<PAGE>1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission File Number 0-26088
PCT HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 87-0431483
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
434 Olds Station Road, Wenatchee, Washington 98801
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (509) 664-8000
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of January 12, 1996,
7,199,309 shares of the Company's Common Stock, par value $.001 per share,
were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
<PAGE>2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - November 30 and May 31, 1995
Consolidated Statements of Income - Second Quarter and Six Months
Ended November 30, 1995 and 1994
Consolidated Statements of Cash Flow - Second Quarter and Six Months
Ended November 30, 1995 and 1994
Management's Statement and Notes to Consolidated Financial Statements
Supplemental Disclosure of Pooled Entities Consolidating Financial
Statements
Consolidating Balance Sheets at November 30 and May 31, 1995
Consolidating Statements of Income for the Quarters Ended November 30,
1995 and 1994, and Six Month Periods Ended November 30, 1995 and 1994
Consolidating Statements of Cash Flow for the Quarters Ended November
30, 1995 and 1994, and Six Month Periods Ended November 30, 1995 and
1994
Audited Financial Statements for Morel Industries, Inc., for the Years
Ended June 30, 1995 and 1994 (the entity acquired in the pooling
transaction)
<PAGE>3
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
NOVEMBER 30 AND MAY 31, 1995
<TABLE>
<CAPTION>
NOVEMBER 30 MAY 31
1995 1995
Assets (unaudited) (unaudited)
- ------------------------------------ ------------------- --------------
<S> <C> <C>
Current Assets
Cash $ 2,143,555 $ 1,230,462
Receivables 4,449,782 2,597,526
Inventory 6,395,476 5,311,473
Prepaid Expense 134,684 152,449
Other 7,970 751,840
------------ ------------
Total Current Assets $ 13,131,467 $ 10,043,750
------------ ------------
Net Property, Plant & Equipment 10,036,375 9,675,201
Real Estate Held for Resale 676,253 676,253
Patents, net 984,857 478,092
Costs in Excess of NBV 951,316 462,687
Non-compete Agreement 100,000 100,000
Other 403,831 81,189
------------ ------------
Total Assets $ 26,284,099 $ 21,517,172
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities
Bank Line of Credit $ 2,396,031 $ 968,539
Accounts Payable 3,064,292 2,633,798
Accrued Liabilities 1,107,482 1,058,687
Current Portion - LTD 263,610 3,449,781
Current Portion - C/L 46,440 51,000
Current Portion - N/P 1,625,000 510,000
Current Portion - Non-Com 35,000 35,000
------------ ------------
Total Current Liabilities 8,537,855 8,706,805
------------ ------------
Long Term Debt, net 5,332,512 2,467,246
Capital Leases, net 45,048 115,281
Notes Payable, net 419,197 457,644
Non-compete Agreement, net 65,000 65,000
Deferred Rent 1,041,740 1,474,495
------------ ------------
Total Liabilities 15,441,352 13,286,471
------------ ------------
Shareholders' Equity
Common Stock 16,991,113 13,794,937
Common Stock, Non Voting
Additional Paid in Capital
Accumulated Deficit (6,148,356) (5,564,236)
------------ ------------
Total Shareholders' Equity 10,842,757 8,230,701
------------ ------------
Total Liabilities & Equity $ 26,284,109 $ 21,517,172
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>4
PCT HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Second Quarters and Six Month Periods Ended November 30, 1995 and 1994
<TABLE>
<CAPTION>
Quarters Ended Six Months Ending
-------------------------------------- ----------------------------------------
November 30 November 30 November 30 November 30
1995 1994 1995 1994
Unaudited Unaudited Unaudited Unaudited
---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NET SALES $6,436,068 $5,411,482 $12,609,215 $10,872,407
COST OF SALES 5,576,125 4,827,268 11,112,625 9,710,888
------------ ------------ ------------ ------------
GROSS PROFIT 859,943 584,214 1,496,590 1,161,519
OPERATING EXPENSES 1,333,916 853,219 2,384,091 1,898,572
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (473,973) (269,005) (887,501) (737,053)
------------ ------------ ------------ ------------
OTHER INCOME AND EXPENSE
Interest Income -- -- -- --
Interest Expense (153,626) (145,991) (299,329) (263,416)
Gain on the Sale of Property -- -- -- 417,384
Financing Fee (140,000) -- (140,000) --
Other 13,950 23,635 24,212 116,040
------------ ------------ ------------ ------------
(279,676) (122,356) (415,117) 270,008
------------ ------------ ------------ ------------
NET LOSS BEFORE FEDERAL INCOME TAX (753,649) (391,361) (1,302,618) (467,045)
FEDERAL INCOME TAX -- -- -- --
------------ ------------ ------------ ------------
NET LOSS FOR THE PERIOD ($ 753,649) ($ 391,361) ($ 1,302,618) ($ 467,045)
============ ============ ============ ============
PER SHARE OF COMMON STOCK ($ 0.12) ($ 0.10) ($ 0.21) ($ 0.13)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING DURING THE PERIOD 6,288,476 3,812,673 6,193,992 3,705,513
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>5
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
SECOND QUARTER AND SIX MONTHS ENDED NOVEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
Quarters Ending Six Months Ending
-------------------------- --------------------------
November 30 November 30 November 30 November 30
1995 1994 1995 1994
Unaudited Unaudited Unaudited Unaudited
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net cash from operating activities $ (289,454) $ (700,178) $(1,650,854) $(1,179,744)
----------- ----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (783,125) (838,871) (603,786) (2,611,282)
Purchase of Patents (520,000) -- (520,000) (450,000)
Other Changes, net (446,343) (157,600) (135,042) 86,800
----------- ----------- ----------- -----------
Net cash from investing activities (1,749,468) (681,271) (1,258,828) (2,974,482)
----------- ----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Payments of Debt and Capital
Leases (592,278) (534,480) (948,125) (290,284)
Proceeds from Financing Debt 1,033,583 1,167,100 1,034,613 4,152,500
Payments on notes payable to
stockholders (31,414) (25,000) (31,414) (1,517,838)
Sale of common stock 3,416,665 625,202 3,910,036 1,035,202
Other changes, net -- 23,750 -- 49,646
----------- ----------- ----------- -----------
Net cash from financing activities 3,826,536 1,258,572 3,965,110 3,429,226
----------- ----------- ----------- -----------
NET CHANGE IN CASH 1,787,614 (124,877) 1,055,428 (725,000)
Cash, beginning of period 355,951 257,185 1,088,137 857,308
----------- ----------- ----------- -----------
Cash, end of period $ 2,143,565 $ 132,308 $ 2,143,565 $ 132,308
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>6
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-QSB - NOVEMBER 30, 1995
Management's Statement
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-QSB instructions and, in the opinion of
management, contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the Company's consolidated financial
position as of November 30, 1995 and 1994, the consolidated results of
operations for the three- and six-month periods ended November 30, 1995 and
1994, and the consolidated statements of cash flow for the three- and
six-month periods ended November 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 the
company's Annual Report on Form 10-KSB.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. The financial statements should
be read in conjunction with the audited financial statements and notes
thereto for the years ended May 31, 1995 and 1994 which have been provided
in their entirety in the Company's Form 10-KSB.
The Company entered into an Agreement and Plan of Merger with Morel
Industries, Inc., a Washington corporation ("Morel"), pursuant to which
Morel Acquisition Corporation, a Washington corporation and subsidiary of
the Company formed for the purpose of effecting the acquisition of Morel,
was merged into Morel effective, for accounting purposes, as of November
30, 1995 (the "Merger"). The Company reported this transaction on current
reports on Form 8-K dated September 28, 1995, and November 30, 1995. The
Merger is being accounted for as a pooling of interests. Accordingly, the
Company has provided the appropriate unaudited interim financial
information for the current and historical periods with disclosure
guidelines for pooling of interest accounting. Since the scope of the
transaction requires historical audited financial statements for Morel for
Form 8-K financial reporting purposes, the Company has chosen to include
those audited financial statements in this Form 10-QSB as supplemental
disclosure. Accordingly, the financial statements also should be read in
conjunction with Morel's audited financial statements, and the notes
thereto, for the years ended June 30, 1995 and 1994, which are included
herein.
The Company also entered into a purchase agreement with Seismic Safety
Products, Inc., a Florida corporation ("Florida Seismic"), pursuant to
which Seismic Safety Products, Inc., a Washington corporation and
wholly-owned subsidiary of the Company, purchased substantially all of that
Florida Seismic's, subject to certain liabilities, for consideration
consisting of cash and common stock of the Company. The Company reported
this transaction on current reports on Form 8-K dated October 24, 1995, and
November 30, 1995. Because the purchase was completed as of November 30, 1995,
the results of the transaction have been included in the consolidated
financial statements of the Company at that date. The transaction falls
below materiality guidelines for
<PAGE>7
supplemental disclosure. If reported on a proforma basis, assets including
equipment and goodwill would total approximately $572,000, with contract
debt of $36,000 and equity for the issued common stock of $483,000. The
results of operations for the three- and six-month periods ended November
30, 1995 and 1994 are not necessarily indicative of the results to be
expected for the full year. Also, certain reclassifications have been made
to the balance sheet and the statements of operations and cash flow to
conform to the 1995 presentations.
Computations of Income and Loss per Share
Income and Loss per common and common equivalent share are computed using
the weighted average number of common and common equivalent shares
outstanding during each period reflected in these financial statements.
Common equivalent shares consist of stock options, which are excluded from
the computation if antidilutive. Fully diluted income and loss per share
did not differ significantly from primary income and loss per share in any
period being reported.
The supplemental disclosure of pooled entities consolidating financial
statements follows.
<PAGE>8
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET - SUPPLEMENTAL DISCLOSURE FORM 10-QSB
NOVEMBER 30, 1995
<TABLE>
<CAPTION>
PCT HOLDINGS MOREL IND. CONSOLIDATED
NOVEMBER 30
----------------------------------------------------------------------
1995 1995 1995
Assets (unaudited) (unaudited) (unaudited)
- -------------------------------------- --------------------- ------------------ ---------------------
<S> <C> <C> <C>
Current Assets
Cash $2,523,796 $ (380,231) $2,143,565
Receivables 3,002,112 1,447,670 4,449,782
Inventory 5,449,424 946,052 6,395,476
Prepaid Expense 97,068 37,616 134,684
Other 2,386 5,584 7,970
----------- ---------- -----------
Total Current Assets $11,074,786 $2,056,691 $13,131,477
----------- ---------- -----------
Net Property, Plant & Equipment 3,482,605 6,553,770 10,036,375
Real Estate Held for Resale 676,253 --- 676,253
Patents, net 984,857 --- 984,857
Costs in Excess of NBV 951,316 --- 951,316
Non-compete Agreement 100,000 --- 100,000
Other 379,926 403,831 23,905
----------- ---------- -----------
Total Assets $17,649,743 $8,634,366 $26,284,109
=========== ========== ===========
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities
Bank Line of Credit $1,480,000 $916,031 $2,396,031
Accounts Payable 1,977,638 1,086,654 3,064,292
Accrued Liabilities 513,694 593,788 1,107,482
Current Portion - LTD 208,800 54,810 263,610
Current Portion - C/L 46,440 --- 46,440
Current Portion - N/P 725,000 900,000 1,625,000
Current Portion - Non-Com 35,000 --- 35,000
----------- ---------- -----------
Total Current Liabilities 4,986,572 3,551,283 8,537,855
----------- ---------- -----------
Long Term Debt, net 3,454,036 1,878,476 5,332,512
Capital Leases, net 45,048 --- 45,048
Notes Payable, net 150,000 269,197 419,197
Non-compete Agreement, net 65,000 --- 65,000
Deferred Rent/Taxes 169,001 872,739 1,041,740
----------- ---------- -----------
Total Liabilities 8,869,657 6,571,695 15,441,352
----------- ---------- -----------
Shareholders' Equity
Common Stock 14,928,442 41,600 16,991,113
Common Stock, Non Voting --- --- ---
Additional Paid in Capital --- 800,938 ---
Accumulated Deficit (6,148,356) 1,220,133 (6,148,356)
----------- ---------- -----------
Total Shareholders' Equity 8,780,086 2,062,671 10,842,757
----------- ---------- -----------
Total Liabilities & Equity $17,649,743 $8,634,366 $26,284,109
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>9
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET - SUPPLEMENTAL DISCLOSURE FORM 10-QSB
MAY 31, 1995 (June 30, 1995 for Morel Industries, Inc.)
<TABLE>
<CAPTION>
PCT HOLDINGS MOREL IND. CONSOLIDATED
May 31 June 30
1995 1995
Assets (unaudited) (unaudited) (unaudited)
- ------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Current Assets
Cash $ 1,078,637 $ 151,825 $ 1,230,462
Receivables 1,075,999 1,521,527 2,597,526
Inventory 4,375,162 936,311 5,311,473
Prepaid Expense 39,721 112,728 152,449
Other 278,795 473,045 751,840
------------ ------------ ------------
Total Current Assets $ 6,848,314 $ 3,195,436 $ 10,043,750
------------ ------------ ------------
Net Property, Plant & Equipment 3,008,122 6,667,079 9,675,201
Real Estate Held for Resale 676,253 -- 676,253
Patents, net 478,092 -- 478,092
Costs in Excess of NBV 462,687 -- 462,687
Non-compete Agreement 100,000 -- 100,000
Other 56,444 24,745 81,189
------------ ------------ ------------
Total Assets $ 11,629,912 $ 9,887,260 $ 21,517,172
============ ============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities
Bank Line of Credit -- $ 968,539 $ 968,539
Accounts Payable $ 1,527,467 1,106,331 2,633,798
Accrued Liabilities 518,065 540,622 1,058,687
Current Portion - LTD 2,448,000 1,001,781 3,449,781
Current Portion - C/L 51,000 -- 51,000
Current Portion - N/P 510,000 -- 510,000
Current Portion - Non-Com 35,000 -- 35,000
------------ ------------ ------------
Total Current Liabilities 5,089,532 3,617,273 8,706,805
------------ ------------ ------------
Long Term Debt, net 319,574 2,147,672 2,467,246
Capital Leases, net 115,281 -- 115,281
Notes Payable, net 457,644 -- 457,644
Non-compete Agreement, net 65,000 -- 65,000
Deferred Rent/Taxes 128,711 1,345,784 1,474,495
------------ ------------ ------------
Total Liabilities 6,175,742 7,110,729 13,286,471
------------ ------------ ------------
Shareholders' Equity
Common Stock 11,018,406 41,600 13,794,937
Common Stock, Non Voting -- 175,000 --
Additional Paid in Capital -- 825,938 --
Accumulated Deficit (5,564,236) 1,733,993 (5,564,236)
------------ ------------ ------------
Total Shareholders' Equity 5,454,170 2,776,531 8,230,701
------------ ------------ ------------
Total Liabilities & Equity $ 11,629,912 $ 9,887,260 $ 21,517,172
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>10
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF INCOME
Second Quarter Ended November 30, 1995 and 1994
SUPPLEMENTAL DISCLOSURE - FORM 10-QSB
<TABLE>
<CAPTION>
Quarter Ending Quarter Ending
------------------------------------------ -----------------------------------------
November 30 November 30 November 30 November 30 November 30 November 30
1995 1995 1995 1994 1994 1994
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
------------- ------------- -------------- -------------- ------------ --------------
PCT HOLDINGS MOREL IND. CONSOLIDATED PCT HOLDINGS MOREL IND. CONSOLIDATED
------------- ------------- -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $3,674,762 $2,761,306 $ 6,436,068 $2,819,628 $2,591,854 $ 5,411,482
COST OF SALES 2,990,826 2,585,299 5,576,125 2,238,286 2,588,982 4,827,268
----------- ----------- ----------- ----------- ----------- -----------
GROSS PROFIT 683,936 176,007 859,943 581,342 2,872 584,214
OPERATING EXPENSES 1,013,835 320,081 1,333,916 539,664 313,555 853,219
----------- ----------- ----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (329,899) (144,074) (473,973) 41,678 (310,683) (269,005)
----------- ----------- ----------- ----------- ----------- -----------
OTHER INCOME AND EXPENSE
Interest Income -- -- -- -- -- --
Interest Expense (61,818) (91,808) (153,626) (91,974) (54,017) (145,991)
Gain on the Sale of
Property -- -- -- -- -- --
Financing Fee -- (140,000) (140,000) -- -- --
Other 11 13,939 13,950 18,499 5,136 23,635
----------- ----------- ----------- ----------- ----------- -----------
(61,807) (217,869) (279,676) (73,475) (48,881) (122,356)
----------- ----------- ----------- ----------- ----------- -----------
NET LOSS BEFORE FEDERAL
INCOME TAX (391,706) (361,943) (753,649) (31,797) (359,564) (391,361)
FEDERAL INCOME TAX -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
NET LOSS FOR THE PERIOD ($ 391,706) ($ 361,943) ($ 753,649) ($ 31,797) ($ 359,564) ($ 391,361)
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>11
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF INCOME
Six Months Ended November 30, 1995 and 1994
SUPPLEMENTAL DISCLOSURE - FORM 10-QSB
<TABLE>
<CAPTION>
Six Months Ending Six Months Ending
--------------------------------------------- ---------------------------------------------
November 30 November 30 November 30 November 30 November 30 November 30
1995 1995 1995 1994 1994 1994
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
------------- ------------- -------------- -------------- ------------- --------------
PCT HOLDINGS MOREL IND. CONSOLIDATED PCT HOLDINGS MOREL IND. CONSOLIDATED
------------- ------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $ 7,131,235 $ 5,477,980 $ 12,609,215 $ 5,643,652 $ 5,228,755 $ 10,872,407
COST OF SALES 5,786,301 5,326,324 11,112,625 4,456,610 5,254,278 9,710,888
------------ ------------ ------------ ------------ ------------ ------------
GROSS PROFIT 1,344,934 151,656 1,496,590 1,187,042 (25,523) 1,161,519
OPERATING EXPENSES 1,822,522 561,569 2,384,091 1,048,612 849,960 1,898,572
------------ ------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (477,588) (409,913) (887,501) 138,430 (875,483) (737,053)
------------ ------------ ------------ ------------ ------------ ------------
OTHER INCOME AND EXPENSE
Interest Income -- -- -- -- -- --
Interest Expense (106,594) (192,735) (299,329) (185,789) (77,627) (263,416)
Gain on the Sale of -- -- -- -- 417,384 417,384
Property
Financing Fee -- (140,000) (140,000) -- -- --
Other 61 24,151 24,212 48,954 67,086 116,040
------------ ------------ ------------ ------------ ------------ ------------
(106,533) (308,584) (415,117) (136,835) 406,843 270,008
------------ ------------ ------------ ------------ ------------ ------------
NET LOSS BEFORE FEDERAL
INCOME TAX (584,121) (718,497) (1,302,618) 1,595 (468,640) (467,045)
FEDERAL INCOME TAX -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
NET LOSS FOR THE PERIOD ($ 584,121) ($ 718,497) ($1,302,618) $ 1,595 ($ 468,640) ($ 467,045)
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>12
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF CASH FLOW
SECOND QUARTER ENDED NOVEMBER 30, 1995
SUPPLEMENTAL DISCLOSURE - FORM 10-QSB
<TABLE>
<CAPTION>
PCT MOREL
HOLDINGS INDUSTRIES CONSOLIDATED
Quarters Ending
----------------------------------------
November 30 November 30 November 30
1995 1995 1995
Unaudited Unaudited Unaudited
----------- ---------- ------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net cash from operating activities $ 94,746 $(384,200) $ (289,454)
----------- --------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (764,025) (19,100) (783,125)
Purchase of Patents (520,000) -- (520,000)
Other Changes, net (504,243) 57,900 (446,343)
----------- --------- -----------
Net cash from investing activities (1,788,268) 38,800 (1,749,468)
----------- --------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Payments of Debt and Capital Leases (592,278) -- (592,278)
Proceeds from Financing Debt 948,363 85,200 1,033,563
Payments on notes payable to stockholders (31,414) -- (31,414)
Sale of common stock 3,416,665 -- 3,416,665
Other changes, net -- -- --
----------- --------- -----------
Net cash from financing activities 3,741,336 85,200 3,826,536
----------- --------- -----------
NET CHANGE IN CASH 2,047,814 (260,200) 1,787,614
Cash, beginning of period 476,051 (120,100) 355,951
----------- --------- -----------
Cash, end of period $ 2,523,865 $(380,300) $ 2,143,565
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>13
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF CASH FLOW
SECOND QUARTER ENDED NOVEMBER 30, 1994
SUPPLEMENTAL DISCLOSURE - FORM 10-QSB
<TABLE>
<CAPTION>
PCT MOREL
HOLDINGS INDUSTRIES CONSOLIDATED
Quarters Ending
----------------------------------------
November 30 November 30 November 30
1994 1994 1994
Unaudited Unaudited Unaudited
--------- ----------- -----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net cash from operating activities $(347,678) $ (352,500) $ (700,178)
--------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (141,771) (697,100) (838,871)
Purchase of Patents -- -- --
Other Changes, net -- 157,600 157,600
--------- ----------- -----------
Net cash from investing activities (141,771) (539,500) (681,271)
--------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Payments of Debt and Capital Leases (155,080) (379,400) (534,480)
Proceeds from Financing Debt 155,000 1,012,100 1,167,100
Payments on notes payable to stockholders (25,000) -- (25,000)
Sale of common stock 625,202 -- 625,202
Other Changes, net 23,750 -- 23,750
--------- ----------- -----------
Net cash from financing activities 623,872 632,700 1,256,572
--------- ----------- -----------
NET CHANGE IN CASH 134,423 (259,300) (124,877)
Cash, beginning of period 513,985 (266,800) 257,185
--------- ----------- -----------
Cash, end of period $ 648,408 $ (516,100) $ 132,308
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>14
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF CASH FLOW
SIX MONTHS ENDED NOVEMBER 30, 1995
SUPPLEMENTAL DISCLOSURE - FORM 10-QSB
<TABLE>
<CAPTION>
PCT MOREL
HOLDINGS INDUSTRIES CONSOLIDATED
Six Months Ending
------------------------------------------
November 30 November 30 November 30
1995 1995 1995
Unaudited Unaudited Unaudited
----------- ----------- -------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net cash from operating activities $ (647,054) $(1,003,800) $(1,650,854)
----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,057,686) 453,900 (603,786)
Purchase of Patents (520,000) -- (520,000)
Other Changes, net (578,542) 443,500 (135,042)
----------- ----------- -----------
Net cash from investing activities (2,156,228) 897,400 (1,258,828)
----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Payments of Debt and Capital Leases (664,725) (283,400) (948,125)
Proceeds from Financing Debt 1,034,613 -- 1,034,613
Payments on notes payable to stockholders (31,414) -- (31,414)
Sale of common stock 3,910,036 -- 3,910,036
Other changes, net -- -- --
----------- ----------- -----------
Net cash from financing activities 4,248,510 (283,400) 3,965,110
----------- ----------- -----------
NET CHANGE IN CASH 1,445,228 (389,800) 1,055,428
Cash, beginning of period 1,078,637 9,500 1,088,137
----------- ----------- -----------
Cash, end of period $ 2,523,865 $ (380,300) $ 2,143,565
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>15
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF CASH FLOW
SIX MONTHS ENDED NOVEMBER 30, 1994
SUPPLEMENTAL DISCLOSURE - FORM 10-QSB
<TABLE>
<CAPTION>
PCT MOREL
HOLDINGS INDUSTRIES CONSOLIDATED
Six Months Ending
-----------------------------------------
November 30 November 30 November 30
1994 1994 1994
Unaudited Unaudited Unaudited
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net cash from operating activities $ (143,944) $(1,035,800) $(1,179,744)
----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (247,382) (2,363,900) (2,611,282)
Purchase of Patents (450,000) -- (450,000)
Other Changes, net -- 86,800 86,800
----------- ----------- -----------
Net cash from investing activities (697,382) (2,277,100) (2,974,482)
----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Payments of Debt and Capital Leases (259,484) (30,800) (290,284)
Proceeds from Financing Debt 2,155,000 1,997,500 4,152,500
Payments on notes payable to stockholders (1,517,838) -- (1,517,838)
Sale of common stock 1,035,202 -- 1,035,202
Other changes, net 49,646 -- 49,646
----------- ----------- -----------
Net cash from financing activities 1,462,526 1,966,700 3,429,226
----------- ----------- -----------
NET CHANGE IN CASH 621,200 (1,346,200) (725,000)
Cash, beginning of period 27,208 830,100 857,308
----------- ----------- -----------
Cash, end of period $ 648,408 $ (516,100) $ 132,308
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>16
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
<PAGE>17
MOREL INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Note 4)
CURRENT ASSETS
Cash $151,825 $636,114
Accounts receivable (Note 3) 1,395,527 1,415,762
Project receivable (Note 8) 126,000 897,656
Inventories (Notes 1 and 3) 936,311 821,021
Prepaid expenses and other 112,728 28,970
- --------------------------------------------------------------------------
Total Current Assets 2,722,391 3,799,523
PROPERTY AND EQUIPMENT, less accumulated
depreciation (Notes 2 and 3) 6,667,079 2,625,767
RECEIVABLE FROM STOCKHOLDERS --- 111,403
DEFERRED BOND COSTS 24,745 ---
- --------------------------------------------------------------------------
$9,414,215 $6,536,693
==========================================================================
</TABLE>
<PAGE>18
MOREL INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line-of-credit (Note 3) $968,539 $889,554
Accounts payable 1,106,331 937,286
Accrued expenses 540,622 454,141
Current maturities of long-term debt (Note 4) 1,001,781 103,149
Pre-billed moving expenditures (Note 8) --- 768,500
- -------------------------------------------------------------------------------
Total Current Liabilities 3,617,273 3,152,630
- -------------------------------------------------------------------------------
DEFERRED SALES TAX 144,891 ---
LONG-TERM DEBT, net of current maturities
(Note 4) 2,147,672 ---
DEFERRED INCOME TAXES (Note 6) 727,848 681,645
- -------------------------------------------------------------------------------
Total Liabilities 6,637,684 3,834,275
- -------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Note 9)
Common stock, $100 par value;
2,500 shares authorized;
416 shares issued and outstanding 41,600 41,600
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 825,938 825,938
Retained earnings 1,733,993 1,659,880
- -------------------------------------------------------------------------------
Total Stockholders' Equity 2,776,531 2,702,418
- -------------------------------------------------------------------------------
$9,414,215 $6,536,693
===============================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>19
MOREL INDUSTRIES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended June 30, 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
SALES $10,707,838 $9,895,578
COST OF SALES 9,622,768 8,327,254
- -------------------------------------------------------------------------------
Gross Profit 1,085,070 1,568,324
OPERATING EXPENSES 1,189,553 1,240,742
- -------------------------------------------------------------------------------
Income (Loss) from Operations (104,483) 327,582
- -------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income 30,844 18,326
Interest expense (267,477) (130,500)
Realized recovery (loss) on investment 28,881 (77,471)
Other expense (13,886) (40,235)
- -------------------------------------------------------------------------------
Total Other Income (Expense) (221,638) (229,880)
- -------------------------------------------------------------------------------
Income (Loss) Before Extraordinary Item (326,121) 97,702
EXTRAORDINARY ITEM, gain on sale of foundry less
applicable income taxes of $151,789 and $988,134
(Note 8) 294,648 1,918,142
- -------------------------------------------------------------------------------
Income (Loss) Before Income Taxes (31,473) 2,015,844
Deferred Income Tax (Provision) Benefit (Note 6) 105,586 (38,708)
- -------------------------------------------------------------------------------
Net Income $74,113 $1,977,136
===============================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>20
MOREL INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Non-voting Additional Retained
Common Common Paid-in Earnings
Stock Stock Capital (Deficit) Total
-------- ----------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, July 1, 1993 $41,600 $175,000 $825,938 $(317,256) $ 725,282
Net income -- -- -- 1,977,136 1,977,136
------- -------- -------- ---------- ----------
BALANCE, June 30, 1994 41,600 175,000 825,938 1,659,880 2,702,418
Net income -- -- -- 74,113 74,113
------- -------- -------- ---------- ----------
BALANCE, June 30, 1995 $41,600 $175,000 $825,938 $1,733,993 $2,776,531
======= ======== ======== ========== ==========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>21
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 $74,113 $1,977,136
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Gain on sale of foundry (294,648) (1,918,142)
Depreciation and amortization 356,600 112,241
Deferred income taxes (105,586) 38,708
Settlement of stockholder receivable as a
bonus 111,403 ---
Changes in operating assets and liabilities:
Decrease (increase) in assets:
Accounts receivable 20,235 (194,725)
Inventories (115,290) (118,583)
Prepaid expenses and other (83,758) (17,096)
Increase (decrease) in liabilities
Accounts payable 169,045 (262,525)
Accrued expenses 86,481 247,960
---------- ---------
Net Cash Provided by (Used in) Operating Activities 218,595 (135,026)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale and relocation of foundry 2,508,860 3,336,528
Acquisition of property and equipment (4,492,197) (1,937,427)
Payment of relocation costs (1,963,807) (512,761)
Increase in deferred sales tax 144,891 ---
Increase in receivable from stockholder --- (111,403)
---------- ---------
Net Cash Provided by (Used in) Investing
Activities (3,802,253) 774,937
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in line-of-credit 78,985 89,555
Proceeds from long-term borrowings 3,438,868 ---
Principal payments on long-term debt (392,564) (435,660)
Increase in deferred bond costs (25,920) ---
---------- ---------
Net Cash Provided by (Used in) Financing
Activities 3,099,369 (346,105)
---------- ---------
Net Increase (Decrease) in Cash (484,289) 293,806
CASH, beginning of period $636,114 $342,308
---------- ---------
CASH, end of period $151,825 $636,114
========== =========
SUPPLEMENTAL CASH FLOWS DISCLOSURE:
Cash paid for interest $260,733 $130,500
========== =========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>22
MOREL INDUSTRIES, INC.
SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS Morel Industries, Inc. ("Morel") is a manufacturer of
AND SIGNIFICANT aluminum castings located in Entiat, Washington. During
CUSTOMER 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 Property and equipment is recorded at cost and is
EQUIPMENT depreciated using the straight-line method over estimated
useful lives as follows:
Years
----------------------------------------------------------
Office equipment 3-7
Foundry equipment 7-10
Building 15-40
----------------------------------------------------------
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.
<PAGE>23
MOREL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: Inventories consisted of the following:
Inventories
June 30, 1995 1994
-----------------------------------------------------------
Work-in-process $695,411 $593,064
Raw materials 112,538 100,812
Foundry supplies 128,362 127,145
-----------------------------------------------------------
Total inventories $936,311 $821,021
===========================================================
NOTE 2: Property and equipment consisted of the following:
Property and
Equipment June 30, 1995 1994
-----------------------------------------------------------
Machinery, equipment and
furniture $3,768,755 $2,874,282
Land and building 3,684,314 823,844
Accumulated depreciation (785,990) (1,072,359)
-----------------------------------------------------------
Net property and equipment $6,667,079 $2,625,767
===========================================================
NOTE 3: Morel has a line-of-credit with a bank with interest at the
Line-of-Credit bank's prime rate (9% at June 30, 1995) plus 2%. The
agreement allows Morel to borrow up to the lesser of
$1,000,000 or 80% of eligible accounts receivable as
defined by the bank. At June 30, 1995, $968,539 was
outstanding and $31,461 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.
NOTE 4: June 30, 1995 1994
Long-Term Debt -----------------------------------------------------------
Industrial revenue bond
payable to a bank with
monthly payments of
$19,252, including interest at
8.12% through November
2009, secured by land,
building and equipment, and
personally guaranteed by the
stockholders. $1,953,154 -
-----------------------------------------------------------
<PAGE>24
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. 277,291 -
Note payable to an
organization with monthly
payments of $1,718,
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
$757 to $44,543 including
interest at 10%. Unsecured
with maturities through
February 1996 318,320 -
Note payable to a supplier in
quarterly installments of
$25,000, plus interest at 12%
through May 1995,
unsecured. - 100,000
Other 688 3,149
-----------------------------------------------------------
$3,149,453 $103,149
Less current maturities 1,001,781 103,149
-----------------------------------------------------------
Total Long-Term Debt $2,147,672 -
===========================================================
<PAGE>25
Scheduled maturities of long-term debt as of June 30, 1995,
are as follows:
-----------------------------------------------------------
1996 $1,001,781
1997 270,316
1998 100,415
1999 109,207
2000 118,774
Thereafter 1,548,960
-----------------------------------------------------------
Total $3,149,453
===========================================================
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.
NOTE 5: Morel leases equipment and vehicles under noncancelable
Commitments and operating leases. Future minimum lease payments are as
Contingencies follows:
-----------------------------------------------------------
1996 $32,336
1997 22,142
1998 5,092
1999 1,796
2000 974
-----------------------------------------------------------
$62,340
===========================================================
Rent expense for the years ended June 30, 1995 and
1994, was $57,386 and $66,669.
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.
<PAGE>26
NOTE 6: Deferred tax liabilities are comprised of the following:
Income Taxes
-----------------------------------------------------------
June 30, 1995 1994
-----------------------------------------------------------
Property and equipment $(1,227,233) $(1,065,361)
Officers' bonus 93,424 47,964
Other 58,502 39,782
Net operating loss carryforward 347,459 295,970
-----------------------------------------------------------
$(727,848) $(681,645)
===========================================================
Morel has net operating loss carryforwards of
approximately $1,022,000 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:
June 30, 1995 1994
-----------------------------------------------------------
Income tax (provision)
benefit $110,881 $(33,219)
at the statutory rate - (2,487)
Amortization of goodwill (3,426) (1,388)
Meals and entertainment (1,869) (1,614)
Officer's life insurance
-----------------------------------------------------------
$105,586 $(38,708)
===========================================================
NOTE 7: Morel participates in a multi-employer pension plan
Employee Benefit pursuant to an agreement between Morel and its employee
Plans 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 $36,014 and $29,411 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.
<PAGE>27
NOTE 8: In 1994, Morel was required to sell its facility in Seattle,
Sale of Foundry Washington, to the Port of Seattle (the Port). Under terms
Property 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 $294,648 and $1,918,142 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
$897,656 from the Port for relocation costs. During the
year ended June 30, 1994, Morel billed the Port
$768,500 for relocation costs which had not yet been
incurred, and which are recorded in the accompanying
balance sheet as a liability.
NOTE 9: On December 1, 1995, Morel entered into an agreement to
Subsequent Events 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
$362,121 in 1995 and as of June 30, 1995, has a working
capital deficit of $894,822. 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.
<PAGE>28
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.
<PAGE>29
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview:
The Company's revenues for the three- and six-month periods ended November
30, 1995 were derived from its four operating subsidiaries involved in the
manufacture and sale of electrical connectors and instrument packages
(Pacific Coast Technologies, Inc. ("PCTI")); high quality machined aluminum
and metal parts (Cashmere Manufacturing Company, Inc. ("CMC")); ceramic
capacitors, filters and feedthroughs (Ceramic Devices, Inc. ("CDI")); and
the manufacture of cast aluminum parts and assemblies (Morel Industries,
Inc. ("Morel")). As noted previously, Morel was acquired through merger and
the transaction was accounted for as a pooling of interests as of November 30,
1995. Consequently, the historical financial information presented has been
restated to include Morel's operations. Revenues shown for the three- and
six-month periods ended November 30, 1994, were derived from the operations
of PCTI, CMC and Morel only.
Results of Operations:
Gross revenues for the quarter ended November 30, 1994, versus the same
period in 1995 increased from $5,411,482 to $6,436,068, an increase of
$1,024,586 or 18.9%. $479,324 of the increase is attributable to CDI, which
was not owned by the Company in the comparable period of the prior year,
leaving a net increase of $545,262 ($191,041 (16.6% increase) for PCTI,
$184,769 (11.1% increase) for CMC, and $169,452 (6.5% increase) for Morel).
The increase for PCTI was due to generally higher average activity among
its customer base and a much larger backlog in comparison to the same
period in the prior year. Revenue growth at CMC and Morel reflects a
steadying of monthly revenues. Gross margins for the two comparable periods
were 10.8% in 1994 versus 13.4% in 1995, an increase due primarily to the
acquisition of Morel. Management is actively recruiting and training
qualified production employees, particularly machinists, to reduce turnover
and overtime utilization.
Operating expenses increased from $853,219 for the quarter ended November
30, 1994 to $1,333,916 for the same period in 1995, an increase of
$480,697. $142,079 of the increase is due to the addition of CDI. The
balance of the increase, amounting to $338,618, is due in large part to
legal and transaction costs of the recent acquisitions of Morel and Seismic
Safety Products, mentioned previously. Interest expense was consistent
between the two periods. The financing fee recorded in the current quarter
is a result of negotiation with Morel's primary lender to allow reduction
of principal and restructuring of loan covenants and conditions. The
corresponding decline in net income from the above stated factors totaled
$362,000, from a net loss of $391,361 for the quarter ended November 30,
1994 to a net loss of $753,649 for the quarter ended November 30, 1995.
Gross revenues for the six-month period ended November 30, 1994 versus the
same period in 1995 increased from $10,872,407 to $12,609,215, an increase
of $1,736,808, or 16%. The six-month revenue trends follow the same pattern
as the second quarter, in comparison to the prior year. On a consolidated
basis, gross margins improved slightly from 10.7% to 11.9%, primarily as a
result of the increased sales levels. Operating
<PAGE>30
expenses increased $485,519, from $1,898,572 for the six-month period ended
November 30, 1994 to $2,384,091 for the same period in 1995, reflecting the
legal and transaction costs noted in the quarterly analysis above and in
the first quarter. Morel recorded a gain of $417,384 related to moving the
operation from its facility in Seattle to its new and refurbished facility
in Entiat, Washington, about 17 miles north of the Company's offices and
the Company's other subsidiary operations in Wenatchee.
The corresponding increase in net loss between the six-month period ended
November 30, 1994 and the same period in 1995 reflects the key factors of
the gain in the previous year, as well as the patent litigation, legal and
transaction costs noted previously. The net loss widened to $1,302,618 or
($0.21 per share) from $467,045 or ($0.13 per share) in the same period of
the previous year. Subsequent to the end of the second quarter of fiscal
year 1995, the Company settled the Balo patent litigation, described in
detail in previous filings. The settlement agreement includes the immediate
cessation of all litigation and the purchase by PCTI of Balo's patented
technology.
Liquidity:
At November 30, 1995, total current assets were $13,220,238, total current
liabilities were $8,461,894, for net working capital of $4,758,490, and a
current ratio of 1.56 to 1.0. Comparable amounts at May 31, 1995 were
$10,076,750 of current assets, $8,706,805 in current liabilities, for net
working capital of $1,336,945, and a current ratio of 1.15 to 1.0. Although
the Company continues to experience operating losses and acquisition
transactions requiring working capital and cash to support, the Company has
operational plans to bring each operating subsidiary to some level of
profitability during the remaining six months of fiscal year 1996. There
can be no assurance, however, that this goal will be achieved for any or
all of the Company's subsidiaries. The Company has sold 838,470 shares of
common stock during the second quarter with net proceeds of nearly $3.0
million. The funds were used primarily to satisfy the financing required
for the recent acquisitions of Morel and Seismic Safety Products, and
scheduled reductions of long term debt and working capital. The Company has
also arranged a $600,000 working capital term loan for Morel to support
operations.
The Company has initiated discussions with its primary lender to
renegotiate its lending arrangements for a working capital line. At
November 30, 1995, the Company is not in compliance with a loan provision
providing for a minimum loss of $100,000 for the current and subsequent
quarters. The loan arrangements did not anticipate the non-recurring patent
litigation costs identified previously, or the scope and extent of the
Company's acquisition opportunities and the legal and transactional costs
which resulted from those activities, and the Company is actively exploring
other equity sources. The Company's lender also has indicated its
willingness to evaluate restructuring its lending arrangements. There can
be no assurance, however, that the Company's lender will agree to
restructure such arrangements or, if it does not, that suitable equity or
debt financing will be available. Failure to restructure outstanding debt
or make alternative financing arrangements, or both, could have a
materially adverse effect on the Company's liquidity.
<PAGE>31
Capital Resources:
At November 30, 1995, the Company has no material purchase commitments for
capital equipment. Additions and/or replacements of plant and equipment are
generally provided through working capital or a trade-in for down payment
resources, and a capital lease of long-term purchase note secured by the
related equipment purchased.
Inflation:
Inflation has not had a significant impact on the Company's operations in
the past two years, and is not expected to have a significant impact in the
foreseeable future.
<PAGE>II-1
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On December 22, 1995, the Company and PCTI entered into a settlement
agreement with Balo Precision Parts, Inc. ("Balo"), pursuant to which the
parties settled patent litigation in the U.S. District Court for the
District of New Jersey involving patent infringement claims by and against
Balo. The parties have petitioned the court for a judgment of dismissal
with prejudice of all claims between PCTI and Balo. As described in the
Company's 10-QSB for the quarter ended August 31, 1995, Balo and
PCTI had been seeking damages and injunctions against each other's
continued manufacture and sale of hermetic electrical connectors, with each
company claiming that the other's hermetic connectors infringed patents
owned by it.
As part of the settlement agreement, PCTI has purchased two patents
previously owned by Balo, and Balo has received a license under these
patents from PCTI.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on November 28,
1995. The shareholders voted upon the following matters at the Annual
Meeting:
a. Election of Directors
The following eight directors nominated by the Board of Directors were
elected to serve as directors of the Company until the 1996 Annual Meeting
of Shareholders:
FOR WITHHELD
--- --------
Donald A. Wright 3,763,954 1,319
Herman L. "Jack" Jones 3,763,954 1,319
Roger P. Vallo 3,763,954 1,319
Robert L. Smith 3,498,629 266,644
Arthur S. Robinson 3,498,629 266,644
Donald B. Cotton 3,763,954 1,319
Allen W. Dahl 3,763,954 1,319
Paul Schmidhauser 3,763,954 1,319
<PAGE>II-2
b. Approval of the 1995 Stock Incentive Plan
The Company's 1995 Stock Incentive Plan, which was described in the
Company's proxy materials for the Annual Meeting, was approved by the
following vote:
FOR 3,592,799
AGAINST 19,608
ABSTAIN 117,907
c. Approval of the Independent Director Stock Plan
The Company's Independent Director Stock Plan, which was described in
the Company's proxy materials for the Annual Meeting, was approved by the
following vote:
FOR 3,575,799
AGAINST 40,827
ABSTAIN 113,647
d. Ratification of Moss Adams as the Company's Independent Auditors
The selection of Moss Adams LLP as the Company's independent auditors
was ratified by the following vote:
FOR 3,763,904
AGAINST 175
ABSTAIN 1,194
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
4.1 Registration Rights Agreement, dated December 1, 1995, by and
between PCT Holdings, Inc., a Nevada corporation, and Stephen
L. Morel and Mark Morel, as former shareholders of Morel
Industries, Inc., a Washington corporation
4.2 Registration Rights Agreement, dated November 30, 1995, by and
between PCT Holdings, Inc., a Nevada corporation, Seismic
Safety Products, Inc., a Florida corporation ("Seller"), and
various shareholders of Seller
<PAGE>II-3
10.1 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 ("Seller"), and certain affiliates of Seller
10.2 Patent Purchase Agreement, dated October 27, 1995, by and
between PCT Holdings, Inc., a Washington corporation,
Seismic Safety Products, Inc., a Washington corporation, and
James C. McGill, in his individual capacity
10.3 Patent Purchase Agreement, dated October 24, 1995, by and
between PCT Holdings, Inc., a Washington corporation,
Seismic Safety Products, Inc., a Washington corporation, and
James C. McGill and Antonio F. Fernandez, in their
individual capacities
10.4 Agreement and Plan of Merger, dated November 30, 1995, among
PCT Holdings, Inc., a Nevada corporation, Morel Acquisition
Corporation, a Washington corporation, Morel Industries,
Inc., a Washington corporation, Stephen L. Morel, and Mark
Morel
27 Financial Data Schedule
99.1 Employment Agreement, dated December 1, 1995, between Morel
Industries, Inc., a Washington corporation, and Stephen L.
Morel
99.2 Employment Agreement, dated December 1, 1995, between Morel
Industries, Inc., a Washington corporation, and Mark Morel
b. Reports on Form 8-K.
During the quarterly period ended November 30, 1995, the following
Current Reports on Form 8-K were filed with the Commission:
On September 28, 1995, the Company reported that it had signed a
letter of intent to acquire Morel Industries, Inc. ("Morel"),
subject to negotiation and execution of a definitive agreement by
both parties and approval by the respective parties' boards of
directors.
On October 24, 1995, the Company reported that it had entered
into an asset purchase agreement with Seismic Safety Products,
Inc., a Florida corporation, to purchase substantially all of
that company's assets. The Company also reported that it had
entered into agreements to purchase certain patents and related
intellectual property rights from certain affiliates
<PAGE>II-4
of Seismic. Closing of these agreements was subject to approval
by the respective companies' boards of directors.
On November 30, 1995, the Company reported that it had effected a
merger between Morel and a wholly-owned subsidiary of the
Company, had purchased substantially all of Seismic's assets, and
had closed the patent purchase agreements with certain affiliates
of Seismic.
No financial statements were filed with any of these Form 8-K reports.
<PAGE>II-5
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PCT HOLDINGS, INC.
Date: January 12, 1996 /s/ Donald A. Wright
----------------------------------
Donald A. Wright, President & CEO
Date: January 12, 1996 /s/ Nick A. Gerde
----------------------------------
Nick A. Gerde, Vice President,
Chief Financial Officer, and Principal
Accounting Officer
<PAGE>II-6
EXHIBIT INDEX
Exhibit Sequential
Number Description Page
4.1 Registration Rights Agreement, dated December *
1, 1995, by and between PCT Holdings, Inc., a
Nevada corporation, and Stephen L. Morel and
Mark Morel, as former shareholders of Morel
Industries, Inc., a Washington corporation
4.2 Registration Rights Agreement, dated November *
30, 1995, by and between PCT Holdings, Inc.,
a Nevada corporation, Seismic Safety
Products, Inc., a Florida corporation
("Seller"), and various shareholders of
Seller
10.1 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
("Seller"), and certain affiliates of Seller
10.2 Patent Purchase Agreement, dated October 27,
1995, by and between PCT Holdings, Inc., a
Washington corporation, Seismic Safety
Products, Inc., a Washington corporation, and
James C. McGill, in his individual capacity
10.3 Patent Purchase Agreement, dated October 24,
1995, by and between PCT Holdings, Inc., a
Washington corporation, Seismic Safety
Products, Inc., a Washington corporation, and
James C. McGill and Antonio F. Fernandez, in
their individual capacities
10.4 Agreement and Plan of Merger, dated November *
30, 1995, among PCT Holdings, Inc., a
Nevada corporation, Morel Acquisition
Corporation, a Washington corporation, Morel
Industries, Inc., a Washington corporation,
Stephen L. Morel, and Mark Morel
<PAGE>II-7
27 Financial Data Schedule
99.1 Employment Agreement, dated December 1, 1995,
between Morel Industries, Inc., a Washington
corporation, and Stephen L. Morel
99.2 Employment Agreement, dated December 1, 1995,
between Morel Industries, Inc., a Washington
corporation, and Mark Morel
- -----------------------
* Incorporated by reference from the Company's Form 8-K dated November 30,
1995 (SEC file no. 0-26088).
<PAGE>1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into
as of this 27th day of October, 1995, by and between PCT HOLDINGS, INC., a
Nevada corporation ("PCTH"), PCT HOLDINGS, INC., a Washington corporation
and wholly owned subsidiary of PCTH ("PCTH-WA"), SEISMIC SAFETY PRODUCTS,
INC., a Washington corporation and wholly owned subsidiary of PCTH-WA
("Buyer"), SEISMIC SAFETY PRODUCTS, INC., a Florida corporation ("Seller"),
JAMES C. McGILL ("J. McGill"), ROBERT L. McGILL ("R. McGill") and WADE L. KOHN
("Kohn"). J. McGill, R. McGill and Kohn are together referred to as the
"Affiliates," and each is sometimes referred to as an "Affiliate."
RECITALS
--------
A. Seller is currently in the business of manufacturing and selling
automatic earthquake gas shut-off valves and other earthquake safety
products (the "Business");
B. On or about the date of this Agreement, PCTH-WA and Buyer are
entering into a Patent Purchase Agreement with J. McGill and Antonio F.
Fernandez (the "McGill/Fernandez Agreement"), pursuant to which Buyer will
purchase all of the interest of Messrs. J. McGill and Fernandez in one
United States Letter Patent, U.S. Patent No. 5,409,031, granted on April
25, 1995, one United States Patent Application, U.S. Patent Application No.
08/403,098, filed on March 13, 1995, and one International Patent
Application, International Application No. PCT/US95/04830, filed on April
24, 1995 (collectively, the "Patents") and certain intellectual property
rights related thereto.
C. Seller is a party to a License Agreement dated April 24, 1995 (the
"License Agreement"), pursuant to which Seller licenses the Patents for use
in the Business.
D. The Affiliates are the holders of 1,447,000 of the 2,685,000 issued
and outstanding shares of Seller's capital stock.
E. Buyer desires to purchase from Seller, and Seller desires to sell,
substantially all of the assets of the Business, on the terms and subject
to the conditions set forth in this Agreement.
F. To induce PCTH, PCTH-WA and Buyer to enter into this Agreement,
Seller and R. McGill have agreed to enter into a noncompetition agreement,
as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto covenant
and agree as follows:
<PAGE>2
AGREEMENT
---------
1. PURCHASE AND SALE.
-----------------
1.1 Agreement to Sell and Purchase. Upon the basis of the
representations and warranties, for the consideration, and subject to the
terms and conditions set forth in this Agreement, Seller hereby agrees to
sell, transfer, assign and convey to Buyer, and Buyer hereby agrees to
purchase, on the Closing Date (as defined in Section 1.7), all of the
assets, properties, and rights of Seller (other than the excluded assets
specified in Section 1.2), tangible and intangible and wherever located,
including all of the assets necessary or useful to maintain and operate the
Business (the "Assets"), which Assets shall include, without limitation:
(a) Personal Property. All items of tangible personal property,
such as manufacturing, computer and office equipment; drawings, designs and
blueprints; tooling; molds; furniture; fixtures; materials and supplies;
inventory (whether raw materials, work in process, or finished goods); and
spare and replacement parts; including without limitation all such items
listed or described on Schedule 1.1(a) and all such items acquired by
Seller after the date of this Agreement and on or before the Closing Date,
other than to the extent such items are disposed of by Seller prior to the
Closing Date in the ordinary course of business without breach of this
Agreement;
(b) Contracts. All rights, benefits and interests of Seller under
the contracts, agreements, commitments, purchase orders, sales orders,
documents and leases listed on Schedule 1.1(b) or entered into between the
date of this Agreement and the Closing Date and expressly assumed by Buyer
in writing on the Closing Date (the "Contracts");
(c) Intellectual Property. All proprietary rights and intangible
property of Seller, such as trade secrets, technology, software, operating
systems, customer lists, know-how, formulae, slogans, processes, operating
rights, goodwill, trade names, and the exclusive right to use the name
"Seismic Safety Products, Inc." and any derivation thereof, and all such
items acquired by Seller or coming into existence between the date of this
Agreement and the Closing Date (the "Intellectual Property");
(d) Receivables. Any accounts receivable of Seller, including
without limitation all such items reflected on Schedule 1.1(d) or arising
between the date of this Agreement and the Closing Date;
(e) Prepaid Expenses. Any deposits or prepaid or deferred items
of Seller, such as prepaid insurance; and
(f) Records. All operating data and records relating to the
Business, including without limitation financial and accounting records,
correspondence, budgets, and engineering and manufacturing records.
1.2 Excluded Assets. The Assets shall not include the following:
(a) Corporate Documents. Seller's corporate seal, minute books,
charter documents and corporate stock record books; or
<PAGE>3
(b) Contracts. Any lease, contract, agreement, commitment,
understanding, purchase order, sales order, document or instrument not
listed on Schedule 1.1(b), unless Buyer expressly agrees in writing on the
Closing Date to assume the obligations thereunder, in which case Seller
shall assign its rights and benefits thereunder to Buyer and the same shall
be treated as a "Contract" for purposes of this Agreement.
1.3 Assumption of Liabilities. Except for obligations arising under
the Contracts after the Closing Date and obligations specifically listed on
Schedule 1.3, Buyer will not assume and will not be liable for any
liabilities of Seller, known or unknown, contingent or absolute, accrued or
other, and the Assets shall be free of all liabilities, obligations, liens
and encumbrances. Without limiting the generality of the foregoing, and
except as otherwise provided above, Buyer will not be responsible for any:
(a) liabilities, obligations or debts of Seller for any federal, state or
local tax of any nature; (b) liabilities or obligations of Seller to
employees (including without limitation accrued vacation or any other
employee benefit or severance arrangement); (c) liabilities or obligations
of Seller relating to issuances of securities; (d) liabilities or
obligations of Seller incurred in connection with distributions to
shareholders or in connection with any corporate dissolution; or (e)
liabilities or obligations of Seller under any "Environmental Law," as such
term is defined in Section 2.19.
1.4 Purchase Price. The total purchase price for the Assets (the
"Purchase Price") shall be (i) $70,000 in cash, plus (ii) 128,750 fully
paid and nonassessable, unregistered shares of common stock, $.001 par
value, of PCTH (the "PCTH Common Stock").
1.5 Payment of Purchase Price.
(a) Cash. $41,666.00 of the Purchase Price has been advanced
prior to the date of this Agreement, and the remainder shall have been
advanced prior to Closing.
(b) PCTH Common Stock. A certificate representing the shares of
PCTH Common Stock referred to in Section 1.4(ii) shall be delivered to
Seller at the Closing (as defined in Section 1.7).
1.6 Transfer Documents. Provided that all conditions precedent
contained in this Agreement have been fulfilled or waived, Seller shall
deliver to Buyer, upon payment of the Purchase Price at the Closing Date,
assignments, bills of sale, and such other instruments of transfer (in form
and substance satisfactory to PCTH, PCTH-WA and Buyer) as may be necessary
to transfer to Buyer all of the right, title and interest of Seller in and
to the Assets, free and clear of any liens, claims or encumbrances of any
kind.
1.7 Closing. The closing of the transaction contemplated in this
Agreement (the "Closing") shall take place on November 30, 1995 (the
"Closing Date") at the offices of Stoel Rives, 3600 One Union Square,
Seattle, Washington, or at such other time and place as the parties may
agree.
<PAGE>4
2. REPRESENTATIONS AND WARRANTIES OF SELLER.
----------------------------------------
Seller and R. McGill, jointly and severally, represent and
warrant, and J. McGill and Kohn each severally represents and
warrants to the best of his knowledge and belief, to PCTH, PCTH-WA and
Buyer that:
2.1 Due Organization. Seller is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Florida and
has full corporate power and corporate authority operate the Business and
to enter into and perform its obligations under this Agreement. Seller is
not required to be qualified to do business as a foreign corporation in any
jurisdiction. Seller has 2,685,000 shares of common stock issued and
outstanding, all of which are validly issued, fully paid and nonassessable
and held as set forth on Schedule 2.1.
2.2 Due Authorization. Seller has full corporate power and corporate
authority to execute and deliver this Agreement and to perform and carry
out its obligations under this Agreement. Each of the Affiliates has full
power and authority to execute and deliver this Agreement and to perform
and carry out his obligations under this Agreement. This Agreement has been
duly and validly executed and delivered by Seller and each of the
Affiliates and is binding upon and enforceable against Seller and each of
the Affiliates in accordance with its terms, except as such enforcement may
be limited by equitable principles or by applicable bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights generally. The
execution and delivery of this Agreement (as well as all instruments,
agreements, certificates, or other documents contemplated hereby) by Seller
and each of the Affiliates, and the performance of their obligations
thereunder, will not (a) violate any federal, state, county, or local law,
rule, or regulation or any applicable decree or judgment of any court or
governmental authority, (b) violate any provision of the Articles of
Incorporation or Bylaws of Seller, or (c) violate or conflict with, or
permit the cancellation of, or constitute a default under, any agreement to
which Seller is a party or by which Seller or its property is bound.
2.3 Consents and Approvals. Other than in accordance with the License
Agreement, no consent, approval or authorization of, or filing or
registration with, any court, regulatory authority, governmental body, or
any other third party is required for the consummation of the transaction
contemplated in this Agreement.
2.4 Financial Statements. Seller has furnished to Buyer complete and
correct copies of all financial records and reports of Seller and all
communications with shareholders regarding the financial status of Seller.
Seller has not prepared annual or other periodic financial statements since
1992.
2.5 Absence of Certain Changes. Except as set forth in Schedule 2.5,
since January 1, 1995:
(a) No Damage. Seller has not sustained any damage, destruction
or loss, materially and adversely affecting the Business;
(b) No Debt. Seller has not incurred debt for borrowed money
(including without limitation obligations under leases for real or personal
property) and has
<PAGE>5
not incurred or increased any obligation or liability except in the ordinary
and usual course of its business, nor has Seller forgiven or released any
debt or claim, given any waiver of any right of material value or suffered
any extraordinary loss;
(c) No Dividends. Seller has not declared or made any dividend
payment or other distribution of property on or with respect to any share
of its capital stock;
(d) No Redemptions. Seller has not purchased, redeemed or
otherwise acquired or committed itself to acquire, directly or indirectly,
any share or shares of its capital stock;
(e) No Liens. Seller has not mortgaged, pledged, otherwise
encumbered or subjected to lien any of the Assets or committed itself to do
any of the foregoing, except for liens for current taxes that are not yet
due and payable and purchase money liens arising out of the purchase or
sale of products or services in the ordinary and usual course of business;
and
(f) No Transfers. Seller has not, except in the ordinary and
usual course of business and in each case for fair consideration, disposed
of, or agreed to dispose of, any of the Assets, or leased or licensed to
others or agreed to lease or license, any of the Assets.
2.6 Real Property. Seller owns no real property and has no other
interest in any real property except the lease described in Schedule
1.1(b).
2.7 Personal Property. Except as set forth in Schedule 2.7, Seller has
good and marketable title to all personal property it purports to own,
including without limitation all of the personal property identified in
Schedule 1.1(a), free and clear of all mortgages, pledges, liens,
conditional sales agreements, leases or other encumbrances of any kind or
nature. Except as indicated in Schedule 2.7, the personal property of
Seller is in good operating condition and free from material defects.
2.8 Leases of Real and Personal Property. Schedule 1.1(b) sets forth a
complete and correct description of all leases of real or personal property
of which Seller is the lessee or the sublessee. Except as described in
Schedule 2.8, each lease is valid and subsisting and no event or condition
exists that constitutes, or after notice or lapse of time or both would
constitute, a default thereunder that could reasonably be expected to
result in the loss of quiet enjoyment by Seller of the real or personal
property that is the subject of the lease.
2.9 Contracts. Schedule 1.1(b) contains a complete list of all of the
contracts or agreements to which Seller is a party or by which Seller is
bound. The Contracts are valid, binding and enforceable in accordance with
their terms. Seller has performed, or is now performing, its obligations
under the Contracts. Except as described on Schedule 2.9, Seller is not in
material default (and would not by the lapse of time and/or the giving of
notice be in material default) in respect of any of the Contracts, and
Seller has not received notice or warning of alleged nonperformance, delay
in delivery or other noncompliance with respect to its obligations under
any of the Contracts or any notice that any of the Contracts may be totally
or partially terminated or suspended by the other parties thereto.
<PAGE>6
2.10 Employment Contracts. Seller is not a party to or bound by any
employment, collective bargaining or other labor contract or consulting
agreements.
2.11 Insurance. Schedule 2.11 contains a complete list of all
insurance policies maintained by Seller covering any property or asset of,
or otherwise insuring, Seller or any of the Assets. All policies of fire,
liability, workers' compensation and other forms of insurance owned or held
by and insuring Seller or the Assets are in full force and effect, all
premiums with respect thereto covering all periods up to and including the
date as of which this representation is being made have been paid, and no
notice of cancellation or termination has been received with respect to any
such policy which was not replaced on substantially similar terms prior to
the date of such cancellation. Such policies are valid and outstanding
policies. Seller has not been refused any insurance with respect to its
assets or operations nor had its coverage limited by any insurance carrier
during the 12 months prior to the month in which this representation is
made.
2.12 Intellectual Property Rights. Seller does not own any patents,
trademarks, copyrights or service marks. Seller owns, or possesses adequate
licenses or other rights to use, all other Intellectual Property used in
the Business, and the Intellectual Property is sufficient to conduct the
Business as it has been and is now being conducted. The operations of
Seller do not conflict with or infringe, and no one has asserted that such
operations conflict with or infringe, upon any proprietary rights owned,
possessed or used by any third party. Seller has not received notice of any
claims, disputes, actions, proceedings, suits or appeals pending against
Seller that if adversely determined could result in a loss of any
Intellectual Property, and none has been threatened. That certain Patent
Transfer and Royalty Agreement dated March 14, 1994, between Seller and J.
McGill is void and of no effect and was superseded by the License
Agreement.
2.13 Accounts Receivable. Schedule 1.1(d) is a complete and accurate
schedule of the accounts receivable of Seller as of the date of this
Agreement. These accounts receivable (a) have arisen in the ordinary course
of business of Seller; (b) represent valid obligations due to Seller,
enforceable in accordance with their terms; and (c) will be collected in
the ordinary course of business and will not be subject to any recoupments,
setoffs or counterclaims.
2.14 Absence of Undisclosed Liabilities. Except as disclosed in the
Schedules to this Agreement, Seller has no material liabilities or
obligations of any nature, whether accrued, absolute, contingent or
otherwise (including without limitation liabilities as guarantor or
otherwise with respect to obligations of others) and whether due or to
become due, including without limitation any liabilities for taxes. All of
the cash portion of the Purchase Price that has been advanced to Seller, or
that will be advanced prior to the Closing Date, has been used or will be
used to pay outstanding debts to creditors.
2.15 Taxes. All taxes, assessments, fees, imposts, levies and other
charges of any kind, including without limitation interest and penalties,
upon Seller, by any taxing authority, federal, state, local or foreign
("Taxes"), that have become due and payable have been paid, other than
those not yet delinquent. Seller has duly filed with the appropriate
government agencies all returns and reports with respect to Taxes required
to be filed by it. No waiver of any statute of limitations relating to
Taxes has been executed or given by Seller or any
<PAGE>7
affiliated corporation. There is no pending federal, state or local tax
dispute concerning Seller or in any way affecting the Business
or the Assets.
2.16 Litigation. There is no action, dispute, claim, proceeding, suit,
appeal or investigation pending against Seller or involving the Business or
any of the Assets before any court, agency, authority, arbitration panel or
other tribunal, and, to the best of the knowledge of the Affiliates and
Seller, none has been threatened. To the best of the knowledge of the
Affiliates and Seller, there are no facts that, if forming the basis of any
action, dispute, claim, proceeding, suit, appeal or investigation by any
customer, governmental authority or other person, could reasonably be
expected to result in a judgment or other determination that would have a
material adverse effect on the Business or the Assets. Neither Seller nor
any of the Assets is subject to any judgment, order, writ, injunction or
decree of any court, agency, authority, arbitration panel or other
tribunal, nor has Seller received notice that it is in default with respect
to any judgment, order, writ, injunction or decree. There are no actions,
proceedings, suits, investigations or inquiries pending that question the
validity of this Agreement or any action taken or to be taken pursuant
hereto.
2.17 Compliance with Laws. The Business has been conducted in
accordance with all applicable laws, rules, regulations, orders, licenses,
permits and authorizations of federal, state, local and foreign
governmental authorities, and there are in full force and effect all
licenses, permits and authorizations necessary for Seller to operate the
Business as presently conducted. Seller has not received any notice of
alleged violations that would provide a reasonable basis for a
determination by any court, agency, authority, arbitration panel or other
tribunal of any material liability against Seller.
2.18 Labor Matters. Seller is in compliance with applicable laws
respecting employment practices, terms and conditions of employment and
wages and hours, and Seller is not engaged in any unfair labor practice.
2.19 Environmental Matters. Except as described on Schedule 2.19, no
"Hazardous Substance," as hereinafter defined, is or has been used,
treated, stored, disposed of, released, spilled, generated, manufactured or
otherwise handled on any real property owned or leased by Seller (the "Real
Estate") or has otherwise come to be located on or under the Real Estate.
All wastes generated by the Business have been properly disposed of or
recycled in compliance with all applicable Environmental Laws. No
"Asbestos-Containing Material," as hereinafter defined, is present in any
of the Assets. For purposes of this Agreement, "Hazardous Substance" shall
mean any hazardous, toxic, radioactive or infectious substance, material or
waste as defined or listed under any Environmental Law. "Environmental Law"
shall mean any federal, state or local statute, regulation or ordinance
pertaining to the protection of human health or the environment.
"Asbestos-Containing Material" shall mean any material containing more than
one percent by weight of asbestos.
2.20 Brokers. Neither Seller nor any of the Affiliates has entered
into any arrangement with any broker, finder or investment banker or will
incur a fee or any liability for any brokerage or investment banking fee,
commission, or finder's fee in connection with the transactions
contemplated in this Agreement.
<PAGE>8
2.21 Reliance. Seller and the Affiliates recognize and agree that,
notwithstanding any investigation by PCTH, PCTH, PCTH-WA and Buyer are
relying upon the representations and warranties made by Seller and the
Affiliates in this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF PCTH, PCTH-WA AND BUYER.
---------------------------------------------------------
PCTH, PCTH-WA and Buyer represent and warrant to Seller and the
Affiliates as follows:
3.1 Due Organization. PCTH is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Nevada and
has full corporate power and corporate authority to enter into and perform
its obligations under this Agreement. PCTH-WA is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Washington and has full corporate power and corporate authority to
enter into and perform its obligations under this Agreement. Buyer is a
corporation duly organized, validly existing, and in good standing under
the laws of the State of Washington and has full corporate power and
corporate authority to perform its obligations under this Agreement.
3.2 Due Authorization. PCTH, PCTH-WA and Buyer each has full corporate
power and corporate authority to execute and deliver this Agreement and to
perform and carry out its obligations under this Agreement. The execution
and delivery of this Agreement and performance of the obligations of PCTH,
PCTH-WA and Buyer contemplated hereby have been duly and validly authorized
by all necessary corporate action of PCTH, PCTH-WA and Buyer. This
Agreement has been duly and validly executed and delivered by PCTH, PCTH-WA
and Buyer and constitutes the valid and binding obligation of PCTH, PCTH-WA
and Buyer, enforceable against them in accordance with its terms, except as
such enforcement may be limited by equitable principles or by applicable
bankruptcy, insolvency, reorganization or other laws affecting creditors'
rights generally. The execution and delivery of this Agreement (as well as
all instruments, agreements, certificates or other documents contemplated
hereby) by PCTH, PCTH-WA and Buyer, and their performance of their
obligations thereunder, will not (a) violate any federal, state, county, or
local law, rule, or regulation or any decree or judgment of any court or
governmental authority applicable to them or their property, (b) violate
any provision of the Articles of Incorporation of PCTH, PCTH-WA or Buyer,
or (c) violate or conflict with, or permit the cancellation of, or
constitute a default under, any agreement to which either of them is a
party or by which either of them or their property is bound.
3.3 PCTH Common Stock. At the Closing, Seller will acquire good title
to the shares of PCTH Common Stock constituting the Purchase Price (the
"Shares"), free and clear of all pledges, security interests, liens,
charges, equities or claims. The Shares will not be registered under the
Securities Act of 1933, as amended (the "1933 Act"), and, except as
provided in Section 4.10, PCTH shall have no obligation to register the
Shares.
4. OTHER AGREEMENTS.
----------------
4.1 Noncompetition Covenants.
(a) Seller. Seller agrees that, for five years following the
Closing Date, it will not directly or indirectly engage in or perform any
services to, or provide
<PAGE>9
individuals to perform such services to, or own, manage, operate, control,
participate in or be connected in any manner with the ownership, management,
operation or control of, any business or undertaking that competes with the
Business as currently operated or as it will be operated during such
five-year period by PCTH, PCTH-WA, Buyer or any affiliate thereof.
(b) R. McGill. R. McGill agrees that, for five years following
the Closing Date, he will not directly or indirectly engage in or perform
any services to, or provide individuals to perform such services to,
whether on an employment, a consulting or an advisory basis, or own,
manage, operate, control, participate in or be connected in any manner with
the ownership, management, operation or control of, any business or
undertaking that competes with any business of PCTH, PCTH-WA, or Buyer, or
any affiliate thereof, in an area of technology that is related to
earthquake gas and electricity shutoff and actuator apparatus that are
activated by seismic activity, this area of technology specifically
excluding, without limitation, technology related to leak-detecting shutoff
systems, earthquake alarms and P wave alarms.
4.2 Sales Tax. Buyer shall pay any sales tax owing in respect of the
purchase of the Assets. Buyer shall file all necessary sales tax returns
and pay all sales taxes due within the time required by the applicable
taxing authority and shall deliver to Seller copies of receipts showing
payment.
4.3 Pre-Closing Covenants.
(a) Negative Covenants of Seller and the Affiliates. Except as
otherwise permitted by this Agreement or with the prior written consent of
PCTH, prior to the Closing, Seller shall not:
(i) Incur additional debt for borrowed money (including
without limitation obligations under leases for real or personal property)
or incur or increase any obligation or liability;
(ii) Make any payment to discharge or satisfy any lien or
encumbrance or pay any obligation or liability;
(iii) Issue, sell, encumber or give any option or right to
purchase any of its capital stock or other securities;
(iv) Declare, pay or make any dividend or other distribution
of money or property on or with respect to any share of its capital stock;
(v) Purchase, redeem or otherwise acquire or commit to
acquire, directly or indirectly, any shares of its capital stock;
(vi) Mortgage, pledge, otherwise encumber or subject to lien
any of the Assets, or commit itself to do any of the foregoing;
(vii) Dispose of any of the Assets, or lease or license to
others, or agree to lease or license, any of the Assets;
<PAGE>10
(viii) Acquire any Assets which would be material to the
Business;
(ix) Enter into any transaction or contract or make any
commitment to do the same, except in the ordinary and usual course of
business and not requiring the payment or receipt in any case of an amount
in excess of $1,000 annually;
(x) Increase the wages, salaries, compensation, pension or
other benefits payable, or to become payable by it, to any of its officers,
employees or agents, including without limitation any bonus payments or
severance or termination pay; or
(xi) Agree or commit to do any of the foregoing.
(b) Affirmative Covenants of Seller and the Affiliates. Except as
otherwise permitted by this Agreement or with the prior written consent of
Buyer, prior to the Closing, Seller shall:
(i) Operate the Business only in the ordinary course and in
accordance with reasonable business practices;
(ii) Advise Buyer in writing of any litigation or
administrative proceeding that challenges or otherwise materially affects
the transactions contemplated hereby and of any material adverse change or
any event, occurrence or circumstance which is likely to cause a material
adverse change in the Assets or the Business;
(iii) When the consent of any third party to the
transactions contemplated by this Agreement is required under the terms of
any contract or agreement, use its best efforts to obtain such consent;
(iv) Use its best efforts to maintain all of the tangible
Assets in good operating condition, and take all steps reasonably necessary
to maintain the intangible Assets;
(v) Not cancel or change any policy of insurance relating to
the Assets or the Business, unless such cancellation or change is effective
only on or after the Closing;
(vi) Maintain all inventories, spare parts, office supplies
and other expendable items included in Assets;
(vii) Pay and discharge all Taxes prior to the date on which
penalties attach thereto;
(viii) Comply with all laws, rules and regulations
applicable to Seller or the Business; and
(ix) Preserve and maintain its separate corporate existence
and not amend its articles of incorporation or bylaws.
<PAGE>11
4.4 No Solicitations. Except as otherwise permitted by this Agreement
or with the prior written consent of Buyer, the Affiliates and Seller shall
refrain, and shall cause their officers, directors and employees and any
investment banker, attorney, accountant or other agent retained by any of
them to refrain, from initiating or soliciting any inquiries or making any
proposals with respect to, or engaging in negotiations concerning, or
providing any confidential information or data to or having any discussions
with any person relating to, any acquisition, business combination or
purchase of all or any significant portion of the assets of, or any equity
interest in, Seller. The Affiliates and Seller will immediately cease and
cause to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing.
4.5 Best Efforts; No Inconsistent Action. Each party will use its best
efforts to effect the transactions contemplated by this Agreement and to
fulfill the conditions to the obligations of the opposing parties set forth
in this Agreement. No party will take any action inconsistent with its
obligations under this Agreement or that could hinder or delay the
consummation of the transactions contemplated by this Agreement, except
that nothing in this section shall limit the rights of the parties under
Section 5.
4.6 Further Assurances. Seller and the Affiliates agree that, from
time to time and after execution of this Agreement, they will, upon the
request of PCTH, PCTH-WA or Buyer and without further consideration, take
all steps reasonably necessary to place Buyer in possession of full record
and actual title to the Assets and full operating control of all rights to
make, use and sell the products of the Business, and Seller and the
Affiliates will do or have done, execute or have executed, and deliver or
have delivered, all further acts, assignments, powers of attorney, and
acknowledgements or assurances as reasonably required to assign to and vest
in Buyer all of the rights, titles, and interests of Seller in the Assets.
4.7 Confidentiality. The terms and conditions of this Agreement and
all information and materials, including all financial statements and
business information, know-how, techniques and other proprietary materials
and intellectual property used in the conduct of the respective businesses
of the parties hereto, as now conducted or as proposed to be conducted,
that have been divulged or provided during the negotiation of this
Agreement are the confidential information of the party owning such
information and materials (the "Confidential Information"). Unless the
owner of the relevant Confidential Information consents in writing to the
contrary, no Confidential Information shall be divulged, except on a need
to know basis to directors, officers or key employees involved in the
transactions contemplated hereby and such third party consultants as need
the Confidential Information for tax, legal, accounting, or similar
purposes, or as required by applicable law; provided that this obligation
will not apply to PCTH, PCTH-WA or Buyer after the Closing Date.
4.8 Disclosure. Any press release or public disclosure regarding the
execution of the Agreement or the terms hereof will be made at the sole
discretion of PCTH, PCTH-WA or Buyer.
4.9 Consulting Agreement. For a period of three months after the
Closing Date, R. McGill agrees to provide consulting services to PCTH,
PCTH-WA and Buyer. These services shall include, but shall not be limited
to, assistance with the relocation, establishment and organization of the
Assets for PCTH, PCTH-WA and Buyer and general
<PAGE>12
consultation with respect to the Business, as requested by PCTH, PCTH-WA
or Buyer. In consideration for these consulting services, PCTH, PCTH-WA
or Buyer shall pay R. McGill $5,000 per month during the three-month
consulting period, which shall be paid on PCTH's regular payroll days.
In addition, PCTH, PCTH-WA or Buyer shall pay R. McGill's reasonable
expenses during the consulting period, provided that such expenses are
approved in advance by PCTH. In the event that PCTH determines that it
would be desirable to retain R. McGill's services prior to the Closing
Date, then PCTH and McGill may agree upon terms of such additional services.
4.10 Piggyback Registration Rights. At Closing, PCTH agrees to enter
into an agreement (the "Registration Rights Agreement") with Seller and any
person who is a shareholder of Seller at Closing and who elects to execute
such agreement (the "Eligible Shareholders"). The Registration Rights
Agreement will provide that if, at any time (but only once) within two
years after Closing, PCTH proposes to register any PCTH Common Stock under
the Securities Act of 1933, as amended (except for registrations under
compensation plans on Form S-8 or any successor form and except for
registrations in connection with the acquisition by merger, tender offer or
otherwise of another public company), PCTH will provide to Eligible
Shareholders who then hold shares of PCTH Common Stock that were issued
pursuant to this Agreement ("Registrable Shares") the opportunity to have
their Registrable Shares registered at the expense of PCTH (except any
underwriting discounts and commissions), on an equal basis with other
shareholders of PCTH. The Registration Rights Agreement will contain other
provisions customary in such agreements and agreed upon by PCTH and Seller.
5. TERMINATION.
-----------
5.1 Right to Terminate. Notwithstanding anything to the contrary in
this Agreement, this Agreement may be terminated and the transactions
contemplated herein abandoned at any time prior to the Closing:
(a) Mutual Consent. By mutual consent of PCTH and Seller.
(b) Delay. By either PCTH or Seller, if the Closing shall not
have occurred by December 31, 1995; provided, however, that the right to
terminate this Agreement under this Section 2.1(b) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of, or resulted in, the failure of the Closing to occur
on or before such date.
(c) Breach by PCTH, PCTH-WA or Buyer . By Seller, if PCTH,
PCTH-WA or Buyer breach any of their representations and warranties in any
material respect or fail to comply in any material respect with any of
their agreements contained here.
(d) Breach by Seller. By PCTH, if Seller or the Affiliates breach
any of their representations and warranties in any material respect or fail
to comply in any material respect with any of their agreements contained
herein.
5.2 Certain Obligations to Cease. If this Agreement is terminated
pursuant to Section 5.1, all obligations of the parties to this Agreement
shall terminate and there shall be no liability of any party hereto to any
other party, except: (i) as set forth in Sections 4.7
<PAGE>13
and 8.6; (ii) that nothing herein will relieve any party from liability
for any willful breach of this Agreement; and (iii) that in the event of
such termination, Seller and R. McGill shall be responsible, jointly and
severally, for refunding to PCTH the full amount of the cash portion of the
Purchase Price that has been advanced to Seller as of the termination date,
or providing to PCTH, PCTH-WA or Buyer full, unencumbered title to equipment
acceptable to PCTH, at PCTH's discretion, with a value of no less than the
amount advanced.
6. INDEMNIFICATION.
---------------
6.1 Indemnification. Seller and R. McGill, jointly and severally,
agree to indemnify and hold harmless PCTH, PCTH-WA and Buyer, and any of
the affiliates, officers, directors, employees, successors, assigns or
agents (the "Related Persons") of PCTH, PCTH-WA and Buyer, from and against
any losses, damages, liabilities, costs and expenses, including without
limitation any attorneys' fees, technical expert fees and any other
expenditures for defense, and damages and settlement disbursements
("Losses") that may be incurred (a) as a result of any breach of,
misrepresentation or inaccuracy in, or omission from, any representation or
warranty made by Seller or R. McGill in this Agreement or related
agreements or documents or (b) arising out of the conduct of the Business
prior to Closing. The Affiliates other than R. McGill each agree,
severally, to indemnify and hold harmless PCTH, PCTH-WA and Buyer, and any
Related Persons of PCTH, PCTH-WA or Buyer, from and against all Losses that
may be incurred (a) as a result of any breach of, misrepresentation or
inaccuracy in, or omission from any representation or warranty made by such
Affiliate in this Agreement or related agreements or documents or (b)
arising out of such Affiliate's involvement in the operation of the
Business prior to Closing. PCTH, PCTH- WA and Buyer agree to indemnify and
hold harmless Seller and the Affiliates, and any of their Related Persons,
from and against any Losses that may be incurred (a) as a result of any
breach of, misrepresentation or inaccuracy in, or omission from, any
representation or warranty made by PCTH, PCTH-WA or Buyer in this Agreement
or related agreements or documents or (b) arising out of the conduct of the
Business after Closing.
6.2 Indemnification Procedures.
(a) Claim Notice. In the event that an indemnified person
reasonably determines that it is entitled to indemnification pursuant to
Section 6.1, the indemnified person shall provide written notice to the
indemnifying persons, specifying in reasonable detail the nature and
estimated amount of the claim.
(b) Third-Party Claims. If the claim specified in the claim
notice relates to a third-party claim, the indemnifying persons shall have
15 days after their receipt of the claim notice to notify the indemnified
person whether the indemnifying persons agree that the claim is subject to
indemnification pursuant to this Section 6 and whether the indemnifying
persons elect to defend such third-party claim at their own expense. If the
claim relates to a third-party claim that the indemnifying persons elect to
defend, the indemnified person shall reasonably cooperate with such
defense. The indemnified person shall, however, be entitled to participate
in the defense or settlement of such a third-party claim through its own
counsel and at its own expense and shall be entitled to approve or
disapprove any proposed settlement that would impose a duty or obligation
on the indemnified person. If the indemnifying persons do not timely elect
to defend a third-party
<PAGE>14
claim, or if the indemnifying persons fail to conduct such defense with
reasonable diligence, the indemnified party may conduct the defense of,
or settle, such claim at the risk and expense of the indemnifying persons.
(c) Claims Other Than Third-Party Claims. If the claim does not
relate to a third-party claim, the indemnifying persons shall have 30 days
after receipt of the claim notice to notify the indemnified party in
writing whether the indemnifying persons accept liability for all or any
part of the claim and the method and timing of any proposed payment. If the
indemnifying persons do not so notify the indemnified party, the
indemnifying persons shall be deemed to have accepted liability for all
damages described in the claim notice.
7. CONDITIONS PRECEDENT TO CLOSING.
-------------------------------
7.1 Conditions Precedent to the Obligations of PCTH, PCTH- WA and
Buyer. The obligations of PCTH, PCTH-WA and Buyer to close the transaction
contemplated in this Agreement are subject to the fulfillment, at or prior
to Closing, of the following conditions (unless waived in writing by PCTH):
(a) Representations, Warranties and Covenants. All
representations and warranties of the Affiliates and Seller made in this
Agreement, or in any certificate delivered pursuant hereto, shall be true
and complete in all material respects on and as of the Closing Date with
the same force and effect as if made on and as of that date.
(i) All of the terms, covenants and conditions to be
complied with and performed by the Affiliates and Seller at or prior to the
Closing shall in all material respects have been complied with or performed
thereby.
(ii) Buyer, PCTH-WA and PCTH shall have received a
certificate from the Affiliates and Seller, dated as of the Closing Date
and executed by the President of Seller and by each Affiliate, to the
effect that the representations and warranties of the Affiliates and Seller
contained in this Agreement are in all material respects true and complete
on and as of the Closing Date as though made on and as of the Closing Date
and that the Affiliates, and Seller have in all material respects each
complied with or performed all terms, covenants and conditions to be
complied with or performed by such party at or prior to the Closing.
(iii) Seller shall have delivered to Buyer, PCTH- WA and
PCTH certified copies of the resolutions of the Board of Directors and the
shareholders of Seller authorizing the execution, delivery and performance
of this Agreement and all other actions taken or to be taken by Seller in
connection with this Agreement.
(b) Compliance with Securities Laws. All actions shall have been
taken and all filings shall have been made which counsel to Seller and PCTH
deem to be necessary and appropriate for the transactions contemplated
herein to have been carried out in compliance with federal and applicable
state securities laws. The parties agree that this condition does not
require the registration of the Shares under the Securities Act of 1933, as
amended, or under any state blue sky law.
<PAGE>15
(c) Adverse Proceedings. No suit, action, claim or governmental
proceeding shall have been instituted or threatened against, and no order,
decree or judgment of any court, agency or other governmental authority
shall have been rendered against, Buyer, PCTH, PCTH-WA, Seller or any
Affiliate to restrain or prohibit, or obtain damages in respect of, this
Agreement or the transactions contemplated by this Agreement.
(d) No Adverse Change. There shall not have been any material
adverse change in the Assets or the Business since the date of this
Agreement.
(e) Registration Rights Agreement. PCTH shall have executed and
delivered the Registration Rights Agreement.
(f) Actions Satisfactory to PCTH's Counsel. All actions,
proceedings, instruments and documents (including without limitation bills
of sale and assignment documents) required to be carried out by this
Agreement, or incidental hereto, and all other relevant legal matters shall
be reasonably satisfactory to counsel for PCTH.
(g) License Agreement. The License Agreement between Seller and
Seismic Safety Products, Inc., dated April 24, 1995, shall have been
terminated, and thereby rendered null and void in its entirety.
(h) Name. Seller shall have changed its corporate name.
(i) Closing Documents. Seller shall have executed and delivered
to PCTH, PCTH-WA and Buyer all documents required to be delivered by Seller
pursuant to this Agreement, in form reasonably satisfactory to PCTH and its
counsel.
(j) Cash Advance. Seller shall have provided to PCTH a complete
record of all payments made out of the cash portion of the Purchase Price.
7.2 Conditions Precedent to the Obligations of Seller. The obligations
of Seller to close the transaction contemplated in this Agreement are
subject to the fulfillment, at or prior to Closing, of the following
conditions (unless waived in writing by Seller):
(a) Representations, Warranties and Covenants. All
representations and warranties of PCTH, PCTH-WA and Buyer made in this
Agreement, or in any certificate delivered pursuant hereto, shall be true
and complete in all material respects on and as of the Closing Date with
the same force and effect as if made on and as of that date.
(i) All of the terms, covenants and conditions to be
complied with and performed by PCTH, PCTH-WA and Buyer at or prior to the
Closing shall in all material respects have been complied with or performed
thereby.
(ii) Seller shall have received a certificate from PCTH and
Buyer dated as of the Closing Date and executed by their Presidents to the
effect that the representations and warranties of PCTH, PCTH-WA and Buyer
contained in this Agreement are in all material respects true and complete
on and as of the Closing Date as though made on and as of the Closing Date
and that PCTH, PCTH- WA and Buyer have in all material
<PAGE>16
respects each complied with or performed all terms, covenants and conditions
to be complied with or performed by such party at or prior to the Closing.
(iii) PCTH, PCTH-WA and Buyer shall have delivered to Seller
certified copies of the resolutions of the Board of Directors of PCTH,
PCTH-WA and Buyer authorizing the execution, delivery and performance of
this Agreement and all other actions taken or to be taken by PCTH, PCTH-WA
and Buyer in connection with this Agreement.
(b) Certificate. PCTH shall have delivered to Seller a
certificate representing the Shares constituting the Purchase Price.
(c) Cash Payment. PCTH shall have paid to Seller the cash portion
of the Purchase Price.
(d) Assumption of Liabilities. PCTH, PCTH-WA or Buyer shall have
executed an assumption agreement, assuming Seller's liabilities described
on Schedule 1.3.
7.3 Condition Precedent to the Obligations of All Parties. The
obligation of all parties to close the transaction contemplated in this
Agreement are subject to the closing, prior to or simultaneously with the
Closing, of the purchase by PCTH, PCTH-WA or Buyer of the Patents.
8. MISCELLANEOUS.
-------------
8.1 Waiver or Modification of Agreement. No modification or waiver of
any provision of this Agreement, nor any consent to any departure by either
party herefrom, shall in any event be effective unless the same shall be in
writing and signed by the party against which enforcement of such
modification or waiver is sought, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given.
8.2 Amendment of Agreement. This Agreement may be amended with respect
to any provision contained herein by a written instrument duly executed on
behalf of each party hereto.
8.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given when personally
delivered, or three days after deposited in the United States mail,
first-class, postage prepaid, or by facsimile addressed to the respective
parties hereto as follows:
If to PCTH, PCTH-WA or Buyer:
----------------------------
PCT Holdings, Inc.
434 Olds Station Road
Wenatchee, Washington 98801
Attn.: Donald A. Wright
Telephone: (509) 664-8000
Facsimile: (509) 664-6868
<PAGE>17
and
c/o Cashmere Manufacturing, Inc.
102 Maple Street
Cashmere, Washington 98815
Attn: John Eder
Telephone: (509) 782-2455
Facsimile: (509) 782-2580
with a copy to:
Sheryl A. Symonds, Esq.
Stoel Rives
36th Floor, One Union Square
600 University Street
Seattle, Washington 98101-3197
Telephone: (206) 386-7611
Facsimile: (206) 386-7500
If to Seller:
------------
c/o Bob McGill
2174 Kent Ave. W.
Clearwater, Florida 34624
Telephone: (813) 539-1468
If to the Affiliates:
--------------------
James C. McGill
c/o Elena McGill
520 Ivy Street
Glendale, CA 91024
Telephone: (818) 548-0083
Facsimile: (818) 548-6986
Robert L. McGill
2174 Kent Ave. W.
Clearwater, Florida 34624
Telephone: (813) 539-1468
<PAGE>18
Wade L. Kohn
2059 Arbor Drive
Clearwater, Florida 34620
Telephone: (813) 539-8750
or to such other address as to any party hereto as such party
shall designate by like notice to the other parties hereto.
8.4 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which
counterparts collectively shall constitute one instrument, and in making
proof of this Agreement, it shall never be necessary to produce or account
for more than one such counterpart.
8.5 Survival of Representations and Warranties. The representations
and warranties of the parties contained in this Agreement shall survive the
Closing Date.
8.6 Expenses. Each of the parties hereto will bear all costs, charges
and expenses incurred by such party in connection with this Agreement and
the consummation of the transactions contemplated herein.
8.7 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of PCTH, PCTH-WA, Buyer, Seller, the Affiliates,
and their representatives, successors, and permitted assigns, in accordance
with the terms hereof.
8.8 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements,
representations, warranties, statements, promises, information,
arrangements and understandings, whether oral or written, express or
implied, with respect to the subject matter hereof.
8.9 Governing Law. This Agreement and its validity, construction,
enforcement, and interpretation shall be governed by the substantive laws
of the State of Washington.
8.10 Attorneys' Fees. If suit, action or appeal is filed by any party
to enforce the provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and expenses.
8.11 Invalid Provisions. If any provision of this Agreement is deemed
or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it
is deemed to be illegal, invalid or unenforceable, and in all other
respects this Agreement shall remain in full force and effect; provided,
however, that if any provision of this Agreement is deemed or held to be
illegal,
<PAGE>19
invalid or unenforceable there shall be added hereto automatically
a provision as similar as possible to such illegal, invalid or
unenforceable provision and be legal, valid and enforceable. Further,
should any provision contained in this Agreement ever be reformed or
rewritten by any judicial body of competent jurisdiction, such provision as
so reformed or rewritten shall be binding upon all parties hereto.
8.12 Remedies Cumulative. The remedies of the parties under this
Agreement are cumulative and shall not exclude any other remedies to which
any party may be lawfully entitled.
8.13 Waiver. No failure or delay on the part of any party in
exercising any right, power, or privilege hereunder or under any of the
documents delivered in connection with this Agreement shall operate as a
waiver of such right, power, or privilege, nor shall any single or partial
exercise of any such right, power, or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege.
8.14 Headings. The descriptive section headings are for convenience of
reference only and shall not control or affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
duly executed as of the date and year first above written.
PCTH:
PCT HOLDINGS, INC., a Nevada corporation
By /s/ DONALD A. WRIGHT
-------------------------------------
Its President
PCTH-WA:
PCT HOLDINGS, INC., a Washington corporation
By /s/ DONALD A. WRIGHT
-------------------------------------
Its President
BUYER:
SEISMIC SAFETY PRODUCTS, INC., a
Washington corporation
By /s/ JOHN EDER
-------------------------------------
Its President
<PAGE>20
SELLER:
SEISMIC SAFETY PRODUCTS, INC., a
Florida corporation
By /s/ ROBERT L. McGILL
-------------------------------------
Its President
AFFILIATES:
/s/ JAMES C. McGILL
------------------------------
JAMES C. McGILL
/s/ ROBERT L. McGILL
------------------------------
ROBERT L. McGILL
/s/ WADE L. KOHN
------------------------------
WADE L. KOHN
<PAGE>21
SCHEDULES
The Schedules to this Asset Purchase Agreement have been omitted
in accordance with Item 601(b)(2).
<PAGE>1
PATENT PURCHASE AGREEMENT
THIS PATENT PURCHASE AGREEMENT (this "Agreement") is entered into
as of this 24th day of October, 1995 (the "Effective Date"), by and between
PCT HOLDINGS, INC., a Washington corporation ("PCTH"), SEISMIC SAFETY
PRODUCTS, INC., a Washington corporation (the "Subsidiary"), and JAMES C.
McGILL ("McGill"), of Glendale, California, and ANTONIO F. FERNANDEZ, of
Quezon City, Philippines, ("Fernandez"), in their individual capacities.
McGill and Fernandez are together referred to as the "Sellers."
RECITALS
--------
WHEREAS, McGill and Fernandez jointly hold one United States
Letter Patent, U.S. Patent No. 5,409,031, granted on April 25, 1995, one
United States Patent Application, U.S. Patent Application No. 08/403,098,
filed on March 13, 1995, and one International Patent Application,
International Application No. PCT/US95/04830, filed on April 24, 1995
(collectively, the "Patents"); and
WHEREAS, the Sellers are the holders of certain Intellectual
Property, including but not limited to licenses, royalties, trademarks and
trade names, copyrights, trade secrets, know-how, proprietary information,
inventions, developments, innovations or techniques relating to the Patents
or products developed thereunder (the "Related Intellectual Property"); and
WHEREAS, PCTH has offered to cause the Subsidiary to purchase
from the Sellers their respective interests in the Patents and the Related
Intellectual Property (including but not limited to the right to sue for
past infringements), so as to acquire full and unencumbered title and
interest in the Patents and Related Intellectual Property, as set forth in
the attached disclosure (the "Disclosure Schedule"), for an aggregate
consideration of $400,000 and otherwise upon the terms and subject to the
conditions hereinafter set forth; and
WHEREAS, the Sellers desire to sell to the Subsidiary all of the
Patents and Related Intellectual Property, based upon the terms and subject
to the conditions hereinafter set forth; and
WHEREAS, to induce PCTH to enter into this Agreement the Sellers
have agreed to enter into a noncompetition agreement and to grant other
rights to PCTH and the Subsidiary;
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties
hereto covenant and agree as follows:
<PAGE>2
AGREEMENT
---------
1. PURCHASE AND SALE.
-----------------
1.1 Agreement to Sell and Purchase. Upon the basis of the
representations and warranties, for the consideration, and subject to the
terms and conditions set forth in this Agreement, the Sellers hereby agree
to sell, transfer, assign and convey, and the Subsidiary hereby agrees to
purchase, the Patents and the Related Intellectual Property, including but
not limited to the right to sue for all past infringements, free and clear
of all liens, encumbrances and rights of others.
1.2 Purchase Price. The total purchase price for the Patents and
Related Intellectual Property (the "Purchase Price") shall be $400,000,
$370,000 of which shall be paid to Fernandez and $30,000 of which shall be
paid to McGill, as provided in Section 1.3 hereof.
1.3 Payment of Purchase Price. The Purchase Price shall be payable to
the Sellers by the Subsidiary or PCTH as follows:
(a) $185,000 to be paid by wire transfer to Fernandez at the
Closing hereof and $15,000 to be paid by wire transfer or company check to
McGill at the Closing hereof; and
(b) $185,000 to be paid by wire transfer to Fernandez on the
first anniversary of the Closing hereof (the "Second Payment Date") and
$15,000 to be paid by wire transfer or company check to McGill on the
Second Payment Date.
1.4 Transfer Documents. Provided that all conditions precedent have
been fulfilled or waived, the Sellers shall deliver to the Subsidiary, upon
payment of the $200,000 due on the Closing Date (as defined in Section
1.5), patent assignments and such other instruments of transfer (in form
and substance satisfactory to PCTH and the Subsidiary) as may be necessary
to transfer to the Subsidiary all of the right, title and interest of each
of the Sellers in and to the Patents and Related Intellectual Property,
free and clear of any liens, claims or encumbrances of any kind.
1.5 Closing. The closing of the transaction contemplated in this
Agreement (the "Closing") shall take place on November 30, 1995 (the
"Closing Date") at the offices of Stoel Rives, 3600 One Union Square,
Seattle, Washington, or at such other time and place as the parties may
agree.
2. TERMINATION.
-----------
2.1 Right to Terminate. Notwithstanding anything to the contrary in
this Agreement, this Agreement may be terminated and the transactions
contemplated herein abandoned at any time prior to the Closing:
(a) Mutual Consent. By mutual consent of PCTH and the Sellers.
<PAGE>3
(b) Delay. By either PCTH or the Sellers, if the Closing shall
not have occurred by December 31, 1995; provided, however, that the right
to terminate this Agreement under this Section 2.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing
to occur on or before such date.
(c) Breach by PCTH. By Sellers, if PCTH breaches any of PCTH's
representations and warranties in any material respect or fails to comply
in any material respect with any of its agreements contained here.
(d) Breach by Sellers. By PCTH, if either of the Sellers breaches
any of his representations and warranties in any material respect or fails
to comply in any material respect with any of his agreements contained
herein.
2.2 Obligations to Cease. If this Agreement is terminated pursuant to
Section 2.1, all obligations of the parties to this Agreement shall
terminate and there shall be no liability of any party hereto to any other
party except (i) as set forth in Sections 6.4 and 8.6 and (ii) that nothing
herein will relieve any party from liability for any willful breach of this
Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS.
---------------------------------------------
The Sellers jointly and severally represent and warrant to PCTH and
the Subsidiary that:
3.1 Due Authorization. The Sellers each have full power and authority
to execute and deliver this Agreement and to perform and to carry out their
obligations under this Agreement. This Agreement has been duly and validly
executed and delivered by the Sellers and is binding upon and enforceable
against them in accordance with its terms, except as such enforcement may
be limited by equitable principles or by applicable bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights generally. The
execution and delivery of this Agreement (as well as all instruments,
agreements, certificates, or other documents contemplated hereby) by the
Sellers, or either of them, and the performance of their obligations
thereunder, will not (a) violate any federal, state, county, or local law,
rule, or regulation or any applicable decree or judgment of any court or
governmental authority or (b) violate or conflict with, or permit the
cancellation of, or constitute a default under, any agreement to which
either of the Sellers is a party or by which either of them or their
property is bound.
3.2 Title to Patents and Related Intellectual Property. The Patents
and Related Intellectual Property constitute all of the intellectual
property subject to this Agreement (the "Intellectual Property"). Except as
otherwise provided in the Disclosure Schedule, McGill and Fernandez have
good and marketable legal and equitable title to all of the Intellectual
Property, including without limitation the exclusive right to bring actions
for infringement thereof, free and clear of all security interests, liens,
encumbrances, claims or rights of any kind, except as described on the
Disclosure Schedule. The Sellers each individually own an undivided,
one-half interest and jointly own unencumbered legal and equitable title to
U.S. Patent No. 5,409,031 and U.S. Patent Application No. 08/403,098 and
International Patent
<PAGE>4
Application No. PCT/US95/04830. Except as described on the Disclosure
Schedule, the Sellers have not licensed to others, or agreed to license,
any of the Intellectual Property, or entered into any contracts with
respect thereto.
3.3 No Infringement. There has been no assertion or claim that any
manufacture, use or sale of any product by any third party infringes any of
the claims of the Patents, and neither of the Sellers believes or has any
reason to believe that any manufacture, use or sale of any product by any
third party infringes any of the claims of the Patents. There has been no
assertion or claim that any other duplication or use by any third party
infringes or violates any Related Intellectual Property rights, and neither
of the Sellers believes or has any reason to believe that any duplication
or use by any third party infringes or violates the Related Intellectual
Property. There is no claim, dispute, action, proceeding or lawsuit
asserting infringement of the rights of any third party by the products and
methodologies claimed in the Patents or by any Related Intellectual
Property, no threat of such action, and no basis exists for any such
action.
3.4 Validity of Patents. All materials and information of which
disclosure to the United States Patent and Trademark Office is required
pursuant to United States Patent Law and Regulations during the prosecution
of the Patents have been submitted thereto. There has been no
misrepresentation and, to the best knowledge and belief of the Sellers,
there is no information or prior art reference that would render the
Patents invalid or raise material questions regarding their validity.
3.5 Consents and Approvals. No consent, approval or authorization of,
or filing or registration with, any court, regulatory authority,
governmental body, or any other third party is required for the
consummation of the transaction contemplated in this Agreement.
3.6 Brokers. Neither Seller has entered into any arrangement with any
broker, finder or investment banker or will incur a fee or any liability
for any brokerage or investment banking fee, commission, or finder's fee in
connection with the transactions contemplated in this Agreement.
3.7 Reliance. The Sellers recognize and agree that, notwithstanding
any investigation by PCTH, PCTH is relying upon the representations and
warranties made by the Sellers in this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF PCTH AND THE SUBSIDIARY.
---------------------------------------------------------
PCTH and represents and warrants to the Sellers as follows:
4.1 Due Organization. PCTH is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Washington
and has full corporate power and authority to enter into and perform its
obligations under this Agreement. The Subsidiary is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Washington and has full corporate power and authority to perform
its obligations under this Agreement.
<PAGE>5
4.2 Due Authorization. PCTH and the Subsidiary each have full
corporate power and authority to execute and deliver this Agreement and to
perform and carry out their obligations under this Agreement. The execution
and delivery of this Agreement and performance of PCTH's obligations and
the obligations of the Subsidiary contemplated hereby have been duly and
validly authorized by all necessary corporate action of PCTH and the
Subsidiary. This Agreement has been duly and validly executed and delivered
by PCTH and the Subsidiary and constitutes the valid and binding obligation
of PCTH and the Subsidiary, enforceable against them in accordance with its
terms, except as such enforcement may be limited by equitable principles or
by applicable bankruptcy, insolvency, reorganization or other laws
affecting creditors' rights generally. The execution and delivery of this
Agreement (as well as all instruments, agreements, certificates or other
documents contemplated hereby) by PCTH and the Subsidiary, and their
performance of their obligations thereunder, will not (a) violate any
federal, state, county, or local law, rule, or regulation or any decree or
judgment of any court or governmental authority applicable to PCTH or the
Subsidiary or their property or (b) violate or conflict with, or permit the
cancellation of, or constitute a default under, any agreement to which PCTH
or the Subsidiary is a party or by which they or their property is bound.
5. INDEMNIFICATION.
---------------
5.1 Indemnification. The Sellers jointly and severally agree to
indemnify and hold harmless PCTH and the Subsidiary, and any of the
affiliates, officers, directors, employees, successors, assigns or agents
of PCTH and the Subsidiary, from and against any losses, damages,
liabilities, costs and expenses, including without limitation any
attorneys' fees, technical expert fees and any other expenditures for
defense, and damages and settlement disbursements that may be incurred as a
result of any claim, dispute, proceeding or lawsuit out of or related to
any breach of, misrepresentation or inaccuracy in, or intentional or
reckless omission from, any representation or warranty made by McGill or
Fernandez in this Agreement or related agreements or documents.
5.2 Indemnification Procedures.
(a) Claim Notice. In the event that an indemnified person
reasonably determines that it is entitled to indemnification pursuant to
Section 5.1, the indemnified person shall provide written notice to the
Sellers, specifying in reasonable detail the nature and estimated amount of
the claim.
(b) Third-Party Claims. If the claim specified in the claim
notice relates to a third-party claim, the Sellers shall have 15 days after
their receipt of the claim notice to notify the indemnified person whether
the Sellers agree that the claim is subject to indemnification pursuant to
this Section 5 and whether the Sellers elect to defend such third-party
claim at their own expense. If the claim relates to a third-party claim
that the Sellers elect to defend, the indemnified person shall reasonably
cooperate with such defense. The indemnified person shall, however, be
entitled to participate in the defense or settlement of such a third-party
claim through its own counsel and at its own expense and shall be entitled
to approve or disapprove any proposed settlement that would impose a duty
or obligation on the indemnified person. If the Sellers do not timely elect
to defend a third-party claim, or
<PAGE>6
if the Sellers fail to conduct such defense with reasonable diligence, the
indemnified party may conduct the defense of, or settle, such claim at the
risk and expense of the Sellers.
(c) Claims Other Than Third-Party Claims. If the claim does not
relate to a third-party claim, the Sellers shall have 30 days after receipt
of the claim notice to notify the indemnified party in writing whether the
Sellers accept liability for all or any part of the claim and the method
and timing of any proposed payment. If the Sellers do not so notify the
indemnified party, the Sellers shall be deemed to have accepted liability
for all damages described in the claim notice.
5.3 Set-Off During First Year. Notwithstanding anything to the
contrary in Section 5.2, in the event that PCTH or the Subsidiary
reasonably determines at any time prior to the Second Payment Date that
PCTH or the Subsidiary is entitled to indemnification pursuant to Section
5.1, PCTH shall be entitled to pay the amount of any such claim to an
escrow agent instead of to the Sellers as part of the $200,000 payment due
on the Second Payment Date. In the event that PCTH pays any such disputed
amount to an escrow agent and the parties are not able to mutually resolve
the dispute within 10 business days after the Second Payment Date, the
parties shall submit the dispute to arbitration. Arbitration under this
section shall be conducted in accordance with the commercial arbitration
rules of the American Arbitration Association, in King County, Washington,
by one attorney arbitrator selected by mutual agreement, or by three
arbitrators if the parties are unable to agree on a single arbitrator
within 20 days of the first demand for arbitration. All arbitrators are to
be selected from a panel provided by the American Arbitration Association.
The arbitrators shall have the authority to permit discovery, to the extent
deemed appropriate by the arbitrators, upon request of a party. The
arbitrators shall have no power or authority to add to or detract from the
agreements of the parties. The cost of the arbitration shall be borne
equally pending the arbitrator's award. The arbitrators shall have no
authority to award punitive or consequential damages. The resulting
arbitration award may be enforced by all lawful remedies, including without
limitation injunctive or other equitable relief obtained in any applicable
court located in King County, Washington.
6. OTHER AGREEMENTS.
----------------
6.1 Noncompetition Covenant. Both McGill and Fernandez agree that, for
five years following the Closing Date, they will not directly or indirectly
engage in or perform any services to, or provide individuals to perform
such services to, whether on an employment, a consulting or an advisory
basis, or own, manage, operate, control, be employed by, participate in or
be connected in any manner with the ownership, management, operation or
control of, any business or undertaking that competes with any business of
PCTH or the Subsidiary or any affiliate thereof in an area of technology
that is related to earthquake gas shutoff apparatus that are activated by
seismic activity, this area of technology specifically excluding, without
limitation, technology related to leak-detecting shutoff systems,
electro-magnetic actuators, earthquake alarms and P wave alarms.
6.2 Right of First Refusal. For five years following the Closing Date,
PCTH and the Subsidiary shall have the right of first refusal to purchase
any technology, product, prototype or concept ("Subsequent Technology")
related to the subject matter claimed in the Patents which McGill or
Fernandez develop, which right may be exercised on an exclusive
<PAGE>7
basis within three months after PCTH or the Subsidiary receives written notice
from McGill or Fernandez of the existence of the Subsequent Technology. The
terms of any such exercise shall be agreed upon by PCTH or the Subsidiary
and either or both of McGill and/or Fernandez (individually if one has
rights to the Subsequent Technology and the other does not, or together if
they have joint rights). Prior to and during the three-month exclusive
period, neither of the Sellers will entertain offers from any third party
for the Subsequent Technology. PCTH and the Subsidiary shall have the
further right, after expiration of any such three-month exclusive period,
to match any other offer made for the Subsequent Technology, within one
month of receiving notice of such offer, by giving written notice of its
intention to match such offer. The Sellers agree to notify PCTH and the
Subsidiary promptly upon determining that any Subsequent Technology is
available and to notify PCTH and the Subsidiary promptly in the event that
any offer for Subsequent Technology is received from a third party. If no
terms are agreed upon by PCTH or the Subsidiary and McGill and/or
Fernandez, or no matching offer is made by PCTH or the Subsidiary within
the applicable time periods, McGill and/or Fernandez will be free to
manufacture, market, sell, distribute, license or otherwise dispose of the
Subsequent Technology at their discretion and notwithstanding any other
provisions of this Agreement. In the event that a person other than McGill
or Fernandez has rights to Subsequent Technology because such person is a
co-inventor or co-developer thereof, the Sellers will use their best
efforts to provide to PCTH and the Subsidiary the rights described in this
Section with respect to such person's interest.
6.3 Further Assurances. Both of the Sellers agree that, from time to
time and after execution of this Agreement, they will, upon the request of
PCTH or the Subsidiary and without further consideration, take all steps
reasonably necessary to place the Subsidiary in possession of full record
and actual title to the Patents and Related Intellectual Property and full
operating control of all rights to make, use and sell the products
embodying the Patents and Related Intellectual Property, and each of them
will do or have done, execute or have executed, and deliver or have
delivered, all further acts, assignments, powers of attorney, and
acknowledgements or assurances as reasonably required to assign to and vest
in the Subsidiary all of the respective rights, titles, and interests of
the Sellers in the Patents and Related Intellectual Property Rights.
6.4 Confidentiality. The terms and conditions of this Agreement and
all information and materials, including all financial statements and
business information, know-how, techniques and other proprietary materials
and intellectual property used in the conduct of the respective businesses
of the parties hereto as now conducted or as proposed to be conducted, that
have been divulged or provided during the negotiation of this Agreement are
the confidential information of the party owning such information and
materials (the "Confidential Information"). Unless the owner of the
relevant Confidential Information consents in writing to the contrary, no
Confidential Information shall be divulged, except on a need to know basis
to directors, officers or key employees involved in the transactions
contemplated hereby and such third party consultants as need the
Confidential Information for tax, accounting, or similar purposes, or as
required by applicable law; provided that this obligation will not apply to
PCTH or the Subsidiary after the Closing Date.
<PAGE>8
6.5 Disclosure. Any press release or public disclosure regarding the
execution of this Agreement or the terms hereof will be made at the sole
discretion of PCTH or the Subsidiary.
6.6 Maintenance After Closing. PCTH and the Subsidiary shall be
responsible for all costs, services and fees involved with prosecution,
allowance, registration and maintenance of the Patents and Related
Intellectual Property that arise after Closing.
6.7 Performance of Subsidiary Obligations. Subject to the consummation
of the Closing, PCTH agrees to carry out the obligations of the Subsidiary
in the event that the Subsidiary fails to carry out any of its obligations
to Sellers under this Agreement, including any obligations pursuant to
Sections 1.2 or 1.3, above.
7. CONDITIONS PRECEDENT TO CLOSING.
-------------------------------
7.1 Conditions Precedent to the Obligations of PCTH and the
Subsidiary. The obligations of PCTH and the Subsidiary to close the
transaction contemplated in this Agreement are subject to the fulfillment,
at or prior to Closing, of the following conditions (unless waived in
writing by PCTH):
(a) Representations and Warranties. The representations and
warranties of the Sellers contained herein shall be true and correct in all
material respects as of Closing as if made at Closing;
(b) License Agreement. The License Agreement between the Sellers
and Seismic Safety Products, Inc., dated April 24, 1995, shall have been
terminated, and thereby rendered null and void in its entirety; and
(c) Noncompetition Agreements. Noncompetition agreements shall
have been procured from any person, in addition to the Sellers, who has
been involved in the design or development of any product, prototype or
concept claimed in or derived from the patents, on terms substantially
similar to the provisions of Section 6.1.
(d) Closing Documents. The Sellers shall have executed and
delivered to PCTH and the Subsidiary all documents required to be delivered
by the Sellers pursuant to this Agreement, in form reasonably satisfactory
to PCTH and its counsel.
7.2 Conditions Precedent to the Obligations of the Sellers. The
obligations of the Sellers to close the transaction contemplated in this
Agreement are subject to the fulfillment, at or prior to Closing, of the
following conditions (unless waived in writing by the Sellers):
(a) Representation and Warranties. The representations and
warranties of PCTH and the Subsidiary contained herein shall be true and
correct in all material respects as of Closing as if made at Closing; and
(b) Purchase Price. PCTH shall have delivered the first half of
the Purchase Price.
<PAGE>9
7.3 Condition Precedent to the Obligations of All Parties. The
obligations of all parties to close the transaction contemplated in this
Agreement are subject to the closing, prior to or simultaneously with the
Closing, of the purchase by PCTH or the Subsidiary of substantially all of
the assets of Seismic Safety Products, Inc., a Florida corporation.
8. MISCELLANEOUS.
-------------
8.1 Waiver or Modification of Agreement. No modification or waiver of
any provision of this Agreement, nor any consent to any departure by either
party herefrom, shall in any event be effective unless the same shall be in
writing and signed by the party against which enforcement of such
modification or waiver is sought, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given.
8.2 Amendment of Agreement. This Agreement may be amended with respect
to any provision contained herein by a written instrument duly executed on
behalf of each party hereto.
8.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given when personally
delivered, or three days after deposited in the United States mail,
first-class, postage prepaid, or by facsimile addressed to the respective
parties hereto as follows:
If to PCTH or the Subsidiary:
----------------------------
PCT Holdings, Inc.
434 Olds Station Road
Wenatchee, Washington 98801
Attn.: Donald A. Wright
Telephone: (509) 664-8000
Facsimile: (509) 664-6868
and
c/o Cashmere Manufacturing, Inc.
102 Maple Street
Cashmere, Washington 98815
Attn: John Eder
Telephone: (509) 782-2455
Facsimile: (509) 782-2580
<PAGE>10
with a copy to:
Sheryl A. Symonds, Esq.
Stoel Rives
36th Floor, One Union Square
600 University Street
Seattle, Washington 98101-3197
Telephone: (206) 386-7611
Facsimile: (206) 386-7500
If to McGill, or Fernandez:
--------------------------
c/o Exclusive Products, Inc.
520 Ivy Street
Glendale, California 91024
Attn: James C. McGill
Telephone: ______________________
Facsimile: ______________________
with a copy to:
Nils Pedersen
Wenderoth, Lind & Ponack
805 Fifteenth Street, N.W.
Washington, D.C. 20005
Telephone: (202) 371-8850
Facsimile: (202) 371-8856
or to such other address as to any party hereto as such party
shall designate by like notice to the other parties hereto.
8.4 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which
counterparts collectively shall constitute one instrument, and in making
proof of this Agreement, it shall never be necessary to produce or account
for more than one such counterpart.
8.5 Survival of Representations and Warranties. The representations
and warranties of the parties contained in this Agreement shall survive the
Closing.
8.6 Expenses. Each of the parties hereto will bear all costs, charges
and expenses incurred by such party in connection with this Agreement and
the consummation of the transactions contemplated herein.
<PAGE>11
8.7 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of PCTH, the Subsidiary, McGill, Fernandez, and
their representatives, successors, and permitted assigns, in accordance
with the terms hereof. PCTH and the Subsidiary agree that any sale,
transfer, assignment or conveyance of the Patents and Related Intellectual
Property to another party shall be made expressly subject to the terms,
conditions and provisions of this Agreement.
8.8 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements,
representations, warranties, statements, promises, information,
arrangements and understandings, whether oral or written, express or
implied, with respect to the subject matter hereof.
8.9 Governing Law. This Agreement and its validity, construction,
enforcement, and interpretation shall be governed by the substantive laws
of the State of Washington.
8.10 Attorneys' Fees. If suit, action or appeal is filed by any party
to enforce the provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and expenses.
8.11 Invalid Provisions. If any provision of this Agreement is deemed
or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it
is deemed to be illegal, invalid or unenforceable, and in all other
respects this Agreement shall remain in full force and effect; provided,
however, that if any provision of this Agreement is deemed or held to be
illegal, invalid or unenforceable there shall be added hereto automatically
a provision as similar as possible to such illegal, invalid or
unenforceable provision and be legal, valid and enforceable. Further,
should any provision contained in this Agreement ever be reformed or
rewritten by any judicial body of competent jurisdiction, such provision as
so reformed or rewritten shall be binding upon all parties hereto.
8.12 Remedies Cumulative. The remedies of the parties under this
Agreement are cumulative and shall not exclude any other remedies to which
any party may be lawfully entitled.
8.13 Waiver. No failure or delay on the part of any party in
exercising any right, power, or privilege hereunder or under any of the
documents delivered in connection with this Agreement shall operate as a
waiver of such right, power, or privilege, nor shall any single or partial
exercise of any such right, power, or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege.
8.14 Headings. The descriptive section headings are for convenience of
reference only and shall not control or affect the meaning or construction
of any provision of this Agreement.
<PAGE>12
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
duly executed as of the date and year first above written.
PCTH:
PCT HOLDINGS, INC., a Washington
corporation
By /s/ DONALD A. WRIGHT
-------------------------------------
Title President
SUBSIDIARY:
SEISMIC SAFETY PRODUCTS, INC., a
Washington corporation
By /s/ DONALD A. WRIGHT
-------------------------------------
Title Executive Vice President
SELLERS:
/s/ JAMES C. McGILL
---------------------------------------
JAMES C. McGILL
/s/ ELENA McGILL
---------------------------------------
ATTORNEY-IN-FACT FOR ANTONIO F.
FERNANDEZ
<PAGE>13
DISCLOSURE SCHEDULE
-------------------
Encumbrances; Licenses
----------------------
The Patents are subject to a License Agreement dated April 24, 1995,
pursuant to which the Patents are licensed to Seismic Safety Products,
Inc., a Florida corporation.
<PAGE>1
PATENT PURCHASE AGREEMENT
THIS PATENT PURCHASE AGREEMENT (this "Agreement") is entered into
as of this 27th day of October, 1995 (the "Effective Date"), by and between
PCT HOLDINGS, INC., a Washington corporation ("PCTH"), SEISMIC SAFETY
PRODUCTS, INC., a Washington corporation (the "Subsidiary"), and JAMES C.
McGILL, of Whites Creek, TN ("McGill"), in his individual capacity.
RECITALS
--------
WHEREAS, McGill is the holder of two United States Letters
Patent, U.S. Patent No. 4,903,720, granted on February 27, 1990, and U.S.
Patent No. 5,119,841, granted on June 9, 1992 (collectively, the
"Patents"); and
WHEREAS, PCTH has offered to cause the Subsidiary to purchase
from McGill the Patents (including but not limited to the right to sue for
past infringements), so as to acquire full and unencumbered title and
interest in the Patents, for an aggregate consideration of $120,000 and
otherwise based upon the terms and subject to the conditions hereinafter
set forth;
WHEREAS, McGill desires to sell the Patents (including but not
limited to the right to sue for past infringements) to the Subsidiary,
based upon the terms and subject to the conditions hereinafter set forth;
and
WHEREAS, to induce PCTH to enter into this agreement, McGill has
agreed to enter into a noncompetition agreement and to grant other rights
to PCTH and the Subsidiary;
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties
hereto covenant and agree as follows:
AGREEMENT
---------
1. PURCHASE AND SALE.
-----------------
1.1 Agreement to Sell and Purchase. Upon the basis of the
representations and warranties, for the consideration, and subject to the
terms and conditions set forth in this Agreement, McGill hereby agrees to
sell, transfer, assign and convey, and the Subsidiary hereby agrees to
purchase, the Patents, including but not limited to the right to sue for
past infringements, free and clear of all liens, encumbrances and rights of
others.
1.2 Purchase Price. The total purchase price for the Patents (the
"Purchase Price") shall be $120,000, as provided in Section 1.3 hereof.
<PAGE>2
1.3 Payment of Purchase Price. The Purchase Price shall be
payable to McGill by the Subsidiary or PCTH as follows:
(a) $5,000 to be paid by company check on the Closing Date;
and
(b) Equal installments of $5,000 each to be paid by company
check on the 15th day of each month for 24 consecutive months thereafter.
1.4 Transfer Documents. Provided that all conditions precedent
have been fulfilled or waived, McGill shall deliver to the Subsidiary, upon
payment of the $5,000 due on the Closing Date (as defined in Section 1.5),
patent assignments and such other instruments of transfer (in form and
substance satisfactory to PCTH and the Subsidiary) as may be necessary to
transfer to the Subsidiary all of the right, title and interest in and to
the Patents, free and clear of any liens, claims or encumbrances of any
kind.
1.5 Closing. The closing of the transaction contemplated in the
Agreement (the "Closing") shall take place on November 30, 1995 (the
"Closing Date"), at the offices of Stoel Rives, 3600 One Union Square,
Seattle, Washington, or at such other time and place as the parties may
agree.
2. TERMINATION.
-----------
2.1 Right to Terminate. Notwithstanding anything to the contrary
in this Agreement, this Agreement may be terminated and the transactions
contemplated herein abandoned at any time prior to the Closing:
(a) Mutual Consent. By mutual consent of PCTH and McGill.
(b) Delay. By either PCTH or McGill, if the Closing shall
not have occurred by December 31, 1995; provided, however, that the right
to terminate this Agreement under this Section 2.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing
to occur on or before such date.
(c) Breach by PCTH. By McGill, if PCTH breaches any of
PCTH's representations and warranties in any material respect or fails to
comply in any material respect with any of its agreements contained here.
(d) Breach by McGill. By PCTH, if McGill breaches any of his
representations and warranties in any material respect or fails to comply
in any material respect with any of his agreements contained herein.
2.2 Obligations to Cease. If this Agreement is terminated
pursuant to Section 2.1, all obligations of the parties to this Agreement
shall terminate and there shall be no liability of any party hereto to any
other party except (i) as set forth in Sections 6.4 and 8.6; and (ii) that
nothing herein will relieve any party from liability for any willful breach
of this Agreement.
<PAGE>3
3. REPRESENTATIONS AND WARRANTIES OF McGILL.
----------------------------------------
McGill represents and warrants to PCTH and the Subsidiary that:
3.1 Due Authorization. McGill has full power and authority to
execute and deliver this Agreement and to perform and to carry out his
obligations under this Agreement. This Agreement has been duly and validly
executed and delivered by McGill and is binding upon and enforceable
against him in accordance with its terms, except as such enforcement may be
limited by equitable principles or by applicable bankruptcy, insolvency,
reorganization or other laws affecting creditor's rights generally. The
execution and delivery of this Agreement (as well as all other instruments,
agreements, certificates, or other documents contemplated hereby) by
McGill, and the performance of his obligations thereunder, will not (a)
violate any federal, state, county, or local law, rule, or regulation or
any applicable decree or judgment of any court or governmental authority or
(b) violate or conflict with, or permit the cancellation of, or constitute
a default under, any agreement to which McGill is a party or by which he or
his property is bound.
3.2 Title to Patents. McGill has good and marketable full and
unencumbered legal and equitable title to U.S. Patent No. 4,903,720 and
U.S. Patent No. 5,119,841, including without limitation the exclusive right
to bring actions for infringement thereof, free and clear of all security
interests, liens, encumbrances, claims, or rights of any kind. McGill has
not licensed to others, or agreed to license, any of the Patents, or
entered into any contracts with respect thereto.
3.3 No Infringement. There has been no assertion or claim that
any manufacture, use or sale of any product by any third party infringes
any of the claims of the Patents, and McGill does not believe and has no
reason to believe that any manufacture, use or sale of any product by any
third party infringes any of the claims of the Patents. There is no claim,
dispute, action, proceeding or lawsuit asserting infringement of the rights
of any third party by the products and methodologies claimed in the
Patents, no threat of such action, and no basis exists for any such action.
3.4 Validity of Patents. All materials and information of which
disclosure to the United States Patent and Trademark Office is required
pursuant to United States Patent Law and Regulations during the prosecution
of the Patents have been submitted thereto. There has been no
misrepresentation and, to the best knowledge and belief of McGill, there is
no information or prior art reference that would render the Patents invalid
or raise any material questions regarding their validity.
3.5 Consents and Approvals. No consent, approval or authorization
of, or filing or registration with, any court, regulatory authority,
governmental body, or any other third party is required for the
consummation of the transaction of this Agreement.
3.6 Brokers. McGill has not entered into any arrangement with any
broker, finder or investment banker and will not incur a fee or any
liability for any brokerage or investment banking fee, commission, or
finder's fee in connection with the transactions contemplated by this
Agreement.
<PAGE>4
3.7 Reliance. McGill recognizes and agrees that, notwithstanding
any investigation by PCTH, PCTH is relying upon the representations and
warranties made by McGill in this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF PCTH.
--------------------------------------
PCTH and the Subsidiary represent and warrant to McGill as
follows:
4.1 Due Organization. PCTH is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
Washington and has full corporate power and authority to enter into and
perform this Agreement. The Subsidiary is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
Washington and has full corporate power and authority to enter into and
perform this Agreement.
4.2 Due Authorization. PCTH and the Subsidiary each have full
corporate power and authority to execute and deliver this Agreement and to
perform and carry out their obligations under this Agreement. The execution
and delivery of this Agreement and performance of PCTH's obligations and
the obligations of the Subsidiary contemplated hereby have been duly and
validly authorized by all necessary corporate action of PCTH and the
Subsidiary. This Agreement has been duly and validly executed and delivered
by PCTH and the Subsidiary and constitutes the valid and binding obligation
of PCTH and the Subsidiary, enforceable in accordance with its terms,
except as such enforcement may be limited by equitable principles or by
applicable bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally. The execution and delivery of this Agreement
(as well as all instruments, agreements, certificates or other documents
contemplated hereby) by PCTH and the Subsidiary and their performance of
their obligations thereunder, will not (a) violate any federal, state,
county, or local law, rule, or regulation or any decree or judgment of any
court or governmental authority applicable to PCTH or the Subsidiary or
their property or (b) violate or conflict with, or permit the cancellation
of, or constitute a default under, any agreement to which PCTH or the
Subsidiary is a party or by which they or their property is bound.
5. INDEMNIFICATION.
---------------
5.1 Indemnification. McGill agrees to indemnify and hold harmless
PCTH and the Subsidiary, and any of the affiliates, officers, directors,
employees, successors, assigns or agents of PCTH and the Subsidiary, from
and against any losses, damages, liabilities, costs and expenses, including
without limitation, any attorney's fees, technical expert fees and any
other expenditures for defense, and damages and settlement disbursements
that may be incurred as a result of any claim, dispute, proceeding or
lawsuit out of or related to any breach of, misrepresentation or inaccuracy
in, or intentional or reckless omission from, any representation or
warranty made by McGill in the Agreement or related agreements or
documents.
5.2 Indemnification Procedures.
(a) Claim Notice. In the event that an indemnified person
reasonably determines that it is entitled to indemnification pursuant to
Section 5.1, the
<PAGE>5
indemnified person shall provide written notice to McGill, specifying in
reasonable detail the nature and estimated amount of the claim.
(b) Third-Party Claims. If the claim specified in the claim
notice relates to a third-party claim, McGill shall have 15 days after his
receipt of the claim notice to notify the indemnified person whether McGill
agrees that the claim is subject to indemnification pursuant to this
Section 5 and whether McGill elects to defend such third-party claim at his
own expense. If the claim relates to a third-party claim that McGill elects
to defend, the indemnified person shall reasonably cooperate with such
defense. The indemnified person shall, however, be entitled to participate
in the defense or settlement of such a third-party claim through its own
counsel and at its own expense and shall be entitled to approve or
disapprove any proposed settlement that would impose a duty or obligation
on the indemnified person. If McGill does not timely elect to defend a
third-party claim, or if McGill fails to conduct such defense with
reasonable diligence, the indemnified party may conduct the defense of, or
settle, such claim at the risk and expense of McGill.
(c) Claims Other Than Third-Party Claims. If the claim does
not relate to a third-party claim, McGill shall have 30 days after receipt
of the claim notice to notify the indemnified party in writing whether
McGill accepts liability for all or any part of the claim and the method
and timing of any proposed payment. If McGill does not so notify the
indemnified party, McGill shall be deemed to have accepted liability for
all damages described in the claim notice.
5.3 Set-Off During First Twenty-Nine Months. Notwithstanding
anything to the contrary in Section 5.2, in the event that PCTH or the
Subsidiary reasonably determines at any time prior to completion of
payments for the twenty-nine months following Closing that PCTH or the
Subsidiary is entitled to indemnification pursuant to Section 5.1, PCTH
shall be entitled to pay the amount of any such claim to an escrow agent as
payment to McGill would otherwise become due, instead of to McGill as part
of the remaining payments due McGill. In the event that PCTH pays any such
disputed amount to an escrow agent and the parties are not able to mutually
resolve the dispute within 10 business days after the last payment due, the
parties shall submit the dispute to arbitration. Arbitration under this
section shall be conducted in accordance with the commercial arbitration
rules of the American Arbitration Association, in King County, Washington,
by one attorney arbitrator selected by mutual agreement, or by three
arbitrators if the parties are unable to agree on a single arbitrator
within 20 days of the first demand for arbitration. All arbitrators are to
be selected from a panel provided by the American Arbitration Association.
The arbitrators shall have the authority to permit discovery, to the extent
deemed appropriate by the arbitrators, upon request of a party. The
arbitrators shall have no power or authority to add to or detract from the
agreements of the parties. The cost of the arbitration shall be borne
equally pending the arbitrator's award. The arbitrators shall have no
authority to award punitive or consequential damages. The resulting
arbitration award may be enforced by all lawful remedies, including without
limitation injunctive or other equitable relief obtained in any applicable
court located in King County, Washington.
<PAGE>6
6. OTHER AGREEMENTS.
----------------
6.1 Noncompetition Covenant. McGill agrees that, for five years
following the Closing Date, he will not directly or indirectly engage in or
perform any services to, or provide individuals to perform such services
to, whether on an employment, a consulting or an advisory basis, or own,
manage, operate, control, be employed by, participate in or be connected in
any manner with the ownership, management, operation or control of any
business or undertaking that directly or indirectly competes with the
business of PCTH or the Subsidiary or any affiliate thereof in an area of
technology that is related to earthquake gas and electricity shutoff and
actuator apparatus that are activated by seismic activity, this area of
technology specifically excluding, without limitation, technology related
to leak-detecting shutoff systems, earthquake alarms and P wave alarms.
6.2 Right of First Refusal. For five years following the Closing
Date, PCTH and the Subsidiary shall have the right of first refusal to
purchase any technology, product, prototype or concept which McGill
develops, or helps develop, related to the subject matter of the Patents
("Subsequent Technology"), which right may be exercised on an exclusive
basis within three months after PCTH or the Subsidiary receives written
notice from McGill of the existence of the Subsequent Technology. The terms
of any such exercise shall be agreed upon by PCTH or the Subsidiary and
McGill. Prior to and during the three-month exclusive period, McGill will
not entertain offers from any third party for the Subsequent Technology.
PCTH and the Subsidiary shall have the further right, after expiration of
any such three-month exclusive period, to match any other offer made for
the Subsequent Technology, within one month of receiving notice of such
offer, by giving written notice of its intention to match such offer.
McGill agrees to notify PCTH and the Subsidiary promptly upon determining
that any Subsequent Technology is available and to notify PCTH and the
Subsidiary promptly in the event that any offer for Subsequent Technology
is received from a third party. If no terms are agreed upon by PCTH or the
Subsidiary and McGill, or no matching offer is made by PCTH or the
Subsidiary within the applicable time periods, McGill will be free to
manufacture, market, sell, distribute, license or otherwise dispose of the
Subsequent Technology at his discretion and notwithstanding any other
provisions of this Agreement. In the event that a person other than McGill
has rights to Subsequent Technology because such person is a co-inventor or
co-developer thereof, McGill will use his best efforts to provide to PCTH
and the Subsidiary the rights described in this Section with respect to
such person's interest.
6.3 Further Assurances. McGill agrees that, from time to time and
after execution of this Agreement, he will, upon the request of PCTH or the
Subsidiary and without further consideration, take all steps reasonably
necessary to place the Subsidiary in possession of full record and actual
title to the Patents and full operating control of all rights to make, use
and sell the products embodying the Patents, and full operating control of
all rights to make, use and sell the products embodying the patents, and he
will do or have done, execute or have executed, and deliver or have
delivered, all further acts, assignments, powers of attorney, and
acknowledgements or assurances as reasonably required to assign to and vest
in the Subsidiary all his right, title, and interest in the Patents.
6.4 Confidentiality. The terms and conditions of this Agreement
and all information and materials, including all financial statements and
business information, know-how, techniques and other proprietary materials
and intellectual property used in the
<PAGE>7
conduct of the respective businesses of the parties hereto as now conducted
or as proposed to be conducted, that have been divulged or provided during
the negotiation of this Agreement are the confidential information of the
party owning such information and materials (the "Confidential Information").
Unless the owner of the relevant Confidential Information consents in writing
to the contrary, no Confidential Information shall be divulged, except on a
need to know basis to directors, officers or key employees involved in the
transactions contemplated hereby and such third party consultants as need the
Confidential Information for tax, accounting, or similar purposes or as
required by applicable law; provided that this obligation will not apply to
PCTH or the Subsidiary after the Closing Date.
6.5 Disclosure. Any press release or public disclosure regarding
the execution of this Agreement or the terms hereof will be made at the
sole discretion of PCTH or the Subsidiary.
6.6 Maintenance After Closing. PCTH and the Subsidiary shall be
responsible for all costs, services and fees involved with prosecution,
allowance, registration and maintenance of the Patents and Related
Intellectual Property that arise after Closing.
6.7 Performance of Subsidiary Obligations. Subject to the
consummation of the Closing, PCTH agrees to carry out the obligations of
the Subsidiary in the event that the Subsidiary fails to carry out any of
its obligations to Sellers under this Agreement, including any obligations
pursuant to Sections 1.2 or 1.3, above.
7. CONDITIONS PRECEDENT TO CLOSING.
-------------------------------
7.1 Conditions to the Obligations of PCTH and the Subsidiary. The
obligations of PCTH and the Subsidiary to close the transaction
contemplated in this Agreement are subject to the fulfillment, at or prior
to Closing (unless waived in writing by PCTH):
(a) Representations and Warranties. The representations and
warranties of McGill contained herein shall be true and correct in all
material respects as of Closing as if made at Closing;
(b) Closing Documents. McGill shall have executed and
delivered to PCTH and the Subsidiary all documents required to be delivered
by McGill pursuant to this Agreement, in form reasonably satisfactory to
PCTH and its counsel.
7.2 Conditions Precedent to the Obligations of McGill. The
obligations of McGill to close the transaction contemplated in this
Agreement are subject to the fulfillment, at or prior to Closing, of the
following conditions (unless waived in writing by McGill):
(a) Representation and Warranties. The representations and
warranties of PCTH and the Subsidiary contained herein shall be true and
correct in all material respects as of Closing as if made at Closing; and
<PAGE>8
(b) Purchase Price. PCTH shall have delivered the first
$5,000 payment of the Purchase Price.
7.3 Condition Precedent to the Obligations of All Parties. The
obligations of all parties to close the transaction contemplated in this
Agreement are subject to the Closing, prior to or simultaneously with the
Closing, of the purchase by PCTH or the Subsidiary of (i) substantially all
of the assets of Seismic Safety Products, Inc., a Florida corporation, and
(ii) certain intellectual property owned by McGill and Antonio F.
Fernandez.
8. MISCELLANEOUS.
-------------
8.1 Waiver or Modification of Agreement. No modification or
waiver of any provision of this Agreement, nor any consent to any departure
by either party herefrom, shall in any event be effective unless the same
shall be in writing and signed by the party against which enforcement of
such modification or waiver is sought, and then such waiver or consent
shall be effective only in the specific instance and for the specific
purpose for which given.
8.2 Amendment of Agreement. This Agreement may be amended with
respect to any provision contained herein by a written instrument duly
executed on behalf of each party hereto.
8.3 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given when personally
delivered, or three days after deposited in the United States mail,
first-class, postage prepaid, or by facsimile addressed to the respective
parties hereto as follows:
If to PCTH or the Subsidiary:
---------------------------
PCT Holdings, Inc.
434 Olds Station Road
Wenatchee, Washington 98801
Attn.: Donald A. Wright
Telephone: (509) 664-8000
Facsimile: (509) 664-6868
c/o Cashmere Manufacturing, Inc.
102 Maple Street
Cashmere, Washington 98815
Attn: John Eder
Telephone: (509) 782-2455
Facsimile: (509) 782-2580
<PAGE>9
with a copy to:
Sheryl A. Symonds, Esq.
Stoel Rives
36th Floor, One Union Square
600 University Street
Seattle, Washington 98101-3197
Telephone: (206) 386-7611
Facsimile: (206) 386-7500
If to McGill:
------------
c/o Elena McGill
520 Ivy Street
Glendale, California 91024
Attn: James C. McGill
Telephone: (818) 548-0083
Facsimile: (818) 548-6986
with a copy to:
Nils Pedersen
Wenderoth, Lind & Ponack
805 Fifteenth Street, N.W.
Washington, D.C. 20005
Telephone: (202) 371-8850
Facsimile: (202) 371-8856
or to such other address as to any party hereto as such party shall
designate by like notice to the other parties hereto.
8.4 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which
counterparts collectively shall constitute one instrument, and in making
proof of this Agreement, it shall never be necessary to produce or account
for more than one such counterpart.
8.5 Survival of Representations and Warranties. The
representations and warranties of the parties contained in this Agreement
shall survive the Closing.
8.6 Expenses. Each of the parties hereto will bear all costs,
charges and expenses incurred by such party in connection with this
Agreement and the consummation of the transactions contemplated herein.
8.7 Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of PCTH, the Subsidiary and McGill, and their
representatives, successors, and permitted assigns, in accordance with the
terms hereof. PCTH and the Subsidiary agree that any sale, transfer,
assignment or conveyance of the Patents to another
<PAGE>10
party shall be made expressly subject to the terms, conditions and provisions
of this Agreement.
8.8 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto and supersedes all prior agreements,
representations, warranties, statements, promises, information,
arrangements and understandings, whether oral or written, express or
implied, with respect to the subject matter hereof.
8.9 Governing Law. This Agreement and its validity, construction,
enforcement, and interpretation shall be governed by the substantive laws
of the State of Washington.
8.10 Attorneys' Fees. If suit, action or appeal is filed by any
party to enforce the provisions of this Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees and expenses.
8.11 Invalid Provisions. If any provision of this Agreement is
deemed or held to be illegal, invalid or unenforceable, this Agreement
shall be considered divisible and inoperative as to such provision to the
extent it is deemed to be illegal, invalid or unenforceable, and in all
other respects this Agreement shall remain in full force and effect;
provided, however, that if any provision of this Agreement is deemed or
held to be illegal, invalid or unenforceable there shall be added hereto
automatically a provision as similar as possible to such illegal, invalid
or unenforceable provision and be legal, valid and enforceable. Further,
should any provision contained in this Agreement ever be reformed or
rewritten by any judicial body of competent jurisdiction, such provision as
so reformed or rewritten shall be binding upon all parties hereto.
8.12 Remedies Cumulative. The remedies of the parties under this
Agreement are cumulative and shall not exclude any other remedies to which
any party may be lawfully entitled.
8.13 Waiver. No failure or delay on the part of any party in
exercising any right, power, or privilege hereunder or under any of the
documents delivered in connection with this Agreement shall operate as a
waiver of such right, power, or privilege, nor shall any single or partial
exercise of any such right, power, or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege.
8.14 Headings. The descriptive section headings are for
convenience of reference only and shall not control or affect the meaning
or construction of any provision of this Agreement.
<PAGE>11
IN WITNESS WHEREOF, each party hereto has caused this Agreement
to be duly executed as of the date and year first above written.
PCT HOLDINGS, INC., a Washington
corporation
By /s/ DONALD A. WRIGHT
---------------------------------
Title President
SEISMIC SAFETY PRODUCTS, INC., a
Washington corporation
By /s/ JOHN EDER
---------------------------------
Title President
/s/ JAMES C. McGILL
-----------------------------------
JAMES C. McGILL
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements of PCT Holdings, Inc., and its subsidiaries
for the three-month period ended November 30, 1995, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> NOV-30-1995
<CASH> 2,143,565
<SECURITIES> 0
<RECEIVABLES> 4,449,782
<ALLOWANCES> (45,207)
<INVENTORY> 6,395,476
<CURRENT-ASSETS> 13,131,467
<PP&E> 13,123,323
<DEPRECIATION> (3,086,948)
<TOTAL-ASSETS> 26,284,099
<CURRENT-LIABILITIES> 8,537,855
<BONDS> 5,796,757
<COMMON> 16,991,113
0
0
<OTHER-SE> (6,148,356)
<TOTAL-LIABILITY-AND-EQUITY> 26,284,109
<SALES> 12,609,215
<TOTAL-REVENUES> 12,609,215
<CGS> 11,112,625
<TOTAL-COSTS> 2,384,091
<OTHER-EXPENSES> 115,848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 299,329
<INCOME-PRETAX> (1,302,618)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,302,618)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,302,618)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
<PAGE>1
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, effective as of December 1, 1995, is made by and
between MOREL INDUSTRIES, INC., a Washington corporation having its
principal place of business in Wenatchee, Washington (the "Company"), and
STEPHEN L. MOREL, a resident of Washington (the "Executive").
RECITALS
A. The Company desires to obtain the services of the Executive, and
the Executive is willing to render such services, in accordance with the
terms hereinafter set forth; and
B. The Board of Directors of the Company (the "Board") by appropriate
resolutions has authorized the employment of the Executive as provided for
in this Agreement.
Accordingly, the Company and the Executive agree as follows:
ARTICLE 1.
Duties
The Executive shall be President of the Company. The duties to be
performed by the Executive under this Agreement are as specified in the
Company's Bylaws, if applicable, or as may reasonably be prescribed from
time to time by the Board or by the Board of Directors of the Company's
parent corporation, PCT Holdings, Inc., a Nevada corporation ("PCTH"),
commensurate with the abilities, experience and know-how of Executive.
During the Contract Term (as defined below), and excluding any periods of
vacation, sick leave or disability to which the Executive is entitled, the
Executive agrees to devote the Executive's full attention and time to the
business and affairs of the Company and, to the extent necessary to
discharge the duties assigned to the Executive hereunder, to use the
Executive's best efforts to perform faithfully and efficiently such duties.
ARTICLE 2.
Term of Agreement
The term of this Agreement shall commence on the date hereof and end
three years from the date of this Agreement (the "Contract Term"). The
Contract Term shall be automatically extended for an additional two years,
unless either party gives written notice to the other party at least six
months before the last day of Contract Term, that the Contract Term shall
not be so extended. All references to "Contract Term" in this Agreement,
except as used in this Article 2, shall include the extended period, unless
the option not to extend is exercised.
ARTICLE 3.
Compensation
3.1 Annual Base Salary. During the Contract Term, the Company shall
pay or cause to be paid to the Executive in cash in accordance with the
normal payroll practices of the Company for peer executives, including
deductions, withholdings and collections as required by law, in
installments not less frequently than monthly, an annual base salary of
$105,000 ("Annual Base Salary"). The Executive shall not be entitled to any
increases in the
<PAGE>2
Annual Base Salary during the initial Contract Term. As of the third and
fourth anniversary date of this Agreement, if the Contract Term is extended
as provided in Article 2, the Annual Base Salary shall be increased by a
cost of living adjustment equal to the increase in the Consumer Price Index
for Chelan County, Washington ("CPI"), using as a base the CPI for the six
month period ending December 31, 1997.
3.2 Bonuses. The Board may award the Executive cash bonuses based on
the Executive's performance, as measured by comparing the actual
performance of the Company for each year to the Company's approved business
plan for that year, at the Board's sole discretion.
ARTICLE 4.
Other Benefits
4.1 Savings and Retirement Plans. In addition to the Annual Base
Salary, the Executive shall be entitled to participate during the Contract
Term in all savings and retirement plans, practices, policies and programs
applicable to other peer executives of the Company or PCTH.
4.2 Welfare Benefits. During the Contract Term, the Executive and/or
the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit
plans, practices, policies and programs provided by the Company (including,
and without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, dependent life, accidental death
and travel accident insurance plans and programs) and applicable to other
peer executives of the Company or PCTH.
4.3 Vehicles. The Executive shall be entitled to full use of the
vehicle currently provided by the Company during the Contract Term. The
Company shall fully pay all lease payments, insurance and maintenances
costs associated with such vehicle for the remainder of the current lease
term. When the current lease term expires, PCTH's management and Executive
shall determine whether the Executive's duties require the use of a Company
vehicle.
4.4 Fringe Benefits. During the Contract Term, the Executive shall be
entitled to fringe benefits applicable to other peer executives of the
Company or PCTH.
4.5 Expenses. During the Contract Term, the Executive shall be
entitled to receive prompt reimbursement for all reasonable
employment-related expenses incurred by the Executive upon the Company's
receipt of accountings in accordance with practices, policies and
procedures applicable to peer executives of the Company or PCTH.
4.6 Office and Support Staff. During the Contract Term, the Executive
shall be entitled to an office or offices of a size and with furnishings
and other appointments, and to personal secretarial and other assistance,
provided to other peer executives of the Company or PCTH.
4.7 Vacation. During the Contract Term, the Executive shall be
entitled to be paid vacation time in accordance with the plans, policies,
and programs applicable to other peer executives of the Company or PCTH.
<PAGE>3
ARTICLE 5.
Restrictive Covenants
5.1 Trade Secrets, Confidential and Proprietary Business Information.
5.1.1 The Company has advised the Executive and the Executive has
acknowledged that it is the policy of the Company to maintain as secret and
confidential all Protected Information (as defined below), and that
Protected Information has been and will be developed at substantial cost
and effort to the Company. "Protected Information" means trade secrets,
confidential and propriety business information of the Company, any
information of the Company other than information which has entered the
public domain (unless such information entered the public domain through
effects of or on account of the Executive), and all valuable and unique
information and techniques acquired, developed or used by the Company
relating to its business, operations, employees, customers and suppliers,
which give the Company a competitive advantage over those who do not know
the information and techniques and which are protected by the Company from
unauthorized disclosure, including but not limited to, customer lists
(including potential customers), sources of supply, processes, plans,
materials, pricing information, internal memoranda, marketing plans,
internal policies, and products and services which may be developed from
time to time by the Company and its agents or employees.
5.1.2 The Executive acknowledges that the Executive will acquire
Protected Information with respect to the Company and its successors in
interest, which information is a valuable, special and unique asset of the
Company's business and operations and that disclosure of such Protected
Information would cause irreparable damage to the Company.
5.1.3 Either during or after termination of employment by the
Company, the Executive shall not, directly or indirectly, divulge, furnish
or make accessible to any person, firm, corporation, association or other
entity (otherwise than as may be required in the regular course of the
Executive's employment) nor use in any manner, any Protected Information,
or cause any such information of the Company to enter the public domain.
5.2 Non-Competition.
5.2.1 The Executive agrees that the Executive shall not during
the Executive's employment with the Company, and, for a period of two (2)
years after the termination of this Agreement directly or indirectly, in
any capacity, engage or participate in, or become employed by or render
advisory or consulting or other services in connection with any Prohibited
Business as defined in Section 5.2.3.
5.2.2 The Executive agrees that the Executive shall not during
the Executive's employment with the Company, and, for a period of two (2)
years after the termination of this Agreement, make any financial
investment, whether in the form of equity or debt, or own any interest,
directly or indirectly, in any Prohibited Business. Nothing in this Section
5.2.2 shall, however, restrict the Executive from making any investment in
any company whose stock is listed on a national securities exchange or
actively traded in the over-the-counter market; provided that: (i) such
investment does not give the Executive the right or ability to control or
influence the policy decisions of any Prohibited Business; and (ii) such
investment does not create a conflict of interest between the Executive's
duties hereunder and the Executive's interest in such investment.
<PAGE>4
5.2.3 For purposes of this Section 5.2, "Prohibited Business"
shall be defined as any business organization whose activities or products
are directly or indirectly competitive with the activities or products of
the Company.
5.2.4 The Executive shall not be bound by Sections 5.2.1 and
5.2.2 if the Executive's employment is terminated by the Company without
cause.
5.3 Non-Solicitation. From the date hereof until two (2) years after
the Executive's termination of employment with the Company, the Executive
shall not, directly or indirectly: (a) encourage any employee or supplier
of the Company or its successors in interest to leave his or her employment
with the Company or its successors in interest; (b) employ, hire, solicit
or cause to be employed, hired or solicited (other than by the Company or
its successors in interest), or encourage others to employ or hire any
person who within two (2) years prior thereto was employed by the Company
or its successors in interest; or (c) establish a business with, or
encourage others to establish a business with, any person who within two
(2) years prior thereto was an employee or supplier of the Company or its
successors in interest.
5.4 Employee-Created Trade Secrets, Confidential and Propriety
Business Information. The Executive agrees to promptly disclose to the
Company all Protected Information developed in whole or in part by the
Executive during the Executive's employment with the Company and which
relates to the Company's business. Such Protected Information is, and shall
remain, the exclusive property of the Company. All writings created during
the Executive's employment with the Company (excluding writings unrelated
to the Company's business) are considered to be "works-for-hire" for the
benefit of the Company and the Company shall own all rights in such
writings. Washington law requires the following notice be given to the
Executive:
This Agreement does not require Executive to assign to the Company any
invention by Executive for which no equipment, supplies, facility or
trade secret information of the Company was used and which was
developed entirely on Executive's own time unless the invention
related (1) directly to the Company's business, or (2) to the
Company's actual or demonstrably anticipated research or development,
or (3) the development results from any work performed by Executive
for the Company.
5.5 Survival of Undertakings and Injunctive Relief.
5.5.1 The provisions of Sections 5.1, 5.2, 5.3 and 5.4 shall
survive the termination of the Executive's employment with the Company
irrespective of the reasons therefor.
5.5.2 The Executive acknowledges and agrees that the restrictions
imposed upon the Executive by Sections 5.1, 5.2, 5.3 and 5.4 and the
purpose of such restrictions are reasonable and are designed to protect the
Protected Information and the continued success of the Company without
unduly restricting the Executive's future employment by others.
Furthermore, the Executive acknowledges that, in view of the Protected
Information which the Executive has or will acquire or has or will have
access to and in view of the necessity of the restrictions contained in
Sections 5.1, 5.2, 5.3 and 5.4, any violation of any provision of Sections
5.1, 5.2, 5.3 and 5.4 hereof would cause irreparable injury to the Company
and its successors in interest with respect to the resulting disruption in
their operations. By reason of the foregoing, the Executive consents and
agrees that if the Executive violates any of the provisions of Sections
5.1, 5.2, 5.3 or 5.4 of this Agreement, the Company and its successors in
interest, as the case may be, shall be entitled, in addition
<PAGE>5
to any other remedies that they may have, including money damages, to an
injunction to be issued by a court of competent jurisdiction, restraining
the Executive from committing or continuing any violation of such Sections
of this Agreement.
In the event of any such violation of Sections 5.1, 5.2, 5.3 and
5.4 of this Agreement, the Executive further agrees that the time periods
set forth in such Sections shall be extended by the period of such
violation.
5.6 References to Company. All references to the Company in this
Article 5 shall be deemed to include all subsidiaries of the Company, the
parent corporation of the Company, and all other subsidiaries of the
Company's parent corporation.
ARTICLE 6.
Termination
6.1 Termination by Mutual Agreement. The Executive's employment may be
terminated at any time during the Contract Term by mutual agreement of the
parties, or as otherwise provided in this Article.
6.2 Termination for Cause. The Company may terminate the Executive's
employment without notice at any time for cause. For purposes of this
Agreement, cause for termination shall include: continued neglect, after
notice thereof, or willful misconduct by the Executive with respect to his
duties and obligations under this Agreement; unauthorized expenditure of
the Company's funds; unethical business practices in connection with the
Company's business; misappropriation of the Company's assets; any material
breach by the Executive of any term or provision of this Agreement; any act
or action of the Executive during the term of this Agreement involving
embezzlement, dishonesty related to the Company or the Company's business,
or habitual use of alcohol or drugs; conviction of any felony; or any
similar or related act or insubordination by the Executive. Upon
termination for cause, the Executive shall not be entitled to payment of
any compensation other than salary and accrued benefits under this
Agreement earned up to the date of such termination.
ARTICLE 7.
Miscellaneous
7.1 Assignment, Successors. The Company may freely assign its
respective rights and obligations under this Agreement to a successor of
the Company's business, without the prior written consent of the Executive.
This Agreement shall be binding upon and inure to the benefit of the
Executive and the Executive's estate and the Company and any assignee of or
successor to the Company.
7.2 Beneficiary. If the Executive dies prior to receiving all of the
salary payable hereunder, one-month's salary shall be paid to the
beneficiary designated in writing by the Executive ("Beneficiary") and if
no such Beneficiary is designated, to the Executive's estate.
7.3 Nonalienation of Benefits. Benefits payable under this Agreement
shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, garnishment, execution
of levy of any kind, either voluntary or involuntary, prior to actually
being received by the Executive, and any such attempt to dispose of any
right to benefits payable hereunder shall be void.
<PAGE>6
7.4 Severability. If all or any part of this Agreement is declared by
any court or governmental authority to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate any portion of
this Agreement not declared to be unlawful or invalid. Any paragraph or
part of a paragraph so declared to be unlawful or invalid shall, if
possible, be construed in a manner which will give effect to the terms of
such paragraph or part of a paragraph to the fullest extent possible while
remaining lawful and valid.
7.5 Amendment and Waiver. This Agreement shall not be altered, amended
or modified except by written instrument executed by the Company and the
Executive. A waiver of any term, covenant, agreement or condition contained
in this Agreement shall not be deemed a waiver of any other term, covenant,
agreement or condition, and any waiver of any other term, covenant,
agreement or condition, and any waiver of any default in any such term,
covenant, agreement or condition shall not be deemed a waiver of any later
default thereof or of any other term, covenant, agreement or condition.
7.6 Notices. All notices and other communications hereunder shall be
in writing and delivered by hand, facsimile transmission, or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company: Morel Industries, Inc.
14351 Shamel Street
Wenatchee, Washington 98822
Attn: Board of Directors
Fax: (509) 784-1201
With a copy to: PCT Holdings, Inc., a Nevada corporation
434 Olds Station Road
Wenatchee, WA 98801
Attn: President
Phone: (509) 664-8000
Fax: (509) 664-6868
If to the Executive: Stephen L. Morel
224 Stoneybrook Lane
Wenatchee, WA 98801
Fax: (509) 784-1201
Either party may from time to time designate a new address by notice given
in accordance with this Section. Notice and communications shall be
effective when actually received by the addressee.
7.7 Counterpart Originals. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
7.8 Entire Agreement. This Agreement forms the entire agreement
between the parties hereto with respect to any severance payment and with
respect to the subject matter contained in the Agreement.
7.9 Applicable Law. The provisions of this Agreement shall be
interpreted and construed in accordance with the laws of the State of
Washington, without regard to its choice of law principles.
<PAGE>7
7.10 Effect on Other Agreements. This Agreement shall supersede all
prior agreements, promises and representations regarding employment by the
Company and severance or other payments contingent upon termination of
employment. Notwithstanding the foregoing, the Executive shall be entitled
to any other severance plan applicable to other peer executives of the
Company.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first written above.
COMPANY: MOREL INDUSTRIES, INC.
By:/s/ DONALD A. WRIGHT
-------------------------------
Donald A. Wright
Its Executive Vice President
EXECUTIVE: /s/ STEPHEN L. MOREL
----------------------------------
STEPHEN L. MOREL
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, effective as of December 1, 1995, is made by and
between MOREL INDUSTRIES, INC., a Washington corporation having its
principal place of business in Wenatchee, Washington (the "Company"), and
MARK MOREL, a resident of Washington (the "Executive").
RECITALS
A. The Company desires to obtain the services of the Executive, and
the Executive is willing to render such services, in accordance with the
terms hereinafter set forth; and
B. The Board of Directors of the Company (the "Board") by appropriate
resolutions has authorized the employment of the Executive as provided for
in this Agreement.
Accordingly, the Company and the Executive agree as follows:
ARTICLE 1.
Duties
The Executive shall be Vice President of the Company. The duties
to be performed by the Executive under this Agreement are as specified in
the Company's Bylaws, if applicable, or as may reasonably be prescribed
from time to time by the Board, commensurate with the abilities, experience
and know-how of Executive or by the Board of Directors of the Company's
parent corporation, PCT Holdings, Inc., a Nevada corporation ("PCTH").
During the Contract Term (as defined below), and excluding any periods of
vacation, sick leave or disability to which the Executive is entitled, the
Executive agrees to devote the Executive's full attention and time to the
business and affairs of the Company and, to the extent necessary to
discharge the duties assigned to the Executive hereunder, to use the
Executive's best efforts to perform faithfully and efficiently such duties.
ARTICLE 2.
Term of Agreement
The term of this Agreement shall commence on the date hereof and
end three years from the date of this Agreement (the "Contract Term"). The
Contract Term shall be automatically extended for an additional two years,
unless either party gives written notice to the other party at least six
months before the last day of Contract Term, that the Contract Term shall
not be so extended. All references to "Contract Term" in this Agreement,
except as used in this Article 2, shall include the extended period, unless
the option not to extend is exercised.
ARTICLE 3.
Compensation
3.1 Annual Base Salary. During the Contract Term, the Company shall
pay or cause to be paid to the Executive in cash in accordance with the
normal payroll practices of the Company for peer executives, including
deductions, withholdings and collections as required by law, in
installments not less frequently than monthly, an annual base salary of
$105,000 ("Annual Base Salary"). The Executive shall not be entitled to any
increases in
<PAGE>2
the Annual Base Salary during the initial Contract Term. As of the third
and fourth anniversary date of this Agreement, if the Contract Term is
extended as provided in Article 2, the Annual Base Salary shall be
increased by a cost of living adjustment equal to the increase in the
Consumer Price Index for chelan County, Washington ("CPI"), using as a base
the CPI for the six month period ending December 31, 1997.
3.2 Bonuses. The Board may award the Executive cash bonuses based on
the Executive's performance, as measured by comparing the actual
performance of the Company for each year to the Company's approved business
plan for that year, at the Board's sole discretion.
ARTICLE 4.
Other Benefits
4.1 Savings and Retirement Plans. In addition to the Annual Base
Salary, the Executive shall be entitled to participate during the Contract
Term in all savings and retirement plans, practices, policies and programs
applicable to other peer executives of the Company or PCTH.
4.2 Welfare Benefits. During the Contract Term, the Executive and/or
the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit
plans, practices, policies and programs provided by the Company (including,
and without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, dependent life, accidental death
and travel accident insurance plans and programs) and applicable to other
peer executives of the Company or PCTH.
4.3 Vehicles. The Executive shall be entitled to full use of the
vehicle currently provided by the Company during the Contract Term. The
Company shall fully pay all lease payments, insurance and maintenances
costs associated with such vehicle so long as the Executive continues in
the employment of Company. When the current lease term expires, PCTH's
management and the Executive shall determine whether the Executive's duties
require the use of a Company vehicle.
4.4 Fringe Benefits. During the Contract Term, the Executive shall be
entitled to fringe benefits applicable to other peer executives of the
Company or PCTH.
4.5 Expenses. During the Contract Term, the Executive shall be
entitled to receive prompt reimbursement for all reasonable
employment-related expenses incurred by the Executive upon the Company's
receipt of accountings in accordance with practices, policies and
procedures applicable to peer executives of the Company or PCTH.
4.6 Office and Support Staff. During the Contract Term, the Executive
shall be entitled to an office or offices of a size and with furnishings
and other appointments, and to personal secretarial and other assistance,
provided to other peer executives of the Company or PCTH.
4.7 Vacation. During the Contract Term, the Executive shall be
entitled to be paid vacation time in accordance with the plans, policies,
and programs applicable to other peer executives of the Company or PCTH.
<PAGE>3
ARTICLE 5.
Restrictive Covenants
5.1 Trade Secrets, Confidential and Proprietary Business Information.
5.1.1 The Company has advised the Executive and the Executive has
acknowledged that it is the policy of the Company to maintain as secret and
confidential all Protected Information (as defined below), and that
Protected Information has been and will be developed at substantial cost
and effort to the Company. "Protected Information" means trade secrets,
confidential and propriety business information of the Company, any
information of the Company other than information which has entered the
public domain (unless such information entered the public domain through
effects of or on account of the Executive), and all valuable and unique
information and techniques acquired, developed or used by the Company
relating to its business, operations, employees, customers and suppliers,
which give the Company a competitive advantage over those who do not know
the information and techniques and which are protected by the Company from
unauthorized disclosure, including but not limited to, customer lists
(including potential customers), sources of supply, processes, plans,
materials, pricing information, internal memoranda, marketing plans,
internal policies, and products and services which may be developed from
time to time by the Company and its agents or employees.
5.1.2 The Executive acknowledges that the Executive will acquire
Protected Information with respect to the Company and its successors in
interest, which information is a valuable, special and unique asset of the
Company's business and operations and that disclosure of such Protected
Information would cause irreparable damage to the Company.
5.1.3 Either during or after termination of employment by the
Company, the Executive shall not, directly or indirectly, divulge, furnish
or make accessible to any person, firm, corporation, association or other
entity (otherwise than as may be required in the regular course of the
Executive's employment) nor use in any manner, any Protected Information,
or cause any such information of the Company to enter the public domain.
5.2 Non-Competition.
5.2.1 The Executive agrees that the Executive shall not during
the Executive's employment with the Company, and, for a period of two (2)
years after the termination of this Agreement, directly or indirectly, in
any capacity, engage or participate in, or become employed by or render
advisory or consulting or other services in connection with any Prohibited
Business as defined in Section 5.2.3
5.2.2 The Executive agrees that the Executive shall not during
the Executive's employment with the Company, and, for a period of two (2)
years after the termination of this Agreement, make any financial
investment, whether in the form of equity or debt, or own any interest,
directly or indirectly, in any Prohibited Business. Nothing in this Section
5.2.2 shall, however, restrict the Executive from making any investment in
any company whose stock is listed on a national securities exchange or
actively traded in the over-the-counter market; provided that: (i) such
investment does not give the Executive the right or ability to control or
influence the policy decisions of any Prohibited Business; and (ii) such
investment does not create a conflict of interest between the Executive's
duties hereunder and the Executive's interest in such investment.
<PAGE>4
5.2.3 For purposes of this Section 5.2, "Prohibited Business"
shall be defined as any business organization whose activities or products
are directly or indirectly competitive with the activities or products of
the Company.
5.2.4 The Employee shall not be bound by Sections 5.2.1 and 5.2.2
if the Employee's employment is terminated by the Company without cause.
5.3 Non-Solicitation. From the date hereof until two (2) years after
the Executive's termination of employment with the Company, the Executive
shall not, directly or indirectly: (a) encourage any employee or supplier
of the Company or its successors in interest to leave his or her employment
with the Company or its successors in interest; (b) employ, hire, solicit
or cause to be employed, hired or solicited (other than by the Company or
its successors in interest), or encourage others to employ or hire any
person who within two (2) years prior thereto was employed by the Company
or its successors in interest; or (c) establish a business with, or
encourage others to establish a business with, any person who within two
(2) years prior thereto was an employee or supplier of the Company or its
successors in interest.
5.4 Disclosure of Employee-Created Trade Secrets, Confidential and
Propriety Business Information. The Executive agrees to promptly disclose
to the Company all Protected Information developed in whole or in part by
the Executive during the Executive's employment with the Company and which
relates to the Company's business. Such Protected Information is, and shall
remain, the exclusive property of the Company. All writings created during
the Executive's employment with the Company (excluding writings unrelated
to the Company's business) are considered to be "works-for-hire" for the
benefit of the Company and the Company shall own all rights in such
writings. Washington law requires the following notice be given to the
Executive:
This Agreement does not require Executive to assign to the Company any
invention by Executive for which no equipment, supplies, facility or
trade secret information of the Company was used and which was
developed entirely on Executive's own time unless the invention
related (1) directly to the Company's business, or (2) to the
Company's actual or demonstrably anticipated research or development,
or (3) the development results from any work performed by Executive
for the Company.
5.5 Survival of Undertakings and Injunctive Relief.
5.5.1 The provisions of Sections 5.1, 5.2, 5.3 and 5.4 shall
survive the termination of the Executive's employment with the Company
irrespective of the reasons therefor.
5.5.2 The Executive acknowledges and agrees that the restrictions
imposed upon the Executive by Sections 5.1, 5.2, 5.3 and 5.4 and the
purpose of such restrictions are reasonable and are designed to protect the
Protected Information and the continued success of the Company without
unduly restricting the Executive's future employment by others.
Furthermore, the Executive acknowledges that, in view of the Protected
Information which the Executive has or will acquire or has or will have
access to and in view of the necessity of the restrictions contained in
Sections 5.1, 5.2, 5.3 and 5.4, any violation of any provision of Sections
5.1, 5.2, 5.3 and 5.4 hereof would cause irreparable injury to the Company
and its successors in interest with respect to the resulting disruption in
their operations. By reason of the foregoing, the Executive consents and
agrees that if the Executive violates any of the provisions of Sections
5.1, 5.2, 5.3 or 5.4 of this Agreement,
<PAGE>5
the Company and its successors in interest, as the case may be, shall be
entitled, in addition to any other remedies that they may have, including
money damages, to an injunction to be issued by a court of competent
jurisdiction, restraining the Executive from committing or continuing any
violation of such Sections of this Agreement.
In the event of any such violation of Sections 5.1, 5.2, 5.3 and
5.4 of this Agreement, the Executive further agrees that the time periods
set forth in such Sections shall be extended by the period of such
violation.
5.6 References to Company. All references to the Company in this
Article 5 shall be deemed to include all subsidiaries of the Company, the
parent corporation of the Company, and all other subsidiaries of the
Company's parent corporation.
ARTICLE 6.
Termination
6.1 Termination by Mutual Agreement. The Executive's employment may be
terminated at any time during the Contract Term by mutual agreement of the
parties, or as otherwise provided in this Article.
6.2 Termination for Cause. The Company may terminate the Executive's
employment without notice at any time for cause. For purposes of this
Agreement, cause for termination shall include: continued neglect, after
notice thereof, or willful misconduct by the Executive with respect to his
duties and obligations under this Agreement; unauthorized expenditure of
the Company's funds; unethical business practices in connection with the
Company's business; misappropriation of the Company's assets; any material
breach by the Executive of any term or provision of this Agreement; any act
or action of the Executive during the term of this Agreement involving
embezzlement, dishonesty related to the Company or the Company's business,
or habitual use of alcohol or drugs; conviction of any felony; or any
similar or related act or insubordination by the Executive. Upon
termination for cause, the Executive shall not be entitled to payment of
any compensation other than salary and accrued benefits under this
Agreement earned up to the date of such termination.
ARTICLE 7.
Miscellaneous
7.1 Assignment, Successors. The Company may freely assign its
respective rights and obligations under this Agreement to a successor of
the Company's business, without the prior written consent of the Executive.
This Agreement shall be binding upon and inure to the benefit of the
Executive and the Executive's estate and the Company and any assignee of or
successor to the Company.
7.2 Beneficiary. If the Executive dies prior to receiving all of the
salary payable hereunder, one-month's salary shall be paid to the
beneficiary designated in writing by the Executive ("Beneficiary") and if
no such Beneficiary is designated, to the Executive's estate.
7.3 Nonalienation of Benefits. Benefits payable under this Agreement
shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, garnishment, execution
of levy of any kind, either voluntary or involuntary, prior to actually
being received by the Executive, and any such attempt to dispose of any
right to benefits payable hereunder shall be void.
<PAGE>6
7.4 Severability. If all or any part of this Agreement is declared by
any court or governmental authority to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate any portion of
this Agreement not declared to be unlawful or invalid. Any paragraph or
part of a paragraph so declared to be unlawful or invalid shall, if
possible, be construed in a manner which will give effect to the terms of
such paragraph or part of a paragraph to the fullest extent possible while
remaining lawful and valid.
7.5 Amendment and Waiver. This Agreement shall not be altered, amended
or modified except by written instrument executed by the Company and the
Executive. A waiver of any term, covenant, agreement or condition contained
in this Agreement shall not be deemed a waiver of any other term, covenant,
agreement or condition, and any waiver of any other term, covenant,
agreement or condition, and any waiver of any default in any such term,
covenant, agreement or condition shall not be deemed a waiver of any later
default thereof or of any other term, covenant, agreement or condition.
7.6 Notices. All notices and other communications hereunder shall be
in writing and delivered by hand, facsimile transmission, or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company: Morel Industries, Inc.
14351 Shamel Street
Wenatchee, Washington 98822
Attn: Board of Directors
Fax: (509) 784-1201
With a copy to: PCT Holdings, Inc., a Nevada corporation
434 Olds Station Road
Wenatchee, WA 98801
Attn: President
Phone: (509) 664-8000
Fax: (509) 664-6868
If to the Executive: Mark Morel
2014 Broadway N.
Wenatchee, WA 98801
Fax: (509) 784-1201
Either party may from time to time designate a new address by notice given
in accordance with this Section. Notice and communications shall be
effective when actually received by the addressee.
7.7 Counterpart Originals. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
7.8 Entire Agreement. This Agreement forms the entire agreement
between the parties hereto with respect to any severance payment and with
respect to the subject matter contained in the Agreement.
7.9 Applicable Law. The provisions of this Agreement shall be
interpreted and construed in accordance with the laws of the State of
Washington, without regard to its choice of law principles.
<PAGE>7
7.10 Effect on Other Agreements. This Agreement shall supersede all
prior agreements, promises and representations regarding employment by the
Company and severance or other payments contingent upon termination of
employment. Notwithstanding the foregoing, the Executive shall be entitled
to any other severance plan applicable to other peer executives of the
Company.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first written above.
COMPANY: MOREL INDUSTRIES, INC.
By:/s/ DONALD A. WRIGHT
-------------------------------
Donald A. Wright
Its Executive Vice President
EXECUTIVE: /s/ MARK MOREL
----------------------------------
MARK MOREL
