<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1996
REGISTRATION NO. 333-5011
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PCT HOLDINGS, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
NEVADA 3679 87-0431483
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation)
</TABLE>
434 OLDS STATION ROAD, WENATCHEE, WASHINGTON 98801
(509) 664-8000
(Address and telephone number of
Registrant's principal executive offices and principal place of business)
DONALD A. WRIGHT
PRESIDENT
434 OLDS STATION ROAD
WENATCHEE, WASHINGTON 98801
(509) 664-8000
(Name, address, and telephone number of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
Sheryl A. Symonds Mark A. von Bergen
L. John Stevenson, Jr. W. Wells Talmadge
Eugenie D. Mansfield Weiss, Jensen, Ellis & Howard
Stoel Rives LLP 2300 U.S. Bancorp Tower
3600 Union Square 111 S.W. Fifth Avenue
600 University Street Portland, Oregon 97204
Seattle, Washington 98101-3197
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. If any of the securities being registered on
this form are to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act, check the following box. /X/
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
JULY 12, 1996
2,250,000 UNITS
[LOGO]
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE COMMON STOCK PURCHASE WARRANT
PCT HOLDINGS, INC., a Nevada corporation (the "Company"), is hereby offering
2,250,000 units (the "Units"), each Unit consisting of one share (the "Shares")
of the Company's common stock, $.001 par value (the "Common Stock"), and one
warrant to purchase one share of Common Stock (the "Warrants"), for the initial
offering price of $ per Unit (the "Unit Offering Price"). The Units will
separate immediately upon issuance, and the Common Stock and Warrants that make
up the Units will trade only as separate securities. Each Warrant initially
entitles the holder thereof to purchase one share of Common Stock at an exercise
price of $ per share (150% of the Unit Offering Price), subject to certain
adjustments including, if the Company's audited fiscal 1997 net income (adjusted
to exclude any expense relating to the vesting of any employee options or
warrants) does not exceed $1.5 million, a one-time downward adjustment of the
exercise price to (a) $ (125% of the Unit Offering Price) if such net
income is $800,000 to $1.5 million, (b) $ (100% of the Unit Offering Price)
if such net income is $500,000 to $799,999, and (c) $ (75% of the Unit
Offering Price) if such net income is less than $500,000. The Warrants are
exercisable at any time, unless previously redeemed, until the fifth anniversary
of the effective date of this Prospectus, subject to certain conditions. The
Company may redeem the outstanding Warrants, in whole or in part, at any time
upon at least 30 days prior written notice to the registered holders thereof, at
a price of $.25 per Warrant, provided that the closing bid price of the Common
Stock has been at least 200% of the then-current exercise price of the Warrants
for each of the 20 consecutive trading days immediately preceding the date of
the notice of redemption.
The Common Stock is included in the Nasdaq Small Cap Market System ("Nasdaq
- -- Small Cap") under the symbol "PCTH." On July 10, 1996, the last reported sale
price of the Common Stock on Nasdaq -- Small Cap was $3.50 per share. Before
this Offering, there has been only a limited market for the Common Stock and no
market for the Warrants, and there is no assurance that an active public market
will develop or that, if it does develop, it will be sustained. The Company has
applied for listing on the Nasdaq National Market System under the symbols
"PCTH" and "PCTHW" for the Common Stock and the Warrants, respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING AT PAGE 6.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Unit........................ $ $ $
Total(3)........................ $ $ $
</TABLE>
(SEE ACCOMPANYING FOOTNOTES ON NEXT PAGE.)
The Units are offered by the several Underwriters, subject to prior sale,
when, as, and if delivered to and accepted by the Underwriters, and subject to
their right to reject orders in whole or in part. It is expected that delivery
of the Units will be made in New York, New York, on or about , 1996.
------------------------
PAULSON INVESTMENT COMPANY, INC. COHIG & ASSOCIATES, INC.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
- ------------------------
(1) Excludes a nonaccountable expense allowance payable by the Company to
Paulson Investment Company, Inc., and Cohig & Associates, Inc., the
representatives (the "Representatives") of the several underwriters (the
"Underwriters"), equal to 3% of the aggregate Unit Offering Price. The
Company has also agreed (i) to issue to the Representatives warrants (the
"Representatives' Warrants") to purchase an aggregate of up to 225,000
Units, exercisable at $ per Unit (120% of the Unit Offering Price),
and (ii) to grant certain registration rights with respect to the securities
underlying the Representatives' Warrants. The Company has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses of this Offering payable by the Company estimated
at $985,000, including the Representatives' nonaccountable expense
allowance.
(3) The Company has granted the Underwriters a 45-day option (the
"Overallotment Option") to purchase up to 337,500 additional Units on the
same terms and conditions as set forth above, solely for the purpose of
covering overallotments, if any. If the Overallotment Option is exercised in
full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
Kryoflex-Registered Trademark- is a registered trademark and Partners with
Tomorrow-TM- and Northridge Valve-TM- are trademarks of the Company.
------------------------
The Company is subject to the reporting and other requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Company intends to furnish its shareholders with annual reports containing
audited financial statements and quarterly reports containing unaudited
financial information for each of the first three quarters of each fiscal year.
------------------------
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request of such person, a copy of any of the
information that is incorporated by reference in the Prospectus (not including
exhibits to the information that is incorporated by reference unless the
exhibits are themselves specifically incorporated by reference) and the address
(including title and department) and telephone number to which such request is
to be directed.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMPANY'S
SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PICTURE SUMMARIES
1. [Picture of various EMI filters surrounding a dime to indicate relative
size]
Miniature solder-in EMI filters for feedthru applications
2. [Picture of several discoidal capacitors next to a nickel to indicate
relative size]
Multi-layer ceramic discoidal capacitors for EMI filter applications
3. [Picture of many EMI filters]
High reliability screw-in low pass EMI filters
4. [Picture of a worker pouring molten metal into a mold]
Pouring of a sandcasting mold
5. [Picture of aluminum castings]
High volume precision aluminum castings
6. [Picture showing equipment in Cashmere machine shop]
Precision machine shop
7. [Picture of emergency exit window frame for passenger aircraft]
Emergency exit window frame for passenger aircraft
8. [Picture of the reset mechanism used in the Seismic valve]
Seismic's valve includes a patented mechanism for resetting the valve
without special tools
9. [Picture of the Seismic natural gas shut-off valve]
Seismic's natural gas shut-off valve is manufactured by Cashmere
10. [Picture of the Seismic residential natural gas shut-off valve and its
packaging]
Seismic markets its residential valve under the brand name "Northridge
Valve-TM-"
11. [Picture of electronic components welded onto an aluminum housing]
Lightweight components laser welded into an aluminum housing for aircraft
applications
12. [Picture of five electrical connectors made for the International Space
Station]
Connectors for International Space Station
13. [Picture of two aluminum Aamram missile modules]
Aluminum Aamram missile modules with laser welded hermetic connectors
14. [Reproduction of the Company's logo including the words "Partners With
Tomorrow-TM-"]
Partners With Tomorrow
15. [Picture of the Company's facility in Wenatchee, Washington]
A substantial percentage of the Company's customers consists of large
manufacturing companies in the aerospace, defense, energy, medical and
general electronics industries. The Company also markets and sells its
products to a variety of smaller specialized electronics companies and has
recently entered the consumer home improvement market with its natural gas
shut-off valves.
16. [Picture of four hermetic electronic packages]
Laser welded hermetic electronic packages are used in sophisticated
communications and radar equipment
17. [Picture of various electrical connectors]
Space-age connectors involve many complex machined shapes and sizes
18. [Picture of several formulations of Kryoflex-Registered Trademark-
materials]
Proprietary Kryoflex-Registered Trademark- materials are produced in many
different formulations
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
OVERALLOTMENT OPTION, THE WARRANTS OR THE REPRESENTATIVES' WARRANTS. SEE
"DESCRIPTION OF SECURITIES" AND "UNDERWRITING." UNLESS THE CONTEXT INDICATES
OTHERWISE, REFERENCES HEREIN TO THE "COMPANY" ARE TO PCT HOLDINGS, INC. AND ITS
CONSOLIDATED SUBSIDIARIES.
THE COMPANY
PCT Holdings, Inc. (the "Company") develops, manufactures, markets and sells
a broad range of precision electronic components designed to operate with a high
degree of reliability in harsh environments such as the ocean, space and the
human body. These environments experience extremes in temperature, pressure and
corrosiveness that can make product repair or replacement difficult or
impossible. The Company uses its patented technologies to produce electronic
components for a wide variety of applications in the aerospace, defense, energy,
medical and general electronics industries.
The Company operates through five wholly owned subsidiaries. Two of these
businesses are engaged in the production of electronic devices, with one
producing a variety of electronics packages and connectors shielded from their
environment by the Company's proprietary ceramic seals, and the other producing
devices designed to filter out electromagnetic interference detrimental to other
electronic devices. The Company has recently acquired a business that designs,
manufactures and sells automatic natural gas shut-off valves for use in
earthquake sensitive areas. The Company also has two businesses that manufacture
machined or cast metal products for many applications, including products that
are incorporated into or complementary with the products of its other
subsidiaries.
A substantial percentage of the Company's customers for its electronic
products consists of large manufacturing companies in the aerospace, defense,
energy, medical and general electronics industries. These include Hughes
Aircraft Company, Honeywell Inc.'s Military Avionics Division, Lockheed Martin
Corporation, Northrop Grumman Corporation, Space Systems/Loral, Inc.,
Westinghouse Electric Corporation and TRW, Inc. The Company's metal products
customers include The Boeing Company, Kawasaki Heavy Industries, Ltd., Deere &
Company, Northrop Grumman Corporation and PACCAR Inc. The Company also markets
and sells its products to a variety of smaller, specialized electronics
companies. The Company, with its natural gas shut-off valves, has recently
entered the consumer home improvement market and has received initial orders for
its valves from home improvement centers such as Eagle Hardware & Garden Inc.,
Ernst Home Center, Inc., HomeBase Inc., Home Depot U.S.A., Inc. and Ace Hardware
Corp.
The Company's strategy is to expand the range of products it offers within
its core areas of competence, and to produce a larger portion of the customer's
total product requirement, through internal growth and the acquisition or
development of new technologies. The Company has recently experienced
significant growth in revenues, as a result of both the acquisition of
complementary businesses and internal growth within each of its operating
subsidiaries. The Company hopes to continue to experience growth and to exploit
both technological and marketing synergies resulting from the integration of the
businesses it has acquired and other businesses or technologies that it may
acquire in the future.
The Company is incorporated under the laws of the State of Nevada. Its
corporate offices are located at 434 Olds Station Road, Wenatchee, Washington,
and its telephone number is (509) 664-8000.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities offered................ 2,250,000 Units, each Unit consisting of one share of
Common Stock and one Warrant to acquire one share of
Common Stock. The Common Stock and Warrants will be
separately transferrable immediately upon commencement
of trading.
Common Stock to be outstanding
after the Offering.............. 9,728,309 shares.(1)
Use of proceeds................... To repay indebtedness, acquire equipment, expand facili-
ties, fund potential acquisitions, and provide working
capital. See "Use of Proceeds."
Risk factors...................... Investment in the Units involves a high degree of risk.
See "Risk Factors."
Proposed Nasdaq National Market
System symbols.................. Common Stock ...................................... PCTH
Warrants ......................................... PCTHW
</TABLE>
- ------------------------
(1) Excludes 642,783 shares of Common Stock issuable upon exercise of stock
options and warrants at a weighted average exercise price of $4.174 per
share outstanding at May 31, 1996. Also excludes 845,000 shares of Common
Stock issuable upon the exercise of a stock option that the Company has
agreed to grant to Donald A. Wright on the effective date of this Prospectus
at $ per share. An additional 9,717 shares of Common Stock are reserved
for issuance under the Company's 1995 Stock Incentive Plan and an additional
91,000 shares of Common Stock are reserved for issuance under the Company's
Independent Director Stock Plan. See "Capitalization," "Management --
Benefit Plans" and "Description of Securities -- Stock Options."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Net sales.................................................................... $ 2,940 $ 11,035 $ 20,725
Gross profit................................................................. 80 1,943 4,286
Loss from operations......................................................... (884) (846) (479)
Net loss..................................................................... (1,098) (1,411) (999)
Loss per share of Common Stock............................................... (.60) (.41) (.16)
Shares used in computation of loss per share................................. 1,826 3,469 6,209
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1996
-------------------------
ACTUAL AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................................... $ 952 $ 9,181
Total assets......................................................................... 27,649 32,322
Short-term debt...................................................................... 8,005 4,449
Long-term debt....................................................................... 1,961 1,961
Stockholders' equity................................................................. 12,539 20,768
</TABLE>
- ------------------------
(1) The increases in net sales are attributable to acquisitions by the Company
and internal growth. See "Acquisition History" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(2) Adjusted to reflect the sale of the Units offered hereby, assuming the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
Does not include proceeds that would be received upon exercise of stock
options and warrants outstanding at May 31, 1996, to acquire an aggregate of
642,783 shares of Common Stock, or the proceeds that would be received upon
the exercise of a stock option that the Company has agreed to grant to
Donald A. Wright on the effective date of this Prospectus to purchase
845,000 shares of Common Stock. See "Capitalization," "Management -- Benefit
Plans" and "Description of Securities -- Stock Options."
5
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE
ACT. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF THE RISK FACTORS SET FORTH
BELOW AND INFORMATION ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, INVESTORS SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS:
HISTORY OF NET LOSSES. The Company reported net losses of $1,098,000 in
fiscal 1994, $1,411,000 in fiscal 1995, and $999,000 in fiscal 1996. The Company
has not demonstrated an ability to achieve substantial profitable operations.
There is no assurance that profitable operations will be achieved in fiscal 1997
or at any time thereafter or that any profitable operations will be sustained.
The Company's ability to achieve a profitable level of operations in the future
will depend on many factors, including the Company's ability to assimilate its
recent and potential future acquisitions and to finance its subsidiaries'
production, the degree of market penetration of its products, its ability to
develop new products, the degree of market acceptance of new products, and the
level of competition in those markets in which the Company operates. The Company
is currently experiencing growth in orders and backlog, which will require
additional expenditures to support a higher level of inventory and operations.
These requirements will affect cash flow and results of operations over the
short term and may result in significant future losses if anticipated growth is
not sustained.
NEED FOR IMMEDIATE ADDITIONAL CAPITAL. The Company is experiencing an
immediate need for additional capital to fund its current operations and to
repay matured and maturing debt. The Company also needs to refinance certain of
its existing indebtedness. The Company's primary line of credit expired on July
1, 1996, at which time the Company was in default under one of its covenants.
The Company owed $1,224,000 under that line of credit as of the expiration date,
and is currently negotiating to obtain renewal of that line of credit with
revised covenants. The Company has recently incurred $1,350,000 in short-term
debt maturing in September 1996 which the Company plans to repay using a portion
of the proceeds of this Offering. See "Use of Proceeds." The Company has also
extended the repayment time on a number of its accounts payable. The Company has
obtained a waiver, until September 1, 1996, of defaults under certain financial
and funding covenants relating to an industrial revenue bond of the Morel
subsidiary with an outstanding balance of $1,357,000 as of June 30, 1996. The
Company has obtained a repayment extension for a $313,000 short-term debt
obligation of the Morel subsidiary, in anticipation of the closing of this
Offering. Although the Company believes it will be able to obtain satisfactory
lending arrangements from bank or other institutional lenders, there is no
assurance that its primary line of credit will be renewed, that alternative
financing will be available, or that any available financing will be on
favorable terms. The audit opinion with respect to the Company's fiscal 1996
financial statements will be qualified as to the Company's ability to continue
as a going concern if this Offering does not close. The Company believes that
the proceeds of this Offering will allow it to repay necessary debt obligations
and accounts payable, and to fund its ongoing operations for at least the next
12 months. However, the Company may need to raise additional capital in the
future. See "Risk Factors -- Need for Additional Long-Term Capital," "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
INTEGRATION OF ACQUISITIONS; MANAGEMENT OF GROWTH. As part of its business
strategy, the Company has recently experienced rapid growth as a result of
several acquisitions that have placed, and will continue to place, a significant
strain on its management, financial and other resources. The Company intends to
continue to evaluate opportunities for growth through expansion of current
operations and the acquisition of other entities, products or technology,
although no material acquisitions are currently planned. There is no assurance
that the Company will be able to implement its growth strategy or that such
strategy ultimately will prove successful. Recent and any future acquisitions
may subject the Company to many risks, including risks relating to integrating
and managing the operations and personnel of acquired companies, maintaining
uniform standards, controls, procedures and policies, potential disruption of
the Company's ongoing business, and possible impairment
6
<PAGE>
of relationships with employees and customers as a result of the integration of
any new management or other personnel. Any future acquisitions could adversely
affect the Company's results of operations due to the risks of assessing the
value, strengths, and weaknesses of acquisition candidates or new products,
diversion of management attention from the Company's existing businesses,
reduction of the Company's cash, disruption of product development cycles,
dilution of earnings per share or other factors. The Company's ability to manage
its current and future growth will require it to implement and improve its
operational, financial, budgeting, management information and internal control
systems. The success of the Company will depend on the ability of management to
implement effectively these changes and to manage the Company's operations over
the long term. The Company's historical acquisitions have been made, and any
future acquisitions will be made, on the assumption that certain synergies and
other operating efficiencies can be achieved in the combined operation. While
the Company believes that it has experienced some of the anticipated benefits
from its acquisitions, there is no assurance that all of the expected benefits
will be achieved or that any benefits will be sustained. A failure to achieve or
sustain the anticipated benefits of any acquisition could result in that
acquisition having a detrimental effect on the Company's results of operations,
cash flow and financial condition. See "Acquisition History" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON SIGNIFICANT CUSTOMERS. The Cashmere subsidiary of the Company
historically has been almost entirely dependent upon The Boeing Company
("Boeing"), although the percentage of its Boeing sales decreased to
approximately 75% of Cashmere's total net sales in fiscal 1996. Sales by
Cashmere and other Company subsidiaries to Boeing constituted approximately 28%
of the Company's consolidated net sales for fiscal 1996. As a result, general
economic conditions and events affecting Boeing, all of which are outside the
control of the Company, may have a significant impact on Cashmere's sales and
consequently on the overall results of operations of the Company. For example, a
change in inventory practices at Boeing and a general downturn in the aerospace
market led to an almost 50% drop in Cashmere's sales in calendar year 1993. A
machinist's union strike at Boeing during the winter of 1995-1996 adversely
affected Cashmere sales to Boeing, although such sales have recently begun to
increase. Cashmere has entered into contracts with Boeing which extend beyond
one year to supply parts at fixed prices, and, accordingly, aluminum or other
metal price increases or other cost increases can adversely affect Cashmere's
margins on the sale of those parts. The Morel subsidiary, which was acquired by
the Company in December 1995, is dependent on PACCAR Inc., including its
Kenworth and Peterbilt divisions (collectively, "PACCAR"). Net sales to PACCAR
constituted 75% of Morel's net sales in fiscal 1995. Net sales to PACCAR in the
last six months of fiscal 1996 constituted 23% of the Company's consolidated net
sales for that period. PACCAR has reported that its first quarter 1996 net sales
declined 9% from first quarter 1995 net sales, due to an industry-wide decrease
in demand for trucks from the record sales levels of 1995. PACCAR has no
contractual obligation to continue to place orders for products of Morel, and
Boeing has considerable flexibility under its contracts with Cashmere to reduce
its level of orders or to cease ordering products from Cashmere. Both Cashmere
and Morel have developed and are implementing strategies intended to decrease
their reliance on sales to these primary customers. However, there is no
assurance that either Cashmere or Morel can successfully reduce its reliance on
Boeing and PACCAR, respectively, to a degree that will protect the Company in
the event of unexpected decreases in sales to these primary customers. See
"Business."
NEED FOR ADDITIONAL LONG-TERM CAPITAL. The Company anticipates that, if its
primary line of credit is renewed or replaced on satisfactory terms, the
Company's existing capital resources and expected revenue from operations,
together with the net proceeds of this Offering, will be adequate to satisfy its
capital requirements for at least the next 12 months. The Company's actual
capital needs, however, will depend upon numerous factors, including the amount
of revenue generated from operations, the cost of increasing the Company's sales
and marketing activities, the ability of third-party suppliers to meet product
commitments, the willingness of the Company's primary lender to renew its line
of credit, and any future acquisitions, none of which can be predicted with
certainty. There is no assurance that the Company's primary line of credit will
be renewed or that the Company
7
<PAGE>
will not require additional capital sooner than currently anticipated. The
Company may receive additional funds upon exercise of the Warrants and other
outstanding warrants and stock options, but there is no assurance that any such
warrants or stock options will be exercised. As a result of these and other
factors, the Company is unable to predict accurately the amount or timing of
future capital that it will require. There is no assurance that any additional
financing will be available to the Company on acceptable terms, or at all, when
required by the Company. The inability to obtain necessary financing could
materially and adversely affect the Company's business and results of
operations. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
COMPETITION. The Company operates in highly competitive markets. Most of
its competitors have greater financial resources, broader experience, better
name recognition and more substantial marketing operations than does the
Company, and represent substantial long-term competition. The industries in
which the Company competes are characterized by ongoing product development
efforts and evolving technology, and success depends in part upon the ability to
gain a competitive advantage through proprietary technology. Although the
Company believes that its proprietary technology may give it a competitive
advantage with respect to its technology-based products, new developments by
competitors are expected to continue. The Company's competitors may develop
products that are viewed by customers as more effective or more economic than
the Company's product lines. There is no assurance that the Company will be able
to compete successfully against current and future competitors or that the
competitive pressures faced by the Company will not materially or adversely
affect the Company's business and results of operations. See "Business --
Competition."
RECENT INTRODUCTION OF NEW PRODUCT INTO NEW MARKET. Unlike the other
businesses acquired by the Company, there had been no sales of the Seismic
subsidiary's natural gas shut-off valve before the Company acquired the
technology for that product in November 1995. In addition, the natural gas
shut-off valve is intended for consumer use and is being marketed to retail
distributors of home improvement products and to natural gas utilities for sale
to consumers. This represents a different type of product than the Company has
previously manufactured, and a different kind of market than the markets in
which the Company's other subsidiaries operate. The Company began marketing the
natural gas shut-off valve in December 1995, and received initial orders for the
product beginning in March 1996. There is no assurance that this product will
achieve market acceptance, or that the Company will be able to market the
product successfully or to compete in this new market. Failure of the natural
gas shut-off valve to achieve market acceptance and to compete successfully
could have a material adverse effect on the Company's business and results of
operation. See "Business -- Seismic Safety Products, Inc."
TECHNOLOGICAL CHANGE; DEVELOPMENT OF NEW PRODUCTS. The market for the
Company's products is characterized by steadily evolving technology and industry
standards, changes in customer needs and new product introductions. The
Company's success will depend on its ability to enhance its current products,
develop new products that meet changing customer needs, advertise and market its
products, and respond to evolving industry standards and other technological
changes on a timely and cost-effective basis. There is no assurance that the
Company will be successful in developing new products or enhancing its existing
products on a timely basis, or that such new products or enhancements will
achieve market acceptance. Furthermore, from time to time the Company and others
may announce new products, enhancements or technologies that have the potential
to replace or render obsolete the Company's existing products. Any failure by
the Company to anticipate or respond adequately to changes in technology and
customer preferences, the introduction of new products or enhancements by others
or any significant delays in the development or introduction of new products by
the Company could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business."
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent on the Company's Chief Executive Officer and President, Donald A. Wright,
and a small number of other senior management and operational personnel. The
loss of the services of any of these employees could
8
<PAGE>
have a material adverse effect on the ability of the Company to achieve its
business objectives. The Company has key man life insurance policies on the life
of Mr. Wright in the aggregate amount of $3 million. The Company's growth and
future success will depend in large part upon its ability to attract and retain
additional senior management and highly skilled personnel to provide management
and technological depth and support, to enhance and market its existing products
and to develop new products. Competition for skilled management, technical,
marketing and sales personnel is intense. There is no assurance that the Company
will be successful in attracting and retaining the key management, technical,
marketing and sales personnel necessary to support the Company's business and
its recent and future acquisitions, and its failure to do so would materially
and adversely affect the Company's business and results of operations. See
"Management."
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY. The Company regards elements
of its technology as proprietary and relies primarily on a combination of
patent, trade secret, copyright and trademark laws, confidentiality procedures,
and other intellectual property protection methods to protect its proprietary
technology. The Company has 32 United States patents, three United States patent
applications pending and three international patent applications pending
relating to certain of its technology and products. There is no assurance that
the Company's patent applications will result in issued patents, that the
Company's existing patents or any future patents will provide the Company with
any competitive advantages for its products or technology, or that, if
challenged, the Company's patents will be held valid and enforceable. Despite
the precautions taken by the Company, unauthorized parties may attempt to copy
aspects of the Company's products or obtain and use information that the Company
regards as proprietary, and existing intellectual property laws afford only
limited protection. Policing violations of such laws is difficult. The laws of
certain countries in which the Company's products are or may be distributed do
not protect the Company's products and intellectual property rights to the same
extent as do the laws of the United States. There is no assurance that these
protections will be adequate or that the Company's competitors will not
independently develop similar technology, gain access to the Company's trade
secrets or other proprietary information, or design around the Company's
patents. The Company may be required to enter into costly litigation to enforce
its intellectual property rights or to defend infringement claims by others.
Such infringement claims could require the Company to license the intellectual
property rights of third parties. There is no assurance that such licenses would
be available on reasonable terms, or at all. The Company has recently settled
patent infringement litigation instituted by a competitor by purchasing two
patents and granting the competitor a license to use these and certain other
related patents of the Company. The Company's issued patents expire at various
times over the next 16 years beginning in September 1997. Although the Company
believes that the manufacturing processes of much of its technology that is
currently protected by patents, particularly that of its Pacific Coast
subsidiary, are sufficiently complex that competing products made with the same
technology are unlikely, there is no assurance that the Company's competitors
will not design competing products using the same or similar technology once
these patents have expired. See "Business -- Proprietary Rights."
ENVIRONMENTAL MATTERS. The Company is subject to federal, state and local
laws, regulations and ordinances concerning solid waste disposal, hazardous
materials storage, use and disposal, air emissions, waste water and storm water
disposal, employee health and other environmental matters (together,
"Environmental Laws"). Proper waste disposal and environmental regulation are
major considerations for the Company because certain metals and chemicals used
in its manufacturing processes are classified as hazardous substances. Since the
Company's acquisition of the Morel subsidiary in December 1995, the Company has
initiated an environmental compliance program for the Morel facility, which
includes obtaining all permits necessary for that facility to operate in
compliance with applicable Environmental Laws. As part of this program, Morel in
January 1996 obtained a permit to discharge air emissions. Morel is operating
without a permit required under Environmental Laws to discharge waste water and
storm water. In May 1996, Morel submitted an application to the State of
Washington for this permit. A failure by Morel to obtain the required permit
could result in regulatory authorities imposing fines on Morel or ordering Morel
to cease operations or both. The Company is obtaining the necessary
environmental data to support the permit application
9
<PAGE>
and expects to submit such data by August 1996. Although the Company believes
that the necessary permit will be issued in the first or second quarter of
fiscal 1997, there is no assurance that such permit will be issued, and the
failure to obtain such permit would have a material adverse effect on the
Company. From time to time, the Company's operations may result in other
noncompliance with Environmental Laws. If any violations of Environmental Laws
occur, the Company could be liable for damages and for the costs of remedial
actions and could also be subject to revocation of permits necessary to conduct
its business. Any such revocation could require the Company to cease or limit
production at one or more of its facilities, which could have a material adverse
effect on the Company. As a generator of hazardous materials, the Company is
subject to financial exposure even if it fully complies with these laws.
Environmental Laws could become more stringent over time, imposing greater
compliance costs and increasing risks and penalties associated with any
violations. There is no assurance that any present or future noncompliance with
Environmental Laws will not have a material adverse effect on the Company's
results of operations or financial condition. See "Business -- Environmental
Matters."
GOVERNMENT REGULATION. Certain of the Company's products are manufactured
and sold under United States government contracts or subcontracts. As with all
companies that provide products or services to the federal government, the
Company is directly and indirectly subject to various federal rules, regulations
and orders applicable to government contractors. Certain of these government
regulations relate specifically to the vendor-vendee relationship with the
government, such as the bidding and pricing rules. Under regulations of this
type, the Company must observe certain pricing restrictions, produce and
maintain detailed accounting data, and meet various other requirements. The
Company is also subject to a number of regulations affecting the conduct of its
business generally. For example, the Company must adhere to federal acquisition
requirements and to standards established by the Occupational Safety and Health
Act relating to labor practices and occupational safety standards. Violation of
applicable government rules and regulations could result in civil liability, in
cancellation or suspension of existing contracts or in ineligibility for future
contracts or subcontracts funded in whole or in part with federal funds. See
"Business -- Government Regulation."
AVAILABILITY AND COST OF MATERIALS. The Company does not have fixed price
contracts or arrangements for all of the raw materials and other supplies it
purchases. The Company generally has readily available sources of raw materials
and other supplies required for the manufacture of its products and, where
possible, the Company maintains alternate sources of supply. However, shortages
of, and price increases for, certain raw materials and supplies used by the
Company have occurred in the past and may occur in the future. Future shortages
or price fluctuations could have a material adverse effect on the Company's
ability to manufacture and sell its products in a timely and cost effective
manner. See "Business -- Supplies and Production."
PRODUCT LIABILITY. The Company is subject to the risk of product liability
claims and lawsuits for harm caused by products of the Company. The Company
maintains product liability insurance with a maximum coverage of $2 million.
However, there is no assurance that the Company's insurance will be sufficient
to cover any claims that may arise. A successful product liability claim in
excess of the Company's insurance coverage could have a material adverse effect
on the Company.
NO LIQUID MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; DILUTION. Prior to
this Offering, there has been a limited public market for the Common Stock and
no public market for the Warrants. There is no assurance that an active trading
market for the Common Stock or the Warrants will develop or be sustained after
this Offering. The Unit Offering Price for the Units being sold by the Company
in this Offering has been determined by negotiations between the Company and the
Representatives of the Underwriters. See "Underwriting." The trading price of
the Common Stock and Warrants could be subject to significant fluctuations in
response to factors such as, among others, variations in the Company's
anticipated or actual results of operations, announcements of new products or
technological innovations by the Company or its competitors, and changes in
earnings estimates by analysts. In addition, the stock market is subject to
price and volume fluctuations that affect the market prices for companies in
general, and small capitalization, emerging growth companies in particular, and
are
10
<PAGE>
often unrelated to their operating performance. These broad market fluctuations
may adversely affect the market prices of the Common Stock or the Warrants.
Purchasers of the Units will incur an immediate book value dilution, and certain
events, such as the issuance of Common Stock pursuant to the exercise of
outstanding warrants and stock options, could result in additional dilution. See
"Dilution."
SHARES ELIGIBLE FOR FUTURE SALE. Sale of substantial amounts of the
Company's Common Stock in the public market or the prospect of such sales could
materially and adversely affect the market price of the Common Stock and the
Warrants. Upon completion of this Offering, the Company will have outstanding
9,728,309 shares of Common Stock. The 2,250,000 shares of Common Stock contained
in the Units offered hereby, and the 125,000 shares sold in the Company's first
public offering, will be immediately eligible for sale in the public market
without restriction on the date of this Prospectus. The 2,408,170 shares that
were issued by the Company in connection with two offerings under Regulation S
("Regulation S") of the Securities Act, in July 1995 and November 1995, to the
extent not previously resold into the United States, are available for resale
into the United States without restriction at such time as an exemption from
registration under the Securities Act is or becomes available. The 490,000
shares that were issued by the Company in connection with a third Regulation S
offering in May 1996 will become available for resale into the United States
without restriction at such time as an exemption from registration under the
Securities Act is or becomes available, but not sooner than December 16, 1996,
under the terms of a lock-up agreement. An additional 4,446,058 shares are
restricted shares ("Restricted Shares") subject to the restrictions upon resale
under Rule 144 of the Securities Act. Of the Restricted Shares, the 62,500
shares issued to the Company's original shareholders are eligible for immediate
resale in the public market pursuant to Rule 144(k). An aggregate of 3,176,175
shares issued in connection with the Verazzana merger (see "Acquisition History
- -- Acquisition of Cashmere") will become eligible for resale on February 17,
1997; 295,300 shares issued in connection with the Company's first Regulation S
offering will be available for resale in July 1997 (see "Certain Transactions");
and 325,000 shares issued in connection with the Morel acquisition which are not
subject to registration rights will become eligible for resale on December 1,
1997. Another 587,083 shares of the Restricted Shares and a warrant to purchase
37,500 shares are subject to registration rights, which have been waived for
this Offering but which if exercised subsequently would become eligible for
resale upon the effectiveness of a future registration statement covering such
shares. The 300,000 shares of Common Stock issuable to UTCO Associates, Ltd.
under a currently exercisable warrant to purchase such shares, are being
registered by the Registration Statement of which this Prospectus is a part.
However, those shares are subject to a lock-up agreement and, once issued, will
first become eligible for sale in the public market 180 days after the date of
this Prospectus. See "Selling Shareholder." Shortly after this Offering, the
Company intends to file a registration statement under the Securities Act to
register approximately 1,260,000 shares reserved for issuance under the
Company's outstanding stock options and warrants, stock option plans, and stock
option commitments, of which 172,723 shares will be exercisable and eligible for
sale upon the expiration of lock-up agreements six months after the date of this
Prospectus, and of which 845,000 shares will be exercisable and eligible for
sale upon the expiration of a contractual restriction on sale expiring one year
from the date of this Prospectus. See "Description of Securities -- Stock
Options" and "Management -- Benefit Plans." Sales in the public market of
substantial amounts of Common Stock or the perception that such sales could
occur could depress prevailing market prices for the Common Stock and Warrants.
See "Description of Securities" and "Shares Eligible for Future Sale."
11
<PAGE>
ACQUISITION HISTORY
The Company is the result of an initial acquisition in 1990, four additional
acquisitions that have occurred since May 1994, and a merger with a
non-operating public company in February 1995.
ACQUISITION OF PACIFIC COAST. Donald A. Wright purchased Pacific Coast
Technologies, Inc. ("Pacific Coast") in April 1990. Pacific Coast designs,
manufactures and markets hermetically sealed electrical connectors, electronic
sealants and instrument packages, using patented and proprietary technology. Mr.
Wright acquired Pacific Coast in exchange for cash and a promissory note to the
sellers. In May 1994, PCT Holdings, Inc., a Washington corporation ("Original
PCTH"), was formed to hold the stock of Pacific Coast and to acquire Cashmere
Manufacturing Co., Inc. ("Cashmere"). See "Acquisition of Cashmere," below. The
formation of Original PCTH was treated as if a pooling of interests for
accounting purposes. In 1994, Mr. Wright initiated a series of strategic
acquisitions of companies whose operations and products the Company believes are
complementary to the products designed, manufactured and marketed by Pacific
Coast.
ACQUISITION OF CASHMERE. The first such company acquired was Cashmere in
May 1994. Cashmere operates a precision machine shop that produces diversified
components and assemblies for the aerospace, defense, electronics and
transportation industries, including products and services provided to the
Company's other subsidiaries. Cashmere was acquired in May 1994 by Original PCTH
in exchange for common stock of Original PCTH. The transaction was treated as a
purchase for accounting purposes. In February 1995, Original PCTH was merged
into a wholly owned subsidiary of Verazzana Ventures, Ltd., an inactive public
company (the "Verazzana merger"). In that merger, the Original PCTH stock paid
as consideration for the Cashmere acquisition was converted into 791,666 shares
of the Company's Common Stock. The successor to Original PCTH was dissolved in
May 1996, leaving Pacific Coast and Cashmere as subsidiaries of the Company.
ACQUISITION OF CERAMIC DEVICES. The Company acquired Ceramic Devices, Inc.
("Ceramic Devices") in April 1995 (effective for accounting purposes as of
February 28, 1995). Ceramic Devices designs and manufactures a line of
specialized filtering devices for use with electronic circuits operating in
hostile environments and has a customer base similar to that of Pacific Coast.
The purchase price for the Ceramic Devices acquisition was the issuance by the
Company to the sellers of two promissory notes totaling $600,000 in principal
amount and 133,333 shares of the Company's Common Stock. The transaction was
treated as a purchase for accounting purposes.
ACQUISITION OF SEISMIC. In November 1995, the Company formed Seismic Safety
Products, Inc. ("Seismic"), which acquired substantially all of the assets of a
Florida corporation of the same name and certain patents from affiliates of the
Florida corporation. Seismic develops and markets automatic natural gas shut-off
valves activated by earthquakes and plans to market other earthquake safety
products. Cashmere manufactures the natural gas shut-off valve for Seismic. The
purchase price for the Seismic asset and patent acquisition was cash, certain
deferred payment obligations and 128,750 shares of the Company's Common Stock.
The transaction was treated as a purchase for accounting purposes.
ACQUISITION OF MOREL. Most recently, the Company acquired Morel Industries,
Inc. ("Morel") in December 1995 (effective for accounting purposes as of
November 30, 1995). Morel manufactures precision cast aluminum parts used
principally in the transportation, heavy trucking and aerospace industries. The
purchase price for the Morel acquisition was the issuance of 650,000 shares of
the Company's Common Stock, after certain post-closing adjustments. The
transaction was treated as a purchase for accounting purposes.
The Company intends to continue to evaluate opportunities for growth through
expansion of current operations, or through the acquisition of other entities or
lines of business, or both, although no material expansions or acquisitions are
currently planned.
12
<PAGE>
USE OF PROCEEDS
The net proceeds of this Offering are estimated to be approximately
$8,229,000 (approximately $9,661,000 if the Overallotment Option is exercised in
full) assuming a Unit Offering Price of $4.50, and after deducting the
underwriting discount and estimated offering expenses.
The Company intends to use a portion of the net proceeds to repay
approximately $2,189,500 of indebtedness. Of that amount, approximately $839,500
represents the following indebtedness that was incurred or acquired in
connection with acquisitions by the Company: approximately $312,500 under a
promissory note to certain individual lenders to Morel, due on September 1, 1996
and bearing interest at the rate of 15% per annum; approximately $177,000 under
a promissory note held by a title company in connection with Morel's facility
due on February 14, 1997 and bearing interest at the rate of 12% per annum;
approximately $150,000 under a promissory note held by the individuals who sold
Ceramic Devices to the Company, due on August 31, 1996 and bearing interest at
the rate of 10% per annum; and obligations of approximately $200,000 of the
purchase price for the Seismic patent acquisition, due on November 30, 1996,
which do not bear interest. The remaining approximately $1,350,000 in
indebtedness to be repaid from net proceeds of this Offering represents
short-term debt recently incurred by the Company, including $150,000 owed to
Robert L. Smith, a director of the Company, due on September 27, 1996, and
bearing interest at the rate of 18% per annum, and $1,200,000 owed to UTCO
Associates, Ltd., due on the earlier of the closing of this Offering or
September 1, 1996, and bearing interest at the rate of 18% per annum. The
Company may also elect to use a portion of the net proceeds to repay
approximately $1,357,000 under an industrial revenue bond of Morel. See "Risk
Factors -- Need for Immediate Additional Capital," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Recent
Developments," "Selling Shareholder" and "Certain Transactions."
The Company intends to use the balance of the net proceeds of this Offering
primarily to acquire additional processing and manufacturing equipment, to fund
certain facilities expansion, to fund potential acquisitions, and to increase
working capital. If the net proceeds are insufficient to accomplish all of the
purposes set forth above, the proceeds will be applied first to repay the
foregoing indebtedness, and then in an order of priority determined by the
Company. Pending the foregoing uses, the Company may invest the net proceeds in
short-term, interest-bearing obligations.
The Company expects that, if its primary line of credit is renewed or
replaced on satisfactory terms, the net proceeds from this Offering will allow
the Company to fund operations for at least the next 12 months. The Company
expects that additional capital will be required to fund longer-term operations
and acquisitions. There is no assurance that the Company will be able to obtain
such financing or that such financing will be available on favorable terms. See
"Risk Factors -- Need for Immediate Additional Capital," "Risk Factors -- Need
for Additional Long-Term Capital" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
13
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Until March 13, 1995, there was no public market for the Common Stock. From
that date through September 14, 1995, the Common Stock was listed on the Nasdaq
Electronic Bulletin Board. Since September 15, 1995, the Common Stock has been
traded on Nasdaq -- Small Cap under the symbol "PCTH."
The Units will separate immediately upon issuance, and the Common Stock and
Warrants that make up the Units will trade only as separate securities. The
Company has applied for listing of the Common Stock and the Warrants on the
Nasdaq National Market System on the effectiveness of this Offering under the
symbols "PCTH" for the Common Stock and "PCTHW" for the Warrants.
The following table shows the range of high and low sales prices reported by
Nasdaq for the Common Stock for each period in the calendar years shown below.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ----------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1995
First Quarter (from March 13, 1995)................................................ $ 6.00 $ 5.00
Second Quarter..................................................................... 8.00 5.00
Third Quarter...................................................................... 8.00 5.00
Fourth Quarter..................................................................... 6.00 4.00
1996
First Quarter...................................................................... 4.375 3.75
Second Quarter..................................................................... 5.00 2.75
Third Quarter (through July 10, 1996).............................................. 4.3125 3.50
</TABLE>
As of July 10, 1996, the closing sales price on Nasdaq - Small Cap for the
Common Stock was $3.50 per share.
As of July 10, 1996, there were 856 holders of record of 7,478,309 shares of
Common Stock.
The Company has never declared or paid cash dividends on the Common Stock.
The Company currently anticipates that it will retain all future earnings to
fund the operation of its business and does not anticipate paying dividends on
the Common Stock in the foreseeable future. The Company's agreement with its
principal lender restricts the Company's ability to pay dividends.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of May
31, 1996, and as adjusted to give effect to the issuance of 2,250,000 Units (at
an assumed Unit Offering Price of $4.50 per Unit offered hereby), and receipt of
the net proceeds therefrom, after deducting the estimated underwriting discount
and offering expenses.
<TABLE>
<CAPTION>
MAY 31, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt................................................................ $ 8,005 $ 4,449
Long-term debt................................................................. 1,961 1,961
Stockholders' equity
Common Stock, par value $.001, 100,000,000 shares authorized, 7,478,309
shares issued(1)............................................................ 19,102 27,331
Accumulated deficit.......................................................... (6,563) (6,563)
Total stockholders' equity..................................................... 12,539 20,768
Total capitalization........................................................... 22,505 27,178
</TABLE>
- ------------------------
(1) Does not include 642,783 shares of Common Stock issuable upon exercise of
stock options and warrants outstanding at May 31, 1996. Also excludes an
option to purchase 845,000 shares of Common Stock that the Company has
agreed to grant to Donald A. Wright on the effective date of this
Prospectus. See "Description of Securities -- Stock Options" and "Management
-- Benefit Plans."
15
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock as of May 31, 1996
was approximately $8,686,000, or approximately $1.16 per share. Net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities divided by the 7,478,309 shares of Common Stock
outstanding as of May 31, 1996.
Net tangible book value dilution per share represents the difference between
the amount per share paid by new investors who purchase Units in this Offering
and the net tangible book value per share of Common Stock immediately after
completion of this Offering. After giving effect to the sale by the Company of
2,250,000 Units in this Offering at an estimated Unit Offering Price of $4.50
per Unit and the receipt of the estimated proceeds therefrom (after deduction of
estimated underwriting discounts and offering expenses and attributing no
portion of the value of a Unit to a Warrant), the net tangible book value of the
Company as of May 31, 1996 would have been approximately $16,915,000 or $1.74
per share. This represents an immediate increase in net book value of $.58 per
share to existing shareholders and an immediate dilution in net tangible book
value of $2.76 per share to new investors purchasing Units in this Offering, as
illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $ 4.50
Net tangible book value per share at May 31, 1996.................. $ 1.16
Increase per share attributable to new investors................... .58
---------
Pro forma net tangible book value per share after this Offering...... 1.74
---------
Net tangible book value dilution per share to new investors.......... $ 2.76
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of May 31, 1996 to
reflect the same adjustments described above, the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share paid by (i) the existing holders of Common Stock and (ii) the
new investors in this Offering, assuming the sale of 2,250,000 Units by the
Company hereby at a Unit Offering Price of $4.50 per Unit. The calculations are
based upon total consideration given by new and existing shareholders (after
deduction of estimated underwriting discounts and offering expenses and
attributing no portion of the value of a Unit to a Warrant).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- ---------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders................... 7,478,309 77% $ 19,102,000 70% $ 2.55
New investors........................... 2,250,000 23% 8,229,000 30% $ 3.66
----------- --- -------------- ---
TOTAL............................... 9,728,309 100% $ 27,331,000 100%
----------- --- -------------- ---
----------- --- -------------- ---
</TABLE>
The above computations assume no exercise of the following warrants and
stock options: (i) warrants held by Donald A. Wright, Nick A. Gerde and an
employee of Pacific Coast to purchase 160,000 shares of Common Stock at an
exercise price of $2.00 per share, (ii) outstanding options to purchase 145,283
shares of Common Stock at a weighted average exercise price of $5.09 per share,
(iii) an option to purchase 845,000 shares of Common Stock at $ per share,
that the Company has agreed to grant to Mr. Wright on the effective date of this
Prospectus; and (iv) warrants held by the Selling Shareholder and Robert L.
Smith, a director of the Company, to purchase an aggregate of 337,500 shares of
Common Stock at an exercise price of $4.80 per share. To the extent that such
warrants and options are exercised, there may be further dilution to investors
in this Offering. See "Description of Securities," "Management -- Benefit Plans"
and "Certain Transactions."
16
<PAGE>
SELECTED FINANCIAL INFORMATION
(in thousands, except per share data)
The following table presents selected historical information of the Company.
The selected financial information as of and for the years ended May 31, 1995
and 1996 is derived from and should be read in conjunction with the information
set forth in the audited financial statements and related notes of the Company
included in this Prospectus. The selected financial information as of and for
the year ended May 31, 1994 has been derived from audited financial statements
of the Company not presented herein. This information should be read in
conjunction with the financial statements and other financial information
included in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................................................... $ 2,940 $ 11,035 $ 20,725
Gross profit................................................................... 80 1,943 4,286
Loss from operations........................................................... (884) (846) (479)
Net loss....................................................................... (1,098) (1,411) (999)
Loss per share of Common Stock................................................. (.60) (.41) (.16)
Shares used in computation of loss per share................................... 1,826 3,469 6,209
</TABLE>
<TABLE>
<CAPTION>
MAY 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)...................................................... $ (1,237) $ 1,375 $ 952
Total assets................................................................... 7,894 11,630 27,649
Short-term debt................................................................ 4,403 3,159 8,005
Long-term debt................................................................. 649 743 1,961
Stockholders' equity........................................................... 1,226 5,454 12,539
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below and in "Use of Proceeds"
and "Business" includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, and is
subject to the safe harbor created by those sections. Factors that realistically
could cause results to differ materially from those projected in the
forward-looking statements are set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" below and in "Risk
Factors."
OVERVIEW
The Company's financial condition and results of operations have been
substantially affected by a corporate acquisition at the end of fiscal 1994,
another acquisition in fiscal 1995 and two additional acquisitions in fiscal
1996. These acquisitions, as well as internal growth in the Company's existing
business and the acquired businesses, have resulted in substantial increases in
net sales from $3,456,000 in the first quarter of fiscal 1996 to $7,238,000 in
the fourth quarter of fiscal 1996. Approximately $2,891,000 of this growth in
net sales resulted from the acquisitions and approximately $891,000 resulted
from internal growth.
Operating expenses and margins have also been substantially affected by
acquisitions. Expenses directly associated with acquisitions, including
transaction-related legal, accounting and other expenses and merger and equity
capital costs, amounted to approximately $538,000 in fiscal 1995 and
approximately $104,000 in fiscal 1996. The Company has also experienced
substantial increases in all other expense categories as a result of the
increase in operations. A portion of these expenses can be attributed to the
assimilation of acquired operations into the existing business.
The Company's electronic products business is characterized by relatively
low volumes and high margins, as compared with its metal products business where
volumes have historically been higher and margins lower than in the electronic
products business. The Company believes that margins will remain higher for
electronic products than for metal products, although products incorporating
both electronic and metal parts are expected to generate margins closer to
electronic product margins. As a result of margin differences, changes in
product mix between electronic and metal products can be expected to affect
overall margins for the Company. Due to the lack of sales history for its
natural gas shut-off valves, the Company is unable to assess accurately the
effect that product line may have on margins.
As a result of the foregoing factors, the Company's historical results of
operations are not necessarily indicative of future operating performance.
The Company's net sales for the six months ended May 31, 1996 were
approximately $13,594,000. Of that amount, Pacific Coast's net sales were
$3,874,000, or 29%; Ceramic Devices' net sales were $1,029,000, or 8%; Seismic's
net sales were $190,000, or 1%; Cashmere's net sales were $3,213,000, or 23%;
and Morel's net sales were $5,288,000, or 39%. The Company expects that the most
substantial rates of growth in revenue, if any, in the future will come
principally from the Pacific Coast and Seismic operations.
The Company and certain of its subsidiaries have relied on commercial
borrowing arrangements, as well as equity infusions, to supply significant
portions of their required working capital. The Company's working capital
requirements have been substantially increased by the growth in its operations
and by the significant transaction-related expenses associated with
acquisitions. The Company's principal operating line of credit expired on July
1, 1996, and the Company is in default on one of its covenants to that lender.
The audit opinion with respect to the Company's fiscal 1996 financial statements
will be qualified as to the Company's ability to continue as a going concern if
this Offering does not close. In March and May 1996, the Company received
aggregate net proceeds of
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approximately $1,270,000 from the issuance of additional short-term debt. The
proceeds were used principally to repay indebtedness to an existing lender and
for operating capital. In May 1996, the Company also closed a Regulation S
offering pursuant to which the Company raised proceeds, net of commissions, of
approximately $1,340,000. The proceeds of that offering were used primarily for
working capital and to retire short-term debt. The Company believes that the net
proceeds from this Offering, together with credit facilities that it expects
will be available to it upon receipt of such proceeds, will be sufficient to
meet its budgeted working capital requirements for at least the next 12 months.
However, there is no assurance that commercial credit will be available to the
Company following this Offering or that the Company's working capital
requirements will not exceed those currently budgeted.
The Company has not experienced any material seasonality in its operations.
The Company has evaluated the effect of the recent accounting pronouncements,
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" and SFAS No. 123 "Accounting for
Stock-Based Compensation." The Company will implement SFAS No. 121 in fiscal
1997. Implementation is not expected to have a material impact on the Company's
financial statements. The Company intends to continue to apply APB Opinion No.
25 in accounting for stock-based compensation for purposes of determining net
income and to adopt the pro forma disclosure requirements of SFAS No. 123 in
fiscal 1997.
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $8,829,000, the benefits of which expire beginning in
fiscal 2001 through fiscal 2011. The net operating losses created by the
subsidiaries prior to their acquisition are limited to use by the subsidiary
which originally generated the net operating loss, and may be further limited as
to the amount which may be used in any one year. The following approximate net
operating losses are available on an individual company basis, without taking
into account these expirations or limitations: PCT Holdings, Inc. $126,000,
Pacific Coast $5,584,000, Ceramic Devices $342,000, Cashmere $691,000, Morel
$1,979,000, and Seismic $107,000. If the subsidiaries achieve profitable
operations, the net operating loss carryforwards available should reduce the
federal income taxes due in future years.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MAY 31, 1996 AND 1995
The Company acquired Ceramic Devices in fiscal 1995 and acquired Seismic and
Morel in fiscal 1996. Accordingly, the Company's results of operations for
fiscal 1995 included a full year of operations at Pacific Coast and Cashmere and
three months at Ceramic Devices. Fiscal 1996 operations included a full year of
operations at Pacific Coast, Cashmere and Ceramic Devices and six months at
Seismic and Morel.
The Company's net sales increased a total of $9,690,000 in fiscal 1996 from
fiscal 1995. Of that increase, $2,509,000 resulted from increased revenue of
Pacific Coast; $147,000 resulted from increased revenue of Cashmere; $1,555,000
was from a full year of operations of Ceramic Devices; $190,000 was from the
addition of Seismic; and $5,289,000 was from the addition of Morel.
Net sales of Pacific Coast in fiscal 1996 were 64.7% higher than net sales
of that subsidiary in the prior year. The Company believes that this increase is
a result of a variety of factors, including larger order sizes, broader market
acceptance of the Company's proprietary technologies, increased sales of higher
priced products, the addition of new customers, and improved engineering, design
and manufacturing capabilities. Cashmere's net sales in fiscal 1996 increased by
2.6% over net sales in 1995. Net sales of Ceramic Devices in fiscal 1996 were
$1,954,000, compared with net sales of $399,000 for the three months during
which the Company owned Ceramic Devices in fiscal 1995. The Company believes
that the increase in net sales of Ceramic Devices is due primarily to increasing
order sizes from existing customers.
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Intercompany sales, which were eliminated in consolidation and not included
in the above analysis, totaled $723,000 for fiscal 1996. Intercompany sales in
fiscal 1996 were made by Cashmere to Pacific Coast ($375,000), Seismic
($124,000) and Morel ($224,000). In comparison, intercompany sales for fiscal
1995 totaled $287,000, which represented sales by Cashmere to Pacific Coast.
Gross profit of the Company increased from $1,943,000 in fiscal 1995 to
$4,286,000 in fiscal 1996. This represents an increase from 17.6% of net sales
in fiscal 1995 to 20.7% of net sales in fiscal 1996. The increase in gross
profit margin is primarily attributable to increased margins at Pacific Coast,
which the Company believes resulted principally from larger order quantities and
improved manufacturing efficiencies at Pacific Coast.
Interest income decreased to $37,000 in fiscal 1996 from $74,000 in fiscal
1995, primarily as the result of a reduction in a note receivable of Cashmere
related to Cashmere's reacquisition of a portion of the Cashmere manufacturing
facility in May 1995. Interest income in fiscal 1996 resulted primarily from
earnings on a $1,000,000 certificate of deposit held as collateral for Pacific
Coast's Community Development Block Grant loan from Washington State and Chelan
County. Interest expense increased in fiscal 1996 to $535,000 from $356,000 in
fiscal 1995, primarily as a result of debt acquired upon the acquisition of
Morel. Interest expense attributable to Morel in fiscal 1996, from December 1,
1995, when the Company acquired Morel, totaled $205,000. Merger and equity
capital costs of $104,000 in fiscal 1996 represent expenses related to the
acquisitions of Morel and Seismic. Merger and equity capital costs of $538,000
in fiscal 1995 represent the cost of converting options and warrants of Original
PCTH to common stock immediately prior to the Verazzana merger, the acquisition
costs associated with that merger, and the Ceramic Devices acquisition in April
1995. See "Acquisition History."
The federal income tax benefits of $67,000 for fiscal 1996 and $241,000 for
fiscal 1995 resulted from recording deferred tax assets for net operating losses
generated during those periods.
The Company has determined that it operates in two business segments within
the guidelines of SFAS No. 14. These business segments are "Electronic and
Safety Products" (Pacific Coast, Ceramic Devices and Seismic) and "Machined and
Cast Metal Products" (Cashmere and Morel). Accordingly, the Company has included
the appropriate disclosure in Note 17, Business Segment Information, in its
audited financial statements. See "Index to Financial Statements -- PCT
Holdings, Inc. and Subsidiaries Consolidated Financial Statements."
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1996, the Company had $13,009,000 in total current assets and
$12,057,000 in total current liabilities, resulting in net working capital of
$952,000 and a current ratio of 1.08 to 1.00. At May 31, 1995, the Company had
$6,614,000 in current assets and $5,239,000 in current liabilities, resulting in
net working capital of $1,375,000 and a current ratio of 1.26 to 1.00. The
Company has renegotiated and refinanced certain loans that were due during
fiscal 1996 so that $1,663,000 in principal amount plus accrued interest will be
due on August 31, 1996 and September 1, 1996 to certain lenders to Ceramic
Devices and Morel. The Company intends to use a portion of the net proceeds from
this Offering to pay those obligations. See "Use of Proceeds." The Company is
experiencing an immediate need for additional capital to fund its current
operations. The Company's primary line of credit expired on July 1, 1996, at
which time the Company was in default under one of its covenants. The Company
owed $1,224,000 under that line of credit as of the expiration date, and is
currently negotiating renewal of that line of credit with revised covenants. The
Company has obtained a waiver, until September 1, 1996, of defaults under
certain financial and funding covenants with Morel's bank lender. The Company
has also extended the repayment time on a number of its accounts payable.
Although the Company believes it will be able to obtain satisfactory lending
arrangements from bank or other institutional lenders, there is no assurance
that its primary line of credit will be renewed, that alternative financing will
be available, or that any available financing will be on favorable terms.
Inability to renew or replace the Company's line of credit on satisfactory terms
and failure to obtain the additional capital it needs to pay its obligations and
fund the growth of its
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operations could have a material adverse effect on the Company's business and
results of operations. See "Risk Factors -- Need for Immediate Additional
Capital" and "Risk Factors -- Need for Additional Long-Term Capital."
The Company currently has no material purchase commitments for capital
equipment. Additions and replacements of plant and equipment are generally
funded through working capital, trade-in credits for the replaced equipment, or
capital leases or long-term notes secured by the equipment purchased. The
Company may use a portion of the net proceeds of this Offering to acquire
additional processing and manufacturing equipment and to fund certain facilities
expansion. See "Use of Proceeds."
RECENT DEVELOPMENTS
In the fourth quarter of fiscal 1996, the Company obtained an aggregate of
$2,690,000 in additional debt and equity financing. In March 1996, the Company
borrowed $150,000 from Robert L. Smith, a director of the Company, pursuant to a
promissory note that accrues interest at 18% per annum and is due in full on
September 27, 1996. The Company issued Mr. Smith a warrant to purchase 37,500
shares of Common Stock at an exercise price of $4.80 per share, expiring on May
22, 2001, as additional consideration for this loan. See "Certain Transactions."
In May 1996, the Company borrowed $1,200,000 from the Selling Shareholder
pursuant to a promissory note that accrues interest at 18% per annum, and is due
in full on the earlier of the closing of this Offering or September 1, 1996,
with monthly extensions to December 1, 1996 available for additional fees. The
Company issued the Selling Shareholder a warrant to purchase 300,000 shares of
Common Stock at an exercise price of $4.80 per share, expiring on May 22, 2001,
as additional consideration for this loan. See "Selling Shareholder." The
proceeds from these loans were used to pay off a line of credit from a bank
lender to Morel and to provide working capital. These loans are expected to be
repaid using a portion of the proceeds of this Offering. See "Use of Proceeds."
In May 1996, the Company sold 490,000 shares of Common Stock in a Regulation S
offering to Swiss investors at prices of $2.54 and $3.00 per share, raising
proceeds, net of commissions, of approximately $1,340,000. The proceeds of this
Regulation S offering were used to pay approximately $500,000 in principal and
accrued interest on two promissory notes incurred in connection with the
acquisition of Ceramic Devices, to pay $250,000 in principal and accrued
interest on a $500,000 promissory note acquired upon the acquisition of Morel,
and to provide working capital.
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BUSINESS
The Company develops, manufactures, markets and sells a broad range of
precision electronic components designed to operate with a high degree of
reliability in harsh environments such as the ocean, space and the human body.
These environments experience extremes in temperature, pressure and
corrosiveness that can make product repair or replacement difficult or
impossible. The Company uses its patented technologies to produce electronic
components for a wide variety of applications in the aerospace, defense, energy,
medical and general electronics industries.
The Company operates through five wholly owned subsidiaries. Two of these
businesses are engaged in the production of electronic devices, with one
producing a variety of electronics packages and connectors shielded from their
environment by the Company's proprietary ceramic seals, and the other producing
devices designed to filter out electromagnetic interference detrimental to other
electronic devices. The Company has recently acquired a business that designs,
manufactures and sells automatic natural gas shut-off valves for use in
earthquake sensitive areas. The Company also has two businesses that manufacture
machined or cast metal products for many applications, including products that
are incorporated into or complementary with the products of its other
subsidiaries.
A substantial percentage of the Company's customers for its electronic
products consists of large manufacturing companies in the aerospace, defense,
energy, medical and general electronics industries. These include Hughes
Aircraft Company ("Hughes Aircraft"), Honeywell Inc.'s Military Avionics
Division, Lockheed Martin Corporation ("Lockheed Martin"), Northrop Grumman
Corporation ("Northrop Grumman"), Space Systems/Loral, Inc., Westinghouse
Electric Corporation and TRW, Inc. The Company's metal products customers
include Boeing, Kawasaki Heavy Industries, Ltd., Deere & Company, Northrop
Grumman and PACCAR. The Company also markets and sells its products to a variety
of smaller, specialized electronics companies. The Company, with its natural gas
shut-off valves, has recently entered the consumer home improvement market and
has received initial orders for its valves from home improvement centers such as
Eagle Hardware & Garden Inc., Ernst Home Center, Inc., HomeBase Inc., Home Depot
U.S.A., Inc. and Ace Hardware Corp.
The Company's strategy is to expand the range of products it offers within
its core areas of competence, and to produce a larger portion of the customer's
total product requirement, through internal growth and the acquisition or
development of new technologies. The Company has recently experienced
significant growth in revenues, as a result of both the acquisition of
complementary businesses and internal growth within each of its operating
subsidiaries. The Company hopes to continue to experience growth and to exploit
both technological and marketing synergies resulting from the integration of the
businesses it has acquired and other businesses or technologies that it may
acquire in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of the Company's business
segments.
PACIFIC COAST TECHNOLOGIES, INC.
PRODUCTS. Pacific Coast designs, manufactures and markets hermetically
sealed electrical connectors, electronic sealants and instrument packages, using
patented and proprietary technology. Pacific Coast was founded in 1976, and was
acquired by Mr. Wright in 1990. See "Acquisition History." Pacific Coast's
products are specifically designed for use in applications that operate in harsh
environments, such as the ocean, space and the human body, which experience
extremes in temperature, pressure or corrosiveness. Pacific Coast distributes
its products primarily to the defense, aerospace, and communications industry,
the energy industry, and the medical industry. In the aerospace, defense and
communications industry, Pacific Coast's largest customer group, its products
are used in radar, avionics, and telecommunications applications. Pacific Coast
participated in the production of the world's first hermetically sealed fiber
optic connector for use on the international space station Alpha. In the energy
industry, Pacific Coast's products are used in tools for drilling oil wells. In
the medical industry, Pacific Coast's products can be found in pacemakers, bone
growth stimulators and other implantable electronic devices such as audio
implants for the hearing impaired. Pacific Coast's products generally range in
price from approximately $50 to $1,000.
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Pacific Coast uses its proprietary hermetic sealant, Kryoflex, in many of
its products to provide a high level of hermetic seal protection in harsh
environments. Kryoflex is a multiple-phase derivative of ceramic oxide
crystalline silicate. A Kryoflex seal is mechanically stronger, and withstands
and dissipates more heat, than the glass or brazed ceramic seals used by many of
Pacific Coast's competitors. Unlike many of its competitors, a Kryoflex seal can
bond to a number of different metals and can bond dissimilar metals. The
composition and method of making Kryoflex is a proprietary trade secret of
Pacific Coast.
Pacific Coast has patented its technology in the field of explosively bonded
metals. This technology allows dissimilar metals to be welded together to make
electronic connectors and packages. The resulting devices are lighter than those
made entirely of stainless steel but have equivalent hermetic seal protection.
This technology makes Pacific Coast products competitive where light weight is a
requirement, such as in space applications.
Pacific Coast has recently patented several metal matrix composite
technologies. Metal matrix composites allow Pacific Coast to make lighter, more
durable electronic packages. In March 1996, Hughes Aircraft, an existing
customer of Pacific Coast, placed the first order for products utilizing the
Company's metal matrix composite technology. Pacific Coast intends to make this
technology available to Morel for use in casting sealed electronic packaging for
customers of Pacific Coast.
Pacific Coast generally develops new products from its existing technologies
in response to specific customer needs, with such development almost exclusively
funded by its customers. Pacific Coast plans to continue developing new
technologies to meet the changing requirements of its customers and, where
appropriate, to file additional patent applications for those new technologies.
Pacific Coast may also purchase additional strategic proprietary technology from
third-party developers. Pacific Coast does not expect to devote substantial
resources to research and development that is not funded by customers.
CUSTOMERS. Pacific Coast's customer base includes Fortune 1000 companies as
well as smaller, specialized firms. For fiscal 1996, Pacific Coast's major
customers in the defense, aerospace and communications market included ST
Olektron Corp., Honeywell Inc.'s Military Avionics Division, Amphenol
Corporation, AlliedSignal Inc.'s Aerospace Equipment Systems division, Space
Systems/ Loral, Inc., Hughes Aircraft, Westinghouse Electric Corporation, TRW
Space and Electronics Group, and Lockheed Martin. Pacific Coast's major
customers in the energy market during that period included Schlumberger
Industries, Inc. and its French parent company (collectively, "Schlumberger"),
Baker Hughes and Western Atlas International, Inc. Pacific Coast's major
customers in the medical market during that year were Advanced Bionics
Corporation and Electro-Biology, Inc. Pacific Coast has a varied customer base,
and no single customer accounted for more than 10% of its net sales for fiscal
1996, except for ST Olektron Corp. (13.7%) and Schlumberger (10.8%).
STRATEGY. Pacific Coast's strategy is to increase its sales and market
share by developing increasingly sophisticated electronic packages, modules and
subsystems that integrate its proprietary technology and products made by the
Company's other subsidiaries. Pacific Coast also plans to expand its
cross-marketing with the Company's other subsidiaries. As sales volumes
increase, Pacific Coast intends to increase its automation in order to obtain
additional efficiencies. In addition, Pacific Coast is developing a number of
standard products that it believes can be produced and sold more cost
effectively than custom products. In the aerospace and defense industries, the
Company believes that there is a significant potential for increased use of its
products in satellite and ground-based radar applications. In the communications
industry, Pacific Coast believes that there is similar potential for use of its
products in radio frequency applications. In the energy market, Pacific Coast
plans to continue to develop new devices to be incorporated on oil drilling
tools in order to take advantage of the emerging development of oil fields in
Russia, China, and other areas. In the medical devices market, Pacific Coast
expects to develop standard and custom devices to support more sophisticated
audio implants, bone growth stimulators, pacemakers and other implantable
electronic devices.
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CERAMIC DEVICES, INC.
PRODUCTS. Ceramic Devices designs and manufactures a line of specialized
filtering devices for use with electronic circuits operating in hostile
environments. Ceramic Devices was founded in 1982, and the Company purchased it
in February 1995 to obtain a source of ceramic filters for Pacific Coast's
connectors and electronic products. Ceramic Devices' products filter out
electromagnetic interference and other electrical signals that pose significant
problems for the manufacturers and users of high-performance, high-reliability
electronic systems. Ceramic Devices is an approved supplier of ceramic filtering
devices to military contractors. Ceramic Devices fabricates all components of
its multilayer capacitors and filters to military requirements and
individualized customer specifications. Ceramic Devices' product development is
generally funded by its customers. Ceramic Devices' products generally range in
price from approximately $5 to $100.
CUSTOMERS. Ceramic Devices' customer base is generally the same as the
customer base of Pacific Coast, including large defense, aerospace and
communications companies. Such customers purchase Ceramic Devices products for
incorporation into sophisticated electronic systems. Ceramic Devices' major
customers include Hughes Electro-Optical Operations, Inc., Hughes Aircraft,
Lockheed Martin, AlliedSignal Inc.'s Aerospace Equipment Systems division, and
EMS Technologies, Inc. No one customer accounted for more than 10% of Ceramic
Devices' net sales for fiscal 1996, except for Lockheed Martin (13.9%) and
Hughes Aircraft (12%). Because the customer base of Pacific Coast represents
potential customers for Ceramic Devices, the companies use the same direct sales
force and manufacturers' representative group.
STRATEGY. The Ceramic Devices growth strategy includes increasing its
marketing efforts to existing and potential customers in the defense, aerospace
and communications industries, and targeting customers of Pacific Coast in the
medical industry. In May 1996, Ceramic Devices completed its move from San
Diego, California to the Pacific Coast facility in Wenatchee, Washington. The
Ceramic Devices strategy also includes increasing the efficiency of its
production process through interaction with Pacific Coast, combining its filters
with Pacific Coast products, and marketing Ceramic Devices products together
with products of Pacific Coast.
SEISMIC SAFETY PRODUCTS, INC.
PRODUCTS. Seismic develops and markets natural gas shut-off valves that are
automatically activated by earthquakes, and plans to market other earthquake
safety products for use in residential applications. Cashmere manufactures the
natural gas shut-off valve for Seismic, using patented technology that Seismic
purchased in November 1995 from the inventors after six years of development.
The technology for a commercial version of this valve is currently being
completed by Seismic. Seismic's valves are designed to be installed in new and
existing natural gas lines and to automatically shut off the supply of gas in an
earthquake. The valve may also be used as a manual natural gas shut-off valve to
avert fires in other emergency situations. Significant patented features of the
valve include a mechanism for manual reset of the shut-off valve without special
tools and a seamless design to prevent potential leakage. Seismic's natural gas
shut-off valve is certified by the American Gas Association and the State of
California. The price for Seismic's residential natural gas shut-off valve
generally ranges from approximately $100 wholesale to $200 retail.
CUSTOMERS. Seismic began marketing its residential valve in December 1995
under the brand name "Northridge Valve." Beginning in March 1996, Seismic
received initial orders from several large home improvement centers, including
Eagle Hardware & Garden Inc., HomeBase Inc., Ernst Home Center, Inc., Home Depot
U.S.A., Inc. and Ace Hardware Corp. Prospective purchasers of Seismic's valve
include builders, plumbers, security companies and utility companies.
STRATEGY. Seismic's strategy is to sell its gas shut-off valve to large
home improvement centers and other consumer outlets, and to utility companies
for distribution to their customers, in earthquake-prone areas. The City of Los
Angeles requires that new construction have an automatic natural gas shut-off
valve installed. The Company believes that similar regulations may appear
elsewhere on
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the West Coast due to its relatively high potential for seismic activity. The
Seismic patents and patent applications extend beyond the current product to
cover other possible products, such as a commercial version of the natural gas
shut-off valve and an electrical shut-off product currently under development.
Future production plans may include the use of aluminum cast components made by
Morel, which the Company believes may reduce production costs, in addition to
the precision machined parts currently made by Cashmere which are included in
the shut-off valve.
CASHMERE MANUFACTURING CO., INC.
PRODUCTS. Cashmere operates a precision machine shop that produces
diversified components and assemblies for the aerospace, defense, electronics
and transportation industries. Cashmere was founded in 1969, and the Company
purchased it in 1994 to provide precision machined products initially for
Pacific Coast. Cashmere now provides products for other subsidiaries of the
Company as well. Cashmere produces principally aluminum products, ranging from
small connectors to very complex assemblies. Cashmere builds to order only, in
conformance with the machining specifications of its customers. Cashmere is ISO
9000 approved, which qualifies it to perform work for most aerospace and general
electronic companies. Cashmere's products generally range in price from
approximately $10 to $200.
CUSTOMERS. Prior to fiscal 1995, Cashmere's sales were almost exclusively
to Boeing. Through a diversification program, the percentage of Cashmere's sales
to Boeing was approximately 75% for fiscal 1996. Sales to Boeing by Cashmere and
other Company subsidiaries constituted approximately 28% of the Company's
consolidated net sales for that year. See "Risk Factors -- Dependence on
Significant Customers." At May 31, 1996, Cashmere's major customers were Boeing,
Pacific Coast, Nissho Iwai American Corporation, Kawasaki Heavy Industries, Ltd.
and Northrop Grumman. Pacific Coast, Morel, and Seismic together accounted for
9.4% of Cashmere's sales for fiscal 1996. Cashmere manufactures a variety of
aluminum and stainless steel connector shells and electronic packages for
Pacific Coast, machines cast parts for Morel, and is the sole manufacturer of
the natural gas shut-off valve marketed by Seismic.
STRATEGY. Through access to the customer base of Pacific Coast, Cashmere is
pursuing strategies intended to continue reducing its dependency on Boeing.
Cashmere plans to expand its direct sales effort, concentrate on customer
service, and offer additional value-added services. Most Pacific Coast products
require machining which is increasingly being provided by Cashmere, allowing
Cashmere to benefit from the sales and marketing efforts of Pacific Coast. Morel
is also currently a customer of Cashmere. Cashmere, together with Morel, has
recently implemented direct sales coverage in the Pacific Northwest and Southern
California in an effort to expand the market for products of both companies.
MOREL INDUSTRIES, INC.
PRODUCTS. Morel manufactures precision cast aluminum parts used principally
in the transportation, heavy trucking and aerospace industries. Morel was
founded in 1909, and the Company purchased Morel in 1995 to provide cast parts
for its other subsidiaries and to expand its presence in the transportation
industry. Morel uses sand castings, lost foam and permanent molds to contain and
shape molten aluminum. These components are often further shaped or patterned on
Morel's milling equipment to meet a customer's specific needs. Morel also
provides additional services such as painting, machining and general assembly
work. Morel is currently operating at less than full capacity and believes that
it could use its remaining capacity without significant additional capital
expenditures. Morel's products generally range in price from approximately $5 to
$100.
CUSTOMERS. Morel is dependent on sales to PACCAR, which constituted 75% of
Morel's net sales in fiscal year 1995. Net sales to PACCAR in the last six
months of fiscal 1996 constituted 23% of the Company's consolidated net sales
for that period. See "Risk Factors -- Dependence on Significant Customers."
Morel's other major customers include Deere & Company, Accra Manufacturing, Inc.
and Boeing.
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STRATEGY. Morel's customers are increasingly requesting products that are
cast and machined by a single provider. The Company believes that Morel's
ability to machine its aluminum parts, combined with additional capacity at
Cashmere, will increase its ability to compete for finished cast aluminum
business. The Company plans to diversify Morel's customer base by taking
advantage of its access to the customers and marketing of the Company's other
subsidiaries. The Company also has plans to provide Morel access to proprietary
technology, such as the metal matrix composite technology recently patented by
Pacific Coast, in order to enhance Morel's competitive advantages in its
industry. The Company believes the recent addition of direct sale
representatives in the Pacific Northwest and Southern California for Morel and
Cashmere will allow Morel to diversify its customer base and reduce its
dependence on PACCAR.
MARKETING
PACIFIC COAST AND CERAMIC DEVICES. Pacific Coast and Ceramic Devices market
their products in the United States, Europe and Japan through a network of 22
manufacturer representatives and resellers as of May 31, 1996, generally
established on a geographic basis. These representatives and resellers are
subject to agreements that prevent them from selling the products of competitors
of Pacific Coast and Ceramic Devices. In addition, Pacific Coast and Ceramic
Devices maintain a joint internal sales and customer service staff and
engineering capability to meet customer requirements for technical support.
SEISMIC. The Company currently markets Seismic's natural gas shut-off valve
in California, Oregon, Utah and Washington. In addition, the Company believes
that there is a significant market for Seismic's valves in other
earthquake-prone areas, such as Japan. Seismic's strategy is to increase its
marketing efforts in two domestic distribution channels: large regional natural
gas utilities for direct sales to their customers and large home improvement
centers for sales to consumers. Seismic also intends to implement a direct mail
program as part of its marketing campaign. In the future, Seismic may enter into
a strategic arrangement with a Japanese firm to market Seismic's natural gas
shut-off valve in Japan.
CASHMERE AND MOREL. Cashmere and Morel have a similar existing and
potential customer base and use the same direct sales approach and personnel.
They currently have direct regional sales personnel covering the West Coast. The
Company expects to engage additional salespeople for other geographic regions as
business warrants.
COMPETITION
PACIFIC COAST AND CERAMIC DEVICES. The market for Pacific Coast and Ceramic
Devices products is highly competitive and is composed of numerous competitors,
none of which dominates the market. Competition is based primarily on product
quality, price, custom product development capability, and technical support.
Pacific Coast's principal competitors include Balo Precision Parts, Inc.
("Balo"), Amphenol Corporation, Hermetic Seal Corporation, Kemlon Products and
Development Co., ITT Cannon Inc. and Alberox Corporation. Pacific Coast recently
purchased two patents from Balo and licensed certain rights under these and
certain other related patents of the Company to Balo under the terms of a
settlement agreement between Pacific Coast and Balo. See "Business --
Proprietary Rights." Pacific Coast is not aware of any competitor that competes
with all of its product lines, although competitors do exist in each market.
Ceramic Devices' principal competitors in all of its markets include AVX
Corporation, Spectrum Control, Inc. and Maxwell Laboratories, Inc.'s Sierra
Capacitor/Filter Division. Many of these companies have greater financial and
technical resources than the Company. The Company believes that Pacific Coast
and Ceramic Devices products are positioned to be competitive in these markets
due to the quality of the products, the proprietary and patented technology, and
their custom product development capability.
SEISMIC. The market for Seismic's natural gas shut-off valve includes
several principal competitors, such as Safe T Quake Corporation, Engdahl
Enterprises and Pacific Seismic Valves, Inc. The Company believes that its
valve's rugged construction, ease of installation, easy reset feature, and
pricing should allow it to be competitive in this market.
26
<PAGE>
CASHMERE AND MOREL. The market for Cashmere and Morel products is very
competitive on a regional basis. The Company expects that access to Pacific
Coast's proprietary technology and customer base will provide Cashmere and Morel
with a competitive advantage in their industries. In addition, the Company
believes that modernization accomplished when Morel purchased its current
facilities in March 1994 enables Morel to produce its products more efficiently.
The Company believes that the ability to offer combined and complementary
products and value-added services with the Company's other subsidiaries will
enhance the ability of Cashmere and Morel to compete in this market. See "Risk
Factors -- Competition."
SUPPLIERS AND PRODUCTION
PACIFIC COAST AND CERAMIC DEVICES. Pacific Coast and Ceramic Devices have
multiple competitive sources generally available to supply all of their needs
for raw, processed and machined materials. However, Pacific Coast and Ceramic
Devices occasionally experience delivery and quality difficulties with their
vendors, and maintain secondary sources of supply for outside purchases. Pacific
Coast and Ceramic Devices also maintain a quality control program to monitor
supplier compliance with their supply requirements.
CASHMERE, MOREL AND SEISMIC. Cashmere has a readily available source of
supply for the raw materials it requires through numerous product distributors.
Morel has several suppliers of aluminum for its casting process, including
Aluminum Company of America, Inc. (ALCOA), Morel's largest supplier, which has a
supply facility located within approximately 35 miles of Morel's facility.
However, delivery and quality of supplies may vary or change from time to time.
In addition, the price of aluminum fluctuates with the market, which is
generally absorbed by Cashmere but which Morel can generally pass through to its
customers. All of Seismic's products are supplied by Cashmere. See "Risk Factors
- -- Availability and Cost of Materials."
PROPRIETARY RIGHTS
The Company relies primarily on a combination of patent, trade secret,
copyright and trademark laws, confidentiality procedures, and other intellectual
property protection methods to protect its proprietary technology. The Company
currently holds 32 United States patents and has three United States patent
applications pending and three international patent applications pending. Of
these, Pacific Coast owns 29 United States patents and has two United States
patent applications pending and two international patent applications pending,
and Seismic owns three United States patents, has one United States patent
application pending and has one international patent application pending that
designates Japan and Europe as jurisdictions in which patent protection is
sought.
The Company's issued patents will expire at various times over the next 16
years, beginning in September 1997. Although the Company believes that the
manufacturing processes of its technology that is currently protected by
patents, particularly that of Pacific Coast, are sufficiently complex that
competing products made with the same technology are unlikely, there is no
assurance that the Company's competitors will not design competing products
using the same or similar technology once these patents have expired.
There is no assurance that the patent applications by Pacific Coast and
Seismic will result in issued patents, that the existing patents or any future
patents issued to the Company or its subsidiaries will provide any competitive
advantages for their products or technology, or that, if challenged, the patents
issued to the Company or its subsidiaries will be held valid and enforceable.
Despite the precautions taken by the Company, unauthorized parties may attempt
to copy aspects of the Company's products or obtain and use information that the
Company regards as proprietary, and existing intellectual property laws afford
only limited protection. Policing violations of such laws is difficult. The laws
of certain countries in which the Company's products are or may be distributed
do not protect the Company's products and intellectual property rights to the
same extent as do the laws of the United States. There is no assurance that
these protections will be adequate or that the Company's competitors will not
independently develop similar technology, gain access to the Company's trade
secrets or other proprietary information, or design around the Company's
patents.
27
<PAGE>
The Company may be required to enter into costly litigation to enforce its
intellectual property rights or to defend infringement claims by others. Such
infringement claims could require the Company to license the intellectual
property rights of third parties. There is no assurance that such licenses would
be available on reasonable terms, or at all. The Company recently settled
litigation with Balo, a competitor of Pacific Coast, involving patent
infringement claims by and against Balo. As a result of the settlement, Pacific
Coast acquired two patents from Balo in the field of explosively bonded hermetic
connectors and packages, which was the subject of the litigation, and granted
Balo a license to use these and certain other related patents of the Company.
See "Risk Factors -- Limited Protection of Proprietary Technology."
GOVERNMENT REGULATION
Certain of the Company's products are manufactured and sold under United
States government contracts or subcontracts. As with all companies that provide
products or services to the federal government, the Company is directly and
indirectly subject to various federal rules, regulations and orders applicable
to government contractors. Certain of these government regulations relate
specifically to the vendor-vendee relationship with the government, such as the
bidding and pricing rules. Under regulations of this type, the Company must
observe certain pricing restrictions, produce and maintain detailed accounting
data, and meet various other requirements. The Company is also subject to a
number of regulations affecting the conduct of its business generally. For
example, the Company must adhere to federal acquisition requirements and to
standards established by the Occupational Safety and Health Act relating to
labor practices and occupational safety standards. Violation of applicable
government rules and regulations could result in civil liability, in
cancellation or suspension of existing contracts or in ineligibility for future
contracts or subcontracts funded in whole or in part with federal funds. See
"Risk Factors -- Governmental Regulation."
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances concerning solid waste disposal, hazardous materials storage, use and
disposal, air emissions, waste water and storm water disposal, employee health
and other environmental matters (together, "Environmental Laws"). Proper waste
disposal and environmental regulation are major considerations for the Company
because certain metals and chemicals used in its manufacturing processes are
classified as hazardous substances.
Since the Company's acquisition of Morel in December 1995, the Company has
initiated an environmental compliance program for the Morel facility, which
includes obtaining all permits necessary for that facility to operate in
compliance with applicable Environmental Laws. As part of this program, Morel in
January 1996 obtained a permit to discharge air emissions. Morel is operating
without a permit required by Environmental Laws to discharge waste water and
storm water. In May 1996, Morel submitted an application to the State of
Washington for this permit. A failure by Morel to obtain the required permit
could result in regulatory authorities imposing fines on Morel or ordering Morel
to cease operations or both. The Company is obtaining the necessary
environmental data to support the permit application and expects to submit such
data by August 1996. Although the Company believes that the necessary permit
will be issued in the first or second quarter of fiscal 1997, there is no
assurance that such permit will be issued, and the failure to obtain such permit
would have a material adverse effect on the Company.
From time to time, the Company's operations may result in other
noncompliance with Environmental Laws. If any violations of Environmental Laws
occur, the Company could be liable for damages and for the costs of remedial
actions and could also be subject to revocation of permits necessary to conduct
its business. Any such revocation could require the Company to cease or limit
production at one or more of its facilities, which could have a material adverse
effect on the Company. As a generator of hazardous materials, the Company is
subject to financial exposure even if it fully complies with these laws.
Environmental Laws could become more stringent over time, imposing greater
compliance costs and increasing risks and penalties associated with any
violations. There is no assurance that any
28
<PAGE>
present or future noncompliance with Environmental Laws will not have a material
adverse effect on the Company's results of operations or financial condition.
See "Risk Factors -- Environmental Matters."
FACILITIES
All of the Company's subsidiaries are now located in the greater Wenatchee,
Washington area. All of the operating subsidiaries except Morel operate from
adjacent buildings in Wenatchee, and Morel is located 15 miles away in Entiat.
The close proximity of the operating subsidiaries is part of the Company's
strategy to enhance the efficiencies between these companies.
Pacific Coast operates from facilities in Wenatchee, Washington of
approximately 31,000 square feet, which it has leased from the Port of Chelan
County since September 1994. An additional 7,500 square feet were added to the
lease in January 1996 to house Ceramic Devices' operations. Ceramic Devices
completed its move to Wenatchee from San Diego, California in May 1996. Cashmere
and Seismic operate from an adjacent facility of approximately 42,000 square
feet which Cashmere has leased from the Port of Chelan County since October
1995. This facility was built to suit Cashmere by the Port of Chelan. The leases
for these facilities expire in the year 2005 and both contain options to renew
for two additional five-year terms. Total lease costs for these facilities are
$342,000 per year.
Morel operates from facilities in Entiat, Washington of approximately 84,000
square feet. Morel purchased these facilities and relocated from Seattle in
August 1994, at which time the facilities were renovated into a modern foundry
operation.
Cashmere owns a portion of its previous facility of approximately 46,000
square feet located in nearby Cashmere, Washington. Although the Company held
this property for sale during a portion of fiscal 1996, it is currently using
the property for staging and storage. The Company is assessing its long-term
plans for the property, including retaining the property as an operating asset.
Ceramic Devices is subject to two leases for its previous facilities in San
Diego, California. Those facilities total approximately 9,900 square feet of
office and manufacturing space in two buildings. Both leases expire on April 30,
1997, and the total rent is $6,775 per month. Ceramic Devices is seeking to
sublease this space through the end of the lease term.
EMPLOYEES
As of June 1, 1996, the Company and its subsidiaries had a total of 352
full-time employees, of which 298 were in manufacturing and quality assurance,
14 were in customer service, marketing and sales, 12 were in engineering, 25
were in administration, and 3 were in customer-sponsored product development.
None of the Company's employees is covered by an ongoing collective bargaining
agreement, the Company has experienced no work stoppages, and the Company
believes that its relationship with its employees is good.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- --- ------------------------------------------------------------------------
<S> <C> <C>
Donald A. Wright(1) 44 Chairman of the Board, Chief Executive Officer and President
Herman L. "Jack" Jones 65 Executive Vice President, Chief Operating Officer and Director
Nick A. Gerde 51 Vice President Finance and Chief Financial Officer
Roger P. Vallo(1)(2)(3)(4) 61 Secretary and Director
Robert L. Smith(1)(4) 81 Director
Donald B. Cotton(2)(4) 58 Director
Allen W. Dahl, M.D.(1)(2)(3) 68 Director
Paul Schmidhauser(3) 47 Director
</TABLE>
- ------------------------
(1) Member of the Nominating Committee
(2) Member of the Compensation Committee
(3) Member of the Option Committee
(4) Member of the Finance and Audit Committee
Donald A. Wright has been the Chairman of the Board, Chief Executive Officer
and President of the Company since February 1995, and held those same positions
with Original PCTH and its successor from May 1994 until the successor was
dissolved in May 1996. Mr. Wright has been an officer and director of Pacific
Coast and its predecessor, Kyle Technology Corporation, since 1990. Mr. Wright
also has been an officer and director of each of the Company's other operating
subsidiaries since their respective acquisitions by the Company.
Herman L. "Jack" Jones has been Executive Vice President, Chief Operating
Officer and a director of the Company since February 1995, and held those same
positions with Original PCTH and its successor from May 1994 until the successor
was dissolved. Mr. Jones also has served as a director of Pacific Coast since
April 1994, a director of Morel since December 1995 and a director of Seismic
since October 1995. Mr. Jones founded Cashmere and has served as President and a
director of Cashmere since 1969.
Nick A. Gerde has been the Vice President Finance and Chief Financial
Officer of the Company since February 1995. Mr. Gerde is also an officer and
director of each of the Company's operating subsidiaries. Mr. Gerde served as
Controller/CFO of Hydraulic Repair & Design, Inc., a regional hydraulic
component repair and wholesale distribution company, from March 1990 through
April 1993; Business Development Specialist with the Economic Development
Council of North Central Washington from July 1993 to June 1994; and vice
president of Televar Northwest, Inc., a closely held telecommunications company,
from July 1994 to February 1995. Mr. Gerde is a certified public accountant.
Roger P. Vallo has been a director and the Secretary of the Company since
February 1995, and held those same positions with Original PCTH and its
successor from May 1994 until the successor was dissolved. Mr. Vallo served as a
director of Pacific Coast from February 1991 to November 1995 and as Secretary
from July 1993 to October 1994. From 1990, he served as a director of the
predecessor of Pacific Coast and subsequently as a director of Pacific Coast.
Mr. Vallo also is the President and Chief Executive Officer of Prudential
Preferred Properties in Everett, Washington.
30
<PAGE>
Robert L. Smith has been a director of the Company since February 1995 and
was the Treasurer of the Company from that date until July 9, 1996. Mr. Smith
held those same positions with Original PCTH and its successor from May 1994
until the successor was dissolved. Prior to May 1994, he served as a director
and officer of Pacific Coast. Mr. Smith is engaged in the commercial real estate
business for Prudential Preferred Properties in Everett, Washington.
Donald B. Cotton has been a director of the Company since February 1995, and
was a director of Original PCTH and its successor from May 1994 until the
successor was dissolved. He was a director of Pacific Coast from October 1993 to
October 1994. Mr. Cotton retired from GTE in 1993, where he served most recently
as a vice president. He is currently self-employed as a software consultant.
Allen W. Dahl, M.D. has been a director of the Company since February 1995,
and was a director of Original PCTH and its successor from October 1994 until
the successor was dissolved. Dr. Dahl is a semi-retired physician, practicing in
the Puget Sound region of Washington.
Paul Schmidhauser has been a director of the Company since November 1995.
Mr. Schmidhauser currently manages SIR Schmidhauser Industrial Representations
AG, a Swiss company. From January 1994 to January 1995, Mr. Schmidhauser was a
private investor. Prior to January 1994, Mr. Schmidhauser was a Vice President
of ABB W&E Umwelttechnik AG, a Swiss company.
Directors of the Company hold office until the next annual meeting of the
Company's shareholders and until their successors have been elected and duly
qualified. Under the terms of an agreement between Lysys Ltd. ("Lysys") and the
Company, dated January 3, 1995, Lysys has the right to nominate one of the
Company's Board members, until July 1998. Mr. Schmidhauser is the current
designee of Lysys to the Board of Directors. See "Certain Transactions."
Executive officers are elected by the Board of Directors of the Company at the
first Board meeting after each annual meeting of shareholders and hold office
until their successors are elected and duly qualified.
SIGNIFICANT EMPLOYEES
John M. Eder, 52, has been President and a director of Seismic since October
1995. He also has served as Executive Vice President of Cashmere since September
1990, and as a director of Cashmere since October 1994.
Stephen L. Morel, 43, has been President of Morel since February 1989, and a
director of Morel since May 1976. Stephen Morel and Mark Morel, below, are
brothers.
Mark Morel, 44, has been Vice President of Sales of Morel since July 1989,
and a director of Morel since December 1988.
Ivan G. Sarda, 63, has been President and a director of Ceramic Devices
since April 1995. Before the Company's acquisition of Ceramic Devices, Mr. Sarda
was a founder and served as President and a director of Ceramic Devices'
predecessor.
Lewis L. Wear, 55, has been President of Pacific Coast since February 1996,
and a director of Pacific Coast since November 1995. He also has been a director
of Ceramic Devices since November 1995. Prior to November 1995, Mr. Wear was
Vice President of Sales for Vacuum Atmospheres, a division of WEMS, Inc.
DIRECTOR COMPENSATION
The Independent Director Stock Plan, approved by the shareholders of the
Company in November 1995, provides for an initial award of 500 shares of Common
Stock and an annual award of $5,000 worth of Common Stock to each non-employee
director. Each non-employee director who serves on a committee of the Board of
Directors is entitled to receive a fee of $1,000 per year for each committee on
which that director serves, and the chairperson of each committee is entitled to
receive an additional $500 fee per year. In addition, each non-employee director
of a subsidiary of the Company, who is not a director of the Company, will
receive a fee of up to $1,000 per year. At the Board's option, persons who serve
as directors of a subsidiary of the Company may be eligible for additional fees.
Each of the cash
31
<PAGE>
fees may be paid, at the Board's option, in shares of Common Stock. Non-employee
directors receive no salary for their services and receive no fee from the
Company for their participation in meetings, although all directors are
reimbursed for reasonable travel and other out-of-pocket expenses incurred in
attending meetings of the Board. As of May 31, 1996, 9,000 shares have been
issued to Directors under the Independent Director Plan, with 6,000 shares
subject to forfeiture if certain conditions are not met. See "Management --
Benefit Plans."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table sets forth the annual and
long-term compensation of Donald A. Wright ("Named Executive") for services in
all capacities to the Company for the last three fiscal years. No other officer
of the Company received annual salary and bonuses exceeding $100,000 in the
fiscal year ended May 31, 1996. This table and the following tables do not
include a stock option that the Company has agreed to grant to Mr. Wright in
fiscal 1997 on the effective date of this Prospectus for 845,000 shares of
Common Stock at $ per share.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------------
--------------------------------------------- SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/
NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS SARS
PRINCIPAL POSITION YEAR(1) ($) ($) ($) ($) (#)
- ------------------------------- ----------- --------- ------ ------------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald A. Wright(2)(3) 1996 110,577 0 0 0 112,560
CEO and President 1995 83,654 0 0 0 100,000(4)
1994 75,000 0 0 0 0
<CAPTION>
PAYOUTS
-------------
LTIP ALL OTHER
NAME AND PAYOUTS COMPENSATION
PRINCIPAL POSITION ($) ($)
- ------------------------------- ------------- ----------------
<S> <C> <C>
Donald A. Wright(2)(3) 0 400(5)
CEO and President 0 0
0 0
</TABLE>
- ------------------------
(1) Information is shown for the May 31 fiscal years of the Company and, prior
to February 1995, Original PCTH, which employed Mr. Wright during the
relevant periods.
(2) Mr. Wright became the Chief Executive Officer of the Company in February
1995, upon effectiveness of the merger of Original PCTH into a wholly owned
subsidiary of the Company. See "Acquisition History."
(3) The compensation shown for Mr. Wright for the fiscal year ended May 31,
1994 was paid by Original PCTH.
(4) Represents unexercised, but exercisable, warrants to purchase 100,000
shares of Common Stock. See "Aggregated Option/SAR Exercises and Fiscal
Year-End Option/SAR Values," below.
(5) Represents estimated value of the personal use of a company car.
OPTION GRANTS. The following table sets forth information on grants of
stock options or other similar rights by the Company during the last fiscal year
to the Named Executive.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL MARKET PRICE
SECURITIES OPTIONS/SARS EXERCISE OR ON DATE OF
UNDERLYING OPTIONS/ GRANTED TO EMPLOYEES BASE PRICE GRANT EXPIRATION
NAME SARS GRANTED (#) IN FISCAL YEAR ($/SHARE) ($/SHARE) DATE
- ---------------------------- ------------------- ------------------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Donald A. Wright 97,560 67% 5.125 5.125 10/30/2005
15,000 10% 4.875 4.875 11/28/2005
</TABLE>
32
<PAGE>
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES. The
following table sets forth information concerning exercise of stock options and
warrants during the last fiscal year by the Named Executive and the fiscal year
end value of unexercised options:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
OPTIONS/SARS AT FY-END (#) SARS AT FY-END ($)
SHARES ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- --------------------- ------------- ------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Donald A. Wright 0 0 134,512(1) 78,048 209,000 N/A
</TABLE>
- ------------------------
(1) Includes warrants that were granted by Original PCTH on December 24, 1994,
and converted by the Company, as of February 17, 1995, into warrants to
purchase 100,000 shares of Common Stock at $2.00 per share, which are
currently exercisable in full.
EMPLOYMENT AGREEMENTS
Mr. Wright has been employed by the Company pursuant to an Employment
Agreement dated January 1, 1995, as amended on March 1, 1996 (the "Recent
Employment Agreement"). The Recent Employment Agreement was superseded by an
Employment Agreement dated as of June 1, 1996 (the "New Employment Agreement").
The New Employment Agreement has a term of two years, ending on May 31, 1998,
unless terminated earlier for "cause" (as defined in the New Employment
Agreement). Both employment agreements prohibit Mr. Wright from competing with
the Company for two years following termination. Under the Recent Employment
Agreement, Mr. Wright received an annual base salary of $100,000 for calendar
year 1995, and salary at an annual rate of $125,000 for the first five months of
calendar year 1996. Under the New Employment Agreement, Mr. Wright receives an
annual base salary of $160,000 and $175,000 for fiscal years 1997 and 1998,
respectively, subject to any increase that may be determined to be appropriate
by the Board of Directors. Based on Mr. Wright's performance as judged by the
Board of Directors, Mr. Wright also may be entitled to receive stock options to
purchase 15,000 shares of Common Stock per year at an exercise price equal to
the fair market value of the Common Stock on the date of grant for each of the
fiscal years 1996, 1997 and 1998. The Board of Directors awarded Mr. Wright
options to purchase up to 15,000 shares of Common Stock at $4.875 per share for
his performance during fiscal year 1995. In addition, under the New Employment
Agreement, if a "change of control" of the Company occurs and within six months
thereafter Mr. Wright is terminated without "cause" or terminates his employment
for "good reason" (as such terms are defined in the New Employment Agreement),
Mr. Wright would be entitled to receive a severance payment equal to twice his
annual base salary then in effect, subject to certain exceptions provided in the
New Employment Agreement. The term "change of control" includes the following
events: (i) a change in composition of the Board of Directors over any two-year
period such that the directors at the beginning of the period, together with
directors subsequently approved by the continuing directors, no longer
constituted a majority of the Board, or (ii) any person becoming the beneficial
owner of securities having 30% or more of the voting power of the Company's
outstanding voting securities, subject to certain exceptions in the New
Employment Agreement. Any such severance payment under the New Employment
Agreement would be reduced to the extent necessary to avoid subjecting the
payment to penalty taxes on parachute payments. In addition to such severance
payment, Mr. Wright and his family would be entitled to continue to participate
for one year after such termination in employee health and medical benefits
plans and programs in which they were participants when employment terminated,
to the extent permitted by such plans and programs.
BENEFIT PLANS
1995 STOCK INCENTIVE PLAN
The Company's 1995 Stock Incentive Plan (the "Plan") provides for the award
of incentive stock options ("ISOs") to key employees and the award of
non-qualified stock options ("NSOs"), stock appreciation rights ("SARs"), bonus
rights, and other incentive grants to employees and certain non-employees (other
than non-employee directors) who have important relationships with the Company
or its subsidiaries.
33
<PAGE>
ADMINISTRATION. The Plan may be administered by the Board of Directors or
by a committee of directors or officers of the Company. The Board of Directors
has designated an Option Committee to administer the Plan. The Option Committee
determines and designates the individuals to whom awards under the Plan should
be made and the amount and terms and conditions of the awards, except that if
officers of the Company serve on the Option Committee it may not grant options
to such officers. The Option Committee may adopt and amend rules relating to the
administration of the Plan, but only the Board of Directors may amend or
terminate the Plan. The Plan is administered in accordance with Rule 16b-3
adopted under the Exchange Act.
ELIGIBILITY. Awards under the Plan may be made to employees, including
employee directors, of the Company and its subsidiaries, and to nonemployee
agents, consultants, advisors, and other persons (but not including nonemployee
directors) that the Option Committee believes have made or will make an
important contribution to the Company or any subsidiary thereof.
SHARES AVAILABLE. Subject to adjustment as provided in the Plan, a maximum
of 1,000,000 shares of Common Stock are reserved for issuance thereunder. If an
option, SAR or performance unit granted under the Plan expires or is terminated
or canceled, the unissued shares subject to such option, SAR or performance unit
are again available under the Plan. In addition, if shares sold or awarded as a
bonus under the Plan are forfeited to the Company or repurchased thereby, the
number of shares forfeited or repurchased are again available under the Plan.
TERM. Unless earlier terminated by the Board, the Plan will continue in
effect until the earlier of: (i) ten years from the date on which the Plan is
adopted by the Board, and (ii) the date on which all shares available for
issuance under the Plan have been issued and all restrictions on such shares
have lapsed. The Board may suspend or terminate the Plan at any time except with
respect to options, performance units, and shares subject to restrictions then
outstanding under the Plan.
STOCK OPTION GRANTS. The Option Committee may grant ISOs and NSOs under the
Plan. With respect to each option grant, the Option Committee determines the
number of shares subject to the option, the option price, the period of the
option, the time or times at which the option may be exercised (including
whether the option will be subject to any vesting requirements and whether there
will be any conditions precedent to exercise of the option), and the other terms
and conditions of the option.
ISOs are subject to special terms and conditions. The aggregate fair market
value, on the date of the grant, of the Common Stock for which an ISO is
exercisable for the first time by the optionee during any calendar year, may not
exceed $100,000. An ISO may not be granted to an employee who possesses more
than 10% of the total voting power of the Company's stock unless the option
price is at least 110% of the fair market value of the Common Stock subject to
the option on the date it is granted and the option is not exercisable five
years after the date of grant. No ISO may be exercisable after ten years from
the date of grant. The option price may not be less than 100% of the fair market
value of the Common Stock covered by the option at the date of grant.
In general, no vested option may be exercised unless at the time of such
exercise the optionee is employed by or in the service of the Company or any
subsidiary thereof, within 12 months following termination of employment by
reason of death or disability, or within three months following termination for
any other reason except for cause. Options are nonassignable and nontransferable
by the optionee except by will or by the laws of descent and distribution at the
time of the optionee's death. No shares may be issued pursuant to the exercise
of an option until full payment therefor has been made. Upon the exercise of an
option, the number of shares reserved for issuance under the Plan will be
reduced by the number of shares issued upon exercise of the option. Options to
purchase an aggregate of 145,283 shares of Common Stock have been granted under
the Plan, and the Company has agreed to issue Mr. Wright an option under the
Plan to purchase 845,000 shares upon the effective date of this Prospectus. See
"Description of Securities -- Stock Options."
34
<PAGE>
STOCK APPRECIATION RIGHTS. The Option Committee may grant SARs under the
Plan. Each SAR entitles the holder, upon exercise, to receive from the Company
an amount equal to the excess of the fair market value on the date of exercise
of one share of Common Stock of the Company over its fair market value on the
date of grant (or, in the case of a SAR granted in connection with an option,
the excess of the fair market value of one share of Common Stock of the Company
over the option price per share under the option to which the SAR relates),
multiplied by the number of shares covered by the SAR or the option. Payment by
the Company upon exercise of a SAR may be made in Common Stock, in cash, or by a
combination of Common Stock and cash.
If a SAR is granted in connection with an option, the following rules shall
apply: (i) the SAR shall be exercisable only to the extent and on the same
conditions that the related option could be exercised; (ii) the SAR shall be
exercisable only when the fair market value of the stock exceeds the option
price of the related option; (iii) the SAR shall be for no more than 100% of the
excess of the fair market value of the stock at the time of exercise over the
option price; (iv) upon exercise of the SAR, the option or portion thereof to
which the SAR relates terminates; and (v) upon exercise of the option, the
related SAR or portion thereof terminates.
Each SAR is nonassignable and nontransferable by the holder except by will
or by the laws of descent and distribution at the time of the holder's death.
Upon the exercise of a SAR for shares, the number of shares reserved for
issuance under the Plan will be reduced by the number of shares issued. Cash
payments of SARs will not reduce the number of shares of Common Stock reserved
for issuance under the Plan. No SARs have been granted under the Plan.
RESTRICTED STOCK. The Option Committee may issue shares of Common Stock
under the Plan subject to the terms, conditions, and restrictions determined
thereby. Upon the issuance of restricted stock, the number of shares reserved
for issuance under the Plan shall be reduced by the number of shares issued. No
restricted shares have been granted under the Plan.
STOCK BONUS AWARDS. The Option Committee may award shares of Common Stock
as a stock bonus under the Plan. The Option Committee may determine the
recipients of the awards, the number of shares to be awarded, and the time of
the award. Stock received as a stock bonus is subject to the terms, conditions,
and restrictions determined by the Option Committee at the time the stock is
awarded. No stock bonus awards have been granted under the Plan.
CASH BONUS RIGHTS. The Option Committee may grant cash bonus rights under
the Plan in connection with (i) options granted or previously granted, (ii) SARs
granted or previously granted, (iii) stock bonuses awarded or previously
awarded, and (iv) shares issued under the Plan. Bonus rights granted in
connection with options entitle the optionee to a cash bonus if and when the
related option is exercised. The amount of the bonus is determined by
multiplying the excess of the total fair market value of the shares acquired
upon the exercise over the total option price for the shares by the applicable
bonus percentage. The bonus rights granted in connection with a SAR entitle the
holder to a cash bonus when the SAR is exercised. The amount of the bonus is
determined by multiplying the total fair market value of the shares or cash
received pursuant to the exercise of the SAR by the applicable percentage. The
bonus percentage applicable to any bonus right is determined by the Option
Committee but may in no event exceed 75%. Bonus rights granted in connection
with stock bonuses entitle the recipient to a cash bonus, in an amount
determined by the Option Committee, when the stock is awarded or purchased or
any restrictions to which the stock is subject lapse. No bonus rights have been
granted under the Plan.
PERFORMANCE UNITS. The Option Committee may grant performance units
consisting of monetary units which may be earned if the Company achieves certain
goals established by the Committee over a designated period of time. The goals
established by the Option Committee may include earnings per share, return on
shareholders' equity, return on invested capital, and similar benchmarks.
Payment of an award earned may be in cash or in Common Stock or partly in both,
and may be made when earned, or vested and deferred, as the Option Committee
determines. Each performance unit will be
35
<PAGE>
nonassignable and nontransferable by the holder except by will or by the laws of
descent and distribution at the time of the holder's death. The number of shares
reserved for issuance under the Plan shall be reduced by the number of shares
issued upon payment of an award. No performance units have been granted under
the Plan.
CHANGES IN CAPITAL STRUCTURE. The Plan provides that if the outstanding
Common Stock of the Company is increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of another corporation by reason of any recapitalization, stock split
or certain other transactions, appropriate adjustment will be made by the Option
Committee in the number and kind of shares available for grants under the Plan.
In addition, the Option Committee will make appropriate adjustments in the
number and kind of shares as to which outstanding options will be exercisable.
In the event of a merger, consolidation or other fundamental corporate
transformation, the Board may, in its sole discretion, permit outstanding
options to remain in effect in accordance with their terms; to be converted into
options to purchase stock in the surviving or acquiring corporation in the
transaction; or to be exercised, to the extent then exercisable, during a 30-day
period prior to the consummation of the transaction.
INDEPENDENT DIRECTOR STOCK PLAN
The Company's Independent Director Stock Plan (the "Director Plan") provides
for the award of shares of Common Stock to non-employee directors of the Company
to attract, reward, and retain qualified individuals to serve as directors and
to provide added incentive to such persons by increasing their ownership
interest in the Company.
ADMINISTRATION. The Director Plan may be administered by the Board of
Directors or by a committee of directors and officers of the Company. The Board
has delegated to the Compensation Committee the responsibility of administering
the Director Plan. Subject to the requirements of the Director Plan, the
Compensation Committee has the authority to, among other things, determine the
fair market value of the Common Stock, interpret the Director Plan and
prescribe, amend, and rescind rules and regulations relating thereto, and make
all determinations deemed necessary or advisable to administer the Director
Plan, except that only the Board of Directors may suspend, amend or terminate
the Director Plan. No director may vote on any action by the Board of Directors
with respect to any matter relating to an award held by such director. The
Director Plan is administered in accordance with Rule 16b-3 adopted under the
Exchange Act.
ELIGIBILITY. Shares may be awarded under the Director Plan only to
Independent Directors. The term "Independent Director" means a director who is
not an employee of the Company or any of its subsidiaries.
SHARES AVAILABLE. The total number of shares of Common Stock that may be
awarded as bonuses under the Director Plan may not exceed 100,000 shares. If any
share awarded under the Director Plan is forfeited, such share will again be
available for purposes of the Director Plan.
TERM. Unless earlier suspended or terminated by the Board, the Director
Plan will continue in effect until the earlier of: (i) ten years from the date
on which it is adopted by the Board, and (ii) the date on which all shares
available for issuance under the Director Plan have been issued.
INITIAL AWARD. The Independent Directors who were elected at the 1995
annual shareholders meeting each received 500 shares of Common Stock (the
"Initial Award") for a total of 3,000 shares. In the future, each new
Independent Director will receive an Initial Award upon such Independent
Director's first election or appointment to the Board.
ANNUAL AWARD. Each Independent Director also will be awarded additional
shares (the "Annual Award") in an amount determined in accordance with the
formula set forth below, on an annual basis, each time he or she is elected to
the Board (or, if directors are elected to serve terms longer than one year, as
of the date of each annual shareholders' meeting during that term). The number
of shares awarded in the Annual Award will be equivalent to the result of $5,000
divided by the fair market
36
<PAGE>
value of a share on the date of the award, rounded to the nearest 100 shares (or
a fraction thereof if the Independent Director is elected or appointed to the
Board at any time other than at the annual meeting of shareholders). Each of the
Independent Directors elected at the 1995 annual shareholders meeting received
an Annual Award of 1,000 shares of Common Stock for a total of 6,000 shares.
VESTING AND FORFEITURE. Shares issued pursuant to an Initial Award are
fully vested upon the date of the award. Shares issued pursuant to an Annual
Award vest in full on the first anniversary following the date of the Annual
Award if the Independent Director has attended at least 75% of the regularly
scheduled meetings of the Board during that year (the "Vesting Period"). If an
Independent Director does not attend at least 75% of the regularly scheduled
meetings of the Board during the Vesting Period, the shares issued pursuant to
that Annual Award will expire and be forfeited without having vested. If a
Director ceases to be an Independent Director for any reason other than death or
disability before his or her last Annual Award vests, the shares issued pursuant
to that Annual Award will be forfeited. If an Independent Director is unable to
continue his or her service as a director as a result of his or her disability
or death, unvested shares of such Independent Director will immediately become
vested as of the date of disability or death. In the event of a merger,
consolidation or plan of exchange to which the Company is a party and in which
the Company is not the survivor, or a sale of all or substantially all of the
Company's assets, any unvested shares will vest automatically upon the closing
of such transaction.
STATUS BEFORE VESTING. Each Independent Director will be a shareholder of
record with respect to all shares awarded under the Director Plan, whether or
not vested. No Independent Director may transfer any interest in unvested shares
to any person other than to the Company.
CERTAIN TAX CONSIDERATIONS RELATED TO EXECUTIVE COMPENSATION
As a result of Section 162(m) of the Internal Revenue Code of 1986, as
amended, in the event that compensation paid by the Company to a "covered
employee" (the chief executive officer and the next four highest paid employees)
in a year were to exceed an aggregate of $1,000,000, the Company's deduction for
such compensation could be limited to $1,000,000.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table shows, to the best of the Company's knowledge based on
the records of the Company's transfer agent and the Company's records on
issuances of shares, as adjusted to reflect changes in ownership documented in
filings with the Securities and Exchange Commission made by certain shareholders
and provided to the Company pursuant to Section 16 of the Exchange Act and
statements provided to the Company by certain shareholders, Common Stock
ownership on May 31, 1996, by (i) each person known by the Company to own
beneficially more than 5% of the Company's outstanding Common Stock ("Principal
Shareholder"), (ii) each of the Company's directors, (iii) the Named Executive
in the Summary Compensation Table, and (iv) all executive officers and directors
of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK (2)
AMOUNT AND NATURE OF --------------------------
BENEFICIAL BEFORE AFTER
NAMES AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP (1) OFFERING OFFERING
- --------------------------------------------------------------------- ---------------------- ------------ ------------
<S> <C> <C> <C>
Donald A. Wright (3)
c/o PCT Holdings, Inc.
434 Olds Station Road
Wenatchee, WA 98801................................................. 1,245,850 14.7% 11.6%
Herman L. "Jack" Jones
c/o PCT Holdings, Inc.
432 Olds Station Road
Wenatchee, WA 98801................................................. 701,437 9.4% 7.2%
Pensionfund of the Siemens
Companies in Switzerland
CH 8047
Zurich, Switzerland................................................. 650,000 8.7% 6.7%
Stephen Morel
224 Stoneybrook Lane
Wenatchee, WA 98801................................................. 398,433 5.3% 4.1%
Melvin B. Hoelzle (4)
8105 South Broadway
Everett, WA 98203................................................... 380,500 5.1% 3.9%
Roger Vallo (5)
2707 Colby Avenue
Suite 1101
Everett, WA 98201................................................... 219,026 2.9% 2.3%
Robert L. Smith (6)
20008 Grand Avenue, Apt. 201
Everett, WA 98201................................................... 161,887 2.2% 1.7%
Donald B. Cotton (7)
538 Timber Ridge Drive
Trophy Club, TX 76262............................................... 103,609 1.4% 1.1%
Allen W. Dahl
7300 Madrona Drive N.E.
Bainbridge Island, WA 98110......................................... 29,276 * *
Paul Schmidhauser
Rebbergstrasse 28
CH-8112 Otelfingen, Switzerland..................................... 1,500 * *
All Executive Officers and Directors
as a group (eight persons)(8)....................................... 2,503,946 29.3% 23.2%
</TABLE>
- ------------------------
* Less than 1%.
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<PAGE>
(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of an individual to acquire them within 60 days are treated as outstanding
for determining the amount and percentage of Common Stock owned by such
individual. Shares for which beneficial ownership is disclaimed by an
individual also are included for purposes of determining the amount and
percentage of Common Stock owned by such individual. To the Company's
knowledge, each person has sole voting and sole investment power with
respect to the shares shown except as noted, subject to community property
laws, where applicable.
(2) Rounded to the nearest 1/10th of one percent, based on 7,478,309 shares of
Common Stock outstanding before this Offering and 9,728,309 shares of Common
Stock outstanding after this Offering.
(3) Includes 34,666 shares held by Ragen MacKenzie, Incorporated, custodian for
Donald A. Wright, in two IRA accounts. Also includes currently exercisable
warrants to purchase 100,000 shares of Common Stock, and currently
exercisable options to purchase 34,512 shares of Common Stock. Also includes
an option to purchase 845,000 shares of Common Stock that the Company has
agreed to grant to Mr. Wright on the effective date of this Prospectus.
(4) Includes 85,416 shares held by Dain Bosworth, Incorporated, custodian for
Melvin B. Hoelzle IRA.
(5) Includes 216,666 shares held by or on behalf of Seattle-First National
Bank, custodian for Roger P. Vallo IRA.
(6) Includes a currently exercisable warrant to purchase 37,500 shares of
Common Stock.
(7) Includes 69,443 shares held by Lincoln Trust Company, custodian for Donald
B. Cotton IRA.
(8) Includes currently exercisable warrants to purchase up to 162,500 shares of
Common Stock, and currently exercisable options to purchase up to 47,723
shares of Common Stock. Also includes an option to purchase 845,000 shares
of Common Stock that the Company has agreed to grant to Mr. Wright on the
effective date of this Prospectus.
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<PAGE>
SELLING SHAREHOLDER
The table below sets forth certain information as of May 31, 1996 with
respect to the beneficial ownership of Common Stock by UTCO Associates, Ltd., a
Utah limited partnership (the "Selling Shareholder"). Other than providing
short-term financing to the Company in May 1996, the Selling Shareholder has not
had any position, office or other material relationship with the Company within
the past three years.
The shares of Common Stock offered by the Selling Shareholder may be offered
for sale, beginning 180 days after the date of this Prospectus, from time to
time at market prices prevailing at the time of sale or at negotiated prices,
and without payment of any underwriting discounts or commissions except for
usual and customary selling commissions paid to brokers or dealers. The Company
will not receive any proceeds from the sale of the Common Stock by the Selling
Shareholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING SHARES OFFERED OWNED AFTER OFFERING
------------------------------ BY SELLING --------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER(1) PERCENTAGE(2) SHAREHOLDER(1) NUMBER(3) PERCENTAGE(3)
- ----------------------------------------- ----------- ----------------- -------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
UTCO Associates, Ltd. ................... 300,000 3.9% 300,000 0 0%
230 West 200 South, Suite 2601
Salt Lake City, Utah 84101
</TABLE>
- ------------------------
(1) Represents shares issuable upon exercise of a warrant held by the Selling
Shareholder issued in connection with the short-term financing referenced
above. The warrant is exercisable at $4.80 per share and is immediately
exercisable in full. The warrant and a promissory note were issued by the
Company to the Selling Shareholder in May 1996. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Recent
Developments." See "Use of Proceeds" as to the repayment of the promissory
note.
(2) Excludes any shares of Common Stock issuable upon exercise of any
outstanding stock options and warrants of the Company, other than the
warrant held by the Selling Shareholder, and excludes 845,000 shares of
Common Stock issuable upon the exercise of an option that the Company has
agreed to grant to Donald A. Wright on the effective date of this
Prospectus. See "Description of Securities -- Stock Options."
(3) Assumes the exercise of the Selling Shareholder's warrant to purchase
300,000 shares of Common Stock at an exercise price of $4.80 per share and
the sale by the Selling Shareholder of all shares of Common Stock issued
pursuant to such exercise.
40
<PAGE>
CERTAIN TRANSACTIONS
On May 18, 1994, Pacific Coast received a $2,000,000 loan from the County of
Chelan, Washington, secured by a standby letter of credit from the Frontier Bank
of Everett, Washington. To secure the Company's obligations under the letter of
credit, Melvin B. Hoelzle, a Principal Shareholder, and Robert L. Smith, a
director of the Company, each provided a certificate of deposit and executed a
guaranty. The Company retired the letter of credit and the obligations of
Messrs. Hoelzle and Smith on September 21, 1995.
On May 31, 1994, Original PCTH acquired all of the outstanding shares of
Cashmere from the shareholders of Cashmere, in exchange for common stock of
Original PCTH. Herman L. "Jack" Jones, a Principal Shareholder, executive
officer, and director of the Company received shares of Original PCTH in that
transaction, which were later exchanged for 791,666 shares of the Company. In
connection with the acquisition, Cashmere sold the land and buildings, located
in Cashmere, Washington, where its manufacturing facilities were then located,
to Mr. Jones and John M. Eder, a former director of the Company and presently an
Executive Vice President of Cashmere and President of Seismic, for $975,207.
Cashmere received a note from Mr. Jones for the sales price, payable in monthly
installments of $7,600 through May 2014, including interest at 7% per annum. The
note was collateralized by the land and the buildings that then housed
Cashmere's operations. No significant gain or loss to the Company resulted from
this transaction. Cashmere leased these premises from Mr. Jones for a term of
three years with monthly lease payments of $9,000. In May 1995, the Company and
Messrs. Jones and Eder reached an agreement for Cashmere to reacquire a portion
of the land and buildings. Under that agreement, Cashmere canceled $673,990 of
the outstanding note from Mr. Jones, Mr. Jones agreed to assume the payment
obligation of Cashmere under certain bank debt related to the property, although
Cashmere remains an obligor under that bank debt, and Cashmere renewed the
$278,795 balance of the note from Mr. Jones under the same terms as the bank
debt. Mr. Jones is negotiating to refinance the bank debt in his name and remove
Cashmere as an obligor. There is no assurance that Cashmere will be removed as
an obligor on the bank debt. The Company paid Mr. Jones $108,000 in May 1995 for
the cancellation of the lease, which was terminated upon completion of
Cashmere's new facility in Wenatchee, Washington.
On January 3, 1995, Original PCTH entered into a funding agreement (the
"Funding Agreement") with Lysys Ltd. ("Lysys"). Under the Funding Agreement,
Lysys agreed to use its best efforts to find suitable and qualified investors to
purchase the Company's Common Stock. Subsequent to the Verazzana merger, Lysys
facilitated the sale by the Company of 800,000 shares of Common Stock pursuant
to the Funding Agreement in an offering exempt from registration under
Regulation S of the Securities Act, which raised approximately $4.6 million. As
compensation for its services, Lysys was paid a commission of $478,400 in cash
and 739,700 shares of the Company's Common Stock were issued to designees of
Lysys. Pensionfund of the Siemens Companies in Switzerland ("Siemens"), a
Principal Shareholder, purchased 150,000 shares in the offering.
Under the Funding Agreement, Lysys has the right to nominate one of the
Company's Board members until July 1998. Paul Schmidhauser, who was elected as a
director of the Company at the 1995 annual shareholders meeting, was nominated
as a director by Lysys. Mr. Schmidhauser has no ownership or other pecuniary
interest in or association with Lysys. See "Management -- Directors and
Executive Officers."
Roger D. Dudley, one of the Company's directors from February 1995 to
November 1995, is associated with Lysys although he is not a director, executive
officer or equity owner of Lysys. Mr. Dudley provided certain services to Lysys
in connection with its performance under the Funding Agreement. As compensation
for such services, 295,300 of the shares of Common Stock issuable to Lysys
pursuant to the Funding Agreement were issued to SMD Ltd., LLC, a limited
liability company, one-third of which is owned by another limited liability
company owned by Mr. Dudley's family. Mr. Dudley claims beneficial ownership of
88,433 of such shares, and disclaims beneficial ownership of the remaining
shares.
41
<PAGE>
Mr. Dudley is also an executive officer of C.I. International Limited, which
is the manager of Capital International Fund Limited, a foreign investment fund.
While Mr. Dudley was a director of the Company, Capital International Fund
Limited purchased 86,000 shares of Common Stock on February 15, 1995 and 64,000
shares on July 12, 1995. Mr. Dudley has no ownership interest in these shares
and, except in his capacity as an executive officer of C.I. International
Limited, exercises no control over C.I. International Limited or Capital
International Fund Limited.
In February 1995, Arthur S. Robinson, a director of the Company from
February 1995 to April 1996 and of Original PCTH and its successor from May 1994
to April 1996, exchanged his rights in a consulting contract with Original PCTH
for shares of common stock of Original PCTH, which were subsequently converted
to 17,361 shares of the Company's Common Stock.
The Company entered into another agreement with Lysys on November 3, 1995,
as amended on January 19, 1996 (the "Placement Agreement"), pursuant to which
Lysys facilitated the sale by the Company of 838,470 shares of Common Stock in
an offering exempt from registration under Regulation S of the Securities Act.
The Company raised approximately $3.4 million from the offering, from which
Lysys was paid a commission of $234,772. Pursuant to the Placement Agreement,
the Company issued 30,000 shares of Common Stock to a designee of Lysys as
additional compensation in connection with the offering. Siemens, a Principal
Shareholder, purchased 500,000 shares of Common Stock in the offering.
On October 9, 1995, Allen W. Dahl, a director of the Company, loaned Morel
$100,000 pursuant to the terms of a promissory note, for working capital until
consummation of the Morel merger, as defined in the following paragraph. All
amounts due under this note were paid in full by Morel in December 1995.
On December 1, 1995 (effective for accounting purposes on November 30,
1995), the Company effected a merger between a subsidiary of the Company that
was formed for such purpose and Morel (the "Morel merger"). See "Acquisition
History." As consideration for the Morel merger, the Company, after certain
post-closing adjustments, issued 650,000 shares of Common Stock to Stephen L.
Morel and Mark Morel (the "Morel Shareholders"). As a result, the Morel
Shareholders own an aggregate of approximately 9% of the outstanding Common
Stock prior to this Offering. Also in connection with the Morel merger, the
Company entered into a registration rights agreement with the Morel
Shareholders, pursuant to which the Morel Shareholders were granted the right,
under certain circumstances, to have up to 50% of their shares registered, at
the Company's expense, on an equal basis with other shareholders of the Company
within two years after the date of closing. These registration rights have been
waived as to this Offering. See "Description of Securities -- Registration
Rights." Prior to the Morel merger, no material relationship existed between
Morel and the Company or any of its affiliates, directors, officers, or their
associates, except that Morel and certain subsidiaries of the Company transacted
business from time to time in the ordinary course of business.
On March 28, 1996, Robert L. Smith, a director of the Company, loaned the
Company $150,000 pursuant to a promissory note from the Company to Mr. Smith
that accrues interest at 18% per annum and is due in full on September 27, 1996.
The Company expects to use a portion of the net proceeds of this Offering to
repay that note. See "Use of Proceeds." The Company also issued Mr. Smith a
warrant to purchase 37,500 shares of Common Stock at $4.80 per share that is
immediately exercisable, but those shares cannot be sold until the expiration of
a lock-up period of 180 days from the date of this Prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Recent Developments." In addition, the warrant grants Mr. Smith certain rights
to register the shares issuable upon exercise of the warrant. Mr. Smith has
waived his rights to register those shares in this Offering. See "Description of
Securities -- Registration Rights."
42
<PAGE>
DESCRIPTION OF SECURITIES
UNITS
The Common Stock and the Warrants offered hereby will be sold only in Units.
Each Unit consists of one share of Common Stock and one Warrant. The Units will
separate immediately upon issuance, and the Common Stock and Warrants that make
up the Units will trade only as separate securities.
COMMON STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, $.001 par value per share. As of July 10, 1996, there were
7,478,309 shares of Common Stock, fully paid and nonassessable, outstanding.
Each share of outstanding Common Stock is entitled to participate equally in
dividends as and when declared by the Board of Directors of the Company, out of
funds legally available therefor, and is entitled to participate equally in any
distribution of net assets made to the Company's shareholders in liquidation of
the Company after payment to all creditors thereof. There are no preemptive
rights or rights to convert Common Stock into any other securities. The holders
of the Common Stock are entitled to one vote for each share held of record on
all matters voted upon by the Company's shareholders and may not cumulate votes
for the election of directors. Thus, the owners of a majority of the shares of
the Common Stock outstanding may elect all of the directors of the Company and
the owners of the balance of the shares of the Common Stock would not be able to
elect any directors of the Company.
WARRANTS
REPRESENTATIVES' WARRANTS. In connection with this Offering, the Company
has authorized the issuance of the Representatives' Warrants and has reserved
450,000 shares of Common Stock for issuance upon exercise of such warrants
(including the Warrants issuable upon exercise of the Representatives'
Warrants). The Representatives' Warrants will entitle the holders to acquire
225,000 Units at an exercise price of $ per Unit (120% of the Unit Offering
Price). The Representatives' Warrants will be exercisable at any time from the
first anniversary of the date of this Prospectus until the fifth anniversary of
the date of this Prospectus.
THE WARRANTS. Each Warrant will entitle the holder to purchase one share of
Common Stock at a price of $ per share (150% of the Unit Offering Price),
subject to certain adjustments including, if the Company's audited fiscal 1997
net income does not exceed $1.5 million, a one-time downward adjustment of the
exercise price to (a) $ (125% of the Unit Offering Price) if such net income
is $800,000 to $1.5 million, (b) $ (100% of the Unit Offering Price) if such
net income is $500,000 to $799,000, and (c) $ (75% of the Unit Offering Price)
if such net income is less than $500,000. The vesting of one outstanding warrant
is dependent upon Pacific Coast being issued a patent, which occurred in fiscal
1996, and meeting or exceeding certain gross sales benchmarks for calendar years
1996 and 1997. See "Other Warrants" below. The Company may grant additional
performance-based options or warrants to its employees. The vesting of
performance-based options or warrants may result in certain expenses that would
reduce net income for financial accounting purposes. Solely for the purpose of
determining whether a downward adjustment to the exercise price of the Warrants
will be made based on fiscal 1997 net income, any expense relating to the
vesting of any performance-based options or warrants held by employees
(including any amortization of capitalized patent costs relating to such
warrants or options) will be excluded in determining fiscal 1997 net income. The
Warrants will, subject to certain conditions, be exercisable at any time until
the fifth anniversary of the date of this Prospectus, unless earlier redeemed.
Outstanding Warrants are redeemable by the Company, at $.25 per Warrant, upon at
least 30 days prior written notice to the registered holders, if the closing bid
price (as defined in the Warrant Agreement described below) per share of Common
Stock for the 20 consecutive trading days immediately preceding the date notice
of redemption is given equals or exceeds 200% of the then-current exercise price
of the Warrants. If the Company gives notice of its intention to redeem, a
holder would be forced either to exercise his or her Warrant before the date
specified in the redemption notice or accept the redemption price.
43
<PAGE>
The Warrants will be issued in registered form under a Warrant Agreement
(the "Warrant Agreement") between the Company and Interwest Transfer Co., Inc.,
as warrant agent (the "Warrant Agent"). The shares of Common Stock underlying
the Warrants, when issued upon exercise of a Warrant, will be fully paid and
nonassessable, and the Company will pay any transfer tax incurred as a result of
the issuance of Common Stock to the holder upon its exercise.
The Warrants and the Representatives' Warrants contain provisions that
protect the holders against dilution by adjustment of the number of shares that
may be purchased by the holders. Such adjustment will occur in the event, among
others, that the Company makes certain distributions to holders of its Common
Stock. The Company is not required to issue fractional shares upon the exercise
of a Warrant or the Representatives' Warrants. The holder of a Warrant or
Representatives' Warrants will not possess any rights as a shareholder of the
Company until such holder exercises the Warrant or Representatives' Warrants.
A Warrant may be exercised upon surrender of the Warrant certificate on or
before the expiration date of the Warrant at the offices of the Warrant Agent,
with the form of "Election To Purchase" on the reverse side of the Warrant
certificate completed and executed as indicated, accompanied by payment of the
exercise price (by certified or bank check payable to the order of the Company
or wire transfer of good funds) for the number of shares with respect to which
the Warrant is being exercised.
For a holder to exercise the Warrants, there must be a current registration
statement in effect with the Securities and Exchange Commission and
qualification in effect under applicable state securities laws (or applicable
exemptions from state qualification requirements) with respect to the issuance
of shares or other securities underlying the Warrants. The Company has agreed to
use all commercially reasonable efforts to cause a registration statement with
respect to such securities under the Securities Act to be filed and to become
and remain effective in anticipation of and prior to the exercise of the
Warrants and to take such other actions under the laws of various states as may
be required to cause the sale of Common Stock (or other securities) issuable
upon exercise of Warrants to be lawful. If a current registration statement is
not in effect at the time a Warrant is exercised, the Company may at its option
redeem the Warrant by paying to the holder cash equal to the difference between
the market price of the Common Stock on the exercise date and the exercise price
of the Warrant. The Company will not be required to honor the exercise of
Warrants if, in the opinion of the Company's Board of Directors upon advice of
counsel, the sale of securities upon exercise would be unlawful.
The foregoing discussion of certain terms and provisions of the Warrants and
Representatives' Warrants is qualified in its entirety by reference to the
detailed provisions of the Warrant Agreement and the purchase warrant issued to
the Representatives, respectively, the form of each of which has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
For the life of the Warrants and Representatives' Warrants, the holders
thereof have the opportunity to profit from a rise in the market price of the
Common Stock without assuming the risk of ownership of the shares of Common
Stock issuable upon the exercise of the Warrants. The Warrant holders may be
expected to exercise their Warrants at a time when the Company would, in all
likelihood, be able to obtain any needed capital by an offering of Common Stock
on terms more favorable than those provided for by the Warrants. Further, the
terms on which the Company could obtain additional capital during the life of
the Warrants may be adversely affected.
OTHER WARRANTS. As of May 31, 1996, the Company had outstanding warrants to
purchase 497,500 shares of Common Stock. A warrant to purchase 100,000 shares is
held by Donald A. Wright and a warrant to purchase 25,000 shares is held by Nick
A. Gerde. These warrants are immediately exercisable in full at an exercise
price of $2.00 per share and will expire in 2004. A warrant to purchase 35,000
shares was issued to an employee of Pacific Coast, in connection with an
assignment of certain technology to the Company. This warrant has an exercise
price of $2.00 per share and expires December 31, 2000. Under this warrant,
15,000 shares of Common Stock are currently exercisable, and an additional
10,000 shares may vest on each of January 1997 and January 1998, if Pacific
Coast
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meets or exceeds certain gross sales benchmarks for calendar years 1996 and
1997. In connection with certain short-term debt incurred by the Company in
March 1996 and May 1996, respectively, the Company issued to Robert L. Smith, a
director of the Company, a warrant to purchase 37,500 shares of Common Stock,
and issued to the Selling Shareholder a warrant to purchase 300,000 shares of
Common Stock. Each of these warrants is currently exercisable in full at an
exercise price of $4.80 per share, and expires May 22, 2001. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Recent Developments" and "Selling Shareholder."
STOCK OPTIONS
The Company has stock options outstanding under the Plan to purchase up to
145,283 shares of Common Stock at exercise prices of between $4.875 and $5.125
per share. Of these, options to purchase up to 47,723 shares are currently
exercisable and will expire in November 2005. The remainder of those options
vest, if at all, in increments of 24,390 shares on each of June 1, 1997, 1998,
1999 and 2000, and also will expire in November 2005. The Company has also
agreed to grant Mr. Wright an option under the Plan to purchase 845,000 shares
of Common Stock upon the effective date of this Prospectus, at an exercise price
of $ per share, which will expire ten years from the effective date of
this Prospectus. The shares issuable upon exercise of this option will be
subject to a contractual restriction on sale, expiring one year after the date
of this Prospectus. See "Management -- Benefit Plans."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion sets forth certain U.S. federal income tax
consequences, under current law, relating to the purchase and ownership of the
Units and the Common Stock and Warrants constituting the Units. The discussion
is a summary and does not purport to deal with all aspects of federal taxation
that may be applicable to an investor, nor does it consider specific facts and
circumstances that may be relevant to a particular investor's tax position.
Certain holders (such as dealers in securities, insurance companies, tax exempt
organizations, and those holding Common Stock or Warrants as part of a straddle
or hedge transaction) may be subject to special rules that are not addressed in
this discussion. This discussion is based on current provisions of the U.S.
Internal Revenue Code of 1986, as amended, and on administrative and judicial
interpretations as of the date hereof, all of which are subject to change
retroactively and prospectively. ALL INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THIS OFFERING, INCLUDING
THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
ALLOCATION OF PURCHASE PRICE. Each Unit as a whole will have a tax basis
equal to the cost of the Unit. The measure of income or loss from certain
transactions described below depends upon the tax basis in each of the Warrants
and the Common Stock comprising the Unit. The tax basis for each of the Warrants
and the Common Stock will be determined by allocating the cost of the Unit among
the securities which comprise the Unit in proportion to the relative fair market
values of those elements at the time of acquisition.
U.S. HOLDERS OF COMMON STOCK OR WARRANTS
The following discussion concerns the material U.S. federal income tax
consequences of the ownership and disposition of Common Stock or Warrants
applicable to a U.S. Holder of such Common Stock or Warrants. In general, a
"U.S. Holder" is (i) a citizen or resident of the U.S., (ii) a corporation or
partnership created or organized in the U.S. or under the laws of the U.S. or
any state, or (iii) an estate or trust whose income is includable in gross
income for U.S. federal income tax purposes regardless of its source.
DIVIDENDS. Dividends, if any, paid to a U.S. Holder generally will be
includable in the gross income of such U.S. Holder as ordinary income to the
extent of such U.S. Holder's share of the Company's current or accumulated
earnings and profits. See "Price Range of Common Stock and Dividend Policy."
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SALE OF COMMON STOCK. The sale of Common Stock should generally result in
the recognition of gain or loss to a U.S. Holder thereof in an amount equal to
the difference between the amount realized and such U.S. Holder's tax basis in
the Common Stock. If the Common Stock constitutes a capital asset in the hands
of a U.S. Holder, gain or loss upon the sale of the Common Stock will be
characterized as long-term or short-term capital gain or loss, depending on
whether the Common Stock has been held for more than one year.
EXERCISE AND SALE OF WARRANTS. No gain or loss will be recognized by a U.S.
Holder of a Warrant on the purchase of shares of Common Stock for cash pursuant
to an exercise of a Warrant (except that gain will be recognized to the extent
cash is received in lieu of fractional shares). The tax basis of Common Stock
received upon the exercise of a Warrant will equal the sum of the U.S. Holder's
tax basis for the exercised Warrant and the exercise price. The holding period
of the Common Stock acquired upon the exercise of the Warrant will begin on the
date the Warrant is exercised and the Common Stock is purchased (i.e., it does
not include the period during which the Warrant was held).
Gain or loss from the sale or other disposition of a Warrant (or loss in the
event that the Warrant expires unexercised as discussed below), other than
pursuant to a redemption by the Company, will be capital gain or loss to its
U.S. Holder if the Common Stock to which the Warrant relates would have been a
capital asset in the hands of such holder. Such capital gain or loss will be
long-term capital gain or loss if the U.S. Holder has held the Warrant for more
than one year at the time of the sale, disposition or lapse. It is unclear
whether the redemption of a Warrant by the Company would generate ordinary or
capital income or loss.
EXPIRATION OF WARRANTS WITHOUT EXERCISE. If a holder of a Warrant allows it
to expire without exercise, the expiration will be treated as a sale or exchange
of the Warrant on the expiration date. The U.S. Holder will have a taxable loss
equal to the amount of such U.S. Holder's tax basis in the lapsed Warrant. If
the Warrant constitutes a capital asset in the hands of the U.S. Holder, such
taxable loss will be characterized as long-term or short-term capital loss
depending upon whether the Warrant was held for the required long-term holding
period.
BACKUP WITHHOLDING. A shareholder who is a U.S. Holder may be subject to
backup withholding at the rate of 31% in connection with distributions received
with respect to his or her shares, unless the shareholder (i) is a corporation
or comes within certain other exempt categories and, when required, demonstrates
this fact or (ii) provides a correct taxpayer identification number, certifies
as to no loss of exemption for backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. Any amount paid as
backup withholding will be creditable against such shareholder's income tax
liability. The Company will report to the shareholders and the I.R.S. the amount
of any "reportable payments" distributed and the amount of tax withheld, if any,
with respect to the shares.
NON-U.S. HOLDERS OF COMMON STOCK OR WARRANTS
The following discussion concerns the material U.S. federal income and
estate tax consequences of the ownership and disposition of shares of Common
Stock or Warrants applicable to Non-U.S. Holders of such shares of Common Stock
or Warrants. In general, a "Non-U.S. Holder" is any holder other than a U.S.
Holder, as defined in the preceding section.
DIVIDENDS. Dividends, if any, paid to a Non-U.S. Holder generally will be
subject to U.S. withholding tax at a 30% rate (or a lower rate as may be
prescribed by an applicable tax treaty) unless the dividends are effectively
connected with a trade or business of the Non-U.S. Holder within the United
States. See "Price Range of Common Stock and Dividend Policy." Dividends
effectively connected with such a trade or business will generally not be
subject to withholding (if the Non-U.S. Holder properly files an executed IRS
Form 4224 with the payor of the dividend) and generally will be subject to
federal income tax on a net income basis at regular graduated rates. In the case
of a Non-U.S. Holder which is a corporation, such effectively connected income
also may be subject to the branch profits tax (which is generally imposed on a
foreign corporation on the repatriation from the U.S. of
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effectively connected earnings and profits). The branch profits tax may not
apply if the recipient is a qualified resident of certain countries with which
the U.S. has an income tax treaty. To determine the applicability of a tax
treaty providing for a lower rate of withholding, dividends paid to an address
in a foreign country are presumed, under the current I.R.S. position, to be paid
to a resident of that country, unless the payor had definite knowledge that such
presumption is not warranted or an applicable tax treaty (or U.S. Treasury
Regulations thereunder) requires some other method for determining a Non-U.S.
Holder's treaty status. The Company must report annually to the I.R.S. and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of these information returns also may be made available under the
provisions of a specific treaty or agreement to the tax authorities in the
country in which the Non-U.S. Holder resides.
SALE OF COMMON STOCK. Generally, a Non-U.S. Holder will not be subject to
federal income tax on any gain realized upon the disposition of such holder's
shares of Common Stock unless (i) the gain is effectively connected with a trade
or business carried on by the Non-U.S. Holder within the U.S. (in which case the
branch profits tax may apply); (ii) the Non-U.S. Holder is an individual who
holds the shares of Common Stock as a capital asset and is present in the U.S.
for 183 days or more in the taxable year of the disposition and to whom such
gain is U.S. source; (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of U.S. tax law applicable to certain former U.S. citizens or
residents; or (iv) the Company is or has been a "U.S. real property holding
corporation" for federal income tax purposes (which the Company does not believe
that it is or is likely to become) at any time during the five-year period
ending on the date of disposition (or such shorter period that such shares were
held) and, subject to certain exceptions, the Non-U.S. Holder held, directly or
indirectly, more than 5% of the Common Stock.
EXERCISE AND SALE OF WARRANTS. Generally, a Non-U.S. Holder who recognizes
capital gain from the sale of a Warrant, other than pursuant to a redemption by
the Company, will not be subject to U.S. federal income tax unless (i) the gain
is effectively connected with a trade or business carried on by the Non-U.S.
Holder within the United States (in which case the branch profits tax may
apply); (ii) the Non-U.S. Holder is an individual who is present in the U.S. for
183 days or more in the taxable year of sale and to whom the gain is U.S.
source; (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions
of U.S. law applicable to certain former U.S. citizens or residents; or (iv) the
Company is or has been a "U.S. real property holding corporation" for federal
income tax purposes (which the Company does not believe it is or is likely to
become) at any time during the five-year period ending on the date of sale (or
such shorter period such Warrants were held) and, subject to certain exceptions,
the Non-U.S. Holder held, directly or indirectly more than 5% of the Warrants.
ESTATE TAX. Shares of Common Stock and Warrants owned or treated as owned
by an individual who is not a citizen or resident (as specially defined for U.S.
federal estate tax purposes) of the U.S. at the time of death will be includable
in the individual's gross estate for U.S. federal estate tax purposes, unless an
applicable tax treaty provides otherwise, and may be subject to U.S. federal
estate tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Under current U.S. federal
income tax law, backup withholding tax (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain required information) and information reporting apply to payments of
dividends (actual and constructive) made to certain non-corporate U.S. persons.
The backup withholding tax and information reporting requirements applicable to
U.S. persons will generally not apply to dividends paid on Common Stock to a
Non-U.S. Holder at an address outside the U.S., although dividends paid to
Non-U.S. Holders will be reported and taxed as described above under
"Dividends."
The payment of the proceeds from the disposition of shares of Common Stock
or Warrants through the U.S. office of a broker will be subject to information
reporting and backup withholding unless the holder, under penalties of perjury,
certifies, among other things, its status as a Non-U.S.
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Holder or otherwise establishes an exemption. Generally, the payment of the
proceeds from the disposition of shares of Common Stock or Warrants to or
through a non-U.S. office of a broker will not be subject to backup withholding
and will not be subject to information reporting. In the case of the payment of
proceeds from the disposition of shares of Common Stock or Warrants through a
non-U.S. office of a broker that is a U.S. person or a "U.S.-related person,"
existing regulations require information reporting (but not backup withholding)
on the payment unless the broker receives a statement from the owner, signed
under penalties of perjury, certifying, among other things, its status as a
non-U.S. Holder or the broker has documentary evidence in its files that the
owner is a Non-U.S. Holder and the broker has no actual knowledge to the
contrary. For this purpose, a "U.S.-related person" is (i) a "controlled foreign
corporation" for U.S. federal income tax purposes or (ii) a foreign person 50%
or more of whose gross income from all sources for the three-year period ending
with the close of its taxable year preceding the payment (or for such part of
the period that the broker has been in existence) is derived from activities
that are effectively connected with the conduct of a U.S. trade or business.
Any amounts withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such holder's U.S. federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the I.R.S. Non-U.S. Holders should consult
their tax advisors regarding the application of these rules to their particular
situations, the availability of an exemption therefrom and the procedure for
obtaining such an exemption, if available.
REGISTRATION RIGHTS
REPRESENTATIVES' WARRANTS. The Representatives' Warrants provides certain
rights with respect to the registration under the Securities Act of the 450,000
shares issuable upon exercise thereof (including the Warrants included therein).
The Company has agreed that during the period between the first anniversary and
fifth anniversary after the date of this Prospectus it will register the
issuance of such shares upon the exercise of the Representatives' Warrants (and,
if necessary, their resale) so as to permit their public resale without
restriction. These registration rights could result in substantial future
expense to the Company and could adversely affect the Company's ability to
complete future equity or debt financings. Furthermore, the registration and
sale of Common Stock of the Company held by or issuable to the holders of
registration rights, or even the potential of such sales, could have an adverse
effect on the market price of the securities offered hereby.
OTHER REGISTRATION RIGHTS. Holders of 587,083 shares of Common Stock and
warrants to purchase 337,500 shares of Common Stock (collectively, the
"Registrable Shares"), or their transferees, are entitled to certain rights with
respect to the registration of such shares under the Securities Act. Under the
terms of agreements between the Company and such holders, if the Company
proposes to register any of its Common Stock under the Securities Act in
connection with a public offering thereof, either for its own account or for the
account of others, such holders are, with limited exceptions, entitled to notice
of such registration and to include their Registrable Shares therein.
In addition, once the Company is eligible to use a Form S-3 Registration
Statement, holders of 133,333 of the Registrable Shares may require the Company
to file, on not more than one occasion, a registration statement under the
Securities Act at the Company's expense with respect to such Registrable Shares,
and the Company is required to use its reasonable efforts to effect such
registration, subject to certain conditions and limitations. Such holders are
also entitled to registration rights on an equal basis with any other
shareholders to whom the Company grants registration rights.
These rights are subject to certain conditions, including the right of the
underwriters of any offering by the Company to limit the number of Registrable
Shares included in such registration. Holders of 624,583 of the Registrable
Shares have agreed to waive their registration rights with respect to this
Offering. The remaining 300,000 Registrable Shares are being registered by the
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Registration Statement of which this Prospectus is a part, but the Selling
Shareholder has agreed not to sell such shares for a period of 180 days from the
effective date of this Prospectus. See "Selling Shareholder."
ANTI-TAKEOVER LAWS
The Company, as a Nevada corporation, is subject to certain provisions of
Nevada law governing the exercise of powers by the Board of Directors, certain
combinations with interested stockholders, and certain acquisitions of a
controlling interest in the Company. In addition, the Company is also subject to
certain provisions of Washington law regarding significant business transactions
and certain "fair price restrictions." These statutes may have the effect of
delaying or deterring a hostile takeover of the Company.
NEVADA STATUTE ON EXERCISE OF POWERS OF DIRECTORS AND OFFICERS. Nevada's
"Exercise of Directors' and Officers' Powers" statute (Nevada Revised Statutes
Section 78.138) provides that directors and officers, in exercising their
respective powers with a view to the interests of the corporation, may consider
the following factors: (a) the interests of the corporation's employees,
suppliers, creditors and customers; (b) the economy of Nevada and the nation;
(c) the interests of the community and of society; and (d) the long-term as well
as short-term interests of the corporation and its stockholders, including the
possibility that these interests may be best served by the continued
independence of the corporation. This statute also provides that directors may
resist a change or potential change in control of the corporation if the
directors by a majority vote of a quorum determine that the change or potential
change is opposed to or not in the best interest of the corporation: (i) upon
consideration of the interests of the corporation's stockholders and any of the
foregoing factors or (ii) because the amount or nature of the indebtedness and
other obligations to which the corporation or any successor may become subject
in connection with the change or potential change in control provides reasonable
grounds to believe that within a reasonable time the corporation would become
insolvent or a bankruptcy petition concerning the corporation would be
commenced.
NEVADA COMBINATION WITH INTERESTED STOCKHOLDERS STATUTE. Nevada's
"Combination with Interested Stockholders" statute (Nevada Revised Statutes
SectionSection 78.411-78.444) applies to Nevada public corporations having at
least 200 stockholders, which includes the Company. This statute prohibits a
corporation from entering into any "combination" with an "interested
stockholder" (defined as (a) a person who beneficially owns 10% or more of the
corporation's voting securities, or (b) an affiliate or associate of the
corporation who, in the three years preceding the transaction, beneficially
owned 10% or more of the corporation's voting securities) for a period of three
years after such person becomes an interested stockholder, unless the Board of
Directors approved the combination or the share acquisition before the
interested stockholder acquired the shares. After such three-year period has
elapsed, combinations with an interested stockholder remain prohibited unless
the combination meets any applicable requirements of the corporation's articles
of incorporation, and (i) the Board of Directors approved the combination or the
share acquisition before the interested stockholder's acquisition of the shares,
or (ii) a majority of the disinterested stockholders vote to approve the
combination at a meeting called after such three-year period has elapsed, or
(iii) the aggregate amount of cash and the market value of non-cash
consideration to be received by the disinterested stockholders meets certain
minimum requirements, and, prior to the consummation of the combination, the
interested stockholder has not become the beneficial owner of additional voting
shares of the corporation, except in limited circumstances. For purposes of this
statute, the term "combination" includes a merger or consolidation of the
corporation and the interested stockholder or its affiliate, or any sale, lease,
exchange, mortgage, pledge, transfer or other disposition to or with an
interested stockholder or its affiliate in excess of certain dollar thresholds.
NEVADA ACQUISITION OF CONTROLLING INTEREST STATUTE. Nevada's "Acquisition
of Controlling Interest Statute" (Nevada Revised Statutes SectionSection
78.378-78.3793) applies to Nevada corporations that have at least 200
stockholders, at least 100 of whom are Nevada residents, and that do business
directly or indirectly in Nevada. If the Company is determined to be "doing
business" in Nevada (a term that is
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not defined in the statute), and has more than 100 Nevada residents that are
stockholders, it will become subject to the statute. The statute prohibits an
acquiror from voting shares of a target corporation's stock after exceeding
certain threshold ownership percentages, until the acquiror provides certain
information to the corporation and a majority of the disinterested stockholders
vote to restore the voting rights of the acquiror's shares at a meeting called
at the request and expense of the acquiror. If the voting rights of such shares
are restored, stockholders voting against such restoration may demand payment
for the "fair value" of their shares (which is generally equal to the highest
price paid in the transaction subjecting the stockholder to the statute). If the
stockholders fail to restore the voting rights of the acquiror's shares or if
the acquiror fails to timely deliver the required information, then the
corporation may call such shares for redemption by the corporation, if so
provided in the corporation's articles of incorporation or bylaws. The Company's
articles of incorporation and bylaws do not currently permit it to call an
acquiror's shares for redemption.
WASHINGTON ANTI-TAKEOVER STATUTE. Washington's "Significant Business
Transactions Statute" (Chapter 23B.19 of the Washington Business Corporation
Act) applies to foreign corporations, such as the Company, (i) that have a class
of voting shares registered pursuant to Section 12 or 15 of the Exchange Act;
(ii) that have their principal executive offices in the state; (iii) more than
10% of whose shares are owned of record by residents of the state; (iv) a
majority of whose employees reside in the state; and (v) a majority of whose
tangible assets are located in the state. The statute prohibits, subject to
certain exceptions, a corporation from entering into any "significant business
transactions" with an "Acquiring Person" (defined generally as a person who or
an affiliated group that beneficially owns 10% or more of the outstanding voting
securities of a corporation) for a period of five years after such person or
affiliated group becomes an Acquiring Person unless the transaction or share
acquisition made by the Acquiring Person is approved prior to the share
acquisition by a majority of the target corporation's directors. In addition,
this statute prohibits a corporation subject thereto from entering into a
significant business transaction with an Acquiring Person unless the
consideration to be received by the corporation's shareholders in connection
with the proposed transaction satisfies the "fair price" provisions set forth in
the statute.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's securities is Interwest
Transfer Co., Inc.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
9,728,309 shares of Common Stock, assuming no exercise of the Overallotment
Option, the Warrants, the Representatives' Warrants or any other options or
warrants. The following shares will be freely tradeable without restriction
under Securities Act: the 2,250,000 shares of Common Stock which are included in
the Units and sold in this Offering (plus up to 337,500 shares that may be sold
in the Units as a result of exercise of the Overallotment Option); the 2,250,000
shares of Common Stock issuable upon exercise of the Warrants (plus up to
337,500 shares issuable upon the exercise of Warrants subject to the
Overallotment Option); the 125,000 shares of Common Stock issued in the
Company's 1986 public offering; and, commencing approximately 12 months after
the date of this Prospectus, up to 450,000 shares of Common Stock that are
issuable upon exercise of the Representatives' Warrants (including exercise of
the Warrants included therein). The 300,000 shares of Common Stock underlying
the warrant held by the Selling Shareholder are subject to a lock-up agreement,
and will first become eligible for sale in the public market 180 days after the
date of this Prospectus. However, any shares purchased by an "affiliate" of the
Company (as that term is defined in Rule 144 under the Securities Act), subject
to certain conditions, will be subject to the resale limitations of Rule 144.
The 2,408,170 shares of Common Stock issued by the Company in connection
with two Regulation S offerings to Swiss investors in July 1995 and November
1995, to the extent not previously resold into the United States, are available
for resale into the United States without restriction at such time as an
exemption from registration under the Securities Act is or becomes available.
The 490,000 shares of Common Stock issued by the Company in connection with a
Regulation S offering in May 1996 are subject to a lock-up agreement until
December 16, 1996, and will be available for resale into the United States after
that date without restriction at such time as an exemption from registration is
or becomes available.
The remaining 4,446,058 shares of Common Stock are "restricted" shares
subject to the restrictions upon resale under Rule 144 under the Securities Act
(the "Restricted Shares"). Of this number, the 62,500 shares issued to the
Company's original shareholders are eligible for immediate resale in the public
market pursuant to Rule 144(k), described below. An aggregate of 3,176,175
shares issued by the Company to the security holders of Original PCTH and others
in connection with the Verazzana merger will become eligible for sale under Rule
144 on February 17, 1997. See "Acquisition History." Another 295,300 shares of
Restricted Shares issued in July 1995 in connection with the Company's first
Regulation S offering, will become eligible for sale under Rule 144 in July
1997.
An aggregate of 587,083 shares of the Restricted Shares issued in connection
with the Company's acquisitions of Ceramic Devices, Seismic and Morel and 37,500
shares issuable upon the exercise of a warrant held by Robert L. Smith, a
director of the Company, are subject to certain registration rights which may
subsequently permit such shares to be registered under the Securities Act. In
the absence of such registration, such shares would become eligible for sale
under Rule 144 as follows: 133,333 shares on April 27, 1997; 128,750 on November
30, 1997; 325,000 on December 1, 1997; and 37,500 on a date two years after
exercise of Mr. Smith's warrant. All of the holders of these registration rights
have waived their right to participate in this Offering. However, if such
registration rights are exercised subsequently, those shares would become
eligible for resale upon the effectiveness of a future registration statement
covering such shares. Another 325,000 shares of the Restricted Shares which were
issued in the Company's acquisition of Morel, but which are not subject to
registration rights, will become eligible for sale under Rule 144 on December 1,
1997.
In general, under Rule 144, as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of the Company's Common Stock (approximately 97,283 shares immediately after
this Offering) or (ii) the average weekly trading volume of the Company's Common
Stock during the four calendar weeks immediately preceding the date on which
notice of the sale is filed with the
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Securities and Exchange Commission. Sales pursuant to Rule 144 also are subject
to certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person who is not deemed to have
been an affiliate of the Company at any time during the three months immediately
preceding the sale and whose Restricted Shares have been fully paid for three
years since the later of the date on which they were acquired from the Company
or from an affiliate of the Company may sell such Restricted Shares under Rule
144(k) without regard to the limitations and requirements described above.
Shortly after this Offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock reserved for
issuance under the Company's 1995 Stock Incentive Plan and Independent Director
Stock Plan, and under warrants issued to Mr. Wright, Mr. Gerde and an employee
of Pacific Coast in connection with their employment. Based on the number of
shares reserved for issuance under such stock plans, warrants and options, the
registration statement would cover approximately 1,260,000 shares. Such
registration statement will automatically become effective upon filing. Of the
shares held by officers issuable under such stock plans and warrants, 270,283
shares are subject to a six-month lock-up period following the date of this
Prospectus, and 845,000 shares of Common Stock issuable upon exercise of an
option which the Company has agreed to issue under the Plan to Mr. Wright upon
the effective date of this Prospectus are subject to a contractual restriction
on sale, expiring one year after the date of this Prospectus. See "Description
of Securities -- Stock Options" and "Management -- Benefit Plans."
Prior to this Offering, there has been only a limited public market for the
Common Stock and no public market for the Warrants. No prediction can be made of
the effect, if any, that future market sales of shares that are subject to Rule
144 or that were sold pursuant to Regulation S, or the availability of such
shares for sale, will have on the market price of the Common Stock or the
Warrants prevailing from time to time after this Offering. The Company is unable
to estimate the number of such shares that may be sold in the public market,
because such amount will depend on the trading volume in, and the market price
for, the Common Stock, the Warrants and other factors. Nevertheless, sales of
substantial amounts of such shares in the public market, or the perception that
such sales could occur, following this Offering could adversely affect the
prevailing market price of the Common Stock and the Warrants.
52
<PAGE>
UNDERWRITING
The Underwriters named below, acting through Paulson Investment Company,
Inc. and Cohig & Associates, Inc., as Representatives, have agreed, severally
and not jointly, subject to the terms and conditions contained in an
Underwriting Agreement dated the date hereof, to purchase the Units offered
hereby from the Company in the amounts set forth below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF UNITS
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Paulson Investment Company, Inc. ............................................
Cohig & Associates, Inc. ....................................................
Total.................................................................... 2,250,000
---------------
---------------
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the Units offered hereby, if any are purchased. The Company has
been advised by the Representatives that the Underwriters propose to offer the
Units to the public initially at the offering price set forth on the cover page
of this Prospectus, and to selected dealers, including Underwriters, at that
price less a concession in an amount to be determined by the Representatives.
After the initial public offering of the Units, the public offering price and
other offering terms may vary.
The Underwriting Agreement provides that the Underwriters will purchase the
Units (including the Units subject to the Overallotment Option) offered hereby
for $ per Unit, representing a discount of 8.75% from the Unit Offering
Price.
The Company has granted the Underwriters an Overallotment Option,
exercisable during the 45-day period after the date of this Prospectus, to
purchase up to a maximum of an additional 337,500 Units on the same terms as the
Units being purchased by the Underwriters from the Company. The Underwriters may
exercise the Overallotment Option only to cover overallotments made in
connection with this Offering.
The Company has agreed to sell and issue to the Representatives warrants
(the "Representatives' Warrants") to purchase up to 225,000 Units. The
Representatives' Warrants are exercisable for a period of four years beginning
one year from the date of this Prospectus. The Representatives' Warrants are
exercisable at a price of $ per Unit (120% of the Unit Offering Price). The
Representatives' Warrants are nontransferable except to one of the Underwriters
or to any individual who is either a partner or an officer of an Underwriter, or
by will or the laws of descent and distribution. The holders of the
Representatives' Warrants will have, in that capacity, no voting, dividend, or
other shareholder rights. Any profit realized by the Representatives on the sale
of the securities issuable upon exercise of the Representatives' Warrants may be
deemed to be additional underwriting compensation.
53
<PAGE>
The Representatives will also receive at closing a nonaccountable expense
allowance equal to three percent of the aggregate Unit Offering Price of the
Units sold in this Offering, reduced by $35,000 previously paid by the Company
as an advance against this allowance.
The securities underlying the Representatives' Warrants are being registered
on the Registration Statement of which this Prospectus is a part. The Company
has agreed to maintain an effective registration statement at its expense to
permit the sale of the securities underlying the Representatives' Warrants at
any time during the period in which the Representatives' Warrants are
exercisable.
By virtue of holding the Representatives' Warrants, the Representatives have
the opportunity to profit, at a nominal cost, from an increase in the market
price of the Company's securities. Furthermore, the exercise of the
Representatives' Warrants could dilute the interests of the holders of Common
Stock and the existence of the Representatives' Warrants may make it more
difficult for the Company to raise additional equity capital. Although the
Company will obtain additional equity capital upon exercise of the
Representatives' Warrants, it is likely that the Company could then raise
additional capital on more favorable terms than those of the Representatives'
Warrants.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act and to contribute in
certain events to any liabilities incurred by the Underwriters in connection
with the sale of the Units. The Company and its executive officers and directors
and certain other holders have agreed with the Representatives that, without its
written consent, neither the Company nor such persons will sell shares of Common
Stock for a period of six months from the date hereof.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be passed
upon for the Company by Lionel Sawyer & Collins of Reno, Nevada. Certain legal
matters related to this Offering will be passed upon for the Company by Stoel
Rives LLP of Seattle, Washington. Certain legal matters related to this Offering
will be passed upon for the Underwriters by Weiss, Jensen, Ellis & Howard of
Portland, Oregon.
EXPERTS
The consolidated financial statements of the Company as of May 31, 1996 and
1995, and for the years then ended, have been audited by Moss Adams LLP,
independent public accountants. The consolidated financial statements as of May
31, 1996 and 1995 appear in this Prospectus and the Registration Statement. The
auditor's reports with respect to the consolidated financial statements of the
Company as of May 31, 1996 and 1995 and for the years then ended are included in
reliance upon the authority of said firm as experts in auditing and accounting
in giving said reports.
The financial statements of Morel included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such reports given upon the authority of said firm
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form SB-2 (the
"Registration Statement") under the Securities Act with respect to the
securities offered hereby. This Prospectus, filed as part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain portions of which have
been omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement and to the
54
<PAGE>
exhibits and schedules thereto, which may be inspected at the Commission's
offices without charge, or copies of which may be obtained from the Commission
upon payment of the prescribed fees. Statements made in this Prospectus as to
the contents of any contract, agreement, or document referred to are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, and each such statement is qualified in its entirety by such
reference.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports and other information with the
Commission via electronic filing. Reports, proxy statements, and other
information filed by the Company with the Commission pursuant to the information
requirements of the Exchange Act may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza
Building, 450 Fifth Street, N.W., Washington, D. C. 20549 and the regional
offices of the Commission located at 75 Park Place, 14th Floor, New York, New
York 10007 and 500 West Madison Street, 14th Floor, Chicago, Illinois 60661.
Copies of such material may be obtained at prescribed rates from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza Building, 450
Fifth Street, N.W., Washington, D.C. 20549 or from the Commission's Web site at
"http://www.sec.gov".
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PCT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditor's Report.............................................................................. F-2
Consolidated Balance Sheet as of May 31, 1996 and 1995.................................................... F-3
Consolidated Statement of Operations for the years ended May 31, 1996 and 1995............................ F-4
Consolidated Statement of Changes in Stockholders' Equity for the years ended May 31, 1996 and 1995....... F-5
Consolidated Statement of Cash Flows for the years ended May 31, 1996 and 1995............................ F-6
Notes to Consolidated Financial Statements................................................................ F-8
PCT HOLDINGS, INC. AND SUBSIDIARIES PRO FORMA COMBINED FINANCIAL STATEMENT
Pro Forma Combined Financial Statement -- Notes and Management's Statement................................ F-22
Pro Forma Combined Statement of Operations for the year ended May 31, 1996................................ F-23
MOREL INDUSTRIES, INC. FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants........................................................ F-24
Balance Sheets as of June 30, 1995 and 1994............................................................... F-25
Statements of Income for the years ended June 30, 1995 and 1994........................................... F-26
Statements of Stockholders' Equity for the years ended June 30, 1995 and 1994............................. F-27
Statements of Cash Flow for the years ended June 30, 1995 and 1994........................................ F-28
Summary of Accounting Policies and Notes to Financial Statements.......................................... F-29
MOREL INDUSTRIES, INC. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheet as of September 30, 1995.................................................................... F-34
Statements of Operations for the three months ended September 30, 1995 and 1994........................... F-35
Statements of Cash Flow for the three months ended September 30, 1995 and 1994............................ F-36
Notes to Interim Financial Statements..................................................................... F-37
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
PCT Holdings, Inc. and Subsidiaries
The Company's ability to meet certain of its debt obligations is in doubt,
as is its ability to continue as a going concern. Payment of certain of these
obligations is expected from proceeds of the Company's Registration Statement
No. 333-5011 for the proposed sale of 2,250,000 Units, consisting of one share
of common stock and one warrant to purchase a share of common stock. Upon
execution of the underwriting agreement referred to in Note 15 to the financial
statements, our opinion will read as follows:
"We have audited the accompanying consolidated balance sheet of PCT
Holdings, Inc. and Subsidiaries (the Company) as of May 31, 1996 and 1995, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PCT
Holdings, Inc. and Subsidiaries as of May 31, 1996 and 1995, and the results of
their operations and cash flows for the years then ended in conformity with
generally accepted accounting principles."
MOSS ADAMS LLP
Everett, Washington
June 15, 1996
F-2
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
MAY 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash........................................................................... $ 725,000 $ 1,079,000
Restricted cash................................................................ 1,000,000
Stock subscriptions receivable................................................. 1,030,000
Accounts receivable............................................................ 3,359,000 1,076,000
Inventory...................................................................... 6,699,000 4,375,000
Current portion of note receivable from related party.......................... 52,000 44,000
Prepaid expenses and other..................................................... 144,000 40,000
-------------- --------------
Total current assets......................................................... 13,009,000 6,614,000
-------------- --------------
PROPERTY AND EQUIPMENT........................................................... 10,656,000 3,684,000
-------------- --------------
OTHER ASSETS
Notes receivable from related party, net of current portion.................... 183,000 235,000
Costs in excess of net book value of acquired subsidiaries..................... 1,938,000 463,000
Patents........................................................................ 1,387,000 478,000
Non-compete agreement.......................................................... 79,000 100,000
Other.......................................................................... 397,000 56,000
-------------- --------------
Total other assets........................................................... 3,984,000 1,332,000
-------------- --------------
TOTAL ASSETS............................................................... $ 27,649,000 $ 11,630,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable.................................................................. $ 2,438,000 $ 600,000
Bank line of credit............................................................ 1,224,000
Accounts payable............................................................... 3,142,000 1,527,000
Accrued liabilities............................................................ 840,000 518,000
Current portion of long-term debt.............................................. 4,290,000 2,508,000
Current portion of capital lease obligations................................... 53,000 51,000
Current portion of non-compete agreement payable............................... 70,000 35,000
-------------- --------------
Total current liabilities.................................................... 12,057,000 5,239,000
LONG-TERM LIABILITIES
Long-term debt, net of current portion......................................... 1,809,000 628,000
Capital lease obligations, net of current portion.............................. 152,000 115,000
Non-compete agreement payable, net of current portion.......................... 30,000 65,000
Deferred income tax............................................................ 592,000
Deferred rent and other........................................................ 470,000 129,000
-------------- --------------
Total liabilities............................................................ 15,110,000 6,176,000
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock................................................................... 19,102,000 11,018,000
Accumulated deficit............................................................ (6,563,000) (5,564,000)
-------------- --------------
Total stockholders' equity................................................... 12,539,000 5,454,000
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................. $ 27,649,000 $ 11,630,000
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
NET SALES........................................................................ $ 20,725,000 $ 11,035,000
COST OF SALES.................................................................... 16,439,000 9,092,000
-------------- --------------
GROSS PROFIT..................................................................... 4,286,000 1,943,000
OPERATING EXPENSES............................................................... 4,765,000 2,789,000
-------------- --------------
LOSS FROM OPERATIONS............................................................. (479,000) (846,000)
-------------- --------------
OTHER INCOME AND EXPENSE
Interest income................................................................ 37,000 74,000
Interest expense............................................................... (535,000) (356,000)
Merger, acquisition and capital costs.......................................... (104,000) (538,000)
Other.......................................................................... 15,000 14,000
-------------- --------------
(587,000) (806,000)
-------------- --------------
LOSS BEFORE FEDERAL INCOME TAX................................................... (1,066,000) (1,652,000)
FEDERAL INCOME TAX BENEFIT....................................................... 67,000 241,000
-------------- --------------
NET LOSS......................................................................... $ (999,000) $ (1,411,000)
-------------- --------------
-------------- --------------
LOSS PER SHARE OF COMMON STOCK................................................... $ (0.16) $ (0.41)
-------------- --------------
WEIGHTED AVERAGE SHARES OUTSTANDING DURING THE PERIOD............................ 6,209,000 3,469,000
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------- ACCUMULATED
SHARES AMOUNT DEFICIT
----------- -------------- --------------
<S> <C> <C> <C>
BALANCE, May 31, 1994............................................... 2,764,952 $ 5,379,000 $ (4,153,000)
Common stock issued............................................... 2,137,680 4,682,000
Stock options and warrants exercised.............................. 160,043 317,000
Acquisition of Ceramic Devices, Inc............................... 133,333 640,000
Net loss.......................................................... (1,411,000)
----------- -------------- --------------
BALANCE, May 31, 1995............................................... 5,196,008 11,018,000 (5,564,000)
Common stock issued............................................... 1,503,551 4,932,000
Stock warrant issued for patents.................................. 57,000
Acquisition of Seismic Safety Products, Inc....................... 128,750 483,000
Acquisition of Morel Industries, Inc.............................. 650,000 2,600,000
Warrants issued for bridge financing.............................. 12,000
Net loss.......................................................... (999,000)
----------- -------------- --------------
BALANCE, May 31, 1996............................................... 7,478,309 $ 19,102,000 $ (6,563,000)
----------- -------------- --------------
----------- -------------- --------------
The Company has authorized 100,000,000 shares of common stock.
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers................................................. $ 19,730,000 $ 11,152,000
Cash paid to suppliers and employees......................................... (21,801,000) (11,310,000)
Interest paid................................................................ (658,000) (333,000)
Interest received............................................................ 37,000 74,000
--------------- ---------------
Net cash from operating activities......................................... (2,692,000) (417,000)
--------------- ---------------
CASH FLOW FROM INVESTING ACTIVITIES
Transfer of cash to restricted cash.......................................... (1,000,000)
Purchase of property and equipment........................................... (754,000) (605,000)
Proceeds from sale of property and equipment................................. 9,000
Purchase of patents.......................................................... (400,000) (461,000)
Payments received on note receivable from related party...................... 44,000 20,000
Increase in other assets, net................................................ (79,000)
--------------- ---------------
Net cash from investing activities......................................... (2,180,000) (1,046,000)
--------------- ---------------
CASH FLOW FROM FINANCING ACTIVITIES
Net change in bank line of credit............................................ 308,000 (1,387,000)
Proceeds from long-term debt................................................. 767,000 2,229,000
Payments on long-term debt and capital lease obligations..................... (1,457,000) (1,299,000)
Proceeds from notes payable.................................................. 1,338,000 50,000
Payments on notes payable to stockholders.................................... (1,660,000)
Sale of common stock......................................................... 3,878,000 4,582,000
Sale of warrants............................................................. 12,000
Increase in stock issue costs................................................ (328,000)
--------------- ---------------
Net cash from financing activities......................................... 4,518,000 2,515,000
--------------- ---------------
NET CHANGE IN CASH............................................................. (354,000) 1,052,000
CASH, beginning of year........................................................ 1,079,000 27,000
--------------- ---------------
CASH, end of year.............................................................. $ 725,000 $ 1,079,000
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH FROM OPERATING ACTIVITIES
Net loss........................................................................ $ (999,000) $ (1,411,000)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation and amortization................................................. 871,000 408,000
Loss on sale of property and equipment........................................ 8,000
Merger, acquisition and capital costs paid in common stock.................... 337,000
Director compensation paid in common stock.................................... 24,000
Federal income tax benefit.................................................... (67,000) (241,000)
Changes in operating assets and liabilities
Accounts receivable......................................................... (1,018,000) 102,000
Inventory................................................................... (1,303,000) (215,000)
Prepaid expenses and other.................................................. 8,000 71,000
Accounts payable and accrued liabilities.................................... (216,000) 532,000
-------------- --------------
NET CASH FROM OPERATING ACTIVITIES................................................ $ (2,692,000) $ (417,000)
-------------- --------------
-------------- --------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of Subsidiaries (Note 1):
Fair value of assets acquired, other than cash................................ $ 10,286,000 $ 1,589,000
Liabilities assumed........................................................... (7,203,000) (370,000)
Notes payable issued.......................................................... (600,000)
-------------- --------------
Common stock issued........................................................... $ 3,083,000 $ 619,000
-------------- --------------
-------------- --------------
Stock subscriptions receivable for issuance of common stock..................... $ 1,030,000
Seller financed purchase of property and equipment.............................. $ 389,000 $ 203,000
Equipment purchased through capital leases...................................... $ 150,000 $ 151,000
Seller financed purchase of patents............................................. $ 520,000
Patent acquired through issuance of warrant..................................... $ 57,000
Note payable reduction through issuance of stock................................ $ 100,000
Seller financed non-compete agreement payable................................... $ 100,000
Collateral recovery of building for note receivable............................. $ 673,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
NOTE 1 -- FORMATION AND ACQUISITIONS
During the year ended May 31, 1995, the original PCT Holdings, Inc., a
Washington corporation (Original PCTH), merged with PCT Merger Corporation, a
Washington corporation and wholly owned subsidiary of an inactive public
company, Verazzana Ventures, Ltd. (Verazzana). Subsequent to the merger
Verazzana changed its name to PCT Holdings, Inc., a Nevada corporation (the
Company) and PCT Merger Corporation changed its name to PCT Holdings, Inc., a
Washington corporation (PCTH Washington). As consideration for the merger,
2,963,675 shares of the Company's authorized, but previously unissued, common
stock were issued to the shareholders of Original PCTH. A finders and consulting
fee related to the merger of $50,000 cash and 212,500 shares of the Company's
common stock was paid to a consultant. Included in merger, acquisition and
capital costs during the year ended May 31, 1995 is $155,000 related to the cash
payment and the fair market value of the stock issued. The merger was accounted
for as if a pooling of interests. These consolidated financial statements report
results of operations as if the business combination occurred as of the
beginning of the year ended May 31, 1995.
Effective for accounting purposes as of February 28, 1995, the Company
acquired and took control of Ceramic Devices, Inc., a California corporation.
The acquisition was accomplished through the merger of the California
corporation into Ceramic Devices, Inc., a newly formed Washington corporation
and wholly owned subsidiary of the Company (Ceramic Devices), that closed in
April 1995. As consideration for the merger, the Company paid the California
corporation's shareholders $1.24 million, consisting of 133,333 shares of the
Company's common stock valued at $4.80 per share, or $640,000, and notes payable
totaling $600,000 (Note 8). The merger resulted in costs in excess of net book
value of Ceramic Devices of $471,000.
In November 1995, Seismic Safety Products, Inc. (Seismic), a newly formed
Washington corporation wholly owned by PCTH Washington, acquired all of the
assets of Seismic Safety Products, Inc., a Florida corporation. The asset
purchase price consisted of $70,000 in cash and 128,750 shares of the Company's
common stock valued at $3.75 per share, or $483,000, for a total of $553,000. In
connection with the transaction, Seismic acquired from related parties of the
Florida corporation certain patents for a total consideration of $520,000 (Note
9). Costs in excess of net book value of $535,000 were recorded as a result of
this acquisition.
During the year ended May 31, 1996, the Company acquired Morel Industries,
Inc. (Morel) through the merger of Morel Acquisition Corporation, a newly formed
Washington corporation wholly owned by the Company, into Morel. The transaction
was effective for accounting purposes as of November 30, 1995 and the Company
issued 650,000 shares of common stock, after certain post-closing adjustments,
valued at $4.00 per share for a total purchase price of approximately $2.6
million. Costs in excess of net book value of $939,000 were recorded as a result
of this merger.
The Seismic acquisition and the Ceramic Devices and Morel mergers described
above were accounted for by the purchase method. Accordingly, assets and
liabilities have been reflected at fair value. The operating results of these
acquired companies are included in the consolidated statements of operations
from their respective acquisition dates. Any costs in excess of net book value
as a result of these transactions are being amortized over 15 years.
In May 1996, PCTH Washington transferred its sole assets, the stock of
Pacific Coast Technologies, Inc. (Pacific Coast), Cashmere Manufacturing Co.,
Inc. (Cashmere) and Seismic to the Company, and was dissolved. There was no
effect on these consolidated financial statements and there were no federal
income tax consequences as a result of the dissolution.
F-8
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 1 -- FORMATION AND ACQUISITIONS (CONTINUED)
The following summary, prepared on a pro forma basis, combines the
consolidated condensed results of operations as if Ceramic Devices, Morel and
Seismic had been acquired as of the beginning of the year ended May 31, 1995.
There are no material adjustments which impact the summary.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------
1996 1995
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Net sales.............................................................. $ 25,217,000 $ 22,779,000
Loss from operations................................................... $ (961,000) $ (1,086,000)
Net loss............................................................... $ (1,704,000) $ (1,480,000)
Loss per share of common stock......................................... $ (0.27) $ (0.43)
Weighted average shares outstanding during the period.................. 6,209,000 4,119,000
</TABLE>
The pro forma results are not necessarily indicative of the actual results
of operations that would have occurred had the transactions been consummated as
indicated nor are they intended to indicate results that may occur in the
future.
NOTE 2 -- OPERATIONS
The Company is located in Wenatchee, Washington. Its fiscal year end is May
31.
The Company operates through five wholly owned subsidiaries. Two of these
businesses are engaged in the production of electronic devices, with Pacific
Coast producing a variety of electronics packages and connectors shielded from
their environment by the Company's proprietary ceramic seals, and Ceramic
Devices producing devices designed to filter out electromagnetic interference
detrimental to other electronic devices. Seismic designs, manufactures and sells
automatic natural gas shut-off valves for use in earthquake sensitive
environments. Cashmere and Morel manufacture machined or cast metal products for
many applications, including products that are incorporated into or
complementary with the products of other subsidiaries of the Company.
The Company's customers are located throughout the United States and Europe.
Included in accounts receivable at May 31, 1996 are $250,000 and $569,000 which
are due from The Boeing Company and PACCAR, respectively. Included in accounts
receivable at May 31, 1995 is $134,000, which is due from The Boeing Company.
Sales to The Boeing Company were approximately $5.9 million and $5.3 million in
the years ended May 31, 1996 and 1995, respectively. Sales to PACCAR were
approximately $3.1 million in the year ended May 31, 1996.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
material intercompany transactions and balances have been eliminated.
(b) INVENTORY Inventory is generally stated at the lower of cost
(first-in, first-out method) or market.
(c) DEPRECIATION Property and equipment is depreciated for financial
reporting purposes using the straight-line method over the estimated useful
lives of the assets. For federal income tax purposes, accelerated methods are
used over statutory lives.
(d) PATENTS Purchased patents are recorded at cost. Developed patents are
recorded at the value of related compensation awarded. Patents are amortized on
the straight-line basis over the estimated useful lives of the patents of 11 to
17 years.
F-9
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) EXCESS PURCHASE PRICE Costs in excess of the net book value of
acquired subsidiaries is amortized over 15 years. The Company assesses the
recoverability of this intangible asset on a regular basis by determining
whether the amortization of the balance over its remaining life can be recovered
through projected undiscounted future cash flows.
(f) STOCK ISSUANCE COSTS During 1996, the Company incurred $318,000 of
costs related to the issuance of common stock in a proposed public offering.
These costs were deferred as of May 31, 1996 and are included in other assets.
These costs will be charged against the proceeds of the stock offering.
(g) FEDERAL INCOME TAX Deferred tax assets and liabilities are recognized
for the expected tax consequences of temporary differences between the tax bases
of assets and liabilities and their reported amounts. The Company and its
subsidiaries file a consolidated federal income tax return.
(h) PER SHARE INFORMATION Loss per share of common stock is based upon the
weighted average number of shares of common stock outstanding during the period,
retroactively adjusted for stock splits. The weighted average number of shares
outstanding was 6,209,000 and 3,469,000 during the years ended May 31, 1996 and
1995, respectively. Stock options which have been granted are not included in
the weighted average number of shares outstanding as their effect would be
anti-dilutive.
(i) FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value amounts
have been determined by the Company, using available market information and
appropriate valuation methodologies. The carrying amounts of cash, accounts
receivable, other noncurrent assets, accounts payable, accrued expenses and
notes payable are a reasonable estimate of their fair value. The carrying value
of long-term debt differs from the estimated fair value as follows:
<TABLE>
<CAPTION>
MAY 31, 1996 MAY 31, 1995
---------------------------- ----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Long-term debt............................. $ 6,099,000 $ 5,999,000 $ 3,136,000 $ 2,946,000
</TABLE>
The estimated fair values may not be representative of actual values of the
financial instruments that could have been realized as of the year end or that
will be realized in the future.
(j) USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
(k) REVENUE RECOGNITION Revenue is recognized when products are shipped to
customers.
(l) RECLASSIFICATIONS Certain 1995 amounts have been reclassified to
conform with the 1996 presentation.
F-10
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 4 -- INVENTORY
<TABLE>
<CAPTION>
MAY 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Raw materials............................................................. $ 1,900,000 $ 1,479,000
Work in progress.......................................................... 2,134,000 1,143,000
Purchased and manufactured
components and finished goods............................................ 2,665,000 1,753,000
------------- -------------
$ 6,699,000 $ 4,375,000
------------- -------------
------------- -------------
</TABLE>
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment, including assets under capital lease arrangement,
are as follows:
<TABLE>
<CAPTION>
ESTIMATED MAY 31,
USEFUL LIFE -----------------------------
IN YEARS 1996 1995
----------- -------------- -------------
<S> <C> <C> <C>
Land........................................................ $ 470,000 $ 230,000
Buildings................................................... 20-39 3,915,000 446,000
Machinery and equipment..................................... 5-20 7,376,000 3,981,000
Furniture and fixtures...................................... 3-15 854,000 478,000
Leasehold improvements...................................... 7-31 273,000 119,000
-------------- -------------
12,888,000 5,254,000
Less accumulated depreciation and amortization.............. 2,232,000 1,570,000
-------------- -------------
$ 10,656,000 $ 3,684,000
-------------- -------------
-------------- -------------
</TABLE>
Machinery and equipment and furniture and fixtures at May 31, 1996 and 1995,
includes $226,000 and $230,000, respectively, of assets acquired under capital
lease. Accumulated amortization related to leased assets was $44,000 and $34,000
for the years ended May 31, 1996 and 1995, respectively.
The Company recognized depreciation of property and equipment of $670,000
and $344,000 during the years ended May 31, 1996 and 1995, respectively.
Amortization of intangible assets was recognized in the amount of $201,000 and
$64,000, of which capital lease amortization was $26,000 and $27,000,
respectively, for the years ended May 31, 1996 and 1995, respectively.
In October 1995, the Company began to utilize a building located in
Cashmere, Washington which had previously been considered real estate held for
resale. The asset was reclassified to an operating asset during the year ended
May 31, 1996, and the May 31, 1995 balance sheet was reclassified to conform to
the 1996 presentation.
NOTE 6 -- NOTE RECEIVABLE FROM RELATED PARTY
In May 1995, the Company reacquired a portion of land and buildings
originally sold to two stockholders during the year ended May 31, 1994. At the
time of the repurchase, a note receivable which was part of the original sale
transaction and due from one stockholder was reduced to $279,000, and the
remainder of that note was canceled in exchange for the land and buildings based
on a negotiated fair market value of $673,000. The stockholder agreed to assume
the remaining note payable collateralized by the land and building. The terms of
the note receivable mirror the terms of the note payable, with interest at a
designee's prime rate (8.25% at May 31, 1996) plus 1%, due in installments of
$5,900 to the maturity date of the note payable in March 1999 (Note 9).
F-11
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 7 -- BANK LINE OF CREDIT
The Company is negotiating to renew a bank line of credit arrangement which
expired May 26, 1996. The interest on the outstanding balance owing at May 31,
1996 is being paid monthly at the bank's prime rate (8.25% at May 31, 1996) plus
2%. The bank has issued a standby letter of credit which provides collateral for
borrowings from Chelan County, State of Washington (Note 9). The Company has
established a $1.0 million certificate of deposit at the bank as security for
the letter of credit which expires September 18, 1996. The security for
obligations under the expired loan agreement is all of the assets of the
Company, Pacific Coast, Cashmere and Ceramic Devices.
NOTE 8 -- NOTES PAYABLE
<TABLE>
<CAPTION>
MAY 31,
--------------------------
1996 1995
------------- -----------
<S> <C> <C>
Former stockholders of Ceramic Devices
Notes payable bearing interest at 10% with principal and interest all due August
1996. Collateralized by the assets of Ceramic Devices............................... $ 600,000 $ 600,000
UTCO Associates, Ltd.
Note payable, net of original issue discount of $12,000, in monthly interest only
payments at 18% through September 1996 at which time the principal balance is due.
The note provides, with certain contingencies, renewal options through December
1996. Collateralized by all of the personal property assets of the Company, Pacific
Coast, Cashmere, Morel and Seismic.................................................. 1,188,000
Individual
Note payable in monthly installments of $20,000 plus interest at 15% through
September 1996. Collateralized by the real property of Morel, subordinate to the
industrial revenue bond debt (Note 9), and all personal property of Morel, of which
accounts receivable and inventory are subordinate to the security interests of UTCO
Associates, Ltd..................................................................... 500,000
Related party
Note payable bearing interest at 18% with principal and interest all due September
1996 and unsecured.................................................................. 150,000
------------- -----------
$ 2,438,000 $ 600,000
------------- -----------
------------- -----------
</TABLE>
In connection with the UTCO and related party loans above, the Company
issued the lenders warrants to purchase 337,500 shares of common stock at an
exercise price of $4.80 per share. The warrants expire in five years and were
independently valued at approximately $12,000. This amount represents original
issue discount which is expected to be charged to operations in the first
quarter of fiscal 1997.
F-12
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MAY 31, 1996 AND 1995
NOTE 9 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
MAY 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Chelan County, State of Washington
Principal amount is payable in June 1997. Holder may demand payment at any time.
Interest is payable quarterly at 3%. Collateralized by a $2,000,000 million letter
of credit and personal guarantees of certain stockholders (Note 7)................ $ 2,000,000 $ 2,000,000
Bank
Industrial revenue bond payable in monthly installments of $19,200, including
interest at 8.12% through November 2009. Collateralized by land, building and
equipment of Morel, personal guarantees of certain stockholders and the guarantee
of the Company.................................................................... 1,367,000
City of Entiat
Note payable in monthly installments of $7,300, including interest at 8% through
May 2001 at which time the balance of $200,100 will be due. Collateralized by
accounts receivable, inventory, equipment and real property of Morel and the
guarantee of the Company. Subordinated to the bank industrial revenue bond
debt.............................................................................. 600,000
Individual
Note payable in monthly installments of $8,300, including interest at 10.25% until
February 1998 at which time the balance of $179,000 will be due. Collateralized by
patents and accounts receivable of Pacific Coast.................................. 303,000 368,000
Bank
Note payable in monthly installments of $5,900, including interest at a designee's
prime rate plus 1% through March 1999, at which time the balance of $82,000 is
due. Collateralized by real property of Cashmere and personal guarantee of a
certain stockholder (Note 6)...................................................... 235,000 279,000
Bank
Note payable in monthly installments of $7,800, plus interest at the bank's prime
rate plus 1.75% through September 1998. Cross collateralized and cross-defaulted
with bank loan agreement (Note 7)................................................. 219,000
Corporation
Note payable in quarterly installments of $12,200, including interest at 8%
through March 2001, unsecured..................................................... 200,000
Various
Notes payable in total monthly installments of $15,000, including interest at 9%
to 14%. Collateralized by equipment of the Company................................ 621,000 489,000
Title Company
Note payable in quarterly interest only payments at 12% through February 1997 at
which time the balance of $177,000 will be due. Collateralized by the real and
personal property of Morel. Subordinated to certain other debt.................... 177,000
</TABLE>
F-13
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 9 -- LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
MAY 31,
----------------------------
1996 1995
------------- -------------
Quest for Economic Development
Note payable in monthly installments of $1,700 including interest at 10.5% through
April 2000 at which time the balance of $58,000 will be due. Collateralized by the
personal residences and guarantees of certain stockholders........................ 92,000
<S> <C> <C>
Former stockholders of Seismic (Florida corporation)
Notes payable due November 1996, unsecured........................................ 200,000
Former stockholder of Seismic (Florida corporation)
Note payable in monthly installments of $5,000 through October 1997, unsecured.... 85,000
------------- -------------
6,099,000 3,136,000
Less current portion................................................................ 4,290,000 2,508,000
------------- -------------
Long-term portion................................................................... $ 1,809,000 $ 628,000
------------- -------------
------------- -------------
</TABLE>
The industrial revenue bond agreements require, among other matters, that
the Company maintain minimum working capital, tangible net worth and debt to
tangible net worth ratios. In conjunction with the merger of Morel, the bank
restructured the covenants through the expiration of the agreements. The Company
was not in compliance with the covenants at May 31, 1996. The bank has provided
a waiver of the covenants through September 1, 1996 at which time the entire
balance due under the bond agreements is callable. The outstanding principal
balance has been classified as a current liability.
Long-term debt matures as follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31, AMOUNT
- ------------------------------------------------------------------------ -------------
<S> <C>
1997.................................................................... $ 4,290,000
1998.................................................................... 677,000
1999.................................................................... 346,000
2000.................................................................... 265,000
2001.................................................................... 153,000
Thereafter.............................................................. 368,000
-------------
$ 6,099,000
-------------
-------------
</TABLE>
NOTE 10 -- LEASING ARRANGEMENTS AND COMMITMENTS
(a) CAPITAL LEASE OBLIGATIONS -- The Company is obligated under several
capital lease arrangements to finance the acquisition of machinery and office
equipment. Assets under capital leases are capitalized using interest rates
appropriate at the inception of the lease.
F-14
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 10 -- LEASING ARRANGEMENTS AND COMMITMENTS (CONTINUED)
Minimum lease payments under the capital leases and the present value of the
minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31, AMOUNT
- --------------------------------------------------------------------------------- -----------
<S> <C>
1997............................................................................. $ 79,000
1998............................................................................. 64,000
1999............................................................................. 56,000
2000............................................................................. 45,000
2001............................................................................. 25,000
Thereafter....................................................................... 16,000
-----------
Total minimum lease payments..................................................... 285,000
Less: Amount representing interest............................................... 80,000
-----------
Present value of minimum lease payments.......................................... 205,000
Current portion.................................................................. 53,000
-----------
Long-term portion................................................................ $ 152,000
-----------
-----------
</TABLE>
(b) OPERATING LEASES -- The Company leases the manufacturing facilities in
which Pacific Coast, Cashmere, Ceramic Devices and Seismic are located through
November 2005 from the Port of Chelan County. Rent payments through September
2000 are based on a percentage of the base rent, resulting in a deferred rent
liability. Rental expense is recorded ratably over the term of the lease.
Beginning in October 1998, the base rent is subject to annual adjustments for
increases in the Consumer Price Index.
In February 1995, the Company agreed to cancel the existing lease on the
Cashmere facility with a shareholder upon completion of the new facilities to be
leased from the Port of Chelan County. A lease cancellation fee of $108,000 was
paid and charged to operations in the year ended May 31, 1995.
In April 1996, the Company moved the manufacturing facilities of Ceramic
Devices to Wenatchee. The Company remains obligated under two leases which
housed Ceramic Devices' manufacturing facilities in San Diego through April
1997. Monthly payments on the leases are $6,775. While the Company is attempting
to sublease the space, there is no assurance that the Company will be
successful. The Company has recorded a loss of $73,000 in the year ended May 31,
1996 for the remaining lease payments under the leases.
The Company has several vehicle and equipment leases with minimum monthly
lease payments in the aggregate of approximately $2,700. The lease terms range
from three to six years.
Total rental expense was $516,000 and $421,000 for the years ended May 31,
1996 and 1995, respectively.
F-15
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 10 -- LEASING ARRANGEMENTS AND COMMITMENTS (CONTINUED)
Minimum lease payments under these leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31, AMOUNT
- ------------------------------------------------------------------------ -------------
<S> <C>
1997.................................................................... $ 389,000
1998.................................................................... 349,000
1999.................................................................... 357,000
2000.................................................................... 331,000
2001.................................................................... 323,000
Thereafter.............................................................. 1,380,000
-------------
$ 3,129,000
-------------
-------------
</TABLE>
NOTE 11 -- FEDERAL INCOME TAX
The federal income tax benefit represents the expected utilization of net
operating loss (NOL) carryforwards generated subsequent to the Morel and
Cashmere mergers. Loss carryforwards generated by the Company prior to such
mergers may, subject to certain limitations, reduce tax liabilities on future
earnings, or in part, reduce remaining deferred tax liabilities by reduction of
the costs in excess of net book value of acquired assets in the Morel merger.
The benefits of $67,000 and $241,000 recognized in the years ended May 31, 1996
and 1995, respectively, resulted from recording net operating losses available
to offset deferred tax liabilities. The income tax benefit reflected in the
statement of operations is less than the statutory rate of 34% because of
certain nondeductible expenses and limitations on the utilization of net
operating losses.
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $8,829,000, the benefits of which expire in the tax
year 2001 through the tax year 2011. The net operating losses created by the
subsidiaries prior to their acquisition and the net operating losses created as
a consolidated group or groups subsequent to a qualifying tax free merger or
acquisition, have limitations related to the amount of usage by each subsidiary
or taxable consolidated group as described in the Internal Revenue Code. The
following approximate net operating losses are available on an individual
company basis, without taking into account the aforementioned expirations or
limitations: PCT Holdings, Inc. $126,000, Pacific Coast $5,584,000, Ceramic
Devices $342,000, Morel $1,979,000, Seismic $107,000, and Cashmere $691,000. If
the subsidiaries achieve profitable operations, the net operating loss
carryforwards available should reduce the federal income taxes due in future tax
years.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
MAY 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Deferred tax assets
Inventory................................................... $ 91,000 $ 185,000
Net operating loss carryforward............................. 3,002,000 2,130,000
Other....................................................... 183,000 55,000
Valuation allowances........................................ (2,429,000) (2,015,000)
-------------- --------------
847,000 355,000
Deferred tax liabilities
Depreciation................................................ 1,439,000 355,000
-------------- --------------
Net deferred tax liability.................................... $ 592,000 $ --
-------------- --------------
-------------- --------------
</TABLE>
F-16
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 11 -- FEDERAL INCOME TAX (CONTINUED)
SFAS No. 109 requires the Company to record a valuation allowance when it is
"more likely than not that some portion or all of the deferred tax assets will
not be realized." Management believes that some or all of the excess of NOL
carryforwards over temporary differences may be utilized in future periods.
However, due to the uncertainty of future federal taxable income, a valuation
allowance for the full amount of the net deferred tax asset has been recorded at
May 31, 1996 and 1995. Due to limitations on the availability of certain of the
NOL's referred to above, deferred tax liabilities associated with fixed assets
acquired in the Morel merger have not been fully offset.
NOTE 12 -- COMPENSATION PLANS AND COMMITMENTS
LONG-TERM INVESTMENT AND INCENTIVE PLAN. The Company has a long-term stock
investment and incentive plan (the Option Plan) under which directors, officers,
key employees and other key individuals may be awarded stock options, stock
appreciation rights, stock bonuses and cash bonuses. Under the plan, the option
exercise price is generally no less than fair market value at the date of grant.
Options expire no later than ten years from the grant date.
The Company has evaluated the effect of the recent accounting pronouncement,
SFAS No. 123 "Accounting for Stock-Based Compensation." The Company intends to
continue to apply APB Opinion No. 25 in accounting for stock-based compensation
for purposes of determining net income and to adopt the pro forma disclosure
requirements of SFAS No. 123 in the year ending May 31, 1997.
During the year ended May 31, 1996, the Company granted options to purchase
145,283 shares of the Company's common stock under the Option Plan, with a
weighted average exercise price of $5.08 per share. The exercise price of the
options granted equaled the fair market value of the Company's common stock on
the dates of grant. No options granted were exercised or canceled during the
year ended May 31, 1996. Of the options outstanding, 23,333 are currently
exercisable. The remaining 121,950 outstanding options vest, if at all, in
increments of 24,390 shares on each of June 1, 1996, 1997, 1998, 1999 and 2000.
All outstanding options will expire in November 2005. There were no options
under the Option Plan granted prior to the year ended May 31, 1996, and
therefore there were no outstanding options under the Option Plan at May 31,
1995.
In May 1996, the Company agreed to grant an officer an option to purchase
845,000 shares of the Company's common stock under the Option Plan, upon the
effective date of the public offering. The exercise price is contingent upon the
price of the public offering, but in no event will it be less than $3.75 per
share. The option will expire ten years after the date of grant.
INDEPENDENT DIRECTOR STOCK PLAN -- During the year ended May 31, 1996, the
Company adopted an Independent Director Stock Plan (the Director Plan) under
which non-employee directors (Independent Directors) of the Company are awarded
stock. The Director Plan provides for an initial award of 500 shares of the
Company's common stock to each of the Independent Directors serving upon
adoption of the Director Plan, and an initial award of 500 shares of the
Company's common stock to each new Independent Director. In addition, the
Director Plan provides for an annual award to each Independent Director
equivalent to the result of $5,000 divided by the fair market value of the
Company's common stock on the award date. The initial award is fully vested upon
the date of the award. The annual award vests in full on the first anniversary
following the date of the annual award if the Independent Director has attended
at least 75% of the regularly scheduled meetings of the Board during the year.
If an Independent Director does not attend 75% of the regularly scheduled
meetings of the board between the date of award of an annual award and the first
anniversary thereof, the
F-17
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 12 -- COMPENSATION PLANS AND COMMITMENTS (CONTINUED)
shares shall be forfeited. In November 1995, 9,000 shares of the Company's
common stock were issued to the Independent Directors. Included in the year
ended May 31, 1996 is $24,000 of compensation expense resulting from the shares
issued.
EMPLOYMENT AGREEMENTS. The Company has employment agreements with certain
officers and key employees. The agreements are generally for three year terms
and are cancelable for cause. Compensation under the agreements includes base
compensation plus incentives including up to 136,666 stock options, under the
Option Plan, with exercise prices ranging from $2.00 to $8.00 per share. The
incentives are awarded at the discretion of the Board of Directors on an annual
basis. The stock options are not considered granted until awarded by the Board
of Directors.
OTHER AGREEMENTS. The Company, from time to time, enters into other
agreements with employees.
Effective as of February 15, 1995, the Company converted warrants issued by
Original PCTH into warrants for the purchase of an aggregate of 125,000 shares
of the Company's common stock to certain management employees, exercisable at
$2.00 per share, the fair value on the date of grant. The warrants expire in
December 2004 and February 2005, respectively. The warrants were outstanding at
May 31, 1996 and 1995.
On January 31, 1995, the Company granted warrants for the purchase of up to
35,000 shares of common stock at $2.00 per share, the fair value on the date of
the agreement, to a certain employee. The exercise of the warrants was
contingent upon the issuance of a patent and Pacific Coast achieving certain
sales goals for calendar years 1996 and 1997. On July 18, 1995, the measurement
date, the patent was issued and 15,000 of the warrants vested and became
exercisable. The fair market value of the Company's common stock was $5.80 per
share at the date the warrants vested. The Company has capitalized patent costs
of $57,000 related to the excess of the fair market value of the common stock
over the exercise price of the warrants at the measurement date.
RETIREMENT PLAN. The Company maintains a 401(k) plan covering all eligible
employees who meet service requirements as provided in the plan. Company
contributions to the profit sharing plan are determined annually by the Board of
Directors. No contributions were made by the Company to the plan during the
years ended May 31, 1996 and 1995.
NOTE 13 -- COMMON STOCK
On July 18, 1994, the Original PCTH Board of Directors approved a
one-for-three reverse split of Original PCTH's common stock. This split resulted
in a decrease of 10,309,834 shares of common stock outstanding. On January 26,
1995, the Original PCTH Board of Directors approved a one-for-two reverse split
of Original PCTH's common stock. This split resulted in a decrease of 2,963,675
shares of common stock outstanding. All share and per share amounts have been
restated to retroactively reflect these stock splits.
During the year ended May 31, 1995, just prior to the Verazzana merger (Note
1) the Original PCTH Board of Directors gave all option and warrant holders the
choice of exercising options and warrants at one-half the original exercise
price, or exercising the options at no price and receiving one share of common
stock for every four shares issuable upon exercise of options or warrants held.
Options and warrants to purchase a total of 94,444 shares and 292,965 shares,
respectively, were exercised with resulting proceeds of $30,000 and $54,995,
respectively. The holders of the options and warrants received 48,610 and
111,433 shares of Original PCTH common stock, respectively. The fair
F-18
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 13 -- COMMON STOCK (CONTINUED)
market value of the common stock at the date of exercise was $1.98 per share.
Included in merger, acquisition and capital costs during the year ended May 31,
1995 is $231,888 related to the repricing of the options and warrants. No
options or warrants were exercised during the year ended May 31, 1996.
The Company entered into funding agreements with a Swiss company to find
suitable and qualified investors to purchase shares of the Company's common
stock in an offering exempt from registration under Regulation S of the
Securities Act of 1933, as amended (Regulation S). The Swiss company facilitated
the sale of 1,429,470 shares of the Company's common stock with net proceeds of
$4,908,000, or an average of $3.43 per share, during the year ended May 31, 1996
and 699,000 shares of the Company's common stock with net proceeds of
$3,596,000, or an average of $5.14 per share, during the year ended May 31,
1995. The Swiss company received a commission of $375,000 and a designee of the
Swiss company received 65,000 shares of the Company's common stock during the
year ended May 31, 1996. The Swiss company received $478,000 and designees of
the Swiss company received 1,000,000 shares of the Company's common stock during
the year ended May 31, 1995.
At May 31, 1996, the Company had stock subscriptions receivable of
$1,030,000 after deduction of commissions related to the sales of 390,000 shares
of common stock at $2.54 and $3.00 per share sold under a Regulation S offering
in May 1996. The Company received the stock subscription funds in June 1996.
The following table summarizes option and warrant activity:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------
MAY 31, 1996 MAY 31, 1995
-------------------------- -------------------------
OPTIONS/ PRICE PER OPTIONS/ PRICE PER
WARRANTS SHARE WARRANTS SHARE
--------- --------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.... 160,000 $ 2.00 387,409 $ 0.60 - 9.00
Options/warrants granted............ 482,783 4.80 - 5.125 160,000 2.00
Exercised........................... 387,409 0 - 1.98
Canceled............................
--------- --------------- --------- --------------
Outstanding at end of year.......... 642,783 $ 2.00 - 5.125 160,000 $ 2.00
</TABLE>
NOTE 14 -- CONTINGENCIES
In the normal course of business, the Company disposes of potentially
hazardous material which could result in claims related to environmental
cleanup. The Company has not been notified of any related claims. The Company is
subject to various other environmental and governmental regulations, however,
the extent of any non-compliance with those regulations is not ascertainable.
The Company is currently a party to various legal actions or claims arising
out of the normal course of business, none of which is expected to have a
material effect on the Company's financial position or results of operations.
F-19
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 15 -- SUBSEQUENT EVENTS
On May 31, 1996, the Company filed a Registration Statement under the
Securities Act of 1933, as amended. At the effective date of the Registration
Statement, the Company will enter into a firm commitment underwriting agreement
to sell units composed of one share of the Company's common stock and a warrant
to purchase one share of the Company's common stock. The Company intends to use
a portion of the proceeds to repay approximately $3,557,000 of notes payable and
long-term debt. Repayment of these amounts is dependent upon the completion of
the underwriting of these securities.
During June 1996, the Company reduced the principal amount of certain notes
payable, as described in Note 8, utilizing proceeds from the May 1996 Regulation
S offering, as described in Note 13.
NOTE 16 -- OTHER RELATED PARTY TRANSACTIONS
On October 9, 1995, a director of the Company loaned Morel $100,000 pursuant
to the terms of a promissory note for working capital until consummation of the
Morel merger. In December 1995, Morel paid the principal balance of the note,
plus $5,000 as consideration for making this loan.
In February 1995, a director of the Company from February 1995 to April 1996
and of Original PCTH and its successor from May 1994 to April 1996, exchanged
his rights in a consulting contract with Original PCTH for shares of common
stock of Original PCTH, which were subsequently converted to 17,361 shares of
the Company's common stock.
NOTE 17 -- BUSINESS SEGMENT INFORMATION
The Company operates through five subsidiaries and operates in two general
business segments, "Electronic and Safety Products" and "Machined and Cast Metal
Products." In the first segment, Pacific Coast and Ceramic Devices develop,
manufacture, market and sell electronic packaging, connectors, and filter
devices, and Seismic designs and sells natural gas shut-off valves. In the
second segment, Cashmere and Morel manufacture machined and cast metal products.
There is vertical integration at various levels and segment transfers are
accounted for on an arm's length pricing basis.
In computing income (loss) from continuing operations for each segment, all
costs have been allocated to segments except merger, acquisition and capital
costs.
F-20
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996 AND 1995
NOTE 17 -- BUSINESS SEGMENT INFORMATION (CONTINUED)
Identifiable assets are those assets used in the Company's operations in
each business segment, and the identifiable assets do not include advances or
loans between the business segments. There are no identifiable corporate assets,
and no allocations were necessary for assets used jointly by the business
segments.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Net sales
Electronic and safety products....................................... $ 8,533,000 $ 4,280,000
Machined and cast metal products..................................... 12,192,000 6,755,000
-------------- --------------
$ 20,725,000 $ 11,035,000
-------------- --------------
-------------- --------------
Loss from continuing operations
Electronic and safety products....................................... $ (376,000) $ (847,000)
Machined and cast metal products..................................... (586,000) (267,000)
-------------- --------------
Loss................................................................... (962,000) (1,114,000)
Corporate expenses, adjustments and other............................ (104,000) (538,000)
-------------- --------------
$ (1,066,000) $ (1,652,000)
-------------- --------------
-------------- --------------
Identifiable assets
Electronic and safety products....................................... $ 1,383,000 $ 1,287,000
Machined and cast metal products..................................... 9,273,000 2,397,000
-------------- --------------
$ 10,656,000 $ 3,684,000
-------------- --------------
-------------- --------------
Capital expenditures
Electronic and safety products....................................... $ 469,000 $ 876,000
Machined and cast metal products..................................... 1,424,000 209,000
-------------- --------------
$ 1,893,000 $ 1,085,000
-------------- --------------
-------------- --------------
Depreciation and amortization
Electronic and safety products....................................... $ 270,000 $ 209,000
Machined and cast metal products..................................... 426,000 162,000
-------------- --------------
$ 696,000 $ 371,000
-------------- --------------
-------------- --------------
</TABLE>
F-21
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED FINANCIAL STATEMENT
YEAR ENDED MAY 31, 1996
(UNAUDITED)
NOTES AND MANAGEMENT'S STATEMENT
The Company entered into an agreement and plan of merger with Morel, which
owns and operates an aluminum foundry located in Entiat, Washington,
approximately 15 miles north of the Company's operations in Wenatchee,
Washington. Under terms of the agreement, Morel and a wholly owned subsidiary of
the Company merged with Morel as the surviving entity, and the Morel
shareholders received 650,000 shares of common stock of the Company, after
certain post-closing adjustments. The merger was closed on December 1, 1995, and
was effective November 30, 1995 for accounting purposes under the purchase
method of accounting.
The pro forma combined unaudited statement of operations for the year ended
May 31, 1996 was prepared as if the purchase transaction had occurred at the
beginning of the year.
In the opinion of the Company's management, all adjustments necessary to
present fairly the pro forma combined unaudited statement of operations have
been made based upon the terms and conditions of the Morel agreement and plan of
merger. The pro forma combined unaudited statement of operations is not
necessarily indicative of what actual results would have been had the
transactions occurred at the beginning of the year nor does it purport to
indicate the results of future operations of the Company.
This pro forma combined unaudited statement of operations should be read in
conjunction with the audited financial statements and notes thereto of the
Company at and for the years ended May 31, 1996 and 1995 included elsewhere in
this Prospectus and the audited financial statements and notes thereto of Morel
at and for the years ended June 30, 1995 and 1994 included elsewhere in this
Prospectus.
F-22
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PCT HOLDINGS, MOREL INDUSTRIES, PRO FORMA PRO FORMA
INC. INC. ADJUSTMENTS COMBINED
-------------- -------------------- ----------- --------------
<S> <C> <C> <C> <C>
NET SALES.................................... $ 20,725,000 $ 4,492,000 $ 25,217,000
COST OF SALES................................ 16,439,000 3,853,000 20,292,000
-------------- ----------- --------------
GROSS PROFIT................................. 4,286,000 639,000 4,925,000
OPERATING EXPENSES........................... 4,765,000 1,118,000 $ 3,000 5,886,000
-------------- ----------- ----------- --------------
LOSS FROM OPERATIONS......................... (479,000) (479,000) (3,000) (961,000)
-------------- ----------- ----------- --------------
OTHER INCOME AND EXPENSE
Interest income............................ 37,000 2,000 39,000
Interest expense........................... (535,000) (171,000) (706,000)
Other...................................... (89,000) (54,000) (143,000)
-------------- ----------- --------------
(587,000) (223,000) (810,000)
-------------- ----------- ----------- --------------
LOSS BEFORE FEDERAL INCOME TAX............... (1,066,000) (702,000) (3,000) (1,771,000)
FEDERAL INCOME TAX........................... 67,000 67,000
-------------- ----------- ----------- --------------
NET LOSS FOR THE YEAR........................ $ (999,000) $ (702,000) $ (3,000) $ (1,704,000)
-------------- ----------- ----------- --------------
-------------- ----------- ----------- --------------
LOSS PER SHARE OF COMMON STOCK............... $ (0.16) $ (0.11) $ (0.27)
-------------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of the pro forma combined financial
statements.
F-23
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Morel Industries, Inc.
Entiat, Washington
We have audited the accompanying balance sheets of Morel Industries, Inc. as
of June 30, 1995 and 1994, and the related statements of income, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Morel Industries, Inc. at
June 30, 1995 and 1994, and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
/s/ BDO SEIDMAN, LLP
November 8, 1995, except as to
Notes 4 and 9 which date is December 1, 1995
Seattle, Washington
F-24
<PAGE>
MOREL INDUSTRIES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash.............................................................................. $ 152,000 $ 636,000
Accounts receivable (Note 3)...................................................... 1,395,000 1,416,000
Project receivable (Note 8)....................................................... 126,000 897,000
Inventories (Notes 1 and 3)....................................................... 936,000 821,000
Prepaid expenses and other........................................................ 113,000 29,000
------------- -------------
Total current assets.......................................................... 2,722,000 3,799,000
PROPERTY AND EQUIPMENT, less accumulated depreciation (Notes 2 and 3)............... 6,667,000 2,626,000
RECEIVABLE FROM STOCKHOLDERS........................................................ 111,000
DEFERRED BOND COSTS................................................................. 25,000
------------- -------------
$ 9,414,000 $ 6,536,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line-of-credit (Note 3)........................................................... $ 969,000 $ 890,000
Accounts payable.................................................................. 1,106,000 937,000
Accrued expenses.................................................................. 541,000 454,000
Current maturities of long-term debt (Note 4)..................................... 1,001,000 103,000
Pre-billed moving expenditures (Note 8)........................................... 768,000
------------- -------------
Total current liabilities..................................................... 3,617,000 3,152,000
DEFERRED SALES TAX.................................................................. 145,000
LONG-TERM DEBT, net of current maturities (Note 4).................................. 2,148,000
DEFERRED INCOME TAXES (Note 6)...................................................... 728,000 682,000
------------- -------------
Total liabilities............................................................. 6,638,000 3,834,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Note 9)
Common stock, $100 par value; 2,500 shares authorized; 416 shares issued and
outstanding...................................................................... 42,000 42,000
Common stock, non-voting, $2,000 par value; 2,500 shares authorized; 87.5 shares
issued and outstanding........................................................... 175,000 175,000
Additional paid-in capital........................................................ 825,000 825,000
Retained earnings................................................................. 1,734,000 1,660,000
------------- -------------
Total stockholders' equity.................................................... 2,776,000 2,702,000
------------- -------------
$ 9,414,000 $ 6,536,000
------------- -------------
------------- -------------
</TABLE>
See accompanying summary of acounting policies and notes to financial
statements.
F-25
<PAGE>
MOREL INDUSTRIES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1995 1994
-------------- -------------
<S> <C> <C>
SALES.............................................................................. $ 10,708,000 $ 9,895,000
COST OF SALES...................................................................... 9,623,000 8,327,000
-------------- -------------
GROSS PROFIT....................................................................... 1,085,000 1,568,000
OPERATING EXPENSES................................................................. 1,189,000 1,240,000
-------------- -------------
INCOME (LOSS) FROM OPERATIONS...................................................... (104,000) 328,000
-------------- -------------
OTHER INCOME (EXPENSE)
Interest income.................................................................. 31,000 18,000
Interest expense................................................................. (268,000) (131,000)
Realized recovery (loss) on investment........................................... 29,000 (77,000)
Other expense.................................................................... (14,000) (40,000)
-------------- -------------
Total other income (expense)................................................... (222,000) (230,000)
-------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............................................ (326,000) 98,000
EXTRAORDINARY ITEM, gain on sale of foundry less applicable income taxes of
$152,000 and $988,000 (Note 8).................................................... 295,000 1,918,000
-------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES.................................................. (31,000) 2,016,000
DEFERRED INCOME TAX (PROVISION) BENEFIT (Note 6)................................... 105,000 (39,000)
-------------- -------------
NET INCOME......................................................................... $ 74,000 $ 1,977,000
-------------- -------------
-------------- -------------
</TABLE>
See accompanying summary of accounting policies and note to financial
statements.
F-26
<PAGE>
MOREL INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
NON-VOTING PAID-IN RETAINED EARNINGS
COMMON STOCK COMMON STOCK CAPITAL (DEFICIT) TOTAL
-------------- -------------- -------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, July 1, 1993.......... $ 42,000 $ 175,000 $ 825,000 $ (317,000) $ 725,000
Net income..................... 1,977,000 1,977,000
-------------- -------------- -------------- ----------------- -------------
BALANCE, June 30, 1994......... 42,000 175,000 825,000 1,660,000 2,702,000
Net income..................... 74,000 74,000
-------------- -------------- -------------- ----------------- -------------
BALANCE, June 30, 1995......... $ 42,000 $ 175,000 $ 825,000 $ 1,734,000 $ 2,776,000
-------------- -------------- -------------- ----------------- -------------
-------------- -------------- -------------- ----------------- -------------
</TABLE>
See accompanying summary of accounting policies and note to financial
statements.
F-27
<PAGE>
MOREL INDUSTRIES, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1995 1994
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 74,000 $ 1,977,000
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Gain on sale of foundry........................................................ (295,000) (1,918,000)
Depreciation and amortization.................................................. 356,000 112,000
Deferred income taxes.......................................................... (105,000) 39,000
Settlement of stockholder receivable as a bonus................................ 111,000
Changes in operating assets and liabilities:
Decrease (increase) in assets:
Accounts receivable 21,000 (195,000)
Inventories................................................................ (115,000) (119,000)
Prepaid expenses and other................................................. (84,000) (17,000)
Increase (decrease) in liabilities:
Accounts payable........................................................... 169,000 (262,000)
Accrued expenses........................................................... 86,000 248,000
------------- --------------
Net cash provided by (used in) operating activities.......................... 218,000 (135,000)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale and relocation of foundry..................................... 2,509,000 3,336,000
Acquisition of property and equipment............................................ (4,492,000) (1,937,000)
Payment of relocation costs...................................................... (1,964,000) (513,000)
Increase in deferred sales tax................................................... 145,000
Increase in receivable from stockholder.......................................... (111,000)
------------- --------------
Net cash provided by (used in) investing activities.......................... (3,802,000) 775,000
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in line-of-credit............................................ 79,000 90,000
Proceeds from long-term borrowings............................................... 3,439,000
Principal payments on long-term debt............................................. (393,000) (436,000)
Increase in deferred bond costs.................................................. (25,000)
------------- --------------
Net cash provided by (used in) financing activities.......................... 3,100,000 (346,000)
------------- --------------
NET INCREASE (DECREASE) IN CASH.................................................... (484,000) 294,000
CASH, beginning of period.......................................................... 636,000 342,000
------------- --------------
CASH, end of period................................................................ $ 152,000 $ 636,000
------------- --------------
------------- --------------
SUPPLEMENTAL CASH FLOWS DISCLOSURE:
Cash paid for interest........................................................... $ 261,000 $ 131,000
------------- --------------
------------- --------------
</TABLE>
See accompanying summary of accounting policies and note to financial
statements.
F-28
<PAGE>
MOREL INDUSTRIES, INC.
SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS AND SIGNIFICANT CUSTOMER -- Morel Industries, Inc.
(Morel) is a manufacturer of aluminum castings located in Entiat, Washington.
During 1994, Morel changed its name from Morel Foundry Corporation to emphasize
Morel's expanding capabilities in machining and powder coat painting.
In 1995 and 1994 sales to a major customer in the Class 8 truck industry
were 75% and 78% of total sales.
INVENTORIES -- Inventories are valued at the lower of cost (first-in,
first-out) or market. Work-in-process is valued at the lower of estimated cost
or market. Estimated cost is derived through an analysis of historical gross
profit margins.
PROPERTY AND EQUIPMENT -- Property and equipment is recorded at cost and is
depreciated using the straight-line method over estimated useful lives as
follows:
<TABLE>
<S> <C>
Office equipment....................................... 3-7 years
Foundry equipment...................................... 7-10 years
Building............................................... 15-40 years
</TABLE>
Expenditures for repairs and maintenance which do not extend the useful life
of the related asset are expensed as incurred.
INCOME TAXES -- Deferred taxes are provided for temporary differences in the
basis of assets and liabilities for book and income tax reporting purposes. If
it is more likely than not that some portion of a deferred tax asset will not be
realized, a valuation allowance is recognized.
F-29
<PAGE>
MOREL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
NOTE 1 -- INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Work-in-process..................................................... $ 695,000 $ 593,000
Raw materials....................................................... 113,000 101,000
Foundry supplies.................................................... 128,000 127,000
----------- -----------
$ 936,000 $ 821,000
----------- -----------
----------- -----------
</TABLE>
NOTE 2 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------
1995 1994
------------- --------------
<S> <C> <C>
Machinery, equipment and furniture............................. $ 3,769,000 $ 2,874,000
Land and building.............................................. 3,684,000 824,000
Accumulated depreciation....................................... (786,000) (1,072,000)
------------- --------------
Net property and equipment..................................... $ 6,667,000 $ 2,626,000
------------- --------------
------------- --------------
</TABLE>
NOTE 3 -- LINE-OF-CREDIT
Morel has a line-of-credit with a bank with interest at the bank's prime
rate (9% at June 30, 1995) plus 2%. The agreement allows Morel to borrow up to
the lesser of $1.0 million or 80% of eligible accounts receivable as defined by
the bank. At June 30, 1995, $968,000 was outstanding and $31,000 was available
for borrowing. The line-of-credit is secured by accounts receivable, inventories
and equipment and is personally guaranteed by the stockholders, see Notes 4 and
9.
F-30
<PAGE>
MOREL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995 AND 1994
NOTE 4 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1995 1994
------------- -----------
<S> <C> <C>
Industrial revenue bond payable to a bank with monthly payments of $19,000, including
interest at 8.12% through November 2009, secured by land, building and equipment, and
personally guaranteed by the stockholders............................................ $ 1,953,000
Note payable to a supplier with quarterly interest payments of 12% on the outstanding
balance; principal due February 1996 and 1997, secured by property and equipment..... 277,000
Note payable to an organization with monthly payments of $2,000, including interest at
10.5% through September 2000, secured by personal residences and guarantee of the
stockholders......................................................................... 100,000
Note payable to an individual, interest only at 14% through September 30, 1995, when
interest increases to 15%. Due in full in March 1996. Secured by substantially all
assets of Morel and subordinated to the industrial revenue bond...................... 500,000
Notes payable to suppliers with monthly payments of $1,000 to $45,000, including
interest at 10%. Unsecured with maturities through February 1996..................... 318,000
Note payable to a supplier in quarterly installments of $25,000, plus interest at 12%
through May 1995, unsecured.......................................................... 100,000
Other................................................................................. 1,000 3,000
------------- -----------
3,149,000 103,000
Less current maturities............................................................... 1,001,000 103,000
------------- -----------
Total long-term debt.................................................................. $ 2,148,000 $ --
------------- -----------
------------- -----------
</TABLE>
Scheduled maturities of long-term debt as of June 30, 1995, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
1996........................................................................... $ 1,002,000
1997........................................................................... 270,000
1998........................................................................... 100,000
1999........................................................................... 109,000
2000........................................................................... 119,000
Thereafter..................................................................... 1,549,000
-------------
$ 3,149,000
-------------
-------------
</TABLE>
Morel's line-of-credit and industrial revenue bond agreements require, among
other matters, that Morel maintain minimum working capital, tangible net worth
and debt to tangible net worth ratios. Morel was not in compliance with the
covenants at June 30, 1995. In conjunction with the merger of Morel on December
1, 1995, the bank provided a waiver of the covenants through November 30, 1995,
and restructured the covenants through the expiration of the agreements, see
Note 9. Management believes Morel will be in compliance with the covenants
through June 30, 1996.
F-31
<PAGE>
MOREL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995 AND 1994
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
Morel leases equipment and vehicles under noncancelable operating leases.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1996............................................................................... $ 32,000
1997............................................................................... 22,000
1998............................................................................... 5,000
1999............................................................................... 2,000
2000............................................................................... 1,000
---------
$ 62,000
---------
---------
</TABLE>
Rent expense for the years ended June 30, 1995 and 1994 was $57,000 and
$67,000.
During the normal course of business, matters arise which may ultimately
subject Morel to claims and litigation. Management believes that the resolution
of these matters will not have a material adverse effect on Morel's financial
condition.
NOTE 6 -- INCOME TAXES
Deferred tax liabilities are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Property and equipment.................................................. $ (1,226,000) $ (1,065,000)
Officers' bonus......................................................... 93,000 48,000
Other................................................................... 58,000 39,000
Net operating loss carryforward......................................... 347,000 296,000
-------------- --------------
$ (728,000) $ (682,000)
-------------- --------------
-------------- --------------
</TABLE>
Morel has net operating loss carryforwards of approximately $1.0 million
with expiration dates through fiscal year 2010.
The difference between Morel's effective income tax rate and the statutory
rate of 34% consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1995 1994
----------- ----------
<S> <C> <C>
Income tax (provision) benefit at the statutory rate........................... $ 111,000 $ (33,000)
Amortization of goodwill....................................................... (3,000)
Meals and entertainment........................................................ (3,000) (1,000)
Officer's life insurance....................................................... (2,000) (2,000)
----------- ----------
$ 106,000 $ (39,000)
----------- ----------
----------- ----------
</TABLE>
F-32
<PAGE>
MOREL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
NOTE 7 -- EMPLOYEE BENEFIT PLANS
Morel participates in a multi-employer pension plan pursuant to an agreement
between Morel and its employee bargaining unit. Although the plan is a defined
benefit plan, the specific benefit levels are not negotiated with or known by
Morel. Contributions expense related to the plan was $36,000 and $29,000 for the
years ended June 30, 1995 and 1994. Subsequent to year end, Morel's collective
bargaining agreement expired and was not renewed. Accordingly, Morel no longer
participates in the multi-employer plan.
Morel has a 401(k) employee benefit plan for those employees who meet the
eligibility requirements set forth in the plan. Eligible employees may
contribute up to 15% of their compensation. Morel's annual contribution to the
plan is determined by the board of directors. Morel made no contributions during
the years ended June 30, 1995 and 1994.
NOTE 8 -- SALE OF FOUNDRY PROPERTY
In 1994, Morel was required to sell its facility in Seattle, Washington, to
the Port of Seattle (the Port). Under terms of the sale Morel received
$2,533,000 for the facility and $3,626,000 for relocation costs. In March 1994,
Morel purchased a facility in Entiat, Washington, and began operations in Entiat
during August 1994.
For financial statement purposes, Morel recognized an extraordinary gain of
$295,000 and $1,918,000 for the years ended June 30, 1995 and 1994. For tax
reporting purposes, Morel retained its original basis in the assets sold and,
accordingly, did not recognize a taxable gain.
At June 30, 1995 and 1994, Morel was due $126,000 and $898,000 from the Port
for relocation costs. During the year ended June 30, 1994, Morel billed the Port
$769,000 for relocation costs which had not yet been incurred, and which are
recorded in the accompanying balance sheet as a liability.
NOTE 9 -- SUBSEQUENT EVENTS
On December 1, 1995, Morel entered into an agreement to merge with PCT
Holdings, Inc. (PCTH), in a transaction expected to be accounted for as a
pooling of interests. PCTH serves as a holding company for subsidiaries
providing sealed connectors and components, ceramic capacitors and filters and
machined aluminum parts for the medical, energy, aerospace, communications and
electronics industries.
Morel has reported a loss before extraordinary item of $326,000 in 1995 and
as of June 30, 1995, has a working capital deficit of $895,000. Additionally, at
June 30, 1995, Morel was in violation of certain debt covenants on the
line-of-credit and industrial revenue bond agreements. Subsequent to the merger,
PCTH provided Morel with $1 million of working capital. The proceeds of the loan
were used primarily to repay $500,000 of the industrial revenue bond. The
balance was used to fund $260,000 of accounts payable, prepayment penalties of
$140,000 and provide working capital for Morel.
In conjunction with the repayment of the industrial revenue bond, the bank
provided Morel with a waiver of its debt covenants through November 30, 1995,
and restructured the covenants through the expiration of the agreements.
Morel's 1996 operating plan has been developed to improve operating
efficiency and continue to broaden Morel's revenue base. Additionally, PCTH has
committed to provide Morel with sufficient working capital until profitable
operations are restored. Although Morel believes that its operating plan and
working capital available from PCTH will be adequate to meet its 1996 working
capital needs and maintain compliance with the restructured debt covenants,
there can be no assurance that Morel may not experience liquidity problems
because of adverse market conditions or other unfavorable events.
F-33
<PAGE>
MOREL INDUSTRIES, INC.
BALANCE SHEET
SEPTEMBER 30, 1995
(UNAUDITED)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash......................................................................... $ 89,000
Receivables.................................................................. 1,556,000
Inventory.................................................................... 839,000
Prepaid expense.............................................................. 46,000
----------
Total current assets....................................................... 2,530,000
NET PROPERTY AND EQUIPMENT..................................................... 6,594,000
OTHER.......................................................................... 24,000
----------
Total assets............................................................... $9,148,000
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank line-of-credit.......................................................... $ 964,000
Accounts payable............................................................. 1,373,000
Accrued liabilities.......................................................... 502,000
Current portion -- long-term debt............................................ 799,000
----------
Total current liabilities.................................................. 3,638,000
Long-term debt, net............................................................ 2,129,000
Deferred sales tax............................................................. 145,000
Deferred rent/taxes............................................................ 637,000
----------
Total liabilities.......................................................... 6,549,000
----------
STOCKHOLDERS' EQUITY
Common stock................................................................. 42,000
Common stock, non-voting..................................................... 175,000
Additional paid-in capital................................................... 825,000
Accumulated deficit.......................................................... 1,557,000
----------
Total stockholders' equity............................................... 2,599,000
----------
Total liabilities and stockholders' equity............................... $9,148,000
----------
----------
</TABLE>
See accompanying notes to unaudited interim financial statements.
F-34
<PAGE>
MOREL INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
NET SALES........................................................................... $ 2,785,000 $ 2,454,000
COST OF SALES....................................................................... 2,669,000 2,386,000
------------- -------------
GROSS PROFIT........................................................................ 116,000 68,000
OPERATING EXPENSES.................................................................. 245,000 225,000
------------- -------------
LOSS FROM OPERATIONS................................................................ (129,000) (157,000)
OTHER INCOME AND EXPENSE
Interest income................................................................... 1,000 28,000
Interest expense.................................................................. (103,000) (26,000)
Gain on the sale of property...................................................... (29,000)
Other............................................................................. (36,000) (7,000)
------------- -------------
(138,000) (34,000)
------------- -------------
NET LOSS BEFORE FEDERAL INCOME TAX.................................................. (267,000) (191,000)
FEDERAL INCOME TAX -- DEFERRED...................................................... 90,000 62,000
------------- -------------
NET LOSS FOR THE PERIOD............................................................. $ (177,000) $ (129,000)
------------- -------------
------------- -------------
LOSS PER SHARE...................................................................... $ (0.27) $ (0.20)
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to unaudited interim financial statements.
F-35
<PAGE>
MOREL INDUSTRIES, INC.
STATEMENTS OF CASH FLOW
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------------ --------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net cash provided by operating activities......................................... $ 54,000 $ 316,000
------------ --------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment................................................ (17,000) (1,634,000)
Proceeds from sale and relocation of foundry...................................... 126,000 89,000
------------ --------------
Net cash provided by (used in) investing activities............................. 109,000 (1,545,000)
------------ --------------
CASH FLOW FROM FINANCING ACTIVITIES
Payments of debt and capital leases............................................... (222,000) (27,000)
Proceeds from financing debt...................................................... 661,000
Other changes, net................................................................ (4,000)
------------ --------------
Net cash provided by (used in) financing activities............................. (226,000) 634,000
------------ --------------
NET DECREASE IN CASH................................................................ (63,000) (595,000)
CASH, beginning of period........................................................... 152,000 636,000
------------ --------------
CASH, end of period................................................................. $ 89,000 $ 41,000
------------ --------------
------------ --------------
</TABLE>
See accompanying notes to unaudited interim financial statements.
F-36
<PAGE>
MOREL INDUSTRIES, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
The accompanying unaudited interim financial statements have been prepared
in accordance with Regulation S-B Item 310 instructions and, in the opinion of
management, contain all adjustments (consisting of only normal accruals)
necessary to present fairly Morel Industries, Inc.'s (Morel) financial position
at September 30, 1995, and the results of operations and cash flows for the
three month periods ended September 30, 1995 and 1994. These results have been
determined on the basis of generally accepted accounting principles and
practices applied consistently with those used in the preparation of Morel's
annual audited financial statements.
Certain information and footnote disclosures normally included in audited
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should be
read in conjunction with Morel's audited financial statements and notes thereto
at and for the years ended June 30, 1995 and 1994, included elsewhere in this
Prospectus.
The results of operations for the three month periods ended September 30,
1995 and 1994 are not necessarily indicative of the results to be expected for
the full year.
SUBSEQUENT EVENT
Subsequent to September 30, 1995, Morel entered into an agreement and plan
of merger with PCT Holdings, Inc. Under terms of the agreement, Morel merged
with a wholly owned subsidiary of PCT Holdings, Inc., with Morel as the
surviving entity, and the shareholders of Morel received 650,000 shares of
common stock of PCT Holdings, Inc., after certain post-closing adjustments. The
merger was closed on December 1, 1995, and was effective for accounting purposes
on November 30, 1995. The merger was accounted for using the purchase method of
accounting. See "Certain Transactions" for additional information on this event.
F-37
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION, OTHER THAN AS CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH
THE OFFERING CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Acquisition History............................ 12
Use of Proceeds................................ 13
Price Range of Common Stock and Dividend
Policy........................................ 14
Capitalization................................. 15
Dilution....................................... 16
Selected Financial Information................. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business....................................... 22
Management..................................... 30
Principal Shareholders......................... 38
Selling Shareholder............................ 40
Certain Transactions........................... 41
Description of Securities...................... 43
Shares Eligible for Future Sale................ 51
Underwriting................................... 53
Legal Matters.................................. 54
Experts........................................ 54
Additional Information......................... 54
Index to Financial Statements.................. F-1
</TABLE>
2,250,000 UNITS
[LOGO]
EACH UNIT CONSISTING OF ONE SHARE
OF COMMON STOCK
AND ONE COMMON STOCK
PURCHASE WARRANT
---------------------
PROSPECTUS
---------------------
PAULSON INVESTMENT
COMPANY, INC.
COHIG & ASSOCIATES, INC.
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article XI of the Company's Amended and Restated Bylaws requires
indemnification of any person serving as a director or officer of the Company,
as well as any person who, while serving as a director or officer of the
Company, was serving at the request of the Company as a director, officer,
employee or agent of another entity, against expenses incurred because such
person was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, if such person acted in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. Indemnification may
not be provided for any claim, issue or matter in an action or suit by or in the
right of the Company to procure a judgment in its favor as to which such
director or officer has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the Company or for
amounts paid in settlement to the Company, unless and only to the extent that
the court in which the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the circumstances
of the case, the person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
Any indemnification as described above must be made by the Company only as
authorized in the specific case upon a determination that indemnification is
proper in the circumstances. The determination must be made (i) by the
stockholders; (ii) by the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding;
(iii) if a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding so orders, by independent legal counsel
in a written opinion; or (iv) if a quorum consisting of directors who were not
parties to the act, suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
Article XI also provides that the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the Company as they are incurred and in advance of the final disposition
of the action, suit or proceeding, upon receipt of an undertaking by or on
behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the Company.
Article XI of the Company's Amended and Restated Bylaws and Section 78.751
of the Nevada Revised Statutes authorize the Company to grant indemnification to
directors and officers on terms sufficiently broad to permit indemnification
under certain circumstances for liabilities arising under the Securities Act of
1933, as amended.
The Company has agreed to indemnify the Underwriters, and the Underwriters
have agreed to indemnify the Company, against certain liabilities under the
Securities Act.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses incurred in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee and the NASD
filing fee.
<TABLE>
<CAPTION>
SEC registration fee............................................. $ 10,784
<S> <C>
NASD filing fee.................................................. 3,628
NASDAQ-NMS Listing Fee........................................... 41,996
Representative's nonaccountable expense allowance................ 349,313
Transfer agent fee............................................... 5,000
Printing expenses................................................ 75,000
Legal fees and expenses.......................................... 275,000
Accounting fees and expenses..................................... 200,000
Blue sky fees and expenses, including legal fees................. 20,000
Miscellaneous.................................................... 4,309
---------
TOTAL........................................................ $ 985,000
---------
---------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since May 31, 1993, the Company has sold securities as described in the
following paragraphs, none of which have been registered under the Act:
1. An aggregate of 2,963,675 shares of Common Stock were issued in
February 1995 to the shareholders of Original PCTH, in consideration of the
Verazzana merger. In connection with that merger, warrants held by Donald A.
Wright, Nick A. Gerde and another employee of the Company to purchase common
stock of Original PCTH were converted into warrants to purchase 100,000,
25,000, and 35,000 shares, respectively, of Common Stock. An aggregate of
212,500 shares of Common Stock were issued to Jeff Jensen and an affiliate,
as a finder's fee in connection with the merger.
2. An aggregate of 800,000 shares of Common Stock were issued to Swiss
investors in July 1995, in exchange for aggregate cash consideration of
$4,598,400. In connection with that offering, in July 1995, (i) an aggregate
of 739,700 shares of Common Stock were issued to several designees of Lysys,
and $478,400 in cash was paid to Lysys as commissions, and (ii) an aggregate
of 295,300 shares of Common Stock were issued to SMD Ltd., LLC, as a
finder's fee in connection with the offering.
3. An aggregate of 838,470 shares of Common Stock were issued to Swiss
investors in November 1995, in exchange for aggregate cash consideration of
$3,353,880. An aggregate of 30,000 shares of Common Stock were issued in
January 1996 to a designee of Lysys, and $234,772 cash was paid to Lysys as
commissions in connection with the offering.
4. An aggregate of 133,333 shares of Common Stock were issued on April
11, 1995, and promissory notes in aggregate principal amount of $600,000
were issued on May 10, 1995, to the shareholders of Ceramic Devices, Inc., a
California corporation, as consideration for the merger of that entity with
a wholly owned subsidiary of the Company.
5. An aggregate of 128,750 shares of Common Stock were issued on
November 30, 1995, to Seismic Safety Products, Inc., a Florida corporation,
as partial consideration for the purchase of substantially all of the assets
of that entity by a wholly owned subsidiary of the Company.
II-2
<PAGE>
6. An aggregate of 650,000 shares of Common Stock, after post-closing
adjustments, were issued on December 1, 1995, to Stephen L. Morel and Mark
Morel as consideration for the merger of Morel Industries, Inc. with a
wholly owned subsidiary of the Company.
7. As of May 31, 1996, options to purchase an aggregate of 145,283
shares of Common Stock were issued to employees and directors of the Company
and its subsidiaries under the Company's 1995 Employee Incentive Plan, and
9,000 shares of Common Stock were issued to independent directors of the
Company under the Independent Director Stock Plan. Also, the Company has
agreed to issue an option to purchase 845,000 shares of Common Stock to Mr.
Wright on the effective date of this Prospectus.
8. In May 1996, the Company issued promissory notes aggregating
$1,350,000 in principal amount, and warrants to purchase an aggregate of
337,500 shares of Common Stock, in exchange for $1,350,000 in funds advanced
to the Company in March and May 1996, by Robert L. Smith, a director of the
Company, and UTCO Associates, Ltd., the selling shareholder named in the
registration statement.
9. An aggregate of 490,000 shares of Common Stock were issued to Swiss
investors in May 1996, in exchange for aggregate cash consideration of
$1,456,125. In connection with the offering, $116,490 was paid to Lysys as
commissions.
The sales described in paragraphs 2 (other than subsection (ii)), 3 and 9
above were made outside the United States to non-U.S. persons in transactions
not required to be registered under United States securities laws pursuant to
Regulation S of the Securities Act. The sales described in paragraph 7 were made
in reliance upon the exception set forth in Section 3(b) of the Securities Act
and Rule 701 promulgated thereunder. The sales described in paragraphs 1, 2(ii),
4, 5, 6 and 8 were exempt from registration under the Securities Act by virtue
of Section 4(2) thereof, or in reliance on Regulation D promulgated thereunder,
and the purchasers represented their intention to acquire the securities for
investment only and not with a view to distribution thereof. Appropriate legends
about the restricted nature of such securities were affixed to the stock
certificates issued in such transactions. All purchasers either received
adequate information about the Company or had adequate access, through
employment or other relationships, to such information.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.(10)
3.1 Articles of Incorporation of Verazzana Ventures, Ltd. (now known as PCT Holdings, Inc.), as filed on
January 30, 1986, with the Secretary of State of the State of Nevada.(2)
3.2 Certificate of Amendment to the Articles of Incorporation of PCT Holdings, Inc., as filed on February
16, 1995, with the Secretary of State of the State of Nevada.(2)
3.3 Amended and Restated Bylaws of PCT Holdings, Inc.(1)
4.1 Form of specimen certificate for Common Stock.(2)
4.2 Form of Warrant certificate.(10)
4.3 Form of Warrant Agreement.(10)
4.4 Form of Purchase Warrant to the Representatives for the purchase of Units.(10)
4.5 Registration Rights Agreement, dated December 1, 1995, between PCT Holdings, Inc., a Nevada corporation,
and Stephen L. Morel and Mark Morel.(4)
4.6 Registration Rights Agreement, dated November 30, 1995, between PCT Holdings, Inc., a Nevada
corporation, Seismic Safety Products, Inc., a Florida corporation, and certain of its shareholders.(4)
4.7 Agreement and Plan of Merger, dated February 28, 1995, among PCT Holdings, Inc., Ceramic Devices, Inc.,
a Washington corporation, and Ceramic Devices, Inc., a California corporation.(5)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
4.8 Common Stock Purchase Warrant from PCT Holdings, Inc. to UTCO Associates, Ltd. dated May 22, 1996.(1)
<C> <S>
5.1 Opinion of Lionel Sawyer & Collins.(10)
10.1 Loan and Security Agreement, dated April 24, 1995, between Silicon Valley Bank and PCT Holdings, Inc.,
Ceramic Devices, Inc., Cashmere Manufacturing Co., Inc., and Pacific Coast Technologies, Inc.(6)
10.2 Employment Agreement, dated as of January 1, 1995, between PCT Holdings, Inc. and Donald A. Wright.(6)
10.3 Amendment to Employment Agreement, dated March 1, 1996, between PCT Holdings, Inc. and Donald A.
Wright.(1)
10.4 Employment Agreement, dated as of June 1, 1996, between PCT Holdings, Inc. and Donald A. Wright.(1)
10.5 Common Stock Purchase Warrant from PCT Holdings, Inc. to Donald A. Wright dated as of February 17,
1995.(1)
10.6 Common Stock Purchase Warrant from PCT Holdings, Inc. to Nick A. Gerde dated as of February 17, 1995.(1)
10.7 1995 Stock Incentive Plan.(1)
10.8 Independent Director Stock Plan.(1)
10.9 Common Stock Purchase Warrant from PCT Holdings, Inc. to Robert L. Smith dated as of May 22, 1996.(1)
10.10 Amended and Restated Promissory Note from PCT Holdings, Inc. to Robert L. Smith dated as of May 22,
1996.(1)
10.11 Promissory Note from PCT Holdings, Inc. to UTCO Associates, Ltd. dated as of May 22, 1996.(1)
10.12 Security Agreement between PCT Holdings, Inc. and UTCO Associates, Ltd. dated as of May 22, 1996.(9)
10.13 Asset Purchase Agreement, dated October 27, 1995, between PCT Holdings, Inc., a Nevada corporation,
Seismic Safety Products, Inc., a Washington corporation, PCT Holdings, Inc., a Washington corporation,
Seismic Safety Products, Inc., a Florida corporation, and certain of its affiliates.(7)
10.14 Patent Purchase Agreement, dated October 27, 1995, between PCT Holdings, Inc., a Washington corporation,
Seismic Safety Products, Inc., a Washington corporation, and James C. McGill.(7)
10.15 Patent Purchase Agreement, dated October 24, 1995, between PCT Holdings, Inc., a Washington corporation,
Seismic Safety Products, Inc., a Washington corporation, and James C. McGill and Antonio F.
Fernandez.(7)
10.16 Agreement and Plan of Merger, dated November 30, 1995, between PCT Holdings, Inc., a Nevada corporation,
Morel Acquisition Corporation, Morel Industries, Inc., Stephen L. Morel, and Mark Morel.(4)
10.17 Stock Purchase Agreement, dated May 19, 1994, between Cashmere Manufacturing Co., Inc., Herman L. Jones,
John M. Eder, Fred R. Paquette, Dan A. Paquette and PCT Holdings, Inc.(6)
10.18 Exchange Agreement, dated May 31, 1994, between PCT Holdings, Inc. and its shareholders.(6)
10.19 Letter Agreement, dated January 3, 1995, between PCT Holdings, Inc. and Lysys Ltd.(6)
10.20 Agreement and Plan of Merger, dated February 15, 1995, between PCT Holdings, Inc., a Nevada corporation,
PCT Merger Corporation, a Washington corporation, and PCT Holdings, Inc., a Washington corporation.(6)
10.21 Agreement and Plan of Merger, dated February 28, 1995, between PCT Holdings, Inc., Ceramic Devices,
Inc., a Washington corporation, and Ceramic Devices, Inc., a California corporation.(6)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
10.22 Promissory Note, dated May 10, 1995, in the principal amount of $200,000, from PCT Holdings, Inc. to
William H. Payne, Ivan G. Sarda, Elinor A. Walters and Katrina A. Knowles.(6)
<C> <S>
10.23 Security Agreement, dated May 10, 1995, between Ceramic Devices, Inc., and William H. Payne, Ivan G.
Sarda, Elinor A. Walters and Katrina A. Knowles.(6)
10.24 Intellectual Property Acquisition and License Agreement, dated June 1, 1994, between Pacific Coast
Technologies, Inc. and James C. Kyle.(6)
10.25 Promissory Note, dated June 1, 1994, in the principal amount of $400,000, from Pacific Coast
Technologies, Inc. to James C. Kyle and Carol A. Kyle.(6)
10.26 Promissory Note Extension, dated January 1, 1995, in the principal amount of $387,800, from Pacific
Coast Technologies, Inc. to James C. Kyle and Carol A. Kyle.(6)
10.27 Lease Agreement, dated February 1, 1993, between the Port of Chelan County and Pacific Coast
Technologies, Inc.(6)
10.28 Addendum to Lease Agreement with Pacific Coast Technologies, Inc., dated April 22, 1993, between the
Port of Chelan County and Pacific Coast Technologies, Inc.(6)
10.29 Standard Industrial Lease, dated April 20, 1994, between The Manufacturers Life Insurance Company and
Ceramic Devices, Inc., for certain real property situated at 8170 Ronson Road, San Diego,
California.(6)
10.30 Standard Industrial Lease, dated April 20, 1994, between The Manufacturers Life Insurance Company and
Ceramic Devices, Inc., for certain real property situated at 8145 Ronson Road, San Diego,
California.(6)
10.31 Employment and Non-Competition Agreement, dated May 31, 1994, between PCT Holdings, Inc. and Herman L.
"Jack" Jones.(6)
10.32 Employment Agreement, dated January 1, 1995, between PCT Holdings, Inc. and Nick A. Gerde.(6)
10.33 Amended Employment Agreement, dated March 1, 1996, between PCT Holdings, Inc. and Nick A. Gerde.(1)
10.34 Employment Agreement, dated December 1, 1995, between Morel Industries, Inc. and Stephen L. Morel.(7)
10.35 Revised and Restated Promissory Note, dated May 17, 1996, from Morel Industries, Inc. to Richard and
Jacquelyn Doane.(9)
10.36 Guaranty, dated January 24, 1996, from PCT Holdings, Inc. to Richard and Jacquelyn Doane.(1)
10.37 Confirmation of Guaranty, dated May 17, 1996, from PCT Holdings, Inc. to Richard and Jacquelyn Doane.(1)
10.38 Promissory Note, dated March 15, 1996, from Cashmere Manufacturing Co., Inc. to Cashmere Valley Bank,
Inc.(9)
10.39 Commercial Guaranty, dated March 3, 1993, from Herman L. "Jack" Jones to Cashmere Valley Bank.(9)
10.40 Amended and Restated Agreement, dated May 30, 1996, between Herman L. "Jack" Jones, John Eder and
Cashmere Manufacturing Co., Inc.(10)
10.41 Renewal Promissory Note from Herman L. "Jack" Jones to PCT Holdings, Inc. dated March 15, 1996.(10)
10.42 Lease Agreement between the Port of Chelan County and Cashmere Manufacturing Co., Inc. dated November 4,
1994.(9)
10.43 Building Construction Agreement between the Port of Chelan County and Cashmere Manufacturing Co., Inc.
dated November 4, 1994.(9)
10.44 General Terms Agreement No. PLR-950 Relating to Boeing Model Aircraft between Cashmere Manufacturing
Co., Inc. and Boeing Commercial Airplane Group, effective as of February 5, 1990, as amended.(9)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
10.45 Special Business Provisions No. L-890821-8140N between The Boeing Company and Cashmere Manufacturing
Co., Inc. effective as of December 18, 1992.(8)(9)
<C> <S>
10.46 Special Business Provisions No. L-500660-8134N between The Boeing Company and Cashmere Manufacturing
Co., Inc. effective as of December 31, 1991.(8)(9)
10.47 Special Business Provisions No. L-435579-8180N between The Boeing Company and Cashmere Manufacturing
Co., Inc. effective as of August 11, 1994.(8)(9)
10.48 Special Business Provisions No. PLR-950A between The Boeing Company and Cashmere Manufacturing Co., Inc.
effective as of February 5, 1990.(8)(9)
10.49 Administrative Agreement No. L-435579-8180N between Cashmere Manufacturing Co., Inc. and Boeing
Commercial Airplane Group effective as of August 11, 1994.(9)
10.50 Special Business Provisions No. POP-65311-0047 between The Boeing Company and Cashmere Manufacturing
Co., Inc. effective as of February 26, 1996.(8)(9)
10.51 General Terms Agreement No. BCA-65311-0044 between The Boeing Company and Cashmere Manufacturing Co.,
Inc. effective as of February 26, 1996.(9)
10.52 Extension and Modification of Promissory Note, dated April 1996, between PCT Holdings, Inc. and William
H. Payne, Ivan G. Sarda, the Waldal Family Trust and Katrina Knowles.(9)
10.53 Consent to Offering and Additional Indebtedness, dated June 7, 1996, between PCT Holdings, Inc. and
William N. Payne, Ivan G. Sarda, the Waldal Family Trust and Katrina Knowles.(10)
10.54 Loan Modification Agreement, dated April 23, 1996, between Silicon Valley Bank and PCT Holdings, Inc.,
Ceramic Devices, Inc., Cashmere Manufacturing Co., Inc. and Pacific Coast Technologies, Inc.(9)
16.1 Letter from accountant regarding a change of accountants.(3)
21.1 List of Subsidiaries.(1)
23.1 Consent of Moss Adams LLP.(10)
23.2 Consent of BDO Seidman, LLP.(10)
23.3 Consent of Lionel Sawyer & Collins (included in Exhibit 5.1).(10)
23.4 Consent of Stoel Rives LLP.(9)
24.1 Power of Attorney (included on signature page of Form SB-2).(1)
</TABLE>
- ------------------------
(1)Submitted with initial filing on May 31, 1996.
(2)Incorporated by reference to the Company's Form 8-A filed on May 16, 1995.
(3)Incorporated by reference to the Company's Current Report on Form 8-K/A
filed on June 22, 1995.
(4)Incorporated by reference to the Company's Current Report on Form 8-K filed
on December 18, 1995.
(5)Incorporated by reference to the Company's Current Report on Form 8-K filed
on March 1, 1995.
(6)Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed on August 29, 1995.
(7)Incorporated by reference to the Company's Current Report on Form 10-QSB for
the quarterly period ended November 30, 1995.
(8) Confidential treatment requested. Omitted confidential information has been
filed separately with the Securities and Exchange Commission.
(9) Submitted with Amendment No. 1 on June 19, 1996.
(10) Submitted with this Amendment.
II-6
<PAGE>
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 24, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information set forth in
the registration statement; and
(iii) include any additional or changed material information on the plan
of distribution.
2. That, for determining liability under the Securities Act, it will treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
3. To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
4. That, for determining any liability under the Securities Act, it will
treat the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
5. That, for determining any liability under the Securities Act, it will
treat each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered therein, and the offering of
the securities at that time as the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, PCT HOLDINGS, INC. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form SB-2 and authorized
this Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Seattle, Washington on July 12, 1996.
PCT HOLDINGS, INC.
By /s/ Donald A. Wright
-----------------------------------
Donald A. Wright, President
In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been signed by the
following persons in the capacities indicated on July 12, 1996.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE
- ------------------------------------------------ --------------------------------------
/s/ Donald A. Wright Chief Executive Officer, President,
-------------------------------------- and Director (Principal Executive
Donald A. Wright Officer)
/s/ Herman L. "Jack" Jones*
-------------------------------------- Executive Vice President and Director
Herman L. "Jack" Jones
/s/ Nick A. Gerde* Vice President Finance and Chief
-------------------------------------- Financial Officer (Principal
Nick A. Gerde Financial and Accounting Officer)
/s/ Roger P. Vallo*
-------------------------------------- Secretary and Director
Roger P. Vallo
/s/ Robert L. Smith*
-------------------------------------- Director
Robert L. Smith
/s/ Donald B. Cotton*
-------------------------------------- Director
Donald B. Cotton
/s/ Allen W. Dahl, M.D.*
-------------------------------------- Director
Allen W. Dahl, M.D.
/s/ Paul Schmidhauser*
-------------------------------------- Director
Paul Schmidhauser
*By /s/ Donald A. Wright
----------------------------------
Donald A. Wright
(Attorney-in-Fact)
</TABLE>
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement.(10)
3.1 Articles of Incorporation of Verazzana Ventures, Ltd. (now known as PCT Holdings, Inc.), as filed
on January 30, 1986, with the Secretary of State of the State of Nevada.(2)
3.2 Certificate of Amendment to the Articles of Incorporation of PCT Holdings, Inc., as filed on
February 16, 1995, with the Secretary of State of the State of Nevada.(2)
3.3 Amended and Restated Bylaws of PCT Holdings, Inc.(1)
4.1 Form of specimen certificate for Common Stock.(2)
4.2 Form of Warrant certificate.(10)
4.3 Form of Warrant Agreement.(10)
4.4 Form of Purchase Warrant to the Representatives for the purchase of Units.(10)
4.5 Registration Rights Agreement, dated December 1, 1995, between PCT Holdings, Inc., a Nevada
corporation, and Stephen L. Morel and Mark Morel.(4)
4.6 Registration Rights Agreement, dated November 30, 1995, between PCT Holdings, Inc., a Nevada
corporation, Seismic Safety Products, Inc., a Florida corporation, and certain of its
shareholders.(4)
4.7 Agreement and Plan of Merger, dated February 28, 1995, between PCT Holdings, Inc., Ceramic
Devices, Inc., a Washington corporation, and Ceramic Devices, Inc., a California corporation.(5)
4.8 Common Stock Purchase Warrant from PCT Holdings, Inc. to UTCO Associates, Ltd. dated May 22,
1996.(1)
5.1 Opinion of Lionel Sawyer & Collins.(10)
10.1 Loan and Security Agreement, dated April 24, 1995, between Silicon Valley Bank and PCT Holdings,
Inc., Ceramic Devices, Inc., Cashmere Manufacturing Co., Inc., and Pacific Coast Technologies,
Inc.(6)
10.2 Employment Agreement, dated as of January 1, 1995, between PCT Holdings, Inc. and Donald A.
Wright.(6)
10.3 Amendment to Employment Agreement, dated March 1, 1996, between PCT Holdings, Inc. and Donald A.
Wright.(1)
10.4 Employment Agreement, dated as of June 1, 1996, between PCT Holdings, Inc. and Donald A.
Wright.(1)
10.5 Common Stock Purchase Warrant from PCT Holdings, Inc. to Donald A. Wright dated as of February
17, 1995.(1)
10.6 Common Stock Purchase Warrant from PCT Holdings, Inc. to Nick A. Gerde dated as of February 17,
1995.(1)
10.7 1995 Stock Incentive Plan.(1)
10.8 Independent Director Stock Plan.(1)
10.9 Common Stock Purchase Warrant from PCT Holdings, Inc. to Robert L. Smith dated as of May 22,
1996.(1)
10.10 Amended and Restated Promissory Note from PCT Holdings, Inc. to Robert L. Smith dated as of May
22, 1996.(1)
10.11 Promissory Note from PCT Holdings, Inc. to UTCO Associates, Ltd. dated as of May 22, 1996.(1)
10.12 Security Agreement between PCT Holdings, Inc. and UTCO Associates, Ltd. dated as of May 22,
1996.(9)
10.13 Asset Purchase Agreement, dated October 27, 1995, between PCT Holdings, Inc., a Nevada
corporation, Seismic Safety Products, Inc., a Washington corporation, PCT Holdings, Inc., a
Washington corporation, Seismic Safety Products, Inc., a Florida corporation, and certain of its
affiliates.(7)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
<S> <C> <C>
10.14 Patent Purchase Agreement, dated October 27, 1995, between PCT Holdings, Inc., a Washington
corporation, Seismic Safety Products, Inc., a Washington corporation, and James C. McGill.(7)
10.15 Patent Purchase Agreement, dated October 24, 1995, between PCT Holdings, Inc., a Washington
corporation, Seismic Safety Products, Inc., a Washington corporation, and James C. McGill and
Antonio F. Fernandez.(7)
10.16 Agreement and Plan of Merger, dated November 30, 1995, between PCT Holdings, Inc., a Nevada
corporation, Morel Acquisition Corporation, Morel Industries, Inc., Stephen L. Morel, and Mark
Morel.(4)
10.17 Stock Purchase Agreement, dated May 19, 1994, between Cashmere Manufacturing Co., Inc., Herman L.
Jones, John M. Eder, Fred R. Paquette, Dan A. Paquette and PCT Holdings, Inc.(6)
10.18 Exchange Agreement, dated May 31, 1994, between PCT Holdings, Inc. and its shareholders.(6)
10.19 Letter Agreement, dated January 3, 1995, between PCT Holdings, Inc. and Lysys Ltd.(6)
10.20 Agreement and Plan of Merger, dated February 15, 1995, between PCT Holdings, Inc., a Nevada
corporation, PCT Merger Corporation, a Washington corporation, and PCT Holdings, Inc., a
Washington corporation(6)
10.21 Agreement and Plan of Merger, dated February 28, 1995, among PCT Holdings, Inc., Ceramic Devices,
Inc., a Washington corporation, and Ceramic Devices, Inc., a California corporation.(6)
10.22 Promissory Note, dated May 10, 1995, in the principal amount of $200,000, from PCT Holdings, Inc.
to William H. Payne, Ivan G. Sarda, Elinor A. Walters and Katrina A. Knowles.(6)
10.23 Security Agreement, dated May 10, 1995, between Ceramic Devices, Inc., and William H. Payne, Ivan
G. Sarda, Elinor A. Walters and Katrina A. Knowles.(6)
10.24 Intellectual Property Acquisition and License Agreement, dated June 1, 1994, by and between
Pacific Coast Technologies, Inc. and James C. Kyle.(6)
10.25 Promissory Note, dated June 1, 1994, in the principal amount of $400,000, from Pacific Coast
Technologies, Inc. to James C. Kyle and Carol A. Kyle.(6)
10.26 Promissory Note Extension, dated January 1, 1995, in the principal amount of $387,800, from
Pacific Coast Technologies, Inc. to James C. Kyle and Carol A. Kyle.(6)
10.27 Lease Agreement, dated February 1, 1993, between the Port of Chelan County and Pacific Coast
Technologies, Inc.(6)
10.28 Addendum to Lease Agreement with Pacific Coast Technologies, Inc., dated April 22, 1993, between
the Port of Chelan County and Pacific Coast Technologies, Inc.(6)
10.29 Standard Industrial Lease, dated April 20, 1994, between The Manufacturers Life Insurance Company
and Ceramic Devices, Inc., for certain real property situated at 8170 Ronson Road, San Diego,
California.(6)
10.30 Standard Industrial Lease, dated April 20, 1994, between The Manufacturers Life Insurance Company
and Ceramic Devices, Inc., for certain real property situated at 8145 Ronson Road, San Diego,
California.(6)
10.31 Employment and Non-Competition Agreement, dated May 31, 1994, between PCT Holdings, Inc. and
Herman L. "Jack" Jones.(6)
10.32 Employment Agreement, dated January 1, 1995, between PCT Holdings, Inc. and Nick A. Gerde.(6)
10.33 Amended Employment Agreement, dated March 1, 1996, between PCT Holdings, Inc. and Nick A.
Gerde.(1)
10.34 Employment Agreement, dated December 1, 1995, between Morel Industries, Inc. and Stephen L.
Morel.(7)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
<S> <C> <C>
10.35 Revised and Restated Promissory Note, dated May 17, 1996, from Morel Industries, Inc. to Richard
and Jacquelyn Doane.(9)
10.36 Guaranty, dated January 24, 1996, from PCT Holdings, Inc. to Richard and Jacquelyn Doane.(1)
10.37 Confirmation of Guaranty, dated May 17, 1996, from PCT Holdings, Inc. to Richard and Jacquelyn
Doane.(1)
10.38 Promissory Note, dated March 15, 1996, from Cashmere Manufacturing Co., Inc. to Cashmere Valley
Bank, Inc.(9)
10.39 Commercial Guaranty, dated March 3, 1993, from Herman L. "Jack" Jones to Cashmere Valley Bank.(9)
10.40 Amended and Restated Agreement, dated May 30, 1996, between Herman L. "Jack" Jones, John Eder and
Cashmere Manufacturing Co., Inc.(10)
10.41 Renewal Promissory Note from Herman L. "Jack" Jones to PCT Holdings, Inc. dated March 15,
1996.(10)
10.42 Lease Agreement between the Port of Chelan County and Cashmere Manufacturing, Inc. dated November
4, 1994.(9)
10.43 Building Construction Agreement between the Port of Chelan County and Cashmere Manufacturing Co.,
Inc. dated November 4, 1994.(9)
10.44 General Terms Agreement No. PLR-950 Relating to Boeing Model Aircraft between Cashmere
Manufacturing Co., Inc. and Boeing Commercial Airplane Group, effective as of February 5, 1990,
as amended.(9)
10.45 Special Business Provisions No. L-890821-8140N between The Boeing Company and Cashmere
Manufacturing Co., Inc. effective as of December 18, 1992.(8)(9)
10.46 Special Business Provisions No. L-500660-8134N between The Boeing Company and Cashmere
Manufacturing Co., Inc. effective as of December 31, 1991.(8)(9)
10.47 Special Business Provisions No. L-435579-8180N between The Boeing Company and Cashmere
Manufacturing Co., Inc. effective as of August 11, 1994.(8)(9)
10.48 Special Business Provisions No. PLR-950A between The Boeing Company and Cashmere Manufacturing
Co., Inc. effective as of February 5, 1990.(8)(9)
10.49 Administrative Agreement No. L-435579-8180N between Cashmere Manufacturing Co., Inc. and Boeing
Commercial Airplane Group effective as of August 11, 1994.(9)
10.50 Special Business Provisions No. POP-65311-0047 between The Boeing Company and Cashmere
Manufacturing Co., Inc. effective as of February 26, 1996.(8)(9)
10.51 General Terms Agreement No. BCA-65311-0044 between The Boeing Company and Cashmere Manufacturing
Co., Inc. effective as of February 26, 1996.(9)
10.52 Extension and Modification of Promissory Note, dated April 1996, between PCT Holdings, Inc. and
William H. Payne, Ivan G. Sarda, the Waldal Family Trust and Katrina Knowles.(9)
10.53 Consent to Offering and Additional Indebtedness dated June 7, 1996 between PCT Holdings, Inc. and
William N. Payne, Ivan G. Sarda, the Waldal Family Trust and Katrina Knowles.(10)
10.54 Loan Modification Agreement, dated April 23, 1996, between Silicon Valley Bank and PCT Holdings,
Inc., Ceramic Devices, Inc., Cashmere Manufacturing Co., Inc. and Pacific Coast Technologies,
Inc.(9)
16.1 Letter from accountant regarding a change of accountants.(3)
21.1 List of Subsidiaries.(1)
23.1 Consent of Moss Adams LLP.(10)
23.2 Consent of BDO Seidman, LLP.(10)
23.3 Consent of Lionel Sawyer & Collins (included in Exhibit 5.1).(10)
23.4 Consent of Stoel Rives LLP.(9)
24.1 Power of Attorney (included on signature page of Form SB-2).(1)
</TABLE>
<PAGE>
- ------------------------
(1) Submitted with initial filing on May 31, 1996.
(2) Incorporated by reference to the Company's Form 8-A filed on May 16, 1995.
(3) Incorporated by reference to the Company's Current Report on Form 8-K/A
filed on June 22, 1995.
(4) Incorporated by reference to the Company's Current Report on Form 8-K filed
on December 18, 1995.
(5) Incorporated by reference to the Company's Current Report on Form 8-K filed
on March 1, 1995.
(6) Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed on August 29, 1995.
(7) Incorporated by reference to the Company's Current Report on Form 10-QSB
for the quarterly period ended November 30, 1995.
(8) Confidential treatment requested. Omitted confidential information has been
filed separately with the Securities and Exchange Commission.
(9) Submitted with Amendment No. 1 on June 19, 1996.
(10) Submitted with this Amendment.
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
EXHIBIT 1.1
2,250,000 UNITS
PCT HOLDINGS, INC.
UNDERWRITING AGREEMENT
July ___, 1996
Paulson Investment Company, Inc.
Cohig & Associates, Inc.
As Representatives of the
Several Underwriters
c/o Paulson Investment Company, Inc.
811 SW Front Avenue
Portland, Oregon 97204
Gentlemen:
PCT Holdings, Inc., a Nevada corporation (the "Company"), proposes to sell
to the several underwriters (the "Underwriters") named in Schedule I hereto for
whom you are acting as Representatives (the "Representatives") an aggregate of
2,250,000 Units (the "Firm Units"). Each Unit will consist of one share of the
Company's Common Stock, $0.001 par value ("Common Stock"), and one Common Stock
Purchase Warrant substantially in the form most recently filed as an exhibit to
the Registration Statement (hereinafter defined) ("Warrants"). The respective
amounts of the Firm Units to be so purchased by the several Underwriters are set
forth opposite their names in Schedule I hereto. The Company also proposes to
grant to the Representatives an option to purchase in the aggregate up to
337,500 additional Units (the "Option Units"), identical to the Firm Units, as
set forth below. The offer and sale of the Firm Units and the Option Units
pursuant to this Agreement is referred to as the "Offering."
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement for yourselves as Representatives and on
behalf of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm Units
set forth opposite their respective names in Schedule I. The Firm Units and the
Option Units (to the extent the aforementioned option is exercised) are herein
collectively called the "Units."
-1-
<PAGE>
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters as follows:
(a) A registration statement on Form SB-2 (Registration No. 333-5011)
with respect to the Units has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and has been
filed with the Commission. Copies of such registration statement, including any
amendments thereto, the preliminary prospectuses (meeting the requirements of
the Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have heretofore been
delivered by the Company to you. Such registration statement, together with any
registration statement filed by the Company pursuant to Rule 462(b) of the Act
("Registration Statement"), which shall be deemed to include all information
omitted therefrom in reliance upon Rule 430A and contained in the Prospectus
referred to below, has become effective under the Act, and no post-effective
amendment to the Registration Statement has been filed as of the date of this
Agreement. "Prospectus" means (a) the form of prospectus first filed with the
Commission pursuant to Rule 424(b), or (b) the last preliminary prospectus
included in the Registration Statement filed prior to the time it becomes
effective or filed pursuant to Rule 424(a) under the Act that is delivered by
the Company to the Underwriters for delivery to purchasers of the Units,
together with the term sheet or abbreviated term sheet filed with the Commission
pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus included
in the Registration Statement prior to the time it becomes effective is herein
referred to as a "Preliminary Prospectus."
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Nevada, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. Except as described in the
Prospectus, the Company does not own and never has owned a controlling interest
in any corporation or other business entity that has or ever has had any
material assets, liabilities or operations. The Company is duly qualified to
transact business in all jurisdictions in which the conduct of its business
requires such qualification.
(c) The outstanding shares of Common Stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable and
have been issued and sold by the Company in compliance in all material respects
with applicable securities laws; the Common Stock and Warrants to be included in
the Units have been duly authorized and when issued and paid for as contemplated
herein will be validly issued, fully paid and non-assessable; and no preemptive
rights of stockholders exist with respect to any security
-2-
<PAGE>
of the Company or the issue and sale thereof. Neither the filing of the
Registration Statement nor the offering or sale of the Units as contemplated by
this Agreement gives rise to any rights, other than those which have been waived
or satisfied, for or relating to the registration of any shares of Common Stock
or other securities of the Company.
(d) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. The Common Stock and the Warrants conform
to the description thereof contained in the Registration Statement. The form
of certificates for the Common Stock and Warrants conform to the corporate law
of the jurisdiction of the Company's incorporation.
(e) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Units and has
not instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform to the requirements of, the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives, specifically for use
in the preparation thereof.
(f) The financial statements of the Company, together with related
notes and schedules as set forth in the Registration Statement, present fairly
the financial position and the results of operations and cash flows of the
Company at the indicated dates and for the indicated periods. Such financial
statements and related schedules have been prepared in accordance with generally
accepted principles of accounting, consistently applied throughout the periods
involved, except as disclosed herein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data of the Company included in the Registration Statement
present fairly the information shown therein, and such data have been compiled
on a basis consistent with the financial statements presented therein and the
books and records of the Company.
(g) Moss Adams LLP, who have audited certain of the financial
statements filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.
-3-
<PAGE>
(h) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company before any court or
administrative agency or otherwise which if determined adversely to the Company
might result in any material adverse change in the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company or prevent the consummation of the
transactions contemplated hereby, except as set forth in the Registration
Statement.
(i) The Company has good and marketable title to all of the
properties and assets reflected as owned by it in the financial statements (or
as described in the Registration Statement) hereinabove described, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except those reflected
in such financial statements (or as described in the Registration Statement) or
which are not material in amount. The Company occupies its leased properties
under valid and binding leases conforming in all material respects to the
description thereof set forth in the Registration Statement.
(j) The Company has filed all federal, state, local and foreign
income tax returns which have been required to be filed and has paid all taxes
indicated by said returns and all assessments received by it to the extent that
such taxes have become due and are not being contested in good faith. All tax
liabilities have been adequately provided for in the financial statements of the
Company.
(k) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise), or
prospects of the Company, whether or not occurring in the ordinary course of
business, and there has not been any material transaction entered into or any
material transaction that is probable of being entered into by the Company,
other than transactions in the ordinary course of business and changes and
transactions described in the Registration Statement, as it may be amended or
supplemented. The Company has no material contingent obligations which are not
disclosed in the Company's financial statements included in the Registration
Statement or elsewhere in the Prospectus.
(l) Except as otherwise disclosed in the Prospectus, the Company is
not, nor, with the giving of notice or lapse of time or both, will it be, in
violation of or in default under its articles of incorporation or bylaws or
under any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its properties, is
bound and which default is of material significance in respect of the condition,
financial or otherwise of the Company or the business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company. The execution and delivery of this Agreement, and the consummation
of the transactions herein contemplated and the fulfillment of the terms hereof
will not conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture,
-4-
<PAGE>
mortgage, deed of trust or other agreement or instrument to which the Company is
a party, or of the articles of incorporation or bylaws of the Company or any
order, rule or regulation applicable to the Company of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction.
(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Units for public offering by
the Underwriters under state securities or Blue Sky laws) has been obtained or
made and is in full force and effect.
(n) The Company holds all material patents, patent rights,
trademarks, trade names, copyrights, trade secrets and licenses of any of the
foregoing (collectively, "Intellectual Property Rights") that are necessary to
the conduct of its business as it is presently conducted; there is no claim
pending or, to the best knowledge of the Company, threatened against the Company
alleging any infringement of Intellectual Property Rights, or any violation of
the terms of any licence relating to Intellectual Property Rights, nor does the
Company know of any basis for any such claim. The Company knows of no material
infringement by others of Intellectual Property Rights owned by or licensed to
the Company. Except as otherwise disclosed in the Prospectus, the Company has
obtained, is in compliance in all material respects with and maintains in full
force and effect all material licenses, certificates, permits, orders or other,
similar authorizations granted or issued by any governmental agency
(collectively, "Government Permits") required to conduct its business as it is
presently conducted. All applications for additional Government Permits
described in the Prospectus as having been made by the Company have been
properly and effectively made in accordance with the applicable laws and
regulations with respect thereto and such applications constitute, in the best
judgment of the Company's management, those reasonably required to be made in
order to obtain such Government Permits. No proceeding to revoke, limit or
otherwise materially change any Government Permit has been commenced or, to the
Company's best knowledge, is threatened against the Company or any supplier to
the Company with respect to materials supplied to the Company, and the Company
has no reason to anticipate that any such proceeding will be commenced against
the Company or any such supplier. Except as disclosed or contemplated in the
Prospectus, the Company has no reason to believe that any pending application
for a Government Permit will be denied or limited in a manner inconsistent with
the Company's business plan as described in the Prospectus.
(o) The Company is in all material respects in compliance with all
applicable Environmental Laws or is taking actions necessary to effect such
compliance. The Company has no knowledge of any past, present or, as
anticipated by the Company, future events, conditions, activities,
investigation, studies, plans or proposals that (i) would interfere with or
prevent compliance in any material respect with any Environmental Law by the
-5-
<PAGE>
Company or (ii) could reasonably be expected to give rise to any material common
law or other liability, or otherwise form the basis of a material claim, action,
suit, proceeding, hearing or investigation, involving the Company and related in
any way to Hazardous Substances or Environmental Laws. Except for the use and
management of Hazardous Substances in compliance with Environmental Laws in the
ordinary course of the Company's business, (i) no Hazardous Substance is or has
been used, treated, stored, generated, manufactured or otherwise handled on or
at any Facility and (ii) to the Company's best knowledge, no Hazardous
Substance has otherwise come to be located in, on or under any Facility. No
Hazardous Substances are stored at any Facility except in quantities necessary
to satisfy the reasonably anticipated use or consumption by the Company. Except
as to matters which are not material, no litigation, claim, proceeding or
governmental enforcement investigation is pending regarding any environmental
matter for which the Company has been served or otherwise notified or, to the
best knowledge of the Company, threatened or asserted against the Company, or
the officers or directors of the Company in their capacities as such, or any
Facility or the Company's business. There are no pending or, to the best
knowledge of the Company, threatened, judgments or decrees of any court or of
any governmental agency or instrumentality under any Environmental Law which
specifically apply to the Company, any Facility or any of the Company's
operations. Except as to matters that have been settled, the Company has not
received from a governmental authority or other person (i) any notice that it is
a potentially responsible person for any Contaminated site or (ii) any request
for information about a site alleged to be Contaminated or regarding the
disposal of Hazardous Substances. There is no litigation or proceeding against
any other person by the Company regarding any environmental matter. The Company
has disclosed in the Prospectus or made available to the Representatives and
their counsel true, complete and correct copies of any reports, studies,
investigations, audits, analysis, tests or monitoring in the possession of or
initiated by the Company pertaining to any environmental matter relating to the
Company, its past or present operations or any Facility.
For the purposes of the foregoing paragraph, "Environmental Laws" means any
applicable federal, state or local statute, regulation, code, rule, ordinance,
order, judgment, decree, injunction or common law pertaining in any way to the
protection of human health or the environment, including without limitation, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Toxic Substances Control Act, the
Clean Air Act, the Federal Water Pollution Control Act and any similar or
comparable state or local law; "Hazardous Substance" means any hazardous,
toxic, radioactive or infectious substance, material or waste as defined, listed
or regulated under any Environmental Law; "Contaminated" means the actual
existence on or under any real property of Hazardous Substances, if the
existence of such Hazardous Substances triggers a requirement to perform any
investigatory, remedial, removal or other response action under any
Environmental Laws or if such response action legally could be required by any
governmental authority; "Facility" means any property currently owned, leased
or occupied by the Company.
-6-
<PAGE>
(p) Neither the Company, nor to the Company's best knowledge, any of
its affiliates, has taken or intends to take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Units.
(q) The Company is not an "investment company" within the meaning of
such term under the Investment Company Act of 1940, as amended (the "1940 Act")
and the rules and regulations of the Commission thereunder.
(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(s) The Company carries, or is covered by, insurance in such amounts
and covering such risks as is adequate for the conduct of its business and the
value of its properties and as is customary for companies engaged in similar
industries.
(t) To the best of its knowledge, the Company is in compliance in all
material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder ("ERISA"); no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (ii)
Section 412 or 4971 of the Internal Revenue Code of 1986, as amended, including
the regulations and published interpretations thereunder (the "Code"); and each
"pension plan" for which the Company would have any liability that is intended
to be qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act, which
would cause the loss of such qualification.
(u) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the Company
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"),
whichever date is later, or if the information reported or incorporated by
reference in the Prospectus, if any, concerning the Company's business with Cuba
or with
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any person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate,
in a form acceptable to the Department.
(v) Except as otherwise described in the Prospectus, the Company is
in material compliance with all laws, rules, regulations, orders of any court or
administrative agency, operating licenses or other requirements imposed by any
governmental body applicable to it, including, without limitation, all
applicable laws, rules, regulations, licenses or other governmental standards
applicable to the industries in which the Company operates; and the conduct of
the business of the Company, as described in the Prospectus, will not cause the
Company to be in violation of any such requirements.
(w) The Warrants have been authorized for issuance to the various
purchasers of the Units and will, when issued, possess rights, privileges, and
characteristics as represented in the most recent form of Warrants filed as an
exhibit to the Registration Statement; the securities to be issued upon exercise
of the Warrants, when issued and delivered against payment therefor in
accordance with the terms of the Warrants, will be duly and validly issued,
fully paid, nonassessable and free of preemptive rights, and all corporate
action required to be taken for the authorization and issuance of the Warrants,
and the securities to be issued upon their exercise, has been validly and
sufficiently taken.
(x) The Representatives' Warrants (as defined in Paragraph (d) of
Section 2 hereof) have been authorized for issuance to the Representatives and
will, when issued, possess rights, privileges, and characteristics as
represented in the most recent form of Representatives' Warrants filed as an
exhibit to the Registration Statement; the securities to be issued upon exercise
of the Representatives' Warrants, when issued and delivered against payment
therefor in accordance with the terms of the Representatives' Warrants, will be
duly and validly issued, fully paid, nonassessable and free of preemptive
rights, and all corporate action required to be taken for the authorization and
issuance of the Representatives' Warrants, and the securities to be issued upon
their exercise, has been validly and sufficiently taken.
(y) Except as disclosed in the Prospectus, neither the Company nor
any of its officers, directors or affiliates have caused any person, other than
the Underwriters, and other than Joseph Charles & Associates, Inc. with respect
to a valuation fee, to be entitled to reimbursement of any kind, including,
without limitation, any compensation that would be includable as underwriter
compensation under the NASD's Corporate Financing Rule with respect to the
offering of the Units, as a result of the consummation of such offering based on
any activity of such person as a finder, agent, broker, investment adviser or
other financial service provider.
2. PURCHASE, SALE AND DELIVERY OF THE UNITS.
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(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $____ per Unit, the number of Firm Units
set forth opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Units to be sold hereunder is to be made in
New York Clearing House funds and, at the option of the Representatives, by
certified or bank cashier's checks drawn to the order of the Company or bank
wire to an account specified by the Company against either uncertificated
delivery of Firm Units or of certificates therefor (which delivery, if
certificated, shall take place in such location in New York, New York as may be
specified by the Representatives) to the Representatives for the several
accounts of the Underwriters. Such payment is to be made at the offices of the
Representatives at the address set forth on the first page of this agreement, or
at such other place as you and the Company shall designate, at 7:00 a.m.,
Pacific time, on the fourth business day after the date of this Agreement or at
such other time and date not later than five business days thereafter as you and
the Company shall agree upon, such time and date being herein referred to as the
"Closing Date." (As used herein, "business day" means a day on which the New
York Stock Exchange is open for trading and on which banks in New York are open
for business and not permitted by law or executive order to be closed.) Except
to the extent uncertificated Firm Units are delivered at closing, the
certificates for the Firm Units will be delivered in such denominations and in
such registrations as the Representatives request in writing not later than the
second full business day prior to the Closing Date, and will be made available
for inspection by the Representatives at least one business day prior to the
Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Representatives to purchase the Option
Units at the price per Unit as set forth in the first paragraph of this Section
2. The option granted hereby may be exercised in whole or in part by giving
written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 45 days after the date of this Agreement, by the
Representatives to the Company setting forth the number of Option Units as to
which the Representatives are exercising the option, the names and denominations
in which the Option Units are to be registered and the time and date at which
certificate representing such Units are to be delivered. The time and date at
which certificates for Option Units are to be delivered shall be determined by
the Representatives but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option Closing
Date"). If the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The option with respect to the Option Units granted hereunder may
be exercised only to cover over-allotments in the sale of the Firm Units by the
Underwriters. The Representatives may cancel such option at any time prior to
its expiration by giving written notice of such cancellation to the Company. To
the extent, if any, that the option is exercised, payment for the Option Units
shall be made on
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<PAGE>
the Option Closing Date in New York Clearing House funds and, at the option of
the Representatives, by certified or bank cashier's check drawn to the order of
the Company for the Option Units to be sold by the Company or bank wire to an
account specified by the Company against delivery of certificates therefor at
the offices of Paulson Investment Company, Inc. set forth on the first page of
this Agreement or at such other place as you and the Company shall designate.
(d) In addition to the sums payable to the Representatives as
provided elsewhere herein, the Representatives shall be entitled to receive at
the Closing, for themselves alone and not as Representatives of the
Underwriters, as additional compensation for their services, purchase warrants
(the "Representatives' Warrants") for the purchase of an aggregate of up to
225,000 Units at a price of $_____ per Unit, upon the terms and subject to
adjustment and conversion as described in the form of Representatives' Warrants
most recently filed as an exhibit to the Registration Statement.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Units as soon as the Representatives deem it advisable to
do so. The Firm Units are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Units are purchased pursuant
to Section 2 hereof, the Representatives will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Units in accordance with an
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
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<PAGE>
(b) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Units for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Units.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or
before the Closing Date, four signed copies of the Registration Statement and
all amendments thereto including all exhibits filed therewith, and will deliver
to the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Units as contemplated in this
Agreement and the Prospectus. If, during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the
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<PAGE>
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(f) The Company will make generally available to its security
holders, in any manner permitted by Rule 158(b) of the Rules and Regulations, as
soon as it is practicable to do so, but in any event not later than 15 months
after the effective date of the Registration Statement, an earnings statement
(which need not be audited) in reasonable detail, covering a period of at least
12 consecutive months beginning after the effective date of the Registration
Statement, which earnings statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(g) The Company will, for a period of five years from the Closing
Date, deliver to the Representatives copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Exchange Act.
The Company will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements.
(h) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of six months after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of Paulson Investment Company, Inc.,
on behalf of the Representatives, which consent will not be unreasonably
withheld; provided that the Company may grant options to employees to purchase
up to 500,000 shares of Common Stock pursuant to employee stock benefit plans
without obtaining consent.
(i) The Company will use its best efforts to list the Warrants,
subject to notice of issuance, and to maintain the listing of the Common Stock,
on the NASDAQ Stock Market.
(j) The Company has caused each officer and director, and each person
who owns, beneficially or of record, 5% or more of the Common Stock outstanding
immediately prior to this offering from whom you have requested a Lockup
Agreement (as hereafter defined), to furnish to you, on or prior to the date of
this Agreement, a letter or letters, in form and substance satisfactory to the
Underwriters ("Lockup Agreements"), pursuant to which each such person shall
agree not to offer to sell, sell, contract to sell, sell short or otherwise
dispose of any shares of Common Stock or other capital stock of the Company, or
any other securities convertible, exchangeable or exercisable for Common Stock
or derivatives of Common Stock owned by such person, or request the registration
for the
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<PAGE>
offer or sale of any of the foregoing (or as to which such person has the right
to direct the disposition of) for a period of six months after the date of this
Agreement, directly or indirectly, except with the prior written consent of
Paulson Investment Company, Inc., on behalf of the Representatives, which
consent shall not be unreasonably withheld, with respect to any offers to sell,
sales, contracts to sell, short sales or other dispositions of Common Stock
pursuant to Rule 144 under the Act or any similar provisions enacted subsequent
to the date of this Agreement, for as long as Paulson Investment Company, Inc.,
is a market maker in the Common Stock or for a period of three years from the
date of this Agreement, whichever period is shorter.
(k) The Company shall apply the net proceeds of its sale of the Units
as set forth in the Prospectus and shall file such reports with the Commission
with respect to the sale of the Units and the application of the proceeds
therefrom as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Units in such a manner as would
require the Company or any of the subsidiaries to register as an investment
company under the 1940 Act.
(m) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
5. COSTS AND EXPENSES.
(a) The Representatives shall be entitled to receive from the
Company, for themselves alone and not as Representatives of the Underwriters, a
nonaccountable expense allowance equal to an aggregate of 3% of the aggregate
public offering price of Units sold to the Underwriters in connection with the
Offering. The Representatives shall be entitled to withhold this allowance on
the Closing Date (less the $35,000 advance against such amount that has been
paid by the Company) with respect to Units delivered on the Closing Date and to
require the Company to make payment of this allowance on the Option Closing Date
with respect to Units delivered on the Option Closing Date.
(b) In addition to the payment described in Paragraph (a) of this
Section 5, the Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting
fees of the Company; the fees and disbursements of counsel for the Company; the
cost of printing and delivering to, or as requested by, the Underwriters copies
of the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation
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<PAGE>
Letter, the Listing Application, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees incident
to securing any required review by the NASD of the terms of the sale of the
Units; the Listing Fee of The NASDAQ Stock Market; reasonable costs of a due
diligence investigation of the principals of the Company by a firm acceptable to
the Representatives; and the expenses, including the fees and disbursements of
counsel for the Underwriters, incurred in connection with the qualification of
the Units under state securities or Blue Sky laws. Any transfer taxes imposed
on the sale of the Units to the several Underwriters will be paid by the
Company. The Company agrees to pay all costs and expenses of the Underwriters,
including the fees and disbursements of counsel for the Underwriters, incident
to the offer and sale of directed shares of the Common Stock by the Underwriters
to employees and persons having business relationships with the Company. The
Company shall not, however, be required to pay for any of the Underwriters'
expenses (other than those related to qualification under NASD regulation and
state securities or Blue Sky laws), except that, if this Agreement shall not be
consummated, then the Company shall reimburse the several Underwriters for
reasonable accountable out-of-pocket expenses, including fees and disbursements
of counsel, reasonably incurred in connection with investigating, marketing and
proposing to market the Units or in contemplation of performing their
obligations hereunder (less any portion of the $35,000 advance that has been
paid by the Company that was reasonably incurred and accounted for by the
Representatives); but the Company shall not in any event be liable to any of the
several Underwriters for damages on account of loss of anticipated profits from
the sale by them of the Units.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm Units on
the Closing Date and the Option Units, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company contained
herein, and to the performance by the Company of their covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Units.
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<PAGE>
(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Stoel Rives LLP,
counsel for the Company, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters), which may be given in reliance
upon, as to matters of Nevada law, an opinion of Lionel Sawyer and Collins of
Reno, Nevada, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Nevada, with corporate power and corporate authority to own or lease its
properties and conduct its business as described in the Registration Statement;
the Company is duly qualified to transact business in Washington.
(ii) The Company has authorized and outstanding capital stock
as set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's Common Stock have been duly authorized; the
outstanding shares of the Company's Common Stock that have been issued since
September 1, 1995, have been duly authorized and validly issued and are fully
paid and nonassessable; all of the securities of the Company conform to the
description thereof contained in the Prospectus; the certificates for the Common
Stock and Warrants, assuming they are in the form mostly recently filed with the
Commission, are in due and proper form; the shares of Common Stock to be sold by
the Company pursuant to this Agreement, including shares of Common Stock to be
sold as a part of the Option Units, have been duly authorized and, upon issuance
and delivery thereof against payment therefor, as contemplated in this Agreement
and the Registration Statement, will be validly issued, fully paid and non-
assessable; no preemptive rights of stockholders exist with respect to any of
the Common Stock of the Company or the issuance or sale thereof pursuant to any
applicable statute or the provisions of the Company's articles of incorporation
or bylaws or, to such counsel's knowledge, pursuant to any contractual
obligation that the Company is bound to enforce. The Warrants and the
Representatives' Warrants have been authorized for issuance to the purchasers of
Units or the Representatives, as the case may be, and will, when issued, possess
the rights set forth in the most recent form of Warrant certificate or
Representatives' Warrants, as the case may be, filed as an exhibit to the
Registration Statement; the securities to be issued upon exercise of the
Representatives' Warrants, when issued and delivered against payment therefor in
accordance with the terms of the Representatives' Warrants, will be duly and
validly issued, fully paid, nonassessable and free of preemptive rights; and all
corporate action required to be taken for the authorization and issuance of the
Warrants, the Representatives' Warrants, and the securities to be issued upon
their exercise, has been taken.
(iii) Except as described in or contemplated by the Prospectus,
to the knowledge of such counsel, (A) there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and (B) there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of
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its capital stock or any securities convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of such stock; and
except as described in the Prospectus, to the knowledge of such counsel, no
holder of any securities of the Company or any other person has the right,
contractual or otherwise, which has not been satisfied or effectively waived, to
cause the Company to sell or otherwise issue to them, or to permit them to
underwrite the sale of, any of the Units or the right to have any Common Stock
or other securities of the Company included in the Registration Statement or the
right, as a result of the filing of the Registration Statement, to require
registration under the Act of any shares of Common Stock or other securities of
the Company.
(iv) The Registration Statement has become effective under the
Act and, to the knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects
with the requirements of the Act and the applicable rules and regulations
thereunder (except that such counsel need express no opinion as to the
financial statements, schedules or other financial data or statistical
information therein).
(vi) The statements under the captions "Shares Eligible for
Future Sale" and "Description of Capital Stock" in the Prospectus and in Item 24
of the Registration Statement, insofar as such statements constitute a summary
of documents referred to therein or matters of law, fairly summarize in all
material respects the information called for with respect to such documents and
matters.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described in
the Registration Statement or the Prospectus which are not so filed or described
as required, and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized in all material
respects to the extent required by the Rules and Regulations.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company, except as disclosed in
the Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not result
in a material breach of any of the terms or provisions of, or constitute a
material default under, the articles of incorporation or bylaws of the Company,
or any agreement or instrument known to such counsel to which the Company is a
party or by which the Company is bound.
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<PAGE>
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by state securities
and blue sky laws as to which such counsel need express no opinion) except such
as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of
the consummation of the transactions contemplated by this Agreement and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
In rendering such opinion, such counsel may rely as to matters governed by
the laws of states other than Washington or federal laws on local counsel in
such jurisdictions, provided that in each case such counsel shall state that
they believe that they and the Underwriters are justified in relying on such
other counsel. In addition to the matters set forth above, the opinion of Stoel
Rives LLP shall also include a statement to the effect that nothing has come to
the attention of such counsel that has caused them to believe that (i) the
Registration Statement, at the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (ii) the Prospectus, or any supplement thereto, on the date
it was filed pursuant to the Rules and Regulations and as of the Closing Date or
the Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements, in light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules or other financial data or statistical information
therein).
(c) The Representatives shall have received from Weiss, Jensen,
Ellis & Howard, counsel for the Underwriters, an opinion dated the Closing Date
or the Option Closing Date, as the case may be, substantially to the effect
specified in subparagraphs (i), (iv) and (v) of Paragraph (b) of this Section 6.
In rendering such opinion, Weiss, Jensen, Ellis & Howard may rely as to all
matters governed other than by the laws of the State of Oregon or federal laws
on the opinion of counsel referred to in Paragraph (b) of this Section 6. In
addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
that has caused them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) as of the Closing Date or the Option Closing
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Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (ii) the Prospectus, or any supplement thereto, on the
date it was filed pursuant to the Rules and Regulations and as of the Closing
Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact, necessary in
order to make the statements, in light of the circumstances under which they are
made, not misleading (except that such counsel need express no view as to
financial statements, schedules or other financial data or statistical
information therein). With respect to such statement, Weiss, Jensen, Ellis &
Howard may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.
(d) The Representatives shall have received at or prior to the
Closing Date from Weiss, Jensen, Ellis & Howard a memorandum or summary, in
form and substance satisfactory to the Representatives, with respect to the
qualification for offering and sale by the Underwriters of the Units under the
state securities or blue sky laws of such jurisdictions as the Representatives
may reasonably have designated to the Company.
(e) The Representatives, on behalf of the several Underwriters, shall
have received, on each of the dates hereof, the Closing Date and the Option
Closing Date, as the case may be, a letter dated the date hereof, the Closing
Date or the Option Closing Date, as the case may be, in form and substance
satisfactory to the Representatives, of Moss Adams LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating that in their opinion the
financial statements and schedules examined by them and included in the
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations and containing such other statements and information as are
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for such purpose have been taken or are, to
their knowledge, contemplated by the Commission;
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<PAGE>
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rule
424 or Rule 430A under the Act have been made;
(iv) They have carefully examined the Registration Statement
and the Prospectus and, in their opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration Statement
were true and correct, and such Registration Statement and Prospectus did not
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set forth in a
supplement to or an amendment of the Prospectus which has not been so set forth
in such supplement or amendment; and
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change or, to the best of such officers' knowledge, any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company or the earnings, business,
management, properties, assets, rights, operations, or condition (financial or
otherwise) of the Company, whether or not arising in the ordinary course of
business.
(g) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(h) The Warrants have been approved for designation upon notice of
issuance, and the Common Stock shall retain its designation, on the NASDAQ Stock
Market.
(i) The Lockup Agreements described in Section 4(j) are in full force
and effect.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to Weiss, Jensen, Ellis &
Howard, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
facsimile transmission at or prior to the Closing Date or the Option Closing
Date, as the case may be.
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<PAGE>
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the Units
required to be delivered as and when specified in this Agreement are subject to
the conditions that at the Closing Date or the Option Closing Date, as the case
may be, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and in effect or proceedings therefor initiated or
threatened.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to which
such Underwriter or any such controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse each Underwriter and
each such controlling person upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Units, whether or not such Underwriter or
controlling person is a party to any action or proceeding; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary
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Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; and will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer or controlling person in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding; provided, however,
that each Underwriter will be liable in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company by or through
the Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party and
shall pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing,
the indemnifying party shall pay as incurred (or within 30 days of presentation)
the fees and expenses of the counsel retained by the indemnified party in the
event (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel, (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them or (iii) the indemnifying party shall have failed to assume the defense and
employ counsel acceptable to the indemnified party within a reasonable period of
time after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 8(a) and by the Company in the case of parties indemnified
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<PAGE>
pursuant to Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition,
the indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Units. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bears to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 8(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such
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<PAGE>
action or claim. Notwithstanding the provisions of this subsection (d), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Units purchased by such
Underwriter, and (ii) no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this Section 8(d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Units and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for the portion of the Units which
such Underwriter has agreed to purchase and pay for on such date (otherwise than
by reason of any material default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Units or Option Units, as the case may be,
which the defaulting Underwriter or Underwriters failed to purchase. If during
such 36 hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Units or Option Units, as the
case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of Units with respect to which
such default shall occur does not exceed
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<PAGE>
10% of the Firm Units or Option Units, as the case may be, covered hereby, the
other Underwriters shall be obligated, severally, in proportion to the
respective numbers of Firm Units or Option Units, as the case may be, which they
are obligated to purchase hereunder, to purchase the Firm Units or Option Units,
as the case may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (b) if the aggregate number of Firm Units or Option Units, as the
case may be, with respect to which such default shall occur equals or exceeds
10% of the Firm Units or Option Units, as the case may be, covered hereby, the
Company or you as the Representatives of the Underwriters will have the right,
by written notice given within the next 36-hour period to the parties to this
Agreement, to terminate this Agreement without liability on the part of the non-
defaulting Underwriters or of the Company except to the extent provided in
Section 8 hereof. In the event of a default by any Underwriter or Underwriters,
as set forth in this Section 9, the Closing Date or Option Closing Date, as the
case may be, may be postponed for such period, not exceeding seven days, as you,
as Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as otherwise
provided herein, will be mailed, delivered, telecopied or faxed and confirmed as
follows: if to the Underwriters, to Paulson Investment Company, Inc., 811 SW
Front Avenue, Portland, Oregon 97204, Attention: Chester L.F. Paulson; with a
copy to Weiss, Jensen, Ellis & Howard, 2300 U.S. Bancorp Tower, 111 Fifth
Avenue, Portland, Oregon 97204, Attention: Mark A. von Bergen; if to the
Company, to PCT Holdings, Inc., 434 Olds Station Road, Wenatchee, Washington
98801, Attention: Donald A. Wright; with a copy to Stoel Rives LLP, 3600 Union
Square, 600 University Street, Seattle, Washington 98101-3197, Attention:
Sheryl A. Symonds.
11. TERMINATION.
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the earlier of (i) the time the Units are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of
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<PAGE>
the Company and its subsidiaries taken as a whole or the earnings, business,
management, properties, assets, rights, operations, or condition (financial or
otherwise) of the Company and its subsidiaries taken as a whole, whether or not
arising in the ordinary course of business, (ii) any outbreak or escalation of
hostilities or declaration of war or national emergency or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, escalation, declaration, emergency, calamity,
crisis or change on the financial markets of the United States would, in your
reasonable judgment, make it impracticable to market the Units or to enforce
contracts for the sale of the Units, (iii) the Dow Jones Industrial Average
shall have fallen by 15 percent or more from its closing price on the day
immediately preceding the date that the Registration Statement is declared
effective by the Commission, (iv) suspension of trading in securities generally
on the New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (v) the enactment, publication, decree or
other promulgation of any statute, regulation, rule or order of any court or
other governmental authority which in your opinion materially and adversely
affects or may materially and adversely affect the business or operations of the
Company, (vi) declaration of a banking moratorium by United States or New York
State authorities, (vii) any downgrading in the rating of the Company's debt
securities by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Exchange Act), (viii) the
suspension of trading of the Common Stock by the Commission on the NASDAQ Stock
Market, or (ix) the taking of any action by any governmental body or agency in
respect of its monetary or fiscal affairs which in your reasonable opinion has a
material adverse effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Units from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-B under the Act and the information under the caption
"Underwriting" in the Prospectus.
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<PAGE>
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements contained in
this Agreement and the representations, warranties and covenants in this
Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Units under
this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Oregon. All disputes relating to this Underwriting
Agreement shall be adjudicated before a court located in Multnomah County,
Oregon to the exclusion of all other courts that might have jurisdiction.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
PCT HOLDINGS, INC.
By:
-----------------------------------------
Donald A. Wright,
President
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<PAGE>
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
PAULSON INVESTMENT COMPANY, INC.
COHIG & ASSOCIATES, INC.
As Representatives of the several
Underwriters listed on Schedule I
By: Paulson Investment Company, Inc.
By:
-----------------------------
Authorized Officer
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<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Units
Underwriter to be Purchased
----------- -------------------------
Paulson Investment Company, Inc.
Cohig & Associates, Inc.
____________________
--------------------
Total 2,250,000
---------
---------
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<PAGE>
EXHIBIT 4.2
[Form of the Face of the Warrant Certificate]
VOID AFTER 5 P.M. MOUNTAIN TIME ON JULY ___, 2001
WARRANTS TO PURCHASE COMMON STOCK
W_____ _________ Warrants
PCT HOLDINGS, INC.
CUSIP 693259 11 1
THIS CERTIFIES THAT
or registered assigns, is the registered holder of the number of Warrants
("Warrants") set forth above. Each Warrant entitles the holder thereof to
purchase from PCT Holdings, Inc., a Nevada corporation ("Company"), subject to
the terms and conditions set forth hereinafter and in the Warrant Agreement
hereinafter more fully described ("Warrant Agreement"), one fully paid and
nonassessable share of common stock, $0.001 par value, of the Company ("Common
Stock") upon presentation and surrender of this Warrant Certificate, with the
Election to Purchase on the reverse side of this Warrant Certificate filled in,
together with payment of the Exercise Price (as defined in the Warrant
Agreement) and any applicable taxes, paid either in cash, by wire transfer of
good funds or by certified or official bank check, payable in lawful money of
the United States of America to the order of the Company, at any time prior to
5:00 P.M., Mountain time, on July __, 2001 or, if such Warrant is redeemed as
provided in the Warrant Agreement, at any time prior to the effective time of
such redemption, at the stock transfer office in Holladay, Utah, of Interwest
Transfer Co., Inc., warrant agent of the Company ("Warrant Agent"), or at the
designated office of its successor warrant agent or, if there be no successor
warrant agent, at the corporate offices of the Company.
Each Warrant initially entitles the holder to purchase one share of Common
Stock for $_____, subject to certain adjustments, including, if the Company's
audited fiscal 1997 net income (adjusted to exclude any expense relating to the
vesting of any employee options or warrants) does not exceed $1,500,000, a one-
time downward adjustment of the Exercise Price to (i) $_____ if such net income
is $800,000 to $1,500,000, (ii) $_____if such net income is $500,000 to
$799,999, or (iii) $_____ if such net income is less than $500,000. The number
and kind of securities or other property for which the Warrants are exercisable
are subject to further adjustment in certain events, such as mergers, splits,
stock dividends, recapitalizations and the like, to prevent dilution, as
described in the Warrant Agreement.
The Company may redeem any or all outstanding and unexercised Warrants at
any time upon 30 days' notice, at a price equal to $0.25 per Warrant, if the
Daily Price (as defined below) has equaled or exceeded 200% of the then-current
Exercise Price of the Warrants for
<PAGE>
20 consecutive trading days immediately preceding the date of notice of such
redemption. The term "Daily Price" means, for any relevant day, the closing bid
price on that day as reported by the principal exchange or quotation system on
which prices for the Common Stock are reported. All Warrants not previously
exercised or redeemed will expire on July __, 2001.
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, dated as of July 1, 1996, between the
Company and the Warrant Agent ("Warrant Agreement"). The registered holder of
this Warrant Certificate consents to all of such terms, provisions and
conditions by acceptance of this Warrant Certificate. The Warrant Agreement is
incorporated herein by reference and made a part hereof, and reference is made
to the Warrant Agreement for a full description of the rights, limitations of
rights, obligations, duties and immunities of the Warrant Agent, the Company and
the holders of the Warrant Certificates. Copies of the Warrant Agreement are
available for inspection at the stock transfer office of the Warrant Agent or
may be obtained upon written request addressed to the Company at 434 Olds
Station Road, Wenatchee, Washington 98801, Attention: President.
The Company shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractions of Warrants, Common
Stock or other securities, but shall have the option to issue fractions of
Warrants, Common Stock or other securities or to make adjustment therefor in
cash on the basis of the current market value of any fractional interest as
provided in the Warrant Agreement.
In certain cases, the sale of securities by the Company upon exercise of
Warrants would violate the securities laws of the United States, certain states
thereof or other jurisdictions. The Company has agreed to use all commercially
reasonable efforts to cause a registration statement to continue to be effective
during the term of the Warrants with respect to such sales under the Securities
Act of 1933, as amended, and to take such action under the laws of various
states as may be required to cause the sale of securities upon exercise to be
lawful. However, the Company will not be required to honor the exercise of
Warrants if, in the opinion of the Board of Directors of the Company, upon
advice of counsel, the sale of securities upon such exercise would be unlawful.
In certain cases, the Company may, but is not required to, purchase Warrants
submitted for exercise for a cash price equal to the difference between the
market price of the securities obtainable upon such exercise and the exercise
price of such Warrants.
This Warrant Certificate, with or without other Warrant Certificates, upon
proper surrender to the Warrant Agent, any successor warrant agent or, in the
absence of any successor warrant agent, at the corporate offices of the Company,
may be exchanged for another Warrant Certificate or Warrant Certificates
evidencing in the aggregate the same number of Warrants as the Warrant
Certificate or Warrant Certificates so surrendered. If the Warrants evidenced
by this Warrant Certificate shall be exercised in part, the holder hereof shall
be entitled to receive upon surrender hereof another Warrant Certificate or
Warrant Certificates evidencing the number of Warrants not so exercised.
No holder of this Warrant Certificate, as such, shall be entitled to vote,
receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose whatever. Nothing contained in the Warrant Agreement or
herein may be construed to confer upon the holder of this Warrant Certificate,
as such, any of the rights of a stockholder of the Company, any right to vote
for the
<PAGE>
election of directors or upon any matter submitted to stockholders at any
meeting thereof, any right to give or withhold consent to any corporate action
(whether at any meeting of stockholders or by giving or withholding consent to
any merger, recapitalization, issuance of stock, reclassification of stock,
change of par value or change of stock to no par value, consolidation,
conveyance or otherwise) or any right to receive notice of meetings or other
actions affecting stockholders (except as provided in the Warrant Agreement).
No holder of this Warrant Certificate shall have any right to receive dividends
or subscription rights or any other rights that any stockholders of the Company
may have until the Warrants evidenced by this Warrant Certificate shall have
been exercised and the Common Stock purchasable upon the exercise thereof shall
have become deliverable as provided in the Warrant Agreement.
If this Warrant Certificate is surrendered for exercise within any period
during which the transfer books for the Company's Common Stock or other class of
stock purchasable upon the exercise of the Warrants evidenced by this Warrant
Certificate are closed for any purpose, the Company shall not be required to
deliver certificates for shares of Common Stock purchasable upon such transfer
until the date of the reopening of said transfer books.
Every holder of this Warrant Certificate by accepting the same consents and
agrees with the Company, the Warrant Agent, and with every other holder of a
Warrant Certificate that:
(a) this Warrant Certificate is transferable on the transfer books of the
Warrant Agent only upon the terms and conditions set forth in the Warrant
Agreement, and
(b) the Company and the Warrant Agent may deem and treat the person in
whose name this Warrant Certificate is registered as the absolute owner hereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes whatever,
and neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
The Company shall not be required to issue or deliver any certificate for
shares of Common Stock or other securities upon the exercise of Warrants
evidenced by this Warrant Certificate until any tax which may be payable in
respect thereof by the holder of this Warrant Certificate pursuant to the
Warrant Agreement shall have been paid, such tax being payable by the holder of
this Warrant Certificate at the time of surrender.
This Warrant Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Warrant Agent.
WITNESS the facsimile signature of a duly authorized officer of the
Company.
Dated: July ___, 1996.
PCT HOLDINGS, INC.
By:
-------------------------------
President
<PAGE>
Countersigned
INTERWEST TRANSFER CO., INC.
By:
----------------------------
Authorized Officer
<PAGE>
[Form of the Reverse of the Warrant Certificate]
ELECTION TO PURCHASE
[To be executed by the Registered Holder to exercise Warrants]
The undersigned Registered Holder hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase
_______________________ shares and herewith tenders payment for such shares in
cash or by a certified or official bank check payable to the order of the
Company or has made a wire transfer to the Company of good funds in the amount
of _______________________ and in accordance with the terms hereof. The
undersigned requests that a certificate for such shares be registered in the
name of __________________________________________________________________ whose
address is____________________________________ and that such certificate
be delivered to _______________________________________________________________
_____ whose address is ________________________________________________________
_________________.
If said number of shares is less than all of the shares purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
Warrants to purchase the remaining balance of the shares be registered in the
name of ____________________________________________________ whose address is
_________________________________________________________________ and that such
certificate be delivered to_____________________________________________________
________________________________.
Dated: _____________________ Signature _______________________________________
INSERT SOCIAL SECURITY OR OTHER (Signature must conform in all respects
IDENTIFYING NUMBER OF ASSIGNEE to name of Registered Holder as it
appears on the face of the Warrant
Certificate.)
Signature Guaranteed:
ASSIGNMENT
(To be executed by the Registered Holder to transfer Warrants)
FOR VALUE RECEIVED, the undersigned Registered Holder hereby sells, assigns
and transfers unto
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address of assignee)
________________________________ of the Warrants evidenced by this Warrant
Certificate, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ________________________________ as
Attorney to transfer the within Warrant Certificate on the books of the within-
named Company, with full power of substitution.
Dated: _____________________ Signature
--------------------- ----------------------------------------
INSERT SOCIAL SECURITY OR OTHER (Signature must conform in all respects
IDENTIFYING NUMBER OF ASSIGNEE to name of Registered Holder as it
appears on the face of the Warrant
Certificate.)
Signature Guaranteed:
<PAGE>
EXHIBIT 4.3
WARRANT AGREEMENT
between
PCT HOLDINGS, INC.
and
INTERWEST TRANSFER CO., INC.
Dated as of July 1, 1996
<PAGE>
This Warrant Agreement (this "Agreement"), dated as of July 1, 1996,
is between PCT Holdings, Inc., a Nevada corporation (the "Company"), and
Interwest Transfer Co., Inc., a ___________ corporation (the "Warrant Agent").
The Company, at or about the time that it is entering into this
Agreement, proposes to issue and sell to public investors up to 2,587,500 Units
("Units"). Each Unit consists of one share of common stock, $0.001 par value,
of the Company ("Common Stock") and one Warrant (collectively, the "Warrants"),
each Warrant exercisable to purchase one share of Common Stock for $____, upon
the terms and conditions and subject to adjustment in certain circumstances, all
as set forth in this Agreement.
The Company proposes to issue to the Representatives of the
Underwriters in the public offering of Units referred to above warrants to
purchase up to 225,000 additional Units.
The Company wishes to retain the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, transfer, exchange and replacement of the certificates evidencing the
Warrants to be issued under this Agreement (the "Warrant Certificates") and the
exercise of the Warrants;
The Company and the Warrant Agent wish to enter into this Agreement to
set forth the terms and conditions of the Warrants and the rights of the holders
thereof ("Warrantholders") and to set forth the respective rights and
obligations of the Company and the Warrant Agent. Each Warrantholder is an
intended beneficiary of this Agreement with respect to the rights of
Warrantholders herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
Section 1. APPOINTMENT OF WARRANT AGENT
The Company appoints the Warrant Agent to act as agent for the Company
in accordance with the instructions in this Agreement and the Warrant Agent
accepts such appointment.
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<PAGE>
Section 2. DATE, DENOMINATION AND EXECUTION OF WARRANT CERTIFICATES
The Warrant Certificates (and the Form of Election to Purchase and the
Form of Assignment to be printed on the reverse thereof) shall be in registered
form only and shall be substantially of the tenor and purport recited in Exhibit
A hereto, and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law, or with any rule or regulation made pursuant thereto, or with any rule or
regulation of any stock exchange or any automated quotation system on which the
Common Stock or the Warrants may be listed, or to conform to usage. Each
Warrant Certificate shall entitle the registered holder thereof, subject to the
provisions of this Agreement and of the Warrant Certificate, to purchase, on or
before the close of business on July ___, 2001 (the "Expiration Date"), one
fully paid and non-assessable share of Common Stock for each Warrant evidenced
by such Warrant Certificate, subject to adjustments as provided in Section 6
hereof, for the "Exercise Price," which initially shall be $________, subject to
adjustment as provided in Section 6 hereof. Each Warrant Certificate issued as
a part of a Unit offered to the public as described in the recitals, above,
shall be dated July ___, 1996; each other Warrant Certificate shall be dated the
date on which the Warrant Agent receives valid issuance instructions from the
Company or a transferring holder of a Warrant Certificate or, if such
instructions specify another date, such other date.
For purposes of this Agreement, the term "close of business" on any
given date shall mean 5:00 p.m., Mountain time, on such date; provided, however,
that if such date is not a business day, it shall mean 5:00 p.m., Mountain time,
on the next succeeding business day. For purposes of this Agreement, the term
"business day" shall mean any day other than a Saturday, Sunday, or a day on
which banking institutions in New York are authorized or obligated by law to be
closed.
Each Warrant Certificate shall be executed on behalf of the Company by
the Chairman of the Board or its President or a Vice President, either manually
or by facsimile signature printed thereon. Each Warrant Certificate shall be
manually countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any Warrant Certificate shall cease to be such officer of the
Company before countersignature by the Warrant Agent and issue and delivery
thereof by the Company, such Warrant Certificate, nevertheless, may be
countersigned by the Warrant Agent, issued and delivered with the same force and
effect as though the person who signed such Warrant Certificate had not ceased
to be such officer of the Company.
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<PAGE>
Section 3. SUBSEQUENT ISSUANCE OF WARRANT CERTIFICATES
Subsequent to their original issuance, no Warrant Certificates shall
be reissued except (i) Warrant Certificates issued upon transfer thereof in
accordance with Section 4 hereof, (ii) Warrant Certificates issued upon any
combination, split-up or exchange of Warrant Certificates pursuant to Section 4
hereof, (iii) Warrant Certificates issued in replacement of mutilated,
destroyed, lost or stolen Warrant Certificates pursuant to Section 5 hereof,
(iv) Warrant Certificates issued upon the partial exercise of Warrant
Certificates pursuant to Section 7 hereof, and (v) Warrant Certificates issued
to reflect any adjustment or change in the Exercise Price or the number or kind
of shares purchasable thereunder pursuant to Section 22 hereof. The Warrant
Agent is hereby irrevocably authorized to countersign and deliver, in accordance
with the provisions of said Sections 4, 5, 7 and 22, the new Warrant
Certificates required for purposes thereof, and the Company, whenever required
by the Warrant Agent, will supply the Warrant Agent with Warrant Certificates
duly executed on behalf of the Company for such purposes.
Section 4. TRANSFERS AND EXCHANGES OF WARRANT CERTIFICATES
The Warrant Agent will keep or cause to be kept books for registration
of ownership and transfer of the Warrant Certificates issued hereunder. Such
registers shall show the names and addresses of the respective holders of the
Warrant Certificates and the number of Warrants evidenced by each such Warrant
Certificate.
The Warrant Agent shall, from time to time, register the transfer of
any outstanding Warrants upon the books to be maintained by the Warrant Agent
for that purpose, upon surrender of the Warrant Certificate evidencing such
Warrants, with the Form of Assignment duly filled in and executed with such
signature guaranteed by a banking institution or NASD member and such supporting
documentation as the Warrant Agent or the Company may reasonably require, to the
Warrant Agent at its stock transfer office in Holladay, Utah, at any time on or
before the Expiration Date, and upon payment to the Warrant Agent for the
account of the Company of an amount equal to any applicable transfer tax.
Payment of the amount of such tax may be made in cash, by wire transfer of good
funds, or by certified or official bank check, payable in lawful money of the
United States of America to the order of the Company.
Upon receipt of a Warrant Certificate, with the Form of Assignment
duly filled in and executed, accompanied by payment of an amount equal to any
applicable transfer tax, the Warrant Agent shall promptly cancel the surrendered
Warrant Certificate and countersign and deliver to the transferee a new Warrant
Certificate for the number of full Warrants transferred to such transferee;
PROVIDED, HOWEVER, that in case the registered holder of any Warrant Certificate
shall elect to transfer fewer than all of the Warrants evidenced by such Warrant
Certificate, the Warrant Agent in addition shall promptly
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<PAGE>
countersign and deliver to such registered holder a new Warrant Certificate or
Warrant Certificates for the number of full Warrants not so transferred.
Any Warrant Certificate or Warrant Certificates may be exchanged at
the option of the holder thereof for another Warrant Certificate or Warrant
Certificates of different denominations, of like tenor and representing in the
aggregate the same number of Warrants, upon surrender of such Warrant
Certificate or Warrant Certificates, with the Form of Assignment duly filled in
and executed, to the Warrant Agent, at any time or from time to time after the
close of business on the date hereof and prior to the close of business on the
Expiration Date. The Warrant Agent shall promptly cancel the surrendered
Warrant Certificate and deliver the new Warrant Certificate pursuant to the
provisions of this Section.
Section 5. MUTILATED, DESTROYED, LOST OR STOLEN WARRANT CERTIFICATES
Upon receipt by the Company and the Warrant Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
any Warrant Certificate, and in the case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and reimbursement to them
of all reasonable expenses incidental thereto, and, in the case of mutilation,
upon surrender and cancellation of the Warrant Certificate, the Warrant Agent
shall countersign and deliver a new Warrant Certificate of like tenor for the
same number of Warrants.
Section 6. ADJUSTMENTS OF NUMBER AND KIND OF SHARES PURCHASABLE AND EXERCISE
PRICE
The number and kind of securities or other property purchasable upon
exercise of a Warrant and the Exercise Price shall be subject to adjustment from
time to time upon the occurrence, after the date hereof, of any of the following
events:
A. The initial Exercise Price shall be $____. If the Company's audited
fiscal 1997 net income (adjusted as provided in the next sentence) does not
exceed $1,500,000, there shall be a one-time downward adjustment of the Exercise
Price to (i) $____ if such net income is $800,000 to $1,500,000, (ii) $____ if
such net income is $500,000 to $799,000 or (iii) $____ if such net income is
less than $500,000. Solely for the purpose of determining whether any downward
adjustment to the Exercise Price will be made based on fiscal 1997 net income,
any expense relating to the vesting of any performance-based options or warrants
held by employees of the Company (including any amortization of capitalized
patent costs relating to such warrants or options) will be excluded in
determining fiscal 1997 net income.
B. In case the Company shall (1) pay a dividend in, or make a
distribution of, shares of capital stock on its outstanding Common Stock, (2)
subdivide its outstanding
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<PAGE>
shares of Common Stock into a greater number of such shares or (3) combine its
outstanding shares of Common Stock into a smaller number of such shares, the
total number of shares of Common Stock purchasable upon the exercise of each
Warrant outstanding immediately prior thereto shall be adjusted so that the
holder of any Warrant Certificate thereafter surrendered for exercise shall be
entitled to receive at the same aggregate Exercise Price the number of shares of
capital stock (of one or more classes) which such holder would have owned or
have been entitled to receive immediately following the happening of any of the
events described above had such Warrant been exercised in full immediately prior
to the record date with respect to such event. Any adjustment made pursuant to
this Subsection shall, in the case of a stock dividend or distribution, become
effective as of the record date therefor and, in the case of a subdivision or
combination, be made as of the effective date thereof. If, as a result of an
adjustment made pursuant to this Subsection, the holder of any Warrant
Certificate thereafter surrendered for exercise shall become entitled to receive
shares of two or more classes of capital stock of the Company, the Board of
Directors of the Company (whose determination shall be conclusive and shall be
evidenced by a Board resolution filed with the Warrant Agent) shall determine
the allocation of the adjusted Exercise Price between or among shares of such
classes of capital stock.
C. In the event of a capital reorganization or a reclassification of the
Common Stock (except as provided in Subsection B. above or Subsection E. below),
any Warrantholder, upon exercise of Warrants, shall be entitled to receive, in
substitution for the Common Stock to which he would have become entitled upon
exercise immediately prior to such reorganization or reclassification, the
shares (of any class or classes) or other securities or property of the Company
(or cash) that he would have been entitled to receive at the same aggregate
Exercise Price upon such reorganization or reclassification if such Warrants had
been exercised immediately prior to the record date with respect to such event.
In any such case, appropriate provision (as determined by the Board of Directors
of the Company, whose determination shall be conclusive and shall be evidenced
by a certified Board resolution filed with the Warrant Agent) shall be made for
the application of this Section 6 with respect to the rights and interests
thereafter of the Warrantholders (including but not limited to the allocation of
the Exercise Price between or among shares of classes of capital stock), to the
end that this Section 6 (including the adjustments of the number of shares of
Common Stock or other securities purchasable and the Exercise Price thereof)
shall thereafter be reflected, as nearly as reasonably practicable, in all
subsequent exercises of the Warrants for any shares or securities or other
property (or cash) thereafter deliverable upon the exercise of the Warrants.
D. Whenever the number of shares of Common Stock or other securities
purchasable upon exercise of a Warrant or the Exercise Price is adjusted as
provided in this Section 6, the Company will promptly file with the Warrant
Agent a certificate signed by a Chairman or co-Chairman of the Board or the
President or a Vice President of the Company and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company
setting forth the number and kind of securities or other property
-5-
<PAGE>
purchasable upon exercise of a Warrant, as so adjusted, or the Exercise Price as
so adjusted, stating that such adjustments in the number or kind of shares or
other securities or property or such adjustments in the Exercise Price, conform
to the requirements of this Section 6, and setting forth a brief statement of
the facts accounting for such adjustments. Promptly after receipt of such
certificate, the Company, or the Warrant Agent at the Company's request, will
deliver, by first-class, postage prepaid mail, a brief summary thereof (to be
supplied by the Company) to the registered holders of the outstanding Warrant
Certificates; PROVIDED, HOWEVER, that failure to file or to give any notice
required under this Subsection, or any defect therein, shall not affect the
legality or validity of any such adjustments under this Section 6; and PROVIDED,
FURTHER, that, where appropriate, such notice may be given in advance and
included as part of the notice required to be given pursuant to Section 12
hereof.
E. In case of any consolidation of the Company with, or merger of the
Company into, another corporation (other than a consolidation or merger which
does not result in any reclassification or change of the outstanding Common
Stock), or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, the
corporation formed by such consolidation or merger or the corporation which
shall have acquired such assets, as the case may be, shall execute and deliver
to the Warrant Agent a supplemental warrant agreement providing that the holder
of each Warrant then outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, solely
the kind and amount of shares of stock and other securities and property (or
cash) receivable upon such consolidation, merger, sale or transfer by a holder
of the number of shares of Common Stock of the Company for which such Warrant
might have been exercised immediately prior to such consolidation, merger, sale
or transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided in this Section. The above provision of this Subsection shall
similarly apply to successive consolidations, mergers, sales or transfers.
The Warrant Agent shall not be under any responsibility to determine
the correctness of any provision contained in any such supplemental warrant
agreement relating to either the kind or amount of shares of stock or securities
or property (or cash) purchasable by holders of Warrant Certificates upon the
exercise of their Warrants after any such consolidation, merger, sale or
transfer or of any adjustment to be made with respect thereto, but subject to
the provisions of Section 20 hereof, may accept as conclusive evidence of the
correctness of any such provisions, and shall be protected in relying upon, a
certificate of a firm of independent certified public accountants (who may be
the accountants regularly employed by the Company) with respect thereto.
F. Irrespective of any adjustments in the number or kind of shares
issuable upon exercise of Warrants, Warrant Certificates theretofore or
thereafter issued may continue to express the same price and number and kind of
shares as are stated in the similar Warrant Certificates initially issuable
pursuant to this Warrant Agreement.
-6-
<PAGE>
G. The Company may retain a firm of independent public accountants of
recognized standing, which may be the firm regularly retained by the Company,
selected by the Board of Directors of the Company or the Executive Committee of
said Board, and not disapproved by the Warrant Agent, to make any computation
required under this Section, and a certificate signed by such firm shall, in the
absence of fraud or gross negligence, be conclusive evidence of the correctness
of any computation made under this Section.
H. For the purpose of this Section, the term "Common Stock" shall mean
(i) the class of stock designated as Common Stock in the Articles of
Incorporation of the Company, as amended, at the date of this Agreement, or (ii)
any other class of stock resulting from successive changes or reclassification
of such Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. In the event that at
any time as a result of an adjustment made pursuant to this Section, the holder
of any Warrant thereafter surrendered for exercise shall become entitled to
receive any shares of capital stock of the Company other than shares of Common
Stock, thereafter the number of such other shares so receivable upon exercise of
any Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in this Section, and all other provisions of this
Agreement, with respect to the Common Stock, shall apply on like terms to any
such other shares.
I. The Company may, from time to time and to the extent permitted by law,
reduce the exercise price of the Warrants by any amount for a period of not less
than 20 days. If the Company so reduces the exercise price of the Warrants, it
will give not less than 15 days' notice of such decrease, which notice may be in
the form of a press release, and shall take such other steps as may be required
under applicable law in connection with any offers or sales of securities at the
reduced price.
Section 7. EXERCISE AND REDEMPTION OF WARRANTS
Unless the Warrants have been redeemed as provided in this Section 7,
the registered holder of any Warrant Certificate may exercise the Warrants
evidenced thereby, in whole at any time or in part from time to time at or prior
to the close of business on the Expiration Date, subject to the provisions of
Section 9, at which time the Warrant Certificates shall be and become wholly
void and of no value. Warrants may be exercised by their holders or redeemed by
the Company as follows:
A. Exercise of Warrants shall be accomplished upon surrender of the
Warrant Certificate evidencing such Warrants, with the Form of Election to
Purchase on the reverse side thereof duly filled in and executed, to the Warrant
Agent at its stock transfer office in Holladay, Utah, together with payment to
the Company of the Exercise Price (as of the date of such surrender) of the
Warrants then being exercised and an amount equal
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<PAGE>
to any applicable transfer tax and, if requested by the Company, any other taxes
or governmental charges which the Company may be required by law to collect in
respect of such exercise. Payment of the Exercise Price and other amounts may
be made in cash, by wire transfer of good funds, or by certified or official
bank check, payable in lawful money of the United States of America to the order
of the Company. No adjustment shall be made for any cash dividends, whether
paid or declared, on any securities issuable upon exercise of a Warrant.
B. Upon receipt of a Warrant Certificate, with the Form of Election to
Purchase duly filled in and executed, accompanied by payment of the Exercise
Price of the Warrants being exercised (and of an amount equal to any applicable
taxes or government charges as aforesaid), the Warrant Agent shall promptly
request from the Transfer Agent with respect to the securities to be issued and
deliver to or upon the order of the registered holder of such Warrant
Certificate, in such name or names as such registered holder may designate, a
certificate or certificates for the number of full shares of the securities to
be purchased, together with cash made available by the Company pursuant to
Section 8 hereof in respect of any fraction of a share of such securities
otherwise issuable upon such exercise. If the Warrant is then exercisable to
purchase property other than securities, the Warrant Agent shall take
appropriate steps to cause such property to be delivered to or upon the order of
the registered holder of such Warrant Certificate. In addition, if it is
required by law and upon instruction by the Company, the Warrant Agent will
deliver to each Warrantholder a prospectus which complies with the provisions of
Section 9 of the Securities Act of 1933, as amended, and the Company agrees to
supply the Warrant Agent with sufficient number of prospectuses to effectuate
that purpose.
C. In case the registered holder of any Warrant Certificate shall
exercise fewer than all of the Warrants evidenced by such Warrant Certificate,
the Warrant Agent shall promptly countersign and deliver to the registered
holder of such Warrant Certificate, or to his duly authorized assigns, a new
Warrant Certificate or Warrant Certificates evidencing the number of Warrants
that were not so exercised.
D. Each person in whose name any certificate for securities is issued
upon the exercise of Warrants shall for all purposes be deemed to have become
the holder of record of the securities represented thereby as of, and such
certificate shall be dated, the date upon which the Warrant Certificate was duly
surrendered in proper form and payment of the Exercise Price (and of any
applicable taxes or other governmental charges) was made; PROVIDED, HOWEVER,
that if the date of such surrender and payment is a date on which the stock
transfer books of the Company are closed, such person shall be deemed to have
become the record holder of such shares as of, and the certificate for such
shares shall be dated, the next succeeding business day on which the stock
transfer books of the Company are open (whether before, on or after the
Expiration Date) and the Warrant Agent shall be under no duty to deliver the
certificate for such shares until such date. The Company covenants and agrees
that it shall not cause its stock transfer books to be closed for a
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<PAGE>
period of more than 20 consecutive business days except upon consolidation,
merger, sale of all or substantially all of its assets, dissolution or
liquidation or as otherwise provided by law.
E. The Warrants outstanding at the time of a redemption may be redeemed
at the option of the Company, in whole or in part on a pro rata basis, at any
time if, at the time notice of such redemption is given by the Company as
provided in Paragraph F, below, the Daily Price has equalled or exceeded 200% of
the then-current Exercise Price for the twenty (20) consecutive trading days
immediately preceding the date of such notice, at a price equal to $0.25 per
Warrant (the "Redemption Price"). For the purpose of the foregoing sentence,
the term "Daily Price" shall mean, for any relevant day, the closing bid price
on that day as reported by the principal exchange or quotation system on which
prices for the Common Stock are reported. On the redemption date the holders of
record of redeemed Warrants shall be entitled to payment of the Redemption Price
upon surrender of such redeemed Warrants to the Company at the principal office
of the Warrant Agent in Holladay, Utah.
F. Notice of redemption of Warrants shall be given at least 30 days prior
to the redemption date by mailing, by registered or certified mail, return
receipt requested, a copy of such notice to the Warrant Agent and to all of the
holders of record of Warrants at their respective addresses appearing on the
books or transfer records of the Company or such other address designated in
writing by the holder of record to the Warrant Agent not less than 40 days prior
to the redemption date.
G. From and after the redemption date, all rights of the Warrantholders
(except the right to receive the Redemption Price) shall terminate, but only if
(a) no later than one day prior to the redemption date the Company shall have
irrevocably deposited with the Warrant Agent as paying agent a sufficient amount
to pay on the redemption date the Redemption Price for all Warrants called for
redemption and (b) the notice of redemption shall have stated the name and
address of the Warrant Agent and the intention of the Company to deposit such
amount with the Warrant Agent no later than one day prior to the redemption
date.
H. The Warrant Agent shall pay to the holders of record of redeemed
Warrants all monies received by the Warrant Agent for the redemption of Warrants
to which the holders of record of such redeemed Warrants who shall have
surrendered their Warrants are entitled.
I. Any amounts deposited with the Warrant Agent that are not required for
redemption of Warrants may be withdrawn by the Company. Any amounts deposited
with the Warrant Agent that shall be unclaimed after six months after the
redemption date may be withdrawn by the Company, and thereafter the holders of
the Warrants called for redemption for which such funds were deposited shall
look solely to the Company for payment. The Company shall be entitled to the
interest, if any, on funds deposited with
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<PAGE>
the Warrant Agent, and the holders of redeemed Warrants shall have no right to
any such interest.
J. If the Company fails to make a sufficient deposit with the Warrant
Agent as provided above, the holder of any Warrants called for redemption may at
the option of the holder (a) by notice to the Company declare the notice of
redemption a nullity as to such holder, or (b) maintain an action against the
Company for the Redemption Price. If the holder brings such an action, the
Company will pay reasonable attorneys' fees of the holder. If the holder fails
to bring an action against the Company for the Redemption Price within 60 days
after the redemption date, the holder shall be deemed to have elected to declare
the notice of redemption to be a nullity as to such holder and such notice shall
be without any force or effect as to such holder. Except as otherwise
specifically provided in this Paragraph J, a notice of redemption, once mailed
by the Company as provided in Paragraph F shall be irrevocable.
Section 8. FRACTIONAL INTERESTS
The Company shall not be required to issue any Warrant Certificate
evidencing a fraction of a Warrant or to issue fractions of shares of securities
on the exercise of the Warrants. If any fraction (calculated to the nearest
one-hundredth) of a Warrant or a share of securities would, except for the
provisions of this Section, be issuable on the exercise of any Warrant, the
Company shall, at its option, either purchase such fraction for an amount in
cash equal to the current value of such fraction computed on the basis of the
closing market price (as quoted on NASDAQ) on the trading day immediately
preceding the day upon which such Warrant Certificate was surrendered for
exercise in accordance with Section 7 hereof or issue the required fractional
Warrant or share. By accepting a Warrant Certificate, the holder thereof
expressly waives any right to receive a Warrant Certificate evidencing any
fraction of a Warrant or to receive any fractional share of securities upon
exercise of a Warrant, except as expressly provided in this Section 8.
Section 9. RESERVATION OF EQUITY SECURITIES; SECURITIES LAW MATTERS
The Company covenants that it will at all times reserve and keep
available, free from any preemptive rights, out of its authorized and unissued
equity securities, solely for the purpose of issuance upon exercise of the
Warrants, such number of shares of equity securities of the Company as shall
then be issuable upon the exercise of all outstanding Warrants ("Equity
Securities"). The Company covenants that all Equity Securities which shall be
so issuable shall, upon such issuance, be duly authorized, validly issued, fully
paid and nonassessable.
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The Company covenants that if any equity securities required to be
reserved for the purpose of issuance upon exercise of the Warrants hereunder
require registration with or approval of any governmental authority under any
federal or state law before such shares may be issued upon exercise of Warrants,
the Company will use all commercially reasonable efforts to cause such
securities to be duly registered, or approved, as the case may be, and, to the
extent practicable, the Company will take all such action in anticipation of and
prior to the exercise of the Warrants, including, without limitation, filing any
and all post-effective amendments to the Company's Registration Statement on
Form SB-2 (Registration No. 333-5011) necessary to permit a public offering of
the securities underlying the Warrants at any and all times during the term of
this Agreement; PROVIDED, HOWEVER, that in no event shall such securities be
issued, and the Company is authorized to refuse to honor the exercise of any
Warrant, if such exercise would result, in the opinion of the Company's Board of
Directors upon advice of counsel, in the violation of any law. In the case of a
Warrant exercisable solely for securities listed on a securities exchange or for
which there are at least two independent market makers, in the event that a
current registration statement is not in effect at the time when a Warrant is
exercised, the Company may, at its option, in lieu of obtaining such
registration or approval, elect to redeem Warrants submitted to the Warrant
Agent for exercise for a price equal to the difference between the closing price
of the securities for which such Warrant is exercisable on the date of such
submission and the Exercise Price of such Warrants, and in the event of such
redemption, the Company will pay to the holder of such Warrants the
above-described redemption price in cash within 10 business days after receipt
of notice from the Warrant Agent that such Warrants have been submitted for
exercise.
Section 10. REDUCTION OF CONVERSION PRICE BELOW PAR VALUE
Before taking any action that would cause an adjustment pursuant to
Section 6 hereof reducing the portion of the Exercise Price required to purchase
one share of capital stock below the then par value (if any) of a share of such
capital stock, the Company will use its best efforts to take any corporate
action which, in the opinion of its counsel, may be necessary in order that the
Company may validly and legally issue fully paid and nonassessable shares of
such capital stock.
Section 11. PAYMENT OF TAXES
The Company covenants and agrees that it will pay when due and payable
any and all federal and state documentary stamp and other original issue taxes
which may be payable in respect of the original issuance of the Warrant
Certificates, or any shares of Common Stock or other securities upon the
exercise of Warrants. The Company shall not, however, be required (i) to pay
any tax which may be payable in respect of any transfer involved in the transfer
and delivery of Warrant Certificates or the issuance or
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delivery of certificates for Common Stock or other securities in a name other
than that of the registered holder of the Warrant Certificate surrendered for
purchase or (ii) to issue or deliver any certificate for shares of Common Stock
or other securities upon the exercise of any Warrant Certificate until any such
tax shall have been paid, all such tax being payable by the holder of such
Warrant Certificate at the time of surrender.
Section 12. NOTICE OF CERTAIN CORPORATE ACTIONS
In case the Company after the date hereof shall propose (i) to offer
to the holders of Common Stock, generally, rights to subscribe to or purchase
any additional shares of any class of its capital stock, any evidences of its
indebtedness or assets, or any other rights or options or (ii) to effect any
reclassification of Common Stock (other than a reclassification involving merely
the subdivision or combination of outstanding shares of Common Stock) or any
capital reorganization, or any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required, or
any sale, transfer or other disposition of its property and assets substantially
as an entirety, or the liquidation, voluntary or involuntary dissolution or
winding-up of the Company, then, in each such case, the Company shall file with
the Warrant Agent and the Company, or the Warrant Agent on its behalf, shall
mail (by first-class, postage prepaid mail) to all registered holders of the
Warrant Certificates notice of such proposed action, which notice shall specify
the date on which the books of the Company shall close or a record be taken for
such offer of rights or options, or the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, voluntary or involuntary dissolution or winding-up shall take place
or commence, as the case may be, and which shall also specify any record date
for determination of holders of Common Stock entitled to vote thereon or
participate therein and shall set forth such facts with respect thereto as shall
be reasonably necessary to indicate any adjustments in the Exercise Price and
the number or kind of shares or other securities purchasable upon exercise of
Warrants which will be required as a result of such action. Such notice shall
be filed and mailed in the case of any action covered by clause (i) above, at
least ten days prior to the record date for determining holders of the Common
Stock for purposes of such action or, if a record is not to be taken, the date
as of which the holders of shares of Common Stock of record are to be entitled
to such offering; and, in the case of any action covered by clause (ii) above,
at least 20 days prior to the earlier of the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer, other
disposition, liquidation, voluntary or involuntary dissolution or winding-up is
expected to become effective and the date on which it is expected that holders
of shares of Common Stock of record on such date shall be entitled to exchange
their shares for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, sale, transfer, other
disposition, liquidation, voluntary or involuntary dissolution or winding-up.
Failure to give any such notice or any defect therein shall not affect
the legality or validity of any transaction listed in this Section 12.
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Section 13. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANT CERTIFICATES, ETC.
The Warrant Agent shall account promptly to the Company with respect
to Warrants exercised and concurrently pay to the Company all moneys received by
the Warrant Agent for the purchase of securities or other property through the
exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement available for
inspection by Warrantholders during normal business hours at its stock transfer
office. Copies of this Agreement may be obtained upon written request addressed
to the Warrant Agent at its stock transfer office in Holladay, Utah.
Section 14. WARRANTHOLDER NOT DEEMED A STOCKHOLDER
No Warrantholder, as such, shall be entitled to vote, receive
dividends or be deemed the holder of Common Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Warrants
represented thereby for any purpose whatever. Nothing contained herein or in
any Warrant Certificate may be construed to confer upon any Warrantholder, as
such, any of the rights of a stockholder of the Company, any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, any right to give or withhold consent to any corporate action
(whether at any meeting of stockholders or by giving or withholding consent to
any merger, recapitalization, issuance of stock, reclassification of stock,
change of par value or change of stock to no par value, consolidation,
conveyance or otherwise), or any right to receive notice of meetings or other
actions affecting stockholders (except as provided in Section 12 hereof). No
Warrantholder shall have any right to receive dividend or subscription rights or
any other rights that any stockholders of the Company may have, until such
Warrant Certificate shall have been exercised in accordance with the provisions
hereof and the receipt of the Exercise Price and any other amounts payable upon
such exercise by the Warrant Agent and the Common Stock purchasable upon such
exercise shall have become deliverable as provided herein.
Section 15. RIGHT OF ACTION
All rights of action in respect to this Agreement are vested in the
respective registered holders of the Warrant Certificates; and any registered
holder of any Warrant Certificate, without the consent of the Warrant Agent or
of any other holder of a Warrant Certificate, may, in his own behalf for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company suitable to enforce, or otherwise in respect of, his right
to exercise the Warrants evidenced by such Warrant
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Certificate, for the purchase of shares of the Common Stock in the manner
provided in the Warrant Certificate and in this Agreement.
Section 16. AGREEMENT OF HOLDERS OF WARRANT CERTIFICATES
Every holder of a Warrant Certificate by accepting the same consents
and agrees with the Company, the Warrant Agent and with every other holder of a
Warrant Certificate that:
A. the Warrant Certificates are transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in this Agreement;
and
B. the Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the absolute owner of the
Warrant (notwithstanding any notation of ownership or other writing thereon made
by anyone other than the Company or the Warrant Agent) for all purposes
whatever, and neither the Company nor the Warrant Agent shall be affected by any
notice to the contrary.
Section 17. CANCELLATION OF WARRANT CERTIFICATES
In the event that the Company shall purchase or otherwise acquire any
Warrant Certificate or Warrant Certificates after the issuance thereof, such
Warrant Certificate or Warrant Certificates shall thereupon be delivered to the
Warrant Agent and be canceled by it and retired. The Warrant Agent shall also
cancel any Warrant Certificate delivered to it for exercise, in whole or in
part, or delivered to it for transfer, split-up, combination or exchange.
Warrant Certificates so canceled shall be delivered by the Warrant Agent to the
Company from time to time, or disposed of in accordance with the instructions of
the Company.
Section 18. CONCERNING THE WARRANT AGENT
The Company agrees to pay to the Warrant Agent from time to time, on
demand of the Warrant Agent, reasonable compensation for all services rendered
by it hereunder and also its reasonable expenses incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Warrant Agent for, and to
hold it harmless against, any loss, liability or expense, incurred without gross
negligence, bad faith or willful misconduct on the part of the Warrant Agent,
arising out of or in connection with the acceptance and administration of this
Agreement.
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Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT
Any corporation into which the Warrant Agent may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor warrant agent under
the provisions of Section 21 hereof. In case at the time such successor to the
Warrant Agent shall succeed to the agency created by this Agreement, any of the
Warrant Certificates shall have been countersigned but not delivered, any such
successor to the Warrant Agent may adopt the countersignature of the original
Warrant Agent and deliver such Warrant Certificates so countersigned; and in
case at that time any of the Warrant Certificates shall not have been
countersigned, any successor to the Warrant Agent may countersign such Warrant
Certificates either in the name of the predecessor Warrant Agent or in the name
of the successor Warrant Agent; and in all such cases such Warrant Certificates
shall have the full force provided in the Warrant Certificates and in this
Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrant Certificates shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignature under its prior
name and deliver Warrant Certificates so countersigned; and in case at that time
any of the Warrant Certificates shall not have been countersigned, the Warrant
Agent may countersign such Warrant Certificates either in its prior name or in
its changed name; and in all such cases such Warrant Certificates shall have the
full force provided in the Warrant Certificates and in this Agreement.
Section 20. DUTIES OF WARRANT AGENT
The Warrant Agent undertakes the duties and obligations imposed by
this Agreement upon the following terms and conditions, by all of which the
Company and the holders of Warrant Certificates, by their acceptance thereof,
shall be bound:
A. The Warrant Agent may consult with counsel satisfactory to it (who may
be counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Warrant Agent as to any action
taken, suffered or omitted by it in good faith and in accordance with such
opinion; PROVIDED, HOWEVER, that the Warrant Agent shall have exercised
reasonable care in the selection of such counsel. Fees and expenses of such
counsel, to the extent reasonable, shall be paid by the Company.
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B. Whenever in the performance of its duties under this Agreement, the
Warrant Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by a Chairman or co-Chairman of the Board or
the President or a Vice President or the Secretary of the Company and delivered
to the Warrant Agent; and such certificate shall be full authorization to the
Warrant Agent for any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
C. The Warrant Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.
D. The Warrant Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Warrant
Certificates (except its countersignature on the Warrant Certificates and such
statements or recitals as describe the Warrant Agent or action taken or to be
taken by it) or be required to verify the same, but all such statements and
recitals are and shall be deemed to have been made by the Company only.
E. The Warrant Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Warrant Agent) or in respect of the validity or
execution of any Warrant Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Warrant Certificate; nor shall
it be responsible for the making of any change in the number of shares of Common
Stock for which a Warrant is exercisable required under the provisions of
Section 6 or responsible for the manner, method or amount of any such change or
the ascertaining of the existence of facts that would require any such
adjustment or change (except with respect to the exercise of Warrant
Certificates after actual notice of any adjustment of the Exercise Price); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any shares of Common Stock to be
issued pursuant to this Agreement or any Warrant Certificate or as to whether
any shares of Common Stock will, when issued, be validly issued, fully paid and
non-assessable.
F. The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or take any other action likely to involve
expense unless the Company or one or more registered holders of Warrant
Certificates shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred. All rights of
action under this Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrants or the production
thereof at any trial or other proceeding relative thereto, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent,
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and any recovery of judgment shall be for the ratable benefit of the registered
holders of the Warrant Certificates, as their respective rights or interests may
appear.
G. The Warrant Agent and any stockholder, director, officer or employee
of the Warrant Agent may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to or
otherwise act as fully and freely as though it were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
H. The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from a
Chairman or co-Chairman of the Board or President or a Vice President or the
Secretary or the Controller of the Company, and to apply to such officers for
advice or instructions in connection with the Warrant Agent's duties, and it
shall not be liable for any action taken or suffered or omitted by it in good
faith in accordance with instructions of any such officer.
I. The Warrant Agent will not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied with by the Company.
J. The Warrant Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys, agents or employees and the Warrant Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such
attorneys, agents or employees or for any loss to the Company resulting from
such neglect or misconduct; PROVIDED, HOWEVER, that reasonable care shall have
been exercised in the selection and continued employment of such attorneys,
agents and employees.
K. The Warrant Agent will not incur any liability or responsibility to
the Company or to any holder of any Warrant Certificate for any action taken, or
any failure to take action, in reliance on any notice, resolution, waiver,
consent, order, certificate, or other paper, document or instrument reasonably
believed by the Warrant Agent to be genuine and to have been signed, sent or
presented by the proper party or parties.
L. The Warrant Agent will act hereunder solely as agent of the Company in
a ministerial capacity, and its duties will be determined solely by the
provisions hereof. The Warrant Agent will not be liable for anything which it
may do or refrain from doing in connection with this Agreement except for its
own negligence, bad faith or willful conduct.
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Section 21. CHANGE OF WARRANT AGENT
The Warrant Agent may resign and be discharged from its duties under
this Agreement upon 30 days' prior notice in writing mailed, by registered or
certified mail, to the Company. The Company may remove the Warrant Agent or any
successor warrant agent upon 30 days' prior notice in writing, mailed to the
Warrant Agent or successor warrant agent, as the case may be, by registered or
certified mail. If the Warrant Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Warrant Agent and shall, within 15 days following such appointment, give
notice thereof in writing to each registered holder of the Warrant Certificates.
If the Company shall fail to make such appointment within a period of 15 days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Warrant Agent,
then the Company agrees to perform the duties of the Warrant Agent hereunder
until a successor Warrant Agent is appointed. After appointment and execution
of a copy of this Agreement in effect at that time, the successor Warrant Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Warrant Agent without further act or deed and
the office of the Successor Warrant Agent named in the notice provided for in
this Section shall be the office to which notices shall be sent and Warrant
Certificates shall be tendered thereafter. The former Warrant Agent shall
deliver and transfer to the successor Warrant Agent, within a reasonable time,
any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Failure
to give any notice provided for in this Section, however, or any defect therein
shall not affect the legality or validity of the resignation or removal of the
Warrant Agent or the appointment of the successor warrant agent, as the case may
be.
Section 22. ISSUANCE OF NEW WARRANT CERTIFICATES
Notwithstanding any of the provisions of this Agreement or the several
Warrant Certificates to the contrary, the Company may, at its option, issue new
Warrant Certificates in such form as may be approved by its Board of Directors
to reflect any adjustment or change in the Exercise Price or the number or kind
of shares purchasable under the several Warrant Certificates made in accordance
with the provisions of this Agreement.
Section 23. NOTICES
Notice or demand pursuant to this Agreement to be given or made on the
Company by the Warrant Agent or by the registered holder of any Warrant
Certificate shall be sufficiently given or made if sent by first-class or
registered mail, postage
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prepaid, addressed (until another address is filed in writing by the Company
with the Warrant Agent) as follows:
PCT Holdings, Inc.
434 Olds Station Road
Wenatchee, Washington 98801
Subject to the provisions of Section 21, any notice pursuant to this
Agreement to be given or made by the Company or by the holder of any Warrant
Certificate to or on the Warrant Agent shall be sufficiently given or made if
sent by first-class or registered mail, postage prepaid, addressed (until
another address is filed in writing by the Warrant Agent with the Company) as
follows:
Interwest Transfer Co., Inc.
1981 E. Murray-Holladay Road
Holladay, Utah 84117
Any notice or demand authorized to be given or made to the registered
holder of any Warrant Certificate under this Agreement shall be sufficiently
given or made if sent by first-class or registered mail, postage prepaid, to the
last address of such holder as it shall appear on the registers maintained by
the Warrant Agent.
Section 24. MODIFICATION OF AGREEMENT
The Warrant Agent may, without the consent or concurrence of the
Warrantholders, by supplemental agreement or otherwise, concur with the Company
in making any changes or corrections in this Agreement that the Warrant Agent
shall have been advised by counsel (who may be counsel for the Company) are
necessary or desirable to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest error herein
contained, or to make any other provisions in regard to matters or questions
arising hereunder and which shall not be inconsistent with the provisions of the
Warrant Certificates and which shall not adversely affect the interests of the
Warrantholders. As of the date hereof, this Agreement contains the entire and
only agreement, understanding, representation, condition, warranty or covenant
between the parties hereto with respect to the matters herein, supersedes any
and all other agreements between the parties hereto relating to such matters,
and may be modified or amended only by a written agreement signed by both
parties hereto pursuant to the authority granted by the first sentence of this
Section.
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Section 25. SUCCESSORS
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Warrant Agent shall bind and inure to the benefit
of their respective successors and assigns hereunder.
Section 26. WASHINGTON CONTRACT
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Washington and for
all purposes shall be construed in accordance with the laws of said state.
Section 27. TERMINATION
This Agreement shall terminate as of the close of business on the
Expiration Date, or such earlier date upon which all Warrants shall have been
exercised or redeemed, except that the Warrant Agent shall account to the
Company as to all Warrants outstanding and all cash held by it as of the close
of business on the Expiration Date.
Section 28. BENEFITS OF THIS AGREEMENT
Nothing in this Agreement or in the Warrant Certificates shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent, and their respective successors and assigns hereunder and the
registered holders of the Warrant Certificates any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of the Company, the Warrant Agent, their respective
successors and assigns hereunder and the registered holders of the Warrant
Certificates.
Section 29. DESCRIPTIVE HEADINGS
The descriptive headings of the several Sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
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Section 30. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, all as of the day and year first above written.
PCT HOLDINGS, INC. INTERWEST TRANSFER CO., INC.
By: By:
----------------------------- ------------------------------
Donald A. Wright, President Title:
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Exhibit 4.4
THIS WARRANT HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
AND IS NOT TRANSFERABLE
EXCEPT AS PROVIDED HEREIN
PCT HOLDINGS, INC.
PURCHASE WARRANT
Issued to:
------------------------------
Exercisable to Purchase
Units
-----------
of
PCT HOLDINGS, INC.
Void after July __, 2001
<PAGE>
This is to certify that, for value received and subject to the terms and
conditions set forth below, the Warrantholder (hereinafter defined) is entitled
to purchase, and the Company promises and agrees to sell and issue to the
Warrantholder, at any time on or after July __, 1997, and on or before July __,
2001, up to __________ Units (hereinafter defined) at the Exercise Price
(hereinafter defined).
This Warrant Certificate is issued subject to the following terms and
conditions:
1. DEFINITIONS OF CERTAIN TERMS. Except as may be otherwise clearly
required by the context, the following terms have the following meanings:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Closing Date" means the date on which the Offering is closed.
(c) "Commission" means the Securities and Exchange Commission.
(d) "Common Stock" means the common stock, $0.001 par value, of the
Company.
(e) "Company" means PCT Holdings, Inc., a Nevada corporation, and any
successor corporation.
(f) "Company's Expenses" means any and all expenses payable by the
Company or the Warrantholder in connection with an offering described in
Section 6 hereof, except Warrantholder's Expenses.
(g) "Effective Date" means the date on which the Registration
Statement is declared effective by the Commission.
(h) "Exercise Price" means the price at which the Warrantholder may
purchase one complete Unit (or Securities obtainable in lieu of one complete
Unit) upon exercise of Warrants as determined from time to time pursuant to the
provisions hereof. The initial Exercise Price is $_____ per Unit. If a Warrant
is exercised for a component of a Unit or Units, then the price payable in
connection with such exercise shall be determined by allocating $0.001 to the
Unit Warrant and the balance of the Exercise Price to the share of Common Stock,
or, in each case, to any securities obtainable in addition to or in lieu of such
share of Unit Warrant or Common Stock by virtue of the application of Section 3
of this Warrant.
(i) "Offering" means the public offering of Units made pursuant to
the Registration Statement.
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(j) "Participating Underwriter" means any underwriter participating
in the sale of the Securities pursuant to a registration under Section 6 of this
Warrant Certificate.
(k) "Registration Statement" means the Company's registration
statement on Form SB-2 (Registration No. 333-5011) as amended on the Closing
Date.
(l) "Rules and Regulations" means the rules and regulations of the
Commission adopted under the Act.
(m) "Securities" means the securities obtained or obtainable upon
exercise of the Warrant or securities obtained or obtainable upon exercise,
exchange, or conversion of such securities.
(n) "Unit" means, as the case may require, either one of the Units
offered to the public pursuant to the Registration Statement or one of the Units
obtainable on exercise of a Warrant.
(o) "Unit Warrant" means a Common Stock purchase warrant included as
a component of a Unit.
(p) "Warrant Certificate" means a certificate evidencing the Warrant.
(q) "Warrantholder" means a record holder of the Warrant or
Securities. The initial Warrantholder is ____________________.
(r) "Warrantholder's Expenses" means the sum of (i) the aggregate
amount of cash payments made to an underwriter, underwriting syndicate, or agent
in connection with an offering described in Section 6 hereof multiplied by a
fraction the numerator of which is the aggregate sales price of the Securities
sold by such underwriter, underwriting syndicate, or agent in such offering and
the denominator of which is the aggregate sales price of all of the securities
sold by such underwriter, underwriting syndicate, or agent in such offering and
(ii) all out-of-pocket expenses of the Warrantholder, except for the fees and
disbursements of one firm retained as legal counsel for the Warrantholders that
will be paid by the Company.
(s) "Warrant" means the warrant evidenced by this certificate, any
similar certificate issued in connection with the Offering, or any certificate
obtained upon transfer or partial exercise of the Warrant evidenced by any such
certificate.
2. EXERCISE OF WARRANTS. All or any part of the Warrant may be exercised
commencing on the first anniversary of the Effective Date and ending at
5:00 p.m. Pacific Time on the fifth anniversary of the Effective Date by
surrendering this Warrant Certificate, together with appropriate instructions,
duly executed by the Warrantholder or by its duly authorized attorney, at the
office of the Company, 434 Olds Station Road, Wenatchee, Washington 98801,
attention: President, or at such other office or agency as the Company may
designate. Upon
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receipt of notice of exercise, the Company shall immediately instruct its
transfer agent to prepare certificates for the Securities to be received by the
Warrantholder upon completion of the Warrant exercise. When such certificates
are prepared, the Company shall notify the Warrantholder and deliver such
certificates to the Warrantholder or as per the Warrantholder's instructions
immediately upon payment in full by the Warrantholder, in lawful money of the
United States, of the Exercise Price payable with respect to the Securities
being purchased. If the Warrantholder shall represent and warrant that all
applicable registration and prospectus delivery requirements for their sale have
been complied with upon sale of the Securities received upon exercise of the
Warrant, such certificates shall not bear a legend with respect to the
Securities Act of 1933.
If fewer than all the Securities purchasable under the Warrant are
purchased, the Company will, upon such partial exercise, execute and deliver to
the Warrantholder a new Warrant Certificate (dated the date hereof), in form and
tenor similar to this Warrant Certificate, evidencing that portion of the
Warrant not exercised. The Securities to be obtained on exercise of the Warrant
will be deemed to have been issued, and any person exercising the Warrants will
be deemed to have become a holder of record of those Securities, as of the date
of the payment of the Exercise Price.
3. ADJUSTMENTS IN CERTAIN EVENTS. The number, class, and price of
Securities for which this Warrant Certificate may be exercised are subject to
adjustment from time to time upon the happening of certain events as follows:
(a) If the outstanding shares of the Company's Common Stock are
divided into a greater number of shares or a dividend in stock is paid on the
Common Stock, the number of shares of Common Stock for which the Warrant is then
exercisable will be proportionately increased and the Exercise Price will be
proportionately reduced; and, conversely, if the outstanding shares of Common
Stock are combined into a smaller number of shares of Common Stock, the number
of shares of Common Stock for which the Warrant is then exercisable will be
proportionately reduced and the Exercise Price will be proportionately
increased. The increases and reductions provided for in this subsection 3(a)
will be made with the intent and, as nearly as practicable, the effect that
neither the percentage of the total equity of the Company obtainable on exercise
of the Warrants nor the price payable for such percentage upon such exercise
will be affected by any event described in this subsection 3(a). Upon the
occurrence of any such event, the number of Unit Warrants for which the Warrant
is then exercisable shall not be adjusted, if such event results in an
adjustment of the number of shares purchasable or the exercise price (or both)
under the Unit Warrants.
(b) In case of any change in the Common Stock through merger,
consolidation, reclassification, reorganization, partial or complete
liquidation, purchase of substantially all the assets of the Company, or other
change in the capital structure of the Company, then, as a condition of such
change, lawful and adequate provision will be made so that the holder of this
Warrant Certificate will have the right thereafter to receive upon the exercise
of the Warrant the kind and amount of shares of stock or other securities or
property to which he would have been
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<PAGE>
entitled if, immediately prior to such event, he had held the number of shares
of Common Stock obtainable upon the exercise of the Warrant. In any such case,
appropriate adjustment will be made in the application of the provisions set
forth herein with respect to the rights and interest thereafter of the
Warrantholder, to the end that the provisions set forth herein will thereafter
be applicable, as nearly as reasonably may be, in relation to any shares of
stock or other property thereafter deliverable upon the exercise of the Warrant.
The Company will not permit any change in its capital structure to occur unless
the issuer of the shares of stock or other securities to be received by the
holder of this Warrant Certificate, if not the Company, agrees to be bound by
and comply with the provisions of this Warrant Certificate. Upon the occurrence
of any such event, the number of Unit Warrants for which the Warrant is then
exercisable shall not be adjusted, if such event results in an adjustment of the
number of shares purchasable or the exercise price (or both) under the Unit
Warrants.
(c) When any adjustment is required to be made in the number of
shares of Common Stock, other securities, or the property purchasable upon
exercise of the Warrant, the Company will promptly determine the new number of
such shares or other securities or property purchasable upon exercise of the
Warrant and (i) prepare and retain on file a statement describing in reasonable
detail the method used in arriving at the new number of such shares or other
securities or property purchasable upon exercise of the Warrant and (ii) cause a
copy of such statement to be mailed to the Warrantholder within thirty (30) days
after the date of the event giving rise to the adjustment.
(d) No fractional shares of Common Stock and no fractional Units
Warrants or other securities will be issued in connection with the exercise of
the Warrant, but the Company will pay, in lieu of fractional shares or
fractional Unit Warrants, a cash payment therefor on the basis of the mean
between the bid and asked prices of the Common Stock, or Unit Warrants, as the
case may be, in the over-the-counter market or the closing price on a national
securities exchange on the day immediately prior to exercise.
(e) If securities of the Company or securities of any subsidiary of
the Company are distributed pro rata to holders of Common Stock, such number of
securities will be distributed to the Warrantholder or his assignee upon
exercise of his rights hereunder as such Warrantholder or assignee would have
been entitled to if this Warrant Certificate had been exercised prior to the
record date for such distribution. The provisions with respect to adjustment of
the Common Stock provided in this Section 3 will also apply to the securities to
which the Warrantholder or his assignee is entitled under this subsection 3(e).
(f) Notwithstanding anything herein to the contrary, there will be no
adjustment made hereunder on account of the sale of the Units or other
Securities purchasable upon exercise of the Warrant.
4. RESERVATION OF SECURITIES. The Company agrees that the number of
shares of Common Stock, Unit Warrants or other Securities sufficient to provide
for the exercise of the
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<PAGE>
Warrant upon the basis set forth above will at all times during the term of the
Warrant be reserved for exercise.
5. VALIDITY OF SECURITIES. All Securities delivered upon the exercise of
the Warrant will be duly and validly issued in accordance with their terms, and
the Company will pay all documentary and transfer taxes, if any, in respect of
the original issuance thereof upon exercise of the Warrant.
6. REGISTRATION OF SECURITIES ISSUABLE ON EXERCISE OF WARRANT
CERTIFICATE.
(a) The Company will register the Securities with the Commission
pursuant to the Act so as to allow the unrestricted sale of the Securities to
the public from time to time commencing on the first anniversary of the
Effective Date and ending at 5:00 p.m. Pacific Time on the fifth anniversary of
the Effective Date (the "Registration Period"). The Company will also file such
applications and other documents necessary to permit the sale of the Securities
to the public during the Registration Period in those states in which the Units
were qualified for sale in the Offering or such other states as the Company and
the Warrantholder agree to. In order to comply with the provisions of this
Section 6(a), the Company is not required to file more than one registration
statement at its expense. The Company will register the Securities on Form S-3
if the Company is eligible to use such form. No registration right of any kind,
"piggyback" or otherwise, will last longer than five years from the Closing
Date.
(b) The Company will pay all of the Company's Expenses and each
Warrantholder will pay its pro rata share of the Warrantholder's Expenses
relating to the registration, offer, and sale of the Securities.
(c) Except as specifically provided herein, the manner and conduct of
the registration, including the contents of the registration, will be entirely
in the control and at the discretion of the Company. The Company will file such
post-effective amendments and supplements as may be necessary to maintain the
currency of the registration statement during the period of its use. In
addition, if the Warrantholder participating in the registration is advised by
counsel that the registration statement, in their opinion, is deficient in any
material respect, the Company will use its best efforts to cause the
registration statement to be amended to eliminate the concerns raised.
(d) The Company will furnish to the Warrantholder the number of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as it may reasonably
request in order to facilitate the disposition of Securities owned by it.
(e) The Company will, at the request of Warrantholders holding at
least 50 percent of the then outstanding Warrants, (i) furnish an opinion of the
counsel representing the Company for the purposes of the registration pursuant
to this Section 6, addressed to the Warrantholders and any Participating
Underwriter, (ii) furnish an appropriate letter from the
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<PAGE>
independent public accountants of the Company, addressed to the Warrantholders
and any Participating Underwriter, and (iii) make representations and warranties
to the Warrantholders and any Participating Underwriter. A request pursuant to
this subsection (e) may be made on three occasions. The documents required to
be delivered pursuant to this subsection (e) will be dated within ten days of
the request and will be, in form and substance, equivalent to similar documents
furnished to the underwriters in connection with the Offering, with such changes
as may be appropriate in light of changed circumstances.
7. INDEMNIFICATION IN CONNECTION WITH REGISTRATION.
(a) If any of the Securities are registered, the Company will
indemnify and hold harmless each selling Warrantholder, any person who controls
any selling Warrantholder within the meaning of the Act, and any Participating
Underwriter against any losses, claims, damages, or liabilities, joint or
several, to which any Warrantholder, controlling person, or Participating
Underwriter may be subject under the Act or otherwise; and it will reimburse
each Warrantholder, each controlling person, and each Participating Underwriter
for any legal or other expenses reasonably incurred by the Warrantholder,
controlling person, or Participating Underwriter in connection with
investigating or defending any such loss, claim, damage, liability, or action,
insofar as such losses, claims, damages, or liabilities, joint or several (or
actions in respect thereof), arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained, on the effective
date thereof, in any such registration statement or any preliminary prospectus
or final prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; PROVIDED, HOWEVER, that the Company will not be liable in any case
to the extent that any loss, claim, damage, or liability arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in any registration statement, preliminary prospectus,
final prospectus, or any amendment or supplement thereto, in reliance upon and
in conformity with written information furnished by a Warrantholder for use in
the preparation thereof. The indemnity agreement contained in this
subparagraph (a) will not apply to amounts paid to any claimant in settlement of
any suit or claim unless such payment is first approved by the Company, such
approval not to be unreasonably withheld.
(b) Each selling Warrantholder, as a condition of the Company's
registration obligation, will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed any registration statement
or other filing or any amendment or supplement thereto, and any person who
controls the Company within the meaning of the Act, against any losses, claims,
damages, or liabilities to which the Company or any such director, officer, or
controlling person may become subject under the Act or otherwise, and will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, or controlling person in connection with investigating
or defending any such loss, claim, damage, liability, or action, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue or alleged untrue statement of any material
fact contained in said registration statement, any preliminary or final
prospectus, or
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<PAGE>
other filing, or any amendment or supplement thereto, or arise out of or are
based upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in said registration
statement, preliminary or final prospectus, or other filing, or amendment or
supplement, in reliance upon and in conformity with written information
furnished by such Warrantholder for use in the preparation thereof; PROVIDED,
HOWEVER, that the indemnity agreement contained in this subparagraph (b) will
not apply to amounts paid to any claimant in settlement of any suit or claim
unless such payment is first approved by the Warrantholder, such approval not to
be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under
subparagraphs (a) or (b) above of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, notify the indemnifying party of the commencement thereof;
but the omission to notify the indemnifying party will not relieve it from any
liability that it may have to any indemnified party otherwise than under
subparagraphs (a) and (b).
(d) If any such action is brought against any indemnified party and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party; and after
notice from the indemnifying party to such indemnified party of its election to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8. RESTRICTIONS ON TRANSFER. This Warrant Certificate and the Warrant may
not be sold, transferred, assigned or hypothecated for a one-year period after
the Effective Date except to underwriters of the Offering or to individuals who
are either a partner or an officer of such an underwriter or by will or by
operation of law. The Warrant may be divided or combined, upon request to the
Company by the Warrantholder, into a certificate or certificates evidencing the
same aggregate number of Warrants.
9. NO RIGHTS AS A SHAREHOLDER. Except as otherwise provided herein, the
Warrantholder will not, by virtue of ownership of the Warrant, be entitled to
any rights of a shareholder of the Company but will, upon written request to the
Company, be entitled to receive such quarterly or annual reports as the Company
distributes to its shareholders.
10. NOTICE. Any notices required or permitted to be given hereunder will
be in writing and may be served personally or by mail; and if served will be
addressed as follows:
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<PAGE>
If to the Company:
434 Olds Station Road
Wenatchee, Washington 98801
Attn: President
If to the Warrantholder:
at the address furnished by the
Warrantholder to the Company
for the purpose of notice.
Any notice so given by mail will be deemed effectively given 48 hours after
mailing when deposited in the United States mail, registered or certified mail,
return receipt requested, postage prepaid and addressed as specified above. Any
party may by written notice to the other specify a different address for notice
purposes.
11. APPLICABLE LAW. This Warrant Certificate will be governed by and
construed in accordance with the laws of the State of Oregon, without reference
to conflict of laws principles thereunder. All disputes relating to this
Warrant Certificate shall be tried before the courts of Oregon located in
Multnomah County, Oregon to the exclusion of all other courts that might have
jurisdiction.
Dated as of _________________, 1996
PCT HOLDINGS, INC.
By:
--------------------------------
Its:
-------------------------------
Agreed and Accepted as of ____________________, 1996.
- ------------------------------------
By:
--------------------------------
Its:
-------------------------------
-8-
<PAGE>
EXHIBIT 5.1
July 12, 1996
PCT Holdings, Inc.
434 Olds Station Road
Wenatchee, WA 98801
Gentlemen and Ladies:
We have acted as special Nevada counsel for PCT Holdings, Inc., a Nevada
corporation (the "Company") in connection with a Registration Statement on
Form SB-2, Registration No. 333-5011, filed on May 31, 1996, as amended by
Amendment No. 1 filed on June 19, 1996, and to be amended by Amendment No. 2 to
be filed substantially contemporaneously with this letter ("Amendment No. 2")
(collectively, the "Registration Statement"), under the Securities Act of 1933,
as amended (the "Securities Act"), covering the following securities of the
Company:
1. A maximum of 2,587,500 units (the "Units") to be sold by the Company
to the several underwriters (the "Underwriters") to be named in and pursuant to
the terms of the Underwriting Agreement substantially in the form of Exhibit 1.1
to Amendment No. 2 (the "Underwriting Agreement"), each Unit consisting of one
share of the Company's common stock, par value $.001 per share ("Common Stock"),
and one warrant to purchase one share of Common Stock;
2. The 2,587,500 shares of Common Stock included in the Units (the
"Shares");
3. The 2,587,500 warrants included in the Units (the "Unit Warrants");
4. The 2,587,500 shares of Common Stock issuable upon exercise of the
Unit Warrants (the "Unit Warrant Shares");
5. The warrants to be sold to Paulson Investment Company, Inc. and Cohig
& Associates, Inc., the representatives of the Underwriters (the
"Representatives"), to purchase Units (the "Representatives' Warrants") pursuant
to the terms of a purchase
<PAGE>
PCT Holdings, Inc.
July 12, 1996
Page 2
warrant substantially in the form of Exhibit 4.4 to Amendment No. 2 (the
"Purchase Warrant");
6. The 225,000 Units issuable upon exercise of the Representatives'
Warrants (the "Representatives' Units");
7. The 225,000 shares of Common Stock included in the Representatives'
Units (the "Representatives' Unit Shares");
8. The 225,000 warrants included in the Representatives' Units (the
"Representatives' Unit Warrants"); and
9. The 225,000 shares of Common Stock issuable upon exercise of the
Representatives' Unit Warrants (the "Representatives' Unit Warrant Shares").
The Unit Warrants and the Representatives' Unit Warrants are being issued
pursuant to a warrant agreement substantially in the form of Exhibit 4.3 to
Amendment No. 2 (the "Warrant Agreement"). In this connection, we have examined
the originals or copies, certified or otherwise identified to our satisfaction,
of the Company's Articles of Incorporation, as amended, its Amended and Restated
Bylaws, resolutions of its Board of Directors, the Underwriting Agreement, the
Purchase Warrant, the Warrant Agreement (including the form of warrant
certificate (the "Warrant Certificate") that is Exhibit A to the Warrant
Agreement), certificates of officers of the Company, including without
limitation the President's Certificate and the Chief Financial Officer's
Certificate, each of even date herewith, copies of which have been furnished to
you, and such other documents as we deemed necessary for purposes of rendering
this opinion. We have not reviewed, and express no opinion as to, any
instrument or agreement referred to or incorporated by reference in the
Underwriting Agreement, the Purchase Warrant or the Warrant Agreement (except
for the Warrant Certificate).
We have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures, the legal capacity of natural
persons and the conformity to originals of all copies of all documents submitted
to us. We have relied upon the certificates of public officials and corporate
officers, including without limitation the President's Certificate and the Chief
Financial Officer's Certificate, with respect to the accuracy of all matters
contained therein.
Based upon the foregoing, and subject to the qualifications herein, we are
of the opinion that:
<PAGE>
PCT Holdings, Inc.
July 12, 1996
Page 3
1. The Company is a corporation duly incorporated and validly existing
under the laws of the State of Nevada;
2. The Units and the Shares have been duly authorized, and when issued,
delivered and paid for in accordance with the terms of the Underwriting
Agreement, the Shares will be validly issued, fully paid and nonassessable by
the Company.
3. The Unit Warrants have been duly authorized, and when issued and
delivered in accordance with the terms of the Underwriting Agreement, will be
legal, valid and binding obligations of the Company. The Unit Warrant Shares
have been duly authorized, and when issued and delivered upon exercise of the
Unit Warrants in exchange for payment therefor, will be validly issued, fully
paid and nonassessable by the Company.
4. The Representatives' Warrants and the Representatives' Unit Warrants
have been duly authorized, and when issued and delivered in accordance with the
terms of the Underwriting Agreement and the Purchase Warrant, respectively, will
be legal, valid and binding obligations of the Company. The Representatives'
Units and the Representatives' Unit Shares have been duly authorized, and when
issued and delivered upon exercise of the Representatives' Warrants in exchange
for payment therefor, the Representatives' Unit Shares will be validly issued,
fully paid and nonassessable by the Company. The Representatives' Unit Warrant
Shares have been duly authorized, and when issued and delivered upon exercise of
the Representatives' Unit Warrants in exchange for payment therefor, will be
validly issued, fully paid and nonassessable by the Company.
The opinions set forth above are subject to the following qualifications:
(a) We express no opinion concerning the laws of any jurisdiction other
than the laws of the State of Nevada; and
(b) We express no opinion as to the effect on any obligations of the
Company of (i) bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, or other similar laws affecting the rights of creditors generally or
(ii) equitable principles, including those limiting the availability of specific
performance, injunctive relief, and other equitable remedies, regardless of
whether enforceability of such obligations is considered in a proceeding in
equity or at law.
This opinion is intended solely for the use in connection with the
transactions described herein. We hereby consent to the use of our name in the
Registration Statement
<PAGE>
PCT Holdings, Inc.
July 12, 1996
Page 4
and in the Prospectus filed as a part thereof and to the filing of this opinion
as an exhibit to the Registration Statement. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act.
Very truly yours,
/s/ Lionel Sawyer & Collins
LIONEL SAWYER & COLLINS
<PAGE>
EXHIBIT 10.40
AMENDED AND RESTATED AGREEMENT
This Amended and Restated Agreement (the "Amended Agreement") is entered
into as of May 30, 1996 by and between Herman L. "Jack" Jones, a single man
("Jones"), and John Eder, a married man (collectively, the "Grantors") and
Cashmere Manufacturing Co., Inc., a Washington corporation ("CMC"), and replaces
and supersedes the agreement between such parties that was effective as of
May 22, 1995 (the "Agreement"), in its entirety.
RECITALS
A. In May 1994, CMC sold certain real property in Chelan County,
Washington (the "Property") to the Grantors, as their sole and separate
property, the purchase price for which was evidenced by a Promissory Note from
Jones to CMC dated May 18, 1994 in the initial principal amount of $975,206.87
(the "CMC Note"), pursuant to the terms of a Real Property and Sale Agreement
dated May 18, 1994 (the "Original Sales Agreement").
B. The Grantors accepted title to the Property subject to a Deed of Trust
from CMC to Cashmere Valley Bank (the "Bank") that was recorded in the real
property records of Chelan County, Washington on March 1, 1990 under auditor's
number 9003010013 (the "Bank Deed of Trust"). The Bank Deed of Trust secures a
Promissory Note from CMC to the Bank dated March 3, 1993, in the initial
principal amount of $370,422.68 (the "Bank Note"). The Bank Note is also
guaranteed by Jones personally.
C. The Grantors also accepted title to the Property subject to a Deed of
Trust from CMC to Charles T. Fornier ("Fornier") that was recorded in the real
property records of Chelan County, Washington on June 19, 1990 under auditor's
number 9006190059 (the "Fornier Deed of Trust"). The Fornier Deed of Trust
secured a Promissory Note from Jones to Fornier dated May 31, 1990 in the
initial principal amount of $490,000. The Fornier Deed of Trust was reconveyed
on March 7, 1996 pursuant to the terms of a Settlement Agreement between Jones
and Fornier.
D. The CMC Note is secured by a "Second Deed of Trust" on the Property
from the Grantors to CMC that was recorded in the real property records of
Chelan County, Washington on May 31, 1994 under auditor's number 9406010015 (the
"CMC Deed of Trust").
E. Jones was in default under the terms of the CMC Note at and prior to
May 31, 1995 (the "Effective Date"), and the Grantors desire to transfer back to
CMC as of the Effective Date that portion of the Property consisting of
Buildings 3, 4 and 5 and the real property on which those buildings are located,
which is legally described on the attached EXHIBIT A, together with all
buildings, improvements, and fixtures located on such property (the "Reacquired
Property"), and CMC desires to accept conveyance of the Reacquired Property to
it, under the terms and conditions set forth in this Amended Agreement.
1
<PAGE>
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the parties agree as follows:
1. REACQUIRED PROPERTY.
1.1 CONVEYANCE; TITLE. Effective as of the Effective Date, the
Grantors shall convey good and marketable title to the Reacquired Property to
CMC pursuant to the Statutory Warranty Deed in Lieu of Foreclosure dated as of
May 22, 1995, attached to this Amended Agreement as EXHIBIT B (the "Deed in
Lieu"), subject only to the Bank Deed of Trust, the CMC Deed of Trust, existing
restrictions of record, easements for utilities and driveways, zoning
ordinances, non-delinquent real property taxes, and such liens, encumbrances,
restrictions, easements, or conditions as are shown on the attached EXHIBIT C.
Pursuant to the Agreement, the Grantors delivered the Deed in Lieu, in
substantially the form attached as EXHIBIT B, to CMC on June 14, 1995. The
parties intend that the Deed in Lieu attached as EXHIBIT B confirm that
delivery, and the parties agree that the Grantors' conveyance to CMC of title to
the Reacquired Property shall be effective as of the Effective Date, regardless
of the date on which the Deed in Lieu was delivered or is recorded. No personal
property is being conveyed from the Grantors to CMC.
1.2 TAXES, PRORATED ITEMS. Rents, water, fuel and other utility
bills, if any, shall be prorated and adjusted to the Effective Date. All real
and personal property taxes and installments of assessments, both general and
special, which were a lien and were due and payable prior to the Effective Date,
shall be paid by the Grantors. All real and personal property taxes and
installments of assessments, both general and special, which were a lien but not
due and payable against the Reacquired Property as of the Effective Date and
thereafter, shall be prorated between the Grantors and CMC as of the Effective
Date.
1.3 TITLE INSURANCE; SURVEY. CMC shall obtain an owner's policy of
title insurance insuring its interest in the Reacquired Property in the amount
of $672,990.11, subject to no exceptions other than those listed in EXHIBIT C.
The premium for such title insurance shall be the paid by CMC. CMC shall also
obtain a survey of the Reacquired Property and shall apply for any lot-line
adjustments necessary to cause the conveyance of the Reacquired Property to
comply with any applicable subdivision laws. The cost of such survey and any
lot line adjustment shall be the paid by CMC.
1.4 PARTY WALL AGREEMENT. The parties acknowledge that one of the
buildings on the Reacquired Property shares a wall in common with a building
located on the contiguous property owned by the Grantors. The parties therefore
agree to execute and deliver a party wall agreement in the form attached as
EXHIBIT D, effective as of the date of this Amended Agreement.
2. CMC NOTE.
2.1 CONFIRMATION OF DEBT. Jones confirms and acknowledges that: (a)
as of the Effective Date, the outstanding principal balance due under the CMC
Note was $951,785, before giving effect to the principal reduction set forth in
Section 2.2, below, (b) the CMC Note and the CMC Deed of Trust (collectively
the "Loan Documents") are in full force and effect; (b) he is
2
<PAGE>
liable under the Loan Documents in accordance with their terms; and (c) CMC has
performed all of its obligations under the Loan Documents to this date.
2.2 PRINCIPAL BALANCE REDUCTION. In consideration of this Amended
Agreement, CMC agrees to cancel $672,990.11 of the outstanding principal balance
of the CMC Note, effective as of May 31, 1995, causing the remaining outstanding
principal balance on the CMC Note to be $278,795.23. This amount is equal to
the amount outstanding on the Bank Note as of May 31, 1995. Unpaid interest
accrued on the CMC Note as of the Effective Date shall be paid by the Grantors.
2.3 CMC RENEWAL NOTE. Concurrently with the execution of this
Amended Agreement, CMC shall cancel the CMC Note and Jones shall execute and
deliver to CMC a renewal promissory note, in the form attached as EXHIBIT E (the
"CMC Renewal Note"), which renews the outstanding principal and interest
remaining unpaid on the CMC Note after giving effect to the principal reduction
set forth in Section 2.2, and which provides for the same monthly payments,
interest rate and maturity date as are currently payable under the Bank Note.
The parties agree that the principal and interest balances on the Bank Note and
the CMC Renewal Note shall at all times be the same, as set forth in Section
3.2, below.
2.4 CMC DEED OF TRUST. The CMC Deed of Trust shall remain in full
force and effect as security for the CMC Renewal Note, until paid in full, and
shall also secure: (a) the performance of the Grantors' obligations under the
indemnification contained in Section 4 of this Amended Agreement; and (b)
Grantors' obligation to repay CMC any amounts which CMC pays under the Bank Note
pursuant to Section 3.3, below. The lien of the CMC Deed of Trust shall not be
merged into the fee title as a result of the conveyance of the Reacquired
Property to CMC. CMC shall reconvey the CMC Deed of Trust promptly after:
(a) the Bank reconveys the Bank Deed of Trust to the extent that it encumbers
the Reacquired Property; and (b) (i) the Bank provides CMC with a written
release of liability under the Bank Note; or (ii) Jones pays the Bank in full,
through refinancing or otherwise, and the Bank returns the Bank Note to CMC
stamped "Paid".
3. OBLIGATIONS TO THE BANK.
3.1 BANK'S CONSENT TO REACQUISITION. The Grantors represent and
warrant to CMC that the Bank has been fully informed as to the conveyance of the
Reacquired Property to CMC, has orally consented to such conveyance, and has
agreed to waive the provisions of the "due on sale" clause contained in the Bank
Deed of Trust.
3.2 ASSUMPTION OF OBLIGATIONS TO BANK. Effective May 31, 1995, Jones
agrees to assume all of CMC's then-existing and future obligations under the
Bank Note, the Bank Deed of Trust, and any other documents executed in
connection with the Bank Note and the Bank Deed of Trust, including, but not
limited to, paying when due all principal and interest payments, late charges,
fees, default interest and costs required under the Bank Note and Bank Deed of
Trust. CMC agrees that for each payment of principal and nondefault interest
made on the Bank Note by Jones, CMC will credit the amount of such payment made
to the Bank against the principal and nondefault interest due under the CMC
Renewal Note , as if such payment had been made directly on the CMC Renewal
Note, so that the Bank Note and the CMC Renewal Note have the same principal
and nondefault interest balance at any given time. CMC will not credit the CMC
3
<PAGE>
Renewal Note for any late charges, default interest, fees or other costs paid
to the Bank by Jones under the Bank Note or Bank Deed of Trust, or for any
amounts paid by CMC to the Bank under Section 3.3, below. Jones agrees not to
modify the Bank Note; provided, however, any full or partial prepayment of the
Bank Note shall not be considered a modification to the Bank Note.
3.3 RIGHT TO CURE. If the Grantors jointly or severally act or fail
to act in a way that would afford the Bank the right to declare the Bank Note or
the Bank Deed of Trust in default, or to accelerate the Bank Note, either
immediately or after the passage of time, then CMC shall have the right to cure
any such default, including the right to make any payments due under the Bank
Note to the Bank. No payments made on or pursuant to the Bank Note or the Bank
Deed of Trust by CMC shall be credited against the CMC Renewal Note. Jones
shall reimburse CMC for the amount of all such payments within five days of
written notice from CMC, which amount shall bear interest at the rate set forth
in the Bank Note from five days after the effective date of such notice until
paid.
3.4 REFINANCE OF BANK NOTE. Jones agree to use his best efforts to
refinance the Bank Note in his own name and to obtain release of CMC's
obligations under the Bank Note.
4. INDEMNIFICATION. The Grantors, jointly and severally, and on behalf
of themselves and their heirs, representatives, successors and assigns, agree to
indemnify, defend and hold harmless CMC and its affiliated corporations, and
their respective directors, officers, agents, and employees, other than the
Grantors themselves, from any from any and all claims, causes of action,
liabilities, damages, costs (including reasonable attorneys' fees), taxes and
assessments which: (a) relate to the Reacquired Property and which were
incurred or arise from facts occurring after the Grantors acquired the
Reacquired Property but before the Effective Date; (b) are a result of any
breach of the Grantors' covenants, assumptions, representations or warranties
contained in this Amended Agreement or any document executed in connection with
this Amended Agreement; (c) relate to or arise after the Effective Date under
the Bank Note, the Bank Deed of Trust, or any documents executed in connection
therewith; or (d) relate to or arise under the Fornier Deed of Trust, or are
brought against CMC or the Reacquired Property by Fornier in connection with the
lawsuit and subsequent settlement agreement between Fornier and Jones.
5. RELEASE AND COVENANT NOT TO SUE. The Grantors, jointly and severally,
and on behalf of themselves and their heirs, representatives, successors and
assigns, forever release and discharge CMC and its affiliated corporations, and
their respective directors, officers, agents, and employees, other than the
Grantor themselves, from any and all claims, causes of action, liabilities,
rights and damages (including attorneys' fees and costs) ("Claims"), that the
Grantors have or may have, whether known or unknown, contingent or non-
contingent, now accrued or accruing in the future, in any way arising out of or
in connection with: (a) the Original Sales Agreement, including but not limited
to any representations and warranties of CMC contained in the Original Sales
Agreement, and any document executed, or any act done, by any person or entity
in connection with the Original Sales Agreement; (b) the Reacquired Property;
(c) any Claims by the Grantors or Fornier with respect to the Reacquired
Property; (d) the CMC Note, or the CMC Deed of Trust prior to the Effective
Date; or (e) the Bank Note, the Bank Deed of Trust, or any other documents
executed in connection with the Bank Note. The Grantors, jointly and severally,
and on behalf of their heirs, representatives, successors and assigns, each
4
<PAGE>
affirmatively covenant not to sue CMC or its affiliated corporations, or their
respective directors, officers, agents, or employees, for any Claims released
under this Section 5.
6. REPRESENTATIONS AND WARRANTIES.
6.1 GRANTOR'S REPRESENTATIONS AND WARRANTIES. The Grantors
represent and warrant to CMC as follows:
6.1.1 MARKETABLE TITLE. As of the Effective Date: (a) the
Grantors had clear and marketable title to all of the Reacquired Property,
subject only to the encumbrances permitted under Section 1.1; (b) there were no
assessments against the Reacquired Property; and (c) there were no contracts,
leases or other agreements with respect to the use or management of the
Reacquired Property or services related to the Reacquired Property that were not
cancelled prior to the Effective Date. Jones represents and warrants to CMC
that his divorce was final prior to the Effective Date and that his ex-spouse
has no separate or community interest in the Reacquired Property.
6.1.2 NO GOVERNMENTAL ACTION. As of the Effective Date: (a) the
Reacquired Property was not subject to any federal, state or local statute,
rule, ordinance, regulation or order, including applicable zoning, building,
use, fire, occupancy and other codes and regulations, or to any action by any
governmental authority or court that would prohibit or interfere with CMC's
intended use of the Reacquired Property or that would make conveyance of the
Reacquired Property to CMC illegal; and (b) no action, condemnation, litigation
or material claim was pending or threatened against the Grantors or the
Reacquired Property (except for the claims of Fornier which were settled prior
to the date of this Amended Agreement), and no reasonable basis exists for any
such claim.
6.1.3 LEGAL COMPLIANCE; PERMITS. As of the Effective Date, the
Reacquired Property complied with all applicable laws and regulations. All
licenses, permits, consents, and any other governmental approvals, utility
services and other public services pertaining to the Reacquired Property were in
place and were transferred to CMC.
6.1.4 ENVIRONMENTAL COMPLIANCE. As of the Effective Date, the
Reacquired Property complied with all federal, state, and local laws pertaining
to the protection of human health and the environment. No hazardous waste or
toxic substances have been stored or disposed of on the Reacquired Property
during the period the Grantors owned the Reacquired Property, except for lawful
storage or disposal conducted in full compliance with all pertinent handling,
storage, labeling, use, disposal and other applicable laws, regulations, and
ordinances.
6.1.5 INCOMPLETE CONVEYANCE. If the Grantors convey less than
all of the Reacquired Property to CMC, the Grantors will immediately upon
discovery of such omission, notify CMC and cause an additional warranty title
document to be recorded or delivered conveying the omitted Reacquired Property
to CMC.
6.1.6 COMPLIANCE WITH AGREEMENT. The Grantors will take all
steps and execute all other documents necessary or desirable to comply with
their obligations under this Amended Agreement.
5
<PAGE>
6.2 CMC'S REPRESENTATIONS AND WARRANTIES. CMC represents and
warrants to the Grantors as follows:
6.2.1 LEGAL EXISTENCE. CMC is a corporation, duly organized and
validly existing under the laws of the State of Washington.
6.2.2 AUTHORIZATIONS. CMC has obtained all corporate approvals
and authorizations necessary in order for it to enter into this Amended
Agreement and to consummate the transactions contemplated herein.
6.2.3 COMPLIANCE WITH AGREEMENT. CMC will take all steps and
execute all other documents necessary or desirable to comply with its
obligations under this Amended Agreement.
7. GENERAL.
7.1 SURVIVAL. Section 4-Indemnification, 5-Release and Covenant Not
to Sue, and 6-Representations and Warranties, of this Amended Agreement shall
survive: (i) cancellation of the Bank Note or release of CMC's obligations
under the Bank Note, and reconveyance of the Bank Deed of Trust; and
(ii) cancellation of the CMC Renewal Note and reconveyance of the CMC Deed of
Trust.
7.2 NOTICES. The parties shall deliver any notices required under
this Amended Agreement by personal delivery, facsimile, or by registered or
certified U.S. mail, return receipt requested, postage prepaid, to the Grantors
at the address set forth next to their signatures, and to CMC at 432 Olds
Station Road, Wenatchee, Washington, 98801, or to such other address as
specified by a party in writing. Notices shall be deemed effective as of the
date of personal delivery, confirmed facsimile transmission, or the date on the
U.S. postmark affixed to the notice.
7.3 APPLICABLE LAW. This Amended Agreement shall be governed by,
construed, and enforced under the laws of the State of Washington. The parties
consent to the jurisdiction of and venue in any appropriate court located in
Chelan County, Washington.
7.4 SEVERABILITY. If any portion of this Amended Agreement is held
to be invalid by a court of competent jurisdiction, the remaining terms of this
Amended Agreement shall remain in full force and effect.
7.5 ATTORNEY FEES. The prevailing party in any arbitration or
litigation concerning this Amended Agreement shall be entitled to reimbursement
of its court costs and attorney fees by the non-prevailing party, including such
costs and fees as may be incurred on appeal.
7.6 NO ASSIGNMENTS; SUCCESSORS. The parties shall not assign this
Amended Agreement, in whole or in part, voluntarily or involuntarily (including
a transfer to a receiver or bankruptcy estate), without the prior written
consent of the other parties. Subject to the foregoing, this Amended Agreement
shall bind and inure to the benefit of the parties and their respective heirs,
successors and permitted assigns.
6
<PAGE>
7.7 NEGOTIATION. The parties acknowledge that the terms of this
Amended Agreement have been mutually negotiated, with each party having the
opportunity to seek the advice of legal counsel, and shall not be construed
against any party. The Grantors acknowledge that Stoel Rives LLP has acted
solely as counsel to CMC with regard to this Amended Agreement, and has
recommended that the Grantors seek independent counsel.
7.8 ENTIRE AGREEMENT; MODIFICATIONS. This Amended Agreement, the CMC
Renewal Note, the CMC Deed of Trust, the Deed in Lieu and the Party Wall
Agreement constitute the entire agreement and understanding of the parties, and
supersede all previous agreements, written or oral, with regard to the subject
matter of this Amended Agreement. No oral agreement to waive or modify any term
of this Amended Agreement will be effective. Any such waiver or modification
must be in writing signed by the parties.
7.9 COUNTERPARTS. This Amended Agreement may be executed in two or
more counterparts, all of which shall constitute one instrument.
Effective as set forth above.
GRANTORS:
/s/ Herman L. "Jack" Jones
---------------------------------------
HERMAN L. "JACK" JONES, jointly and
severally
Address:
-----------------------------
-----------------------------
Facsimile:
-----------------------------
/s/ John Eder
---------------------------------------
JOHN EDER, jointly and severally, and on
behalf of his marital community
Address:
-----------------------------
-----------------------------
Facsimile:
-----------------------------
CMC:
CASHMERE MANUFACTURING CO., INC.
By:/s/ Donald A. Wright
------------------------------------
Donald A. Wright
Its: Executive Vice President
7
<PAGE>
CONSENT OF SPOUSE TO AMENDED AGREEMENT
The undersigned consents to the execution of this Amended Agreement by John
Eder, the undersigned's spouse, and to consummation of the transactions
contemplated by this Amended Agreement by Mr. Eder, and agrees that such actions
and the obligations of Mr. Eder under this Amended Agreement shall be binding
upon the undersigned's marital community. The undersigned declares that the
undersigned has had the opportunity to fully and carefully read the Amended
Agreement and to seek the advice of independent counsel with respect to the
Amended Agreement and this Consent.
Dated: 6/18/96 /s/ Linda A. Eder
--------------------------- ---------------------------------------
Name: Linda A. Eder
----------------------------------
8
<PAGE>
EXHIBIT 10.41
RENEWAL PROMISSORY NOTE
BORROWER: Herman L. "Jack" Jones LENDER: Cashmere Manufacturing Co., Inc.
6961 Nahahum Canyon Road 434 Olds Station Road
Cashmere, Washington 98815 Wenatchee, WA 98801
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Amount: $239,370.73 Interest Rate: 9.250% Date of Note: May 15, 1996
PROMISE TO PAY. HERMAN L. "JACK" JONES, a single man, ("Borrower") promises to
pay to the order of CASHMERE MANUFACTURING CO., INC. ("Lender"), in lawful money
of the United States of America, the principal amount of Two Hundred Thirty-Nine
Thousand Three Hundred Seventy Dollars and 73/100 ($239,370.73), together with
interest at the rate of 9.250% per annum on the unpaid principal balance from
March 15, 1996, until paid in full.
PAYMENT. Borrower will pay this loan in regular payments of $5,774.29 each and
one irregular last payment of all remaining principal and unpaid interest.
Borrower's first payment is due April 5, 1996, and all subsequent payments are
due on the same day of each month after that. Borrower's final payment due
March 5, 1996, will be for all principal and all accrued interest not yet paid.
Payments include principal and interest. Interest on this Note is computed on a
365/365 simple interest basis; that is, by applying the ratio of the annual
interest rate over the number of days in a year, times the outstanding principal
balance, times the actual number of days the principal balance is outstanding.
Borrower will pay Lender at Lender's address shown above or at such other place
as Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to any unpaid collection costs
and late charges, then to unpaid interest, and any remaining amount to
principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is the Wall
Street Journal Prime Rate (the "Index"). The Index is not necessarily the
lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each year, 30 days prior to the anniversary of the origination date of the loan.
The Index currently is 8.250% per annum. The interest rate to be applied to the
unpaid principal balance of this Note will be at a rate of 1.00 percentage point
over the Index, resulting in an initial rate of 9.250% per annum. NOTICE: Under
no circumstances will the interest rate on this Note be more than the maximum
rate allowed by applicable law. Whenever increases occur in the interest rate,
Lender, at its option, may do one or more of the following: (a) increase
Borrower's payments to ensure Borrower's loan will pay off by the original final
maturity date, (b) increase Borrower's payments to cover accruing interest,
(c) increase the number of Borrower's payments, and (d) continue Borrower's
payments at the same amount and increase Borrower's final payment.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a minimum interest
charge of $10.00. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay without penalty all or a
-1-
<PAGE>
portion of the amount owed earlier than it is due. Early payment will not,
unless agreed to by Lender in writing, relieve Borrower or Borrower's obligation
to continue to make payments under the payment schedule. Rather, they will
reduce the principal balance due and may result in Borrower's making fewer
payments.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $100.00, whichever is less.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender. (c) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect. (d) Borrower
becomes insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (e) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (f) Any of the events described in
this default section occurs with respect to any guarantor of this Note. (g)
Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15) days;
or (b) if the cure requires more than fifteen (15) days immediately initiates
steps which Lender deems in Lender's sole discretion to be sufficient to cure
the default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the interest rate on this Note to 12.000% per annum.
The interest rate will not exceed the maximum rate permitted by applicable law.
Lender may hire or pay someone else to help collect this Note if Borrower does
not pay. Borrower also will pay Lender that amount. This includes, subject to
any limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. If not prohibited by applicable law, Borrower also will
pay any court costs, in addition to all other sums provided by law. This Note
has been delivered to Lender and accepted by Lender in the State of Washington.
If there is a lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of Chelan County, the State of Washington. This Note
shall be governed by and construed in accordance with the laws of the State of
Washington.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
COLLATERAL. This Note is secured by a Second Deed of Trust dated May 31, 1994
and recorded in the real property records of Chelan County, Washington on May
31, 1994 under auditor's number 9406010015.
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<PAGE>
PRIOR NOTE. This Note is a renewal of the outstanding principal balance of the
Renewal Promissory Note dated as of May 31, 1995 from the Borrower to the Lender
in the initial principal amount of $370,422.68.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as marker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan, or release any party or guarantor or collateral; or impair,
fail to realize upon or perfect Lender's security interest in the collateral;
and take any other action deemed necessary by Lender without the consent of or
notice of anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom the
modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
/s/ Herman L. "Jack" Jones
- --------------------------------------
Herman L. "Jack" Jones
-3-
<PAGE>
EXHIBIT 10.53
June 7, 1996
EUGENIE D. MANSFIELD
DIRECT DIAL
(206) 386-7527
email edmansfield(at)stoel.com
VIA FACSIMILE
Mr. William H. Payne
PO Box 675505
Rancho Santa Fe, CA 92067
RE: CONSENT TO OFFERINGS AND ADDITIONAL INDEBTEDNESS
Dear Mr. Payne:
PCT Holdings, Inc. (the "Company") has closed a Regulation S offering to
Swiss investors of the Company's common stock (the "Regulation S Offering"). The
Company will use the proceeds of the Regulation S Offering primarily to bridge
the gap in working capital prior to closing the Company's pending public
offering (the "Public Offering"). As of this date, the Company has wired
$506,280.45 of the proceeds of the Regulation S Offering to your account to pay
off the $400,000 promissory note (the "$400,000 Note") from the Company to you,
Ivan Sarda, Katrina Knowles and the trustee of the Waldal Family Trust, as
successor in Interest to Elinor A. Walter (the "Lenders"), and to pay the
$50,000 payment due on February 28, 1996 to bring current the $200,000
promissory note (the "$200,000 Note") from the Company to the Lenders. The
Company intends to pay off the remaining balance of the $200,000 Note from the
proceeds of the Company's Public Offering.
In addition, as we have previously advised you, the Company has obtained
short-term financing for approximately $1.2 million (the "Bridge Loan") to pay
off a line of credit to the Company's subsidiary, Morel Industries, Inc.
("Morel") from Seattle-First National Bank. The borrowers under the Bridge Loan
are the Company and each of its subsidiaries, including Ceramic Devices, Inc., a
Washington corporation ("CDI"). The Bridge Loan is secured by a first security
interest in the accounts and inventory of Morel, and a junior security interest
in Morel's remaining personal property and on the personal property of the
Company and each of its
<PAGE>
Mr. William H. Payne
June 7, 1996
Page 2
subsidiaries, except for that of CDI. As a co-borrower, CDI signed the
Promissory Note for the Bridge Loan. However, CDI did not sign the Security
Agreement as its assets are not pledged as security for tthe Bridge Loan. In
addition, the Bridge Loan lender received a warrant from the Company to
purchase 300,000 shares of the Company's common stock (the "UTCO Warrant"),
which shares may be registered but not sold in the Public Offering and will
be available for sale 180 days after the effective date of the Public
Offering. The Bridge Loan is intended to be paid in full from the proceeds of
the Public Offering.
The Company has also issued to Robert Smith, a director of the Company, a
warrant to purchase 37,500 shares of the Company's common stock (the "Smith
Warrant") as additional consideration for a $150,000 short-term working capital
loan advanced from Mr. Smith to the Company on March 28, 1996. The shares
underlying the Smith Warrant are entitled to be registered but not sold in the
Public Offering and to be available for sale 180 days after the effective date
of the Public Offering. Mr. Smith has waived his right to have the shares
underlying the Smith Warrant registered in the registration statement relating
to the Public Offering. This loan is also intended to be paid in full from the
proceeds of the Public Offering.
Pursuant to Section 5 and 6 of Extension and Modification of Promissory
Notes (the "Modification Agreement") between the Company and the Lenders, the
Company hereby requests that the Lenders consent to the following actions, and
agree that such actions will not constitute a default or basis for acceleration
of the balances due under the Modification Agreement: (1) the sale and issuance
in the Regulation S Offering of shares of the Company's common stock, (2) the
execution by the Company and CDI of the documents required to obtain the Bridge
Loan and use of the Bridge Loan proceeds to refinance Morel's line of credit
from SeaFirst, (3) the issuance of the UTCO Warrant and the Smith Warrant by
the Company, and (4) the sale and issuance in the Public Offering of units,
consisting of shares of the Company's common stock and warrants to purchase
shares of Common Stock (including a warrant to the managing underwriter to
purchase such units) and the shares of Common Stock underlying the warrants in
all such units. In addition, the Lenders waive any registration rights that may
arise under Section 10(f) of the Agreement and Plan of Merger between the
Company, CDI and Ceramic Devices, Inc., a California corporation dated February
28, 1995, as a result of the registration rights granted under the UTCO and
Smith Warrants.
Because the Company has paid off the $400,000 Note and has brought the
$200,000 Note current, the Company requests the Lenders to agree that paragraph
5 of the Modification be canceled and of no further force and effect as of this
date. This cancellation shall have no effect on the enforceability of the
remainder of the Modification.
<PAGE>
Mr. William H. Payne
June 7, 1996
Page 3
If the Lenders agree to the above, please indicate such agreement by
signing below immediately, and faxing the signed copy of this letter to my
attention at (206) 386-7500. Please send the original to me via overnight
courier. Please call John Stevenson at (206) 386-7603 or me at (206) 386-7527
if you have any questions in this regard.
Very Truly Yours,
/s/ Eugenie D. Mansfield
Eugenie D. Mansfield
The Lenders hereby grant such approvals
and waivers as are necessary in order
for the Company to take the actions set
forth above and agree that the Modification
shall be canceled and of no further force
and effect as of the date that the Company
delivers the funds to the Lenders as
described in the first paragraph of this
letter:
/s/ William H. Payne
- -----------------------------------
WILLIAM H. PAYNE
/s/ Ivan G. Sarda
- -----------------------------------
IVAN G. SARDA
THE WALDAL FAMILY TRUST
(Successor in Interest to Elinor A. Walter)
By: /s/ James Waldal
--------------------------------
James Waldal
Its: Trustee
/s/ Katrina A. Knowles
- -----------------------------------
KATRINA A. KNOWLES
<PAGE>
EXHIBIT 10.55
LOAN MODIFICATION AGREEMENT
BETWEEN: PCT Holdings, Inc., a Nevada corporation; Ceramic Devices, Inc., a
Washington corporation; Cashmere Manufacturing Co., Inc., a Washington
corporation; and Pacific Coast Technologies, Inc., a Washington
corporation (each, a "Borrower," and collectively, the Borrowers"),
whose address is c/o PCT Holdings, Inc., 434 Olds Station Road,
Wenatchee, WA 98801;
AND: Silicon Valley Bank ("Silicon") whose address is 3003 Tasman
Drive, Santa Clara, California 95054;
DATE: June 27, 1996.
This Loan Modification Agreement ("Agreement") is entered into on the above
date by Borrowers and Silicon.
1. BACKGROUND. The Borrowers listed above entered into a Loan and
Security Agreement with accompanying Schedule with Silicon in April 1995 (as
amended, the "Loan Agreement"). Capitalized terms used in this Loan
Modification Agreement shall, unless otherwise defined in this Agreement, have
the meaning given to such terms in the Loan Agreement.
2. MODIFICATION TO LOAN AGREEMENT AND SCHEDULE. The Maturity Date for
the Secured Accounts Receivable Line of Credit described in the Schedule is
extended to July 1, 1996.
3. NO OTHER MODIFICATIONS; NO DEFENSES. Except as expressly modified by
this Loan Modification Agreement, the terms of the Loan Agreement and schedule
shall remain unchanged and in full force and effect. Silicon's agreement to
modify the Loan Agreement and Schedule pursuant to this Loan Modification
Agreement shall not obligate Silicon to make any future modifications to the
Loan Agreement or any other loan document. Nothing in this Loan Modification
Agreement shall constitute a satisfaction of any indebtedness of any Borrower to
Silicon. It is the intention of Silicon and Borrowers to retain as liable
parties all makers and endorsers of the Loan Agreement or any other loan
document. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of any indebtedness of any Borrower to Silicon. It is the
intention of Silicon and Borrowers to retain as liable parties all makers and
endorsers of the Loan Agreement or any other loan document. No maker, endorser,
or guarantor shall be released by virtue of this Loan Modification Agreement.
The terms of this paragraph shall apply not only to this Loan Modification
Agreement, but also to
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<PAGE>
all subsequent loan modification agreements. Borrowers agree that they have no
defenses against the obligations to pay any amounts of the Obligations.
4. REPRESENTATIONS AND WARRANTIES. Each Borrower represents and warrants
to Silicon that the execution, delivery and performance of this Agreement are
within such Borrower's corporate powers, and have been duly authorized and are
not in contravention of law or the terms of the Borrower's charters, bylaws or
other incorporation papers, or of any undertaking to which such Borrower is a
party or by which such Borrower is bound.
5. EXECUTION. This Agreement may be executed in counterparts and shall
be effective when signed by the parties and sent by telecopier to Silicon.
Borrowers: PCT HOLDINGS, INC.
By: /s/ Nick A. Gerde
--------------------------------
Title: Vice President
-----------------------------
CERAMIC DEVICES, INC.
By: /s/ Nick A. Gerde
--------------------------------
Title: Vice President
-----------------------------
CASHMERE MANUFACTURING CO., INC.
By: /s/ Nick A. Gerde
--------------------------------
Title: Vice President
-----------------------------
PACIFIC COAST TECHNOLOGIES, INC.
By: /s/ Nick A. Gerde
--------------------------------
Title: Vice President
-----------------------------
SEISMIC SAFETY PRODUCTS, INC.
By: /s/ Nick A. Gerde
--------------------------------
Title: Vice President
-----------------------------
Silicon: SILICON VALLEY BANK
By: /s/
--------------------------------
Title:
-----------------------------
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<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 2 to the Registration
Statement on Form SB-2 (File No. 333-5011) of our report dated June 15, 1996 on
our audits of the consolidated financial statements of PCT Holdings, Inc. and
Subsidiaries. We also consent to the reference to our firm under the caption
"Experts."
/S/ MOSS ADAMS LLP
Everett, Washington
July 12, 1996
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EXHIBIT 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
PCT Holdings, Inc.
Wenatchee, Washington
We hereby consent to the inclusion in this Amendment No. 2 to the
Registration Statement on Form SB-2 (File No. 333-5011) of our report dated
November 8, 1995, except for Notes 4 and 9 as to which the date is December 1,
1995, relating to the consolidated financial statements of Morel Industries,
Inc.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/S/ BDO SEIDMAN, LLP
Seattle, Washington
July 12, 1996
