<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the
Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Pacific Aerospace & Electronics, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC.
--------------------------------------------------------------------------------
Notice of Annual Meeting of Shareholders to Be Held on October 10, 2000
--------------------------------------------------------------------------------
The Annual Meeting of Shareholders of Pacific Aerospace & Electronics, Inc., a
Washington corporation (the "Company"), will be held at the West Coast Wenatchee
Convention Center, located at 121 North Wenatchee Avenue, Wenatchee, Washington,
on Tuesday, October 10, 2000, at 3:00 p.m. Pacific Daylight Time, for the
following purposes:
1. To elect six directors of the Company;
2. To ratify the appointment of KPMG LLP as the independent auditors of
the Company; and
3. To transact any other business that may properly come before the
Annual Meeting.
The Board of Directors is not aware of any other business to come before the
Annual Meeting.
Only shareholders of record at the close of business on August 18, 2000, are
entitled to notice of and to vote at the Annual Meeting or any adjournments of
the meeting.
Please complete, sign, and date the enclosed proxy and return it promptly in the
enclosed envelope. If you attend the meeting, you may revoke the proxy and vote
personally on all matters brought before the meeting. A list of shareholders
will be available for inspection by the shareholders at the Company's corporate
headquarters at 430 Olds Station Road, Third Floor, Wenatchee, Washington 98801.
By Order of the Board of Directors,
/s/ Donald A. Wright
Donald A. Wright
Chairman of the Board,
Chief Executive Officer and President
September 7, 2000
Wenatchee, Washington
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING
IN PERSON, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE SO THAT YOUR SHARES WILL BE VOTED. THE ENVELOPE REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC.
430 Olds Station Road, Third Floor
Wenatchee, Washington 98801
(509) 667-9600
--------------------------------------------------------------------------------
PROXY STATEMENT
--------------------------------------------------------------------------------
Purpose
-------
The Board of Directors of Pacific Aerospace & Electronics, Inc., a Washington
corporation (the "Company"), is furnishing this Proxy Statement in connection
with its solicitation of proxies to be voted at the Company's 2000 annual
meeting of shareholders (the "Annual Meeting"). The Annual Meeting will be held
at the West Coast Wenatchee Convention Center, 121 North Wenatchee Avenue,
Wenatchee, Washington, on Tuesday, October 10, 2000, at 3:00 p.m. Pacific
Daylight Time. The accompanying Notice of Annual Meeting of Shareholders, this
Proxy Statement, and the enclosed proxy are first being mailed to shareholders
on or about September 7, 2000.
Record Date and Outstanding Shares
----------------------------------
The Board of Directors has fixed August 18, 2000, as the record date (the
"Record Date") for determining the holders of the Company's common stock, $.001
par value (the "Common Stock") who are entitled to receive notice of, and to
vote at, the Annual Meeting. At the close of business on the Record Date, there
were 34,261,160 shares of Common Stock outstanding and entitled to vote (the
"Voting Shares").
Proxies
-------
The Board of Directors is soliciting the enclosed proxy for use at the Annual
Meeting and any adjournments of the meeting and will not vote the proxy at any
other meeting. All proxies that are properly executed, received by the Company
prior to or at the Annual Meeting, and not properly revoked by the shareholder
in accordance with the next paragraph, will be voted at the Annual Meeting or
any adjournments thereof in accordance with the instructions in the proxy.
Revocation of Proxies
---------------------
The person giving any proxy in response to this solicitation may revoke it at
any time before the proxy is voted:
. by filing with the Secretary of the Company, at or before the taking of
the vote at the Annual Meeting, a written notice of revocation bearing a
later date than the date of the proxy; or
. by signing and dating a subsequent proxy relating to the same Voting
Shares and delivering it to the Secretary of the Company before the
Annual Meeting; or
. by attending the Annual Meeting and voting in person. However,
attendance at the Annual Meeting without voting in person will not
constitute a revocation of a proxy.
<PAGE>
Any written notice revoking a proxy should be sent to Pacific Aerospace &
Electronics, Inc., 430 Olds Station Road, Third Floor, Wenatchee, Washington,
98801, Attention: Sheryl A. Symonds, Secretary, or hand delivered to Ms. Symonds
at the Annual Meeting, at or before the taking of the vote.
Quorum
------
The presence in person or by proxy of at least a majority of the Voting Shares
is required to constitute a quorum for the transaction of business at the Annual
Meeting. Abstentions and broker non-votes will be considered represented at the
meeting for the purpose of determining a quorum.
Voting
------
The Voting Shares represented by each proxy will be voted in accordance with the
instructions given on the proxy. If no instructions are indicated, the proxy
will be voted as follows:
. FOR the six nominees to the Board of Directors named in this Proxy
Statement;
. FOR ratification of the appointment of KPMG LLP as the Company's
independent auditors for the fiscal year ending May 31, 2001; and
. at the discretion of the persons named in the proxy, on any other
business that may properly come before the Annual Meeting.
Results of Voting
-----------------
Under applicable law and the Company's Articles of Incorporation and Bylaws, if
a quorum is present at the Annual Meeting:
1. The six nominees for election to the Board of Directors who receive
the largest number of the votes cast for the election of directors by
the holders of the Voting Shares present in person or represented by
proxy will be elected directors. Each shareholder will be entitled to
one vote for each Voting Share held by that shareholder, and will not
be entitled to cumulate votes in the election of directors.
2. The appointment of KPMG LLP as the Company's independent auditors will
be ratified if the number of votes cast in favor of ratification
exceeds the number of votes cast against it.
Abstentions and broker non-votes will have no effect on the outcome of the
voting because they will not represent votes cast.
Notice to Beneficial Owners of Voting Shares
--------------------------------------------
Any Voting Shares held in the name of fiduciaries, custodians or brokerage
houses for the benefit of their clients may only be voted by the fiduciary,
custodian or brokerage house itself. The beneficial owner may not directly vote
or appoint a proxy to vote the shares and should instruct the person or entity
in whose name the shares are held how to vote. Therefore, if any Voting Shares
are held in "street name" by a brokerage house, only the brokerage house may
vote or appoint a proxy to vote the shares. Beneficial owners should receive
instructions from their brokerage houses that the beneficial owners must follow
in order to direct the voting of their shares.
2
<PAGE>
Solicitation of Proxies
-----------------------
The Company will bear the cost of preparing, printing, and mailing this Proxy
Statement and of the solicitation of proxies by the Board of Directors.
Solicitation will be made by mail and, in addition, may be made by directors,
officers, and employees of the Company personally, or by telephone or facsimile.
The Company will request brokers, custodians, nominees, and other like parties
to forward copies of proxy materials to the beneficial owners of the Common
Stock and will reimburse such parties for their reasonable and customary charges
or expenses in this connection.
PROPOSAL 1 - ELECTION OF DIRECTORS
---------------------
Nominees
--------
The Board of Directors of the Company will consist of six directors, who will be
elected at the Annual Meeting to serve until their successors are elected at the
next annual meeting of shareholders. Unless a proxy received by the Company
directs otherwise or is properly revoked, that proxy will be voted FOR the
election of the following six nominees:
Name Age Director Since Position with Company
---- --- -------------- ----------------------
Donald A. Wright 48 02/95 Chairman of the Board, Chief
Executive Officer and
President
Werner Hafelfinger 54 08/98 Director, Chief Operating
Officer and Vice President
Operations
Dale L. Rasmussen 50 06/97 Director
Gene C. Sharratt, Ph.D. 53 N/A Director Nominee
Robert M. Stemmler 65 05/99 Director
William A. Wheeler 66 06/97 Director
All of the nominees except Gene C. Sharratt are currently directors of the
Company. Dr. Sharratt has been nominated to fill the Board position currently
held by Dr. Allen W. Dahl, who is retiring from the Board at the Annual Meeting.
If any nominee is unable to stand for election, the Voting Shares represented by
all proxies in favor of the above slate will be voted for the election of the
substitute nominee recommended by the Board of Directors. The Company is not
aware that any nominee is or will be unable to stand for election.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" ALL OF THE NOMINEES NAMED ABOVE.
3
<PAGE>
Directors and Executive Officers
--------------------------------
The following table sets forth information as of August 18, 2000, regarding the
current directors and those nominated to become directors, and the executive
officers of the Company.
Name Age Position with Company
--------------------------------------------------------------------------------
Donald A. Wright 48 Chairman of the Board, Chief
Executive Officer And President
Werner Hafelfinger 54 Chief Operating Officer, Vice
President Operations, Director
Nick A. Gerde 55 Chief Financial Officer, Vice
President Finance, Treasurer and
Assistant Secretary
Sheryl A. Symonds 45 Vice President Administration,
General Counsel And Secretary
Allen W. Dahl, M.D. 72 Director
Dale L. Rasmussen 50 Director
Gene C. Sharratt, Ph.D. 53 Director Nominee
Robert M. Stemmler 65 Director
William A. Wheeler 66 Director
Donald A. Wright. Donald A. Wright has been the Chairman of the Board, Chief
Executive Officer and President of the Company since February 1995, and of its
predecessors since 1990. Mr. Wright is also an officer and director of each of
the Company's operating subsidiaries.
Werner Hafelfinger. Werner Hafelfinger has been a director of the Company since
August 17, 1998. Mr. Hafelfinger has been Vice President Operations and Chief
Operating Officer of the Company since March 1999. Mr. Hafelfinger was employed
by St. Jude Medical (Cardiac Rhythm Management Division), a manufacturer of
implantable medical devices, from 1984 until February 1999, where he served as
Vice President of Global Manufacturing.
Nick A. Gerde. Nick A. Gerde has been the Vice President Finance and Chief
Financial Officer of the Company since February 1995. He has been the Treasurer
of the Company since August 1996, and Assistant Secretary since November 1996.
Mr. Gerde is also an officer and director of each of the Company's operating
subsidiaries. Mr. Gerde served as a Business Development Specialist with the
Economic Development Council of North Central Washington from July 1993 to June
1994, and as Vice President of Televar Northwest, Inc. (formerly a subsidiary of
Orca Technologies, Inc.) from July 1994 to February 1995.
Sheryl A. Symonds. Sheryl A. Symonds has been the Vice President
Administration and General Counsel of the Company since September 1997. Prior to
joining the Company, Ms. Symonds was a partner at Stoel Rives LLP, currently the
Company's primary outside legal counsel. Ms. Symonds
4
<PAGE>
joined Stoel Rives LLP in 1985 and became a partner in 1992. Ms. Symonds has
been Secretary of the Company since August 1996 and is also Secretary of each of
the Company's operating subsidiaries.
Allen W. Dahl. Dr. Allen W. Dahl has been a director of the Company since
February 1995, and of its predecessors since September 1994. Dr. Dahl is retired
from practice as a physician in the Puget Sound region of Washington. Dr. Dahl
has announced his retirement from the Board of Directors as of the annual
meeting of shareholders to be held on October 10, 2000.
Dale L. Rasmussen. Dale L. Rasmussen has been a director of the Company since
June 1997. Mr. Rasmussen has been employed as the Senior Vice President and
Secretary of IMPCO Technologies, Inc. since 1989.
Gene C. Sharratt. Dr. Gene C. Sharratt has been nominated to become a director
of the Company at the annual meeting of shareholders to be held on October 10,
2000. Dr. Sharratt has been Superintendent of the North Central Education
Service District in Wenatchee, Washington since July 1991.
Robert M. Stemmler. Robert M. Stemmler has been a director of the Company since
May 14, 1999. Mr. Stemmler has been the Chairman, CEO and President of IMPCO
Technologies, Inc. since 1993.
William A. Wheeler. William A. Wheeler has been a director of the Company since
June 1997. Mr. Wheeler retired from Dowty Aerospace Yakima in May 1997, where he
served as President, Chief Executive Officer and Chairman of the Board of
Directors since 1979.
Tenure
------
Directors of the Company hold office until the next annual meeting of the
Company's shareholders and until their successors have been elected and duly
qualified. The Board of Directors appoints the Company's executive officers at
the first Board meeting after each annual meeting of shareholders. Executive
officers hold office at the pleasure of the Board of Directors.
Nominations
-----------
The Nominating Committee will consider written proposals from shareholders for
nominees for directors to be elected at the 2001 annual meeting of shareholders
that are submitted to the Secretary of the Company by May 10, 2001, and that
contain sufficient background information concerning the nominee to permit a
judgment to be made as to his or her qualifications.
Director Compensation
---------------------
Under the Company's Amended and Restated Independent Director Stock Plan, each
non-employee director of the Company receives an initial award of options to
purchase 2,500 shares of Common Stock when that director is first elected and an
annual award of options to purchase 10,000 shares of Common Stock. In addition,
non-employee directors receive $1,000 in cash per year for each committee on
which they serve, and an additional $500 in cash per year for serving as
chairperson of a committee. The Board may elect to pay any of the cash fees in
shares of Common Stock. All directors are reimbursed for reasonable travel and
other out-of-pocket expenses incurred in attending meetings of the Board of
Directors.
5
<PAGE>
Vacancies
---------
Replacement directors for vacancies resulting from an increase in the size of
the Board of Directors or the resignation or removal of a director may be
appointed by the Board of Directors, or may be elected by the shareholders at a
special meeting. Directors so appointed or elected hold office until the next
annual meeting of shareholders and until their successors are elected and
qualified.
Board of Directors Meetings
---------------------------
The Company's Board of Directors met four times during fiscal 2000. The
committees met as follows: Option Committee, once; Finance and Audit Committee,
three times; and Compensation Committee, once. The Nominating Committee did not
meet, but took action by unanimous written consent. Each incumbent director
attended at least 75% of all meetings of the Board of Directors and the
committees of which the director was a member during the period he was a
director in fiscal 2000. The Board of Directors and the committees also approved
a number of actions by unanimous written consent.
Committees of the Board of Directors
------------------------------------
The Board of Directors has a number of committees, as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Committee Function Current Members
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Option Committee Administers the Company's Amended and Restated Stock Dr. Dahl
Incentive Plan and 1999 Stock Incentive Plan. Mr. Rasmussen
Mr. Stemmler
-------------------------------------------------------------------------------------------------------------------
Finance and Audit Committee Reviews the Company's accounting policies, practices, Mr. Rasmussen
internal accounting controls and financial reporting. Also Mr. Stemmler
oversees engagement of the Company's independent auditors Mr. Wheeler
and monitors management implementation of the
recommendations and findings of the Company's independent
auditors.
-------------------------------------------------------------------------------------------------------------------
Compensation Committee Establishes salaries, incentives and other compensation for Mr. Wheeler
the chief executive officer, chief operating officer, chief Dr. Dahl
financial officer, general counsel, subsidiary presidents Mr. Rasmussen
and other key employees of the Company and its
subsidiaries. Also administers policies relating to
compensation and benefits, including the Amended and
Restated Independent Director Stock Plan and the Employee
Stock Purchase Plan.
-------------------------------------------------------------------------------------------------------------------
Nominating Committee Recommends individuals to be presented to the shareholders Mr. Wright
for election or reelection to the Board of Directors. Mr. Rasmussen
Mr. Stemmler
-------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Securities Ownership of Directors, Executive Officers and Principal Shareholders
--------------------------------------------------------------------------------
The following table shows, to the best of the Company's knowledge based on the
records of the Company's transfer agent and the Company's records on issuances
of shares, as adjusted to reflect changes in ownership documented in filings
with the Securities and Exchange Commission made by certain shareholders and
provided to the Company pursuant to Section 16 of the Exchange Act, and
statements provided to the Company by certain shareholders, the Common Stock
owned as of August 18, 2000, by (1) each person known by the Company to own
beneficially more than 5% of the outstanding Common Stock; (2) each of the
Company's current directors and those nominated to become directors; (3) the
Named Executives; and (4) all executive officers and the current directors of
the Company as a group. Except as otherwise noted, the Company believes the
persons listed below have sole investment and voting power with respect to the
Common Stock owned by them.
<TABLE>
<CAPTION>
Amount and Nature of Percentage of
Name and Address of Beneficial Owner: Beneficial Ownership (1) Common Stock
------------------------------------ ------------------------ -------------
<S> <C> <C>
Donald A. Wright (2) 2,655,710 7.19%
c/o Pacific Aerospace & Electronics, Inc.
430 Olds Station Road, Third Floor
Wenatchee, WA 98801
Allen W. Dahl, M.D. (3) 42,401 *
7300 Madrona Drive NE
Bainbridge Island, WA 98110
Werner Hafelfinger(4) 289,048 *
c/o Pacific Aerospace & Electronics, Inc.
430 Olds Station Road, Third Floor
Wenatchee, WA 98801
Dale L. Rasmussen (3) 20,492 *
c/o IMPCO Technologies, Inc.
708 Industrial Drive
Tukwila, WA 98188
Gene C. Sharratt, Ph.D.(5) -- *
c/o North Central Educational Service District
P.O. Box 1847
Wenatchee, WA 98807
Robert M. Stemmler (6) 8,137 *
c/o IMPCO Technologies, Inc.
16804 Gridley Place
Cerritos, CA 90703
William A. Wheeler (3) 18,092 *
2011 Lombard Lane
Yakima, WA 98902
Nick A. Gerde (7) 315,676 *
c/o Pacific Aerospace & Electronics, Inc.
430 Olds Station Road, Third Floor
Wenatchee, WA 98801
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C>
Sheryl A. Symonds (8) 265,999 *
c/o Pacific Aerospace & Electronics, Inc.
430 Olds Station Road, Third Floor
Wenatchee, WA 98801
All executive officers and current directors as a group 3,615,555 8.91%
(8 persons) (9)
</TABLE>
----------------
* Less than 1%.
(1) Shares that a person has the right to acquire within 60 days are treated as
outstanding for determining the amount and percentage of Common Stock owned
by such person but are not deemed to be outstanding as to any other person
or group.
(2) Includes (a) 4,000 shares issuable upon exercise of public warrants, (b)
100,000 shares issuable upon exercise of another warrant, and (c) 2,132,560
shares issuable upon exercise of vested stock options.
(3) Includes 10,000 shares issuable upon exercise of vested stock options. Does
not include 10,000 shares issuable upon exercise of unvested stock options.
(4) Includes 160,000 shares issuable upon exercise of vested stock options.
(5) Dr. Sharratt has been nominated to become a director of the Company at the
annual meeting of shareholders to be held on October 10, 2000.
(6) Includes 6,637 shares issuable upon exercise of vested stock options. Does
not include 10,000 shares issuable upon exercise of unvested stock options.
(7) Includes (a) 4,000 shares issuable upon exercise of public warrants, (b)
25,000 shares issuable upon exercise of another warrant, and (c) 246,056
shares issuable upon exercise of vested stock options.
(8) Includes (a) 500 shares issuable upon exercise of public warrants and (b)
260,000 shares issuable upon exercise of vested stock options.
(9) Includes currently exercisable warrants and options to purchase up to
2,968,753 shares of Common Stock.
8
<PAGE>
Executive Compensation
----------------------
Summary Compensation Table
The following table sets forth in summary form the compensation paid by the
Company to the Chief Executive Officer and to the Company's three most highly
compensated executive officers (the "Named Executives") for services in all
capacities to the Company for the last three fiscal years:
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation ----------------------
------------------- Securities Underlying Other Annual
Name and Principal Position Fiscal Year Salary ($) Options/SARs(#) (1) Compensation ($)
--------------------------- ----------- ------------------- ---------------------- ----------------
<S> <C> <C> <C> <C>
Donald A. Wright 2000 292,008 450,000(2) 5,800(4)
CEO and President 1999 247,551 1,000,000(3) 5,547(4)
1998 192,000 650,000(5) 4,800(6)
Werner Hafelfinger 2000 175,000 100,000(2) 2,500(6)
COO, VP Operations 1999(7) 33,654 50,000(8) 600(6)
Nick A. Gerde 2000 140,000 100,000(2) 2,500(6)
CFO, VP Finance, Treasurer 1999 130,000 116,056(3) 2,400(6)
and Assistant Secretary 1998 100,000 75,000(5) 2,400(6)
Sheryl A. Symonds 2000 176,364 100,000(2) --
VP Administration, General 1999 160,973 160,000(3) --
Counsel and Secretary 1998(9) 105,000 160,000(5) --
</TABLE>
-----------------
(1) Represents options to purchase shares of Common Stock.
(2) One-half of these options were granted in June 1999 with respect to fiscal
1999, and one-half were granted in May 2000, with respect to fiscal 2000.
(3) Represents repricing of previously granted options. On December 4, 1998,
the Board of Directors approved the repricing of outstanding options under
the Company's Amended and Restated Stock Incentive Plan. For purposes of
this table, repriced options are considered to be option grants and,
therefore, are required to be included in the table as options granted in
fiscal 1999. Other than repricing of options, no options were granted to
Mr. Wright, Mr. Gerde, or Ms. Symonds during fiscal 1999.
(4) Represents estimated value of the personal use of Company vehicles ($5,000
in fiscal 2000; $4,800 in fiscal 1999) and premiums on $2 million of key-
man life insurance denoting Mr. Wright's spouse as beneficiary.
(5) These options were repriced in fiscal 1999, and the entire balance is also
included in this table as options granted during fiscal 1999. See footnote
(3) above.
(6) Represents estimated value of the personal use of a Company vehicle.
(7) Represents the compensation received by Mr. Hafelfinger during the three
months he was employed by the Company in fiscal year 1999.
(8) Does not include options to purchase 10,000 shares granted to Mr.
Hafelfinger in October 1998 under the Amended and Restated Independent
Director Stock Plan, when Mr. Hafelfinger was a non-employee director of
the Company.
(9) Represents the compensation received by Ms. Symonds during the nine months
she was employed by the Company in fiscal year 1998.
9
<PAGE>
Option Grants Table
The following table sets forth information on grants of stock options by the
Company during the year ended May 31, 2000 to the Named Executives:
<TABLE>
<CAPTION>
Securities % of Total
Underlying Options Granted Grant Date
Options Granted to Employees in Exercise or Base Present Value(1)
Name (#) Fiscal Year Price ($/Share) Expiration Date ($)
---- --------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Donald A. Wright 225,000 24.73% $1.6875 5/31/09 $309,000
225,000 24.73% $1.5000 5/04/10 $324,000
Werner Hafelfinger 50,000 5.49% $1.6875 5/31/09 $ 69,000
50,000 5.49% $1.5000 5/04/10 $ 72,000
Nick A. Gerde 50,000 5.49% $1.6875 5/31/09 $ 69,000
50,000 5.49% $1.5000 5/04/10 $ 72,000
Sheryl A. Symonds 50,000 5.49% $1.6875 5/31/09 $ 69,000
50,000 5.49% $1.5000 5/04/10 $ 72,000
</TABLE>
------------------
(1) Although the Company believes that it is not possible to place a value on
an option, in accordance with the rules of the SEC, the Company has used a
Black-Scholes model of option valuation to estimate grant date present
value. The actual value realized, if any, may vary significantly from the
values estimated by this model. Any future values realized will ultimately
depend upon the excess of the stock price over the exercise price on the
date the option is exercised. The assumptions used to estimate the grant
date present value of this option were: volatility (71.86% and 121.75%);
risk-free rate of return (6%); dividend yield (0%); and time of exercise
(remaining life 10 years).
Aggregated Options and Fiscal Year-End Option Values
The following table summarizes the aggregate employee stock options and non-
public warrants, and their market values at May 31, 2000, held by the Named
Executives:
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities Underlying In-the-Money Options
Unexercised Options at FY-end (#) at FY-end ($) (1)
------------------------------------ -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Donald A. Wright 2,232,560 -- -- --
Werner Hafelfinger (2) 150,000 -- -- --
Nick A. Gerde 266,178 4,878 -- --
Sheryl A. Symonds 260,000 -- -- --
</TABLE>
(1) No options or warrants held by the Named Executives had exercise prices of
less than $1.25 per share, the closing price of the Common Stock on May 31,
2000.
(2) Does not include options to purchase 10,000 shares granted to Mr.
Hafelfinger in October 1998 under the Amended and Restated Independent
Director Stock Plan, when Mr. Hafelfinger was a non-employee director of
the Company.
10
<PAGE>
Employment Agreements
The Company has entered into employment agreements with each of the Named
Executives. The employment agreements employ Mr. Wright through fiscal 2003, and
employ Mr. Hafelfinger, Mr. Gerde, and Ms. Symonds through fiscal 2002. The
employment agreements provide for an annual salary in fiscal 2001 of $335,809,
$200,000, $150,000 and $190,473, for Mr. Wright, Mr. Hafelfinger, Mr. Gerde, and
Ms. Symonds, respectively. The employment agreements also provide for the annual
grant to each of the Named Executives of options to purchase up to 275,000
shares of Common Stock for Mr. Wright, and up to 50,000 shares of Common Stock
for Mr. Hafelfinger, Mr. Gerde, and Ms. Symonds. Of these, 50,000 of Mr.
Wright's options are fixed, 25,000 of the other Named Executive's options are
fixed, and the remainder are discretionary. The exercise price of any such
options is equal to the fair market value of the Common Stock on the date of
grant. Each option may contain vesting and other terms as are approved by the
Board of Directors, and will expire ten years after the date of grant. If a
Named Executive's employment with the Company is terminated without cause, or if
there is a change of control, as those terms are defined in their employment
agreements, the Company will be required to make severance payments equal to, in
the case of Mr. Wright, twice Mr. Wright's then-current annual base salary; in
the case of Mr. Gerde, one times his then-current annual base salary; in the
case of Ms. Symonds, one and one-half times her then-current annual base salary;
and in the case of Mr. Hafelfinger, twice his then-current annual base salary in
the event of a change in control or one times his then-current annual base
salary if he is terminated without cause. Under these employment agreements, Mr.
Wright, Mr. Hafelfinger, and Mr. Gerde agree not to compete with the Company for
two years following termination of employment. In May 1999, the Board of
Directors adopted a management incentive compensation program, which provides
for the payment of cash bonuses to the Named Executives, the group presidents,
and certain other senior managers, upon attainment of certain goals. Under this
program, each of the Named Executives could have earned a cash bonus for fiscal
2000 of 10% of his or her annual salary if the Company achieved budgeted
operating income levels for the year and an additional 5% if the Company
exceeded budgeted operating income by 10%. In addition, each of the Named
Executives could have earned a cash bonus of up to 5% of his or her annual
salary upon achieving personal goals and objectives for a possible total bonus
of 20% of annual salary. The Named Executives did not earn any bonus under this
program for fiscal 2000 because the Company did not earn a profit. In August
2000, the Board of Directors amended the management incentive compensation
program for fiscal 2001. Under the amended program, each of the Named Executives
can earn a cash bonus of 10% of his or her annual salary if the Company achieves
both budgeted revenue and budgeted operating income levels for the year and an
additional 5% if the Company exceeds these budgeted amounts by 10%, for a
possible total bonus of 15% of annual salary.
Certain Tax Considerations Related to Executive Compensation
As a result of Section 162(m) of the Code, if the Company pays more that
$1,000,000 in compensation to a "covered employee" (the chief executive officer
and the next four highest paid employees) in a single year, then the Company's
deduction for such compensation could be limited to $1,000,000.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is composed of William A. Wheeler, Allen W. Dahl and
Dale L. Rasmussen, none of whom are employees or current or former owners of the
Company.
11
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Committee. The Compensation Committee of the Board of Directors (the
"Committee") is composed of three non-employee directors: William A. Wheeler,
Chairman, Allen W. Dahl, and Dale L. Rasmussen. No member of the Compensation
Committee has a relationship that would constitute an interlocking relationship
with executive officers or directors of another entity. From time to time
officers of the Company attend meetings of the Committee. However, no officer is
present during discussions or deliberations regarding his or her own
compensation.
Responsibilities of the Committee. The Committee's purpose is to provide a
compensation environment that will support and assist in fulfilling the
corporate mission and purpose. The Committee is responsible for developing and
making recommendations to the Board with respect to the Company's compensation
policies, reviewing the performance of the Company's Chief Executive Officer,
and determining the level of compensation to be paid to executive officers and
certain key employees of the Company. The Committee coordinates its efforts with
the Company's Option Committee with respect to the grant of stock options to
executive officers and key employees under the Company's Amended and Restated
Stock Incentive Plan and 1999 Stock Incentive Plan (the "Stock Incentive
Plans"). The Committee also administers the Company's Amended and Restated
Independent Director Stock Plan and the Company's Employee Stock Purchase Plan.
Executive Compensation. The Company's executive compensation program is
designed to support the achievement of Company goals and to ensure that the
interests of executive officers and key employees are aligned with the success
of the Company. Consequently, a significant portion of the compensation of
executive officers and key employees has been through the grant of options under
the Stock Incentive Plans. The Committee believes that tying a significant
portion of executive compensation to the growth of the Company's stock price
helps align the interests of management with those of the Company's
shareholders.
Compensation of the Chief Executive Officer. Mr. Wright's salary increased at
the beginning of fiscal 2000 in accordance with his employment agreement. At the
end of fiscal 2000, the Committee reviewed Mr. Wright's compensation level, as
required by his employment agreement, and determined that the annual salary
increase under the employment agreement should remain the same, at 15% per year.
In making this determination, the Committee reviewed a number of criteria,
including relevant data from a third party compensation survey. In using the
survey, the Committee compared the Company to other Northwest publicly-traded
manufacturing companies within the applicable revenue range. Based on the survey
information, the Committee concluded that the approved percentage increase would
put Mr. Wright at approximately the median in terms of base salary for chief
executive officers of similarly situated Northwest manufacturing companies.
Annual Salaries. Annual salaries for the Named Executives are set pursuant to
the terms of employment agreements with Mr. Wright, Mr. Hafelfinger, Mr. Gerde
and Ms. Symonds. The presidents of the Company's operating groups also have
employment agreements that establish their annual salaries. Annual salaries
under the employment agreements are subject to increase on an annual basis in
accordance with the terms of those agreements. All of these employment
agreements are approved by the Committee when they are first signed. From time
to time, the Committee has also elected to review these contracts annually. In
May 2000, the Committee reviewed Mr. Hafelfinger's contract and, after
considering his duties and applicable third-party compensation survey data,
raised his salary from $190,000 to $200,000 for fiscal 2001.
12
<PAGE>
Incentive Compensation Program. In May 2000, the Board of Directors adopted a
management incentive compensation program, which provides for the payment of
cash bonuses to the executive officers, the group presidents, and certain other
senior managers, upon attainment of certain goals. The purpose of the plan is to
provide a direct financial incentive to achieve predetermined levels of Company
performance. Under this program, each of the participants could have earned a
cash bonus for fiscal 2000 of 10% of their annual salary upon achieving budgeted
operating income levels for the year and an additional 5% upon exceeding
budgeted operating income by 10%. In addition, each person could have earned a
cash bonus of up to 5% of their annual salary upon achieving personal goals and
objectives established with his or her supervisor and agreed to by the chief
executive officer, for a possible total bonus of 20% of annual salary. Each of
the Named Executives asked the Committee not to be considered for cash bonuses
for fiscal 2000 because the Company did not make a profit in fiscal 2000. After
the end of fiscal 2000, the Committee reviewed the results of the program and
recommended that the Board of Directors amend the program for fiscal 2001. Under
the program, as amended, each participant can earn a cash bonus of 10% of his or
her annual salary if the Company achieves both budgeted revenue and budgeted
operating income levels for the year and an additional 5% if the Company exceeds
those budgeted amounts by 10%, for a possible total bonus of 15% of annual
salary.
Long-Term Incentive Compensation. The Stock Incentive Plans are long-term
incentive plans for executives, managers, and other employees of the Company.
The objective of the plans is to align employee and shareholder long-term
interests by creating a strong and direct link between compensation and
shareholder value. The Stock Incentive Plans authorize the Board of Directors,
or a committee of the Board, to award stock options to officers and other
employees of the Company, as well as to directors and consultants. The Board of
Directors has designated the Option Committee to administer the Stock Incentive
Plans, and the Committee works with the Option Committee with respect to the
grant of options to executive officers and key employees. Stock options are
granted at an exercise price not less than 100% of the fair market value of the
Company's Common Stock on the date of grant. The amount of stock option grants
to an individual depends on the person's level of responsibility in the Company
and the person's job performance. Stock options granted under the Stock
Incentive Plans may contain vesting provisions. All of the Named Executives
received stock option grants at the beginning of fiscal 2000 as part of the
fiscal 1999 annual option grant program for key employees and at the end of
fiscal 2000 as part of the fiscal 2000 annual option grant program for key
employees.
Deductibility. Section 162(m) of the Internal Revenue Code of 1986, as amended,
limits to $1 million per person the amount that the Company may deduct for
compensation paid to any of its most highly compensated officers unless the
compensation is performance based. The levels of compensation paid by the
Company have not exceeded this limit. Although it may be possible in any given
year for option exercises to cause an officer's total compensation for that year
to exceed $1 million, the Committee believes that any options granted under the
Stock Incentive Plan would meet the requirement of being performance-based and
would, therefore, not be subject to the $1 million limit on deductibility.
Respectfully submitted,
William A. Wheeler, Chairman
Allen W. Dahl
Dale L. Rasmussen
13
<PAGE>
Performance Graph
The following graph shows a comparison of the cumulative total return on the
Company's common stock, the Standard & Poor's ("S&P") 500 Index and the S&P
Aerospace/Defense Index, a published industry index, for the period beginning
May 31, 1995 and ending May 31, 2000. The graph assumes that $100 was invested
on May 31, 1995, in the Company's Common Stock, the S&P 500 Index and the
industry index, and that all dividends were reinvested. The stock price
information shown on the graph below is not necessarily indicative of future
price performance.
Performance Graph
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Company/Index Name 5/31/95 5/31/96 5/31/97 5/31/98 5/31/99 5/31/00
------------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Pacific Aerospace & Electronics, Inc. 100 74 56 111 31 23
S&P 500 Index 100 125 159 204 243 266
S&P Aerospace/Defense Index 100 139 168 176 178 141
----------------------------------------------------------------------------------------------------------------
</TABLE>
Compliance With Section 16(a) Beneficial Ownership Reporting Requirements
-------------------------------------------------------------------------
Based solely on a review of Forms 3, 4 and 5, as amended, furnished to the
Company pursuant to Rule 16a-3(e) during fiscal 2000, and on written
representations of the Company's officers, directors, or principal shareholders
("Reporting Persons") that no other reports were required, the Company believes
that, during the fiscal year ended May 31, 2000, the Reporting Persons complied
in all material respects with all applicable filing requirements under Section
16(a) of the Exchange Act.
14
<PAGE>
Certain Relationships and Related Transactions
----------------------------------------------
Employment Agreements. The Company has entered into employment agreements with
Donald A. Wright, Werner Hafelfinger, Nick A. Gerde and Sheryl A. Symonds. See
"Executive Compensation - Employment Agreements."
Condominium. In November 1998, the Company entered into a Condominium Purchase
and Sale Agreement (the "Condominium Agreement") with Donald A. Wright, the
Company's Chief Executive Officer, President, and Chairman of the Board.
Pursuant to the Condominium Agreement, Mr. Wright agreed to purchase from the
Company a residential condominium unit within the Company's headquarters
building for a total purchase price of $175,000. At the time the Condominium
Agreement was executed, the condominium had not been completed. Upon completion,
the condominium had a value higher than Mr. Wright's purchase price. As a
result, Mr. Wright requested that the purchase be rescinded. The Board of
Directors agreed to rescind the purchase, but amended Mr. Wright's employment
agreement to require Mr. Wright to reside in the condominium unit. Mr. Wright
pays rent on the condominium unit of $750.00 per month. In addition, the Board
approved an Option to Purchase, which grants to Mr. Wright the right to purchase
the condominium unit. The option became exercisable February 1, 2000. The
purchase price would be: (i) $350,000 if the option is exercised prior to
February 1, 2001; (ii) $300,000 if the option is exercised on or after February
1, 2001, but prior to February 1, 2002; and (iii) $250,000 if the option is
exercised on or after February 1, 2002. The option terminates ten business days
after Mr. Wright's employment relationship with the Company ceases for any
reason other than death.
PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
---------------------------------------------------
The Board of Directors has directed that the selection of KPMG LLP as the
Company's principal independent accountant for the fiscal year ending May 31,
2001, be submitted for ratification by the shareholders at the Annual Meeting.
If the appointment of KPMG LLP is not ratified, the selection of other auditors
will be considered by the Board of Directors.
The Company has been advised by KPMG LLP that neither that firm nor any of its
associates has any relationship with the Company or its subsidiaries other than
the usual relationship that exists between independent public accountants and
clients. KPMG LLP will have one or more representatives at the Annual Meeting
who will have an opportunity to make a statement if so desired, and will be
available to respond to appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF KPMG LLP
AS INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING MAY 31, 2001.
15
<PAGE>
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
---------------------------------------------
Any shareholder proposal intended for inclusion in proxy materials for the
Company's 2001 annual meeting of shareholders must be received in proper form by
the Company at its principal office no later than May 10, 2001.
OTHER MATTERS
-------------
The Board of Directors is not aware of any business other than the proposals
discussed above that will be presented for consideration at the Annual Meeting.
If other matters properly come before the Annual Meeting, it is the intention of
the persons named in the enclosed proxy to vote on such matters in accordance
with their best judgment.
ANNUAL REPORT AND FINANCIAL STATEMENTS
--------------------------------------
Copies of the Company's 2000 Annual Report to Shareholders and Annual Report on
Form 10-K, which includes the Company's financial statements for the fiscal year
ended May 31, 2000, accompany this Proxy Statement. Neither the Annual Report
nor the Form 10-K are to be treated as part of or incorporated by reference into
the proxy solicitation material.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE HOPE THAT YOU WILL HAVE YOUR
STOCK REPRESENTED BY COMPLETING, SIGNING, DATING AND RETURNING YOUR ENCLOSED
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
By Order of the Board of Directors,
/s/ Donald A. Wright
Donald A. Wright
Chairman of the Board,
Chief Executive Officer and President
September 7, 2000
16
<PAGE>
PROXY
PACIFIC AEROSPACE & ELECTRONICS, INC.
Annual Meeting of Shareholders, October 10, 2000
PROXY SOLICITED BY BOARD OF DIRECTORS
PLEASE SIGN AND RETURN THIS PROXY
The undersigned hereby appoints Donald A. Wright and Nick A. Gerde, and each
of them, proxies with power of substitution to vote on behalf of the
undersigned all shares that the undersigned may be entitled to vote at the
Annual Meeting of Shareholders of Pacific Aerospace & Electronics, Inc. (the
"Company"), on October 10, 2000, and any adjournments of that meeting, with all
powers that the undersigned would possess, if personally present, with respect
to the following:
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS: [_] FOR all nominees except as marked [_] WITHOUT AUTHORITY to vote for
to the contrary below. all nominees listed below.
</TABLE>
(Instructions: To withhold authority to vote for any individual, strike a
line through the nominee's name below.)
Werner Hafelfinger, Dale L. Rasmussen, Gene C. Sharratt,
Robert M. Stemmler, William A. Wheeler, and Donald A. Wright
2. RATIFICATION OF APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS:
[_] FOR [_] AGAINST [_] ABSTENTION
3. TRANSACTION OF ANY BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENTS OF THE MEETING. A MAJORITY OF THE PROXIES OR SUBSTITUTES AT THE
MEETING MAY EXERCISE ALL THE POWERS GRANTED BY THIS PROXY.
(Continued and to be signed on the other side)
<PAGE>
The shares represented by this proxy will be voted as specified on the front of
this proxy, but if no specification is made, this proxy will be voted (1) FOR
the election of the six identified nominees as directors, and (2) FOR the
ratification of the appointment of KPMG LLP as the Company's independent
auditors. The proxies may vote in their discretion as to other matters that may
come before this meeting.
No. of Shares: Date: , 2000
------ --------
------------------------------------------
Signature or Signatures
Please date and sign above as your name is
printed to the left of the signature line,
including designation as executor, trust,
etc., if applicable. A corporation must be
signed for by the president or other
authorized officer.
The Annual Meeting of Shareholders of
Pacific Aerospace & Electronics, Inc. will
be held at the West Coast Wenatchee
Convention Center, located at 121 North
Wenatchee Avenue, Wenatchee, Washington,
on October 10, 2000, at 3:00 p.m. Pacific
Daylight Time.
Please Note: Any shares of stock of the Company held in the name of
fiduciaries, custodians or brokerage houses for the benefit of their clients
may only be voted by the fiduciary, custodian or brokerage house itself. The
beneficial owner may not directly vote or appoint a proxy to vote the shares
and should instruct the person or entity in whose name the shares are held how
to vote the shares held for the beneficial owner. Therefore, if any shares of
stock of the Company are held in "street name" by a brokerage house, only the
brokerage house may vote or appoint a proxy to vote the shares.
