 1997.
During the year ended May 31, 1996, the Company granted options to purchase
145,283 shares of the Company's common stock under the Option Plan, with a
weighted average exercise price of $5.08 per share. The exercise price of the
options granted equaled the fair market value of the Company's common stock on
the dates of grant. No options granted were exercised or canceled during the
year ended May 31, 1996. Of the options outstanding, 23,333 are currently
exercisable. The remaining 121,950 outstanding options vest, if at all, in
increments of 24,390 shares on each of June 1, 1996, 1997, 1998, 1999 and 2000.
All outstanding options will expire in November 2005. There were no options
under the Option Plan granted prior to the year ended May 31, 1996, and
therefore there were no outstanding options under the Option Plan at May 31,
1995.
In May 1996, the Company agreed to grant an officer an option to purchase
845,000 shares of the Company's common stock under the Option Plan, upon the
effective date of the public offering. The exercise price is contingent upon the
price of the public offering, but in no event will it be less than $3.75 per
share. The option will expire ten years after the date of grant.
INDEPENDENT DIRECTOR STOCK PLAN -- During the year ended May 31, 1996, the
Company adopted an Independent Director Stock Plan (the Director Plan) under
which non-employee directors (Independent Directors) of the Company are awarded
stock. The Director Plan provides for an initial award of 500 shares of the
Company's common stock to each of the Independent Directors serving upon
adoption of the Director Plan, and an initial award of 500 shares of the
Company's common stock to each new Independent Director. In addition, the
Director Plan provides for an annual award to each Independent Director
equivalent to the result of $5,000 divided by the fair market value of the
Company's common stock on the award date. The initial award is fully vested upon
the date of the award. The annual award vests in full on the first anniversary
following the date of the annual award if the Independent Director has attended
at least 75% of the regularly scheduled meetings of the Board during the year.
If an Independent Director does not attend 75% of the regularly scheduled
meetings of the board between the date of award of an annual award and the first
anniversary thereof, the
F-17
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 12 -- COMPENSATION PLANS AND COMMITMENTS (CONTINUED)
shares shall be forfeited. In November 1995, 9,000 shares of the Company's
common stock were issued to the Independent Directors. Included in the year
ended May 31, 1996 is $24,000 of compensation expense resulting from the shares
issued.
EMPLOYMENT AGREEMENTS. The Company has employment agreements with certain
officers and key employees. The agreements are generally for three year terms
and are cancelable for cause. Compensation under the agreements includes base
compensation plus incentives including up to 136,666 stock options, under the
Option Plan, with exercise prices ranging from $2.00 to $8.00 per share. The
incentives are awarded at the discretion of the Board of Directors on an annual
basis. The stock options are not considered granted until awarded by the Board
of Directors.
OTHER AGREEMENTS. The Company, from time to time, enters into other
agreements with employees.
Effective as of February 15, 1995, the Company converted warrants issued by
Original PCTH into warrants for the purchase of an aggregate of 125,000 shares
of the Company's common stock to certain management employees, exercisable at
$2.00 per share, the fair value on the date of grant. The warrants expire in
December 2004 and February 2005, respectively. The warrants were outstanding at
May 31, 1996 and 1995.
On January 31, 1995, the Company granted warrants for the purchase of up to
35,000 shares of common stock at $2.00 per share, the fair value on the date of
the agreement, to a certain employee. The exercise of the warrants was
contingent upon the issuance of a patent and Pacific Coast achieving certain
sales goals for calendar years 1996 and 1997. On July 18, 1995, the measurement
date, the patent was issued and 15,000 of the warrants vested and became
exercisable. The fair market value of the Company's common stock was $5.80 per
share at the date the warrants vested. The Company has capitalized patent costs
of $57,000 related to the excess of the fair market value of the common stock
over the exercise price of the warrants at the measurement date.
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 by the Company to the plan during the
years ended May 31, 1996 and 1995.
NOTE 13 -- COMMON STOCK
On July 18, 1994, the Original PCTH Board of Directors approved a
one-for-three reverse split of Original PCTH's common stock. This split resulted
in a decrease of 10,309,834 shares of common stock outstanding. On January 26,
1995, the Original PCTH Board of Directors approved a one-for-two reverse split
of Original PCTH'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.
During the year ended May 31, 1995, just prior to the Verazzana merger (Note
1) the Original PCTH Board of Directors gave all option and warrant holders the
choice of exercising options and warrants at one-half the original exercise
price, or exercising the options at no price and receiving one share of common
stock for every four shares issuable upon exercise of options or warrants held.
Options and warrants to purchase a total of 94,444 shares and 292,965 shares,
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 Original PCTH common stock, respectively. The fair
F-18
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 13 -- COMMON STOCK (CONTINUED)
market value of the common stock at the date of exercise was $1.98 per share.
Included in merger, acquisition and capital costs during the year ended May 31,
1995 is $231,888 related to the repricing of the options and warrants. No
options or warrants were exercised during the year ended May 31, 1996.
The Company entered into funding agreements with a Swiss company to find
suitable and qualified investors to purchase shares of the Company's common
stock in an offering exempt from registration under Regulation S of the
Securities Act of 1933, as amended (Regulation S). The Swiss company facilitated
the sale of 1,429,470 shares of the Company's common stock with net proceeds of
$4,908,000, or an average of $3.43 per share, during the year ended May 31, 1996
and 699,000 shares of the Company's common stock with net proceeds of
$3,596,000, or an average of $5.14 per share, during the year ended May 31,
1995. The Swiss company received a commission of $375,000 and a designee of the
Swiss company received 65,000 shares of the Company's common stock during the
year ended May 31, 1996. The Swiss company received $478,000 and designees of
the Swiss company received 1,000,000 shares of the Company's common stock during
the year ended May 31, 1995.
At May 31, 1996, the Company had stock subscriptions receivable of
$1,030,000 after deduction of commissions related to the sales of 390,000 shares
of common stock at $2.54 and $3.00 per share sold under a Regulation S offering
in May 1996. The Company received the stock subscription funds in June 1996.
The following table summarizes option and warrant activity:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------
MAY 31, 1996 MAY 31, 1995
-------------------------- -------------------------
OPTIONS/ PRICE PER OPTIONS/ PRICE PER
WARRANTS SHARE WARRANTS SHARE
--------- --------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.... 160,000 $ 2.00 387,409 $ 0.60 - 9.00
Options/warrants granted............ 482,783 4.80 - 5.125 160,000 2.00
Exercised........................... 387,409 0 - 1.98
Canceled............................
--------- --------------- --------- --------------
Outstanding at end of year.......... 642,783 $ 2.00 - 5.125 160,000 $ 2.00
</TABLE>
NOTE 14 -- CONTINGENCIES
In the normal course of business, the Company disposes of potentially
hazardous material which could result in claims related to environmental
cleanup. The Company has not been notified of any related claims. The Company is
subject to various other environmental and governmental regulations, however,
the extent of any non-compliance with those regulations is not ascertainable.
The Company is currently a party to various legal actions or claims arising
out of the normal course of business, none of which is expected to have a
material effect on the Company's financial position or results of operations.
F-19
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 15 -- SUBSEQUENT EVENTS
On May 31, 1996, the Company filed a Registration Statement under the
Securities Act of 1933, as amended. At the effective date of the Registration
Statement, the Company will enter into a firm commitment underwriting agreement
to sell units composed of one share of the Company's common stock and a warrant
to purchase one share of the Company's common stock. The Company intends to use
a portion of the proceeds to repay approximately $3,557,000 of notes payable and
long-term debt. Repayment of these amounts is dependent upon the completion of
the underwriting of these securities.
During June 1996, the Company reduced the principal amount of certain notes
payable, as described in Note 8, utilizing proceeds from the May 1996 Regulation
S offering, as described in Note 13.
NOTE 16 -- OTHER RELATED PARTY TRANSACTIONS
On October 9, 1995, a director of the Company loaned Morel $100,000 pursuant
to the terms of a promissory note for working capital until consummation of the
Morel merger. In December 1995, Morel paid the principal balance of the note,
plus $5,000 as consideration for making this loan.
In February 1995, a director of the Company from February 1995 to April 1996
and of Original PCTH and its successor from May 1994 to April 1996, exchanged
his rights in a consulting contract with Original PCTH for shares of common
stock of Original PCTH, which were subsequently converted to 17,361 shares of
the Company's common stock.
NOTE 17 -- BUSINESS SEGMENT INFORMATION
The Company operates through five subsidiaries and operates in two general
business segments, "Electronic and Safety Products" and "Machined and Cast Metal
Products." In the first segment, Pacific Coast and Ceramic Devices develop,
manufacture, market and sell electronic packaging, connectors, and filter
devices, and Seismic designs and sells natural gas shut-off valves. In the
second segment, Cashmere and Morel manufacture machined and cast metal products.
There is vertical integration at various levels and segment transfers are
accounted for on an arm's length pricing basis.
In computing income (loss) from continuing operations for each segment, all
costs have been allocated to segments except merger, acquisition and capital
costs.
F-20
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 17 -- BUSINESS SEGMENT INFORMATION (CONTINUED)
Identifiable assets are those assets used in the Company's operations in
each business segment, and the identifiable assets do not include advances or
loans between the business segments. There are no identifiable corporate assets,
and no allocations were necessary for assets used jointly by the business
segments.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Net sales
Electronic and safety products....................................... $ 8,533,000 $ 4,280,000
Machined and cast metal products..................................... 12,192,000 6,755,000
-------------- --------------
$ 20,725,000 $ 11,035,000
-------------- --------------
-------------- --------------
Loss from continuing operations
Electronic and safety products....................................... $ (376,000) $ (847,000)
Machined and cast metal products..................................... (586,000) (267,000)
-------------- --------------
Loss................................................................... (962,000) (1,114,000)
Corporate expenses, adjustments and other............................ (104,000) (538,000)
-------------- --------------
$ (1,066,000) $ (1,652,000)
-------------- --------------
-------------- --------------
Identifiable assets
Electronic and safety products....................................... $ 1,383,000 $ 1,287,000
Machined and cast metal products..................................... 9,273,000 2,397,000
-------------- --------------
$ 10,656,000 $ 3,684,000
-------------- --------------
-------------- --------------
Capital expenditures
Electronic and safety products....................................... $ 469,000 $ 876,000
Machined and cast metal products..................................... 1,424,000 209,000
-------------- --------------
$ 1,893,000 $ 1,085,000
-------------- --------------
-------------- --------------
Depreciation and amortization
Electronic and safety products....................................... $ 270,000 $ 209,000
Machined and cast metal products..................................... 426,000 162,000
-------------- --------------
$ 696,000 $ 371,000
-------------- --------------
-------------- --------------
</TABLE>
F-21
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED FINANCIAL STATEMENT
YEAR ENDED MAY 31, 1996
(UNAUDITED)
NOTES AND MANAGEMENT'S STATEMENT
The Company entered into an agreement and plan of merger with Morel, which
owns and operates an aluminum foundry located in Entiat, Washington,
approximately 15 miles north of the Company's operations in Wenatchee,
Washington. Under terms of the agreement, Morel and a wholly owned subsidiary of
the Company merged with Morel as the surviving entity, and the Morel
shareholders received 650,000 shares of common stock of the Company, after
certain post-closing adjustments. The merger was closed on December 1, 1995, and
was effective November 30, 1995 for accounting purposes under the purchase
method of accounting.
The pro forma combined unaudited statement of operations for the year ended
May 31, 1996 was prepared as if the purchase transaction had occurred at the
beginning of the year.
In the opinion of the Company's management, all adjustments necessary to
present fairly the pro forma combined unaudited statement of operations have
been made based upon the terms and conditions of the Morel agreement and plan of
merger. The pro forma combined unaudited statement of operations is not
necessarily indicative of what actual results would have been had the
transactions occurred at the beginning of the year nor does it purport to
indicate the results of future operations of the Company.
This pro forma combined unaudited statement of operations should be read in
conjunction with the audited financial statements and notes thereto of the
Company at and for the years ended May 31, 1996 and 1995 included elsewhere in
this Prospectus and the audited financial statements and notes thereto of Morel
at and for the years ended June 30, 1995 and 1994 included elsewhere in this
Prospectus.
F-22
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PCT HOLDINGS, MOREL INDUSTRIES, PRO FORMA PRO FORMA
INC. INC. ADJUSTMENTS COMBINED
-------------- -------------------- ----------- --------------
<S> <C> <C> <C> <C>
NET SALES.................................... $ 20,725,000 $ 4,492,000 $ 25,217,000
COST OF SALES................................ 16,439,000 3,853,000 20,292,000
-------------- ----------- --------------
GROSS PROFIT................................. 4,286,000 639,000 4,925,000
OPERATING EXPENSES........................... 4,765,000 1,118,000 $ 3,000 5,886,000
-------------- ----------- ----------- --------------
LOSS FROM OPERATIONS......................... (479,000) (479,000) (3,000) (961,000)
-------------- ----------- ----------- --------------
OTHER INCOME AND EXPENSE
Interest income............................ 37,000 2,000 39,000
Interest expense........................... (535,000) (171,000) (706,000)
Other...................................... (89,000) (54,000) (143,000)
-------------- ----------- --------------
(587,000) (223,000) (810,000)
-------------- ----------- ----------- --------------
LOSS BEFORE FEDERAL INCOME TAX............... (1,066,000) (702,000) (3,000) (1,771,000)
FEDERAL INCOME TAX........................... 67,000 67,000
-------------- ----------- ----------- --------------
NET LOSS FOR THE YEAR........................ $ (999,000) $ (702,000) $ (3,000) $ (1,704,000)
-------------- ----------- ----------- --------------
-------------- ----------- ----------- --------------
LOSS PER SHARE OF COMMON STOCK............... $ (0.16) $ (0.11) $ (0.27)
-------------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of the pro forma combined financial
statements.
F-23
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Morel Industries, Inc.
Entiat, Washington
We have audited the accompanying balance sheets of Morel Industries, Inc. as
of June 30, 1995 and 1994, and the related statements of income, 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 audits to obtain
reasonable assurance about whether the financial statements are free from
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 financial statements referred to above present fairly,
in all material respects, the financial position of Morel Industries, Inc. at
June 30, 1995 and 1994, and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
/s/ BDO SEIDMAN, LLP
November 8, 1995, except as to
Notes 4 and 9 which date is December 1, 1995
Seattle, Washington
F-24
<PAGE>
MOREL INDUSTRIES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash.............................................................................. $ 152,000 $ 636,000
Accounts receivable (Note 3)...................................................... 1,395,000 1,416,000
Project receivable (Note 8)....................................................... 126,000 897,000
Inventories (Notes 1 and 3)....................................................... 936,000 821,000
Prepaid expenses and other........................................................ 113,000 29,000
------------- -------------
Total current assets.......................................................... 2,722,000 3,799,000
PROPERTY AND EQUIPMENT, less accumulated depreciation (Notes 2 and 3)............... 6,667,000 2,626,000
RECEIVABLE FROM STOCKHOLDERS........................................................ 111,000
DEFERRED BOND COSTS................................................................. 25,000
------------- -------------
$ 9,414,000 $ 6,536,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line-of-credit (Note 3)........................................................... $ 969,000 $ 890,000
Accounts payable.................................................................. 1,106,000 937,000
Accrued expenses.................................................................. 541,000 454,000
Current maturities of long-term debt (Note 4)..................................... 1,001,000 103,000
Pre-billed moving expenditures (Note 8)........................................... 768,000
------------- -------------
Total current liabilities..................................................... 3,617,000 3,152,000
DEFERRED SALES TAX.................................................................. 145,000
LONG-TERM DEBT, net of current maturities (Note 4).................................. 2,148,000
DEFERRED INCOME TAXES (Note 6)...................................................... 728,000 682,000
------------- -------------
Total liabilities............................................................. 6,638,000 3,834,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Note 9)
Common stock, $100 par value; 2,500 shares authorized; 416 shares issued and
outstanding...................................................................... 42,000 42,000
Common stock, non-voting, $2,000 par value; 2,500 shares authorized; 87.5 shares
issued and outstanding........................................................... 175,000 175,000
Additional paid-in capital........................................................ 825,000 825,000
Retained earnings................................................................. 1,734,000 1,660,000
------------- -------------
Total stockholders' equity.................................................... 2,776,000 2,702,000
------------- -------------
$ 9,414,000 $ 6,536,000
------------- -------------
------------- -------------
</TABLE>
See accompanying summary of acounting policies and notes to financial
statements.
F-25
<PAGE>
MOREL INDUSTRIES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1995 1994
-------------- -------------
<S> <C> <C>
SALES.............................................................................. $ 10,708,000 $ 9,895,000
COST OF SALES...................................................................... 9,623,000 8,327,000
-------------- -------------
GROSS PROFIT....................................................................... 1,085,000 1,568,000
OPERATING EXPENSES................................................................. 1,189,000 1,240,000
-------------- -------------
INCOME (LOSS) FROM OPERATIONS...................................................... (104,000) 328,000
-------------- -------------
OTHER INCOME (EXPENSE)
Interest income.................................................................. 31,000 18,000
Interest expense................................................................. (268,000) (131,000)
Realized recovery (loss) on investment........................................... 29,000 (77,000)
Other expense.................................................................... (14,000) (40,000)
-------------- -------------
Total other income (expense)................................................... (222,000) (230,000)
-------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............................................ (326,000) 98,000
EXTRAORDINARY ITEM, gain on sale of foundry less applicable income taxes of
$152,000 and $988,000 (Note 8).................................................... 295,000 1,918,000
-------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES.................................................. (31,000) 2,016,000
DEFERRED INCOME TAX (PROVISION) BENEFIT (Note 6)................................... 105,000 (39,000)
-------------- -------------
NET INCOME......................................................................... $ 74,000 $ 1,977,000
-------------- -------------
-------------- -------------
</TABLE>
See accompanying summary of accounting policies and note to financial
statements.
F-26
<PAGE>
MOREL INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
NON-VOTING PAID-IN RETAINED EARNINGS
COMMON STOCK COMMON STOCK CAPITAL (DEFICIT) TOTAL
-------------- -------------- -------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, July 1, 1993.......... $ 42,000 $ 175,000 $ 825,000 $ (317,000) $ 725,000
Net income..................... 1,977,000 1,977,000
-------------- -------------- -------------- ----------------- -------------
BALANCE, June 30, 1994......... 42,000 175,000 825,000 1,660,000 2,702,000
Net income..................... 74,000 74,000
-------------- -------------- -------------- ----------------- -------------
BALANCE, June 30, 1995......... $ 42,000 $ 175,000 $ 825,000 $ 1,734,000 $ 2,776,000
-------------- -------------- -------------- ----------------- -------------
-------------- -------------- -------------- ----------------- -------------
</TABLE>
See accompanying summary of accounting policies and note to financial
statements.
F-27
<PAGE>
MOREL INDUSTRIES, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1995 1994
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 74,000 $ 1,977,000
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Gain on sale of foundry........................................................ (295,000) (1,918,000)
Depreciation and amortization.................................................. 356,000 112,000
Deferred income taxes.......................................................... (105,000) 39,000
Settlement of stockholder receivable as a bonus................................ 111,000
Changes in operating assets and liabilities:
Decrease (increase) in assets:
Accounts receivable 21,000 (195,000)
Inventories................................................................ (115,000) (119,000)
Prepaid expenses and other................................................. (84,000) (17,000)
Increase (decrease) in liabilities:
Accounts payable........................................................... 169,000 (262,000)
Accrued expenses........................................................... 86,000 248,000
------------- --------------
Net cash provided by (used in) operating activities.......................... 218,000 (135,000)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale and relocation of foundry..................................... 2,509,000 3,336,000
Acquisition of property and equipment............................................ (4,492,000) (1,937,000)
Payment of relocation costs...................................................... (1,964,000) (513,000)
Increase in deferred sales tax................................................... 145,000
Increase in receivable from stockholder.......................................... (111,000)
------------- --------------
Net cash provided by (used in) investing activities.......................... (3,802,000) 775,000
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in line-of-credit............................................ 79,000 90,000
Proceeds from long-term borrowings............................................... 3,439,000
Principal payments on long-term debt............................................. (393,000) (436,000)
Increase in deferred bond costs.................................................. (25,000)
------------- --------------
Net cash provided by (used in) financing activities.......................... 3,100,000 (346,000)
------------- --------------
NET INCREASE (DECREASE) IN CASH.................................................... (484,000) 294,000
CASH, beginning of period.......................................................... 636,000 342,000
------------- --------------
CASH, end of period................................................................ $ 152,000 $ 636,000
------------- --------------
------------- --------------
SUPPLEMENTAL CASH FLOWS DISCLOSURE:
Cash paid for interest........................................................... $ 261,000 $ 131,000
------------- --------------
------------- --------------
</TABLE>
See accompanying summary of accounting policies and note to financial
statements.
F-28
<PAGE>
MOREL INDUSTRIES, INC.
SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS AND SIGNIFICANT CUSTOMER -- Morel Industries, Inc.
(Morel) is a manufacturer of aluminum castings located in Entiat, Washington.
During 1994, Morel changed its name from Morel Foundry Corporation to emphasize
Morel's expanding capabilities in machining and powder coat painting.
In 1995 and 1994 sales to a major customer in the Class 8 truck industry
were 75% and 78% of total sales.
INVENTORIES -- Inventories are valued at the lower of cost (first-in,
first-out) or market. Work-in-process is valued at the lower of estimated cost
or market. Estimated cost is derived through an analysis of historical gross
profit margins.
PROPERTY AND EQUIPMENT -- Property and equipment is recorded at cost and is
depreciated using the straight-line method over estimated useful lives as
follows:
<TABLE>
<S> <C>
Office equipment....................................... 3-7 years
Foundry equipment...................................... 7-10 years
Building............................................... 15-40 years
</TABLE>
Expenditures for repairs and maintenance which do not extend the useful life
of the related asset are expensed as incurred.
INCOME TAXES -- Deferred taxes are provided for temporary differences in the
basis of assets and liabilities for book and income tax reporting purposes. If
it is more likely than not that some portion of a deferred tax asset will not be
realized, a valuation allowance is recognized.
F-29
<PAGE>
MOREL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
NOTE 1 -- INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Work-in-process..................................................... $ 695,000 $ 593,000
Raw materials....................................................... 113,000 101,000
Foundry supplies.................................................... 128,000 127,000
----------- -----------
$ 936,000 $ 821,000
----------- -----------
----------- -----------
</TABLE>
NOTE 2 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------
1995 1994
------------- --------------
<S> <C> <C>
Machinery, equipment and furniture............................. $ 3,769,000 $ 2,874,000
Land and building.............................................. 3,684,000 824,000
Accumulated depreciation....................................... (786,000) (1,072,000)
------------- --------------
Net property and equipment..................................... $ 6,667,000 $ 2,626,000
------------- --------------
------------- --------------
</TABLE>
NOTE 3 -- LINE-OF-CREDIT
Morel has a line-of-credit with a bank with interest at the bank's prime
rate (9% at June 30, 1995) plus 2%. The agreement allows Morel to borrow up to
the lesser of $1.0 million or 80% of eligible accounts receivable as defined by
the bank. At June 30, 1995, $968,000 was outstanding and $31,000 was available
for borrowing. The line-of-credit is secured by accounts receivable, inventories
and equipment and is personally guaranteed by the stockholders, see Notes 4 and
9.
F-30
<PAGE>
MOREL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995 AND 1994
NOTE 4 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1995 1994
------------- -----------
<S> <C> <C>
Industrial revenue bond payable to a bank with monthly payments of $19,000, including
interest at 8.12% through November 2009, secured by land, building and equipment, and
personally guaranteed by the stockholders............................................ $ 1,953,000
Note payable to a supplier with quarterly interest payments of 12% on the outstanding
balance; principal due February 1996 and 1997, secured by property and equipment..... 277,000
Note payable to an organization with monthly payments of $2,000, including interest at
10.5% through September 2000, secured by personal residences and guarantee of the
stockholders......................................................................... 100,000
Note payable to an individual, interest only at 14% through September 30, 1995, when
interest increases to 15%. Due in full in March 1996. Secured by substantially all
assets of Morel and subordinated to the industrial revenue bond...................... 500,000
Notes payable to suppliers with monthly payments of $1,000 to $45,000, including
interest at 10%. Unsecured with maturities through February 1996..................... 318,000
Note payable to a supplier in quarterly installments of $25,000, plus interest at 12%
through May 1995, unsecured.......................................................... 100,000
Other................................................................................. 1,000 3,000
------------- -----------
3,149,000 103,000
Less current maturities............................................................... 1,001,000 103,000
------------- -----------
Total long-term debt.................................................................. $ 2,148,000 $ --
------------- -----------
------------- -----------
</TABLE>
Scheduled maturities of long-term debt as of June 30, 1995, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, AMOUNT
- - ------------------------------------------------------------------------------- -------------
<S> <C>
1996........................................................................... $ 1,002,000
1997........................................................................... 270,000
1998........................................................................... 100,000
1999........................................................................... 109,000
2000........................................................................... 119,000
Thereafter..................................................................... 1,549,000
-------------
$ 3,149,000
-------------
-------------
</TABLE>
Morel's line-of-credit and industrial revenue bond agreements require, among
other matters, that Morel maintain minimum working capital, tangible net worth
and debt to tangible net worth ratios. Morel was not in compliance with the
covenants at June 30, 1995. In conjunction with the merger of Morel on December
1, 1995, the bank provided a waiver of the covenants through November 30, 1995,
and restructured the covenants through the expiration of the agreements, see
Note 9. Management believes Morel will be in compliance with the covenants
through June 30, 1996.
F-31
<PAGE>
MOREL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995 AND 1994
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
Morel leases equipment and vehicles under noncancelable operating leases.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, AMOUNT
- - ----------------------------------------------------------------------------------- ---------
<S> <C>
1996............................................................................... $ 32,000
1997............................................................................... 22,000
1998............................................................................... 5,000
1999............................................................................... 2,000
2000............................................................................... 1,000
---------
$ 62,000
---------
---------
</TABLE>
Rent expense for the years ended June 30, 1995 and 1994 was $57,000 and
$67,000.
During the normal course of business, matters arise which may ultimately
subject Morel to claims and litigation. Management believes that the resolution
of these matters will not have a material adverse effect on Morel's financial
condition.
NOTE 6 -- INCOME TAXES
Deferred tax liabilities are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Property and equipment.................................................. $ (1,226,000) $ (1,065,000)
Officers' bonus......................................................... 93,000 48,000
Other................................................................... 58,000 39,000
Net operating loss carryforward......................................... 347,000 296,000
-------------- --------------
$ (728,000) $ (682,000)
-------------- --------------
-------------- --------------
</TABLE>
Morel has net operating loss carryforwards of approximately $1.0 million
with expiration dates through fiscal year 2010.
The difference between Morel's effective income tax rate and the statutory
rate of 34% consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1995 1994
----------- ----------
<S> <C> <C>
Income tax (provision) benefit at the statutory rate........................... $ 111,000 $ (33,000)
Amortization of goodwill....................................................... (3,000)
Meals and entertainment........................................................ (3,000) (1,000)
Officer's life insurance....................................................... (2,000) (2,000)
----------- ----------
$ 106,000 $ (39,000)
----------- ----------
----------- ----------
</TABLE>
F-32
<PAGE>
MOREL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
NOTE 7 -- EMPLOYEE BENEFIT PLANS
Morel participates in a multi-employer pension plan pursuant to an agreement
between Morel and its employee bargaining unit. Although the plan is a defined
benefit plan, the specific benefit levels are not negotiated with or known by
Morel. Contributions expense related to the plan was $36,000 and $29,000 for the
years ended June 30, 1995 and 1994. Subsequent to year end, Morel's collective
bargaining agreement expired and was not renewed. Accordingly, Morel no longer
participates in the multi-employer plan.
Morel has a 401(k) employee benefit plan for those employees who meet the
eligibility requirements set forth in the plan. Eligible employees may
contribute up to 15% of their compensation. Morel's annual contribution to the
plan is determined by the board of directors. Morel made no contributions during
the years ended June 30, 1995 and 1994.
NOTE 8 -- SALE OF FOUNDRY PROPERTY
In 1994, Morel was required to sell its facility in Seattle, Washington, to
the Port of Seattle (the Port). Under terms of the sale Morel received
$2,533,000 for the facility and $3,626,000 for relocation costs. In March 1994,
Morel purchased a facility in Entiat, Washington, and began operations in Entiat
during August 1994.
For financial statement purposes, Morel recognized an extraordinary gain of
$295,000 and $1,918,000 for the years ended June 30, 1995 and 1994. For tax
reporting purposes, Morel retained its original basis in the assets sold and,
accordingly, did not recognize a taxable gain.
At June 30, 1995 and 1994, Morel was due $126,000 and $898,000 from the Port
for relocation costs. During the year ended June 30, 1994, Morel billed the Port
$769,000 for relocation costs which had not yet been incurred, and which are
recorded in the accompanying balance sheet as a liability.
NOTE 9 -- SUBSEQUENT EVENTS
On December 1, 1995, Morel entered into an agreement to merge with PCT
Holdings, Inc. (PCTH), in a transaction expected to be accounted for as a
pooling of interests. PCTH serves as a holding company for subsidiaries
providing sealed connectors and components, ceramic capacitors and filters and
machined aluminum parts for the medical, energy, aerospace, communications and
electronics industries.
Morel has reported a loss before extraordinary item of $326,000 in 1995 and
as of June 30, 1995, has a working capital deficit of $895,000. Additionally, at
June 30, 1995, Morel was in violation of certain debt covenants on the
line-of-credit and industrial revenue bond agreements. Subsequent to the merger,
PCTH provided Morel with $1 million of working capital. The proceeds of the loan
were used primarily to repay $500,000 of the industrial revenue bond. The
balance was used to fund $260,000 of accounts payable, prepayment penalties of
$140,000 and provide working capital for Morel.
In conjunction with the repayment of the industrial revenue bond, the bank
provided Morel with a waiver of its debt covenants through November 30, 1995,
and restructured the covenants through the expiration of the agreements.
Morel's 1996 operating plan has been developed to improve operating
efficiency and continue to broaden Morel's revenue base. Additionally, PCTH has
committed to provide Morel with sufficient working capital until profitable
operations are restored. Although Morel believes that its operating plan and
working capital available from PCTH will be adequate to meet its 1996 working
capital needs and maintain compliance with the restructured debt covenants,
there can be no assurance that Morel may not experience liquidity problems
because of adverse market conditions or other unfavorable events.
F-33
<PAGE>
MOREL INDUSTRIES, INC.
BALANCE SHEET
SEPTEMBER 30, 1995
(UNAUDITED)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash......................................................................... $ 89,000
Receivables.................................................................. 1,556,000
Inventory.................................................................... 839,000
Prepaid expense.............................................................. 46,000
----------
Total current assets....................................................... 2,530,000
NET PROPERTY AND EQUIPMENT..................................................... 6,594,000
OTHER.......................................................................... 24,000
----------
Total assets............................................................... $9,148,000
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank line-of-credit.......................................................... $ 964,000
Accounts payable............................................................. 1,373,000
Accrued liabilities.......................................................... 502,000
Current portion -- long-term debt............................................ 799,000
----------
Total current liabilities.................................................. 3,638,000
Long-term debt, net............................................................ 2,129,000
Deferred sales tax............................................................. 145,000
Deferred rent/taxes............................................................ 637,000
----------
Total liabilities.......................................................... 6,549,000
----------
STOCKHOLDERS' EQUITY
Common stock................................................................. 42,000
Common stock, non-voting..................................................... 175,000
Additional paid-in capital................................................... 825,000
Accumulated deficit.......................................................... 1,557,000
----------
Total stockholders' equity............................................... 2,599,000
----------
Total liabilities and stockholders' equity............................... $9,148,000
----------
----------
</TABLE>
See accompanying notes to unaudited interim financial statements.
F-34
<PAGE>
MOREL INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
NET SALES........................................................................... $ 2,785,000 $ 2,454,000
COST OF SALES....................................................................... 2,669,000 2,386,000
------------- -------------
GROSS PROFIT........................................................................ 116,000 68,000
OPERATING EXPENSES.................................................................. 245,000 225,000
------------- -------------
LOSS FROM OPERATIONS................................................................ (129,000) (157,000)
OTHER INCOME AND EXPENSE
Interest income................................................................... 1,000 28,000
Interest expense.................................................................. (103,000) (26,000)
Gain on the sale of property...................................................... (29,000)
Other............................................................................. (36,000) (7,000)
------------- -------------
(138,000) (34,000)
------------- -------------
NET LOSS BEFORE FEDERAL INCOME TAX.................................................. (267,000) (191,000)
FEDERAL INCOME TAX -- DEFERRED...................................................... 90,000 62,000
------------- -------------
NET LOSS FOR THE PERIOD............................................................. $ (177,000) $ (129,000)
------------- -------------
------------- -------------
LOSS PER SHARE...................................................................... $ (0.27) $ (0.20)
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to unaudited interim financial statements.
F-35
<PAGE>
MOREL INDUSTRIES, INC.
STATEMENTS OF CASH FLOW
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------------ --------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net cash provided by operating activities......................................... $ 54,000 $ 316,000
------------ --------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment................................................ (17,000) (1,634,000)
Proceeds from sale and relocation of foundry...................................... 126,000 89,000
------------ --------------
Net cash provided by (used in) investing activities............................. 109,000 (1,545,000)
------------ --------------
CASH FLOW FROM FINANCING ACTIVITIES
Payments of debt and capital leases............................................... (222,000) (27,000)
Proceeds from financing debt...................................................... 661,000
Other changes, net................................................................ (4,000)
------------ --------------
Net cash provided by (used in) financing activities............................. (226,000) 634,000
------------ --------------
NET DECREASE IN CASH................................................................ (63,000) (595,000)
CASH, beginning of period........................................................... 152,000 636,000
------------ --------------
CASH, end of period................................................................. $ 89,000 $ 41,000
------------ --------------
------------ --------------
</TABLE>
See accompanying notes to unaudited interim financial statements.
F-36
<PAGE>
MOREL INDUSTRIES, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
The accompanying unaudited interim financial statements have been prepared
in accordance with Regulation S-B Item 310 instructions and, in the opinion of
management, contain all adjustments (consisting of only normal accruals)
necessary to present fairly Morel Industries, Inc.'s (Morel) financial position
at September 30, 1995, and the results of operations and cash flows for the
three month periods ended September 30, 1995 and 1994. These results have been
determined on the basis of generally accepted accounting principles and
practices applied consistently with those used in the preparation of Morel's
annual audited financial statements.
Certain information and footnote disclosures normally included in audited
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should be
read in conjunction with Morel's audited financial statements and notes thereto
at and for the years ended June 30, 1995 and 1994, included elsewhere in this
Prospectus.
The results of operations for the three month periods ended September 30,
1995 and 1994 are not necessarily indicative of the results to be expected for
the full year.
SUBSEQUENT EVENT
Subsequent to September 30, 1995, Morel entered into an agreement and plan
of merger with PCT Holdings, Inc. Under terms of the agreement, Morel merged
with a wholly owned subsidiary of PCT Holdings, Inc., with Morel as the
surviving entity, and the shareholders of Morel received 650,000 shares of
common stock of PCT Holdings, Inc., after certain post-closing adjustments. The
merger was closed on December 1, 1995, and was effective for accounting purposes
on November 30, 1995. The merger was accounted for using the purchase method of
accounting. See "Certain Transactions" for additional information on this event.
F-37
<PAGE>
- - -------------------------------------------
-------------------------------------------
- - -------------------------------------------
-------------------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION, OTHER THAN AS CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH
THE OFFERING CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Acquisition History............................ 12
Use of Proceeds................................ 13
Price Range of Common Stock and Dividend
Policy........................................ 14
Capitalization................................. 15
Dilution....................................... 16
Selected Financial Information................. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business....................................... 22
Management..................................... 30
Principal Shareholders......................... 38
Selling Shareholder............................ 40
Certain Transactions........................... 41
Description of Securities...................... 43
Shares Eligible for Future Sale................ 51
Underwriting................................... 53
Legal Matters.................................. 54
Experts........................................ 54
Additional Information......................... 54
Index to Financial Statements.................. F-1
</TABLE>
2,250,000 UNITS
[LOGO]
EACH UNIT CONSISTING OF ONE SHARE
OF COMMON STOCK
AND ONE COMMON STOCK
PURCHASE WARRANT
---------------------
PROSPECTUS
---------------------
PAULSON INVESTMENT
COMPANY, INC.
COHIG & ASSOCIATES, INC.
, 1996
- - -------------------------------------------
-------------------------------------------
- - -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article XI of the Company's Amended and Restated Bylaws requires
indemnification of any person serving as a director or officer of the Company,
as well as any person who, while serving as a director or officer of the
Company, was serving at the request of the Company as a director, officer,
employee or agent of another entity, against expenses incurred because such
person was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, if such person acted in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. Indemnification may
not be provided for any claim, issue or matter in an action or suit by or in the
right of the Company to procure a judgment in its favor as to which such
director or officer has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the Company or for
amounts paid in settlement to the Company, unless and only to the extent that
the court in which the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the circumstances
of the case, the person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
Any indemnification as described above must be made by the Company only as
authorized in the specific case upon a determination that indemnification is
proper in the circumstances. The determination must be made (i) by the
stockholders; (ii) by the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding;
(iii) if a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding so orders, by independent legal counsel
in a written opinion; or (iv) if a quorum consisting of directors who were not
parties to the act, suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
Article XI also provides that the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the Company as they are incurred and in advance of the final disposition
of the action, suit or proceeding, upon receipt of an undertaking by or on
behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the Company.
Article XI of the Company's Amended and Restated Bylaws and Section 78.751
of the Nevada Revised Statutes authorize the Company to grant indemnification to
directors and officers on terms sufficiently broad to permit indemnification
under certain circumstances for liabilities arising under the Securities Act of
1933, as amended.
The Company has agreed to indemnify the Underwriters, and the Underwriters
have agreed to indemnify the Company, against certain liabilities under the
Securities Act.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses incurred in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee and the NASD
filing fee.
<TABLE>
<CAPTION>
SEC registration fee............................................. $ 10,784
<S> <C>
NASD filing fee.................................................. 3,628
NASDAQ-NMS Listing Fee........................................... 41,996
Representative's nonaccountable expense allowance................ 349,313
Transfer agent fee............................................... 5,000
Printing expenses................................................ 75,000
Legal fees and expenses.......................................... 275,000
Accounting fees and expenses..................................... 200,000
Blue sky fees and expenses, including legal fees................. 20,000
Miscellaneous.................................................... 4,309
---------
TOTAL........................................................ $ 985,000
---------
---------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since May 31, 1993, the Company has sold securities as described in the
following paragraphs, none of which have been registered under the Act:
1. An aggregate of 2,963,675 shares of Common Stock were issued in
February 1995 to the shareholders of Original PCTH, in consideration of the
Verazzana merger. In connection with that merger, warrants held by Donald A.
Wright, Nick A. Gerde and another employee of the Company to purchase common
stock of Original PCTH were converted into warrants to purchase 100,000,
25,000, and 35,000 shares, respectively, of Common Stock. An aggregate of
212,500 shares of Common Stock were issued to Jeff Jensen and an affiliate,
as a finder's fee in connection with the merger.
2. An aggregate of 800,000 shares of Common Stock were issued to Swiss
investors in July 1995, in exchange for aggregate cash consideration of
$4,598,400. In connection with that offering, in July 1995, (i) an aggregate
of 739,700 shares of Common Stock were issued to several designees of Lysys,
and $478,400 in cash was paid to Lysys as commissions, and (ii) an aggregate
of 295,300 shares of Common Stock were issued to SMD Ltd., LLC, as a
finder's fee in connection with the offering.
3. An aggregate of 838,470 shares of Common Stock were issued to Swiss
investors in November 1995, in exchange for aggregate cash consideration of
$3,353,880. An aggregate of 30,000 shares of Common Stock were issued in
January 1996 to a designee of Lysys, and $234,772 cash was paid to Lysys as
commissions in connection with the offering.
4. An aggregate of 133,333 shares of Common Stock were issued on April
11, 1995, and promissory notes in aggregate principal amount of $600,000
were issued on May 10, 1995, to the shareholders of Ceramic Devices, Inc., a
California corporation, as consideration for the merger of that entity with
a wholly owned subsidiary of the Company.
5. An aggregate of 128,750 shares of Common Stock were issued on
November 30, 1995, to Seismic Safety Products, Inc., a Florida corporation,
as partial consideration for the purchase of substantially all of the assets
of that entity by a wholly owned subsidiary of the Company.
II-2
<PAGE>
6. An aggregate of 650,000 shares of Common Stock, after post-closing
adjustments, were issued on December 1, 1995, to Stephen L. Morel and Mark
Morel as consideration for the merger of Morel Industries, Inc. with a
wholly owned subsidiary of the Company.
7. As of May 31, 1996, options to purchase an aggregate of 145,283
shares of Common Stock were issued to employees and directors of the Company
and its subsidiaries under the Company's 1995 Employee Incentive Plan, and
9,000 shares of Common Stock were issued to independent directors of the
Company under the Independent Director Stock Plan. Also, the Company has
agreed to issue an option to purchase 845,000 shares of Common Stock to Mr.
Wright on the effective date of this Prospectus.
8. In May 1996, the Company issued promissory notes aggregating
$1,350,000 in principal amount, and warrants to purchase an aggregate of
337,500 shares of Common Stock, in exchange for $1,350,000 in funds advanced
to the Company in March and May 1996, by Robert L. Smith, a director of the
Company, and UTCO Associates, Ltd., the selling shareholder named in the
registration statement.
9. An aggregate of 490,000 shares of Common Stock were issued to Swiss
investors in May 1996, in exchange for aggregate cash consideration of
$1,456,125. In connection with the offering, $116,490 was paid to Lysys as
commissions.
The sales described in paragraphs 2 (other than subsection (ii)), 3 and 9
above were made outside the United States to non-U.S. persons in transactions
not required to be registered under United States securities laws pursuant to
Regulation S of the Securities Act. The sales described in paragraph 7 were made
in reliance upon the exception set forth in Section 3(b) of the Securities Act
and Rule 701 promulgated thereunder. The sales described in paragraphs 1, 2(ii),
4, 5, 6 and 8 were exempt from registration under the Securities Act by virtue
of Section 4(2) thereof, or in reliance on Regulation D promulgated thereunder,
and the purchasers represented their intention to acquire the securities for
investment only and not with a view to distribution thereof. Appropriate legends
about the restricted nature of such securities were affixed to the stock
certificates issued in such transactions. All purchasers either received
adequate information about the Company or had adequate access, through
employment or other relationships, to such information.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
3.1 Articles of Incorporation of Verazzana Ventures, Ltd. (now known as PCT Holdings, Inc.), as filed on
January 30, 1986, with the Secretary of State of the State of Nevada.(2)
3.2 Certificate of Amendment to the Articles of Incorporation of PCT Holdings, Inc., as filed on February
16, 1995, with the Secretary of State of the State of Nevada.(2)
3.3 Amended and Restated Bylaws of PCT Holdings, Inc.(1)
4.1 Form of specimen certificate for Common Stock.(2)
4.2 Form of Warrant for purchase of Common Stock.(9)
4.3 Form of Warrant Agreement.(1)
4.4 Form of Purchase Warrant to the Representative for the purchase of Units.(1)
4.5 Registration Rights Agreement, dated December 1, 1995, between PCT Holdings, Inc., a Nevada corporation,
and Stephen L. Morel and Mark Morel.(4)
4.6 Registration Rights Agreement, dated November 30, 1995, between PCT Holdings, Inc., a Nevada
corporation, Seismic Safety Products, Inc., a Florida corporation, and certain of its shareholders.(4)
4.7 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.(5)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ----------- --------------------------------------------------------------------------------------------------------
4.8 Common Stock Purchase Warrant from PCT Holdings, Inc. to UTCO Associates, Ltd. dated May 22, 1996.(1)
<C> <S>
5.1 Opinion of Lionel Sawyer & Collins.(10)
10.1 Loan and Security Agreement, dated April 24, 1995, between Silicon Valley Bank and PCT Holdings, Inc.,
Ceramic Devices, Inc., Cashmere Manufacturing Co., Inc., and Pacific Coast Technologies, Inc.(6)
10.2 Employment Agreement, dated as of January 1, 1995, between PCT Holdings, Inc. and Donald A. Wright.(6)
10.3 Amendment to Employment Agreement, dated March 1, 1996, between PCT Holdings, Inc. and Donald A.
Wright.(1)
10.4 Employment Agreement, dated as of June 1, 1996, between PCT Holdings, Inc. and Donald A. Wright.(1)
10.5 Common Stock Purchase Warrant from PCT Holdings, Inc. to Donald A. Wright dated as of February 17,
1995.(1)
10.6 Common Stock Purchase Warrant from PCT Holdings, Inc. to Nick A. Gerde dated as of February 17, 1995.(1)
10.7 1995 Stock Incentive Plan.(1)
10.8 Independent Director Stock Plan.(1)
10.9 Common Stock Purchase Warrant from PCT Holdings, Inc. to Robert L. Smith dated as of May 22, 1996.(1)
10.10 Amended and Restated Promissory Note from PCT Holdings, Inc. to Robert L. Smith dated as of May 22,
1996.(1)
10.11 Promissory Note from PCT Holdings, Inc. to UTCO Associates, Ltd. dated as of May 22, 1996.(1)
10.12 Security Agreement between PCT Holdings, Inc. and UTCO Associates, Ltd. dated as of May 22, 1996.
10.13 Asset Purchase Agreement, dated October 27, 1995, between PCT Holdings, Inc., a Nevada corporation,
Seismic Safety Products, Inc., a Washington corporation, PCT Holdings, Inc., a Washington corporation,
Seismic Safety Products, Inc., a Florida corporation, and certain of its affiliates.(7)
10.14 Patent Purchase Agreement, dated October 27, 1995, between PCT Holdings, Inc., a Washington corporation,
Seismic Safety Products, Inc., a Washington corporation, and James C. McGill.(7)
10.15 Patent Purchase Agreement, dated October 24, 1995, between PCT Holdings, Inc., a Washington corporation,
Seismic Safety Products, Inc., a Washington corporation, and James C. McGill and Antonio F.
Fernandez.(7)
10.16 Agreement and Plan of Merger, dated November 30, 1995, between PCT Holdings, Inc., a Nevada corporation,
Morel Acquisition Corporation, Morel Industries, Inc., Stephen L. Morel, and Mark Morel.(4)
10.17 Stock Purchase Agreement, dated May 19, 1994, between Cashmere Manufacturing Co., Inc., Herman L. Jones,
John M. Eder, Fred R. Paquette, Dan A. Paquette and PCT Holdings, Inc.(6)
10.18 Exchange Agreement, dated May 31, 1994, between PCT Holdings, Inc. and its shareholders.(6)
10.19 Letter Agreement, dated January 3, 1995, between PCT Holdings, Inc. and Lysys Ltd.(6)
10.20 Agreement and Plan of Merger, dated February 15, 1995, between PCT Holdings, Inc., a Nevada corporation,
PCT Merger Corporation, a Washington corporation, and PCT Holdings, Inc., a Washington corporation.(6)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ----------- --------------------------------------------------------------------------------------------------------
10.21 Agreement and Plan of Merger, dated February 28, 1995, between PCT Holdings, Inc., Ceramic Devices,
Inc., a Washington corporation, and Ceramic Devices, Inc., a California corporation.(6)
<C> <S>
10.22 Promissory Note, dated May 10, 1995, in the principal amount of $200,000, from PCT Holdings, Inc. to
William H. Payne, Ivan G. Sarda, Elinor A. Walters and Katrina A. Knowles.(6)
10.23 Security Agreement, dated May 10, 1995, between Ceramic Devices, Inc., and William H. Payne, Ivan G.
Sarda, Elinor A. Walters and Katrina A. Knowles.(6)
10.24 Intellectual Property Acquisition and License Agreement, dated June 1, 1994, between Pacific Coast
Technologies, Inc. and James C. Kyle.(6)
10.25 Promissory Note, dated June 1, 1994, in the principal amount of $400,000, from Pacific Coast
Technologies, Inc. to James C. Kyle and Carol A. Kyle.(6)
10.26 Promissory Note Extension, dated January 1, 1995, in the principal amount of $387,800, from Pacific
Coast Technologies, Inc. to James C. Kyle and Carol A. Kyle.(6)
10.27 Lease Agreement, dated February 1, 1993, between the Port of Chelan County and Pacific Coast
Technologies, Inc.(6)
10.28 Addendum to Lease Agreement with Pacific Coast Technologies, Inc., dated April 22, 1993, between the
Port of Chelan County and Pacific Coast Technologies, Inc.(6)
10.29 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,
California.(6)
10.30 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,
California.(6)
10.31 Employment and Non-Competition Agreement, dated May 31, 1994, between PCT Holdings, Inc. and Herman L.
"Jack" Jones.(6)
10.32 Employment Agreement, dated January 1, 1995, between PCT Holdings, Inc. and Nick A. Gerde.(6)
10.33 Amended Employment Agreement, dated March 1, 1996, between PCT Holdings, Inc. and Nick A. Gerde.(1)
10.34 Employment Agreement, dated December 1, 1995, between Morel Industries, Inc. and Stephen L. Morel.(7)
10.35 Revised and Restated Promissory Note, dated May 17, 1996, from Morel Industries, Inc. to Richard and
Jacquelyn Doane.(9)
10.36 Guaranty, dated January 24, 1996, from PCT Holdings, Inc. to Richard and Jacquelyn Doane.(1)
10.37 Confirmation of Guaranty, dated May 17, 1996, from PCT Holdings, Inc. to Richard and Jacquelyn Doane.(1)
10.38 Promissory Note, dated March 15, 1996, from Cashmere Manufacturing Co., Inc. to Cashmere Valley Bank,
Inc.(9)
10.39 Commercial Guaranty, dated March 3, 1993, from Herman L. "Jack" Jones to Cashmere Valley Bank.(9)
10.40 Amended and Restated Agreement, dated May 30, 1996, between Herman L. "Jack" Jones, John Eder and
Cashmere Manufacturing Co., Inc.(10)
10.41 Renewal Promissory Note from Herman L. "Jack" Jones to PCT Holdings, Inc. dated March 15, 1996.(10)
10.42 Lease Agreement between the Port of Chelan County and Cashmere Manufacturing Co., Inc. dated November 4,
1994.(9)
10.43 Building Construction Agreement between the Port of Chelan County and Cashmere Manufacturing Co., Inc.
dated November 4, 1994.(9)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ----------- --------------------------------------------------------------------------------------------------------
10.44 General Terms Agreement No. PLR-950 Relating to Boeing Model Aircraft between Cashmere Manufacturing
Co., Inc. and Boeing Commercial Airplane Group, effective as of February 5, 1990, as amended.(9)
<C> <S>
10.45 Special Business Provisions No. L-890821-8140N between The Boeing Company and Cashmere Manufacturing
Co., Inc. effective as of December 18, 1992.(8)(9)
10.46 Special Business Provisions No. L-500660-8134N between The Boeing Company and Cashmere Manufacturing
Co., Inc. effective as of December 31, 1991.(8)(9)
10.47 Special Business Provisions No. L-435579-8180N between The Boeing Company and Cashmere Manufacturing
Co., Inc. effective as of August 11, 1994.(8)(9)
10.48 Special Business Provisions No. PLR-950A between The Boeing Company and Cashmere Manufacturing Co., Inc.
effective as of February 5, 1990.(8)(9)
10.49 Administrative Agreement No. L-435579-8180N between Cashmere Manufacturing Co., Inc. and Boeing
Commercial Airplane Group effective as of August 11, 1994.(9)
10.50 Special Business Provisions No. POP-65311-0047 between The Boeing Company and Cashmere Manufacturing
Co., Inc. effective as of February 26, 1996.(8)(9)
10.51 General Terms Agreement No. BCA-65311-0044 between The Boeing Company and Cashmere Manufacturing Co.,
Inc. effective as of February 26, 1996.(9)
10.52 Extension and Modification of Promissory Note, dated April 1996, between PCT Holdings, Inc. and William
H. Payne, Ivan G. Sarda, the Waldal Family Trust and Katrina Knowles.(9)
10.53 Consent to Offering and Additional Indebtedness, dated June 7, 1996, between PCT Holdings, Inc. and
William N. Payne, Ivan G. Sarda, the Waldal Family Trust and Katrina Knowles.(10)
10.54 Loan Modification Agreement, dated April 23, 1996, between Silicon Valley Bank and PCT Holdings, Inc.,
Ceramic Devices, Inc., Cashmere Manufacturing Co., Inc. and Pacific Coast Technologies, Inc.(9)
16.1 Letter from accountant regarding a change of accountants.(3)
21.1 List of Subsidiaries.(1)
23.1 Consent of Moss Adams LLP.(9)
23.2 Consent of BDO Seidman, LLP.(9)
23.3 Consent of Lionel Sawyer & Collins (to be included in Exhibit 5.1).(10)
23.4 Consent of Stoel Rives LLP.(9)
24.1 Power of Attorney (included on signature page of Form SB-2).(1)
</TABLE>
- - ------------------------
(1)Submitted with initial filing on May 31, 1996.
(2)Incorporated by reference to the Company's Form 8-A filed on May 16, 1995.
(3)Incorporated by reference to the Company's Current Report on Form 8-K/A
filed on June 22, 1995.
(4)Incorporated by reference to the Company's Current Report on Form 8-K filed
on December 18, 1995.
(5)Incorporated by reference to the Company's Current Report on Form 8-K filed
on March 1, 1995.
(6)Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed on August 29, 1995.
(7)Incorporated by reference to the Company's Current Report on Form 10-QSB for
the quarterly period ended November 30, 1995.
(8) Confidential treatment requested.
(9) Submitted with this Amendment.
(10) To be filed by amendment.
II-6
<PAGE>
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 24, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information set forth in
the registration statement; and
(iii) include any additional or changed material information on the plan
of distribution.
2. That, for determining liability under the Securities Act, it will treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
3. To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
4. That, for determining any liability under the Securities Act, it will
treat the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
5. That, for determining any liability under the Securities Act, it will
treat each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered therein, and the offering of
the securities at that time as the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, PCT HOLDINGS, INC. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form SB-2 and authorized
this Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Seattle, Washington on June 18, 1996.
PCT HOLDINGS, INC.
By /s/ Donald A. Wright
-----------------------------------
Donald A. Wright, President
In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been signed by the
following persons in the capacities indicated on June 18, 1996.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE
- - ------------------------------------------------ --------------------------------------
/s/ Donald A. Wright Chief Executive Officer, President,
-------------------------------------- and Director (Principal Executive
Donald A. Wright Officer)
/s/ Herman L. "Jack" Jones*
-------------------------------------- Executive Vice President and Director
Herman L. "Jack" Jones
/s/ Nick A. Gerde* Vice President Finance and Chief
-------------------------------------- Financial Officer (Principal
Nick A. Gerde Financial and Accounting Officer)
/s/ Roger P. Vallo*
-------------------------------------- Secretary and Director
Roger P. Vallo
/s/ Robert L. Smith*
-------------------------------------- Treasurer and Director
Robert L. Smith
/s/ Donald B. Cotton*
-------------------------------------- Director
Donald B. Cotton
/s/ Allen W. Dahl, M.D.*
-------------------------------------- Director
Allen W. Dahl, M.D.
/s/ Paul Schmidhauser*
-------------------------------------- Director
Paul Schmidhauser
*By /s/ Donald A. Wright
----------------------------------
Donald A. Wright
(Attorney-in-Fact)
</TABLE>
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ----------- -------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement.(1)
3.1 Articles of Incorporation of Verazzana Ventures, Ltd. (now known as PCT Holdings, Inc.), as filed
on January 30, 1986, with the Secretary of State of the State of Nevada.(2)
3.2 Certificate of Amendment to the Articles of Incorporation of PCT Holdings, Inc., as filed on
February 16, 1995, with the Secretary of State of the State of Nevada.(2)
3.3 Amended and Restated Bylaws of PCT Holdings, Inc.(1)
4.1 Form of specimen certificate for Common Stock.(2)
4.2 Form of Warrant for purchase of Common Stock.(9)
4.3 Form of Warrant Agreement.(1)
4.4 Form of Purchase Warrant to the Representative for the purchase of Units.(1)
4.5 Registration Rights Agreement, dated December 1, 1995, between PCT Holdings, Inc., a Nevada
corporation, and Stephen L. Morel and Mark Morel.(4)
4.6 Registration Rights Agreement, dated November 30, 1995, between PCT Holdings, Inc., a Nevada
corporation, Seismic Safety Products, Inc., a Florida corporation, and certain of its
shareholders.(4)
4.7 Agreement and Plan of Merger, dated February 28, 1995, between PCT Holdings, Inc., Ceramic
Devices, Inc., a Washington corporation, and Ceramic Devices, Inc., a California corporation.(5)
4.8 Common Stock Purchase Warrant from PCT Holdings, Inc. to UTCO Associates, Ltd. dated May 22,
1996.(1)
5.1 Opinion of Lionel Sawyer & Collins.(10)
10.1 Loan and Security Agreement, dated April 24, 1995, between Silicon Valley Bank and PCT Holdings,
Inc., Ceramic Devices, Inc., Cashmere Manufacturing Co., Inc., and Pacific Coast Technologies,
Inc.(6)
10.2 Employment Agreement, dated as of January 1, 1995, between PCT Holdings, Inc. and Donald A.
Wright.(6)
10.3 Amendment to Employment Agreement, dated March 1, 1996, between PCT Holdings, Inc. and Donald A.
Wright.(1)
10.4 Employment Agreement, dated as of June 1, 1996, between PCT Holdings, Inc. and Donald A.
Wright.(1)
10.5 Common Stock Purchase Warrant from PCT Holdings, Inc. to Donald A. Wright dated as of February
17, 1995.(1)
10.6 Common Stock Purchase Warrant from PCT Holdings, Inc. to Nick A. Gerde dated as of February 17,
1995.(1)
10.7 1995 Stock Incentive Plan.(1)
10.8 Independent Director Stock Plan.(1)
10.9 Common Stock Purchase Warrant from PCT Holdings, Inc. to Robert L. Smith dated as of May 22,
1996.(1)
10.10 Amended and Restated Promissory Note from PCT Holdings, Inc. to Robert L. Smith dated as of May
22, 1996.(1)
10.11 Promissory Note from PCT Holdings, Inc. to UTCO Associates, Ltd. dated as of May 22, 1996.(1)
10.12 Security Agreement between PCT Holdings, Inc. and UTCO Associates, Ltd. dated as of May 22, 1996.
10.13 Asset Purchase Agreement, dated October 27, 1995, between PCT Holdings, Inc., a Nevada
corporation, Seismic Safety Products, Inc., a Washington corporation, PCT Holdings, Inc., a
Washington corporation, Seismic Safety Products, Inc., a Florida corporation, and certain of its
affiliates.(7)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ----------- -------------------------------------------------------------------------------------------------
<S> <C> <C>
10.14 Patent Purchase Agreement, dated October 27, 1995, between PCT Holdings, Inc., a Washington
corporation, Seismic Safety Products, Inc., a Washington corporation, and James C. McGill.(7)
10.15 Patent Purchase Agreement, dated October 24, 1995, between PCT Holdings, Inc., a Washington
corporation, Seismic Safety Products, Inc., a Washington corporation, and James C. McGill and
Antonio F. Fernandez.(7)
10.16 Agreement and Plan of Merger, dated November 30, 1995, between PCT Holdings, Inc., a Nevada
corporation, Morel Acquisition Corporation, Morel Industries, Inc., Stephen L. Morel, and Mark
Morel.(4)
10.17 Stock Purchase Agreement, dated May 19, 1994, between Cashmere Manufacturing Co., Inc., Herman L.
Jones, John M. Eder, Fred R. Paquette, Dan A. Paquette and PCT Holdings, Inc.(6)
10.18 Exchange Agreement, dated May 31, 1994, between PCT Holdings, Inc. and its shareholders.(6)
10.19 Letter Agreement, dated January 3, 1995, between PCT Holdings, Inc. and Lysys Ltd.(6)
10.20 Agreement and Plan of Merger, dated February 15, 1995, between PCT Holdings, Inc., a Nevada
corporation, PCT Merger Corporation, a Washington corporation, and PCT Holdings, Inc., a
Washington corporation(6)
10.21 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.(6)
10.22 Promissory Note, dated May 10, 1995, in the principal amount of $200,000, from PCT Holdings, Inc.
to William H. Payne, Ivan G. Sarda, Elinor A. Walters and Katrina A. Knowles.(6)
10.23 Security Agreement, dated May 10, 1995, between Ceramic Devices, Inc., and William H. Payne, Ivan
G. Sarda, Elinor A. Walters and Katrina A. Knowles.(6)
10.24 Intellectual Property Acquisition and License Agreement, dated June 1, 1994, by and between
Pacific Coast Technologies, Inc. and James C. Kyle.(6)
10.25 Promissory Note, dated June 1, 1994, in the principal amount of $400,000, from Pacific Coast
Technologies, Inc. to James C. Kyle and Carol A. Kyle.(6)
10.26 Promissory Note Extension, dated January 1, 1995, in the principal amount of $387,800, from
Pacific Coast Technologies, Inc. to James C. Kyle and Carol A. Kyle.(6)
10.27 Lease Agreement, dated February 1, 1993, between the Port of Chelan County and Pacific Coast
Technologies, Inc.(6)
10.28 Addendum to Lease Agreement with Pacific Coast Technologies, Inc., dated April 22, 1993, between
the Port of Chelan County and Pacific Coast Technologies, Inc.(6)
10.29 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,
California.(6)
10.30 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,
California.(6)
10.31 Employment and Non-Competition Agreement, dated May 31, 1994, between PCT Holdings, Inc. and
Herman L. "Jack" Jones.(6)
10.32 Employment Agreement, dated January 1, 1995, between PCT Holdings, Inc. and Nick A. Gerde.(6)
10.33 Amended Employment Agreement, dated March 1, 1996, between PCT Holdings, Inc. and Nick A.
Gerde.(1)
10.34 Employment Agreement, dated December 1, 1995, between Morel Industries, Inc. and Stephen L.
Morel.(7)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ----------- -------------------------------------------------------------------------------------------------
<S> <C> <C>
10.35 Revised and Restated Promissory Note, dated May 17, 1996, from Morel Industries, Inc. to Richard
and Jacquelyn Doane.
10.36 Guaranty, dated January 24, 1996, from PCT Holdings, Inc. to Richard and Jacquelyn Doane.(1)
10.37 Confirmation of Guaranty, dated May 17, 1996, from PCT Holdings, Inc. to Richard and Jacquelyn
Doane.(1)
10.38 Promissory Note, dated March 15, 1996, from Cashmere Manufacturing Co., Inc. to Cashmere Valley
Bank, Inc.(9)
10.39 Commercial Guaranty, dated March 3, 1993, from Herman L. "Jack" Jones to Cashmere Valley Bank.(9)
10.40 Amended and Restated Agreement, dated May 30, 1996, between Herman L. "Jack" Jones, John Eder and
Cashmere Manufacturing Co., Inc.(10)
10.41 Renewal Promissory Note from Herman L. "Jack" Jones to PCT Holdings, Inc. dated March 15,
1996.(10)
10.42 Lease Agreement between the Port of Chelan County and Cashmere Manufacturing, Inc. dated November
4, 1994.(9)
10.43 Building Construction Agreement between the Port of Chelan County and Cashmere Manufacturing Co.,
Inc. dated November 4, 1994.(9)
10.44 General Terms Agreement No. PLR-950 Relating to Boeing Model Aircraft between Cashmere
Manufacturing Co., Inc. and Boeing Commercial Airplane Group, effective as of February 5, 1990,
as amended.(9)
10.45 Special Business Provisions No. L-890821-8140N between The Boeing Company and Cashmere
Manufacturing Co., Inc. effective as of December 18, 1992.(8)(9)
10.46 Special Business Provisions No. L-500660-8134N between The Boeing Company and Cashmere
Manufacturing Co., Inc. effective as of December 31, 1991.(8)(9)
10.47 Special Business Provisions No. L-435579-8180N between The Boeing Company and Cashmere
Manufacturing Co., Inc. effective as of August 11, 1994.(8)(9)
10.48 Special Business Provisions No. PLR-950A between The Boeing Company and Cashmere Manufacturing
Co., Inc. effective as of February 5, 1990.(8)(9)
10.49 Administrative Agreement No. L-435579-8180N between Cashmere Manufacturing Co., Inc. and Boeing
Commercial Airplane Group effective as of August 11, 1994.(9)
10.50 Special Business Provisions No. POP-65311-0047 between The Boeing Company and Cashmere
Manufacturing Co., Inc. effective as of February 26, 1996.(8)(9)
10.51 General Terms Agreement No. BCA-65311-0044 between The Boeing Company and Cashmere Manufacturing
Co., Inc. effective as of February 26, 1996.(9)
10.52 Extension and Modification of Promissory Note, dated April 1996, between PCT Holdings, Inc. and
William H. Payne, Ivan G. Sarda, the Waldal Family Trust and Katrina Knowles.(9)
10.53 Consent to Offering and Additional Indebtedness dated June 7, 1996 between PCT Holdings, Inc. and
William N. Payne, Ivan G. Sarda, the Waldal Family Trust and Katrina Knowles.(10)
10.54 Loan Modification Agreement, dated April 23, 1996, between Silicon Valley Bank and PCT Holdings,
Inc., Ceramic Devices, Inc., Cashmere Manufacturing Co., Inc. and Pacific Coast Technologies,
Inc.(9)
16.1 Letter from accountant regarding a change of accountants.(3)
21.1 List of Subsidiaries.(1)
23.1 Consent of Moss Adams LLP.
23.2 Consent of BDO Seidman, LLP.
23.3 Consent of Lionel Sawyer & Collins (to be included in Exhibit 5.1).(10)
23.4 Consent of Stoel Rives LLP.(9)
24.1 Power of Attorney (included on signature page of Form SB-2).(1)
</TABLE>
<PAGE>
- - ------------------------
(1) Submitted with initial filing on May 31, 1996.
(2) Incorporated by reference to the Company's Form 8-A filed on May 16, 1995.
(3) Incorporated by reference to the Company's Current Report on Form 8-K/A
filed on June 22, 1995.
(4) Incorporated by reference to the Company's Current Report on Form 8-K filed
on December 18, 1995.
(5) Incorporated by reference to the Company's Current Report on Form 8-K filed
on March 1, 1995.
(6) Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed on August 29, 1995.
(7) Incorporated by reference to the Company's Current Report on Form 10-QSB
for the quarterly period ended November 30, 1995.
(8) Confidential treatment requested.
(9) Submitted with this Amendment.
(10) To be filed by amendment.
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
EXHIBIT 4.2
VOID AFTER 5 P.M. PACIFIC TIME ON ____________________, 2001
WARRANTS TO PURCHASE COMMON STOCK
W_____ _________ Warrants
PCT HOLDINGS, INC.
CUSIP 693259 11 1
THIS CERTIFIES THAT
or registered assigns, is the registered holder of the number of Warrants
("Warrants") set forth above. Each Warrant entitles the holder thereof to
purchase from PCT Holdings, Inc., a corporation incorporated under the laws of
the State of Nevada ("Company"), subject to the terms and conditions set forth
hereinafter and in the Warrant Agreement hereinafter more fully described (the
"Warrant Agreement") referred to, one fully paid and non-assessable share of
Common Stock, $0.001 par value, of the Company ("Common Stock") upon
presentation and surrender of this Warrant Certificate with the instructions for
the registration and delivery of Common Stock filled in, at any time prior to
5:20 P.M., Pacific time, on __________, 2001 or, if such Warrant is redeemed as
provided in the Warrant Agreement, at any time prior to the effective time of
such redemption, at the stock transfer office in _________________________, of
________________________________, Warrant Agent of the Company ("Warrant
Agent"), or of its successor warrant agent or, if there be no successor warrant
agent, at the corporate offices of the Company, and upon payment of the Exercise
Price (as defined in the Warrant Agreement) and any applicable taxes paid either
in cash, or by certified or official bank check, payable in lawful money of the
United States of America to the order of the Company. Each Warrant initially
entitles the holder to purchase one share of Common Stock for $__________. The
number and kind of securities or other property for which the Warrants are
exercisable are subject to further adjustment in certain events, such as
mergers, splits, stock dividends, recapitalizations and the like, to prevent
dilution. The Company may redeem any or all outstanding and unexercised
Warrants at any time if the Daily Price has exceeded $__________ for
20 consecutive trading days immediately preceding the date of notice of such
redemption, upon 30 days notice, at a price equal to $0.25 per Warrant. For the
purpose of the foregoing sentence, the term "Daily Price" shall mean, for any
relevant day, the closing bid price on that day as reported by the principal
exchange or quotation system on which prices for the Common Stock are reported.
All Warrants not theretofore exercised or redeemed will expire on ____________,
2001.
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, dated as of __________, 1996 ("Warrant
Agreement"), between the Company and the Warrant Agent, to all of which terms,
provisions and conditions the registered
<PAGE>
holder of this Warrant Certificate consents by acceptance hereof. The
Warrant Agreement is incorporated herein by reference and made a part hereof
and reference is made to the Warrant Agreement for a full description of the
rights, limitations of rights, obligations, duties and immunities of the
Warrant Agent, the Company and the holders of the Warrant Certificates.
Copies of the Warrant Agreement are available for inspection at the stock
transfer office of the Warrant Agent or may be obtained upon written request
addressed to the Company at 434 Olds Station Road, Wenatchee, Washington
98801, Attention: President.
The Company shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractions of Warrants, Common
Stock or other securities, but shall make adjustment therefor in cash on the
basis of the current market value of any fractional interest as provided in the
Warrant Agreement.
In certain cases, the sale of securities by the Company upon exercise of
Warrants would violate the securities laws of the United States, certain
states thereof or other jurisdictions. The Company has agreed to use all
commercially reasonable efforts to cause a registration statement to continue
to be effective during the term of the Warrants with respect to such sales
under the Securities Act of 1933, and to take such action under the laws of
various states as may be required to cause the sale of securities upon
exercise to be lawful. However, the Company will not be required to honor
the exercise of Warrants if, in the opinion of the Board of Directors, upon
advice of counsel, the sale of securities upon such exercise would be
unlawful. In certain cases, the Company may, but is not required to,
purchase Warrants submitted for exercise for a cash price equal to the
difference between the market price of the securities obtainable upon such
exercise and the exercise price of such Warrants.
This Warrant Certificate, with or without other Certificates, upon
surrender to the Warrant Agent, any successor warrant agent or, in the absence
of any successor warrant agent, at the corporate offices of the Company, may be
exchanged for another Warrant Certificate or Certificates evidencing in the
aggregate the same number of Warrants as the Warrant Certificate or Certificates
so surrendered. If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
No holder of this Warrant Certificate, as such, shall be entitled to vote,
receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose whatever, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof or give or withhold consent to any corporate
action (whether upon any matter submitted to stockholders at any meeting
thereof, or give or withhold consent to any merger, recapitalization, issuance
of stock, reclassification of stock, change of par value or change of stock to
no par value, consolidation, conveyance or otherwise) or to receive notice of
meetings or other actions affecting stockholders (except as provided in the
Warrant Agreement) or to receive dividends or subscription rights or otherwise
until the Warrants evidenced by this Warrant Certificate shall have been
exercised and the Common Stock purchasable upon the exercise thereof shall have
become deliverable as provided in the Warrant Agreement.
<PAGE>
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock or other
class of stock purchasable upon the exercise of the Warrants evidenced by this
Warrant Certificate are closed for any purpose, the Company shall not be
required to make delivery of certificates for shares purchasable upon such
transfer until the date of the reopening of said transfer books.
Every holder of this Warrant Certificate by accepting the same consents and
agrees with the Company, the Warrant Agent, and with every other holder of a
Warrant Certificate that:
(a) this Warrant Certificate is transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in the Warrant
Agreement, and
(b) the Company and the Warrant Agent may deem and treat the person in
whose name this Warrant Certificate is registered as the absolute owner hereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes whatever
and neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
The Company shall not be required to issue or deliver any certificate for
shares of Common Stock or other securities upon the exercise of Warrants
evidenced by this Warrant Certificate until any tax which may be payable in
respect thereof by the holder of this Warrant Certificate pursuant to the
Warrant Agreement shall have been paid, such tax being payable by the holder of
this Warrant Certificate at the time of surrender.
This Warrant Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Warrant Agent.
WITNESS the facsimile signatures of the proper officers of the Company and
its corporate seal.
Dated: ____________________, 1996.
PCT HOLDINGS, INC.
By: ________________________________
President
Attest: ____________________________
Secretary
Countersigned
___________________________________
By: _______________________________
Authorized Officer
<PAGE>
Exhibit 10.12
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into May 22, 1996, by and
between UTCO Associates, Ltd., a Utah limited partnership, (hereafter "Secured
Party") and PCT Holdings, Inc., a Nevada corporation ("PCT"), and its wholly
owned subsidiaries, Pacific Coast Technologies, Inc., a Washington corporation,
Cashmere Manufacturing Co., Inc., a Washington corporation, Seismic Safety
Products, Inc., a Washington corporation, and Morel Industries, Inc., a
Washington corporation, (collectively, the "Subsidiaries") (PCT and the
Subsidiaries are sometimes hereafter collectively referred to as "Debtor").
1. Debtor hereby grants to Secured Party a security interest in all of
Debtor's assets, whether now owned or hereafter acquired, and wherever located,
specifically including but not limited to Debtor's interest in the types of
property described below (the "Collateral") to secure payment to Secured Party
of all promissory notes and other obligations of Debtor executed and delivered
concurrently herewith (the "Obligations"), including those referred to in that
certain Promissory Note (the "Note") dated May 22, 1996 in the original
principal amount of $1,200,000.00 between and among Debtor and Secured Party:
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 inventory, supplies and materials of Debtor now owned or
hereafter acquired, together with all additions and accessions thereto and
replacements therefor;
-1-
<PAGE>
c. All accounts, accounts receivable, negotiable documents, notes,
drafts, acceptances, claims, lease rights (to the extent they are assignable
without consent of the lessor), 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 proceeds of insurance
policies;
g. All of Debtor's patents and patents pending;
h. All of PCT's stock in and to the Subsidiaries; and
i. 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.
-2-
<PAGE>
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 and any security interest created prior to the date hereof,
each of which is described on Exhibit "A" attached hereto, except as provided
in subpart d below. 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. So long as any amounts are outstanding under the Note, 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 filings with the Securities and
Exchange Commission, provided, however, that Secured Party agrees to execute a
Confidentiality Agreement, in a form reasonably acceptable to the Debtor with
regard to any such non-public documents;
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; and
d. That part of the Collateral which consists of inventory and
accounts receivable of Morel Industries, Inc. ("Morel") 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) liens for
taxes not yet payable; (ii) additional security interests and liens consented to
in writing by Secured Party in its sole discretion; (iii) the Liens set forth on
Exhibit "A" that relate to Morel Industries, Inc.; and (iv) security interests
being terminated substantially concurrently with this Security Agreement.
Secured Party shall have the right to require, as a condition to its consent
under subparagraph (ii) above, that the holder of the
-3-
<PAGE>
additional security interest or lien sign an intercreditor agreement on terms
satisfactory to Secured Party in its sole discretion, acknowledge that the
holder's security interest is subordinate to the security interest in favor
of Secured Party, and that Debtor agrees that any uncured default in any
obligation secured by the subordinate security interest shall also constitute
an Event of Default under this Security Agreement. Secured Party now has,
and shall continue to have, a first priority, perfected and enforceable
security interest in all of the Collateral which consists of inventory and
accounts receivable of Morel. The Collateral which consists of inventory and
accounts receivable of Morel shall not be subject to any other liens or
security interests of any type except for the Permitted Liens. Debtor shall
at all times defend Secured Party and the Collateral against all claims of
others.
4. Unless Debtor is in default hereunder, Debtor may sell the Collateral
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
the Note or any other documents evidencing the 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.
6. Debtor will not use or permit use of the Collateral in violation of
any statute, ordinance, or state or federal regulation.
7. With respect to the Items of Collateral listed on Exhibit "B" to this
Agreement (the "Patents"), Debtor represents and warrants as follows:
-4-
<PAGE>
a. Debtor does not own any patents registered in, or the subject of
pending applications in, the United States Patent and Trademark Office or any
similar offices or agencies in any other country or any political subdivision
thereof, other than those described in Exhibit "B" hereto;
b. Debtor has the sole, full and uncumbered right, title and
interest in and to each of the Patents shown on Exhibit "B" and the
registrations thereof are valid and enforceable and in full force and effect,
and none of the Patents has been abandoned or dedicated;
c. There is no claim by any third party that any Patents are invalid
and unenforceable or do or may violate the rights of any third person;
d. Debtor has obtained from each employee who may be considered the
inventor of patentable inventions (invented within the scope of such employee's
employment) an assignment to Debtor of all rights to such inventions, including,
without limitation, patents.
8. With respect to the Patents, Debtor covenants and agrees as follows:
a. Except to the extent that Secured Party shall give its prior
written consent, Debtor will not do any act, or omit to do any act, except as
may be reasonable, in its prudent business judgment, whereby the Patents may
become abandoned or dedicated or the remedies available against potential
infringers weakened and shall notify Secured Party immediately if Debtor knows
or becomes aware of any reason or has reason to know that any Patent may become
abandoned or dedicated;
b. In the event that any security interest as to which any of the
Patents is or may be subject as of the date hereof shall lapse, terminate or be
cancelled or rescinded, whether
-5-
<PAGE>
by voluntary action of Debtor or any third person secured party in whose
favor such presently attached and perfected security interests were created,
Debtor will perform all acts and execute all documents, including, without
limitation, notices of security interest or assignments for each relevant
type of intellectual property in forms suitable for filing with the United
States Patent and Trademark Office that may be necessary or desirable to
record, maintain, preserve, protect and perfect Secured Party's interest in
the Patents and the priority of such lien;
c. Other than with respect to any presently attached and perfected
security interest as of the date hereof, and other than as described in Section
___, Debtor will not assign, sell, mortgage, lease, transfer, pledge,
hypothecate, grant a security interest in or lien upon, encumber, grant an
exclusive or non-exclusive license, or otherwise dispose of any of the Patents,
and nothing in this Security Agreement shall be deemed a consent by Secured
Party to any such action except as expressly permitted herein;
d. Except as required by Debtor's senior lender, Debtor will not,
either itself or through any agent, employee, licensee or designee, (i) file an
application for the registration of any Patent with the Patent and Trademark
Office or any similar office or agency in any other country or any political
subdivision thereof, or (ii) file any assignment of any Patent which Debtor may
acquire from a third party with the Patent and Trademark Office or any similar
office or agency in any other country or any political subdivision thereof,
unless Debtor shall, on or prior to the date of such filing, notify Secured
Party thereof, and, upon the request of Secured Party and subject to Secured
Party's right to so request pursuant to Section 8(b), execute and deliver any
and all assignments, agreements, instruments, documents and papers as Secured
Party may request to evidence Secured Party's interest, if any under this
Security Agreement,
-6-
<PAGE>
in such Patent (and the goodwill and general intangibles of Debtor relating
thereto or represented thereby);
e. Debtor will take all reasonable steps, in its prudent business
judgment, in any proceeding before the Patent and Trademark Office or any
similar office or agency in any other country or any political subdivision
thereof, to diligently prosecute or maintain, as applicable, each application
and registration of the Patents, including, without limitation, filing of
renewals, affidavits of use, affidavits of incontestability and opposition,
interference and cancellation proceedings (except to the extent that dedication,
abandonment or invalidation is permitted hereunder);
f. So long as any part or portion of the Obligations remains unpaid,
Debtor shall make application to the Patent and Trademark Office (and assign to
the extent provided herein such application to Secured Party as security) to
register any unpatented but patentable inventions developed by Debtor or its
employees (within the scope of their employment), unless Debtor, in the exercise
of its prudent business judgment, deems any such Patent not to have any
significant commercial value or determines that its rights thereunder are better
preserved as a trade secret;
g. Debtor shall use proper statutory notice in connection with its
use of the Patents; and
h. Debtor shall at all times keep at least one complete set of its
records concerning the Patents at its chief executive office and shall make such
records available for inspection by Secured Party at such times as Secured Party
may reasonably request.
-7-
<PAGE>
9. In the event that any prior security interest as to which any of PCT's
stock in the Subsidiaries is or may be subject as of the date hereof shall
lapse, terminate or be cancelled or rescinded, whether by voluntary action of
Debtor or any court or third person secured party in whose favor such presently
attached and perfected security interests were created, Debtor will perform all
acts, including, without limitation, delivering physical possession of the
certificates representing such stock of the Subsidiaries and executing such
notices or documents as shall be necessary or desirable for Secured Party to
maintain, preserve, protect and perfect Secured Party's security interest in
such stock and the priority of such lien.
10. With respect to that part of the Collateral which consists of accounts
receivable of Morel, whether now existing or hereafter arising and the proceeds
thereof (the "Morel Receivables"), the parties agree as follows:
a. Until Debtor is in default, beyond any applicable cure period,
under the Note or this Security Agreement, and contrary notice is given by
Secured Party, the Debtor is specifically authorized to (i) enforce and collect
the Morel Receivables, at Debtor's expense, (ii) utilize the proceeds thereof
for Debtor's general business purposes in the ordinary course of business, and
(iii) as shall be commercially reasonable, to accept the return of goods and to
reclaim, withhold or repossess goods as an unpaid seller. In collecting,
holding or remitting the proceeds of such collections, the Debtor shall have no
right to utilize the collections in any way other than pursuant to the terms and
conditions of the Security Agreement.
b. Debtor agrees to collect the Morel Receivables, at Debtor's
expense, with due diligence until such time as Debtor's authority to collect is
terminated pursuant to this Security Agreement and to account to the Secured
Party, at such intervals as Secured Party may
-8-
<PAGE>
direct, for the proceeds of these collections and, if Debtor is in default,
beyond any applicable cure period under the Note or the Security Agreement
and if Secured Party shall so request, by depositing such proceeds in kind in
a control collateral account at a bank designated by Secured Party (over
which account the Debtor shall have no control).
c. Upon Debtor's default beyond any applicable cure period under the
Note or this Security Agreement, and notification by the Secured Party to the
Debtor to cease collecting on the Morel Receivables, Secured Party will proceed
to collect said Morel Receivables in a commercially reasonable manner and may
deduct from the proceeds its reasonable expenses of collection; Secured Party is
authorized to receive in full satisfaction of account debtor's obligation a sum
less than the face amount thereof.
d. Any payment made by Debtor to Secured Party or any sum received
by the Secured Party through the realization and collection of the Morel
Receivables shall be applied to the Obligations, whether matured or not matured,
as set forth in Section 3(c) of the Note.
e. Debtor agrees to hold Secured Party harmless from all claims for
loss or damage caused by any failure to collect Morel Receivables or enforce any
contract or by any act or omission on the part of the Secured Party, its agents
and employees, except intentional misconduct.
f. Debtor agrees to maintain full and accurate books of account
covering the Morel Receivables and to deliver to Secured Party such of the books
as relate to the Morel Receivables so requested by Secured Party after or in
connection with the termination of Debtor's authority to collect as herein
provided.
-9-
<PAGE>
g. Debtor agrees to deliver to Secured Party on demand, or upon the
termination of the Debtor's authority to collect by Secured Party, all of the
papers in Debtor's possession relating to the Morel Receivables which will
facilitate collection or enforcement thereof by Secured Party, including but not
limited to, correspondence, invoices, shipping documents, and records, sales
slips, orders and order acknowledgments, contracts and all other instruments
relating thereto.
h. Secured Party or its authorized agent shall at all reasonable
times during regular business hours have the right to inspect Debtor's ledgers,
books of account and other written records evidencing the Morel Receivables,
and, upon termination of Debtor's authority to collect the Morel Receivable,
such agent or agents shall at all reasonable times during regular business hours
have the right to be present at Debtor's place of business to receive all
communications and remittances relating to said collateral.
11. 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;
b. The Debtor's material 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;
c. That any warranty, representation, or statement, made by or on
behalf of Debtor in or with respect to this Security Agreement, is materially
false at the time when made;
-10-
<PAGE>
d. Any of the documents executed and delivered in connection
herewith shall for any reason cease to be in full force and effect, except
through the act of the Secured Party;
e. An assignment by Debtor for the benefit of its creditors;
f. Filing by Debtor 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;
g. Filing of an involuntary petition against Debtor 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
30 days undismissed, unbonded, or undischarged;
h. All or any substantial part of the property of Debtor 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; and
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, except as disclosed on Exhibit "C" hereto.
12. 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;
-11-
<PAGE>
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;
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 reasonable 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 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.
13. Debtor agrees to execute all financing statements and other necessary
documents to perfect Secured Party's interest in the Collateral as set forth
herein. Borrower shall not be required to execute and deliver any other
documents that are in the possession of or pledged to the Debtor's senior
lenders as of the date of this Security Agreement.
14. 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
-12-
<PAGE>
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 the transferee shall become vested with said
powers and rights, whether or not they are specifically referred to in the
transfer.
15. 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 change its
address
-13-
<PAGE>
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: PCT Holdings, Inc.
434 Olds Station Road
Wenatchee, Washington 98801
Attn: Donald A. Wright, President
With a copy to: Stoel Rives LLP
600 University Street, Suite 3600
Seattle, WA 98101-3197
Attn: Sheryl A. Symonds
To the Secured Party: UTCO ASSOCIATES, LTD.
P.O. Box 11838
Salt Lake City, UT 84147
Attn: Robert D. Kent
With a copy to: Jeffrey M. Jones, Esq.
Durham, Evans, Jones & Pinegar, P.C.
50 South Main, Suite 850
Salt Lake City, UT 84144
16. 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.
17. This Agreement, together with the agreements and warranties herein
contained, shall inure to the benefit of Secured Party and its successors and
assigns and shall be binding upon Debtor and his respective heirs, successors
and assigns.
18. 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,
-14-
<PAGE>
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.
19. 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
engage a third party as its agent to help enforce this Security Agreement, and
Debtor shall pay the costs and expense 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 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.
20. 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.
-15-
<PAGE>
21. 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, any person, firm, corporation or governmental entity or agency
necessary or appropriate to consummate the transaction contemplated hereby.
22. 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.
23. 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.
24. GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Secured Party and
Debtor shall be governed by, and construed in accordance with, the laws of the
State of Utah. Any undefined terms used in this Agreement that is defined in
the Utah Uniform Commercial Code shall have the meaning assigned to that term in
the Utah Uniform Commercial Code. As a material part of the consideration to
Secured Party to enter into this Agreement, Debtor (i) agrees that all actions
and proceedings relating directly or indirectly hereto shall at Secured Party's
option, be litigated in courts located within Utah, and that the exclusive venue
therefor shall be, at Secured
-16-
<PAGE>
Party's option, Salt Lake County or the county in which Debtor'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 Debtor may have to object to the jurisdiction
of any such court, or to transfer or change the venue of any such action or
proceeding.
25. ENTIRE AGREEMENT IN WRITING. This Security Agreement, and any other
documents executed in connection herewith, are the final expression of the
agreement and understanding of Debtor and Secured Party 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.
IN WITNESS WHEREOF, this Agreement has been executed on the day and date
first above written.
"SECURED PARTY"
UTCO ASSOCIATES, LTD., a Utah limited partnership
By: /s/
___________________________
Its:
___________________________
"DEBTOR"
PCT HOLDINGS, INC., a Nevada corporation
By: /s/ Donald A. Wright
___________________________
Its: President
___________________________
-17-
<PAGE>
PACIFIC COAST TECHNOLOGIES, INC., a Washington
corporation
By: /s/ Donald A. Wright
________________________________
Its: Executive Vice President
CASHMERE MANUFACTURING CO., INC., a
Washington corporation
By: /s/ Donald A. Wright
________________________________
Its: Executive Vice President
SEISMIC SAFETY PRODUCTS, INC., a Washington
corporation
By: /s/ Donald A. Wright
________________________________
Its: Executive Vice President
MOREL INDUSTRIES, INC., a Washington corporation
By: /s/ Donald A. Wright
________________________________
Its: Executive Vice President
-18-
<PAGE>
EXHIBIT A
Except for the security interest created by the Security Agreement executed
by Debtor in favor of Borrower, the following constitute the only other security
interests in and to the Collateral created prior to the date hereof:
PCT HOLDINGS, INC.
SECURED PARTY FILING DATE FILE NO.
Silicon Valley Bank 7/1/94 95-198-0581
PACIFIC COAST TECHNOLOGIES, INC.
SECURED PARTY FILING DATE FILE NO.
Heritage Financial Services 7/1/94 94-182-0483
D.J.R. Enterprise's, Inc. 8/22/94 94-234-0289
Bankers Leasing Assoc., Inc. 9/6/94 94-249-0974
D.J.R. Enterprise's, Inc. 10/24/94 94-297-0686
OBL Financial Services Incorporated 11/14/94 94-318-1140
JWI Leasing 1/9/95 95-009-0561
Mazak Corporation 3/13/95 95-072-0390
Quest for Economic Development 4/21/95 95-111-0347
Perine Machine Tool Corp. 6/30/95 95-181-0723
Silicon Valley Bank 7/17/95 95-198-0580
James C. and Carol A. Kyle ___________ __________
CASHMERE MANUFACTURING CO., INC.
SECURED PARTY FILING DATE FILING NO.
U.S. Bancorp Leasing 6/13/94 94-164-1234
Ellison Machinery Co. 5/3/95 95-123-0365
-19-
<PAGE>
Ellison Machinery Co. 6/1/95 95-152-0359
Perine Machine Tool Corp. 6/30/95 95-181-0722
Silicon Valley Bank 7/25/95 95-206-0221
NEC America, Inc. 8/14/95 95-226-0088
NEC America, Inc. 11/6/95 95-310-0950
Hyster Sales Company 11/13/95 95-317-0083
Ellison Machinery Company 11/17/95 95-321-0280
Industrial Finance Company 3/20/96 96-080-0393
Ellison Machinery Company 4/5/96 96-096-0178
Ellison Machinery Company 1/22/96 96-022-0457
SEISMIC SAFETY PRODUCTS, INC.
SECURED PARTY FILING DATE FILING NO.
George H. Baldwin 12/5/95 95-339-0001
MOREL INDUSTRIES, INC.
SECURED PARTY FILING DATE FILING NO.
Security Pacific Bank 2/14/89 89-045-0264
Security Pacific Bank 2/1/91 91-032-0368
Security Pacific Bank 11/9/93 93-313-0665
Seattle First National Bank 12/1/94 94-335-0264
Seattle First National Bank 8/21/92 92-234-0068
Seattle First National Bank 12/1/94 94-335-0265
Seattle First National Bank 7/19/93 93-200-0525
Seattle First National Bank 11/29/93 93-333-1599
Seattle First National Bank 12/1/94 94-335-0268
Seattle First National Bank 12/1/94 94-335-0267
-20-
<PAGE>
Hyster Sales Company 7/29/94 94-210-0543
Industrial Finance Company 12/12/94 94-346-0289
The CIT Group 8/23/94 94-235-0239
Seattle First National Bank 12/1/94 94-335-0263
Copyco Leasing, Inc. 3/13/95 95-072-0981
Richard & Jaquelyn Doane 3/27/95 95-086-0095
C&H Machine Work, Inc. 3/18/96 96-078-0118
Washington State Department of
Community Trade and Economic Development __________ ___________
-21-
<PAGE>
EXHIBIT B
PCT HOLDINGS, INC. PATENT PORTFOLIO
<TABLE>
<CAPTION>
Date of
Reassignment Date
to Pacific Coast Reassignment
Patent # Country Invention Title Patent Issue Date Expiration Date Technologies, Inc. Recorded
-------- ------- --------------- ----------------- --------------- ------------------ ------------
PATENTS HELD BY PACIFIC COAST TECHNOLOGIES,INC, A WHOLLY OWNED SUBSIDIARY OF PCT HOLDINGS, INC.
<C> <C> <C> <S> <C> <C> <C> <C>
1. 4,220,813 U.S. Terminal for Medical Instrument September 2, 1980 September 2, 1997 June 1, 1994 June 27, 1994
2. 4,220,814 U.S. Terminal for Medical Instrument & September 2, 1980 September 2, 1997 June 1, 1994 June 27, 1994
Assembly
3. 4,352,951 U.S. Ceramic Seal October 5, 1982 October 5, 1999 June 1, 1994 June 27, 1994
4. 4,371,588 U.S. Ceramic Seal February 1, 1983 February 1, 2000 June 1, 1994 June 27, 1994
5. 4,401,766 U.S. Ceramic Seal August 30, 1983 August 30, 2000 June 1, 1994 June 27, 1994
6. 4,411,680 U.S. Ceramic Seal October 25, 1983 October 25, 2000 June 1, 1994 June 27, 1994
7. 4,421,947 U.S. Polycrystalline Insulating December 20, 1983 December 20, 2000 June 1, 1994 June 27, 1994
Material
8. 4,424,090 U.S. Insulating Material & Method January 3, 1984 January 3, 2001 June 1, 1994 June 27, 1994
of Making
9. 4,425,476 U.S. Progressively Fused Ceramic Seal January 10, 1984 January 10, 2001 June 1, 1994 June 27, 1994
10. 4,436,955 U.S. Terminal Assembly March 13, 1984 March 13, 2001 June 1, 1994 June 27, 1994
11. 4,456,786 U.S. Terminal Assembly for June 26, 1984 June 26, 2001 June 1, 1994 June 27, 1994
Heart Pacemaker
12. 4,461,926 U.S. Hermetically Sealed Insulating July 24, 1984 July 24, 2001 June 1, 1994 June 27, 1994
Assembly
13. 4,493,378 U.S. Terminal Assembly January 15, 1985 January 15, 2002 June 1, 1994 June 27, 1994
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
Date of
Reassignment Date
to Pacific Coast Reassignment
Patent # Country Invention Title Patent Issue Date Expiration Date Technologies, Inc. Recorded
-------- ------- --------------- ----------------- --------------- ------------------ ------------
<C> <C> <C> <S> <C> <C> <C> <C>
14. 4,507,522 U.S. Terminal Assembly March 26, 1985 March 26, 2002 June 1, 1994 June 27, 1994
15. 4,514,207 U.S. Method for Making Terminal April 30, 1985 April 30, 2002 June 1, 1994 June 27, 1994
Assembly
16. 4,514,590 U.S. Electrical Terminal Assembly April 30, 1985 April 30, 2002 June 1, 1994 June 27, 1994
17. 4,512,791 U.S. Hermetically Sealed Insulating April 23, 1985 April 23, 2002 June 1, 1994 June 27, 1994
Assembly
18. 4,518,820 U.S. Terminal Assembly for Pacemakers May 21, 1985 May 21, 2002 June 1, 1994 June 27, 1994
19. 4,593,758 U.S. Hermetically Sealed Insulating June 10, 1986 June 10, 2003 June 1, 1994 June 27, 1994
Assembly
20. 4,654,752 U.S. Terminal Assembly & Method of March 31, 1987 March 31, 2004 June 1, 1994 June 27, 1994
Making
21. 4,657,337 U.S. Electrical Connector & April 14, 1987 April 14, 2004 June 1, 1994 June 27, 1994
Production Method
22. 4,935,583 U.S. Insulated Conductor/Ceramic June 16, 1990 June 16, 2007 June 1, 1994 June 27, 1994
Connected Elements
23. 4,690,480 U.S. Tubular Bi-Metal Connector September 1, 1987 September 1, 2004 May 16, 1995 May 22, 1995
24. 5,041,019 U.S. Transition Joint for Microwave August 20, 1991 August 20, 2008 November 30, 1995* December 2, 1995
Package
25. 5,109,594 U.S. Method of Making a Sealed May 5, 1992 May 5, 2009 November 30, 1995* December 4, 1995
Transition Joint
26. 5,298,683 U.S. Dissimilar Metal Connectors March 29, 1994 March 29, 2011 Original Assignee Inapplicable
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
Date of
Reassignment Date
to Pacific Coast Reassignment
Patent # Country Invention Title Patent Issue Date Expiration Date Technologies, Inc. Recorded
-------- ------- --------------- ----------------- --------------- ------------------ ------------
<C> <C> <C> <S> <C> <C> <C> <C>
27. 5,433,260 U.S. Sealable Electronics Packages July 18, 1995 July 18, 2012 Original Assignee Inapplicable
and Method of Producing and
Sealing Such Packages
28. 5,110,307 U.S. Laser Weldable Hermetic May 5, 1992 May 5, 2009 December 22, 1995 Not recorded
Connector
29. 5,405,272 U.S. Laser Weldable Hermetic April 11, 1995 April 11, 2012 December 22, 1995 Not recorded
Connector
30. 08/618,62 U.S. Laser Weldable Waveguide Window Pending March 19, 2016 Original Assignee Inapplicable
3 Assembly
PATENTS HELD BY SEISMIC SAFETY PRODUCTS, INC.-WASHINGTON, A WHOLLY OWNED SUBSIDIARY OF PCT HOLDINGS, INC.
22. 4,903,720 U.S. Safety Shut Off Device February 27, 1990 February 27, 2007 November 30, 1995 December 12, 1995
23. 5,119,841 U.S. Safety Shut Off Apparatus June 9, 1992 June 9, 2009 November 30, 1995 December 12, 1995
24. 5,409,031 U.S. Safety Shut Off Valve April 25, 1995 April 25, 2012 November 30, 1995 Not recorded
25. 08/403,09 U.S. Automatic and Manually Operable Pending None established November 30, 1995 Not recorded
8 Safety Shutoff Valve
26. PCT/US95 Internat Automatic and Manually Operable Pending None established November 30, 1995 Not recorded
/04830 ional Safety Shutoff Valve
</TABLE>
*Assignment to Pacific Coast Technologies, Inc. was from Dynamic Materials, the
new name for Explosive Fabricators, Inc. (effective November 30, 1995). The
change of name documents were simultaneously recorded with the assignment.
-24-
<PAGE>
EXHIBIT C
TO SECURITY AGREEMENT
SECTION 11(I) - EXISTING DEFAULTS:
1. SILICON VALLEY BANK LINE OF CREDIT. The Silicon Valley Bank line of credit
expired on April 24, 1996, and renewal is currently being negotiated. There
existed one covenant default at the time of expiration. In addition, the
closing of the loan evidenced by the Note will cause a default under the Silicon
Valley Bank line of credit until the approval listed on Exhibit A to the Note
under Section 6(d), item 1, is obtained, at which time such default will be
cured.
2. PROMISSORY NOTES TO CERAMIC DEVICES' SELLING SHAREHOLDERS. The closing of
the loan evidenced by the Note will cause a default under these promissory notes
until the approval listed on Exhibit A to the Note under Section 6(d), item 2
above, is obtained, at which time such default will be cured.
3. WASHINGTON STATE DEPARTMENT OF COMMUNITY TRADE AND ECONOMIC DEVELOPMENT
("CTEC") LOAN. The CTEC loan is secured in part by an unperfected security
interest in Morel's personal property that has been junior to the security
interests of Seattle-First National Bank and Richard and Jacquelyn Doane since
the CTEC loan was closed. The CTEC loan documents, however, allow only Seattle-
First National Bank to hold a senior security interest in such collateral. The
Borrowers shall make a good faith effort to obtain CTEC's approval of the
Doanes' and the Lender's prior perfected security interests promptly after
closing of the loan evidenced by the Note.
-25-
<PAGE>
Exhibit 10.35
REVISED AND RESTATED PROMISSORY NOTE
THIS REVISED AND RESTATED PROMISSORY NOTE (the "Revised Note") is made and
entered into as of the 17th day of May, 1996, by and between MOREL INDUSTRIES,
INC., a Washington corporation, STEPHEN MOREL and MARK MOREL, individually and
for their marital communities (collectively, the "Borrowers"), and RICHARD L.
DOANE and JACQUELYNE DOANE (collectively "Lender") (Borrowers and Lender may be
collectively referred to herein as the Parties").
RECITALS
A. The Borrowers executed and delivered to the Lender a promissory note
dated on or about March 17, 1995, in the principal amount of FIVE HUNDRED
THOUSAND and NO/100 DOLLARS ($500,000.00) (herein the "Original Note") pursuant
to the terms of a Loan Agreement and Additional Escrow Instructions, of
unspecified date, between the Borrowers and the Lender (the "Loan Agreement").
B. In order to secure the payment of the Original Note and performance by
Borrowers under the Loan Agreement, Morel Industries Inc. granted and delivered
to Lender that Second Deed of Trust, dated on or about March 15, 1995, recorded
by the Chelan County Auditor under recording number 9503240112 (the "Deed of
Trust"), encumbering certain real property located in Chelan County, Washington,
more particularly described as follows:
Lots C1 and C2 of the Entiat Industrial Park, as recorded in
volume 23 of Plats, pages 57, 58 and 59, records of Chelan
County, Washington and as filed under Chelan County
Auditor's No. 9403310001;
securing payment of the sums and obligations contained in the Original Note.
C. In order to further secure the payment of the Original Note and
performance by Borrowers under the Loan Agreement, Morel Industries Inc. granted
and delivered to Lender a security interest in the personal property,
intangibles, and other rights and interests of Borrowers from time to time or
arising out of the Borrowers' business operations on the property encumbered by
the Deed of Trust, as evidenced by financing statements, including without
limitation the financing statement recorded with the Chelan County Auditor at
book 1040, page 82, under Document No. 9503270004, and filed with the Washington
State Department of Licensing under Document No. 950860095 (the "Financing
Statements");
D. The parties entered into that Lender's Escrow Instructions dated on or
about March 17, 1995;
-1-
<PAGE>
E. The parties entered into that Loan Modification Agreement (the "Loan
Modification Agreement") on or about the 1st day of December, 1995, modifying
the Original Note (the Original Note, the Loan Modification Agreement, the
Lender's Escrow Instructions may be collectively referred to herein as the
"Prior Loan Documents");
F. The parties now wish to modify the Prior Loan Documents on the terms
and conditions set forth in this Revised Note.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, including the terms
and conditions hereof, including modifying the Prior Loan Documents upon terms
requested by the Borrowers, the receipt and sufficiency of which consideration
is acknowledged, the parties agree as follows:
1. PRINCIPAL BALANCE. Borrowers hereby reconfirm, as of March 1, 1996
(herein the "Effective Date"), their obligation to pay, in accordance with
the terms hereof, the unpaid principal balance of the obligation represented
hereby, not including the Loan Fee described and defined in section 2 herein,
in the amount of Five Hundred Thousand and No/100 Dollars ($500,000.00)
("Principal Balance").
2. LOAN FEE. Borrowers shall pay to Lender the sum of Fifty Thousand and
No/100 Dollars ($50,000.00) (the "Loan Fee"), on or before September 1, 1996,
as additional consideration and as a fee for the extension of the terms of
the Original Note and for the accommodation of Borrower's requested extension
and revision of the Prior Loan Documents described herein, pursuant to the
terms hereof. Payment of said sum shall not reduce or affect the Principal
Balance, nor shall it be considered payment of any interest or any other fee,
but payment thereof is also secured by the Deed of Trust and the Financing
Statements.
3. REIMBURSEMENT FOR ATTORNEYS' FEES. Borrowers shall pay to Lender the
sum of Seven Thousand and No/100 Dollars ($7,000.00) (the "Drafting Fee"), on
or before May 23, 1996, as additional consideration and as a fee for the
attorneys' fees for the preparation of the documents as part of this
transaction.
4. INTEREST.
a. The unpaid Principal Balance shall accrue interest at the rate of
fifteen percent (15%) per annum from and after the Effective Date.
b. During any period of default of any provision hereof, the
then-Principal Balance and any unpaid portion of the Loan Fee and the
Drafting Fee, shall bear interest at the rate of eighteen percent (18%) per
annum, or, in the event that this rate is in excess of the then maximum rate
allowed by law, then at the highest rate then allowable by law.
-2-
<PAGE>
5. MODIFICATION OF LOAN DOCUMENTS; CONFIRMATION OF SECURITY; GUARANTY.
a. The terms of the Prior Loan Documents are modified and restated in
their entirety by the terms and conditions contained herein. It is
acknowledged and agreed that this Revised Note is a complete restatement,
modification and continuation of the Prior Loan Documents, and not a
substitution thereof.
b. This Revised Note shall continue to be secured by the Deed of Trust
and the Financing Statements, as of the effective dates thereof. The Deed of
Trust and the Financing Statements are hereby deemed modified such that they
specifically secure the payment of the entire Principal Balance, the Loan
Fee, and accruing interest, and penalties, fees, and provisions contained
herein, and further extensions of credit or further advance of funds.
c. The Original Note and the Loan Agreement were guaranteed by that
Guaranty agreement from PCT Holdings, Inc., a Nevada corporation, and this
Revised Note continues to be guaranteed by that Guaranty agreement, and that
Confirmation of Guaranty agreement of even date herewith, also executed by
PCT Holdings, Inc.
6. TERMS OF PAYMENT.
a. All of the then-accrued interest on the Principal Balance shall be
paid monthly, on or before the fifteenth (15th) day of each consecutive month
during the term hereof. The first payment, however, shall include the
interest due for the months of March and April of 1996, and shall therefore
be in the combined amount of Six Thousand Two Hundred Fifty and No/100
Dollars ($6,250.00), and shall be due on May 20, 1996.
b. Borrower shall also pay to Lender monthly payments (in addition to
the interest payments required by section 5.a. hereof) to be applied to the
declining Principal Balance in the amount of Twenty Thousand and No/100
Dollars ($20,000.00), commencing on May 15, 1996, and continuing in that same
amount on the 15th day of each consecutive month thereafter during the term
hereof. The entire then-Principal Balance, and all then-accrued interest and
then-due costs and fees and sums due pursuant hereto, shall be due and
payable on September 1, 1996.
7. EARLY REQUIRED PAYMENT. Notwithstanding any other term hereof
apparently to the contrary, in the event of the occurrence of certain events,
the Principal Balance, and all thenaccrued interest and/or costs and fees due
pursuant to the terms hereof, shall be immediately due and payable, without
the necessity of notice from Lender. Those events are:
a. The sale, agreement to sell, conveyance of, or additional
encumbrance of, or other alienation of rights of Borrowers in, the real
property securing the obligations hereof as reflected in the Deed of Trust,
whether by operation of law or otherwise, or a substantial portion of the
personal property securing the obligations hereof, whether by operation of
law or otherwise;
-3-
<PAGE>
b. The refinancing of the encumbrance in favor of SeaFirst Bank on the
real property encumbered by the Deed of Trust, through other than an
additional extension of time to pay or granting of additional credit under
that existing encumbrance, or other assignment of SeaFirst's secured position
to another lender;
c. Obtaining, or executing documents representing, any loan and/or
other indebtedness under which Morel Industries, Inc., is a borrower or
guarantor, in a single transaction or in the amount collectively for more
than one transaction on or after the date hereof, in excess of One Million
Two Hundred Thousand and No/100 Dollars ($1,200,000.00);
d. The sale of, or commitment to sell or otherwise convey, any of the
currently outstanding shares of stock or any additional shares of stock,
warrants, or any other equity representations, whether publicly or privately,
of Morel Industries, Inc.
8. CONSENT AND SUBORDINATION. Notwithstanding the provisions of section
7(c) above, Lender hereby consents to Morel Industries, Inc.'s execution of
loan documents for a One Million Two Hundred Thousand and No/100 Dollars
($1,200,000.00) loan (the "Bridge Loan") obtained for the purpose of
refinancing the line of credit from SeaFirst Bank to Morel Industries, Inc.
(the "SeaFirst Line of Credit"). In addition, Lender agrees that its
security interest in Morel Industries, Inc.'s accounts and inventory, as
evidenced by the Financing Statements, hereby is and shall be subordinate to
any security interest in Morel Industries, Inc.'s accounts and inventory
granted by Morel Industries, Inc. to the lender of the Bridge Loan, and not
more than the amount due and owing under the Bridge Loan, and agrees to
execute any financing statements reasonably necessary to evidence such
subordination. It is understood that the Lender is not subordinating its
interest in any of the collateral, other than Morel Industries, Inc.'s
accounts and inventory, set forth in the Financing Statements.
9. BORROWER'S REPRESENTATIONS AND WARRANTIES. The Borrowers'
Representations and Warranties contained in section 2 (including sections 2.1
through 2.5) of the Loan Agreement are hereby incorporated as though fully
set forth herein.
10. DEFAULT. If default be made in the payment of any installment, or any
sum due pursuant hereto, when due and not cured within ten (10) days of the
date the installment or sum was due, or in the event of any default pursuant
to the terms hereof or pursuant to the terms of the Deed of Trust or the
Financing Statements, or in the event of any default that may occur or exist
subsequent to the date hereof on the encumbrance senior to the Deed of Trust
on the real property secured by the Deed of Trust in favor of SeaFirst Bank
such that SeaFirst Bank delivers notice of default to Borrowers or any of
them, then, at the option of the Holder of this Note and upon notice to
Borrowers, the entire indebtedness described herein shall become immediately
due and payable.
-4-
<PAGE>
11. GENERAL.
a. RECITALS. The recitals, sections A through F above, are hereby
incorporated as though fully set forth herein.
b. PREPAYMENT. Borrowers may prepay the principal amount outstanding
in whole or in part at any time without penalty. Any partial prepayment
shall be applied first against any accrued interest, fees or costs, and then
against the then-Principal Balance outstanding and shall not reduce the
amount of or postpone the due date of any subsequent payment required
hereunder.
c. LATE CHARGE. In addition to the default interest agreed to above,
Borrower further agrees to pay a late charge of five percent (5%) of any
payment or other sum due pursuant to the terms hereof which is not delivered
to Lender within ten (10) days of its due date. Such late charge shall be as
of the due date of the next installment falling due. In the event such
charge applies to any final payment due pursuant to the terms of this Revised
Note, such charge shall be due and payable immediately.
d. LIABILITY. This Revised Note shall be the joint and several
obligation of all makers, sureties, and endorsers, and shall be binding on
each of them, their successors and, and assigns. Each maker of this Note
executes the same as principal and not as surety.
e. WAIVER OF RIGHTS. Any forbearance or failure to enforce any
provisions of this Revised Note shall not be deemed a waiver of the rights of
Lender to enforce any provision of this Revised Note at any subsequent time.
f. SECURITY. The indebtedness evidenced by this Revised Note is
secured by a Deed of Trust and Financing Statements as referenced herein.
g. NOTICES. All notices, demands, or documents which are required or
permitted to be given or served hereunder shall be in writing and sent by
registered or certified mail, return receipt requested, or personally
delivered, to the following addresses:
To Borrowers: MOREL INDUSTRIES, INC.
14351 Shamel Street
Entiat, WA 98822
With copy to: PCT Holdings, Inc.
434 Old Station Road
Wenatchee, WA 98801
Attn.: Donald A. Wright, President
-5-
<PAGE>
And a copy to: Eugenie D. Mansfield
Stoel Rives LLP
600 University Street
Suite 3600
Seattle, WA 98101
To Lender: RICHARD L. DOANE AND
JACQUELYNE DOANE
4238 - 95th Ave. N.E.
Bellevue, WA 98004
With copy to: Ross D. Jacobson
Ogden Murphy Wallace, P.L.L.C.
1601 Fifth Ave., Suite 2100
Seattle, WA 98101-1686
Notice addressed as above shall be effective on the earlier of the third day
following deposit in the U.S. Mail, or the date of actual delivery.
h. ATTORNEYS' FEE; COSTS. If suit is brought on this Revised Note, or if
it is placed in the hands of an attorney for collection, the Borrowers
promise and agree to pay all costs of collection, including actual attorneys'
fees and court costs, and all costs of appeal, or attorneys' fees or costs
incurred in any bankruptcy or insolvency proceeding.
i. VENUE; JURISDICTION; CHOICE OF LAW. This Note shall be interpreted
according to the laws of the State of Washington, and venue and jurisdiction
shall be laid in King County, Washington.
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
-6-
<PAGE>
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
BORROWER LENDER
MOREL INDUSTRIES, INC.,
a Washington corporation,
/s/ Richard L. Doane
By: /s/ D.A. Wright ------------------------------
-------------------------- RICHARD L. DOANE
Its: Executive Vice President /s/ Jacquelyne A. Doane
-------------------------- ------------------------------
JACQUELYNE A. DOANE
/s/ Stephen Morel
- - ------------------------------
STEPHEN MOREL
/s/ Mark Morel
- - ------------------------------
MARK MOREL
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Donald A. Wright
is the person who appeared before me, and said person acknowledged that he was
authorized to execute the instrument and acknowledged it as Executive Vice
President of MOREL INDUSTRIES, INC., to be the free and voluntary act and deed
of such party for the uses and purposes mentioned in this instrument.
DATED: May 17, 1996
------------------
/s/ Marishka T. Omundsen-Marten
----------------------------------------
Notary Public for the State of
Washington, residing at Seattle
----------------
Print Name: Marishka T. Omundsen-Marten
-----------------------------
My appointment expires 8-28-97
-----------------
-7-
<PAGE>
State of Washington )
) ss.
County of Chelan )
I certify that I know or have satisfactory evidence that MARK MOREL is the
person who appeared before me, and said person acknowledged that he signed this
instrument and acknowledged it to be his free and voluntary act for the uses and
purposes mentioned in the instrument.
Dated: May 18, 1996
-----------------
/s/ Charles D. Zimmerman
--------------------------------------
Notary Public of the State of
Washington, residing at Wenatchee
--------------
Print Name: Charles D. Zimmerman
--------------------------
My appointment expires January 29, 1997
---------------
State of Illinois )
) ss.
County of ________ )
I certify that I know or have satisfactory evidence that STEPHEN MOREL is
the person who appeared before me, and said person acknowledged that he signed
this instrument and acknowledged it to be his free and voluntary act for the
uses and purposes mentioned in the instrument.
Dated: May 20, 1996
----------------
/s/ Ezra L. Kotzin
--------------------------------------
Notary Public of the State of
Washington, residing at 3826 Lake Ave.
--------------
Wilmette, IL 60091
--------------------------------------
Print Name: EZRA KOTZIN
--------------------------
My appointment expires August 7, 1997
---------------
State of Washington )
) ss.
County of King )
I certify that I know or have satisfactory evidence that RICHARD L. DOANE
is the person who appeared before me, and said person acknowledged that he
signed this instrument
-8-
<PAGE>
and acknowledged it to be his free and voluntary act for the uses and purposes
mentioned in the instrument.
Dated: 5-21-96
--------------------------
/s/ Lidia Rosioru
-----------------------------------
Notary Public of the State of
Washington, residing at Kirkland
-----------
Print Name: Lidia Rosioru
-----------------------
My appointment expires 1-1-99
------------
State of Washington )
) ss.
County of King )
I certify that I know or have satisfactory evidence that JACQUELYNE DOANE
is the person who appeared before me, and said person acknowledged that she
signed this instrument and acknowledged it to be her free and voluntary act for
the uses and purposes mentioned in the instrument.
Dated: 5-21-96
--------------------------
/s/ Lidia Rosioru
-----------------------------------
Notary Public of the State of
Washington, residing at Kirkland
-----------
Print Name: Lidia Rosioru
-----------------------
My appointment expires 1-1-99
------------
-9-
<PAGE>
Exhibit 10.38
PROMISSORY NOTE
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$239,370.73 03-15-1996 03-15-1999 123966 D12 002 JM
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: Cashmere Manufacturing Co., Inc. Lender: Cashmere Valley Bank
910785809 Cashmere Office
432 Olds Station Road 117 North Division Street
Wenatchee, WA 98801 P.O. Box G
Cashmere, WA 98815
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
Principal Amount: $239,370.73 Interest Rate: 9.250% Date of Note: March 15, 1996
</TABLE>
PROMISE TO PAY. Cashmere Manufacturing Co., Inc. ("Borrower") promises to pay
to CASHMERE VALLEY BANK ("Lender"), or order, in lawful money of the United
States of America, the principal amount of Two Hundred Thirty-Nine Thousand
Three Hundred Seventy Dollars and 73/100 ($239,370.73), together with interest
at the rate of 9.2500% per annum on the unpaid principal balance from March 15,
1996, until paid in full.
PAYMENT. Subject to any payment changes resulting form changes in the Index,
Borrower will pay this loan in 35 regular payments of $5,774.29 each and one
irregular last payment estimated at $83,104.91. Borrower's first payment is due
April 5, 1996, and all subsequent payments are due on the same day of each month
after that. Borrower's final payment due March 15, 1999, will be for all
principal and all accrued interest not yet paid. Payments include principal and
interest. Interest on this Note is computed on a 365/365 simple interest basis;
that is, by applying the ratio of the annual interest rate over the number of
days in a year, times the outstanding principal balance, times the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will
be applied first to any unpaid collection costs and late charges, then to unpaid
interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is the Wall
Street Journal Prime Rate (the "Index"). The Index is not necessarily the
lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each year, 30 days prior to the anniversary of the origination date of the loan.
The Index currently is 8.250% per annum. The interest rate to be applied to the
unpaid principal balance of this Note will be at a rate of 1.00 percentage point
over the Index, resulting in an initial rate of 9.250% per annum. NOTICE: Under
no circumstances will the interest rate on this Note be more than the maximum
rate allowed by applicable law. Whenever increases occur in the interest rate,
Lender, at its option, may do one or more of the following: (a) increase
Borrower's payments to ensure Borrower's loan will pay off by the original final
maturity date, (b) increase Borrower's payments to cover accruing interest,
(c) increase the number of Borrower's
-1-
<PAGE>
payments, and (d) continue Borrower's payments at the same amount and increase
Borrower's final payment.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a minimum interest
charge of $10.00. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payment will not, unless agreed to by Lender in
writing, relieve Borrower or Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due
and may result in Borrower's making fewer payments.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $100.00, whichever is less.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender. (c) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect. (d) Borrower
becomes insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (e) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (f) Any of the events described in
this default section occurs with respect to any guarantor of this Note. (g)
Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15) days;
or (b) if the cure requires more than fifteen (15) days immediately initiates
steps which Lender deems in Lender's sole discretion to be sufficient to cure
the default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the interest rate on this Note to 12.000% per annum.
The interest rate will not exceed the maximum rate permitted by applicable law.
Lender may hire or pay someone else to help collect this Note if Borrower does
not pay. Borrower also will pay Lender that amount. This includes, subject to
any limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including 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. If not prohibited by applicable law, Borrower also will
pay any court costs, in addition to all other sums provided by law. This Note
has been delivered to Lender and accepted by Lender in the State of Washington.
If there is a lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of CHELAN County, the State of Washington. This Note
shall be governed by and construed in accordance with the laws of the State of
Washington.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
-2-
<PAGE>
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interests in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts. Borrower authorizes Lender, to the extent permitted by applicable
law, to charge or setoff all sums owing on this Note against any and all such
accounts.
COLLATERAL. This Note is secured by DEED OF TRUST DATED FEBRUARY 28, 1990.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as marker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan, or release any party or guarantor or collateral; or impair,
fail to realize upon or perfect Lender's security interest in the collateral;
and take any other action deemed necessary by Lender without the consent of or
notice of anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom the
modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
Cashmere Manufacturing Co., Inc.
By: /s/ Herman L. Jones
-----------------------------------
Herman L. Jones, President
/s/ Herman L. Jones
- - -----------------------------------
Herman L. Jones, Cosigner
-3-
<PAGE>
Exhibit 10.39
COMMERCIAL GUARANTY
<TABLE>
<S><C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
12 2 Hal
- - ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: Cashmere Manufacturing Co., Inc.
91-07858091
P.O. Box A
Cashmere, WA 98815
Guarantor: Herman I. Jones
6961 Nahahum Canyon
Cashmere, WA 98815
TIN: Lender: Cashmere Valley Bank
Cashmere Office
117 North Division Street
P.O. Box G
Cashmere, WA 98815
AMOUNT OF GUARANTY. The amount of this Guaranty is Three Hundred Seventy
Thousand Four Hundred Twenty Two & 68/100 Dollars ($370,422.68).
GUARANTY. For good and valuable consideration, Herman I. Jones
("Guarantor") absolutely and unconditionally guarantees and promises to pay
CASHMERE VALLEY BANK ("Lender") or its order, in legal tender of the United
States of America, the Indebtedness (as that is defined below) of Cashmere
Manufacturing Co., 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 Cashmere Manufacturing Co., Inc.
Guarantor. The word "Guarantor" means Herman I. Jones.
Guaranty. The word "Guaranty" means this Guaranty between Guarantor and
Lender dated March 3, 1993.
Indebtedness. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loans fees,
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
-1-
<PAGE>
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and attorneys' fees
and 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 CASHMERE VALLEY BANK, its successors and
assigns.
Note. The word "Note" means the promissory note or credit agreement
dated March 3, 1993, in the original principal amount of $370,422.68 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions
to any promissory note or agreement.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this
Guaranty shall not exceed at any one time $370,422.68 plus all costs 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 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 the Indebtedness shall
not affect the liability of Guarantor under this Guaranty. A revocation
received by Lender from any one or more Guarantors 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 guaranty liability under this
Guaranty, from time to time: (a) to make one or more additional secured or
unsecured loans to Borrower, to lend 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 original loan term; (c) to
take and hold security for the payment of this Guaranty or the Indebtedness, and
exchange, enforce, waive, decide not to perfect, and release any such security,
with or without the substitution
-2-
<PAGE>
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 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 agreement 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, assess, encumber, hypothecate, transfer or
otherwise dispose of all or substantially all of Guarantor's asserts, 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
continuous basis information regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events, 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.
GRANTOR'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 Indebtedness or 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) 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 of
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 would
prevent Lender from bringing any action, including a claim for deficiency,
against Guarantor, before or after Lender's commencement or
-3-
<PAGE>
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 any law limiting,
qualifying, or discharging the Indebtedness; (c) any disability or other defense
of Borrower or 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 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 on the
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 Guarantor which __________________ third party, on the Indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy 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 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 with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not against 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 or 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 or 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 its possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or held for safekeeping or otherwise, excluding
however all IRA, Keogh, and trust accounts. Every such security interest and
right of setoff shall 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 conduct on the part of Lender or by any neglect to exercise 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
-4-
<PAGE>
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 to Lender of the Indebtedness.
If Lender so requests, any notes or credit agreements now or hereafter
evidencing any debts or obligations of Borrower or 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 to appropriate to perfect, preserve, and
enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. This 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 CHELAN 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 Grantor
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), applies, 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 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 the 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 singulars 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 any one
or more of them. The words "Guarantor,"
-5-
<PAGE>
"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 circumstances, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances, and
all provisions of this Guarantee shall in all other respects remain
valid and enforceable. If any one or more of Borrower or Guarantor are
corporations or partnerships, it is 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 MARCH 3, 1993.
GUARANTOR:
/s/ Herman L. Jones
- - ------------------------------
HERMAN L. JONES
-6-
<PAGE>
Exhibit 10.42
LEASE AGREEMENT
CASHMERE MANUFACTURING, INC.
1994
THIS LEASE ("Lease") is entered into this date, between PORT OF CHELAN
COUNTY, a Washington municipal corporation, hereafter referred to as "Landlord,"
and CASHMERE MANUFACTURING, INC., a Washington corporation, hereafter referred
to as "Tenant.
1. PREMISES.
1.1 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 4.5 acres of land together with Facilities
to be placed on the Property pursuant to the Cashmere Manufacturing, Inc.
Building Construction Agreement of even date between the parties ("Construction
Agreement"), as "Facilities" is defined in that Construction Agreement:
See attached Exhibit "A"
1.2 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.
2.1 This Lease shall be for a term commencing on September 1, 1995, and
ending on August 31, 2005.
2.2 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.
2.3 If Landlord completes construction of the Facilities prior to
September 1, 1995, Tenant shall accept possession a reasonable time thereafter
and the lease term shall commence upon tenant taking possession but not later
than twenty (20) days after Acceptance of the
-1-
<PAGE>
Facilities as provided in the Construction Agreement, at which time the term
shall commence, notwithstanding the commencement date set out above.
3. OPTION TO RENEW.
3.1 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 eighty (180) days prior to the
expiration of the then-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 4.6.
3.2 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, 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.
4.1 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 4.3 and 4.6
below for the first and subsequent years, 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 thereon.
4.2 The actual Base Rent amount will be determined when the cost of
construction, as defined in the Construction Agreement, is fixed, as follows:
4.2.1 The monthly payment amount necessary to amortize the cost of
construction of the Facilities, excluding sales taxes, over thirty (30) years
with interest at seven percent (7%) per annum shall be determined.
4.2.2 The monthly payment amount necessary to amortize the amount
of sales taxes payable for the construction of the Facilities over ten (10)
years with interest at seven percent (7%) per annum shall be determined.
-2-
<PAGE>
4.2.3 The sum of the two monthly payment amounts determined
pursuant to Subparagraphs 4.2.1 and 4.2.2 above shall be the Base Rent; provided
that if the payment of sales taxes for the construction of the Facilities is
deferred or waived, the determination of Base Rent shall, during any period of
deferral or during the entire Lease if the sales tax is waived, exclude the
amount necessary to amortize the sales tax from the calculation so that during
any period of deferral or during the entire Lease if the sales tax is waived,
Base Rent shall be the amount set out in Subparagraph 4.2.1 above, subject to
adjustment as hereafter set forth.
4.2.4 If the projected Base Rent plus leasehold tax exceeds 43
cents per square foot per month, based on the lowest responsible bid as
determined after bids for the Facilities are opened but before a contract is
let, the Landlord shall reject all bids. The parties agree to then work
together to change the plans and specifications, as the parties have agreed to
do in the Construction Agreement, and, to prepare new plans and specifications
for the Facilities and to invite new bids. Provided; however, if Tenant agrees
in writing to pay rent equal to the full amount of the rent calculated according
to the formula in Paragraph 4.2.1 and 4.2.2, within five (5) days after bids are
opened, this Lease shall be amended to so state, and the lowest responsible bid
shall be accepted.
4.3 Landlord agrees to defer a portion of the Base Rent plus leasehold tax
on the deferred amount for the first year of the Lease so that during the first
year Tenant shall pay only Nine Thousand Dollars ($9,000) per month of the full
amount due for rent and leasehold tax. The balance of the rent and leasehold
tax due for the first year shall accrue interest at 7 percent (7 %) per annum
from the date due, and shall be paid in equal monthly installments over the
second, third, fourth, and fifth years of the Lease, so the full amount of the
deferred rent plus accruing interest shall be amortized over and paid in forty-
eight (48) equal monthly payments, including interest, beginning with the first
month of the second year of the lease term.
4.4 In addition to Rent, Tenant shall pay to the Landlord such sums as may
be required by law for payment of leasehold or other tenant 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 %). 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.
4.5
4.5.1 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.
4.5.2 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.
-3-
<PAGE>
4.6
4.6.1 Beginning with September, 1999, and again on September 1, of
each year thereafter, including each year of a renewal term, if the Lease is
renewed (the "adjustment years"), the Base Rent shall be adjusted in accordance
with the Consumer Price Index to the amount determined as hereafter set out.
4.6.2 The Base Rent shall be adjusted to an amount equal to the
product obtained by multiplying the full Base Rent calculated as set out in
Paragraph 4.2, by a fraction, the denominator of which is the semi-annual data
for the half year ending June, 1995, 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 June 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 June shall be used; and
provided that rent shall not fall below the amount calculated in Paragraph 4.2
above.
4.6.3 By way of example, the CPI adjustment for the monthly rent
shall be calculated as follows:
Semi-annual CPI-U
for the June
ending closest to
and before the
first month of the Monthly rent
period for which The Base beginning
the adjustment is Rent as with the
being made, for calculated in first month
Seattle X Paragraph 4.2 = of the app-
__________________ licable ad-
justment yr.
Semi-annual CPI-U
ending 6-95 for
Seattle
4.6.4 Notwithstanding the foregoing, the maximum increase in Rent
in any one year shall be the greater of 4 per-cent per year or 2/3 of the amount
of the annual increase calculated according to the formula set forth in
Paragraph 4.6.2 (e.g. If the percent increase for a one year period is four
percent (4%) or less, rent will increase by the full percentage amount. If the
one year percentage increase exceeds four percent (4 %), the rent increase will
be four percent (4 %) until the annual increase exceeds six percent (6%), and
above six percent (6%) the annual increase will be 2/3 of the actual increase.)
-4-
<PAGE>
4.6.5 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
4.7.1 Tenant shall pay, before the same become delinquent, all
taxes assessed against Tenant's personal property, furniture, fixtures,
equipment, inventory and other property on the Leased Premises.
4.7.2 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.
4.8 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.
4.9
4.9.1 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.
4.9.2 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.
4.10
4.10.1 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.
4.10.2 The late charge is due immediately and is in addition to all
of Landlord's other rights in this Lease.
-5-
<PAGE>
4.10.3 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.
5. CONSTRUCTION COMMENCEMENT. The Leased Premises currentlyconsist of vacant
land. Landlord agrees to construct a multi-purpose building consistent with
plans and specifications prepared, after consulting with the 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
"Cashmere Manufacturing, Inc. Building Construction Agreement" of this date
("Construction Agreement") which is incorporated herein this reference. The
building 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. POSSESSION. Possession of the Facility shall be delivered upon substantial
completion of the Facility in accordance with the plans and specifications for
the Facility. For purposes of this paragraph, the Facility shall be
substantially completed when the Facility may be occupied by the Tenant for
purposes of operating its business, understanding that Tenant's business
operations may encounter inconvenience until final completion.
8. ACCEPTANCE OF FACILITIES.
8.1 Landlord shall give notice to Tenant of its intent to finally accept
the building from the contractor prior to actual acceptance as provided in the
Construction Agreement.
8.2 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 and for the general manufacture of high technology 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.
-6-
<PAGE>
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 non-performance by any other Tenant
or occupant of the Olds Station Industrial Park of any said rules and
regulations. Tenant understands and agrees that Landlord may amend the
Protective Covenants, and that such amendments shall be binding upon Tenant; as
provided in the Protective Covenants, from the time Tenant receives notice of
such amendment.
10. OTHER AGREEMENTS. Tenant is the parent of Pacific Coast
Technologies,and Cashmere Manufacturing, Inc., both of which now or in the
future may or will be occupying portions of the Leased Premises. Other leases
or agreements which have been or may the future be entered into between the
Landlord and Tenant or between Landlord and one or of Tenant's subsidiaries,
including Pacific Coast Technologies, Inc. and Cashmere Manufacturing, Inc., are
incorporated herein by this reference including, but not limited to the "Lease
Agreement--Pacific Coast Technologies, Inc., 1993 ", between Landlord and
Pacific Coast Technologies, Inc., dated February 1, 1993. A default in any one
of the leases or agreements referred to in this paragraph shall be deemed a
default in any of the others and entitle Landlord to exercise remedies set out
in favor of Landlord in any and all of such agreements.
11. SERVICES AND UTILITIES.
11.1 Tenant shall make all arrangements for and pay all utilities,
including, but not limited to: gas, electricity, water, waste treatment,
garbage, telephone and all other utilities furnished to the Leased Premises.
11.2 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.
12. ALTERATIONS AND IMPROVEMENTS.
12.1 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.
12.2 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
-7-
<PAGE>
Landlord's reasonable costs of investigation for requested changes, including
engineer's and other expert's fees.
12.3 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.
12.4 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.
12.5 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.
12.6 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.
13. 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 12.5. 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.
14. REPAIR AND MAINTENANCE.
14.1 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.
-8-
<PAGE>
14.2 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.
14.3 Notwithstanding the foregoing, Landlord shall be responsible for the
repairand maintenance of the roof and structural damage to the Premises, made as
a Capital Expense defined below, 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 Landlord's
share of Capital Expense set out below which include roof and structural repair
stated above, Landlord shall have no obligation for expenses associated with the
building beyond its own debt payments, except as otherwise provided herein.
14.4 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 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 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. Notwithstanding the foregoing, rent shall
not be adjusted for the amount of a Capital Expense paid by insurance, or by a
third party, at no cost to Landlord.
14.5 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.
15. RIGHT OF ENTRY.
15.1 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.
15.2 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.
-9-
<PAGE>
16. DAMAGE OR DESTRUCTION.
16.1 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.
16.2 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.
16.3
16.3.1 If the Leased Premises shall be partially destroyed or
rendered partially untenantable 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.
16.3.2 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 a renewal lease term, if Tenant has not exercised a renewal option,
or, within 12 months of the last renewal lease term.
16.4 Landlord's liability shall be limited to its contractual obligation in
this Lease, its negligent or otherwise wrongful conduct.
17. INDEMNITY.
17.1 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 Leased 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
-10-
<PAGE>
by Washington's Industrial Insurance Act. This indemnification covers claims by
Tenant's own employees.
17.2 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.
17.3 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.
18. INSURANCE.
18.1 Tenant shall provide its own property damage insurance.
18.2 From and after the commencement date of the term of this Lease, Tenant
shall insure the 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 limits of liability may be raised at the
time of any lease renewal, by the percent increase in rent to become effective
at the first month of the renewal term, calculated pursuant to Paragraph 4.6 of
this Lease, upon the written request of Landlord.
18.3 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 cover-age 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.
18.4 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.
18.5 The insurance shall be issued by carriers acceptable to the Landlord,
and Landlord's approval shall not be unreasonably withheld.
18.6 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
-11-
<PAGE>
charge Tenant the premiums together with a twenty-five percent (25%) handling
charge, payable upon demand.
19. MUTUAL RELEASE.
19.1 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.
19.2 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
carried under the terms of this Lease to the extent of such insurance.
19.3 If an additional premium is required to be paid to obtain a waiver of
subrogation, the application shall, within ten (1) 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.)
20. ASSIGNMENT AND SUBLETTING.
20.1 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 Leased 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.
20.2 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
-12-
<PAGE>
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 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 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.
20.3 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.
20.4 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.
21. QUIET ENJOYMENT. Landlord covenants that Tenant, upon performance of
Tenant's obligations under this Lease, shall lawfully and quietly hold, occupy
and enjoy the Premises during the term of this Lease without disturbance by the
Landlord or from any person claiming through the Landlord.
22. SIGNS.
22.1 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.
22.2 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.
-13-
<PAGE>
22.3 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.
23. VACATING UPON TERMINATION. Tenant covenants and agrees that upon
expiration of the Lease or renewal term, or upon the termination of the Lease
for any cause, 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 assigns unless Tenant
shall have expressly acquired the right to remain another written extension of
this Lease.
24. PRESENCE AND USE OF HAZARDOUS SUBSTANCES. Tenant shall not, without
Landlord's prior written consent, keep on or around the Leased Premises, for
use, 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.
24.1 With respect to any Hazardous Substance, Tenant shall:
24.1.1 Comply promptly, timely, and completely with all
governmental requirements for reporting, keeping and submitting manifests, and
obtaining and keeping current identification numbers;
24.1.2 Submit to Landlord true and correct copies of all reports,
manifests and identification numbers at the same time as they are required to be
submitted to the appropriate governmental authorities;
24.1.3 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;
24.1.4 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;
24.1.5 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);
-14-
<PAGE>
24.1.6 Comply with all governmental rules, regulations and
requirements regarding the proper and lawful use, sale, transportation,
generation, treatment and disposal of Hazardous Substances; and
24.1.7 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 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.
24.2
24.2.1 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.
24.2.2 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.
24.2.3 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.
24.2.3.1 At Landlord's option, to terminate this Lease
immediately; and
24.2.3.2 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.
25. 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 , or for the making of repairs, alterations, improvements or
additions, and the Landlord, necessary, will join with the Tenant in applying
for all such permits and licenses.
26. DEFAULT AND RE-ENTRY.
-15-
<PAGE>
26.1 If Tenant defaults in any rent payment due under the terms of this
Lease, and such default 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.
26.2 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 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.
26.3 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.
26.4 Each of the following events is a default by Tenant and a breach
of this Lease:
26.4.1 Any failure by Tenant to make any payment required to be
made by Tenant on or before the time the payment is due.
26.4.2 The abandonment or vacation of the Leased Premises by the
Tenant.
26.4.3 A failure by Tenant to observe and perform any provision
of this Lease or any other lease or agreement between Tenant or any subsidiaries
of Tenant and Landlord which is to be observed or performed by the Tenant or any
subsidiary of Tenant.
26.4.4 The appointment of a receiver to take possession of all or
substantially all the assets of the Tenant.
26.4.5 A general assignment by Tenant for the benefit of
creditors.
26.4.6 Any action taken or suffered by Tenant under any
insolvency or bankruptcy act. If Tenant becomes insolvent, 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, II U.S.C. 365.
-16-
<PAGE>
26.4.7 A default under this Lease may, at Landlord's discretion,
be declared to be a default under any other lease or agreement between Tenant
and Landlord, or between any subsidiary of Tenant and Landlord.
27. LANDLORD'S EXPENSES ON TENANT'S DEFAULT. Except as otherwise provided,
if either party to this Lease fails (the "Defaulting Party") to make any payment
or perform any obligations under this Lease the non-default 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.
28. REMOVAL OF PROPERTY.
28.1 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.
28.2 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.
29. HOLDOVER.
29.1 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 %).
29.2 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 double the rent amount due the last month
of the immediately preceding term.
-17-
<PAGE>
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 Premises.
30. NON-WAIVER OF COVENANTS. The Landlord's failure to insist upon the
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.
31. ARBITRATION.
31.1 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.
31.2 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.
31.3 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.
32. COST AND ATTORNEYS' FEES. In the event it is necessary for either party
utilize to the services of an attorney to enforce any of the terms of this
agreement, such suing party shall be entitled to compensation for its reasonable
attorney's fees and costs. the event of litigation regarding any of the terms of
this agreement, the substantially party shall be entitled, in addition to other
relief, to such reasonable attorneys' fees and costs as determined by the court.
33. CONDEMNATION.
33.1 If all the Leased Premises are taken by any public authority under
the power
-18-
<PAGE>
of eminent domain, this Lease shall terminate as of the date of possession by
said public authority.
33.2 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.
33.3 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.
34. FORCE MAJEURE. Landlord's or Tenant's failure to perform any of its
litigations 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.
35. 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.
36. 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.
37. TIME. TIME IS OF THE ESSENCE IN THIS LEASE.
38. 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.
39. SAVINGS CLAUSE. Nothing in this Lease shall be construed so as to
require commission of any act contrary to law, and wherever there is any
conflict between any ions of this Lease and any statute, law, public regulation
or ordinance, the latter shall prevail, but in such event, the provisions of
this Lease affected shall be curtailed and limited to the extent necessary to
bring it within legal requirements.
40. 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
-19-
<PAGE>
will be binding upon either party unless such party has executed a written
statement acknowledging such alteration, change or amendment.
41. 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.
42. REMEDIES CUMULATIVE.
42.1 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.
42.2 The Landlord's selection of one or more remedies shall not
constitute an election of remedies to the exclusion of any other remedies.
43. 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 commencing on each anniversary of the commencement date.
44. CONFLICT OF PROVISIONS. In case of conflict, the more specific
provisions this Lease shall control.
45. 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 this Lease on behalf of said corporation in accordance with a duly
adopted resolution of Board of Directors or in accordance with the Bylaws of
said corporation, and that this Lease binding is upon said corporation in
accordance with its terms.
46. NOTICES.
46.1 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:
-20-
<PAGE>
Cashmere Manufacturing, Inc.
434 Olds Station Road
Wenatchee, WA 98801
46.2 Upon possession by Tenant of premises, notices shall be sent to
new address of tenant in the Leased Premises.
46.3 Notices mailed shall be deemed given on the date of
mailing.Landlord and Tenant shall notify each other of any change of address.
47. INTERPRETATION.
47.1 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.
47.2 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 effective the 4th
day of November, 1994, and state that they are authorized to execute this
agreement.
LANDLORD TENANT
Port of Chelan County Cashmere Manufacturing, Inc.
By: /s/ Mark Urdahl By: /s/ Jack Jones
------------------------------- ----------------------------------
MARK URDAHL JACK JONES
Its Manager Its President
-21-
<PAGE>
LEASE GUARANTEE
The undersigned, PCT HOLDINGS, INC., the parent company of CASHMERE
MANUFACTURING, INC. ("Cashmere"), and PACIFIC COAST TECHNOLOGIES, INC., sister
corporation of Cashmere hereby unconditionally guarantee performance of the
above Lease between the Port of Chelan County and Cashmere, including all of the
terms and revisions as set out in that Lease, including without limitation the
obligation to pay rent and maintain the Premises. Invalidity, irregularity,
unenforceability of all or any part of the litigation shall not impair or be a
defense to this Guarantee. Each of the undersigned expressly waives the right
to rely on any waiver by Landlord of the performance of any of the terms and
conditions of the Lease and waives the right to personally receive notice of
default or any other notice called for under the Lease.
Each of the undersigned specifically understands and acknowledges that a
significant consideration to the Landlord for execution of the Lease is the
guarantee by each of the undersigned subsidiaries of the obligations of the
parent as Tenant under the Lease.
Each of the undersigned expressly waive:
1. The right to notice of extension or modification of the Lease
terms, even if such modification increases the duties and obligations of the
Tenant, Cashmere, and thereby the guarantors under the terms of this Lease; and
2. The right to rely on any waiver by Landlord of the performance of
any of the terms and conditions of the Lease; and
3. Notices of default or any other notice called for under the Lease.
Each of the guarantors acknowledges that should there be an assignment,
sublease, or sale Cashmere's interest in the Lease or in the stock of Cashmere,
or of Cashmere's assets to a person, even though such sale may be approved by
the Landlord, that each guarantor is personally obligated during the Lease,
unless specifically released by Landlord's written document.
This guarantee is voluntarily made by each of the undersigned and each of
the undersigned acknowledges that the Landlord shall have the right to pursue
each individual guarantor separately and independently for performance of the
Lease or recovery of damages for breach of the Lease, without first having to
proceed against Cashmere. In the event Landlord retains the services of an
attorney to enforce this guarantee, the undersigned shall reimburse Landlord for
its reasonable attorneys' fees and costs. In the event of litigation, the
substantially prevailing party shall be entitled to recover its attorneys' fees
and costs.
-22-
<PAGE>
DATED this 11th day of May, 1995.
PCT HOLDINGS, INC. PACIFIC COAST TECHNOLOGIES, INC.
By: /s/ Don A. Wright By: /s/ Don A. Wright
------------------------------- ----------------------------------
DON A. WRIGHT DON A. WRIGHT
Its: President Its: President
-23-
<PAGE>
EXHIBIT 10.43
CASHMERE MANUFACTURING, INC.
BUILDING CONSTRUCTION AGREEMENT
THIS CONSTRUCTION AGREEMENT ("Agreement") is entered into this date by
and between the PORT OF CHELAN COUNTY, a Washington municipal corporation
("Port"), and CASHMERE MANUFACTURING, INC., a Washington corporation
("Cashmere").
RECITALS
Cashmere is subsidiary of PCT Holdings, Inc., and desires to move and
enlarge its operations at the Olds Station Industrial Park in Wenatchee,
Washington.
Port agrees to construct a building and improvements on its property as
hereafter set out and, upon completion of construction, Cashmere agrees to
occupy and use the building and surrounding premises as tenant pursuant to the
terms of a "Lease Agreement--Cashmere Manufacturing, Inc., 1994" between the
parties dated effective as of November 4, 1994 ("1994 Lease").
TERMS
In consideration of the foregoing and the following terms and conditions,
the parties agrees as follows:
1. THE FACILITIES. Port agrees to construct a general purpose building and
improvements (the "Facilities") on real property owned by the Port, which
property is described on attached Exhibit "A" which is incorporated herein as
though set forth herein (which real property and Facilities are referred to as
the "Leased Premises"). The Facilities will be constructed pursuant to plans
and specifications approved by both Port and Cashmere in advance of the
commencement of construction.
2. PLANS, SPECIFICATIONS AND CONSTRUCTION.
2.1 Port shall prepare plans and specifications for the Facilities
consistent with the general instructions of Cashmere. Upon completion of the
preliminary draft of the plans and specifications, Port shall provide a copy to
Cashmere and, not less than fourteen (14) days thereafter Cashmere shall
indicate its approval or disapproval of the plans and specification. In the
event Cashmere desires changes to those plans and Specifications, it shall
consult directly with Port and Port's engineer to make such changes as may be
agreed upon. In the event the plans are not approved within fourteen (14) days
after submittal to Cashmere, either party may terminate this Agreement, which
shall also terminate the 1994 Lease. In the event of such
-1-
<PAGE>
termination, Cashmere agrees to pay one-half of the Port's costs and fees,
including accountant, attorney and engineering fees, in preparing the
transactional documents and the plans and specifications.
2.2 Upon acceptance of the plans and specifications by Port and
Cashmere, those plans shall be deemed incorporated herein by reference. The
plans and specifications are subject to amendment by agreement of the parties.
The facilities to be constructed pursuant to those plans and specifications
shall be constructed consistent with applicable codes and with the protective
covenants for the Olds Station Industrial Park (dated October 17, 1979 and as
amended December 20, 1983, hereafter referred to as "Protective Covenants") .
2.3 The Facilities shall be of prefabricated metal construction or of
other mutually acceptable material and contain approximately 41,250 square feet
essentially as depicted on Exhibit "B." Port shall construct and pay for the
Basic Building, as described on the plans and specifications. Other items of
the construction package shall be the responsibility of and be paid by Cashmere.
2.4 The plans and specifications as ultimately approved shall be
incorporatedwithin a bid proposal package and submitted for public bid as
required by law. The plans, and specifications and bid documents may contain
alternatives to the construction. Cashmere shall have a period of fourteen (14)
days after receipt of the bid proposals to elect which, if any, alternatives it
wishes to have incorporated within the final construction contract.
3. CASHMERE COSTS. Cashmere shall be responsible and pay for all of the
costs of construction or improvements associated with preparing the Facilities
for occupancy not included within the Basic Building ("Cashmere's Costs").
3.1 To the extent any matters for which Cashmere is responsible should
be included in plans and specifications submitted for bid, they shall be
separately identified as between Port and Cashmere as the sole Responsibility of
Cashmere and Cashmere shall make arrangements, in advance of the submission of
the bids for the payment of the costs of such additional work.
3.2 The final amount of Cashmere's costs shall be calculated as
follows:
3.2.1 Changes in, additions to, or extras in the Basic Building
requested by Cashmere which have the net effect of increasing the cost of
construction of the Basic Building or otherwise adding cost or expense to the
Facilities shall be itemized and the total dollar amount of all such increases
determined.
3.2.2 Changes in or deletions to the Basic Building requested by
Cashmere which have the net effect of reducing the cost of construction of the
Basic Building shall be itemized and the total dollar amount of all such
decreases determined.
-2-
<PAGE>
3.2.3 The total decreases as calculated in Paragraph 3.2.2 above
shall be deducted from the total increases as calculated in Paragraph 3.2.1
above. If the difference increases the cost of construction so that the Base
Rent, as determined in Article 4 of the 1994 Lease, exceeds 43 cents per square
foot, the amount of the difference causing the Base Rent to exceed 43 cents per
square foot is Cashmere's Cost.
3.2.4 Notwithstanding the foregoing, to the extent changes in, or
deletions to the Basic Building requested by Cashmere add to the cost of
construction and are for items which are peculiar to the needs of Cashmere and
are not reasonably likely to be useable by any other user of the Facilities,
Cashmere shall pay for such added cost for those changes or deletions outright
to the contractor.
4. REBID.
4.1 The parties intend that the Facilities be constructed for the
lowest reasonable cost under the circumstances. The parties have set a rent cap
in the Lease of 43 cents per square foot per month, based on calculations using
the engineer's estimate of cost of construction. The parties agree to confer
and work together during the preparation of the plans and specifications with
the goal of keeping the cost of construction at or below an amount which will
result in a rent payment, as calculated in the Lease, of 43 cents per square
foot per month or less.
4.2 If the projected cost of construction of the Facilities based on
the bids received for that construction is such that rent is projected to be
increased above 43 cents per square foot per month according to the formula to
establish rent set out in the Lease, all bias shall be rejected by the Port.
The parties shall then immediately confer and work together with the Port's
engineer and other professionals to revise the plans and specifications to lower
the cost of construction so that rent will be reduced to or below 43 cents per
square foot per month. The parties agree to make such revisions to the plans
and specifications for the Facilities as may be required to prepare them for new
invitations for bid within twenty (20) days.
4.3 Notwithstanding the foregoing, however, Cashmere may give written
notice to the Port within five (5) days after opening of the bids for
construction of the Facilities, when the bids are of such an amount that the
projected cost of construction will result in a rental amount greater than 43
cents per square foot per month, that Cashmere elects to pay increased rent for
the Leased Premises in an amount sufficient to amortize the cost of construction
over thirty (30) years with interest at the rate of 7 percent per anum and
requests the Port to accept the lowest responsible bid at the time. In such
case the parties agree to amend the Lease to fix the new Basic Rent (as defined
in the Lease) at the increased amount established by the formula in the Lease
for establishing rent, and the Port shall accept the lowest responsible bid
consistent with the statute, assuming the bid otherwise qualifies for
acceptance.
5. CONSTRUCTION. All work provided and called for by the plans and
specifications shall be done in a good and workmanlike manner and in compliance
with all applicable laws, ordinances,
-3-
<PAGE>
regulations or requirements of governmental authority, Port's Protective
Covenants, and the reasonable requirements of the insurers of the Facilities.
6. POSSESSION. Upon substantial completion of the Facilities, Cashmere shall
assume possession of the Leased Premises pursuant to the 1994 Lease, which is
incorporated herein by this reference.
7. DETERMINATION OF RENT.
7.1 The 1994 Lease Agreement as executed at the date of this Agreement
does not contain the specific monthly rental payments, although the formula is
identified. Port and Cashmere agree to execute a supplemental agreement
reflecting the dollar amount of the Basic Rent after construction is complete.
7.2 For purposes of this Agreement and the 1994 Lease, "costs of
construction" include the value of the land at Ninety Thousand Dollars
($90,000), all actual costs for constructing the Facilities and improving the
Leased Premises consistent with the plans and specifications as approved, other
than Cashmere's costs and, in addition, include engineering, accounting, legal
expenses, including bond counsel, costs of financing, including underwriters
fees, and miscellaneous expenses that may be incurred as part of the
construction process.
8. COMMENCEMENT OF CONSTRUCTION. Port agrees to commence construction as
soon as reasonably possible after acceptance of the bid.
9. COMPLETION OF CONSTRUCTION. The parties anticipate that construction
shall be complete so that Cashmere can occupy the premises as tenant under the
Lease beginning September 1, 1995. In the event of a rebid pursuant to
Paragraph 4 above, when such rebid is reasonably likely to extend the date of
substantial completion, the parties agree to amend the Lease to extend the date
for the commencement of the term of the Lease by the period of delay caused
because of the need to rebid, as set out above.
10. OBLIGATION OF EACH PARTY.
10.1 Port's sole obligation is to build a multi-purpose building
consistent with the plans and specifications suitable for modification by
Cashmere for Cashmere's specific purposes.
10.2 To the extent Port approves additional improvements to those
assumed by it as set forth above, or a different construction scheme than
initially determined by the Port, as a result of a request by Cashmere, which
approval the Port is not require to give, and except as may be otherwise
provided in this Agreement or in the Lease, Cashmere shall pay, upon demand, for
any difference in costs incurred by deviating from the approved plans and
specifications, to the extent Base Rent exceeds 43 cents per square foot because
of such deviation, calculated as set out above in Paragraph 3. Once construction
commences, Port agrees to diligently pursue construction.
-4-
<PAGE>
11. ACCEPTANCE OF FACILITIES.
11.1 Port shall give written notice to Cashmere of Port's intent to
finally accept the Facilities as complete from the contractor prior to actual
acceptance. Cashmere shall have fifteen (15) working days following receipt of
the notice to give a written list to Port of any defects, deficiencies or
problems with the Facilities which need to be remedied prior to Cashmere
accepting the condition of the Facilities (the "Punch List"). Cashmere shall
make such inspection as it deems reasonable prior to giving Port its Punch List.
11.2 Once the items on the Punch List have been cured to Cashmere's
reasonable satisfaction, or if none exist, Cashmere shall accept the Facilities
in the then present condition, subject only to defects, deficiencies or problems
which are the responsibility of the contractor of the Facilities or the Port and
which were not reasonably discoverable by Cashmere's inspection prior to making
out its Punch List.
11.3 No representation statement or warranty expressed or implied is or
shall be made by or on behalf of the Port as to the Facilities condition, or as
to the use that may be made of such Facilities, unless specifically set forth in
writing executed by the Port. Port represents the Facilities will be sufficient
for Cashmere's intended use, consistent with its present business operations and
those it contemplates, as expressed by Cashmere to Port's engineer for the
building. Cashmere releases the Port from any and all responsibility for any
representation that may have been made to Cashmere about the property which is
not specifically set out in this Agreement.
12. ARBITRATION.
12.1 In the event of a dispute on any of the matters relative to the
construction or related to the interpretation of this Agreement, the parties
shall consult together with a view to resolving the dispute. In the event they
cannot agree upon a resolution, the dispute shall be settled pursuant to RCW
Chapter 7.04, except as herein modified.
12.2 Such arbitration shall be before one disinterested arbitrator, if
one can be agreed upon, otherwise before three disinterested arbitrators, one
named by the Port, one by Cashmere, 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.
12.3 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. Port
-5-
<PAGE>
and Cashmere 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.
13. CAPTIONS AND CONSTRUCTION. The titles to sections of the Agreement are
not a part of this Agreement and shall have no effect upon the construction and
interpretation of any part of the Agreement.
14. BINDING ON HEIRS, SUCCESSORS AND ASSIGNS. All the covenants, agreement
terms and conditions contained in this Agreement shall apply to and be binding
upon Port and Cashmere and their respective heirs, executors, administrators,
successors and assigns, except as may be provided in other sections of this
Agreement.
15. SAVINGS CLAUSE. Nothing in this Agreement shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
conflict between any provision of this Agreement and any statute, law, public
regulation or ordinance, the latter shall prevail, but in such event, the
provisions of this Agreement affected shall be curtailed and limited only to the
extent necessary to bring it within legal requirements.
16. 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 Agreement. No
alterations, changes, or amendments to this Agreement will be binding upon
either party unless such party has executed a written statement acknowledging
such alteration, change or amendment.
17. GOVERNING LAW. This Agreement shall be governed by the law of the State
of Washington and venue for any action arising from this Agreement shall be in
Chelan County, Washington.
18. NOTICES. Any notices shall be effective is personally served upon the
other party or if mailed by registered or certified mail, return receipt
required, to the following addresses:
Port: Port of Chelan County
Post Office Box 849
Wenatchee, WA 98807-0849
Cashmere: CASHMERE MANUFACTURING, INC.
434 Olds Station Road
Wenatchee, WA 98801
Notices mailed shall be deemed given on the date of mailing. Port and
Cashmere shall notify each other of any change of address.
-6-
<PAGE>
19. 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 provisions of this
Agreement, such enforcing party shall be entitled to compensation for its
reasonable attorneys' fees and costs. In the event of litigation regarding any
of the terms of this Agreement, the substantially prevailing party shall be
entitled, in addition to other relief, to such reasonable attorneys' fees and
costs as determined by the court.
20. INTERPRETATION.
20.1 This Agreement 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.
20.2 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 and seals as of the
4th day of November, 1994, and state that they are authorized to execute this
instrument.
PORT OF CHELAN COUNTY CASHMERE MANUFACTURING, INC.
By: /s/ Mark Urdahl By: /s/ Jack Jones
------------------------------- -----------------------------------
Mark Urdahl Jack Jones
Its Manager Its President
-7-
<PAGE>
Exhibit 10.44
GENERAL TERMS AGREEMENT
between
THE BOEING COMPANY
and
CASHMERE MANUFACTURING COMPANY
NUMBER-PLR-950
-1-
<PAGE>
GENERAL TERMS AGREEMENT
TABLE OF CONTENTS
CLAUSE TITLE PAGE
- - ------ ----- ----
1.0 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.0 ISSUANCE OF PURCHASE ORDERS
AND APPLICABLE TERMS . . . . . . . . . . . . . . . . . . . . . 10
2.1 Issuance of Purchase Orders. . . . . . . . . . . . . . . . . . 10
2.2 Acceptance of Purchase Orders. . . . . . . . . . . . . . . . . 10
2.3 Written Authorization to Proceed . . . . . . . . . . . . . . . 10
2.4 Formation of Contract. . . . . . . . . . . . . . . . . . . . . 11
2.5 Rejection of Purchase orders . . . . . . . . . . . . . . . . . 11
3.0 TITLE AND RISK OF LOSS . . . . . . . . . . . . . . . . . . . . 11
4.0 DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Delay. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.0 ON-SITE REVIEW AND RESIDENT
REPRESENTATIVES. . . . . . . . . . . . . . . . . . . . . . . . 11
5.1 Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Resident Representatives . . . . . . . . . . . . . . . . . . . 12
6.0 INVOICE AND PAYMENT. . . . . . . . . . . . . . . . . . . . . . 12
7.0 PACKING AND SHIPPING . . . . . . . . . . . . . . . . . . . . . 12
8.0 QUALITY CONTROL, INSPECTION
REJECTION AND ACCEPTANCE . . . . . . . . . . . . . . . . . . . 13
8.1 Controlling Document . . . . . . . . . . . . . . . . . . . . . 13
-2-
<PAGE>
8.2 Inspection and Rejection . . . . . . . . . . . . . . . . . . . 13
8.3 Right of Entry . . . . . . . . . . . . . . . . . . . . . . . . 14
8.4 Certification. . . . . . . . . . . . . . . . . . . . . . . . . 14
8.5 Federal Aviation Administration or
Equivalent Government Agency Inspection. . . . . . . . . . . . 14
8.6 Retention of Records . . . . . . . . . . . . . . . . . . . . . 14
8.7 Source Inspection. . . . . . . . . . . . . . . . . . . . . . . 14
9.0 EXAMINATION OF RECORDS . . . . . . . . . . . . . . . . . . . . 14
10.0 CHANGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.2 Obsolescence . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.3 Model Mix. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.0 PRODUCT ASSURANCE. . . . . . . . . . . . . . . . . . . . . . . 16
12.0 TERMINATION/CANCELLATION . . . . . . . . . . . . . . . . . . . 16
12.1 Termination-Convenience. . . . . . . . . . . . . . . . . . . . 16
12.2 Cancellation-Default . . . . . . . . . . . . . . . . . . . . . 16
12.3 Excusable Delay. . . . . . . . . . . . . . . . . . . . . . . . 17
12.4 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
13.0 RESPONSIBILITY FOR PROPERTY. . . . . . . . . . . . . . . . . . 17
14.0 LIMITATION OF SELLER'S RIGHT TO
ENCUMBER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 17
15.0 PROPRIETARY INFORMATION AND
ITEMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
16.0 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . 19
-3-
<PAGE>
17.0 INFRINGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 19
18.0 BUYER'S RIGHTS IN SELLER'S
INVENTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 20
19.0 BUYER'S RIGHTS IN SELLER'S
WORK PRODUCT . . . . . . . . . . . . . . . . . . . . . . . . . 20
20.0 BUYER'S RIGHTS IN SELLER'S, PATENTS
COPYRIGHTS, TRADE SECRETS AND TOOLING. . . . . . . . . . . . . 20
21.0 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
21.1 Addresses. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
21.2 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 22
21.3 Approval or Consent. . . . . . . . . . . . . . . . . . . . . . 22
22.0 PUBLICITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
23.0 FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 22
24.0 SUBCONTRACTING . . . . . . . . . . . . . . . . . . . . . . . . 23
25.0 NOTICE OF LABOR DISPUTES . . . . . . . . . . . . . . . . . . . 23
26.0 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 23
27.0 RELIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
28.0 NON-WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . 24
29.0 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
30.0 PARTIAL INVALIDITY . . . . . . . . . . . . . . . . . . . . . . 24
31.0 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . 24
32.0 AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
33.0 LIMITATION . . . . . . . . . . . . . . . . . . . . . . . . . . 25
34.0 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
-4-
<PAGE>
34.1 Inclusion of Taxes in Price. . . . . . . . . . . . . . . . . . 25
34.2 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 25
34.3 Rebates. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
35.0 FOREIGN PROCUREMENT OFFSET . . . . . . . . . . . . . . . . . . 25
36.0 ENTIRE AGREEMENT/ORDER
OF PRECEDENCE. . . . . . . . . . . . . . . . . . . . . . . . . 26
36.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 26
36.2 Incorporated By Reference. . . . . . . . . . . . . . . . . . . 26
36.3 Order of Precedence. . . . . . . . . . . . . . . . . . . . . . 26
36.4 Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-5-
<PAGE>
REVISION
REV
SYM DESCRIPTION DATE APPROVAL
--- ----------- ---- --------
1 INCORPORATE NEW CONTRACT LANGUAGE L-71 (03-13- 08-22-91
91) TO SHEET METAL OFF-LOAD CONTRACTS
2 A. UNDER SECTION 1.0 THE DEFINITION FOR CUSTOMER 08-11-94
AND GOODS HAS BEEN ADDED.
B. UNDER 2.1 THE REFERENCE TO REV 4/83 HAS BEEN
DELETED.
C. UNDER 6.0 LANGUAGE HAS BEEN ADDED FOR PAY FROM
RECEIPT.
D. FORMER SECTION 8.3 "SALE TO THIRD PARTIES" HAS
BEEN REMOVED AND THE PARAGRAPHS RENUMBERED.
E. UNDER 16.0 LANGUAGE HAS BEEN AMENDED TO
SPECIFICALLY ADDRESS ENVIRONMENTAL
LEGISLATION.
F. 17.0 HAS BEEN MODIFIED AS FOLLOWS:
"...PATENTS KNOWN TO SELLER AT THE TIME OF
SUCH INFRINGEMENT AND THOSE EXCEEDING ACTUAL
DAMAGES AND/OR INCLUDING ATTORNEYS' FEES..."
A COMPLETE REPRINT OF THE DOCUMENT WAS ACCOMPLISHED WITH
THIS AMENDMENT. THE FOOTER ON THE CONTRACT WAS CHANGED TO
REFLECT THE LATEST REVISION OF THE PRO FORMA (02-05-93).
-6-
<PAGE>
GENERAL TERMS AGREEMENT
RELATING TO
BOEING MODEL AIRCRAFT
THIS GENERAL TERMS AGREEMENT ("Agreement") is entered into as of
February 5, 1990, by Cashmere Manufacturing Company, a Washington corporation,
with its principal office in Cashmere, Washington, ("Seller"), and Boeing
Commercial Airplane Group, a Division of The Boeing Company, a Delaware
corporation with its principal office in Seattle, Washington ("Buyer").
RECITALS
A. Buyer is currently producing commercial aircraft.
B. Seller manufactures and sells certain goods and services for use in
the production and support of commercial aircraft.
C. Seller desires to sell and Buyer desires to purchase certain of
Seller's goods and services for the production and support of
commercial aircraft.
D. Seller and Buyer desire to enter into an agreement for the sale by
Seller and purchase by Buyer of Products as defined herein.
Now therefore, in consideration of the mutual covenants set forth
herein, the parties agree as follows:
-7-
<PAGE>
AGREEMENTS
1.0 DEFINITIONS
The definitions set forth below shall apply to the following terms as they
are used in any order issued pursuant to this General Terms Agreement.
(a) The term "Product" shall mean (a) goods purchased and described on any
purchase order except for Rotating Use Tools and (b) services
purchased and described on any purchase order.
(b) The term "FAR" shall mean the Federal Acquisition Regulations in
effect on the date of this Agreement.
(c) The term "FAA" shall mean the United States Federal Aviation
Administration or any successor agency of the Federal Aviation
Administration.
(d) The term "Computer-Aided design" (CAD) shall mean (1) any computer
system or program that supports the design process or, (2) the use of
computers to assist engineering design in developing, producing, and
evaluating design, data, and drawings.
(e) The term "Computer-Aided Manufacturing" (CAM) shall mean the use of
computers and computer data in the development of a Product, including
fabrication, assembly, and installation.
(f) The term "Computer-Aided Design/Computer-Aided Manufacturing"
(CAD/CAM) shall mean engineering/Manufacturing applications released
as datasets in a digital format and provided by the Buyer to the
Seller to be utilized in the Manufacturing process.
(g) The term "Dataset" means any compilation of data or information
(including, without limitation, numerical data, geometric definitions,
program instructions or coded information) which may be used directly
in, integrated with or applied to, a computer program for further
processing. A Dataset may be a composite of two or more other
Datasets or an extract of a larger Dataset.
(h) The term "Drawing" shall mean an automated or manual depiction of
graphics or technical information representing a Product including
parts list and specifications relating thereto.
(i) Words importing the singular number shall also include the plural
number and vice versa.
-8-
<PAGE>
(j) The term "Tooling" shall mean all tooling, as defined in Boeing
Document M31-24, "Boeing Suppliers Tooling Manual," described on any
purchase order, including but not limited to Boeing-Use Tooling,
Supplier-Use Tooling and Common-Use Tooling as defined in Boeing
Document D6-49004, "Operations General Requirements for Suppliers,"
and Rotating-Use Tooling as defined in Boeing Document M31-13,
"Accountability of Inplant/Outplant Special (Contract) Tools." For
purposes of this Agreement, in the documents named in this
subparagraph, the term "Supplier Use Tooling" shall be changed to
Seller Use Tooling and the term "Boeing Use Tooling" shall be changed
to Buyer Use Tooling.
(k) The term "Shipset" shall mean the total quantity of a given part
number necessary for installation on one airplane.
(l) The term "Derivative" shall mean any model airplane developed from the
existing Model airplane which has a new model designation and which
satisfies all of the following criteria: (1) has the same number of
engines as the existing Model airplane; (2) utilizes essentially the
same aerodynamic and propulsion design, major assembly components, and
systems and the existing Model airplane and (3) achieves other
payload/range combinations by changes in body length, engine thrust,
or variations in certified gross weight.
(m) The term "End Item Assembly" shall mean any Product which is described
by a single part number and which is comprised of more than one
component part.
(n) The term "Spare" shall mean any Product, regardless of whether the
product is an End Item Assembly or a Purchased on Assembly Production
Detail part, which is to be used other than the initial production of
the airplane.
(o) The term "Purchased on Assembly Production Detail Part (POA)" shall
mean a component part of an End Item Assembly.
(p) "Materiel Representative" shall mean the employee and his/her
management designated as such by Buyer from time to time, or in the
absence of such designation, Buyer's employee and his/her management
primarily responsible for dealing with Seller in connection with
administration of an applicable Order.
(q) The term "Customer" shall mean any customer of Buyer, any subsequent
owner, operator or user of the Products or Goods, and any other
individual, partnership, corporation or person or entity which has or
acquires any interest in the Goods or Products from, through or under
Buyer.
-9-
<PAGE>
(r) The term "Goods" shall mean Products, services, documents, data,
software and other information or items furnished or to be furnished
to Buyer under any purchase order.
2.0 ISSUANCE OF PURCHASE ORDERS AND APPLICABLE TERMS
2.1 ISSUANCE OF PURCHASE ORDERS
Buyer may issue purchase orders to Seller from time to time. Each purchase
order shall contain a description of the Products ordered, a reference to
the applicable specifications and drawings, the quantities and prices, the
delivery schedule, the terms and place of delivery, any special conditions
and the following notation:
"This order is subject to and incorporates by this reference
the General Terms Agreement PLR-950 between The Boeing
Company and Cashmere Manufacturing Company dated February 5,
1990."
Each purchase order bearing such notation shall be governed by and be
deemed to include the provisions of this Agreement. Purchase Order Terms
and Conditions, Form Dl-4100-4045, as revised from time to time, does not
apply to such purchase orders.
2.2 ACCEPTANCE OF PURCHASE ORDERS
Each purchase order is Buyer's offer to Seller and acceptance is strictly
limited to its terms. Buyer will not be bound by and specifically objects
to any term or condition which is different from or in addition to the
provisions of the purchase order, whether or not such term or condition
will materially alter the purchase order. Seller's commencement of
performance or acceptance of the purchase order in any manner shall
conclusively evidence Seller's acceptance of the purchase order as written.
Buyer may revoke any purchase order prior to Buyer's receipt of Seller's
written acceptance or Seller's commencement of performance.
2.3 WRITTEN AUTHORIZATION TO PROCEED
Buyer may give written authorization to Seller to commence performance
before Buyer issues a purchase order. If Buyer in its written
authorization specifies that a purchase order will be issued, Buyer and
Seller shall proceed as if a purchase order had been issued. This
Agreement, the applicable Special Business Provisions and the terms stated
in the written authorization shall be deemed to be a part of Buyer's offer
and the parties shall promptly agree on any open purchase order terms. If
Buyer does not specify in its written authorization that a purchase order
shall be issued, Buyer's obligation is strictly limited to the terms of the
written authorization.
-10-
<PAGE>
If Seller commences performance (a) before a purchase order is issued or
(b) without receiving Buyer's prior written authorization to proceed, such
performance shall be at Seller's expense.
2.4 FORMATION OF CONTRACT
Each purchase order accepted by Seller is a contract between Buyer and
Seller and shall be referred to herein as an "Order."
2.5 REJECTION OF PURCHASE ORDER
Any rejection by Seller of a purchase order shall specify the reasons for
rejection and any changes or additions that would make the purchase order
acceptable to Seller; provided, however, that Seller may not reject any
purchase order for reasons inconsistent with the provisions of this
Agreement or the applicable Special Business Provisions.
3.0 TITLE AND RISK OF LOSS
Title to and risk of any loss of or damage to the Products shall pass from
Seller to Buyer at the F.O.B. point specified in the applicable Order,
except for loss or damage thereto resulting from Seller's fault or
negligence. Passage of title on delivery does not constitute Buyer's
acceptance of Products.
4.0 DELIVERY
4.1 REQUIREMENTS
Deliveries shall be strictly in accordance with the quantities, the
schedule and other requirements specified in the applicable Order. Seller
may not make early deliveries without Buyer's prior written authorization.
4.2 DELAY
Seller shall notify Buyer immediately, of any circumstances that may cause
a delay in delivery, stating the estimated period of delay and the reasons
therefore. If requested by Buyer, Seller shall use additional effort,
including premium effort, and shall ship via air or other expedited routing
to avoid or minimize delay to the maximum extent possible. All additional
costs resulting from such premium effort or premium transportation shall be
borne by Seller. Nothing herein may be construed to prejudice any of the
rights or remedies provided to Buyer in the applicable Order or by law.
5.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES
5.1 REVIEW
At Buyer's request, Seller shall provide at Buyer's facility, or at a place
designated by Buyer, a review explaining the status of the Order, actions
taken or planned to be taken relating to the order and any other relevant
information. Nothing herein may
-11-
<PAGE>
be construed as a waiver of Buyer's rights to proceed against Seller
because of any delinquency.
5.2 RESIDENT REPRESENTATIVES
Buyer may in its discretion and for such periods as it deems necessary
assign resident personnel at Seller's facilities in addition to the
resident Quality Control personnel provided for in Section 8.4, "Right of
Entry." The resident team will function under the guidance of Buyer's
manager who will provide program coordination within the scope of the work
authorized by the Order. The resident team will provide communication and
coordination to ensure timely performance of the order. Buyer's resident
team shall be allowed access to all work areas, Order status reports and
management review necessary to assure timely coordination and conformance
with the requirements of each Order. Seller, however, remains fully
responsible for performing in accordance with each Order.
6.0 INVOICE AND PAYMENT
Unless otherwise provided in the applicable Order, invoicing shall be in
accordance with Document D6-55772 Pay From Receipt, which is incorporated
herein and made a hereof by this reference. Payment shall be in accordance
with the Section identified as "Payment," of the Special Business
Provisions.
7.0 PACKING AND SHIPPING
Seller shall (a) prepare for shipment and suitably pack all Products to
prevent damage or deterioration, (b) secure lowest transportation rates,
(c) comply with the appropriate carrier tariff for the mode of
transportation specified by Buyer and (d) comply with any special
instructions stated in the applicable order.
Buyer shall pay no charges for preparation, packing, crating or cartage
unless stated in the applicable Order. All shipments forwarded on one day
via one route must be consolidated. Each container must be consecutively
numbered and marked with the applicable Order and part numbers. Container
and order numbers must be indicated on the applicable Bill of Lading. Two
copies of the packing sheets, showing the applicable Order numbers, must be
attached to the No. 1 container of each shipment. Products sold F.O.B.
place of shipment must be forwarded collect. Seller may not make any
declaration concerning the value of the Products shipped, except on
Products where the tariff rating or rate depends on the released or
declared value, and in such event the value shall be released or declared
at the maximum value for the lowest tariff rating or rate.
-12-
<PAGE>
8.0 QUALITY CONTROL, INSPECTION, REJECTION, & ACCEPTANCE
8.1 CONTROLLING DOCUMENT
The controlling Quality Control Document for orders under this Agreement
shall be identified on the individual purchase orders. Said orders shall
identify the document in accordance with one of the following:
8.1.1 All work performed under this order shall be in accordance with
Document Dl-8000A, "Quality Control Requirements for Boeing
Suppliers," Revision F as said Document may be amended from time
to time; or
8.1.2 All work performed under this order shall be in accordance with
Document Dl-9000, "Advance Quality System for Boeing Suppliers,"
as said Document may be amended from time to time.
NOTE: In the event that Buyer fails to identify the controlling document
on the individual order then Section 8.1.2, as outlined above, shall govern
the order.
8.2 INSPECTION AND REJECTION
Products shall be subject to final inspection and acceptance by Buyer at
destination, notwithstanding any payment or prior inspection. Buyer may
reject any or all of the Products which do not strictly conform to the
requirements of the applicable Order. Buyer shall by notice, rejection tag
or other communication notify Seller of such rejection. At Seller's risk
and expense, all such Products will be returned to Seller for immediate
repair, replacement or other correction and redelivery to Buyer; provided,
however, that with respect to any or all of such Products and at Buyer's
election and at Seller's risk and expense, Buyer may: (a) hold, retain or
return such Products without permitting any repair, replacement or other
correction by Seller; (b) hold or retain such Products for repair by Seller
or, at Buyer's election, for repair by Buyer with such assistance from
Seller as Buyer may require; (c) hold such Products until Seller has
delivered conforming replacements for such Products; (d) hold such Products
until conforming replacements are obtained from a third party; or (e)
return such Products with instructions to Seller as to whether the Products
shall be repaired or replaced and as to the manner of redelivery. All
repair, replacement and other corrections and redelivery shall be completed
within such time as Buyer may require. All costs and expenses, loss of
value and any other damages incurred as a result of or in connection with
nonconformance and repair, replacement or other correction may be recovered
from Seller by an equitable price reduction, set-off or credit against any
amounts that may be owed to Seller under the applicable Order or otherwise.
Buyer may revoke its acceptance of any Products and have the same rights
with regard to the Products involved as if it had originally rejected them.
-13-
<PAGE>
8.3 RIGHT OF ENTRY
Buyer's authorized representatives may enter Seller's plant at all
reasonable times to conduct preliminary inspections and tests of the
Products and work-in-process. Seller shall include in its subcontracts
issued in connection with an Order a like provision giving Buyer the right
to enter the plants of Seller's subcontractors. Buyer may assign
representatives at Seller's plant on a full-time basis. Seller shall
furnish, free of charge, all office space, secretarial service and other
facilities and assistance reasonably required by Buyer's representatives at
Seller's plant.
8.4 CERTIFICATION
A certification that materials and/or finished Products have been
controlled and tested in accordance with and will meet specified Order
requirements and applicable specifications and that records are on file
subject to Buyer's examination shall be included on or with the packing
sheet accompanying shipments.
In the case of Spares, the drawing or specification revision level will be
noted on the packing sheet. The packing sheet shall note if Buyer has
provided materials. Copies of manufacturing planning, test and inspection
results or certifications shall be furnished to Buyer on its request.
8.5 FEDERAL AVIATION ADMINISTRATION OR EQUIVALENT GOVERNMENT AGENCY INSPECTION
Representatives of Boeing or the FAA may inspect and evaluate Seller's
plant including, but not limited to, Seller's facilities, systems, data,
equipment, personnel, testing, and all work-in-process and completed
Products manufactured for installation on Boeing commercial Airplanes. The
Seller's costs for such inspection and evaluation are included in the Order
price.
8.6 RETENTION OF RECORDS
Quality Control records shall be maintained on file and available to
Buyer's authorized representatives. Seller shall retain such records for a
period of not less than seven years from the date of final payment under
the applicable Order. Prior to disposal of any such records, Buyer shall
be notified and Seller shall transfer such records as Buyer may direct.
8.7 SOURCE INSPECTION
If an Order contains a notation that "100% Source Inspection" is required,
the Products shall not be packed for shipment until they have been
submitted to Buyer's quality Control representative for inspection. Both
the packing list and Seller's invoice must reflect evidence of this
inspection.
9.0 EXAMINATION OF RECORDS
Seller shall maintain complete and accurate records showing the sales
volume of all Products. Such records shall support all services performed,
allowances claimed and costs incurred by Seller in the performance of each
Order, including but not limited to
-14-
<PAGE>
those factors which comprise or affect direct labor hours, direct labor
rates, material costs, burden rates and subcontracts. Such records and
other data shall be capable of verification through audit and analysis by
Buyer and be available to Buyer at Seller's facility for Buyer's
examination and audit at all reasonable times from the date of the
applicable Order until three (3) years after final payment under such
Order. Seller shall provide assistance to interpret such data if required
by Buyer. Such examination shall provide Buyer with complete information
regarding Seller's performance for use in price negotiations with Seller
relating to existing or future orders for Products (including but not
limited to negotiation of equitable adjustments for changes and
termination/obsolescence claims pursuant to Section 10.0, "Changes." Buyer
shall treat such information as confidential.
10.0 CHANGES
10.1 GENERAL
Buyer's Materiel Representative may at any time by written change order
make changes within the general scope of an Order in any one or more of the
following: (a) drawings, designs, or specifications; (b) shipping or
packing; (c) place of inspection, delivery or acceptance; (d) adjustments
in quantities and delivery schedules, or both; and (e) the amount of Buyer-
Furnished Material. Seller shall proceed immediately to perform the Order
as changed. If any such change causes an increase or decrease in the cost
of or the time required for the performance of any part of the work,
whether changed or not changed by the change order, an equitable adjustment
shall be made in the price of or the delivery schedule for those Products
affected, and the applicable Order shall be modified in writing
accordingly. Any claim by Seller for adjustment under this Section 10.0
must be received by Buyer in writing within one hundred eighty (180) days
from the date of receipt by Seller of the written change order or
engineering drawing requirement, whichever is later, or within such further
time as the parties may agree in writing or such claim shall be deemed
waived. Nothing in this Section shall excuse Seller from proceeding with
an Order as changed, including failure of the parties to agree on any
adjustment to be made under this Section.
If Seller considers that the conduct of any of Buyer's employees has
constituted a change hereunder, Seller shall immediately notify Buyer in
writing as to the nature of such conduct and its effect on Seller's
performance. Pending direction from Buyer's Materiel Representative,
Seller shall take no action to implement any such change.
10.2 OBSOLESCENCE
Claims for obsolete or surplus material and work-in-process created by
change orders issued pursuant to this Section shall be subject to the
procedures set forth in Section 12.1, "Termination-Convenience," except
that Seller may not submit a claim for obsolete or surplus material
resulting from an individual change order that has a total claim value of
Two Thousand Five Hundred Dollars ($2,500) or less. Payment for
-15-
<PAGE>
obsolete or surplus materials shall be made by check deposited as first
class mail in the United States Postal Service to the address designated by
Seller in Section 21.1, "Addresses." Payment will be made on the tenth
(10th) day of the month following the month of the obsolescence claim
settlement.
10.3 MODEL MIX
In the event any Derivative aircraft(s) is introduced by Buyer, Buyer may
(but is not obligated to) direct Seller within the scope of the applicable
Order and in accordance with the provisions of Section 10.0, "Changes," to
supply Buyer's requirements for Products for such Derivative aircraft(s)
which correspond to those Products being produced under the applicable
order.
11.0 PRODUCT ASSURANCE
Buyer's acceptance of any Product does not alter or affect the obligations
of Seller or the rights of Buyer and its customers under the document
referenced in the Section identified as "Product Assurance," in the Special
Business Provisions or as provided by law.
12.0 TERMINATION/CANCELLATION
12.1 TERMINATION-CONVENIENCE
Buyer may terminate an Order in whole or in part for convenience in
accordance with the provisions of FAR 52.249-2, and such clause is
incorporated herein by this reference subject to the following
modifications. In FAR 52.249-2 "Government" and "Contracting Officer"
shall mean Buyer, "Contractor" shall mean Seller and "this Contract and
"the Contract" shall mean such Order. All references to one year in
paragraph (d) of such clause are changed to six (6) months, and all
references to a "Disputes" clause are deleted. Any termination settlement
proposal submitted by Seller shall be limited to work covered by such
Order.
12.2 CANCELLATION-DEFAULT
Buyer may cancel the whole or any part of an Order for default in
accordance with the provisions of FAR 52.249-8, which is incorporated
herein by this reference subject to the following modifications. In FAR
52.249-8 "Government" and "Contracting Officer," except in paragraph (c),
shall mean Buyer, "Contractor" shall mean Seller, "this Contract" and "the
Contract" shall mean such Order, and all references to a "Disputes" clause
are deleted. If the parties fail to agree pursuant to paragraph (f) of FAR
52.249-8 on the amount to be paid for manufacturing materials referred to
in paragraph (e) of FAR 52-249-8, the amount shall be the reasonable value
thereof, but not to exceed that portion of the order price which is
reasonably allocable to such materials.
-16-
<PAGE>
12.3 EXCUSABLE DELAY
If delivery of any Product cannot be made within one (1) month after the
delivery date stated in the applicable order due to a delay for which
Seller would not be liable for excess costs under FAR 52.249-8 (c) (an
"excusable delay"), Buyer may, at anytime after Buyer becomes aware of such
delay, cancel such Order with respect to any or all Products in accordance
with FAR 52.249-8 as modified in Section 12.2 above, but without any
liability on Buyer's part except to pay the Order price for delivered and
accepted Products.
12.4 OTHER
Buyer may give written notice to Seller to cancel the whole or any part of
an Order in the event of: (a) the suspension of Seller's business; (b) the
insolvency of Seller; (c) the institution of reorganization, arrangement or
liquidation proceedings by or against Seller; (d) the appointment of a
trustee or receiver for Seller's property or business; (e) an assignment
for the benefit or creditors of Seller, or (f) Seller's trustee in
bankruptcy or Seller as debtor in possession not assuming such Order
pursuant to a Federal Bankruptcy Court's approval within sixty (60) days
after the bankruptcy petition was filed. Such cancellation shall be for
default and the rights and obligations of the parties shall be determined
as provided in Section 12.2, "Cancellation -- Default."
13.0 RESPONSIBILITY FOR PROPERTY
On delivery to Seller or manufacture or acquisition by it of any materials,
parts, tooling or other property, title to any of which is in Buyer, Seller
shall assume the risk of and shall be responsible for any loss thereof or
damage thereto. In accordance with the provisions of an Order, but in any
event on completion thereof, Seller shall return such property to Buyer in
the condition in which it was received except for reasonable wear and tear
and except to the extent that such property has been incorporated in
Products delivered under such Order or has been consumed in the normal
performance of work under such Order.
14.0 LIMITATION OF SELLER'S RIGHT TO ENCUMBER ASSETS
Seller warrants to Buyer that it has good title to all inventory, work-in-
process, tooling and materials to be supplied by Seller in the performance
of its obligations under any Order ("Inventory"), and that pursuant to the
provisions of such Order, it will transfer to Buyer title to such
Inventory, whether transferred separately or as part of any Product
delivered under the Order, free of any liens, charges, encumbrances or
rights of others. Seller further agrees that it shall not sell, assign,
lease, transfer possession of, grant a security interest in, allow to be
attached or seized on execution or otherwise, allow a financing statement
describing the Inventory to be filed in favor of anyone other than Buyer,
or in any other way dispose of or encumber any item of Inventory or any
part thereof without the prior written approval of Buyer.
-17-
<PAGE>
15.0 PROPRIETARY INFORMATION AND ITEMS
Each party hereto agrees to keep confidential and not disclose to any other
person, corporation, or business organization all confidential,
proprietary, and/or trade secret information received from the other party
in connection with any Order (hereinafter Proprietary Information). Each
party hereto further agrees to use Proprietary Information only for
purposes necessary to the performance of an Order, provided that Buyer
shall also have the right to use and disclose Proprietary Information for
any purpose necessary to the testing, certification, use, sale, or support
of any item delivered under an Order or any airplane including such an
item, and provided further that any such disclosure by Buyer shall,
whenever appropriate, include a restrictive legend suitable to the
particular circumstances. For purposes of this Section, Proprietary
Information shall:
(a) not include information already in the public domain, or known to (as
evidence by written records) and under the unrestricted control of the
receiving party, when first received from the other party;
(b) lose its status as Proprietary Information if, and as of the date
when, it becomes part of the public domain through no wrongful or
negligent act of the receiving party, is received by the receiving
party without restriction from another who had the right to so
disclose it, or is developed by the receiving party entirely
independently of any disclosure from the other party; and
(c) include only (i) information disclosed in written or other physically
tangible form with an appropriate restrictive legend and (ii)
information disclosed orally where the receiving party is notified of
the proprietary nature of the information prior to such disclosure and
the proprietary status of the orally disclosed information is
confirmed to the receiving party by the other party within ten (10)
working days of such disclosure in a writing which identified the
person(s) making the disclosure and the place and date thereof, lists
the names of the receiving party's employee(s) receiving such
disclosure, and describes the information so disclosed.
All documents and other tangible media (excluding Products) containing or
conveying Proprietary Information and transferred in connection with an
Order, together with any copies thereof, are and remain the property of the
transmitting party and shall, except to the extent that they are needed by
Buyer for the purpose of testing, certifying, using, selling, or supporting
an item delivered under an Order or an airplane containing such an item, be
promptly returned, or at the option of the transmitting party destroyed,
upon the written request of the transmitting party.
Neither the existence of this Agreement nor the disclosure of Proprietary
Information or any other information hereunder shall be construed as
granting expressly, by implication, by estoppel, or otherwise a license
under any invention or patent now or
-18-
<PAGE>
hereafter owned or controlled by the transmitting party. No disclosure or
receipt of Proprietary Information or any other information by either party
under this Agreement will constitute or be construed as a representation,
warranty, assurance, guarantee or inducement by either party to the other
with respect to any infringement of the patent rights of another.
The obligations of each of the parties hereto with respect to Proprietary
Information disclosed hereunder prior to the completion, termination, or
cancellation of this Agreement shall not, except as expressly set forth
herein, be affected by such completion, termination, or cancellation.
Notwithstanding the restrictions on disclosure set forth hereinabove,
either party to this Agreement may disclose Proprietary Information to its
lower tier subcontractors as necessary in connection with Orders, provided
that each such subcontractor first assumes by written agreement all of the
obligations imposed on a receiving party under this Agreement relative to
such Proprietary Information.
16.0 COMPLIANCE WITH LAWS
Seller shall be responsible for complying with all laws, including, but not
limited to, any statute, rule, regulation, judgment, decree, order, or
permit applicable to its performance under this Agreement. Seller further
agrees (1) to notify Buyer of any obligation under this Agreement which is
prohibited under applicable environmental law, at the earliest opportunity
but in all events sufficiently in advance of Seller's performance of such
obligation so as to enable the identification of alternative methods of
performance, and (2) to notify Buyer at the earliest possible opportunity
of any aspect of its performance which becomes subject to additional
environmental regulation or which Seller reasonably believes will become
subject to additional regulation during the performance of this Agreement.
17.0 INFRINGEMENT
Seller shall indemnify, defend, and save Buyer and Customers harmless from
all claims, suits, actions, awards (including but not limited to awards
based on intentional infringement of patents known to Seller at the time of
such infringement and those exceeding actual damages and/or including
attorneys' fees), liabilities, damages, costs and attorneys' fees related
to the actual or alleged infringement of any United States or foreign
intellectual property right (including but not limited to any right in a
patent, copyright, industrial design or semiconductor mask work, or based
on misappropriation or wrongful use of information or documents) and
arising out of the manufacture, sale or use of Goods by Buyer or Customers.
Buyer and/or Customers shall duly notify Seller of any such claim, suit or
action; and Seller shall, at its own expense, fully defend such claim, suit
or action on behalf of Buyer and/or Customers. Seller shall have no
obligation under this section with regard to any infringement arising from:
(i) Seller's compliance with formal specifications issued by Buyer where
infringement could not be avoided in complying with such specifications or
(ii)
-19-
<PAGE>
use or sale of Goods in combination with other items when such infringement
would not have occurred from the use or sale of those Products solely for
the purpose for which they were designed or sold by Seller. For purposes
of this section only, the term Customer shall not include the United States
Government; and the term Buyer shall include The Boeing Company (Boeing)
and all Boeing subsidiaries and all officers, agents, and employees of
Boeing or any Boeing subsidiary.
18.0 BUYER'S RIGHTS IN SELLER'S INVENTIONS
As a part of this order and without any additional compensation to Seller,
Buyer shall own all right, title, and interest in and to all inventions,
discoveries, and improvements (hereinafter "Inventions"), whether or not
patentable, which are conceived, developed, or first reduced to practice by
Seller's agents, employees, or independent contractors (hereinafter
"Personnel") on behalf of Seller, either alone or with others, provided
such Inventions relate directly to the subject matter with which Seller's
work for Buyer hereunder is concerned and are made while Seller's Personnel
are assigned to perform services under this Order, and irrespective of
whether or not such Inventions are conceived, developed, or first reduced
to practice during working hours. Seller and Seller's Personnel shall (1)
disclose such Inventions to Buyer promptly and in written detail, (2)
assist Buyer in obtaining patent protection for all such Inventions in the
United States and any foreign countries specified by Buyer, (3) assign all
patent rights in such Inventions to Buyer or its designee forthwith and
without charge, and (4) execute all instruments and render all such
assistance as may reasonably be required in order to protect the rights of
Buyer or its designee in such Inventions. Seller shall also require its
Personnel who are to perform services under this Order to execute
appropriate agreements which obligate such Seller Personnel to Buyer with
respect to such Inventions to the same extent that Seller is obligated to
Buyer under this paragraph, and copies of such agreements shall be
furnished to Buyer upon request.
19.0 BUYER'S RIGHTS IN SELLER'S WORK PRODUCT
As a part of this Order and without any additional compensation to Seller,
Buyer shall own all right, title and interest in and to all work product
generated by Seller in the performance of this Order including, without
limitation, all designs, drawings, data, models, prototypes, reports,
specifications, and computer programs. Copies of such work product shall
be made available to Buyer upon request at any time, and all tangible
embodiments of such work product shall, at the option of Buyer, be
delivered to Buyer upon the completion or termination of this Order.
20.0 BUYER'S RIGHTS IN SELLER'S PATENTS, COPYRIGHTS, TRADE SECRETS
AND TOOLING
Seller hereby grants to Buyer an irrevocable, nonexclusive, free, paid-up
license to practice and/or use, and license others to practice and/or use
on Buyer's behalf, all of Seller's patents, copyrights, trade secrets
(including, without limitation, designs, processes, drawings, technical
data and tooling), and tooling (hereinafter "Licensed
-20-
<PAGE>
Property") related to the development, production, maintenance or repair of
Products. Buyer hereafter retains all its rights to use Licensed Property,
but Buyer hereby covenants not to exercise such rights except in connection
with the making, having made, using and selling of Products or products of
the same kind, and then only in the event of any of the following:
a. Seller discontinues or suspends business operations or the production
of any or all of the Products;
b. Seller is acquired by or transfers any or all of its rights to
manufacture any Product to any third party, whether or not related;
c. Buyer cancels this Agreement or any Order for cause;
d. Seller breaches this Agreement or any Order;
e. Seller fails to deliver Products in accordance with this Agreement or
any Order;
f. In Buyers judgement it becomes necessary, in order for Seller to
comply with the terms of this Agreement or any Order, for Buyer to
provide support to Seller (in the form of design, manufacturing, or
on-site personnel assistance) substantially in excess of that which
Buyer normally provides to its suppliers;
g. five (5) years shall have elapsed from date of the first order by
Buyer;
h. Seller's trustee in bankruptcy (or Seller as debtor in possession)
fails to assume this Agreement and all Orders by formal entry of an
order in the bankruptcy court within sixty (60) days after entry of an
order for relief in a bankruptcy case of the Seller, and/or Buyer
elects to retain its rights to Licensed Property pursuant to section
365(n)(1)(B) of the United States Bankruptcy Code (the "Bankruptcy
Code"), 11 U.S.C. 101-1330;
i. Seller is at any time insolvent (whether measured under a balance
sheet test or by the failure to pay debts as they come due) or the
subject of any insolvency or debt assignment proceeding under state or
nonbankruptcy law; or
j. Seller voluntarily becomes a debtor in any case under the Bankruptcy
Code or, in the event an involuntary bankruptcy petition is filed
against Seller, such petition is not dismissed within thirty (30)
days.
As a part of the license granted under this section, Seller shall, at the
written request of Buyer and at no additional cost to Buyer, promptly
deliver to Buyer any and all
-21-
<PAGE>
Licensed Property considered by Buyer to be necessary to satisfy Buyer's
production requirements for Products and products of the same kind.
21.0 NOTICES
21.1 ADDRESSES
Notices and other communications shall be given in writing by personal
delivery, United States mail, telex, Teletype, telegram, facsimile, or
cable addressed to the respective party as follows:
To Buyer: BOEING COMMERCIAL AIRPLANE GROUP
MATERIEL DIVISION
P.O. Box 3707
Seattle, Washington 98124-2207
Attention: Buyer:
Mail Stop:
To Seller:Cashmere Manufacturing Company
102 Maple Street
Cashmere, WA 98815
Attention: Contracts
21.2 EFFECTIVE DATE
The date on which any such communication is received by the addressee
is the effective date of such communication.
21.3 APPROVAL OR CONSENT
With respect to all matters subject to the approval or consent of either
party, such approval or consent shall be requested in writing and is not
effective until given in writing. With respect to Buyer, authority to
grant approval or consent is limited to Buyer's Materiel Representative.
22.0 PUBLICITY
Seller may not, and shall require that its subcontractors and suppliers of
any tier may not, cause or permit to be released any publicity,
advertisement, news release, public announcement, or denial or confirmation
of the same, in whatever form, regarding any aspect of any Order without
Buyer's prior written approval.
23.0 FACILITIES
Seller shall bear all risks of providing adequate facilities and equipment
to perform each Order in accordance with the terms thereof. If any
contemplated use of government or other facilities or equipment is not
permitted by the government or is not available for any other reason,
Seller shall be responsible for arranging for equivalent facilities and
equipment at no cost to Buyer. Any failure to do so does not
-22-
<PAGE>
excuse any deficiencies in Seller's performance or affect Buyer's right to
cancel under Section 12.2, "Cancellation-Default," or under any provision
of law.
24.0 SUBCONTRACTING
Seller may not procure any Product, as defined in the applicable order,
from a third party in a completed or a substantially completed form without
Buyer's prior written consent.
No raw material may be incorporated in a Product (a) unless procured from a
Buyer approved source or (b) unless Buyer has surveyed and qualified
Seller's receiving inspection personnel and laboratories to test the
specified raw materials. Seller may request in writing, that Buyer survey
and qualify additional sources of raw materials. No waiver of survey and
qualification requirements will be effective unless granted by Buyer's
Engineering and Quality Control Departments. Utilization of a Buyer-
approved raw material source does not constitute a waiver of Seller's
responsibility to meet all specification requirements.
25.0 NOTICE OF LABOR DISPUTES
Seller shall immediately notify Buyer of any actual or potential labor
dispute that may disrupt the timely performance of an Order. Seller shall
include the substance of this Section, including this sentence, in any
subcontract relating to an Order if a labor dispute involving the
subcontractor would have the potential to delay the timely performance of
such Order. Each subcontractor, however, shall only be required to give
the necessary notice and information to its next higher-tier subcontractor.
26.0 ASSIGNMENT
Each Order shall inure to the benefit of and be binding on each of the
parties hereto and their respective successors and assigns, provided
however, that no assignment of any rights or delegation of any duties under
such Order is binding on Buyer unless Buyer's written consent has first
been obtained. Notwithstanding the above, Seller may assign claims for
monies due or to become due under any Order provided that Buyer may recoup
or setoff any amounts covered by any such assignment against any
indebtedness of Seller to Buyer, whether arising before or after the date
of the assignment or the date of this Agreement, and whether arising out of
any such Order or any other agreement between the parties.
Buyer may settle all claims arising out of any Order, including termination
claims, directly with Seller. Buyer may unilaterally assign any rights or
title to property under the Order to any wholly-owned subsidiary of The
Boeing Company.
27.0 RELIANCE
Seller acknowledges that Seller is an expert in all phases of the work
involved in producing and supporting the Products, including but not
limited to the designing, testing, developing, manufacturing, improving,
overhauling and servicing of the
-23-
<PAGE>
Products. Seller agrees that Buyer and Buyer's customers may rely on
Seller as an expert, and Seller will not deny any responsibility or
obligation hereunder to Buyer or Buyer's customers on the grounds that
Buyer or Buyer's customers provided recommendations or assistance in any
phase of the work involved in producing or supporting the Products,
including but not limited to Buyer's acceptance of specifications, test
data or the Products.
28.0 NON-WAIVER
Buyer's failure at any time to enforce any provision of an Order does not
constitute a waiver of such provision or prejudice Buyer's right to enforce
such provision at any subsequent time.
29.0 HEADINGS
Article and Section headings used in this Agreement are for convenient
reference only and do not affect the interpretation of the Agreement.
30.0 PARTIAL INVALIDITY
If any provision of any Order is or becomes void or unenforceable by force
or operation of law, the other provisions shall remain valid and
enforceable.
31.0 APPLICABLE LAW; JURISDICTION
Each Order, including all matters of construction, validity and
performance, shall in all respects be governed by, and construed and
enforced in accordance with, the law of the State of Washington as
applicable to contracts entered into and to be performed wholly within such
State between citizens of such State, without reference to any rules
governing conflicts of law. Seller hereby irrevocably consents to and
submits itself to the jurisdiction of the Superior Court for King County,
State of Washington and to the jurisdiction of the United States District
Court for the Western District of Washington for the purpose of any suit,
action or other judicial proceeding arising out of or connected with any
order or the performance or subject matter thereof. Seller hereby waives
and agrees not to assert by way of motion, as a defense, or otherwise, in
any such suit, action or proceeding, any claim that (a) Seller is not
personally subject to the jurisdiction of the above-named courts, (b) the
suit, action or proceeding is brought in an inconvenient forum or (c) the
venue of the suit, action or proceeding is improper.
32.0 AMENDMENT
Oral statements and understandings are not valid or binding. Except for
the provisions of Section 10.0, "Changes," of this Agreement and Section
5.0, "Changes," of the Special Business Provisions, any Order may not be
changed or modified except by a writing signed by both parties.
-24-
<PAGE>
33.0 LIMITATION
Seller may not (except to provide an inventory of Products to support
delivery acceleration and to satisfy reasonable replacement and Spares
requirements) manufacture or fabricate Products or procure any goods in
advance of the reasonable flow time required to comply with the delivery
schedule in the applicable order. Notwithstanding any other provision of
an Order, Seller is not entitled to any equitable adjustment or other
modification of such Order for any manufacture, fabrication, or procurement
of Products not in conformity with the requirements of the Order, unless
Buyer's written consent has first been obtained. Nothing in this Section
shall be construed as relieving Seller of any of its obligations under the
Order.
34.0 TAXES
34.1 INCLUSION OF TAXES IN PRICE
All taxes, including but not limited to federal, state and local income
taxes, value added taxes, gross receipt taxes, property taxes, and custom
duties taxes are deemed to be included in the Order price, except
applicable sales or use taxes on sales to Buyer ("Sales Taxes") for which
Buyer has not supplied a valid exemption certificate.
34.2 LITIGATION
In the event that any state or local taxing authority has claimed or does
claim payment for Sales Taxes, Seller shall promptly notify Buyer, and
Seller shall take such action as Buyer may direct to pay or protest such
taxes or to defend against such claim. The actual and direct expenses,
without the addition of profit and overhead, of such defense and the
amount, of such taxes as ultimately determined as due and payable shall be
paid directly by Buyer or reimbursed to Seller. If Seller or Buyer is
successful in defending such claim, the amount of such taxes recovered by
Seller, which had previously been paid by Seller and reimbursed by Buyer or
paid directly by Buyer, shall be immediately refunded to Buyer.
34.3 REBATES
If any taxes paid by Buyer are subject to rebate or reimbursement, Seller
shall take the necessary actions to secure such rebates or reimbursement
and shall promptly refund to Buyer any amount recovered.
35.0 FOREIGN PROCUREMENT OFFSET
With respect to work covered by the Order, Seller shall use its best
efforts to cooperate with Buyer in the fulfillment of any foreign offset
program obligation that Buyer may have accepted as a condition of the sale
of Buyer's product. In the event that Seller solicits bids and/or
proposals for, or procures or offers to procure any goods or services
relating to the work covered by an Order form any source outside of the
United States, Buyer shall be entitled, to the exclusion of all others, to
all industrial benefits and other "offset" credits which may result from
such solicitations,
-25-
<PAGE>
procurements or offers to procure. Seller agrees to take any actions that
may be required on its part to assure that Buyer receives such credits.
Seller further agrees to report to Buyer any such foreign procurement
activity if and when required by the Section identified as "Foreign
Procurement Report," of the Special Business Provisions, as revised from
time to time by Buyer.
36.0 ENTIRE AGREEMENT/ORDER OF PRECEDENCE
36.1 ENTIRE AGREEMENT
The Order sets forth the entire agreement, and supersedes any and all other
agreements, understandings and communications between Buyer and Seller
related to the subject matter of an Order.
36.2 INCORPORATED BY REFERENCE
In addition to the documents previously incorporated herein by reference,
the documents listed below are by this reference made a part of this
Agreement:
A. Engineering Drawing by Part Number and Related Outside Production
Specification Plan (SPCO).
B. Any other exhibits or documents agreed to by the parties to be a part
of this Agreement.
36.3 ORDER OF PRECEDENCE
In the event of a conflict or inconsistency between any of the terms of the
following documents, the following order of precedence shall control:
A. Special Business Provisions (Excluding E below)
B. General Terms Agreement (Excluding the documents listed in D and F
below)
C. Order (Excluding references to A and B above)
D. Engineering Drawing by Part Number and Related outside Production
Specification Plan (SPCO).
E. Administrative Agreement (If Required)
F. Any other exhibits or documents the parties agree shall be part of the
Agreement.
36.4 DISCLAIMER
Unless otherwise specified on the face of the applicable Order, any CATIA
Dataset or translation thereof (each or collectively "Data") furnished by
The Boeing Company is
-26-
<PAGE>
furnished as an accommodation to Seller. It is the Seller's responsibility
to compare such Data to the comparable two dimensional computer aided
design drawing to confirm the accuracy of the Data.
BUYER HEREBY DISCLAIMS, AND SELLER HEREBY WAIVES, ALL WARRANTIES AND
LIABILITIES OF BUYER AND ALL CLAIMS AND REMEDIES OF SELLER, EXPRESS OR
IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY DEFECT IN ANY
CATIA DATASET OR TRANSLATION THEREOF, INCLUDING, WITHOUT LIMITATION, ANY
(A) IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE OR FOR A
PARTICULAR PURPOSE, (B) ANY IMPLIED WARRANTY ARISING FROM COURSE OF DEALING
OR PERFORMANCE OR USAGE OF TRADE, (C) RECOVERY BASED UPON TORT, WHETHER OR
NOT ARISING FROM BUYER'S NEGLIGENCE, AND (D) ANY RECOVERY BASED UPON
DAMAGED PROPERTY, OR OTHERWISE BASED UPON DAMAGED PROPERTY, OR OTHERWISE
BASED UPON LOSS OF USE OR PROFIT OR OTHER INCIDENTAL OR CONSEQUENTIAL
DAMAGES.
EXECUTED in duplicate as of the date and year first written above by the duly
authorized representatives of the parties.
THE BOEING COMPANY CASHMERE MANUFACTURING
by and through its division COMPANY
Boeing Commercial Airplane Group
Name: /s/ Nancy V. Rosser Name: /s/ John Eder
------------------- ------------------
Title: Buyer Title: General Manager
Date: 8-15-94 Date: 8-15-94
-27-
<PAGE>
EXHIBIT 10.45
MATERIAL OMITTED PURSUANT TO
CONFIDENTIAL TREATMENT APPLICATION
SPECIAL BUSINESS PROVISIONS
between
THE BOEING COMPANY
and
CASHMERE MANUFACTURING COMPANY
Number L-890821-814ON
-1-
<PAGE>
SPECIAL BUSINESS PROVISIONS
THESE SPECIAL BUSINESS PROVISIONS ("SBP") are entered into as of December 18,
1992 by Cashmere Manufacturing Company, a Washington corporation with its
principal office in Cashmere, Washington ("Seller"), and Boeing Commercial
Airplane Group, a division of The Boeing Company, a Delaware corporation with
its principal office in Seattle, Washington ("Buyer").
RECITALS
A. Buyer and Seller entered into a General Terms Agreement (the "Agreement")
dated February 5, 1990 for the sale by Seller and purchase by Buyer of
Products.
B. Buyer and Seller desire to enter into another agreement to include these
Special Business Provisions relating to the sale by Seller and purchase by
Buyer of the Products.
Now, therefore, in consideration of the mutual covenants set forth herein, the
parties agree as follows:
-2-
<PAGE>
SPECIAL BUSINESS PROVISIONS
1. DEFINITIONS
The definitions used herein shall be the same as used in the Agreement.
In addition, the term "Rate Tool Capacity" shall mean the quantity of
tooling required to support a production rate not to exceed 21 shipsets on
the 737, 10 shipsets on the 747, 10 shipsets on the 757, and 10 shipsets
on the 767, and the term "Initial Order" shall mean the order as it first
exists, prior to Amendment or Change.
2. PURCHASE ORDER NOTE
The following note shall be contained in any Order to which these Special
Business Provisions are applicable:
This Order is subject to and incorporates by this reference the
Special Business Provisions L-890821814ON between The Boeing Company
and Cashmere Mfg. Company dated December 18, 1992.
Each order bearing such note shall be governed by and be deemed to include
the provisions of these Special Business Provisions.
3. PRICES
3.1 FIRM FIXED PRICES
The prices of Products to be delivered on or before December 31,
1996 are listed in Attachment "l" which by this reference are
incorporated herein and are firm fixed prices in United States
dollars, F.O.B. Cashmere, Washington.
3.2 MANUFACTURING CONFIGURATION BASELINE
Unit pricing for each part number shown in Attachment "l" reflects
the latest revisions of the Engineering Drawings and Outside
Production Specification Plans (OPSP's) at the time of the signing
of these Special Business Provisions.
3.3 PACKAGING
The prices shown in Attachment "l" do include packaging costs.
Packaging shall be furnished by the Seller. If necessary, Seller
may repair or furnish additional packaging upon approval by Buyer of
Seller's price proposal for such
-3-
<PAGE>
repair or additional packaging. Separate purchase orders shall be
released by Buyer to cover such expense (if applicable).
4. PURCHASE ORDER ISSUANCE
Buyer and Seller agree that, in addition to other provisions of the Order
and in consideration of the prices set forth under Section 3.1, "Firm
Fixed Prices," Buyer shall issue purchase orders for the Products listed
in Attachment "1" from time to time to Seller for Buyer's requirements
WITH THE EXCEPTION OF THOSE REQUIREMENTS FOR PRODUCTS, AS IDENTIFIED IN
ATTACHMENT "1", WHICH MAY BE SUBJECT TO COMMITMENTS TO AN OFFSET SUPPLIER.
Said Products are to be shipped at any scheduled rate of delivery, as
determined by Buyer, but not to exceed the Rate Tool Capacity, and Seller
shall sell to Buyer Buyer's requirements of such products, provided that,
without limitation on Buyer's right to determine its requirements, Buyer
shall not be obligated to issue any purchase orders for any given Product
if:
A. Any of Buyer's customers specify an alternate product;
B. Such Product is, in Buyer's reasonable judgment, not
technologically competitive at any time. "Technologically
competitive" shall be defined as significant changes to
Product design, including materials, specifications or
manufacturing processes which result in a reduced price or
weight.
C. Buyer gives reasonable notice to Seller of a change in any of
Buyer's aircraft which will result in Buyer's no longer
requiring such Product for such aircraft;
D. Seller has materially defaulted in any of its obligations
under any order, whether or not Buyer has issued a notice of
default to Seller pursuant to Section 12.2, "Cancellation -
Default," of the Agreement; or
E. Buyer reasonably determines that Seller cannot support Buyer's
requirements for Products in the amounts and within the
delivery schedules Buyer requires.
5. CHANGES
5.1 CHANGES AT NO COST
-4-
<PAGE>
Notwithstanding the provision for an equitable adjustment in Section
10.0, "Changes," of the Agreement, Buyer may make the changes set
forth in subsections 5.1.1, 5.1.2, and 5.1.3 without cost or change
in the unit price stated in the applicable Order.
5.1.1 Changes in the delivery schedule, including firing order and
rate changes, if (a) the delivery date of the Product under
such Order is on or before December 31, 1996 and (b) Buyer
provides Seller with written notice of the changes.
A. At least four (4) months prior to the first day of the
month in which any acceleration in the delivery schedule
is to take effect; and/or
B. At least four (4) months prior to the first day of the
month in which any deceleration in the delivery schedule
is to take effect.
5.1.2 Changes in the Tooling required to support delivery schedule
adjustments, including but not limited to production rate
changes, that are in accordance with the Rate Tool Capacity.
5.1.3 Engineering changes to incorporate Seller initiated production
facility requirements to facilitate or improve Seller's
manufacturing processes.
5.1.4
A. Seller shall incorporate without adjustment to the
non-recurring costs (either debit or credit) any and
all changes up to a value equal to two (2) percent of
the total non-recurring costs identified herein. Any
and all changes with an adjustment claim greater than
the two (2) percent threshold will be in accordance
with Section 5.3 and 5.4 below.
B. Seller shall incorporate without adjustment to the
recurring unit price (either debit or credit) any and
all changes up to a value equal to two (2) percent of
the unit price for each Product identified herein. Any
and all changes with an adjustment claim greater than
the two (2) percent threshold will be in accordance with
Section 5.3 and 5.4 below.
5.2 CHANGES SUBJECT TO AN EQUITABLE ADJUSTMENT
-5-
<PAGE>
An equitable adjustment in the price of any Product shall be made in
accordance with Section 10. 0, "Changes," of the Agreement if Buyer
makes a change in the delivery schedule of such product under an
Order and:
A. Such Product, although originally scheduled for delivery
before January 1, 1997 under such order, is delivered
after December 31, 1996 in accordance with such order as
changed; or
B. Such products monthly rate exceeds the Rate Tool
Capacity as stated in Section 1.0; or
C. Such change does not meet the notice requirements of
Section 5.1.1 above; and,
Seller submits to Buyer a written request for an equitable
adjustment within 180 days of receipt of the written change notice.
The amount of the price adjustment for each product shall be
determined by multiplying the original unit price plus any
negotiated changes which are incorporated into the individual
product price, excluding items such as amortization of tooling,
amortization of schedule slides, amortization of set-up charges,
etc., by three tenths of one percent (.3 of 1%) then multiplying
that factor by the cumulative balance of the number of products
previously scheduled in each successive month that falls outside the
changes at no cost periods set forth in Section 5.1.1 above. No
price adjustment shall be made for that portion of any delivery
schedule change which falls inside the changes at no cost periods
set for in Section 5.1.1.
5.3 CHANGES TO THE STATEMENT OF WORK
Buyer may direct Seller within the scope of the applicable Order and
in accordance with the provisions of Section 10.0, "Changes," of the
Agreement to increase or decrease the work to be performed by the
Seller in the manufacture of any Product. The equitable adjustment,
if any, to be paid by Buyer to Seller for such change shall be
computed in accordance with the provisions of Section 5.4.
5.4 COMPUTATION OF EQUITABLE ADJUSTMENT
The Rates and Factors set forth in Attachment "4," which by this
reference is incorporated herein, shall be used to determine the
equitable adjustment, if any (including equitable adjustments, if
any, in the prices of Products to be
-6-
<PAGE>
incorporated in Derivative Aircraft), to be paid by Buyer pursuant
to Section 10.0, "Changes," of the Agreement.
5.5 PLANNING SCHEDULE
The planning schedule, attached hereto as Attachment "2" and by this
reference incorporated herein, is a schedule to be used for planning
production following the initial purchase order release. Such
planning schedule shall not constitute a limitation on Buyer's right
to issue purchase orders to Seller for greater or lesser quantities
or to specify different delivery dates as necessary to meet Buyer's
requirements for the products listed on Attachment "1." Such
planning schedule shall be subject to adjustment from time to time.
Any such adjustment shall not be deemed to be a change under Section
10.0, "Changes," of the Agreement.
6. TERMINATION LIABILITY
When required by Buyer, Seller shall submit a time-phased Termination
Liability Curve per Attachment "5" attached hereto and by this reference
incorporated herein.
Notwithstanding any other provisions of this Agreement, Buyer's
termination liability pursuant to Section 12 of the Agreement shall not
exceed the amount established by the Termination Liability Curve for the
date of termination, reduced by the amount of all payments made by Buyer
for delivered Products, tooling or other goods or services furnished by
the Seller pursuant to the Order or made by Buyer in settlement of any
other claim made by Seller or any other party in connection with the
performance of the Order.
At any point in time, whether or not Buyer requires Seller to submit a
Termination Liability Curve, Buyer's termination liability shall be
limited to the maximum value of scheduled production deliveries for twelve
(12) months.
7. EXPENDITURE AUTHORIZATION
When requested by Buyer, Seller shall submit a Lot Release Schedule Plan
for approval. Seller's Lot Release Schedule Plan is included as
Attachment "6" hereto and is by this reference incorporated herein.
Buyer's written authorization must be obtained prior to release of any
lots. Expenditures incurred by Seller exceeding those authorized by the
Lot Release Schedule shall be at Seller's risk and expense.
8. PAYMENT
8.1 RECURRING COSTS
-7-
<PAGE>
Payment shall be net thirty (30) days. Unless otherwise provided
under the applicable order, payment due dates, including discount
periods, shall be computed from (a) the date of receipt of the
Product, (b) the date of receipt of a correct invoice or (c) the
scheduled delivery date of such Product, whichever is last, up to
and including the date Buyer's check is mailed. Unless freight and
other charges are itemized, any discount shall be taken on the full
amount of the invoice. All payments are subject to adjustment for
shortages, credits and rejections.
8.2 NON-RECURRING COSTS
Unless otherwise provided in the applicable order, the total non-
recurring price shall be paid by Buyer within the term discount
period or thirty (30) calendar days (whichever is later) after
receipt of both acceptable Products by Buyer and receipt of an
acceptable invoice accompanied by a properly prepared Certified Tool
List as specified in the M31-24 Document, "Boeing Supplier Tooling
Manual." Invoices received with incorrect, improperly prepared or
incomplete certified tool lists will be returned for correction
prior to payment. Invoices shall be dated concurrent with, or
subsequent to, shipment of the Products.
9. PRODUCT ASSURANCE
9.1 GOVERNING DOCUMENT
Seller acknowledges that Buyer and the owner or operator of each
aircraft manufactured by Buyer incorporating the Products must be
able to rely on each Product performing as specified and that Seller
will provide the required support services. Accordingly, the
provisions of the Boeing Document M6-1124-3, Rev. A "Boeing
Designed, Sub-Contracted Products Manufacturers Warranty" are
incorporated herein and by this reference are made a part hereof.
10. COST PERFORMANCE VISIBILITY
Seller's Program Manager shall be responsible to provide all necessary
cost support data, source documents for direct and indirect costs, and
assistance at the Seller's facility for cost performance reviews performed
by Buyers pursuant to any Order referencing these Special Business
Provisions. Copies of such data are to be made available within 72 hours
of any request by Buyer. This data is required in addition to the cost
data provided pursuant to Section 9.0 of the Agreement. All such
information so obtained shall be treated as confidential in accordance
with Section 15.0 of the Agreement.
-8-
<PAGE>
11. GRANT OF LICENSE
11.1 LICENSED PROPERTY
For purposes of this Section, "Licensed Property" shall be deemed to
mean all patents (including divisions, continuations or
substitutions thereof), designs, specifications processes, tooling
drawings, technical data and other information used in the
development or production of Products.
11.2 CONSIDERATION
In consideration for Buyer's agreement to pay certain nonrecurring
tooling, design, development and certification costs for the
Products, Seller hereby grants to Buyer a present, royalty-free,
non-exclusive license to use Licensed Property to make, have made,
use and sell Products. Buyer shall have the right to exercise said
license at no additional cost to Buyer: (a) upon termination of this
order for any reason; or (b) at any time after five years from the
date of this order.
11.3 TITLE TRANSFER
At any time following the exercise of the license granted herein,
Buyer shall have the right to require Seller at no additional cost
to Buyer to transfer to Buyer the title to and possession of all
tooling, fixtures, die and jigs used by Seller or Seller's
subcontractors in the development or production of Products.
12. SPARES PRICING
Except as set forth in subsections 12.1 and 12.2 below, the price for
Spare(s) shall be the same as the production price for the Products as
listed on Attachment "1" in effect at the time the Spare(s) are ordered.
POA parts shall be priced so that the sum of the prices for all POA parts
of an End Item Assembly equals the applicable recurring portion of the
price of the End Item Assembly.
12.1 AIRCRAFT ON GROUND (AOG) SPARES
The AOG is the highest priority category utilized by Buyer for spare
parts procurements. This classification will be assigned part
requirements for actual grounded aircraft. The Seller is required
to support this effort on a twenty-four (24) hour day basis, seven
(7) day week and with maximum use of overtime. Premium
transportation is authorized. Seller will provide delivery
commitments within one (1) hour after receipt of requirement. The
price for Aircraft On
-9-
<PAGE>
Ground (AOG) spares shall be the price for such Products listed on
Attachment "1" in effect when such Spares are ordered multiplied by
a factor of 1.07.
12.2 CRITICAL SPARES
The critical priority classification is assigned spares requirements
which are urgently needed by a customer or Buyer although no actual
AOG condition exists, an AOG condition is imminent or a work
stoppage may result from this Critical condition.
All Critical priority spare parts requirements will have an
expedited demand date. Every effort shall be made by the Seller to
support this date, including parts manufactured based on a twenty-
four (24) hour day, seven (7) day week, maximum use of overtime and
premium transportation. Seller will provide delivery commitments
within one (1) working day after receipt of requirement. The price
for Critical Spares shall be the price for such Products listed on
Attachment "1" in effect when such Spares are ordered multiplied by
a factor of 1.05.
12.3 SPECIAL HANDLING
The price for all effort associated with the production handling and
delivery of Spare(s) is deemed to be included in the price for such
Spare(s). When Buyer directs delivery of Spare Parts to an F.O.B.
point other than Seller's plant, however, Buyer shall reimburse
Seller for shipping charges, including insurance, paid by Seller
from the plant to the designated F.O.B. point. Such charges shall
be shown separately on all invoices.
13. BUYER FURNISHED MATERIAL (WHERE APPLICABLE)
It is the responsibility of the Seller to provide notice to the Buyer of
required on-dock dates for all raw material to ensure production
continuity. Seller's notice shall provide Buyer with sufficient time to
allow Buyer to competitively bid the raw material if so desired.
Material furnished to Supplier shall be administered per the Bonded Stores
Agreement between the parties. Updates on the status of all Buyer
furnished raw material shall be submitted quarterly by the Seller to Buyer
14. FOREIGN PROCUREMENT REPORT
-10-
<PAGE>
The Foreign Procurement Report to Buyer required by Section 35.0, "Foreign
Procurement Offset," of the Agreement is to be provided on the Foreign
Procurement Report form, Attachment "3" hereto, in accordance with
instructions provided therein. Such document is by this reference made a
part hereof. The semi-annual reporting periods shall be January 1 to
June 30 and July 1 to December 31. The reports shall be submitted on the
1st of August and the lst of February respectively.
15. STATUS REPORTS
Seller shall update and submit, as a minimum, monthly status reports using
a method mutually agreed upon by the Buyer and Seller. Seller shall also
submit monthly status reports using Boeing's Vendor Follow-Up Report.
For all first run programs, Seller shall provide to Buyer a milestone
chart identifying the following:
A. Raw material schedule, including;
(i) purchase order number and date,
(ii) order quantity and delivery schedule
B. Planning and Programming start and completion;
C. Tooling manufacture start and completion;
D. Machining start and completion by operation;
E. Outside processing by operation and subcontractor;
F. First article completion date; and,
G. Production lot release plan.
EXECUTED in duplicate as of the date and year first set forth above by the duly
authorized representatives of the parties.
THE BOEING COMPANY CASHMERE MANUFACTURING COMPANY
By and Through its Division
Boeing Commercial Airplane Group
-11-
<PAGE>
Name: /s/ Name: /s/ Jack Jones
------------------------------------- -----------------------
Title: Buyer Title: President
Date: 12/21/92 Date: 12/21/92
-12-
<PAGE>
ATTACHMENT "1" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
WORK STATEMENT AND PRICING
The price for Products to be delivered on or before December 31, 1996 shall be
as follows:
NOTE: ALL PRODUCTS AND CORRESPONDING PRICING TO BE PURCHASED BY UNDER THIS
CONTRACT ARE IDENTIFIED AND MAINTAINED IN A PRICING CATALOG IDENTIFIED AS
CASHMERE MFG CO ATTACHMENT "1" TO SBP L-890821-814ON WHICH IS HEREBY
INCORPORATED AND MADE A PART HEREOF BY THIS REFERENCE. SAID CATALOG SHALL BE
AMENDED AS DEEMED NECESSARY BY THE PARTIES BUT NO LESS THAN SEMI-ANNUALLY. ALL
PRICING IN THE AFOREMENTIONED CATALOG IS FIRM FIXED PRICE FOR DELIVERIES THROUGH
THE DECEMBER 31, 1996, EXCEPT AS NOTED HEREIN IN SECTION 3.0 "PRICES."
*** CONFIDENTIAL TREATMENT REQUESTED
FOR PRICING CATALOG ***
<PAGE>
EXHIBIT 10.46
MATERIAL OMITTED PURSUANT TO
CONFIDENTIAL TREATMENT APPLICATION
Special Business Provisions
(Requirements)
SPECIAL BUSINESS PROVISIONS
between
THE BOEING COMPANY
and
CASHMERE MANUFACTURING COMPANY
Number L-500660-8134N
i
<PAGE>
Special Business Provisions
(Requirements)
SPECIAL BUSINESS PROVISIONS
TABLE OF CONTENTS
Section Item Page
- - ------- ---- ----
1.0 DEFINITIONS 2
2.0 PURCHASE ORDER NOTE 2
3.0 PRICES 2
3.1 Firm Fixed Prices 2
3.2 Manufacturing Configuration Baseline 2
3.3 Packaging 2
4.0 PURCHASE ORDER ISSUANCE 3
5.0 CHANGES 3
5.1 Changes At No Cost 3
5.2 Changes Subject to An
Equitable Adjustment 4
5.3 Changes to the Statement of Work 4
5.4 Computation of Equitable Adjustment 4
5.5 Planning Schedule 5
5.6 Change Absorption 5
6.0 TERMINATION LIABILITY 6
7.0 EXPENDITURE AUTHORIZATION 7
8.0 PAYMENT 7
8.1 Recurring 7
8.2 Non-Recurring 7
9.0 PRODUCT ASSURANCE 7
9.1 Governing Document 7
10.0 COST PERFORMANCE VISIBILITY 8
11.0 GRANT OF LICENSE 8
11.1 Licensed Property 8
11.2 Consideration 8
11.3 Title Transfer 8
12.0 SPARES PRICING 9
12.1 Aircraft on Ground (AOG) Spares 9
12.2 Critical Spares 9
12.3 Special Handling 9
13.0 BUYER FURNISHED MATERIAL 10
14.0 FOREIGN PROCUREMENT REPORT 10
15.0 STATUS REPORTS 10
Attachment 1 Work Statement and Pricing 12
Attachment 2 Planning Schedule 13
Attachment 3 Foreign Procurement Report 14
Attachment 4 Rates and Factors 15
ii
<PAGE>
Attachment 5 Termination Liability Curve 16
Attachment 6 Incremental Lot Release
Schedule Plan 17
Attachment 7 Change Absorption Example 19
iii
<PAGE>
REVISIONS
REV.
SYM DESCRIPTION DATE APPROVAL
1. A. Under Section 3.3 Packaging 2-11-94
documents added.
B. Under Section 5.1 and 5.2,
4 month decel clause removed
and slide factor of .3 of 1% removed.
C. Section 5.6, change
absorption added.
D. Section 7.1, pay from receipt
language added.
E. Section 10.0, addition
of financial data to clause.
F. Redefined Spare, AOG, Critical
and Expedited Spares. Added
provision for short flow production
expedite.
G. Changed Attachment 1, "Statement
of Work" to reflect part number
change from 65C35015-4 to
65C35015-6.
H. Changed Section 6.0 from 12
months liability to 12 months
for raw material and 6 months
for work-in-process and finished
parts.
Complete reprint of document. Footer
designation changed to show latest
pro forma (02-05-93).
iv
<PAGE>
Special Business Provisions
(Requirements)
SPECIAL BUSINESS PROVISIONS
THESE SPECIAL BUSINESS PROVISIONS ("SBP") are entered into as of December 31,
1991 by Cashmere Manufacturing Company, a Washington corporation with its
principle office in Cashmere, Washington ("Seller"), and Boeing Commercial
Airplane Group, a division of The Boeing Company, a Delaware corporation with
its principle office in Seattle, Washington ("Buyer").
RECITALS
A. Buyer and Seller entered into a General Terms Agreement (the "Agreement")
GTA PLR-950 dated February 5, 1990 for the sale by Seller and purchase by
Buyer of Products.
B. Buyer and Seller desire to enter into another agreement to include these
Special Business Provisions relating to the sale by Seller and purchase
by Buyer of the Products.
Now, therefore, in consideration of the mutual covenants set forth herein, the
parties agree as follows:
-1-
<PAGE>
Special Business Provisions
(Requirements)
SPECIAL BUSINESS PROVISIONS
1.0 DEFINITIONS
The definitions used herein shall be the same as used in the Agreement.
In addition, the term "Rate Tool Capacity" shall mean the quantity of
tooling required to support a production rate not to exceed 21 shipsets
per month on the 737, 10 shipsets per month on the 747, 14 shipsets per
month on the 757, 10 shipsets per month on the 767 and 7 shipsets per
month on the 777 and the term "Initial order" shall mean the order as it
first exists, prior to Amendment or Change.
2.0 PURCHASE ORDER NOTE
The following note shall be contained in any order to which these Special
Business Provisions are applicable:
This Order is subject to and incorporates by this reference the
Special Business Provisions L-5006608134N between The Boeing
Company and Cashmere Manufacturing Company dated December 13,
1991.
Each order bearing such note shall be governed by and be deemed to
include the provisions of these Special Business Provisions.
3.0 PRICES
3.1 FIRM FIXED PRICES
The prices of Products to be delivered on or before December 31, 1996,
except as otherwise noted, are listed in Attachment "1" which by this
reference are incorporated herein and are firm fixed prices in United
States dollars, F.O.B. Cashmere, Washington.
3.2 MANUFACTURING CONFIGURATION BASELINE
Unit pricing for each part number shown in Attachment "1" reflects the
latest revisions of the Engineering Drawings and outside Production
Specification Plans (OPSP's) at the time of the signing of these Special
Business Provisions.
-2-
<PAGE>
Special Business Provisions
(Requirements)
3.3 PACKAGING
The prices shown in Attachment "1" do include packaging costs. For
purposes of this Section, packaging costs shall include materials and
labor required to package Products identified in Attachment "1" and
material and labor required to package any and all Tooling and/or
Licensed Property, as defined in Section 11.0 herein, relating to the
Products identified in Attachment "1" upon order/contract expiration.
Packaging shall be furnished by the Seller in accordance with Document
M6-1025, Volume II, "Supplier Part Protection Guide" for production
Products and A.T.A. Specification 300 "Specification for Packaging of
Airline Supplies" for spares Products. If necessary, Seller may repair
or furnish additional packaging upon approval by Buyer of Seller's price
proposal for such repair or additional packaging. Separate purchase
orders shall be released by Buyer to cover such expense (if applicable).
4.0 PURCHASE ORDER ISSUANCE
Buyer and Seller agree that, in addition to other provisions of the Order
and in consideration of the prices set forth under Section 3.1, "Firm
Fixed Prices," Buyer shall issue purchase orders for the Products listed
in Attachment "1" from time to time to Seller for Buyer's requirements,
to be shipped at any scheduled rate of delivery, as determined by Buyer,
but not to exceed the Rate Tool Capacity, and Seller shall sell to Buyer
Buyer's requirements of such products, provided that, without limitation
on Buyer's right to determine its requirements, Buyer shall not be
obligated to issue any purchase orders for any given Product if:
A. Any of Buyer's customers specify an alternate product;
B. Such Product is, in Buyer's reasonable judgment, not
technologically competitive at any time. "Technologically
competitive" shall be defined as significant changes to Product
design, including materials, specifications or manufacturing
processes which result in a reduced price or weight.
C. Buyer gives reasonable notice to Seller of a change in any of
Buyer's aircraft which will result in Buyer's no longer requiring
such Product for such aircraft;
D. Seller has materially defaulted in any of its obligations under
any order, whether or not Buyer has issued a notice of default to
Seller pursuant to Section 12.2, "Cancellation - Default," of the
Agreement; or
-3-
<PAGE>
Special Business Provisions
(Requirements)
E. Buyer reasonably determines that Seller cannot support Buyer's
requirements for Products in the amounts and within the delivery
schedules Buyer requires.
5.0 CHANGES
5.1 CHANGES AT NO COST
Not withstanding the provision for an equitable adjustment in Section
10.0, "Changes," of the Agreement, Buyer may make the changes set forth
in subsections 5.1.1, 5.1.2, and 5.1.3 without cost or change in the unit
price stated in the applicable order.
5.1.1 Changes in the delivery schedule, either acceleration or deceleration,
including firing order and rate changes, if (a) the delivery date of the
Product under such Order is on or before December 31, 1996 and (b) Buyer
provides Seller with written notice of the changes. Buyer agrees,
whenever possible, to work with Seller to identify and implement a
delivery schedule acceptable to both parties, however, Buyer shall retain
final decision making authority with respect to all schedules.
5.1.2 Changes in the Tooling required to support delivery schedule adjustments,
including but not limited to production rate changes, that are in
accordance with the Rate Tool Capacity.
5.1.3 Engineering changes to incorporate Seller initiated production facility
requirements to facilitate or improve Seller's manufacturing processes.
5.2 CHANGES SUBJECT TO AN EQUITABLE ADJUSTMENT
An equitable adjustment in the price of any Product shall be made in
accordance with Section 10.0, "Changes," of the Agreement if Buyer makes
a change in the delivery schedule of such product under an Order and:
A. Such Product, although originally scheduled for delivery
before January 1, 1997 under such Order, is delivered after
December 31, 1996 in accordance with such Order as changed;
or
B. Such products monthly rate exceeds the Rate Tool capacity
as stated in Section 1.0; and, Seller submits to Buyer a
written request for an equitable adjustment within 180 days
of receipt of the written change notice.
-4-
<PAGE>
Special Business Provisions
(Requirements)
5.3 CHANGES TO THE STATEMENT OF WORK
Buyer may direct Seller within the scope of the applicable Order and in
accordance with the provisions of Section 10.0, "Changes," of the
Agreement to increase or decrease the work to be performed by the Seller
in the manufacture of any Product. The equitable adjustment, if any, to
be paid by Buyer to Seller for such change shall be computed in
accordance with the provisions of Section 5.4.
5.4 COMPUTATION OF EQUITABLE ADJUSTMENT
The Rates and Factors set forth in Attachment "4," which by this
reference is incorporated herein, shall be used to determine the
equitable adjustment, if any, (including equitable adjustments, if any,
in the prices of Products to be incorporated in Derivative Aircraft), to
be paid by Buyer pursuant to Section 10.0, "Changes," of the Agreement.
5.5 PLANNING SCHEDULE
The planning schedule, attached hereto as Attachment "2" and by this
reference incorporated herein, is a schedule to be used for planning
production following the initial purchase order release. Such planning
schedule shall not constitute a limitation on Buyers right to issue
purchase orders to Seller for greater or lesser quantities or to specify
different delivery dates as necessary to meet Buyers requirements for the
products listed on Attachment "1." Such planning schedule shall be
subject to adjustment from time to time. Any such adjustment shall not
be deemed to be a change under Section 10.0, "Changes," of the Agreement.
5.6 CHANGE ABSORPTION
5.6.1 Adjustments to the price of Products made pursuant to Article 10.0,
"Changes," of the Agreement except as provided in Section 5.2, "Changes
Subject to an Equitable Adjustment," shall be negotiated on the merits of
each individual change using the performance levels assumed when
establishing the initial price and in accordance with Section 5.4,
"Computation of Equitable Adjustment." Changes to the Statement of Work
will be subject to the Change Absorption provisions set forth in Section
5.6.2.
5.6.2 A. Notwithstanding any other provisions of Article 10.0, except for
Seller's obligation to proceed with the Order as changed, Seller
shall comply with any Buyer basic engineering release or change
order issued between the date of this Agreement and one hundred
percent (100%) completion of basic
-5-
<PAGE>
Special Business Provisions
(Requirements)
engineering release. For the purpose of this Section, the one
hundred percent (100%) engineering drawing release date is defined
as the date four (4) months prior to the scheduled delivery of the
first production articles. Changes in design concepts released
prior to engineering drawing releases that do not affect (i) form,
fit, or function, (ii) material type, or (iii) process
specifications, shall be considered in scope and will be
incorporated into the Order at no change in price. In addition,
individual changes released prior to 100% engineering drawing
release that affect (i), (ii), or (iii) above but do not increase
or decrease the Unit Price by the cumulative net effect of more
than ten percent (10%) shall be incorporated into the order and
Agreement at no change in price. Individual Changes that affect
(i), (ii), and (iii) above and that increase or decrease the Unit
Price by more than the cumulative net effect of ten percent (10%)
shall be incorporated in the recurring or nonrecurring price in
accordance with Section 5.4. The ten percent (10%) cumulative net
effect of changes will be separately applied to the nonrecurring
price, and to the recurring price. For purposes of recurring price
calculation, the Unit Price is defined as the then current
recurring Unit price identified in Attachment "1."
B. Seller shall not make any assertions for changes considered
out-of-scope until such time as the engineering drawings released
by Boeing for each Product are one hundred percent (100%)
complete. Assertions for such changes will be submitted not later
than sixty (60) days following the calendar quarter in which
drawings are one hundred percent (100%) complete. The price
impact for such changes shall be negotiated and documented by the
end of the next succeeding calendar quarter following receipt of
the change assertion. The price shall be adjusted only in the
event the value of each individual change exceeds the limit as
specified in Section 5.6.2.A. The Seller will continue to make
quarterly claim assertions and negotiations shall be conducted one
quarter later with appropriate price adjustments to be finalized
once each quarter.
C. Calculations of change pricing adjustments pursuant to Section
5.6.2.A above, shall be calculated in accordance with the example
contained in Attachment "7."
5.6.3 A. Notwithstanding any of the provisions of Article 10.0, except for
Seller's obligation to proceed with the order as changed, Seller
agrees to incorporate, on a no-charge basis, any change required
by Boeing subsequent to one hundred percent (100%) completion of
basic engineering release which has an
-6-
<PAGE>
Special Business Provisions
(Requirements)
incorporation cost per individual change, either debit or credit,
of less than two percent (2%) of the Unit price, current at
incorporation.
B. The provision of Section 5.6.3.A above, shall not be used as a
deduction from changes which exceed the limit per change. Changes
shall not be arbitrarily segregated by Boeing to fall below the
limit nor shall the changes be arbitrarily combined by Seller to
exceed the limit.
C. Calculations of change pricing adjustments pursuant to Section
5.6.3.A and 5.6.3.B above, shall be calculated in accordance with
the example contained in Attachment "7."
6.0 TERMINATION LIABILITY
When required by Buyer, Seller shall submit a time-phased Termination
Liability Curve per Attachment "5" attached hereto and by this reference
incorporated herein.
Notwithstanding any other provisions of this Agreement, Buyer's
termination liability pursuant to Section 12 of the Agreement shall not
exceed the amount established by the Termination Liability Curve for the
date of termination, reduced by the amount of all payments made by Buyer
for delivered Products, tooling or other goods or services furnished by
the Seller pursuant to the Order or made by Buyer in settlement of any
other claim made by Seller or any other party in connection with the
performance of the Order.
At any point in time, whether or not Buyer requires Seller to submit a
Termination Liability Curve, Buyer's termination liability shall be
limited to the maximum value of scheduled production deliveries for
twelve (12) months for raw material and six (6) months for
work-in-process and finished parts.
7.0 EXPENDITURE AUTHORIZATION
When requested by Buyer, Seller shall submit a Lot Release Schedule Plan
for approval. Seller's Lot Release Schedule Plan is included as
Attachment "6" hereto and is by this reference incorporated herein.
Buyer's written authorization must be obtained prior to release of any
lots. Expenditures incurred by Seller exceeding those authorized by the
Lot Release Schedule shall be at Seller's risk and expense.
-7-
<PAGE>
Special Business Provisions
(Requirements)
8.0 PAYMENT
8.1 RECURRING COST/SPECIAL CHARGE ITEMS
Unless otherwise provided in the applicable order, payment shall be made
in accordance with Document D6-55772 "Pay From Receipt". Payment terms
shall be net thirty (30) days except as otherwise agreed to by the
parties. All payments are subject to adjustment for shortages, credits
and rejections.
8.2 NON-RECURRING COSTS
Unless otherwise provided in the applicable Order, the total
non-recurring price shall be paid by Buyer within the term discount
period or thirty (30) calendar days (whichever is later) after receipt of
both acceptable Products by Buyer and receipt of an acceptable invoice
accompanied by a properly prepared Certified Tool List as specified in
the M31-24 Document, "Boeing Supplier Tooling Manual." Invoices received
with incorrect, improperly prepared or incomplete certified tool lists
will be returned for correction prior to payment. Invoices shall be
dated concurrent with, or subsequent to, shipment of the Products.
9.0 PRODUCT ASSURANCE
9.1 GOVERNING DOCUMENT
Seller acknowledges that Buyer and the owner or operator of each aircraft
manufactured by Buyer incorporating the Products must be able to rely on
each Product performing as specified and that Seller will provide the
required support services. Accordingly, the provisions of the Boeing
Document M6-1124-3, Rev. A "Boeing Designed, Sub-Contracted Products
Manufacturers Warranty" are incorporated herein and by this reference are
made a part hereof.
10.0 COST AND FINANCIAL PERFORMANCE VISIBILITY
Seller's Program Manager shall be responsible to provide all necessary
cost support data, source documents for direct and indirect costs, and
assistance at the Seller's facility for cost performance reviews
performed by Buyer pursuant to any Order referencing these Special
Business Provisions. Seller shall be responsible to provide financial
data, on a quarterly basis, or as requested, to Buyer's Credit Office for
credit and financial condition reviews. Said data shall include but not
be limited to balance sheets, schedule of accounts payable and
receivable, major lines of credit,
-8-
<PAGE>
Special Business Provisions
(Requirements)
creditors, income statements (profit and loss), cash flow statements,
firm backlog, and headcounts. Copies of such data are to be made
available within 72 hours of any written request by Buyer. This data is
required in addition to the cost data provided pursuant to Section 9.0 of
the Agreement. All such information so obtained shall be treated as
confidential per Section 15.0 of the Agreement.
11.0 GRANT OF LICENSE
11.1 LICENSED PROPERTY
For this Section, "Licensed Property" shall be deemed to mean all patents
(including divisions, continuations or substitutions thereof), designs,
spec. processes, tool drawings, technical data and other information used
in the development or production of Products.
11.2 CONSIDERATION
In consideration for Buyer's agreement to pay certain nonrecurring
tooling, design, development and certification costs for the Products,
Seller hereby grants to Buyer a present, royalty-free, non-exclusive
license to use Licensed Property to make, have made, use and sell
Products. Buyer shall have the right to exercise said license at no
additional cost to Buyer: (a) upon termination of this order for any
reason; or (b) at any time after five years from the date of this order.
11.3 TITLE TRANSFER
At any time following the exercise of the license granted herein, Buyer
shall have the right to require Seller at no additional cost to Buyer to
transfer to Buyer the title to and possession of all tooling, fixtures,
die and jigs used by Seller or Seller's subcontractors in the development
or production of Products.
12.0 SPARES AND SHORTFLOW PRODUCTION PRICING
Except as set forth in subsections 12.1 and 12.2 below, the price for
Spare(s) shall be the same as the production price for the Products as
listed on Attachment "1" in effect at the time the Spare(s) are ordered.
POA parts shall be priced so that the sum of the prices for all POA parts
of an End Item Assembly equals the applicable recurring portion of the
price of the End Item Assembly.
-9-
<PAGE>
Special Business Provisions
(Requirements)
12.1 AIRCRAFT ON GROUND (AOG)/CRITICAL SPARES, SHORT FLOW PRODUCTION
RECRUITMENTS LESS THAN 60% OF SELLER'S RE-ORDER LEAD TIME (ROLT)
The AOG is the highest priority category utilized by Buyer for spare
parts procurements. This classification will be assigned part
requirements for actual grounded aircraft. The Seller will provide
delivery commitments within one (1) hour after receipt of the
requirements. The Critical priority classification is assigned spares
requirements which are urgently needed by a customer or Buyer although no
actual AOG condition exists, an AOG condition is imminent or a work
stoppage may result from this Critical condition. The Seller will
provide delivery commitments within one (1) working day after receipt of
the requirements.
The Seller is required to support AOG/Critical Spares on a twenty-four
(24) hour day basis, seven (7) day week and with maximum use of overtime.
Premium transportation is authorized. The price for Aircraft On Ground
(AOG)/Critical Spares and short flow production requirements as defined
herein shall be the price for such Products listed on Attachment "1" in
effect when such Spares are ordered multiplied by a factor of 1.07.
12.2 EXPEDITE SPARE (CLASS 1) AND SHORT FLOW PRODUCTION RECRUITMENTS LESS THAN
100% BUT GREATER THAN OR EQUAL TO 60% OF SELLER'S RE-ORDER LEAD TIME
(ROLT)
The Expedite Spare classification is used to identify spares requirements
that require delivery in less than Seller's normal re-order lead time
(ROLT). Manufacturing efforts will be based on a two (2) shift day
basis, six (6) day week. The price for Expedite Spares and short flow
production requirement, as defined herein, shall be the price for such
Products listed on Attachment "1" in effect when such Spares are ordered
multiplied by a factor of 1.05. Expedite action will be taken only if
necessary to meet Buyer's required date.
12.3 SPECIAL HANDLING
The price for all effort associated with the production handling and
delivery of Spare(s) is deemed to be included in the price for such
Spare(s). When Buyer directs delivery of Spare Parts to an F.O.B. point
other than Seller's plant, however, Buyer shall reimburse Seller for
shipping charges, including insurance, paid by Seller from the plant to
the designated F.O.B. point. Such charges shall be shown separately on
all invoices.
-10-
<PAGE>
13.0 BUYER FURNISHED MATERIAL (WHERE APPLICABLE)
It is the responsibility of the Seller to provide notice to the Buyer of
required on-dock dates for all raw material to ensure production
continuity. Seller's notice shall provide Buyer with sufficient time to
allow Buyer to competitively bid the raw material if so desired.
Material furnished to Supplier shall be administered per the Bonded
Stores Agreement between the parties. Updates on the status of all Buyer
furnished raw material shall be submitted quarterly by the Seller to
Buyer
14.0 FOREIGN PROCUREMENT REPORT
The Foreign Procurement Report to Buyer required by Section 35.0,
"Foreign Procurement Offset," of the Agreement is to be provided on the
Foreign Procurement Report form, Attachment "3" hereto, in accordance
with instructions provided therein. Such document is by this reference
made a part hereof. The semi-annual reporting periods shall be January 1
to June 30 and July 1 to December 31. The reports shall be submitted on
the 1st of August and the 1st of February respectively.
15.0 STATUS REPORTS
Seller shall update and submit, as a minimum, monthly status reports
using a method mutually agreed upon by the Buyer and Seller. Seller
shall also submit monthly status reports using Boeing's Vendor Follow-Up
Report.
For all first run programs, Seller shall provide to Buyer a milestone
chart identifying the following:
(a) Raw material schedule, including;
(i) purchase order number and date,
(ii) order quantity and delivery schedule
(b) Planning and Programming start and completion;
(c) Tooling manufacture start and completion;
(d) Machining start and completion by operation;
-11-
<PAGE>
Special Business Provisions
(Requirements)
(e) Outside processing by operation and subcontractor;
(f) First article completion date; and,
(g) Production lot release plan.
EXECUTED in duplicate as of the date and year first set forth above by the duly
authorized representatives of the parties.
THE BOEING COMPANY CASHMERE MANUFACTURING COMPANY
By and Through its Division
Boeing Commercial Airplane Group
Name: /s/ Kenneth H. Jong Name: /s/ John Eder
---------------------- ------------------------
Title: Buyer Title: Vice President
Date: 3-16-94 Date: 3-1-94
-12-
<PAGE>
ATTACHMENT "1" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
WORK STATEMENT AND PRICING
The price for Products to be delivered on or before DATE, except as otherwise
noted below, shall be as follows:
QTY UNIT ROLT/
PART NUMBER S/S MODEL NOMENCLATURE PRICE WEEKS
- - ----------- --- ----- ------------ ----- -----
65C35015-6 *** CONFIDENTIAL TREATMENT REQUESTED
-13-
<PAGE>
ATTACHMENT "2" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
PLANNING SCHEDULE
The following Airplane model mix and rate are forecasted for the years
1993-1998.
MONTHLY RATE
Model Mix 1993 1994 1995 1996 1997 1998
- - --------- ---- ---- ---- ---- ---- ----
737
747
757 *** CONFIDENTIAL TREATMENT REQUESTED
767
777
-14-
<PAGE>
ATTACHMENT "3" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
FOREIGN PROCUREMENT REPORT FORM
(Seller to Submit)
(Reference Section 14.0)
-15-
<PAGE>
ATTACHMENT "4" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
RATES AND FACTORS
The following Rates and Factors, which are reflective of the proposed values
identified in Attachment "1" of this document, shall contribute to the
determination of equitable pricing for engineering changes, derivative aircraft,
and option or follow-on pricing.
Direct Labor Rate $
Manufacturing Burden %
G&A (Gen. Admin. Expense) %
Profit %
-16-
<PAGE>
ATTACHMENT "5" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
TERMINATION LIABILITY CURVE
(Seller to Submit)
(Reference Section 6.0)
In the event of termination or cancellation pursuant to Article 12.0 of
the Agreement, Buyer shall not be obligated to pay Seller more than the
Cumulative total amounts set forth below less payments previously made,
for the month/quarter in which the termination notice is issued, as the
amounts shall be amended from time to time.
($000 Omitted)
Nonrecurring Recurring
Year/Quarter Cost Cost Total
- - ------------ ---- ---- -----
_____ First $ $
_____ Second
_____ Third
_____ Fourth
_____ First $ $
_____ Second
_____ Third
_____ Fourth
_____ First $ $
_____ Second
_____ Third
_____ Fourth
TOTAL $__________ $__________
-17-
<PAGE>
ATTACHMENT "6" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
INCREMENTAL LOT RELEASE SCHEDULE PLAN
(Seller to Submit)
(Reference Section 7.0)
A. AUTHORIZATION SUMMARY Non-recurring releases authorized in conjunction
with the execution of the Agreement are as summarized below. The non-recurring
Price represents the baseline value to be used to determine change pricing
adjustment per Section 5.2 "Changes Subject to an Equitable Adjustment."
To Support
Production Authorization Dollar
Item Rate Of Date Amount
- - ---- ------- ---- ------
Contractor Use ___S/S per Execution of
Tooling Month Agreement ________
Common Use Tools ________
Forging Dies ________
Other Non-Recurring
Work ________
Total Non-Recurring ________
Baseline Value
-18-
<PAGE>
ATTACHMENT "6" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
Recurring releases authorized in conjunction with execution of this Agreement
are herein summarized in shipset quantities.
Material Quantity S/S
- - -------- ------------
Metallic Raw Material
Non-Metallic Raw Material
Purchased Parts
Extrusions
Fabrication
- - -----------
Detail Parts
Assembly
- - --------
B. Lead Times
Lead times for material, fabrication and assembly authorizations are as
tabulated below in months prior to delivery of the first Shipset affected.
Material Months
-------- ------
Metallic Raw Material TBD
Non-Metallic Raw Material TBD
Castings/Forgings TBD
Purchased Parts TBD
Extrusions TBD
Fabrication
-----------
Detail Parts TBD
Assembly TBD
--------
Rate Tooling
------------
(Greater than the Baseline Shipsets per Month) TBD
-19-
<PAGE>
ATTACHMENT "7" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
CHANGE ABSORPTION EXAMPLE
(Reference Section 5.6)
Non-Recurring Recurring
------------- ---------
Initial Unit Value
Pre-100% Engineering
Seller's Limit for
Absorption of Changes
Change #1 Negotiated
Delta Price
Updated Order, rev. 1 *** CONFIDENTIAL TREATMENT REQUESTED ***
Change #2 Negotiated
Delta Price
Updated Order, rev. 2
Change #3 Negotiated
Delta Price
Updated Order, rev. 3
(1) The dollar values which are fixed at plus or minus ten percent (+/-l0%) of
the initial Order values represent the Seller's maximum risk for
absorption of changes. The fixed values will be added to Section 5.6.2.
(2) Change #1, made prior to 100% engineering release, has a negotiated
non-recurring price of *** . This price exceeds the ***. Therefore, the
total non-recurring price is increased from $*** to $***. The net effect
of Change #1 to the recurring portion is $*** which is less than 10%
therefore no change is made.
(3) The negotiated net effect of change #2, made prior to 100% engineering
release, for the recurring pricing is $***. Since it exceeds the $***
limit, the recurring Total Unit Price is increased from $*** to $***.
-20-
<PAGE>
(4) Change #3, made after 100% engineering release, has a negotiated credit of
$***. This is less than 2% of the recurring Total Unit Price of $***, so
no change is made to the Unit Value.
-21-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
EXHIBIT 10.47
MATERIAL OMITTED PURSUANT TO
CONFIDENTIAL TREATMENT APPLICATION
SPECIAL BUSINESS PROVISIONS
between
THE BOEING COMPANY
and
CASHMERE MANUFACTURING COMPANY
Number L-435579-8180N
---------------
-i-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
SPECIAL BUSINESS PROVISIONS
TABLE OF CONTENTS
Section Item Page
- - ------- ---- ----
1.0 DEFINITIONS.............................................................. 2
2.0 PURCHASE ORDER NOTE...................................................... 2
3.0 PRICES................................................................... 3
3.1 Firm Fixed Prices........................................................ 3
3.2 Manufacturing Configuration Baseline..................................... 3
3.3 Packaging................................................................ 3
4.0 PURCHASE ORDER ISSUANCE.................................................. 4
5.0 CHANGES.................................................................. 5
5.1 Changes At No Cost....................................................... 5
5.2 Changes Subject to An Equitable Adjustment............................... 6
5.3 Changes to the Statement of Work......................................... 7
5.4 Computation of Equitable Adjustment...................................... 7
5.5 Planning Schedule........................................................ 8
5.6 Change Absorption........................................................ 8
6.0 TERMINATION LIABILITY....................................................11
7.0 EXPENDITURE AUTHORIZATION................................................12
8.0 PAYMENT..................................................................12
8.1 Recurring................................................................12
8.2 Non-Recurring............................................................12
9.0 PRODUCT ASSURANCE........................................................13
9.1 Governing Document.......................................................13
10.0 COST PERFORMANCE VISIBILITY..............................................13
11.0 GRANT OF LICENSE.........................................................14
11.1 Licensed Property........................................................14
11.2 Consideration............................................................15
11.3 Title Transfer...........................................................15
12.0 SPARES PRICING...........................................................15
12.1 Aircraft on Ground (AOG) Spares..........................................16
12.2 Critical Spares..........................................................17
12.3 Special Handling.........................................................17
-ii-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
TABLE OF CONTENTS
(Continued)
Section Item Page
- - ------- ---- ----
13.0 BUYER FURNISHED MATERIAL................................................18
14.0 FOREIGN PROCUREMENT REPORT..............................................18
15.0 ADMINISTRATIVE AGREEMENT................................................19
16.0 OPTION..................................................................19
16.1 Exercise of Option......................................................20
17.0 ASSIGNMENT/INTEGRATION..................................................20
Attachment 1 Work Statement and Pricing.....................................23
Attachment 2 Planning Schedule..............................................24
Attachment 3 Foreign Procurement Report.....................................25
Attachment 4 Rates and Factors..............................................26
Attachment 5 Termination Liability Curve....................................27
Attachment 6 Incremental Lot Release Schedule Plan..........................28
Attachment 7 PCOS Invoice Register..........................................30
-iii-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
REVISIONS
REV.
SYM DESCRIPTION DATE APPROVAL
-iv-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
SPECIAL BUSINESS PROVISIONS
THESE SPECIAL BUSINESS PROVISIONS ("SBP") are entered into as of August 11, 1994
by Cashmere Manufacturing Company, a Washington corporation with its principle
office in Cashmere, Washington ("Seller"), and Boeing Commercial Airplane Group,
a division of The Boeing Company, a Delaware corporation with its principle
office in Seattle, Washington ("Buyer").
RECITALS
A. Buyer and Seller entered into a General Terms Agreement (the "Agreement")
GTA # PLR-950 dated February 5, 1990 for the sale by Seller and purchase by
Buyer of Products.
B. Buyer and Seller desire to enter into another agreement to include these
Special Business Provisions relating to the sale by Seller and purchase by
Buyer of the Products.
Now, therefore, in consideration of the mutual covenants set forth herein, the
parties agree as follows:
-1-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
SPECIAL BUSINESS PROVISIONS
1.0 DEFINITIONS
The definitions used herein shall be the same as used in the
Agreement. In addition, the term "Rate Tool Capacity" shall mean the
quantity of tooling required to support a production rate not to
exceed 21 shipsets per month on the 737, the term "100% Engineering
Release" shall mean the date at which all applicable engineering
drawings have been completed with revision level new or greater and
the term "Initial Order" shall mean the order as it first exists,
prior to Amendment or Change.
2.0 PURCHASE ORDER NOTE
The following note shall be contained in any order to which these
Special Business Provisions are applicable:
This Order is subject to and incorporates by this reference the
Special Business Provisions L-435579-8180N between The Boeing
Company and Cashmere Manufacturing Company dated August 11, 1994.
-2-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
Each Order bearing such note shall be governed by and be deemed to
include the provisions of these Special Business Provisions.
3.0 PRICES
3.1 FIRM FIXED PRICES
The prices of Products to be delivered on or before July 31, 1995,
except as otherwise noted, are listed in Attachment "1" which by this
reference are incorporated herein and are firm fixed prices in United
States dollars, F.O.B. Seller's Plant.
3.2 MANUFACTURING CONFIGURATION BASELINE
Unit pricing for each part number shown in Attachment "1" reflects the
latest revisions of the Engineering Drawings and Outside Production
Specification Plans (OPSP's) at the time of the signing of these
Special Business Provisions.
3.3 PACKAGING
The prices shown in Attachment "1" do not include packaging costs.
Packaging shall be in accordance with Packaging Specification SC
65C35000 "Reusable Shipping Container Overwing Escape Hatch", Document
M6-1025, Volume II, "Supplier Part
-3-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
Protection Guide" for production Products and A.T.A. Specification 300
"Specification for Packaging of Airline Supplies" for spares Products.
If necessary, Seller may repair or furnish additional packaging upon
approval by Buyer of Seller's price proposal for such repair or
additional packaging. Separate purchase orders shall be released by
Buyer to cover such expense (if applicable).
4.0 PURCHASE ORDER ISSUANCE
Buyer and Seller agree that, in addition to other provisions of the
order and in consideration of the prices set forth under Section 3.1,
"Firm Fixed Prices," Buyer shall issue purchase orders for the
Products listed in Attachment "1" from time to time to Seller for
Buyer's requirements, to be shipped at any scheduled rate of delivery,
as determined by Buyer, but not to exceed the Rate Tool Capacity and
Seller shall sell to Buyer Buyer's requirements of such Products,
provided that, without limitation on Buyer's right to determine its
requirements, Buyer shall not be obligated to issue any purchase
orders for any given Product if:
A. Any of Buyer's customers specify an alternate product;
-4-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
B. Such Product is, in Buyer's reasonable judgment, not technologically
competitive at any time. "Technologically competitive" shall be
defined as significant changes to Product design, including materials,
specifications or manufacturing processes which result in a reduced
price or weight.
C. Buyer gives reasonable notice to Seller of a change in any of Buyer's
aircraft which will result in Buyer's no longer requiring such Product
for such aircraft;
D. Seller has materially defaulted in any of its obligations under any
Order, whether or not Buyer has issued a notice of default to Seller
pursuant to Section 12.2, "Cancellation-Default," of the Agreement;
E. Buyer reasonably determines that Seller cannot support Buyer's
requirements for Products in the amounts and within the delivery
schedules Buyer requires.
5.0 CHANGES
5.1 CHANGES AT NO COST
-5-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
Notwithstanding the provision for an equitable adjustment in Section
10.0, "Changes," of the Agreement, Buyer may make the changes set
forth in subsections 5.1.1, 5.1.2, and 5.1.3 without cost or change in
the unit price stated in the applicable Order unless otherwise
provided herein.
5.1.1 Changes in the delivery schedule, either acceleration or deceleration,
including firing order and rate changes, if (a) the delivery date of
the Product under such Order is on or before July 31, 1995 and (b)
Buyer provides Seller with written notice of the changes. Buyer
agrees, whenever possible, to work with Seller to identify and
implement a delivery schedule acceptable to both parties, however,
Buyer shall retain final decision making authority with respect to all
schedules.
5.1.2 Changes in the Tooling required to support delivery schedule
adjustments, including but not limited to production rate changes,
that are in accordance with the Rate Tool Capacity.
5.1.3 Engineering changes to incorporate Seller initiated production
facility requirements to facilitate or improve Seller's manufacturing
processes.
5.2 CHANGES SUBJECT TO AN EQUITABLE ADJUSTMENT
-6-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
An equitable adjustment in the price of any Product shall be made in
accordance with Section 10.0, "Changes," of the Agreement if Buyer
makes a change in the delivery schedule of such product under an order
and:
A. Such Product, although originally scheduled for delivery before August
1, 1995 under such order, is delivered after July 31, 1995 in
accordance.
B. Such products monthly rate exceeds the Rate Tool Capacity as stated in
Section 1.0; and, Seller submits to Buyer a written request for an
equitable adjustment within 30 days of receipt of the written change
notice.
5.3 CHANGES TO THE STATEMENT OF WORK
Buyer may direct Seller within the scope of the applicable order and
in accordance with the provisions of Section 10.0, "Changes," of the
Agreement to increase or decrease the work to be performed by the
Seller in the manufacture of any Product. The equitable adjustment,
if any, to be paid by Buyer to Seller for such change shall be
computed in accordance with the provisions of Section 5.4.
5.4 COMPUTATION OF EQUITABLE ADJUSTMENT
-7-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
The Rates and Factors set forth in Attachment "4", which by this
reference is incorporated herein, shall be used to determine the
equitable adjustment, if any, (including equitable adjustments, if
any, in the prices of Products to be incorporated in Derivative
Aircraft), to be paid by Buyer pursuant to Section 10.0, "Changes," of
the Agreement for each applicable change.
5.5 PLANNING SCHEDULE
The planning schedule, attached hereto as Attachment "2" and by this
reference incorporated herein, is a schedule to be used for planning
production following the initial purchase order release. Such
planning schedule shall not constitute a limitation on Buyers right to
issue purchase orders to Seller for greater or lesser quantities or to
specify different delivery dates as necessary to meet Buyers
requirements for the products listed on Attachment "1". Such planning
schedule shall be subject to adjustment from time to time. Any such
adjustment shall not be deemed to be a change under Section 10.0,
"Changes," of the Agreement.
5.6 CHANGE ABSORPTION
5.6.1 PRIOR TO 100% ENGINEERING RELEASE
5.6.1.1 GENERALLY
-8-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
Notwithstanding the provisions of Section 10.0 "Changes" of the
Agreement and Section 5.3 "Changes to the Statement of Work" of this
SBP, no equitable adjustment in the prices or schedules of any Order
("Equitable Adjustment") shall be made for any change to technical
requirements and descriptions, specifications, statement of work,
drawing or designs ("Technical Change(s)") made by Buyer and
communicated in writing to Seller prior to thirty days after 100%
Engineering Release except that an Equitable Adjustment shall be made
for the following Technical Changes:
a. Any Technical Change which changes raw material type of the
Product. For purposes of this Section, change to raw material type
shall be defined as a change BETWEEN raw material classifications such
as changing from aluminum to steel or titanium to plastic. Not
included as a Technical Change for purposes of this clause are changes
WITHIN a raw material classification such as changing from 7050
Aluminum to 7075 Aluminum;
b. Any Technical Change which adds or deletes a process
specification including but not limited to chem milling, chrome plate,
anodize, paint, prime and heat treat.
5.6.1.2 CLAIMS
-9-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
Claims for Equitable Adjustment shall be made as follows:
a. Claims for any Technical Change made prior to 100% Engineering
Release shall be made within Thirty (30) days after 100% Engineering
Release.
5.6.2 SUBSEQUENT TO 100% ENGINEERING RELEASE
5.6.2.1 GENERALLY
Notwithstanding the provisions of Section 10.0, "Changes" of the
Agreement, and Section 5.2, "Changes Subject to an Equitable
Adjustment", no equitable adjustment shall be made to the recurring or
nonrecurring costs subsequent to 100% Engineering Release for any
change unless the value of such change (debit or credit) is greater
than or equal to two percent (2%) of the then current Unit Cost for
the Product (recurring) or is greater than or equal to two percent
(2%) of the total then current Nonrecurring Cost as set forth in
Attachment "1". For purposes of this Section, the then current Unit
Cost or Total Nonrecurring Cost shall be the price identified in
Attachment "1" plus any and all price adjustments agreed to previously
which have not been added to Attachment "1".
5.6.2.2 CLAIMS
-10-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
Claims shall be made separately for each Product and for each change.
Each claim shall be considered separately for application of the two
percent (2%) threshold. Changes may not be combined for the purposes
of exceeding the two percent (2%) threshold described in Section
5.6.2.2.
6.0 TERMINATION LIABILITY
When required by Buyer, Seller shall submit a time-phased Termination
Liability Curve per Attachment "5" attached hereto and by this
reference incorporated herein.
Notwithstanding any other provisions of this Agreement, Buyer's
termination liability pursuant to Section 12.0 of the Agreement shall
not exceed the amount established by the Termination Liability Curve
for the date of termination, reduced by the amount of all payments
made by Buyer for delivered Products, tooling or other goods or
services furnished by the Seller pursuant to the Order or made by
Buyer in settlement of any other claim made by Seller or any other
party in connection with the performance of the Order.
At any point in time, whether or not Buyer requires Seller to submit a
Termination Liability Curve, Buyer's termination liability shall be
limited to the maximum value of scheduled production deliveries for
two (2) months.
-11-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
7.0 EXPENDITURE AUTHORIZATION
When requested by Buyer, Seller shall submit a Lot Release Schedule
Plan for approval. Seller's Lot Release Schedule Plan is included as
Attachment "6" hereto and is by this reference incorporated herein.
Buyer's written authorization must be obtained prior to release of any
lots. Expenditures incurred by Seller exceeding those authorized by
the Lot Release Schedule shall be at Seller's risk and expense.
8.0 PAYMENT
8.1 RECURRING COST/SPECIAL CHARGE ITEMS
Unless otherwise provided in the applicable order, payment shall be
made in accordance with Document D6-55772 "Pay From Receipt". Payment
terms shall be net thirty (30) days except as otherwise agreed to by
the parties. All payments are subject to adjustment for shortages,
credits and rejections. Seller shall submit itemized charges for
Products in accordance with Attachment 7 "PCOS Invoice Register"
monthly, or as otherwise required by Buyer.
8.2 NON-RECURRING COSTS
-12-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
Unless otherwise provided in the applicable Order, the total
non-recurring price shall be paid by Buyer within the term discount
period or thirty (30) calendar days (whichever is later) after
receipt of both acceptable Products by Buyer and receipt of an
acceptable invoice accompanied by a properly prepared Certified Tool
List as specified in the M31-24 Document, "Boeing Supplier Tooling
Manual." Invoices received with incorrect, improperly prepared or
incomplete certified tool lists will be returned for correction prior
to payment. Invoices shall be dated concurrent with, or subsequent
to, shipment of the Products.
9.0 PRODUCT ASSURANCE
9.1 GOVERNING DOCUMENT
Seller acknowledges that Buyer and the owner or operator of each
aircraft manufactured by Buyer incorporating the Products must be able
to rely on each Product performing as specified and that Seller will
provide the required support services. Accordingly, the provisions of
the Boeing Document M6-1124-3, Rev. A "Boeing Designed, Sub-
Contracted Products Manufacturers Warranty" are incorporated herein
and by this reference are made a part hereof.
10.0 COST AND FINANCIAL PERFORMANCE VISIBILITY
-13-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
Seller's Program Manager shall be responsible to provide all necessary
cost support data, source documents for direct and indirect costs, and
assistance at the Seller's facility for cost performance reviews
performed by Buyer pursuant to any order referencing these Special
Business Provisions. Seller shall be responsible to provide financial
data, on a quarterly basis, or as requested, to Buyer's Credit Office
for credit and financial condition reviews. Said data shall include
but not be limited to balance sheets, schedule of accounts payable and
receivable, major lines of credit, creditors, income statements
(profit and loss), cash flow statements, firm backlog, and headcounts.
Copies of such data are to be made available within 72 hours of any
written request by Buyer. This data is required in addition to the
cost data provided pursuant to Section 9.0 of the Agreement. All such
information so obtained shall be treated as confidential per Section
15.0 of the Agreement.
11.0 GRANT OF LICENSE
11.1 LICENSED PROPERTY
For this Section, "Licensed Property" shall be deemed to mean all
patents (including divisions, continuations or substitutions thereof),
designs, spec. processes, tool drawings, technical data and other
information used in the development or production of Products.
-14-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
11.2 CONSIDERATION
In consideration for Buyer's agreement to pay certain non-recurring
tooling, design, development and certification costs for the Products,
Seller hereby grants to Buyer a present, royalty-free, non-exclusive
license to use Licensed Property to make, have made, use and sell
Products. Buyer shall have the right to exercise said license at no
additional cost to Buyer: (a) upon termination of this order for any
reason; or (b) at any time after five years from the date of this
order.
11.3 TITLE TRANSFER
At any time following the exercise of the license granted herein,
Buyer shall have the right to require Seller at no additional cost to
Buyer to transfer to Buyer the title to and possession of all tooling,
fixtures, die and jigs used by Seller or Seller's subcontractors in
the development or production of Products.
12.0 SPARES AND SHORTFLOW PRODUCTION PRICING
Except as set forth in subsections 12.1 and 12.2 below, the price for
Spare(s) shall be the same as the production price for the Products as
listed on Attachment "1" in effect at the time the Spare(s) are
ordered. POA parts shall be priced so that the sum of the
-15-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
prices for all POA parts of an End Item Assembly equals the applicable
recurring portion of the price of the End Item Assembly.
12.1 AIRCRAFT ON GROUND (AOG)/CRITICAL SPARES, SHORT FLOW PRODUCTION
REQUIREMENTS LESS THAN 60% OF SELLER'S RE-ORDER LEAD TIME (ROLT)
The AOG is the highest priority category utilized by Buyer for
spare parts procurements. This classification will be assigned
part requirements for actual grounded aircraft. The Seller will
provide delivery commitments within one (1) hour after receipt of
the requirements. The Critical priority classification is
assigned spares requirements which are urgently needed by a
customer or Buyer although no actual AOG condition exists, an AOG
condition is imminent or a work stoppage may result from this
Critical condition. The Seller will provide delivery commitments
within one (1) working day after receipt of the requirements.
The Seller is required to support AOG/Critical Spares on a
twenty-four (24) hour day basis, seven (7) day week and with
maximum use of overtime. Premium transportation is authorized.
The price for Aircraft On Ground (AOG)/Critical Spares and short
flow production requirements as defined herein
-16-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
shall be the price for such Products listed on Attachment "1" in
effect when such Spares are ordered multiplied by a factor of
1.07.
12.2 EXPEDITE SPARE (CLASS 1) AND SHORT FLOW PRODUCTION REQUIREMENTS LESS
THAN 100% BUT GREATER THAN OR EQUAL TO 60% OF SELLER'S RE-ORDER LEAD
TIME (ROLT)
The Expedite Spare classification is used to identify spares
requirements that require delivery in less than Seller's normal re-
order lead time (ROLT). Manufacturing efforts will be based on a two
(2) shift day basis, six (6) day week. The price for Expedite Spares
and short flow production requirement, as defined herein, shall be the
price for such Products listed on Attachment "1" in effect when such
Spares are ordered multiplied by a factor of 1.05. Expedite action
will be taken only if necessary to meet Buyer's required date.
12.3 SPECIAL HANDLING
The price for all effort associated with the production handling and
delivery of Spare(s) is deemed to be included in the price for such
Spare(s). When Buyer directs delivery of Spare Parts to an F.O.B.
point other than Seller's plant, however, Buyer shall reimburse Seller
for shipping charges, including insurance, paid by Seller from the
plant to the designated F.O.B. point. Such charges shall be shown
separately on all invoices.
-17-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
13.0 BUYER FURNISHED MATERIAL
It is the responsibility of the Seller to provide notice to the Buyer
of required on-dock dates for all material to ensure production
continuity. Seller's notice shall provide Buyer with sufficient time
to allow Buyer to competitively bid the material if so desired.
Material furnished to Supplier shall be administered per the Bonded
Stores Agreement between the parties. Updates on the status of all
Buyer furnished material shall be submitted monthly by the Seller to
Buyer.
Seller shall perform a 100% visual inspection on all material not
having "Key Characteristics" identified on the applicable engineering
drawing. In addition, Seller shall perform a 100% inspection of "Key
Characteristics", where applicable, on all Buyer furnished material.
Said inspection shall be accomplished within Thirty (30) days of
receipt of the material. Upon completion of the appropriate
inspection, Seller shall either (a) submit to Buyer, via an Advance
Rejection tag, all non-conforming material for Buyer disposition or
(b) stamp and date and maintain in bonded store all conforming
material.
14.0 FOREIGN PROCUREMENT REPORT
-18-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
Identification of contracts and dollars contracted with the subject
companies and or countries shall be documented on the Foreign
Procurement Report. The Foreign Procurement Report to Buyer required
by Section 35.0, "Foreign Procurement offset," of the Agreement is to
be provided on the Foreign Procurement Report form, Attachment "3"
hereto. Such document is by this reference made a part hereof. The
semi-annual reporting periods shall be January 1 to June 30 and July 1
to December 31. The reports shall be submitted on the 1st of August
and the 1st of February respectively.
15.0 ADMINISTRATIVE AGREEMENT
The Administrative Agreement states certain obligations of the parties
relating to the administration of the Agreement, these Special
Business Provisions and each order, and such agreement is incorporated
herein by this reference.
16.0 OPTION
Seller irrevocably grants to Buyer the option to purchase an
additional seventeen (17) months worth of Products beginning in August
1995 through 1996 on the terms and conditions set forth in the
Agreement and these Special Business Provisions at the prices set
forth below on Attachment 1, increased by the equitable adjustments to
the prices of
-19-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
such Products, if any, for which the Seller has qualified pursuant to
Sections 5.2 and 5.3 of these Special Business Provisions prior to the
date of Buyer's exercise of the option.
16.1 EXERCISE OF OPTION
Buyer may exercise the option contained herein by giving written
notice to Seller at any time prior to the delivery to Buyer of the
last shipset of the initial order quantity of Products provided
however, that said option must be exercised in sufficient time to
permit production continuity. Seller agrees to provide Buyer with at
least sixty (60) days written notice of the date when in Seller's
opinion the option must be exercised in order to assure such
production continuity. Buyer may extend the option exercise date by
purchasing long lead materials, or authorizing Seller to purchase such
materials on terms acceptable to Boeing, if such purchase would have
the effect of extending the date for assuring production continuity.
Buyer reserves the right to (a) refuse the option and commence new
negotiations with Seller for follow-on Products; or (b) purchase
follow-on Products from third parties. The purchase of any Products
from third parties shall not be deemed to abrogate any of Seller's
obligations to Buyer pursuant to the Agreement.
17.0 ASSIGNMENT/INTEGRATION
-20-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
Notwithstanding the provisions of Article 24.0 "Assignment" of the
Agreement, Buyer and Seller agree that Buyer may, at its discretion,
transfer its obligation to issue Order(s) to a "Third Party" for
hardware pursuant to the applicable terms and conditions as set forth
in the agreement and Special Business Provisions for the hardware at
the prices set forth therein. Buyer reserves the right to rescind its
transfer at anytime it deems necessary.
Buyer's transfer of purchasing obligation of hardware to Seller shall
be limited to:
a. Scheduling of Hardware;
b. Issuance of order(s) for Hardware;
c. Receival and Inspection of Hardware;
d. Acceptance or Rejection of Hardware; and,
e. Payment for accepted Hardware.
Buyer shall retain all other rights and obligations as set forth in
the applicable terms and conditions. In addition, Buyer shall be
responsible for coordinating and mediating with and between the Seller
and the Third Party on all matters relevant to the purchase of
-21-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
Buyer's requirements of the Products and Hardware including disputes
which may arise between the Seller and Third Party.
EXECUTED in duplicate as of the date and year first set forth above by the duly
authorized representatives of the parties.
THE BOEING COMPANY CASHMERE MANUFACTURING
By and Through its Division COMPANY
Boeing Commercial Airplane Group
Name: /s/ Nancy V. Rosser Name: /s/ John Eder
--------------------- ---------------------
Title: Buyer Title: General Manager
Date: 8/15/94 Date: 8/15/94
-22-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
ATTACHMENT "1" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
WORK STATEMENT AND PRICING
The price for Products to be delivered on or before July 31, 1995, except as
otherwise noted below, shall be as follows:
KIT NUMBER SC65C35000-102
CONFIDENTIAL TREATMENT REQUESTED
-23-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
ATTACHMENT "2" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
PLANNING SCHEDULE
The following Airplane model and rate are forecasted for the years 1994-1995.
MONTHLY RATE
CONFIDENTIAL TREATMENT REQUESTED
-24-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
ATTACHMENT "3" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
FOREIGN PROCUREMENT REPORT FORM
(Seller to Submit)
(Reference Section 14.0)
-25-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
ATTACHMENT "4" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
RATES AND FACTORS
The following Rates and Factors, which are reflective of the proposed values
identified in Attachment "1" of this document, shall contribute to the
determination of equitable pricing for engineering changes, derivative aircraft,
and option or follow-on pricing.
Direct Labor Rate $ *
Manufacturing Burden % *
G&A (Gen. Admin. Expense) % *
Profit % *
*CONFIDENTIAL TREATMENT REQUESTED
-26-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
ATTACHMENT "5" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
TERMINATION LIABILITY CURVE
(Seller to Submit)
(Reference Section 6.0)
In the event of termination or cancellation pursuant to Article 12.0 of the
Agreement, Buyer shall not be obligated to pay Seller more than the Cumulative
total amounts set forth below less payments previously made, for the
month/quarter in which the termination notice is issued, as the amounts shall be
amended from time to time.
($000 Omitted)
Nonrecurring Recurring
Year/Quarter Cost Cost Total
- - ------------ ---- ---- -----
___ First $ $
___ Second
___ Third
___ Fourth
___ First $ $
___ Second
___ Third
___ Fourth
___ First $ $
___ Second
___ Third
___ Fourth
TOTAL $_______ $_______
-27-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
ATTACHMENT "6" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
INCREMENTAL LOT RELEASE SCHEDULE PLAN
(Seller to Submit)
(Reference Section 7.0)
A. AUTHORIZATION SUMMARY Non-recurring releases authorized in conjunction with
the execution of the Agreement are as summarized below. The nonrecurring
Price represents the baseline value to be used to determine change pricing
adjustment per Section 5.2 "Changes Subject to an Equitable Adjustment."
To Support
Production Authorization Dollar
Item Rate Of Date Amount
- - ---- ------- ---- ------
Contractor Use ___S/S per Execution of _____
Tooling Month Agreement
Common Use Tools _____
Forging Dies _____
Other Non-Recurring
Work _____
Total Non-Recurring
Baseline Value _____
-28-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
ATTACHMENT "6" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
Recurring releases authorized in conjunction with execution of this Agreement
are herein summarized in shipset quantities.
Material Quantity S/S
- - -------- ------------
Metallic Raw Material
Non-Metallic Raw Material
Purchased Parts
Extrusions
Fabrication
- - -----------
Detail Parts
Assembly
- - --------
B. LEAD TIMES
Lead times for material, fabrication and assembly authorizations are as
tabulated below in months prior to delivery of the first Shipset affected.
Material Months
- - -------- ------
Metallic Raw Material TBD
Non-Metallic Raw Material TBD
Castings/Forgings TBD
Purchased Parts TBD
Extrusions TBD
Fabrication
- - -----------
Detail Parts TBD
Assembly TBD
- - --------
Rate Tooling
- - ------------
(Greater than the Baseline Shipsets per Month) TBD
-29-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
ATTACHMENT "7" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
PCOS INVOICE REGISTER
(See Section 8.1)
-30-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
EXHIBIT 10.48
MATERIAL OMITTED PURSUANT TO
APPLICATION FOR CONFIDENTIAL TREATEMENT
SPECIAL BUSINESS PROVISIONS
between
THE BOEING COMPANY
and
CASHMERE MANUFACTURING COMPANY
Number PLR-950A
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
SPECIAL BUSINESS PROVISIONS
TABLE OF CONTENTS
SECTION ITEM PAGE
- - ------- ---- ----
1.0 DEFINITIONS..............................................................1
2.0 PURCHASE ORDER NOTE......................................................1
3.0 PRICES...................................................................2
3.1 Firm Fixed Prices........................................................2
3.2 Manufacturing Configuration Baseline.....................................2
3.3 Packaging................................................................2
4.0 PURCHASE ORDER ISSUANCE..................................................2
5.0 CHANGES..................................................................3
5.1 Changes At No Cost.......................................................3
5.2 Changes Subject to An Equitable Adjustment...............................3
5.3 Changes to the Statement of Work.........................................4
5.4 Computation of Equitable Adjustment......................................4
5.5 Planning Schedule........................................................5
6.0 TERMINATION LIABILITY....................................................5
7.0 EXPENDITURE AUTHORIZATION................................................5
8.0 PAYMENT..................................................................6
8.1 Recurring Costs..........................................................6
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
8.2 Non-Recurring Costs......................................................6
9.0 PRODUCT ASSURANCE........................................................6
9.1 Governing Document.......................................................6
10.0 COST PERFORMANCE VISIBILITY..............................................6
11.0 GRANT OF LICENSE.........................................................7
11.1 Licensed Property........................................................7
11.2 Consideration............................................................7
11.3 Title Transfer...........................................................7
12.0 SPARES PRICING...........................................................7
12.1 Aircraft On Ground (AOG) Spares..........................................7
12.2 Critical Spares..........................................................8
12.3 Special Handling.........................................................8
13.0 BUYER FURNISHED MATERIAL (WHERE APPLICABLE)..............................8
14.0 FOREIGN PROCUREMENT REPORT...............................................9
15.0 STATUS REPORTS...........................................................9
Attachment 1 Work Statement and Pricing..............................
Attachment 2 Planning Schedule.......................................
Attachment 3 Foreign Procurement Report..............................
Attachment 4 Rates and Factors.......................................
Attachment 5 Termination Liability Curve.............................
Attachment 6 Incremental Lot Release Schedule Plan...................
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
REVISIONS
REV.
SYM DESCRIPTION DATE APPROVAL
---- ----------- ---- --------
1 INCORPORATE NEW CONTRACT 08-22-91
LANGUAGE L-71 (03-13-91) TO SHEET
METAL OFFLOAD CONTRACTS
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
SPECIAL BUSINESS PROVISIONS
THESE SPECIAL BUSINESS PROVISIONS ("SBP") are entered into as of February 5,
1990 by Cashmere Manufacturing Company, a Washington corporation with its
principal office in Cashmere, Washington ("Seller"), and Boeing Commercial
Airplane Group, a division of The Boeing Company, a Delaware corporation with
its principal office in Seattle, Washington ("Buyer").
RECITALS
A. Buyer and Seller entered into a General Terms Agreement (the "Agreement")
dated February 5, 1990 for the sale by Seller and purchase by Buyer of
Products.
B. Buyer and Seller desire to enter into another agreement to include these
Special Business Provisions relating to the sale by Seller and purchase by
Buyer of the Products. Now, therefore, in consideration of the mutual
covenants set forth herein, the parties agree as follows:
1.0 DEFINITIONS
The definitions used herein shall be the same as used in the Agreement.
In addition, the term "Rate Tool Capacity" shall mean the quantity of
tooling required to support a production rate not to exceed 21 shipsets
per month on the 737, 10 shipsets per month on the 747, 14 shipsets per
month on the 757, 10 shipsets per month on the 767, 7 shipsets per month
on the 777, and the term "Initial Order" shall mean the order as it first
exists, prior to Amendment or Change.
2.0 PURCHASE ORDER NOTE
The following note shall be contained in any order to which these Special
Business Provisions are applicable:
This order is subject to and incorporates by this reference the
Special Business Provisions PLR-950A between The Boeing Company and
Cashmere Manufacturing Company dated February 5, 1990.
Each order bearing such note shall be governed by and be deemed to include
the provisions of these Special Business Provisions.
-1-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
3.0 PRICES
3.1 FIRM FIXED PRICES
The prices and period of performance of Products to be delivered under
this contract are listed in Attachment "1" which by this reference are
incorporated herein and are firm fixed prices in United States dollars,
F.O.B. Cashmere, Washington.
3.2 MANUFACTURING CONFIGURATION BASELINE
Unit pricing for each part number shown in Attachment "1"reflects the
latest revisions of the Engineering Drawings and Outside Production
specification Plans (OPSP's) at the time of the signing of these Special
Business Provisions.
3.3 PACKAGING
The prices shown in Attachment "1" do include packaging costs. Packaging
shall be furnished by the Seller. If necessary, Seller may repair or
furnish additional packaging upon approval by Buyer of Seller's price
proposal for such repair or additional packaging. Separate purchase
orders shall be released by Buyer to cover such expense (if applicable).
4.0 PURCHASE ORDER ISSUANCE
Buyer and Seller agree that, in addition to other provisions of the Order
and in consideration of the prices set forth under Section 3.1, "Firm
Fixed Prices," Buyer shall issue purchase orders for the Products listed
in Attachment "1" from time to time to Seller for Buyer's requirements, to
be shipped at any scheduled rate of delivery, as determined by Buyer, but
not to exceed the Rate Tool Capacity, and Seller shall sell to Buyer
Buyer's requirements of such products, provided that, without limitation
on Buyer's right to determine its requirements, Buyer shall not be
obligated to issue any purchase orders for any given Product if:
A. Any of Buyer's customers specify an alternate product;
B. Such Product is, in Buyer's reasonable judgment, not technologically
competitive at any time. "Technologically competitive" shall be
defined as significant changes to Product design, including
materials, specifications or manufacturing processes which result in
a reduced price or weight.
-2-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
C. Buyer gives reasonable notice to Seller of a change in any of
Buyer's aircraft which will result in Buyer's no longer requiring
such Product for such aircraft;
D. Seller has materially defaulted in any of its obligations under any
Order, whether or not Buyer has issued a notice of default to Seller
pursuant to Section 12.2, "Cancellation - Default," of the
Agreement; or
E. Buyer reasonably determines that Seller cannot support Buyer's
requirements for Products in the amounts and within the delivery
schedules Buyer requires.
5.0 CHANGES
5.1 CHANGES AT NO COST
Not withstanding the provision for an equitable adjustment in Section
10.0, "Changes," of the Agreement, Buyer may make the changes set forth in
subsections 5.1.1, 5.1.2, and 5.1.3 without cost or change in the unit
price stated in the applicable order.
5.1.1 Changes in the delivery schedule, including firing order and rate
changes, if (a) the delivery date of the Product under such order is
on or bef ore the last date of the applicable period of performance
as identified in Attachment "1" and (b) Buyer provides Seller with
written notice of the changes.
A. At least four (4) months prior to the first day of the month
in which any acceleration in the delivery schedule is to take
effect; and/or
B. At least four (4) months prior to the first day of the month
in which any deceleration in the delivery schedule is to take
effect.
5.1.2 Changes in the Tooling required to support delivery schedule
adjustments, including but not limited to production rate changes,
that are in accordance with the Rate Tool Capacity.
5.1.3 Engineering change to incorporate Seller initiated production
facility requirements to facilitate or improve Seller's
manufacturing processes.
5.2 CHANGES SUBJECT TO AN EQUITABLE ADJUSTMENT
-3-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
An equitable adjustment in the price of any Product shall be made in
accordance with Section 10.0, "Changes," of the Agreement if Buyer makes a
change in the delivery schedule of such product under an order and:
A. Such Product, although originally scheduled for delivery during the
period of performance for the applicable package under such Order as
identified in Attachment "1", is delivered after the period of
performance in accordance with such order as changed; or
B. Such products monthly rate exceeds the Rate Tool Capacity as stated
in Section 1.0; or
C. Such change does not meet the notice requirements of Section 5.1.1
above; and, Seller submits to Buyer a written request for an
equitable adjustment within 180 days of receipt of the written
change notice.
The amount of the price adjustment for each product shall be determined by
multiplying the original unit price plus any negotiated changes which are
incorporated into the individual product price, excluding items such as
amortization of tooling, amortization of schedule slides, amortization of
set-up charges, etc., by three tenths of one percent (.3 of 1%) then
multiplying that factor by the cumulative balance of the number of
products previously scheduled in each successive month that falls outside
the changes at no cost periods set forth in Section 5.1.1 above. No price
adjustment shall be made for that portion of any delivery schedule change
which falls inside the changes at no cost periods set for in Section
5.1.1.
5.3 CHANGES TO THE STATEMENT OF WORK
Buyer may direct Seller within the scope of the applicable Order and in
accordance with the provisions of Section 10.0, "Changes," of the
Agreement to increase or decrease the work to be performed by the Seller
in the manufacture of any Product. The equitable adjustment, if any, to
be paid by Buyer to Seller for such change shall be computed in accordance
with the provisions of Section 5.4.
5.4 COMPUTATION OF EQUITABLE ADJUSTMENT
The Rates and Factors set forth in Attachment "4", which by this reference
is incorporated herein, shall be used to determine the equitable
adjustment, if any, (including equitable adjustments, if any, in the
prices of Products to be incorporated in
-4-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
Derivative Aircraft), to be paid by Buyer pursuant to Section 10.0,
"Changes," of the Agreement.
5.5 PLANNING SCHEDULE
The planning schedule, attached hereto as Attachment "2" and by this
reference incorporated herein, is a schedule to be used for planning
production following the initial purchase order release. Such planning
schedule shall not constitute a limitation on Buyers right to issue
purchase orders to Seller for greater or lesser quantities or to specify
different delivery dates as necessary to meet Buyers requirements for the
products listed on Attachment "1". Such planning schedule shall be
subject to adjustment from time to time. Any such adjustment shall not be
deemed to be a change under Section 10.0, "Changes," of the Agreement.
6.0 TERMINATION LIABILITY
When required by Buyer, Seller shall submit a time-phased Termination
Liability Curve per Attachment "5" attached hereto and by this reference
incorporated herein.
Notwithstanding any other provisions of this Agreement, Buyer's
termination liability pursuant to Section 12 of the Agreement shall not
exceed the amount established by the Termination Liability Curve for the
date of termination, reduced by the amount of all payments made by Buyer
for delivered Products, tooling or other goods or services furnished by
the Seller pursuant to the order or made by Buyer in settlement of any
other claim made by Seller or any other party in connection with the
performance of the Order.
At any point in time, whether or not Buyer requires Seller to submit a
Termination Liability Curve, Buyer's termination liability shall be
limited to the maximum value of scheduled production deliveries for twelve
(12) months.
7.0 EXPENDITURE AUTHORIZATION
When requested by Buyer, Seller shall submit a Lot Release Schedule Plan
for approval. Seller's Lot Release Schedule Plan is included as
Attachment "6" hereto and is by this reference incorporated herein.
Buyer's written authorization must be obtained prior to release of any
lots. Expenditures incurred by Seller exceeding those authorized by the
Lot Release Schedule shall be at Seller's risk and expense.
-5-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
8.0 PAYMENT
8.1 RECURRING COSTS
Payment shall be net thirty (30) days. Unless otherwise provided under
the applicable Order, payment due dates, including discount periods, shall
be computed from (a) the date of receipt of the Product, (b) the date of
receipt of a correct invoice or (c) the scheduled delivery date of such
Product, whichever is last, up to and including the date Buyer's check is
mailed. Unless freight and other charges are itemized, any discount shall
be taken on the full amount of the invoice. All payments are subject to
adjustment for shortages, credits and rejections.
8.2 NON-RECURRING COSTS
Unless otherwise provided in the applicable Order, the total non-recurring
price shall be paid by Buyer within the term discount period or thirty
(30) calendar days (whichever is later) after receipt of both acceptable
Products by Buyer and receipt of an acceptable invoice accompanied by a
properly prepared Certified Tool List as specified in the M31-24 Document,
"Boeing Supplier Tooling Manual." Invoices received with incorrect,
improperly prepared or incomplete certified tool lists will be returned
for correction prior to payment. Invoices shall be dated concurrent with,
or subsequent to, shipment of the Products.
9.0 PRODUCT ASSURANCE
9.1 GOVERNING DOCUMENT
Seller acknowledges that Buyer and the owner or operator of each aircraft
manufactured by Buyer incorporating the Products must be able to rely on
each Product performing as specified and that Seller will provide the
required support services. Accordingly, the provisions of the Boeing
Document M6-1124-3, "Boeing Designed, Sub-Contracted Products
Manufacturers Warranty" are incorporated herein and by this reference are
made a part hereof.
10.0 COST PERFORMANCE VISIBILITY
Seller's Program Manager shall be responsible to provide all necessary
cost support data, source documents for direct and indirect costs, and
assistance at the Seller's facility for cost performance reviews performed
by Buyers pursuant to any order
-6-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
referencing these Special Business Provisions. Copies of such data are to
be made available within 72 hours of any request by Buyer. This data is
required in addition to the cost data provided pursuant to Section 9.0 of
the Agreement. All such information so obtained shall be treated as
confidential in accordance with Section 15.0 of the Agreement.
11.0 GRANT OF LICENSE
11.1 LICENSED PROPERTY
For purposes of this Section, "Licensed Property" shall be deemed to mean
all patents (including divisions, continuations or substitutions thereof),
designs, specifications processes, tooling drawings, technical data and
other information used in the development or production of Products.
11.2 CONSIDERATION
In consideration for Buyer's agreement to pay certain nonrecurring
tooling, design, development and certification costs for the Products,
Seller hereby grants to Buyer a present, royalty-free, non-exclusive
license to use Licensed Property to make, have made, use and sell
Products. Buyer shall have the right to exercise said license at no
additional cost to Buyer: (a) upon termination of this Order for any
reason; or (b) at any time after five years from the date of this Order.
11.3 TITLE TRANSFER
At any time following the exercise of the license granted herein, Buyer
shall have the right to require Seller at no additional cost to Buyer to
transfer to Buyer the title to and possession of all tooling, fixtures,
die and jigs used by Seller or Seller's subcontractors in the development
or production of Products.
12.0 SPARES PRICING
Except as set forth in subsections 12.1 and 12.2 below, the price for
Spare(s) shall be the same as the production price for the Products as
listed on Attachment "1" in effect at the time the Spare(s) are ordered.
POA parts shall be priced so that the sum of the prices for all POA parts
of an End Item Assembly equals the applicable recurring portion of the
price of the End Item Assembly.
-7-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
12.1 AIRCRAFT ON GROUND (AOG) SPARES
The AOG is the highest priority category utilized by Buyer for spare parts
procurements. This classification will be assigned part requirements for
actual grounded aircraft. The Seller is required to support this effort
on a twenty-four (24) hour day basis, seven (7) day week and with maximum
use of overtime. Premium transportation is authorized. Seller will
provide delivery commitments within one (1) hour after receipt of
requirement. The price for Aircraft On Ground (AOG) spares shall be the
price for such Products listed on Attachment "1" in effect when such
Spares are ordered multiplied by a factor of 1.07.
12.2 CRITICAL SPARES
The Critical priority classification is assigned spares requirements which
are urgently needed by a customer or Buyer although no actual AOG
condition exists, an AOG condition is imminent or a work stoppage may
result from this Critical condition.
All Critical priority spare parts requirements will have an expedited
demand date. Every effort shall be made by the Seller to support this
date, including parts manufactured based on a twenty-four (24) hour day,
seven (7) day week, maximum use of overtime and premium transportation.
Seller will provide delivery commitments within one (1) working day after
receipt of requirement. The price for Critical Spares shall be the price
for such Products listed on Attachment "1" in effect when such Spares are
ordered multiplied by a factor of 1.05.
12.3 SPECIAL HANDLING
The price for all effort associated with the production handling and
delivery of Spare(s) is deemed to be included in the price for such
Spare(s). When Buyer directs delivery of Spare Parts to an F.O.B. point
other than Seller's plant, however, Buyer shall reimburse Seller for
shipping charges, including insurance, paid by Seller from the plant to
the designated F.O.B. point. Such charges shall be shown separately on
all invoices.
13.0 BUYER FURNISHED MATERIAL (WHERE APPLICABLE)
It is the responsibility of the Seller to provide notice to the Buyer of
required on-dock dates for all raw material to ensure production
continuity. Seller's notice shall provide
-8-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
Buyer with sufficient time to allow Buyer to competitively bid the raw
material if so desired.
Material furnished to Supplier shall be administered per the Bonded Stores
Agreement between the parties. Updates on the status of all Buyer
furnished raw material shall be submitted quarterly by the Seller to Buyer
14.0 FOREIGN PROCUREMENT REPORT
The Foreign Procurement Report to Buyer required by Section 35.0, "Foreign
Procurement Offset," of the Agreement is to be provided on the Foreign
Procurement Report form, Attachment "3" hereto, in accordance with
instructions provided therein. Such document is by this reference made a
part hereof. The semi-annual reporting periods shall be January 1 to
June 30 and July 1 to December 31. The reports shall be submitted on the
lst of August and the 1st of February respectively.
15.0 STATUS REPORTS
Seller shall update and submit, as a minimum, monthly status reports using
a method mutually agreed upon by the Buyer and Seller. Seller shall also
submit monthly status reports using Boeing's Vendor Follow-Up Report.
For all first run programs, Seller shall provide to Buyer a milestone
chart identifying the following:
(a) Raw material schedule, including;
(i) purchase order number and date,
(ii) order quantity and delivery schedule
(b) Planning and Programming start and completion;
(c) Tooling manufacture start and completion;
(d) Machining start and completion by operation;
(e) Outside processing by operation and subcontractor;
-9-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
(f) First article completion date; and,
(g) Production lot release plan.
-10-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
EXECUTED in duplicate as of the date and year first set forth above by the duly
authorized representatives of the parties.
THE BOEING COMPANY CASHMERE MANUFACTURING
By and Through its Division COMPANY
Boeing Commercial Airplane Group
Name: /s/ Name: /s/ John Eder
---------------------------- ----------------------------
Title: Buyer Title: Vice President, Manufacturing
-11-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
ATTACHMENT "1" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
WORK STATEMENT AND PRICING
The price and period of performance for Products to be delivered under this
contract shall be as follows:
NOTE: ALL PRODUCTS, CORRESPONDING PRICING AND THE APPLICABLE PERIOD OF
PERFORMANCE FOR SAID PRODUCTS, TO BE PURCHASED BY THE SHEET METAL/OFF-LOAD GROUP
ARE IDENTIFIED AND MAINTAINED IN A SHEET METAL PRICING CATALOG IDENTIFIED AS
CASHMERE MANUFACTURING COMPANY ATTACHMENT "1" TO SBP PLR-950A WHICH IS HEREBY
INCORPORATED AND MADE A PART HEREOF BY THIS REFERENCE. SAID CATALOG SHALL BE
AMENDED AS DEEMED NECESSARY BY THE PARTIES BUT NO LESS THAN SEMI-ANNUALLY. ALL
PRICING IN THE AFOREMENTIONED CATALOG IS FIRM FIXED PRICE FOR DELIVERIES THROUGH
THE APPLICABLE TIME FRAME, EXCEPT AS NOTED HEREIN IN SECTION 3.0 "PRICES".
*** CONFIDENTIAL TREATMENT REQUESTED ***
PLEASE NOTE: THE EXTENDED AMOUNTS SHOWN IN THIS ATTACHMENT ARE BASED UPON
ESTIMATED USAGE RATES AND ARE USED AS A GUIDE ONLY. ANY ESTIMATE OF PRESENT OR
FUTURE REQUIREMENTS PROVIDED TO SELLER BY BUYER IS NOT TO BE CONSIDERED AS A
COMMITMENT OF BUYER IS ACTUAL PURCHASE REQUIREMENTS. EXTENDED AMOUNTS ARE NOT
GUARANTEED TO BE ACTUALLY AWARDED, IN WHOLE OR IN PART, BY BUYER TO SELLER.
-12-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
ATTACHMENT "2" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
PLANNING SCHEDULE
The following Airplane model mix and rate are forecasted for the year 1992-1996.
Model Mix 1992 1993 1994 1995 1996
737
747
757
767 *** CONFIDENTIAL TREATMENT REQUESTED ***
777
TOTAL
-13-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
ATTACHMENT "3" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
FOREIGN PROCUREMENT REPORT FORM
(Seller to Submit)
(Reference Section 14.0)
-14-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
ATTACHMENT "4" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
RATES AND FACTORS
The following Rates and Factors, which are reflective of the proposed values
identified in Attachment "1" of this document, shall contribute to the
determination of equitable pricing for engineering changes, derivative aircraft,
and option or follow-on pricing.
TOOL FAB
PRODUCTION & REWORK EXPEDITE
Direct Labor Rate
Manufacturing Burden
G&A (Gen. Admin. Exp.)
Profit
*** CONFIDENTIAL TREATMENT REQUESTED ***
-15-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
ATTACHMENT "5" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
TERMINATION LIABILITY CURVE
(Seller to Submit)
(Reference Section 6.0)
In the event of termination or cancellation pursuant to Article 12.0 of the
Agreement, Buyer shall not be obligated to pay Seller more than the Cumulative
total amounts set forth below less payments previously made, for the
month/quarter in which the termination notice is issued, as the amounts shall be
amended from time to time.
($000 Omitted)
Nonrecurring
Cost Recurring
Year/Quarter Total Cost
- - ------------ ------------ ---------
____ First $ $
____ Second
____ Third
____ Fourth
____ First $ $
____ Second
____ Third
____ Fourth
____ First $ $
____ Second
____ Third
____ Fourth
-16-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
TOTAL $__________ $__________
-17-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
ATTACHMENT "5" TO
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
INCREMENTAL LOT RELEASE SCHEDULE PLAN
(Seller to Submit)
(Reference Section 9.0)
A. AUTHORIZATION SUMMARY Non-recurring releases authorized in conjunction
with the execution of the Contract are as summarized below. The non-
recurring Price represents the baseline value to be used to determine change
pricing adjustment per Section 5.2 "Changes Subject to an Equitable Adjustment."
To Support
Production Authorization Dollar
Item Rate of Date Amount
- - ---- ---------- ------------- ------
Contractor Use Tooling ___S/S per Execution of ______
Month Contract
Common Use Tools ______
Forging Dies ______
Other Non-Recurring Work ______
Total Non-Recurring Baseline Value ______
Recurring releases authorized in conjunction with execution of this Contract are
herein summarized in shipset quantities.
Material Quantity SIS
- - -------- ------------
Metallic Raw Material
Non-Metallic Raw Material
Purchased Parts
Extrusions
-18-
<PAGE>
SPECIAL BUSINESS PROVISIONS
(REQUIREMENTS)
FABRICATION
Detail Parts
ASSEMBLY
B. LEAD TIMES
Lead times for material, fabrication and assembly authorizations are as
tabulated below in months prior to delivery of the first Shipset affected.
Material Months
-------- ------
Metallic Raw Material TBD
Non-Metallic Raw Material TBD
Castings/Forgings TBD
Purchased Parts TBD
Extrusions TBD
Fabrication
-----------
Detail Parts TBD
Assembly TBD
--------
Rate Tooling
------------
(Greater than the Baseline Shipsets per Month) TBD
-19-
<PAGE>
Exhibit 10.49
ADMINISTRATIVE AGREEMENT
between
THE BOEING COMPANY
and
CASHMERE MANUFACTURING COMPANY
NUMBER L-435579-818ON
-i-
<PAGE>
ADMINISTRATIVE AGREEMENT
TABLE OF CONTENTS
Section Title Page
------- ----- ----
1.0 INTRODUCTION 1
2.0 CONTRACTUAL COMMITMENT AUTHORIZATION 2
2.1 Buyer Designees 2
2.2 Seller Designees 3
3.0 COMMUNICATION AND CORRESPONDENCE 3
3.1 Seller to Buyer 3
3.2 Buyer to Seller 4
4.0 RESIDENT TEAM ADMINISTRATION 5
5.0 PROGRAM REQUIREMENTS 5
5.1 Fabrication/Purchase of Details 6
5.2 Delivery Requirements 6
5.3 On-site Support 7
6.0 ADMINISTRATIVE RESPONSIBILITIES 7
6.1 Program Management Documentation 7
6.2 Facilities 8
7.0 PROGRAM MANAGEMENT 8
7.1 Program Manager 8
7.2 Status Reports 8
7.3 Quarterly Reviews 10
8.0 CHANGE NOTIFICATION 10
9.0 NEGOTIATION DOCUMENTATION 11
10.0 DISPUTE RESOLUTION 12
-ii-
<PAGE>
REVISIONS
Rev
Sym Description Date
- - --- ----------- ----
-iii-
<PAGE>
ADMINISTRATIVE AGREEMENT
THIS ADMINISTRATIVE AGREEMENT is entered into as of August 11, 1994 by Cashmere
Manufacturing Company, a Washington corporation with its principle office in
Cashmere, Washington ("Seller"), and Boeing Commercial Airplane Group, a
division of The Boeing Company, a Delaware corporation with its principal office
in Seattle, Washington ("Buyer").
RECITALS
A. Buyer and Seller entered into a General Terms Agreement (the "Agreement")
dated February 5, 1990 and Special Business Provisions dated August 11,
1994 for the sale by Seller and purchase by Buyer of Products.
B. Buyer and Seller desire to enter into another agreement to include this
Administrative Agreement relating to the sale by Seller and purchase by
Buyer of the Products.
Now, therefore, in consideration of the mutual covenants set forth herein, the
parties agree as follows:
1.0 INTRODUCTION
1.1 This Administrative Agreement sets forth additional requirements of
Seller in support of Buyer and Buyer's requirements other than those
identified in General Terms Agreement
-1-
<PAGE>
PLR-950 and Special Business Provisions L-435579-8180N. The objective
of this Administrative Agreement is to establish the work and
coordination required of Seller during the performance of this
contract.
1.2 Paragraphs 2.1.1, 2.1.2, 3.1.1, 3.1.2 and 3.1.3 may be revised
unilaterally by Buyer, at any time, by written notification to Seller.
Paragraphs 2.2.1 and 3.2.1 may be revised unilaterally by Seller, at
any time, by written notification to Buyer.
The remaining paragraphs included in this document may be revised only
by bilateral agreement executed by both parties.
1.3 In the event of any conflict between the requirements stated herein
and the language in the General Terms Agreement (GTA) and Special
Business Provisions (SBP), the requirements of the GTA and SBP shall
prevail.
2.0 CONTRACTUAL COMMITMENT AUTHORIZATION
2.1 BUYER DESIGNEES
2.1.1 Only the following individuals are authorized to make contractual
commitments, provide contractual direction and to coordinate
operational matters with Seller on behalf of Buyer
-2-
<PAGE>
with regard to the General Terms Agreement, Special Business
Provisions and this Administrative Agreement:
Name Title Limits
---- ----- -------
R. L. Ecker Director POP None
G. M. Meredith Senior Manager POP None
R. C. Sellers Procurement Manager None
N. Rosser Contracts Administrator None
2.1.2 The following individuals are authorized to communicate directly with
Seller concerning engineering, quality control, production, schedule
and delivery status and cost performance problems on behalf of Buyer:
Name Title Responsibility
---- ----- ---------------
Quality Rep.
M. Marsh Technical Support
M. Lea Technical Support
2.2 SELLER DESIGNEES
2.2.1 Only the following individuals are authorized to make contractual
commitments on behalf of the Seller with regard to the General Terms
Agreement, Special Business Provisions and this Administrative
Agreement:
Name Title Responsibility
---- ----- ---------------
-3-
<PAGE>
3.0 COMMUNICATION AND CORRESPONDENCE
3.1 SELLER TO BUYER
3.1.1 All correspondence to Buyer concerning the General Terms Agreement,
Special Business Provisions or this Administrative Agreement is to be
addressed as follows:
MAIL THE BOEING COMPANY
Boeing Commercial Airplane Group
Post Office Box 3707
Seattle, WA 98124-2207
Attention: N. Rosser
Organization: 6-5380
Mail Stop: 39-CJ
FACSIMILES Fax Number (206) 266-2221
Attention N. Rosser
Organization 6-5380
Mail Stop 39-CJ
Telephone (206) 266-1038
3.1.2 Contractual correspondence shall be marked for the attention of the
person designated in paragraph 3.1 above.
3.1.3 Correspondence pertaining to other than contractual matters or falling
within the purview of an individual other than the designated Contract
Administrator, shall be marked for the attention of the individual
concerned with an information copy routed to the person identified in
paragraph 3.1.
3.2 BUYER TO SELLER
-4-
<PAGE>
3.2.1 All correspondence to Seller concerning the General Terms Agreement,
Special Business Provisions or this Administrative Agreement is to be
addressed as follows:
MAIL Cashmere Manufacturing Company
102 Maple St.
Cashmere, WA 98815
Attention: Contracts
FACSIMILES Fax Number 509-782-2580
Attention
Organization Contracts
Telephone 509-782-2455
4.0 RESIDENT TEAM ADMINISTRATION
In the event the parties determine that a resident team is required in
support of the General Terms Agreement and Special Business
Provisions, the following shall apply.
4.1 The names and titles of the personnel assigned as members of a
resident team of one party at the other parties' facility shall be
identified in writing prior to the resident team members arrival at
the facility. A description of any changes in personnel, once the
team is assigned, will also be provided in writing.
4.2 A resident team consisting of more than one person shall have one
specific person designated as team leader who shall act as
administrative focal point for the resident team activities.
-5-
<PAGE>
4.3 Discipline of resident team personnel employed by one party and
located at the facility of the other party shall be the responsibility
of the employer of that person. Employees of each party will obey all
applicable rules while at the other party's facility.
5.0 PROGRAM REQUIREMENTS
Seller acknowledges and accepts the requirements of this program as
outlined below. Seller also acknowledges and accepts the remedies
afforded the Buyer as provided under the GTA, SPB, and at law in the
event of a breach.
Seller shall maintain the management and control functions necessary
to insure that program requirements are met and to provide program and
technical visibility to Buyer's representatives.
5.1 FABRICATION/PURCHASE OF DETAIL COMPONENTS
Seller shall be responsible for the fabrication and/or purchase of all
components required in the manufacture of the Product(s) except as
otherwise agreed to by the parties.
5.2 DELIVERY REQUIREMENTS
Seller shall support Buyer's delivery requirements in the manner
necessary by Buyer to support aircraft manufacture. Buyer reserves
the right to have Seller deliver in any quantity and at any delivery
schedule which best facilitates Buyer's manufacture process. This may
include Just-in-Time delivery, Kitting, direct delivery to point of
use facility,
-6-
<PAGE>
twenty-four (24) hour turn around of repair and engineering change
requirements and delivery of specific aircraft requirements per
Buyer's Firing Order.
5.3 ON-SITE SUPPORT
Seller agrees to provide, as required, on-site support at Buyer's
facility to support engineering changes and factory rejections within
Buyer's facility. Said support shall be immediate for such a period
of time as required by Buyer to support Buyer's production schedule.
Seller shall provide information, as set forth in 4.0 Resident Team
above, for all personnel to be used on-site by Seller.
6.0 ADMINISTRATIVE RESPONSIBILITIES
Seller shall provide the equipment, material, facilities, and
personnel necessary to comply with the administrative requirements set
forth in this Administrative Agreement.
6.1 PROGRAM MANAGEMENT DOCUMENTATION
Seller shall provide three copies of the data required herein, unless
otherwise specified.
6.1.1 SELLER'S RESPONSIBILITY
Seller is responsible for supporting meetings and reviews as may be
necessary. This includes providing required status reports and test
hardware as set forth herein as may be required.
-7-
<PAGE>
6.1.2 COORDINATION MEETINGS
Seller shall initiate a telephone conference whenever failures,
schedule slides or other urgent matters indicate the need. Buyer
shall confirm any direction given to Seller as a result of telephone
conferences in a telegram or letter within five (5) working days of
the conference.
6.2 FACILITIES
Seller is responsible for providing sufficient facilities to perform
the requirements of this contract.
7.0 PROGRAM MANAGEMENT
7.1 PROGRAM MANAGER
The Seller's Program Manager will monitor all departments involved in
producing the parts listed in the Special Business Provisions,
Attachment "1". The Program Manager, as set forth above, will be the
primary Buyer interface for program status.
7.2 STATUS REPORTS
7.2.1 Status reports shall be submitted after contract go ahead, as
requested by Buyer. Said status reports for each hardware item shall
cover, but not be limited to, the following topics:
(a) Discussion of any schedule slides and identification of
corrective action;
-8-
<PAGE>
(b) Technical discussion of the events of the past month, covering
significant advancements and problem areas;
(c) Identification of any changes to the key manpower or manning level;
(d) An identification of the critical events expected within the next
month and a discussion of any factors which may affect the outcome of
these events;
(e) A status report on any open action items including compliance with
scheduled closure dates;
(f) Purchased components and raw material status update; and,
(g) Schedules on first article hardware including fabrication, subassembly
and final assembly and/or delinquent parts shall be progressively
detailed with major program milestones on the first sheet and detail
schedule for the hardware area on subsequent sheets. Updates of the
schedules shall contain clear indication of any adjustments from the
previous submittal.
7.2.2 Seller will submit monthly tool design and fabrication progress
reports until completion of basic tooling fabrication.
-9-
<PAGE>
7.2.3 Seller will submit a Certified Tool List for all accountable tools
thirty (30) days after delivery of the first production unit to Buyer,
in accordance with Section 4.0 of Document M31-24, "Boeing Supplier's
Tooling Manual." Subsequent to the initial Certified Tool List,
Seller will submit Certified Tool Lists for any new, reworked or
re-identified tools, thirty (30) days after completion of the first
affected production part.
7.3 QUARTERLY REVIEWS
Quarterly Program Reviews will be held at the Seller's or Buyer's
facilities. The topics of these reviews may include raw material and
component part status, production status, Boeing supplied components
inventory, Boeing requirements, changes, forecasts and other issues
pertinent to the program.
8.0 CHANGE NOTIFICATION
8.1 Engineering changes and other modifications, revisions, additions,
deletions, and/or stop work orders to the General Terms Agreement pursuant
to Article 10.0 "Changes" thereof shall be accomplished by a serialized
Contract Change Notice (CCN) which shall be Seller's formal authorization
to proceed. CCNs shall include all the data required to insure complete
and prompt understanding and compliance by Seller. The Contract
Administrator identified in 2.1.1 hereof will control and assign all CCN
numbers.
8.2 CCN numbers will be identified by serial numbers continuing in numerical
sequence.
-10-
<PAGE>
8.3 All subsequent correspondence, including claims for adjustment pursuant to
Article 10.0 "Changes," must reference the applicable CCN number. In this
regard and solely as an administrative convenience, Buyer will assign a CCN
number upon the written request for any effort judged by Seller as beyond
the scope of the subject agreement. Such assignments, when made, shall not
be construed as implying or accepting the validity of Seller's resultant
claim. When claims against CCN's have been settled between Buyer and
Seller, Buyer will issue a Contract Amendment incorporating the CCN's into
the Contract.
8.4 Seller shall provide to Buyer once a month, a Contract Change Status Report
through the end of the previous month outlining the following:
The latest Contract Amendment Number and the negotiated contract
prices through that Amendment.
The CCNs by serial number that have been negotiated but not recognized
by contract amendment together with the amounts negotiated by the CCN
number.
The CCNs by serial number that have been asserted but not negotiated
together with asserted by the CCN number.
9.0 NEGOTIATION DOCUMENTATION
-11-
<PAGE>
9.1 Negotiations shall be commenced in a timely manner in accordance with the
applicable provisions of the General Terms Agreement and Special Business
Provisions by those individuals designated by the parties.
9.2 Where necessary, negotiations shall be summarized by a jointly executed and
signed Memorandum of Agreement until such time as a contract amendment can
be formalized.
9.3 Buyer will issue a Contract Amendment for Seller's execution within thirty
(30) after the completion of negotiations. Both parties will use their
best efforts to execute the Contract Amendment within thirty (30) days
after the issuance.
10.0 DISPUTE RESOLUTION
Buyer and Seller shall use their best reasonable efforts to resolve any and
all disputes, controversies, claims or differences between the parties,
arising out of or relating in any way to this Contract or its performance,
including, but not limited to, any questions regarding the existence,
validity or termination hereof ("Disputes"), through negotiation. If a
Dispute cannot be resolved by the functional representatives of Buyer and
Seller, it shall be referred to subsequent authority levels of Buyer and
Seller, or their respective designees, for further negotiation. Only upon
failure by Buyer and Seller to resolve the Dispute through such negotiation
may either Party institute legal action.
-12-
<PAGE>
EXECUTED in duplicate as of the date and year set forth below by the duly
authorized representatives of the parties.
THE BOEING COMPANY CASHMERE MANUFACTURING
By and Through its Division COMPANY
Boeing Commercial Airplane Group
Name: /s/ Nancy V. Rosen Name: /s/ John Eder
------------------------ -------------------------
Title: Buyer Title: General Manager
Date: 8-15-94 Date: 8-15-94
-13-
<PAGE>
Exhibit 10.50
MATERIAL OMITTED PURSUANT TO
CONFIDENTIAL TREATMENT APPLICATION
SPECIAL BUSINESS PROVISIONS
between
THE BOEING COMPANY
and
CASHMERE MANUFACTURING COMPANY
Number POP-65311-0047
<PAGE>
SPECIAL BUSINESS PROVISIONS
TABLE OF CONTENTS
Page
----
1. DEFINITIONS.............................................................2
2. PURCHASE ORDER NOTE.....................................................2
3. PRICES..................................................................2
3.1 Product Pricing..................................................3
3.1.1 Option Pricing............................................3
3.1.2 Exercise of Option........................................3
3.2 Manufacturing Configuration Baseline.............................4
3.3 Packaging........................................................4
4. GOVERNING QUALITY ASSURANCE REQUIREMENT.................................4
5. APPLICABLE LAW JURISDICTION.............................................5
6. PRODUCT ASSURANCE.......................................................5
6.1 Governing Document...............................................6
7. PAYMENT.................................................................6
7.1 Recurring Price..................................................6
7.2 Non-Recurring Price/Special Charges..............................6
8. ACCELERATION/DECELERATION AT NO COST....................................7
9. NOTICES.................................................................7
9.1 Addresses........................................................7
10. OBLIGATION TO PURCHASE AND SELL.........................................8
11. COST AND FINANCIAL PERFORMANCE VISIBILITY...............................9
12. CHANGES................................................................10
12.1 Changes to the Statement of Work................................10
12.2 Computation of Equitable Adjustment.............................10
12.3 Obsolescence....................................................10
12.4 Change Absorption...............................................11
-i-
<PAGE>
12.5 Planning Schedule...............................................13
12.6 Value Engineering...............................................13
12.7 Reduction in Quantity to be Deliver.............................17
13. SPARES AND OTHER PRICING...............................................17
13.1 Spares..........................................................17
13.2 Short Flow Production Requirements..............................22
13.3 Tooling.........................................................22
13.4 Pricing of Boeing's Supporting Requirements.....................23
13.5 Pricing of Requirements for Modification or Retrofit............23
13.6 Similar Pricing.................................................24
14. STATUS REPORTS/REVIEWS.................................................24
15. PROVISIONS FOR OFFSET/BUSINESS STRATEGIES
FOREIGN PROCUREMENT REPORT.............................................25
16. BOEING FURNISHED MATERIAL..............................................26
17. ASSIGNMENT.............................................................26
18. INVENTORY AT CONTRACT COMPLETION.......................................27
19. OWNERSHIP OF INTELLECTUAL PROPERTY.....................................27
19.1 Technical Work Product..........................................28
19.2 Inventions and Patents..........................................28
19.3 Works of Authorship and Copyrights..............................28
19.4 Pre-Existing Inventions and Works of Authorship.................28
20. ADMINISTRATIVE AGREEMENTS..............................................28
21. GUARANTEED WEIGHT REQUIREMENTS.........................................28
22. SUPPLIER DATA REQUIREMENTS.............................................29
23. DEFERRED PAYMENT.......................................................29
24. SOFTWARE PROPRIETARY INFORMATION RIGHTS................................29
Attachment 1 Work Statement and Pricing
Attachment 2 Foreign Procurement Report
Attachment 3 Rates and Factors
Attachment 4 Boeing AOG Coverage
Attachment 5 Boeing AOG/Critical Shipping Notification
-ii-
<PAGE>
AMENDMENTS
AMEND
NUMBER DESCRIPTION DATE APPROVAL
- - ------ ----------- ---- --------
-iii-
<PAGE>
SPECIAL BUSINESS PROVISIONS
THESE SPECIAL BUSINESS PROVISIONS are entered into as of February 26,
1996 by and between Cashmere Manufacturing Company, a Washington corporation
with its principal office in Wenatchee, Washington ("Seller"), and The Boeing
Company, a Delaware corporation with an office in Seattle, Washington acting by
and through its division the Boeing Commercial Airplane Group ("Boeing").
RECITALS
A. Boeing and Seller entered into a General Terms Agreement GTA
#BCA-65311-0044 dated February 26, 1996 (the "Agreement") which is incorporated
herein and made a part hereof by this reference, for the sale by Seller and
purchase by Boeing of Products.
B. Boeing and Seller desire to include these special business
provisions ("SBP") relating to the sale by Seller and purchase by Boeing of
Products.
C. Boeing and Seller agree that as of the date set forth above, this
SBP shall replace and supersede Special Business Provision L-890821-8140N,
Special Business Provision L-500660-8143N, Special Business Provision PLR-950A
and Special Business Provisions L-435579-8180N.
-1-
<PAGE>
Now, therefore, in consideration of the mutual covenants set forth
herein, the parties agree as follows:
PROVISIONS
1. DEFINITIONS
The definitions used herein shall be the same as used in the Agreement.
2. PURCHASE ORDER NOTE
The following note shall be contained in any Order to which these SBP are
applicable:
This Order is subject to and incorporates by this reference SBP
POP-65311-0047 between The Boeing Company and Cashmere
Manufacturing Company dated February 26, 1996.
Each Order bearing such note shall be governed by and be deemed to
include the provisions of these SBP.
3. PRICES
-2-
<PAGE>
3.1 PRODUCT PRICING
The prices and applicable period of performance of Products scheduled for
delivery under this SBP are set forth in Attachment 1. Prices are in United
States dollars, F.O.B. Seller's Plant.
3.1.1 OPTION PRICING
Seller irrevocably grants to Boeing the option to purchase additional
annual quantities of Products for the periods 1998 and 1999 on the terms and
conditions set forth in this SBP at the prices set forth herein, increased or
decreased by any equitable adjustments provided herein.
3.1.2 EXERCISE OF OPTION
Boeing may exercise such option by written notice to Seller at any time
prior to the last delivery of the Product(s) to Boeing; provided however, that
such option must be exercised in sufficient time to permit Seller to support
Boeing's required deliveries. Seller agrees to provide Boeing with written
notice at least sixty (60) days prior to the date when, in Seller's opinion, the
option must be exercised. Boeing may extend the option exercise date by
purchasing long lead materials, or authorizing Seller to purchase such materials
on terms acceptable to Boeing, if such purchase would have the effect of
extending the date for assuring production continuity.
-3-
<PAGE>
Boeing reserves the right to (a) not exercise the option and commence new
negotiations with Seller for additional quantities of Products; or (b) purchase
such additional quantities of Products from third parties. The purchase of such
additional quantities of Products from third parties shall not abrogate any of
Seller's obligations to Boeing pursuant to the Agreement.
3.2 MANUFACTURING CONFIGURATION BASELINE
Unit pricing for each Product or part number shown in Attachment 1 is
based on the latest revisions of the engineering drawings or specifications at
the time of the signing of this SBP.
3.3 PACKAGING
The prices shown in Attachment 1 include packaging costs and all
materials and labor required to package Products identified in Attachment 1.
Packaging shall be furnished by the Seller in accordance with Document M6-1025,
Volume II, "Supplier Part Protection Guide" or Document D200-10038-2 "Supplier
Packaging Requirements" as applicable. In the case of Products to be shipped
directly to Customers, A.T.A. Specification 300 "Specification for Packaging of
Airline Supplies" shall apply unless otherwise directed by Boeing.
4. GOVERNING QUALITY ASSURANCE REQUIREMENT
-4-
<PAGE>
All work performed under this SBP shall be in accordance with the
following document which is incorporated herein and made a part hereof by this
reference:
Document DI -9000, "Advanced Quality System for Boeing Suppliers," as
amended from time to time.
5. APPLICABLE LAW JURISDICTION
Each Order, including all matters of construction, validity and
performance, shall in all respects be governed by, and construed and enforced in
accordance only with the law of the State of Washington as applicable to
contracts entered into and to be performed wholly within such State between
citizens of such State, without reference to any rules governing conflicts of
law. Seller hereby irrevocably consents to and submits itself exclusively to
the jurisdiction of the applicable courts of the State and the federal courts
therein for the purpose of any suit, action or other judicial proceeding arising
out of or connected with any Order or the performance or subject matter thereof.
Seller hereby waives and agrees not to assert by way of motion, as a defense, or
otherwise, in any such suit, action or proceeding, any claim that (a) Seller is
not personally subject to the jurisdiction of the above-named courts, (b) the
suit, action or proceeding is brought in an inconvenient forum or (c) the venue
of the suit, action or proceeding is improper.
6. PRODUCT ASSURANCE
-5-
<PAGE>
6.1 GOVERNING DOCUMENT
Seller acknowledges that Boeing and Customers must be able to rely on
each Product performing as specified and that Seller will provide all required
support. Accordingly, the following provisions and document(s) are incorporated
herein and made a part hereof.
"BOEING DESIGNED, SUB-CONTRACTED PRODUCTS MANUFACTURERS WARRANTY" BOEING
DOCUMENT M6-1124-3
7. PAYMENT
7.1 RECURRING PRICE
Unless otherwise provided in the applicable Order, payment of the
recurring price shall be made in accordance with Form X-27981 "Pay From Receipt
- - - Additional Terms and Conditions Regarding Invoicing and Payment". Payment
terms shall be net thirty (30) days except as otherwise agreed to by the
parties. All payments are subject to adjustment for shortages, credits and
rejections.
7.2 NON-RECURRING PRICE/SPECIAL CHARGES.
-6-
<PAGE>
Unless otherwise provided in the applicable Order, any non-recurring
price payable by Boeing under Attachment 1 shall be paid within the term
discount period or thirty (30) calendar days (whichever is later) after receipt
by Boeing of both acceptable Products and a correct invoice.
8. ACCELERATION/DECELERATION AT NO COST
Notwithstanding GTA Section 10.0, Boeing may make changes in the delivery
schedule without additional cost or change to the unit price stated in the
applicable Order if (a) the delivery date of the Product under such Order is on
or before the last date of contract, if applicable, and (b) Boeing provides
Seller with written notice of such changes.
9. NOTICES
9.1 ADDRESSES
Notices and other communications shall be given in writing by personal
delivery, United States mail, telex, teletype, telegram, facsimile, cable or
electronic transmission addressed to the respective party as follows:
To Boeing: Attention: Buyer: Randy Parks M/S 38-LH
BOEING COMMERCIAL AIRPLANE GROUP
-7-
<PAGE>
MATERIEL DIVISION
P.O. Box 3707
Seattle, Washington 98124-2207
To Seller: Attention: Contracts
Cashmere Manufacturing Company
102 Maple Street
Cashmere, WA 98815
10. OBLIGATION TO PURCHASE AND SELL
Boeing and Seller agree that in consideration of the prices set forth
under Attachment 1, Boeing shall issue Orders for Products from time to time to
Seller for Boeing's requirements. Such Products shall be shipped at any
scheduled rate of delivery, as determined by Boeing, and Seller shall sell to
Boeing Boeing's requirements of such Products, provided that, without limitation
on Boeing's right to determine its requirements, Boeing shall not be obligated
to issue any Orders for any given Product if:
10.1 Any of Boeing's customers specify an alternate product;
10.2 Such Product is, in Boeing's reasonable judgment, not
technologically competitive at any time, for reasons including but not limited
to the availability of significant changes
-8-
<PAGE>
in technology, design, materials, specifications, or manufacturing processes
which result in a reduced price or weight or improved appearance, functionality,
maintainability or reliability;
10.3 Boeing gives reasonable notice to Seller of a change in any of
Boeing's aircraft which will result in Boeing no longer requiring such Product
for such aircraft;
10.4 Seller has materially defaulted in any of its obligations under
any Order, whether or not Boeing has issued a notice of default to Seller
pursuant to GTA Section 13.0; or,
10.5 Boeing reasonably determines that Seller cannot support Boeing's
requirements for Products in the amounts and within the delivery schedules
Boeing requires.
11. COST AND FINANCIAL PERFORMANCE VISIBILITY
Seller shall provide all necessary cost support data, source documents
for direct and indirect costs, and assistance at the Seller's facility for cost
performance reviews performed by Boeing pursuant to any Order.
Furthermore, Seller shall provide financial data, on a quarterly basis,
or as requested, to Boeing's Credit Office for credit and financial condition
reviews. Said data shall include but not be limited to balance sheets, schedule
of accounts payable and receivable, major lines of credit, creditors, income
statements (profit and loss), cash flow statements, firm backlog,
-9-
<PAGE>
and headcounts. Copies of such data are to be made available within 72 hours of
any written request by Boeing. This data is required in addition to the cost
data provided pursuant to GTA Section 9.0. All such information shall be treated
as confidential in accordance with GTA Section 20.0.
12. CHANGES
12.1 CHANGES TO THE STATEMENT OF WORK
Boeing may direct Seller within the scope of the applicable Order and in
accordance with the provisions of GTA Section 10.0, to increase or decrease the
work to be performed by the Seller in the manufacture of any Product.
12.2 COMPUTATION OF EQUITABLE ADJUSTMENT
The Rates and Factors set forth in Attachment 3, which by this reference
is incorporated herein, shall be used to determine the equitable adjustment, if
any, (including equitable adjustments, if any, in the prices of Products to be
incorporated in Derivative Aircraft), to be paid by Boeing pursuant to SBP
Section 12.1 and GTA Section 10.0 for each individual change.
12.3 OBSOLESCENCE
-10-
<PAGE>
Claims for obsolete or surplus material and work-in-process created by
change orders issued pursuant to this Section shall be subject to the procedures
set forth in GTA Section 12.0, except that Seller may not submit a claim for
obsolete or surplus material resulting from an individual change order that has
a total claim value of Five Hundred Dollars ($500.00) or less. Payment for
obsolete or surplus materials shall be made by check deposited as first class
mail to the address designated by Seller in SBP Section 9.1. Payment will be
made on the tenth (10th) day of the month following the month of the
obsolescence claim settlement.
12.4 CHANGE ABSORPTION
12.4.1 PRIOR TO 100% ENGINEERING RELEASE (DRAWING REVISION LEVEL
NEW)
12.4.1.1 GENERALLY Notwithstanding the provisions of GTA
Section 10.0 and SBP Section 12.1, no equitable adjustment in the prices
or schedules of any Order shall be made for any change initiated by
Boeing made prior to the date on which all engineering drawings that
change the technical requirements, descriptions, specifications,
statement of work, drawing or designs ("Technical Change(s)") have been
released by Boeing ("100% Engineering Release") provided, that an
equitable adjustment shall be made for:
-11-
<PAGE>
a. Any Technical Change which is a change BETWEEN
raw material classifications such as a change from aluminum to steel or
titanium to plastic. Not included as a Technical Change for purposes of
this Section are changes WITHIN a raw material classification such as a
change from 7050 Aluminum to 7075 Aluminum;
b. Any Technical Change which adds or deletes a
process specification including but not limited to chem milling, chrome
plating, anodizing, painting, priming and heat treating.
12.4.1.2 CLAIMS Claims for equitable adjustment for
Technical Changes shall be submitted in writing within thirty (30) days
after 100% Engineering Release.
12.4.2 SUBSEQUENT TO 100% ENGINEERING RELEASE
12.4.2.1 GENERALLY Notwithstanding the provisions of GTA
Section 10.0 and SBP Section 12.1, no equitable adjustment shall be made
to the recurring or non-recurring prices after the date of 100%
Engineering Release for any change initiated by Boeing unless the value
of such change (debit or credit) is greater than or equal to two percent
(2%) of the then current unit price for the Product (recurring) or is
greater than or equal to two percent (2%) of the total then current
-12-
<PAGE>
nonrecurring price as set forth in Attachment 1. For purposes of this
Section, the then current unit price or total nonrecurring price shall be
the price identified in Attachment 1 plus any and all price adjustments
agreed to previously by the parties.
12.4.2.2 CLAIMS Claims shall be made individually for
each Product and for each change. Each claim shall be considered
separately for application of the two percent (2%) threshold. Changes
may not be combined for the purposes of exceeding the two percent (2%)
threshold set forth herein.
12.5 PLANNING SCHEDULE
Any planning schedule or quantity estimate provided by Boeing shall be
used solely for production planning. Boeing may purchase Products in different
quantities and specify different delivery dates as necessary to meet Boeing's
requirements. Such planning schedule and quantity estimate shall be subject to
adjustment from time to time. Any such adjustment is not a change under GTA
Section 10.0.
12.6 VALUE ENGINEERING
Seller may from time to time submit proposals to Boeing to change
drawings, designs, specifications or other requirements that:
-13-
<PAGE>
a. decrease Seller's performance costs; or
b. produce a net reduction in the cost to Boeing of installation,
operation, maintenance or production of the Product.
Provided, that such change shall not impair any essential functions or
characteristics of the Products or Tooling.
12.6.1 SUBMISSION OF PROPOSAL Proposals shall be submitted to
Boeing's Materiel Representative. Boeing shall not be liable for any delay in
acting upon a proposal. Boeing's decision to accept or reject any proposal
shall be final. If there is a delay and the net result in savings no longer
justifies the investment, Seller will not be obligated to proceed with the
change. Seller has the right to withdraw, in whole or in part, any proposal not
accepted by Boeing within the time period specified in the proposal. Seller
shall submit, as a minimum, the following information with the proposal:
a. description of the difference between the existing requirement and
the proposed change, and the comparative advantages and
disadvantages of each;
b. the specific requirements which must be changed if the proposal is
adopted;
c. the cost savings and Seller's implementation costs;
-14-
<PAGE>
d. each proposal shall include the need dates for engineering release
and the time by which a proposal must be approved so as to obtain
the maximum cost reduction.
12.6.2 ACCEPTANCE AND COST SHARING Boeing may accept, in whole
or in part, any proposal by issuing a change order. Until such change has been
issued, Seller shall remain obligated to perform in accordance with the terms
and requirements of the original Order as written. Boeing and Seller shall
share the savings as follows:
(50%) savings to Boeing;
(50%) savings to Seller.
Seller shall include with each proposal verifiable cost records and other
data as required by Boeing for proposal review and analysis.
Each party shall be responsible for its own implementation costs,
including but not limited to non-recurring costs.
12.6.3 COST SAVINGS COMPUTATION
A change order shall be issued by Boeing and the unit price shall be
reduced in an amount equal to the savings portion attributable to Boeing as set
forth above. The
-15-
<PAGE>
applicable unit price as set forth in Attachment 1 Statement of Work shall be
amended to reflect such change.
EXAMPLE:
Current Price: $600.00
Proposed Cost Savings: $100.00/unit
Boeing's Percentage: 50.0%
Seller's Percentage: 50.0%
STEP BY STEP COMPUTATION:
1. $100.00 unit savings x 50.0% Boeing's percentage of savings =
$50.00 Boeing savings.
2. $100.00 unit savings x 50.0% Seller's percentage of savings =
$50.00 Seller savings.
3. Net affect to the unit cost = $50.00
New Unit Price For Units = $550.00
-16-
<PAGE>
12.6.4 WEIGHT REDUCTION PROPOSALS Seller is encouraged to submit
proposals to Boeing that reduce the Product's weight without impairing any
essential functions or characteristics of the Product.
Seller shall submit such proposals in accordance with SBP Section 12.6.1
above. The amount of any costs or savings that result from a weight reduction
proposal shall be agreed by Boeing and Seller. Seller shall include with each
proposal verifiable cost records and other data as required by Boeing for
proposal review and analysis.
Boeing may accept in whole or in part, any such proposal by issuing a
change order to the applicable Order.
12.7 REDUCTION IN QUANTITY TO BE DELIVER
NOT APPLICABLE
13. SPARES AND OTHER PRICING
13.1 SPARES For purposes of this Section, the following definitions
shall apply:
A. AIRCRAFT ON GROUND (AOG) - means the highest Spares
priority. Seller will expend best efforts to provide the
earliest possible delivery of any Spare
-17-
<PAGE>
designated AOG by Boeing. Such effort includes but is not
limited to working twenty-four (24) hours a day, seven
days a week and use of premium transportation. Seller
shall specify the delivery date and time of any such AOG
Spare within two (2) hours of receipt of an AOG Spare
request.
B. CRITICAL - means an imminent AOG work stoppage. Seller
will expend best efforts to provide the earliest possible
delivery of any Spare designated Critical by Boeing. Such
effort includes but is not limited to working two (2)
shifts a day, five (5) days a week and use of premium
transportation. Seller shall specify the delivery date
and time of any such Critical Spare within the same
working day of receipt of a Critical Spare request.
C. EXPEDITE (CLASS I) - means a Spare required in less than
Seller's normal lead time. Seller will expend best
efforts to meet the requested delivery date. Such effort
includes but is not limited to working overtime and use of
premium transportation.
D. ROUTINE (CLASS III) - means a Spare required in Seller's
normal lead time.
E. POA REQUIREMENT (POA) - means any detail component needed
to replace a component on an End Item Assembly currently
in Boeing's assembly line
-18-
<PAGE>
process. Seller shall expend best efforts feasible to
provide the earliest possible delivery of any Spare
designated as POA by Boeing. Such effort includes but is
not limited to working twenty-four (24) hours a day, seven
days a week and use of premium transportation. Seller
shall specify the delivery date and time of any such POA
within two (2) hours of an AOG Spare request.
F. IN-PRODUCTION - means any Spare with a designation of AOG,
Critical, Expedite, Routine, POA or End Item Assembly
which is in the current engineering configuration for the
Product and is used on a model aircraft currently being
manufactured by Boeing.
G. NON-PRODUCTION REQUIREMENTS - means any Spare with a
designation of AOG, Critical, Expedite and Routine
requirements which is used on model aircraft no longer
being manufactured by Boeing (Post Production) or is in a
noncurrent engineering configuration for the Product (Out
of Production).
H. BOEING PROPRIETARY SPARE - means any Spare which is
manufactured (i) by Boeing, or (ii) to Boeing's detailed
designs with Boeing's authorization or (iii) in whole or
in part using Boeing's Proprietary Materials.
13.1.1 SPARES SUPPORT
-19-
<PAGE>
Seller shall provide Boeing with a written Spares support process
describing Seller's plan for supporting AOG and Critical commitments and
manufacturing support. The process must provide Boeing with the name and number
of a twenty-four (24) hour contact for coordination of AOG and Critical
requirements. Such contact shall be equivalent to the coverage provided by
Boeing to its Customers as outlined in Attachment 4 "Boeing AOG Coverage" which
is incorporated herein and made a part hereof by this reference.
Seller shall notify Boeing as soon as possible via fax, telecon, or as
otherwise agreed to by the parties of each AOG and Critical requirement shipment
using the form identified in Attachment 5 "Boeing AOG and Critical Shipping
Notification". Such notification shall include time and date shipped, quantity
shipped, Order, pack slip, method of transportation and air bill if applicable.
Seller shall also notify Boeing immediately upon the discovery of any delays in
shipment of any requirement and identify the earliest revised shipment possible.
13.1.2 RECLASSIFICATION OR RE-EXERCISES
Boeing may on occasion, instruct Seller to re-prioritize or reclassify an
existing requirement in order to improve or otherwise change the established
shipping schedule. Seller shall expend the effort required to meet the revised
requirement as set forth above in the definitions of the requirements. Seller's
commitment of a delivery schedule shall be given in
-20-
<PAGE>
accordance with that set forth above for the applicable classification but in no
case shall it exceed twenty-four (24) hours from notification by Boeing.
13.1.3 SPARE PRICING Except as set forth in subsections 13.1.3.1
and 13.1.3.2 below, the price for Spare(s) shall be the same as the production
price for the Products as listed on Attachment 1, in effect at the time the
Spare(s) are ordered. POA parts shall be priced so that the sum of the prices
for all POA parts of an End Item Assembly equals the applicable recurring
portion of the End Item Assembly.
13.1.3.1 AIRCRAFT ON GROUND (AOG). CRITICAL SPARES AND
POA REQUIREMENT The price for AOG and Critical Spares and POA
requirements shall be the price for such Products listed on Attachment 1
in effect when such Spares are ordered multiplied by a factor of 1.07.
13.1.3.2 EXPEDITE SPARE (CLASS 1) The price for Expedite
Spares shall be the price for such Products listed on Attachment 1 in
effect when such Spares are ordered multiplied by a factor of 1.05.
13.1.4 SPECIAL HANDLING The price for all effort associated with
the handling and delivery of Spare(s) is deemed to be included in the price for
such Spare(s). Provided, that if Boeing directs delivery of Spares to an F.O.B.
point other than Seller's plant, Boeing
-21-
<PAGE>
shall reimburse Seller for shipping charges, including insurance, paid by Seller
from the plant to the designated F.O.B. point. Such charges shall be shown
separately on all invoices.
13.2 SHORT FLOW PRODUCTION REQUIREMENTS
Expedite charges, if any, to be paid for short flow production
requirements shall not exceed the amount payable under SBP Section 13.1.3.1
above for that portion of the Order which is released short flow except as
otherwise agreed to in writing by Boeing. In the event Boeing agrees to pay an
amount in excess of that set forth in SBP Section 13.1.3.1 above, Seller shall
provide data to verify expedite charges requested. For purposes of this
Section, "Short Flow Production" shall be defined as any requirement released
less than Seller's current Re-Order Lead time (ROLT). If Seller fails to meet
the required delivery, Boeing shall not be obligated to pay the agreed upon
amount.
13.3 TOOLING
13.3.1 RESPONSIBLE PARTY Where Boeing agrees to pay to Seller
for Tooling to support the manufacture and delivery of applicable Product(s)
identified herein, the amount shall be set forth in Attachment 1. The costs of
necessary repair and maintenance to the Tooling is included in such amount. In
addition to the requirements set forth in SBP Section 7.2 of this SBP, the
Seller shall comply with the Terms and Conditions applicable to the Blanket
Tooling Purchase Control Order established with Seller who possess or controls
-22-
<PAGE>
Tooling. Furthermore, Seller must include a properly prepared certified tool
list, where applicable, as specified in the M31-24 Document, "Boeing Supplier
Tooling Manual." Invoices received with incorrect, improperly prepared or
incomplete certified tool lists will be returned for correction prior to
payment. Invoices shall be dated concurrent with, or subsequent to, shipment of
the Products.
13.3.2 BOEING FURNISHED TOOLING In the event Boeing furnishes
Tooling to Seller to support the delivery of Product(s), Seller shall comply
with the Terms and Conditions applicable to the Blanket Tooling Purchase Control
Order established with Seller who possess or controls Tooling. No repair,
replacement or rework required shall be performed without Boeing's prior written
consent. Boeing shall notify Seller of, what if any, action shall be required
for all discrepant Tooling.
13.4 PRICING OF BOEING'S SUPPORTING REQUIREMENTS
Any Products required to assist Boeing's supporting requirements,
including but not limited to color and appearance samples, design studies,
Product qualification, Boeing owned simulators, test requirements, factory
support, flight test spares will be provided for not more than the applicable
price as set forth in Attachment 1.
13.5 PRICING OF REQUIREMENTS FOR MODIFICATION OR RETROFIT
-23-
<PAGE>
Any Products required by Boeing to support a modification or retrofit
program shall be provided for not more than the applicable price as set forth in
Attachment 1.
13.6 SIMILAR PRICING
New Products ordered by Boeing that are similar to or within Product
families of Products currently being manufactured by Seller shall be priced
using the same methodology or basis as that used to price the existing
Product(s).
13.7 STATUS REPORTS/REVIEWS
When requested by Boeing, Seller shall update and submit, as a minimum,
monthly status reports on data requested by Boeing using a method mutually
agreed upon by Boeing and Seller.
When requested by Boeing, Seller shall provide to Boeing a manufacturing
milestone chart identifying the major purchasing, planning and manufacturing
operations for the applicable Product(s).
Upon request by Boeing, a program review may be held between the parties.
The location of such review shall be mutually agreed to by the parties. The
purpose of the review
-24-
<PAGE>
is to improve communication and understanding between the parties to ensure
program success.
15. PROVISIONS FOR OFFSET/BUSINESS STRATEGIES
FOREIGN PROCUREMENT REPORT
Seller agrees to cooperate with Boeing in identifying possible
subcontractors for work under any Order that support Boeing's offset or business
strategies. Prior to releasing any request for proposal to a subcontractor to
support Boeing's offset or business strategy, Seller shall coordinate with
Boeing.
Seller shall document on Attachment 2 all offers to contract and executed
contracts with such subcontractors including the dollars contracted. Seller
shall provide to Boeing with an updated copy of Attachment 2 for the six-month
periods ending June 30 and December 31 of each year. The reports shall be
submitted on the 1st of August and the 1st of February respectively.
Furthermore, Boeing and Seller agree that in the event it becomes
necessary for Boeing to purchase Products from a third party(s) to facilitate an
offset commitment or business strategy, Boeing and Seller agree to work together
to develop and implement a plan for the removal of such Product or Products from
this SBP. Upon settlement of this plan, Boeing shall not be obligated
-25-
<PAGE>
to buy from Seller and Seller shall not be obligated to sell to Boeing the
applicable Product(s) notwithstanding SBP Section 10.0.
16. BOEING FURNISHED MATERIAL
Material, including but not limited to raw material, standards, detail
components and assemblies, furnished to Seller by Boeing shall be administered
in accordance with a bonded stores agreement between Boeing and Seller.
Seller shall provide Boeing with required on-dock dates for all material.
Seller's notice shall provide Boeing with sufficient time to competitively bid
the material if, in its sole and absolute discretion, it desires to do so.
17. ASSIGNMENT
Boeing and Seller agree that Boeing may, in its discretion, assign, in
part or in whole, its purchasing obligations under the Agreement or any Order,
as applicable, at the prices set forth in Attachment 1 thereof. Boeing reserves
the right to rescind its assignment at anytime.
Boeing's assignment of purchasing obligation includes scheduling,
issuance of Order(s), receival and inspection of Products, acceptance or
rejection of Products, payment for accepted Products, and ensuring conformance
to the quality assurance system requirements.
-26-
<PAGE>
Boeing shall retain all other rights and obligations pursuant to the
applicable terms and conditions. In addition, Boeing reserves the right, where
necessary, to coordinate with and mediate between Seller and any assignee
regarding such assignment.
18. INVENTORY AT CONTRACT COMPLETION
Subsequent to Seller's last delivery of Product(s), Products which
contain, convey, embody or were manufactured in accordance with or by reference
to Boeing's Proprietary Materials including but not limited to finished goods,
work-in-process and detail components (hereafter "Inventory") which are in
excess of Order quantity shall be made available to Boeing for purchase. In the
event Boeing, in its sole discretion, elects not to purchase the Inventory,
Seller may scrap the Inventory. Prior to scrapping the Inventory, Seller shall
mutilate and/or render it unusable. Seller shall maintain, pursuant to their
quality assurance system, records certifying destruction of the applicable
Inventory. Said certification shall state the method and date of mutilation and
destruction of the subject Inventory. Boeing shall have the right to review and
inspect these records at any time it deems necessary. In the event Seller
elects to maintain the Inventory, Seller shall not sell or provide the Inventory
to any third party without prior specific written authorization from Boeing.
Failure to comply with these requirements shall be a material breach and grounds
for default pursuant to GTA Section 13.0.
19. OWNERSHIP OF INTELLECTUAL PROPERTY
-27-
<PAGE>
19.1 TECHNICAL WORK PRODUCT
NOT APPLICABLE
19.2 INVENTIONS AND PATENTS
NOT APPLICABLE
19.3 WORKS OF AUTHORSHIP AND COPYRIGHTS
NOT APPLICABLE
19.4 PRE-EXISTING INVENTIONS AND WORKS OF AUTHORSHIP.
NOT APPLICABLE
20. ADMINISTRATIVE AGREEMENTS
NOT APPLICABLE
21. GUARANTEED WEIGHT REQUIREMENTS
-28-
<PAGE>
NOT APPLICABLE
22. SUPPLIER DATA REQUIREMENTS
NOT APPLICABLE
23. DEFERRED PAYMENT
NOT APPLICABLE
24. SOFTWARE PROPRIETARY INFORMATION RIGHTS
NOT APPLICABLE
EXECUTED in duplicate as of the date and year first set forth above by
the duly authorized representatives of the parties.
THE BOEING COMPANY CASHMERE MANUFACTURING COMPANY
By and Through its Division
Boeing Commercial Airplane Group
Name: /s/ Randolph L. Parks Name: /s/ John Eder
----------------------------- --------------------------------
Title: Buyer Title: Vice President
Date: March 12, 1996 Date: March 11, 1996
-29-
<PAGE>
ATTACHMENT TO
SPECIAL BUSINESS PROVISIONS
WORK STATEMENT AND PRICING
The price for Products to be delivered on or before December 31, 1997, except as
otherwise noted below, shall be as follows:
PART NUMBER MODEL NOMENCLATURE UNIT PRICE
- - ----------- ----- ------------ ----------
STATEMENT OF WORK ATTACHED HERETO IN ATTACHMENT 1 TO SBP
POP-65311-0047.
*** CONFIDENTIAL TREATMENT REQUESTED ***
-30-
<PAGE>
ATTACHMENT 2 TO
SPECIAL BUSINESS PROVISIONS
FOREIGN PROCUREMENT REPORT FORM
(Seller to Submit)
(Reference Section 15.0)
COMMODITY/ BID CONTRACTED
SUPPLIER NAME COUNTRY NOMENCLATURE DOLLARS DOLLARS
- - ------------- ------- ------------ ------- -------
-31-
<PAGE>
ATTACHMENT 3 TO
SPECIAL BUSINESS PROVISIONS
RATES AND FACTORS
The following Rates and Factors shall be used on all price change negotiations
during the period of performance of these SBP
Direct Labor Rate $ *
Manufacturing Burden *
G&A (Gen. Admin. Expense) *
Profit *
-
* CONFIDENTIAL TREATMENT REQUESTED
-32-
<PAGE>
ATTACHMENT 4 TO
SPECIAL BUSINESS PROVISIONS
BOEING AOG COVERAGE
- - - NORMAL HOURS BOEING'S MATERIEL REPRESENTATIVE (MATERIEL DIVISION)
Approximately 5:30 a.m. - 6:00 p.m.
- Performs all functions of procurement process.
- Manages formal communications with Seller.
- - - SECOND SHIFT AOG PROCUREMENT SUPPORT (MATERIEL DIVISION)
3:00 p.m. - 11:00 p.m.
- May place order and assist with commitment and shipping
information, working with several suppliers on a priority basis.
- Provides a communication link between Seller and Boeing.
- - - 24 HOUR AOG SERVICE AOG CUSTOMER REPRESENTATIVE (CUSTOMER SERVICE
DIVISION) 544-9000
- Support commitment information particularly with urgent orders.
- Customer Service Representative needs (if available):
- Part Number
- Boeing Purchase Order
- Airline Customer & customer purchase order number
- Boeing S.I.S.#
If Seller is unable to contact any of the above, please provide AOG/Critical
shipping information notification via FAX using Boeing AOG/Critical shipping
notification form (Attachment 5).
-33-
<PAGE>
Exhibit 10.51
GENERAL TERMS AGREEMENT
between
THE BOEING COMPANY
and
CASHMERE MANUFACTURING COMPANY
Number BCA-65311-0044
<PAGE>
GENERAL TERMS AGREEMENT
TABLE OF CONTENTS
SECTION TITLE
- - ------- -----
1.0 DEFINITIONS
2.0 ISSUANCE OF PURCHASE ORDERS AND APPLICABLE TERMS
2.1 Issuance of Purchase Orders
2.2 Acceptance of Purchase Orders
2.3 Written Authorization to Proceed
2.4 Rejection of Purchase Orders
3.0 TITLE AND RISK OF LOSS
4.0 DELIVERY
4.1 Requirements
4.2 Delay
4.3 Notice of Labor Disputes
5.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES
5.1 Review
5.2 Resident Representatives
6.0 INVOICE AND PAYMENT
7.0 PACKING AND SHIPPING
8.0 QUALITY ASSURANCE, INSPECTION REJECTION AND ACCEPTANCE
8.1 Controlling Document
-i-
<PAGE>
8.2 Seller's Inspection
8.3 Boeing's Inspection and Rejection
8.4 Federal Aviation Administration or Equivalent Government Agency
Inspection
8.5 Retention of Records
8.6 Source Inspection
8.7 Language for Technical Information
9.0 EXAMINATION OF RECORDS
10.0 CHANGES
10.1 General
10.2 Model Mix
11.0 PRODUCT ASSURANCE
12.0 TERMINATION FOR CONVENIENCE
13.0 EVENTS OF DEFAULT AND REMEDIES
14.0 EXCUSABLE DELAY
15.0 SUSPENSION OF WORK
16.0 TERMINATION OR CANCELLATION:
INDEMNITY AGAINST SUBCONTRACTOR'S CLAIMS
17.0 ASSURANCE OF PERFORMANCE
18.0 RESPONSIBILITY FOR PROPERTY
19.0 LIMITATION OF SELLER'S RIGHT TO ENCUMBER ASSETS
20.0 PROPRIETARY INFORMATION AND ITEMS
21.0 COMPLIANCE WITH LAWS
-ii-
<PAGE>
22.0 INTEGRITY IN PROCUREMENT
23.0 INFRINGEMENT
24.0 BOEING'S RIGHTS IN SELLER'S PATENTS, COPYRIGHTS,
TRADE SECRETS AND TOOLING
25.0 NOTICES
25.1 Addresses
25.2 Effective Date
25.3 Approval or Consent
26.0 PUBLICITY
27.0 PROPERTY INSURANCE
27.1 Insurance
27.2 Certificate of Insurance
27.3 Notice of Damage or Loss
28.0 RESPONSIBILITY FOR PERFORMANCE
28.1 Subcontracting
28.2 Reliance
28.3 Assignment
29.0 NON-WAIVER
30.0 HEADINGS
31.0 PARTIAL INVALIDITY
32.0 APPLICABLE LAW
33.0 AMENDMENT
-iii-
<PAGE>
34.0 LIMITATION
35.0 TAXES
35.1 Inclusion of Taxes in Price
35.2 Litigation
35.3 Rebates
36.0 FOREIGN PROCUREMENT OFFSET
37.0 ENTIRE AGREEMENT/ORDER OF PRECEDENCE
37.1 Entire Agreement
37.2 Incorporated by Reference
37.3 Order of Precedence
37.4 Disclaimer
-iv-
<PAGE>
AMENDMENT
AMEND
NUMBER DESCRIPTION DATE APPROVAL
- - ------ ----------- ---- --------
-v-
<PAGE>
GENERAL TERMS AGREEMENT
GENERAL TERMS AGREEMENT
RELATING TO
BOEING PRODUCTS
THIS GENERAL TERMS AGREEMENT ("Agreement") is entered into as of February 26,
1996, by and between Cashmere Manufacturing Company, a Washington corporation,
with its principal office in Wenatchee, Washington ("Seller"), and The Boeing
Company, a Delaware corporation with its principal office in Seattle, Washington
acting by and through its division the Boeing Commercial Airplane Group
("Boeing").
RECITALS
A. Boeing produces commercial airplanes.
B. Seller manufactures and sells certain goods and services for use in
the production and support of such aircraft.
C. Seller desires to sell and Boeing desires to purchase certain of
Seller's goods and services in accordance with the terms set forth in
this Agreement.
D. Boeing and Seller agree that as of the date set forth above, this
Agreement shall replace and supersede General Terms Agreement PLR-950.
Now therefore, in consideration of the mutual covenants set forth herein,
the parties agree as follows:
-1-
<PAGE>
AGREEMENTS
1. DEFINITIONS
The definitions set forth below shall apply to the following terms as they
are used in this Agreements, any Order, or any related Special Business
Provisions ("SBP"). Words importing the singular number shall also include the
plural number and vice versa.
a. "Customer" means any owner, operator or user of Products and any
other individual, partnership, corporation or entity which has or acquires any
interest in the Products from, through or under Boeing.
b. "Derivative" means any new model airplane designated by Boeing as
a derivative of an existing Model airplane and which: (1) has the same number
of engines as the existing model airplane; (2) utilizes essentially the same
aerodynamic and propulsion design, major assembly components, and systems as the
existing model airplane and (3) achieves other payload/range combinations by
changes in body length, engine thrust, or variations in certified gross weight.
c. "Drawing" means an automated or manual depiction of graphics or
technical information representing a Product or any part thereof and which
includes the parts list and specifications relating thereto.
d. "End Item Assembly" means any Product which is described by a
single part number and which is comprised of more than one component part.
e. "FAA" means the United States Federal Aviation Administration or
any successor agency thereto.
f. "FAR" means the Federal Acquisition Regulations in effect on the
date of this Agreement.
g. "Materiel Representative" means the individual designated from
time to time, by Boeing as being primarily responsible for interacting with
Seller regarding this Agreement and any Order.
h. "Order" means each purchase order issued by Boeing and accepted
by Seller under the terms of this Agreement. Each Order is a contract between
Boeing and Seller.
i. "Product" means goods, including components and parts thereof,
services, documents, data, software, software documentation and other
information or items
-2-
<PAGE>
furnished or to be furnished to Boeing under any Order, including Tooling except
for Rotating Use Tools.
j. "Purchased on Assembly Production Detail Part (POA)" means a
component part of an End Item Assembly.
k. "Shipset" means the total quantity of a given part number or
material necessary for production of one airplane.
l. "Spare" means any Product, regardless of whether the Product is
an End Item Assembly or a Purchased on Assembly Production Detail Part, which is
intended for use or sale as a spare part or a production replacement.
m. "Tooling" means all tooling, as defined in Boeing Document M31-
24, "Boeing Suppliers Tooling Manual," and/or described on any Order, including
but not limited to Boeing-Use Tooling, Supplier-Use Tooling and Common-Use
Tooling as defined in Boeing Document D6-49004, "Operations General Requirements
for Suppliers," and Rotating-Use Tooling as defined in Boeing Document M31-13,
"Accountability of Inplant/Outplant Special (Contract) Tools." For purposes of
this Agreement, in the documents named in this subparagraph, the term "Supplier
Use Tooling" shall be changed to Seller Use Tooling.
2. ISSUANCE OF ORDERS AND APPLICABLE, TERMS
2.1 ISSUANCE OF ORDERS
Boeing may issue Orders to Seller from time to time. Each Order shall
contain a description of the Products ordered, a reference to the applicable
specifications and Drawings, the quantities and prices, the delivery schedule,
the terms and place of delivery and any special conditions.
Each Order which incorporates this Agreement shall be governed by and be
deemed to include the provisions of this Agreement. Purchase Order Terms and
Conditions, Form D1-4100-4045, Form P252T and any other purchase order terms and
conditions which may conflict with this Agreement, do not apply to the Orders.
2.2 ACCEPTANCE OF ORDERS
Each Order is Boeing's offer to Seller and acceptance is strictly limited
to its terms. Boeing will not be bound by and specifically objects to any term
or condition which is different from or in addition to the provisions of the
Order, whether or not such term or condition will materially alter the Order.
Seller's commencement of performance or acceptance of the Order in any manner
shall conclusively evidence Seller's acceptance of the
-3-
<PAGE>
Order as written. Boeing may revoke any Order prior to Boeing's receipt of
Seller's written acceptance or Seller's commencement of performance.
2.3 WRITTEN AUTHORIZATION TO PROCEED
Boeing's Materiel Representative may give written authorization to Seller
to commence performance before Boeing issues an Order. If Boeing in its written
authorization specifies that an Order will be issued, Boeing and Seller shall
proceed as if an Order had been issued. This Agreement, the applicable SBP and
the terms stated in the written authorization shall be deemed to be a part of
Boeing's offer and the parties shall promptly agree on any open Order terms. If
Boeing does not specify in its written authorization that an Order shall be
issued, Boeing's obligation is strictly limited to the terms of the written
authorization. For purposes of this Section 2.3 only, written authorization
includes electronic transmission chosen by Boeing.
If Seller commences performance before an Order is issued or without
receiving Boeing's prior authorization to proceed, such performance shall be at
Seller's expense.
2.4 REJECTION OF PURCHASE ORDER
Any rejection by Seller of an Order shall specify the reasons for rejection
and any changes or additions that would make the Order acceptable to Seller;
provided, however, that Seller may not reject any Order for reasons inconsistent
with the provisions of this Agreement or the applicable SBP.
3. TITLE AND RISK OF LOSS
Title to and risk of any loss of or damage to the Products shall pass from
Seller to Boeing at the F.O.B. point as specified in the applicable Order,
except for loss or damage thereto resulting from Seller's fault or negligence.
Passage of title on delivery does not constitute Boeing's acceptance of
Products.
4. DELIVERY
4.1 REQUIREMENTS
Deliveries shall be strictly in accordance with the quantities, the
schedule and other requirements specified in the applicable Order. Seller may
not make early or partial deliveries without Boeing's prior written
authorization. Deliveries which fail to meet Order requirements may be returned
to Seller at Seller's expense.
-4-
<PAGE>
4.2 DELAY
Seller shall notify Boeing immediately, of any circumstances that may cause
a delay in delivery, stating the estimated period of delay and the reasons
therefor. If requested by Boeing, Seller shall use additional effort, including
premium effort, and shall ship via air or other expedited routing to avoid or
minimize delay to the maximum extent possible. All additional costs resulting
from such premium effort or premium transportation shall be borne by Seller with
the exception of such costs attributable to delays caused directly by Boeing.
Nothing herein shall prejudice any of the rights or remedies provided to Boeing
in the applicable Order or by law.
4.3 NOTICE OF LABOR DISPUTES
Seller shall immediately notify Boeing of any actual or potential labor
dispute that may disrupt the timely performance of an Order. Seller shall
include the substance of this Section 4.3, including this sentence, in any
subcontract relating to an Order if a labor dispute involving the subcontractor
would have the potential to delay the timely performance of such Order. Each
subcontractor, however, shall only be required to give the necessary notice and
information to its next higher-tier subcontractor.
5. ON-SITE REVIEW AND RESIDENT REPRESENTATIVE
5.1 REVIEW
At Boeing's request, Seller shall provide at Boeing's facility or at a
place designated by Boeing, a review explaining the status of the Order, actions
taken or planned relating to the Order and any other relevant information.
Nothing herein may be construed as a waiver of Boeing's rights to proceed
against Seller because of any delinquency.
Boeing's authorized representatives may enter Seller's plant at all
reasonable times to conduct preliminary inspections and tests of the Products
and work-in-process. Seller shall include in its subcontracts issued in
connection with an Order a like provision giving Boeing the right to enter the
premises of Seller's subcontractors. When requested by Boeing, Seller shall
accompany Boeing to Seller's subcontractors.
5.2 RESIDENT REPRESENTATIVES
Boeing may in its discretion and for such periods as it deems necessary
assign resident personnel at Seller's facilities. Seller shall furnish, free of
charge, all office space, secretarial service and other facilities and
assistance reasonably required by Boeing's representatives at Seller's plant.
The resident team will function under the guidance of Boeing's manager. The
resident team will provide communication and coordination to ensure timely
performance of
-5-
<PAGE>
the Order. Boeing's resident team shall be allowed access to all work areas,
Order status reports and management review necessary to assure timely
performance and conformance with the requirements of each Order.
Notwithstanding such assistance, Seller remains solely responsible for
performing in accordance with each Order.
6. INVOICE AND PAYMENT
Unless otherwise provided in the applicable Order, invoicing and payment
shall be in accordance with SBP Section 7.0.
7. PACKING AND SHIPPING
Seller shall (a) prepare for shipment and suitably pack all Products to
prevent damage or deterioration, (b) where Boeing has not identified a carrier,
secure lowest transportation rates, (c) comply with the appropriate carrier
tariff for the mode of transportation specified by Boeing and (d) comply with
any special instructions stated in the applicable Order.
Boeing shall pay no charges for preparation, packing, crating or cartage
unless stated in the applicable Order. Unless otherwise directed by Boeing, all
standard routing shipments forwarded on one day must be consolidated. Each
container must be consecutively numbered and marked as set forth below.
Container and Order numbers must be indicated on the applicable bill of lading.
Two copies of the packing sheets must be attached to the No. 1 container of each
shipment and one copy in each individual container. Each pack sheet must
include as a minimum the following: a) Seller's name, address and phone number;
b) Order and item number; c) ship date for the Products; d) total quantity
shipped and quantity in each container, if applicable; e) legible pack slip
number; f) nomenclature; g) unit of measure; h) ship to if other than Boeing; i)
warranty data and certification, as applicable; j) rejection tag, if applicable;
k) Seller's certification that Products comply with Order requirements; and, 1)
identification of optional material used, if applicable. Products sold F.O.B.
place of shipment must be forwarded collect. Seller may not make any
declaration concerning the value of the Products shipped, except on Products
where the tariff rating or rate depends on the released or declared value, and
in such event the value shall be released or declared at the maximum value for
the lowest tariff rating or rate.
The following markings shall be included on each unit container: a)
Seller's name; b) Seller's part number, if applicable; c) Boeing part number, if
applicable; d) part nomenclature; e) Order number; f) quantity of Products in
container; g) unit of measure; h) serial number, if applicable; i) date
(quarter/year) identified as assembly or rubber cure date, if applicable; j)
precautionary handling instructions or marking as required.
In addition, the following markings/labels shall be included on each
shipping container: a) Name and address of consignee; b) Name and address of
consignee; c) Order number; d)
-6-
<PAGE>
Part number as shown on the Order; e) Quantity of Products in container; f) Unit
of measure; g) Box number; h) Total number of boxes in shipment; and, i)
Precautionary handling, labeling or marking as required.
8. QUALITY ASSURANCE, INSPECTION, REJECTION AND ACCEPTANCE
8.1 CONTROLLING DOCUMENT
The controlling quality assurance document for Orders shall be as set forth
in the SBP Section 4.0.
8.2 SELLER'S INSPECTION
Seller shall inspect or otherwise verify that all Products and components
thereof, including those procured from or furnished by subcontractors or Boeing,
comply with the requirements of the Order prior to shipment to Boeing or
Customer. Seller shall be responsible for all tests and inspections of the
Product and any component thereof during receiving, manufacture and Seller's
final inspection. Seller shall include on each packing sheet a certification
that the Products comply with the requirements of the Order.
8.2.1 SELLER'S DISCLOSURE
Seller will immediately notify Boeing when discrepancies in Seller's
processes or Product are discovered or suspected for Products Seller has
delivered.
8.3 BOEING'S INSPECTION AND REJECTION
Unless otherwise specified on an Order, Products shall be subject to final
inspection and acceptance by Boeing at destination, notwithstanding any payment
or prior inspection. Boeing may reject any Product which does not strictly
conform to the requirements of the applicable Order. Boeing shall by notice,
rejection tag or other communication notify Seller of such rejection. Whenever
possible, Boeing may coordinate with Seller prior to disposition of the rejected
Product(s), however, Boeing shall retain final disposition authority with
respect to all rejections. At Seller's risk and expense, all such Products will
be returned to Seller for immediate repair, replacement or other correction and
redelivery to Boeing; provided, however, that with respect to any or all of such
Products and at Boeing's election and at Seller's risk and expense, Boeing may:
(a) hold, retain, or return such Products without permitting any repair,
replacement or other correction by Seller; (b) hold or retain such Products for
repair by Seller or, at Boeing's election, for repair by Boeing with such
assistance from Seller as Boeing may require; (c) hold such Products until
Seller has delivered conforming replacements for such Products; (d) hold such
Products until conforming replacements are obtained from a third party; (e)
return such Products with instructions to
-7-
<PAGE>
Seller as to whether the Products shall be repaired or replaced and as to the
manner of redelivery; or (f) return such Products with instructions that they be
scrapped. Upon final disposition by Boeing that the non-conforming Product(s)
are not subject to repair and prior to the Products being scrapped, Seller shall
render the Product(s) unusable. Seller shall also maintain, pursuant to their
quality assurance system, records certifying destruction of the applicable
Products. Said certification shall state the method and date of mutilation and
destruction of the subject Product(s). Boeing shall have the right to review
and inspect these records at any time it deems necessary. Failure to comply
with these requirements shall be a material breach of this Agreement and grounds
for default pursuant to GTA Section 13.0. All repair, replacement and other
corrections and redelivery shall be completed within such time as Boeing may
require. All costs and expenses, loss of value and any other damages incurred
as a result of or in connection with nonconformance and repair, replacement or
other correction may be recovered from Seller by an equitable price reduction,
set-off or credit against any amounts that may be owed to Seller under the
applicable Order or otherwise.
Boeing may revoke its acceptance of any Products and have the same rights
with regard to the Products involved as if it had originally rejected them.
8.4 FEDERAL AVIATION ADMINISTRATION OR EQUIVALENT GOVERNMENT AGENCY INSPECTION
Representatives of Boeing, the FAA or any equivalent government
agency may inspect and evaluate Seller's plant including, but not limited to,
Seller's and subcontractor's
facilities, systems, data, equipment, inventory holding areas, procedures,
personnel, testing, and all work-in-process and completed Products. For
purposes of this Section 8.4, equivalent government agency shall mean those
governmental agencies so designated by the FAA or those agencies within
individual countries which maintain responsibility for assuring aircraft
airworthiness.
8.5 RETENTION OF RECORDS
Quality assurance records shall be maintained on file at Seller's facility
and available
to Boeing's authorized representatives. Seller shall retain such records for a
period of
not less than seven (7) years from the date of final payment under the
applicable Order.
8.6 SOURCE INSPECTION
If an Order contains a notation that "100% Source Inspection" is required,
the Products shall not be packed for shipment until they have been submitted to
Boeing's quality assurance representative for inspection. Both the packing list
and Seller's invoice must reflect evidence of this inspection.
-8-
<PAGE>
8.7 LANGUAGE FOR TECHNICAL INFORMATION
All reports, drawings and other technical information submitted to Boeing
for review
or approval shall be in English and shall employ the units of measure
customarily used by Boeing in the U.S.A.
9. EXAMINATION OF RECORDS
Seller shall maintain complete and accurate records showing the sales
volume of all Products. Such records shall support all services performed,
allowances claimed and costs incurred by Seller in the performance of each
Order, including but not limited to those factors which comprise or affect
direct labor hours, direct labor rates, material costs, burden rates and
subcontracts. Such records and other data shall be capable of verification
through audit and analysis by Boeing and be available to Boeing at Seller's
facility for Boeing's examination and audit at all reasonable times from the
date of the applicable Order until three (3) years after final payment under
such order. Seller shall provide assistance to interpret such data if requested
by Boeing. Such examination shall provide Boeing with complete information
regarding Seller's performance for use in price negotiations with Seller
relating to existing or future orders for Products, including but not limited to
negotiation of equitable adjustments for changes and termination/obsolescence
claims pursuant to GTA Section 10.0. Boeing shall treat all information
disclosed under this Section as confidential.
10. CHANGES
10.1 GENERAL
Boeing's Materiel Representative may at any time by written change order
make changes within the general scope of an Order in any one or more of the
following: drawings, designs, specifications, shipping, packing, place of
inspection, place of delivery place of acceptance, adjustments in quantities,
adjustments in delivery schedules, or the amount of Boeing furnished material.
Seller shall proceed immediately to perform the Order as changed. If any such
change causes an increase or decrease in the cost of or the time required for
the performance of any part of the work, whether changed or not changed by the
change order, an equitable adjustment shall be made in the price of or the
delivery schedule for those Products affected, and the applicable Order shall be
modified in writing accordingly. Any claim by Seller for adjustment under this
Section 10.1 must be received by Boeing in writing no later than (60) days from
the date of receipt by Seller of the written change order or within such further
time as the parties may agree in writing or such claim shall be deemed waived.
Nothing in this Section 10.1 shall excuse Seller from proceeding with an Order
as changed, including failure of the parties to agree on any adjustment to be
made under this Section 10.1.
-9-
<PAGE>
If Seller considers that the conduct of any of Boeing's employees has
constituted a change hereunder, Seller shall immediately notify Boeing's
Materiel Representative in writing as to the nature of such conduct and its
effect on Seller's performance. Pending direction from Boeing's Materiel
Representative, Seller shall take no action to implement any such change.
10.2 MODEL MIX
In the event any Derivative aircraft(s) is introduced by Boeing, Boeing may
(but is not obligated to) direct Seller within the scope of the applicable Order
and in accordance with the provisions of GTA Section 10.0 to supply Boeing's
requirements for Products for such Derivative aircraft(s) which correspond to
those Products being produced under the applicable Order.
11. PRODUCT ASSURANCE
Boeing's acceptance of any Product does not alter or affect the obligations
of Seller or the rights of Boeing and its customers under the document
referenced in the SBP Section 6.0 or as provided by law.
12. TERMINATION FOR CONVENIENCE
12.1 BASIS FOR TERMINATION; NOTICE
Boeing may, from time to time and at Boeing's sole discretion, terminate
all or part of any Order issued hereunder, by written notice to Seller. Any
such written notice of termination shall specify the effective date and the
extent of any such termination.
12. TERMINATION INSTRUCTIONS
On receipt of a written notice of termination pursuant to GTA Section 12.1,
unless otherwise directed by Boeing, Seller shall:
(a) Immediately stop work as specified in the notice;
(b) Immediately terminate its subcontracts and purchase orders
relating to work terminated;
(c) Settle any termination claims made by its subcontractors or
suppliers; provided, that Boeing shall have approved the amount of such
termination claims prior to such settlement;
-10-
<PAGE>
(d) Preserve and protect all terminated inventory and Products;
(e) At Boeing's request, transfer title (to the extent not previously
transferred) and deliver to Boeing or Boeing's designee all supplies and
materials, work-in-process, Tooling and manufacturing drawings and data produced
or acquired by Seller for the performance of this Agreement and any Order, all
in accordance with the terms of such request;
(f) Take all reasonable steps required to return, or at Boeing's
option and with prior written approval to destroy, all Boeing Proprietary
Information and Items in the possession, custody or control of Seller;
(g) Take such other action as, in Boeing's reasonable opinion, may be
necessary, and as Boeing shall direct in writing, to facilitate termination of
this Order; and
(h) Complete performance of the work not terminated.
12.3 SELLER'S CLAIM
If Boeing terminates an Order in whole or in part pursuant to Section 12.1
above, Seller shall have the right to submit a written termination claim to
Boeing in accordance with the terms of this Section 12.3. Such termination
claim shall be submitted to Boeing not later than six (6) months after Seller's
receipt of the termination notice and shall be in the form prescribed by Boeing.
Such claim must contain sufficient detail to explain the amount claimed,
including detailed inventory schedules and a detailed breakdown of all costs
claimed separated into categories (e.g., materials, purchased parts, finished
components, labor, burden, general and administrative), and to explain the basis
for allocation of all other costs. Seller shall be entitled to be compensated
in accordance with and to the extent allowed under the terms of FAR 52-249-2(e)-
(m) excluding (i), (as published in 48 C.F.R. Section 52.249-2) which is
incorporated herein by this reference except "Government" and "Contracting
Officer" shall mean Boeing, "Contractor" shall mean Seller and "Contract" shall
mean Order.
12.4 FAILURE TO SUBMIT A CLAIM
Notwithstanding any other provision of this Section 12.0, if Seller fails
to submit a termination claim within the time period set forth above, Seller
shall be barred from submitting a claim and Boeing shall have no obligation for
payment to Seller under this Section 12.0 except for those Products previously
delivered and accepted by Boeing.
12.5 PARTIAL TERMINATION
-11-
<PAGE>
Any partial termination of an Order shall not alter or affect the terms and
conditions of the Order or any Order with respect to Products not terminated.
12.6 PRODUCT PRICE
Termination under any of the above paragraphs shall not result in any
change to unit prices for Products not terminated.
12.7 EXCLUSIONS OR DEDUCTIONS
The following items shall be excluded or deducted from any claim submitted
by Seller:
(a) All unliquidated advances or other payments made by Boeing to
Seller pursuant to a terminated Order;
(b) Any claim which Boeing has against Seller;
(c) The agreed price for scrap allowance;
(d) Except for normal spoilage and any risk of loss assumed by
Boeing, the agreed fair value of property that is lost, destroyed, stolen or
damaged.
12.8 PARTIAL PAYMENT/PAYMENT
Payment, if any, to be paid under this Section 12.0 shall be made thirty
(30) days after settlement between the parties or as otherwise agreed to between
the parties. Boeing may make partial payments and payments against costs
incurred by Seller for the terminated portion of the Order, if the total of such
payments does not exceed the amount to which Seller would be otherwise entitled.
If the total payments exceed the final amount determined to be due, Seller shall
repay the excess to Boeing upon demand.
12.9 SELLER'S ACCOUNTING PRACTICES
Boeing and Seller agree that Seller's "normal accounting practices" used in
developing the price of the Product(s) shall also be used in determining the
allocable costs at termination. For purposes of this Section 12.9, Seller's
"normal accounting practices" refers to Seller's method of charging costs as
either a direct charge, overhead expense, general administrative expense, etc.
12.10 RECORDS
-12-
<PAGE>
Unless otherwise provided in this Agreement or by law, Seller shall
maintain all records and documents relating to the terminated portion of the
Order for three (3) years after final settlement of Seller's termination claim.
13. EVENTS OF DEFAULT AND REMEDIES
13.1 EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall constitute
an "Event of Default":
(a) Any failure by Seller to deliver, when and as required by this
Agreement or any Order, any Product, except as provided in GTA Section 14.0; or
(b) Any failure by Seller to provide an acceptable Assurance of
Performance within the time specified in GTA Section 17.0, or otherwise in
accordance with applicable law; or,
(c) Any failure by Seller to perform or comply with any obligation
set forth in GTA Section 20.0; or
(d) Seller is or has participated in the sale, purchase or
manufacture of airplane parts without the required approval of the FAA.
(e) Any failure by Seller to perform or comply with any obligation
(other than as described in the foregoing Sections 13.1.A, 13.1.B, 13.1.C and
13.1.D) set forth in this Agreement and such failure shall continue unremedied
for a period of thirty (30) days or more following receipt by Seller of notice
from Boeing specifying such failure; or
(f) (a) the suspension, dissolution or winding-up of Seller's
business, (b) Seller's insolvency, or its inability to pay debts, or its
nonpayment of debts, as they become due, (c) the institution of reorganization,
liquidation or other such proceedings by or against Seller or the appointment of
a custodian, trustee, receiver or similar Person for Sellers properties or
business, (d) an assignment by Seller for the benefit of its creditors, or (e)
any action of Seller for the purpose of effecting or facilitating any of the
foregoing.
13.2 REMEDIES
If any Event of Default shall occur:
-13-
<PAGE>
(a) CANCELLATION
Boeing may, by giving written notice to Seller, immediately cancel this
Agreement and/or any Order, in whole or in part, and Boeing shall not be
required after such notice to accept the tender by Seller of any Products with
respect to which Boeing has elected to cancel this Agreement.
(b) COVER
Boeing may manufacture, produce or provide, or may engage any other persons
to manufacture, produce or provide, any Products in substitution for the
Products to be delivered or provided by Seller hereunder with respect to which
this Agreement or any Order has been canceled and, in addition to any other
remedies or damages available to Boeing hereunder or at law or in equity, Boeing
may recover from Seller the difference between the price for each such Product
and the aggregate expense, including, without limitation, administrative and
other indirect costs, paid or incurred by Boeing to manufacture, produce or
provide, or engage other persons to manufacture, produce or provide, each such
Product.
(c) REWORK OR REPAIR
Boeing may rework or repair any Product in accordance with GTA Section 8.3;
(d) SETOFF
Boeing shall, at its option, have the right to set off against and apply to
the payment or performance of any obligation, sum or amount owing at any time to
Boeing hereunder or under any Order, all deposits, amounts or balances held by
Boeing for the account of Seller and any amounts owed by Boeing to Seller,
regardless of whether any such deposit, amount, balance or other amount or
payment is then due and owing.
(e) TOOLING AND OTHER MATERIALS
As compensation for the additional costs which Boeing will incur as a
result of the actual physical transfer of production capabilities from Seller to
Boeing or Boeing's designee, Seller shall upon the request of Boeing, transfer
and deliver to Boeing or Boeing's designee title to any or all (i) Tooling, (ii)
Boeing-furnished material, (iii) raw materials, parts, work-in-process,
incomplete or completed assemblies, and all other Products or parts thereof in
the possession or under the effective control of Seller or any of its
subcontractors, (iv) Proprietary Information and Materials of Boeing including
without limitation planning data, drawings and other Proprietary Information and
Materials relating to the design, production, maintenance, repair and use of
Tooling, in the possession or under the effective control of Seller or any of
its subcontractors, in each case free and clear of all liens, claims or other
rights of any person.
-14-
<PAGE>
Seller shall be entitled to receive from Boeing reasonable compensation for
any item accepted by Boeing which has been transferred to Boeing pursuant to
this Section 13.2.E (except for any item the price of which shall have been paid
to Seller prior to such transfer); provided, however, that such compensation
shall not be paid directly to Seller, but shall be accounted for as a setoff
against any damages payable by Seller to Boeing as a result of any Event of
Default.
(f) REMEDIES GENERALLY
No failure on the part of Boeing in exercising any right or remedy
hereunder, or as provided by law or in equity, shall impair, prejudice or
constitute a waiver of any such right or remedy, or shall be construed as a
waiver of any Event of Default or as an acquiescence therein. No single or
partial exercise of any such right or remedy shall preclude any other or further
exercise thereof or the exercise of any other right or remedy. No acceptance of
partial payment or performance of any of Seller's obligations hereunder shall
constitute a waiver of any Event of Default or a waiver or release of payment or
performance in full by Seller of any such obligation. All rights and remedies
of Boeing hereunder and at law and in equity shall be cumulative and not
mutually exclusive and the exercise of one shall not be deemed a waiver of the
right to exercise any other. Nothing contained in this Agreement shall be
construed to limit any right or remedy of Boeing now or hereafter existing at
law or in equity.
14. EXCUSABLE DELAY
If delivery of any Product is delayed by unforeseeable circumstances beyond
the control and without the fault or negligence of Seller or of its suppliers or
subcontractors (any such delay being hereinafter referred to as "Excusable
Delay"), the delivery of such Product shall be extended for a period to be
determined by Boeing after an assessment by Boeing of alternate work methods.
Excusable Delays may include, but are not limited to, acts of God, war, riots,
acts of government, fires, floods, epidemics, quarantine restrictions, freight
embargoes, strikes or unusually severe weather, but shall exclude Seller's
noncompliance with any rule, regulation or order promulgated by any governmental
agency for or with respect to environmental protection. However, the above
notwithstanding, Boeing expects Seller to continue production, recover lost time
and support all schedules as established under this Agreement or any Order.
Therefore, it is understood and agreed that (i) delays of less than two (2)
days' duration shall not be considered to be Excusable Delays unless such delays
shall occur within thirty (30) days preceding the scheduled delivery date of any
Product and (ii) if delay in delivery of any Product is caused by the default of
any of Seller's subcontractors or suppliers, such delay shall not be considered
an Excusable Delay unless the supplies or services to be provided by such
subcontractor or supplier are not obtainable from other sources in sufficient
time to permit Seller to meet the applicable delivery schedules. If delivery of
any Product is delayed by any Excusable Delay for more than three (3) months,
Boeing may, without any additional extension, cancel all or part of any Order
with respect to
-15-
<PAGE>
the delayed Products, and exercise any of its remedies in accordance with GTA
Section 13.2 provided however, that Boeing shall not be entitled to monetary
damages or specific performance to the extent Seller's breach is the result of
an Excusable Delay.
15. SUSPENSION OF WORK
Boeing may at any time, by written order to Seller, require Seller to stop
all or any part of the work called for by this Agreement hereafter referred to
as a "Stop Work Order" issued pursuant to this Section 15. On receipt of a Stop
Work Order, Seller shall promptly comply with its terms and take all reasonable
steps to minimize the occurrence of costs arising from the work covered by the
Stop Work Order during the period of work stoppage. Within the period covered
by the Stop Work Order (including any extension thereof) Boeing shall either (i)
cancel the Stop Work Order or (ii) terminate or cancel the work covered by the
Stop Work Order in accordance with the provisions of GTA Section 12.0 or 13.0.
In the event the Stop Work Order is canceled by Boeing or the period of the Stop
Work Order (including any extension thereof) expires, Seller shall promptly
resume work in accordance with the terms of this Agreement or any applicable
Order.
16. TERMINATION OR CANCELLATION AND INDEMNITY
AGAINST SUBCONTRACTOR CLAIMS
Boeing shall not be liable for any loss or damage resulting from any
termination pursuant to GTA Section 12. 1, except as expressly provided in GTA
Section 12.3 or any cancellation under GTA Section 13.0 except to the extent
that such cancellation shall have been determined by Boeing and Seller to have
been wrongful, in which case such wrongful cancellation shall be deemed a
termination pursuant to GTA Section 12.1 and therefore shall be limited to the
payment to Seller of the amount or amounts identified in GTA Section 12.3. As
subcontractor claims are included in Seller's termination claim pursuant to GTA
Section 12.3, Seller shall indemnify Boeing and hold Boeing harmless from and
against (i) any and all claims, suits and proceedings against Boeing by any
subcontractor or supplier of Seller in respect of any such termination and (ii)
any and all costs, expenses, losses and damages incurred by Boeing in connection
with any such claim, suit or proceeding.
17. ASSURANCE OF PERFORMANCE
(a) SELLER TO PROVIDE ASSURANCE
If Boeing determines, at any time or from time to time, that it is not
sufficiently assured of Seller's full, timely and continuing performance
hereunder, or if for any other reason Boeing has reasonable grounds for
insecurity, Boeing may request, by notice to Seller, written assurance
(hereafter an "Assurance of Performance") with respect to any specific matters
affecting Seller's performance hereunder, that Seller is able to perform all of
its
-16-
<PAGE>
respective obligations under this Agreement when and as specified herein. Each
Assurance of Performance shall be delivered by Seller to Boeing as promptly as
possible, but in any event no later than 15 calendar days following Boeing's
request therefore and each Assurance of Performance shall be accompanied by any
information, reports or other materials, prepared by Seller, as Boeing may
reasonably request. Boeing may suspend all or any part of Boeing's performance
hereunder until Boeing receives an Assurance of Performance from Seller
satisfactory in form and substance to Boeing.
(b) MEETINGS AND INFORMATION
Boeing may request one or more meetings with senior management or other
employees of Seller for the purpose of discussing any request by Boeing for
Assurance of Performance or any Assurance of Performance provided by Seller.
Seller shall make such persons available to meet with representatives of Boeing
as soon as may be practicable following a request for any such meeting by Boeing
and Seller shall make available to Boeing any additional information, reports or
other materials in connection therewith as Boeing may reasonably request.
18. RESPONSIBILITY FOR PROPERTY
On delivery to Seller or manufacture or acquisition by it of any materials,
parts, Tooling or other property, title to any of which is in Boeing, Seller
shall assume the risk of and shall be responsible for any loss thereof or damage
thereto. In accordance with the provisions of an Order, but in any event on
completion thereof, Seller shall return such property to Boeing in the condition
in which it was received except for reasonable wear and tear and except to the
extent that such property has been incorporated in Products delivered under such
Order or has been consumed in the normal performance of work under such Order.
19. LIMITATION OF SELLER'S RIGHT TO ENCUMBER ASSETS
Seller warrants to Boeing that it has good title to all inventory, work-in-
process, tooling and materials to be supplied by Seller in the performance of
its obligations under any Order ("Inventory"), and that pursuant to the
provisions of such Order, it will transfer to Boeing title to such Inventory,
whether transferred separately or as part of any Product delivered under the
Order, free of any liens, charges, encumbrances or rights of others.
20. PROPRIETARY INFORMATION AND ITEMS
Boeing and Seller shall each keep confidential and protect from disclosure
all (a) confidential, proprietary, and/or trade secret information; (b) tangible
items containing, conveying, or embodying such information; and (c) tooling
obtained from and/or belonging to the other in connection with this Agreement or
any Order (collectively referred to as "Proprietary Information and Materials").
Boeing and Seller shall each use Proprietary
-17-
<PAGE>
Information and Materials of the other only in the performance of and for the
purpose of this Agreement and/or any Order. Provided, however, that despite any
other obligations or restrictions imposed by this Section 20.0, Boeing shall
have the right to use and disclose of Seller's Proprietary Information and
Materials for the purposes of testing, certification, use, sale, or support of
any item delivered under this Agreement, an Order, or any airplane including
such an item; and any such disclosure by Boeing shall, whenever appropriate,
include a restrictive legend suitable to the particular circumstances. The
restrictions on disclosure or use of Proprietary Information and Materials by
Seller shall apply to all materials derived by Seller or others from Boeing's
Proprietary Information and Materials. Upon Boeing's request at any time, and
in any event upon the completion, termination or cancellation of this Agreement,
Seller shall return all of Boeing's Proprietary Information and Materials, and
all materials derived from Boeing's Proprietary Information and Materials to
Boeing unless specifically directed otherwise in writing by Boeing. Seller
shall not, without the prior written authorization of Boeing, sell or otherwise
dispose of (as scrap or otherwise) any parts or other materials containing,
conveying, embodying, or made in accordance with or by reference to any
Proprietary Information and Materials of Boeing. Prior to disposing of such
parts or materials as scrap, Seller shall render them unusable. Boeing shall
have the right to audit Seller's compliance with this Section 20.0. Seller may
disclose Proprietary Information and Materials of Boeing to its subcontractors
as required for the performance of an Order, provided that each such
subcontractor first assumes, by written agreement, the same obligations imposed
upon Seller under this Section 20.0 relating to Proprietary Information and
Materials; and Seller shall be liable to Boeing for any breach of such
obligation by such subcontractor. The provisions of this Section 20.0 are
effective in lieu of, and will apply notwithstanding the absence of, any
restrictive legends or notices applied to Proprietary Information and Materials;
and the provisions of this Section 20.0 shall survive the performance,
completion, termination or cancellation of this Agreement or any Order. This
Section 20.0 supersedes and replaces any and all other prior agreements or
understandings between the parties to the extent that such agreements or
understandings relate to Boeing's obligations relative to confidential,
proprietary, and/or trade secret information, or tangible items containing,
conveying, or embodying such information, obtained from Seller and related to
any Product, regardless of whether disclosed to the receiving party before or
after the effective date of this Agreement.
21. COMPLIANCE WITH LAWS
21.1 SELLER'S OBLIGATION
Seller shall be responsible for complying with all laws, including, but not
limited to, any statute, rule, regulation, judgment, decree, order, or permit
applicable to its performance under this Agreement. Seller further agrees (1)
to notify Boeing of any obligation under this Agreement which is prohibited
under applicable environmental law, at the earliest opportunity but in all
events sufficiently in advance of Seller's performance of such obligation so as
to
-18-
<PAGE>
enable the identification of alternative methods of performance, and (2) to
notify Boeing at the earliest possible opportunity of any aspect of its
performance which becomes subject to additional environmental regulation or
which Seller reasonably believes will become subject to additional regulation
during the performance of this Agreement.
21.2 GOVERNMENT REQUIREMENTS
If any of the work to be performed under this Agreement is performed in the
United States, Seller shall, via invoice or other form satisfactory to Boeing,
certify that the Products covered by the Order were produced in compliance with
Sections 6, 7, and 12 of the Fair Labor Standards Act (29 U.S.C. 201-291), as
amended, and the regulations and orders of the U. S. Department of Labor issued
thereunder. In addition, the following Federal Acquisition Regulations are
incorporated herein by this reference except "Contractor" shall mean "Seller":
FAR 52.222-26 "Equal Opportunity"
FAR 52.222-35 "Affirmative Action for Special Disabled and
Vietnam Era Veterans"
FAR 52.222-36 "Affirmative Action for Handicapped Workers"
22. INTEGRITY IN PROCUREMENT
Boeing's policy is to maintain high standards of integrity in procurement.
Boeing's employees must ensure that no favorable treatment compromises their
impartiality in the procurement process. Accordingly, Boeing's employees must
strictly refrain from soliciting or accepting any payment, gift, favor or thing
of value which could improperly influence their judgment with respect to either
issuing a Order or administering this Agreement. Consistent with this policy,
Seller agrees not to provide or offer to provide any employees of Boeing any
payment, gift, favor or thing of value for the purposes of improperly obtaining
or rewarding favorable treatment in connection with any Order or this Agreement.
Seller shall conduct its own procurement practices and shall ensure that its
suppliers conduct their procurement practices consistent with these standards.
If Seller has reasonable grounds to believe that this policy may have been
violated, Seller shall immediately report such possible violation to the
appropriate Director of Materiel or Ethics Advisor of Boeing.
23. INFRINGEMENT
Seller shall indemnify, defend, and save Boeing and Customers harmless from
all claims, suits, actions, awards (including but not limited to awards based on
intentional infringement of patents known to Seller at the time of such
infringement, exceeding actual damages, and/or including attorneys' fees and/or
costs), liabilities, damages, costs and attorneys' fees related to the actual or
alleged infringement of any United States or foreign intellectual property right
(including but not limited to any right in a patent, copyright,
-19-
<PAGE>
industrial design or semiconductor mask work, or based on misappropriation or
wrongful use of information or documents) and arising out of the manufacture,
sale or use of Products by Boeing or Customers. Boeing and/or Customers shall
duly notify Seller of any such claim, suit or action; and Seller shall, at its
own expense, fully defend such claim, suit or action on behalf of Boeing and/or
Customers. Seller shall have no obligation under this Section 23 with regard to
any infringement arising from: (i) Seller's compliance with formal
specifications issued by Boeing where infringement could not be avoided in
complying with such specifications or (ii) use or sale of Products in
combination with other items when such infringement would not have occurred from
the use or sale of those Products solely for the purpose for which they were
designed or sold by Seller. For purposes of this Section 23 only, the term
Customer shall not include the United States Government; and the term Boeing
shall include The Boeing Company (Boeing) and all Boeing subsidiaries and all
officers, agents, and employees of Boeing or any Boeing subsidiary.
24. BOEING'S RIGHTS IN SELLER'S PATENTS, COPYRIGHTS,
TRADE SECRETS AND TOOLING
Seller hereby grants to Boeing an irrevocable, non-exclusive, paid-up
worldwide license to practice and/or use, and license others to practice and/or
use on Boeing's behalf, all of Seller's patents, copyrights, trade secrets
(including, without limitation, designs, processes, drawings, technical data and
tooling), industrial designs, semiconductor mask works, and tooling
(collectively hereinafter referred to as "Licensed Property") related to the
development, production, maintenance or repair of Products. Boeing hereafter
retains all of the aforementioned license rights in Licensed Property, but
Boeing hereby covenants not to exercise such rights except in connection with
the making, having made, using and selling of Products or products of the same
kind, and then only in the event of any of the following:
(a) Seller discontinues or suspends business operations or the
production of any or all of the Products;
(b) Seller is acquired by or transfers any or all of its rights to
manufacture any Product to any third party, whether or not related;
(c) Boeing cancels this Agreement or any Order for cause pursuant to
GTA Section 13.0 herein;
(d) in Boeing's judgment it becomes necessary, in order for Seller to
comply with the terms of this Agreement or any Order, for Boeing to provide
support to Seller (in the form of design, manufacturing, or on-site personnel
assistance) substantially in excess of that which Boeing normally provides to
its suppliers;
-20-
<PAGE>
(e) Seller's trustee in bankruptcy (or Seller as debtor in
possession) fails to assume this Agreement and all Orders by formal entry of an
order in the bankruptcy court within sixty (60) days after entry of an order for
relief in a bankruptcy case of the Seller, or Boeing elects to retain its rights
to Licensed Property under the bankruptcy laws;
(f) Seller is at any time insolvent (whether measured under a balance
sheet test or by the failure to pay debts as they come due) or the subject of
any insolvency or debt assignment proceeding under state or nonbankruptcy law;
or
(g) Seller voluntarily becomes a debtor in any case under bankruptcy
law or, in the event an involuntary bankruptcy petition is filed against Seller,
such petition is not dismissed within thirty (30) days.
As a part of the license granted under this Section 24.0, Seller shall, at
the written request of Boeing and at no additional cost to Boeing, promptly
deliver to Boeing any and all Licensed Property considered by Boeing to be
necessary to satisfy Boeing's requirements for Products and their substitutes.
25. NOTICES
25.1 ADDRESSES
Notices and other communications shall be given in writing by personal
delivery, mail, telex, teletype, telegram, facsimile, cable or other electronic
transmission addressed to the respective party as set forth in the SBP Section
9.0.
25.2 EFFECTIVE DATE
The date on which any such communication is received by the addressee is
the effective date of such communication.
25.3 APPROVAL OR CONSENT
With respect to all matters subject to the approval or consent of either
party, such approval or consent shall be requested in writing and is not
effective until given in writing. With respect to Boeing, authority to grant
approval or consent is limited to Boeing's Materiel Representative.
26. PUBLICITY
Seller will not, and will require that its subcontractors and suppliers of
any tier will not, (i) cause or permit to be released any publicity,
advertisement, news release, public
-21-
<PAGE>
announcement, or denial or confirmation of the same, in whatever form, regarding
any Order or Products, or the program to which they may pertain, or (ii) use, or
cause or permit to be used, the Boeing name or any Boeing trademark in any form
of promotion or publicity without Boeing's prior written approval.
27. PROPERTY INSURANCE
27.1 INSURANCE
Seller shall maintain continuously in effect a property insurance policy
covering loss or destruction of or damage to all property in which Boeing does
or could have an insurable interest pursuant to this Agreement, including but
not limited to Tooling, Boeing-furnished property, raw materials, parts, work-in
process, incomplete or completed assemblies and all other products or parts
thereof, and all drawings, specifications, data and other materials relating to
any of the foregoing in each case to the extent in the possession or under the
effective care, custody or control of Seller, in the amount of full replacement
value thereof providing protection against all perils normally covered in an
"all risk" property insurance policy (including without limitation fire,
windstorm, explosion, riot, civil commotion, aircraft, earthquake, flood or
other acts of God). Any such policy shall be in the form and with insurers
acceptable to Boeing and shall (i) provide for payment of loss thereunder to
Boeing, as loss payee, as its interests may appear and (ii) contain a waiver of
any rights of subrogation against Boeing, its subsidiaries, and their respective
directors, officers, employees and agents.
27.2 CERTIFICATE OF INSURANCE
Prior to commencement of this Agreement, Seller shall provide to Boeing's
Materiel Representative, for Boeing's review and approval, certificates of
insurance reflecting full compliance with the requirements set forth in GTA
Section 27.1. Such certificates shall be kept current and in compliance
throughout the period of this Agreement and shall provide for thirty (30) days
advanced written notice to Boeing's Materiel Representative in the event of
cancellation, non-renewal or material change adversely affecting the interests
of Boeing.
27.3 NOTICE OF DAMAGE OR LOSS
Seller shall give prompt written notice to Boeing's Materiel Representative
of the occurrence of any damage or loss to any property required to be insured
herein. If any such property shall be damaged or destroyed, in whole or in
part, by an insured peril or otherwise, and if no Event of Default shall have
occurred and be continuing, then Seller may, upon written notice to Boeing,
settle, adjust, or compromise any and all such loss or damage not in excess of
Two Hundred Fifty Thousand Dollars ($250,000) in any one occurrence and Five
Hundred Thousand Dollars ($500,000) in the aggregate. Seller may settle, adjust
or
-22-
<PAGE>
compromise any other claim by Seller only after Boeing has given written
approval, which approval shall not be unreasonably withheld.
28. RESPONSIBILITY FOR PERFORMANCE
Seller shall be responsible for the requirements of this Agreement and any
Order referencing this Agreement. Seller shall bear all risks of providing
adequate facilities and equipment to perform each Order in accordance with the
terms thereof. Seller shall include as part of its subcontracts those elements
of the Agreement which protect Boeing's rights including but not limited to
right of entry provisions, proprietary information and rights provisions and
quality control provisions. In addition, Seller shall provide to its
subcontractors sufficient information to clearly document that the work being
performed by Seller's subcontractor is to facilitate performance under this
Agreement or any Order. Sufficient information may include but is not limited
to Order number, GTA number or the name of Boeing's Materiel Representative. No
subcontracting by Seller shall relieve Seller of its obligation under the
applicable Order.
28.1 SUBCONTRACTING
Seller may not procure any Product, as defined in the applicable Order,
from a third party in a completed or a substantially completed form without
Boeing's prior written consent.
Where required by the requirements of the Order, no raw material and/or
material process may be incorporated in a Product unless: (a) Seller uses an
approved source or (b) Boeing has surveyed and qualified Seller's receiving
inspection personnel and laboratories to test the specified raw materials an/or
material process. No waiver of survey and qualification requirements will be
effective unless granted by Boeing's Engineering and Quality Control
Departments. Utilization of a Boeing-approved raw material source does not
constitute a waiver of Seller's responsibility to meet all specification
requirements.
28.2 RELIANCE
Boeing's entering into this Agreement is in part based upon Boeing's
reliance on Seller's ability, expertise and awareness of the intended use of the
Products. Seller agrees that Boeing and Boeing's customers may rely on Seller
as an expert, and Seller will not deny any responsibility or obligation
hereunder to Boeing or Boeing's customers on the grounds that Boeing or Boeing's
customers provided recommendations or assistance in any phase of the work
involved in producing or supporting the Products, including but not limited to
Boeing's acceptance of specifications, test data or the Products.
28.3 Each Order shall inure to the benefit of and be binding on each of the
parties hereto and their respective successors and assigns, provided however,
that no assignment of
-23-
<PAGE>
any rights or delegation of any duties under such Order is binding on Boeing
unless Boeing's written consent has first been obtained. Notwithstanding the
above, Seller may assign claims for monies due or to become due under any Order
provided that Boeing may recoup or setoff any amounts covered by any such
assignment against any indebtedness of Seller to Boeing, whether arising before
or after the date of the assignment or the date of this Agreement, and whether
arising out of any such Order or any other agreement between the parties.
Boeing may settle all claims arising out of any Order, including
termination claims, directly with Seller. Boeing may unilaterally assign any
rights or title to property under the Order to any wholly-owned subsidiary of
The Boeing Company.
29. NON-WAIVER
Boeing's failure at any time to enforce any provision of an Order does not
constitute a waiver of such provision or prejudice Boeing's right to enforce
such provision at any subsequent time.
30. HEADINGS
Section headings used in this Agreement are for convenient reference only
and do not affect the interpretation of the Agreement.
31. PARTIAL INVALIDITY
If any provision of any Order is or becomes void or unenforceable by force
or operation of law, the other provisions shall remain valid and enforceable.
32. APPLICABLE LAW; JURISDICTION
Each Order, including all matters of construction, validity and
performance, shall in all respects be governed by, and construed and enforced in
accordance with, the law as set forth in SBP Section 5.
33. Oral statements and understandings are not valid or binding. Except as
otherwise provided in GTA Section 10 and SBP Section 12, no Order may be changed
or modified except by a writing signed by Seller and Boeing's Materiel
Representative.
34. LIMITATION
Seller may not (except to provide an inventory of Products to support
delivery acceleration and to satisfy reasonable replacement and Spares
requirements) manufacture or fabricate Products or procure any goods in advance
of the reasonable flow time required to
-24-
<PAGE>
comply with the delivery schedule in the applicable Order. Notwithstanding any
other provision of an Order, Seller is not entitled to any equitable adjustment
or other modification of such Order for any manufacture, fabrication, or
procurement of Products not in conformity with the requirements of the Order,
unless Boeing's written consent has first been obtained. Nothing in this
Section 34 shall be construed as relieving Seller of any of its obligations
under the Order.
35. TAXES
35.1 INCLUSION OF TAXES IN PRICE
All taxes, including but not limited to federal, state and local income
taxes, value added taxes, gross receipt taxes, property taxes, and custom duties
taxes are deemed to be included in the Order price, except applicable sales or
use taxes on sales to Boeing ("Sales Taxes") for which Boeing has not supplied a
valid exemption certificate or unless otherwise indicated on the applicable
Order.
35.2 LITIGATION
In the event that any taxing authority has claimed or does claim payment
for Sales Taxes, Seller shall promptly notify Boeing, and Seller shall take such
action as Boeing may direct to pay or protest such taxes or to defend against
such claim. The actual and direct expenses, without the addition of profit and
overhead, of such defense and the amount of such taxes as ultimately determined
as due and payable shall be paid directly by Boeing or reimbursed to Seller. If
Seller or Boeing is successful in defending such claim, the amount of such taxes
recovered by Seller, which had previously been paid by Seller and reimbursed by
Boeing or paid directly by Boeing, shall be immediately refunded to Boeing.
35.3 REBATES
If any taxes paid by Boeing are subject to rebate or reimbursement, Seller
shall take the necessary actions to secure such rebates or reimbursement and
shall promptly refund to Boeing any amount recovered.
36. FOREIGN PROCUREMENT OFFSET
With respect to work covered by the Order, Seller shall use its best
efforts to cooperate with Boeing in the fulfillment of any foreign offset
program obligation that Boeing may have accepted as a condition of the sale of
Boeing's products. In the event that Seller solicits bids or proposals for, or
procures or offers to procure any goods or services relating to the work covered
by an Order from any source outside of the United States, Boeing shall be
entitled, to the exclusion of all others, to all industrial benefits and other
"offset"
-25-
<PAGE>
credits which may result from such solicitations, procurements or offers to
procure. Seller agrees to take any actions that may be required on its part to
assure that Boeing receives such credits.
37. ENTIRE AGREEMENT/ORDER OF PRECEDENCE
37.1 ENTIRE AGREEMENT
The Order sets forth the entire agreement, and supersedes any and all other
prior
agreements understandings and communications between Boeing and Seller related
to the subject matter of an Order. The rights and remedies afforded to Boeing
or Customers pursuant to any provisions of an Order are in addition to any other
rights and remedies afforded by any other provisions of this Order, by law or
otherwise.
37.2 INCORPORATED BY REFERENCE
In addition to the documents previously incorporated herein by reference,
the documents listed below are by this reference made a part of this Agreement:
(a) Engineering Drawing by Part Number and Related Outside Production
Specification Plan (OPSP).
(b) Any other exhibits or documents agreed to by the parties to be a
part of this Agreement.
37.3 ORDER OF PRECEDENCE
In the event of a conflict or inconsistency between any of the terms of the
following documents, the following order of precedence shall control:
(a) SBP (excluding the Administrative Agreement identified in E
below)
(b) This General Terms Agreement (excluding the documents identified
in D and F below)
(c) Order (excluding the documents identified in A and B above)
(d) Engineering Drawing by Part Number and, if applicable, related
Outside Production Specification Plan (OPSP)
(e) Administrative Agreement (If Applicable)
-26-
<PAGE>
(f) Any other exhibits or documents the parties agree shall be part
of the Agreement
37.4 DISCLAIMER
Unless otherwise specified on the face of the applicable Order, any CATIA
Dataset or translation thereof (each or collectively "Data") furnished by Boeing
is furnished as an accommodation to Seller. It is the Seller's responsibility
to compare such Data to the comparable two dimensional computer aided design
drawing to confirm the accuracy of the Data.
BOEING HEREBY DISCLAIMS, AND SELLER HEREBY WAIVES, ALL
WARRANTIES AND LIABILITIES OF BOEING AND ALL CLAIMS AND
REMEDIES OF SELLER, EXPRESS OR IMPLIED, ARISING BY LAW OR
OTHERWISE, WITH RESPECT TO ANY DEFECT IN ANY CATIA DATASET
OR TRANSLATION THEREOF, INCLUDING, WITHOUT LIMITATION, ANY
(A) IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE
OR FOR A PARTICULAR PURPOSE, (B) ANY IMPLIED WARRANTY
ARISING FROM COURSE OF DEALING OR PERFORMANCE OR USAGE OF
TRADE, (C) RECOVERY BASED UPON TORT, WHETHER OR NOT ARISING
FROM BOEING'S NEGLIGENCE, AND (D) ANY RECOVERY BASED UPON
DAMAGED PROPERTY, OR OTHERWISE BASED UPON DAMAGED PROPERTY,
OR OTHERWISE BASED UPON LOSS OF USE OR PROFIT OR OTHER
INCIDENTAL OR CONSEQUENTIAL DAMAGES.
EXECUTED in duplicate as of the date and year first written above by the duly
authorized representatives of the parties.
THE BOEING COMPANY CASHMERE MANUFACTURING COMPANY
by and through its division
Boeing Commercial Airplane Group
Name: /s/ Randolph L. Parks Name: /s/ John Eder
----------------------------- -----------------------------
Title: Buyer Title: Vice President
---------------------------- ----------------------------
Date: March 12, 1996 Date: March 11, 1996
----------------------------- ----------------------------
-27-
<PAGE>
Exhibit 10.52
EXTENSION AND MODIFICATION OF PROMISSORY NOTES
This Extension and Modification of Promissory Notes ("Extension
Agreement") is entered into as of April ____, 1996, by and between PCT HOLDINGS,
INC., a Nevada corporation (hereinafter "Borrower") and WILLIAM H. PAYNE; IVAN
G. SARDA; THE WALDAL FAMILY TRUST, JEFFREY H. WALDAL, TRUSTEE, AS SUCCESSOR TO
ELINOR A. WALTERS, deceased; and KATRINA A. KNOWLES (hereinafter collectively
"Lenders") with reference to the following facts:
A. In connection with a merger between Borrower, Ceramic Devices,
Inc., a Washington corporation ("CDIW"), and Ceramic Devices, Inc., a California
corporation, Borrower entered into that certain Agreement and Plan of Merger
Dated as of February 28, 1995 ("Merger Agreement"). In connection with the
Merger Agreement, Borrower became indebted to Lenders for certain amounts and
executed two promissory notes memorializing such indebtedness, as described
below.
B. The first such promissory note executed by Borrower in favor of
Lenders was dated May 10, 1995, and was in the amount of $200,000 ("$200,000
Note"). The $200,000 Note provided for a principal payment, on February 28,
1996, in the amount of $50,000, plus accrued interest, and principal payments of
$75,000 each, plus accrued interest, on February 28, 1997 and February 28, 1998,
respectively. Pursuant to the terms of the $200,000 Note, default occurred if
any installment of principal and interest was not paid within 30 days after the
date such payment became due. Borrower did not pay the principal installment or
accrued interest due on February 28, 1996, has advised Lenders that it is unable
to pay such amounts within 30 days after such date, and thus is or will soon be
in default under the terms of the $200,000 Note.
C. The second such promissory note executed by Borrower in favor of
Lenders was dated May 10, 1995, and was in the amount of $400,000 ("$400, 000
Note"). The entire balance of the principal and accrued interest on the
$400,000 Note was due and payable on November 30, 1995 pursuant to an agreement
entered into by and between Borrower and Lenders, the due date for the entire
balance of the principal and accrued interest on the $400,000 Note was extended
to March 1, 1996. Pursuant to the terms of the $400,000 Note, default occurred
if any installment of principal and interest was not paid within 30 days after
the date such payment became due. Borrower did not pay the principal balance or
accrued interest due on the extended due date of March 1, 1996, has advised
Lenders that it is unable to pay such amounts within 30 days after such date,
and thus is or will soon be in default under the terms of the $400,000 Note.
D. The Notes are secured by a first priority lien on the assets of
CDIW, a wholly owned subsidiary of the Borrower, except for the Lenders' lien on
CDIW's accounts and
-1-
<PAGE>
inventory which Lenders subordinated to the lien of Silicon Valley Bank, under
the terms of a Security Agreement dated April 27, 1995 ("Security Agreement").
E. Under the terms of the $200,000 Note and the $400,000 Note
(collectively referred to as "Notes"), in the event of Borrower's default, the
Lenders have the right to declare the entire unpaid balance, together with
accrued interest, immediately due and payable without presentment, demand,
protest or other notice of any kind ("Acceleration").
F. Lenders are willing to forbear their exercise of their right to
Acceleration and extend the due dates of the Notes provided Borrower agrees to
certain modifications of the terms of the Notes, and Borrower is willing to
agree to such modifications in exchange for such forbearance and extensions.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual agreements contained herein and for valuable consideration, receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. MODIFICATION OF PAYMENT TERMS OF $200,000 NOTE. The payment
terms of the $200,000 Note, as set forth in Paragraph 3 of the $200,000 Note,
are hereby amended and restated in their entirety to read as follows:
"3. REPAYMENT. Borrower shall pay principal and accrued
interest in full an August 31, 1996, or sooner. 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."
2. MODIFICATION OF PAYMENT TERMS OF $400,000 NOTE. The payment
terms of the $400,000 Note, as set forth in Paragraph 3 of the $400,000 Note,
are hereby amended and restated in their entirety to read as follows:
"3. REPAYMENT. Borrower shall pay principal and accrued interest
in full on August 31, 1996, or sooner. 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."
3. MODIFICATION OF INTEREST RATE. The interest rate set forth in
both Notes shall be amended to be ten percent (10%) per annum, commencing
February 28, 1996, in the case of the $200,000 Note, and March 1, 1996, in the
case of the $400,000 Note. The revised interest rate shall accrue on the entire
balance of principal plus accrued interest due on each of the Notes as of such
respective dates. The parties agree that the balance of principal and accrued
interest on each of the Notes as of such respective dates are as follows:
-2-
<PAGE>
Principal Balance Accrued Interest
Promissory Note Due Due
--------------- -------------------- --------------------
$200,000 $200,000 $12,877.67
$400,000 $400,000 $25,950.68
4. CONFIRMATION OF COLLATERAL. The parties hereto agree and confirm
that the collateral for the Notes, as evidenced by the Security Agreement, is as
act forth on Exhibit "A", attached hereto and incorporated herein by reference
as if set forth in full. All references in said Exhibit "A" to "Debtor" shall
be deemed to refer to CDIW, which is defined as the Debtor in the Financing
Statement Form UCC-1, to which Exhibit "A" was originally attached as an
exhibit, and to its successors.
5. NEGATIVE COVENANT. So long as any balance of principal and/or
accrued interest remains unpaid by Borrower under the Notes, as modified herein,
Borrower covenants and agrees that it will not expend any funds or incur any
indebtedness, other than in the ordinary course of business (which, for purposes
of this paragraph, shall be deemed to include indebtedness relating to
Borrower's working capital line of credit), in an amount exceeding ten thousand
dollars ($10,000), or issue any additional stock or securities, in any single
transaction or any series of related transactions, without Lenders' prior
written consent, which may be granted or withheld by Lenders in their sole and
absolute discretion, it being agreed by Borrower that Lenders are not required
to consent even if the withholding of such consent could be deemed unreasonable,
unless the proceeds of such transaction result in the full and immediate payment
of the outstanding balance of principal and interest due on the Notes, in which
case Lenders will consent to the proposed transaction so long as they receive
adequate assurances, acceptable to them in their sole and absolute discretion,
that the proceeds of the proposed transaction will be so applied. By way of
example only, and not in limitation of the foregoing, pursuant to the terms of
this Paragraph, Borrower shall not be permitted to acquire the stock or assets
of any other entities, whether by purchase, merger, stock exchange or otherwise;
purchase, either for cash or on credit terms, any machinery or equipment with a
cost of more than $10,000; enter into any short or long term obligations, other
than those necessary for the ordinary conduct of Borrower's business, which
require payments of more than $10,000 per month, it being expressly agreed by
the parties that any new leases for premises, equipment, furniture, fixtures,
office or operating machinery or similar items shall NOT be deemed to be in the
ordinary conduct of Borrower's business and therefore shall require Lenders'
consent hereunder; or retire or redeem any securities issued by Borrower or pay
any principal payments on debt instruments issued by Borrower or on indebtedness
owed by Borrower, in excess of the minimum amounts which Borrower is obligated
to periodically pay on such obligations as of the date of execution of this
Extension Agreement.
6. AFFIRMATIVE COVENANT. So long as any balance of principal and/or
accrued interest remains unpaid by Borrower under the Notes, as modified herein,
Borrower covenants and agrees that all proceeds it receives from any financing
or securities transactions, including, but not limited to, issuance of
securities, or securing of new financing or loans, but excluding
-3-
<PAGE>
any funds advanced to Borrower on its working capital line of credit in the
ordinary course of business, shall be immediately applied towards the
indebtedness owed on the Notes, without regard to whether the principal and
accrued interest on the Notes are then due.
7. COSTS. Borrower shall pay all costs incurred by Lenders or
Borrower in the negotiation and drafting of this Extension Agreement and related
documents, including, but not limited to, Lenders' attorneys' fees incurred in
connection with discussions concerning Borrower's default under the Notes and
this Extension Agreement.
8. OTHER TERMS. Except as specifically modified hereby, the terms
of the Notes and the Merger Agreement shall remain in full force and effect and
shall not be deemed modified, amended or revoked and, in particular, Lenders'
original priority in the collateral set forth in the Security Agreement and the
rights, benefits, duties, or obligations of the parties under the Notes and
Security Agreement (collectively "Loan Documents") are unaffected by this
Extension Agreement. Except as specifically modified hereby, Borrower hereby
confirms and acknowledges that: (a) Loan Documents are in full force and
effect; (b) the Borrower is liable under the Loan Documents in accordance with
their terms, as modified hereby; (c) Borrower's liability under the Notes is not
limited to the value of the Collateral, as set forth in Exhibit "A", but shall
be for the full balance due on the Notes, together with accrued and unpaid
interest and all other amounts which may be due from Borrower to Lenders under
the Notes, the Security Agreement or otherwise; and (d) the Lenders have
performed all of their obligations under the Loan Documents to this date. The
entire principal and interest due on the Notes, as amended hereby, is and shall
continue to be secured by the collateral set forth in the Security Agreement,
until paid in full.
9. GENERAL PROVISIONS.
9.1 ENTIRE AGREEMENT. This Extension Agreement contains the
entire agreement between the parties pertaining to the subject matter hereof and
supersedes any and all prior agreements, representations and understandings of
the parties, written or oral.
9.2 GOVERNING LAW. This Extension Agreement and the
obligations of the parties hereunder shall be interpreted, construed and
enforced in accordance with the laws of the State of Washington.
9.3 NO WAIVER. 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.
-4-
<PAGE>
9.4 SEVERABILITY. If any provision of this Extension Agreement
or the application thereof to any person or circumstance shall be invalid or
unenforceable, but the extent of such invalidity or unenforceability does not
destroy the basis of the bargain between the parties as contained herein, the
remainder of this Extension Agreement and the application of such provision or
provisions to other persons or circumstances shall not be affected thereby and
shall be enforced to the greatest extent permitted by law.
9.5 BINDING EFFECT. This Extension Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, personal representatives, successors and assigns.
This Extension Agreement, or any right or interest hereunder, shall not be
assignable by any party hereto without the written consent of any other party
hereto.
9.6 COUNTERPARTS. This Extension 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 Extension 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.
9.7 AUTHORITY. 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 Extension Agreement and to carry out
the transactions contemplated hereby. The execution, delivery and performance
by the parties to this Extension 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, any person, firm, corporation or
governmental entity or agency necessary or appropriate to consummate the
transaction contemplated hereby.
9.8 FURTHER ASSURANCES. 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 Extension Agreement.
9.9 CUMULATIVE RIGHTS AND REMEDIES. 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.
9.10 THIRD PARTY BENEFICIARIES. No person shall have any rights
whatsoever under this Extension Agreement unless such person is a party to this
Extension Agreement, and only in such capacities as such person is a party
hereto.
9.11 ADVICE OF COUNSEL. Each party represents and warrants that
in executing this Extension Agreement: (1) such party has had the opportunity to
obtain independent accounting, financial, investment, legal, tax and other
appropriate advice; (2) the terms of the
-5-
<PAGE>
Extension Agreement have been carefully read by such party and its consequences
explained to such party by his or its independent advisors; (3) such party fully
understands the terms and consequences of this Extension Agreement; (4) such
party has not relied on any inducements, promises or representations made by the
other party (except those expressly set forth herein) or the accountants,
attorneys or other agents representing or serving the other party; and (5) its
execution of this Extension Agreement is free and voluntary.
9.12 ATTORNEYS' FEES. In the event of any dispute between
parties to this Extension Agreement, the prevailing party shall be entitled to
immediate payment of all costs incurred by such party in such dispute,
including, but not limited to, court costs and reasonable attorneys' fees.
9.13 AMENDMENT AND WAIVER. No provision of this Extension
Agreement or any of the documents referred to herein may be amended, modified,
supplemented, changed, waived, discharged or terminated, except by a writing
signed by or on behalf of each party hereto.
9.14 INTERPRETATION. This Extension Agreement shall be construed
in accordance with its fair meaning as if prepared by all parties hereto, and
shall not be interpreted against either party on the basis that it was prepared
by one party or the other. The captions, headings, and subcaptions used in this
Extension Agreement are for convenience only and do not in any way affect,
limit, amplify or modify the terms and provisions thereof.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date first above written.
"LENDER":
/S/ William H Payne
---------------------------------------
WILLIAM H. PAYNE
/S/ Ivan G. Sarda
--------------------------------------------
IVAN G. SARDA, as Trustee U/T/A
dated 6/26/87
/S/ Jeffrey H. Waldal
---------------------------------------
JEFFREY H. WALDAL, Successor
Trustee of the Waldal Family Trust
dated March 19, 1979, as amended
on April 23, 1994, as successor to
ELINOR A. WALTERS, deceased
-6-
<PAGE>
/S/ Katrina A. Knowles
---------------------------------------
KATRINA A. KNOWLES
/S/ Gregory B. Knowles
---------------------------------------
GREGORY B. KNOWLES
"BORROWER":
PCT HOLDINGS, INC., a Nevada corporation
By: /S/ Donald A. Wright
-----------------------------------
DONALD A. WRIGHT
President
-7-
<PAGE>
EXHIBIT 10.54
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of April 23, 1996, by
and among PCT Holdings, Inc., a Nevada corporation; Ceramic Devices, Inc., a
California corporation; Cashmere Manufacturing Co., Inc., a Washington
corporation; and Pacific Coast Technologies, Inc., a Washington corporation
(jointly and severally the "Borrower"), whose address is c/o PCT Holdings, Inc.,
434 Olds Station Road, Wenatchee, WA 98801 and Silicon Valley Bank ("Silicon")
whose address is 3003 Tasman Drive, Santa Clara, CA 95054.
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may
be owing by Borrower to Silicon, Borrower is indebted to Silicon pursuant to,
among other documents, a Loan and Security Agreement, dated April 24, 1995,
together with all Schedules thereto, as amended (the "Loan Agreement"). The
Loan Agreement provided for, among other things, a Secured Accounts Receivable
Line of Credit in the original principal amount of Two Million Five Hundred
Thousand and 00/100 Dollars ($2,500,000.00) (the "Line"). The Line has been
modified pursuant to a Loan Modification Agreement dated August 24, 1995.
Defined terms used but not otherwise defined herein shall have the same meanings
as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Silicon shall be referred to
as the "Indebtedness".
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the indebtedness is
secured by the collateral as described in the Loan Agreement, and a Patent and
Trademark Security Agreement and Conditional Assignment, together with all
attachments thereto, and a Security Agreement in Copyrighted Works, each dated
April 24, 1995.
Hereinafter the above-described security documents and guaranties, together with
all other documents securing repayment of the Indebtedness shall be referred to
as the "Security Documents". Hereinafter, the Security Documents, together with
all other documents evidencing or securing the Indebtedness shall be referred to
as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO SCHEDULE TO LOAN AGREEMENT.
1. Section 1.3 entitled "Maturity Date", is hereby amended in its
entirety, to read as follows:
<PAGE>
May 26, 1996, at which time all unpaid principal and accrued by
unpaid interest shall be due and payable.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. COUNTERPARTS. This [Loan Modification Agreement] may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that it has no defenses against the obligations to pay any amounts
under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness,
Silicon is relying upon Borrower's representations, warranties, and agreements,
as set forth in the Existing Loan Documents. Except as expressly modified
pursuant to this Loan Modification Agreement, the terms of the Existing Loan
Documents remain unchanged and in full force and effect. Silicon's agreement to
modifications to the existing Indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Silicon to make any future modifications to
the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Silicon and Borrower
to retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Silicon in writing. No maker,
endorser, or guarantor will be released by virtue of this Loan Modification
Agreement. The terms of this paragraph apply not only to this Loan Modification
Agreement, but also to all subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: SILICON:
PCT HOLDINGS, INC. SILICON VALLEY BANK
By: /s/ Nick A. Gerde By: /s/ Eric Siow
-------------------------------- ------------------------------------
Name: Nick A. Gerde Name: Eric Siow
Title: Vice President Title: Vice President
<PAGE>
CERAMIC DEVICES, INC.
By:/s/ Nick A. Gerde
--------------------------------
Name: Nick A. Gerde
Title: Vice President
CASHMERE MANUFACTURING CO., INC.
By:/s/ Nick A. Gerde
--------------------------------
Name: Nick A. Gerde
Title: Vice President
PACIFIC COAST TECHNOLOGIES, INC.
By:/s/ Nick A. Gerde
--------------------------------
Name: Nick A. Gerde
Title: Vice President
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to the Registration
Statement on Form SB-2 (File No. 333-5011) of our report dated June 15, 1996 on
our audits of the consolidated financial statements of PCT Holdings, Inc. and
Subsidiaries. We also consent to the reference to our firm under the caption
"Experts."
/S/ MOSS ADAMS LLP
Everett, Washington
June 18, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
PCT Holdings, Inc.
Wenatchee, Washington
We hereby consent to the inclusion in this Amendment No. 1 to the
Registration Statement on Form SB-2 (File No. 333-5011) of our report dated
November 8, 1995, except for Notes 4 and 9 as to which the date is December 1,
1995, relating to the consolidated financial statements of Morel Industries,
Inc.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/S/ BDO SEIDMAN, LLP
Seattle, Washington
June 18, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF COUNSEL
We consent to the reference to our firm under the caption "Legal Matters"
in the Registration Statement on Form SB-2 (File No. 333-5011), and the related
Prospectus of PCT Holdings, Inc., for the registration of 2,2250,000 Units.
/s/ STOEL RIVES LLP
Seattle, Washington
June 18, 1996
