U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission File Number 0-26088
PACIFIC AEROSPACE & ELECTRONICS, INC.
(Exact name of small business issuer as specified in its charter)
Washington 91-1744587
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
434 Olds Station Road, Wenatchee, Washington 98801
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (509) 664-8000
PCT HOLDINGS, INC.
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No_____
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by court. Yes____ No____
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of January 2, 1996,
there were 9,742,709 shares outstanding of the Company's Common Stock, par
value $.001 per share..
Transitional Small Business Disclosure Format (check one): Yes___ No X
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - November 30 and May 31, 1996
Consolidated Statements of Income - Second Quarter and Six-Month Periods
Ended November 30, 1996 and 1995
Consolidated Statements of Cash Flow - Second Quarter and Six-Month Periods
Ended November 30, 1996 and 1995
Management's Statement and Notes to Unaudited Consolidated Financial
Statements
<PAGE>
<TABLE>
<CAPTION>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FORM 10-QSB
November 30, 1996 and May 31, 1996
November 30, May 31,
1996 1996
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,934,000 $ 725,000
Restricted cash 1,000,000 1,000,000
Stock subscriptions receivable 1,030,000
Accounts receivable 4,515,000 3,359,000
Inventory 7,221,000 6,699,000
Current portion of note receivable from related party 52,000 52,000
Prepaid expense and other 71,000 144,000
------------ ------------
Total current assets 14,793,000 13,009,000
------------ ------------
PROPERTY AND EQUIPMENT, NET 11,190,000 10,656,000
------------ ------------
OTHER ASSETS
Note receivable from related party, net of current
portion 149,000 183,000
Costs in excess of net book value of acquired subsidiaries 1,873,000 1,938,000
Patents, net 1,335,000 1,387,000
Non-compete agreement 71,000 79,000
Other 82,000 397,000
------------ ------------
Total other assets 3,510,000 3,984,000
------------ ------------
TOTAL ASSETS $ 29,493,000 $ 27,649,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,438,000
Bank line of credit $ 474,000 1,224,000
Accounts payable 2,912,000 3,142,000
Accrued liabilities 855,000 840,000
Current portion - long-term debt 2,654,000 4,290,000
Current portion - capital lease obligations 34,000 53,000
Current portion - non-compete agreement payable 35,000 70,000
------------ ------------
Total current liabilities 6,964,000 12,057,000
------------ ------------
LONG-TERM LIABILITIES
Long-term debt, net of current portion 2,765,000 1,809,000
Capital lease obligations, net of current portion 88,000 152,000
Non compete agreement payable, net of current portion 30,000 30,000
Deferred income tax 592,000 592,000
Deferred rent and other 471,000 470,000
------------ ------------
Total long term liabilities 3,946,000 3,053,000
------------ ------------
Total liabilities 10,910,000 15,110,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 24,462,000 19,102,000
Accumulated deficit (5,879,000) (6,563,000)
------------ ------------
Total stockholders' equity 18,583,000 12,539,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'S EQUITY $ 29,493,000 $ 27,649,000
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
<TABLE>
<CAPTION>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FORM 10-QSB
Second Quarter and Six-Month Periods Ended November 30, 1996 and 1995
Quarters Ended Six Months Ended
----------------------------- ---------------------------
November 30, November 30, November 30, November 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 8,317,000 $ 3,675,000 $ 15,761,000 $ 7,131,000
COST OF SALES 6,384,000 2,991,000 11,883,000 5,786,000
------------ ------------ ------------ ------------
GROSS PROFIT 1,933,000 684,000 3,878,000 1,345,000
OPERATING EXPENSES 1,443,000 1,014,000 3,019,000 1,823,000
------------ ------------ ------------ ------------
INCOME (LOSS) FROM
OPERATIONS 490,000 (330,000) 859,000 (478,000)
------------ ------------ ------------ ------------
OTHER INCOME AND EXPENSE
Interest Income 25,000 39,000
Interest Expense (105,000) (62,000) (279,000) (106,000)
Other 58,000 80,000
------------ ------------ ------------ ------------
(22,000) (62,000) (160,000) (106,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE
FEDERAL INCOME TAXES 468,000 (392,000) 699,000 (584,000)
PROVISION FOR FEDERAL
INCOME TAXES (10,000) (15,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) FOR THE
PERIOD $ 458,000 $ (392,000) $ 684,000 $ (584,000)
============ ============ ============ ============
PER SHARE OF COMMON STOCK $ 0.04 $ (0.06) $ 0.07 $ (0.09)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING DURING THE
PERIOD 9,733,630 6,288,476 9,177,676 6,193,992
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
<TABLE>
<CAPTION>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FORM 10-QSB
Second Quarter and Six-Month Periods Ended November 30, 1996 and 1995
Quarters Ended Six Months Ended
------------------------------ -----------------------------
November 30, November 30, November 30, November 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Cash from operating activities $ 475,000 $ (2,359,000) $ (567,000) $ (3,101,000)
------------ ------------ ------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (755,000) (321,000) (996,000) (614,000)
Reduction in notes receivable 17,000 34,000
Other changes, net 3,000 (135,000) (55,000) (210,000)
------------ ------------ ------------ ------------
Net cash from investing activities (735,000) (456,000) (1,017,000) (824,000)
------------ ------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES
Payments on note payable (200,000) (2,288,000)
Payments on notes payable to stockholders (15,000) (150,000) (32,000)
Payments of debt and capital leases (354,000) (570,000) (796,000) (643,000)
Proceeds from financing debt 433,000 520,000
Reduction in stock subscriptions receivable 1,030,000
Net change in bank line of credit 1,480,000 (750,000) 1,480,000
Sale of units 7,031,000
Payment of unit issuance costs (143,000) (1,331,000)
Sale of common stock 3,119,000 3,612,000
Other Changes, net (2,000) 36,000 47,000 53,000
------------ ------------ ------------ ------------
Net cash from financing activities (699,000) 4,483,000 2,793,000 4,990,000
------------ ------------ ------------ ------------
NET CHANGE IN CASH (959,000) 1,668,000 1,209,000 1,065,000
Cash, beginning of period 2,893,000 476,000 725,000 1,079,000
------------ ------------ ------------ ------------
Cash, end of period $ 1,934,000 $ 2,144,000 $ 1,934,000 $ 2,144,000
============ ============ ============ ============
Supplemental Schedule of Non-Cash Financing
Activities
Acquisition of Subsidiaries involved the following:
Fair Value of assets acquired other than cash $ 10,824,000 $ 10,824,000
Liabilities Assumed (7,424,000) (7,424,000)
Notes Payable Issued (320,000) (320,000)
------------ ------------
Total Non-Cash Financing Activities $ 3,080,000 $ 3,080,000
Seller financed purchase of equipment $ 86,000 $ 171,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
MANAGEMENT'S STATEMENT AND NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-QSB
NOVEMBER 30, 1996
Management's Statement
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-QSB instructions and, in the opinion of
management, contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the Company's consolidated financial
position as of November 30, 1996, and May 31, 1996, the consolidated
results of operations for the three- and six-month periods ended November
30, 1996 and 1995, and the consolidated statements of cash flow for the
three- and six-month periods ended November 30, 1996 and 1995. All
significant intercompany transactions have been eliminated in the
consolidation process. These results have been determined on the basis of
generally accepted accounting principles and practices applied consistently
with those used in the preparation of the Company's annual and quarterly
reports under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
Certain information and footnote disclosures normally included in audited
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. The financial
statements should be read in conjunction with the audited financial
statements and notes thereto for the years ended May 31, 1996 and 1995.
The results of operations for the three- and six-month periods ended
November 30, 1996 and 1995 are not necessarily indicative of the results to
be expected or anticipated for the full fiscal year. Also, certain
reclassifications have been made to the November 30, 1995 statement of
income and statement of cash flow to conform to the 1996 presentations.
Significant Events and Transactions
Six Months Ended November 30, 1996:
The Company completed a public offering of Units consisting of Common Stock
and common stock purchase warrants ("Warrants") during July 1996, resulting
in net proceeds after fees and expenses of approximately $5,320,000. A
portion of the net proceeds was used during the first six months of fiscal
1997 to pay off debt of approximately $2,438,000 and certain interest and
fees associated with such debt. The remainder has been or is expected to be
used for further reductions of debt, acquisition of manufacturing
equipment, facilities expansion, potential acquisitions and working
capital.
During the first six months of fiscal 1997, the Company obtained a
modification and renewal of its lending arrangements with its primary
lender. The Company's arrangements with that lender provide for a working
capital line of credit, collateralized by accounts receivable and
inventories, and a letter of credit required to support a loan from another
lender. The Company believes that it was in compliance with all loan
provisions at November 30, 1996.
<PAGE>
Effective as of November 30, 1996, PCT Holdings, Inc., a Nevada corporation
("PCTH"), merged into Pacific Aerospace & Electronics, Inc., a Washington
corporation (the "Company"), in order to effect a change in PCTH's domicile
from Nevada to Washington (the "Reincorporation Merger"), with the Company
being the surviving entity. Prior to the Reincorporation Merger, the
Company was a wholly-owned subsidiary of PCTH, organized for the purpose of
reincorporating PCTH in Washington. Immediately prior to the
Reincorporation Merger, the Company had no assets or liabilities.
The Reincorporation Merger was approved by the shareholders of PCTH at the
1996 annual meeting of shareholders, for which proxies were solicited
pursuant to Section 14(a) of the Securities Exchange Act of 1934, as
amended. Upon the effectiveness of the Reincorporation Merger, the
directors and executive officers of PCTH became the directors and executive
officers of the Company. The Company's business, mailing address, principal
executive offices and telephone number are the same as those of PCTH.
Upon the effectiveness of the Reincorporation Merger, each outstanding
share of the $.001 par value common stock of PCTH was automatically
converted into one share of the $.001 par value common stock of the Company
(the "Common Stock"), and each of the warrants to purchase common stock of
PCTH sold in PCTH's registered public offering in July 1996 was
automatically converted into a warrant to purchase one share of Common
Stock (the "Warrants"). It will not be necessary for shareholders or
warrantholders of the Company to exchange their existing certificates. The
Common Stock sold in PCTH's registered public offering in July 1996 and the
Warrants continue to be traded on the Nasdaq National Market System, after
the Reincorporation Merger, under the symbols "PCTH" and "PCTHW,"
respectively.
Six Months Ended November 30, 1995
The Company entered into an Agreement and Plan of Merger with Morel
Industries, Inc., a Washington corporation ("Morel"), pursuant to which
Morel Acquisition Corporation, a Washington corporation and subsidiary of
the Company formed for the purpose of effecting the acquisition of Morel,
was merged into Morel effective, for accounting purposes, as of November
30, 1995 (the "Merger"). The Merger was accounted for as a purchase.
Accordingly, in its initial reporting for this transaction at the six
months ended November 30, 1995, the Company provided appropriate unaudited
interim financial information for the then current and historical periods
with disclosure guidelines for purchase accounting.
The Company also entered into a purchase agreement with Seismic Safety
Products, Inc., a Florida corporation ("Florida Seismic"), pursuant to
which Seismic Safety Products, Inc., a Washington corporation and
wholly-owned subsidiary of the Company, purchased substantially all of
Florida Seismic's assets, subject to certain liabilities, for consideration
consisting of cash and common stock of the Company. Because the purchase
was completed as of November 30, 1995, the results of the transaction have
been included in the consolidated financial statements of the Company at
that date.
<PAGE>
Computations of Earnings (Loss) per Share
Earnings (loss) per common and common equivalent share are computed using
the weighted average number of common and common equivalent shares
outstanding during each reported period. Common equivalent shares consist
of stock options and warrants, which are excluded from the computation if
antidilutive. Fully diluted earnings (loss) per common share did not differ
significantly from primary earnings (loss) per common share in any period
reported.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Preliminary Note Regarding Forward-Looking Statements
The information set forth in this Item 2 includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and is subject to the safe harbor created by those sections.
Overview
The Company's net sales for the three- and six-month periods ended November
30, 1996 were derived from its five operating subsidiaries, which are
divided into two operational and marketing groups. The Company's aerospace
group consists of Cashmere Manufacturing Co., Inc. ("Cashmere"), which
manufactures high quality machined aluminum parts and components, Seismic
Safety Products, Inc. ("Seismic"), which markets seismic safety gas shutoff
valves manufactured by Cashmere, and Morel Industries, Inc. ("Morel"),
which manufactures cast aluminum parts and assemblies. The Company's
electronics group consists of Pacific Coast Technologies, Inc. ("Pacific
Coast"), which manufactures and sells electrical connectors and instrument
packages, and Ceramic Devices, Inc. ("Ceramic Devices"), which manufactures
ceramic capacitors, filters and feedthroughs.
The Company's electronic products business is characterized by relatively
low volumes and higher margins, as compared with its aerospace (metal
products) business, where volumes have historically been higher and margins
lower than in the electronic products business. The Company believes that
margins will generally remain higher in its electronics group than in its
aerospace group, 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 aerospace products can be expected to affect overall margins
for the Company.
The Company's financial condition and results of operations have been
substantially affected by acquisitions. In November 1995, the Company
formed Seismic, which acquired substantially all of the assets of a Florida
corporation of the same name and acquired certain patents from affiliates
of the Florida corporation. The Company also acquired Morel in December
1995 (effective for accounting purposes as of November 30, 1995). The
Company's net sales for the three- and six-month periods ended November 30,
1995 were derived from the three operating subsidiaries then owned by the
Company: Pacific Coast, Cashmere and Ceramic Devices. A portion of the
changes in the Company's results of operations from the second quarter and
the first six months of fiscal 1996 to the same periods in fiscal 1997 are
attributable to the addition of Morel and Seismic.
<PAGE>
Results of Operations
Quarter Ended November 30, 1996
Net sales for the quarter ended November 30, 1996 were $8,317,000, compared
to net sales of $3,675,000 for the quarter ended November 30, 1995, an
increase of $4,462,000. In the aerospace group, the operations of the
Company's two new subsidiaries contributed $3,115,000 of the increase,
consisting of $3,039,000 from Morel and $76,000 from Seismic. In addition,
Cashmere's net sales increased by $713,000, or 38.6%, between the two
periods. Within the electronics group, net sales of Pacific Coast increased
by $720,000, or 53.7%, primarily as a result of increases in order sizes
and products incorporating the Company's patented technologies, and net
sales of Ceramic Devices increased by $94,000, or 19.6%.
Gross profit for the quarter ended November 30, 1996 was $1,933,000,
compared to gross profit of $684,000 for the quarter ended November 30,
1995, an increase of $1,249,000. The Company's overall gross profit
percentage increased to 23.2% from 18.6% of net sales between the two
periods. In the aerospace group, operations of the Company's two new
subsidiaries contributed $472,000 of the increase, consisting of $449,000
from Morel and $23,000 from Seismic. In addition, Cashmere's gross profit
increased $273,000, or 86.7%, between the two periods, due primarily to
renegotiation of Cashmere's supplier contract with Boeing and increases in
sales to Boeing of additional products. Within the electronics group,
Pacific Coast's gross profit increased by $509,000, or 262.4%, between the
two periods, due in part to the 53.7% increase in net sales and production
efficiencies gained with that increase in sales activities. Gross profit of
Ceramic Devices declined by $5,000, or 3.6%, between the two periods.
Operating expenses for the quarter ended November 30, 1996 were $1,443,000,
compared to $1,014,000 for the quarter ended November 30, 1995, an increase
of $429,000. Operating expenses of the Company's two new subsidiaries were
$451,000, which exceeded the total amount of the Company's increase in
operating expenses, with $355,000 from Morel and $96,000 from Seismic.
Cashmere's operating expenses decreased by $78,000, or 18.0%, between the
two periods, reflecting an increase in efficiency after Cashmere's
operations were moved from Cashmere, Washington to a new facility in
Wenatchee in October 1995, providing more production and office space.
Pacific Coast's operating expenses increased by $29,000, or 6.6%, between
the two periods, in response to the increase in net sales. Ceramic Devices'
operating expenses declined by $27,000, or 19.0%, between the two periods,
due in part to efficiencies created by Ceramic Devices' move to the
Wenatchee production facilities from San Diego, California in the spring of
1996. Interest expense increased from $62,000 in the second quarter of
fiscal 1996 to $105,000 in the second quarter of fiscal 1997, primarily
from obligations related to the new operating subsidiaries, Seismic
($1,000) and Morel ($44,000).
Net income for the quarter ended November 30, 1996 was $458,000, or $.04
per share, which represents an improvement over a net loss of $392,000, or
($.06) per share, for the quarter ended November 30, 1995.
<PAGE>
Six Months Ended November 30, 1996
Net sales for the six-month period ended November 30, 1996 were
$15,761,000, compared to net sales of $7,131,000 for the six-month period
ended November 30, 1995, an increase of $8,630,000. In the aerospace group,
the operations of new subsidiaries contributed $5,963,000 of the increase,
consisting of $5,853,000 from Morel and $110,000 from Seismic. In addition,
Cashmere's net sales increased by $745,000, or 20.2%, between the two
periods. Within the electronics group, net sales of Pacific Coast increased
by $1,906,000, or 75.8%, primarily as a result of increases in order sizes
and products incorporating the Company's patented technologies, and net
sales of Ceramic Devices increased by $16,000, or 1.7%.
Gross profit for the six-month period ended November 30, 1996 was
$3,878,000, compared to $1,345,000 for the six-month period ended November
30, 1995, an increase of $2,533,000. The Company's overall gross profit
percentage increased to 24.6% from 18.9% of net sales between the two
periods. In the aerospace group, operations of the Company's two new
subsidiaries contributed $793,000 of the increase, consisting of $764,000
from Morel and $29,000 from Seismic. In addition, Cashmere's gross profit
increased $457,000, or 67.3%, on a sales increase of $745,000 between the
two periods, due primarily to renegotiation of Cashmere's supplier contract
with Boeing and increases in sales to Boeing for additional products.
Within the electronics group, Pacific Coast's gross profit increased by
$1,361,000, or 329.5%, between the two periods, due in part to the 75.8%
increase in net sales and production efficiencies gained with that increase
in sales activities. Gross profit of Ceramic Devices declined by $78,000,
or 30.8%, between the two periods.
Operating expenses for the six months ended November 30, 1996 were
$3,019,000, compared to $1,823,000 for the six months ended November 30,
1995, an increase of $1,196,000. The operations of the Company's two new
subsidiaries accounted for $1,004,000 of the increase, consisting of
$805,000 from Morel and $199,000 from Seismic. Cashmere's operating
expenses decreased by $3,000, or 0.4%, between the two periods. Pacific
Coast's operating expenses increased by $220,000, or 28.5%, between the two
periods in response to the 75.8% increase in net sales. Ceramic Devices'
operating expenses declined by $59,000, or 20.5%, between the two periods
due in part to efficiencies created by Ceramic Devices' move to the
Wenatchee production facilities from San Diego, California in the spring of
1996. Interest expense increased to $279,000 in the first two quarters of
fiscal 1997 from $106,000 in the first two quarters of fiscal 1997,
primarily from obligations related to the new operating subsidiaries, Morel
($123,000) and Seismic ($1,000).
Net income for the six-month period ended November 30, 1996 was $684,000,
or $.07 per share, which represents an improvement over a net loss of
$584,000, or ($.09) per share, for the six months ended November 30, 1995.
Liquidity and Capital Resources
At November 30, 1996, the Company's total current assets were $14,793,000,
and its total current liabilities were $6,964,000, resulting in net working
capital of $7,829,000 and a current ratio of 2.12 to 1.0. Comparable
amounts at May 31, 1996 were $13,009,000 of current assets
<PAGE>
and $12,057,000 of current liabilities, resulting in net working capital of
$952,000, and a current ratio of 1.08 to 1.0.
On July 19, 1996, the Company closed an underwritten public offering of
2,250,000 Units, with each Unit consisting of one share of Common Stock and
one warrant to purchase a share of Common Stock at a price of $3.125 per
Unit, subject to certain possible adjustments (the "July 1996 public
offering"). The July 1996 public offering resulted in net proceeds to the
Company, after fees and expenses, of approximately $5,320,000. A portion of
the net proceeds was used during the first six months of fiscal 1997 to pay
off approximately $2,438,000 of short term debt and certain interest and
fees associated with such debt. The remainder has been or is expected to be
used for further reductions of debt, acquisition of manufacturing
equipment, facilities expansion, potential acquisitions and working
capital.
During the first six months of fiscal 1997, the Company obtained a
modification and renewal of its lending arrangements with its primary
lender. The Company's lending arrangements with that lender provide for a
working capital line of credit, collateralized by accounts receivable and
inventories, and a letter of credit required to support a loan from another
lender. The Company believes that it was in compliance with all loan
provisions at November 30, 1996.
The Company believes that the net proceeds from the July 1996 public
offering, together with its existing credit facilities, will be sufficient
to meet its budgeted working capital requirements for at least the next 12
months. However, there is no assurance that the Company's working capital
requirements will not exceed those currently budgeted, or that additional
financing will be available to the Company, if and when needed.
Capital Resources
Subsequent to November 30, 1996, the Company had issued a purchase order to
an equipment supplier for capital equipment with an expected total cost of
approximately $1,400,000, subject to obtaining financing acceptable to the
Company. 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
being acquired.
Inflation
Inflation has not had a significant impact on the Company's operations in
the past two years, and is not expected to have a significant impact in the
foreseeable future.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Effective as of November 30, 1996, PCT Holdings, Inc., a Nevada
corporation ("PCTH"), merged into Pacific Aerospace & Electronics, Inc., a
Washington corporation (the "Company"), in order to effect a change in
PCTH's domicile from Nevada to Washington (the "Reincorporation Merger"),
with the Company being the surviving entity. Prior to the Reincorporation
Merger, the Company was a wholly-owned subsidiary of PCTH, organized for
the purpose of reincorporating PCTH in Washington.
Upon the effectiveness of the Reincorporation Merger, each outstanding
share of the $.001 par value common stock of PCTH was automatically
converted into one share of the $.001 par value common stock of the Company
(the "Common Stock"), and each of the warrants to purchase common stock of
PCTH sold in PCTH's registered public offering in July 1996 was
automatically converted into a warrant to purchase Common Stock (the
"Warrants"). It will not be necessary for shareholders or warrantholders of
the Company to exchange their existing certificates. The Common Stock sold
in PCTH's registered public offering in July 1996 and the Warrants continue
to be traded on the Nasdaq National Market System, after the
Reincorporation Merger, under the symbols "PCTH" and "PCTHW", respectively.
The Company adopted new Articles of Incorporation in connection with
the Reincorporation Merger. The Articles of Incorporation authorize
100,000,000 shares of Common Stock and 5,000,000 shares of preferred stock,
$.001 par value (the "Preferred Stock"). Although the Company has no
current plans to issue Preferred Stock, the Board of Directors has the
authority, subject to the exception described below, to determine the
relative rights and preferences and the timing and terms of issuance of any
series of Preferred Stock. Shareholder approval would not be required for
issuance of Preferred Stock unless required by applicable law or by the
rules of any stock exchange or automated quotation system on which
securities of the Company may be listed or traded. The Nasdaq National
Market System currently requires shareholder approval prior to issuing
shares only in certain specific instances, such as an issuance that will
result in a change in control of the corporation, or an acquisition
involving the issuance of common stock or securities convertible into or
exercisable for common stock that would equal or exceed 20% of the voting
power or 20% of the number of shares of common stock outstanding before
such issuance.
Item 3. Defaults upon Senior Securities
None.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on October
29, 1996 and concluded on November 12, 1996 (together the "Annual
Meeting"). The shareholders voted upon the following matters at the Annual
Meeting:
a. Election of Directors
The following eight directors nominated by the Board of Directors were
elected to serve as directors of the Company until the 1997 Annual Meeting
of Shareholders:
Broker
Director For Against Abstain Non-votes
Donald A. Wright 6,988,209 5,435 2,200 0
Herman L. "Jack" Jones 6,333,209 658,435 2,200 0
Donald B. Cotton 6,720,888 270,756 2,200 0
Allen W. Dahl 6,720,888 270,756 2,200 0
Paul Schmidhauser 6,986,209 5,435 2,200 0
Gregory Smith 6,986,209 5,435 2,200 0
Robert L. Smith 6,720,909 270,735 2,200 0
Roger P. Vallo 6,986,188 5,456 2,200 0
b. Approval of the Amended and Restated Stock Incentive Plan
The Company's Amended and Restated Stock Incentive Plan, as described
in the Company's proxy materials for the Annual Meeting, was approved by
the following vote:
FOR 4,366,480
AGAINST 56,333
ABSTAIN 32,107
BROKER NON-VOTES 2,538,924
c. Approval of Reincorporation Merger
The Reincorporation Merger, as described in the Company's proxy
materials for the Annual Meeting, was approved by the following vote:
<PAGE>
FOR 5,141,774
AGAINST 2,710
ABSTAIN 17,282
BROKER NON-VOTES 2,547,255
d. Approval of Name Change
The change of the Corporation's name to "Pacific Aerospace &
Electronics, Inc." in the event that the Reincorporation Merger was not
approved, as described in the Company's proxy materials for the Annual
Meeting, was approved by the following vote:
FOR 5,681,511
AGAINST 3,906
ABSTAIN 13,275
BROKER NON-VOTES 1,295,152
e. Ratification of Moss Adams as the Company's Independent Auditors
The selection of Moss Adams LLP as the Company's independent auditors
was ratified by the following vote:
FOR 6,970,253
AGAINST 4,121
ABSTAIN 19,470
BROKER NON-VOTES 0
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
The following are filed as exhibits to this Quarterly Report:
2.1 Agreement and Plan of Merger between PCT Holdings, Inc. and Pacific
Aerospace & Electronics, Inc. dated November 25, 1996. *
<PAGE>
3.4 Articles of Incorporation of Pacific Aerospace & Electronics, Inc., as
filed on September 20, 1996, with the Secretary of State of the State
of Washington. *
3.5 Articles of Merger of PCT Holdings, Inc. into Pacific Aerospace &
Electronics, Inc. filed with the Nevada Secretary of State effective
as of 11:59 p.m. PST on November 30, 1996. *
3.6 Articles of Merger of PCT Holdings, Inc. with and into Pacific
Aerospace & Electronics, Inc. filed with the Washington Secretary of
State effective as of 11:59 p.m. PST on November 30, 1996. *
3.7 Bylaws of Pacific Aerospace & Electronics, Inc. *
4.1 Form of specimen certificate for the Common Stock. *
4.2 Form of specimen certificate for the Warrants. *
10.7 Amended and Restated Stock Incentive Plan.
10.8 Independent Director Stock Plan.
27. Financial Data Schedule
- --------------------------
* Incorporated by reference to the Company's Current Report on Form 8-K
filed on December 12, 1996.
b. Reports on Form 8-K.
During the quarterly period ended November 30, 1996, the following
Current Report on Form 8-K was filed with the Commission:
On December 12, 1996, the Company reported that it had effected
the Reincorporation Merger as of November 30, 1996. No financial
statements were filed with that Form 8-K report.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PACIFIC AEROSPACE & ELECTRONICS, INC.
DONALD A. WRIGHT
Date: January 3, 1997 --------------------------------------------
Donald A. Wright
President, Chief Executive Officer, and
Chairman of the Board
(Principal Executive Officer)
NICK A. GERDE
Date: January 3, 1997 --------------------------------------------
Nick A. Gerde
Vice President Finance, Chief Financial
Officer and Treasurer (Principal Financial
and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
2.1 Agreement and Plan of Merger between PCT Holdings, Inc. and
Pacific Aerospace & Electronics, Inc. dated November 25, 1996. *
3.4 Articles of Incorporation of Pacific Aerospace & Electronics,
Inc., as filed on September 20, 1996, with the Secretary of State
of the State of Washington. *
3.5 Articles of Merger of PCT Holdings, Inc. into Pacific Aerospace &
Electronics, Inc. filed with the Nevada Secretary of State
effective as of 11:59 p.m. PST on November 30, 1996. *
3.6 Articles of Merger of PCT Holdings, Inc. with and into Pacific
Aerospace & Electronics, Inc. filed with the Washington Secretary
of State effective as of 11:59 p.m. PST on November 30, 1996. *
3.7 Bylaws of Pacific Aerospace & Electronics, Inc. *
4.1 Form of specimen certificate for the Common Stock. *
4.2 Form of specimen certificate for the Warrants. *
10.7 Amended and Restated Stock Incentive Plan.
10.8 Independent Director Stock Plan.
27. Financial Data Schedule
- --------------------------
* Incorporated by reference to the Company's Current Report on Form 8-K
filed on December 12, 1996.
Exhibit 10.7
PACIFIC AEROSPACE & ELECTRONICS, INC.
AMENDED AND RESTATED STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Amended and Restated Stock Incentive
Plan (the "Plan") is to enable Pacific Aerospace & Electronics, Inc., a
Washington corporation (the "Company") to attract and retain the services
of (1) selected employees, officers and directors of the Company or of any
subsidiary of the Company and (2) selected nonemployee agents, consultants,
advisors, persons involved in the sale or distribution of the Company's
products and independent contractors of the Company or any subsidiary.
2. Shares Subject to the Plan. Subject to adjustment as provided below
and in Section 13, the shares to be offered under the Plan shall consist of
Common Stock, $.001 par value, of the Company, and the total number of
shares of Common Stock that may be issued under the Plan shall not exceed
2,000,000 shares. The shares issued under the Plan may be authorized and
unissued shares or reacquired shares. If an option, stock appreciation
right or performance unit granted under the Plan expires, terminates or is
cancelled, the unissued shares subject to such option, stock appreciation
right or performance unit shall again be available under the Plan. If
shares sold or awarded as a bonus under the Plan are forfeited to the
Company or repurchased by the Company, the number of shares forfeited or
repurchased shall again be available under the Plan.
3. Effective Date and Duration of Plan.
(a) Effective Date. The Plan shall become effective as of the
date it is adopted by the Board of Directors. No option, stock appreciation
right or performance unit granted under the Plan to an officer who is
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended
(an "Officer") or a director, and no incentive stock option, shall become
exercisable, however, until the Plan is approved by the affirmative vote of
the holders of a majority of the shares of Common Stock represented at a
shareholders meeting at which a quorum is present, and any such awards
under the Plan prior to such approval shall be conditioned on and subject
to such approval. Subject to this limitation, options, stock appreciation
rights and performance units may be granted and shares may be awarded as
bonuses or sold under the Plan at any time after the effective date and
before termination of the Plan.
(b) Duration. Unless earlier terminated by the Board of
Directors, the Plan shall continue in effect until the earlier of: (i) ten
years from the date on which the Plan is adopted by the Board of Directors,
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
of Directors 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. No options or other rights may be granted
after such termination or during any suspension of the Plan.
<PAGE>
Termination shall not affect any outstanding options, any right of the
Company to repurchase shares or the forfeitability of shares issued under
the Plan.
4. Administration.
(a) Board of Directors. Except as otherwise provided below, the
Plan shall be administered by the Board of Directors of the Company, which
shall determine and designate from time to time the individuals to whom
awards shall be made, the amount of the awards and the other terms and
conditions of the awards. Subject to the provisions of the Plan, the Board
of Directors may from time to time adopt and amend rules and regulations
relating to administration of the Plan, advance the lapse of any waiting
period, accelerate any exercise date, waive or modify any restriction
applicable to shares (except those restrictions imposed by law) and make
all other determinations in the judgment of the Board of Directors
necessary or desirable for the administration of the Plan. The
interpretation and construction of the provisions of the Plan and related
agreements by the Board of Directors shall be final and conclusive. The
Board of Directors may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any related agreement in the
manner and to the extent it shall deem expedient to carry the Plan into
effect, and it shall be the sole and final judge of such expediency.
(b) Committee. The Board of Directors may delegate to a committee
of the Board of Directors or specified officers of the Company, or both
(the "Committee") any or all authority for administration of the Plan;
provided that at least two members of the Committee must be directors. If
authority is delegated to a Committee, all references to the Board of
Directors in the Plan shall mean and relate to the Committee except (i) as
otherwise provided by the Board of Directors, (ii) that only the Board of
Directors may amend or terminate the Plan as provided in Sections 3 and 14,
and (iii) that a Committee including officers of the Company shall not be
permitted to grant options to persons who are officers of the Company.
(c) Exchange Act. At any time that the Company has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), this Plan shall be administered
in accordance with Rule 16b-3 adopted under the Exchange Act and Section
162(m) of the Internal Revenue Code of 1986, as amended, and the
regulations, proposed and final, thereunder, as all may be amended from
time to time. In such event, the Board shall appoint a Committee in
accordance with Section 4(b), and each member of the Committee shall be a
"disinterested director" and an "outside director" with the meaning of such
Rule 16b-3 and Section 162(m), respectively.
(d) Limited Liability. No member of the Board of Directors or the
Committee or officer of the Company shall be liable for any action or
inaction of the entity or body, or of another person or, except in
circumstances involving bad faith, of himself or herself. Subject only to
compliance with the explicit provisions hereof, the Board of Directors may
act in its absolute discretion in all matters related to the Plan.
5. Types of Awards; Eligibility. The Board of Directors may, from time
to time, take the following action, separately or in combination, under the
Plan: (i) grant Incentive Stock
<PAGE>
Options, as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), as provided in Sections 6(a) and 6(b); (ii) grant
options other than Incentive Stock Options ("Non-Statutory Stock Options")
as provided in Sections 6(a) and 6(c); (iii) award stock bonuses as
provided in Section 7; (iv) sell shares subject to restrictions as provided
in Section 8; (v) grant stock appreciation rights as provided in Section 9;
(vi) grant cash bonus rights as provided in Section 10; (vii) grant
performance units as provided in Section 11; and (viii) grant foreign
qualified awards as provided in Section 12. Any such awards may be made to
employees, including employees who are officers or directors, and to other
individuals described in Section 1 who the Board of Directors believes have
made or will make an important contribution to the Company or any
subsidiary of the Company; provided, however, that only employees of the
Company shall be eligible to receive Incentive Stock Options under the
Plan; and provided further that non-employee directors shall not be
eligible to participate in the Plan. For purposes of the Plan, a
non-employee director is a director who is not an employee of the Company
or any of its subsidiaries. The Board of Directors shall select the
individuals to whom awards shall be made and shall specify the action taken
with respect to each individual to whom an award is made. At the discretion
of the Board of Directors, an individual may be given an election to
surrender an award in exchange for the grant of a new award.
6. Option Grants.
(a) General Rules Relating to Options.
(i) Terms of Grant. The Board of Directors may grant options
under the Plan. With respect to each option grant, the Board of
Directors shall determine 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, without limitation, whether
the option will be subject to any vesting requirements and whether
there will be any conditions precedent to exercise of the option), and
whether the option is an Incentive Stock Option or a Non-Statutory
Stock Option. At the time of the grant of an option or at any time
thereafter, the Board of Directors may provide that an optionee who
exercised an option with Common Stock of the Company shall
automatically receive a new option to purchase additional shares equal
to the number of shares surrendered and may specify the terms and
conditions of such new options. The maximum number of shares of Common
Stock with respect to which options may be granted to any person
during any fiscal year is 1,000,000.
(ii) Exercise of Options. Except as provided in Section
6(a)(iv) or as determined by the Board of Directors, no option granted
under the Plan 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 of the Company and shall have been so employed or provided
such service continuously since the date such option was granted,
subject to Section 6(a)(iv)(G). Except as provided in Sections
6(a)(iv) and 13, options granted under the Plan may be exercised from
time to time over the period stated in each option in such amounts and
at such times as shall be prescribed by the Board of Directors,
provided that options shall not be exercised for fractional shares.
Unless otherwise determined by the Board of Directors, if the optionee
does not exercise an option in any
<PAGE>
one year with respect to the full number of shares to which the
optionee is entitled in that year, the optionee's rights shall be
cumulative and the optionee may purchase those shares in any
subsequent year during the term of the option. Unless otherwise
determined by the Board of Directors, if an Officer exercises an
option within six months of the grant of the option, the shares
acquired upon exercise of the option may not be sold until six months
after the date of grant of the option.
(iii) Nontransferability. Each Incentive Stock Option and,
unless otherwise determined by the Board of Directors with respect to
an option granted to a person who is neither an Officer nor a director
of the Company, each other option granted under the Plan, by its terms
shall be nonassignable and nontransferable by the optionee, either
voluntarily or by operation of law, except by will or by the laws of
descent and distribution of the state or country of the optionee's
domicile at the time of death.
(iv) Termination of Employment or Service.
(A) General Rule. Unless otherwise determined by the
Board of Directors, in the event the employment or service of the
optionee with the Company or a subsidiary terminates for any
reason other than because of physical disability or death as
provided in Subsections 6(a)(iv)(B) and (C), or for cause, as
provided in Subsection 6(a)(iv)(D), the option may be exercised
at any time prior to the expiration date of the option or the
expiration of three months after the date of such termination,
whichever is the shorter period, but only if and to the extent
the optionee was entitled to exercise the option at the date of
such termination.
(B) Termination Because of Total Disability. Unless
otherwise determined by the Board of Directors, in the event of
the termination of employment or service because of total
disability, the option may be exercised at any time prior to the
expiration date of the option or the expiration of 12 months
after the date of such termination, whichever is the shorter
period, but only if and to the extent the optionee was entitled
to exercise the option at the date of such termination. The term
"total disability" means a medically determinable mental or
physical impairment which is expected to result in death or which
has lasted or is expected to last for a continuous period of 12
months or more and which causes the optionee to be unable, in the
opinion of the Company and two independent physicians, to perform
his or her duties as an employee, director, officer or consultant
of the Company and to be engaged in any substantial gainful
activity. Total disability shall be deemed to have occurred on
the first day after the Company and the two independent
physicians have furnished their opinion of total disability to
the Company.
(C) Termination Because of Death. Unless otherwise
determined by the Board of Directors, in the event of the death
of an optionee while employed by or providing service to the
Company or a subsidiary, the
<PAGE>
option may be exercised at any time prior to the expiration date
of the option or the expiration of 12 months after the date of
death, whichever is the shorter period, but only if and to the
extent the optionee was entitled to exercise the option at the
date of death and only by the person or persons to whom such
optionee's rights under the option shall pass by the optionee's
will or by the laws of descent and distribution of the state or
country of domicile at the time of death.
(D) For Cause. Unless otherwise determined by the Board
of Directors, if an optionee is terminated for cause or resigns
in lieu of dismissal, any option granted hereunder shall be
deemed to have terminated as of the time of the first act that
led or would have led to the termination for cause or resignation
in lieu of dismissal, and such optionee shall thereupon have no
right to purchase any shares of Common Stock pursuant to the
exercise of such option, and any such exercise shall be null and
void. Termination for "cause" shall include: (i) the violation by
the optionee of any reasonable rule or policy of the Company that
results in damage to the Company or which, after notice to do so,
the optionee fails to correct within a reasonable time; (ii) any
willful misconduct or gross negligence by the optionee in the
responsibilities assigned to him or her; (iii) any willful
failure to perform his or her job as required to meet the
objectives of the Company; (iv) any wrongful conduct of an
optionee that has an adverse impact on the Company or that
constitutes a misappropriation of the assets of the Company; (v)
unauthorized disclosure of confidential information; or (vi) the
optionee's performing services for any other company or person
that competes with the Company while he or she is employed by or
provides services to the Company, without the written approval of
the chief executive officer of the Company. "Resignation in lieu
of dismissal" shall mean a resignation by an optionee of
employment with or service to the Company if (i) the Company has
given prior notice to such optionee of its intent to dismiss the
optionee for circumstances that constitute cause, or (ii) within
two months of the optionee's resignation, the chief operating
officer or the chief executive officer of the Company or the
Board of Directors determines, which determination shall be final
and binding, that such resignation was related to an act that
would have led to a termination for cause.
(E) Amendment of Exercise Period Applicable to
Termination. The Board of Directors, at the time of grant or,
with respect to an option that is not an Incentive Stock Option,
at any time thereafter, may extend the 3-month and 12-month
exercise periods any length of time not longer than the original
expiration date of the option, and may increase the portion of an
option that is exercisable, subject to such terms and conditions
as the Board of Directors may determine.
(F) Failure to Exercise Option. To the extent that the
option of any deceased optionee or of any optionee whose
employment or service terminates is not exercised within the
applicable period, all further rights to purchase shares pursuant
to such option shall cease and terminate.
<PAGE>
(G) Transfers; Leaves. For purposes of this Section
6(a), a transfer of employment or other relationship between or
among the Company and/or any of its subsidiaries shall not be
deemed to constitute a termination of employment or other
cessation of relationship with the Company or any of its
subsidiaries. For purposes of this Section 6(a), unless otherwise
determined by the Board of Directors, employment shall be deemed
to continue while the optionee is on military leave, sick leave
or other bona fide leave of absence (as determined by the Board
of Directors) in accordance with the policies of the Company.
(H) Holding Period. Unless otherwise determined by the
Board of Directors, if a person subject to Section 16 of the
Exchange Act exercises an option within six months of the date of
grant of the option, the shares of Common Stock acquired on
exercise of the option may not be sold until six months after the
date of grant of the option.
(I) Modification of Options. Subject to the
requirements of Section 422 of the Code (with respect to
Incentive Stock Options) and to the terms and conditions and
within the limitations of the Plan, the Board of Directors may
modify or amend outstanding options granted under the Plan. The
modification or amendment of an outstanding option shall not,
without the consent of the optionee, impair or diminish any of
his or her rights or any of the obligations of the Company under
such option. Except as otherwise provided in the Plan, no
outstanding option shall be terminated without the consent of the
optionee. Unless the optionee agrees otherwise, any changes or
adjustments made to outstanding Incentive Stock Options granted
under this Plan shall be made in such a manner so as not to
constitute a "modification," as defined in Section 425(h) of the
Code, and so as not to cause any Incentive Stock Option issued
hereunder to fail to continue to qualify as an Incentive Stock
Option as defined in Section 422(b) of the Code.
(v) Purchase of Shares. Unless the Board of Directors
determines otherwise, shares may be acquired pursuant to an option
granted under the Plan only upon receipt by the Company of notice in
writing from the optionee of the optionee's intention to exercise,
specifying the number of shares as to which the optionee desires to
exercise the option and the date on which the optionee desires to
complete the transaction, and if required in order to comply with the
Securities Act of 1933, as amended, containing a representation that
it is the optionee's present intention to acquire the shares for
investment and not with a view to distribution. Unless the Board of
Directors determines otherwise, on or before the date specified for
completion of the purchase of shares pursuant to an option, the
optionee must have paid the Company the full purchase price of such
shares in cash (including, with the consent of the Board of Directors,
cash that may be the proceeds of a loan from the Company (provided
that, with respect to an Incentive Stock Option, such loan is approved
at the time of option grant)) or, with the consent of the Board of
Directors, in whole or in part, in Common Stock of the Company valued
at fair market value, restricted stock, performance units
<PAGE>
or other contingent awards denominated in either stock or cash,
promissory notes and other forms of consideration. The fair market
value of Common Stock provided in payment of the purchase price shall
be determined by the Board of Directors. If the Common Stock of the
Company is not publicly traded on the date the option is exercised,
the Board of Directors may consider any valuation methods it deems
appropriate and may, but is not required to, obtain one or more
independent appraisals of the Company. If the Common Stock of the
Company is publicly traded on the date the option is exercised, the
fair market value of Common Stock provided in payment of the purchase
price shall be the closing price of the Common Stock as reported in
The Wall Street Journal on the last trading day preceding the date the
option is exercised, or such other reported value of the Common Stock
as shall be specified by the Board of Directors. No shares shall be
issued until full payment for the shares has been made. With the
consent of the Board of Directors (which, in the case of an Incentive
Stock Option, shall be given only at the time of option grant), an
optionee may request the Company to apply automatically the shares to
be received upon the exercise of a portion of a stock option (even
though stock certificates have not yet been issued) to satisfy the
purchase price for additional portions of the option. Each optionee
who has exercised an option shall immediately upon notification of the
amount due, if any, pay to the Company in cash amounts necessary to
satisfy any applicable federal, state and local tax withholding
requirements. If additional withholding is or becomes required beyond
any amount deposited before delivery of the certificates, the optionee
shall pay such amount to the Company on demand. If the optionee fails
to pay the amount demanded, the Company may withhold that amount from
other amounts payable by the Company to the optionee, including
salary, subject to applicable law. With the consent of the Board of
Directors an optionee may satisfy this obligation, in whole or in
part, by having the Company withhold from the shares to be issued upon
the exercise that number of shares that would satisfy the withholding
amount due or by delivering to the Company Common Stock to satisfy the
withholding amount. Upon the exercise of an option, the number of
shares reserved for issuance under the Plan shall be reduced by the
number of shares issued upon exercise of the option.
(vi) Restrictions. Shares issued on exercise of options
granted under the Plan may be subject to restrictions on transfer,
repurchase rights, or other restrictions as determined by the Board of
Directors.
(b) Incentive Stock Options. Incentive Stock Options shall be
subject to the following additional terms and conditions:
(i) Limitation on Amount of Grants. No employee may be
granted Incentive Stock Options under the Plan if the aggregate fair
market value, on the date of grant, of the Common Stock with respect
to which Incentive Stock Options are exercisable for the first time by
that employee during any calendar year under the Plan and under all
incentive stock option plans (within the meaning of Section 422 of the
Code) of the Company or any parent or subsidiary of the Company
exceeds $100,000.
<PAGE>
(ii) Limitations on Grants to 10 Percent Shareholders. An
Incentive Stock Option may be granted under the Plan to an employee
possessing more than 10 percent of the total combined voting power of
all classes of stock of the Company or of any parent or subsidiary of
the Company only if the option price is at least 110 percent of the
fair market value, as described in Section 6(b)(iv), of the Common
Stock subject to the option on the date it is granted and the option
by its terms is not exercisable after the expiration of five years
from the date it is granted.
(iii) Duration of Options. Subject to Sections 6(a)(ii) and
6(b)(ii), Incentive Stock Options granted under the Plan shall
continue in effect for the period fixed by the Board of Directors,
except that no Incentive Stock Option shall be exercisable after the
expiration of 10 years from the date it is granted.
(iv) Option Price. The option price per share shall be
determined by the Board of Directors at the time of grant. Except as
provided in Section 6(b)(ii), the option price shall not be less than
100 percent of the fair market value of the Common Stock covered by
the Incentive Stock Option at the date the option is granted. The fair
market value shall be determined by the Board of Directors. If the
Common Stock of the Company is not publicly traded on the date the
option is granted, the Board of Directors may consider any valuation
methods it deems appropriate and may, but is not required to, obtain
one or more independent appraisals of the Company. If the Common Stock
of the Company is publicly traded on the date the option is exercised,
the fair market value shall be deemed to be the closing price of the
Common Stock as reported in The Wall Street Journal on the day
preceding the date the option is granted, or, if there has been no
sale on that date, on the last preceding date on which a sale occurred
or such other value of the Common Stock as shall be specified by the
Board of Directors.
(v) Limitation on Time of Grant. No Incentive Stock Option
shall be granted on or after the tenth anniversary of the effective
date of the Plan.
(vi) Conversion of Incentive Stock Options. The Board of
Directors may at any time without the consent of the optionee convert
an Incentive Stock Option to a Non-Statutory Stock Option.
(c) Non-Statutory Stock Options. Non-Statutory Stock Options
shall be subject to the following terms and conditions in addition to those
set forth in Section 6(a) above:
(i) Option Price. The option price for Non-Statutory Stock
Options shall be determined by the Board of Directors at the time of
grant and may be any amount determined by the Board of Directors.
(ii) Duration of Options. Non-Statutory Stock Options
granted under the Plan shall continue in effect for the period fixed
by the Board of Directors.
7. Stock Bonuses. The Board of Directors may award shares under the
Plan as stock bonuses. Shares awarded as a bonus shall be subject to the
terms, conditions, and restrictions
<PAGE>
determined by the Board of Directors. The restrictions may include
restrictions concerning transferability and forfeiture of the shares
awarded, together with such other restrictions as may be determined by the
Board of Directors. If shares are subject to forfeiture, all dividends or
other distributions paid by the Company with respect to the shares shall be
retained by the Company until the shares are no longer subject to
forfeiture, at which time all accumulated amounts shall be paid to the
recipient. The Board of Directors may require the recipient to sign an
agreement as a condition of the award, but may not require the recipient to
pay any monetary consideration other than amounts necessary to satisfy tax
withholding requirements. The agreement may contain any terms, conditions,
restrictions, representations and warranties required by the Board of
Directors. The certificates representing the shares awarded shall bear any
legends required by the Board of Directors. Unless otherwise determined by
the Board of Directors, shares awarded as a stock bonus to an Officer may
not be sold until six months after the date of the award. The Company may
require any recipient of a stock bonus to pay to the Company in cash upon
demand amounts necessary to satisfy any applicable federal, state or local
tax withholding requirements. If the recipient fails to pay the amount
demanded, the Company may withhold that amount from other amounts payable
by the Company to the recipient, including salary or fees for services,
subject to applicable law. With the consent of the Board of Directors, a
recipient may deliver Common Stock to the Company to satisfy this
withholding obligation. Upon the issuance of a stock bonus, the number of
shares reserved for issuance under the Plan shall be reduced by the number
of shares issued.
8. Restricted Stock. The Board of Directors may issue shares under the
Plan for such consideration (including promissory notes and services) as
determined by the Board of Directors. Shares issued under the Plan shall be
subject to the terms, conditions and restrictions determined by the Board
of Directors. The restrictions may include restrictions concerning
transferability, repurchase by the Company and forfeiture of the shares
issued, together with such other restrictions as may be determined by the
Board of Directors. If shares are subject to forfeiture or repurchase by
the Company, all dividends or other distributions paid by the Company with
respect to the shares shall be retained by the Company until the shares are
no longer subject to forfeiture or repurchase, at which time all
accumulated amounts shall be paid to the recipient. All Common Stock issued
pursuant to this Section 8 shall be subject to a purchase agreement, which
shall be executed by the Company and the prospective recipient of the
shares prior to the delivery of certificates representing such shares to
the recipient. The purchase agreement may contain any terms, conditions,
restrictions, representations and warranties required by the Board of
Directors. The certificates representing the shares shall bear any legends
required by the Board of Directors. Unless otherwise determined by the
Board of Directors, shares issued under this Section 8 to an Officer may
not be sold until six months after the shares are issued. The Company may
require any purchaser of restricted stock to pay to the Company in cash
upon demand amounts necessary to satisfy any applicable federal, state or
local tax withholding requirements. If the purchaser fails to pay the
amount demanded, the Company may withhold that amount from other amounts
payable by the Company to the purchaser, including salary, subject to
applicable law. With the consent of the Board of Directors, a purchaser may
deliver Common Stock to the Company to satisfy this withholding obligation.
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.
<PAGE>
9. Stock Appreciation Rights.
(a) Grant. Stock appreciation rights may be granted under the
Plan by the Board of Directors, subject to such rules, terms, and
conditions as the Board of Directors prescribes.
(b) Exercise.
(i) Each stock appreciation right shall entitle the holder,
upon exercise, to receive from the Company in exchange therefor an
amount equal in value 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 stock
appreciation right 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 stock
appreciation right relates), multiplied by the number of shares
covered by the stock appreciation right or the option, or portion
thereof, that is surrendered. No stock appreciation right shall be
exercisable at a time that the amount determined under this
subparagraph is negative. Payment by the Company upon exercise of a
stock appreciation right may be made in Common Stock valued at fair
market value, in cash, or partly in Common Stock and partly in cash,
all as determined by the Board of Directors.
(ii) A stock appreciation right shall be exercisable only at
the time or times established by the Board of Directors. If a stock
appreciation right is granted in connection with an option, the
following rules shall apply: (1) the stock appreciation right shall be
exercisable only to the extent and on the same conditions that the
related option could be exercised; (2) the stock appreciation rights
shall be exercisable only when the fair market value of the stock
exceeds the option price of the related option; (3) the stock
appreciation right shall be for no more than 100 percent of the excess
of the fair market value of the stock at the time of exercise over the
option price; (4) upon exercise of the stock appreciation right, the
option or portion thereof to which the stock appreciation right
relates terminates; and (5) upon exercise of the option, the related
stock appreciation right or portion thereof terminates. Unless
otherwise determined by the Board of Directors, no stock appreciation
right granted to an Officer or director may be exercised during the
first six months following the date it is granted.
(iii) The Board of Directors may withdraw any stock
appreciation right granted under the Plan at any time and may impose
any conditions upon the exercise of a stock appreciation right or
adopt rules and regulations from time to time affecting the rights of
holders of stock appreciation rights. Such rules and regulations may
govern the right to exercise stock appreciation rights granted prior
to adoption or amendment of such rules and regulations as well as
stock appreciation rights granted thereafter.
(iv) For purposes of this Section 9, the fair market value
of the Common Stock shall be determined as of the date the stock
appreciation right is exercised, under the methods set forth in
Section 6(b)(iv).
<PAGE>
(v) No fractional shares shall be issued upon exercise of a
stock appreciation right. In lieu thereof, cash may be paid in an
amount equal to the value of the fraction or, if the Board of
Directors shall determine, the number of shares may be rounded
downward to the next whole share.
(vi) Each stock appreciation right granted in connection
with an Incentive Stock Option, and unless otherwise determined by the
Board of Directors with respect to a stock appreciation right granted
to a person who is neither an Officer nor a director of the Company,
each other stock appreciation right granted under the Plan by its
terms shall be nonassignable and nontransferable by the holder, either
voluntarily or by operation of law, except by will or by the laws of
descent and distribution of the state or country of the holder's
domicile at the time of death, and each stock appreciation right by
its terms shall be exercisable during the holder's lifetime only by
the holder.
(vii) Each participant who has exercised a stock
appreciation right shall, upon notification of the amount due, pay to
the Company in cash amounts necessary to satisfy any applicable
federal, state and local tax withholding requirements. If the
participant fails to pay the amount demanded, the Company may withhold
that amount from other amounts payable by the Company to the
participant including salary, subject to applicable law. With the
consent of the Board of Directors a participant may satisfy this
obligation, in whole or in part, by having the Company withhold from
any shares to be issued upon the exercise that number of shares that
would satisfy the withholding amount due or by delivering Common Stock
to the Company to satisfy the withholding amount.
(viii) Upon the exercise of a stock appreciation right for
shares, the number of shares reserved for issuance under the Plan
shall be reduced by the number of shares issued. Cash payments of
stock appreciation rights shall not reduce the number of shares of
Common Stock reserved for issuance under the Plan.
10. Cash Bonus Rights.
(a) Grant. The Board of Directors may grant cash bonus rights
under the Plan in connection with (i) options granted or previously
granted, (ii) stock appreciation rights granted or previously granted,
(iii) stock bonuses awarded or previously awarded and (iv) shares sold or
previously sold under the Plan. Cash bonus rights will be subject to rules,
terms and conditions as the Board of Directors may prescribe. Unless
otherwise determined by the Board of Directors with respect to a cash bonus
right granted to a person who is neither an Officer nor a director of the
Company, each cash bonus right granted under the Plan by its terms shall be
nonassignable and nontransferable by the holder, either voluntarily or by
operation of law, except by will or by the laws of descent and distribution
of the state or country of the holder's domicile at the time of death. The
payment of a cash bonus shall not reduce the number of shares of Common
Stock reserved for issuance under the Plan.
(b) Cash Bonus Rights in Connection With Options. A cash bonus
right granted in connection with an option will entitle an optionee to a
cash bonus when the related
<PAGE>
option is exercised (or terminates in connection with the exercise of a
stock appreciation right related to the option) in whole or in part if, in
the sole discretion of the Board of Directors, the bonus right will result
in a tax deduction that the Company has sufficient taxable income to use.
If an optionee purchases shares upon exercise of an option and does not
exercise a related stock appreciation right, the amount of the bonus, if
any, shall be determined by multiplying the excess of the total fair market
value of the shares to be acquired upon the exercise over the total option
price for the shares by the applicable bonus percentage. If the optionee
exercises a related stock appreciation right in connection with the
termination of an option, the amount of the bonus, if any, shall be
determined by multiplying the total fair market value of the shares and
cash received pursuant to the exercise of the stock appreciation right by
the applicable bonus percentage. The bonus percentage applicable to a bonus
right, including a previously granted bonus right, may be changed from time
to time at the sole discretion of the Board of Directors but shall in no
event exceed 75 percent.
(c) Cash Bonus Rights in Connection With Stock Bonus. A cash
bonus right granted in connection with a stock bonus will entitle the
recipient to a cash bonus payable when the stock bonus is awarded or
restrictions, if any, to which the stock is subject lapse. If bonus stock
awarded is subject to restrictions and is repurchased by the Company or
forfeited by the holder, the cash bonus right granted in connection with
the stock bonus shall terminate and may not be exercised. The amount and
timing of payment of a cash bonus shall be determined by the Board of
Directors.
(d) Cash Bonus Rights in Connection With Stock Purchases. A cash
bonus right granted in connection with the purchase of stock pursuant to
Section 8 will entitle the recipient to a cash bonus when the shares are
purchased or restrictions, if any, to which the stock is subject lapse. Any
cash bonus right granted in connection with shares purchased pursuant to
Section 8 shall terminate and may not be exercised in the event the shares
are repurchased by the Company or forfeited by the holder pursuant to
applicable restrictions. The amount of any cash bonus to be awarded and
timing of payment of a cash bonus shall be determined by the Board of
Directors.
(e) Taxes. The Company shall withhold from any cash bonus paid
pursuant to Section 10 the amount necessary to satisfy any applicable
federal, state and local withholding requirements.
11. Performance Units. The Board of Directors may grant performance
units consisting of monetary units which may be earned in whole or in part
if the Company achieves certain goals established by the Board of Directors
over a designated period of time, but not in any event more than 10 years.
The goals established by the Board of Directors may include earnings per
share, return on shareholders' equity, return on invested capital, and such
other goals as may be established by the Board of Directors. In the event
that the minimum performance goal established by the Board of Directors is
not achieved at the conclusion of a period, no payment shall be made to the
participants. In the event the maximum corporate goal is achieved, 100
percent of the monetary value of the performance units shall be paid to or
vested in the participants. Partial achievement of the maximum goal may
result in a payment or vesting corresponding to the degree of achievement
as determined by the Board of Directors.
<PAGE>
Payment of an award earned may be in cash or in Common Stock or in a
combination of both, and may be made when earned, or vested and deferred,
as the Board of Directors determines. Deferred awards shall earn interest
on the terms and at a rate determined by the Board of Directors. Unless
otherwise determined by the Board of Directors with respect to a
performance unit granted to a person who is neither an Officer nor a
director of the Company, each performance unit granted under the Plan by
its terms shall be nonassignable and nontransferable by the holder, either
voluntarily or by operation of law, except by will or by the laws of
descent and distribution of the state or country of the holder's domicile
at the time of death. Each participant who has been awarded a performance
unit shall, upon notification of the amount due, pay to the Company in cash
amounts necessary to satisfy any applicable federal, state and local tax
withholding requirements. If the participant fails to pay the amount
demanded, the Company may withhold that amount from other amounts payable
by the Company to the participant, including salary or fees for services,
subject to applicable law. With the consent of the Board of Directors a
participant may satisfy this obligation, in whole or in part, by having the
Company withhold from any shares to be issued that number of shares that
would satisfy the withholding amount due or by delivering Common Stock to
the Company to satisfy the withholding amount. The payment of a performance
unit in cash shall not reduce the number of shares of Common Stock reserved
for issuance under the Plan. The number of shares reserved for issuance
under the Plan shall be reduced by the number of shares issued upon payment
of an award.
12. Foreign Qualified Grants. Awards under the Plan may be granted to
such officers and employees of the Company and its subsidiaries and such
other persons described in Section 1 residing in foreign jurisdictions as
the Board of Directors may determine from time to time. The Board of
Directors may adopt such supplements to the Plan as may be necessary to
comply with the applicable laws of such foreign jurisdictions and to afford
participants favorable treatment under such laws; provided, however, that
no award shall be granted under any such supplement with terms which are
more beneficial to the participants than the terms permitted by the Plan.
13. Changes in Capital Structure.
(a) Stock Splits; Stock Dividends. If the outstanding Common
Stock of the Company is hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of
the Company by reason of any stock split, combination of shares or dividend
payable in shares, recapitalization or reclassification appropriate
adjustment shall be made by the Board of Directors in the number and kind
of shares available for grants under the Plan. In addition, the Board of
Directors shall make appropriate adjustment in the number and kind of
shares as to which outstanding options, or portions thereof then
unexercised, shall be exercisable, so that the optionee's proportionate
interest before and after the occurrence of the event is maintained.
Notwithstanding the foregoing, the Board of Directors shall have no
obligation to effect any adjustment that would or might result in the
issuance of fractional shares, and any fractional shares resulting from any
adjustment may be disregarded or provided for in any manner determined by
the Board of Directors. Any such adjustments made by the Board of Directors
shall be conclusive.
<PAGE>
(b) Mergers, Reorganizations, Etc. In the event of a merger,
consolidation, plan of exchange, acquisition of property or stock,
separation, reorganization or liquidation to which the Company or a
subsidiary is a party or a sale of all or substantially all of the
Company's assets (each, a "Transaction"), the Board of Directors shall, in
its sole discretion and to the extent possible under the structure of the
Transaction, select one of the following alternatives for treating
outstanding options under the Plan:
(i) Outstanding options shall remain in effect in accordance
with their terms.
(ii) Outstanding options shall be converted into options to
purchase stock in the corporation that is the surviving or acquiring
corporation in the Transaction. The amount, type of securities subject
thereto and exercise price of the converted options shall be
determined by the Board of Directors of the Company, taking into
account the relative values of the companies involved in the
Transaction and the exchange rate, if any, used in determining shares
of the surviving corporation to be issued to holders of shares of the
Company. Unless otherwise determined by the Board of Directors, the
converted options shall be vested only to the extent that the vesting
requirements relating to options granted hereunder have been
satisfied.
(iii) The Board of Directors shall provide a 30-day period
prior to the consummation of the Transaction during which outstanding
options may be exercised to the extent then exercisable, and upon the
expiration of such 30-day period, all unexercised options shall
immediately terminate. The Board of Directors may, in its sole
discretion, accelerate the exercisability of options so that they are
exercisable in full during such 30-day period.
(c) Dissolution of the Company. In the event of the dissolution
of the Company, options shall be treated in accordance with Section
13(b)(iii).
(d) Rights Issued by Another Corporation. The Board of Directors
may also grant options, stock appreciation rights, performance units, stock
bonuses and cash bonuses and issue restricted stock under the Plan having
terms, conditions and provisions that vary from those specified in this
Plan provided that any such awards are granted in substitution for, or in
connection with the assumption of, existing options, stock appreciation
rights, stock bonuses, cash bonuses, restricted stock and performance units
granted, awarded or issued by another corporation and assumed or otherwise
agreed to be provided for by the Company pursuant to or by reason of a
Transaction.
14. Amendment of Plan. The Board of Directors may at any time, and
from time to time, modify or amend the Plan in such respects as it shall
deem advisable because of changes in the law while the Plan is in effect or
for any other reason; provided that the approval of the Company's
shareholders is necessary within twelve months before or after the adoption
by the Board of Directors of any amendment that will: (a) increase the
number of shares of Common Stock to be reserved for the issuance of options
under the Plan; (b) permit the granting of stock options to a class of
persons other than those now permitted to receive stock options under the
<PAGE>
Plan; or (c) require shareholder approval under applicable law, including
Section 16(b) of the Exchange Act. Except as provided in Sections 6(a)(iv),
9, 10 and 13, however, no change in an award already granted shall be made
without the written consent of the holder of such award.
15. Approvals. The obligations of the Company under the Plan may be
subject to the approval of state and federal authorities or agencies with
jurisdiction in the matter. The Company will use its best efforts to take
steps required by state or federal law or applicable regulations, including
rules and regulations of the Securities and Exchange Commission and any
stock exchange or quotations service on which the Company's shares may then
be listed, in connection with the grants under the Plan. The foregoing
notwithstanding, the Company shall not be obligated to issue or deliver
Common Stock under the Plan if such issuance or delivery would violate
applicable state or federal securities laws.
16. Employment and Service Rights. Nothing in the Plan or any award
pursuant to the Plan shall (i) confer upon any employee any right to be
continued in the employment of the Company or any subsidiary or interfere
in any way with the right of the Company or any subsidiary by whom such
employee is employed to terminate such employee's employment at any time,
for any reason, with or without cause, or to decrease such employee's
compensation or benefits, or (ii) confer upon any person engaged by the
Company any right to be retained or employed by the Company or to the
continuation, extension, renewal, or modification of any compensation,
contract, or arrangement with or by the Company.
17. Rights as a Shareholder. The recipient of any award under the Plan
shall have no rights as a shareholder with respect to any Common Stock
until the date of issue to the recipient of a stock certificate for such
shares. Except as otherwise expressly provided in the Plan, no adjustment
shall be made for dividends or other rights for which the record date
occurs prior to the date such stock certificate is issued.
18. Securities Regulations. Shares of Common Stock shall not be issued
with respect to an option granted under the Plan unless the exercise of
such option and the issuance and delivery of such shares pursuant thereto
shall comply with all relevant provisions of law, including, without
limitation, any applicable state securities laws, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, applicable laws of foreign countries and other jurisdictions
and the requirements of any quotation service or stock exchange on which
the shares may then be listed, and shall be further subject to the approval
of counsel for the Company with respect to such compliance, including the
availability of an exemption from registration for the issuance and sale of
any shares hereunder. The inability of the Company to obtain, from any
regulatory body having jurisdiction, the authority deemed by the Company's
counsel to be necessary for the lawful issuance and sale of any shares
hereunder or the unavailability of an exemption from registration for the
issuance and sale of any shares hereunder shall relieve the Company of any
liability with respect of the nonissuance or sale of such shares as to
which such requisite authority shall not have been obtained. As a condition
to the exercise of an option, the Company may require the Optionee to
represent and warrant at the time of any such exercise that the shares of
Common Stock are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any relevant
provision
<PAGE>
of the aforementioned laws. The Company may place a stop-transfer order
against any shares of Common Stock on the official stock books and records
of the Company, and a legend may be stamped on stock certificates to the
effect that the shares of Common Stock may not be pledged, sold or
otherwise transferred unless an opinion of counsel is provided (concurred
in by counsel for the Company) stating that such transfer is not in
violation of any applicable law or regulation. The Board of Directors may
also require such other action or agreement by the optionees as may from
time to time be necessary to comply with the federal and state securities
laws. THIS PROVISION SHALL NOT OBLIGATE THE COMPANY TO UNDERTAKE
REGISTRATION OF THE OPTIONS OR STOCK THEREUNDER.
1995 Stock Incentive Plan adopted by the Board of Directors on October 27,
1995.
1995 Stock Incentive Plan approved by the shareholders on November 28,
1995.
Amendments approved and Amended and Restated Stock Incentive Plan adopted
by the Board of Directors on July 30, 1995, subject to shareholder
approval.
Amendments and Amended and Restated Stock Incentive Plan approved by the
shareholders on October 29, 1996.
Name changed to Pacific Aerospace & Electronics, Inc. pursuant to Merger on
November 30, 1996.
Exhibit 10.8
PACIFIC AEROSPACE & ELECTRONICS, INC.
INDEPENDENT DIRECTOR STOCK PLAN
1. Purpose. The purposes of this Independent Director Stock Plan are to
attract, reward, and retain the best available personnel to serve as
directors of Pacific Aerospace & Electronics, Inc., a Washington
corporation (the "Company"), and to provide added incentive to the
non-employee directors of the Company to serve as Directors by increasing
the ownership interest of non- employee directors of the Company.
2. Definitions. As used herein, the following definitions shall apply:
2.1 "Award" means an Initial Award and/or an Annual Award, as defined
in Section 5.3 and 5.4, respectively.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Common Stock" means the common stock of the Company, par value
$.001 per Share.
2.5 "Company" means Pacific Aerospace & Electronics, Inc., a
Washington corporation.
2.6 "Director" means a member of the Board.
2.7 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.8 "Fair Market Value" means the value of a share of Common Stock
determined as follows:
(a) if the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers,
Inc., Automated Quotation System ("NASDAQ"), the closing sales price for
such stock (or the closing bid, if no sales were reported, then as quoted
on such system or exchange (or the exchange with the greatest volume of
trading in Common Stock) on the last market trading day before the day of
determination) as reported in The Wall Street Journal or such other source
as the Board deems reliable;
(b) if the Common Stock is quoted on the NASDAQ (but not on the
National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, then the mean
between the high and low asked prices for the Common Stock on the last
market trading day before the date of determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable; or
<PAGE>
(c) in the absence of an established market for the Common Stock,
then as determined in good faith by the Board.
2.9 "Independent Director" means a Director who is not an employee of
the Company or any Parent or Subsidiary thereof. The payment of a
Director's fee by the Company shall not be sufficient in and of itself to
constitute employment by the Company.
2.10 "Parent" means a parent corporation, whether now or hereafter
existing, as defined in Section 425(e) of the Code.
2.11 "Plan" means this Independent Director Stock Plan.
2.12 "Plan Administrator" means the administrator of this Plan as
described in Section 4.1.
2.13 "Share" means a share of Common Stock.
2.14 "Subsidiary" means a subsidiary corporation, whether now or
hereafter existing, as defined in Section 425(f) of the Code.
3. Shares Subject to this Plan. Subject to Section 8 of this Plan, the
total number of Shares that may be awarded as bonuses under this Plan shall
not exceed 100,000 Shares, as such Shares were constituted on the effective
date of this Plan. If any Share awarded under this Plan is forfeited
pursuant to Section 6.1 or 6.2, such Share shall again be available for
purposes of this Plan.
4. Administration of this Plan.
4.1 Administration. Except as otherwise required herein, this Plan
shall be administered by the Board or, if the Board shall authorize a
committee to administer this Plan, by such committee to the extent so
authorized; provided, however, that only the Board may suspend, amend or
terminate this Plan as provided in Section 9. No Director shall vote on any
action by the Board with respect to any matter relating to an award held by
such Director. The administrator of this Plan is referred to as the "Plan
Administrator."
4.2 Powers of the Plan Administrator. Subject to the specific
provisions of this Plan, the Plan Administrator shall have the authority,
in its discretion: (i) to determine, on review of relevant information and
in accordance with Section 2.8 of this Plan, the Fair Market Value of the
Common Stock; (ii) to interpret this Plan; (iii) to prescribe, amend, and
rescind rules and regulations relating to this Plan; (iv) to authorize any
person to execute on behalf of the Company any instrument required to
effectuate the award of Shares previously granted hereunder; and (v) to
make all other determinations deemed necessary or advisable to administer
this Plan. The interpretation and construction by the Plan Administrator of
any terms or provisions of this Plan, any Shares issued hereunder, or of
any rule or regulation promulgated in connection herewith, and all actions
taken by the Plan Administrator, shall be conclusive and binding on all
interested parties.
<PAGE>
4.3 Limited Liability. No member of the Board or the Plan
Administrator or officer of the Company shall be liable for any action or
inaction of the entity or body, or another person or, except in
circumstances involving bad faith, of himself or herself.
4.4 Exchange Act. At any time that the Company has a class of
securities registered pursuant to Section 12 of the Exchange Act, the Board
and the Plan Administrator shall administer this Plan in accordance with
Rule 16b-3 adopted under the Exchange Act, as such rule may be amended from
time to time, and Shares awarded to Independent Directors shall be subject
to the applicable provisions of Rule 16b-3 or any successor thereto and to
such additional conditions or restrictions as may be required to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect
to Plan transactions.
5. Award of Shares.
5.1 Eligibility. Shares may be awarded pursuant to this Plan only to
Independent Directors. All awards hereunder shall be made automatically in
accordance with the terms set forth in this Section 5. No person shall have
any discretion to select which Independent Directors shall be awarded
Shares or to determine the number of Shares to be awarded to Independent
Directors. Employee directors who cease to be employees of the Company or
any Parent or Subsidiary of the Company but who continue as directors shall
become eligible for Awards pursuant to this Plan, as if they were newly
elected directors, as of the date they cease to be employees.
5.2 Shareholder Approval of Plan. No Awards may be made under this
Plan unless and until shareholder approval of this Plan has been obtained
in accordance with Section 12 hereof.
5.3 Initial Award. Any Independent Director who is elected by the
shareholders at the meeting at which this Plan is first approved by the
shareholders shall receive 500 Shares (the "Initial Award") upon
shareholder approval of this Plan. Thereafter, each Independent Director
shall receive an Initial Award upon such Independent Director's first
election or appointment to the Board, whether by the shareholders of the
Company or by the Board to fill a vacancy.
5.4 Annual Award. Each Independent Director also shall 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
shall be equivalent to the result of $5000 divided by the Fair Market Value
of a Share on the Award date, rounded to the nearest 100 Shares.
Notwithstanding the foregoing, the Annual Award made to any Independent
Director elected or appointed to the Board at any time other than at the
annual meeting of shareholders shall be equivalent to the product of such
result (before rounding) multiplied by a fraction whose numerator is the
number of days between the date of election or appointment to the Board and
the next annual meeting of shareholders, and whose denominator is 365,
which product shall be rounded to the nearest 100 Shares.
<PAGE>
5.5 Other Fees. The Plan Administrator may also authorize the issuance
of Shares under this Plan in lieu of any cash payment of fees payable to
non-employee Directors, under directors' compensation programs adopted by
the Board with respect to services provided by Independent Directors on
committees or as chairs of committees or officers of the Company; provided
that such issuance would not impede the purposes of this Plan or the
qualification of the Plan for the maximum exemption from Section 16 of the
Exchange Act. The number of Shares issued pursuant to this Section 5.5, if
any, in lieu of any particular fee shall be the cash amount of the fee
divided by the Fair Market Value of a Share on the date the fee is earned.
5.6 Limitations. If any Award granted under this Plan would cause the
number of Shares issued pursuant to this Plan to exceed the maximum
aggregate number permitted hereunder, then each such automatic Award shall
be for that number of Shares determined by dividing the total number of
Shares remaining available for issuance by the number of Independent
Directors eligible for grant of an Award on the Award date. Thereafter, no
further Awards shall be made until such time, if any, as additional Shares
become available under this Plan through action of the shareholders to
increase the number of Shares that may be issued under this Plan or through
forfeiture of Shares previously awarded hereunder.
6. Vesting and Forfeiture.
6.1 Vesting. Shares issued pursuant to an Initial Award shall be fully
vested upon the date of the Award. Shares issued pursuant to an Annual
Award shall 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, in person or by telephone,
during that year. If an Independent Director does not attend at least 75%
of the regularly scheduled meetings of the Board between the date of award
of an Annual Award and the first anniversary thereof, the Shares issued
pursuant to that Annual Award shall automatically expire and be forfeited
without having vested.
6.2 Termination of Status as a Director. 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 shall be forfeited.
6.3 Disability of Director. Notwithstanding Sections 6.1 or 6.2 above,
if an Independent Director is unable to continue his service as a Director
as a result of his or her permanent and total disability (as defined in
Section 22(e)(3) of the Code), unvested shares of such Independent Director
shall become immediately vested.
6.4 Death of Director. In the event of the death of an Independent
Director, unvested shares of such Independent Director shall become vested
as of the date of death.
6.5 Certificates. Immediately following each Award date, the Company
will deliver to the Plan Administrator certificates in the name of the
Award recipients representing the Shares awarded to each recipient on that
Award date. In the case of an Initial Award, the Plan Administrator shall
promptly deliver each certificate to the relevant Independent Director. In
the case of an Annual Award, each Independent Director shall deposit with
the Plan
<PAGE>
Administrator, or a designee of the Plan Administrator, blank stock powers,
duly executed and otherwise in form satisfactory to the Plan Administrator,
for such Independent Director's certificate. The Plan Administrator shall
hold the certificates representing unvested Shares and the stock powers
related thereto until the Shares have been vested in accordance with
Section 6.1. Any certificates representing Annual Awards that fail to vest
shall be returned to the Company for immediate cancellation, and the
affected Director or former Director shall execute any documents reasonably
necessary to facilitate the cancellation. Any certificates covering vested
Shares shall be delivered to the relevant Independent Director as soon as
practicable after the Shares vest. Any Certificates representing Shares
held by the Plan Administrator for an Independent Director who has died
shall be delivered as soon as practicable to the participant's beneficiary
previously designated to the Plan Administrator in writing by the Director,
or if no such designation exists, to the Director's estate.
6.6 Status Before Full Vesting.
6.6.1 Each recipient of Awards shall be a shareholder of record
with respect to all Shares awarded, whether or not vested, and shall be
entitled to all of the rights of such a holder, except that the Share
certificates for Annual Awards shall be held by the Plan Administrator
until delivered in accordance with Section 6.5.
6.6.2 Any dividend checks or communications to shareholders
received by the Plan Administrator with respect to a certificate held by
the Plan Administrator shall promptly be transmitted to the Independent
Director whose name is on the certificate.
6.6.3 No Independent Director may transfer any interest in
unvested shares to any person other than the Company.
7. Effect of Merger, Sale of Assets, Liquidation or Dissolution. 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 shall
vest automatically upon the closing of such transaction.
8. Securities Regulations.
Shares shall not be issued under this Plan unless the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, applicable laws of
foreign countries and other jurisdictions and the requirements of any
quotation service or stock exchange on which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company
with respect to such compliance, including the availability of an exemption
from registration for the issuance and sale of any Shares hereunder. The
inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary
for the lawful issuance and sale of any Shares hereunder or the
unavailability of an exemption from registration for the issuance and sale
of any Shares
<PAGE>
hereunder shall relieve the Company of any liability with respect of the
nonissuance or sale of such Shares as to which such requisite authority
shall not have been obtained.
In connection with the issuance of Shares under this Plan, the Company
may require recipients to represent and warrant at the time of issuance
that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any relevant
provision of the aforementioned laws. The Company may place a stop-transfer
order against any Shares on the official stock books and records of the
Company, and a legend may be stamped on stock certificates to the effect
that the Shares may not be pledged, sold or otherwise transferred unless an
opinion of counsel is provided (concurred in by counsel for the Company)
stating that such transfer is not in violation of any applicable law or
regulation. The Company also may require such other action or agreement by
Award recipients as may from time to time be necessary to comply with
federal and state securities laws. THIS PROVISION SHALL NOT OBLIGATE THE
COMPANY TO UNDERTAKE REGISTRATION OF SHARES ISSUED PURSUANT TO THIS PLAN.
9. Amendment and Termination.
9.1 Plan. The Board may at any time suspend, amend or terminate this
Plan, provided that the approval of the Company's shareholders is necessary
within twelve months before or after the adoption by the Board of Directors
of any amendment that will:
9.1.1 increase the number of Shares that are to be reserved for
issuance under this Plan;
9.1.2 permit Awards to a class of persons other than those now
permitted to receive Awards under this Plan; or
9.1.3 require shareholder approval under applicable law,
including Section 16(b) of the Exchange Act.
9.2 Limitations. Notwithstanding the foregoing, the provisions set
forth in Sections 2 and 5 of this Plan (and any additional Sections of this
Plan that affect terms required to be specified in this Plan by Rule 16b-3)
shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act, or
the rules thereunder.
9.3 Automatic Termination. Unless sooner terminated by the Board, this
Plan shall terminate ten years from the date on which this Plan is adopted
by the Board. No Award may be made after such termination or during any
suspension of this Plan. The amendment or termination of this Plan shall
not, without the consent of any Independent Director who then has unvested
Shares, alter or impair any rights or obligations with respect to such
Shares theretofore granted under this Plan.
<PAGE>
10. Miscellaneous.
10.1 Status as a Director. Nothing in this Plan or in any Award
granted pursuant to this Plan shall confer on any person any right to
continue as a Director of the Company or to interfere in any way with the
right of the Company to terminate his or her relationship with the Company
at any time.
10.2 Reservation of Shares. The Company, during the term of this Plan,
at all times will reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of this Plan.
11. Effectiveness of This Plan. This Plan shall become effective on
adoption by the Board so long as it is approved by the Company's
shareholders any time within twelve months after the adoption of this Plan.
No Award shall be made under this Plan, however, until this Plan is
approved by the shareholders.
Adopted by the Board of Directors on October 27, 1995, and approved by the
Shareholders on November 28, 1995.
Name changed to Pacific Aerospace & Electronics, Inc. pursuant to Merger on
November 30, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains financial information extracted from the audited
financial statements of Pacific Aerospace & Electronics, Inc., and its
subsidiaries for the three-month period ended November 30, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 2,934,000
<SECURITIES> 0
<RECEIVABLES> 4,613,000
<ALLOWANCES> (98,000)
<INVENTORY> 7,221,000
<CURRENT-ASSETS> 14,793,000
<PP&E> 13,883,000
<DEPRECIATION> (2,693,000)
<TOTAL-ASSETS> 29,493,000
<CURRENT-LIABILITIES> 6,964,000
<BONDS> 5,541,000
0
0
<COMMON> 24,462,000
<OTHER-SE> (5,880,000)
<TOTAL-LIABILITY-AND-EQUITY> 29,493,000
<SALES> 8,317,000
<TOTAL-REVENUES> 8,317,000
<CGS> 6,384,000
<TOTAL-COSTS> 6,384,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 24,000
<INTEREST-EXPENSE> 105,000
<INCOME-PRETAX> 468,000
<INCOME-TAX> 10,000
<INCOME-CONTINUING> 458,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 458,000
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
