SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
PACIFIC AEROSPACE & ELECTRONICS, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: Set forth the amount on which the
filing fee is calculated and state how it was determined.
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC.
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Notice of Annual Meeting of Shareholders to Be Held on October 13, 1998
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The Annual Meeting of Shareholders of Pacific Aerospace & Electronics, Inc., a
Washington corporation (the "Company"), will be held at the West Coast Wenatchee
Convention Center, located at 121 North Wenatchee Avenue, Wenatchee, Washington,
on Tuesday, October 13, 1998, at 3:00 p.m. Pacific Daylight Time, for the
following purposes:
1. To elect six directors of the Company;
2. To approve the Company's Amended and Restated Independent Director Stock
Plan, which is attached as Appendix A to the enclosed Proxy Statement;
3. To ratify the appointment of KPMG Peat Marwick LLP as the independent
auditors of the Company; and
4. To transact any other business that may properly come before the Annual
Meeting.
The Board of Directors is not aware of any other business to come before the
Annual Meeting.
Only shareholders of record at the close of business on September 1, 1998, are
entitled to notice of and to vote at the Annual Meeting or any adjournments of
that meeting.
Please complete, sign, and date the enclosed proxy and return it promptly in the
enclosed envelope. If you attend the meeting, you may revoke the proxy and vote
personally on all matters brought before the meeting. A list of shareholders
will be available for inspection by the shareholders at the Company's corporate
headquarters at 430 Olds Station Road, Wenatchee, Washington 98801.
By Order of the Board of Directors,
/s/ DONALD A. WRIGHT
Donald A. Wright
Chairman of the Board,
Chief Executive Officer and President
September 4, 1998
Wenatchee, Washington
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL
MEETING IN PERSON, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE
ACCOMPANYING ENVELOPE SO THAT YOUR SHARES WILL BE VOTED. THE ENVELOPE
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC.
430 Olds Station Road
Wenatchee, Washington 98801
(509) 667-9600
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PROXY STATEMENT
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Purpose
- -------
The Board of Directors of Pacific Aerospace & Electronics, Inc., a
Washington corporation (the "Company"), is furnishing this Proxy Statement in
connection with its solicitation of proxies to be voted at the Company's 1998
annual meeting of shareholders (the "Annual Meeting"). The Annual Meeting will
be held at the West Coast Wenatchee Convention Center, 121 North Wenatchee
Avenue, Wenatchee, Washington, on Tuesday, October 13, 1998, at 3:00 p.m.
Pacific Daylight Time. The accompanying Notice of Annual Meeting of
Shareholders, this Proxy Statement, and the enclosed proxy are first being
mailed to shareholders on or about September 4, 1998.
Record Date and Outstanding Shares
- ----------------------------------
The Board of Directors has fixed September 1, 1998, as the record date (the
"Record Date") for determining the holders of the Company's common stock, $.001
par value (the "Common Stock") who are entitled to receive notice of, and to
vote at, the Annual Meeting. At the close of business on the Record Date, there
were 15,986,323 shares of Common Stock outstanding and entitled to vote (the
"Voting Shares").
Proxies
- -------
The Board of Directors is soliciting the enclosed proxy for use at the
Annual Meeting and any adjournments of that meeting and will not vote the proxy
at any other meeting. All proxies that are properly executed, received by the
Company prior to or at the Annual Meeting, and not properly revoked by the
shareholder in accordance with the next paragraph, will be voted at the Annual
Meeting or any adjournments thereof in accordance with the instructions in the
proxy.
Revocation of Proxies
- ---------------------
The person giving any proxy in response to this solicitation may revoke it
at any time before the proxy is voted:
o by filing with the Secretary of the Company, at or before the taking
of the vote at the Annual Meeting, a written notice of revocation
bearing a later date than the date of the proxy; or
o by signing and dating a subsequent proxy relating to the same Voting
Shares and delivering it to the Secretary of the Company before the
Annual Meeting; or
<PAGE>
o by attending the Annual Meeting and voting in person. However,
attendance at the Annual Meeting without voting in person will not
constitute a revocation of a proxy.
Any written notice revoking a proxy should be sent to Pacific Aerospace &
Electronics, Inc., 430 Olds Station Road, Wenatchee, Washington, 98801,
Attention: Sheryl A. Symonds, Secretary, or hand delivered to Ms.
Symonds at the Annual Meeting, at or before the taking of the vote.
Quorum
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The presence in person or by proxy of at least a majority of the Voting
Shares is required to constitute a quorum for the transaction of business at the
Annual Meeting. Abstentions and broker non-votes will be considered represented
at the meeting for the purpose of determining a quorum.
Voting
- ------
The Voting Shares represented by each proxy will be voted in accordance
with the instructions given on the proxy. If no instructions are indicated, the
proxy will be voted as follows:
o FOR the six nominees to the Board of Directors named in this Proxy
Statement;
o FOR approval of the Company's Amended and Restated Independent
Director Stock Plan, which is attached as Appendix A to this Proxy
Statement;
o FOR ratification of the appointment of KPMG Peat Marwick LLP as the
Company's independent auditors for the fiscal year ending May 31,
1999; and
o at the discretion of the persons named in the proxy, on any other
business that may properly come before the Annual Meeting.
Results of Voting
- -----------------
Under applicable law and the Company's Articles of Incorporation and
Bylaws, if a quorum is present at the Annual Meeting:
1. The six nominees for election to the Board of Directors who receive
the largest number of the votes cast for the election of directors by
the holders of the Voting Shares present in person or represented by
proxy will be elected directors. Each shareholder will be entitled to
one vote for each Voting Share held by that shareholder, and will not
be entitled to cumulate votes in the election of directors.
2. The Company's Amended and Restated Independent Director Stock Plan
will be approved if the number of votes cast in favor of the Amended
Director Plan exceeds the number of votes cast against it.
3. The appointment of KPMG Peat Marwick LLP as the Company's independent
auditors will be ratified if the number of votes cast in favor of
ratification exceeds the number of votes cast against it.
Abstentions and broker non-votes will have no effect on the outcome of the
voting because they will not represent votes cast.
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<PAGE>
Solicitation of Proxies
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The Company will bear the cost of preparing, printing, and mailing this
Proxy Statement and of the solicitation of proxies by the Board of Directors.
Solicitation will be made by mail and, in addition, may be made by directors,
officers, and employees of the Company personally, or by telephone or facsimile.
The Company will request brokers, custodians, nominees, and other like parties
to forward copies of proxy materials to the beneficial owners of the Common
Stock and will reimburse such parties for their reasonable and customary charges
or expenses in this connection.
PROPOSAL 1 - ELECTION OF DIRECTORS
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Nominees
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The Board of Directors of the Company will consist of six directors, who
will be elected at the Annual Meeting to serve until their successors are
elected at the next annual meeting of shareholders. Unless a proxy received by
the Company directs otherwise or is properly revoked, that proxy will be voted
FOR the election of the following nominees:
<TABLE>
<CAPTION>
Name Age Director Since Position with Company
- ---- --- -------------- ---------------------
<S> <C> <C> <C>
Donald A. Wright 46 02/95 Chairman of the Board, Chief
Executive Officer and President
Allen W. Dahl, M.D. 70 02/95 Director
Dr. Urs Diebold 47 07/97 Director
Werner Hafelfinger 52 08/98 Director
Dale L. Rasmussen 48 06/97 Director
William A. Wheeler 64 06/97 Director
</TABLE>
All of the nominees are currently directors of the Company. If any nominee
is unable to stand for election, the Voting Shares represented by all proxies in
favor of the above slate will be voted for the election of the substitute
nominee recommended by the Board of Directors. The Company is not aware that any
nominee is or will be unable to stand for election.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" ALL OF THE NOMINEES NAMED ABOVE.
Directors and Executive Officers
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Donald A. Wright. Donald A. Wright has been the Chairman of the Board,
Chief Executive Officer and President of the Company since February 1995, and of
its predecessors since 1990. Mr. Wright is also an officer and director of each
of the Company's operating subsidiaries.
Nick A. Gerde. Nick A. Gerde has been the Vice President Finance and Chief
Financial Officer of the Company since February 1995. He has been the Treasurer
of the Company since August 1996, and
-3-
<PAGE>
Assistant Secretary since November 1996. Mr. Gerde is also an officer and
director of each of the Company's operating subsidiaries. Mr. Gerde served as
Controller/CFO of Hydraulic Repair & Design, Inc., a regional hydraulic
component repair and wholesale distribution company, from March 1990 through
April 1993, as a Business Development Specialist with the Economic Development
Council of North Central Washington from July 1993 to June 1994, and as Vice
President of Televar Northwest, Inc. (a subsidiary of Orca Technologies, Inc.)
from July 1994 to February 1995. See "Certain Relationships and Related
Transactions." Mr. Gerde is a Certified Public Accountant.
Sheryl A. Symonds. Sheryl A. Symonds has been the Vice President
Administration and General Counsel of the Company since September 1997. Prior to
joining the Company, Ms. Symonds was a partner at Stoel Rives LLP, currently the
Company's primary outside legal counsel. Ms. Symonds joined Stoel Rives LLP in
1985 and became a partner in 1992. Ms. Symonds has been Secretary of the Company
since August 1996 and is also Secretary of each of the Company's operating
subsidiaries.
Allen W. Dahl. Dr. Allen W. Dahl has been a director of the Company since
February 1995, and of its predecessors since September 1994. Dr. Dahl is retired
from practice as a physician in the Puget Sound region of Washington.
Urs Diebold. Dr. Urs Diebold has been a director of the Company since July
1997. Dr. Diebold has been a director of Lysys AG ("Lysys"), a Swiss financing
and investment management company, since September 1990. Prior to joining Lysys
in 1990, Dr. Diebold was an investment advisor at the Zurich office of Credit
Suisse. Dr. Diebold is also a director of one of the Company's shareholders,
Capital International Fund Limited. See "Certain Relationships and Related
Transactions."
Werner Hafelfinger. Werner Hafelfinger has been a director of the Company
since August 17, 1998. Mr. Hafelfinger has been Vice President of Global
Manufacturing of St. Jude Medical (Cardiac Rhythm Management Division), a
manufacturer of implantable medical devices, since 1984.
Dale L. Rasmussen. Dale L. Rasmussen has been a director of the Company
since June 1997. Mr. Rasmussen has been employed as the Senior Vice President
and Secretary of AirSensors, Inc., now IMPCO Technologies, Inc., since 1989.
William A. Wheeler. William A. Wheeler has been a director of the Company
since June 1997. Mr. Wheeler retired from Dowty Aerospace Yakima in May 1997,
where he served as President, Chief Executive Officer and Chairman of the Board
of Directors since 1979.
Director Compensation
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Pursuant to the Company's Independent Director Stock Plan (the "Director
Plan"), each non-employee director of the Company receives an initial award of
500 shares of Common Stock, an annual award of $5,000 worth of Common Stock,
$1,000 in cash per year for each committee on which the director serves, and an
additional $500 in cash per year for serving as chairperson of a committee. The
Board may elect to pay any of the cash fees in shares of Common Stock. At May
31, 1998, 31,959 shares of Common Stock had been issued pursuant to the Director
Plan, 27,009 of which are fully vested, and 68,041 remain available for future
grant. All directors are reimbursed for reasonable travel and other
out-of-pocket expenses incurred in attending meetings of the Board of Directors.
On August 14, 1998, the Board of Directors, subject to shareholder approval,
amended the Director Plan as set forth in Proposal 2 of this Proxy Statement.
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<PAGE>
Vacancies
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Replacement directors for vacancies resulting from an increase in the size
of the Board of Directors or the resignation or removal of a director may be
appointed by the Board of Directors, or may be elected by the shareholders at a
special meeting. Directors so appointed or elected hold office until the next
annual meeting of shareholders and until their successors are elected and
qualified.
Board of Directors Meetings
- ---------------------------
The Company's Board of Directors met four times during fiscal 1998. Each
incumbent director attended at least 75% of all meetings of the Board of
Directors and the committees of which the director was a member during the
period he was a director in fiscal 1998. The Board of Directors and the
committees also approved certain actions by unanimous written consent.
Committees of the Board of Directors
- ------------------------------------
The Company's Board of Directors has established a Compensation Committee,
a Finance and Audit Committee, a Nominating Committee, and an Option Committee.
Compensation Committee. The Compensation Committee establishes salaries,
incentives, and other forms of compensation for the chief executive officer, the
chief financial officer, the general counsel, the subsidiary presidents and
certain other key employees of the Company and its subsidiaries. The
Compensation Committee also administers policies relating to compensation and
benefits other than option grants, including the Director Plan and the Company's
Employee Stock Purchase Plan. Dr. Dahl, Mr. Rasmussen and Mr. Wheeler are the
current members of the Compensation Committee. The Compensation Committee met
three times during fiscal 1998.
Finance and Audit Committee. The Finance and Audit Committee reviews the
Company's accounting policies, practices, internal accounting controls and
financial reporting. The Finance and Audit Committee also oversees the
engagement of the Company's independent auditors, reviews the audit findings and
recommendations of the independent auditors, and monitors the extent to which
management has implemented the findings and recommendations of the independent
auditors. Mr. Rasmussen, Dr. Diebold and Mr. Wheeler are the current members of
the Finance and Audit Committee. The Finance and Audit Committee met three times
during fiscal 1998 and approved certain actions by unanimous written consent.
Nominating Committee. The Nominating Committee recommends individuals to be
presented to the shareholders for election or reelection to the Board of
Directors. Written proposals from shareholders for nominees for directors to be
elected at the 1999 annual meeting of shareholders that are submitted to the
Secretary of the Company by May 4, 1999, and that contain sufficient background
information concerning the nominee to enable a judgment to be made as to his or
her qualifications, will be considered by the Nominating Committee. Mr. Wright,
Dr. Diebold and Mr. Rasmussen are the current members of the Nominating
Committee. The Nominating Committee did not meet during fiscal 1998, but
approved certain actions by unanimous written consent.
Option Committee. The Option Committee administers the Company's Amended
and Restated Stock Incentive Plan, and has the duties described in that plan.
Dr. Dahl, Dr. Diebold and Mr. Wheeler are the current members of the Option
Committee. The Option Committee met two times during fiscal 1998.
-5-
<PAGE>
Securities Ownership of Directors, Executive Officers and Principal Shareholders
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The following table shows the Common Stock owned as of August 27, 1998 by
(1) each person known by the Company to own beneficially more than 5% of the
outstanding Common Stock (each a "Principal Shareholder"); (2) each of the
Company's directors; (3) the Named Executives (See "Executive Compensation") and
(4) all executive officers and directors of the Company as a group. Except as
otherwise noted, the Company believes the persons listed below have sole
investment and voting power with respect to the Common Stock owned by them. This
table has been prepared to the best of the Company's knowledge based on the
records of the Company's transfer agent and the Company's records on issuances
of shares, as adjusted to reflect (a) changes in ownership documented in filings
with the Securities and Exchange Commission made by certain shareholders and
provided to the Company pursuant to Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"); and (b) statements provided to the
Company by certain shareholders.
<TABLE>
<CAPTION>
Amount and Percentage
Nature of of
Beneficial Common
Name and Address of Beneficial Owner: Ownership (1) Stock
- ------------------------------------- ------------- ----------
<S> <C> <C>
Donald A. Wright 2,067,986(2) 11.66%
c/o Pacific Aerospace & Electronics, Inc.
430 Olds Station Road
Wenatchee, WA 98801
Allen W. Dahl, M.D. 32,401(3) *
7300 Madrona Drive NE
Bainbridge Island, WA 98110
Dr. Urs Diebold 1,900(3) *
c/o Lysys AG
Gessnerallee 38
PO Box CH-8023
Zurich, Switzerland
Werner Hafelfinger 2,220(4) *
15900 Valley View Court
Sylmar, CA 91342
William A. Wheeler 6,092(3) *
2011 Lombard Lane
Yakima, WA 98902
Dale L. Rasmussen 2,092(3) *
c/o IMPCO Technologies, Inc.
708 Industrial Dr.
Tukwila, WA 98188
-6-
<PAGE>
Nick A. Gerde 180,550(5) 1.12%
c/o Pacific Aerospace & Electronics, Inc.
430 Olds Station Road
Wenatchee, WA 98801
Sheryl A. Symonds 161,200(6) 1.00%
c/o Pacific Aerospace & Electronics, Inc.
430 Olds Station Road
Wenatchee, WA 98801
Deltec Holdings, Inc. 901,187 5.85%
14511 NE 13th Avenue
Vancouver, Washington 98668-3501
All executive officers and directors as a group 2,454,441(7) 13.59%
(8 persons)
- --------------
* Less than 1%.
(1) Shares that a person has the right to acquire within 60 days are treated as
outstanding for determining the amount and percentage of Common Stock owned
by such person but are not deemed to be outstanding as to any other person
or group.
(2) Includes (a) 32,666 shares held by Ragen MacKenzie, Incorporated, custodian
for Donald A. Wright, in two IRA accounts, (b) 1,500 shares issuable upon
exercise of warrants, (c) 100,000 shares issuable upon exercise of another
warrant and (d) 1,643,536 shares issuable upon exercise of vested stock
options. Does not include 39,024 unvested stock options.
(3) Includes 825 unvested shares issued pursuant to the Director Plan on
October 8, 1997 which will vest at the 1998 annual Board of Directors
meeting if certain conditions have been satisfied.
(4) Includes 600 shares issued on August 17, 1998, pursuant to the Director
Plan, 100 shares of which will vest at the next annual Board of Directors
meeting if certain conditions have been met.
(5) Includes (a) 4,000 shares issuable upon exercise of warrants, (b) 25,000
shares issuable upon exercise of another warrant, and (c) 136,300 shares
issuable upon exercise of vested stock options. Does not include 9,756
unvested stock options.
(6) Includes (a) 500 shares issuable upon exercise of warrants and (b) 160,000
shares issuable upon exercise of vested stock options.
(7) Includes currently exercisable warrants, other warrants and options to
purchase up to 2,070,836 shares of Common Stock.
</TABLE>
Executive Compensation
- ----------------------
The following table sets forth in summary form the compensation paid by the
Company to the Chief Executive Officer and to the Company's three most highly
compensated executive officers (the "Named Executives") for services in all
capacities to the Company for the last three fiscal years:
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------ ------------------
Securities
Fiscal Underlying Other Annual
Name and Principal Position Year Salary($) Options/SARs(#)(1) Compensation($)(2)
- --------------------------- ------ --------- ------------------ ------------------
<S> <C> <C> <C> <C>
Donald A. Wright............................. 1998 192,000 275,000 4,800
CEO and President 1997 160,000 920,000 400
1996 110,577 15,000 400
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<PAGE>
Nick A. Gerde................................ 1998 100,000 40,000 2,400
CFO, VP Finance, Treasurer 1997 84,160 38,333 0
and Assistant Secretary 1996 62,500 8,333 0
Sheryl A. Symonds(3)......................... 1998 105,000 125,000 0
VP Administration, General
Counsel and Secretary
- --------------
(1) Represents exercisable warrants and options to purchase shares of Common
Stock. See "Aggregated Options and Fiscal Year-End Option Values."
(2) Represents estimated value of the personal use of a company car and other
miscellaneous benefits.
(3) Represents the compensation received by Ms. Symonds during the nine months
since she joined the Company. Under her employment agreement, Ms. Symonds
received salary at an annual rate of $140,000 for fiscal year 1998.
</TABLE>
Option Grants
The following table sets forth information on grants of stock options by
the Company during the year ended May 31, 1998 to the Named Executives:
<TABLE>
<CAPTION>
Securities % of Total
Underlying Options Granted Exercise or Market Price
Options Granted to Employees in Base Price on Grant Date
Name (#) Fiscal Year ($/Share) ($/Share) Expiration Date
- ---- --------------- --------------- ------------ ------------- -------------------
<S> <C> <C> <C> <C> <C>
Donald A. Wright............. 650,000 58.4% 4.72 to 6.13 4.72 to 6.13 2/9/08 to 5/28/08
Nick A. Gerde................ 75,000 6.7% 3.00 to 6.13 3.00 to 6.13 6/2/07 to 5/28/08
Sheryl A. Symonds............ 160,000 14.4% 4.00 to 6.13 4.00 to 6.13 7/18/07 to 5/28/08
</TABLE>
Aggregated Options and Fiscal Year-End Option Values
The following table summarizes the aggregate stock options and warrants,
and their market values at May 31, 1998, held by the Named Executives:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-end(#) at FY-end($)
--------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable(1) Unexercisable
- ---- ----------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Donald A. Wright.................... 1,349,024 433,536 2,345,101 58,536
Nick A. Gerde....................... 121,422 49,634 344,880 14,634
Sheryl A. Symonds................... 125,000 35,000 229,625 --
(1) Value of exercisable options and warrants having exercise prices of less
than $6.125 per share, the closing price of the Common Stock on May 29,
1998.
</TABLE>
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is composed of William A. Wheeler, Allen W. Dahl
and Dale L. Rasmussen, none of whom are employees or current or former officers
of the Company.
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<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Committee. The Compensation Committee of the Board of Directors (the
"Committee") is composed of three non-employee directors: William A. Wheeler,
Chairman, Allen W. Dahl, and Dale L. Rasmussen. No member of the Compensation
Committee has a relationship that would constitute an interlocking relationship
with executive officers or directors of another entity. From time to time,
officers of the Company attend meetings of the Committee. However, no officer is
present during discussions or deliberations regarding his or her own
compensation.
Responsibilities of the Committee. The Committee's purpose is to provide a
compensation environment that will support and assist in fulfilling the
corporate mission and purpose. The Committee is responsible for developing and
making recommendations to the Board with respect to the Company's compensation
policies, reviewing the performance of the Company's Chief Executive Officer,
and determining the level of compensation to be paid to executive officers and
certain key employees of the Company. The Committee coordinates its efforts with
the Company's Option Committee with respect to the grant of stock options to
executive officers and key employees under the Company's Amended and Restated
Stock Incentive Plan (the "Stock Incentive Plan"). The Committee also
administers the Company's Independent Director Stock Plan and the Company's
Employee Stock Purchase Plan.
Executive Compensation. The Company's executive compensation program is
designed to support the achievement of Company goals and to ensure that the
interests of executive officers and key employees are aligned with the success
of the Company. Consequently, a significant portion of the compensation of
executive officers and key employees is through the grant of options under the
Stock Incentive Plan. The Committee believes that tying a significant portion of
executive compensation to the growth of the Company's stock price helps align
the interests of management with those of the Company's shareholders.
Compensation of the Chief Executive Officer. Mr. Wright's annual salary
increased to $192,000 at the beginning of fiscal 1998 and to $220,800 at the
beginning of fiscal 1999, in accordance with his employment agreement. The
Committee reviewed Mr. Wright's base salary in May 1998 in light of the
Company's continued growth and the planned acquisition of Aeromet International
plc. The Committee determined that, based on Mr. Wright's increasing level of
responsibility as a result of the increasing size and geographic scope of the
Company, Mr. Wright's salary for fiscal 1999 should be increased to the level of
his contractual annual salary for fiscal 2000. Accordingly, in May 1998, the
Committee approved an increase in Mr. Wright's annual salary to $253,920, to
become effective when the Company reached an annualized sales level of $100
million or when the Company closed the acquisition of Aeromet, which occurred on
July 30, 1998. The Committee continued to place an emphasis on pay for
performance, which is reflected in the grants to Mr. Wright in fiscal 1998 of
options to purchase an aggregate of 650,000 shares of Common Stock. These grants
were awarded to Mr. Wright in recognition of his strategic leadership and
success in acquisition and corporate development endeavors.
Annual Salaries. Annual salaries for the named executive officers are set
pursuant to the terms of employment agreements with Mr. Wright, Mr. Gerde and
Ms. Symonds. Mr. Wear, Mr. Vandekieft and Mr. Crighton, as Presidents of the
Company's operating groups, also have employment agreements that establish their
annual salaries. Annual salaries under the employment agreements are subject to
increase on an annual basis in accordance with the terms of those agreements.
All of these employment agreements are approved by the Committee when they are
first signed. From time to time, the Committee has also elected to review these
contracts annually. In May and July 1998, the Committee reviewed the salary
levels of the executive officers and the Aerospace and Electronics groups
presidents. The Committee determined that each of their salary levels should be
increased in order to remain competitive
-9-
<PAGE>
with industry standards and in recognition of the increased responsibility of
each of them as a result of the acquisitions in fiscal 1998.
Long-Term Incentive Compensation. The Stock Incentive Plan is a long-term
incentive plan for executives, managers, and other employees of the Company. The
objective of the Plan is to align employee and shareholder long-term interests
by creating a strong and direct link between compensation and shareholder value.
The Plan authorizes the Board of Directors, or a committee thereof, to award
stock options to officers and other employees of the Company, as well as to
directors and consultants. The Board of Directors has designated the Option
Committee to administer the Stock Incentive Plan, and the Committee works with
the Option Committee with respect to the grant of options to executive officers
and key employees. Stock options are granted at an exercise price not less than
100% of the fair market value of the Company's Common Stock on the date of
grant. The amount of stock option grants to an individual depends on the
person's level of responsibility in the Company and the person's job
performance. Stock options granted under the Plan may contain vesting
provisions. Options granted to Mr. Wright, Mr. Gerde and Ms. Symonds in May 1998
were granted subject to a vesting requirement that the Company have reached an
annualized sales level of $100 million or closed the acquisition of Aeromet
(which had the effect of exceeding the $100 million sales level). All options
granted during fiscal 1998 were non-statutory stock options.
Deductibility. Section 162(m) of the Internal Revenue Code of 1986, as
amended, limits to $1 million per person the amount that the Company may deduct
for compensation paid to any of its most highly compensated officers unless the
compensation is performance based. The levels of compensation paid by the
Company have not exceeded this limit. Although it may be possible in any given
year for option exercises to cause an officer's total compensation for that year
to exceed $1 million, the Committee believes that any options granted under the
Stock Incentive Plan would meet the requirement of being performance-based and
would, therefore not be subject to the $1 million limit on deductibility.
Respectfully submitted,
William A. Wheeler, Chairman
Allen W. Dahl
Dale L. Rasmussen
-10-
<PAGE>
Performance Graph
The following graph shows a comparison of the cumulative total return on
the Company's common stock, the Standard & Poor's ("S&P") 500 Index and the S&P
Aerospace/Defense Index, a published industry index, for the period beginning
May 16, 1995 (the date on which the Common Stock was first registered under
Section 12 of the Exchange Act), and ending May 31, 1998. The graph assumes that
$100 was invested on May 16, 1995, in the Company's Common Stock, the S&P 500
Index and the industry index, and that all dividends were reinvested. The stock
price information shown on the graph below is not necessarily indicative of
future price performance.
[line graph depicting performance omitted]
<TABLE>
<CAPTION>
Company/Index Name 5/16/95 5/31/95 5/31/96 5/31/97 5/31/98
- ------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Pacific Aerospace & Electronics, Inc. 100 81 61 45 91
S&P 500 Index 100 101 127 161 207
S&P Aerospace/Defense Index 100 102 141 140 178
</TABLE>
Employment Agreements
The Company has entered into employment agreements with each of the Named
Executives. The employment agreements employ Mr. Wright through fiscal 2003, Mr.
Gerde through fiscal 2000 and Ms. Symonds through fiscal 2002. The employment
agreements provide for an annual salary in fiscal 1999 of $253,920, $130,000 and
$163,300 for Mr. Wright, Mr. Gerde and Ms. Symonds, respectively. The employment
agreements also provide for the annual grant to each of the Named Executives of
options to purchase up to 275,000, 25,000 and 50,000 shares of Common Stock,
respectively. The exercise price of such options will be equal to the fair
market value of the Common Stock on the date of grant.
-11-
<PAGE>
Each option will contain vesting and other terms as are approved by the Board of
Directors, and will expire ten years after the date of grant. If a Named
Executive's employment with the Company is terminated without cause, or if there
is a change of control, as those terms are defined in their employment
agreements, the Company will be required to make severance payments equal to, in
the case of Mr. Wright, twice Mr. Wright's then-current annual base salary, in
the case of Mr. Gerde, six months of Mr. Gerde's then-current annual base salary
and, in the case of Ms. Symonds, eighteen months of Ms. Symonds' then-current
annual base salary. Under these employment agreements, Mr. Wright and Mr. Gerde
agree not to compete with the Company for two years following termination of
employment.
Compliance With Section 16(a) Beneficial Ownership Reporting Requirements
- -------------------------------------------------------------------------
Based solely on a review of Forms 3, 4 and 5, as amended, furnished to the
Company pursuant to Rule 16a-3(e) during fiscal 1998, and on written
representations of the Company's officers, directors, or principal shareholders
("Reporting Persons") that no other reports were required, the Company believes
that, during the fiscal year ended May 31, 1998, the Reporting Persons complied
in all material respects with all applicable filing requirements under Section
16(a) of the Exchange Act, except that Mr. Wright filed one Form 5 two days
late, and Mr. Gerde and Ms. Symonds each filed one Form 5 one day late, each of
which was amended in August 1998.
Certain Relationships and Related Transactions
- ----------------------------------------------
The Company has entered into employment agreements with Mr. Wright, Mr.
Gerde and Ms. Symonds. See "Executive Compensation--Employment Agreements."
Dr. Diebold, a director of the Company, is also a director of Lysys and a
director of Capital International Fund Limited (the "CI Fund"), a shareholder of
the Company. Lysys provided placement agency services in connection with certain
capital raising transactions in May 1996, November 1997 and May 1998. The May
1996 transaction involved the issuance by the Company of 838,470 shares of
Common Stock to private investors for gross proceeds of approximately $3.4
million, from which Lysys was paid a commission of $235,000. The Company also
issued 30,000 shares of Common Stock to a designee of Lysys as additional
compensation in connection with that offering. The November 1997 transactions
involved the issuance by the Company of 524,000 shares of Common Stock and
$4,050,000 in principal amount of promissory notes to private investors, one of
which was the CI Fund. Lysys received a $320,000 fee for its services in that
transaction, of which $142,000 was paid directly to Dr. Diebold. The May 1998
transaction involved the issuance by the Company of 170,000 shares of its Series
B Convertible Preferred Stock to third-party investors for gross proceeds to the
Company of $17.0 million, after the release of a $7 million escrow on July 30,
1998. Lysys received $425,000 in placement agency fees for its services in the
Series B Preferred transaction, none of which was paid to Dr. Diebold.
In June 1997, the Company announced a plan to form an Information
Technology Group and to acquire six companies for that group. The Company
entered into nonbinding letters of intent with six potential target companies
for inclusion in that group, including Orca Technologies, Inc. ("Orca") and
Brigadoon.com, Inc. ("Brigadoon"), two development stage internet service
providers. In connection with the proposed acquisitions, the Company advanced
operating funds to Brigadoon and Orca and guaranteed a $1.3 million bank line of
credit and a $373,000 equipment lease to Orca. In December 1997, the Company
announced that after completing due diligence investigations it had determined
to terminate the letters of intent and related operating agreements. As a part
of terminating its effort to develop an information technology group, in April
1998 the Company completed a debt restructuring arrangement with Orca under
which (i) $4.2 million of indebtedness from Orca and its subsidiaries to the
Company was converted into 2,109,709 shares of Orca common stock, (ii) Orca
granted the Company certain demand and piggyback registration rights with regard
to those shares and (iii) the Company agreed to continue
-12-
<PAGE>
guaranteeing Orca's credit facility and equipment lease, subject to certain time
limitations. In addition, Orca delivered to the Company a $950,000 promissory
note (the "Orca Note") in exchange for (i) $1.3 million in promissory notes made
by Brigadoon to the Company, (ii) a common stock purchase warrant held by the
Company to purchase a 12.5% fully diluted interest in Brigadoon common stock,
(iii) the Company's collection lawsuit against Brigadoon and (iv) the Company's
claim in an involuntary bankruptcy action against Brigadoon. The Orca Note
matures in April 2003 and accrues interest at 8% per annum. Under the Orca Note,
Orca is obligated to pay interest only for the first year and to then make
fully-amortizing monthly payments of principal plus interest for the final four
years of the note term. The Company currently owns 2,289,309 shares of Orca
common stock, which the Company believes as of May 31, 1998 represents
approximately 19.5% of Orca's outstanding common stock. The Company also
subleases approximately 95% of the square footage of its Bothell, Washington
office space to Orca for an equivalent percentage of the lease payment for that
space. Roger Vallo and Donald Cotton, who were directors of the Company until
January 1998, are directors, and Mr. Vallo is CEO, of Orca. Mr. Wright and Mr.
Gerde were directors of Orca until June 1997 and shareholders of Orca until May
1998, and personally guaranteed or indemnified certain obligations of Orca. In
May 1998, Mr. Wright and Mr. Gerde sold their Orca shares in private
transactions. Dr. Dahl continues to be a shareholder of Orca.
In June 1997, the Company entered into a financial services agreement with
Liviakis Financial Communications, Inc. to provide financial and public
relations services to the Company. In connection with that consulting agreement,
the Company issued to Liviakis and Robert B. Prag, one of its principals,
warrants to purchase an aggregate of 1,290,000 shares of Common Stock, which
resulted in their beneficially owning more than 5% of the outstanding Common
Stock as of May 31, 1998. In August 1998, the Company, Liviakis and Mr. Prag
entered into an agreement in which (a) a finder's fee claim by Liviakis was
resolved in exchange for the Company's issuance of an aggregate of 590,000
shares of Common Stock to Liviakis and Mr. Prag, and (b) Liviakis and Mr. Prag
transferred the warrants previously issued to them to the Company for
cancellation.
-13-
<PAGE>
PROPOSAL 2 - APPROVAL OF THE AMENDED AND RESTATED INDEPENDENT
DIRECTOR STOCK PLAN
------------------------------------------------
Introduction
- ------------
The Company's Independent Director Stock Plan (the "Director Plan") was
approved at the Company's 1995 annual meeting of shareholders. The Director Plan
provides for the award of shares of Common Stock to non-employee directors of
the Company to attract, reward, and retain the best available personnel to serve
as directors and to provide added incentive to such persons by increasing their
ownership interest in the Company.
Proposed Amendments to the Director Plan
- ----------------------------------------
On August 14, 1998, the Board of Directors of the Company approved the
Amended and Restated Independent Director Plan (the "Amended Director Plan"),
subject to shareholder approval at the Annual Meeting. The proposed amendments
to the Director Plan (1) increase the number of shares of Common Stock
("Shares") reserved for issuance under the Director Plan from 100,000 to 500,000
Shares, (2) provide for the award of non-qualified stock options, instead of
Shares, to non-employee directors of the Company, and (3) change the formula for
determining the fair market value of the Shares. The Board of Directors believes
that the grant of stock options instead of Shares helps to provide non-employee
directors with an incentive for continued service and to more closely align
their interests with those of the shareholders.
The description of the Amended Director Plan contained in this Proxy
Statement is qualified in its entirety by the text of the Amended and Restated
Independent Director Stock Plan attached as Appendix A to this Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE AMENDED AND RESTATED INDEPENDENT DIRECTOR STOCK PLAN,
AS SET FORTH IN APPENDIX A TO THIS PROXY STATEMENT.
Description of the Amended Director Plan
- ----------------------------------------
The principal provisions of the Amended Director Plan are summarized below.
Unless otherwise indicated, the terms of the Amended Director Plan described
below are substantially identical to the terms of the Director Plan.
Administration. The Amended Director Plan may be administered by the Board
of Directors or by a committee of directors of the Company. The Board has
delegated to the Compensation Committee the responsibility of administering the
Director Plan, and the Compensation Committee will continue to administer the
Amended Director Plan. Subject to the requirements of the Amended Director Plan,
the Compensation Committee will have the authority to, among other things,
determine the fair market value of the Common Stock, interpret the Amended
Director Plan and prescribe, amend, and rescind rules and regulations relating
thereto, and make all determinations deemed necessary or advisable to administer
the Amended Director Plan. However, only the Board of Directors may suspend,
amend or terminate the Amended Director Plan. No director may vote on any action
by the Board with respect to any matter relating to an award to or held by such
director. The Amended Director Plan will 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 thereto.
-14-
<PAGE>
Eligibility. Awards may be made under the Amended Director Plan only to
Independent Directors. The term "Independent Director" means a director who is
not an employee of the Company or any of its subsidiaries.
Amendment. The Amended Director Plan may not be amended without the
approval or ratification of the shareholders of the Company if such amendment
would (i) increase the number of shares that are reserved for issuance under the
Plan, (ii) permit awards to persons other than Independent Directors, or (iii)
require shareholder approval under any applicable law.
Shares Available. Under the Director Plan, a maximum of 100,000 Shares were
reserved for issuance thereunder. Upon shareholder approval of the proposed
amendements, a maximum of 500,000 Shares will be reserved for issuance under the
Amended Director Plan, subject to adjustment as provided therein. If an option
granted under the Amended Director Plan is forfeited to the Company, the number
of Shares reserved for issuance under such option will again become available
for issuance under the Amended Director Plan. Upon the exercise of an option,
the number of Shares reserved for issuance under the Amended Director Plan will
be reduced by the number of Shares issued upon exercise of the option.
Determination of Fair Market Value. Under the Director Plan, the fair
market value of a Share is determined by the closing price for the Common Stock
(as listed on any established stock exchange or national market system or as
quoted by a recognized securities dealer) on the trading day preceding the day
of determination. Upon shareholder approval of the proposed amendments, the fair
market value of a Share will be determined by the average closing price for the
Common Stock (as listed or quoted) for the five trading days immediately
preceding the day of determination.
Term. Unless earlier suspended or terminated by the Board, the Amended
Director Plan will continue in effect until the earlier of: (i) ten years from
the date on which the Director Plan was first adopted by the Board, and (ii) the
date on which all Shares available for issuance under the Amended Director Plan
have been issued.
Initial Award. The Director Plan provides that each Independent Director
will receive 500 Shares upon such Independent Director's first appointment or
election to the Board of Directors ("Initial Award"), whether by the
shareholders of the Company or by the Board to fill a vacancy. Upon shareholder
approval of the proposed amendments, the Initial Award will instead consist of
an option to purchase 2,500 Shares at an exercise price equal to Fair Market
Value on the date of grant, and which will be exercisable for a period of ten
years from the date of grant.
Annual Award. Each Independent Director also receives an additional award
on an annual basis (the "Annual Award"), 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). Under the
Director Plan, the Annual Award consists of a number of shares in an amount
determined in accordance with a formula set out in the Director Plan. Under the
Amended Director Plan as proposed, the Annual Award will consist of an option to
purchase 10,000 Shares at an exercise price equal to Fair Market Value on the
date of grant, and which will be exercisable for a period of ten years from the
date of grant. If an Independent Director is elected or appointed to the Board
at any time other than at the annual meeting of shareholders, the Annual Award
will be a fraction of 10,000, rounded to the nearest 100 shares. Subject to
shareholder approval of the Amended Director Plan, each Independent Director
elected at the Annual Meeting will receive an Annual Award.
Vesting and Forfeiture. Options granted under the Amended Director Plan are
subject to the same vesting and forfeiture provisions as Shares issued under the
Director Plan. Options granted pursuant to an Initial Award will be fully vested
upon the date of the Award. Options granted pursuant to an Annual Award will
vest in full on the first anniversary following the date of the Annual Award if
the Independent
-15-
<PAGE>
Director has attended at least 75% of the regularly scheduled meetings of the
Board during that year (the "Vesting Period"). If an Independent Director does
not attend at least 75% of the regularly scheduled meetings of the Board during
the Vesting Period, the options granted pursuant to that Annual Award will
expire and be forfeited without having vested. If a director ceases to be an
Independent Director for any reason other than death or disability before his or
her last Annual Award vests, the options granted pursuant to that Annual Award
will be forfeited. However, the Board may waive or modify the application of
these expiration provisions before the end of the Vesting Period, by unanimous
vote. If an Independent Director is unable to continue his or her service as a
director as a result of his or her disability or death, unvested options of such
Independent Director will immediately become vested as of the date of disability
or death. In the event of a merger, consolidation or plan of exchange to which
the Company is a party and in which the Company is not the survivor, or a sale
of all or substantially all of the Company's assets, any unvested options will
vest automatically upon the closing of such transaction.
Shareholder Rights. The recipient of any Award under the Amended Director
Plan will not have any rights as a shareholder of the Company with respect to
any Shares until the date of issuance to the recipient of a stock certificate
for such Shares.
New Plan Benefits. Under the Amended Director Plan, each Independent
Director will receive an Annual Award of an option to purchase 10,000 Shares at
an exercise price equal to the Fair Market Value on the date of grant, which
will be exercisable for a period of ten years from the date of grant and which
is subject to the vesting provisions described above. The following table sets
forth the awards that would have been received by all current Independent
Directors, as a group, had the Amended Director Plan been in effect during the
last fiscal year:
<TABLE>
<CAPTION>
Number Average per Share
Identity of Group of Options Exercise Price (1)
- ----------------- ---------- -------------------
<S> <C> <C>
All directors who are not executive officers,
as a group (5 persons)............................. 50,000 $4.719
(1) For purposes of this table, the exercise price per Share was determined as
if the Annual Award had been granted on October 8, 1997, the date of the
1997 annual meeting of the shareholders.
</TABLE>
PROPOSAL 3 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
---------------------------------------------------
Moss Adams LLP was previously the principal independent accountant for the
Company. On April 17, 1998, the appointment of Moss Adams LLP was terminated,
and KPMG Peat Marwick LLP was engaged, as the Company's principal independent
accountant. The decision to change principal independent accountants was
approved by the Finance and Audit Committee of the Company's Board of Directors.
In connection with the audits for fiscal years ended May 31, 1996 and May
31, 1997, and the subsequent interim period through April 17, 1998:
(a) the reports of Moss Adams LLP contained no adverse opinion or
disclaimer of opinion, or modification as to uncertainty, audit scope or
accounting principles; and
(b) there were no disagreements with Moss Adams LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which, if not resolved to the satisfaction of Moss Adams
LLP, would have caused it to make reference to the subject matter of the
disagreement in connection with its reports.
The Board of Directors has directed that the selection of KPMG Peat Marwick
LLP as the Company's principal independent accountant for the fiscal year ending
May 31, 1999, be submitted for ratification by the shareholders at the Annual
Meeting. If the appointment of KPMG Peat Marwick LLP is not ratified, the
selection of other auditors will be considered by the Board of Directors.
The Company has been advised by KPMG Peat Marwick LLP that neither that
firm nor any of its associates has any relationship with the Company or its
subsidiaries other than the usual relationship that exists between independent
public accountants and clients. KPMG Peat Marwick LLP will have one
-16-
<PAGE>
or more representatives at the Annual Meeting who will be available to respond
to appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP
AS INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING MAY 31, 1999.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
---------------------------------------------
Any shareholder proposal intended for inclusion in proxy materials for the
Company's 1999 annual meeting of shareholders must be received in proper form by
the Company at its principal office no later than May 4, 1999.
OTHER MATTERS
-------------
The Board of Directors is not aware of any business other than that
discussed above that will be presented for consideration at the Annual Meeting.
If other matters properly come before the Annual Meeting, it is the intention of
the persons named in the enclosed proxy to vote on such matters in accordance
with their best judgment.
ANNUAL REPORT AND FINANCIAL STATEMENTS
--------------------------------------
Copies of the Company's 1998 Annual Report to Shareholders and Annual
Report on Form 10-K, which includes the Company's financial statements for the
fiscal year ended May 31, 1998, accompany this Proxy Statement. Neither the
Annual Report nor the Form 10-K are to be treated as part of or incorporated by
reference into the proxy solicitation material.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE HOPE THAT YOU WILL HAVE
YOUR STOCK REPRESENTED BY COMPLETING, SIGNING, DATING AND RETURNING YOUR
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
By Order of the Board of Directors,
/s/ DONALD A. WRIGHT
Donald A. Wright
Chairman of the Board,
Chief Executive Officer and President
September 4, 1998
-17-
<PAGE>
Appendix A
PACIFIC AEROSPACE & ELECTRONICS, INC.
AMENDED AND RESTATED INDEPENDENT DIRECTOR STOCK PLAN
1. Purpose. The purposes of this Amended and Restated 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 average closing sales price for such stock (or
the average closing bid, if no sales were reported, as quoted on such system or
exchange (or the exchange with the greatest volume of trading in Common Stock)),
for the five trading days immediately before the day of determination, as
reported in The Wall Street Journal or such other source as the Board deems
reliable;
-1-
<PAGE>
(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 average of the high and low
asked prices for the Common Stock for the five trading days immediately before
the date of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable; or
(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 "Option" shall mean an option to purchase Shares, which is not
intended to qualify as an incentive stock option under Section 422 of the Code,
which shall have an exercise price equal to Fair Market Value on the date of
grant, and which shall have a duration of ten (10) years from the date of grant.
2.11 "Parent" means a parent corporation, whether now or hereafter
existing, as defined in Section 425(e) of the Code.
2.12 "Plan" means this Independent Director Stock Plan, as amended.
2.13 "Plan Administrator" means the administrator of this Plan as described
in Section 4.1.
2.14 "Share" means a share of Common Stock.
2.15 "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 reserved for issuance under this Plan shall not exceed 500,000
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."
-2-
<PAGE>
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 an Award 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 Awards made
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.
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
Awards made 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. Awards
5.1 Eligibility. Awards may be made 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 receive Awards or to
determine the number of Shares to be subject to Awards. 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. Each Independent Director shall receive an Option to
purchase 2,500 Shares (the "Initial Award"), which shall be granted 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.
-3-
<PAGE>
5.4 Annual Award. Each Independent Director also shall be awarded an Option
to purchase 10,000 Shares (the "Annual Award"), on an annual basis, which shall
be granted 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). 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 10,000 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.
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 the number of shares issuable upon exercise of
an Option granted pursuant to each such 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 Awards previously awarded hereunder.
6. Vesting and Forfeiture.
6.1 Vesting. Options granted pursuant to an Initial Award shall be fully
vested upon the date of the Award. Options granted 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 Options granted pursuant to that Annual Award shall
automatically expire and be forfeited without having vested. The foregoing
vesting requirement may be waived or modified prior to the first anniversary
date of any Annual Award by unanimous vote of the Board of Directors.
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
-4-
<PAGE>
vests, the Options granted pursuant to that Annual Award shall be forfeited.
This requirement may be waived or modified prior to the first anniversary date
of any Annual Award by unanimous vote of the Board of Directors.
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 Options of such Independent Director shall
become immediately vested.
6.4 Death of Director. In the event of the death of an Independent
Director, unvested Options of such Independent Director shall become vested as
of the date of death.
6.5 Option Agreements. Immediately following each Award date, the Company
will deliver to the Plan Administrator option agreements in the name of the
Award recipients representing the Options granted to each recipient on that
Award date. In the case of an Initial Award, the Plan Administrator shall
promptly deliver each option agreement to the relevant Independent Director. The
Plan Administrator shall hold the option agreements representing unvested
Options until the Options have been vested in accordance with Section 6.1. Any
option agreements representing Annual Awards that fail to vest shall be returned
to the Company for immediate cancellation. Any option agreements covering vested
Options shall be delivered to the relevant Independent Director as soon as
practicable after the Options vest. Any option agreement representing Options
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 Shareholder Rights. The recipient of any Award under this Plan shall
have no rights as a Shareholder with respect to any Shares until the date of
issuance to the recipient of a stock certificate for such Shares.
6.7 Status Before Full Vesting. No Independent Director may transfer any
interest in unvested options 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 Options shall vest automatically upon the
closing of such transaction.
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8. Securities Regulations.
Shares shall not be issued with respect to any Award made under this Plan
unless the making of the Award, the exercise of the Option and 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.
In connection with the exercise of an Option and issuance of Shares under
this Plan, the Company may require recipients to represent and warrant at the
time of any such exercise 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
OPTIONS OR 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
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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 was first 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 Options, alter or
impair any rights or obligations with respect to such Options theretofore
granted under this Plan.
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. from PCT Holdings, Inc. in
connection with the reincorporation merger on November 30, 1996.
Amended by unanimous Board Consent dated December 31, 1996, to add the final
sentence of Section 6.1.
Amended and restated by the Board of Directors on August 14, 1998, and approved
by the Shareholders on __________________, 1998.
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PROXY
PACIFIC AEROSPACE & ELECTRONICS, INC.
Annual Meeting of Shareholders, October 13, 1998
PROXY SOLICITED BY BOARD OF DIRECTORS
PLEASE SIGN AND RETURN THIS PROXY
The undersigned hereby appoints Donald A. Wright and Nick A. Gerde,
and each of them, proxies with power of substitution to vote on behalf of the
undersigned all shares that the undersigned may be entitled to vote at the
Annual Meeting of Shareholders of Pacific Aerospace & Electronics, Inc. (the
"Company"), on October 13, 1998, and any adjournments of that meeting, with all
powers that the undersigned would possess, if personally present, with respect
to the following:
1. ELECTION OF DIRECTORS: [ ] FOR all nominees [ ] WITHOUT AUTHORITY
except as marked to vote for all
to the contrary nominees listed
below. below.
(Instructions: To withhold authority to vote for any individual,
strike a line through the nominee's name below.)
Allen W. Dahl, Urs Diebold, Werner Hafelfinger, Dale L. Rasmussen,
William A. Wheeler, and Donald A. Wright
2. APPROVAL OF THE AMENDED AND RESTATED INDEPENDENT DIRECTOR STOCK PLAN:
[ ] FOR [ ] AGAINST [ ] ABSTENTION
3. RATIFICATION OF APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT
AUDITORS:
[ ] FOR [ ] AGAINST [ ] ABSTENTION
4. TRANSACTION OF ANY BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENTS OF THE MEETING. A MAJORITY OF THE PROXIES OR SUBSTITUTES AT THE
MEETING MAY EXERCISE ALL THE POWERS GRANTED BY THIS PROXY.
(Continued and to be signed on the other side)
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The shares represented by this proxy will be voted as specified on the front of
this proxy, but if no specification is made, this proxy will be voted (1) FOR
the election of the six identified nominees as directors; (2) FOR the approval
of the Amended and Restated Independent Director Stock Plan; and (3) FOR the
ratification of the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors. The proxies may vote in their discretion as to other
matters that may come before this meeting.
No. of Shares: ________ Date: ____________, 1998
-------------------------------------------------
Signature or Signatures
Please date and sign above as your name is
printed to the left of the signature line,
including designation as executor, trust, etc.,
if applicable. A corporation must be signed for
by the president or other authorized officer.
The Annual Meeting of Shareholders of Pacific
Aerospace & Electronics, Inc. will be held at the
West Coast Wenatchee Convention Center, located
at 121 North Wenatchee Avenue, Wenatchee,
Washington, on October 13, 1998, at 3:00 p.m.
Pacific Daylight Time.
Please Note: Any shares of stock of the Company held in the name of fiduciaries,
custodians or brokerage houses for the benefit of their clients may only be
voted by the fiduciary, custodian or brokerage house itself. The beneficial
owner may not directly vote or appoint a proxy to vote the shares and must
instruct the person or entity in whose name the shares are held how to vote the
shares held for the beneficial owner. Therefore, if any shares of stock of the
Company are held in "street name" by a brokerage house, only the brokerage
house, at the instructions of its client, may vote or appoint a proxy to vote
the shares.
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