Filed pursuant to Rule 424(b)(3)
File No. 333-66471
RESALE PROSPECTUS
[Pacific Aerospace & Electronics Logo]
3,236,109 Shares of Common Stock
PACIFIC AEROSPACE & ELECTRONICS, INC. Pacific Aerospace develops, manufactures
430 OLDS STATION ROAD and markets high-performance electronics
WENATCHEE, WASHINGTON 98801 and metal components and assemblies for
(509) 667-9600 the aerospace, defense, electronics and
transportation industries in the United
States and Europe.
SELLING SHAREHOLDERS: The Selling Shareholders each hold
SEE PAGE 13 FOR THE NAMES OF THE shares of Pacific Aerospace's Series B
SELLING SHAREHOLDERS. Convertible Preferred Stock and Warrants
to purchase shares of Pacific
Aerospace's common stock. In this
offering, the Selling Shareholders may
sell up to 3,236,109 shares of common
stock that they would receive if they
converted their Preferred Stock into
common stock, and exercised all of their
Warrants.
CLOSING SALE PRICE OF COMMON STOCK: The conversion price of the Preferred
$1.3125 PER SHARE ON SEPTEMBER 28, Stock is the lower of (a) $7.20 per
1999 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. The exercise
price of the Warrants is $7.20 per
share.
TRADING MARKET AND SYMBOL: NASDAQ The Selling Shareholders may offer the
NATIONAL MARKET SYSTEM -- PCTH. shares to the public for prices computed
as follows:
o Fixed prices,
o Prevailing market prices,
o Formula prices relating to
prevailing market prices, or
o Negotiated prices.
Pacific Aerospace will not receive any
of the proceeds from sale of the shares,
but will receive the proceeds from any
exercise of the Warrants.
Potential investors should consider the Risk Factors starting on page 3
before purchasing the shares.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the shares, or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
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October 6, 1999
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TABLE OF CONTENTS
Section Page
Risk Factors ............................................................... 3
Information Incorporated by Reference ...................................... 11
Available Information ...................................................... 11
Selling Shareholders ....................................................... 12
Plan of Distribution ....................................................... 15
Experts .................................................................... 15
Legal Matters .............................................................. 16
Indemnification for Securities Act Liabilities ............................. 16
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Prospective investors may rely only on information contained in this
prospectus. Neither Pacific Aerospace & Electronics, Inc. (also referred to in
this prospectus as "we," "Pacific Aerospace" or the "Company") nor the Selling
Shareholders have authorized any person to provide prospective investors with
any information other than that contained in this prospectus. This prospectus is
not an offering in any jurisdiction where such offering is not permitted. The
information contained in this prospectus is correct only as of the date of the
prospectus, regardless of the time of the delivery of this prospectus or any
sale of the shares.
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RISK FACTORS
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An investment in shares of our common stock involves certain risks. You
should carefully consider all of the information set forth in this prospectus.
In particular, you should evaluate the following risk factors before making an
investment in the shares of our common stock. If any of the following
circumstances actually occur, our business, financial condition and results of
operations could be materially and adversely affected. If that occurs, the
trading price of our common stock could decline, and you could lose all or part
of your investment.
Some of these risk factors contain "forward-looking statements." These
forward-looking statements are not guarantees of our future performance. They
are subject to risks and uncertainties related to business operations, some of
which are beyond our control. Any of these risks or uncertainties may cause
actual results or future circumstances to differ materially from the
forward-looking statements set forth in this section.
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We need to manage the risks posed by our acquisitions and our acquisition
strategy.
Pacific Aerospace has pursued an aggressive growth strategy. We expect to
continue to evaluate and pursue potential strategic acquisitions. The success of
this strategy depends on our ability to manage the risks associated with
acquisitions. These risks include:
o our ability to assess the value, strengths and weaknesses of acquisition
candidates accurately,
o our effectiveness in implementing necessary changes at newly acquired
subsidiaries,
o possible diversion of management attention from our operations, and
o possible increased borrowings, disruption of product development cycles
and dilution of earnings per share.
We recently incurred substantial losses because of our acquisition of
Electronic Specialty Corporation and our investment in Orca Technologies, Inc.
The size of our European Aerospace Group, which was formed when we acquired
Aeromet International PLC in July 1998, will cause it to have a significant
impact on our future financial results. If we do not manage these or other
acquisition risks, our acquisition strategy may not succeed.
We need to manage our rapid growth to be successful.
We have experienced rapid growth from both operations and acquisitions.
This growth has placed and will continue to place significant demands on our
managerial, administrative, financial and operational resources. For example,
both our total number of employees and the number of our operating sites nearly
doubled as a result of acquiring our European Aerospace Group. Our operating
divisions have had different accounting systems, which we have integrated or
plan to integrate. As we grow and our business operations become more complex,
we will need to be increasingly diligent in our business decisions to comply
with regulatory and accounting requirements. To manage our growth effectively,
we must continue to improve our operational, accounting, financial and other
management processes and systems. We must also continue to attract and retain
highly skilled management and technical personnel.
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We have significant debt that could have disadvantages for us.
We incurred substantial debt and payment obligations to finance the Aeromet
acquisition and ongoing operations. This debt could have important consequences,
such as:
o making us unable to obtain additional financing in the future,
o diverting a significant portion of our cash flow to principal and
interest payments and away from operations, acquisitions and capital
expenditures,
o increasing our interest expense, and decreasing our net income,
o putting us at a competitive disadvantage in relation to competitors with
less debt, or
o limiting our flexibility in adjusting to downturns in our business or
market conditions.
If we do not perform well in the future, we might not be able to pay our debt.
Our future financial and operating performance will determine our ability
to pay our debt. Many factors affect our performance. Because some of these
factors are beyond our control, we might not have sufficient cash flow to make
our debt payments when scheduled, or at all. If we do not maintain sufficient
cash flow to make our debt payments, we could be forced to:
o reduce or delay capital expenditures,
o dispose of material assets or operations, potentially at a loss,
o restructure or refinance our debt at potentially higher rates of
interest, or
o seek additional equity capital, which would probably dilute the value of
the shares held by our existing shareholders.
We may not be able to do any of these things, or we may not be able to do them
on satisfactory terms. In addition, if we could not repay our secured debt,
secured lenders could proceed against any collateral securing that debt.
Our debt limits our flexibility.
We must comply with a number of significant covenants imposed by the
agreements that govern our debt. Those covenants restrict a number of our
activities, including our ability to:
o dispose of or create liens on assets,
o incur additional indebtedness,
o prepay or amend certain debt,
o pay dividends or repurchase stock,
o enter into sale and leaseback transactions,
o make investments, loans or advances,
o engage in acquisitions, mergers or consolidations,
o make capital expenditures,
o change the business we conduct, or
o engage in certain transactions with related parties.
If we breach any of these covenants, the lenders may be able to declare all
amounts we owe to be immediately due and payable. As a result, our lenders might
terminate their commitments to
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extend further credit to us. In addition, if there is a change of control of our
company, we may be required to repay our debt. Any of these events could harm
our business and financial performance.
We may need to raise additional capital.
We believe that our existing cash and credit facilities will be sufficient
to meet our currently budgeted working capital requirements for at least the
next 12 months. Our actual capital needs, however, will depend on many
unpredictable factors, including:
o actual revenue generated from operations,
o interest due on our variable rate debt,
o capital expenditures required to remain competitive, and
o cash required for acquired companies, future acquisitions, and financing
transaction costs.
As a result of these factors, we cannot predict accurately the amount or
timing of our future capital needs. If we cannot obtain additional capital if
and when needed, we may be unable to fund all of our working capital needs.
If the information technology and other systems that we use or that our vendors
use are not Year 2000 compliant, we could experience business interruptions and
incur unforeseen expenses.
We are developing and carrying out a comprehensive strategy for updating
our information management and manufacturing systems for Year 2000, or Y2K,
compliance. Our information technology 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. We have identified significant non-information technology systems
which may be impacted by the Y2K problem, including those relating to
production, processing and communication equipment, and we are in the process of
determining through inquiries of equipment suppliers, as well as testing of such
equipment, the extent of renovations required, if any. We believe that required
renovations, validation and implementations have been completed for all critical
systems, and we are continuing to monitor any additional changes that may be
required and to address any deficiencies we find. We have identified third
parties with whom we have a significant relationship that, in the event of a Y2K
failure, could have a material impact on our financial position or operating
results. We have made inquiries of these third parties to assess their Y2K
readiness. We expect throughout the remainder of calendar 1999 to continue to
monitor responses from these third parties and to address any issues that arise.
Worst case Y2K scenarios could be as insignificant as a minor interruption in
production or shipping resulting from unanticipated problems encountered in our
information technology systems or those of any of the significant third parties
with whom we do 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, we anticipate that we can process
transactions manually while we repair information technology and other systems.
We expect that such interruptions would have a minor effect on our 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
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distribution to our production facilities. Such an interruption could result in
an inability to provide products to our customers, resulting in a material
adverse effect on our operating results and financial position. We believe that
we have established all critical contingency plans that may be necessary, and we
will be working throughout the remainder of calendar 1999 to update our
contingency plans and to adopt any additional contingency plans that we believe
are necessary.
Maintaining our European Aerospace Group subjects us to additional risks because
we have foreign operations.
These risks include:
o our ability to manage operations in the United Kingdom effectively from
our Wenatchee, Washington headquarters,
o unfavorable changes in foreign government policies, regulations,
tariffs, taxes and other trade barriers,
o exchange controls and limitations on dividends or other payments, and
o devaluations and fluctuations in currency exchange rates.
Our foreign operations also subject us to foreign currency risks.
Because of our European Aerospace Group, we may decide to engage in hedging
transactions to protect against losses if the exchange rate between the U.S.
dollar and the British pound sterling changes. However, hedging transactions may
not completely offset such losses. Our European Aerospace Group has a few
contracts that are in European currencies other than British pounds sterling, or
in U.S. dollars. We believe that the conversion of European currencies to the
Euro will not have a material adverse effect on the European Aerospace Group's
business or financial condition.
We depend on some significant customers who may be able to influence our
business.
Our top ten customers in terms of revenues during fiscal 1999 together
accounted for approximately 47% of our revenues for that year, and no other
customer accounted for more than 2% of our revenues. Only the top four customers
individually accounted for 5% or more of our revenues, with The Boeing Company
at approximately 13%, PACCAR, Inc. at approximately 8%, Rolls-Royce plc at
approximately 7%, and British Aerospace plc at approximately 5%. Because of the
relatively small number of customers for most of our products, our largest
customers can influence product pricing and other terms of trade. If we were to
lose any of our largest customers, or if they reduced or canceled orders, our
business and financial performance could be harmed.
We operate in industries that are subject to cyclical downturns.
We operate in historically cyclical industries. The aerospace, defense and
transportation industries are sensitive to general economic conditions, and past
recessions have adversely affected these industries. In past years, a number of
factors have adversely affected the aerospace industry, including increased fuel
and labor costs, and intense price competition. Recently, the commercial
aircraft industry has experienced a downturn in the rate of its growth due to
changing economic conditions and as a result of the ongoing financial crisis in
Asia, which has caused
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reduction in production rates for some commercial airline programs. Additional
cancellations or delays in aircraft orders from Asian customers of Boeing or
Airbus could reduce demand for our products and could have a material adverse
effect on our business and financial performance. These cyclical factors and
general economic conditions may lead to a downturn in demand for our core
products.
The loss of any of our key management or technical personnel could negatively
affect our ability to manage our business.
We believe that our ability to successfully implement our business strategy
and to operate profitably depends significantly on the continued employment of
our senior management team, led by our president, Donald A. Wright, and our
significant technical personnel. We have key man life insurance policies on the
life of Mr. Wright totaling $8 million. Our business and financial results could
be materially adversely affected if Mr. Wright, other members of the senior
management team, or significant technical personnel become unable or unwilling
to continue in their present employment. In addition, our growth and future
success will depend in large part on our ability to retain and attract
additional board members, senior managers and highly skilled technical
personnel. Competition for such individuals is intense, and we may not be
successful in attracting and retaining them, which could interfere with our
ability to manage our business.
We may not be able to convert all of our backlog into revenue.
We sell the majority of our products through individual purchase orders.
Many of our customers would have the right to terminate orders by paying the
cost of work in process plus a related profit factor. Historically, we have
experienced no significant order cancellations. As of May 31, 1999, we had
purchase orders and contractual arrangements evidencing anticipated future
deliveries, which we treat as backlog, through fiscal year 2001 of approximately
$100 million. We expect to deliver approximately $80 million of this backlog in
fiscal year 2000. As of May 31, 1998, we had backlog through fiscal year 2000 of
approximately $100 million. We may not be able to complete all of that backlog
and book it as net sales, if we experience cancellations of pending contracts or
terminations or reductions of contracts in progress.
We need to adapt to technological change and develop new products.
The market for our products is characterized by evolving technology and
industry standards, changes in customer needs, adaptation of products to
customer needs, and new product introductions. Our competitors from time to time
may announce new products, enhancements, or technologies that have the potential
to replace or render our existing products obsolete. Our success will depend on
our ability to:
o enhance our current products and develop new products to meet changing
customer needs, and achieve market acceptance of those products, and
o anticipate or respond to evolving industry standards and other
technological changes on a timely and cost-effective basis.
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We have substantial competition in many of the markets that we serve.
Many of our competitors have greater financial resources, broader
experience, better name recognition and more substantial marketing operations
than we do, and they represent substantial long-term competition for us.
Components and products similar to those we make can be made by competitors
using a number of different manufacturing processes. We believe that our
manufacturing processes, proprietary technologies, and experience provide
significant advantages to our customers. However, competitors can use
alternative forms of manufacturing to produce many of the components and
products that we make. In addition, we expect our competitors to continue making
new developments, and our competitors could develop products that customers view
as more effective or more economical than our product lines. We may not be able
to compete successfully against current and future competitors, which could
seriously harm our business.
If we cannot obtain raw materials when needed and at a reasonable cost, we could
have difficulty producing cost-effective products and delivering them on time.
Our European Aerospace Group obtains approximately 70% of its titanium from
one supplier and is subject to a lead time of approximately 65 weeks in ordering
and obtaining titanium. While the European Aerospace Group generally has managed
the ordering process to obtain titanium when needed, a labor strike at the
supplier negatively affected the group's ability to obtain timely deliveries of
titanium during fiscal 1999. Although the shortage of titanium did not have a
material adverse effect on our European Aerospace Group's business or on our
overall financial condition, we lost some business due to customers' dual
sourcing contracts, and some customer orders that were expected to be delivered
in fiscal 1999 were delayed into fiscal 2000. The effect of the strike
emphasizes the fact that a failure to obtain titanium or other raw materials
when we need them, or significant cost increases imposed by suppliers of raw
materials such as titanium or aluminum, could damage our business and financial
performance. We generally have readily available sources of all raw materials
and supplies we need to manufacture our products and, where possible, we
maintain alternate sources of supply. However, we do not have fixed price
contracts or arrangements for all of the raw materials and other supplies we
purchase. We have experienced in the past shortages of, or price increases for,
certain raw materials and supplies that we use, and shortages or price increases
may occur in the future. Future shortages or price fluctuations could have a
material adverse effect on our ability to manufacture and sell our products in a
timely and cost-effective manner.
We need to protect our intellectual property and proprietary rights, and
protection may be costly and not always available.
Significant aspects of our business depend on proprietary processes,
know-how and other technology that are not subject to patent protection. We rely
on a combination of trade secret, copyright and trademark laws, confidentiality
procedures, and other intellectual property protection to protect our
proprietary technology. However, our competitors may still develop or utilize
technology that is the same as or similar to our proprietary technology.
We have 32 U.S. patents, eight U.S. patent applications pending, two PCT
International patent applications pending, one Canadian patent application
pending, and one European patent enforceable in the U.K., most of which pertain
to our U.S. Electronics Group. In addition, our European Aerospace Group has one
patent application pending in several jurisdictions. We can
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provide no assurance that any of the patent applications will result in issued
patents, that existing patents or any future patents will give us any
competitive advantages for our products or technology, or that, if challenged,
these patents will be held valid and enforceable. Most of our issued patents
expire at various times over the next 15 years, with 16 patents expiring over
the next five years. Although we believe that the manufacturing processes of
much of our patented technology are sufficiently complex that competing products
made with the same technology are unlikely, our competitors may be able to
design competing products using the same or similar technology after these
patents have expired.
Despite the precautions we have taken, unauthorized parties may attempt to
copy aspects of our products or obtain and use information that we regard as
proprietary. Existing intellectual property laws give only limited protection
with respect to such actions, and policing violations of these laws is
difficult. The laws of certain countries in which our products are or may be
distributed do not protect products and intellectual property rights to the same
extent as do the laws of the United States. We could be required to enter into
costly litigation to enforce our intellectual property rights or to defend
infringement claims by others. Infringement claims could require us to license
the intellectual property rights of third parties, but licenses may not be
available on reasonable terms, or at all.
We could be subject to product liability claims and lawsuits for harm caused by
our products.
We maintain product liability insurance with a maximum coverage of $2
million. However, this insurance may not be sufficient to cover any claims that
may arise. A successful product liability claim in excess of our insurance
coverage could have a material adverse effect on our business and financial
performance.
We must comply with environmental laws, and any failure to do so could subject
us to claims or regulatory action.
Our facilities are subject to regulations concerning solid waste disposal,
hazardous materials generation, storage, use and disposal, air emissions, waste
water discharge, employee health and other environmental matters. Proper waste
disposal and environmental regulation are major considerations for us because a
number of the metals, chemicals and other materials used in and resulting from
our manufacturing processes are classified as hazardous substances and hazardous
wastes. If we do not meet permitting and other requirements of applicable
environmental laws, we could be liable for damages and for the costs of remedial
actions. We could also be subject to fines or other penalties, including
revocation of permits needed to conduct our business. Any permit revocation
could require us to cease or limit production at one or more of our facilities,
which could damage our business and financial performance. We have an ongoing
program of monitoring and addressing environmental matters, and from time to
time in the ordinary course of business we are required to address minor issues
of noncompliance at our operating sites. Recently, we identified certain
operations or processes that lacked required permits or otherwise are not in
full compliance with applicable environmental laws. Although we believe these
items are not material, we are taking steps to remedy any noncompliance.
Environmental laws could become more stringent over time, imposing greater
compliance costs and increasing risks and penalties associated with any
violations. As a generator of hazardous materials, we are subject to financial
exposure with regard to our properties even if we
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fully comply with these laws. In addition, certain of our facilities are located
in industrial areas and have lengthy operating histories. As a consequence, it
is possible that historical or neighboring activities have affected properties
we currently own, and that, as a result, additional environmental issues may
arise in the future, the precise nature of which we cannot now predict. Any
present or future noncompliance with environmental laws or future discovery of
contamination could have a material adverse effect on our results of operations
or financial condition.
We are subject to costs and risks from our U.S. government contracts and federal
laws.
Certain of our products are manufactured and sold under United States
government contracts or subcontracts. As with all companies that provide
products or services to the United States government, we are directly and
indirectly subject to various federal rules, regulations and orders applicable
to government contractors. Some of these regulations relate specifically to the
seller-purchaser relationship with the government, such as the bidding and
pricing rules. Under regulations of this type, we must observe certain pricing
restrictions, produce and maintain detailed accounting data, and meet various
other requirements. We are also subject to many regulations affecting the
conduct of our business generally. For example, in the United States we must
adhere to federal acquisition requirements and standards established by the
Occupational Safety and Health Act relating to labor practices and occupational
safety standards. We are currently updating and implementing written policies
and training programs relating to employee health and safety matters at several
of our facilities. Violation of applicable government rules and regulations
could result in civil liability, in cancellation or suspension of existing
contracts, or in ineligibility for future contracts or subcontracts funded in
whole or in part with federal funds. In addition, some of our customers are in
the defense industry, and loss of governmental certification by these customers
could cause them to reduce or curtail their purchases from us, which could harm
our business.
Future issuances or resales of a significant number of shares of our common
stock could negatively affect the market price of our stock.
Sales of a significant number of shares of common stock in the public
market or the prospect of such sales could adversely affect the market price of
our common stock. This offering covers the resale by the Selling Shareholders of
3,000,000 shares of common stock issuable upon conversion of the Preferred
Stock, and 236,109 shares of common stock issuable upon exercise of the
Warrants. If all of those shares of common stock are issued, we would have
21,647,568 shares of common stock outstanding, based on our shares as of
September 28, 1999. Of those shares, 19,062,568 shares can be resold by the
holders (subject to the delivery of a prospectus or compliance with Rule 144 by
certain holders), and 2,585,000 shares are restricted from resale until
November, 1999, unless registered for resale before then. As of September 28,
1999, we have also reserved 2,295,000 common shares for issuance under our
publicly traded warrants, 2,921,948 common shares for issuance under options
outstanding under our stock incentive plan, 46,637 common shares for issuance
under options outstanding under our independent director stock plan, and 607,500
common shares for issuance under other warrants and options. We also have an
employee stock purchase plan permitting employees to purchase shares of common
stock using payroll deductions, subject to certain limits. Shares issued upon
exercise of our outstanding warrants or options or pursuant to the employee
stock purchase plan would be available for resale in the public markets, subject
in some cases to volume and other limitations.
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We may become obligated to issue more than 3,000,000 shares of common stock
upon conversion of the Preferred Stock. We do not currently believe that
3,000,000 shares will be sufficient to permit all of the Preferred Stock to be
converted into common stock, and, if it is not sufficient, we expect to seek
shareholder approval for the issuance of additional shares of common stock upon
conversion of the Preferred Stock. If we obtain shareholder approval, the number
of additional common shares actually issued would depend on the market price of
our common stock at the times when Preferred Stock is converted by the holders,
which could result in the issuance of a substantial number of additional shares
of common stock. As of September 28, 1999, the Selling Shareholders held 151,331
shares of Preferred Stock. Upon conversion of a share of Preferred Stock, the
holder will receive the number of shares of common stock equal to $100 divided
by the then-applicable conversion price of the Preferred Stock. We would have to
register the additional shares so that the holders could resell them in the
public market. See "Selling Shareholders - Preferred Stock and Warrant Terms."
Any future issuance of a significant number of common shares, or any future
resales by the holders of a significant number of common shares, or the prospect
of such issuances or resales, could negatively affect the market price of our
common stock.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" certain of our
publicly-filed documents into this prospectus, which means that information
included in those documents is considered part of this prospectus. Information
that we file with the SEC after the date of this prospectus will automatically
update and supersede this information. We incorporate by reference the documents
listed below and any future filings made with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until the Selling
Shareholders have sold all the shares.
The following documents filed with the SEC are incorporated by reference in
this prospectus:
1. Our annual report on Form 10-K for the year ended May 31, 1999; and
2. The description of our common stock set forth in our registration
statement on Form 8-B as filed with the SEC on February 6, 1997.
You may request free copies of these filings by writing or telephoning us
at the following address: Pacific Aerospace & Electronics, Inc., 430 Olds
Station Road, Third Floor, Wenatchee, Washington 98801, Attention: Mr. Tom
Barrows, Investor Relations, (509) 667-9600.
The information relating to Pacific Aerospace contained in this prospectus
is not comprehensive, and you should read it together with the information
contained in the incorporated documents.
AVAILABLE INFORMATION
This prospectus is part of a registration statement that we filed with the
SEC. Certain information in the registration statement has been omitted from
this prospectus in accordance with SEC rules.
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We file annual, quarterly and special reports and other information with
the SEC. You may read and copy the registration statement and any other document
that we file at the SEC's public reference rooms located at Room 1024, Judiciary
Plaza, 450 Fifth Street N.W., Washington, D.C. 20549; 7 World Trade Center,
Suite 1300, New York, New York 10048; and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to you free of charge at the SEC's web site at
http://www.sec.gov.
Statements contained in this prospectus as to the contents of any contract
or other document referred to are not necessarily complete, and in each instance
you should refer to the copy of the contract or other document filed as an
exhibit to the registration statement.
SELLING SHAREHOLDERS
The Selling Shareholders are offering up to a maximum of 3,236,109 shares
of common stock in this offering. Of these, (a) 3,000,000 shares (the
"Conversion Shares") are issuable upon the conversion of the Series B
Convertible Preferred Stock (the "Preferred Stock"), and (b) 236,109 shares (the
"Warrant Shares") are issuable upon the exercise of the related warrants (the
"Warrants"). Together, the Conversion Shares and the Warrant Shares are referred
to as the "Shares." The Company sold the Preferred Stock and the Warrants to the
Selling Shareholders in a private placement which closed in May 1998 and August
1998.
The Company has filed a registration statement and this prospectus with the
SEC as required by a registration rights agreement between the Company and the
Selling Shareholders. That allows the Selling Shareholders to resell the Shares
to third parties according to the plan of distribution described in this
prospectus. See "Plan of Distribution."
No Selling Shareholder has held any position or office or has had any other
material relationship with the Company or any of its affiliates within the past
three years, except that certain of the Selling Shareholders were purchasers in
the Company's offering of Series A Convertible Preferred Stock in June 1997. The
purchasers in that offering have since converted all of the shares of Series A
Convertible Preferred Stock and resold all of the shares of common stock issued
upon that conversion.
The following chart shows the maximum Shares that each Selling Shareholder
may sell in this offering after conversion of the Preferred Stock and exercise
of the Warrants. As of September 28, 1999, to the best of the Company's
knowledge, the Selling Shareholders owned no shares of common stock, other than
the Shares. This offering commenced in February, 1999, and as of September 28,
1999, the Selling Shareholders had sold a total of 1,206,190 of the Shares. If
the Selling Shareholders do not buy any shares of common stock after the date of
this prospectus, and sell all of the Shares in this offering, then they will not
own any shares of common stock after this offering, unless they become entitled
to additional shares of common stock as described below under "Preferred Stock
and Warrant Terms - Conversion Price."
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<TABLE>
<CAPTION>
Maximum Maximum
Conversion Warrant Maximum
Shares Shares Shares % of Common
Name and Address(1) of Selling Shareholders Offered Offered Offered (2) Stock (3)
=========================================== ========== ========= ========== ===========
<S> <C> <C> <C> <C>
AGR Halifax Fund, Ltd. 794,118 62,500 856,618 3.96%
AG Arb Partners, L.P. 105,882 8,333 114,215 .53%
AG Super Fund, L.P. 132,353 10,417 142,770 .66%
AG Long Term Super Fund, L.P. 158,824 12,500 171,324 .79%
Nutmeg Partners, L.P. 105,882 8,333 114,215 .53%
Northern Trust Company 35,294 2,778 38,072 .18%
PHS Bay Colony Fund, L.P. 26,471 2,083 28,554 .13%
PHS Patriot Fund, L.P. 17,647 1,389 19,036 .09%
AG MM, L.P. 35,294 2,778 38,072 .18%
Medici Partners, L.P. 123,529 9,722 133,251 .62%
Triarc Companies, Inc. 70,588 5,556 76,144 .35%
Ramius, L.P. 247,059 19,444 266,503 1.23%
Baldwin Enterprises, Inc. 123,529 9,722 133,251 .62%
GAM Arbitrage Investments, Inc. 88,235 6,944 95,179 .44%
AG Super Fund International Partners, L.P. 88,235 6,944 95,179 .44%
Ramius Fund, Ltd. 441,176 34,722 475,898 2.20%
Leonardo, L.P. 405,882 31,944 437,826 2.02%
---------- --------- ---------- -----------
TOTAL 3,000,000 236,109 3,236,109 14.95%
- --------------
(1) The address for all Selling Shareholders is c/o Angelo Gordon & Co., L.P.,
245 Park Avenue, 26th Floor, New York, NY 10167.
(2) Includes the 3,000,000 Conversion Shares being offered for sale in this
offering. Under certain circumstances, conversion of the Preferred Stock
could result in the issuance of shares of common stock in addition to the
Conversion Shares. See "Preferred Stock and Warrant Terms - Conversion
Price," below.
(3) Shows the maximum shares offered as a percentage of the 21,647,568 shares
of common stock that would be outstanding after this offering if computed
on September 28, 1999.
</TABLE>
Preferred Stock and Warrant Terms
In May and August 1998, the Company issued a total of 170,000 shares of the
Preferred Stock and issued the related Warrants to purchase 236,109 shares of
common stock, for a total price of $17 million.
Conversion Shares. Upon conversion of a share of Preferred Stock, the holder
will receive the number of shares of common stock equal to $100 divided by the
then-applicable conversion price of the Preferred Stock. See "- Conversion
Price", below. However, no holder of Preferred
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<PAGE>
Stock is entitled to voluntarily convert Preferred Stock that would cause the
holder to own more than 9.9% of the Company's outstanding common stock at any
time.
Conversion Price. The conversion price of the Preferred Stock is 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. The
Company cannot issue more than 3,000,000 shares of common stock pursuant to
conversion notices unless (1) the Company's shareholders approve the issuance of
additional shares of common stock over the 3,000,000 shares already reserved for
issuance (the "Additional Shares"), or (2) the Company redeems any Preferred
Stock whose conversion would cause the issuance of Additional Shares. See "-
Redemption," below. The average conversion price that would result in the
issuance of 3,000,000 shares of common stock is $5.67. As of September 28, 1999,
18,669 shares of Preferred Stock had been converted into 1,206,527 shares of
common stock, and the Selling Shareholders owned an additional 151,331 shares of
Preferred Stock. The indenture relating to the Company's outstanding senior
subordinated notes (the "Indenture") restricts the Company's ability to redeem
its capital stock unless it meets certain conditions, and the Company expects
that it would request shareholder approval to issue Additional Shares if
3,000,000 shares of common stock are not sufficient to cover all of the
Preferred Stock to be converted. The Company does not currently believe that
3,000,000 shares will be sufficient to permit all of the Preferred Stock to be
converted into common stock. If the Company's shareholders approve the issuance
of Additional Shares, the number of Additional Shares actually issued would
depend on the market price of the Company's common stock at the times when
Preferred Stock is converted by the holders, and could result in the issuance of
a substantial number of Additional Shares. If (a) the Company does not redeem
the Preferred Stock which upon conversion would cause the issuance of the
Additional Shares, or (b) the Company's shareholders do not approve the issuance
of Additional Shares and the Company is therefore unable to convert any of the
Preferred Stock, then the Company will incur a monthly penalty of 2% of the
Preferred Stock's liquidation preference until the Company redeems the Preferred
Stock or obtains shareholder approval to issue the Additional Shares. The
liquidation preference of the Preferred Stock is the greater of (i) $100 per
share plus any declared but unpaid dividends or (ii) the amount the holder would
be entitled to if the Preferred Stock were converted to common stock at the then
applicable conversion price. Any Preferred Stock outstanding on May 15, 2003
will automatically convert into common stock at the then-applicable conversion
price.
Sale of Shares Issued Upon Conversion. Up to 3,000,000 shares of common stock
issued upon conversion of the Preferred Stock, and the 236,109 shares issuable
upon exercise of the Warrants, may be sold by the holders pursuant to this
prospectus, or under any applicable exemption from registration. The Company
would also register any Additional Shares for resale to the extent required by
its registration rights agreement with the holders of Preferred Stock.
Redemption. The Company may redeem the Preferred Stock 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 Preferred Stock 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, must be converted into
promissory notes in favor of the holder until conversion or redemption is
allowed to occur. The Indenture restricts the ability of the Company to
repurchase its capital stock.
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<PAGE>
Exercise of the Warrants. The Warrants may be exercised before their expiration
on May 15, 2001. The exercise price of the Warrants is $7.20 per share of common
stock. The Company intends to use the proceeds from exercise of these warrants,
when and if they are exercised, primarily for working capital or other corporate
purposes.
PLAN OF DISTRIBUTION
The Shares may be sold to third parties in transactions (a) on Nasdaq, (b)
in privately negotiated transactions, (c) by writing options on the Shares, or
(d) by a combination of such methods, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices relating to such
prevailing market prices, or at negotiated prices. In addition, any of the
Shares that qualify for sale pursuant to Rule 144 under the Securities Act may
be sold in transactions complying with that Rule, rather than pursuant to this
prospectus. However, there is no assurance that the Selling Shareholders will
(a) convert any or all of the Preferred Stock or sell any or all of the
Conversion Shares, or (b) exercise any or all of the Warrants, or sell any or
all of the Warrant Shares.
The Selling Shareholders may sell the Shares to or through broker-dealers,
and such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders or the buyers of the
Shares for whom such broker-dealers may act as agents or to whom they may sell
as principals, or both (which compensation as to a particular broker-dealer may
be in excess of customary commissions). Any broker-dealer may act as a
broker-dealer on behalf of the Selling Shareholders in connection with the
offering of certain of the Shares by the Selling Shareholders. The Selling
Shareholders and any broker-dealers who act in connection with the sale of the
Shares under this prospectus may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
them and profit on any resale of the Shares as principals may be deemed to be
underwriting discounts and commissions under the Securities Act.
The Company will not receive any proceeds from sales of the Shares by the
Selling Shareholders, although it will receive the proceeds from the exercise of
the Warrants, when and if they are exercised. The Company has agreed to pay
expenses (other than any underwriting costs, selling commission and fees and
certain expenses of counsel and other advisors to the Selling Shareholders) in
connection with the registration of the Shares in an amount not to exceed
$20,000.
EXPERTS
The consolidated financial statements of Pacific Aerospace & Electronics,
Inc. incorporated by reference in this prospectus and identified below were
audited by the following independent public accountants, as indicated in their
reports:
o KPMG LLP for the fiscal years ended May 31, 1998 and 1999; and
o Moss Adams LLP for the fiscal year ended May 31, 1997.
These financial statements are incorporated by reference in this prospectus
and included in the registration statement in reliance upon the authority of the
above firms in accounting and auditing.
15
<PAGE>
LEGAL MATTERS
The validity of the issuance of the Shares offered by this prospectus has
been passed upon for the Company by Stoel Rives LLP of Seattle, Washington.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Company has agreed to indemnify the Selling Shareholders, and the
Selling Shareholders have agreed to indemnify the Company, against certain
liabilities under the Securities Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
16
<PAGE>
No person is authorized to give any
information or to make any
representation regarding this
offering other than those contained PACIFIC AEROSPACE &
in this prospectus. Any further ELECTRONICS, INC.
information or representation has not
been authorized by Pacific Aerospace.
This prospectus does not constitute
an offer to sell or a solicitation of 3,236,109 SHARES
an offer to buy the shares:
OF
o in any jurisdiction in which
such offer to sell or COMMON STOCK
solicitation is not
unauthorized;
o in any jurisdiction in which the ------------------------
person making such offer or
solicitation is not qualified to PROSPECTUS
do so; or
------------------------
o to any person to whom it is
unlawful to make such offer or
solicitation. October 6, 1999
The delivery of this prospectus and
any sale under this prospectus shall
not create any implication that the
affairs of Pacific Aerospace are
unchanged, or that the information
contained in this prospectus is
correct, at any time after the date
of this prospectus.
