SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1998
[ ] 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 registrant as specified in its charter)
Washington 91-1744587
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
430 Olds Station Road, Wenatchee, Washington 98801
(Address of Principal Executive Offices; Zip Code)
Registrant's telephone number, including area code: (509) 667-9600
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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
stock, as of the latest practicable date: As of October 8, 1998, there were
15,986,323 shares outstanding of the Company's Common Stock, par value $.001 per
share.
<PAGE>
PART I - FINANCIAL INFORMATION
---------------------
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets - August 31, 1998 and May 31, 1998
Consolidated Statements of Operations - First Quarters Ended August 31, 1998 and
1997
Consolidated Statements of Cash Flow - First Quarters Ended August 31, 1998 and
1997
Management's Statement and Notes to Unaudited Consolidated Financial Statements
- - First Quarter Ended August 31, 1998
2
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FORM 10-Q
August 31, 1998 and May 31, 1998
<TABLE>
<CAPTION>
August 31, May 31,
1998 1998
(Unaudited) (Audited)
------------- -------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash $ 18,998,000 $ 11,461,000
Accounts receivable 21,364,000 9,375,000
Inventories 28,611,000 16,184,000
Deferred income taxes 522,000 386,000
Prepaid expenses and other 1,275,000 272,000
------------ ------------
Total current assets 70,770,000 37,678,000
------------ ------------
PROPERTY AND EQUIPMENT, NET OF DEPRECIATION 46,149,000 26,335,000
------------ ------------
OTHER ASSETS
Note receivable, net -- 700,000
Investment, net 2,719,000 4,579,000
Costs in excess of net book value
of acquired subsidiaries, net 43,761,000 6,515,000
Patents, net 1,203,000 1,229,000
Deferred income taxes 1,155,000 222,000
Deferred financing costs, net 5,271,000 856,000
Other assets 437,000 466,000
------------ ------------
Total other assets 54,546,000 14,567,000
------------ ------------
TOTAL ASSETS $171,465,000 $ 78,580,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 13,776,000 $ 6,748,000
Accrued liabilities 7,895,000 2,587,000
Current portion - long-term debt 1,199,000 1,027,000
Current portion - capital lease obligations 311,000 206,000
Line of credit 903,000 1,511,000
------------ ------------
Total current liabilities 24,084,000 12,079,000
------------ ------------
LONG-TERM LIABILITIES
Long-term debt, net of current portion 83,683,000 9,059,000
Capital leases, net of current portion 1,860,000 941,000
Deferred rent and other 338,000 359,000
------------ ------------
Total long-term liabilities 85,881,000 10,359,000
------------ ------------
TOTAL LIABILITIES 109,965,000 22,438,000
------------ ------------
SHAREHOLDERS' EQUITY
Convertible preferred stock -- --
Common stock 16,000 15,000
Additional paid-in capital 66,030,000 57,830,000
Accumulated other comprehensive income (loss) 1,131,000 (436,000)
Accumulated deficit (5,677,000) (1,267,000)
------------ ------------
Total shareholders' equity 61,500,000 56,142,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $171,465,000 $ 78,580,000
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
3
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FORM 10-Q
First Quarters Ended August 31, 1998 and 1997
<TABLE>
<CAPTION>
Quarters Ended
--------------
August 31, August 31,
1998 1997
Unaudited Unaudited
------------- -------------
<S> <C> <C>
NET SALES $ 19,178,000 $ 11,776,000
COST OF SALES 14,504,000 8,793,000
------------ ------------
GROSS PROFIT 4,674,000 2,983,000
OPERATING EXPENSES 3,776,000 2,007,000
------------ ------------
INCOME FROM OPERATIONS 898,000 976,000
------------ ------------
OTHER INCOME AND EXPENSE
Interest income 226,000 19,000
Interest expense (1,069,000) (130,000)
Other (6,721,000) 8,000
------------ ------------
(7,564,000) (103,000)
NET INCOME (LOSS) BEFORE FEDERAL INCOME TAX (6,666,000) 873,000
PROVISION FOR FEDERAL INCOME TAXES (BENEFIT) 2,255,000 (62,000)
------------ ------------
NET INCOME (LOSS) $ (4,411,000) $ 811,000
============ ============
NET INCOME (LOSS) PER SHARE:
BASIC $ (0.29) $ 0.07
DILUTED $ (0.29) $ 0.07
SHARES USED IN COMPUTATION OF NET INCOME
(LOSS) PER SHARE:
BASIC 15,421,375 11,718,000
DILUTED 15,421,375 11,718,000
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FORM 10-Q
FIRST QUARTERS ENDED AUGUST 31, 1998 AND 1997
<TABLE>
<CAPTION>
Quarters Ended
--------------
August 31, August 31,
1998 1997
Unaudited Unaudited
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net cash from operating activities $ 1,001,000 $ 1,612,000
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,635,000) (2,700,000)
Reduction in notes receivable -- 17,000
Acquisition of subsidiaries (29,012,000) --
Purchase of goodwill (40,080,000) --
Proceeds from certificate of deposit -- 1,000,000
Purchase of short-term investments -- (836,000)
Increase in notes receivable -- (3,692,000)
----------- -----------
Net cash from investing activities (70,727,000) (6,211,000)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit (608,000) --
Proceeds from long-term debt, net of
financing costs 71,363,000 1,191,000
Payments on long-term debt and capital leases (374,000) (570,000)
Sale of preferred stock, net of issuance costs 6,792,000 --
Sale of convertible debentures,
net of issuance costs -- 5,439,000
Other changes, net -- (32,000)
----------- -----------
Net cash from financing activities 77,173,000 6,028,000
----------- -----------
NET CHANGE IN CASH 7,447,000 1,429,000
CASH AT BEGINNING OF PERIOD 11,461,000 3,048,000
EFFECT OF EXCHANGE RATES ON CASH 90,000 --
----------- -----------
CASH AT END OF PERIOD $18,998,000 $ 4,477,000
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Property, plant and equipment
included in accounts payable $ 500,000 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
MANAGEMENT'S STATEMENT AND
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q
First Quarter Ended August 31, 1998
Management's Statement
- ----------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Form 10-Q instructions and, in the opinion of management,
contain all adjustments necessary to present fairly the Company's consolidated
financial position as of August 31, 1998 and May 31, 1998, the consolidated
results of operations for the quarters ended August 31, 1998 and 1997, and the
consolidated statements of cash flow for the quarters ended August 31, 1998 and
1997. 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.
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, 1998 and 1997.
The results of operations for the quarters ended August 31, 1998 and 1997 are
not necessarily indicative of the results to be expected or anticipated for the
full fiscal year.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Note 1: Comprehensive Income
--------------------
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
(Statement 130), which establishes standards for reporting and disclosure of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. Statement 130 is
effective for fiscal years beginning after December 15, 1997 and requires
reclassification of financial statements for earlier periods to be provided for
comparative purposes. The Company has not determined the manner in which it will
present the information required by Statement 130 in its annual financial
statements for the year ending May 31, 1999. The Company's total comprehensive
income (loss) for the quarters ended August 31, 1998 and 1997 was ($2,844,000),
and $811,000, respectively. Components of comprehensive income are as follows:
<TABLE>
<CAPTION>
Quarters Ended
--------------
August 31, 1998 August 31, 1997
--------------- ---------------
<S> <C> <C>
Net income (loss) ($ 4,411,000) $ 811,000
Other comprehensive income (expense)
Foreign currency translation 1,714,000 -
Income tax expense (583,000) -
Adjustment for unrealized loss on investment 436,000 -
------------ -----------
Total other comprehensive income 1,567,000 -
------------ -----------
Comprehensive income (loss) ($ 2,844,000) $ 811,000
============ ===========
</TABLE>
Note 2: Computations of Earnings per Share
----------------------------------
The Company has adopted SFAS No. 128, Earnings Per Share (Statement 128). In
accordance with Statement 128 basic earnings per share is computed using the
weighted average number of common
6
<PAGE>
shares outstanding. Diluted earnings per share is computed using the weighted
average number of common shares plus dilutive common share equivalents
outstanding during the period using the treasury stock method. Due to the net
loss during the period ended August 31, 1998, the same number of shares were
used to compute both basic and diluted earnings per share.
Note 3: Aeromet Acquisition
-------------------
On July 30, 1998, the Company's wholly-owned subsidiary, Pacific Aerospace &
Electronics (UK) Limited, closed the purchase of Aeromet International plc
("Aeromet") pursuant to a Share Acquisition Agreement. In consideration for the
purchase, the Company paid the sellers 42 million pounds sterling (or
approximately $69 million) in cash. Aeromet is located in the United Kingdom.
At the purchase date, the total purchase price of Aeromet including capitalized
costs of the acquisition was $72.7 million, including $32.6 million in net
assets (current assets of $30.6 million; property plant and equipment of $18.1
million; current liabilities of $14.5 million; long term liabilities of $1.7
million) and resultant goodwill of $40.1 million. Accounting policies at Aeromet
have been conformed to generally accepted accounting principles consistent with
the Company. Goodwill is being amortized over 40 years. Step-up in the valuation
of property, plant and equipment to fair market value is being amortized over
the estimated useful lives of the assets, generally 7 to 10 years. For balance
sheet purposes, the Company has translated UK valuations to US dollars for
Aeromet using the translation at the balance sheet date. For income statement
purposes, revenues and expenses have been reported at average transaction rates
for the period being reported. Income tax rates have been estimated at the
prevailing rates in the UK. The Company has also filed a Form 8-K with
corresponding disclosures on August 14, 1998.
The Company has included accounts of Aeromet in the consolidated financial
statements at August 31, 1998. See "Significant Events During Quarter - Aeromet
Acquisition" in Management's Discussion and Analysis of Financial Condition and
Results of Operations for additional information.
The following summary, prepared on a pro forma basis, presents the unaudited
consolidated condensed results of operations of the Company, as if the Aeromet
acquisition was made as of the first day of the quarterly period being reported
and the comparable period in the previous year.
<TABLE>
<CAPTION>
Quarter ended August 31
(unaudited)
-----------------------
1998 1997
---------- ----------
(in thousands)
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . $ 28,760 $ 23,916
Net income (loss) . . . . . . . . . . . . . . . . . . $ (5,469) $ (1,049)
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . $ (0.36) $ (0.09)
Diluted . . . . . . . . . . . . . . . . . . . . . $ (0.36) $ (0.09)
</TABLE>
The pro forma results are not necessarily indicative of the actual results of
operations that would have occurred had the transactions been consummated as of
the date indicated nor are they intended to indicate results that may occur in
the future.
7
<PAGE>
Note 4: Inventories
-----------
Components of inventories are as follows:
<TABLE>
<CAPTION>
August 31, May 31,
1998 1998
------------ ------------
<S> <C> <C>
Raw materials $ 9,478,000 $ 5,789,000
Work in progress 13,275,000 5,683,000
Finished goods 5,856,000 4,712,000
------------ ------------
Total $ 28,611,000 $ 16,184,000
============ ============
</TABLE>
Note 5: Investment
----------
At August 31, 1998, the Company's investment in the common stock of a public
company, determined in accordance with Statement of Financial Accounting
Standards No. 115, is shown net of a reserve for additional loss exposure
related to the Company's guarantee of certain debt of the public company and
other related matters.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Preliminary Note Regarding Forward-Looking Statements
- -----------------------------------------------------
This report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and is subject to the safe harbor created by those sections.
Actual results could differ materially from those projected in the
forward-looking statements set forth in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Overview
- --------
The Company has been an active consolidator of companies, and its results
of operations have been substantially affected by acquisitions. These
acquisitions, as well as internal growth in the Company's existing and acquired
businesses, have resulted in substantial increases in net sales. The Company's
operating expenses and margins and other expenses also have been affected by
certain expenses directly associated with the acquisitions and related capital
raising transactions. The Company has experienced substantial increases in all
other expense categories as a result of the increases in its operations. A
portion of these expenses is attributable to the assimilation of acquired
operations into the Company's existing businesses.
In July 1998, the Company acquired Aeromet International plc ("Aeromet"), a
British limited company and a then wholly-owned subsidiary of Charles Baynes plc
(the "Aeromet Acquisition"). Aeromet is a manufacturer of magnesium and aluminum
precision sand and investment castings, and of titanium and aluminum formed
sheet products, with five locations in England. The Aeromet Acquisition will
have a significant effect on the Company's future operations and on comparisons
of income, expense and balance sheet items in periods after fiscal 1998. The
Company's financial results for the first quarter of fiscal 1999 include only
one month of operations of Aeromet. See "Significant Events During
Quarter - Aeromet Acquisition."
Substantially all of the Company's revenues are generated by sales to
customers in the commercial aerospace, defense, electronics and transportation
industries, with commercial aerospace and defense industry sales being the most
significant. The electronics and aerospace industries are cyclical in nature and
subject to changes based on general economic conditions and commercial airline
industry, defense and government spending.
The Company's operations are focused in developing, manufacturing and
marketing high performance electronics and metal components and assemblies. The
Company's electronics products are characterized by relatively low volumes and
high margins. In comparison, volumes have historically been higher and margins
lower for the Company's metals products. The Company believes that margins will
remain higher for electronic products than for its metals products. Assembled
products incorporating both electronics and metal parts are expected to generate
margins closer to electronics product margins. As a result of margin
differences, changes in product mix among its electronics, assembled and metals
products can be expected to affect overall margins for the Company.
The Company's sales are not subject to significant seasonal fluctuations.
However, production and resulting sales are subject to the number of working
days in any given period. Results for various periods may vary materially due to
the number of working days available in any period.
Results of Operations
- ---------------------
Quarter Ended August 31, 1998 Compared to Quarter Ended August 31, 1997
Net Sales. Net sales increased by $7.4 million, or 62.9%, to $19.2 million
for the quarter ended August 31, 1998, from $11.8 million for the quarter ended
August 31, 1997. This increase included increases in both its aerospace industry
group net sales (an $5.6 million increase) and its electronics industry group
net sales (a $1.8 million increase). The increase in the Company's net sales to
the aerospace industry was attributable to (a) increases in production at Boeing
which increased its demand for the Company's precision cast and machined
products, and (b) the inclusion of one month of Aeromet sales. The increase in
the Company's net sales to the electronics industry
9
<PAGE>
was primarily attributable to the acquisition in February 1998 of Balo
Precision Parts, Inc. ("Balo") and the acquisition effective as of March 1998 of
Electronic Specialty Corporation ("ESC"). Net sales by Balo, ESC and Aeromet for
the first quarter of fiscal 1999 were $779,000, $1,113,000, and $4,463,000,
respectively.
Gross Profit. Gross profit increased by $1.7 million, or 56.7%, to $4.7
million for the quarter ended August 31, 1998, from $3.0 million for the quarter
ended August 31, 1997. As a percentage of net sales, gross profit decreased to
24.4% for the quarter ended August 31, 1998, from 25.3% for the quarter ended
August 31, 1997. This decrease was primarily attributable to the acquisitions of
ESC and Aeromet, which have comparatively lower average gross profit margins.
Without ESC and Aeromet, gross profit as a percentage of net sales would have
increased to 30.4% for the quarter ended August 31, 1998, primarily because of
improved efficiencies from the development of manufacturing processes and
in-house production capabilities that had previously been purchased from outside
vendors and because of capital investments in equipment and production
capabilities. Gross profit (loss) attributable to Balo, ESC and Aeromet for the
first quarter of fiscal 1999 was $86,000, $(259,000) and $797,000, respectively.
Operating Expenses. Operating expenses increased by $1.8 million, or 88.1%,
to $3.8 million for the quarter ended August 31, 1998, from $2.0 million for the
quarter ended August 31, 1997. This increase was partially due to costs related
to the Balo, ESC and Aeromet acquisitions and increased levels of operations in
the first quarter of 1999. As a percentage of net sales, operating expenses
increased 2.6%, to 19.7% for the quarter ended August 31, 1998, from 17.1% for
the quarter ended August 31, 1997. This increase is primarily attributable to
the electronics industry group and the acquisitions of Balo and ESC. The
increase in operating expenses as a percentage of net sales was partially offset
by the acquisition of Aeromet, which had lower than average operating expenses
in relation to net sales, in the first quarter of fiscal 1999. Operating
expenses attributable to Balo, ESC and Aeromet for the first quarter of fiscal
1999 were $400,000, $287,000 and $473,000, respectively.
Interest Expense. Interest expense increased by $939,000, or 722.3%, to
$1,069,000 for the quarter ended August 31, 1998, from $130,000 for the quarter
ended August 31, 1997. This increase was primarily due to (a) the debt incurred
by the Company to finance the Aeromet Acquisition, (b) the Company's financing
of capital equipment purchases, and (c) the debt incurred to finance the
expansion of the Company's Wenatchee facilities. Interest expense attributable
to Balo, ESC and Aeromet (exclusive of interest related to the acquisition
financing) for the first quarter of fiscal 1999 was $0, $45,000 and $0,
respectively.
Other Income (Expense). Other income (expense) represents non-recurring and
non-operational income and expense for the period. Other income decreased
$6,729,000 to an other expense of $6,721,000 for the quarter ended August 31,
1998, from other income of $8,000 for the quarter ended August 31, 1997. This
decrease in other income was principally due to: (a) a $3,581,000 write-down in
connection with ESC, and (b) a $3,103,000 write-down of the Company's investment
in Orca Technologies, Inc. See "Significant Events During Quarter - Electronic
Specialty Corporation, and - Orca Technologies, Inc.," below. Other income
(expense) attributable to Balo, ESC (exclusive of the write-down discussed
above), and Aeromet for the first quarter of fiscal 1999 was $69,000, $11,000
and $0, respectively.
Net Income (Loss). Net income decreased $5,222,000 or 643.9% to a net loss
of $4,411,000 for the quarter ended August 31, 1998, from net income of $811,000
for the quarter ended August 31, 1997, primarily as a result of unexpected
Aeromet Acquisition cost increases and the ESC and Orca write-downs. Before the
ESC and Orca write-downs, the Company's net income for the first quarter of
fiscal 1999 would have decreased $810,000 or 99.9% to $1,000 in the first
quarter of 1999, from $811,000 for the first quarter of fiscal 1998, primarily
as a result of the losses at Balo and ESC for the quarter. Pre-tax net income
(loss) attributable to Balo, ESC and Aeromet for the first quarter of fiscal
1999 was $(254,000), $(642,000) and $264,000, respectively. Aeromet pre-tax net
income includes amortization of goodwill, but does not include interest expense
associated with the acquisition indebtedness.
Liquidity and Capital Resources
- -------------------------------
Financing Activities. Cash generated from financing activities increased by
$71.2 million, to $77.2 million at August 31, 1998, from $6.0 million at August
31, 1997. During the first quarter of fiscal 1999, the Company completed two
financing transactions, including the long-term debt offering
10
<PAGE>
of $75 million to finance the Aeromet Acquisition and the completion of the
Company's offering of Series B Convertible Preferred Stock and related Warrants.
See "Significant Events During Quarter - Aeromet Acquisition, and - Completion
of Series B Convertible Preferred Stock Offering." Cash generated by these
financing transactions was offset by payments on long-term debt and capital
leases of $0.4 million during the quarter and costs of issuance and financing.
The Company's primary banking relationships include a revolving line of
credit up to $6.3 million for the Company's U.S. operations, a revolving line of
credit up to approximately $7.5 million (4.5 million pounds sterling) for
Aeromet's operations, a term loan of approximately $700,000 for building
improvements, and a term loan of $1.2 million for the construction of the
Company's headquarters building.
Capital Expenditures. The Company made capital expenditures of $2.1 million
during the first quarter of fiscal 1999. This amount is higher than normal due
to (a) $.6 million for the construction of its Wenatchee headquarters building,
and (b) $1.5 million related primarily to purchases of machinery and equipment.
In August 1998, the Company completed and occupied its headquarter building,
which consists of approximately 22,400 square feet of office space to house the
Company's executive, administrative and accounting personnel. The total cost of
this project was approximately $3.5 million. The Company has entered into a term
loan with its primary senior lender for approximately $1.2 million of the
building costs. The Company is currently negotiating the purchase of the Balo
facility for approximately $1.1 million and closing is expected to occur in
November 1998. In connection with the Aeromet Acquisition, the Company entered
into an Option Agreement with Charles Baynes plc, which grants the Company a
one-year option to purchase three of the facilities currently leased by Aeromet.
As of August 31, 1998, the Company had no material commitments outstanding for
purchases of additional capital assets.
Working Capital. The Company's working capital, as of August 31, 1998 and
May 31, 1998 was $46.7 million and $25.6 million, respectively. The increase in
working capital at August 31, 1998 over May 31, 1998 was primarily the result of
the Aeromet acquisition and the associated financing, and the sale of the Series
B Convertible Preferred Stock. See "Significant Events During Quarter - Aeromet
Acquisition, and - Completion of Series B Convertible Preferred Stock
Offering."
Future Capital Requirements. The Company believes that the net proceeds
from a note offering that closed July 30, 1998 (see "Significant Events During
Quarter - Aeromet Acquisition Note Offering"), and from the release of funds
escrowed in connection with the Company's offering of Series B Convertible
Preferred Stock (see "Significant Events During Quarter - Completion of Series B
Convertible Preferred Stock Offering"), plus cash from operations, will be
sufficient to meet the Company's cash requirements and to fund budgeted capital
expenditures for fiscal 1999.
Significant Events During Quarter
- ---------------------------------
Aeromet Acquisition
Acquisition Transaction. On July 30, 1998, Pacific Aerospace & Electronics
(UK) Limited ("PA&E-UK"), a company organized under the laws of the United
Kingdom and an indirect wholly-owned subsidiary of the Company, purchased all of
Aeromet's issued and outstanding capital stock. The Aeromet Acquisition was made
pursuant to a Share Acquisition Agreement dated July 1, 1998, between Charles
Baynes plc, Westpark Limited (an affiliate of Charles Baynes plc), PA&E-UK and
the Company. In consideration for PA&E-UK's acquisition of all of Aeromet's
issued and outstanding capital stock (the "Shares"), the Company delivered to
Westpark Limited (pound)42 million (or approximately $69 million) in cash. The
purchase price for the Shares was determined in arms-length negotiations between
Charles Baynes plc and the Company.
Note Offering. The Company funded the Aeromet Acquisition from the net
proceeds of an offering by the Company of 11 1/4% Senior Subordinated Notes due
2005 (the "Notes"). Subject to the terms and conditions of a Purchase Agreement
(the "Purchase Agreement"), dated July 23, 1998, between the Company, the
Company's United States subsidiaries (the "Subsidiaries"), and Friedman,
Billings, Ramsey & Co., Inc. and BancBoston Securities Inc. (collectively the
"Initial Purchasers"), the Initial Purchasers agreed to purchase, and the
Company agreed to sell, Notes in the aggregate principal amount of $75 million.
The Notes were issued pursuant to an Indenture, dated July 30, 1998 (the
"Indenture") between the Company, the Subsidiaries and IBJ Schroder Bank & Trust
Company, as trustee. The Notes (a) are senior subordinated, unsecured, general
obligations of the
11
<PAGE>
Company, (b) will mature on August 1, 2005, unless previously redeemed pursuant
to the Indenture, and (c) are jointly and severally guaranteed on a senior
subordinated basis by each of the Subsidiaries.
In connection with the Purchase Agreement, the Company and the Subsidiaries
entered into a registration rights agreement with the Initial Purchasers,
pursuant to which the Company agreed to file with the Securities and Exchange
Commission either (i) an exchange offer registration statement relating to the
exchange of the Notes for fully registered notes with identical terms as the
Notes (the "Exchange Notes") or (ii) a shelf registration statement pursuant to
Rule 415 under the Securities Act, for resale of the Notes and of the Exchange
Notes that cannot be resold without delivery of a prospectus. The Company
further agreed to use its reasonable best efforts to cause such registration
statements to be declared effective.
Completion of Series B Convertible Preferred Stock Offering
Upon the closing of the Aeromet Acquisition in July 1998, the Company
completed its offering of Series B Convertible Preferred Stock ("Series B
Preferred") and related Warrants by issuing to the existing holders (a) an
additional 70,000 shares of Series B Preferred, and (b) additional warrants to
purchase 97,221 shares of Common Stock, in exchange for a purchase price of
$7,000,000 which had been held in escrow pending completion of the Aeromet
Acquisition. When combined with the first closing of the Series B Preferred
offering in May 1998, the Company issued a total of 170,000 Shares of Series B
Preferred and warrants to purchase 236,109 shares of Common Stock, for a total
purchase price of $1.7 million.
Electronic Specialty Corporation
On April 13, 1998, the Company's subsidiary, ESC Acquisition Corp.,
acquired substantially all of the assets of Electronic Specialty Corporation
(the "Seller"), and assumed certain of the Seller's liabilities. At the closing,
ESC Acquisition Corp. changed its name to Electronic Specialty Corporation
("ESC"). The Company engaged the Seller's president to be president of ESC after
the closing. In June 1998, the Company terminated ESC's president. The Company
subsequently became aware of certain differences between ESC's actual financial
condition and the financial condition represented by the Seller in the closing
documents. These differences included a significantly lower backlog and order
flow and significantly higher operating losses than represented. As a result,
the Company laid off approximately 30% of ESC's workforce later in June 1998. A
new general manager appointed by the Company in August has reassessed the
business opportunities, including cash flow and revenue forecasts, which are
significantly lower than previously forecasted. Based upon this analysis, the
Company is investigating new product line opportunities and evaluating the
feasibility of continuing older product lines. Due to significantly lower future
expectations of revenues and profits, the Company has written off its goodwill
in ESC in the amount of $3,581,000, at August 31, 1998.
Orca Technologies, Inc.
At October 8, 1998, the Company held 2,289,309 shares of Orca's common
stock (the "Orca Shares"), which, to the Company's knowledge, constituted
approximately 14.82% of Orca's issued and outstanding common stock. The Company
acquired 179,600 of the Orca Shares in a market transaction, and the other
2,109,709 of the Orca Shares pursuant to an April 1998 restructuring agreement
between Orca and the Company. In the restructuring agreement, the Company (a)
canceled certain loans owed it by Orca in exchange for the 2,109,709 shares of
Orca's Common Stock, (b) agreed to continue guaranteeing Orca's credit facility
of $1.3 million and an equipment lease of $373,000, and (c) accepted a $950,000
promissory note from Orca (the "Orca Note") as payment for certain third-party
notes then owned by the Company. The Company also sublet approximately 95% of
the square footage of its Bothell, Washington office space to Orca for an
equivalent amount of the lease payment.
The Company originally valued the Orca Shares on its balance sheet at
$5,014,000. Due to decreases in the trading price of Orca's common stock on the
Nasdaq SmallCap Market, the Company recorded unrealized losses on the Orca
Shares, included in shareholders' equity, of $436,000 as of May 31, 1998. On
August 31, 1998, the Company recorded a charge of approximately $2.3 million to
reduce the value of its investment in Orca Common Stock to $2.7 million, due to
an other-than-temporary decrease in the traded market price and value of Orca
common stock, certain guaranties by the Company of Orca liabilities, and poorer
than expected operating results and cash flows which arose in August and in
subsequent months. The Company had also reserved $250,000 of the Orca
12
<PAGE>
Note in the fourth quarter of fiscal 1998, and during August, the Company
reserved the remaining balance of $700,000. As of October 12, 1998, Orca was
three months past due on the interest payments due on the Orca Note and on its
lease payments to the Company. The Company has demanded full payment of the past
due amounts from Orca. The Company is also currently negotiating for the release
of its guaranty of Orca's equipment lease.
Roger Vallo and Donald Cotton, who were directors of the Company until
January 1998, are directors, and Mr. Vallo is CEO, of Orca. Donald A. Wright,
the Company's Chief Executive Officer and President, and Nick A. Gerde, the
Company's Chief Financial Officer, Vice President Finance and Treasurer, 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 shares in private transactions. Dr. Allen
Dahl, a director of the Company, continues to be a shareholder of Orca but has
never been an officer or director of Orca.
Issuance of Common Stock to Liviakis
In February 1998, the Company entered into a financial services agreement
with Liviakis Financial Communications, Inc. ("Liviakis") 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 for $4.62 per share. In August 1998, the Company, Liviakis and Mr. Prag
entered into an agreement in which (a) a finder's fee claim by Liviakis against
the Company was resolved in exchange for the Company's issuance of an aggregate
of 590,000 shares of Common Stock to Liviakis and Mr. Prag under the exemption
from registration provided in Section 4(2) of the Securities Act, and (b)
Liviakis and Mr. Prag transferred the warrants previously issued to them to the
Company for cancellation. No commissions were paid in connection with issuance
of the shares to Liviakis and Mr. Prag.
Year 2000
- ---------
The Company (including Aeromet) is developing and carrying out a
comprehensive strategy for updating its information management and manufacturing
systems for Year 2000 ("Y2K") compliance. The Company's information technology
("IT") systems include customized and standard software purchased from outside
vendors. All software has been identified and is being assessed to determine the
extent of renovations required in order to be Y2K compliant. The Company
believes that all software will be made Y2K compliant before the end of the
Company's current fiscal year through vendor-provided updates or replacement
with other Y2K compliant hardware and software. The Company is in the process of
identifying significant non-IT systems which may be impacted by the Y2K problem,
including those relating to production, processing and communication equipment
and is in the process of determining through inquiries of equipment suppliers,
as well as testing of such equipment, the extent of renovations required, if
any. The Company believes its Y2K assessment will be completed before the end of
the Company's current fiscal year, and that renovation, validation and
implementation will be completed early in the next fiscal year.
The Company is in the process of identifying third parties with which it
has a significant relationship that, in the event of a Y2K failure, could have a
material impact on the Company's financial position or operating results. The
third parties include energy and utility suppliers, creditors, material and
product suppliers, communication vendors and the Company's significant
customers. These relationships, especially those associated with certain
suppliers and customers, are material to the Company and a Y2K failure by one or
more of these parties could result in a material adverse effect on the Company's
operating results and financial position. The Company is making inquiries of
these third parties to assess their Y2K readiness. The Company expects that this
process will continue throughout the current and subsequent fiscal year.
The Company expects that costs to address Y2K issues will total
approximately $250,000, of which approximately $125,000 will be spent in fiscal
1999, with the remainder being spent during fiscal 2000. Costs include salary
and fringe benefits for personnel, hardware and software costs, and consulting
and travel expenses associated, directly or indirectly, with addressing Y2K
issues. Y2K issues have received a high priority within the Company and, as a
result, certain other IT projects have been delayed. While such non-Y2K projects
are expected to enhance operational efficiencies and improve the quality of
information available to management, the delay of such projects is not expected
to have a material adverse impact on the Company's operations. Worst case Y2K
scenarios could be as insignificant as a minor interruption in production or
shipping resulting from unanticipated
13
<PAGE>
problems encountered in the IT systems of the Company or any of the significant
third parties with whom the Company does business. The pervasiveness of the Y2K
issue makes it likely that previously unidentified issues will require
remediation during the normal course of business. In such a case, the Company
anticipates that transactions could be processed manually while IT and other
systems are repaired and that such interruptions would have a minor effect on
the Company's operations. On the other hand, a worst case Y2K scenario could be
as catastrophic as an extended loss of utility service resulting from
interruptions at the point of power generation, long-line transmission, or local
distribution to the Company's production facilities. Such an interruption could
result in an inability to provide products to the Company's customers, resulting
in a material adverse effect on the Company's operating results and financial
position.
New Accounting Pronouncements
- -----------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
disclosure of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. SFAS No. 130,
which is effective for fiscal years beginning after December 15, 1997, requires
restatement of financial statements for earlier periods to be provided for
comparative purposes. The Company anticipates that implementing the provisions
of SFAS No. 130 will not have a significant impact on the Company's existing
disclosures. The Company has not determined the manner in which it will present
the information required by SFAS No. 130 in its annual financial statements.
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating
segments. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years must be restated. The
Company anticipates that implementing the provisions of SFAS No. 131 will not
have a significant impact on the Company's existing disclosures. The Company has
not determined the manner in which it will present the information required by
SFAS No. 131 in its annual financial statements.
14
<PAGE>
PART II
OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
-----------------
From time to time the Company is involved in legal proceedings relating to
claims arising out of operations in the normal course of business. The Company
is not aware of any material legal proceedings pending or threatened against the
Company or any of its properties.
Item 2. Changes in Securities
---------------------
(a) None.
(b) Dividend Payment Restrictions
In connection with the issuance of its 11 1/4% Senior Subordinated Notes
due 2005, the Company entered into an Indenture that limits the Company's
ability to pay dividends, repurchase its equity securities, make certain other
kinds of restricted payments, and incur certain indebtedness. The Company has
never declared or paid cash dividends on the Common Stock. The Company currently
anticipates that it will retain all future earnings to fund the operation of its
business and does not anticipate paying dividends on the Common Stock in the
foreseeable future.
(c) Completion of Series B Convertible Preferred Stock Offering
In May 1998, the Company conducted a private offering of its Series B
Convertible Preferred Stock (the "Series B Preferred") and warrants to purchase
shares of the Company's Common Stock (the "Related Warrants"), to a limited
number of accredited investors, pursuant to Rule 506 under Regulation D of the
Securities Act (the "Series B Offering"). A portion of the Series B Offering was
closed in May 1998. At that closing (a) the Company issued 100,000 shares of its
Series B Preferred, and Related Warrants to purchase 138,888 shares of Common
Stock, for $10.0 million in gross proceeds, and (b) the investors deposited $7.0
million into escrow against the purchase of additional shares of Series B
Preferred and Related Warrants, with delivery conditioned upon consummation of
the Aeromet Acquisition. The Company paid an aggregate of $850,000 in
commissions in connection with the Series B Offering.
The escrowed portion of the Series B Offering was closed in August 1998. At
that closing, the Company issued, in exchange for delivery of the escrowed $7
million, (i) an additional 70,000 shares of Series B Preferred, and (ii) Related
Warrants to purchase an additional 97,221 shares of Common Stock.
The holders of the Related Warrants may exercise those warrants after May
1999 for $7.20 per share of Common Stock.
The Common Stock issuable upon conversion of the Series B Preferred and
upon exercise of the Related Warrants (the "Underlying Shares") is subject to a
registration rights agreement that requires the Company to file a registration
statement covering those shares by November 1998, and to use its best efforts to
make that registration statement effective by January 1999. The registration
rights agreement also grants certain piggyback registration rights with regard
to the Underlying Shares.
The conversion price of the Series B Preferred is $7.20 per share until
February 1999. After February 1999, the conversion price of the Series B
Preferred will be equal to the lower of (a) $7.20 per share, or (b) the average
of the three lowest closing bid prices per share of the Common Stock over the 22
trading days before conversion, but not less than a floor price (the "Floor
Price"), which is currently $5.67, except in certain limited circumstances. No
holder of Series B Preferred is entitled to voluntarily convert Series B
Preferred that would cause the holder to own more than 9.9% of the Company's
total outstanding Common Stock at any one time. Any Series B Preferred
outstanding on May 2003 will automatically convert into Common Stock at the
then-applicable conversion price.
15
<PAGE>
Upon conversion of a share of Series B Preferred, the holder will receive
the number of Underlying Shares equal to $100 divided by the then-applicable
conversion price of the Series B Preferred. Underlying Shares issued upon such
conversion may not be sold until February 1999. At that time, the Underlying
Shares may be sold upon the effectiveness of a registration statement, or under
any applicable exemption from registration. However, up to $7,000,000 worth of
the Underlying Shares may be converted from Series B Preferred and sold at any
time, if those Underlying Shares are included in an effective piggyback
registration. After the sale of any Underlying Shares in a piggyback
registration, if any, the Floor Price would be recomputed to an amount that
would allow the maximum number of Underlying Shares to be issued, without
shareholder approval, upon conversion of the remaining unconverted shares of
Series B Preferred.
If the average closing bid price of the Common Stock remains below the
Floor Price for any 30 consecutive trading days, and a conversion of the Series
B Preferred is requested or required, then the Company must elect to do one of
the following: (A) redeem any shares of Series B Preferred which would result
upon conversion in the issuance of more than 3,000,000 Underlying Shares (the
maximum issuable without shareholder approval), or (B) obtain any shareholder
approval necessary under its Nasdaq maintenance requirements to allow the
conversion to occur.
The Company may redeem the Series B Preferred at a redemption price of $115
per share upon 20-days notice to the holder if the holder does not elect to
convert within 15 days of receiving a redemption notice. The Company must either
redeem any Series B Preferred that it is not permitted to convert without
shareholder approval under Nasdaq requirements or obtain shareholder approval
for such conversion. If the Company's senior lender requires, any redemption
price, or other cash payments due to the holders, shall be converted into
promissory notes in favor of the holder until conversion or redemption is
allowed to occur.
Issuance of Common Stock to Liviakis
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Significant Events During Quarter - Issuance of Common
Stock to Liviakis," which is incorporated into this Item 2 by reference.
Item 3. Defaults upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matter was submitted to a vote of security holders during the quarter
covered by this report.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits.
The following documents are filed as exhibits to this Quarterly Report:
Exhibit
Number Document
- ------- --------
2.1 Share Acquisition Agreement, dated July 1, 1998, by and between
Charles Baynes plc, Westpark Limited, Pacific Aerospace & Electronics
(UK) Limited, and Pacific Aerospace & Electronics, Inc.(1)
3.1 Articles of Incorporation of Pacific Aerospace & Electronics, Inc.(2)
3.2 Amendment to Articles of Incorporation containing Designation of
Rights and Preferences of Series A Preferred, as corrected. (3)
16
<PAGE>
3.3 Amendment to Articles of Incorporation containing Designation of
Rights and Preferences of Series B Preferred. (4)
3.4 Bylaws of Pacific Aerospace & Electronics, Inc.(2)
4.1 Form of specimen certificate for the Series B Preferred.(4)
4.2 Form of Common Stock Purchase Warrant issued to holders of the Series
B Preferred.(4)
4.3 Securities Purchase Agreement, dated May 15, 1998, between Pacific
Aerospace & Electronics, Inc. and the purchasers of the Company's
Series B Preferred.(4)
4.4 Registration Rights Agreement, dated May 15, 1998 between Pacific
Aerospace & Electronics, Inc. and the holders of the Series B
Preferred.(4)
4.5 Purchase Agreement, dated as of July 23, 1998, between Pacific
Aerospace & Electronics, Inc., Balo Precision Parts, Inc., Cashmere
Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty
Corporation, Morel Industries, Inc., Northwest Technical Industries,
Inc., Pacific Coast Technologies, Inc., Seismic Safety Products,
Inc., PA&E International, Inc. and Friedman, Billings, Ramsey & Co.,
Inc. and BancBoston Securities Inc.(1)
4.6 Indenture dated as of July 30, 1998, between Pacific Aerospace &
Electronics, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing
Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation,
Morel Industries, Inc., Northwest Technical Industries, Inc., Pacific
Coast Technologies, Inc., Seismic Safety Products, Inc., PA&E
International, Inc. and IBJ Schroder Bank & Trust Company.(1)
4.7 Form of Global Note of Pacific Aerospace & Electronics, Inc.(1)
4.8 Registration Rights Agreement, dated as of July 30, 1998, between
Pacific Aerospace & Electronics, Inc., Balo Precision Parts, Inc.,
Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic
Specialty Corporation, Morel Industries, Inc., Northwest Technical
Industries, Inc., Pacific Coast Technologies, Inc., Seismic Safety
Products, Inc., PA&E International, Inc. and Friedman, Billings,
Ramsey & Co., Inc. and BancBoston Securities Inc.(1)
10.1 Placement Agreement, dated March 25, 1998, as amended May 15, 1998,
between Pacific Aerospace & Electronics, Inc. and Lysys Ltd.(4)
10.2 Loan Agreement, dated September 22, 1998, between Pacific Aerospace &
Electronics, Inc. and KeyBank National Association. (5)
10.3 Promissory Note, dated September 22, 1998, from Pacific Aerospace &
Electronics, Inc. to KeyBank National Association.(5)
10.4 Security Agreement, dated September 22, 1998, between Pacific
Aerospace & Electronics, Inc. and KeyBank National Association.(5)
10.5 Promissory Note, dated September 30, 1998, from Pacific Aerospace &
Electronics, Inc. to KeyBank National Association.(5)
10.6 Deed of Trust, dated September 30, 1998, between Pacific Aerospace &
Electronics, Inc., KeyBank National Association and Land Title
Company, Chelan-Douglas County, Inc.(5)
10.7 Agreement, dated as of August 27, 1998, between Pacific Aerospace &
Electronics, Inc., Liviakis Financial Communications, Inc. and Robert
B. Prag.(4)
27. Financial Data Schedule. (5)
- -----------
(1) Incorporated by reference to the Company's Current Report on Form 8-K
filed on August 14, 1998.
(2) Incorporated by reference to the Company's Current Report on Form 8-K filed
on December 12, 1996.
17
<PAGE>
(3) Incorporated by reference to the Company's Current Report on Form 8-K
filed on March 12, 1997.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
filed on August 28, 1998.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
filed on October 13, 1998.
b. Reports on Form 8-K.
The Company filed with the Commission the following Current Reports on Form 8-K
during the quarter ended August 31, 1998:
(i) A Current Report on Form 8-K, dated July 10, 1998 reporting the
Company's acquisition of ESC, effective as of March 1998, and an
amendment on Form 8-K/A, dated August 26, 1998, filing the
consolidated financial statements of ESC and its subsidiary for (1)
the two years ended March 31, 1997 and March 31, 1996, and (2) the
nine-month periods ended December 31, 1997 and December 31, 1996; and
(ii) A Current Report on Form 8-K, dated August 14, 1998, reporting the
Aeromet Acquisition, together with (1) the audited financial
statements of Aeromet for the two years ended December 31, 1997 and
December 31, 1996, and (2) the unaudited pro forma financial data of
the Company for the year ended May 31, 1998, as if the Aeromet
Acquisition had occurred on June 1, 1997.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PACIFIC AEROSPACE & ELECTRONICS, INC.
DONALD A. WRIGHT
Date: October 15, 1998 -------------------------------------
Donald A. Wright
President, Chief Executive Officer, and
Chairman of the Board
(Principal Executive Officer)
NICK A. GERDE
Date: October 15, 1998 -------------------------------------
Nick A. Gerde
Vice President Finance, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
The following documents are filed as exhibits to this Quarterly Report:
Exhibit
Number Document
- ------- --------
2.1 Share Acquisition Agreement, dated July 1, 1998, by and between
Charles Baynes plc, Westpark Limited, Pacific Aerospace & Electronics
(UK) Limited, and Pacific Aerospace & Electronics, Inc.(1)
3.1 Articles of Incorporation of Pacific Aerospace & Electronics, Inc.(2)
3.2 Amendment to Articles of Incorporation containing Designation of
Rights and Preferences of Series A Preferred, as corrected. (3)
3.3 Amendment to Articles of Incorporation containing Designation of
Rights and Preferences of Series B Preferred. (4)
3.4 Bylaws of Pacific Aerospace & Electronics, Inc.(2)
4.1 Form of specimen certificate for the Series B Preferred.(4)
4.2 Form of Common Stock Purchase Warrant issued to holders of the Series
B Preferred.(4)
4.3 Securities Purchase Agreement, dated May 15, 1998, between Pacific
Aerospace & Electronics, Inc. and the purchasers of the Company's
Series B Preferred.(4)
4.4 Registration Rights Agreement, dated May 15, 1998 between Pacific
Aerospace & Electronics, Inc. and the holders of the Series B
Preferred.(4)
4.5 Purchase Agreement, dated as of July 23, 1998, between Pacific
Aerospace & Electronics, Inc., Balo Precision Parts, Inc., Cashmere
Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty
Corporation, Morel Industries, Inc., Northwest Technical Industries,
Inc., Pacific Coast Technologies, Inc., Seismic Safety Products,
Inc., PA&E International, Inc. and Friedman, Billings, Ramsey & Co.,
Inc. and BancBoston Securities Inc.(1)
4.6 Indenture dated as of July 30, 1998, between Pacific Aerospace &
Electronics, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing
Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation,
Morel Industries, Inc., Northwest Technical Industries, Inc., Pacific
Coast Technologies, Inc., Seismic Safety Products, Inc., PA&E
International, Inc. and IBJ Schroder Bank & Trust Company.(1)
4.7 Form of Global Note of Pacific Aerospace & Electronics, Inc.(1)
4.8 Registration Rights Agreement, dated as of July 30, 1998, between
Pacific Aerospace & Electronics, Inc., Balo Precision Parts, Inc.,
Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic
Specialty Corporation, Morel Industries, Inc., Northwest Technical
Industries, Inc., Pacific Coast Technologies, Inc., Seismic Safety
Products, Inc., PA&E International, Inc. and Friedman, Billings,
Ramsey & Co., Inc. and BancBoston Securities Inc.(1)
10.1 Placement Agreement, dated March 25, 1998, as amended May 15, 1998,
between Pacific Aerospace & Electronics, Inc. and Lysys Ltd.(4)
10.2 Loan Agreement, dated September 22, 1998, between Pacific Aerospace &
Electronics, Inc. and KeyBank National Association. (5)
10.3 Promissory Note, dated September 22, 1998, from Pacific Aerospace &
Electronics, Inc. to KeyBank National Association.(5)
10.4 Security Agreement, dated September 22, 1998, between Pacific
Aerospace & Electronics, Inc. and KeyBank National Association.(5)
20
<PAGE>
10.5 Promissory Note, dated September 30, 1998, from Pacific Aerospace &
Electronics, Inc. to KeyBank National Association.(5)
10.6 Deed of Trust, dated September 30, 1998, between Pacific Aerospace &
Electronics, Inc., KeyBank National Association and Land Title
Company, Chelan-Douglas County, Inc.(5)
10.7 Agreement, dated as of August 27, 1998, between Pacific Aerospace &
Electronics, Inc., Liviakis Financial Communications, Inc. and Robert
B. Prag.(4)
27. Financial Data Schedule. (5)
- -----------
(1) Incorporated by reference to the Company's Current Report on Form 8-K
filed on August 14, 1998.
(2) Incorporated by reference to the Company's Current Report on Form 8-K
filed on December 12, 1996.
(3) Incorporated by reference to the Company's Current Report on Form 8-K
filed on March 12, 1997.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
filed on August 28, 1998.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
filed on October 13, 1998.
21
