<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number: 0-26088
PACIFIC AEROSPACE & ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1744587
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
430 Olds Station Road, Third Floor, Wenatchee, Washington 98801
(Address of Principal Executive Offices; Zip Code)
Registrant's telephone number, including area code: (509) 667-9600
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No_____
---
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes____ No____
Applicable only to corporate issuers:
State the number of shares outstanding of each of the issuer's classes of Common
Stock, as of the latest practicable date: As of April 10, 2000, there were
28,771,514 shares outstanding of the Company's Common Stock, par value $.001 per
share.
<PAGE>
PART I - FINANCIAL INFORMATION
---------------------
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets - February 29, 2000 and May 31, 1999
Consolidated Statements of Operations - Third Quarters and Nine Months Ended
February 29, 2000 and February 28, 1999
Consolidated Statements of Cash Flows - Nine Months Ended
February 29, 2000 and February 28, 1999
Management's Statement and Notes to Unaudited Consolidated Financial
Statements - Third Quarters and Nine Months Ended February 29, 2000 and
February 28, 1999
2
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 29, 2000 and May 31, 1999
<TABLE>
<CAPTION>
February 29, May 31,
2000 1999
ASSETS (Unaudited) (Audited)
- ---------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,102,000 $ 8,134,000
Accounts receivable, net 21,348,000 24,992,000
Inventories 28,333,000 24,616,000
Deferred income taxes 878,000 880,000
Prepaid expense and other 2,275,000 2,316,000
------------- -------------
Total Current Assets 53,936,000 60,938,000
------------- -------------
PROPERTY AND EQUIPMENT, NET 45,082,000 45,279,000
------------- -------------
OTHER ASSETS
Note receivable, net 2,500,000 1,458,000
Investment 19,000 72,000
Costs in excess of net book value of acquired subsidiaries, net 41,203,000 41,052,000
Patents, net 1,183,000 1,255,000
Deferred income taxes 2,555,000 3,395,000
Deferred financing costs, net 4,429,000 5,029,000
Other assets 318,000 249,000
------------- -------------
Total Other Assets 52,207,000 52,510,000
------------- -------------
TOTAL ASSETS $ 151,225,000 $ 158,727,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 10,290,000 $ 10,484,000
Accrued liabilities 4,333,000 5,615,000
Accrued interest 670,000 2,813,000
Current portion of long-term debt 1,185,000 1,278,000
Current portion of capital lease obligations 521,000 297,000
Line of credit 5,871,000 0
Other current liabilities - 2,122,000
------------- -------------
Total Current Liabilities 22,870,000 22,609,000
------------- -------------
LONG-TERM LIABILITIES
Long-term debt, net of current portion 4,402,000 5,220,000
Capital lease obligations, net of current portion 1,190,000 1,615,000
Senior subordinated notes payable 75,000,000 75,000,000
Deferred rent and other 316,000 264,000
------------- -------------
Total Long Term Liabilities 80,908,000 82,099,000
------------- -------------
Total Liabilities 103,778,000 104,708,000
------------- -------------
STOCKHOLDERS' EQUITY
Convertible preferred stock - -
Common stock 21,000 19,000
Additional paid in capital 69,456,000 69,276,000
Accumulated other comprehensive loss (2,696,000) (1,140,000)
Accumulated deficit (19,334,000) (14,136,000)
------------- -------------
Total Stockholders' Equity 47,447,000 54,019,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 151,225,000 $ 158,727,000
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Third Quarters and Nine Months Ended February 29, 2000 and February 28, 1999
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
---------------------------------- ---------------------------------
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 26,501,000 $ 27,248,000 $ 84,072,000 $ 76,903,000
COST OF SALES
Inventory impairment - - - 1,600,000
Other cost of sales 21,355,000 22,446,000 67,115,000 61,005,000
------------ ------------ ------------ ------------
TOTAL COST OF SALES 21,355,000 22,446,000 67,115,000 62,605,000
------------ ------------ ------------ ------------
GROSS PROFIT 5,146,000 4,802,000 16,957,000 14,298,000
OPERATING EXPENSES 4,646,000 4,143,000 14,332,000 12,274,000
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 500,000 659,000 2,625,000 2,024,000
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest Income 1,000 107,000 54,000 470,000
Interest Expense (2,516,000) (2,548,000) (7,668,000) (6,300,000)
Other 10,000 68,000 (1,000) (6,850,000)
------------ ------------ ------------ ------------
(2,505,000) (2,373,000) (7,615,000) (12,680,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAX (2,005,000) (1,714,000) (4,990,000) (10,656,000)
PROVISION FOR INCOME TAXES 330,000 429,000 (205,000) 2,384,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) (1,675,000) (1,285,000) (5,195,000) (8,272,000)
------------ ------------ ------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation (830,000) (2,210,000) (969,000) (1,716,000)
Income tax benefit (expense) (634,000) 751,000 (681,000) 583,000
Valuation of available for sale securities -- (1,574,000) -- (1,138,000)
------------ ------------ ------------ ------------
(1,464,000) (3,033,000) (1,650,000) (2,271,000)
------------ ------------ ------------ ------------
COMPREHENSIVE LOSS $ (3,139,000) $ (4,318,000) $ (6,845,000) $(10,543,000)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE:
BASIC $ (0.08) $ (0.07) $ (0.26) $ (0.49)
DILUTED $ (0.08) $ (0.07) $ (0.26) $ (0.49)
SHARES USED IN COMPUTATION OF
NET INCOME (LOSS) PER SHARE:
BASIC 21,043,000 18,591,000 20,044,000 16,903,000
DILUTED 21,043,000 18,591,000 20,044,000 16,903,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended February 29, 2000 and February 28, 1999
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
February 29, February 28,
2000 1999
(Unaudited) (Unaudited)
--------------- ---------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net cash from operating activities $ (4,994,000) $ (5,062,000)
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (3,434,000) (6,640,000)
Proceeds from sale of property and equipment 21,000 -
Acquisition of subsidiaries (1,282,000) (69,244,000)
Increase in notes receivable (1,505,000) -
------------ ------------
Net cash from investing activities (6,200,000) (75,884,000)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line of credit 5,871,000 (1,511,000)
Proceeds from long-term debt - 72,622,000
Payments on long term debt and cap leases (2,047,000) (5,367,000)
Sale of common stock, net of issuance costs 98,000 4,872,000
Sale of preferred stock, net of issuance costs (4,000) 6,683,000
Proceeds from exercise of warrants 87,000 -
------------ ------------
Net cash from financing activities 4,005,000 77,299,000
------------ ------------
NET CHANGE IN CASH (7,189,000) (3,647,000)
CASH AT BEGINNING OF PERIOD 8,134,000 11,461,000
EFFECT OF EXCHANGE RATES ON CASH 157,000 (215,000)
------------ ------------
CASH AT END OF PERIOD $ 1,102,000 $ 7,599,000
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Seller financed acquisition of property, plant and equipment $ - $ 290,000
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
5
<PAGE>
PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES
MANAGEMENT'S STATEMENT AND
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Third Quarters and Nine Months Ended February 29, 2000 and February 28, 1999
Management's Statement
- ----------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Form 10-Q instructions and, in the opinion of management,
contain all adjustments necessary to present fairly the Company's consolidated
financial position as of February 29, 2000 and May 31, 1999, the consolidated
results of operations for the quarters and nine months ended February 29, 2000
and February 28, 1999, and the consolidated statements of cash flows for the
nine months ended February 29, 2000 and February 28, 1999. All significant
intercompany transactions have been eliminated in the consolidation process.
These results have been determined on the basis of generally accepted accounting
principles and practices applied consistently with those used in the preparation
of the Company's annual and quarterly reports under the Securities Exchange Act
of 1934, as amended.
Certain information and footnote disclosures normally included in audited
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. The consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto for the years ended May 31, 1999 and 1998.
The results of operations for the quarter and nine months ended February 29,
2000 are not necessarily indicative of the results to be expected or anticipated
for the full fiscal year.
Note 1: Net Income (Loss) Per Share:
---------------------------
Basic income (loss) per share is computed using the weighted average number of
common shares outstanding during the period. Diluted income (loss) per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period using the treasury stock method.
As the Company had a net loss for the periods ended February 29, 2000 and
February 28, 1999, basic and diluted net loss per share are the same.
Note 2: Inventories
-----------
Components of inventories are as follows:
February 29, May 31,
2000 1999
---- ----
Raw materials $ 7,091,000 $ 7,374,000
Work in progress 15,943,000 11,478,000
Finished goods 5,299,000 5,764,000
----------- -----------
Total $28,333,000 $24,616,000
=========== ===========
6
<PAGE>
Note 3: Liquidity
---------
During the quarter and nine months ended February 29, 2000, the Company's
operating activities used cash of $1,743,000 and $4,994,000, respectively. Cash
at February 29, 2000, was $1,102,000 (compared to $8,134,000 at May 31, 1999),
all but $456,000 of which resides at non-guarantor subsidiaries. During the nine
months ended February 29, 2000, the Company incurred net borrowings of
$5,871,000 under a previously unused $6,300,000 line of credit. In March 2000,
the Company completed a private offering of common stock, which resulted in net
proceeds to the Company of $4,059,000. The Company believes that its current
working capital and unused lines of credit are sufficient to meet its
obligations as they become due during the remainder of fiscal 2000. However, the
Company may need to obtain additional cash after fiscal 2000. Should the Company
need to dispose of its assets, there is no assurance that the carrying values
will be realizable upon liquidation outside of the ordinary course of business.
The Company's inability to obtain additional cash if and when needed could have
a material adverse effect on its financial position and results of operations.
Note 4: Consolidating Condensed Financial Statements
---------------------------------------------
The following financial statements present consolidating condensed financial
information of the Company for the indicated periods. The Company's 11 1/4%
senior subordinated notes, which were used to finance the Aeromet acquisition in
July 1998, have been guaranteed by all of the Company's U.S. wholly owned
subsidiaries. The guarantor subsidiaries have fully and unconditionally
guaranteed this debt on a joint and several basis. This debt is not guaranteed
by the Company's foreign subsidiaries, which consist of Aeromet and two related
holding companies. There are no significant contractual restrictions on the
distribution of funds from the guarantor subsidiaries to the parent corporation.
The consolidating condensed financial information is presented in lieu of
separate financial statements and other disclosures of the guarantor
subsidiaries, as management has determined that such information is not material
to investors.
7
<PAGE>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Balance Sheet
February 29, 2000
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash $ 441,000 $ 15,000 $ 646,000 $ - $ 1,102,000
Accounts receivable, net - 8,581,000 13,156,000 (389,000) 21,348,000
Inventories - 15,830,000 12,503,000 - 28,333,000
Other 150,000 1,295,000 651,000 1,057,000 3,153,000
------------- ------------- ------------- ------------- -------------
Total current assets 591,000 25,721,000 26,956,000 668,000 53,936,000
PROPERTY AND EQUIPMENT, net 6,457,000 22,741,000 15,884,000 - 45,082,000
OTHER ASSETS
Costs in excess of net book value
of acquired subsidiaries, net - 4,150,000 37,053,000 - 41,203,000
Investment in common stock, net 19,000 - - - 19,000
Investment in and loans to subsidiaries 116,101,000 72,618,000 - (188,719,000) -
Other 7,666,000 3,196,000 123,000 - 10,985,000
------------- ------------- ------------- ------------- -------------
Total other assets 123,786,000 79,964,000 37,176,000 (188,719,000) 52,207,000
------------- ------------- ------------- ------------- -------------
TOTAL ASSETS $ 130,834,000 $ 128,426,000 $ 80,016,000 $(188,051,000) $ 151,225,000
============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable $ 152,000 $ 3,876,000 $ 6,651,000 $ (389,000) $ 10,290,000
Current portion of long-term debt 206,000 979,000 - - 1,185,000
Line of credit 5,871,000 - - - 5,871,000
Other 811,000 2,341,000 1,315,000 1,057,000 5,524,000
------------- ------------- ------------- ------------- -------------
Total current liabilities 7,040,000 7,196,000 7,966,000 668,000 22,870,000
LONG-TERM LIABILITIES
Long-term debt, net of current portion 76,222,000 3,180,000 - - 79,402,000
Intercompany note and loan payable - 64,583,000 38,957,000 (103,540,000) -
Other 125,000 782,000 599,000 - 1,506,000
------------- ------------- ------------- ------------- -------------
Total long-term liabilities 76,347,000 68,545,000 39,556,000 (103,540,000) 80,908,000
STOCKHOLDERS' EQUITY
Convertible preferred stock - - - - -
Common stock 21,000 56,139,000 33,710,000 (89,849,000) 21,000
Additional paid-in capital 69,456,000 - - - 69,456,000
Accumulated other comprehensive loss (2,696,000) - (1,834,000) 1,834,000 (2,696,000)
Retained earnings (accumulated deficit) (19,334,000) (3,454,000) 618,000 2,836,000 (19,334,000)
------------- ------------- ------------- ------------- -------------
Total stockholders' equity 47,447,000 52,685,000 32,494,000 (85,179,000) 47,447,000
------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 130,834,000 $ 128,426,000 $ 80,016,000 $(188,051,000) $ 151,225,000
============= ============= ============= ============= =============
</TABLE>
8
<PAGE>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Balance Sheet
May 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash $ 1,798,000 $ 39,000 $ 6,297,000 $ -- $ 8,134,000
Accounts receivable, net -- 8,723,000 16,661,000 (392,000) 24,992,000
Inventories -- 13,564,000 11,052,000 -- 24,616,000
Other 4,535,000 1,517,000 660,000 (3,516,000) 3,196,000
------------- ------------- ------------- ------------- -------------
Total current assets 6,333,000 23,843,000 34,670,000 (3,908,000) 60,938,000
PROPERTY AND EQUIPMENT, net 6,151,000 21,930,000 17,198,000 -- 45,279,000
OTHER ASSETS
Costs in excess of net book value
of acquired subsidiaries, net -- 2,717,000 38,335,000 -- 41,052,000
Investment in common stock, net 72,000 -- -- -- 72,000
Investment in and loans to subsidiaries 115,099,000 75,000,000 85,000 (190,184,000) --
Other 8,254,000 3,295,000 (163,000) -- 11,386,000
------------- ------------- ------------- ------------- -------------
Total other assets 123,425,000 81,012,000 38,257,000 (190,184,000) 52,510,000
------------- ------------- ------------- ------------- -------------
TOTAL ASSETS $ 135,909,000 $ 126,785,000 $ 90,125,000 $(194,092,000) $ 158,727,000
============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------
CURRENT LIABILITIES
Accounts payable $ 180,000 $ 2,542,000 $ 8,154,000 $ (392,000) $ 10,484,000
Current portion of long-term debt 138,000 1,140,000 -- -- 1,278,000
Other 5,084,000 1,597,000 7,682,000 (3,516,000) 10,847,000
------------- ------------- ------------- ------------- -------------
Total current liabilities 5,402,000 5,279,000 15,836,000 (3,908,000) 22,609,000
LONG-TERM LIABILITIES
Long-term debt, net of current portion 76,375,000 3,845,000 -- -- 80,220,000
Intercompany note and loan payable 85,000 61,869,000 37,500,000 (99,454,000) --
Other 28,000 1,105,000 746,000 -- 1,879,000
------------- ------------- ------------- ------------- -------------
Total long-term liabilities 76,488,000 66,819,000 38,246,000 (99,454,000) 82,099,000
STOCKHOLDERS' EQUITY
Convertible preferred stock -- -- -- -- --
Common stock 19,000 58,641,000 35,117,000 (93,758,000) 19,000
Additional paid-in capital 69,276,000 -- -- -- 69,276,000
Accumulated other comprehensive loss (1,140,000) -- (1,136,000) 1,136,000 (1,140,000)
Retained earnings (accumulated deficit) (14,136,000) (3,954,000) 2,062,000 1,892,000 (14,136,000)
------------- ------------- ------------- ------------- -------------
Total stockholders' equity 54,019,000 54,687,000 36,043,000 (90,730,000) 54,019,000
------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 135,909,000 $ 126,785,000 $ 90,125,000 $(194,092,000) $ 158,727,000
============= ============= ============= ============= =============
</TABLE>
9
<PAGE>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Operations
For the Quarter Ended February 29, 2000
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ -- $ 14,058,000 $ 13,255,000 $ (812,000) $ 26,501,000
Cost of Sales -- 10,659,000 11,508,000 (812,000) 21,355,000
------------ ------------ ------------ ------------ ------------
Gross profit -- 3,399,000 1,747,000 -- 5,146,000
Operating expenses 1,565,000 3,230,000 1,548,000 (1,697,000) 4,646,000
------------ ------------ ------------ ------------ ------------
Income (loss) from operations (1,565,000) 169,000 199,000 1,697,000 500,000
Other income (expense)
Parent's share of subsidiaries net loss (501,000) -- -- 501,000 --
Interest expense (2,373,000) (1,199,000) (1,104,000) 2,160,000 (2,516,000)
Other 2,758,000 1,110,000 -- (3,857,000) 11,000
------------ ------------ ------------ ------------ ------------
Total other income (expense) (116,000) (89,000) (1,104,000) (1,196,000) (2,505,000)
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes (1,681,000) 80,000 (905,000) 501,000 (2,005,000)
Income tax benefit (expense) 6,000 195,000 129,000 -- 330,000
------------ ------------ ------------ ------------ ------------
Net income (loss) (1,675,000) 275,000 (776,000) 501,000 (1,675,000)
Other comprehensive income (loss)
Foreign currency translation, net of tax (1,464,000) -- (1,464,000) 1,464,000 (1,464,000)
Adjustment for unrealized loss on investment -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total other comprehensive income (loss) (1,464,000) -- (1,464,000) 1,464,000 (1,464,000)
------------ ------------ ------------ ------------ ------------
Comprehensive income (loss) $ (3,139,000) $ 275,000 $ (2,240,000) $ 1,965,000 $ (3,139,000)
============ ============ ============ ============ ============
</TABLE>
10
<PAGE>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Operations
For the Quarter Ended February 28, 1999
<TABLE>
<CAPTION> GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ -- $ 12,749,000 $ 15,196,000 $ (697,000) $ 27,248,000
Cost of Sales -- 11,018,000 12,125,000 (697,000) 22,446,000
------------ ------------ ------------ ------------ ------------
Gross profit -- 1,731,000 3,071,000 -- 4,802,000
Operating expenses 1,092,000 2,583,000 919,000 (451,000) 4,143,000
------------ ------------ ------------ ------------ ------------
Income (loss) from operations (1,092,000) (852,000) 2,152,000 451,000 659,000
Other income (expense)
Parent's share of subsidiaries net income 18,000 -- -- (18,000) --
Interest expense (2,348,000) (198,000) (1,057,000) 1,055,000 (2,548,000)
Other 1,586,000 95,000 -- (1,506,000) 175,000
------------ ------------ ------------ ------------ ------------
Total other income (expense) (744,000) (103,000) (1,057,000) (469,000) (2,373,000)
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes (1,836,000) (955,000) 1,095,000 (18,000) (1,714,000)
Income tax benefit (expense) 551,000 249,000 (371,000) -- 429,000
------------ ------------ ------------ ------------ ------------
Net income (loss) (1,285,000) (706,000) 724,000 (18,000) (1,285,000)
Other comprehensive income (loss)
Foreign currency translation, net of tax (1,459,000) -- 1,459,000 (1,459,000) (1,459,000)
Adjustment for unrealized loss on investment (1,574,000) -- -- -- (1,574,000)
------------ ------------ ------------ ------------ ------------
Total other comprehensive income (loss) (3,033,000) -- 1,459,000 (1,459,000) (3,033,000)
------------ ------------ ------------ ------------ ------------
Comprehensive income (loss) $ (4,318,000) $ (706,000) $ 2,183,000 $ (1,477,000) $ (4,318,000)
============ ============ ============ ============ ============
</TABLE>
11
<PAGE>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Operations
For the nine months ended February 29, 2000
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ -- $ 43,174,000 $ 42,588,000 $ (1,690,000) $ 84,072,000
Cost of Sales -- 32,741,000 36,064,000 (1,690,000) 67,115,000
------------ ------------ ------------ ------------ ------------
Gross profit -- 10,433,000 6,524,000 -- 16,957,000
Operating expenses 4,542,000 9,651,000 4,498,000 (4,359,000) 14,332,000
------------ ------------ ------------ ------------ ------------
Income (loss) from operations (4,542,000) 782,000 2,026,000 4,359,000 2,625,000
Other income (expense)
Parent's share of subsidiaries net loss (943,000) -- -- 943,000 --
Interest expense (7,234,000) (3,619,000) (3,311,000) 6,496,000 (7,668,000)
Other 7,524,000 3,349,000 35,000 (10,855,000) 53,000
------------ ------------ ------------ ------------ ------------
Total other income (expense) (653,000) (270,000) (3,276,000) (3,416,000) (7,615,000)
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes (5,195,000) 512,000 (1,250,000) 943,000 (4,990,000)
Income tax benefit (expense) -- (12,000) (193,000) -- (205,000)
------------ ------------ ------------ ------------ ------------
Net income (loss) (5,195,000) 500,000 (1,443,000) 943,000 (5,195,000)
Other comprehensive income (loss)
Foreign currency translation, net of tax (1,650,000) -- (1,654,000) 1,654,000 (1,650,000)
Adjustment for unrealized loss on investment -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total other comprehensive income (loss) (1,650,000) -- (1,654,000) 1,654,000 (1,650,000)
------------ ------------ ------------ ------------ ------------
Comprehensive income (loss) $ (6,845,000) $ 500,000 $ (3,097,000) $ 2,597,000 $ (6,845,000)
============ ============ ============ ============ ============
</TABLE>
12
<PAGE>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Operations
For the nine months ended February 28, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ -- $ 42,955,000 $ 35,755,000 $ (1,807,000) $ 76,903,000
Cost of Sales -- 35,521,000 28,891,000 (1,807,000) 62,605,000
------------ ------------ ------------ ------------ ------------
Gross profit -- 7,434,000 6,864,000 -- 14,298,000
Operating expenses 2,882,000 8,499,000 2,472,000 (1,579,000) 12,274,000
------------ ------------ ------------ ------------ ------------
Income (loss) from operations (2,882,000) (1,065,000) 4,392,000 1,579,000 2,024,000
Other income (expense)
Parent's share of subsidiaries net loss (2,902,000) -- -- 2,902,000 --
Interest expense (5,760,000) (524,000) (2,477,000) 2,461,000 (6,300,000)
Other 1,323,000 (3,672,000) 9,000 (4,040,000) (6,380,000)
------------ ------------ ------------ ------------ ------------
Total other income (expense) (7,339,000) (4,196,000) (2,468,000) 1,323,000 (12,680,000)
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes (10,221,000) (5,261,000) 1,924,000 2,902,000 (10,656,000)
Income tax benefit (expense) 1,949,000 1,251,000 (816,000) -- 2,384,000
------------ ------------ ------------ ------------ ------------
Net income (loss) (8,272,000) (4,010,000) 1,108,000 2,902,000 (8,272,000)
Other comprehensive income (loss)
Foreign currency translation, net of tax (1,133,000) -- (1,133,000) 1,133,000 (1,133,000)
Adjustment for unrealized loss on investment (1,138,000) -- -- -- (1,138,000)
------------ ------------ ------------ ------------ ------------
Total other comprehensive income (loss) (2,271,000) -- (1,133,000) 1,133,000 (2,271,000)
------------ ------------ ------------ ------------ ------------
Comprehensive income (loss) $(10,543,000) (4,010,000) $ (25,000) $ 4,035,000 $(10,543,000)
============ ============ ============ ============ ============
</TABLE>
13
<PAGE>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Cash Flows
For the nine months ended February 29, 2000
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
- ------------------------------------
Net cash provided by (used in)
operating activities $ (3,826,000) $ 2,180,000 $ (4,832,000) $ 1,484,000 $ (4,994,000)
CASH FLOW FROM INVESTING ACTIVITIES:
- -----------------------------------
Purchase of property, plant and equipment (625,000) (1,837,000) (972,000) -- (3,434,000)
Acquisition of subsidiaries (1,282,000) -- -- -- (1,282,000)
Other changes, net (1,505,000) 21,000 85,000 (85,000) (1,484,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities (3,412,000) (1,816,000) (887,000) (85,000) (6,200,000)
CASH FLOW FROM FINANCING ACTIVITIES:
- -----------------------------------
Net borrowings (repayments) under line of credit 5,871,000 -- -- -- 5,871,000
Payments on long-term debt and capital leases (86,000) (1,822,000) (139,000) -- (2,047,000)
Sale of common stock, net of issuance costs 98,000 -- -- -- 98,000
Other changes, net (2,000) 488,000 50,000 (453,000) 83,000
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities 5,881,000 (1,334,000) (89,000) (453,000) 4,005,000
------------ ------------ ------------ ------------ ------------
NET CHANGE IN CASH (1,357,000) (970,000) (5,808,000) 946,000 (7,189,000)
CASH AT BEGINNING OF PERIOD 1,798,000 39,000 6,297,000 -- 8,134,000
EFFECT OF EXCHANGE RATES ON CASH -- -- 157,000 -- 157,000
------------ ------------ ------------ ------------ ------------
CASH AT END OF PERIOD $ 441,000 $ (931,000) $ 646,000 $ 946,000 $ 1,102,000
============ ============ ============ ============ ============
SUPPLEMENTAL CASH FLOW:
- ----------------------
Noncash operating expenses related to:
Depreciation $ 319,000 $ 2,312,000 $ 2,067,000 $ -- 4,698,000
Amortization -- 327,000 742,000 -- 1,069,000
Cash paid during the period for:
Interest 8,860,000 3,609,000 7,880,000 (11,053,000) 9,296,000
Income taxes -- -- 2,185,000 -- 2,185,000
</TABLE>
14
<PAGE>
Pacific Aerospace & Electronics, Inc.
Consolidating Condensed Statement of Cash Flows
For the nine months Ended February 28, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
- ------------------------------------
Net cash provided by (used in)
operating activities $ (7,672,000) $ (386,000) $ 1,717,000 $ 1,279,000 $ (5,062,000)
CASH FLOW FROM INVESTING ACTIVITIES:
- -----------------------------------
Purchase of property, plant
and equipment (1,958,000) (3,903,000) (779,000) -- (6,640,000)
Acquisition of subsidiaries (69,146,000) (98,000) -- -- (69,244,000)
Other changes, net (9,253,000) 3,027,000 6,226,000 --
------------ ------------ ------------- ------------ -------------
Net cash provided by
(used in) investing
activities (80,357,000) (4,001,000) 2,248,000 6,226,000 (75,884,000)
CASH FLOW FROM FINANCING ACTIVITIES:
- -----------------------------------
Payments on long-term debt
and capital leases (4,112,000) (1,219,000) (36,000) -- (5,367,000)
Proceeds from long-term debt 72,622,000 -- -- -- 72,622,000
Sale of common stock, net
of issuance costs 4,872,000 -- -- -- 4,872,000
Sale of preferred stock, net
of issuance costs 6,683,000 -- -- -- 6,683,000
Other changes, net -- 5,659,000 335,000 (7,505,000) (1,511,000)
------------ ------------ ------------- ------------ ------------
Net cash provided by
(used in) financing
activities 80,065,000 4,440,000 299,000 (7,505,000) 77,299,000
------------ ------------ ------------- ------------ ------------
NET CHANGE IN CASH (7,964,000) 53,000 4,264,000 -- (3,647,000)
CASH AT BEGINNING OF PERIOD 9,398,000 2,063,000 -- -- 11,461,000
EFFECT OF EXCHANGE RATES ON CASH -- (215,000) -- (215,000)
------------ ------------ ------------ ------------ ------------
CASH AT END OF PERIOD $ 1,434,000 $ 2,116,000 $ 4,049,000 $ -- $ 7,599,000
============ ============ ============ ============ ============
SUPPLEMENTAL CASH FLOW:
- ----------------------
Noncash operating expenses
related to:
Depreciation $ 125,000 $ 2,191,000 $ 1,609,000 $ -- $ 3,925,000
Amortization -- 313,000 597,000 -- 910,000
Cash paid during the period for:
Interest 4,845,000 535,000 13,000 -- 5,393,000
Income taxes 100,000 -- 311,000 411,000
Noncash investing and financing
activities:
Seller financed acquisition
of property, plant and
equipment 128,000 162,000 -- -- 290,000
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Inventories consist of the following:
February 29, 2000 May 31, 1999
----------------- ------------
Guarantor subsidiaries
<S> <C> <C>
Raw materials $ 5,027,000 $ 5,074,000
Work in progress 6,095,000 3,788,000
Finished goods $ 4,708,000 $ 4,702,000
------------------ ---------------
$ 15,830,000 $ 13,564,000
================== ===============
Non-guarantor subsidiaries
Raw materials $ 2,064,000 $ 2,300,000
Work in progress 8,848,000 7,690,000
Finished goods $ 591,000 $ 1,062,000
------------------ ---------------
$ 12,503,000 $ 11,052,000
================== ===============
</TABLE>
16
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Preliminary Note Regarding Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and is subject to the safe harbor created by those sections. Actual
results could differ materially from those projected in the forward-looking
statements set forth in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Overview
- --------
The Company has been an active consolidator of companies, and our results of
operations have been substantially affected by acquisitions. These acquisitions,
as well as internal growth in our existing and acquired businesses, have
resulted in substantial increases in net sales during certain periods. Our
operating expenses, margins and other expenses have also been affected by
certain expenses directly associated with the acquisitions and related capital
raising transactions. We have experienced substantial increases in other expense
categories as a result of the increases in operations. A portion of these
expenses is attributable to the assimilation of acquired operations into our
existing businesses.
In July 1998, we acquired Aeromet International PLC ("Aeromet"), a British
limited company. Aeromet, which comprises our European Aerospace Group, is a
manufacturer of magnesium and aluminum precision sand and investment castings,
and of titanium and aluminum formed sheet products, with five locations in
England. The Aeromet acquisition has and will have a significant effect on our
future operations and on comparisons of income, expense and balance sheet items
in periods after fiscal 1998.
Substantially all of our revenue is generated by sales to customers in the
aerospace, defense, electronics, medical, energy and transportation industries,
with aerospace and defense industry sales being the most significant. The
electronics, defense, and aerospace industries are cyclical in nature and
subject to changes based on general economic conditions and commercial airline
industry, defense and government spending.
Our operations focus on developing, manufacturing and marketing high performance
electronics and metal components and assemblies. Our electronics products are
characterized by relatively low volumes and high margins. In comparison, volumes
have historically been higher and margins lower for our metals products. We
believe that margins will remain higher for electronic products than for metals
products. We also believe that assembled products incorporating both electronics
and metal parts will generate margins closer to, but not as high as, electronics
product margins. As a result of margin differences, changes in product mix among
our electronics, assembled and metals products can be expected to affect overall
margins.
Our sales are not subject to significant seasonal fluctuations. However,
production and resulting sales are subject to the number of working days in any
given period. Results for various periods may vary materially due to the number
of working days available in any period. We believe that our operations for the
periods discussed have not been adversely affected by inflation.
Results of Operations
- ---------------------
Quarter Ended February 29, 2000 Compared to Quarter Ended February 28, 1999
Net Sales. Net sales decreased by $0.7 million, or 2.7%, to $26.5 million for
the quarter ended February 29, 2000, from $27.2 million for the quarter ended
February 28, 1999. The European Aerospace Group contributed $13.3 million, down
$1.9 million from the $15.2 million contributed during the quarter ended
February 28, 1999. We believe that customer inventory evaluation and reduction
initiatives, which have also impacted our U.S. Aerospace Group operations over
the past year, are the primary cause for the decline in the European Aerospace
Group revenue. We expect that our net sales in the European Aerospace Group will
be slightly down in the fourth quarter of fiscal 2000 as compared to the
corresponding quarter in fiscal 1999. Net sales in the U.S. Aerospace Group were
$7.5 million during the quarter ended February 29, 2000, an increase of $0.9
million over the $6.6 million contributed during the quarter ended February 28,
1999. Our U.S. Aerospace Group
17
<PAGE>
experienced a decrease in order backlog and corresponding slowdown of product
deliveries to Boeing during fiscal 1999. Product deliveries continued to slow
through the second quarter of fiscal 2000 but stabilized during the third
quarter of fiscal 2000. We expect that sales volume in our U.S. Aerospace Group
may start to increase during the fourth quarter of fiscal 2000 due to the
signing of a new multiple year supplier contract with Boeing during the third
quarter of fiscal 2000. Our U.S. Electronics Group contributed $5.7 million in
net sales during the quarter ended February 29, 2000, up $0.2 million from the
$5.5 million contributed during the quarter ended February 28, 1999. This
increase was primarily attributable to additional sales of products for
communications, satellite and weapons systems. We expect the sales volume in our
U.S. Electronics Group to remain at current levels or decrease slightly during
the fourth quarter of fiscal 2000 due to order timing.
Gross Profit. Gross profit increased by $0.3 million, or 7.2%, to $5.1 million
for the quarter ended February 29, 2000, from $4.8 million for the quarter ended
February 28, 1999. As a percentage of net sales, gross profit increased to 19.4%
for the quarter ended February 29, 2000, from 17.6% for the quarter ended
February 28, 1999. The resulting comparative increase in gross profit in the
third quarter of fiscal 2000 over the third quarter of fiscal 1999 was primarily
due to higher gross margins in our U.S. Electronics Group resulting from
manufacturing efficiencies.
Operating Expenses. Operating expenses increased by $0.5 million, or 12.2%, to
$4.6 million for the quarter ended February 29, 2000, from $4.1 million for the
quarter ended February 28, 1999. As a percentage of net sales, operating
expenses increased 2.3 percentage points, to 17.5% for the quarter ended
February 29, 2000, from 15.2% for the quarter ended February 28, 1999. The
increase in operating expenses is attributable primarily to increased sales and
marketing costs, investor relations costs and health insurance costs.
Interest Expense. Interest expense remained essentially the same for each
quarter at $2.5 million, with $2.4 million of the interest expense related to
our outstanding 11 1/4% senior subordinated notes.
Provision for Income Taxes. Income tax provision was decreased during the
quarter ended February 29, 2000, due to a decrease in U.K. taxable earnings and
an increase in the estimated current U.S. net operating loss carryback benefit.
Net Income (Loss). Net loss increased by $0.4 million, or 30.4%, to a net loss
of $1.7 million for the quarter ended February 29, 2000, from a net loss of $1.3
million for the quarter ended February 28, 1999, due to the factors listed
above.
Nine Months Ended February 29, 2000 Compared to Nine Months Ended February 28,
1999
Net Sales. Net sales increased by $7.2 million, or 9.3%, to $84.1 million for
the nine months ended February 29, 2000, from $76.9 million for the nine months
ended February 28, 1999. The European Aerospace Group contributed $42.6 million,
up $6.8 million from the $35.8 million contributed during the nine months ended
February 28, 1999. This increase was primarily due to nine months of operations
of the European Aerospace Group during the nine month period in fiscal 2000,
compared to seven months of operations during the same period in fiscal 1999.
The increase in the European Aerospace Group net sales was partially offset by a
decrease in net sales of $0.8 million from the U.S. Aerospace Group, which
contributed $23.3 million during the nine months ended February 29, 2000, versus
$24.1 million contributed during the nine months ended February 28, 1999. Our
U.S. Aerospace Group experienced a decrease in order backlog and corresponding
slowdown of product deliveries to Boeing during fiscal 1999. This situation
continued through the first six months and stabilized in the third quarter of
fiscal 2000. We expect that sales volume in our U.S. Aerospace Group may start
to increase during the fourth quarter of fiscal 2000 due to the signing of a new
multiple year supplier contract with Boeing during the third quarter of fiscal
2000. Our U.S. Electronics Group contributed $18.2 million to net sales during
the nine months ended February 29, 2000, up $1.1 million from the $17.1 million
contributed during the nine months ended February 28, 1999. This increase was
primarily attributable to additional sales of products for communications,
satellite and weapons systems. We expect the sales volume in our U.S.
Electronics Group to remain at current levels or decrease slightly during the
fourth quarter of fiscal 2000 due to order timing.
Gross Profit. Gross profit increased by $2.7 million, or 18.6%, to $17.0 million
for the nine months ended February 29, 2000, from $14.3 million for the nine
months ended February 28, 1999. This increase was primarily due to nine months
of operations of the European Aerospace Group in fiscal 2000 versus seven months
in fiscal 1999. As a percentage of net sales, gross profit increased to 20.2%
for the nine months ended February
18
<PAGE>
29, 2000, from 18.6% for the nine months ended February 28, 1999. The nine
months ended February 28, 1999 included a $1.6 million inventory impairment
charge. Without that charge, gross profit would have been $15.9 million, or
20.7% of net sales. The resulting comparative decrease in gross profit as a
percentage of net sales during the first nine months of fiscal 2000 from the
first nine months of fiscal 1999 was due to lower gross margins in our U.S.
Aerospace Group, primarily due to customers' pricing reduction programs and
lower sales volumes. We anticipate that gross margins in the fourth quarter of
fiscal 2000 may increase slightly over margins achieved during the first nine
months of fiscal 2000 due to anticipated increases in sales volume within our
U.S. and European Aerospace Groups as mentioned above. The gross profit decrease
described above was substantially offset by an improvement in the gross profit
of the U.S. Electronics Group resulting from increases in revenue and production
efficiencies.
Operating Expenses. Operating expenses increased by $2.1 million, or 16.8%, to
$14.3 million for the nine months ended February 29, 2000, from $12.3 million
for the nine months ended February 28, 1999. As a percentage of net sales,
operating expenses increased 1.0 percentage point, to 17.0% for the nine months
ended February 29, 2000, from 16.0% for the nine months ended February 28, 1999.
The increase in operating expenses is primarily attributable to nine months of
operations in our European Aerospace group in fiscal 2000 versus seven months of
operations for the same period in fiscal 1999. In addition, computer system
upgrades and other "Y2K" expenditures, increased sales and marketing costs,
increased investor relations costs and increased health insurance costs have
caused an increase in operating expenses during the first nine months of fiscal
2000.
Interest Expense. Interest expense increased by $1.4 million, or 21.7%, to $7.7
million for the nine months ended February 29, 2000, from $6.3 million for the
nine months ended February 28, 1999. This increase was due to nine months of
interest expense during 2000 on our 11 1/4% senior subordinated notes, versus
seven months of interest expense on these notes in the same period in 1999.
Other Income (Expense). Other income (expense) includes non-recurring and
non-operational income and expense for the period. Other expense decreased by
$6.9 million, to $1,000, for the nine months ended February 29, 2000. Other
expense during the nine months ended February 28, 1999 included non-recurring
charges of $3.6 million and $3.1 million related to goodwill and investment
valuation allowances, respectively.
Provision for Income Taxes. Income taxes for the nine months ended February 2000
and 1999 primarily represent changes in the valuation allowance to adjust
deferred income tax assets to amounts determined to be realizable based upon
current operating results, and U.K. tax on U.K. earnings of our European
Aerospace Group. At February 29, 2000 we had net operating loss (NOLs)
carryforwards for federal income tax purposes of approximately $14.0 million,
the benefits of which expire in the tax year 2001 through the tax year 2019. The
NOLs created by our subsidiaries prior to their acquisition, and the NOLs
created as a consolidated group or groups subsequent to a qualifying tax free
merger or acquisition, have limitations related to the amount of usage by each
subsidiary or consolidated group as described in the Internal Revenue Code. As a
result of these limitations, approximately $1.5 million of the $14.0 million of
NOLs will never become available. At February 29, 2000 we had net deferred tax
assets of $3.4 million, the realization of which is dependent on material
increases in present levels of pre-tax income, primarily in the United States.
We expect to achieve these increases through continued integration, cross-
selling, and operational efficiencies in our businesses, as well as other tax
strategies. We anticipate that our effective income tax rate will approach and
may exceed the statutory rate in the future as pre-tax income is achieved. In
addition, undistributed earnings of our foreign subsidiaries, for which a
minimal amount of U.S. income taxes have been provided, aggregated approximately
$0.6 million at February 29, 2000.
Net Income (Loss). Net loss decreased by $3.1 million, or 37.2%, to a net loss
of $5.2 million for the nine months ended February 29, 2000, from a net loss of
$8.3 million for the nine months ended February 28, 1999, due to the factors
listed above.
Liquidity and Capital Resources
Liquidity. During the quarter and nine months ended February 29, 2000, our
operating activities used cash of $1.7 million and $5.0 million, respectively.
Cash at February 29, 2000 was $1.1 million (compared to $8.1 million at May 31,
999), all but $456,000 of which resides at non-guarantor subsidiaries. During
the nine months ended February 29, 2000, we borrowed $5.9 million under our U.S.
$6.3 million line of credit. In March 2000
19
<PAGE>
we completed a private sale of Common Stock which resulted in net cash proceeds
of $4.1 million. We believe that our working capital and unused lines of credit
are sufficient to meet our obligations as they become due during fiscal 2000.
However, we may need to obtain additional cash after fiscal 2000. Should we need
to dispose of assets to generate cash, there is no assurance that the carrying
values will be realizable upon liquidation outside of the ordinary course of
business. Our inability to obtain additional cash if and when needed could have
a material adverse effect on our financial position and results of operations.
Financing. Our primary banking relationships include a revolving line of credit
up to $6.3 million for our U.S. operations and a revolving line of credit up to
approximately $5.6 million ((pound)3.5 million) for our European operations. As
of February 29, 2000, we had drawn $5.9 million on our U.S. line of credit to
support working capital needs, and our European line of credit was unused.
Subsequent to the end of the quarter, we paid down the U.S. credit line to
approximately $2.2 million with proceeds from the sale of Common Stock.
Capital Expenditures. We incurred capital expenditures of $0.9 million during
the third quarter of fiscal 2000. The expenditures were primarily for
manufacturing equipment and building improvements. The expansion of the
manufacturing facility that is used by two divisions of our U.S. Electronics
Group resumed in March 2000, having been rescheduled from the second quarter.
This expansion is expected to be completed early in fiscal 2001, for a total
cost of approximately $800,000, of which approximately $300,000 has already been
expended.
Equity Financing - Sale of Common Stock. Subsequent to the end of the third
quarter, on March 21, 2000, we closed a private offering (the "Offering") of
1,598,000 shares of Common Stock to 26 accredited investors for net offering
proceeds of $4,058,920 (gross proceeds of $4,794,000 less commissions of
$735,080), in a transaction exempt from registration under Rule 506, promulgated
under the Securities Act of 1933, as amended (the "Securities Act"). We have
agreed to use our best efforts to file a registration statement within 60 days
after the closing date to register the resale of the shares sold in the
Offering. Proceeds from this sale were used to pay down our U.S. credit line.
Exchange of Common Stock for Senior Subordinated Notes. Subsequent to the end of
the third quarter, in March 2000, we exchanged an aggregate of $11.3 million in
original principal amount of our 11 1/4% senior subordinated notes (the "Notes")
for a total of 2,902,806 shares of Common Stock in four exchange transactions
(the "Exchanges"). The Exchanges were each conducted with the same noteholder.
The issuance of the Common Stock to the noteholder in the Exchanges was exempt
from registration under Section 3(a)(9) of the Securities Act. We believe that
the noteholder resold all the Common Stock issued in the Exchanges into the
public market prior to April 1, 2000. The effect of the Exchanges was to reduce
the outstanding principal amount of our Notes from $75 million to $63.7 million,
which substantially reduces the semi-annual interest payment on the Notes from
$4,218,750 to $3,583,125. The exchanges are expected to result in an approximate
cumulative $700,000 net of tax extraordinary gain in the fourth quarter of
fiscal 2000.
Acquisition of Nova-Tech Engineering, Inc. We previously announced that we had
entered into a stock purchase agreement (the "Stock Purchase Agreement") for the
proposed acquisition of Nova-Tech Engineering, Inc. ("Nova-Tech"). Under the
Stock Purchase Agreement, we planned to purchase all of Nova-Tech's outstanding
stock in exchange for approximately $1.5 million in cash and to pay off certain
outstanding debts of Nova-Tech at closing. On February 4, 2000, we terminated
the Stock Purchase Agreement as a result of material changes that had occurred
in Nova-Tech's business. We continue to believe that Nova-Tech's engineering
capabilities will be an important addition to our business, and we subsequently
reached a new agreement dated as of March 22, 2000, for the purchase of
substantially all of the assets of Nova-Tech (the "Asset Purchase Agreement").
Under the Asset Purchase Agreement, we expect to purchase substantially all of
Nova-Tech's assets for a purchase price of $50,000 in cash and to assume or pay
off certain of its liabilities at closing. Nova-Tech has scheduled a shareholder
meeting for April 26, 2000 to approve the Asset Purchase Agreement. Assuming
shareholder approval is obtained, the acquisition is expected to close shortly
thereafter. We are currently providing services to Nova-Tech under an Operating
Agreement dated April 23, 1999. As of February 29, 2000, we had loaned $2.5
million to Nova-Tech for working capital. These loans were made under the terms
of two demand notes dated April 26, 1999 and August 5, 1999. The loans are each
secured by substantially all of the assets of Nova-Tech.
20
<PAGE>
New Accounting Pronouncements
- -----------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
requires the recognition of all derivatives in the consolidated balance sheet as
either assets or liabilities measured at fair value. SFAS No. 133 was effective
for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued
SFAS No. 137, which delays implementation of SFAS No. 133 until fiscal years
beginning after June 15, 2000. Management has not determined the impact that the
adoption of SFAS No. 133 will have on the Company's financial position or
results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB No. 101), Revenue Recognition, which provides guidance on
the recognition, presentation and disclosure of revenue in financial statements.
SAB No. 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
SAB No. 101, as amended by SAB No. 101A, will be effective in the first quarter
of the Company's fiscal year 2001. Management has not determined the impact that
the adoption of SAB No. 101 will have on the Company's financial position or
results of operations.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44 (FIN No. 44), Accounting for Certain Transactions involving Stock
Compensations, an interpretation of APB Opinion No. 25. Fin No. 44 will be
effective July 1, 2000. However, certain of the conclusions included in the
interpretation apply to events occurring after December 15, 1998 or January 12,
2000. The December 15, 1998 effective date applies prospectively after July 1,
2000 to the accounting for certain exercise price modifications made after
December 15, 1998 and for the definition of an employee for purposes of
determining eligibility to apply APB 25 to accounting for stock option grants to
such persons where the grant occurred after December 15, 1998. The January 12,
2000 effective date applies prospectively after July 1, 2000 to certain fixed
stock award modifications to add a reload feature after January 12, 2000.
Management has not determined the impact that the adoption of FIN No. 44 will
have on the Company's financial position or results of operations.
21
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have financial instruments that are subject to interest rate risk, primarily
debt obligations issued at a fixed rate. However, fixed-rate debt obligations
issued by us are generally not callable until maturity. The fair value of such
instruments approximates their face value, except for the 11 1/4% senior
subordinated notes. We receive no direct information on market trading of the
notes, but indirect information indicates that as of February 29, 2000, the
notes were trading on the open market for approximately 55% to 65% of face
value. We do not consider the market risk exposure for interest rates to be
material.
We are subject to foreign currency exchange rate risk relating to receipts from
and payments to suppliers in foreign currencies. Since approximately 50% of our
transactions are conducted in foreign currency, the exchange rate risk could be
material. We have not entered into any hedging activity as of February 29, 2000.
We are exposed to commodity price fluctuations through purchases of aluminum,
titanium and other raw materials. We enter into certain supplier agreements that
guarantee quantity and price of the applicable commodity to limit the exposure
to commodity price fluctuations and availability concerns. At February 29, 2000,
we had purchase commitments for raw materials aggregating approximately $4
million.
We hold an investment in the Common Stock of a public company. We are exposed to
risks associated with the quoted equity price of the Common Stock. At February
29, 2000, the reported value of the investment was $19,000.
22
<PAGE>
PART II
OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
From time to time we are involved in legal proceedings relating to claims
arising out of operations in the normal course of business. We are not aware of
any material legal proceedings pending or threatened against the Company or any
of our properties.
ITEM 2. CHANGES IN SECURITIES
(a) None.
(b) Dividend Payment Restrictions
In connection with the issuance of our 11 1/4% Senior Subordinated Notes due
2005, which have been exchanged for 11 1/4% Series B Senior Subordinated Notes
due 2005, we are subject to an Indenture that limits our ability to pay
dividends, repurchase our equity securities, make certain other kinds of
restricted payments, and incur certain indebtedness. We have never declared or
paid cash dividends on the Common Stock. We currently anticipate that we will
retain all future earnings to fund the operation of our business, and we do not
anticipate paying dividends on the Common Stock in the foreseeable future.
(c) Private Placement
On March 21, 2000, we closed a private offering (the "Offering") of 1,598,000
shares of Common Stock to 26 accredited investors for net offering proceeds of
$4,058,920 (gross proceeds of $4,794,000 less commissions of $735,080), in a
transaction exempt from registration under Rule 506, promulgated under the
Securities Act. We have agreed to use our best efforts to file a registration
statement within 60 days after the closing date to register the resale of the
shares sold in the Offering.
(d) Debt Exchanges
During March 2000, we exchanged an aggregate of $11.3 million in original
principal amount of our 11 1/4% senior subordinated notes (the "Notes") for a
total of 2,902,806 shares of Common Stock in four exchange transactions (the
"Exchanges"). The Exchanges were each conducted with the same noteholder, Post
Advisory Group, Inc. The issuance of the Common Stock to the noteholder in the
Exchanges was exempt from registration under Section 3(a)(9) of the Securities
Act. We believe that the noteholder resold all the Common Stock issued in the
Exchanges into the public market prior to April 1, 2000. The effect of the
Exchanges was to reduce the outstanding principal amount of our Notes by
approximately 15%, from $75 million to $63.7 million, and to reduce the semi-
annual interest payment on the Notes from $4,218,750 to $3,583,125.
23
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We did not submit any matters to a vote of security holders during the period
covered by this report. However, we held a special meeting of shareholders on
March 20, 2000, for the purpose of approving the issuance of sufficient shares
of our Common Stock to permit conversion of our outstanding Series B Convertible
Preferred Stock. That meeting was originally scheduled for March 6, 2000, but
was adjourned on that date to March 20, 2000, because a quorum was not obtained
on March 6. At the meeting on March 20, 2000, the shareholders voted to approve
the proposal as follows:
For: 10,364,891
Against: 694,798
Abstain: 88,392
Item 5. Other Information
Preferred Stock
In May and August 1998, we issued a total of 170,000 shares of Series B
Convertible Preferred Stock (the "Preferred Stock") and issued related warrants
for a total price of $17 million in a private placement to 17 accredited
investors. As of April 10, 2000, 111,646 shares of Preferred Stock had been
converted into 5,736,215 shares of Common Stock, and 58,354 shares of Preferred
Stock remained outstanding.
Upon conversion of a share of Preferred Stock, the holder receives a number of
shares of Common Stock equal to $100 divided by the then-applicable conversion
price. No holder 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.
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. At April 10, 2000, the
conversion price was $2.20 per share.
Because of Nasdaq National Market System requirements, our agreements with the
initial purchasers of the Preferred Stock prohibited us from issuing more than
3,000,000 shares of Common Stock upon conversion of Preferred Stock without
obtaining shareholder approval for the issuance of additional shares.
Alternatively, the Company would have been permitted to redeem any Preferred
Stock whose conversion would cause the issuance of more than 3,000,000 shares of
Common Stock, except that the indenture governing our outstanding 11 1/4% senior
subordinated notes restricts our ability to redeem Preferred Stock.
On March 20, 2000, at a special meeting of shareholders, the Company's
shareholders approved the issuance of sufficient shares of Common Stock to
permit conversion of all of the outstanding Preferred Stock. On March 20, 2000,
136,647 shares of Preferred Stock remained outstanding. Between March 21, 2000
and April 10, 2000, 78,293 shares of Preferred Stock were converted into
2,776,442 shares of Common Stock, at conversion prices from $2.20 to $3.27,
leaving 58,354 shares of Preferred Stock outstanding on April 10, 2000. We
believe that most of the shares of Common Stock that have been issued upon
conversion of Preferred Stock have been resold into the public market in
reliance upon Rule 144, promulgated under the Securities Act ("Rule 144"). This
has had the effect of significantly increasing the number of shares of our
Common Stock in the public market.
We previously registered 3,000,000 shares of Common Stock for resale by the
holders of Preferred Stock. As of January 31, 2000, the holders of Preferred
Stock had resold 2,959,773 shares of the 3,000,000 shares that the Company
registered on their behalf. The Company is obligated to register for resale the
additional shares of Common Stock issued or issuable upon conversion of
Preferred Stock if requested by the holders of Preferred Stock. However, since
March 21, 2000, the holders of Preferred Stock have elected instead to resell
the shares of Common Stock issued upon conversion in reliance upon Rule 144.
24
<PAGE>
We cannot predict the conversion prices at which the remaining Preferred Stock
may be converted, or the actual number of shares of Common Stock into which the
remaining Preferred Stock may be converted, because the conversion price varies
with the market price of our Common Stock and because each holder has the right
to choose both the times at which the holder will convert and the amount that
the holder will convert at any particular time. In general, if the market price
of the Common Stock rises, fewer shares will be issuable upon conversion, and if
the market price of the Common Stock falls, more shares will be issuable upon
conversion. However, if all of the outstanding Preferred Stock were converted at
$2.20, which was the conversion price on April 10, 2000, it would be converted
into an additional 2,654,968 shares of Common Stock.
The conversion of Preferred Stock has resulted in dilution to the equity
interests of other holders of our Common Stock and is expected to result in
further dilution. This could result in a decrease in the relative voting power
of the Common Stock outstanding prior to the conversion of the Preferred Stock.
Furthermore, to the extent that the holders of the Preferred Stock convert and
then sell their shares of Common Stock, the market price of the Common Stock
could decrease because of the additional shares being sold into the market. A
reduced price could allow the holders of the Preferred Stock to convert their
shares into larger amounts of Common Stock, the sale of which could further
depress the market price of the Common Stock and encourage short sales by the
holders of the Preferred Stock or others. This could place further downward
pressure on the market price of the Common Stock. In addition, the greater
number of outstanding shares, the possibility of dilution and decreased market
price, and the overhang resulting from the existence of the Preferred Stock
could inhibit our opportunities to obtain additional public or private financing
when and if needed or on terms acceptable to us. The ability of the holders of
Preferred Stock to convert at any time could make it possible, depending on the
applicable conversion price, for a group of the holders to convert and retain a
sufficient number of shares of Common Stock to effect a change of control of the
Company. If that occurred, in addition to the changes that would ordinarily be
associated with a change in control, certain changes of control, such as
beneficial ownership by a group of more than 35% of the voting power of
outstanding stock, could have the effect of requiring us to offer to repurchase
the notes held by each holder of the Company's 11 1/4% senior subordinated notes
at a cash price equal to 101% of the principal amount, plus accrued interest and
possible liquidated damages. We do not currently have sufficient cash to
repurchase the Notes, and a failure to offer to repurchase the Notes in the
event of such a change of control would constitute a default under the
indenture.
Nasdaq
In our Quarterly Report on Form 10-Q for the quarter ended November 30, 1999, we
reported that we received a letter from Nasdaq raising a concern regarding the
continued listing of our shares of Common Stock on the Nasdaq National Market
System because the Common Stock had failed to maintain a minimum bid price
greater than or equal to $1.00. The minimum bid price of our Common Stock has
exceeded $1.00 since December 29, 1999, and on February 1, 2000 we received a
letter from Nasdaq notifying us that the Common Stock was in compliance with the
applicable rule and the matter had been closed.
25
<PAGE>
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits.
The following documents are filed as exhibits to this Quarterly Report:
Exhibit
Number Description
2.1 Asset Purchase Agreement, dated as of March 22, 2000, between
Pacific Aerospace & Electronics, Inc., Skagit Engineering &
Manufacturing, Inc., NOVA-TECH Engineering, Inc., and the
Shareholders of Nova-Tech Engineering, Inc./(31)/
2.2 Exchange Agreement dated as of March 10, 2000, between Pacific
Aerospace & Electronics, Inc., and Post Advisory Group, Inc.,
and the U.S. subsidiaries of Pacific Aerospace & Electronics,
Inc./(31)/
2.3 Exchange Agreement dated as of March 17, 2000, between Pacific
Aerospace & Electronics, Inc., and Post Advisory Group, Inc.,
and the U.S. subsidiaries of Pacific Aerospace & Electronics,
Inc./(31)/
2.4 Exchange Agreement dated as of March 23, 2000, between Pacific
Aerospace & Electronics, Inc., and Post Advisory Group, Inc.,
and the U.S. subsidiaries of Pacific Aerospace & Electronics,
Inc./(31)/
2.5 Exchange Agreement dated as of March 30, 2000, between Pacific
Aerospace & Electronics, Inc., and Post Advisory Group, Inc.,
and the U.S. subsidiaries of Pacific Aerospace & Electronics,
Inc./(31)/
3.1 Articles of Incorporation of Pacific Aerospace & Electronics,
Inc./(6)/
3.2 Amendment to Articles of Incorporation containing Designation
of Rights and Preferences of Series A Convertible Preferred
Stock, as corrected./(8)/
3.3 Amendment to Articles of Incorporation containing Designation
of Rights and Preferences of Series B Convertible Preferred
Stock./(20)/
3.4 Bylaws of Pacific Aerospace & Electronics, Inc./(6)/
4.1 Form of Stock Purchase Agreement between Pacific Aerospace &
Electronics, Inc. and the purchasers in the Company's March
2000 private placement./(31)/
10.1 Amended and Restated Stock Incentive Plan./(5)/
10.2 Amendment No. 1 to the Amended and Restated Stock Incentive
Plan./(19)/
10.3 1999 Stock Incentive Plan./(30)/
10.4 Amended and Restated Independent Director Stock Plan./(21)/
10.5 1997 Employee Stock Purchase Plan./(11)/
10.6 Employment Agreement, dated June 1, 1997, between Pacific
Aerospace & Electronics, Inc. and Donald A. Wright./(9)/
10.7 Amendment No. 1 to Employment Agreement, dated January 29,
1999, between Pacific Aerospace & Electronics, Inc. and Donald
A. Wright./(27)/
10.8 Employment Agreement, dated March 1, 1999, between Pacific
Aerospace & Electronics, Inc. and Werner Hafelfinger./(27)/
10.9 Employment Agreement, dated June 1, 1997, between Pacific
Aerospace & Electronics, Inc. and Nick A. Gerde./(9)/
10.10 Employment Agreement, dated September 1, 1997, between Pacific
Aerospace & Electronics, Inc. and Sheryl A. Symonds./(12)/
10.11 Debt Restructuring Agreement, dated April 6, 1998, between
Pacific Aerospace & Electronics, Inc., Orca Technologies, Inc.,
Televar, Inc. and MONITRx, Inc./(15)/
10.12 Commercial Guaranty, dated July 16, 1997, from Pacific
Aerospace & Electronics, Inc. to KeyBank National
Association./(13)/
10.13 Sublease between Pacific Aerospace & Electronics, Inc. and Orca
Technologies, Inc. dated April 27, 1998./(20)/
10.14 Demand Promissory Note, dated June 29, 1999, from Orca
Technologies, Inc. to Pacific Aerospace & Electronics,
Inc./(29)/
10.15 Security Agreement, dated June 29, 1999, from Orca
Technologies, Inc. to Pacific Aerospace & Electronics,
Inc./(29)/
<PAGE>
10.16 Demand Promissory Note, dated October 5, 1999, from Orca
Technologies, Inc. to Pacific Aerospace & Electronics,
Inc./(29)/
10.17 Agreement Regarding Repayment Under Guarantee, dated October 5,
1999, between Pacific Aerospace & Electronics, Inc. and Orca
Technologies, Inc./(29)/
10.18 Promissory Note, dated March 18, 1998, from Pacific Aerospace &
Electronics, Inc. to KeyBank National Association./(15)/
10.19 Security Agreement, dated March 18, 1998, from Pacific
Aerospace & Electronics, Inc. to KeyBank National
Association./(15)/
10.20 Facility Letter, dated July 30, 1998, from Barclays Bank plc to
Aeromet International plc./(20)/
10.21 Loan Agreement, dated September 7, 1999, between Pacific
Aerospace & Electronics, Inc. and KeyBank National Association.
/(29)/
10.22 Promissory Note, dated September 22, 1998, from Pacific
Aerospace & Electronics, Inc. to KeyBank National
Association./(22)/
10.23 Modification and/or Extension Agreement, dated October 6, 1999,
between Pacific Aerospace & Electronics, Inc. and KeyBank
National Association./(29)/
10.24 Commercial Security Agreement, dated September 7, 1999, between
Pacific Aerospace & Electronics, Inc. and KeyBank National
Association./(29)/
10.25 Promissory Note, dated September 30, 1998, from Pacific
Aerospace & Electronics, Inc. to KeyBank National
Association./(22)/
10.26 Deed of Trust, dated September 30, 1998, between Pacific
Aerospace & Electronics, Inc., KeyBank National Association and
Land Title Company, Chelan-Douglas County, Inc./(22)/
10.27 General Terms Agreement No. BCA-65323-0458 dated December 20,
1999, between The Boeing Company and Pacific Aerospace &
Electronics, Inc. (U.S. Aerospace Group and European Aerospace
Group)./(31)/
10.28 Special Business Provisions No. POP-65323-0519 dated December
20, 1999, between The Boeing Company and Pacific Aerospace &
Electronics, Inc. (U.S. Aerospace Group and European Aerospace
Group)./(1)//(31)/
10.29 Long Term Agreement No. 0108098 between Northrop Grumman
Corporation and Cashmere Manufacturing Co., Inc. effective as
of April 6, 1998./(1)//(20)/
10.30 Option to Purchase, dated January 29, 1999, between Pacific
Aerospace & Electronics, Inc. and Donald A. Wright./(27)/
10.31 Real Estate Agreement, dated January 15, 1999, between Pacific
Aerospace & Electronics, Inc. and the Port of Chelan County.
/(27)/
10.32 Operating Agreement, dated as of April 23, 1999, between
Pacific Aerospace & Electronics, Inc. and Nova-Tech
Engineering, Inc./(28)/
10.33 Demand Promissory Note, dated April 26, 1999 from Nova-Tech
Engineering, Inc. to Pacific Aerospace & Electronics,
Inc./(28)/
10.34 Demand Promissory Note, dated August 5, 1999, from Nova-Tech
Engineering, Inc. to Pacific Aerospace & Electronics,
Inc./(28)/
10.35 Security Agreement, dated April 26, 1999, from Nova-Tech
Engineering, Inc. to Pacific Aerospace & Electronics,
Inc./(28)/
27 Financial Data Schedule./(31)/
_______________
(1) Subject to confidential treatment. Omitted confidential information was
filed separately with the Securities and Exchange Commission.
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended May 31, 1995.
(3) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 filed on June 19, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended May 31, 1996.
(5) Incorporated by reference to the Company's Current Report on Form 10-QSB for
the quarterly period ended November 30, 1996.
(6) Incorporated by reference to the Company's Current Report on Form 8-K filed
on December 12, 1996, reporting the reincorporation merger.
(7) Incorporated by reference to the Company's Registration Statement of Certain
Successor Issuers on Form 8-B filed on February 6, 1997.
<PAGE>
(8) Incorporated by reference to the Company's Current Report on Form 8-K filed
on March 12, 1997, reporting the Series A Preferred Stock offering.
(9) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ending May 31, 1997.
(10) Incorporated by reference to the Company's Registration Statement on Form
S-8 filed on June 11, 1997.
(11) Incorporated by reference to the Company's Definitive Proxy Statement for
its 1997 Annual Shareholders Meeting, filed on August 28, 1997.
(12) Incorporated by reference to the Post-Effective Amendment No. 1 to Form SB-
2, filed on November 3, 1997.
(13) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ending November 30, 1997.
(14) Incorporated by reference to the Company's Registration Statement on Form
S-3 filed on December 3, 1997.
(15) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ending February 28, 1998.
(16) Incorporated by reference to the Company's Current Report on Form 8-K/A,
filed on May 1, 1998.
(17) Incorporated by reference to the Company's Current Report on Form 8-K filed
on July 10, 1998.
(18) Incorporated by reference to the Company's Current Report on Form 8-K filed
on August 14, 1998.
(19) Incorporated by reference to the Company's Registration Statement on Form
S-8 filed on November 7, 1997.
(20) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ending May 31, 1998.
(21) Incorporated by reference to the Company's Definitive Proxy Statement filed
on September 1, 1998.
(22) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
and Form 10-Q/A, for the quarterly period ending August 31, 1998.
(23) Incorporated by reference to the Company's Registration Statement on Form
S-1 filed on October 30, 1998.
(24) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ending November 30, 1998.
(25) Incorporated by reference to Registration Statement on Form S-4 filed on
November 25, 1998.
(26) Incorporated by reference to Amendment No. 1 to Registration Statement on
Form S-4 filed on January 20, 1999.
(27) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ending February 28, 1999.
(28) Incorporated by reference to the Company's Annual Report on Form 10-K filed
on August 30, 1999.
(29) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ending August 31, 1999.
(30) Incorporated by reference to the Company's Definitive Proxy Statement filed
on September 1, 1999.
(31) Filed with this report.
b. Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PACIFIC AEROSPACE & ELECTRONICS, INC.
Date: April 12, 2000 /s/ Donald A. Wright
---------------------------------------
Donald A. Wright
President, Chief Executive Officer, and
Chairman of the Board
(Principal Executive Officer)
Date: April 12, 2000 /s/ Nick A. Gerde
-----------------
Nick A. Gerde
Vice President Finance, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)
29
<PAGE>
EXHIBIT INDEX
The following documents are filed as exhibits to this Quarterly Report:
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
2.1 Asset Purchase Agreement, dated as of March 22, 2000, between Pacific Aerospace & Electronics,
Inc., Skagit Engineering & Manufacturing, Inc., NOVA-TECH Engineering, Inc., and the
Shareholders of Nova-Tech Engineering, Inc./(31)/
2.2 Exchange Agreement dated as of March 10, 2000, between Pacific Aerospace & Electronics, Inc.,
and Post Advisory Group, Inc., and the U.S. subsidiaries of Pacific Aerospace &
Electronics, Inc./(31)/
2.3 Exchange Agreement dated as of March 17, 2000, between Pacific Aerospace & Electronics, Inc.,
and Post Advisory Group, Inc., and the U.S. subsidiaries of Pacific Aerospace &
Electronics, Inc./(31)/
2.4 Exchange Agreement dated as of March 23, 2000, between Pacific Aerospace & Electronics, Inc.,
and Post Advisory Group, Inc., and the U.S. subsidiaries of Pacific Aerospace &
Electronics, Inc./(31)/
2.5 Exchange Agreement dated as of March 30, 2000, between Pacific Aerospace & Electronics, Inc.,
and Post Advisory Group, Inc., and the U.S. subsidiaries of Pacific Aerospace &
Electronics, Inc./(31)/
3.1 Articles of Incorporation of Pacific Aerospace & Electronics, Inc./(6)/
3.2 Amendment to Articles of Incorporation containing Designation of Rights and Preferences of
Series A Convertible Preferred Stock, as corrected./(8)/
3.3 Amendment to Articles of Incorporation containing Designation of Rights and Preferences of
Series B Convertible Preferred Stock./(20)/
3.4 Bylaws of Pacific Aerospace & Electronics, Inc./(6)/
4.1 Form of Stock Purchase Agreement between Pacific Aerospace & Electronics, Inc. and the
purchasers in the Company's March 2000 private placement./(31)/
10.1 Amended and Restated Stock Incentive Plan./(5)/
10.2 Amendment No. 1 to the Amended and Restated Stock Incentive Plan./(19)/
10.3 1999 Stock Incentive Plan./(30)/
10.4 Amended and Restated Independent Director Stock Plan./(21)/
10.5 1997 Employee Stock Purchase Plan./(11)/
10.6 Employment Agreement, dated June 1, 1997, between Pacific Aerospace & Electronics, Inc. and
Donald A. Wright./(9)/
10.7 Amendment No. 1 to Employment Agreement, dated January 29, 1999, between Pacific Aerospace &
Electronics, Inc. and Donald A. Wright./(27)/
10.8 Employment Agreement, dated March 1, 1999, between Pacific Aerospace & Electronics, Inc. and
Werner Hafelfinger./(27)/
10.9 Employment Agreement, dated June 1, 1997, between Pacific Aerospace & Electronics, Inc. and
Nick A. Gerde./(9)/
10.10 Employment Agreement, dated September 1, 1997, between Pacific Aerospace & Electronics, Inc.
and Sheryl A. Symonds./(13)/
10.11 Debt Restructuring Agreement, dated April 6, 1998, between Pacific Aerospace & Electronics,
Inc., Orca Technologies, Inc., Televar, Inc. and MONITRx, Inc./(15)/
10.12 Commercial Guaranty, dated July 16, 1997, from Pacific Aerospace & Electronics, Inc. to KeyBank
National Association./(13)/
10.13 Sublease between Pacific Aerospace & Electronics, Inc. and Orca Technologies, Inc. dated April
27, 1998./(20)/
10.14 Demand Promissory Note, dated June 29, 1999, from Orca Technologies, Inc. to Pacific Aerospace
& Electronics, Inc./(29)/
10.15 Security Agreement, dated June 29, 1999, from Orca Technologies, Inc. to Pacific Aerospace &
Electronic, Inc./(29)/
10.16 Demand Promissory Note, dated October 5, 1999, from Orca Technologies, Inc. to Pacific
Aerospace & Electronics, Inc./(29)
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
10.17 Agreement Regarding Repayment Under Guarantee, dated October 5, 1999, between Pacific Aerospace
& Electronics, Inc. and Orca Technologies, Inc./(29)/
10.18 Promissory Note, dated March 18, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank
National Association./(15)/
10.19 Security Agreement, dated March 18, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank
National Association./(15)/
10.20 Facility Letter, dated July 30, 1998, from Barclays Bank plc to Aeromet International plc./(20)/
10.21 Loan Agreement, dated September 7, 1999, between Pacific Aerospace & Electronics, Inc. and
KeyBank National Association./(29)/
10.22 Promissory Note, dated September 22, 1998, from Pacific Aerospace & Electronics, Inc. to
KeyBank National Association./(22)/
10.23 Modification and/or Extension Agreement, dated October 6, 1999, between Pacific Aerospace &
Electronics, Inc. and KeyBank National Association./(29)/
10.24 Commercial Security Agreement, dated September 7, 1999, between Pacific Aerospace &
Electronics, Inc. and KeyBank National Association./(29)/
10.25 Promissory Note, dated September 30, 1998, from Pacific Aerospace & Electronics, Inc. to
KeyBank National Association./(22)/
10.26 Deed of Trust, dated September 30, 1998, between Pacific Aerospace & Electronics, Inc., KeyBank
National Association and Land Title Company, Chelan-Douglas County, Inc./(23)/
10.27 General Terms Agreement No. BCA-65323-0458 dated December 20, 1999, between The Boeing Company
and Pacific Aerospace & Electronics, Inc. (U.S. Aerospace Group and European Aerospace Group)./(31)/
10.28 Special Business Provisions No. POP-65323-0519 dated December 20, 1999, between The Boeing Company
and Pacific Aerospace & Electronics, Inc. (U.S. Aerospace Group and European Aerospace Group)./(1)/(31)/
10.29 Long Term Agreement No. 0108098 between Northrop Grumman Corporation and Cashmere Manufacturing
Co., Inc. effective as of April 6, 1998./(1)/(30)/
10.30 Option to Purchase, dated January 29, 1999, between Pacific Aerospace & Electronics, Inc. and
Donald A. Wright./(27)/
10.31 Real Estate Agreement, dated January 15, 1999, between Pacific Aerospace & Electronics, Inc.
and the Port of Chelan County./(27)/
10.32 Operating Agreement, dated as of April 23, 1999, between Pacific Aerospace & Electronics, Inc.
and Nova-Tech Engineering, Inc./(28)/
10.33 Demand Promissory Note, dated April 26, 1999 from Nova-Tech Engineering, Inc. to Pacific
Aerospace & Electronics, Inc./(28)/
10.34 Demand Promissory Note, dated August 5, 1999, from Nova-Tech Engineering, Inc. to Pacific
Aerospace & Electronics, Inc./(28)/
10.35 Security Agreement, dated April 26, 1999, from Nova-Tech Engineering, Inc. to Pacific Aerospace
& Electronics, Inc./(28)/
27 Financial Data Schedule./(31)/
</TABLE>
- ---------------
/(1)/ Subject to confidential treatment. Omitted confidential information was
filed separately with the Securities and Exchange Commission.
/(2)/ Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended May 31, 1995.
/(3)/ Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 filed on June 19, 1996.
/(4)/ Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended May 31, 1996.
/(5)/ Incorporated by reference to the Company's Current Report on Form 10-QSB
for the quarterly period ended November 30, 1996.
/(6)/ Incorporated by reference to the Company's Current Report on Form 8-K
filed on December 12, 1996, reporting the reincorporation merger.
/(7)/ Incorporated by reference to the Company's Registration Statement of
Certain Successor Issuers on Form 8-B filed on February 6, 1997.
/(8)/ Incorporated by reference to the Company's Current Report on Form 8-K
filed on March 12, 1997, reporting the Series A Preferred Stock offering.
31
<PAGE>
<TABLE>
<S> <C>
/(9)/ Incorporated by reference to the Company's Annual Report on Form 10-KSB for the fiscal year ending May 31, 1997.
/(10)/ Incorporated by reference to the Company's Registration Statement on Form S-8 filed on June 11, 1997.
/(11)/ Incorporated by reference to the Company's Definitive Proxy Statement for its 1997 Annual Shareholders Meeting,
filed on August 28, 1997.
/(12)/ Incorporated by reference to the Post-Effective Amendment No. 1 to Form SB-2, filed on November 3, 1997.
/(13)/ Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarterly period ending November 30,
1997.
/(14)/ Incorporated by reference to the Company's Registration Statement on Form S-3 filed on December 3, 1997.
/(15)/ Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarterly period ending February 28,
1998.
/(16)/ Incorporated by reference to the Company's Current Report on Form 8-K/A, filed on May 1, 1998.
/(17)/ Incorporated by reference to the Company's Current Report on Form 8-K filed on July 10, 1998.
/(18)/ Incorporated by reference to the Company's Current Report on Form 8-K filed on August 14, 1998.
/(19)/ Incorporated by reference to the Company's Registration Statement on Form S-8 filed on November 7, 1997.
/(20)/ Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ending May 31, 1998.
/(21)/ Incorporated by reference to the Company's Definitive Proxy Statement filed on September 1, 1998.
/(22)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q, and Form 10-Q/A, for the quarterly period ending
August 31, 1998.
/(23)/ Incorporated by reference to the Company's Registration Statement on Form S-1 filed on October 30, 1998.
/(24)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending November 30, 1998.
/(25)/ Incorporated by reference to Registration Statement on Form S-4 filed on November 25, 1998.
/(26)/ Incorporated by reference to Amendment No. 1 to Registration Statement on Form S-4 filed on January 20, 1999.
/(27)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending February 28, 1999.
/(28)/ Incorporated by reference to the Company's Annual Report on Form 10-K filed on August 30, 1999.
/(29)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending August 31, 1999.
/(30)/ Incorporated by reference to the Company's Definitive Proxy Statement filed on September 1, 1999.
/(31)/ Filed with this report.
</TABLE>
32
<PAGE>
EXHIBIT 2.1
-----------
ASSET PURCHASE AGREEMENT
between
Pacific Aerospace & Electronics, Inc.
Skagit Engineering & Manufacturing, Inc.
NOVA-TECH Engineering, Inc.
and
the Shareholders of NOVA-TECH Engineering, Inc.
Dated as of March 22, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <C> <C> <S> <C>
ARTICLE 1. ASSET PURCHASE................................................................. 1
1.1 Certain Definitions............................................................ 1
1.1.1 Class A Common......................................................... 1
1.1.2 Class B Common......................................................... 1
1.1.3 Code................................................................... 2
1.1.4 Company Common Stock................................................... 2
1.1.5 Consideration.......................................................... 2
1.1.6 Current Balance Sheet.................................................. 2
1.1.7 ESOP Debt.............................................................. 2
1.1.8 ESOP Shares............................................................ 2
1.1.9 Excise Tax............................................................. 2
1.1.10 Knowledge............................................................. 2
1.1.11 Material Adverse Change............................................... 2
1.1.12 Material Adverse Effect............................................... 2
1.1.13 ML Debt............................................................... 2
1.1.14 Operating Agreement................................................... 2
1.2 Asset Purchase................................................................. 3
1.3 Excluded Assets................................................................ 4
1.4 Conveyance of Assets........................................................... 4
1.5 Transfer of Liabilities........................................................ 4
1.6 Excluded Liabilities........................................................... 4
1.7 Purchase Price................................................................. 5
1.8 Allocation of Purchase Price................................................... 5
1.9 Closing........................................................................ 5
1.10 Subsequent Actions............................................................. 5
ARTICLE 2. REPRESENTATIONS AND WARRANTIES................................................. 6
2.1 Representations and Warranties to PA&E and Buyer............................... 6
2.1.1 Incorporation; Articles and Bylaws..................................... 6
2.1.2 Capitalization and Outstanding Capital Stock........................... 6
2.1.3 No Subsidiaries........................................................ 7
2.1.4 Authority; Noncontravention............................................ 7
2.1.5 Financial Matters...................................................... 7
2.1.6 Litigation............................................................. 8
2.1.7 Absence of Changes..................................................... 8
2.1.8 Taxes.................................................................. 10
2.1.9 Compliance with Laws................................................... 11
2.1.10 Contracts.............................................................. 11
2.1.11 Intellectual Property.................................................. 12
2.1.12 Insurance.............................................................. 12
2.1.13 Environmental Matters.................................................. 13
2.1.14 Labor Matters.......................................................... 14
</TABLE>
ii
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<TABLE>
<C> <C> <C> <S> <C>
2.1.15 Employee Benefit Matters.............................................. 14
2.1.16 Other Employee Matters................................................ 16
2.1.17 Property.............................................................. 16
2.1.18 Permits and Licenses.................................................. 17
2.1.19 Certain Interests..................................................... 17
2.1.20 Certain Payments...................................................... 17
2.1.21 Consents and Approvals................................................ 18
2.1.22 Records............................................................... 18
2.1.23 Warranties............................................................ 18
2.1.24 Brokers and Finders................................................... 18
2.1.25 Restrictive Covenants................................................. 18
2.1.26 Reliance.............................................................. 18
2.2 Representations and Warranties of PA&E and Buyer............................... 18
2.2.1 Incorporation; Articles and Bylaws..................................... 18
2.2.2 Authority; Authorization............................................... 19
2.2.3 Noncontravention....................................................... 19
2.2.4 Litigation............................................................. 19
2.2.5 Consents and Approvals................................................. 19
2.2.6 Brokers and Finders.................................................... 19
2.3 Representations and Warranties of the ESOP Trustee............................. 20
2.3.1 Authority.............................................................. 20
2.3.2 Noncontravention....................................................... 20
ARTICLE 3. PRE-CLOSING CONDUCT AND AGREEMENTS............................................. 20
3.1 Conduct of the Parties......................................................... 20
3.2 Access to Properties, Books and Records........................................ 21
3.2.1 PA&E................................................................... 21
3.2.2 The Company and the Shareholders....................................... 21
3.3 Confidentiality................................................................ 21
3.4 Conduct of the Company's Business.............................................. 21
3.4.1 Properties and Assets.................................................. 21
3.4.2 Compensation........................................................... 22
3.4.3 Indebtedness........................................................... 22
3.4.4 Leases................................................................. 22
3.4.5 Payments............................................................... 22
3.4.6 Contracts and Agreements............................................... 23
3.4.7 Shipments.............................................................. 23
3.4.8 Insurance.............................................................. 23
3.4.9 Governing Documents.................................................... 23
3.4.10 Capital Stock.......................................................... 23
3.5 Public Announcements........................................................... 23
3.6 Notice of Breach............................................................... 23
3.6.1 By the Company and the Shareholders.................................... 23
3.6.2 By PA&E................................................................ 24
3.7 Company Shareholder Approval........................................... 24
3.8 Consents............................................................... 24
</TABLE>
iii
<PAGE>
<TABLE>
<C> <C> <S> <C>
3.9 Payment of ML Debt............................................................ 24
3.10 Further Assurances............................................................ 24
3.11 No Solicitation............................................................... 24
ARTICLE 4. CONDITIONS TO CLOSING......................................................... 25
4.1 Conditions to the Obligations of PA&E and Buyer............................... 25
4.1.1 Corporate Actions..................................................... 25
4.1.2 Representations and Warranties........................................ 25
4.1.3 Performance of Obligations............................................ 25
4.1.4 No Material Adverse Change............................................ 25
4.1.5 Approvals; Consents................................................... 25
4.1.6 Certificate........................................................... 25
4.1.7 Audit................................................................. 26
4.1.8 Environmental Assessment.............................................. 26
4.1.9 Capital Stock......................................................... 26
4.1.10 Employment Agreements................................................ 26
4.1.11 Lease Amendments..................................................... 26
4.1.12 Shareholders' Accounts............................................... 26
4.1.13 Further Documents.................................................... 26
4.2 Conditions to the Obligations of the Company and the Shareholders............. 26
4.2.1 Corporate Actions..................................................... 26
4.2.2 Representations and Warranties........................................ 27
4.2.3 Performance of Obligations............................................ 27
4.2.4 Certificate........................................................... 27
4.2.5 Employment Agreements................................................. 27
4.2.6 Lease Amendments...................................................... 27
4.2.7 Shareholder Approval.................................................. 27
4.2.8 Further Documents..................................................... 27
ARTICLE 5. TERMINATION................................................................... 27
5.1 Right to Terminate............................................................ 27
5.1.1 Mutual Consent........................................................ 27
5.1.2 Delay................................................................. 27
5.1.3 Breach by PA&E or Buyer............................................... 28
5.1.4 Breach by the Company or the Individual Shareholders.................. 28
5.1.5 Failure of the Company Shareholders to Approve........................ 28
5.2 Certain Obligations to Cease.................................................. 28
ARTICLE 6. MISCELLANEOUS PROVISIONS...................................................... 28
6.1 Nonsurvival of Representations and Warranties................................. 28
6.2 Release from Guaranties....................................................... 28
6.3 Exhibits; Schedules........................................................... 28
6.4 Notices....................................................................... 28
6.5 No Assignment................................................................. 29
6.6 Titles and Captions........................................................... 29
6.7 Waiver........................................................................ 29
</TABLE>
iv
<PAGE>
<TABLE>
<C> <S> <C>
6.8 Amendment............................................................. 30
6.9 Severability.......................................................... 30
6.10 Rights and Remedies................................................... 30
6.11 Attorney Fees......................................................... 30
6.12 Governing Law......................................................... 30
6.13 Counterparts.......................................................... 30
6.14 Entire Agreement; No Other Beneficiaries.............................. 30
</TABLE>
v
<PAGE>
EXHIBITS:
Exhibit A - Bill of Sale
Exhibit B - Assignment and Assumption Agreement
Exhibit C - Employment Agreements
SCHEDULES:
Schedule 1.3 Excluded Assets
Schedule 1.4 Permitted Liens
Schedule 2.1.2 Capitalization
Schedule 2.1.3 Interests in Other Entities
Schedule 2.1.5(b) Absence of Undisclosed Liabilities
Schedule 2.1.5(c) Accounts Receivable
Schedule 2.1.6 Litigation
Schedule 2.1.7 Absence of Changes
Schedule 2.1.8 Taxes
Schedule 2.1.9 Compliance With Laws
Schedule 2.1.10 Contracts
Schedule 2.1.11 Intellectual Property
Schedule 2.1.12 Insurance Policies
Schedule 2.1.13 Environmental Matters
Schedule 2.1.14 Labor Matters
Schedule 2.1.15 Employee Benefit Matters
Schedule 2.1.16 Employee Matters
Schedule 2.1.17(a) Real Property
Schedule 2.1.17(c) Tangible Personal Property
Schedule 2.1.18 Permits and Licenses
Schedule 2.1.19 Certain Interests
Schedule 2.1.21 Consents and Approvals (Company)
Schedule 2.1.23 Warranties
Schedule 2.2.5 Consents and Approvals (PA&E)
vi
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of March 22, 2000, by and among Pacific Aerospace & Electronics, Inc., a
Washington corporation ("PA&E"), Skagit Engineering & Manufacturing, Inc., a
Washington corporation ("Buyer"), NOVA-TECH Engineering, Inc., a Washington
corporation (the "Company"), Hans Herrmann and Karl Herrmann (together, the
"Individual Shareholders") and NOVA-TECH Engineering, Inc. Employee Stock
Ownership Plan and Trust (the "ESOP") (the Individual Shareholders and the ESOP
are collectively referred to herein as the "Shareholders").
RECITALS
--------
A. The Company is engaged in the business of professional engineering for
the design and manufacturing of highly specialized manufacturing equipment,
primarily for the aerospace industry (the "Business").
B. The Individual Shareholders and the ESOP constitute all of the
shareholders of the Company.
C. Buyer is a wholly-owned subsidiary of PA&E.
D. Buyer is willing to purchase, and the Company is willing to sell,
substantially all of the assets of the Company on the terms and conditions set
forth in this Agreement.
AGREEMENT
---------
For valuable consideration, the receipt and sufficiency of which the
parties acknowledge, the parties agree as follows:
ARTICLE 1.
ASSET PURCHASE
1.1 Certain Definitions. The following terms shall have the respective
--------------------
meanings set forth in this Section.
1.1.1 Class A Common. The term "Class A Common" shall mean the
shares of Class A Common Stock, $.01 par value per share, of the Company, all of
which are owned beneficially and of record by the Individual Shareholders.
1.1.2 Class B Common. The term "Class B Common" shall mean the
shares of Class B Super Common Stock, $.01 par value per share, of the Company.
-1-
<PAGE>
1.1.3 Code. The term "Code" shall mean the Internal Revenue Code
of 1986, as amended.
1.1.4 Company Common Stock. The term "Company Common Stock" shall
mean all shares of Class A Common and Class B Common.
1.1.5 Consideration. The term "Consideration" shall mean the amount
payable by PA&E pursuant to Section 1.7.
1.1.6 Current Balance Sheet. The term "Current Balance Sheet" shall
have the meaning set forth in Section 2.1.5.
1.1.7 ESOP Debt. The term "ESOP Debt" shall mean all indebtedness
owed by the ESOP to the Company as of any relevant date.
1.1.8 ESOP Shares. The term "ESOP Shares" shall mean the
outstanding shares of Class B Common, all of which are owned of record by the
ESOP.
1.1.9 Excise Tax. The term "Excise Tax" shall mean any excise tax
that may become payable by the Company to the Internal Revenue Service upon the
repayment or other satisfaction of the ESOP Debt.
1.1.10 Knowledge. The term "knowledge," whether or not such term is
capitalized, when used in reference to an Individual Shareholder or the ESOP
Trustee shall mean such person's actual awareness of a fact after reasonable
inquiry. Reasonable inquiry by the Individual Shareholders shall be deemed to
mean that the person has made inquiry of Hans Herrmann, Karl Herrmann, Sylvia
Drennan and Mike Bowler (or such other persons who may replace them in the event
they leave the Company between the date of this Agreement and the Closing Date)
and nothing has come to the person's attention in the course of such inquiry or
otherwise that would cause such person to believe that a representation might
not be true.
1.1.11 Material Adverse Change. The term "Material Adverse Change"
shall mean a material adverse change in the business, results of operations,
financial condition, assets or prospects of the Company.
1.1.12 Material Adverse Effect. The term "Material Adverse Effect"
shall mean a material adverse effect upon the business, results of operations,
financial condition, assets or prospects of the Company.
1.1.13 ML Debt. The term "ML Debt" shall mean all indebtedness owed
by the Company to Merrill Lynch Business Financial Services, Inc., or its
affiliates (collectively, "Merrill Lynch"), as of any relevant date.
1.1.14 Operating Agreement. The term "Operating Agreement" shall
mean the Operating Agreement, dated as of April 23, 1999, between PA&E and the
Company, including any amendments thereto.
-2-
<PAGE>
1.2 Asset Purchase. At the Closing (as defined in Section 1.9), the
--------------
Company will sell, transfer, assign, convey and deliver to Buyer, and Buyer will
purchase from the Company, all of the Company's assets, properties and rights
(except the Excluded Assets, as defined below), whether real or personal,
tangible or intangible, and wherever located (the "Assets"), which Assets
include without limitation:
1.2.1 cash, cash equivalents, and securities;
1.2.2 interests in real property, including but not limited to (i)
all leasehold interests and interests as a lessor or a lessee, (ii) all
improvements, easements, and appurtenances to or located on real property, and
(iii) all contractual and other rights pertaining to real property, such as road
and access rights, water rights, water delivery contracts, condemnation awards,
and insurance proceeds;
1.2.3 tangible personal property, including but not limited to
manufacturing and office equipment, vehicles, inventory (whether raw materials,
work in process, or finished goods), furniture, fixtures, drawings, designs and
blueprints, materials and supplies, and spare and replacement parts;
1.2.4 contracts, agreements, commitments, leases, licenses,
purchase orders, sales orders, insurance policies and documents;
1.2.5 governmental licenses, permits, approvals, authorizations,
consents, franchises, tariffs, orders and other registrations required for the
conduct of the Business, to the extent that they are assignable or otherwise
transferable;
1.2.6 patents, copyrights, trademarks, service marks and trade
names, including any and all rights the Company has to use the names "NOVA-
TECH", "NOVA-TECH Engineering" and all derivatives thereof, with the Company and
the Shareholders not retaining any right to use, and hereby agreeing not to use,
any such names or derivatives at any time after Closing to conduct any business;
all registrations therefor; all applications pending or allowed therefor; and
all other proprietary rights and intangible property, such as trade secrets,
technology, software, operating systems, customer and supplier lists, know-how,
formulae, slogans, processes and operating rights;
1.2.7 accounts receivable that are reflected in the most recent of
the Company Financial Statements, as defined in Section 2.1.5, or that have been
billed since the date of the most recent of the Company Financial Statements;
1.2.8 prepaid and deferred items, including but not limited to
prepaid rentals, insurance, taxes and unbilled charges and deposits, to the
extent they are assignable or otherwise transferable;
1.2.9 operating data and records, including but not limited to,
financial and accounting records, correspondence, budgets, and engineering and
manufacturing records ;
-3-
<PAGE>
1.2.10 goodwill; and
1.2.11 telephone lines and numbers.
The foregoing transaction is referred to herein as the "Asset Purchase."
1.3 Excluded Assets. The Assets shall not include: (i) the Company's
---------------
corporate seal, minute books, charter documents and corporate stock record
books; (ii) the Company's right to receive any payments on the ESOP Debt; (iii)
any stock owned by the Company in SDS Technologies Corporation, a Washington
corporation; or (iv) the art works and the two motor vehicles described on
Schedule 1.3 (collectively, the "Excluded Assets").
- ------------
1.4 Conveyance of Assets. Subject to the terms and conditions of this
--------------------
Agreement, the sale, assignment, transfer and delivery of the Assets shall be
effected by the Company's execution and delivery to Buyer at Closing of a
Warranty Bill of Sale in substantially the form attached as Exhibit A (the "Bill
of Sale") and all titles to all vehicles included in the Assets, together with
any other instruments of transfer requested by Buyer, in form and substance
sufficient to vest in Buyer all right, title and interest in and to the Assets,
free and clear of any liens, claims or encumbrances of any kind, except as set
forth on Schedule 1.4 (the "Permitted Liens").
------------
1.5 Transfer of Liabilities. On the Closing Date, the Company will assign
-----------------------
to Buyer, and (A) Buyer will assume and agree to pay in the ordinary course of
its business, (i) the liabilities of the Company set forth on the Current
Balance Sheet, other than any Excluded Liabilities (as defined below), and (ii)
the liabilities of the same type as those set forth on the Current Balance Sheet
that were incurred by the Company in the ordinary course of business after the
date of the Current Balance Sheet, other than any Excluded Liabilities
(collectively, the "Liabilities"), and (B) Buyer will agree to assume the
obligations of the Company under all contracts and agreements to which the
Company is a party, other than any such obligations that constitute Excluded
Liabilities (collectively, the "Obligations"). The Liabilities include
reasonable attorneys fees and costs of the Company for the Asset Purchase, to
the extent unpaid. Such assignment and assumption will be made pursuant to the
terms of an Assignment and Assumption Agreement in substantially the form
attached as Exhibit B (the "Assumption Agreement").
1.6 Excluded Liabilities. Except for the payment or assumption of the
--------------------
Liabilities and the performance of the Obligations as specifically set forth in
the Assumption Agreement, Buyer will not be obligated to pay or assume or
perform, and neither Buyer nor PA&E shall be liable for, any liabilities or
obligations of the Company, the Business or the Shareholders, known or unknown,
contingent or absolute, accrued or otherwise (the "Excluded Liabilities"). The
Excluded Liabilities include, but are not limited to, any liabilities or
obligations: (a) for the ML Debt; (b) for any Excise Tax; (c) relating in any
way to the ESOP, any of its present or former trustees, or any ESOP
participants, including without limitation any liabilities or obligations, now
existing or at any time hereafter arising, to make any contributions to the ESOP
or to purchase or repurchase any stock or other interest of any ESOP
participant; (d) of the Company to pay any dividends on or make any other
distributions with respect to any of the Company Common Stock; (e) for any Tax,
as defined in Section 2.1.8; (f) to any of the Shareholders, or any directors or
-4-
<PAGE>
officers of the Company; (g) to Seller's employees, except wages not yet payable
as of the Closing Date and any accrued vacation or accrued sick pay for such
employees; (h) relating to any issuances of securities; (i) incurred in
connection with any dissolution of the Company; (j) under any "Environmental
Law," as defined in Section 2.1.13; (k) that are undisclosed liabilities, except
the liabilities described in subsection (ii) of Section 1.5; (l) any payments
for obligations that constitute or relate to a violation of law or regulation;
(m) for any defaults of the Company for any payment or performance due before
the Closing; (n) for any Contract required to be disclosed on Schedule 2.1.10
and not so disclosed; or (o) that is associated with any Excluded Asset.
1.7 Purchase Price. At Closing PA&E shall pay the Company $50,000.00 by
--------------
check in exchange for the Assets (the "Consideration").
1.8 Allocation of Purchase Price. The parties agree, for purposes of IRS
----------------------------
Form 8594, to allocate the fair market value of the Assets among the classes of
assets set forth in Treasury Regulation Section 1.1060-IT(d), as amended. The
allocation prepared for Form 8594 purposes will be binding on Buyer and the
Company for all federal, state and local tax purposes. Buyer and the Company
agree to attach the Form 8594, with such allocation as mutually agreed, to their
applicable federal income tax returns.
1.9 Closing. The closing of this transaction (the "Closing") shall take
-------
place at the offices of Stoel Rives LLP, 3600 One Union Square, 600 University
Street, Seattle, Washington, 98101 on a date to be mutually agreed by PA&E,
Buyer, the Company and the Shareholders that is promptly after the meeting or
written consent of the Shareholders to approve the Asset Purchase, and upon
satisfaction or waiver of each other condition to the Closing set forth in this
Agreement, or on such other date or at such other place and time as PA&E, Buyer,
the Company and the Shareholders may agree (the "Closing Date").
1.10 Subsequent Actions. If, at any time after the Closing, PA&E or Buyer
------------------
shall consider or be advised that any deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in Buyer its right, title or interest
in, to, or under any Assets or any of the rights of the Company or otherwise to
carry out this Agreement, the Company agrees, and the Shareholders agree to
cause the Company or its successors, to execute and deliver, all such deeds,
bills of sale, assignments and assurances, and to take and do, in the name and
on behalf of the Company, or otherwise, all such other actions and things as may
be necessary or desirable to vest, perfect or confirm any and all right, title
and interest in, to and under such Assets and rights in Buyer or otherwise to
carry out the purposes of this Agreement. If, at any time after the Closing,
the Company shall consider or be advised that any actions or things are
necessary or desirable to carry out this Agreement, Buyer agrees to take and do
all such actions and things as may be necessary or desirable to carry out the
purposes of this Agreement.
-5-
<PAGE>
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties to PA&E and Buyer. The Company and the
------------------------------------------------
Individual Shareholders jointly and severally represent and warrant to PA&E and
Buyer that:
2.1.1 Incorporation; Articles and Bylaws. The Company is a
corporation duly organized and validly existing under the laws of the State of
Washington. The Company has all necessary corporate power and authority to own,
operate, and lease its assets and properties and to carry on its business as it
is now being conducted and as proposed to be conducted. The Company is
qualified and in good standing as a foreign corporation in each jurisdiction
where its properties (whether owned, leased or operated) are located or its
business is conducted and in which the failure to so qualify would have a
Material Adverse Effect. The Company has delivered to PA&E complete and
accurate copies of the Company's Articles of Incorporation and Bylaws, each as
amended to the date of this Agreement.
2.1.2 Capitalization and Outstanding Capital Stock. The Company has
authorized capital stock consisting of ten million (10,000,000) shares of Class
A Common, and four million (4,000,000) shares of Class B Common. On the date of
this Agreement, 2,850,000 shares of the Class A Common are outstanding, and
1,520,000 shares of the Class B Common are outstanding. All of the outstanding
shares of capital stock of the Company have been duly authorized and are validly
issued, fully paid and nonassessable. No shares of capital stock of the Company
have been issued in violation of or are subject to any preemptive or similar
rights granted to any former or existing shareholder pursuant to law, the
Company's Articles of Incorporation, Bylaws, contract, federal or state
securities laws, or otherwise. Other than pursuant to this Agreement or as
described in Schedule 2.1.2, (a) there is no subscription, option, warrant,
--------------
call, right, agreement or commitment granted or issued by or binding upon the
Company or any shareholder of the Company or any participant in the ESOP (i)
relating to the issuance, sale, delivery, voting, transfer, ownership or other
rights to or affecting any shares of the Company's capital stock or any other
securities convertible into, exchangeable for, or evidencing the right to
subscribe for shares of the Company's capital stock, or (ii) relating to the
payment of amounts measured by changes in the value or price of any capital
stock of the Company, and (b) the Company has no obligation of any kind to issue
any additional securities. Except as described on Schedule 2.1.2, the Company
--------------
has no outstanding obligations to repurchase, redeem or otherwise acquire any of
its outstanding shares of capital stock. Schedule 2.1.2 sets forth (i) a
--------------
complete and accurate list of all of the shareholders of the Company as of the
date hereof, indicating the number of shares of the Company Common Stock held by
each, and such shareholders shall continue to be all of the shareholders of the
Company until the Closing Date, and (ii) a complete and accurate list of all
participants in the ESOP, and a complete and accurate summary of the account
balance of each participant in the ESOP, including the number of shares of Class
B Common allocable to each such account, such list and summary required by this
subsection (ii) to be as of the most recent date such information was prepared
by the ESOP. Except as set forth on Schedule 2.1.2, all of the outstanding
--------------
shares of capital stock of the Company are owned beneficially and of record as
set forth on the Schedule 2.1.2, free and clear
--------------
-6-
<PAGE>
of all pledges, security interests, liens, charges, encumbrances, equities,
claims, options or limitations.
2.1.3 No Subsidiaries. The Company does not own and has never
owned, directly or indirectly, any outstanding capital stock or other ownership
interest (or securities, rights or other interests convertible into capital
stock or other ownership interest) in any other entity, except as set forth on
Schedule 2.1.3.
- --------------
2.1.4 Authority; Noncontravention.
a. Authority. The Company has full corporate power and
---------
corporate authority, and each Individual Shareholder has full power and
authority, to execute and deliver this Agreement, to consummate the transactions
contemplated in this Agreement, and to carry out its obligations under this
Agreement. This Agreement has been duly and validly executed and delivered by
the Company and the Individual Shareholders. This Agreement constitutes the
valid and binding obligation of the Shareholders, enforceable in accordance with
its terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other laws of general application
affecting the enforcement of creditors' rights, and except that the availability
of the equitable remedies of specific performance and injunctive relief may be
subject to the discretion of the court before which any proceeding may be
brought. To the best knowledge of the Company and the Individual Shareholders,
no declaration, filing, or registration with, or notice to, or authorization,
consent, or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Individual Shareholders or the consummation by the Company and the
Individual Shareholders of the transactions contemplated by this Agreement.
b. Noncontravention. The execution and delivery of this
----------------
Agreement by the Company and the Individual Shareholders, and the consummation
of the transactions contemplated by this Agreement (i) will not conflict with
the Articles of Incorporation or the Bylaws of the Company, and (ii) except for
consents required to be obtained as set forth in Section 2.1.21, will not
result in any violation of or a default or loss of a material benefit under, or
permit the acceleration of any obligation under any mortgage, indenture, lease,
agreement or other instrument, permit, concession, grant, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or the Individual Shareholders or their respective properties
that would have a Material Adverse Effect.
2.1.5 Financial Matters.
a. Financial Statements. The Company has provided to PA&E
--------------------
true, correct and complete copies of the Company's (a) compiled balance sheet,
statement of income and statement of cash flow for the fiscal years ended
October 31, 1996, 1997, 1998 and 1999, including the related notes
(collectively, the "Historical Financial Statements"), and (b) balance sheet as
of January 31, 2000 (the "Current Balance Sheet") and the related statement of
income for the period then ended (collectively, the "Current Financial
Statements"). The Historical Financial Statements and the Current Financial
Statements are collectively referred to as the "the Company Financial
Statements." The Company Financial Statements are complete and accurate
-7-
<PAGE>
and present fairly the financial position, results of operations, and changes in
financial position of the Company as of the dates and for the periods indicated
therein in accordance with GAAP applied on a consistent basis throughout the
periods indicated, except as otherwise indicated therein or in the notes to the
Company Financial Statements.
b. Absence of Undisclosed Liabilities. Except as set forth on
----------------------------------
Schedule 2.1.5(b), and except for current liabilities incurred after the date of
- -----------------
the Current Balance Sheet in the ordinary course of business and of a type and
in an amount consistent with past practices, the Company does not have any
material liability or obligation that is not accrued, reserved against, or
disclosed in the Company Financial Statements.
c. Accounts Receivable. Schedule 2.1.5(c) contains a
------------------- -----------------
complete and accurate list of all of the receivables of the Company (including
accounts receivable, notes receivable and advances) that are reflected in the
Current Balance Sheet or that have been billed since the date of the Current
Balance Sheet (collectively, the "Receivables"). Except as set forth on Schedule
--------
2.1.5(c), all of the Receivables reflect actual bona fide transactions and arose
- -------
in the ordinary course of business. Each of the Receivables can be fully
collected when due and in any event within 120 days after Closing, without
resort to litigation and without offset, deduction or counterclaim, except to
the extent of the normal allowance for doubtful accounts with respect to
accounts receivable, consistent with the Company's prior practices, as reflected
in the Current Balance Sheet.
2.1.6 Litigation. Except as set forth on Schedule 2.1.6, there is
--------------
no claim, litigation, proceeding or investigation of any kind pending by the
Company or against the Company or the officers or directors of the Company in
their capacities as such, or against the properties or business of the Company,
and, to the knowledge of the Company and the Individual Shareholders, (i) no
such claim, litigation, proceeding or investigation has been threatened, and
(ii) there is no basis for any such claim, litigation, proceeding or
investigation. There are no actions, proceedings, suits, investigations, or
inquiries pending, or to the best knowledge of the Company and the Individual
Shareholders, threatened, that question the validity of this Agreement or any
actions taken or to be taken pursuant to this Agreement.
2.1.7 Absence of Changes. Except as set forth on Schedule 2.1.7,
--------------
since January 31, 2000, the Company has not:
a. Adverse Changes. Suffered or been threatened with any
---------------
Material Adverse Change;
b. Damage. Suffered any damage, destruction, requisition,
------
taking or casualty loss, whether or not covered by insurance, of or to any of
its assets or properties;
c. Dividends. Declared, set aside or paid any dividend or
---------
other distribution (whether in cash, stock, property or any combination thereof)
in respect of its capital stock, or directly or indirectly repurchased, redeemed
or otherwise acquired any shares of its capital stock, or made any other payment
to or for the account of its shareholders;
-8-
<PAGE>
d. Compensation. Increased the rate or terms of compensation
------------
payable or to become payable to any director, officer or key employee; changed
the rate or terms of any bonus, insurance, pension or other employee benefit
plan, payment, severance or arrangement made to, for or with any employee; paid
any special bonus or remuneration; executed or amended any written employment
contract; or made any change in personnel policies;
e. Expenditures. Entered into any agreement, commitment or
------------
transaction (including without limitation any borrowing, capital expenditure or
capital financing; any purchase, acquisition, sale or other disposition of
assets; any lease or sublease; any guaranty, assumption or endorsement of
payment or performance of any loan or obligation of another; or any amendment,
modification or termination of any existing agreement, commitment or
transaction), except agreements, commitments or transactions in the ordinary
course of business or as contemplated by this Agreement that will be performed
in less than one year and do not involve the payment of, or obligation to pay,
an amount greater than $50,000 in respect of any such agreement, commitment or
transaction; or made any payment on or with respect to the ML Debt, except for
required payments that were made when due under the terms of the ML Debt.
f. Accounting Changes. Made any change in accounting
------------------
methods, principles or practices;
g. Sales of Stock. Issued or sold any capital stock or
--------------
issued or granted any option, warrant or right to purchase any capital stock or
any security exercisable for the purchase of or convertible into capital stock
or relating to the payment of amounts measured by changes in the value or price
of any capital stock, or made any commitment to do any of the foregoing;
h. Articles and Bylaws. Amended its Articles of
-------------------
Incorporation or Bylaws;
i. Business Not in the Ordinary Course. Conducted any
-----------------------------------
business which is outside the ordinary course of business or not in the manner
that it previously conducted its businesses to the extent such business has had
or reasonably could be expected to have a Material Adverse Effect;
j. Liabilities. Except as set forth on Schedules 2.1.5(b)
----------- ------------------
and 2.1.6, incurred any liability which, either individually or in the
-----
aggregate, is material to its business, results of operations, financial
condition, properties, assets or prospects.
k. Encumbrances. Encumbered or consented to the encumbrance
------------
of any of its property or assets, except in the ordinary course of business;
l. Labor. Experienced pending or threatened labor disputes,
-----
organizational activities or disturbances affecting in an adverse manner its
business, results of operations, financial condition, properties, assets or
prospects; or
-9-
<PAGE>
m. Further Adverse Changes. Experienced or been threatened
-----------------------
with any change in its assets, liabilities, licenses, permits or franchises, or
any change in any agreement to which it is a party or is bound, which, either
individually or in the aggregate, has had or reasonably could be expected to
have a Material Adverse Effect.
2.1.8 Taxes.
a. Tax. "Tax" means any federal, state, local, or foreign
---
income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
(S) 59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
b. Tax Return. "Tax Return" means any return, declaration,
----------
report, claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
c. Tax Matters.
-----------
(1) The Company has filed all Tax Returns that it was
required to file, and all such Tax Returns were correct and complete. All Taxes
owed by the Company (whether or not shown on any Tax Return) have been paid. The
Company is not currently a beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by a governmental authority in
a jurisdiction where the Company does not file Tax Returns that the Company is
or may be subject to taxation by that jurisdiction. There are no security
interests on any of the assets of the Company that arose in connection with any
failure (or alleged failure) to pay any Tax.
(2) The Company has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder, or other third party.
(3) No shareholder or director or officer (or employee
responsible for Tax matters) of the Company has any knowledge that any
governmental authority may assess, or has threatened to assess, any additional
Taxes for any period for which Tax Returns have been filed. There is no dispute
or claim concerning any Tax liability of the Company either (A) claimed or
raised by any governmental authority or (B) as to which any of the Individual
Shareholders or the directors and officers (or employees responsible for Tax
matters) of the Company has knowledge. Schedule 2.1.8 lists all federal, state,
--------------
local, and foreign income Tax Returns filed with respect to the Company for
taxable periods ended on or after November 1, 1995, indicates those Tax Returns
that have been audited, and indicates those Tax Returns that currently are the
subject of any audit. The Company has delivered to PA&E correct and complete
copies of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by any of the Company since November
1, 1995.
-10-
<PAGE>
(4) The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(5) The Company: has not filed a consent under Code (S) 341(f)
concerning collapsible corporations; has not made any payments, is not obligated
to make any payments, and is not a party to any agreement that could obligate it
to make any payments that will not be deductible under Code (S) 280G; has not
been a United States real property holding corporation within the meaning of
Code (S) 897(c)(2) during the applicable period specified in Code (S)
897(c)(1)(A)(ii). The Company is not a party to any Tax allocation or sharing
agreement. The Company (A) has not been a member of an Affiliated Group filing
a consolidated federal income Tax Return (other than a group the common parent
of which was the Company) and (B) has no liability for the Taxes of any person
under Reg. (S) 1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, or by contract or otherwise.
(6) Schedule 2.1.8 sets forth the following information with respect
--------------
to the Company as of the most recent practicable date (as well as on an
estimated pro forma basis as of the Closing giving effect to the consummation of
the transactions contemplated by this Agreement): (A) the basis of the Company
in its assets; and (B) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, or excess charitable
contribution allocable to the Company.
(7) The unpaid Taxes of the Company do not, as of the close of its
October 31, 1999, taxable year, exceed the reserve for tax liability set forth
on the balance sheet dated October 31, 1999. The Company has paid or has
established a sufficient reserve for any Tax liability in respect of any fiscal
period which includes or ends on the Closing Date.
2.1.9 Compliance with Laws. Except as set forth on Schedule 2.1.9,
--------------
the Company has at all relevant times conducted its business in compliance in
all respects with the provisions of its Articles of Incorporation, Bylaws, and
all applicable laws and regulations to the extent that the failure to so comply
reasonably could be expected to have a Material Adverse Effect. The Company is
not in violation of any applicable laws or regulations in any material respect.
The Company is not subject to any outstanding judgment, order, writ, injunction
or decree and has not been charged with, or, to its knowledge, threatened with a
charge of, a violation of any provision of any applicable law or regulation.
2.1.10 Contracts.
a. Contracts and Commitments. Schedule 2.1.10 contains a list
------------------------- ---------------
of all of the contracts or agreements to which the Company is a party or by
which it or any of its property is subject or bound in the following categories:
(i) notes, mortgages, deeds of trust, loan agreements, security agreements,
guaranties, debentures, indentures, credit agreements and other evidences of
indebtedness with respect to any indebtedness the principal amount of which
exceeds $50,000; (ii) contracts or agreements with any director, officer or
shareholder of the Company; (iii) leases of real property and leases of
equipment or other personal property under which the Company is the lessee; (iv)
letters of intent, commitments, option agreements, earnest money agreements, or
other similar agreements pertaining to the lease, purchase or sale of any real
-11-
<PAGE>
property; (v) licenses and sublicenses material to the Company; (vi) contracts
or agreements providing for payments to or by the Company in excess of $25,000
on an annual basis or any contract with a term exceeding one year; (vii)
contracts or agreements with agents, brokers, consignees, sales representatives
or distributors relating to the sale of products or services, and contracts or
agreements relating to the payment of any commission or finder's fee; (viii)
confidentiality or inventions assignment agreements with parties other than
employees of the Company; and (ix) any contract or agreement not falling within
any of the foregoing categories but nevertheless material to the Company
(collectively, the "Contracts").
b. Validity; Absence of Defaults. All of the Contracts are
-----------------------------
valid, binding and enforceable in accordance with their terms. The Company is
not in default under or in violation of any provision of any Contract. No third
party has asserted any claim or engaged in any dispute or controversy with the
Company or withheld payments from or performance to the Company with respect to
any Contract that has not been resolved. The Company has received no notice or
warning of alleged nonperformance or other noncompliance with respect to its
obligations under any Contract or any notice that any such Contract may be
totally or partially terminated or suspended by the other party or parties
thereto. Except for the consents and approvals specified in Schedule 2.1.21,
---------------
neither the execution and delivery of this Agreement by the Company nor the
consummation by it of the transactions contemplated by this Agreement will
conflict with, violate, result in a breach of, or constitute a default under any
of the Contracts or result in the creation of any lien or encumbrance upon the
assets of the Company. Complete and accurate copies of all Contracts have been
delivered to PA&E.
2.1.11 Intellectual Property. The Company owns, or has a valid and
binding license or licenses (as to which there are no defaults by any of the
parties thereto) to use, all patents, trademarks, service marks, trade names,
copyrights, trade secrets, technology, know-how and other intellectual property
(the "Intellectual Property") necessary to or used in the conduct of the
Company's business as now conducted and as proposed to be conducted. Schedule
--------
2.1.11 contains a complete and accurate list of all patents, patent
- ------
applications, trademarks and service marks and related applications, trade names
and copyrights owned by or licensed to the Company. There are no licenses or
other agreements under which the Company has sold or granted a right to use any
Intellectual Property. All Intellectual Property owned by the Company is owned
by it free and clear of all liens, claims, encumbrances or adverse claims of any
third party. The conduct of the business of the Company does not conflict with
or infringe upon any Intellectual Property rights of any other person, and no
claims of conflict or infringement are pending or threatened against the
Company. The Company has made all necessary filings and recordations and has
paid all required fees and Taxes to maintain its ownership of Intellectual
Property that is patented or registered in the United States Patent and
Trademark Office and has made all necessary filings and recordations and has
paid all required fees and Taxes to maintain its ownership of Intellectual
Property that is patented or registered with applicable foreign agencies.
2.1.12 Insurance. Schedule 2.1.12 contains a complete and accurate
---------------
list of all insurance policies maintained by the Company covering any property
or asset of, or otherwise insuring, the Company. All such policies are in full
force and effect, all premiums covering all periods up to and including the date
as of which this representation is being made have been paid, and no notice of
cancellation or termination has been received with respect to any such policy.
-12-
<PAGE>
Such insurance policies are valid and currently in force. Such insurance
policies are sufficient for compliance with all requirements of law and
agreements to which the Company is a party. The Company has not been refused
any insurance with respect to its assets or operations or had its coverage
limited by any insurance carrier during the past three-year period. Complete
and accurate copies of all policies and endorsements thereto have been delivered
to PA&E.
2.1.13 Environmental Matters.
a. Definitions. "Environmental Law" means any federal, state
-----------
or local statute, regulation or ordinance pertaining to the protection of human
health or the environment and any applicable orders, judgments, decrees,
permits, licenses or other authorizations or mandates under such laws.
"Hazardous Substance" means any hazardous, toxic, radioactive or infectious
substance, material or waste as defined, listed or regulated under any
Environmental Law, and includes without limitation petroleum oil and its
fractions. "Asbestos-Containing Material" means any material containing more
than one percent by weight of asbestos. "Prior Property" means any real
property previously owned, leased, controlled, operated or occupied by the
Company.
b. Hazardous Substances. Except as specifically described in
--------------------
Schedule 2.1.13, no Hazardous Substance has been disposed of, spilled, leaked or
- ---------------
otherwise released in, on, under or from the Real Property (as defined in
Section 2.1.17(a) below) or the Prior Property by the Company, its employees or
agents, or to the knowledge of the Company, by any other party. Except as
described in Schedule 2.1.13, no Hazardous Substance (i) is or has been used,
---------------
treated, stored, generated, manufactured or otherwise handled on the Real
Property or the Prior Property, or (ii), to the knowledge of the Company and the
Individual Shareholders, has otherwise come to be located in, on or under the
Real Property or the Prior Property. To the knowledge of the Individual
Shareholders, no Hazardous Substance has been disposed of, spilled, leaked or
otherwise released in, on, under or from property adjacent to or in the
immediate vicinity of the Real Property or the Prior Property.
c. Asbestos; PCBs; Underground Storage Tanks. None of the
-----------------------------------------
buildings, structures, fixtures or equipment on the Real Property contains any
Asbestos-Containing Material, urea formaldehyde foam insulation, polychlorinated
biphenyls in concentrations greater than 50 parts per million (including in any
electrical equipment located on the Real Property), or any other Hazardous
Substance which is prohibited or regulated when present in buildings,
structures, fixtures or equipment. Except as set forth on Schedule 2.1.13,
---------------
there are no underground storage tanks (whether or not excluded from regulation
under any Environmental Law) on the Real Property, including any underground
storage tanks in use, out of service, closed or decommissioned in place. Except
as set forth on Schedule 2.1.13, all underground storage tanks previously on the
---------------
Real Property or previously owned or operated by the Company have been properly
decommissioned in compliance with all applicable Environmental Laws.
d. Waste Disposal. All wastes generated by the business of the
--------------
Company have been properly transported off site and disposed of in compliance
with all applicable Environmental Laws. Except as described on Schedule 2.1.13,
---------------
the Company has not arranged for the disposal or treatment of Hazardous
Substances at, and has not transported or arranged for
-13-
<PAGE>
transportation on behalf of itself or any third party any Hazardous Substances
to, any facility listed or proposed for listing on the National Priority List
("NPL") or the Comprehensive Environmental Response, Compensation, Liability
Information System list ("CERCLIS") compiled by the Environmental Protection
Agency or any similar or comparable list compiled or maintained by any state or
local governmental authority.
e. Site Lists. No portion of the Real Property or the Prior
----------
Property is listed or proposed for listing on the CERCLIS or the NPL, or any
similar or comparable list compiled or maintained by any state or local
governmental authority. Except as described on Schedule 2.1.13, neither the
---------------
Company nor the Individual Shareholders have received notice, or have knowledge,
of any claim that the Company is a potentially responsible party under Section
107 of the Comprehensive Environmental Response, Compensation and Liability Act
or any similar or comparable state or local Environmental Law.
f. Environmental Reports. The Company has disclosed and made
---------------------
available to PA&E true, complete and correct copies or results of any reports,
studies, analyses, tests or monitoring in the possession of or initiated by the
Company pertaining to the existence of Hazardous Substances and any other
environmental concerns relating to any of the Real Property, the Prior Property
or the business of the Company.
2.1.14 Labor Matters. Except as set forth on Schedule 2.1.14, the
---------------
Company has no collective bargaining agreement with any labor union. There has
not been any strike, slowdown, picketing or work stoppage by employees of the
Company, and no unfair labor practice charge, complaint or proceeding has been
brought against the Company. To the knowledge of the Company and the Individual
Shareholders, the Company has complied with all laws relating to the employment
of labor, including, without limitation, any provisions thereof relating to
wages, hours, collective bargaining, employment termination, occupational
safety, equal opportunity and discrimination, plant closures and layoffs and
notice thereof, hiring of non-U.S. citizens and the payment of social security
and similar taxes, and no person has asserted, and to the knowledge of the
Individual Shareholders there is no basis for any person to assert, that the
Company is liable for any arrears of wages or any taxes or penalties for failure
to comply with any of the foregoing.
2.1.15 Employee Benefit Matters. With respect to the employees of the
Company:
a. Plans. Schedule 2.1.15 contains a true and complete list of
----- ---------------
each bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance or termination pay, hospitalization or other medical, life or
other insurance, supplemental unemployment benefit, profit-sharing, savings,
pension, or retirement plan, program, agreement or arrangement (collectively,
the "Plans"), sponsored, maintained or contributed to or required to be
contributed to by the Company or by any subsidiary of the Company or trade or
business (whether or not incorporated) that is a member of a "controlled group"
of which the Company is a member or under "common control" with the Company
(within the meaning of Section 414(b) and (c) of the Code) (an "ERISA"
Affiliate") for the benefit of any employee or former employee, including any
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) subject to
-14-
<PAGE>
Title IV of ERISA (a "Multiemployer Plan") to which the Company or any ERISA
Affiliate contributes or is or was required to contribute;
b. Information Regarding Plans. With respect to each of the
---------------------------
Plans, the Company has heretofore delivered to PA&E true and complete copies of
each of the following documents: (i) a copy of such Plan (including all
amendments thereto); (ii) a copy of the annual report, if required under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), with
respect to such Plan for the last two years; (iii) a copy of the actuarial
report, if required under ERISA with respect to such Plan for the last two
years; (iv) a copy of the most recent Summary Plan Description, together with
each Summary of Material Modifications, if required under ERISA, with respect to
such Plan, and all material employee communications relating to such Plan; (v)
if such Plan is funded through a trust or any third party funding vehicle, a
copy of the trust or other funding agreement (including all amendments thereto)
and the latest financial statements thereof; (vi) all contracts relating to such
Plan, including without limitation service provider agreements, insurance
contracts, investment management agreements, subscription and participation
agreements and record keeping agreements; and (vii) the most recent
determination letter received from the IRS with respect to such Plan if it is
intended to be qualified under Section 401 of the Code.
c. New Plans; Modifications. The Company has no plan or
------------------------
commitment, whether legally binding or not, to create any additional employee
welfare benefit plan (as defined in Section 3(1) of ERISA) or employee pension
benefit plan (as defined in Section 3(2) of ERISA), and has no plan or
commitment to modify or change any existing pension plan or welfare benefit
plan, other than changes to comply with applicable law, that would affect any
employee of the Company;
d. Continuing Benefits. Except as may be required under COBRA,
-------------------
no Plan provides death, medical or health benefits (whether or not insured) with
respect to current or former employees of the Company after any such employee's
retirement or other termination of service (other than (i) benefit coverage
mandated by applicable law, including, without limitation, coverage provided
pursuant to COBRA, (ii) death benefits or retirement benefits under any pension
plan, (iii) deferred compensation benefits accrued as liabilities on the books
of the Company, or (iv) benefits the full cost of which is borne by the current
or former employee (or the employee's beneficiary). "COBRA" means the
continuation coverage requirements of Section 4980B of the Code and Part 6 of
Title I of ERISA.
e. Determinations. Each Plan of the Company and of any ERISA
--------------
Affiliates that is intended to be "qualified" within the meaning of Section
401(a) of the Code has been determined by the IRS to be so qualified, and there
is no fact or circumstance that would adversely affect such qualification or
result in the imposition of any federal income tax liability or penalty on any
member of the Company or any ERISA Affiliate.
f. Compliance. Each of the Plans has been and is maintained,
----------
operated and administered in compliance with its terms and any related documents
or agreements and in accordance with all applicable laws, including but not
limited to applicable provisions of ERISA and the Code. Neither the Company nor
any ERISA Affiliate has engaged in a "prohibited
-15-
<PAGE>
transaction" (as such term is defined in Section 4975 of the Code and Section
406 of ERISA) in connection with any Plan that is subject to ERISA for which an
exemption is not available.
g. Claims. There are no claims (other than claims for
------
benefits in the normal course), actions or lawsuits asserted or instituted
against, and neither the Company nor the Shareholders are aware of any pending
or threatened assessment, complaint, proceeding, investigation, litigation or
claims against the assets of any Benefit Plan (other than a Multiemployer Plan)
or against any fiduciary of such Benefit Plan with respect to the operation of
such Benefit Plan, which, if adversely determined, could have a material adverse
effect on the business, results of operations, financial condition, assets or
prospects of the Company or any ERISA Affiliate taken as a whole.
h. Withdrawal Liability. Neither the Company nor any ERISA
--------------------
Affiliate has incurred any withdrawal liability (and no event has occurred
which, with the giving of notice under Section 4219 of ERISA, would result in
such liability) under Section 4201 of ERISA as a result of a "complete
withdrawal" or a "partial withdrawal" (within the meaning of Section 4203 or
4205 of ERISA) from a Multiemployer Plan.
2.1.16 Other Employee Matters. Except as described on Schedule
--------
2.1.16, the Company is not bound by or subject to (and none of its properties is
- ------
bound by or subject to) any written or oral, express or implied, employment
contract, commitment or arrangement with any employee, including, without
limitation any "golden parachute" agreement, and all employees of the Company
are employees at will. The Company has provided PA&E with copies of all relevant
information regarding (i) vacation, holiday or sick leave policies or
arrangements with employees, and (ii) compensation arrangements with employees
and consultants, including compensation in the form of benefits, allowances,
perquisites or otherwise.
2.1.17 Property.
a. Title to Real Property. Schedule 2.1.17(a) contains a
---------------------- ------------------
list of all real property owned or leased by the Company (the "Real Property"),
including the dates of and parties to all leases and any amendments thereof.
Except as described on Schedule 2.1.17(a), the Company has good and marketable
fee simple title to any Real Property listed as owned by it on Schedule
--------
2.1.17(a), free and clear of all liens, mortgages, pledges, covenants,
- ---------
easements, restrictions, leases, charges, and other claims and encumbrances of
any nature, except covenants, easements and restrictions of record.
b. Condition of Real Property. All Real Property (including
--------------------------
improvements thereon) is in satisfactory condition and repair consistent with
its present use, and is available for immediate use in the conduct of the
business of the Company. To the knowledge of the Company, neither the
operations of the Company on any Real Property nor any improvements on the Real
Property violate any applicable building or zoning code or regulation of any
governmental authority having jurisdiction.
c. Title to Tangible Personal Property. Schedule 2.1.17(c)
----------------------------------- ------------------
contains a complete and accurate list of all tangible personal property with a
value in excess of $5,000 owned
-16-
<PAGE>
or leased by the Company (the "Tangible Personal Property"), including the dates
of and parties to all leases and any amendments thereof and the address at which
such Tangible Personal Property is currently located. The Company has good and
marketable title to all of the Tangible Personal Property listed as owned by it
on Schedule 2.1.17(c), free and clear of all liens, mortgages, pledges, leases,
------------------
restrictions and other claims and encumbrances of any nature, except as set
forth on Schedule 2.1.17(c).
------------------
d. Condition of Tangible Personal Property. Except as set
---------------------------------------
forth on Schedule 2.1.17(c), the Tangible Personal Property is in good operating
------------------
condition and repair (ordinary wear and tear excepted), is performing
satisfactorily, and is adequate for the conduct of the business of the Company.
To the knowledge of the Individual Shareholders, all Tangible Personal Property
and the state of maintenance thereof are in compliance with all applicable laws
and regulations.
2.1.18 Permits and Licenses. Schedule 2.1.18 contains a complete and
---------------
accurate list of all governmental licenses, permits and authorizations
(collectively, "Permits") held by the Company. Except as set forth on Schedule
--------
2.1.18, to the knowledge of the Individual Shareholders, the Company (i) holds
- ------
all Permits necessary for the lawful conduct of its business pursuant to all
applicable statutes, laws, ordinances, rules and regulations of all governmental
bodies, agencies and other authorities having jurisdiction over it or any part
of its operations; and (ii) is in compliance with each of the terms of each of
the Permits, and there are no claims of violation by the Company of any Permit.
Complete and accurate copies of all Permits held by the Company have been
delivered to PA&E.
2.1.19 Certain Interests. Except as set forth on Schedule 2.1.19, no
---------------
current or former shareholder of the Company and no entity owned or controlled
by any of them (a) has any interest in any property, real or personal, tangible
or intangible, used in or pertaining to the business of the Company, (b) is
indebted to the Company, or (c) has any financial interest, direct or indirect,
in any supplier or customer of, or other outside business which has any
transactions with, the Company. Except as set forth on Schedule 2.1.19, the
---------------
Company is not indebted to any shareholder, director or officer of the Company
(or any entity owned or controlled by one or more of such parties), except for
amounts due under normal salary arrangements and for reimbursement of ordinary
business expenses. The consummation of the transactions contemplated by this
Agreement will not (either alone or upon the occurrence of any act or event, or
with the lapse of time, or both) result in any payment (severance or other)
becoming due from the Company to any shareholder, officer, director or employee
of the Company (or any entity owned or controlled by one or more of such
parties).
2.1.20 Certain Payments. Neither the Company nor any shareholder,
officer or director of the Company, nor any other person or entity has, directly
or indirectly, on behalf of or with respect to the Company or the business or
operations of the Company (a) made any payment outside the ordinary course of
business to any purchasing or selling agent or person charged with similar
duties of any entity to which the Company sells or from which the Company buys
products or services for the purpose of influencing such agent or person to buy
products or services from or sell products or services to the Company; (b)
otherwise made or received any payment that was not legal to make or receive
under any applicable law or regulation of the United
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<PAGE>
States or any other country or territory; or (c) engaged in any transaction,
maintained any bank account, or used any corporate funds or assets except for
transactions, bank accounts, funds, and assets which have been and are reflected
in the normally maintained books and records of the Company.
2.1.21 Consents and Approvals. Except as set forth on Schedule
--------
2.1.21 (which includes a list of all consents, approvals, authorizations or
- ------
filings to be obtained or made), no consent, approval, or authorization of any
entity or person not a party to this Agreement is required for the consummation
of the transactions described in this Agreement by the Company or the
Shareholders except filings by PA&E pursuant to the applicable requirements of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated under such Act (the "1934 Act").
2.1.22 Records. The books of account of the Company are complete and
accurate in all material respects. Complete and accurate copies of the books and
records of the Company have been made available for PA&E's review.
2.1.23 Warranties. Schedule 2.1.23 contains any standard forms of
---------------
warranties provided by the Company. The Company has not made any warranties or
guarantees with respect to its services other than those disclosed on Schedule
--------
2.1.23.
- ------
2.1.24 Brokers and Finders. Neither the Company nor any Shareholder,
officer, director or employee of the Company has employed any broker, finder or
investment banker, or incurred any liability for any brokerage or investment
banking fees, commissions or finder's fees, in connection with the transactions
contemplated in this Agreement.
2.1.25 Restrictive Covenants. The Company is not a party to any
agreement, contract or covenant limiting the freedom of the Company to compete
in any line of business or with any person or other entity in any geographic
area.
2.1.26 Reliance. The Company and the Individual Shareholders
recognize and agree that, notwithstanding any investigation by PA&E or Buyer,
PA&E and Buyer are relying upon the representations and warranties made by the
Company and the Individual Shareholders in this Agreement.
2.2 Representations and Warranties of PA&E and Buyer. PA&E and Buyer
------------------------------------------------
jointly and severally represent and warrant to the Company and the Individual
Shareholders that:
2.2.1 Incorporation; Articles and Bylaws. Each of PA&E and Buyer is
a corporation duly organized and validly existing under the laws of the State of
Washington. Each of PA&E and Buyer has all necessary corporate power and
authority to own, operate, and lease its assets and properties and to carry on
its business, including its business as proposed to be conducted. True and
correct copies of the Articles of Incorporation and Bylaws of PA&E and Buyer
have been or prior to the Closing will be delivered to the Company.
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<PAGE>
2.2.2 Authority; Authorization. Each of PA&E and Buyer has full
corporate power and corporate authority to execute and deliver this Agreement,
to consummate the transactions contemplated in this Agreement, and to carry out
its obligations under this Agreement. This Agreement has been duly and validly
authorized, executed and delivered by PA&E and Buyer, and constitutes the valid
and binding obligation of PA&E and Buyer, enforceable in accordance with its
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other laws of general application
affecting the enforcement of creditors' rights, and except that the availability
of the equitable remedies of specific performance and injunctive relief may be
subject to the discretion of the court before which any proceeding may be
brought. To the knowledge of PA&E and Buyer, assuming the accuracy of the
representations made by the Company and the Shareholders, other than reporting
obligations of PA&E under the 1934 Act, no declaration, filing, or registration
with, or notice to, or authorization, consent, or approval of, any governmental
or regulatory body or authority is necessary for the execution and delivery of
this Agreement by PA&E or Buyer or the consummation by PA&E or Buyer of the
transactions contemplated in this Agreement.
2.2.3 Noncontravention. The execution and delivery of this
Agreement by PA&E and Buyer and the consummation of the transactions
contemplated by this Agreement (i) will not conflict with the Articles of
Incorporation or the Bylaws of PA&E or Buyer and (ii) except for consents
required to be obtained as set forth in Section 2.2.5, will not result in any
violation of or a default or loss of a material benefit under, or permit the
acceleration of any obligation under any mortgage, indenture, lease, agreement
or other instrument, permit, concession, grant, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to PA&E or
Buyer or their respective properties that would have a material adverse effect
on the business or financial condition of PA&E.
2.2.4 Litigation. There is no claim, litigation, proceeding or
investigation pending by PA&E or against PA&E or the officers or directors of
PA&E in their capacities as such, or against the properties or business of PA&E
that should have been reported on PA&E's annual report on Form 10-K for the
fiscal year ended May 31, 1999, and, to the best knowledge of PA&E, no such
claim, litigation, proceeding or investigation has been threatened and there is
no basis for any such claim, litigation, proceeding or investigation. There are
no actions, proceedings, suits, investigations, or inquiries pending, or to the
best knowledge of PA&E, threatened, that question the validity of this Agreement
or any actions taken or to be taken pursuant to this Agreement.
2.2.5 Consents and Approvals. Except as set forth on Schedule 2.2.5
--------------
(which includes a list of all consents, approvals, authorizations or filings to
be obtained or made), no consent, approval, or authorization of any entity or
person not a party to this Agreement is required for the consummation of the
transactions described in this Agreement by PA&E and Buyer.
2.2.6 Brokers and Finders. Neither PA&E nor Buyer, nor any
shareholder, officer, director or employee of PA&E or Buyer, has employed any
broker, finder or investment banker, or incurred any liability for any brokerage
or investment banking fees, commissions or finder's fees, in connection with the
transactions contemplated by this Agreement.
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<PAGE>
2.3 Representations and Warranties of the ESOP Trustee. The person or
--------------------------------------------------
entity executing this Agreement on behalf of the ESOP represents and warrants on
behalf of the ESOP to PA&E and Buyer that:
2.3.1 Authority. The ESOP Trustee has full power and authority to
execute and deliver this Agreement, to consummate the transactions contemplated
in this Agreement, and to carry out its obligations and the obligations of the
ESOP under this Agreement. This Agreement constitutes the valid and binding
obligation of the ESOP, enforceable in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other laws of general application affecting the enforcement of
creditors' rights, and except that the availability of the equitable remedies of
specific performance and injunctive relief may be subject to the discretion of
the court before which any proceeding may be brought. To the best knowledge of
the ESOP Trustee, no declaration, filing, or registration with, or notice to, or
authorization, consent, or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by the
ESOP Trustee or the consummation by the ESOP of the transactions contemplated by
this Agreement.
2.3.2 Noncontravention. The execution and delivery of this
Agreement by the ESOP Trustee, and the consummation of the transactions
contemplated by this Agreement (i) will not conflict with the documents
governing the ESOP, and (ii) except for consents required to be obtained as set
forth in Section 2.1.21, will not result in any violation of or a default or
loss of a material benefit under, or permit the acceleration of any obligation
under any indenture, agreements, or other instrument, permit, concession, grant,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the ESOP or the ESOP Trustee that would have a Material
Adverse Effect.
ARTICLE 3.
PRE-CLOSING CONDUCT AND AGREEMENTS
From the date of this Agreement until the Closing, except to the extent
expressly permitted by this Agreement or otherwise consented to by an instrument
in writing signed by PA&E and Buyer, the parties agree that:
3.1 Conduct of the Parties. Before Closing, each of the parties will
----------------------
fully cooperate with the other party and its counsel and accountants in
connection with any steps required to be taken as part of the obligations of the
parties under this Agreement. Each of the parties agrees not to take any
action, and the Shareholders agree not to cause the Company to take any action,
which would, as of the Closing Date, cause any warranties or representations
contained in this Agreement and applicable to them to be false or misleading.
Each of the parties agrees to use their best efforts, and the Shareholders agree
to cause the Company to use its best efforts, to (a) take all actions necessary
to render accurate as of the Closing Date their respective representations and
warranties contained in this Agreement, and (b) perform or cause to be
satisfied each covenant, obligation or condition to be performed or satisfied by
them prior to the Closing Date.
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<PAGE>
3.2 Access to Properties, Books and Records.
---------------------------------------
3.2.1 PA&E. To permit PA&E and Buyer to conduct their due diligence
investigation, the Company and the Shareholders will permit PA&E, Buyer and
their agents to have reasonable access to the premises in which the Company
conducts its business and to all of its books, records, and personnel files and
will furnish to PA&E and Buyer such financial data, operating data, and other
information as they shall reasonably request, and the Company and the
Shareholders will permit PA&E, Buyer and their agents to contact employees and
customers of the Company.
3.2.2 The Company and the Shareholders. To permit the Company and
the Shareholders to conduct their due diligence investigation, PA&E will provide
the Company and the Shareholders and their agents with access to any of its
public filings with the Securities and Exchange Commission and will furnish to
the Company and the Shareholders such financial data, operating data, and other
information as the Company or the Shareholders shall reasonably request.
3.3 Confidentiality. The parties each agree to comply with and be bound
---------------
by the terms of the confidentiality agreement between PA&E and the Company which
had been fully executed on August 10, 1998 (the "Confidentiality Agreement").
3.4 Conduct of the Company's Business. In addition to the provisions of
---------------------------------
this Agreement, the Company will, and the Shareholders will cause the Company
to, conduct its business in accordance with all of the provisions of the
Operating Agreement. The Company will, and the Shareholders will cause the
Company to: (i) conduct the Company's business in a reasonable and prudent
manner in accordance with past practices and keep the Company's business intact,
(ii) not take or permit to be taken or do or suffer to be done anything other
than in the ordinary course of the Company's business, and (iii) use
commercially reasonable efforts to preserve the Company's existing business and
relationships with its employees, customers, suppliers, directors, officers,
agents and others, to preserve and protect its properties, to conduct its
business in compliance with all applicable laws and regulations, and to maintain
the goodwill and reputation associated with its business. The parties
understand and agree that (a) PA&E and Buyer must be consulted on every material
issue and matter which may affect the business or operations of the Company
after the date of this Agreement, and (b) no such issue or matter shall be acted
on without the prior written consent of PA&E and Buyer. Subject to the
foregoing, the Company shall comply, and the Shareholders agree to cause the
Company to comply, with the following covenants (except to the extent that PA&E
and Buyer gives their prior written consent otherwise):
3.4.1 Properties and Assets.
a. Maintenance. The Company shall exercise commercially
-----------
reasonable efforts to maintain all of its properties and assets, tangible or
intangible, in good operating condition and repair, and take all steps necessary
to keep its operations functioning properly.
-21-
<PAGE>
b. Liens and Encumbrances. The Company shall not further
----------------------
encumber or permit to be further encumbered any of its properties or assets.
c. Disposition. The Company shall not purchase, sell, lease
-----------
or dispose of or make any contract for the purchase, sale, lease or disposition
of or subject to lien or security interest any properties or assets other than
in the ordinary and usual course of its business consistent with the
representations and warranties contained in this Agreement and not in breach of
any of the provisions of this Agreement.
3.4.2 Compensation. The Company shall not grant any salary increase
to, or increase the draw of, any of its officers, directors, or employees, or
enter into any new, or amend or alter any existing, bonus, incentive
compensation, deferred compensation, profit sharing, retirement, pension, stock
option, group insurance, death benefit or other fringe benefit plan, trust
agreement or other similar or dissimilar arrangement, or any agreements or
documents relating to the ESOP, or any employment or consulting agreement.
3.4.3 Indebtedness. The Company shall not create, agree to or
incur: (a) any liabilities or obligations, contingent or otherwise, (i) in
respect of borrowed money (other than borrowings pursuant to the Company's
existing line of credit) or pursuant to the Operating Agreement, (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except those incurred in the ordinary course of its business that would
constitute ordinarily a trade payable to trade creditors, which are paid not
later than 60 days after their original due date, (iv) evidenced by bankers'
acceptances or similar instruments issued or accepted by banks, (v) relating to
any capitalized lease obligation, or (vi) evidenced by a letter of credit or a
reimbursement obligation of the Company with respect to any letter of credit;
(b) any interest swap or hedging obligations; (c) any guarantee by the Company
of, or any pledge by the Company of any of its assets to secure, any liabilities
or obligations of any other person or entity; (d) any obligation of the Company
to purchase, redeem or acquire any of its stock or other equity interests; or
(e) any deferrals, renewals, extensions, refinancing or refundings (whether
direct or indirect) of, or amendments, modifications or supplements to, any
liability of the kind described in any of the preceding clauses (a), (b), (c),
(d) or this clause (e) (all of the foregoing collectively referred to as the
"Designated Indebtedness"). At all times after the date of this Agreement and on
the Closing Date, the outstanding balance on the Company's existing line of
credit shall not exceed $500,000 without the prior written consent of PA&E, and
on the Closing Date the Company shall not have any Designated Indebtedness,
other than that line of credit and borrowings pursuant to the Operating
Agreement.
3.4.4 Leases. The Company shall not enter into any leases.
3.4.5 Payments. Except as otherwise specified in this Agreement,
the Company shall not pay any obligation or liability (fixed or contingent) or
discharge or satisfy any lien or encumbrance, or settle any claim, liability or
suit pending or threatened against it or any of its properties, except for
liabilities on the Current Balance Sheet or current liabilities incurred between
the date of the Current Balance Sheet and the Closing Date in the ordinary and
usual course of business consistent with the Company's representations and
warranties contained in this
-22-
<PAGE>
Agreement and not in breach of any of the provisions of this Agreement. The
Company shall not make any payments of or with respect to the ML Debt.
3.4.6 Contracts and Agreements. The Company shall not enter into
any contract, agreement or commitment not in the ordinary course of business,
including without limiting the generality of the foregoing, any contract,
agreement or commitment for the purchase of any materials or supplies. The
Company shall not modify, amend, cancel or terminate any of the Contracts or
waive any rights under any of the Contracts or any other material contracts or
agreements. The Company and the ESOP shall not amend any agreement or documents
relating to the ESOP or the ESOP Debt.
3.4.7 Shipments. The Company shall not, other than in the ordinary
course of business, curtail purchases or accelerate shipments beyond customer
requirements.
3.4.8 Insurance. The Company shall maintain in full force and
effect its policies of insurance.
3.4.9 Governing Documents. The Company will not make any change in
its Articles of Incorporation or Bylaws.
3.4.10 Capital Stock. The Company will not (a) issue or cause to be
issued any additional shares of its capital stock, (b) effect any subdivision of
its outstanding capital stock, or purchase or redeem any capital stock, (c)
declare, make or pay any dividend, distribution or payment in respect of its
capital stock, or (d) grant or issue any options, warrants or other rights to
acquire any capital stock or other equity securities, whether by conversion or
otherwise, or make any commitment to do any of the above.
3.5 Public Announcements. Promptly after the execution of this Agreement,
--------------------
PA&E may at its option issue a press release in a form reasonably satisfactory
to the Company and the Shareholders. Thereafter, PA&E and the Shareholders will
consult with each other with respect to any news release or other announcement
to the public concerning the Asset Purchase, including without limitation
announcements to mutual customers or suppliers or potential customers or
suppliers or any statement to their employees generally concerning or relating
to the Asset Purchase. Neither the Shareholders, nor the Company nor PA&E nor
Buyer, nor any person affiliated with any of them, will issue or approve a news
release or other announcement concerning this transaction without the prior
written consent of the other party, except for announcements, reports or any
other information which PA&E believes on the advice of counsel to be required to
be disclosed by applicable securities laws. Except as otherwise required by
applicable securities laws or other applicable law or as agreed by the parties,
the terms of this Agreement will be confidential.
3.6 Notice of Breach.
----------------
3.6.1 By the Company and the Shareholders. The Company and the
Shareholders will immediately give written notice to PA&E and Buyer of the
occurrence of any event or the failure of any event to occur that results in a
breach of any representation or warranty
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<PAGE>
by the Company or the Shareholders, or a failure by the Company or the
Shareholders to comply with any covenant, condition or agreement contained in
this Agreement.
3.6.2 By PA&E. PA&E and Buyer will immediately give written notice
to the Company and the Shareholders of the occurrence of any event or the
failure of any event to occur that results in a breach of any representation or
warranty by PA&E or Buyer or a failure by PA&E or Buyer or to comply with any
covenant, condition or agreement contained in this Agreement.
3.7 Company Shareholder Approval. The Shareholders covenant and agree
----------------------------
that a meeting of the shareholders of the Company shall be held within 21 days
after the date of this Agreement, after proper notice to shareholders pursuant
to the Company's Articles of Incorporation, Bylaws and applicable law, or if
practical, a unanimous consent of the Shareholders shall be signed promptly
after the date of this Agreement, to consider and approve the Asset Purchase and
any other actions necessary to authorize the transactions contemplated by this
Agreement. The Individual Shareholders hereby agree to vote all of their shares
of Company Common Stock in favor of the Asset Purchase and any such other
actions.
3.8 Consents. The Company, the Individual Shareholders and PA&E and Buyer
--------
will cooperate and use their respective best efforts, between the date of this
Agreement and the Closing Date, to obtain all consents, approvals (including
shareholder approval), licenses or permits that may be required in connection
with this Agreement and the transactions contemplated hereby.
3.9 Payment of ML Debt. The Individual Shareholders agree to pay in full
------------------
the ML Debt at the time of the Closing.
3.10 Further Assurances. Subject to the terms and conditions of this
------------------
Agreement, each of the parties agrees to use their respective best efforts to
take, or cause to be taken all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate the Asset Purchase, subject,
in the case of the ESOP, to its fiduciary duty under ERISA.
3.11 No Solicitation. The Company and the Shareholders shall not, directly
---------------
or indirectly, take any of the following actions, and the Company and the
Shareholders shall not permit the Company or its officers, directors or
employees, or their respective investment bankers, attorneys, accountants, or
other agents or persons retained by any of them, directly or indirectly, to take
any of the following actions: encourage, initiate, or solicit any inquiries or
the making of any proposal with respect to, or engage in negotiations
concerning, or provide any confidential information or data to, or respond to
any inquiries or proposals by, or have any discussions with, any person or
entity other than PA&E and Buyer relating to any financing, merger, acquisition,
business combination, or purchase of all or substantially all or a substantial
part of the business or assets of the Company or the acquisition of any
outstanding equity securities or the issuance of any equity securities of the
Company, and they will immediately cease any existing activities, discussions or
negotiations with any parties with respect to any of the foregoing. The Company
and the Shareholders will notify PA&E and Buyer immediately if any such
inquiries or proposals are received by, any such information is required or
requested from or any negotiations or discussions are sought to be initiated or
continued with the Company or with any person on behalf of the Company, and the
Company and the Shareholders will inform PA&E and Buyer of the
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<PAGE>
identity of the offeror or party making any proposal and provide PA&E and Buyer
with a copy of all written material relating to any such offer or proposal.
ARTICLE 4
CONDITIONS TO CLOSING
4.1 Conditions to the Obligations of PA&E and Buyer. All obligations of
-----------------------------------------------
PA&E and Buyer under this Agreement are subject to the fulfillment and
satisfaction, prior to or at Closing, of each of the following conditions, any
one or more of which may be waived by PA&E and Buyer in writing:
4.1.1 Corporate Actions. All actions required to be taken by, or on
the part of, the Company or the Shareholders to authorize the execution,
delivery and performance of this Agreement by the Shareholders, and the
consummation of the transactions contemplated by this Agreement (including
without limitation approval by the Shareholders as required by the Washington
Act of the Asset Purchase), shall have been duly and validly taken by the
Company and the Shareholders.
4.1.2 Representations and Warranties. The representations and
warranties of the Company and the Shareholders contained in this Agreement shall
be true and correct at and as of the Closing Date, with the same effect as
though such representations and warranties had been made at and as of the
Closing Date.
4.1.3 Performance of Obligations. Each of the obligations of the
Company and the Shareholders required to be performed by them on or before the
Closing Date pursuant to the terms of this Agreement shall have been performed
as required.
4.1.4 No Material Adverse Change. There shall have been, between the
date of this Agreement and the Closing, no Material Adverse Change.
4.1.5 Approvals; Consents. All required approvals, consents,
authorizations and waivers with regard to the transactions contemplated by this
Agreement, including those required by state and federal regulatory authorities,
approval of the Boards of Directors of PA&E and Buyer and the Company, approval
by the shareholders of the Company, and, if PA&E shareholder approval is
required by law or PA&E elects to require such approval, by shareholders of
PA&E, shall have been obtained or waived, and all third-party consents and
waivers required by, or required to prevent a breach or default by the Company
under, any contract, lease, note or other document to which the Company is a
party or any permit, license or other governmental authorization held by the
Company shall have been obtained, and PA&E and Buyer shall have received copies
of such consents and waivers in a form acceptable to PA&E and Buyer.
4.1.6 Certificate. The Company and the Shareholders shall have
delivered to PA&E and Buyer a certificate to the effect of Sections 4.1.1
through 4.1.5, signed by the Company and the Shareholders.
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<PAGE>
4.1.7 Audit. If PA&E determines that it is necessary or
appropriate, the Company shall have permitted the audit of its financial
statements for the most recent three fiscal years, or for such shorter period as
PA&E may determine, by an independent accounting firm selected by PA&E.
4.1.8 Environmental Assessment. If PA&E elects to do so, PA&E
shall have obtained an environmental assessment of any real property leased by
the Company, and the results of the assessment shall be acceptable to PA&E in
its sole discretion.
4.1.9 Capital Stock. All of the outstanding capital stock of the
Company shall be owned beneficially and of record by the Individual Shareholders
and the ESOP, and there shall be no agreements or other rights, other than this
Agreement, pursuant to which any person or entity would have any right to
acquire any securities of the Company either from the Company or from the
Shareholders.
4.1.10 Employment Agreements. PA&E shall have received fully
executed employment agreements substantially as attached hereto as Exhibit C
between Buyer and each of Hans Herrmann and Karl Herrmann (the "Employment
Agreements").
4.1.11 Lease Amendments. The Company and HHD Associates shall have
executed and delivered mutually agreeable lease amendments (the "Lease
Amendments").
4.1.12 Shareholders' Accounts. Any amounts owed by Shareholders to
the Company, as set forth on Schedule 2.1.19, shall have been paid to the
---------------
Company, and any amounts owed by the Company to its shareholders, as set forth
in Schedule 2.1.19, shall have been canceled, and there shall be no other
---------------
amounts receivable from or payable to the Shareholders by the Company, other
than for compensation for the current pay period coming due in the ordinary
course of business; provided, however, that (i) the $28,412 payable to the
Company from Hans Herrmann and the $14,674 payable to the Company from Karl
Herrmann arising from the Company's payment of the premium on life insurance
owned by each such Individual Shareholder on the life of the other Individual
Shareholder need not be repaid to the Company; and (ii) Buyer shall have no
obligation to make any further premium payments on such insurance policies or to
make any payments to the Individual Shareholders in respect of the federal
income tax payable by the Individual Shareholders arising from such premium
payments by the Company.
4.1.13 Further Documents. The Company and the Shareholders shall
have executed and delivered any other documents and rendered any other
performance necessary to consummate the transactions contemplated by this
Agreement.
4.2 Conditions to the Obligations of the Company and the Shareholders.
-----------------------------------------------------------------
All obligations of the Company and the Shareholders under this Agreement are
subject to the fulfillment and satisfaction, prior to or at Closing, of each of
the following conditions, any one or more of which may be waived by the Company
and the Shareholders in writing:
4.2.1 Corporate Actions. All actions required to be taken by, or on
the part of, PA&E or Buyer to authorize the execution, delivery and performance
of this Agreement and
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<PAGE>
the consummation of the transactions contemplated by this Agreement shall have
been duly and validly taken by PA&E and Buyer.
4.2.2 Representations and Warranties. The representations and
warranties of PA&E and Buyer contained in this Agreement shall be true and
correct at and as of the Closing Date, with the same effect as though such
representations and warranties had been made at and as of the Closing Date.
4.2.3 Performance of Obligations. Each of the obligations of PA&E or
Buyer required to be performed by PA&E or Buyer on or before the Closing Date
pursuant to the terms of this Agreement shall have been performed as required.
4.2.4 Certificate. PA&E and Buyer shall have delivered to the
Company and the Shareholders a certificate to the effect of Sections 4.2.1
through 4.2.3, signed by the President of PA&E and an officer of Buyer.
4.2.5 Employment Agreements. The Company shall have executed and
delivered the Employment Agreements with each of Hans Herrmann and Karl
Herrmann.
4.2.6 Lease Amendments. The Company and HHD Associates shall have
executed and delivered the Lease Amendments.
4.2.7 Shareholder Approval. The Company shall have obtained the
approval of its shareholders required by Washington law for the Asset Purchase.
4.2.8 Further Documents. PA&E and Buyer shall have executed and
delivered any other documents and rendered any other performance necessary to
consummate the transactions contemplated by this Agreement.
ARTICLE 5.
TERMINATION
5.1 Right to Terminate. Notwithstanding anything to the contrary in this
------------------
Agreement, this Agreement may be terminated and the transactions contemplated in
this Agreement abandoned at any time prior to the Closing:
5.1.1 Mutual Consent. By mutual consent of PA&E, Buyer, the Company
and the Shareholders.
5.1.2 Delay. By either PA&E and Buyer or the Company and the
Shareholders, if the Closing shall not have occurred by April 30, 2000.
However, the right to terminate this Agreement under this Section 5.1.2 shall
not be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing to
occur on or before such date.
-27-
<PAGE>
5.1.3 Breach by PA&E or Buyer. By the Company and the Shareholders
(if they are not in breach of this Agreement), if PA&E or Buyer breaches any of
their representations and warranties in any material respect or fails to comply
in any material respect with any of their obligations or agreements contained in
this Agreement.
5.1.4 Breach by the Company or the Individual Shareholders. By PA&E
and Buyer (if they are not in breach of this Agreement), if the Company or any
of the Individual Shareholders breach any of their representations and
warranties in any material respect or fail to comply in any material respect
with any of their obligations or agreements contained in this Agreement.
5.1.5 Failure of the Company Shareholders to Approve. By PA&E and
Buyer, if a unanimous consent or a meeting of shareholders of the Company has
not occurred as required by Section 3.7, or a meeting having been duly held, if
the shareholders of the Company fail to approve the Asset Purchase and any other
action necessary to authorize the transactions contemplated by this Agreement,
within 21 days after the date of this Agreement.
5.2 Certain Obligations to Cease. If this Agreement is terminated
----------------------------
pursuant to Section 5.1, all obligations of the parties to this Agreement shall
terminate and there shall be no liability of any party to this Agreement to any
other party, except: (a) for breaches of Section 3.3 or 3.11, and (b) that
nothing in this Agreement will relieve any party from liability for any willful
breach of this Agreement.
ARTICLE 6.
MISCELLANEOUS PROVISIONS
6.1 Nonsurvival of Representations and Warranties. None of the
---------------------------------------------
representations and warranties in this Agreement shall survive the Closing.
This Section 6.1 shall not limit any covenant or agreement of the parties which
by its terms contemplates performance after the Closing.
6.2 Release from Guaranties. Promptly after the Closing, Buyer and PA&E
-----------------------
will take the actions necessary to have Sterling Savings Bank release the
Individual Shareholders from their personal guaranties of indebtedness of the
Company to Sterling Savings Bank.
6.3 Exhibits; Schedules. Each Exhibit to this Agreement and each
-------------------
Schedule delivered pursuant to the terms of this Agreement is incorporated into
this Agreement by reference.
6.4 Notices. Any notice or other communications required or permitted
-------
under this Agreement shall be sufficiently given if in writing and shall be
deemed given or made when delivered personally, by facsimile, or by courier
(with signed receipt), or three days after sent by certified or registered mail,
return receipt requested, to the following addresses or to such other address as
a party may designate in writing to the others:
-28-
<PAGE>
<TABLE>
<CAPTION>
To PA&E or Buyer: With a copy to:
- -----------------------------------------------------------------------------
<S> <C>
Pacific Aerospace & Electronics, Inc. Stoel Rives LLP
110 Main Street, Suite 100 600 University St., Suite 3600
Edmonds, WA 98020 Seattle, WA 98101-3197
Facsimile: (425) 774-0103 Facsimile: (206) 386-7500
Attention: Sheryl A. Symonds, Attention: L. John Stevenson, Jr.
General Counsel
- -----------------------------------------------------------------------------
To Company: With a copy to:
- -----------------------------------------------------------------------------
NOVA-TECH Engineering, Inc. Karr Tuttle Campbell
115 Second Avenue North 1201 Third Avenue, Suite 2900
Edmonds, WA 98020-3101 Seattle, WA 98101-3028
Facsimile: (425) 774-3074 Facsimile: (206) 682-7100
Attention: President Attention: Walter M. Maas III
- -----------------------------------------------------------------------------
To the Individual Shareholders: With a copy to:
- -----------------------------------------------------------------------------
Mr. Hans Herrmann Karr Tuttle Campbell
512 N.W. 195th 1201 Third Avenue, Suite 2900
Shoreline, WA 98177 Seattle, WA 98101-3028
Facsimile: (206) 682-7100
Mr. Karl Herrmann Attention: Walter M. Maas III
7200 - 34th N.W.
Seattle, WA 98117
- -----------------------------------------------------------------------------
To the ESOP: With a copy to:
- -----------------------------------------------------------------------------
NOVA-TECH Engineering, Inc. Lukins & Annis, P.S.
Employee Stock Ownership Trust 1600 Washington Trust
Alaska Trust Company, Trustee Financial Center
1029 - 3rd Ave., Suite 601 West 717 Sprague Avenue
Anchorage, Alaska 99501-1649 Spokane, WA 99201-0466
Facsimile: (907) 258-1649 Facsimile: (509) 747-2323
Attention: Douglas J. Blattmachr Attention: Philip J. Carstens, Jr.
- -----------------------------------------------------------------------------
</TABLE>
6.5 No Assignment. Neither this Agreement nor any rights or obligations
-------------
hereunder may be assigned by operation of law or otherwise.
6.6 Titles and Captions. The section titles, captions and headings in
-------------------
this Agreement are for convenience only and shall not be deemed part of this
Agreement or in any way intended to define, limit, extend or define the scope or
intent of any provisions of this Agreement.
6.7 Waiver. No failure by any party to this Agreement to insist upon the
------
strict performance of any covenant, duty, agreement, or condition of this
Agreement or to exercise any right or remedy consequent upon a breach thereof
shall constitute a waiver of any such breach or
-29-
<PAGE>
of such or any other covenant, agreement, term or condition. Any party by notice
pursuant to this Agreement may, but shall be under no obligation to, waive any
of its rights or any conditions to its obligations under this Agreement, or any
duty, obligation or covenant of any other party. No waiver shall affect or alter
the remainder of this Agreement but each and every other covenant, agreement,
term and condition of this Agreement shall continue in full force and effect
with respect to any other then existing or subsequently occurring breach.
6.8 Amendment. This Agreement may be amended with respect to any
---------
provision contained in this Agreement by a written instrument duly executed on
behalf of each party to this Agreement.
6.9 Severability. If any condition, covenant or other provision in this
------------
Agreement is held to be invalid, void or unenforceable by a court of competent
jurisdiction, the same shall be deemed severable from the remainder of this
Agreement and shall in no way affect any other covenant, condition or provision
of this Agreement. If such condition, covenant or other provision shall be
deemed invalid due to its scope or breadth, such provision shall be deemed
reformed and valid to the extent of the scope or breadth permitted by law.
6.10 Rights and Remedies. The rights and remedies of the parties under
-------------------
this Agreement shall not be mutually exclusive and the exercise of one or more
of the provisions of this Agreement shall not preclude the exercise of any other
provision.
6.11 Attorney Fees. In the event of any legal action arising from or
-------------
relating to this Agreement, the non-prevailing party shall reimburse the
prevailing party for all of the prevailing party's costs and expenses, including
reasonable attorney fees, incurred in legal action.
6.12 Governing Law. This Agreement and the Stock Purchase shall be
-------------
governed by and construed in accordance with the laws of the State of
Washington, without giving effect to conflicts of laws principles.
6.13 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement.
6.14 Entire Agreement; No Other Beneficiaries. This Agreement, including
----------------------------------------
the attached Schedules and Exhibits, and the Confidentiality Agreement,
constitute the entire agreement between the parties and supersede all prior
agreements or understandings between parties, written or oral, as to the subject
matter of this Agreement. This Agreement is solely among the parties hereto and
is not intended, and shall not be construed, to benefit any person or entity
that is not a party to this Agreement.
-30-
<PAGE>
Executed as of the date first written above.
COMPANY:
NOVA-TECH ENGINEERING, INC.
By /s/ Hans Herrmann
-------------------------------------
Its President
SHAREHOLDERS:
/s/ Hans Herrmann
---------------------------------------
Hans Herrmann
/s/ Karl Herrmann
---------------------------------------
Karl Herrmann
-31-
<PAGE>
NOVA-TECH Engineering, Inc. Employee Stock
Ownership Trust
By: Alaska Trust Company
Its Trustee
By /s/ Douglas J. Blattmachr
----------------------------------
Douglas J. Blattmachr
Its President and CEO
PA&E:
PACIFIC AEROSPACE & ELECTRONICS, INC.
By: /s/ Donald A. Wright
---------------------------------------
Donald A. Wright
Its President
BUYER:
SKAGIT ENGINEERING & MANUFACTURING,
INC.
By: /s/ Donald A. Wright
---------------------------------------
Donald A. Wright
Its Executive Vice President
-32-
<PAGE>
Consent of Spouse
-----------------
The undersigned spouse of Hans Herrmann hereby joins in, consents to and
agrees to be bound by the foregoing Asset Purchase Agreement, to the extent
necessary to bind the marital community.
Dated as of March 23, 2000.
/s/ Heidi U. Herrmann
-------------------------------------
Please Print Name: Heidi U. Herrmann
-------------------
Confirmation
------------
The undersigned Karl Herrmann hereby confirms, represents and warrants to
PA&E that he is not married.
Dated as of March 22, 2000.
/s/ Karl Herrmann
-----------------------------------
Karl Herrmann
-33-
<PAGE>
List of Exhibits and Schedules to the Asset Purchase Agreement
The following list briefly identifies the contents of all exhibits and schedules
to the Asset Purchase Agreement, dated as of March 22, 2000, between Pacific
Aerospace & Electronics, Inc., Skagit Engineering & Manufacturing, Inc., Nova-
Tech Engineering, Inc. and the Shareholders of Nova-Tech Engineering, Inc. (the
"Agreement"). All of the exhibits and schedules listed below are omitted from
the Agreement filed as Exhibit 2.1 to the foregoing quarterly report on Form 10-
Q, pursuant to Regulation S-K, item 601(b)(2). The Company agrees to furnish
supplementally a copy of any of the omitted exhibits and schedules to the
Securities and Exchange Commission upon request.
EXHIBITS:
Exhibit A - Bill of Sale
Exhibit B - Assignment and Assumption Agreement
Exhibit C - Employment Agreements
SCHEDULES:
Schedule 1.3 Excluded Assets
Schedule 1.4 Permitted Liens
Schedule 2.1.2 Capitalization
Schedule 2.1.3 Interests in Other Entities
Schedule 2.1.5(b) Absence of Undisclosed Liabilities
Schedule 2.1.5(c) Accounts Receivable
Schedule 2.1.6 Litigation
Schedule 2.1.7 Absence of Changes
Schedule 2.1.8 Taxes
Schedule 2.1.9 Compliance With Laws
Schedule 2.1.10 Contracts
Schedule 2.1.11 Intellectual Property
Schedule 2.1.12 Insurance Policies
Schedule 2.1.13 Environmental Matters
Schedule 2.1.14 Labor Matters
Schedule 2.1.15 Employee Benefit Matters
Schedule 2.1.16 Employee Matters
Schedule 2.1.17(a) Real Property
Schedule 2.1.17(c) Tangible Personal Property
Schedule 2.1.18 Permits and Licenses
Schedule 2.1.19 Certain Interests
Schedule 2.1.21 Consents and Approvals (Company)
Schedule 2.1.23 Warranties
Schedule 2.2.5 Consents and Approvals (PA&E)
-34-
<PAGE>
EXHIBIT 2.2
EXCHANGE AGREEMENT
------------------
This Exchange Agreement (the "Agreement"), dated as of March 10, 2000,
---------
is by and among Pacific Aerospace & Electronics, Inc., a Washington corporation
(the "Company"), Post Advisory Group, Inc., a California corporation (on behalf
-------
of it and certain of its affiliates, "Post"), and Balo Precision Parts, Inc.,
----
Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty
Corporation, Aeromet America, Inc., Northwest Technical Industries, Inc.,
Pacific Coast Technologies, Inc., PA&E International, Inc., Skagit Engineering &
Manufacturing, Inc. and Seismic Safety Products, Inc. (the "Guarantors").
----------
Certain other terms used herein are defined in Section 1 hereof.
---------
Recitals
--------
A. Post holds at least $4.0 million in aggregate principal amount of
the Company's 11 1/4% Senior Subordinated Notes due 2005 (the "Notes");
-----
B. The Notes are guaranteed on a senior subordinated basis by a
Subsidiary Guarantee dated as of July 30, 1998 by each of the Guarantors except
Skagit Engineering & Manufacturing, Inc. ("Skagit"), and dated as of June 1,
1999 by Skagit (the "Note Guarantee").
--------------
C. Post and certain of its affiliates desire to exchange (the
"Exchange") $4.0 million in principal amount of the Notes, plus accrued but
- ---------
unpaid interest thereon through the date hereof, issued by the Company (the
"Existing Notes") and the Note Guarantee issued by the Guarantors, for 993,103
- ---------------
shares of the Company's common stock, par value $.001 per share (the "Exchange
--------
Common Stock") and a subsidiary guarantee to be issued by the Guarantors
- ------------
relating to the payment of dividends on the Exchange Common Stock, such
subsidiary guarantee in the form attached hereto as Exhibit A (the "Dividend
--------- --------
Guarantee");
- ---------
D. The Notes and the Note Guarantee were originally issued in a
registered offering and Post and certain of its affiliates desire that the
Exchange Common Stock be issued free of resale restrictions (so long as Post and
its affiliate holders are not affiliates of the Company); and
E. the Company and Post desire to undertake the Exchange in reliance
on Section 3(a)(9) of the Securities Act as an exemption from the registration
requirements of Section 5 of such Act.
Agreement
---------
NOW, THEREFORE, in consideration of the foregoing recitals and for
good consideration, the parties hereto agree as follows:
Section 1. DEFINITIONS.
As used herein, the following terms shall have the following meanings.
1
<PAGE>
"Articles of Incorporation" shall mean the Articles of Incorporation
-------------------------
of the Company, as in effect on the date hereof.
"Commission" shall mean the Securities and Exchange Commission or any
----------
other similar or successor agency of the federal government administering the
Securities Act.
"Company" shall have the meaning assigned to such term in the Preamble
-------
to this Agreement.
"Dividend Guarantee" shall have the meaning assigned to such term in
------------------
the Recitals of this Agreement.
"Exchange" shall have the meaning assigned to such term in the
--------
Recitals of this Agreement.
"Exchange Common Stock" shall have the meaning assigned to such term
---------------------
in the Recitals of this Agreement.
"Existing Notes" shall have the meaning assigned to such term in the
--------------
Recitals of this Agreement.
"Material Adverse Effect" means a material adverse effect on (i) the
-----------------------
financial condition, business or properties of the Company or (ii) the ability
of the Company to perform its obligations under this Agreement.
"Notes" shall have the meaning assigned to such term in the Recitals
-----
of this Agreement.
"Note Guarantee" shall have the meaning assigned to such term in the
--------------
Recitals of this Agreement.
"Person" shall mean any individual, corporation, partnership, limited
------
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
Section 2. EXCHANGE OF SECURITIES
2.1 Authorization and Issuance of Exchange Common Stock and the
-----------------------------------------------------------
Dividend Guarantee. The Company has duly authorized (i) the issuance of the
- ------------------
Exchange Common Stock and the Dividend Guarantee and (ii) the Company's entering
into the Exchange Agreement. Each of the Guarantors has duly authorized (i) the
issuance of the Dividend Guarantee and (ii) its entering into the Exchange
Agreement. The Company has a sufficient number of shares of common stock
authorized in order to issue the Exchange Common Stock.
2
<PAGE>
2.2 Exchange. Subject to the terms and conditions set forth herein,
--------
the Company agrees to issue the Exchange Common Stock and the Guarantors agree
to provide the Dividend Guarantee to Post (or its affiliates) in exchange for
Post's delivery of the Existing Notes and the Note Guarantee relating to such
Notes to the Company for cancellation.
2.3 The Closing. On the date hereof, the Company hereby agrees to
-----------
deliver to Post and Post hereby agrees to accept the Exchange Common Stock and
the Dividend Guarantee, upon Post's delivery of the Existing Notes and the Note
Guarantee relating to such Notes to the Company (or Bank of New York, as trustee
under the indenture governing the Notes) for cancellation. The Company will
deliver to Post a certificate or certificates representing the common stock
constituting the Exchange Common Stock and the Dividend Guarantee, registered in
the name of Post, except that, if Post shall notify the Company in writing prior
to such issuance that it desires certificates for the Exchange Common Stock to
be registered in the name or names of any affiliate of Post or any nominee or
nominees for his or their benefit, then the certificates for such Exchange
Common Stock and the Dividend Guarantee shall be registered in the name or names
specified in such notice. In exchange for the Exchange Common Stock and the
Dividend Guarantee, Post will deliver to the Company and the Company hereby
agrees to accept the Existing Notes and the Note Guarantee relating such Notes.
The closing of the Exchange, as contemplated herein, shall be held at
the offices of Milbank, Tweed, Hadley & McCloy LLP located at 601 South Figueroa
Street, 30th Floor, Los Angeles, California 90017, on the date hereof, or at
such other place as all parties hereto may mutually agree.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents, warrants and covenants to Post that as
of the date hereof:
3.1 Organization; Power and Authority. The Company is a corporation
---------------------------------
duly organized and validly existing under the laws of the State of Washington.
The Company and the Guarantors have all requisite corporate power and authority
to own or hold under lease the properties they purport so to own or hold, to
transact their business as now transacted and proposed to be transacted, and the
Company and the Guarantors have all requisite corporate power and authority to
execute and deliver this Agreement, and to perform their respective obligations
hereunder. The Company is duly qualified as a foreign corporation and is in good
standing in each jurisdiction in which the failure to so qualify would have a
Material Adverse Effect.
3.2 Authorization, Etc. The execution, delivery and performance of
------------------
this Agreement, the consummation of the transactions contemplated hereby and
thereby (including the issuance and delivery of the Exchange Common Stock) have
been duly authorized by all necessary corporate action on the part of the
Company, and this Agreement constitutes the legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms. The
execution, delivery and performance of this Agreement, the consummation of the
transactions contemplated hereby and thereby (including the issuance and
delivery of the Dividend Guarantee) have been duly authorized by all necessary
corporate action on the part of
3
<PAGE>
the Guarantors, and this Agreement constitutes the legal, valid and binding
obligation of each of the Guarantors, enforceable against each of the Guarantors
in accordance with its terms.
3.3 Capital Stock. Upon the issuance of the Exchange Common Stock
-------------
under this Agreement, the total number of shares of capital stock which the
Company will have authority to issue under the Company's Articles of
Incorporation is a maximum of 105,000,000 shares, consisting of 100,000,000
shares of Common Stock and 5,000,000 shares of preferred stock. Immediately
after the issuance of the Exchange Common Stock under this Agreement, 22,479,270
shares of Common Stock will be issued and outstanding and 136,647 shares of the
Company's Series B Convertible Preferred Stock will be issued and outstanding.
3.4 Compliance with Laws, Other Instruments of the Company, Etc. None
-----------------------------------------------------------
of the execution and delivery of this Agreement, or the issue and sale of the
Exchange Common Stock or the Dividend Guarantee or the consummation of the
transactions herein or therein contemplated or compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent under, the Articles of Incorporation or any applicable law
or regulation, or any order, writ, injunction or decree of any court or
governmental authority or agency (other than filings which will be made by the
Company as may be required by applicable state securities laws), or any
agreement or instrument to which the Company is a party or by which it is bound
or to which it is subject, or constitute a default under any such agreement or
instrument, or result in the creation or imposition of any lien upon any of the
revenues or assets of the Company pursuant to the terms of any such agreement or
instrument or result in a Material Adverse Effect.
3.5 Governmental Consent. Other than filings required by any
--------------------
applicable state securities laws which shall be made by the Company, neither the
nature of the Company or of any of its respective businesses or properties, nor
any relationship between the Company and any other Person, nor (except as
expressly provided for in this Agreement) any circumstance in connection with
the offer, issue or sale of the Exchange Common Stock or the Dividend Guarantee
is such as to require the consent, approval or authorization of, or filing,
registration or qualification with, any governmental authority on the part of
the Company or the Guarantors as a condition to the execution and delivery of
this Agreement or any other document required in connection with the
authorization, offer, sale and/or issuance of the Exchange as set forth herein.
3.6 No Commission. To the knowledge of the Company, no commission or
-------------
other remuneration has been paid by any Person, directly or indirectly, for the
solicitation of the Exchange. Neither the Company nor the Guarantors have paid,
nor have they accepted payment, directly or indirectly, commission or other
remuneration for the solicitation of the Exchange.
3.7 Registration of Existing Notes. The Notes were initially issued
------------------------------
by the Company in an offering registered under the Securities Act and therefore
the Notes are not subject to resale restrictions (other than restrictions
imposed by law on affiliates of the Company). Based in part on the
representations of Post contained in Section 4 hereof and upon consummation of
the Exchange as set forth herein, the Exchange Common Stock will not be subject
to restrictions on resale (other than restrictions imposed by law on affiliates
of the Company).
4
<PAGE>
3.8 Compliance with Exchange Act. The Company has timely filed all
----------------------------
reports required to be filed by it under the Securities Exchange Act of 1934, as
amended (and the rules and regulations adopted by the Commission thereunder)
during the Company's current fiscal year.
3.9 Nasdaq Listing. The Company shall cause the Exchange Common Stock
--------------
to be quoted on the Nasdaq National Market as soon as reasonably possible after
the date hereof, but in no event later than March 31, 2000.
Section 4. REPRESENTATIONS AND WARRANTIES OF POST
Post hereby represents, warrants and covenants to the Company that as
of the date of its execution of this Agreement:
4.1 General Representations and Covenants.
-------------------------------------
(a) This Agreement is made by the Company with Post in reliance
upon Post's representations and covenants made in this Section 4, which by
---------
Post's execution of this Agreement, it hereby confirms.
(b) Post is aware that the sale provided for in this Agreement
and the issuance of the Exchange Common Stock hereunder is exempt pursuant to
Section 3(a)(9) of the Securities Act, and that the Company's reliance on such
exemption is predicated on Post's representations set forth herein.
4.2 Ownership of Notes. Post is the sole legal and beneficial owner
------------------
of the Notes to be exchanged by Post hereunder and is conveying the Notes and
the Note Guarantee relating to such Notes to the Company free and clear of any
liens, claims, interests, charges or other encumbrances. Post has neither
previously sold, assigned, conveyed, transferred or otherwise disposed of, in
whole or in part, the Notes to be exchanged by Post hereunder, nor has Post
entered into any agreement to sell, assign, convey, transfer or otherwise
dispose of, in whole or in part, such Notes.
4.3 Due Authorization. Post represents and warrants that (i) the
-----------------
execution and delivery of this Agreement by it and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
action on its behalf and (ii) this Agreement has been duly executed and
delivered by Post and constitutes the valid and binding obligation of Post,
enforceable against it in accordance with its terms.
4.4 Tax Advisors. Post has reviewed with its own tax advisors the
------------
federal, state, local and foreign tax consequences of the transactions
contemplated by this Agreement. Post is relying solely on such advisors and not
on any statements or representations of the Company or any of its agents and
understand that it (and not the Company) shall be responsible for its own tax
liability that may arise as a result of the transactions contemplated by this
Agreement.
4.5 Non-Public Information. Post acknowledges that the Company is
----------------------
aware and will in the future continue to be aware of non-public information
concerning the Company
5
<PAGE>
and its affiliates that may or may not be independently known to Post (all of
such non-public information referred to in this paragraph is hereinafter
referred to as the "Non-Public Information"). Post agrees to exchange the
Existing Notes for the Exchange Common Stock notwithstanding that Post is aware
that the Non-Public Information exists and that it has not been disclosed by the
Company to Post, and Post confirms and acknowledges that neither the existence
of the Non-Public Information, nor the substance of it, nor the fact that it has
not been disclosed by the Company to it is material to it or to its
determination to execute this letter and to consummate the Exchange pursuant
hereto.
4.6 Sophisticated Person. Post is a sophisticated seller with respect
--------------------
to the Notes to be exchanged hereunder and Post has adequate information
concerning the business and financial condition of the Company to make an
informed decision regarding the Exchange. Post has independently made its own
analysis and decision to enter into this agreement based on such information as
Post has deemed appropriate.
4.7 No Commission. To the knowledge of Post, no commission or other
-------------
remuneration has been paid by any Person, directly or indirectly, for the
solicitation of the Exchange. Post has not paid, nor has it accepted payment,
directly or indirectly, commission or other remuneration for the solicitation of
the Exchange.
Section 5. MISCELLANEOUS
5.1 Notices.
-------
(a) All communications under this Agreement shall be in writing
and shall be mailed by first class mail, postage prepaid or delivered by
courier, personal delivery or confirmed facsimile transmission:
(i) if to the Company or the Guarantors, at
Pacific Aerospace & Electronics, Inc.
430 Olds Station Road
Wenatchee, Washington 98801
Attention: Mr. Nick Gerde, Chief Financial Officer
Facsimile No.: (509) 667-9696
with a copy to:
Pacific Aerospace & Electronics, Inc.
110 Main Street, Suite 100
Edmonds, Washington 98020
Attention: Sheryl A. Symonds, Esq., General Counsel
Facsimile No.: (425) 774-0103
(ii) if to Post:
Post Advisory Group, Inc.
1880 Century Park East, Suite 820
6
<PAGE>
Los Angeles, California 90067
Attention: Carl Goldsmith
Facsimile No.: (310) 407-0951
with a copy to:
Sidley & Austin
555 West Fifth Street, 40th Floor
Los Angeles, California 90013
Attention: Gary Cohen, Esq.
Facsimile No.: (213) 896-6600
Any notice shall be deemed to have been duly given when delivered
by hand, if personally delivered, and if sent by mail, two
Business Days after being deposited in the mail, postage prepaid.
5.2 Survival. All warranties and representations (as of the date such
--------
warranties and representations were made) made herein or in any certificate or
other instrument delivered by it or on its behalf under this Agreement shall be
considered to have been relied upon by the parties hereto and shall survive the
issuance of the Exchange Common Stock.
5.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, this Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of each of the parties; provided however that
no party may assign this Agreement or the obligations and rights of such party
hereunder without the prior written consent of the other parties hereto.
5.4 Amendment and Waiver, etc. This Agreement may be amended, and the
-------------------------
observance of any term of this Agreement may be waived, but only with the
written consent of each of the parties hereto.
5.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts each of which shall be an original and all of which together shall
constitute one and the same instrument.
5.6 Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
5.7 Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the law of the State of Washington.
5.8 Expenses. Each of the parties to this Agreement shall pay all
--------
costs and expenses that it incurs with respect to the negotiation, execution,
delivery and performance of this Agreement.
7
<PAGE>
5.9 Entire Agreement. This Agreement, together with all exhibits,
----------------
including any schedules hereto constitutes the entire agreement among the
parties pertaining to the exchange of securities as contemplated herein and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties on such matter.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
Pacific Aerospace & Electronics, Inc.,
a Washington corporation
By: /s/ Donald A. Wright
---------------------------------------------
Name: Donald A. Wright
Title: President and Chief Executive Officer
Post Advisory Group, Inc.,
a California corporation
By: /s/ Lawrence A. Post
----------------------------
Lawrence A. Post
President
Balo Precision Parts, Inc.,
By: /s/ Donald A. Wright
----------------------------
Donald A. Wright
Executive Vice President
Cashmere Manufacturing Co., Inc.
By: /s/ Donald A. Wright
-----------------------------
Donald A. Wright
Executive Vice President
9
<PAGE>
Ceramic Devices, Inc.
By: /s/ Donald A. Wright
-----------------------------
Donald A. Wright
Executive Vice President
Electronic Specialty Corporation
By: /s/ Donald A. Wright
-----------------------------
Donald A. Wright
Executive Vice President
Aeromet America, Inc.
By: /s/ Donald A. Wright
-----------------------------
Donald A. Wright
Executive Vice President
Northwest Technical Industries, Inc.
By: /s/ Donald A. Wright
-----------------------------
Donald A. Wright
Executive Vice President
10
<PAGE>
Pacific Coast Technologies, Inc.
By: /s/ Donald A. Wright
---------------------------
Donald A. Wright
Executive Vice President
Seismic Safety Products, Inc.
By: /s/ Donald A. Wright
---------------------------
Donald A. Wright
Executive Vice President
PA&E International, Inc.
By: /s/ Donald A. Wright
---------------------------
Donald A. Wright
Executive Vice President
Skagit Engineering & Manufacturing, Inc.
By: /s/ Donald A. Wright
---------------------------
Donald A. Wright
Executive Vice President
11
<PAGE>
EXHIBIT A
Exhibit A - Subsidiary Guarantee - is omitted from the Exchange Agreement, dated
as of March 10, 2000, between Pacific Aerospace & Electronics, Inc. and its U.S.
subsidiaries and Post Advisory Group, Inc., filed as Exhibit 2.2 to the
foregoing quarterly report on Form 10-Q, pursuant to Regulation S-K, item
601(b)(2). The Company agrees to furnish supplementally a copy of the omitted
exhibit to the Securities and Exchange Commission upon request.
12
<PAGE>
EXHIBIT 2.3
EXCHANGE AGREEMENT
------------------
This Exchange Agreement (the "Agreement"), dated as of March 17, 2000,
---------
is by and among Pacific Aerospace & Electronics, Inc., a Washington corporation
(the "Company"), Post Advisory Group, Inc., a California corporation (on behalf
-------
of it and certain of its affiliates, "Post"), and Balo Precision Parts, Inc.,
----
Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty
Corporation, Aeromet America, Inc., Northwest Technical Industries, Inc.,
Pacific Coast Technologies, Inc., PA&E International, Inc., Skagit Engineering &
Manufacturing, Inc. and Seismic Safety Products, Inc. (the "Guarantors").
----------
Certain other terms used herein are defined in Section 1 hereof.
---------
Recitals
--------
A. The Company, Post and the Guarantors have previously entered into
an Exchange Agreement, dated March 10, 2000, under substantially the same terms
and conditions herein, and such transaction has been completed in accordance
with such agreement.
B. Post currently holds at least $4.0 million in aggregate principal
amount of the Company's 11 1/4% Senior Subordinated Notes due 2005 (the
"Notes");
-----
C. The Notes are guaranteed on a senior subordinated basis by a
Subsidiary Guarantee dated as of July 30, 1998 by each of the Guarantors except
Skagit Engineering & Manufacturing, Inc. ("Skagit"), and dated as of June 1,
1999 by Skagit (the "Note Guarantee").
--------------
D. Post and certain of its affiliates desire to exchange (the
"Exchange") $4.0 million in principal amount of the Notes, plus accrued but
- ---------
unpaid interest thereon through the date hereof, issued by the Company (the
"Existing Notes") and the Note Guarantee issued by the Guarantors, for 993,103
- ---------------
shares of the Company's common stock, par value $.001 per share (the "Exchange
--------
Common Stock") and a subsidiary guarantee to be issued by the Guarantors
- ------------
relating to the payment of dividends on the Exchange Common Stock, such
subsidiary guarantee in the form attached hereto as Exhibit A (the "Dividend
--------- --------
Guarantee");
- ---------
E. The Notes and the Note Guarantee were originally issued in a
registered offering and Post and certain of its affiliates desire that the
Exchange Common Stock be issued free of resale restrictions (so long as Post and
its affiliate holders are not affiliates of the Company); and
F. The Company and Post desire to undertake the Exchange in reliance
on Section 3(a)(9) of the Securities Act as an exemption from the registration
requirements of Section 5 of such Act.
Agreement
---------
NOW, THEREFORE, in consideration of the foregoing recitals and for
good consideration, the parties hereto agree as follows:
Section 1. DEFINITIONS.
1
<PAGE>
As used herein, the following terms shall have the following meanings.
"Articles of Incorporation" shall mean the Articles of Incorporation
-------------------------
of the Company, as in effect on the date hereof.
"Commission" shall mean the Securities and Exchange Commission or any
----------
other similar or successor agency of the federal government administering the
Securities Act.
"Company" shall have the meaning assigned to such term in the Preamble
-------
to this Agreement.
"Dividend Guarantee" shall have the meaning assigned to such term in
------------------
the Recitals of this Agreement.
"Exchange" shall have the meaning assigned to such term in the
--------
Recitals of this Agreement.
"Exchange Common Stock" shall have the meaning assigned to such term
---------------------
in the Recitals of this Agreement.
"Existing Notes" shall have the meaning assigned to such term in the
--------------
Recitals of this Agreement.
"Material Adverse Effect" means a material adverse effect on (i) the
-----------------------
financial condition, business or properties of the Company or (ii) the ability
of the Company to perform its obligations under this Agreement.
"Notes" shall have the meaning assigned to such term in the Recitals
-----
of this Agreement.
"Note Guarantee" shall have the meaning assigned to such term in the
--------------
Recitals of this Agreement.
"Person" shall mean any individual, corporation, partnership, limited
------
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
Section 2. EXCHANGE OF SECURITIES
2.1 Authorization and Issuance of Exchange Common Stock and the
-----------------------------------------------------------
Dividend Guarantee. The Company has duly authorized (i) the issuance of the
- ------------------
Exchange Common Stock and the Dividend Guarantee and (ii) the Company's entering
into the Exchange Agreement. Each of the Guarantors has duly authorized (i) the
issuance of the Dividend Guarantee and (ii) its entering into the Exchange
Agreement. The Company has a sufficient number of shares of common stock
authorized in order to issue the Exchange Common Stock.
2
<PAGE>
2.2 Exchange. Subject to the terms and conditions set forth herein,
--------
the Company agrees to issue the Exchange Common Stock and the Guarantors agree
to provide the Dividend Guarantee to Post (or its affiliates) in exchange for
Post's delivery of the Existing Notes and the Note Guarantee relating to such
Notes to the Company for cancellation.
2.3 The Closing. On the date hereof, the Company hereby agrees to
-----------
deliver to Post and Post hereby agrees to accept the Exchange Common Stock and
the Dividend Guarantee, upon Post's delivery of the Existing Notes and the Note
Guarantee relating to such Notes to the Company (or Bank of New York, as trustee
under the indenture governing the Notes) for cancellation. The Company will
deliver to Post a certificate or certificates representing the common stock
constituting the Exchange Common Stock and the Dividend Guarantee, registered in
the name of Post, except that, if Post shall notify the Company in writing prior
to such issuance that it desires certificates for the Exchange Common Stock to
be registered in the name or names of any affiliate of Post or any nominee or
nominees for his or their benefit, then the certificates for such Exchange
Common Stock and the Dividend Guarantee shall be registered in the name or names
specified in such notice. In exchange for the Exchange Common Stock and the
Dividend Guarantee, Post will deliver to the Company and the Company hereby
agrees to accept the Existing Notes and the Note Guarantee relating such Notes.
The closing of the Exchange, as contemplated herein, shall be held at
the offices of Milbank, Tweed, Hadley & McCloy LLP located at 601 South Figueroa
Street, 30th Floor, Los Angeles, California 90017, on the date hereof, or at
such other place as all parties hereto may mutually agree.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents, warrants and covenants to Post that as
of the date hereof:
3.1 Organization; Power and Authority. The Company is a corporation
---------------------------------
duly organized and validly existing under the laws of the State of Washington.
The Company and the Guarantors have all requisite corporate power and authority
to own or hold under lease the properties they purport so to own or hold, to
transact their business as now transacted and proposed to be transacted, and the
Company and the Guarantors have all requisite corporate power and authority to
execute and deliver this Agreement, and to perform their respective obligations
hereunder. The Company is duly qualified as a foreign corporation and is in good
standing in each jurisdiction in which the failure to so qualify would have a
Material Adverse Effect.
3.2 Authorization, Etc. The execution, delivery and performance of
------------------
this Agreement, the consummation of the transactions contemplated hereby and
thereby (including the issuance and delivery of the Exchange Common Stock) have
been duly authorized by all necessary corporate action on the part of the
Company, and this Agreement constitutes the legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms. The
execution, delivery and performance of this Agreement, the consummation of the
transactions contemplated hereby and thereby (including the issuance and
delivery of the Dividend Guarantee) have been duly authorized by all necessary
corporate action on the part of
3
<PAGE>
the Guarantors, and this Agreement constitutes the legal, valid and binding
obligation of each of the Guarantors, enforceable against each of the Guarantors
in accordance with its terms.
3.3 Capital Stock. Upon the issuance of the Exchange Common Stock
-------------
under this Agreement, the total number of shares of capital stock which the
Company will have authority to issue under the Company's Articles of
Incorporation is a maximum of 105,000,000 shares, consisting of 100,000,000
shares of Common Stock and 5,000,000 shares of preferred stock. Immediately
after the issuance of the Exchange Common Stock under this Agreement, 23,472,641
shares of Common Stock will be issued and outstanding and 136,647 shares of the
Company's Series B Convertible Preferred Stock will be issued and outstanding.
3.4 Compliance with Laws, Other Instruments of the Company, Etc. None
-----------------------------------------------------------
of the execution and delivery of this Agreement, or the issue and sale of the
Exchange Common Stock or the Dividend Guarantee or the consummation of the
transactions herein or therein contemplated or compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent under, the Articles of Incorporation or any applicable law
or regulation, or any order, writ, injunction or decree of any court or
governmental authority or agency (other than filings which will be made by the
Company as may be required by applicable state securities laws), or any
agreement or instrument to which the Company is a party or by which it is bound
or to which it is subject, or constitute a default under any such agreement or
instrument, or result in the creation or imposition of any lien upon any of the
revenues or assets of the Company pursuant to the terms of any such agreement or
instrument or result in a Material Adverse Effect.
3.5 Governmental Consent. Other than filings required by any
--------------------
applicable state securities laws which shall be made by the Company, neither the
nature of the Company or of any of its respective businesses or properties, nor
any relationship between the Company and any other Person, nor (except as
expressly provided for in this Agreement) any circumstance in connection with
the offer, issue or sale of the Exchange Common Stock or the Dividend Guarantee
is such as to require the consent, approval or authorization of, or filing,
registration or qualification with, any governmental authority on the part of
the Company or the Guarantors as a condition to the execution and delivery of
this Agreement or any other document required in connection with the
authorization, offer, sale and/or issuance of the Exchange as set forth herein.
3.6 No Commission. To the knowledge of the Company, no commission or
-------------
other remuneration has been paid by any Person, directly or indirectly, for the
solicitation of the Exchange. Neither the Company nor the Guarantors have paid,
nor have they accepted payment, directly or indirectly, commission or other
remuneration for the solicitation of the Exchange.
3.7 Registration of Existing Notes. The Notes were initially issued
------------------------------
by the Company in an offering registered under the Securities Act and therefore
the Notes are not subject to resale restrictions (other than restrictions
imposed by law on affiliates of the Company). Based in part on the
representations of Post contained in Section 4 hereof and upon consummation of
---------
the Exchange as set forth herein, the Exchange Common Stock will not be subject
to restrictions on resale (other than restrictions imposed by law on affiliates
of the Company).
4
<PAGE>
3.8 Compliance with Exchange Act. The Company has timely filed all
----------------------------
reports required to be filed by it under the Securities Exchange Act of 1934, as
amended (and the rules and regulations adopted by the Commission thereunder)
during the Company's current fiscal year.
3.9 Nasdaq Listing. The Company shall cause the Exchange Common Stock
--------------
to be quoted on the Nasdaq National Market as soon as reasonably possible after
the date hereof, but in no event later than March 31, 2000.
Section 4. REPRESENTATIONS AND WARRANTIES OF POST
Post hereby represents, warrants and covenants to the Company that as
of the date of its execution of this Agreement:
4.1 General Representations and Covenants.
-------------------------------------
(a) This Agreement is made by the Company with Post in reliance
upon Post's representations and covenants made in this Section 4, which by
---------
Post's execution of this Agreement, it hereby confirms.
(b) Post is aware that the sale provided for in this Agreement
and the issuance of the Exchange Common Stock hereunder is exempt pursuant to
Section 3(a)(9) of the Securities Act, and that the Company's reliance on such
exemption is predicated on Post's representations set forth herein.
4.2 Ownership of Notes. Post is the sole legal and beneficial owner
------------------
of the Notes to be exchanged by Post hereunder and is conveying the Notes and
the Note Guarantee relating to such Notes to the Company free and clear of any
liens, claims, interests, charges or other encumbrances. Post has neither
previously sold, assigned, conveyed, transferred or otherwise disposed of, in
whole or in part, the Notes to be exchanged by Post hereunder, nor has Post
entered into any agreement to sell, assign, convey, transfer or otherwise
dispose of, in whole or in part, such Notes.
4.3 Due Authorization. Post represents and warrants that (i) the
-----------------
execution and delivery of this Agreement by it and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
action on its behalf and (ii) this Agreement has been duly executed and
delivered by Post and constitutes the valid and binding obligation of Post,
enforceable against it in accordance with its terms.
4.4 Tax Advisors. Post has reviewed with its own tax advisors the
------------
federal, state, local and foreign tax consequences of the transactions
contemplated by this Agreement. Post is relying solely on such advisors and not
on any statements or representations of the Company or any of its agents and
understand that it (and not the Company) shall be responsible for its own tax
liability that may arise as a result of the transactions contemplated by this
Agreement.
4.5 Non-Public Information. Post acknowledges that the Company is
----------------------
aware and will in the future continue to be aware of non-public information
concerning the Company
5
<PAGE>
and its affiliates that may or may not be independently known to Post (all of
such non-public information referred to in this paragraph is hereinafter
referred to as the "Non-Public Information"). Post agrees to exchange the
Existing Notes for the Exchange Common Stock notwithstanding that Post is aware
that the Non-Public Information exists and that it has not been disclosed by the
Company to Post, and Post confirms and acknowledges that neither the existence
of the Non-Public Information, nor the substance of it, nor the fact that it has
not been disclosed by the Company to it is material to it or to its
determination to execute this letter and to consummate the Exchange pursuant
hereto.
4.6 Sophisticated Person. Post is a sophisticated seller with respect
--------------------
to the Notes to be exchanged hereunder and Post has adequate information
concerning the business and financial condition of the Company to make an
informed decision regarding the Exchange. Post has independently made its own
analysis and decision to enter into this agreement based on such information as
Post has deemed appropriate.
4.7 No Commission. To the knowledge of Post, no commission or other
-------------
remuneration has been paid by any Person, directly or indirectly, for the
solicitation of the Exchange. Post has not paid, nor has it accepted payment,
directly or indirectly, commission or other remuneration for the solicitation of
the Exchange.
Section 5. MISCELLANEOUS
5.1 Notices.
-------
(a) All communications under this Agreement shall be in writing
and shall be mailed by first class mail, postage prepaid or delivered by
courier, personal delivery or confirmed facsimile transmission:
(i) if to the Company or the Guarantors, at
Pacific Aerospace & Electronics, Inc.
430 Olds Station Road
Wenatchee, Washington 98801
Attention: Mr. Nick Gerde, Chief Financial Officer
Facsimile No.: (509) 667-9696
with a copy to:
Pacific Aerospace & Electronics, Inc.
110 Main Street, Suite 100
Edmonds, Washington 98020
Attention: Sheryl A. Symonds, Esq., General Counsel
Facsimile No.: (425) 774-0103
(ii) if to Post:
Post Advisory Group, Inc.
1880 Century Park East, Suite 820
6
<PAGE>
Los Angeles, California 90067
Attention: Carl Goldsmith
Facsimile No.: (310) 407-0951
with a copy to:
Sidley & Austin
555 West Fifth Street, 40th Floor
Los Angeles, California 90013
Attention: Gary Cohen, Esq.
Facsimile No.: (213) 896-6600
Any notice shall be deemed to have been duly given when delivered
by hand, if personally delivered, and if sent by mail, two
Business Days after being deposited in the mail, postage prepaid.
5.2 Survival. All warranties and representations (as of the date
--------
such warranties and representations were made) made herein or in any certificate
or other instrument delivered by it or on its behalf under this Agreement shall
be considered to have been relied upon by the parties hereto and shall survive
the issuance of the Exchange Common Stock.
5.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, this Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of each of the parties; provided however that
no party may assign this Agreement or the obligations and rights of such party
hereunder without the prior written consent of the other parties hereto.
5.4 Amendment and Waiver, etc. This Agreement may be amended, and the
-------------------------
observance of any term of this Agreement may be waived, but only with the
written consent of each of the parties hereto.
5.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts each of which shall be an original and all of which together shall
constitute one and the same instrument.
5.6 Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
5.7 Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the law of the State of Washington.
5.8 Expenses. Each of the parties to this Agreement shall pay all
--------
costs and expenses that it incurs with respect to the negotiation, execution,
delivery and performance of this Agreement.
7
<PAGE>
5.9 Entire Agreement. This Agreement, together with all exhibits,
----------------
including any schedules hereto constitutes the entire agreement among the
parties pertaining to the exchange of securities as contemplated herein and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties on such matter.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
Pacific Aerospace & Electronics, Inc.,
a Washington corporation
By: /s/ Donald A. Wright
-----------------------------
Name: Donald A. Wright
Title: President and Chief Executive Officer
Post Advisory Group, Inc.,
a California corporation
By: /s/ Lawrence A. Post
-----------------------------
Lawrence A. Post
President
Balo Precision Parts, Inc.,
By: /s/ Donald A. Wright
-----------------------------
Donald A. Wright
Executive Vice President
Cashmere Manufacturing Co., Inc.
By: /s/ Donald A. Wright
-----------------------------
Donald A. Wright
Executive Vice President
9
<PAGE>
Ceramic Devices, Inc.
By: /s/ Donald A. Wright
-----------------------------
Donald A. Wright
Executive Vice President
Electronic Specialty Corporation
By: /s/ Donald A. Wright
-----------------------------
Donald A. Wright
Executive Vice President
Aeromet America, Inc.
By: /s/ Donald A. Wright
-----------------------------
Donald A. Wright
Executive Vice President
Northwest Technical Industries, Inc.
By: /s/ Donald A. Wright
-----------------------------
Donald A. Wright
Executive Vice President
10
<PAGE>
Pacific Coast Technologies, Inc.
By: /s/ Donald A. Wright
-----------------------------
Donald A. Wright
Executive Vice President
Seismic Safety Products, Inc.
By: /s/ Donald A. Wright
-----------------------------
Donald A. Wright
Executive Vice President
PA&E International, Inc.
By: /s/ Donald A. Wright
------------------------------
Donald A. Wright
Executive Vice President
Skagit Engineering & Manufacturing, Inc.
By: /s/ Donald A. Wright
------------------------------
Donald A. Wright
Executive Vice President
11
<PAGE>
EXHIBIT A
Exhibit A - Subsidiary Guarantee - is omitted from the Exchange Agreement, dated
as of March 17, 2000, between Pacific Aerospace & Electronics, Inc. and its U.S.
subsidiaries and Post Advisory Group, Inc., filed as Exhibit 2.3 to the
foregoing quarterly report on Form 10-Q, pursuant to Regulation S-K, item
601(b)(2). The Company agrees to furnish supplementally a copy of the omitted
exhibit to the Securities and Exchange Commission upon request.
12
<PAGE>
EXHIBIT 2.4
EXCHANGE AGREEMENT
------------------
This Exchange Agreement (the "Agreement"), dated as of March 23, 2000,
---------
is by and among Pacific Aerospace & Electronics, Inc., a Washington corporation
(the "Company"), Post Advisory Group, Inc., a California corporation (on behalf
-------
of it and certain of its affiliates, "Post"), and Balo Precision Parts, Inc.,
----
Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty
Corporation, Aeromet America, Inc., Northwest Technical Industries, Inc.,
Pacific Coast Technologies, Inc., PA&E International, Inc., Skagit Engineering &
Manufacturing, Inc. and Seismic Safety Products, Inc. (the "Guarantors").
----------
Certain other terms used herein are defined in Section 1 hereof.
---------
Recitals
--------
A. The Company, Post and the Guarantors have previously entered into
an Exchange Agreement, dated March 10, 2000, and an Exchange Agreement, dated
March 17, 2000, under similar terms and conditions as contained in this
Agreement, and such transactions have been completed in accordance with those
respective agreements.
B. Post currently holds at least $2.0 million in aggregate principal
amount of the Company's 11 1/4% Senior Subordinated Notes due 2005 (the
"Notes");
-----
C. The Notes are guaranteed on a senior subordinated basis by a
Subsidiary Guarantee dated as of July 30, 1998 by each of the Guarantors except
Skagit Engineering & Manufacturing, Inc. ("Skagit"), and dated as of June 1,
1999 by Skagit (the "Note Guarantee").
--------------
D. Post and certain of its affiliates desire to exchange (the
"Exchange") $2.0 million in principal amount of the Notes, plus accrued but
- ---------
unpaid interest thereon through the date hereof, issued by the Company (the
"Existing Notes") and the Note Guarantee issued by the Guarantors, for 550,000
- ---------------
shares of the Company's common stock, par value $.001 per share (the "Exchange
--------
Common Stock") and a subsidiary guarantee to be issued by the Guarantors
- ------------
relating to the payment of dividends on the Exchange Common Stock, such
subsidiary guarantee in the form attached hereto as Exhibit A (the "Dividend
--------- --------
Guarantee");
- ---------
E. The Notes and the Note Guarantee were originally issued in a
registered offering and Post and certain of its affiliates desire that the
Exchange Common Stock be issued free of resale restrictions (so long as Post and
its affiliate holders are not affiliates of the Company); and
F. The Company and Post desire to undertake the Exchange in reliance
on Section 3(a)(9) of the Securities Act as an exemption from the registration
requirements of Section 5 of such Act.
Agreement
---------
NOW, THEREFORE, in consideration of the foregoing recitals and for
good consideration, the parties hereto agree as follows:
1
<PAGE>
Section 1. DEFINITIONS.
As used herein, the following terms shall have the following meanings.
"Articles of Incorporation" shall mean the Articles of Incorporation
-------------------------
of the Company, as in effect on the date hereof.
"Commission" shall mean the Securities and Exchange Commission or any
----------
other similar or successor agency of the federal government administering the
Securities Act.
"Company" shall have the meaning assigned to such term in the Preamble
-------
to this Agreement.
"Dividend Guarantee" shall have the meaning assigned to such term in
------------------
the Recitals of this Agreement.
"Exchange" shall have the meaning assigned to such term in the
--------
Recitals of this Agreement.
"Exchange Common Stock" shall have the meaning assigned to such term
---------------------
in the Recitals of this Agreement.
"Existing Notes" shall have the meaning assigned to such term in the
--------------
Recitals of this Agreement.
"Material Adverse Effect" means a material adverse effect on (i) the
-----------------------
financial condition, business or properties of the Company or (ii) the ability
of the Company to perform its obligations under this Agreement.
"Notes" shall have the meaning assigned to such term in the Recitals
-----
of this Agreement.
"Note Guarantee" shall have the meaning assigned to such term in the
--------------
Recitals of this Agreement.
"Person" shall mean any individual, corporation, partnership, limited
------
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
Section 2. EXCHANGE OF SECURITIES
2.1 Authorization and Issuance of Exchange Common Stock and the
-----------------------------------------------------------
Dividend Guarantee. The Company has duly authorized (i) the issuance of the
- ------------------
Exchange Common Stock and the Dividend Guarantee and (ii) the Company's entering
into the Exchange Agreement. Each of the Guarantors has duly authorized (i) the
issuance of the Dividend Guarantee and (ii) its
2
<PAGE>
entering into the Exchange Agreement. The Company has a sufficient number of
shares of common stock authorized in order to issue the Exchange Common Stock.
2.2 Exchange. Subject to the terms and conditions set forth herein,
--------
the Company agrees to issue the Exchange Common Stock and the Guarantors agree
to provide the Dividend Guarantee to Post (or its affiliates) in exchange for
Post's delivery of the Existing Notes and the Note Guarantee relating to such
Notes to the Company for cancellation.
2.3 The Closing. On the date hereof, the Company hereby agrees to
-----------
deliver to Post and Post hereby agrees to accept the Exchange Common Stock and
the Dividend Guarantee, upon Post's delivery of the Existing Notes and the Note
Guarantee relating to such Notes to the Company (or Bank of New York, as trustee
under the indenture governing the Notes) for cancellation. The Company will
deliver to Post a certificate or certificates representing the common stock
constituting the Exchange Common Stock and the Dividend Guarantee, registered in
the name of Post, except that, if Post shall notify the Company in writing prior
to such issuance that it desires certificates for the Exchange Common Stock to
be registered in the name or names of any affiliate of Post or any nominee or
nominees for his or their benefit, then the certificates for such Exchange
Common Stock and the Dividend Guarantee shall be registered in the name or names
specified in such notice. In exchange for the Exchange Common Stock and the
Dividend Guarantee, Post will deliver to the Company and the Company hereby
agrees to accept the Existing Notes and the Note Guarantee relating such Notes.
The closing of the Exchange, as contemplated herein, shall be held at
the offices of Milbank, Tweed, Hadley & McCloy LLP located at 601 South Figueroa
Street, 30th Floor, Los Angeles, California 90017, on the date hereof, or at
such other place as all parties hereto may mutually agree.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents, warrants and covenants to Post that as
of the date hereof:
3.1 Organization; Power and Authority. The Company is a corporation
---------------------------------
duly organized and validly existing under the laws of the State of Washington.
The Company and the Guarantors have all requisite corporate power and authority
to own or hold under lease the properties they purport so to own or hold, to
transact their business as now transacted and proposed to be transacted, and the
Company and the Guarantors have all requisite corporate power and authority to
execute and deliver this Agreement, and to perform their respective obligations
hereunder. The Company is duly qualified as a foreign corporation and is in good
standing in each jurisdiction in which the failure to so qualify would have a
Material Adverse Effect.
3.2 Authorization, Etc. The execution, delivery and performance of
------------------
this Agreement, the consummation of the transactions contemplated hereby and
thereby (including the issuance and delivery of the Exchange Common Stock) have
been duly authorized by all necessary corporate action on the part of the
Company, and this Agreement constitutes the legal, valid and binding obligation
of the Company enforceable against the Company in accordance
3
<PAGE>
with its terms. The execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated hereby and thereby (including the
issuance and delivery of the Dividend Guarantee) have been duly authorized by
all necessary corporate action on the part of the Guarantors, and this Agreement
constitutes the legal, valid and binding obligation of each of the Guarantors,
enforceable against each of the Guarantors in accordance with its terms.
3.3 Capital Stock. Upon the issuance of the Exchange Common Stock
-------------
under this Agreement, the total number of shares of capital stock which the
Company will have authority to issue under the Company's Articles of
Incorporation is a maximum of 105,000,000 shares, consisting of 100,000,000
shares of Common Stock and 5,000,000 shares of preferred stock. Immediately
after the issuance of the Exchange Common Stock under this Agreement 25,620,641
shares of Common Stock will be issued and outstanding and 136,647 shares of the
Company's Series B Convertible Preferred Stock will be issued and outstanding.
3.4 Compliance with Laws, Other Instruments of the Company, Etc.
-----------------------------------------------------------
None of the execution and delivery of this Agreement, or the issue and sale of
the Exchange Common Stock or the Dividend Guarantee or the consummation of the
transactions herein or therein contemplated or compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent under, the Articles of Incorporation or any applicable law
or regulation, or any order, writ, injunction or decree of any court or
governmental authority or agency (other than filings which will be made by the
Company as may be required by applicable state securities laws), or any
agreement or instrument to which the Company is a party or by which it is bound
or to which it is subject, or constitute a default under any such agreement or
instrument, or result in the creation or imposition of any lien upon any of the
revenues or assets of the Company pursuant to the terms of any such agreement or
instrument or result in a Material Adverse Effect.
3.5 Governmental Consent. Other than filings required by any
--------------------
applicable state securities laws which shall be made by the Company, neither the
nature of the Company or of any of its respective businesses or properties, nor
any relationship between the Company and any other Person, nor (except as
expressly provided for in this Agreement) any circumstance in connection with
the offer, issue or sale of the Exchange Common Stock or the Dividend Guarantee
is such as to require the consent, approval or authorization of, or filing,
registration or qualification with, any governmental authority on the part of
the Company or the Guarantors as a condition to the execution and delivery of
this Agreement or any other document required in connection with the
authorization, offer, sale and/or issuance of the Exchange as set forth herein.
3.6 No Commission. To the knowledge of the Company, no commission or
-------------
other remuneration has been paid by any Person, directly or indirectly, for the
solicitation of the Exchange. Neither the Company nor the Guarantors have paid,
nor have they accepted payment, directly or indirectly, commission or other
remuneration for the solicitation of the Exchange.
3.7 Registration of Existing Notes. The Notes were initially issued
------------------------------
by the Company in an offering registered under the Securities Act and therefore
the Notes are not subject to resale restrictions (other than restrictions
imposed by law on affiliates of the Company). Based in part on the
representations of Post contained in Section 4 hereof and upon consummation of
---------
the Exchange as set forth herein, the Exchange Common Stock will not be
4
<PAGE>
subject to restrictions on resale (other than restrictions imposed by law on
affiliates of the Company).
3.8 Compliance with Exchange Act. The Company has timely filed all
----------------------------
reports required to be filed by it under the Securities Exchange Act of 1934, as
amended (and the rules and regulations adopted by the Commission thereunder)
during the Company's current fiscal year.
3.9 Nasdaq Listing. The Company shall cause the Exchange Common
--------------
Stock to be quoted on the Nasdaq National Market as soon as reasonably possible
after the date hereof, but in no event later than March 31, 2000.
Section 4. REPRESENTATIONS AND WARRANTIES OF POST
Post hereby represents, warrants and covenants to the Company that as
of the date of its execution of this Agreement:
4.1 General Representations and Covenants.
-------------------------------------
(a) This Agreement is made by the Company with Post in reliance upon
Post's representations and covenants made in this Section 4, which by Post's
---------
execution of this Agreement, it hereby confirms.
(b) Post is aware that the sale provided for in this Agreement and
the issuance of the Exchange Common Stock hereunder is exempt pursuant to
Section 3(a)(9) of the Securities Act, and that the Company's reliance on such
exemption is predicated on Post's representations set forth herein.
4.2 Ownership of Notes. Post is the sole legal and beneficial owner
------------------
of the Notes to be exchanged by Post hereunder and is conveying the Notes and
the Note Guarantee relating to such Notes to the Company free and clear of any
liens, claims, interests, charges or other encumbrances. Post has neither
previously sold, assigned, conveyed, transferred or otherwise disposed of, in
whole or in part, the Notes to be exchanged by Post hereunder, nor has Post
entered into any agreement to sell, assign, convey, transfer or otherwise
dispose of, in whole or in part, such Notes.
4.3 Due Authorization. Post represents and warrants that (i) the
-----------------
execution and delivery of this Agreement by it and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
action on its behalf and (ii) this Agreement has been duly executed and
delivered by Post and constitutes the valid and binding obligation of Post,
enforceable against it in accordance with its terms.
4.4 Tax Advisors. Post has reviewed with its own tax advisors the
------------
federal, state, local and foreign tax consequences of the transactions
contemplated by this Agreement. Post is relying solely on such advisors and not
on any statements or representations of the Company or any of its agents and
understand that it (and not the Company) shall be responsible for its own tax
liability that may arise as a result of the transactions contemplated by this
Agreement.
5
<PAGE>
4.5 Non-Public Information. Post acknowledges that the Company is
----------------------
aware and will in the future continue to be aware of non-public information
concerning the Company and its affiliates that may or may not be independently
known to Post (all of such non-public information referred to in this paragraph
is hereinafter referred to as the "Non-Public Information"). Post agrees to
exchange the Existing Notes for the Exchange Common Stock notwithstanding that
Post is aware that the Non-Public Information exists and that it has not been
disclosed by the Company to Post, and Post confirms and acknowledges that
neither the existence of the Non-Public Information, nor the substance of it,
nor the fact that it has not been disclosed by the Company to it is material to
it or to its determination to execute this letter and to consummate the Exchange
pursuant hereto.
4.6 Sophisticated Person. Post is a sophisticated seller with respect
--------------------
to the Notes to be exchanged hereunder and Post has adequate information
concerning the business and financial condition of the Company to make an
informed decision regarding the Exchange. Post has independently made its own
analysis and decision to enter into this agreement based on such information as
Post has deemed appropriate.
4.7 No Commission. To the knowledge of Post, no commission or other
-------------
remuneration has been paid by any Person, directly or indirectly, for the
solicitation of the Exchange. Post has not paid, nor has it accepted payment,
directly or indirectly, commission or other remuneration for the solicitation of
the Exchange.
Section 5. MISCELLANEOUS
5.1 Notices.
-------
(a) All communications under this Agreement shall be in writing
and shall be mailed by first class mail, postage prepaid or delivered by
courier, personal delivery or confirmed facsimile transmission:
(i) if to the Company or the Guarantors, at
Pacific Aerospace & Electronics, Inc.
430 Olds Station Road
Wenatchee, Washington 98801
Attention: Mr. Nick Gerde, Chief Financial Officer
Facsimile No.: (509) 667-9696
with a copy to:
Pacific Aerospace & Electronics, Inc.
110 Main Street, Suite 100
Edmonds, Washington 98020
Attention: Sheryl A. Symonds, Esq., General Counsel
Facsimile No.: (425) 774-0103
(ii) if to Post:
6
<PAGE>
Post Advisory Group, Inc.
1880 Century Park East, Suite 820
Los Angeles, California 90067
Attention: Carl Goldsmith
Facsimile No.: (310) 407-0951
with a copy to:
Sidley & Austin
555 West Fifth Street, 40th Floor
Los Angeles, California 90013
Attention: Gary Cohen, Esq.
Facsimile No.: (213) 896-6600
Any notice shall be deemed to have been duly given when delivered
by hand, if personally delivered, and if sent by mail, two
Business Days after being deposited in the mail, postage prepaid.
5.2 Survival. All warranties and representations (as of the date such
--------
warranties and representations were made) made herein or in any certificate or
other instrument delivered by it or on its behalf under this Agreement shall be
considered to have been relied upon by the parties hereto and shall survive the
issuance of the Exchange Common Stock.
5.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, this Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of each of the parties; provided however that
no party may assign this Agreement or the obligations and rights of such party
hereunder without the prior written consent of the other parties hereto.
5.4 Amendment and Waiver, etc. This Agreement may be amended, and the
-------------------------
observance of any term of this Agreement may be waived, but only with the
written consent of each of the parties hereto.
5.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts each of which shall be an original and all of which together shall
constitute one and the same instrument.
5.6 Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
5.7 Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the law of the State of Washington.
5.8 Expenses. Each of the parties to this Agreement shall pay all
--------
costs and expenses that it incurs with respect to the negotiation, execution,
delivery and performance of this Agreement.
7
<PAGE>
5.9 Entire Agreement. This Agreement, together with all exhibits,
----------------
including any schedules hereto constitutes the entire agreement among the
parties pertaining to the exchange of securities as contemplated herein and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties on such matter.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
Pacific Aerospace & Electronics, Inc.,
a Washington corporation
By: /s/ Donald A. Wright
----------------------------------------
Name: Donald A. Wright
Title: President and Chief Executive Officer
Post Advisory Group, Inc.,
a California corporation
By: /s/ Lawrence A. Post
---------------------
Lawrence A. Post
President
Balo Precision Parts, Inc.,
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
Cashmere Manufacturing Co., Inc.
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
9
<PAGE>
Ceramic Devices, Inc.
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
Electronic Specialty Corporation
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
Aeromet America, Inc.
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
Northwest Technical Industries, Inc.
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
10
<PAGE>
Pacific Coast Technologies, Inc.
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
Seismic Safety Products, Inc.
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
PA&E International, Inc.
By: /s/ Donald A. Wright
----------------------------
Donald A. Wright
Executive Vice President
Skagit Engineering & Manufacturing, Inc.
By: /s/ Donald A. Wright
----------------------------
Donald A. Wright
Executive Vice President
11
<PAGE>
EXHIBIT A
Exhibit A - Subsidiary Guarantee - is omitted from the Exchange Agreement, dated
as of March 23, 2000, between Pacific Aerospace & Electronics, Inc. and its U.S.
subsidiaries and Post Advisory Group, Inc., filed as Exhibit 2.4 to the
foregoing quarterly report on Form 10-Q, pursuant to Regulation S-K, item
601(b)(2). The Company agrees to furnish supplementally a copy of the omitted
exhibit to the Securities and Exchange Commission upon request.
12
<PAGE>
EXHIBIT 2.5
EXCHANGE AGREEMENT
------------------
This Exchange Agreement (the "Agreement"), dated as of March 30, 2000,
---------
is by and among Pacific Aerospace & Electronics, Inc., a Washington corporation
(the "Company"), Post Advisory Group, Inc., a California corporation (on behalf
-------
of it and certain of its affiliates, "Post"), and Balo Precision Parts, Inc.,
----
Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty
Corporation, Aeromet America, Inc., Northwest Technical Industries, Inc.,
Pacific Coast Technologies, Inc., PA&E International, Inc., Skagit Engineering &
Manufacturing, Inc. and Seismic Safety Products, Inc. (the "Guarantors").
----------
Certain other terms used herein are defined in Section 1 hereof.
---------
Recitals
--------
A. The Company, Post and the Guarantors have previously entered into
an Exchange Agreement, dated March 10, 2000, an Exchange Agreement, dated March
17, 2000, and an Exchange Agreement, dated March 23, 2000, under similar terms
and conditions as contained in this Agreement, and such transactions have been
completed in accordance with those respective agreements.
B. Post currently holds at least $1.3 million in aggregate principal
amount of the Company's 11 1/4% Senior Subordinated Notes due 2005 (the
"Notes");
-----
C. The Notes are guaranteed on a senior subordinated basis by a
Subsidiary Guarantee dated as of July 30, 1998 by each of the Guarantors except
Skagit Engineering & Manufacturing, Inc. ("Skagit"), and dated as of June 1,
1999 by Skagit (the "Note Guarantee").
--------------
D. Post and certain of its affiliates desire to exchange (the
"Exchange") $1.3 million in principal amount of the Notes, plus accrued but
- ---------
unpaid interest thereon through the date hereof, issued by the Company (the
"Existing Notes") and the Note Guarantee issued by the Guarantors, for 366,600
- ---------------
shares of the Company's common stock, par value $.001 per share (the "Exchange
--------
Common Stock") and a subsidiary guarantee to be issued by the Guarantors
- ------------
relating to the payment of dividends on the Exchange Common Stock, such
subsidiary guarantee in the form attached hereto as Exhibit A (the "Dividend
--------- --------
Guarantee");
- ---------
E. The Notes and the Note Guarantee were originally issued in a
registered offering and Post and certain of its affiliates desire that the
Exchange Common Stock be issued free of resale restrictions (so long as Post and
its affiliate holders are not affiliates of the Company); and
F. The Company and Post desire to undertake the Exchange in reliance
on Section 3(a)(9) of the Securities Act as an exemption from the registration
requirements of Section 5 of such Act.
Agreement
---------
NOW, THEREFORE, in consideration of the foregoing recitals and for
good consideration, the parties hereto agree as follows:
1
<PAGE>
Section 1. DEFINITIONS.
As used herein, the following terms shall have the following meanings.
"Articles of Incorporation" shall mean the Articles of Incorporation
-------------------------
of the Company, as in effect on the date hereof.
"Commission" shall mean the Securities and Exchange Commission or any
----------
other similar or successor agency of the federal government administering the
Securities Act.
"Company" shall have the meaning assigned to such term in the Preamble
-------
to this Agreement.
"Dividend Guarantee" shall have the meaning assigned to such term in
------------------
the Recitals of this Agreement.
"Exchange" shall have the meaning assigned to such term in the
--------
Recitals of this Agreement.
"Exchange Common Stock" shall have the meaning assigned to such term
---------------------
in the Recitals of this Agreement.
"Existing Notes" shall have the meaning assigned to such term in the
--------------
Recitals of this Agreement.
"Material Adverse Effect" means a material adverse effect on (i) the
-----------------------
financial condition, business or properties of the Company or (ii) the ability
of the Company to perform its obligations under this Agreement.
"Notes" shall have the meaning assigned to such term in the Recitals
-----
of this Agreement.
"Note Guarantee" shall have the meaning assigned to such term in the
--------------
Recitals of this Agreement.
"Person" shall mean any individual, corporation, partnership, limited
------
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
Section 2. EXCHANGE OF SECURITIES
2.1 Authorization and Issuance of Exchange Common Stock and the
-----------------------------------------------------------
Dividend Guarantee. The Company has duly authorized (i) the issuance of the
- ------------------
Exchange Common Stock and the Dividend Guarantee and (ii) the Company's entering
into the Exchange Agreement. Each of the Guarantors has duly authorized (i) the
issuance of the Dividend Guarantee and (ii) its
2
<PAGE>
entering into the Exchange Agreement. The Company has a sufficient number of
shares of common stock authorized in order to issue the Exchange Common Stock.
2.2 Exchange. Subject to the terms and conditions set forth herein,
--------
the Company agrees to issue the Exchange Common Stock and the Guarantors agree
to provide the Dividend Guarantee to Post (or its affiliates) in exchange for
Post's delivery of the Existing Notes and the Note Guarantee relating to such
Notes to the Company for cancellation.
2.3 The Closing. On the date hereof, the Company hereby agrees to
-----------
deliver to Post and Post hereby agrees to accept the Exchange Common Stock and
the Dividend Guarantee, upon Post's delivery of the Existing Notes and the Note
Guarantee relating to such Notes to the Company (or Bank of New York, as trustee
under the indenture governing the Notes) for cancellation. The Company will
deliver to Post a certificate or certificates representing the common stock
constituting the Exchange Common Stock and the Dividend Guarantee, registered in
the name of Post, except that, if Post shall notify the Company in writing prior
to such issuance that it desires certificates for the Exchange Common Stock to
be registered in the name or names of any affiliate of Post or any nominee or
nominees for his or their benefit, then the certificates for such Exchange
Common Stock and the Dividend Guarantee shall be registered in the name or names
specified in such notice. In exchange for the Exchange Common Stock and the
Dividend Guarantee, Post will deliver to the Company and the Company hereby
agrees to accept the Existing Notes and the Note Guarantee relating such Notes.
The closing of the Exchange, as contemplated herein, shall be held at
the offices of Milbank, Tweed, Hadley & McCloy LLP located at 601 South Figueroa
Street, 30th Floor, Los Angeles, California 90017, on the date hereof, or at
such other place as all parties hereto may mutually agree.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents, warrants and covenants to Post that as
of the date hereof:
3.1 Organization; Power and Authority. The Company is a corporation
---------------------------------
duly organized and validly existing under the laws of the State of Washington.
The Company and the Guarantors have all requisite corporate power and authority
to own or hold under lease the properties they purport so to own or hold, to
transact their business as now transacted and proposed to be transacted, and the
Company and the Guarantors have all requisite corporate power and authority to
execute and deliver this Agreement, and to perform their respective obligations
hereunder. The Company is duly qualified as a foreign corporation and is in good
standing in each jurisdiction in which the failure to so qualify would have a
Material Adverse Effect.
3.2 Authorization, Etc. The execution, delivery and performance of
------------------
this Agreement, the consummation of the transactions contemplated hereby and
thereby (including the issuance and delivery of the Exchange Common Stock) have
been duly authorized by all necessary corporate action on the part of the
Company, and this Agreement constitutes the legal, valid and binding obligation
of the Company enforceable against the Company in accordance
3
<PAGE>
with its terms. The execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated hereby and thereby (including the
issuance and delivery of the Dividend Guarantee) have been duly authorized by
all necessary corporate action on the part of the Guarantors, and this Agreement
constitutes the legal, valid and binding obligation of each of the Guarantors,
enforceable against each of the Guarantors in accordance with its terms.
3.3 Capital Stock. Upon the issuance of the Exchange Common Stock
-------------
under this Agreement, the total number of shares of capital stock which the
Company will have authority to issue under the Company's Articles of
Incorporation is a maximum of 105,000,000 shares, consisting of 100,000,000
shares of Common Stock and 5,000,000 shares of preferred stock. Immediately
after the issuance of the Exchange Common Stock under this Agreement 27,637,206
shares of Common Stock will be issued and outstanding (excluding any conversions
of Preferred Stock received by the Company after the close of U.S. trading
markets on March 29, 2000) and 84,933 shares of the Company's Series B
Convertible Preferred Stock will be issued and outstanding.
3.4 Compliance with Laws, Other Instruments of the Company, Etc. None
-----------------------------------------------------------
of the execution and delivery of this Agreement, or the issue and sale of the
Exchange Common Stock or the Dividend Guarantee or the consummation of the
transactions herein or therein contemplated or compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent under, the Articles of Incorporation or any applicable law
or regulation, or any order, writ, injunction or decree of any court or
governmental authority or agency (other than filings which will be made by the
Company as may be required by applicable state securities laws), or any
agreement or instrument to which the Company is a party or by which it is bound
or to which it is subject, or constitute a default under any such agreement or
instrument, or result in the creation or imposition of any lien upon any of the
revenues or assets of the Company pursuant to the terms of any such agreement or
instrument or result in a Material Adverse Effect.
3.5 Governmental Consent. Other than filings required by any
--------------------
applicable state securities laws which shall be made by the Company, neither the
nature of the Company or of any of its respective businesses or properties, nor
any relationship between the Company and any other Person, nor (except as
expressly provided for in this Agreement) any circumstance in connection with
the offer, issue or sale of the Exchange Common Stock or the Dividend Guarantee
is such as to require the consent, approval or authorization of, or filing,
registration or qualification with, any governmental authority on the part of
the Company or the Guarantors as a condition to the execution and delivery of
this Agreement or any other document required in connection with the
authorization, offer, sale and/or issuance of the Exchange as set forth herein.
3.6 No Commission. To the knowledge of the Company, no commission or
-------------
other remuneration has been paid by any Person, directly or indirectly, for the
solicitation of the Exchange. Neither the Company nor the Guarantors have paid,
nor have they accepted payment, directly or indirectly, commission or other
remuneration for the solicitation of the Exchange.
3.7 Registration of Existing Notes. The Notes were initially issued
------------------------------
by the Company in an offering registered under the Securities Act and therefore
the Notes are not subject to resale restrictions (other than restrictions
imposed by law on affiliates of the
4
<PAGE>
Company). Based in part on the representations of Post contained in Section 4
hereof and upon consummation of the Exchange as set forth herein, the Exchange
Common Stock will not be subject to restrictions on resale (other than
restrictions imposed by law on affiliates of the Company).
3.8 Compliance with Exchange Act. The Company has timely filed all
----------------------------
reports required to be filed by it under the Securities Exchange Act of 1934, as
amended (and the rules and regulations adopted by the Commission thereunder)
during the Company's current fiscal year.
3.9 Nasdaq Listing. The Company shall cause the Exchange Common Stock
--------------
to be quoted on the Nasdaq National Market as soon as reasonably possible after
the date hereof, but in no event later than April 15, 2000.
Section 4. REPRESENTATIONS AND WARRANTIES OF POST
Post hereby represents, warrants and covenants to the Company that as
of the date of its execution of this Agreement:
4.1 General Representations and Covenants.
-------------------------------------
(a) This Agreement is made by the Company with Post in reliance
upon Post's representations and covenants made in this Section 4, which by
---------
Post's execution of this Agreement, it hereby confirms.
(b) Post is aware that the sale provided for in this Agreement
and the issuance of the Exchange Common Stock hereunder is exempt pursuant to
Section 3(a)(9) of the Securities Act, and that the Company's reliance on such
exemption is predicated on Post's representations set forth herein.
4.2 Ownership of Notes. Post is the sole legal and beneficial owner
------------------
of the Notes to be exchanged by Post hereunder and is conveying the Notes and
the Note Guarantee relating to such Notes to the Company free and clear of any
liens, claims, interests, charges or other encumbrances. Post has neither
previously sold, assigned, conveyed, transferred or otherwise disposed of, in
whole or in part, the Notes to be exchanged by Post hereunder, nor has Post
entered into any agreement to sell, assign, convey, transfer or otherwise
dispose of, in whole or in part, such Notes.
4.3 Due Authorization. Post represents and warrants that (i) the
-----------------
execution and delivery of this Agreement by it and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
action on its behalf and (ii) this Agreement has been duly executed and
delivered by Post and constitutes the valid and binding obligation of Post,
enforceable against it in accordance with its terms.
4.4 Tax Advisors. Post has reviewed with its own tax advisors the
------------
federal, state, local and foreign tax consequences of the transactions
contemplated by this Agreement. Post is relying solely on such advisors and not
on any statements or representations of the Company or any of its agents and
understand that it (and not the Company) shall be responsible
5
<PAGE>
for its own tax liability that may arise as a result of the transactions
contemplated by this Agreement.
4.5 Non-Public Information. Post acknowledges that the Company is
----------------------
aware and will in the future continue to be aware of non-public information
concerning the Company and its affiliates that may or may not be independently
known to Post (all of such non-public information referred to in this paragraph
is hereinafter referred to as the "Non-Public Information"). Post agrees to
exchange the Existing Notes for the Exchange Common Stock notwithstanding that
Post is aware that the Non-Public Information exists and that it has not been
disclosed by the Company to Post, and Post confirms and acknowledges that
neither the existence of the Non-Public Information, nor the substance of it,
nor the fact that it has not been disclosed by the Company to it is material to
it or to its determination to execute this letter and to consummate the Exchange
pursuant hereto.
4.6 Sophisticated Person. Post is a sophisticated seller with
--------------------
respect to the Notes to be exchanged hereunder and Post has adequate information
concerning the business and financial condition of the Company to make an
informed decision regarding the Exchange. Post has independently made its own
analysis and decision to enter into this agreement based on such information as
Post has deemed appropriate.
4.7 No Commission. To the knowledge of Post, no commission or other
-------------
remuneration has been paid by any Person, directly or indirectly, for the
solicitation of the Exchange. Post has not paid, nor has it accepted payment,
directly or indirectly, commission or other remuneration for the solicitation of
the Exchange.
Section 5. MISCELLANEOUS
5.1 Notices.
-------
(a) All communications under this Agreement shall be in
writing and shall be mailed by first class mail, postage prepaid or delivered by
courier, personal delivery or confirmed facsimile transmission:
(i) if to the Company or the Guarantors, at
Pacific Aerospace & Electronics, Inc.
430 Olds Station Road
Wenatchee, Washington 98801
Attention: Mr. Nick Gerde, Chief Financial Officer
Facsimile No.: (509) 667-9696
with a copy to:
Pacific Aerospace & Electronics, Inc.
110 Main Street, Suite 100
Edmonds, Washington 98020
Attention: Sheryl A. Symonds, Esq., General Counsel
Facsimile No.: (425) 774-0103
6
<PAGE>
(ii) if to Post:
Post Advisory Group, Inc.
1880 Century Park East, Suite 820
Los Angeles, California 90067
Attention: Carl Goldsmith
Facsimile No.: (310) 407-0951
with a copy to:
Sidley & Austin
555 West Fifth Street, 40th Floor
Los Angeles, California 90013
Attention: Gary Cohen, Esq.
Facsimile No.: (213) 896-6600
Any notice shall be deemed to have been duly given when
delivered by hand, if personally delivered, and if sent by
mail, two Business Days after being deposited in the mail,
postage prepaid.
5.2 Survival. All warranties and representations (as of the date
--------
such warranties and representations were made) made herein or in any certificate
or other instrument delivered by it or on its behalf under this Agreement shall
be considered to have been relied upon by the parties hereto and shall survive
the issuance of the Exchange Common Stock.
5.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, this Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of each of the parties; provided however that
no party may assign this Agreement or the obligations and rights of such party
hereunder without the prior written consent of the other parties hereto.
5.4 Amendment and Waiver, etc. This Agreement may be amended, and
-------------------------
the observance of any term of this Agreement may be waived, but only with the
written consent of each of the parties hereto.
5.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts each of which shall be an original and all of which together shall
constitute one and the same instrument.
5.6 Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
5.7 Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the law of the State of Washington.
7
<PAGE>
5.8 Expenses. Each of the parties to this Agreement shall pay all
--------
costs and expenses that it incurs with respect to the negotiation, execution,
delivery and performance of this Agreement.
5.9 Entire Agreement. This Agreement, together with all exhibits,
----------------
including any schedules hereto constitutes the entire agreement among the
parties pertaining to the exchange of securities as contemplated herein and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties on such matter.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
Pacific Aerospace & Electronics, Inc.,
a Washington corporation
By: /s/ Donald A. Wright
---------------------------------------------
Name: Donald A. Wright
Title: President and Chief Executive Officer
Post Advisory Group, Inc.,
a California corporation
By: /s/ Lawrence A. Post
---------------------
Lawrence A. Post
President
Balo Precision Parts, Inc.,
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
Cashmere Manufacturing Co., Inc.
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
9
<PAGE>
Ceramic Devices, Inc.
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
Electronic Specialty Corporation
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
Aeromet America, Inc.
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
Northwest Technical Industries, Inc.
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
10
<PAGE>
Pacific Coast Technologies, Inc.
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
Seismic Safety Products, Inc.
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
Executive Vice President
PA&E International, Inc.
By: /s/ Donald A. Wright
----------------------------
Donald A. Wright
Executive Vice President
Skagit Engineering & Manufacturing, Inc.
By: /s/ Donald A. Wright
----------------------------
Donald A. Wright
Executive Vice President
11
<PAGE>
EXHIBIT A
Exhibit A - Subsidiary Guarantee - is omitted from the Exchange Agreement, dated
as of March 30, 2000, between Pacific Aerospace & Electronics, Inc. and its U.S.
subsidiaries and Post Advisory Group, Inc., filed as Exhibit 2.5 to the
foregoing quarterly report on Form 10-Q, pursuant to Regulation S-K, item
601(b)(2). The Company agrees to furnish supplementally a copy of the omitted
exhibit to the Securities and Exchange Commission upon request.
12
<PAGE>
EXHIBIT 4.1
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES
LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM
THE REGISTRATION REQUIREMENT OF THE ACT AND SUCH LAWS. THE SECURITIES OFFERED
HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR
HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS
OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. THE SECURITIES OFFERED
HEREBY CANNOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF TO ANY PERSON OR
ENTITY UNLESS SUBSEQUENTLY REGISTERED UNDER THE ACT, AND/OR THE LAWS OF CERTAIN
STATES, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND THE
HOLDER HAS PROVIDED SELLER WITH A LEGAL OPINION ACCEPTABLE TO SELLER TO THAT
EFFECT.
____________________
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is made as of ___________,
2000, by and between PACIFIC AEROSPACE & ELECTRONICS, INC., a Washington
corporation ("Seller"), and _____________________________________________
___________________________________________ (Purchaser").
RECITALS
A. Seller desires to sell to Purchaser, and Purchaser desires to purchase
from Seller, shares of the common stock, par value $.001 per share, of Seller
(the "Common Stock"), pursuant to the terms and conditions of this Agreement and
in reliance on Rule 506 under Regulation D ("Regulation D") promulgated under
the United States Securities Act of 1933, as amended (the "Securities Act").
B. The shares subject to this Agreement have not been registered under the
Securities Act, or under the state securities laws of any state of the United
States.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement and other good and valuable consideration, the receipt
and adequacy of which the parties acknowledge, the parties agree as follows:
Article 1
Purchase and Sale
-----------------
1.1 Purchase of Common Stock. On the terms and subject to the conditions
------------------------
contained in this Agreement, Seller shall sell and deliver to Purchaser, and
Purchaser shall purchase from Seller ______________ shares of Common Stock (the
"Purchased Stock").
-1-
<PAGE>
1.2 Purchase Price. Purchaser shall pay to Seller a per share purchase
--------------
price of U.S. $3.00 , for a total purchase price of U.S. $__________________ for
-----
the Purchased Stock (the "Purchase Price"). Purchaser shall pay Seller the
Purchase Price by wire transfer in United States funds at Closing to:
ACCOUNT NAME:
BANK:
BRANCH:
ABA ROUTING #:
ACCOUNT #:
CONTACT:
1.3 Closing. The closing of the transaction contemplated by this
-------
Agreement (the "Closing") shall be held on such date and at such time on or
before March 31, 2000, as the parties may agree, unless such date is extended by
agreement of the parties (the "Closing Date"). On the Closing Date, Seller will
cause its transfer agent to prepare a certificate or certificates representing
the Purchased Stock, which certificate(s) shall be delivered to Purchaser at an
address identified by Purchaser.
1.4 Registration. Seller agrees to use its best efforts to file a
------------
registration statement with the U.S. Securities and Exchange Commission within
60 days after the Closing Date to register the resale of the Purchased Stock by
Purchaser. Purchaser agrees to provide Seller in a timely manner any
information required to be provided by Purchaser in connection with the filing
of the registration statement.
Article 2
Representations, Warranties and Covenants of Seller
---------------------------------------------------
To induce Purchaser's execution of this Agreement and consummation of the
transaction contemplated by this Agreement, Seller represents, warrants and
covenants as follows:
2.1 Corporate Organization; Authorization. Seller is duly incorporated,
-------------------------------------
validly existing and in good standing as a corporation under the laws of the
State of Washington and
-2-
<PAGE>
has full corporate power and corporate authority to enter into this Agreement
and to issue and sell the Purchased Stock. This Agreement has been duly
authorized, executed, and delivered by Seller and constitutes a valid and
binding agreement of Seller, enforceable in accordance with its terms.
2.2 Capital Stock. Seller has authorized capital stock consisting of
-------------
100,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. As
of January 31, 2000, Seller had outstanding of record 21,422,511 shares of
Common Stock and 136,647 shares of Series B Convertible Preferred Stock.
2.3 Reporting Compliance. Seller's Common Stock is registered pursuant to
--------------------
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and Seller has filed all materials required to be filed pursuant to
Section 13(a) or 15(d) of the Exchange Act for a period of at least 12 months
immediately preceding the date of this Agreement.
2.4 Information. Seller has instructed its placement agent, Marcel Huber,
-----------
to deliver to Purchaser a copy of Seller's Annual Report on Form 10-K for
Seller's fiscal year ended May 31, 1999, copies of Seller's Quarterly Reports on
Form 10-Q for the periods ended August 31, 1999 and November 30, 1999, and a
copy of the proxy statement for Seller's special meeting of shareholders to be
held on March 6, 2000 (the "Offering Materials"). The information concerning
Seller set forth in this Agreement and the Offering Materials is, as of the date
thereof, complete and accurate in all material respects and, to the best of
Seller's knowledge, does not contain any untrue statement of a material fact or
omit to state a material fact required to make the statements made, in light of
the circumstances under which they were made, not misleading. Upon request,
Seller shall provide to Purchaser any additional reports filed with the SEC
after the date of this Agreement but prior to the Closing Date.
2.5 Characteristics of the Shares. The Purchased Stock, when issued and
-----------------------------
delivered to Purchaser, will be duly and validly authorized and issued, fully
paid, and nonassessable. There are no preemptive rights to acquire Common Stock
of Seller.
Article 3
Representations, Warranties and Covenants of Purchaser
------------------------------------------------------
As an inducement to, and with the intent that Seller rely on the accuracy
thereof, Purchaser represents, warrants and covenants as follows:
3.1 Organization. If Purchaser is an entity, it is duly organized and
------------
validly existing under the laws of the jurisdiction of its organization.
Purchaser has the requisite power and is duly authorized under all applicable
laws, regulations and ordinances to acquire the Purchased Stock. The execution
and delivery of this Agreement will not violate any provision of Purchaser's
governing charter or any other contractual or legal obligation of Purchaser.
-3-
<PAGE>
3.2 Approval of Agreement. Purchaser has taken all action required by
---------------------
applicable law, its governing charter, or otherwise to authorize the execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement. This Agreement is the legal, valid, and binding
obligation of Purchaser, enforceable in accordance with its terms. Purchaser is
not required to obtain the authorization, approval, consent, or order of, or
make a registration or filing, with any court or other regulatory or
governmental body in connection with the execution and delivery by Purchaser of
this Agreement and the consummation by Purchaser of the transactions
contemplated by this Agreement. The execution of this Agreement and the
consummation of the transactions contemplated by this Agreement, will not result
in the breach of any term or provision of, constitute an event of default under,
or require the consent or approval of any third-party pursuant to any material
contract, agreement, or instrument to which Purchaser is a party or to which any
of its properties or operations are subject.
3.3 Information. The information concerning Purchaser provided to Seller
-----------
in connection with this Agreement is complete and accurate in all material
respects and does not contain any untrue statements of a material fact or omit
to state a material fact required to make the statements made, in light of the
circumstances under which they were made, not misleading.
3.4 Risk Factors. Purchaser has been informed and fully understands that
------------
there are risks associated with purchasing the Purchased Stock, including
without limitation those set forth in Article 4, which factors Purchaser has
considered carefully before executing this Agreement.
3.5 Purchaser's Financial Condition. Purchaser is an accredited investor,
-------------------------------
as that term is defined in Regulation D promulgated under the Securities Act.
Purchaser is capable of bearing the economic risk and the burden of this
investment, including, but not limited to, the possibility of the complete loss
of the Purchase Price. Purchaser understands that there are substantial
restrictions on the transferability of the Purchased Stock, which may make the
liquidation of the Purchased Stock impossible for the immediate future.
3.6 Disclosure. Purchaser has received copies of the Offering Materials.
----------
All documents requested by Purchaser have been made available for inspection and
copying. Purchaser has been supplied with all of the additional information
concerning the Purchased Stock and Seller that Purchaser has requested.
3.7 No Registration. Purchaser acknowledges that the Shares are being
---------------
issued without being registered under the Securities Act, or under any
applicable securities acts. The Purchased Shares are being acquired by
Purchaser for its own account, for investment (and not on behalf of, or with a
view toward distribution to, any other person) under exemptions from the
registration provisions of the Securities Act. Purchaser acknowledges that it
must therefore hold the Purchased Shares indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available, and that Seller will place stop transfer instructions
with respect to the Purchased Shares. Seller is under no obligation to register
the Purchased Shares or take any other action which would make an exemption from
-4-
<PAGE>
registration available, and Seller is under no obligation to cause or permit the
Purchased Shares to be transferred in the absence of such registration or an
opinion satisfactory to Seller's counsel that an exemption is available.
3.8 Exclusive Reliance on this Agreement; No Oral Representations. In
-------------------------------------------------------------
making the decision to purchase the Purchased Stock, Purchaser has relied
exclusively upon information provided by this Agreement, information in any
books, records or documents of Seller provided by Seller to Buyer in connection
with this Agreement, and any investigations made by Purchaser. Purchaser
confirms that it is not relying upon any oral representations or statements made
by Seller or by any other person in purchasing the Purchased Stock.
3.9 Rule 144. Purchaser acknowledges that the Purchased Shares are
--------
restricted securities, as defined in Rule 144 under the Securities Act, that the
Purchased Shares may not be resold in reliance on Rule 144 for at least one year
after issuance, and that once the Purchased Shares are eligible for resale under
Rule 144, they will be subject to certain resale restrictions contained in Rule
144, including volume limitations and restrictions on the manner of resale,
until they have been held for two years as provided in Rule 144. If Purchaser
is an affiliate of Seller for purposes of Rule 144, Purchaser understands that
certain restrictions on resale would continue to apply under Rule 144 for so
long as Purchaser is an affiliate.
3.10 Legend. Purchaser acknowledges that the certificates representing
------
the Purchased Shares will bear substantially the following legend until such
legend can be removed under applicable securities laws:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND WERE
OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENT OF
THE ACT AND SUCH LAWS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR
OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED
UPON OR ENDORSED THE MERITS OF THESE SECURITIES. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL. THESE SECURITIES CANNOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF TO ANY PERSON OR ENTITY UNLESS SUBSEQUENTLY REGISTERED UNDER THE
ACT, AND/OR THE LAWS OF CERTAIN STATES, OR UNLESS AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE AND THE HOLDER HAS PROVIDED SELLER WITH A LEGAL
OPINION ACCEPTABLE TO SELLER TO THAT EFFECT.
3.11 Further Actions. Purchaser shall execute and deliver to Seller, at
---------------
or prior to the Closing, such further letters of representation, acknowledgment,
suitability or the like, as Seller and its counsel may reasonably request in
connection with Seller's reliance on exemptions from registration under
Regulation D or any other securities laws.
-5-
<PAGE>
3.12 No Other Assurances. Seller and Purchaser acknowledge that the basis
-------------------
for relying on exemptions from registration or qualifications are factual,
depending on the conduct of the various parties, and that no legal opinion or
other assurance will be required or given to the effect that the transactions
contemplated hereby are in fact exempt from registration or qualification.
Article 4
Risk Factors
------------
Purchaser acknowledges that there are risks associated with purchasing the
Purchased Stock, including without limitation, the following:
4.1 Risk of Dilution. Certain events, such as the issuance by Seller of
----------------
its equity securities, including Common Stock or other securities convertible
into or exercisable for Common Stock, in connection with any financing, as part
of the purchase price for any future acquisition of companies or technologies,
as part of any employee compensation, stock purchase, or incentive program,
pursuant to the exercise of warrants or stock options, or for any other
corporate purpose, may result in immediate and substantial book value dilution.
4.2 Effect of Preferred Stock. As of January 31, 2000, Seller had
-------------------------
outstanding 136,647 shares of Series B Convertible Preferred Stock ("Preferred
Stock"). Upon conversion of a share of Preferred Stock, the holder will receive
a number of shares of Common Stock equal to $100 divided by the then-applicable
conversion price of the Preferred Stock. 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 Common Stock over the 22 trading days
before conversion. As of January 31, 2000, the conversion price was $1.2083 per
share. Seller cannot issue more than 3,000,000 shares of Common Stock pursuant
to conversion unless Seller's shareholders approve the issuance of additional
shares of Common Stock over the 3,000,000 shares already reserved for issuance
(the "Additional Shares"). Alternatively, Seller would be entitled to redeem
any Preferred Stock whose conversion would cause the issuance of Additional
Shares, at $115 per share, except that the indenture governing the Company's
outstanding 11 1/4% senior subordinated notes (the "Indenture") restricts the
Company's ability to do so. As of January 31, 2000, 33,353 shares of Preferred
Stock had been converted into 2,959,773 shares of Common Stock, and 136,647
shares of Preferred Stock remained outstanding. Seller has called a special
meeting of its shareholders for March 6, 2000, to consider a proposal to approve
issuance of a sufficient number of shares of Common Stock to permit conversion
of the outstanding Preferred Stock. If Seller's shareholders approve the
proposal, the number of Additional Shares actually issued will depend on the
market price of Seller'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 Seller's shareholders do not approve the
proposal, and Seller is therefore unable to convert any of the Preferred Stock,
and if Seller cannot redeem the Preferred Stock which upon conversion would
cause the issuance of the Additional Shares, then Seller will incur a monthly
penalty of 2% of the Preferred Stock's liquidation preference until the Seller
redeems the Preferred Stock or obtains shareholder approval to issue the
Additional Shares. As of
-6-
<PAGE>
January 31, 2000, the Company estimates that the penalty would be approximately
$273,000 per month.
4.3 No Agency Approval. No federal or state agency has made any finding
------------------
or determination as to the fairness for investment or made any recommendation or
endorsement of the Purchased Stock.
4.4 Acquisition Risks. Seller has pursued an aggressive growth strategy
-----------------
and expects to continue to evaluate and pursue potential strategic acquisitions.
The success of this strategy depends upon Seller's ability to manage the risks
associated with acquisitions. These risks include: (i) the ability of Seller
to assess the value, strengths and weaknesses of acquisition candidates
accurately; (ii) Seller's effectiveness in implementing necessary changes at
newly acquired subsidiaries; (iii) possible diversion of management attention
from Seller's operations; and (iv) possible increased borrowings, disruption of
product development cycles and dilution of earnings per share. Seller has
incurred substantial losses in connection with its acquisition of Electronic
Specialty Corporation, and its investment in Orca Technologies, Inc. The size
of Seller's European Aerospace Group, which was acquired in July 1998, will
cause it to have a significant impact on Seller's future financial results. If
Seller fails to manage these or other acquisition risks, or if Seller fails to
dispose of unsuccessful businesses on satisfactory terms, there could be a
material adverse effect on Seller and its financial performance.
4.5 Management of Growth. Seller has experienced rapid growth from both
--------------------
operations and acquisitions. This growth has placed and will continue to place
significant demands on Seller's managerial, administrative, financial and
operational resources. For example, both Seller's total number of employees
and the number of its operating sites nearly doubled as a result of the
acquisition of Seller's European Aerospace Group. Seller's operating divisions
have had different accounting systems, which Seller has integrated or has plans
to integrate. As Seller grows and becomes more complex, an increasing level of
diligence in its business decisions will be necessary to comply with regulatory
and accounting requirements. To manage its growth effectively, Seller must
continue to improve its operational, accounting, financial and other management
processes and systems, and must continue to attract and retain highly skilled
management and technical personnel.
4.6 Significant Debt. Seller incurred substantial debt and payment
----------------
obligations in order to finance the acquisition of the European Aerospace Group
and ongoing operations. This debt could have important consequences, such as:
(i) making Seller unable to obtain additional financing in the future; (ii)
diverting a significant portion of Seller's cash flow to principal and interest
payments and away from operations, acquisitions and capital expenditures; (iii)
increasing Seller's interest expense and decreasing Seller's net income; (iv)
putting Seller at a competitive disadvantage in relation to competitors with
less debt; or (v) limiting Seller's flexibility in adjusting to downturns in its
business or market conditions.
4.7 Ability to Make Debt Payments. Seller's future financial and
-----------------------------
operating performance will affect its ability to make payments on its debt.
Since Seller's performance is affected by many factors, some of which are beyond
its control, there is no assurance that
-7-
<PAGE>
Seller will have sufficient cash flow to make its debt payments when scheduled,
or at all. If Seller did not have sufficient cash flow to make its debt
payments, Seller could be forced to: (i) reduce or delay capital expenditures;
(ii) dispose of material assets or operations, potentially at a loss; (iii)
restructure or refinance its debt at potentially higher rates of interest; or
(iv) seek additional equity capital, which could dilute the value of the shares
held by Seller's existing shareholders. There is no assurance that Seller would
be able to achieve any of these actions on satisfactory terms or at all. In
addition, if Seller were unable to repay its secured debt, Seller's secured
lenders could proceed against any collateral securing that debt.
4.8 Restrictive Debt Covenants. Seller is subject to a number of
--------------------------
significant covenants under some of the agreements governing its debt. Those
covenants restrict a number of corporate activities, including the ability of
Seller to: (i) dispose of or create liens on assets; (ii) incur additional
indebtedness; (iii) prepay or amend certain debt; (iv) pay dividends or
repurchase stock; (v) enter into sale and leaseback transactions; (vi) make
investments, loans or advances; (vii) engage in acquisitions, mergers or
consolidations; (viii) make capital expenditures; (ix) change the business
conducted by Seller or its subsidiaries; or (x) engage in certain transactions
with affiliates. The breach of any of these covenants could result in a default
that would permit the lenders to declare all amounts owed by Seller to be
immediately due and payable. As a result, Seller's lenders might terminate
their commitments to extend further credit to Seller. In addition, if there is
a change of control of Seller, Seller may be required to repay its debt. Any of
these events could have a material adverse effect on Seller and its financial
performance.
4.9 Possible Need for Additional Capital. Seller believes that its
------------------------------------
working capital and unused lines of credit will be sufficient to meet Seller's
obligations as they become due during fiscal 2000. However, the Company may
need to obtain additional cash during or after fiscal 2000. Seller's actual
capital needs will depend on many unpredictable factors, such as: (i) actual
revenue generated from operations; (ii) interest due on Seller's variable rate
debt; (iii) capital expenditures required to remain competitive; and (iv) cash
required for acquired companies, future acquisitions, and financing transaction
costs. As a result of these factors, Seller is unable to predict accurately the
amount or timing of its future capital needs, if any. Should Seller need to
dispose of assets to generate cash, there is no assurance that the carrying
values will be realizable upon liquidation outside of the ordinary course of
business. Seller's inability to obtain additional cash if and when needed could
have a material adverse effect on Seller's financial position and results of
operations.
4.10 Foreign Operations. Maintaining its European Aerospace Group
------------------
subjects Seller to the risks of foreign operations. These risks include: (i)
Seller's ability to manage operations in the United Kingdom effectively from its
Wenatchee, Washington headquarters; (ii) unfavorable changes in foreign
government policies, regulations, tariffs, taxes and other trade barriers; (iii)
exchange controls and limitations on dividends or other payments; and (iv)
devaluations and fluctuations in currency exchange rates.
4.11 Exchange Rates. Because of its European Aerospace Group, Seller may
--------------
decide to engage in hedging transactions in order to protect Seller from losses
if the exchange rate between the U.S. dollar and the British pound sterling
changes. However, hedging
-8-
<PAGE>
transactions may not completely offset such losses. The European Aerospace Group
has a few contracts that are in European currencies other than British pounds
sterling, or in U.S. dollars. Seller believes that the conversion of such
currencies to the Euro will not have a material adverse effect on the European
Aerospace Group's business or financial condition.
4.12 Aerospace Industry Risks; Cyclicality. Seller operates in
-------------------------------------
historically cyclical industries. The aerospace, defense and transportation
industries are sensitive to general economic conditions and have been adversely
affected by past recessions. In past years, the aerospace industry has been
adversely affected by a number of factors, 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 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 Seller's products and could have a
material adverse effect on Seller's business and financial performance. There
is no assurance that this trend will not continue or that general economic
conditions will not lead to a downturn in demand for core products of Seller.
4.13 Dependence on Key Management and Technical Personnel. Seller
----------------------------------------------------
believes that its ability to successfully implement its business strategy and to
operate profitably depends significantly on the continued employment of its
senior management team, led by its president, Donald A. Wright, and its
significant technical personnel. Seller has key man life insurance policies on
the life of Mr. Wright totaling $8 million. Seller's 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, Seller's growth
and future success will depend in large part on its ability to retain and
attract additional board members, senior managers and highly skilled technical
personnel. Competition for such individuals is intense, and there is no
assurance that Seller will be successful in attracting and retaining them.
Seller's failure to do so could have a material adverse effect on Seller's
business and financial performance.
4.14 Technological Change; Development of New Products. The market for
-------------------------------------------------
Seller's products is characterized by evolving technology and industry
standards, changes in customer needs, adaptation of products to customer needs,
and new product introductions. Seller's competitors from time to time may
announce new products, enhancements, or technologies that have the potential to
replace or render Seller's existing products obsolete. Seller's success will
depend on its ability to: (i) enhance its current products and develop new
products to meet changing customer needs, and achieve market acceptance of such
products; and (ii) anticipate or respond to evolving industry standards and
other technological changes on a timely and cost-effective basis. Seller's
failure to do so, or any significant delay, could have a material adverse effect
on Seller's business and financial performance.
4.15 Product Liability. Seller is subject to the risk of product
-----------------
liability claims and lawsuits for harm caused by its products. Seller maintains
product liability insurance with a maximum coverage of $2 million. However,
there is no assurance that this insurance will be
-9-
<PAGE>
sufficient to cover any claims that may arise. A successful product liability
claim in excess of Seller's insurance coverage could have a material adverse
effect on Seller's business and financial performance.
4.16 Competition. Seller is subject to substantial competition in
-----------
many of the markets that it serves. Many of these competitors represent
substantial long-term competition, as they have greater financial resources,
broader experience, better name recognition and more substantial marketing
operations. Components and products similar to those made by Seller can be made
by competitors using a number of different manufacturing processes. Seller
believes that its manufacturing processes, proprietary technologies, and
experience provide significant advantages to Seller's customers, such as high
quality, more complete solutions, competitive prices, and physical properties
that must meet stringent demands. However, alternative forms of manufacturing
can be used to produce many of the components and products made by Seller. In
addition, new developments by competitors are expected to continue, and Seller's
competitors could develop products that are viewed by customers as more
effective or more economical than Seller's product lines. Seller may not be
able to compete successfully against current and future competitors, and the
competitive pressures faced by Seller could have a material adverse effect on
Seller and its financial performance.
4.17 Availability and Cost of Materials. The 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 the
European Aerospace Group's business or on the financial condition of Seller,
some business was lost 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
of Seller to obtain titanium or other raw materials when needed, or significant
cost increases imposed by suppliers of raw materials such as titanium or
aluminum, could have a material adverse effect on Seller and its financial
performance. Seller generally has readily available sources of all raw
materials and supplies it needs to manufacture its products and, where possible,
Seller maintains alternate sources of supply. However, Seller does not have
fixed price contracts or arrangements for all of the raw materials and other
supplies it purchases. Shortages of, or price increases for, certain raw
materials and supplies used by Seller have occurred in the past and may occur in
the future. Future shortages or price fluctuations could have a material
adverse effect on Seller's ability to manufacture and sell its products in a
timely and cost-effective manner.
4.18 Proprietary Rights. Significant aspects of Seller's business
------------------
depend on proprietary processes, know-how and other technology that are not
subject to patent protection. Seller relies on a combination of trade secret,
copyright and trademark laws, confidentiality procedures, and other intellectual
property protection to protect its proprietary technology. However, there is no
assurance that Seller's competitors may not develop or utilize technology that
is the same as or similar to such technology of Seller. Seller has 32 U.S.
patents, one European patent enforceable in the U.K., and several patent
applications in the U.S. and in
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<PAGE>
other jurisdictions, most of which pertain to the U.S. Electronics Group. There
is no assurance that any of the patent applications will result in issued
patents, that existing patents or any future patents will give Seller any
competitive advantages for its products or technology, or that, if challenged,
these patents will be held valid and enforceable. Most of Seller's issued
patents expire at various times over the next 15 years, with 16 patents expiring
over the next five years. Although Seller believes that the manufacturing
processes of much of its patented technology are sufficiently complex that
competing products made with the same technology are unlikely, there is no
assurance that Seller's competitors will not design competing products using the
same or similar technology after these patents have expired. Despite the
precautions taken by Seller, unauthorized parties may attempt to copy aspects of
Seller's products or obtain and use information that Seller regards as
proprietary. Existing intellectual property laws give only limited protection
with respect to such actions, and policing violations of such laws is difficult.
The laws of certain countries in which Seller's 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. Seller could be required to enter
into costly litigation to enforce its intellectual property rights or to defend
infringement claims by others. Such infringement claims could require Seller to
license the intellectual property rights of third parties. There is no assurance
that such licenses would be available on reasonable terms, or at all.
4.19 Environmental Matters. Seller's facilities are subject to
---------------------
governmental laws and regulations concerning solid waste disposal, hazardous
materials generation, storage, use and disposal, air emissions, waste water
discharge, employee health and other environmental matters (together,
"Environmental Laws"). Proper waste disposal and environmental regulation are
major considerations for Seller because a number of the metals, chemicals and
other materials used in and resulting from its manufacturing processes are
classified as hazardous substances and hazardous wastes. If permitting and
other requirements of applicable Environmental Laws are not met, Seller could be
liable for damages and for the costs of remedial actions and could also be
subject to fines or other penalties, including revocation of permits needed to
conduct its business. Any permit revocation could require Seller to cease or
limit production at one or more of its facilities, which could have a material
adverse effect on Seller and its financial performance. Seller has an ongoing
program of monitoring and addressing environmental matters, and from time to
time in the ordinary course of business is required to address minor issues of
noncompliance at its operating sites. Recently, Seller identified certain
operations or processes that lacked required permits or otherwise are not in
full compliance with applicable Environmental Laws. Although Seller believes
these items are not material, Seller is 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, Seller is subject
to financial exposure with regard to its properties even if it fully complies
with these laws. In addition, certain of Seller's 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
currently owned by Seller and that, as a result, additional environmental issues
may arise in the future, the precise nature of which Seller cannot now predict.
There is no assurance that any present or future noncompliance with
Environmental
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<PAGE>
Laws or future discovery of contamination will not have a material adverse
effect on Seller's results of operations or financial condition.
4.20 Government Regulation. Certain of Seller's 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, Seller is directly and indirectly subject to various federal rules,
regulations and orders applicable to government contractors. Some of these
regulations relate specifically to the vendor-vendee relationship with the
government, such as the bidding and pricing rules. Under regulations of this
type, Seller must observe certain pricing restrictions, produce and maintain
detailed accounting data, and meet various other requirements. Seller is also
subject to many regulations affecting the conduct of its business generally.
For example, in the United States Seller must adhere to federal acquisition
requirements and standards established by the Occupational Safety and Health Act
relating to labor practices and occupational safety standards. Seller is
currently updating and implementing written policies and training programs
relating to employee health and safety matters at several of its 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 Seller's customers are in the defense
industry, and loss of governmental certification by such customers could have a
material adverse effect on their purchases from Seller and Seller's business and
financial performance.
Article 5
Indemnification
---------------
5.1 Indemnification by Purchaser. Purchaser will indemnify and hold
----------------------------
harmless Seller and its directors, officers, agents and employees, and each
person, if any, who controls Seller within the meaning of the Securities Act
("Affiliates"), from and against any and all claims, damages, expenses,
liabilities, or actions ("Claims") to which any of them may become subject under
applicable law (including the Securities Act and the Exchange Act) and will
reimburse them for any legal or other expenses reasonably incurred by them in
connection with the investigation or defense of any Claims arising out of or
based upon a misrepresentation or alleged misrepresentation of material fact
contained in any application or statement filed with a governmental body by
Seller or the omission or alleged omission of a material fact required to be
stated therein, or necessary in order to make the statements made therein not
misleading, but only insofar as any such misrepresentation or omission was made
in reliance upon and in conformity with information furnished in writing by
Purchaser. Purchaser agrees at any time upon the request of Seller to furnish a
written letter or statement confirming the accuracy of any information provided
to Seller by Purchaser. This Section 5.1 shall remain operative and in full
force and effect, regardless of any investigation, made by or on behalf of
Seller and shall survive the consummation of the transactions contemplated by
this Agreement.
5.2 Indemnification by Seller. Seller will indemnify and hold harmless
-------------------------
Purchaser and its Affiliates from and against any Claims to which any of them
may become subject under
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<PAGE>
applicable law (including the Securities Act and the Exchange Act) and will
reimburse them for any legal or other expenses reasonably incurred by them in
connection with the investigation or defense of any Claims arising out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in any proxy statement, report, application or statement filed with a
governmental body by Purchaser, or arising out of or are based upon the omission
or alleged omission of a material fact required to be stated therein, or
necessary in order to make the statements therein not misleading, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing by Seller expressly for use
therein. Seller agrees at any time upon the request of Purchaser to furnish to
it a written letter or statement confirming the accuracy of the information with
respect to Seller contained in any document referred to in this Section 5.2.
Article 6
Conditions Precedent to Obligations
-----------------------------------
The obligations of each party to this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
6.1 Accuracy of Representations. The representations and warranties made
---------------------------
by each party in this Agreement were true when made and shall be true at the
Closing Date with the same force and effect as if such representations and
warranties were made at and as of the Closing Date (except for changes therein
permitted by this Agreement), and such party shall have performed or complied
with all covenants and conditions required by this Agreement to be performed or
complied with by such party prior to or at the Closing.
6.2 Other Items. Each party shall have received such further documents,
-----------
certificates or instruments relating to the transactions contemplated hereby as
the other party may reasonably request.
Article 7
General Provisions
------------------
7.1 Amendment or Waiver. Every right and remedy provided in this
-------------------
Agreement shall be cumulative with every other right and remedy, whether
conferred in this Agreement, at law, or in equity, and may be enforced
concurrently with any right conferred by this Agreement, and no waiver by any
party of the performance of any obligation by the other shall be construed as a
waiver of the same or any other default then, theretofore, or thereafter
occurring or existing. At any time prior to the Closing Date, this Agreement
may be amended by a writing signed by the parties, with respect to any of the
terms contained in this Agreement, and any term or condition of this Agreement
may be waived or the time for performance thereof may be extended by a writing
signed by the party or parties for whose benefit the provision is intended.
7.2 Attorneys' Fees. In the event any party institutes and prevails in
---------------
any action or suit to enforce this Agreement or to secure relief from any
default under or breach of this
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<PAGE>
Agreement, the defaulting or breaching party or parties shall reimburse the
nonbreaching party or parties for all costs, including without limitation
reasonable attorneys' fees incurred in connection with such dispute and in
enforcing or collecting any judgment rendered pursuant to such dispute.
7.3 Governing Law. This Agreement shall in all respects, including all
-------------
matters of construction, validity, and performance, be governed by, and
construed and enforced in accordance with, the laws of the State of Washington,
without reference to any rules governing conflicts of laws.
7.4 No Brokers. Purchaser and Seller agree that no third person, except
----------
for Marcel Huber, has in any way brought the parties together or been
instrumental in the negotiation, execution, or consummation of this Agreement.
Purchaser and Seller each agree to indemnify the other against any claim by any
third person, other than Marcel Huber, for any commission, brokerage, finders
fee, or other payment with respect to this Agreement or the transactions
contemplated hereby based upon any alleged agreement or understanding between
such party and such third person, whether expressed or implied, arising from the
actions of such party. The covenants set forth in this Section 7.4 shall survive
the Closing Date and the consummation of the transactions contemplated by this
Agreement.
7.5 No Public Announcement. Neither of the parties to this Agreement
----------------------
shall, without the approval of the other party, make any press release or other
public announcement concerning the transactions contemplated by this Agreement
(a) in the United States, or (b) outside the United States, unless that party
has first provided a copy of such press release or public announcement to the
other party at least five days prior to release. However, nothing contained in
this Agreement shall prohibit any party from making any public disclosure or
announcement which is required by law or shall prohibit Seller from making a
public announcement on or after the Closing Date with respect to the completion
of the offering.
7.6 Notices. All notices, demands, requests, or other communications
-------
required or authorized under this Agreement shall be deemed given sufficiently
if in writing and if personally delivered; if sent by facsimile transmission,
confirmed with a written copy thereof sent by overnight express delivery; if
sent by registered mail or certified mail, return receipt requested and postage
prepaid; or if sent by overnight express delivery:
If to Seller, to: PACIFIC AEROSPACE & ELECTRONICS, INC.
Attention: Donald A. Wright
President and Chief Executive Officer
430 Olds Station Road, Third Floor
Wenatchee, Washington 98801
Facsimile Transmission: (509) 667-9696
Telephone: (509) 667-9600
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<PAGE>
If to Purchaser: To the address, telephone or facsimile numbers set
forth on the signature page or such other addresses
and facsimile numbers as shall be furnished in
writing by any party in the manner for giving
notices hereunder.
Any such notice, demand, request, or other communication shall be deemed to
have been given as of the date personally delivered or on the first business day
after a legible copy sent by facsimile transmission is received, three days
after the date mailed by registered or certified mail, or on the first business
day after the date sent by overnight delivery.
7.7 Survival; Liability. The representations, warranties, and covenants
-------------------
of the respective parties as set forth in this Agreement shall survive the
Closing and consummation of the transactions contemplated by this Agreement for
a period of two years from the date of this Agreement. Seller's cumulative
liability to Purchaser for breaches of this Agreement shall not exceed the
Purchase Price.
7.8 Third-Party Beneficiaries. This Agreement is solely between Seller
-------------------------
and Purchaser, and no director, officer, stockholder, employee, agent,
independent contractor or any other person or entity shall be deemed to be a
third-party beneficiary of this Agreement.
7.9 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
7.10 Entire Agreement. This Agreement, together with the documents to be
----------------
delivered pursuant to this Agreement, represents the entire agreement between
the parties relating to the subject matter of this Agreement. There are no
other courses of dealing, understanding, agreements, representations, or
warranties, written or oral, except as set forth in this Agreement.
Executed as of the date first set forth above.
SELLER:
PACIFIC AEROSPACE & ELECTRONICS, INC.
By: /s/ Donald A. Wright
----------------------
Donald A. Wright
President and CEO
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<PAGE>
PURCHASER:
------------------------------------------
By: /s/
---------------------------------------
Its:
-----------------------------------
Purchaser's Address:
------------------------------------------
------------------------------------------
------------------------------------------
Attention:
--------------------------------
Facsimile Transmission:
-------------------
Telephone:
-------------------------------
Exact Name(s) for Certificate:
------------------------------------------
------------------------------------------
Address for Certificate Delivery:
------------------------------------------
------------------------------------------
------------------------------------------
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<PAGE>
EXHIBIT 10.27
GENERAL TERMS AGREEMENT
between
THE BOEING COMPANY
and
Pacific Aerospace & Electronics, Inc
U.S. Aerospace Group
European Aerospace Group
BCA-65323-0458
<PAGE>
[LOGO OF BOEING]
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
TITLE PAGE
TABLE OF CONTENTS
AMENDMENT PAGE
RECITAL PAGE
<C> <S> <C>
1.0 DEFINITIONS............................................................................... 7
2.0 ORDERING.................................................................................. 8
2.1 Issuance of Orders.................................................................. 8
2.2 Acceptance of Orders................................................................ 8
2.3 Written Authorization to Proceed.................................................... 9
3.0 TITLE AND RISK OF LOSS.................................................................... 9
4.0 DELIVERY.................................................................................. 9
4.1 Requirements........................................................................ 9
4.2 Delay............................................................................... 9
4.3 Notice of Labor Disputes............................................................ 10
5.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES............................................... 10
5.1 Review.............................................................................. 10
5.2 Resident Representatives............................................................ 10
6.0 CREDIT OFFICE VISIBILITY.................................................................. 10
7.0 PACKING AND SHIPPING...................................................................... 11
7.1 General............................................................................. 11
7.1.1 Shipping Documentation...................................................... 11
7.1.2 Insurance................................................................... 11
7.1.3 Shipping Container Labels................................................... 12
7.1.4 Carrier Selection........................................................... 12
7.1.5 Invoices.................................................................... 12
7.1.6 Noncompliance............................................................... 12
7.1.7 Import...................................................................... 13
7.2 Barcode Marking and Shipping........................................................ 13
8.0 QUALITY ASSURANCE, INSPECTION, REJECTION, & ACCEPTANCE.................................... 13
8.1 Controlling Document................................................................ 13
8.2 Seller's Inspection................................................................. 13
8.2.1 Seller's Disclosure......................................................... 13
8.2.2 Seller's Acceptance......................................................... 14
8.3 Boeing's Inspection and Rejection................................................... 14
8.4 Federal Aviation Administration or Equivalent Government Agency Inspection.......... 15
8.5 Retention of Records................................................................ 15
8.6 Inspection.......................................................................... 15
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
8.7 Reserved............................................................................ 15
8.8 Regulatory Approvals................................................................ 16
9.0 EXAMINATION OF RECORDS.................................................................... 16
10.0 CHANGES................................................................................... 16
10.1 Changes Clause..................................................................... 16
10.2 Derivative Aircraft................................................................ 17
11.0 GENERAL & INTERNATIONAL REQUIREMENTS...................................................... 17
11.1 Language........................................................................... 17
11.2 Currency........................................................................... 17
11.3 Import/Export...................................................................... 18
11.4. Export Licensing Information/Offshore Procurement................................. 19
12.0 TERMINATION FOR CONVENIENCE............................................................... 20
12.1 Basis for Termination; Notice...................................................... 20
12.2 Termination Instructions........................................................... 20
12.3 Seller's Claim..................................................................... 21
12.4 Failure to Submit a Claim.......................................................... 21
12.5 Partial Termination................................................................ 21
12.6 Product Price...................................................................... 22
12.7 Exclusions or Deductions........................................................... 22
12.8 Partial Payment/Payment............................................................ 22
12.9 Seller's Accounting Practices...................................................... 22
12.10 Records............................................................................ 22
13.0 CANCELATION FOR DEFAULT................................................................... 23
13.1 Events of Default.................................................................. 23
13.2 Remedies........................................................................... 24
14.0 EXCUSABLE DELAY.......................................................................... 26
15.0 SUSPENSION OF WORK....................................................................... 26
16.0 TERMINATION OR WRONGFUL CANCELLATION..................................................... 27
17.0 ASSURANCE OF PERFORMANCE................................................................. 27
18.0 RESPONSIBILITY FOR PROPERTY.............................................................. 28
19.0 LIMITATION OF SELLER'S RIGHT TO ENCUMBER ASSETS.......................................... 28
20.0 PROPRIETARY INFORMATION AND ITEMS........................................................ 28
21.0 COMPLIANCE WITH LAWS..................................................................... 29
21.1 Seller's Obligation............................................................... 29
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
21.2 Government Requirements........................................................... 30
22.0 INTEGRITY IN PROCUREMENT................................................................. 30
23.0 RESERVED................................................................................. 30
24.0 BOEING'S RIGHTS IN SELLER'S PATENTS, COPYRIGHTS, TRADE SECRETS, AND TOOLING.............. 30
25.0 TERMINATION OF AIRPLANE PROGRAM.......................................................... 32
25.1 Program Termination............................................................... 32
25.2 Termination Liability............................................................. 32
26.0 PUBLICITY................................................................................ 32
27.0 PROPERTY INSURANCE....................................................................... 32
27.1 Insurance......................................................................... 32
27.2 Certificate of Insurance.......................................................... 33
27.3 Notice of Damage or Loss.......................................................... 33
28.0 RESPONSIBILITY FOR PERFORMANCE........................................................... 33
28.1 Subcontracting.................................................................... 34
28.2 Reliance.......................................................................... 34
28.3 Assignment........................................................................ 34
29.0 NON-WAIVER/PARTIAL INVALIDITY............................................................ 35
30.0 HEADINGS................................................................................. 35
31.0 RESERVED................................................................................. 35
32.0 RESERVED................................................................................. 35
33.0 DISPUTES................................................................................. 35
34.0 LIMITATION............................................................................... 36
35.0 TAXES.................................................................................... 36
35.1 Inclusion of Taxes in Price....................................................... 36
35.2 Litigation........................................................................ 36
35.3 Rebates........................................................................... 36
36.0 FOREIGN PROCUREMENT OFFSET............................................................... 37
</TABLE>
4
<PAGE>
AMENDMENTS
----------
<TABLE>
<CAPTION>
Amend Description Date Approval
Number
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
GENERAL TERMS AGREEMENT
RELATING TO
BOEING PRODUCTS
THIS GENERAL TERMS AGREEMENT ("GTA") ("the Agreement") is entered into as of
December 20, 1999, by and between Pacific Aerospace & Electronics, Inc a
Washington corporation, with its principal office in Wenatchee, WA, ("Seller"),
and The Boeing Company, a Delaware corporation acting by and through the Boeing
Commercial Airplane Group, Boeing North American, Incorporated, a Delaware
corporation, McDonnell Douglas Corporation, a Maryland corporation, and Boeing-
Oakridge Company, a Delaware corporation (collectively and individually
"Boeing").
RECITALS
A. Boeing produces commercial airplanes.
B. Seller manufactures and sells certain goods and services for use in
the production and support of such airplanes.
C. Seller desires to sell and Boeing desires to purchase certain of
Seller's goods and services in accordance with the terms of this
Agreement.
Now therefore, in consideration of the mutual covenants set forth herein, the
parties agree as follows:
6
<PAGE>
AGREEMENTS
1.0 DEFINITIONS
The definitions set forth below shall apply to this Agreement, any Order, and
any related Special Business Provisions ("SBP"). Words importing the singular
shall also include the plural and vice versa.
A. "Customer" means any owner, lessee or operator of an aircraft, or
designee of such owner, lessee or operator.
B. "Derivative" means any model airplane designated by Boeing as a
derivative of an existing model airplane and which: (1) has the same
number of engines as the existing model airplane; (2) utilizes
essentially the same aerodynamic and propulsion design, major assembly
components, and systems as the existing model airplane and (3) achieves
other payload/range combinations by changes in body length, engine
thrust, or variations in certified gross weight.
C. "Drawing" means an automated or manual depiction of graphics or
technical information representing a Product or any part thereof and
which includes the parts list and specifications relating thereto.
D. "End Item Assembly" means any Product which is described by a single
part number and which is comprised of more than one component part.
E. "FAA" means the United States Federal Aviation Administration or any
successor agency thereto.
F. "FAR" means the Federal Acquisition Regulations in effect on the date
of this Agreement.
G. "Procurement Representative" means the individual designated by Boeing
as being primarily responsible for interacting with Seller regarding
this Agreement or any Order.
H. "Order" means each purchase contract and purchase order issued by
Boeing and either accepted by Seller under the terms of this Agreement
or issued within Boeing's authority under this Agreement.
I. "Product" means goods, including components and parts thereof,
services, documents, data, software, software documentation and other
information or items furnished or to be furnished to Boeing under any
Order, including Tooling.
J. "Shipset" means the total quantity of a given part number or material
necessary for production of one airplane.
K. "Spare" means any Product that is intended for use or sale as a spare
part.
7
<PAGE>
L. "Tooling" means all tooling, used in production or inspection of
Products, either provided to Seller or supplied by Seller whereby
Boeing agrees to pay Seller for the manufacture of the tooling.
Tooling shall be accountable to Boeing pursuant to each Boeing
location tooling requirements.
2.0 ORDERING
2.1 Issuance of Orders
Boeing may issue Orders to Seller under this Agreement from time to time. Each
Order shall contain a description of the Products ordered, a reference to the
applicable specifications, Drawings or supplier part number, the quantities and
prices, the delivery schedule, the terms and place of delivery and any special
conditions.
Each Order which incorporates a Special Business Provisions (SBP) which
incorporates this Agreement shall be governed by and be deemed to include the
provisions of this Agreement. Purchase Order Terms and Conditions, Form D1-
4100-4045, 49-5700, 70-C-29, 70-C-33, 70-C-42, 70-C-50, GP1, DAC Form 26-915,
DAC Form 26-916 or Form P252T does not apply. Any other Order terms and
conditions, which directly conflict with this Agreement, do not apply unless
specifically agreed to in writing by the parties.
2.2 Acceptance of Orders
Each Order is Boeing's offer to Seller and acceptance is strictly limited to its
terms. Boeing will not be bound by and specifically objects to any of Seller's
term or condition that is different from or in addition to the provisions of the
Order, whether or not such term or condition will materially alter the Order.
Seller's commencement of performance or acceptance of the Order in any manner
shall conclusively evidence Seller's acceptance of the Order as written. Boeing
may revoke any Order prior to Boeing's receipt of Seller's written or electronic
acceptance or Seller's commencement of performance.
Any rejection by Seller of an Order shall specify the reasons for rejection and
any changes or additions that would make the Order acceptable to Seller;
provided, however, that Seller may not reject any Order for reasons inconsistent
with the provisions of this Agreement or the applicable SBP.
8
<PAGE>
2.3 Written Authorization to Proceed
Boeing's Procurement Representative may give written or electronic authorization
to Seller to commence performance before Boeing issues an Order. If Boeing's
authorization specifies that an Order will be issued, Boeing and Seller shall
proceed as if an Order had been issued. This Agreement, the applicable SBP and
the terms stated in the authorization shall be deemed to be a part of Boeing's
offer and the parties shall promptly and in good faith agree on any open Order
terms. If Boeing does not specify in its authorization that an Order shall be
issued, Boeing's obligation is strictly limited to the terms of the
authorization.
If Seller commences performance before an Order is issued or without receiving
Boeing's prior authorization to proceed, such performance shall be at Seller's
risk and expense.
3.0 TITLE AND RISK OF LOSS
Title to and risk of any loss of or damage to the Products shall pass at the
F.O.B. point as specified in the applicable Order, except for loss or damage
thereto resulting from Seller's fault or negligence.
4.0 DELIVERY
4.1 Requirements
Deliveries shall be strictly in accordance with the quantities, the schedule and
other requirements specified in the applicable Order. Seller may not make early
deliveries without Boeing's prior written authorization. Seller may not make
partial deliveries without Boeing's prior authorization. Deliveries, which fail
to meet Order requirements, may be returned to Seller at Seller's expense.
4.2 Delay
Seller shall notify Boeing immediately, of any circumstances that may cause a
delay in delivery, stating the estimated period of delay and the reasons
therefor. If requested by Boeing, Seller shall use additional effort, including
premium effort, and shall ship via air or other expedited routing to avoid or
minimize delay to the maximum extent possible. All additional costs resulting
from such premium effort or premium transportation shall be borne by Seller with
the exception of such costs attributable to delays caused directly by Boeing.
Nothing herein shall prejudice any of the rights or remedies provided to Boeing
in the applicable Order or by law.
9
<PAGE>
4.3 Notice of Labor Disputes
Except as otherwise prohibited by law, Seller shall immediately notify Boeing of
any actual or potential labor dispute that may disrupt the timely performance of
an Order or impair the quality of the Products to be delivered, whether Boeing
has requested such status or not. When requested by Boeing, Seller will provide
status on labor contracts and pending negotiations, including that of Seller's
subcontractors unless prohibited by law.
5.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES
5.1 Review
At Boeing's request, Seller shall provide at Boeing's facility or at a place
designated by Boeing, a review explaining the status of the Order, actions taken
or planned relating to the Order and any other relevant information. Boeing's
authorized representatives may enter Seller's plant at all reasonable times to
assess Seller's performance. Seller shall include in its subcontracts issued in
connection with an Order a like provision giving Boeing the right to enter the
premises of Seller's subcontractors. When requested by Boeing, Seller shall
accompany Boeing to Seller's subcontractors.
5.2 Resident Representatives
Boeing may, in its discretion and for such periods as it deems necessary, assign
resident personnel at Seller's facilities. Seller shall furnish, free of
charge, all office space, secretarial service and other facilities and
assistance reasonably required by Boeing's representatives at Seller's plant.
Boeing's resident personnel shall be allowed access to all work areas, Order
status reports and management review necessary to evaluate performance and
conformance with the requirements of each Order. Notwithstanding such
assistance, Seller remains solely responsible for performing in accordance with
each Order.
6.0 CREDIT OFFICE VISIBILITY
If requested, Seller shall provide financial data, on a quarterly basis, or as
requested to the Boeing Corporate Credit Office for credit and financial
condition reviews. Said data shall include but not be limited to balance
sheets, schedule of accounts payable and receivable, major lines of credit,
creditors, income statements (profit and loss), cash flow statements, firm
backlog, and headcount. Copies of such data are to be made available within 72
hours of any written request by Boeing's Corporate Credit Office. Boeing shall
treat all such information as confidential.
10
<PAGE>
7.0 PACKING AND SHIPPING
7.1 General
Seller shall pack the Products to prevent damage and deterioration taking into
account method of shipment, location of shipment and destination of receipt, as
well as time associated with shipment. Seller shall comply with carrier
tariffs. Unless the Order specifies otherwise, the price includes shipping
charges for Products to the F.O.B. location. Unless otherwise specified in the
Order, Products sold F.O.B. place of shipment shall be forwarded freight due.
For Products shipped domestically, Seller shall make no declaration concerning
the value of the Products shipped, except on the Products where the tariff
rating is dependent upon released or declared value. In such event, Seller
shall release or declare such value at the maximum value (within the lowest
rating). Boeing may charge Seller for damage to or deterioration of any
Products resulting from improper packing or packaging. Seller shall comply with
any special instructions stated in the applicable Order.
7.1.1 Shipping Documentation
Shipments by Seller or its subcontractors must include packing sheets. Each
packing sheet must include as a minimum the following: a) Seller's name, address
and phone number; b) Order and item number; c) ship date for the Products; d)
total quantity shipped and quantity in each container, if applicable; e) legible
pack slip number; f) nomenclature; g) unit of measure; h) ship to information if
other than Boeing; i) warranty data and certification, as applicable; j)
rejection tag, if applicable; k) Seller's certification that Products comply
with Order requirements; and, l) identification of optional material used, if
applicable. A shipment containing hazardous and non-hazardous materials must
have separate packing sheets for the hazardous and non-hazardous materials.
Items shipped on the same day will be consolidated on one bill of lading or
airbill, unless Boeing's Authorized Procurement Representative authorizes
otherwise. The shipping documents will describe the material according to the
applicable classification and/or tariff rating. The total number of shipping
containers will be referenced on all shipping documents. Originals of all
government bills of lading will be surrendered to the origin carrier at the time
of shipment.
7.1.2 Insurance
Seller will not insure any FOB Origin shipment unless authorized by Boeing.
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7.1.3 Shipping Container Labels
Seller will label each shipping container with the Order number and the number
that each container represents of the total number being shipped (e.g., Box 1 of
2, Box 2 of 2). Two copies of the packing sheets must be attached to the No. 1
container of each shipment and one copy in each individual container. The
following markings shall be included on each unit container: a) Seller's name;
b) Seller's part number, if applicable; c) Boeing part number, if applicable; d)
part nomenclature; e) Order number; f) quantity of Products in container; g)
unit of measure; h) serial number, if applicable; i) date identified as Product
or raw material cure date, if applicable; j) precautionary handling instructions
or marking as required. In addition, the following markings/labels shall be
included on each shipping container: a) Name and address of consignee; b) Name
and address of consignor; c) Order number; d) Part number as shown on the Order;
e) Quantity of Products in container; f) Unit of measure; g) Box number; h)
Total number of boxes in shipment; and, i) Precautionary handling, labeling or
marking as required.
7.1.4 Carrier Selection
Boeing will select the carrier and mode of transportation for all shipments
where freight costs will be charged to Boeing.
7.1.5 Invoices
Seller will include copies of documentation supporting prepaid freight charges
(e.g., carrier invoices or UPS shipping log/manifest), if any, with its
invoices.
7.1.6 Noncompliance
If Seller is unable to comply with the shipping instructions in this Agreement,
Seller will contact Boeing's Traffic Management Department or Boeing's
Authorized Procurement Representative.
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7.1.7 Import
Shipments from non-United States locations to Boeing or Boeing's designee shall
conform and comply with the requirements set forth below. Seller shall prepare
the bill of lading, airway bill, commercial invoice, dangerous goods declaration
(if applicable), and any other required shipping papers. The commercial invoice
must be signed by the Seller's agent and shall include the following
information: (a) Seller's name, address, telephone number and datafax number;
(b) The Boeing Order number; (c) Carrier name and bill of lading or airway bill
number; (d) Description and quantity of Products; (e) Dimensions of each
shipping container; (f) Gross weight of each shipping container; (g) Estimated
value in U.S. Dollars for Customs purposes, for repaired items include the value
of the repairs, not the value of the Products new; (h) Consignee's name and
address; (i) U.S. Government Order number, if applicable. If more than one
such number applies to the shipment, ensure that the following information is
plainly indicated on the shipping papers for each individual U.S. Government
Order. (i) quantity count of Products (quantity of each item shipped), and, (ii)
value of those Products.
7.2 Barcode Marking and Shipping
For those shipments which support Orders from Boeing locations where Seller has
been approved to utilize barcode labeling for shipping and packaging, Seller
shall mark and package such shipments in accordance with the applicable barcode
requirements for that location.
8.0 QUALITY ASSURANCE, INSPECTION, REJECTION, & ACCEPTANCE
8.1 Controlling Document
The controlling quality assurance document for Orders shall be as set forth in
SBP Section 4.0.
8.2 Seller's Inspection
Seller shall inspect or otherwise verify that all Products, including those
components procured from or furnished by subcontractors or Boeing, comply with
the requirements of the Order prior to shipment to Boeing or Customer. Seller
shall be responsible for all tests and inspections of the Product during
receiving, manufacture and Seller's final inspection.
8.2.1 Seller's Disclosure
Seller will immediately notify Boeing in writing when discrepancies in Seller's
processes or Product are discovered or suspected for Products Seller has
delivered or will deliver under this Agreement.
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8.2.2 Seller's Acceptance
Seller shall provide with all shipments the following evidence of acceptance by
its Quality Assurance department: (a) certified physical and metallurgical or
mechanical test reports where required by controlling specifications, or (b) a
signed, dated statement on the packing sheet certifying that its Quality
Assurance department has inspected the Products and they adhere to all
applicable Drawings and/or specifications.
8.3 Boeing's Inspection and Rejection
Unless otherwise specified in an Order, Products shall be subject to inspection
by Boeing, notwithstanding any payment or prior inspection. If Boeing performs
an inspection or test on the premises of Seller or its subcontractors, Seller
shall furnish and require its subcontractors to furnish, without additional
charge, reasonable facilities and assistance for safe and convenient performance
of these duties. Boeing may reject any Product which does not strictly conform
to the requirements of the applicable Order. Boeing shall by notice, rejection
tag or other communication notify Seller of such rejection. Whenever practical,
Boeing will coordinate with Seller prior to disposition of the rejected
Product(s), however, Boeing shall retain final disposition authority with
respect to all rejections.
All rejected Products will be returned to Seller, at Seller's risk and expense,
for immediate repair, replacement or other correction and redelivery to Boeing;
provided, however, that with respect to any or all of such Products and at
Boeing's election and at Seller's risk and expense, Boeing may: (a) return such
Products without permitting any repair, replacement or other correction by
Seller; (b) hold or retain such Products for repair by Seller or, at Boeing's
election, for repair by Boeing with such assistance from Seller as Boeing may
require; (c) hold such Products until Seller has delivered conforming
replacements for such Products; (d) hold such Products until conforming
replacements are obtained from a third party; (e) return such Products with
instructions to Seller as to whether the Products shall be repaired or replaced
and as to the manner of redelivery or (f) return such Products with instructions
that they be scrapped. Upon final disposition by Boeing and Seller that the
non-conforming Product(s) are not subject to repair and are not re-usable, and
prior to the Products being scrapped, Seller shall render the Product(s)
unusable. Seller shall also maintain, pursuant to their quality assurance
system, records certifying destruction of the applicable Products. Said
certification shall state the method and date of mutilation and destruction of
the subject Product(s). Boeing shall have the right to review and inspect these
records at any time it deems necessary. Failure to comply with these
requirements shall be a material breach of this Agreement.
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All repair, replacement and other corrections and redelivery shall be completed
within such time as Boeing may require. All costs and expenses, loss of value
and any other damages incurred as a result of or in connection with
nonconformance and repair, replacement or other correction may be recovered from
Seller by an equitable price reduction, set-off or credit against any amounts
that may be owed to Seller under the applicable Order or otherwise.
Boeing may revoke its acceptance of any Products and have the same rights with
regard to the Products involved as if it had originally rejected them.
8.4 Federal Aviation Administration or Equivalent Government Agency Inspection
Representatives of Boeing, the FAA or any equivalent government agency may
inspect and evaluate Seller's plant including, but not limited to, Seller's and
subcontractor's facilities, systems, data, equipment, inventory holding areas,
procedures, personnel, testing, and all work-in-process and completed Products.
For purposes of this Section 8.4, equivalent government agency shall mean those
governmental agencies so designated by the FAA or those agencies within
individual countries which maintain responsibility for assuring aircraft
airworthiness.
8.5 Retention of Records
Quality Assurance records shall be maintained on file at Seller's facility and
available to FAA and Boeing's authorized representatives. Seller shall retain
such records for a period of not less than seven (7) years from the date of
final payment under the applicable Order for all Products unless otherwise
specified on the Order.
8.6 Inspection
Boeing may elect to conduct inspection on a random basis or to the extent deemed
necessary. Seller will be notified if Boeing inspection is to be conducted on
specific shipments. No shipments are to be held for Boeing inspections unless
notification is received prior to, or at the time of Products being ready for
shipment. If an Order contains a notation that "100% Source Inspection" is
required, the Products shall not be packed for shipment until they have been
submitted to Boeing's Quality Assurance representative for inspection. Both the
packing list and Seller's invoice must reflect evidence of this inspection.
8.7 Reserved
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8.8 Regulatory Approvals
Seller acknowledges that, without Parts Manufacturing Authority (PMA) or other
applicable regulatory approval granted by the FAA or appropriate non-U.S.
equivalent regulatory agency approval, it may not legally make direct sales
(does not include "direct ship" sale through Boeing) of modification or
replacement parts to owners/operators of type certificated aircraft. Seller
also agrees not to engage in any such direct sales of Products under this
Agreement without PMA or its non-U.S. equivalents. Any breach of this provision
will be deemed a material breach of this Agreement. On Seller proprietary
parts, Seller agrees to notify Boeing of application for PMA or other applicable
regulatory approval and subsequent approval or denial of same. Upon receipt of
proof of PMA or other applicable regulatory approval, Boeing may list Seller in
the Illustrated Parts Catalog as seller of that part.
9.0 EXAMINATION OF RECORDS
Seller shall maintain complete and accurate records showing the sales volume of
all Products. Such records shall support all services performed, allowances
claimed and costs incurred by Seller in the performance of each Order, including
but not limited to those factors which comprise or affect direct labor hours,
direct labor rates, material costs, burden rates and subcontracts. Such records
and other data shall be capable of verification through audit and analysis by
Boeing and be available to Boeing at Seller's facility for Boeing's examination
and audit at all reasonable times from the date of the applicable Order until
three (3) years after final payment under such Order. Seller shall provide
assistance to interpret such data if requested by Boeing. Such examination
shall provide Boeing with complete information regarding Seller's performance
for use in price negotiations with Seller relating to existing or future orders
for Products, including but not limited to negotiation of equitable adjustments
for changes and termination/obsolescence claims pursuant to GTA Section 10.0.
Boeing shall treat all information disclosed under this Section as confidential.
10.0 CHANGES
10.1 Changes Clause
Boeing's Procurement Representative may, without notice to sureties, in writing
direct changes within the general scope of this Agreement or an Order in any of
the following: (i) technical requirements and descriptions, specifications,
statement of work, drawings or designs; (ii) shipment or packing methods; (iii)
place of delivery, inspection or acceptance; (iv) reasonable adjustments in
quantities or delivery schedules or both; (v) amount of Boeing-furnished
property; and, if this contract includes services, (vi) description of services
to be performed; (vii) time of performance (i.e., hours of the day, days of the
week, etc.); and (viii) place of performance. Seller shall comply immediately
with such direction.
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If such change increases or decreases the cost or time required to perform this
contract, Boeing and Seller shall negotiate an equitable adjustment in the price
or schedule, or both, to reflect the increase or decrease. Boeing shall modify
the Order in writing accordingly. Unless otherwise agreed in writing, Seller
must assert any claim for adjustment to Boeing's Procurement Representative in
writing within 25 days and deliver a fully supported proposal to Boeing's
Procurement Representative within 60 days after Seller's receipt of such
direction. Boeing may, at its sole discretion, consider any claim regardless of
when asserted. If Seller's proposal includes the cost of property made obsolete
or excess by the change, Boeing may direct the disposition of the property.
Boeing may examine Seller's pertinent books and records to verify the amount of
Seller's claim. Failure of the parties to agree upon any adjustment shall not
excuse Seller from performing in accordance with Boeing's direction.
If Seller considers that Boeing's conduct constitutes a change, Seller shall
notify Boeing's Procurement Representative immediately in writing as to the
nature of such conduct and its effect upon Seller's performance. Pending
direction from Boeing's Procurement Representative, Seller shall take no action
to implement any such change.
10.2 Derivative Aircraft
Boeing may, but is not obligated to direct Seller within the scope of the
applicable Order and in accordance with the provisions of GTA Section 10.0 to
supply Boeing's requirements for Products for Derivative aircraft which
correspond to those Products being produced under the applicable Order.
11.0 GENERAL & INTERNATIONAL REQUIREMENTS
11.1 Language
The parties hereto have agreed that this Agreement be drafted in English only.
Where Seller resides in Quebec, Canada, les parties aux presentes tes ont
convenu de rediger ce contrat en Anglais seulement. All contractual documents
and all correspondence, invoices, notices and other documents shall be submitted
in English. Any necessary conversations shall be held in American English.
Boeing shall determine whether measurements will be in the English or Metric
system or a combination of the two systems. Seller shall not convert
measurements which Boeing has stated in an English measurement system into the
Metric system in documents furnished to Boeing.
11.2 Currency
Unless specified elsewhere herein, all prices shall be stated in and all
payments shall be made in the currency of the United States of America (U.S.
Dollars). No adjustments to any prices shall be made for changes to or
fluctuations in currency exchange rates.
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11.3 Import/Export
A. Seller shall comply with all import and export laws and regulations of
the Seller's country and of United States of America, including but not
limited to the International Traffic in Arms Regulations (ITAR) pursuant
to the Arms Export Control Act (22 U.S.C. 2778) and the Export
Administration Regulations (EAR) pursuant to the Export Administration
Act (50 U.S.C. 2401-2420). Seller acknowledges its obligations to control
access to technical data, technical assistance and equipment under US
export laws and regulations, and agrees to adhere to such laws and
regulations and any authorization(s) issued thereunder with regard to any
technical data, technical assistance or equipment supplied hereunder by
Boeing. Seller acknowledges that any technical data, technical assistance
or equipment supplied hereunder by Boeing or Boeing's Customer are
authorized by the US Government for export only to Seller's country for
use by Seller, unless otherwise previously approved by the US Government.
Seller further agrees that such technical data, technical assistance or
equipment may not be transferred, transshipped on a non-continuous
voyage, or otherwise be disposed of in any other country, either in their
original form or after being incorporated into other end-items, without
the prior written approval of the US Government.
B. Upon Boeing's request, Seller shall promptly furnish Boeing all
documentation, including but not limited to import certificates or end-
user statements from Seller or Seller's government, which is reasonably
necessary to support Boeing's application for US import or export
authorization(s). Boeing shall not be responsible for delays in US
importation or exportation of technical data, technical assistance or
equipment supplied hereunder by Boeing due to lack of necessary
documentation from Seller or Seller's country.
C. Seller shall be responsible for obtaining required import or export
approvals, including but not limited to licenses to import or export
equipment or authorizations required for Boeing to locate personnel and
furnish in-country technical assistance, from the government of the
Seller's country.
D. Upon Seller's request, Boeing shall promptly furnish Seller all
documentation, including but not limited to import certificates or end-
user statements from Boeing or Boeing's government, which is reasonably
necessary to support Seller's application for import or export
authorization(s) issued by Seller's government. Seller shall not be
responsible for delays in importation or exportation of technical data,
technical assistance or equipment supplied hereunder by Seller into or
out of Seller's country due to lack of necessary documentation from
Boeing or Boeing's country.
E. If the government of either Party denies, fails to grant or revokes any
import or export authorization(s) pursuant to this contract, that Party
shall immediately
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notify the other Party and shall not be responsible for performance under
this contract for any affected activities.
11.4. Export Licensing Information/Offshore Procurement
A. Seller shall obtain an export license pursuant to the requirements set
forth herein for any items that Seller either manufactures or
subcontracts outside the U.S or transfers to a foreign person in the
United States. If Seller is a "Foreign Person" (as defined below) the
Seller shall, upon request of Boeing's Procurement Representative and
without additional cost, provide such information as may be necessary to
support Boeing's application for export license(s) covering any items
ordered from Seller hereunder.
B. This Agreement or an Order may contain technical data. Boeing has
obtained, or will obtain, the approval of the U.S. Government to furnish
to Seller the data, and any other items hereunder requiring such
approval, which are necessary for Seller to perform the Order. U.S
Government approval is based upon the following ITAR requirements with
which Seller agrees to comply:
1. Seller shall use the technical data furnished by Boeing only in the
manufacture of the articles in accordance with the Order.
2. Seller shall not disclose or provide technical data furnished by
Boeing to any person except authorized U.S. citizens, intending
citizens, permanent resident aliens (immigrant aliens), employees
and qualified subcontractors in the same country which require the
technical data in performance of the subcontracts.
3. Seller shall not disclose or provide technical data furnished by
Boeing to any foreign person either in the U.S. or abroad unless
obtaining prior authorization directly from the U.S. Department of
State Office of Defense Trade Controls (ODTC). ITAR defines a
"foreign person" as any person who is not a U.S. citizen, permanent
resident alien, or a protected individual as defined by 8 USC
1324B(a)(3). Foreign person also means a foreign corporation
(corporation not incorporated in the U.S.), foreign government, and
any agency or subdivision of foreign governments (i.e., diplomatic
mission).
4. Seller shall not acquire any rights in the technical data furnished
by Boeing except to use it in the performance of this Order. Seller
also shall not convey to its qualified subcontractors any greater
rights in the technical data than Seller has. Seller's qualified
subcontractors shall only have the right to use the data as required
in performance of their subcontracts.
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5. Seller shall deliver the articles manufactured in accordance with the
Order only to Boeing or to the U.S. Government or other party as
Boeing's Authorized Procurement Representative may direct in writing.
6. Upon completion or termination of the Order, at Boeing's election,
Seller shall destroy or return to Boeing all technical data furnished
to Seller by Boeing pursuant to this Order and certify in writing that
Seller has complied.
7. Seller shall impose these requirements, (1) through (7), suitably
revised to identify the parties properly, on all of its subcontractors
to which Seller intends to furnish technical data provided by Boeing
for use by the subcontractors in performance of the subcontracts.
12.0 TERMINATION FOR CONVENIENCE
12.1 Basis for Termination; Notice
Boeing may, from time to time terminate all or part of any Order issued
hereunder, by written notice to Seller. Any such written notice of termination
shall specify the effective date and the extent of any such termination.
12.2 Termination Instructions
On receipt of a written notice of termination pursuant to GTA Section 12.1,
unless otherwise directed by Boeing, Seller shall:
A. Immediately stop work as specified in the notice;
B. Immediately terminate its subcontracts and purchase orders relating to
work terminated;
C. Settle any termination claims made by its subcontractors or suppliers;
provided, that Boeing shall have approved the amount of such termination
claims prior to such settlement;
D. Preserve and protect all terminated inventory and Products;
E. At Boeing's request, transfer title (to the extent not previously
transferred) and deliver to Boeing or Boeing's designee all supplies and
materials, work-in-process, Tooling and manufacturing drawings and data
produced or acquired by Seller for the performance of this Agreement and
any Order, all in accordance with the terms of such request;
F. Shall be compensated for such items to the extent provided in GTA Section
12.3 below;
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G. Take all reasonable steps required to return, or at Boeing's option and
with prior written approval to destroy, all Boeing Proprietary Information
and Items, as set forth in Section 20.0, in the possession, custody or
control of Seller;
H. Take such other action as, in Boeing's reasonable opinion, may be
necessary, and as Boeing shall direct in writing, to facilitate
termination of the Order; and
I. Complete performance of the work not terminated.
12.3 Seller's Claim
If Boeing terminates an Order in whole or in part pursuant to Section 12.1
above, Seller shall have the right to submit a written termination claim to
Boeing in accordance with the terms of this Section 12.3. Such termination
claim shall be asserted to Boeing within forty-five (45) days and all
documentation supporting said claim must be asserted not later than six (6)
months after Seller's receipt of the termination notice and shall be in the form
prescribed by Boeing. Such claim must contain sufficient detail to explain the
amount claimed, including detailed inventory schedules and a detailed breakdown
of all costs claimed separated into categories (e.g., materials, purchased
parts, finished components, labor, burden, general and administrative), and to
explain the basis for allocation of all other costs. With regard to the amount
compensatable to Seller under a termination pursuant to Section 12.1 above,
Seller shall be entitled to compensation in accordance with and to the extent
allowed under the terms of FAR 52-249-2(e)-(i), (as published in 48 CFR (S)
52.249-2 approval 1996; without Alternates) which is incorporated herein by
reference except "Government" and "Contracting Officer" shall mean Boeing,
"Contractor" shall mean Seller and "Contract" shall mean Order.
Seller shall indemnify Boeing and hold Boeing harmless from and against (i) any
and all claims, suits and proceedings against Boeing by any subcontractor or
supplier of Seller in respect of any such termination and (ii) any and all
costs, expenses, losses and damages incurred by Boeing in connection with any
such claim, suit or proceeding.
12.4 Failure to Submit a Claim
Notwithstanding any other provision of this Section 12.0, if Seller fails to
submit a termination claim within the time period set forth above, Seller shall
be barred from submitting a claim and Boeing shall have no obligation for
payment to Seller under this Section 12.0 except for those Products previously
delivered and accepted by Boeing.
12.5 Partial Termination
Any partial termination of an Order shall not alter or affect the terms and
conditions of the Order or any Order with respect to Products not terminated.
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12.6 Product Price
Termination under any of the above paragraphs shall not result in any change to
unit prices for Products not terminated.
12.7 Exclusions or Deductions
The following items shall be excluded or deducted from any claim submitted by
Seller:
A. All unliquidated advances or other payments made by Boeing to Seller
pursuant to a terminated Order;
B. Any claim which Boeing has against Seller;
C. The agreed price for scrap allowance;
D. Except for normal spoilage and any risk of loss assumed by Boeing, the
agreed fair value of property that is lost, destroyed, stolen or
damaged.
12.8 Partial Payment/Payment
Payment, if any, to be paid under this Section 12.0 shall be made thirty (30)
days after settlement between the parties or as otherwise agreed to between the
parties. Boeing may make partial payments and payments against costs incurred
by Seller for the terminated portion of the Order. If the total payments exceed
the final amount determined to be due, Seller shall repay the excess to Boeing
upon demand.
12.9 Seller's Accounting Practices
Boeing and Seller agree that Seller's "normal accounting practices" used in
developing the price of the Product(s) shall also be used in determining the
allocable costs at termination. For purposes of this Section 12.9, Seller's
"normal accounting practices" refers to Seller's method of charging costs as
either a direct charge, overhead expense, general administrative expense, etc.
12.10 Records
Unless otherwise provided in this Agreement or by law, Seller shall maintain all
financial records and documents relating to the terminated portion of the Order
for three (3) years after final settlement of Seller's termination claim.
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13.0 CANCELATION FOR DEFAULT
13.1 Events of Default
The occurrence of any one or more of the following events shall constitute an
"Event of Default".
A. Any failure by Seller to deliver, when and as required by this Agreement
or any Order, any Product, except as provided in GTA Section 14.0; or
B. Any failure by Seller to provide an acceptable Assurance of Performance
within the time specified in GTA Section 17.0, or otherwise in
accordance with applicable law; or,
C. Any failure by Seller to perform or comply with any obligation set forth
in GTA Section 20.0;
D. Seller is or has participated in the sale, purchase or manufacture of
airplane parts without the required approval of the FAA or appropriate
non-U.S. equivalent regulatory agency;
E. Boeing revokes Seller's Quality Assurance System approval, if
applicable;
F. Any failure by Seller to perform or comply with any obligation (other
than as described in the foregoing Sections (13.1.A, 13.1.B, 13.1.C,
13.1.D and 13.1.E) set forth in this Agreement and such failure shall
continue unremedied for a period of ten (10) days or more following
receipt by Seller of notice from Boeing specifying such failure; or
G. (a) the suspension, dissolution or winding-up of Seller's business, (b)
Seller's insolvency, or its inability to pay debts, or its nonpayment of
debts, as they become due, (c) the institution of reorganization,
liquidation or other such proceedings by or against Seller or the
appointment of a custodian, trustee, receiver or similar Person for
Seller's properties or business, (d) an assignment by Seller for the
benefit of its creditors, or (e) any action of Seller for the purpose of
effecting or facilitating any of the foregoing.
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13.2 Remedies
If any Event of Default shall occur:
A. Cancellation
------------
Boeing may, by giving written notice to Seller, immediately cancel this
Agreement and/or any Order, in whole or in part, and Boeing shall not be
required after such notice to accept the tender by Seller of any
Products with respect to which Boeing has elected to cancel this
Agreement.
B. Cover
-----
Boeing may manufacture, produce or provide, or may engage any other
persons to manufacture, produce or provide, any Products in substitution
for the Products to be delivered or provided by Seller hereunder with
respect to which this Agreement or any Order has been canceled. In
addition to any other remedies or damages available to Boeing hereunder
or at law or in equity, Boeing may recover from Seller the difference
between the price for each such Product and the aggregate expense,
including, without limitation, administrative and other indirect costs,
paid or incurred by Boeing to manufacture, produce or provide, or engage
other persons to manufacture, produce or provide, each such Product.
C. Rework or Repair
----------------
Where allowed by the applicable regulatory authority, Boeing or its
designee may rework or repair any Product in accordance with GTA Section
8.3;
D. Setoff
------
Boeing shall, at its option, have the right to set off against and apply
to the payment or performance of any obligation, sum or amount owing at
any time to Boeing hereunder or under any Order, all deposits, amounts
or balances held by Boeing for the account of Seller and any amounts
owed by Boeing to Seller, regardless of whether any such deposit,
amount, balance or other amount or payment is then due and owing.
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E. Tooling and other Materials
---------------------------
As partial compensation for the additional costs which Boeing will incur
as a result of the actual physical transfer of production capabilities
from Seller to Boeing or Boeing's designee, Seller shall upon the
request of Boeing, transfer and deliver to Boeing or Boeing's designee
title to any or all (i) Tooling, (ii) Boeing-furnished material, (iii)
raw materials, parts, work-in-process, incomplete or completed
assemblies, and all other Products or parts thereof in the possession or
under the effective control of Seller or any of its subcontractors (iv)
Proprietary Information and Materials of Boeing including without
limitation planning data, drawings and other Proprietary Information and
Materials relating to the design, production, maintenance, repair and
use of Tooling, in the possession or under the effective control of
Seller or any of its subcontractors, in each case free and clear of all
liens, claims or other rights of any person.
Seller shall be entitled to receive from Boeing reasonable compensation
for any item accepted by Boeing which has been transferred to Boeing
pursuant to this Section 13.2.E (except for any item the price of which
shall have been paid to Seller prior to such transfer); provided,
however, that such compensation shall not be paid directly to Seller,
but shall be accounted for as a setoff against any damages payable by
Seller to Boeing as a result of any Event of Default.
F. Remedies Generally
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No failure on the part of Boeing in exercising any right or remedy
hereunder, or as provided by law or in equity, shall impair, prejudice
or constitute a waiver of any such right or remedy, or shall be
construed as a waiver of any Event of Default or as an acquiescence
therein. No single or partial exercise of any such right or remedy shall
preclude any other or further exercise thereof or the exercise of any
other right or remedy. No acceptance of partial payment or performance
of any of Seller's obligations hereunder shall constitute a waiver of
any Event of Default or a waiver or release of payment or performance in
full by Seller of any such obligation. All rights and remedies of Boeing
hereunder and at law and in equity shall be cumulative and not mutually
exclusive and the exercise of one shall not be deemed a waiver of the
right to exercise any other. Nothing contained in this Agreement shall
be construed to limit any right or remedy of Boeing now or hereafter
existing at law or in equity.
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14.0 EXCUSABLE DELAY
If delivery of any Product is delayed by unforeseeable circumstances beyond the
control and without the fault or negligence of Seller or of its suppliers or
subcontractors (any such delay being hereinafter referred to as "Excusable
Delay"), the delivery of such Product shall be extended for a period to be
determined by Boeing after an assessment by Boeing of alternate work methods.
Excusable Delays may include, but are not limited to, acts of God, war, riots,
acts of government, fires, floods, epidemics, quarantine restrictions, freight
embargoes, strikes or unusually severe weather, but shall exclude Seller's
noncompliance with any rule, regulation or order promulgated by any governmental
agency for or with respect to environmental protection. However, the above
notwithstanding, Boeing expects Seller to continue production, recover lost time
and support all schedules as established under this Agreement or any Order.
Therefore, it is understood and agreed that (i) delays of less than two (2) days
duration shall not be considered to be Excusable Delays unless such delays shall
occur within thirty (30) days preceding the scheduled delivery date of any
Product and (ii) if delay in delivery of any Product is caused by the default of
any of Seller's subcontractors or suppliers, such delay shall not be considered
an Excusable Delay unless the supplies or services to be provided by such
subcontractor or supplier are not obtainable from other sources in sufficient
time to permit Seller to meet the applicable delivery schedules. If delivery of
any Product is delayed by any Excusable Delay for more than three (3) months,
Boeing may, without any additional extension, cancel all or part of any Order
with respect to the delayed Products, and exercise any of its remedies in
accordance with GTA Section 13.2, provided however, that Boeing shall not be
entitled to monetary damages or specific performance to the extent Seller's
breach is the result of an Excusable Delay.
15.0 SUSPENSION OF WORK
Boeing may at any time, by written order to Seller, require Seller to stop all
or any part of the work called for by this Agreement for up to one hundred
twenty (120) days hereafter referred to as a "Stop Work Order" issued pursuant
to this Section 15.0. On receipt of a Stop Work Order, Seller shall promptly
comply with its terms and take all reasonable steps to minimize the occurrence
of costs arising from the work covered by the Stop Work Order during the period
of work stoppage. Within the period covered by the Stop Work Order (including
any extension thereof) Boeing shall either (i) cancel the Stop Work Order or
(ii) terminate or cancel the work covered by the Stop Work Order in accordance
with the provisions of GTA Section 12.0 or 13.0. In the event the Stop Work
Order is canceled by Boeing or the period of the Stop Work Order (including any
extension thereof) expires, Seller shall promptly resume work in accordance with
the terms of this Agreement or any applicable Order.
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16.0 TERMINATION OR WRONGFUL CANCELLATION
Boeing shall not be liable for any loss or damage resulting from any termination
pursuant to GTA Section 12.1, except as expressly provided in GTA Section 12.3
or any cancellation under GTA Section 13.0 except to the extent that such
cancellation shall have been determined to have been wrongful, in which case
such wrongful cancellation shall be deemed a termination pursuant to GTA Section
12.1 and therefore shall be limited to the payment to Seller of the amount or
amounts identified in GTA Section 12.3.
17.0 ASSURANCE OF PERFORMANCE
A. Seller to Provide Assurance
---------------------------
If Boeing determines, at any time or from time to time, that it is not
sufficiently assured of Seller's full, timely and continuing performance
hereunder, or if for any other reason Boeing has reasonable grounds for
insecurity, Boeing may request, by notice to Seller, written assurance
(hereafter an "Assurance of Performance") with respect to any specific
matters affecting Seller's performance hereunder, that Seller is able to
perform all of its respective obligations under this Agreement when and
as specified herein. Each Assurance of Performance shall be delivered by
Seller to Boeing as promptly as possible, but in any event no later than
15 calendar days following Boeing's request therefore and each Assurance
of Performance shall be accompanied by any information, reports or other
materials, prepared by Seller, as Boeing may reasonably request. Boeing
may suspend all or any part of Boeing's performance hereunder until
Boeing receives an Assurance of Performance from Seller satisfactory in
form and substance to Boeing.
B. Meetings and Information
------------------------
Boeing may request one or more meetings with senior management or other
employees of Seller for the purpose of discussing any request by Boeing
for Assurance of Performance or any Assurance of Performance provided by
Seller. Seller shall make such persons available to meet with
representatives of Boeing as soon as may be practicable following a
request for any such meeting by Boeing and Seller shall make available
to Boeing any additional information, reports or other materials in
connection therewith as Boeing may reasonably request.
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18.0 RESPONSIBILITY FOR PROPERTY
Seller shall clearly mark, maintain an inventory of, and keep segregated or
identifiable all of Boeing's property and all property to which Boeing acquires
an interest by virtue of this Agreement. Seller assumes all risk of loss,
destruction or damage of such property while in Seller's possession, custody or
control. Upon request, Seller shall provide Boeing with adequate proof of
insurance against such risk of loss. Seller shall not use such property other
than in performance of this contract without Boeing's prior written consent.
Seller shall notify Boeing's Authorized Procurement Representative if Boeing's
property is lost, damaged or destroyed. As directed by Boeing, upon completion,
termination or cancellation of this contract, Seller shall deliver such
property, to the extent not incorporated in delivered end products, to Boeing in
good condition subject to ordinary wear and tear and normal manufacturing
losses. Nothing in this article limits Seller's use, in its direct contracts
with the Government, of property in which the Government has an interest.
19.0 LIMITATION OF SELLER'S RIGHT TO ENCUMBER ASSETS
Seller warrants to Boeing that it has good title to all inventory, work-in-
process, tooling and materials to be supplied by Seller in the performance of
its obligations under any Order ("Inventory"), and that pursuant to the
provisions of such Order, it will transfer to Boeing title to such Inventory,
whether transferred separately or as part of any Product delivered under the
Order, free of any liens, charges, encumbrances or rights of others.
20.0 PROPRIETARY INFORMATION AND ITEMS
Boeing and Seller shall each keep confidential and protect from disclosure all
(a) confidential, proprietary, and/or trade secret information; (b) tangible
items containing, conveying, or embodying such information; and (c) tooling
obtained from and/or belonging to the other in connection with this Agreement or
any Order (collectively referred to as "Proprietary Information and Materials").
Boeing and Seller shall each use Proprietary Information and Materials of the
other only in the performance of and for the purpose of this Agreement and/or
any Order. Provided, however, that despite any other obligations or
restrictions imposed by this Section 20.0, Boeing shall have the right to use,
disclose and copy Seller's Proprietary Information and Materials for the
purposes of testing, certification, use, sale, or support of any item delivered
under this Agreement, an Order, or any airplane including such an item; and any
such disclosure by Boeing shall, whenever appropriate, include a restrictive
legend suitable to the particular circumstances. The restrictions on disclosure
or use of Proprietary Information and Materials by Seller shall apply to all
materials derived by Seller or others from Boeing's Proprietary Information and
Materials.
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Upon Boeing's request at any time, and in any event upon the completion,
termination or cancellation of this Agreement, Seller shall return all of
Boeing's Proprietary Information and Materials, and all materials derived from
Boeing's Proprietary Information and Materials to Boeing unless specifically
directed otherwise in writing by Boeing. Seller shall not, without the prior
written authorization of Boeing, sell or otherwise dispose of (as scrap or
otherwise) any parts or other materials containing, conveying, embodying, or
made in accordance with or by reference to any Proprietary Information and
Materials of Boeing. Prior to disposing of such parts or materials as scrap,
Seller shall render them unusable. Boeing shall have the right to audit
Seller's compliance with this Section 20.0. Seller may disclose Proprietary
Information and Materials of Boeing to its subcontractors as required for the
performance of an Order, provided that each such subcontractor first assumes, by
written agreement, the same obligations imposed upon Seller under this Section
20.0 relating to Proprietary Informations and Materials; and Seller shall be
liable to Boeing for any breach of such obligation by such subcontractor. The
provisions of this Section 20.0 are effective in lieu of, and will apply
notwithstanding the absence of, any restrictive legends or notices applied to
Proprietary Informations and Materials; and the provisions of this Section 20.0
shall survive the performance, completion, termination or cancellation of this
Agreement or any Order. This Section 20.0 supersedes and replaces any and all
other prior agreements or understandings between the parties to the extent that
such agreements or understandings relate to Boeing's obligations relative to
confidential, proprietary, and/or trade secret information, or tangible items
containing, conveying, or embodying such information, obtained from Seller and
related to any Product, regardless of whether disclosed to the receiving party
before or after the effective date of this Agreement.
21.0 COMPLIANCE WITH LAWS
21.1 Seller's Obligation
Seller shall be responsible for complying with all laws, including, but not
limited to, any statute, rule, regulation, judgment, decree, order, or permit
applicable to its performance under this Agreement. Seller further agrees (1)
to notify Boeing of any obligation under this Agreement which is prohibited
under applicable environmental law, at the earliest opportunity but in all
events sufficiently in advance of Seller's performance of such obligation so as
to enable the identification of alternative methods of performance, and (2) to
notify Boeing at the earliest possible opportunity of any aspect of its
performance which becomes subject to additional environmental regulation or
which Seller reasonably believes will become subject to additional regulation
during the performance of this Agreement.
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21.2 Government Requirements
If any of the work to be performed under this Agreement is performed in the
United States, Seller shall, via invoice or other form satisfactory to Boeing,
certify that the Products covered by the Order were produced in compliance with
Sections 6, 7, and 12 of the Fair Labor Standards Act (29 U.S.C. 201-291), as
amended, and the regulations and orders of the U.S. Department of Labor issued
thereunder. In addition, the following Federal Acquisition Regulations are
incorporated herein by this reference except "Contractor" shall mean "Seller":
FAR 52.222-26 "Equal Opportunity"
FAR 52.222-35 "Affirmative Action for Special Disabled and Vietnam
Era Veterans"
FAR 52.222-36 "Affirmative Action for Handicapped Workers"
22.0 INTEGRITY IN PROCUREMENT
Boeing's policy is to maintain high standards of integrity in procurement.
Boeing's employees must ensure that no favorable treatment compromises their
impartiality in the procurement process. Accordingly, Boeing's employees must
strictly refrain from soliciting or accepting any payment, gift, favor or thing
of value which could improperly influence their judgment with respect to either
issuing a Order or administering this Agreement. Consistent with this policy,
Seller warrants that neither it nor any of its employees, agents or
representatives have offered or given nor will offer or give any gratuities to
Boeing's employees, agents or representatives for the purpose of securing this
contract or securing favorable treatment under this contract. Seller shall
conduct its own procurement practices and shall ensure that its suppliers
conduct their procurement practices consistent with these standards. If Seller
has reasonable grounds to believe that this policy may have been violated,
Seller shall immediately report such possible violation to the appropriate
Director of Materiel or Ethics Advisor of Boeing.
23.0 RESERVED
24.0 BOEING'S RIGHTS IN SELLER'S PATENTS, COPYRIGHTS, TRADE SECRETS, AND
TOOLING
Seller hereby grants to Boeing an irrevocable, nonexclusive, paid-up worldwide
license to practice and/or use, and license others to practice and/or use on
Boeing's behalf, all of Seller's patents, copyrights, trade secrets (including,
without limitation, designs, processes, drawings, technical data and tooling),
industrial designs, semiconductor mask works, and tooling (collectively
hereinafter referred to as "Licensed Property") related to the development,
production, maintenance or repair of Products. Boeing hereafter retains all of
the aforementioned license rights in Licensed Property, but Boeing hereby
covenants not to exercise such rights except in connection with the
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making, having made, using and selling of Products or products of the same kind
provided that such undelivered quantity of Product cannot, in Boeing's sole
determination, be reasonably obtained in the required time frame at a reasonable
price from commercially available sources (including Boeing) without the use of
Seller's Licensed Property and if one or more of the following situations occur:
A. Seller discontinues or suspends business operations or the production of
any or all of the Products;
B. Seller is acquired by or transfers any or all of its rights to
manufacture any Product to any third party, whether or not related,
without Boeing's prior written concurrence;
C. Boeing cancels this Agreement or any Order for cause pursuant to GTA
Section 13.0 herein;
D. In Boeing's judgment it becomes necessary, in order for Seller to comply
with the terms of this Agreement or any Order, for Boeing to provide
support to Seller (in the form of design, manufacturing, or on-site
personnel assistance) substantially in excess of that which Boeing
normally provides to its suppliers;
E. Seller's trustee in bankruptcy (or Seller as debtor in possession) fails
to assume this Agreement and all Orders by formal entry of an order in
the bankruptcy court within sixty (60) days after entry of an order for
relief in a bankruptcy case of the Seller, or Boeing elects to retain
its rights to Licensed Property under the bankruptcy laws;
F. Seller is at any time insolvent (whether measured under a balance sheet
test or by the failure to pay debts as they come due) or the subject of
any insolvency or debt assignment proceeding under state or
nonbankruptcy law; or
G. Seller voluntarily becomes a debtor in any case under bankruptcy law or,
in the event an involuntary bankruptcy petition is filed against Seller,
such petition is not dismissed within thirty (30) days.
As a part of the license granted under this Section 24.0, Seller shall, at the
written request of Boeing and at no additional cost to Boeing, promptly deliver
to Boeing any and all Licensed Property considered by Boeing to be necessary to
satisfy Boeing's requirements for Products and their substitutes.
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25.0 TERMINATION OF AIRPLANE PROGRAM
25.1 Program Termination
The parties acknowledge and agree that Boeing may, in its sole discretion,
terminate all or part of this Agreement, including any Order issued hereunder,
by written notice to Seller, if Boeing decides not to initiate or continue
production of a Boeing Model Airplane, by reason of Boeing's determination
that there is insufficient business basis for proceeding with such Airplane. In
the event of such a termination, Boeing shall have no liability to Seller except
as expressly provided in Section 25.2 below.
25.2 Termination Liability
In the event of a termination of an Airplane Program as described in 25.1 above,
Boeing shall have no liability whatsoever to Seller, except to the extent of (i)
any guaranteed minimum purchase, if any, as set forth in SBP Section 10.0, and
(ii) any Orders issued prior to the date of the written notice to Seller
identified in 25.1 above. Termination of such Orders shall be governed by GTA
Section 12.0 herein.
26.0 PUBLICITY
Seller will not, and will require that its subcontractors and suppliers of any
tier will not, (i) cause or permit to be released any publicity, advertisement,
news release, public announcement, or denial or confirmation of the same, in
whatever form, regarding any Order or Products, or the program to which they may
pertain, or (ii) use, or cause or permit to be used, the Boeing name or any
Boeing trademark in any form of promotion or publicity without Boeing's prior
written approval.
27.0 PROPERTY INSURANCE
27.1 Insurance
Seller shall obtain and maintain continuously in effect a property insurance
policy covering loss or destruction of or damage to all property in which Boeing
does or could have an insurable interest pursuant to this Agreement, including
but not limited to Tooling, Boeing-furnished property, raw materials, parts,
work-in-process, incomplete or completed assemblies and all other products or
parts thereof, and all drawings, specifications, data and other materials
relating to any of the foregoing in each case to the extent in the possession or
under the effective care, custody or control of Seller, in the amount of full
replacement value thereof providing protection against all perils normally
covered in an "all risk" property insurance policy (including without limitation
fire, windstorm, explosion, riot, civil commotion, aircraft, earthquake, flood
or other acts of God). Any such policy shall be with insurers reasonably
acceptable to Boeing and shall (i) provide for payment of loss thereunder to
Boeing, as loss payee, as its interests
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may appear and (ii) contain a waiver of any rights of subrogation against
Boeing, its subsidiaries, and their respective directors, officers, employees
and agents.
27.2 Certificate of Insurance
Upon written request from Boeing, Seller shall provide to Boeing's Procurement
Representative certificates of insurance reflecting full compliance with the
requirements set forth in GTA Section 27.1. Such certificates shall be kept
current and in compliance throughout the period of this Agreement and shall
provide for thirty (30) days advanced written notice to Boeing's Procurement
Representative in the event of cancellation, non-renewal or material change
adversely affecting the interests of Boeing.
27.3 Notice of Damage or Loss
Seller shall give prompt written notice to Boeing's Procurement Representative
of the occurrence of any damage or loss to any property required to be insured
herein. If any such property shall be damaged or destroyed, in whole or in
part, by an insured peril or otherwise, and if no Event of Default shall have
occurred and be continuing, then Seller may, upon written notice to Boeing,
settle, adjust, or compromise any and all such loss or damage not in excess of
Two Hundred Fifty Thousand Dollars ($250,000) in any one occurrence and Five
Hundred Thousand Dollars ($500,000) in the aggregate. Seller may settle, adjust
or compromise any other claim by Seller only after Boeing has given written
approval, which approval shall not be unreasonably withheld.
28.0 RESPONSIBILITY FOR PERFORMANCE
Seller shall be responsible for it's requirements under this Agreement and any
Order referencing this Agreement. Seller shall bear all risks of providing
adequate facilities and equipment to perform each Order in accordance with the
terms thereof. Seller shall notify and obtain approval from Boeing prior to
moving work to be performed under this Agreement between Seller's various
facilities. Seller shall include as part of its subcontracts those elements of
the Agreement, which protect Boeing's rights including but not limited to right
of entry provisions, proprietary information and rights provisions and quality
control provisions. In addition, Seller shall provide to its subcontractor's
sufficient information to clearly document that the work being performed by
Seller's subcontractor is to facilitate performance under this Agreement or any
Order. Sufficient information may include but is not limited to Order number,
GTA number or the name of Boeing's Procurement Representative.
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28.1 Subcontracting
Seller shall maintain complete and accurate records regarding all subcontracted
items and/or processes. Seller's use of subcontractors shall comply with
Seller's quality assurance system approval for said subcontractors. Unless
Boeing's prior written authorization or approval is obtained, Seller may not
purchase completed or substantially completed Products. For purposes of this
section and this section only, completed or substantially completed Products
shall not include components of assemblies or subassemblies. No subcontracting
by Seller shall relieve Seller of its obligation under the applicable Order.
No non-domestic metallic raw materials, composite materials or products,
aircraft bearings or designated fasteners, or special processing may be
incorporated in a Product unless: (a) Seller uses an approved source identified
in the applicable specification or set forth in Boeing Document D1-4426 or (b)
Boeing has surveyed and qualified Seller's receiving inspection personnel and
laboratories to test the specified raw materials and/or material process. No
waiver of survey and qualification requirements will be effective unless granted
by Boeing's Engineering and Quality Assurance departments. Utilization of a
Boeing-approved source does not constitute a waiver of Seller's responsibility
to meet all specification requirements.
28.2 Reliance
Boeing's entering into this Agreement is in part based upon Boeing's reliance on
Seller's ability, expertise and awareness of the intended use of the Products.
Seller agrees that Boeing and Boeing's customers may rely on Seller as an
expert, and Seller will not deny any responsibility or obligation hereunder to
Boeing or Boeing's customers on the grounds that Boeing or Boeing's customers
provided recommendations or assistance in any phase of the work involved in
producing or supporting the Products, including but not limited to Boeing's
acceptance of specifications, test data or the Products.
28.3 Assignment
Seller shall not assign any of its rights or interest in this Agreement or any
Order, or subcontract all or substantially all of its performance of this
Agreement or any Order, without Boeing's prior written consent. Seller shall
not delegate any of its duties or obligations under this Agreement. No
assignment, delegation or subcontracting by Seller, with or without Boeing's
consent, shall relieve Seller of any of its obligations under this Agreement.
This article does not limit Seller's ability to purchase standard commercial
supplies or raw materials. Seller may assign its right to monies due or to
become due provided that Boeing may recoup or setoff any amounts covered by any
such assignment against any indebtedness of Seller to Boeing, whether arising
before or after the date of the assignment or the date of this Agreement, and
whether arising out of any such Order or any other agreement between the
parties.
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The prohibition set forth in this Section 28.3 includes, without limitation (and
the following shall be deemed to be "assignments"): (i) a consolidation or
merger of Seller; (ii) a change in the ownership or voting rights of more than
fifty percent (50%) of the issued and outstanding stock of any corporate Seller;
(iii) any assignment or transfer which would otherwise occur by operation of
law, merger, consolidation, reorganization, transfer or other significant change
in corporate or proprietary structure; (iv) the sale, assignment or transfer of
all or substantially all of the assets of Seller; and (v) where Seller is a
partnership, a change in control in such partnership.
29.0 NON-WAIVER/PARTIAL INVALIDITY
Any failures, delays or forbearances of Boeing in insisting upon or enforcing
any provisions of this contract, or in exercising any rights or remedies under
this contract, shall not be construed as a waiver or relinquishment of any such
provisions, rights or remedies; rather, the same shall remain in full force and
effect. If any provision of this contract is or becomes void or unenforceable
by law, the remainder shall be valid and enforceable.
30.0 HEADINGS
Section headings used in this Agreement are for convenient reference only and do
not affect the interpretation of the Agreement.
31.0 RESERVED
32.0 RESERVED
33.0 DISPUTES
Any dispute that arises under or is related to this Agreement that cannot be
settled by mutual agreement of the parties may be decided by a court of
competent jurisdiction. Pending final resolution of any dispute, Seller shall
proceed with performance of this Agreement according to Boeing's instructions so
long as Boeing continues to pay amounts not in dispute.
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34.0 LIMITATION
Seller may not (except to provide an inventory of Products to support delivery
acceleration and to satisfy reasonable replacement and Spares requirements)
manufacture or fabricate Products or procure any goods in advance of the
reasonable flow time required to comply with the delivery schedule in the
applicable Order except as otherwise expressly authorized in writing by Boeing.
Notwithstanding any other provision of an Order, Seller is not entitled to any
equitable adjustment or other modification of such Order for any manufacture,
fabrication, or procurement of Products not in conformity with the requirements
of the Order, unless Boeing's written consent has first been obtained. Nothing
in this Section 34.0 shall be construed as relieving Seller of any of its
obligations under the Order.
35.0 TAXES
35.1 Inclusion of Taxes in Price
Unless this Agreement or a Special Business Provisions, or Order issued under
this Agreement specifies otherwise, the price of this contract includes, and
Seller is liable for and shall pay, all taxes, impositions, charges and
exactions imposed on or measured by this Agreement and the Orders issued
hereunder, except for sales or use taxes on sales to Boeing ("Sales Taxes") for
which Boeing specifically agrees to pay and which are separately stated on
Seller's invoice. Prices shall not include any taxes, impositions, charges or
exactions for which Boeing has furnished a valid exemption certificate or other
evidence of exemption.
35.2 Litigation
In the event that any taxing authority has claimed or does claim payment for
Sales Taxes, Seller shall promptly notify Boeing, and Seller shall take such
action as Boeing may direct to pay or protest such taxes or to defend against
such claim. The actual and direct expenses, without the addition of profit and
overhead, of such defense and the amount of such taxes as ultimately determined
as due and payable shall be paid directly by Boeing or reimbursed to Seller. If
Seller or Boeing is successful in defending such claim, the amount of such taxes
recovered by Seller, which had previously been paid by Seller and reimbursed by
Boeing or paid directly by Boeing, shall be immediately refunded to Boeing.
35.3 Rebates
If any taxes paid by Boeing are subject to rebate or reimbursement, Seller shall
take the necessary actions to secure such rebates or reimbursement and shall
promptly refund to Boeing any amount recovered.
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36.0 FOREIGN PROCUREMENT OFFSET
To the exclusion of all others, Boeing or its assignee shall be entitled to all
industrial benefits or offset credits which might result from this Agreement or
Order. Seller shall provide documentation or information which Boeing or its
assignee may reasonably request to substantiate claims for industrial benefits
or offset credits. Seller agrees to use reasonable efforts to identify the
foreign content of goods which Seller either produces itself or procures from
other companies for work directly related to this Agreement. Promptly after
selection of a foreign subcontractor for work under this Agreement, Seller shall
notify Boeing of the name, address, subcontract point of contact (including
telephone number) and dollar value of the subcontract.
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EXECUTED in duplicate as of the date and year first written above by the duly
authorized representatives of the parties.
BOEING SELLER
THE BOEING COMPANY Pacific Aerospace & Electronics, Inc
By and Through the U.S. Aerospace Group
Boeing Commercial Airplane Group European Aerospace Group
/s/ Bonnie Frederick /s/ Werner Hafelfinger
- -------------------------------- --------------------------------------
Name: Bonnie Frederick Name: Werner Hafelfinger
Title: Prime Procurement Agent Title: Vice President Operations
Date: 12/20/99 Date: 12/20/99
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EXHIBIT 10.28
POP-BTP
SPECIAL BUSINESS PROVISIONS
between
THE BOEING COMPANY
and
Pacific Aerospace & Electronics, Inc
U.S. Aerospace Group
European Aerospace Group
POP-65323-0519
<PAGE>
[LOGO OF BOEING]
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
TITLE PAGE
TABLE OF CONTENTS
AMENDMENT PAGE
RECITAL PAGE
<C> <S> <C>
1.0 DEFINITIONS........................................................................... 7
2.0 CONTRACT FORMATION.................................................................... 7
2.1 Order........................................................................... 7
2.2 Entire Agreement................................................................ 7
2.3 Incorporated by Reference....................................................... 7
2.4 Order of Precedence............................................................. 8
3.0 PERIOD OF PERFORMANCE AND PRICES...................................................... 9
3.1 Performance..................................................................... 9
3.1.1 Period of Performance................................................... 9
3.2 Pricing......................................................................... 9
3.2.1 Product Pricing......................................................... 9
3.2.2 Manufacturing Configuration............................................. 9
3.2.3 Packaging............................................................... 9
4.0 GOVERNING QUALITY ASSURANCE REQUIREMENTS.............................................. 9
5.0 APPLICABLE LAW........................................................................ 10
6.0 PRODUCT SUPPORT AND ASSURANCE......................................................... 10
6.1 Warranty.................................................................. 10
7.0 PAYMENT............................................................................... 10
7.1 Recurring Price........................................................... 10
7.2 Non-Recurring Price/Special Charges....................................... 11
8.0 ACCELERATION/DECELERATION AT NO COST.................................................. 11
9.0 NOTICES............................................................................... 11
9.1 Addresses................................................................. 11
10.0 OBLIGATION TO PURCHASE AND SELL...................................................... 11
11.0 COST AND PERFORMANCE VISIBILITY...................................................... 12
12.0 CHANGE PROVISIONS.................................................................... 13
12.1 Reserved................................................................. 13
12.2 Computation of Equitable Adjustment...................................... 13
12.3 Obsolescence............................................................. 13
12.4 Change Absorption (Non-recurring/Recurring).............................. 13
</TABLE>
2
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<TABLE>
<S> <C> <C>
12.4.1 Prior to 100% Engineering Release (Drawing Revision Level New)... 13
12.4.2 Subsequent to 100% Engineering Release........................... 14
12.5 Planning Schedule........................................................ 14
12.6 Supplier Cost Reduction Initiatives...................................... 14
12.6.1 Continuous Cost Improvement Process............................. 14
12.6.2 Continuous Improvement Initiatives.............................. 15
12.6.2.1 Submission of Cost Reduction Proposal......................... 15
12.6.2.2 Acceptance and Cost Sharing................................... 16
12.7 Reduction in Quantity to be Delivered.................................... 16
12.8 Critical Manufacturing Reorder Lead-Time................................. 16
13.0 SPARES AND OTHER PRICING............................................................. 16
13.1 Spares................................................................... 16
13.1.1 Spares Support.................................................. 17
13.1.2 Reclassification or Re-exercises................................ 18
13.1.3 Spare Pricing................................................... 18
13.1.3.1 Aircraft On Ground (AOG), Critical Spares and POA Requirement.... 18
13.1.3.2 Expedite Spare (Class 1)......................................... 18
13.1.4 Spares Special Handling.......................................... 18
13.2 Expedite of Production Requirements...................................... 19
13.3 Tooling.................................................................. 19
13.3.1 Responsible Party................................................ 19
13.3.2 Boeing Furnished Tooling......................................... 19
13.4 Pricing of Boeing's Supporting Requirements.............................. 19
13.5 Pricing of Requirements for Modification or Retrofit..................... 20
13.6 Pricing of Similar Products.............................................. 20
14.0 STATUS REPORTS/REVIEWS............................................................... 20
15.0 INTERNATIONAL COOPERATION............................................................ 20
15.1 Market Access and Sales Support.......................................... 20
15.2 Offset Assistance........................................................ 21
6.0 BOEING FURNISHED MATERIAL/SUPPLIER BANKED MATERIAL................................... 21
17.0 PARTICIPATION........................................................................ 21
17.1 Other Boeing Entities.................................................... 21
17.2 Boeing Subcontractors/Suppliers.......................................... 22
17.3 Notification of Contract................................................. 22
17.4 Notification of Price Reductions......................................... 22
18.0 INVENTORY AT CONTRACT COMPLETION..................................................... 22
19.0 OWNERSHIP OF INTELLECTUAL PROPERTY................................................... 23
19.1 Technical Work Product................................................... 23
</TABLE>
3
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<TABLE>
<S> <C> <C>
19.2 Inventions and Patents................................................... 23
19.3 Works of Authorship and Copyrights....................................... 23
19.4 Pre-Existing Inventions and Works of Authorship.......................... 23
19.5 Inapplicability.......................................................... 23
20.0 ADMINISTRATIVE AGREEMENTS............................................................ 23
21.0 GUARANTEED WEIGHT REQUIREMENTS....................................................... 23
22.0 SELLER DATA REQUIREMENTS............................................................. 23
23.0 DEFERRED PAYMENT..................................................................... 23
24.0 SOFTWARE PROPRIETARY INFORMATION RIGHTS.............................................. 23
25.0 CONFIGURATION CONTROL................................................................ 24
26.0 INFRINGEMENT......................................................................... 24
27.0 RAW MATERIAL PROGRAM................................................................. 24
Signature Page
</TABLE>
Attachment 1 Work Statement and Pricing
Attachment 1A Continuous Cost Improvement Goals
Attachment 2 Foreign Procurement Report
Attachment 3 Rates and Factors
Attachment 4 Boeing AOG Coverage
Attachment 5 Boeing AOG/Critical Shipping Notification
Attachment 6 RESERVED
Attachment 7 RESERVED
Attachment 8 Commodity Listing and Terms of Sale
Attachment 9 Cost and Performance Reviews
Attachment 10 Quality Assurance Requirements
4
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AMENDMENTS
----------
<TABLE>
<CAPTION>
Amend Description Date Approval
Number
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Attachment 1C changed wording for (1) 1-5-00
- --------------------------------------------------------------------------------
</TABLE>
[LOGO OF BOEING]
ATTACHMENT 1C
AUBURN - AEROMET AMERICA CASTING DIVISION
Confidential material has been intentionally omitted at this point pursuant
to a request for confidential treatment, and such material has been filed
separately with the Securities and Exchange Commission.
5
<PAGE>
SPECIAL BUSINESS PROVISIONS
---------------------------
THESE SPECIAL BUSINESS PROVISIONS (SBP) are entered into as of December 20, 1999
by and between Pacific Aerospace & Electronics, Inc, a Washington corporation
with its principal office in Wenatchee, WA ("Seller"), and The Boeing Company, a
Delaware corporation acting by and through its Boeing Commercial Airplane
Group, Boeing North American, Incorporated, a Delaware corporation, McDonnell
Douglas Corporation, a Maryland corporation, and Boeing-Oak Ridge Company, a
Delaware corporation (collectively and individually "Boeing").
RECITALS
--------
A. Boeing and Seller entered into a General Terms Agreement ("GTA") for the
sale by Seller and purchase by Boeing of Products.
B. Boeing and Seller desire to enter into these Special Business Provisions
("SBP") relating to the sale by Seller and purchase by Boeing of Products.
Now, therefore, in consideration of the mutual covenants set forth herein, the
parties agree as follows:
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SPECIAL BUSINESS PROVISIONS
---------------------------
1.0 DEFINITIONS
The definitions used herein are the same as used in the GTA.
2.0 CONTRACT FORMATION
2.1 Order
Any Order to which these SBP shall apply shall include a statement incorporating
this SBP by reference.
Each Order incorporating this SBP by any method listed above will be governed by
and be deemed to include the provisions of this SBP.
2.2 Entire Agreement
The Order sets forth the entire agreement, and supersedes any and all other
prior agreements understandings and communications between Boeing and Seller
related to the subject matter of an Order. The rights and remedies afforded to
Boeing or Customers pursuant to any provisions of an Order are in addition to
any other rights and remedies afforded by any other provisions of this Order, by
law or otherwise.
2.3 Incorporated by Reference
General Terms Agreement ("GTA") BCA-65323-0458 dated December 20, 1999 (the
"Agreement") is incorporated in and made a part of this SBP by this reference.
In addition to any other documents incorporated elsewhere in this SBP or GTA by
reference, the following documents are incorporated in and made a part of this
SBP by reference with full force and effect, as if set out in full text.
PUGET SOUND
- -----------
Boeing Document D33200 "Boeing Suppliers' Tooling Document"
Boeing Document D953W001, "General Operations Requirements Document For
Suppliers - External/Internal Suppliers/Program Partners"
Boeing Document M6-1025 Volume II, "Supplier Part Protection Guide"
Boeing Document D6-81628, "Shipping Label, Barcoded Preparation and Placement"
WICHITA
- -------
Boeing Document D33200 "Boeing Suppliers' Tooling Document"
7
<PAGE>
Boeing Document D953W001, "General Operations Requirements Document For
Suppliers - External/internal Suppliers/Program Partners"
Boeing Document M6-1025 Volume II, "Supplier Part Protection Guide"
Boeing Document D6-81628, "Shipping Label, Barcoded Preparation and Placement"
2.4 Order of Precedence
In the event of a conflict or inconsistency between any of the terms of the
following documents, the following order of precedence shall control:
A. These Special Business Provisions ("SBP") (excluding all documents
listed below), then
B. General Terms Agreement ("GTA") (excluding all documents listed
elsewhere on this listing), then
C. Purchase Contract, if any, then
D. Order (excluding all documents listed elsewhere on this listing), then
E. The Design Change Transmittal, or the Flysheet 9, if any, then
F. The Subcontracted Parts - Revision, Authorization, and Transmittal
("SPRAT"), if any, then
G. Engineering Drawing by Part Number and, if applicable, related Outside
Production, Specification Plan (OPSP), Specification Plan Detail (SPCD)
or Supplier Specification Plan (SSP) then
H. All documents incorporated by reference in Attachment 10, Quality
Assurance Requirement, of this SBP, and Document D1-4426 which is
incorporated by reference by clause 28.1 of the GTA, then
I. All documents incorporated by reference in Section 6.0, Product Support
and Assurance, of this SBP, then
J. Administrative Agreement, if any, then
K. Any other Boeing generated exhibits, attachments, forms, flysheets,
codes or documents the parties agree shall be part of the Agreement,
then lastly
L. Any Seller generated documents the parties agree shall be part of the
Agreement.
In resolving any such conflicts, these documents shall be read as a whole and in
a manner most likely to accomplish its purposes.
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<PAGE>
Seller shall promptly report to Boeing in writing any inconsistencies in these
documents, even if the inconsistency is resolvable using the above rules.
3.0 PERIOD OF PERFORMANCE AND PRICES
3.1 Performance
3.1.1 Period of Performance
Except as otherwise provided below, the period of performance for this SBP shall
be for delivery of Products beginning on January 1, 2000 and ending on December
31, 2004.
3.2 Pricing
3.2.1 Product Pricing
The prices of Products ordered under this SBP are set forth in Attachment 1.
Prices are in United States Dollars. F.O.B. point is as follows: Seller's
Plant.
3.2.2 Manufacturing Configuration
Unit pricing for each Product or part number shown in Attachment 1 is based on
the latest revisions of the engineering drawings or specifications at the time
of the signing of this SBP.
3.2.3 Packaging
The prices shown in Attachment 1 include all packaging costs. Seller shall
package Product in accordance with the applicable requirements set forth in SBP
Section 2.3 for the location issuing the Order. In the case of Products to be
shipped directly to Customers, A.T.A. Specification 300 "Specification for
Packaging of Airline Supplies" shall apply unless otherwise directed by Boeing.
4.0 GOVERNING QUALITY ASSURANCE REQUIREMENTS
In addition to those general quality assurance requirements set forth in GTA,
the work performed under this SBP shall be in accordance with the requirements
set forth in Attachment 10.
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5.0 APPLICABLE LAW
This contract shall be governed by the laws of the State of Washington. No
consideration shall be given to Washington's conflict of law rules. This
contract excludes the application of the 1980 United Nations Convention on
Contracts for the International Sale of Goods. Seller hereby irrevocable
consents to and submits itself exclusively to the jurisdiction of the applicable
courts of King County Washington and the federal courts of Washington State for
the purpose of any suit, action or other judicial proceeding arising out of or
connected with any Order or the performance or subject matter thereof. Seller
hereby waives and agrees not to assert by way of motion, as a defense, or
otherwise, in any such suit, action or proceeding, any claim that (a) Seller is
not personally subject to the jurisdiction of the above-named courts, (b) the
suit, action or proceeding is brought in an inconvenient forum or (c) the venue
of the suit, action or proceeding is improper.
6.0 PRODUCT SUPPORT AND ASSURANCE
6.1 Warranty
Seller acknowledges that Boeing and Customers must be able to rely on each
Product performing as specified and that Seller will provide all required
support. Accordingly, the following provisions, including documents, if any,
set forth below are incorporated herein and made a part hereof:
"Boeing Designed, Sub-Contracted Products Manufacturers Warranty" Boeing
- ------------------------------------------------------------------------
Document M6-1124-3,
- -------------------
Boeing may choose initially not to extend the Seller's full warranty of Product
to Customers. This action shall in no way relieve Seller of any obligation set
forth in the warranty documents listed above. Boeing, at its sole discretion,
may extend Seller's full warranty of Product to its Customers at any time.
Furthermore, Seller agrees to support the Product as long as any aircraft using
or supported by the Product remains in service.
7.0 PAYMENT
7.1 Recurring Price
Unless otherwise provided under the applicable Order or written agreement
between the parties, payment shall be net thirty (30) calendar days.
Except as otherwise provided on applicable Order identifying Pay-From Receipt,
payment due dates, including discount periods, shall be computed from (a) the
date of receipt of the Product, (b) the date of receipt of a correct (proper)
invoice or (c) the scheduled delivery date of such Product, whichever is last.
Unless freight and other charges are itemized, any discount shall be taken on
the full amount of the invoice. All payments are subject to adjustment for
shortages, credits and rejections.
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7.2 Non-Recurring Price/Special Charges
Unless otherwise provided in the applicable Order, any non-recurring price
payable by Boeing under Attachment 1 will be paid within the term discount
period or thirty (30) calendar days (whichever is later) after receipt by Boeing
of both acceptable Products and a correct invoice and where required, a
completed certified tool list (CTL).
8.0 ACCELERATION/DECELERATION AT NO COST
Notwithstanding GTA Section 10.0, Boeing may revise the delivery schedule
without additional cost or change to the unit price stated in the applicable
Order if (a) the delivery date of the Product under such Order is on or before
the last date of contract, if applicable, and (b) Boeing provides Seller with
written notice of such changes.
9.0 NOTICES
9.1 Addresses
For all matters requiring the approval or consent of either party, such approval
or consent shall be requested in writing and is not effective until given in
writing. With respect to Boeing, authority to grant approval or consent is
limited to Boeing's Procurement Representative. Notices and other communications
shall be given in writing by personal delivery, United States mail, express
delivery, facsimile, or electronic transmission addressed to the respective
party as follows:
To Boeing: Attention: Bonnie Frederick Mail Code: 38-KX
BOEING COMMERCIAL AIRPLANE GROUP
MATERIEL DIVISION
P.O. Box 3707
Seattle, Washington 98124-2207
To Seller: Attention: Werner Hafelfinger
Pacific Aerospace & Electronics, Inc
U.S. Aerospace Group
European Aerospace Group
430 Olds Station Rd
Wenatchee, WA 98801
10.0 OBLIGATION TO PURCHASE AND SELL
Boeing and Seller agree that in consideration of the prices set forth under
Attachment 1, Boeing shall issue Orders for Products from time to time to Seller
for all Boeing's requirements. Such Products shall be shipped at any scheduled
rate of delivery, as determined by Boeing, and Seller shall sell to Boeing
Boeing's requirements of such Products, provided that, without limitation on
Boeing's right to determine its
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<PAGE>
requirements, Boeing shall not be obligated to issue any Orders for any given
Product if:
A. Any of Boeing's customers specifies an alternate product;
B. Such Product is, in Boeing's reasonable judgment, not technologically
competitive at any time, for reasons including but not limited to the
availability of significant changes in technology, design, materials,
specifications, or manufacturing processes which result in a reduced
price or weight or improved appearance, functionality, maintainability
or reliability;
C. Boeing gives reasonable notice to Seller of a change in any of Boeing's
aircraft which will result in Boeing no longer requiring such Product
for such aircraft;
D. Seller has materially defaulted in any of its obligations under any
Order, whether or not Boeing has issued a notice of default to Seller
pursuant to GTA Section 13.0; or,
E. Boeing reasonably determines that Seller cannot support Boeing's
requirements for Products in the amounts and within the delivery
schedules Boeing requires.
F. For the Products specifically designated as applicable to this clause
in Attachment 1, Boeing gives at least ninety (90) days notice to
Seller of Boeing's decision to manufacture the Products itself rather
than purchase the Products from Seller.
For purposes of this Section 10.0, Boeing is defined as those organizations,
divisions, groups or entities set forth specifically in Attachment 1.
Seller represents and warrants to Boeing that discounts offered fairly reflect
manufacturing, selling, or delivery cost savings resulting from this quantity
sale and that such discounts are reasonably available to all other purchasers.
11.0 COST AND PERFORMANCE VISIBILITY
When requested by Boeing, Seller shall provide all necessary cost support data,
source documents for direct and indirect costs, and assistance at the Seller's
facility in support of cost and performance reviews performed by the parties
pursuant to cost reduction initiatives as set forth in SBP Section 12.6.
The Cost and Performance Review (CPR) process is the tool which the parties will
use to measure Seller's performance to the goals and objectives of Boeing as set
forth in SBP Section 12.6. Boeing and Seller shall implement a structured
process called CPR to review and identify areas, processes and strategies to
improve, reduce or eliminate which will result in the desired effect of reducing
costs and/or improving cycle times for the Product(s) set forth in this SBP.
The CPR process will address those activities which are a direct result of both
parties involvement. Seller will provide the resources
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<PAGE>
and data sufficient to support the CPR process in accordance with the structure
set forth in Attachment 9.
12.0 CHANGE PROVISIONS
12.1 Reserved
12.2 Computation of Equitable Adjustment
The Rates and Factors set forth in Attachment 3, which by this reference is
incorporated herein, shall be used to determine the equitable adjustment, if
any, (including equitable adjustments, if any, in the prices of Products to be
incorporated in Derivative Aircraft), to be paid by Boeing pursuant GTA Section
10.0 for each individual change.
12.3 Obsolescence
Seller may not submit a claim for obsolete material or Product resulting from an
individual change order that has a total claim value of Two Thousand Five
Hundred Dollars $2,500.00 or less.
12.4 Change Absorption (Non-recurring/Recurring)
12.4.1 Prior to 100% Engineering Release (Drawing Revision Level New)
Notwithstanding the provisions of GTA Section 10.0, no equitable adjustment in
the prices or schedules of any Order shall be made for any change initiated by
Boeing made prior to the date on which all engineering drawings that change the
technical requirements, descriptions, specifications, statement of work, drawing
or designs ("Technical Change(s)") have been released by Boeing ("100%
Engineering Release") provided, that an equitable adjustment shall be made for:
A. Any Technical Change which is a change between raw material
-------
classifications such as a change from aluminum to steel or titanium to
plastic. Not included as a Technical Change for purposes of this
Section are changes within a raw material classification such as a
------
change from 7050 Aluminum to 7075 Aluminum;
B. Any Technical Change which adds or deletes a process specification
including but not limited to chem milling, chrome plating, anodizing,
painting, priming and heat treating.
Claims for equitable adjustment for Technical Changes shall be submitted in
writing within thirty (30) days after 100% Engineering Release.
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12.4.2 Subsequent to 100% Engineering Release
Notwithstanding the provisions of GTA Section 10.0, no equitable adjustment
shall be made to the recurring or non-recurring prices after the date of 100%
Engineering Release for any change initiated by Boeing unless the value of such
change (debit or credit) is greater than or equal to two percent (2%) of the
then current unit price for the Product (recurring) or is greater than or equal
to two percent (2%) of the total then current nonrecurring price as set forth in
Attachment 1. For purposes of this Section, the then current unit price or
total nonrecurring price shall be the price identified in Attachment 1 plus any
and all price adjustments agreed to previously by the parties.
Claims shall be made individually for each Product and for each change. Each
claim shall be considered separately for application of the two percent (2%)
threshold. Changes may not be combined for the purposes of exceeding the two
percent (2%) threshold set forth herein.
12.5 Planning Schedule
Any planning schedule, forecast, or any such quantity estimate provided by
Boeing shall be used solely for production planning. Boeing may purchase
Products in different quantities and specify different delivery dates as
necessary to meet Boeing's requirements. Any such estimate shall be subject to
adjustment from time to time, and such adjustment shall not constitute a change
under GTA Section 10.0 nor a termination under GTA Section 12.0.
12.6 Supplier Cost Reduction Initiatives
12.6.1 Continuous Cost Improvement Process
The timely implementation of the Continuous Cost Improvement Process (CCIP) is a
material duty of the Seller. The CCIP is an ongoing, year-after-year plan to
achieve cost reductions. The goal is to work together to reduce prices, while
maintaining or improving market share, margins, profits, and quality levels, and
meeting schedule and other contractual requirements. The implementation of the
CCIP requires establishing cost improvement targets, developing and agreeing on
a cost improvement plan, implementation of the plan by the Seller, regular
review and status reporting with the Procurement Representative, appropriate
support from the Procurement Representative, and corrective action as necessary
to meet the cost improvement targets.
Boeing may assist Seller in this effort in the areas such as Lean Manufacturing,
Advanced Quality System, the Accelerated Improvement Workshop (AIW), value
engineering and other initiatives. Seller is not limited to the Boeing
initiatives and may implement any improvement consistent with the requirements
of the orders.
Boeing and Seller agree to establish CCIP target price reductions, and delivery
and quality performance goals, on or before December 1 of each year for the
period of
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performance of this SBP. Said target price reductions; delivery and quality
performance goals shall be set out in Attachment 1A, "Continuous Cost
Improvement Goals".
12.6.2 Continuous Improvement Initiatives
Boeing and Seller agree to work together to identify continuous improvement
initiatives which:
A. Affect the manufacturing and assembly process at Seller's facilities
and Seller's subcontractor facilities;
B. Reduce Boeing's product weight without impairing any essential
functions or characteristics of the product;
C. Decrease Seller's costs or produce a net reduction in the cost to
Boeing of installation, operation, maintenance or production of the
Product; and/or improve producibility, reliability, expected life, or
maintainability of the product.
Proposed changes shall not impair any essential functions or characteristics of
the Products or Tooling.
12.6.2.1 Submission of Cost Reduction Proposal
Proposals shall be submitted to Boeing's Procurement Representative. Boeing
shall not be liable for any delay in acting upon a proposal. Boeing's decision
to accept, postpone, or reject any proposal shall be final. If there is a delay
and the net result in savings no longer justifies the investment, Boeing and
Seller will not be obligated to proceed with the initiative. Seller has the
right to withdraw, in whole or in part, any proposal not accepted by Boeing
within the time period specified in Seller's proposal. Seller shall submit, as
a minimum, the following information with the proposal:
A. Description of the difference between the existing requirement and the
proposed change and the comparative advantage and disadvantages of
each;
B. The specific requirements which must be changed if the proposal is
adopted;
C. The cost savings and Seller's implementation costs;
D. An implementation schedule, including need dates for any Boeing actions
and the time by which a proposal must be approved so as to obtain the
maximum cost reduction.
Seller shall include with each proposal verifiable cost records and other data
as required by Boeing for proposal review and analysis. Each party shall be
responsible for its own implementation costs.
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12.6.2.2 Acceptance and Cost Sharing
Boeing may accept, in whole or in part, any continuous improvement initiative
proposal by issuing a change order. Until such change has been issued, Boeing
and Seller shall remain obligated to perform in accordance with the terms and
requirements of the Order. Where Boeing and Seller identify areas of
improvement, beyond those previously anticipated, identified and documented in
the contract price, the parties will determine the amount of savings which will
result from the improvements and share the savings. Where a saving is
identified and documented, the parties agree to reduce the Product unit price.
Seller suggestions disapproved by Boeing may be given due consideration in
achievement of cost reduction goals.
12.7 Reduction in Quantity to be Delivered
NOT APPLICABLE
12.8 Critical Manufacturing Reorder Lead-Time
Critical Manufacturing Reorder Lead-time (CMROLT) shall be identified in
Attachment 1 by part number for the items listed herein. As defined in this
SBP, Critical Manufacturing Reorder Lead-time shall include administrative and
manufacturing (including queue, setup, run and move) lead times. CMROLT is the
minimum number of calendar days prior to delivery date, that Boeing can issue a
purchase order release for a line delivery quantity against a Purchase Contract.
The CMROLT defined herein shall be fixed and guaranteed by the Seller, and may
only be revised upon written notice to the Boeing contract Administrator.
Seller shall not manufacture or fabricate items in advance of the CMROLT
required to comply with the delivery schedule of any subsequent Purchase
Order(s). Notwithstanding any other provision of this SBP, Seller is not
entitled to any equitable adjustment or other modification of any Purchase
Order(s) for any manufacture, fabrication or procurement of products not in
conformity with the requirement so this SBP without first obtaining written
consent o the contract Administrator. Nothing in this Clause shall be construed
as relieving Seller of any of its obligations under this SBP or any subsequent
Purchase Contract(s) and/or Order(s).
13.0 SPARES AND OTHER PRICING
13.1 Spares
For purposes of this Section, the following definitions shall apply:
A. AIRCRAFT ON GROUND (AOG) - means the highest Spares priority. Seller
will expend best efforts to provide the earliest possible shipment of
any Spare designated AOG by Boeing. Such effort includes but is not
limited to working
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twenty-four (24) hours a day, seven days a week and use of premium
transportation. Seller shall specify the delivery date of any such AOG
Spare within two (2) hours of receipt of an AOG Spare request.
B. CRITICAL - means an imminent AOG work stoppage. Seller will expend best
efforts to provide the earliest possible shipment of any Spare
designated Critical by Boeing. Such effort includes but is not limited
to working two (2) shifts a day, five (5) days a week and use of
premium transportation. Seller shall specify the delivery date of any
such Critical Spare within the same working day of receipt of a
Critical Spare request.
C. EXPEDITE (CLASS I) - means a Spare required in less than Seller's
normal leadtime. Seller will expend best efforts to meet the requested
shipment date. Such effort includes but is not limited to working
overtime and use of premium transportation.
D. ROUTINE (CLASS III) - means a Spare required in Seller's normal
leadtime.
E. POA REQUIREMENT (POA) - means any detail component needed to replace a
component on an End Item Assembly currently in Boeing's assembly line
process. Seller shall expend best efforts to provide the earliest
possible delivery of any Spare designated as POA by Boeing. Such effort
includes but is not limited to working twenty-four (24) hours a day,
seven days a week and use of premium transportation. Seller shall
specify the delivery date of any such POA within two (2) hours of a POA
request.
F. IN-PRODUCTION - means any Spare with a designation of AOG, Critical,
Expedite, Routine, POA or End Item Assembly which is in the current
engineering configuration for the Product and is used on a model
aircraft currently being manufactured by Boeing.
G. NON-PRODUCTION REQUIREMENTS - means any Spare with a designation of
AOG, Critical, Expedite and Routine requirements which is used on model
aircraft no longer being manufactured by Boeing (Post Production) or is
in a non-current engineering configuration for the Product (Out of
Production).
H. BOEING PROPRIETARY SPARE - means any Spare which is manufactured (i) by
Boeing, or (ii) to Boeing's detailed designs with Boeing's
authorization or (iii) in whole or in part using Boeing's Proprietary
Materials.
13.1.1 Spares Support
Seller shall provide Boeing with a written Spares support process describing
Seller's plan for supporting AOG and Critical commitments and manufacturing
support. The process must provide Boeing with the name and number of a twenty-
four (24) hour contact for coordination of AOG, Critical requirements. Such
contact shall be equivalent to the coverage provided by Boeing to its Customers
as outlined in Attachment 4 "Boeing AOG Coverage".
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Seller shall notify Boeing as soon as possible via fax, telecon, or as otherwise
agreed to by the parties of each AOG and Critical requirement shipment using the
form identified in Attachment 5 "Boeing AOG and Critical Shipping Notification".
Such notification shall include time and date shipped, quantity shipped, Order,
pack slip, method of transportation and air bill if applicable. Seller shall
also notify Boeing immediately upon the discovery of any delays in shipment of
any requirement and identify the earliest revised shipment possible.
13.1.2 Reclassification or Re-exercises
Boeing may instruct Seller to re-prioritize or reclassify an existing
requirement in order to improve or otherwise change the established shipping
schedule. Seller shall expend the effort required to meet the revised
requirement as set forth above in the definitions of the requirements. Seller's
commitment of a delivery schedule shall be given in accordance with that set
forth above for the applicable classification but in no case shall it exceed
twenty-four (24) hours from notification by Boeing.
13.1.3 Spare Pricing
Except as set forth in subsections 13.1.3.1 and 13.1.3.2 below, the price for
Boeing Proprietary Spare(s) shall be the same as the production price for the
Products as listed on Attachment 1, in effect at the time the Spare(s) are
ordered. Detail parts shall be priced so that the sum of the prices for all
detail parts of a kit or End Item Assembly equals the applicable recurring
portion of the kit or End Item Assembly.
13.1.3.1 Aircraft On Ground (AOG), Critical Spares and POA Requirement
The price for AOG and Critical Spares and POA requirements shall be the price
for such Products listed on Attachment 1 in effect when such Spares are ordered.
multiplied by a factor not to exceed 1.07.
13.1.3.2 Expedite Spare (Class 1)
The price for Expedite Spares shall be the price for such Products listed on
Attachment 1 in effect when such Spares are ordered. multiplied by a factor not
to exceed 1.05.
13.1.4 Spares Special Handling
The price for all effort associated with the handling and delivery of Spare(s)
is deemed to be included in the price for such Spare(s). If Boeing directs
delivery of Spares to a place other than the F.O.B. point as designated in
Section 3.2.1, Boeing shall reimburse Seller for shipping charges, including
insurance, paid by Seller from the plant to the designated place of delivery
which exceed the cost of shipping to the F.O.B. point. Such charges shall be
shown separately on all invoices.
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13.2 Expedite of Production Requirements
Any expedite charges to be paid for short flow production requirements shall be
pre-approved by the Procurement Representative. Seller shall provide data to
verify expedite charges. If Seller fails to meet their committed delivery,
Boeing shall not be obligated to pay the agreed upon amount.
13.3 Tooling
13.3.1 Responsible Party
Seller shall absorb all costs associated with non-accountable tooling
manufactured and/or purchased by Seller necessary for the manufacture and
delivery of the Products including but not limited to rework, repair,
replacement and maintenance of the tooling. Seller shall not use tools, which
contain, convey, embody, or were made in accordance with or by reference to any
Proprietary Information and Materials of Boeing, to manufacture parts for anyone
other than Boeing without the prior written authorization of Boeing.
When Boeing agrees to pay for Tooling to support the manufacture and delivery of
applicable Product(s) identified herein, the amount shall be set forth in
Attachment 1. The costs of necessary repair and maintenance to the Tooling is
included in such amount. In addition to the requirements set forth in Section
7.2 of this SBP, the Seller shall comply with the applicable Terms and
Conditions as set forth in SBP Section 2.3 for the Boeing location issuing the
Order. Invoices received with incorrect, improperly prepared or incomplete
certified tool lists will be returned for correction prior to payment. Invoices
shall be dated concurrent with, or subsequent to, shipment of the Products. No
repair, replacement, maintenance or rework of such Tooling shall be performed
without Boeing's prior written consent. Boeing shall notify Seller of any
action required for discrepant Tooling.
13.3.2 Boeing Furnished Tooling
In the event Boeing furnishes Tooling to Seller, Seller shall comply with the
applicable Terms and Conditions as set forth in SBP Section 2.3 for the Boeing
location furnishing the Tooling. No repair, replacement, maintenance or rework
of such Tooling shall be performed without Boeing's prior written consent.
Boeing shall notify Seller of any action required for discrepant Tooling.
13.4 Pricing of Boeing's Supporting Requirements
Any Products required to assist Boeing's supporting requirements, including but
not limited to requirements for color and appearance samples, Boeing-owned
simulators, test requirements, factory support, flight test spares will be
provided for not more than the applicable price as set forth in Attachment 1.
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13.5 Pricing of Requirements for Modification or Retrofit
Any Products required by Boeing to support a modification or retrofit program
shall be provided for not more than the applicable price as set forth in
Attachment 1.
13.6 Pricing of Similar Products
New Products ordered by Boeing that are similar to or within Product families of
Products currently being manufactured by Seller shall be priced using the same
methodology or basis as that used to price the existing Product(s).
14.0 STATUS REPORTS/REVIEWS
When requested by Boeing, Seller shall update and submit, as a minimum, monthly
status reports or data requested by Boeing using a method mutually agreed upon
by Boeing and Seller. Boeing has the right to impose more frequent reporting on
Seller to achieve program objectives.
When requested by Boeing, Seller shall provide to Boeing a manufacturing
milestone chart identifying the major purchasing, planning and manufacturing
operations for the applicable Product(s).
Program reviews will be held at Seller's facility or Boeing's facilities as
requested by Boeing. The topics of these reviews may include raw material and
component part status, manufacturing status, production status, Seller's current
and future capacity assessments, Boeing supplied components, inventory, Boeing's
requirements, changes, forecasts and other issues pertinent to Seller's
performance under this SBP. Reviews will allow formal presentations and
discussion of status reports as set forth above.
15.0 INTERNATIONAL COOPERATION
15.1 Market Access and Sales Support
Seller agrees to work with Boeing to develop a contracting strategy which
supports Boeing's market access and international business strategy. Boeing and
Seller agree to work together to identify countries where Seller may subcontract
in support of Boeing's market access and international business strategy. With
respect to work covered by this SBP, and if directed by Boeing, Seller agrees to
procure from subcontractors, in countries selected by Boeing, goods and services
with a value to be determined by Boeing after coordination with Seller. Such
direction may occur at any time during the performance of this SBP. Although
not required to do so, Seller may satisfy such obligation through purchases not
related to this SBP. If Seller is directed by Boeing to subcontract any part of
its Product(s) and Seller anticipates an increase or decrease to the price for
such Product(s) as a result of such direction, Seller shall immediately notify
Boeing in writing. If there is a cost impact, Boeing shall respond within
thirty (30) days on whether Seller is to proceed.
20
<PAGE>
15.2 Offset Assistance
Seller shall use its best reasonable efforts to cooperate with Boeing in the
fulfillment of any non-United States offset program obligation that Boeing may
have accepted as a condition of the sale of a Boeing product. In the event
Seller is either directed by Boeing, or on its own solicits bids and/or
proposals for, or procures or offers to procure any goods or services relating
to the work covered by this SBP from any source outside of the United States,
Boeing shall be entitled, to the exclusion of all others, to all industrial
benefits and other "offset" credits which may result from such solicitations,
procurements or offers to procure. Seller shall take any actions that may be
required on its part to assure that Boeing receives such credits. Seller shall
report to Boeing any such procurement activity if and when required by Boeing.
If Seller is directed by Boeing to subcontract any part of its Product(s) to a
country in which Boeing has an offset obligation, an equitable price adjustment,
increase or decrease, for Seller's costs and expenses will be considered by
Boeing.
16.0 BOEING FURNISHED MATERIAL/SUPPLIER BANKED MATERIAL
Material, including but not limited to raw material, standards, detail
components and assemblies, furnished to Seller by Boeing shall be administered
in accordance with a Bonded Stores Agreement between Boeing and Seller.
Seller shall provide Boeing with required on-dock dates for all material.
Seller's notice shall provide Boeing with sufficient time to competitively
acquire the material if, in its sole and absolute discretion, it desires to do
so.
17.0 PARTICIPATION
17.1 Other Boeing Entities
Seller agrees that any Boeing division or Boeing subsidiary ("Boeing Entity")
not specifically included in this SBP may, by issuing a purchase order, work
order, or other release document, place orders under this SBP during the term
hereof or any written extension thereof, under the terms, conditions and pricing
specified by this SBP. Seller agrees that the prices set forth herein may be
disclosed by Boeing on a confidential basis to Boeing entities wishing to invoke
this Section 17.1. Seller shall notify the Boeing Procurement Representative
named in the Notice section of this SBP of Boeing Entities not specifically
referenced herein who frequently use this SBP.
21
<PAGE>
17.2 Boeing Subcontractors/Suppliers
Seller agrees that any subcontractor or supplier performing work for a Boeing
Entity, including but not limited to inventory management, (hereinafter referred
to as "Boeing Subcontractor") may issue an order or contract with Seller
independent of this SBP. Seller agrees to sell Products or support a schedule
and or a quantity change to such Boeing Subcontractor for its use in its
contracts with Boeing at the prices set forth herein or at a price that reflects
the pricing methodology used under this SBP. Boeing assumes no obligation,
including payment obligation, with respect to such independent contract. Seller
agrees that the prices set forth herein may be disclosed by Boeing on a
confidential basis to any Boeing Subcontractor wishing to invoke this Section
17.2. Seller may request written verification from the Boeing Subcontractor
that the Products ordered pursuant to the authority of this SBP support Boeing
requirements. Seller shall periodically inform the Boeing Procurement
Representative of each such request invoking this participation right.
17.3 Notification of Contract
In the event a purchaser known by Seller to be a Boeing Entity or Boeing
Subcontractor places an order for supplies or services covered by this SBP but
fails to reference this SBP or otherwise seek the prices established by this
SBP, Seller shall notify such purchaser of the existence of this SBP and the
prices established hereunder and shall offer such prices to such purchaser.
17.4 Notification of Price Reductions
If Seller is awarded an additional order or contract by another Boeing Entity
that results in any price less than that established under this SBP, Seller
agrees to immediately notify the Boeing Procurement Representative of said price
reductions and shall extend all such price reductions to this SBP.
18.0 INVENTORY AT CONTRACT COMPLETION
Subsequent to Seller's last delivery of Product(s), Products which contain,
convey, embody or were manufactured in accordance with or by reference to
Boeing's Proprietary Materials including but not limited to finished goods,
work-in-process and detail components (hereafter "Inventory") which are in
excess of Order quantity shall be made available to Boeing for purchase. In the
event Boeing, in its sole discretion, elects not to purchase the Inventory,
Seller may scrap the Inventory. Prior to scrapping the Inventory, Seller shall
mutilate or render it unusable. Seller shall maintain, pursuant to their
quality assurance system, records certifying destruction of the applicable
Inventory. Said certification shall state the method and date of mutilation and
destruction of the subject Inventory. Boeing or applicable regulatory agencies
shall have the right to review and inspect these records at any time it deems
necessary. In the event Seller elects to maintain the Inventory, Seller shall
maintain accountability for the inventory and Seller shall not sell or provide
the Inventory to any third party without prior specific written authorization
from Boeing. Failure to comply with these
22
<PAGE>
requirements shall be a material breach and grounds for default pursuant to GTA
Section 13.0. Nothing in this Section 18.0 prohibits Seller from making legal
sales directly to the United States of America Government.
19.0 OWNERSHIP OF INTELLECTUAL PROPERTY
19.1 Technical Work Product
NOT APPLICABLE
19.2 Inventions and Patents
NOT APPLICABLE
19.3 Works of Authorship and Copyrights
NOT APPLICABLE
19.4 Pre-Existing Inventions and Works of Authorship
NOT APPLICABLE
19.5 Inapplicability
NOT APPLICABLE
20.0 ADMINISTRATIVE AGREEMENTS
NOT APPLICABLE
21.0 GUARANTEED WEIGHT REQUIREMENTS
NOT APPLICABLE
22.0 SELLER DATA REQUIREMENTS
NOT APPLICABLE
23.0 DEFERRED PAYMENT
NOT APPLICABLE
24.0 SOFTWARE PROPRIETARY INFORMATION RIGHTS
NOT APPLICABLE
23
<PAGE>
25.0 CONFIGURATION CONTROL
NOT APPLICABLE
26.0 INFRINGEMENT
Seller will indemnify, defend, and hold harmless Boeing and its Customers from
all claims, suits, actions, awards (including, but not limited to, awards based
on intentional infringement of patents known to Seller at the time of such
infringement, exceeding actual damages, and/or including attorneys' fees and/or
costs), liabilities, damages, costs and attorneys' fees related to the actual or
alleged infringement of any United States or foreign intellectual property right
(including, but not limited to, any right in a patent, copyright, industrial
design or semiconductor mask work, or based on misappropriation or wrongful use
of information or documents) and arising out of the manufacture, sale or use of
Products by either Boeing or its Customers. Boeing and/or its Customers will
duly notify Seller of any such claim, suit or action; and Seller will, at its
own expense, fully defend such claim, suit or action on behalf of Boeing and/or
its Customers. Seller shall have no obligation under this Section 26.0 with
regard to any infringement arising from: (i) Seller's compliance with formal
specifications issued by Boeing where infringement could not be avoided in
complying with such specifications or (ii) use or sale of Products in
combination with other items when such infringement would not have occurred from
the use or sale of those Products solely for the purpose for which they were
designed or sold by Seller. For purposes of this Section 26.0 only, the term
Customer shall not include the United States Government; and the term Boeing
shall include The Boeing Company and all Boeing subsidiaries and all officers,
agents, and employees of Boeing or any Boeing subsidiary.
27.0 RAW MATERIAL PROGRAM
During the term of this SBP, Seller shall procure from Boeing (or its designated
service provider who will act on behalf of Boeing) all raw material of the
commodity type specified on the Exhibit entitled "Commodity Listing and Terms of
Sale" (Attachment 8) necessary to support any Order issued pursuant to this
Agreement. From time to time, Boeing may amend the Exhibit entitled "Commodity
Listing and Terms of Sale" by adding or deleting commodity types. Any such
amendment, or revisions to the raw material pricing, shall be subject to
adjustment under GTA section 10.1 (Changes), provided that Seller shall take no
action to terminate its existing supply agreements when such termination would
result in an assertion for an adjustment until the Seller has received approval
from Boeing. The provision of any raw material by Boeing to Seller shall be
according to Boeing's standard terms of sale, the text of which is included in
the Exhibit entitled "Commodity Listing and Terms of Sale". Boeing shall advise
Seller of any designated service provider to be used at the time the Order is
issued. Upon request by Boeing, Seller must provide to Boeing documentation
(e.g., packing slips, invoices) showing Seller's full compliance with the
obligations under this Section.
24
<PAGE>
EXECUTED in duplicate as of the date and year first set forth above by the duly
authorized representatives of the parties.
BOEING SELLER
THE BOEING COMPANY Pacific Aerospace & Electronics, Inc
By and Through its Group U.S. Aerospace Group
Boeing Commercial Airplane Group European Aerospace Group
/s/ Bonnie Frederick /s/ Werner Hafelfinger
- -------------------- ----------------------
Name: Bonnie Frederick Name: Werner Hafelfinger
Title: Prime Procurement Agent Title: Vice President Operations
Date: 12/20/99 Date: 12/20/99
25
<PAGE>
ATTACHMENT 1 TO
SPECIAL BUSINESS PROVISIONS
WORK STATEMENT AND PRICING
--------------------------
Confidential material has been intentionally omitted at this point
pursuant to a request for confidential treatment, and such material has been
filed separately with the Securities and Exchange Commission.
26
<PAGE>
ATTACHMENT 1A TO
SPECIAL BUSINESS PROVISIONS
CONTINUOUS COST IMPROVEMENT GOALS
---------------------------------
Confidential material has been intentionally omitted at this point
pursuant to a request for confidential treatment, and such material has been
filed separately with the Securities and Exchange Commission.
27
<PAGE>
ATTACHMENT 1B
WICHITA SOW
Confidential material has been intentionally omitted at this point
pursuant to a request for confidential treatment, and such material has been
filed separately with the Securities and Exchange Commission.
28
<PAGE>
ATTACHMENT 1C
AUBURN - AEROMET AMERICA CASTING DIVISION
Confidential material has been intentionally omitted at this point
pursuant to a request for confidential treatment, and such material has been
filed separately with the Securities and Exchange Commission.
29
<PAGE>
ATTACHMENT 1D
TM Baseline Pricing
Confidential material has been intentionally omitted at this point
pursuant to a request for confidential treatment, and such material has been
filed separately with the Securities and Exchange Commission.
30
<PAGE>
ATTACHMENT 1E
GROUND RULES
Confidential material has been intentionally omitted at this point
pursuant to a request for confidential treatment, and such material has been
filed separately with the Securities and Exchange Commission.
31
<PAGE>
ATTACHMENT 1F
RAW MATERIAL
Confidential material has been intentionally omitted at this point
pursuant to a request for confidential treatment, and such material has been
filed separately with the Securities and Exchange Commission.
32
<PAGE>
ATTACHMENT 1G
GROUND RULES
U.S. AEROSPACE GROUP
EUROPEAN AEROSPACE GROUP
Confidential material has been intentionally omitted at this point
pursuant to a request for confidential treatment, and such material has been
filed separately with the Securities and Exchange Commission.
33
<PAGE>
ATTACHMENT 1H
WINNIPEG - Aeromet International Casting Division
Confidential material has been intentionally omitted at this point
pursuant to a request for confidential treatment, and such material has been
filed separately with the Securities and Exchange Commission.
34
<PAGE>
ATTACHMENT 2 TO
SPECIAL BUSINESS PROVISIONS
NON-U.S. PROCUREMENT REPORT FORM
--------------------------------
(Seller to Submit)
(Reference Section 15.0)
<TABLE>
<CAPTION>
Seller Name Country Commodity/ Bid Contracted
Nomenclature Dollars Dollars
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
35
<PAGE>
ATTACHMENT 3 TO
SPECIAL BUSINESS PROVISIONS
RATES AND FACTORS
-----------------
Confidential material has been intentionally omitted at this point pursuant
to a request for confidential treatment, and such material has been filed
separately with the Securities and Exchange Commission.
36
<PAGE>
ATTACHMENT 4 TO
SPECIAL BUSINESS PROVISIONS
BOEING AOG COVERAGE
-------------------
1 NORMAL HOURS BOEING'S MATERIEL REPRESENTATIVE(MATERIEL DIVISION)
Approximately 5:30 a.m. - 6:00 p.m.
[X] Performs all functions of procurement process.
[X] Manages formal communication with Seller.
1 SECOND SHIFT - AOG PROCUREMENT SUPPORT (MATERIEL DIVISION)
3:00 p.m. - 11:00 p.m.
[X] May place order and assist with commitment and shipping information,
working with several suppliers on a priority basis.
[X] Provides a communication link between Seller and Boeing.
. 24 HOUR AOG SERVICE - AOG CUSTOMER REPRESENTATIVE (CUSTOMER SERVICE DIVISION)
(206) 662-7200
[X] Support commitment information particularly with urgent orders.
[X] Customer Service Representative needs (if available):
1. Part Number
2. Boeing Purchase Order
3. Airline Customer & customer purchase order number
4. Boeing S.I.S. #
If Seller is unable to contact any of the above, please provide AOG/Critical
shipping information notification via FAX using Boeing AOG/Critical shipping
notification form (Attachment 5).
37
<PAGE>
ATTACHMENT 5 TO
SPECIAL BUSINESS PROVISIONS
BOEING
------
AOG/CRITICAL
------------
SHIPPING NOTIFICATION
---------------------
<TABLE>
<S> <C> <C>
To: FAX: (206) 662-7145 Phone: (206) 662-7200
- ----------------------------------------------------------------------
Procurement Phone:
Agent Name:
- ----------------------------------------------------------------------
From: Today's Date:
- ----------------------------------------------------------------------
Part Number: Customer P.O.:
- ----------------------------------------------------------------------
Customer: Ship Date:
- ----------------------------------------------------------------------
Qty Shipped: *SIS Number:
- ----------------------------------------------------------------------
Boeing P.O.: Pack Sheet:
- ----------------------------------------------------------------------
*Airway Bill: or Invoice:
- ----------------------------------------------------------------------
Carrier: *Flight #:
- ----------------------------------------------------------------------
Freight
Forwarder:
- ----------------------------------------------------------------------
</TABLE>
*If Applicable
SHIPPED TO:
[X] (check one)
[_] Boeing
[_] Direct Ship to Customer
[_] Direct Ship to Seller
Remarks:
38
<PAGE>
ATTACHMENT 6 TO
SPECIAL BUSINESS PROVISIONS
Reserved
--------
39
<PAGE>
ATTACHMENT 7 TO
SPECIAL BUSINESS PROVISIONS
Reserved
--------
40
<PAGE>
ATTACHMENT 8 TO
SPECIAL BUSINESS PROVISIONS
COMMODITY LISTING AND TERMS OF SALE
-----------------------------------
(Reference Section 27.0)
COMMODITY LISTING
-----------------
Aluminum Flat Rolled Products Includes aluminum sheet, aluminum plate, wing
plate, and body skins, excluding "soft" aluminum alloys.
Aluminum extrusions, all press size or circle size.
Titanium includes all wrought and un-wrought titanium mill products.
41
<PAGE>
ATTACHMENT 8 TO
SPECIAL BUSINESS PROVISIONS
TERMS OF SALE
-------------
Parties
- -------
The Seller is The Boeing Company, acting through its agent, TMX. The Customer
is a Boeing subcontractor, at any tier, who is manufacturing a product in
support of a Boeing requirement.
Sales
- -----
All materials to be furnished by Seller are to be within the limits and the
sizes published by Seller and subject to Seller's standard tolerances for
variations. Seller will warrant that all materials to be supplied will conform
to the descriptions contained herein and on the face of the purchase order and
that Seller will convey good title to any such materials free from any security
interest, or other lien or encumbrance held by any other party and unknown to
the customer. THERE IS NO WARRANTY OF MERCHANTABILITY OR FITNESS AND SELLER
WILL MAKE NO OTHER EXPRESS OR IMPLIED WARRANTIES EXCEPT AS STATED HEREIN.
Seller will not be liable for any incidental or consequential damages for any
breach of warranty, express or implied. Seller's liability and the Customer's
sole and exclusive remedy will be limited at Seller's option either to (a)
return of the materials and repayment of the purchase price, or (b) replacement
of nonconforming materials upon return thereof to Seller. The Customer shall be
required to notify Seller in writing of any claim of breach of warranty and no
materials shall be returned to Seller by the Customer without Seller's consent.
Payment Terms
- -------------
The following payment processes will be followed for material sold to Customer
by Seller. All payments shall be in United States Dollars.
DEBIT PROCESS
- -------------
The debit process will be used in all circumstances where the Customer has an
account with the Seller. The amount due is the quantity shipped multiplied by
the unit price, plus the price for any value added services. The amount due
will be collected by the Seller's applying a debit to the Customer's account.
Payment is due on the net thirtieth (30th) day from the scheduled delivery date.
The debit will be applied to the Seller's account on the payment due date. If
the debit amount exceeds the amount outstanding on the Customer's account, the
Customer will remit to The Boeing Company the amount due beyond the debit
payment due date. The foregoing debit process does not apply to Sellers who are
only performing under orders issued by the Tulsa Division of the Boeing
Commercial Airplane Group.
42
<PAGE>
ATTACHMENT 8 TO
SPECIAL BUSINESS PROVISIONS
INVOICE PROCESS
- ---------------
The invoice process will be used for Customers not currently making direct sales
to Boeing; foreign countries governed by MITI laws and regulations (currently
Australia, Brazil, China, India, Japan, and Korea), and orders issued by the
Tulsa Division of the Boeing Commercial Airplane Group. The amount due is the
quantity shipped multiplied by the unit price, plus the price for any value
added services. Payment is due on the net thirtieth (30th) day after the date
of Seller's invoice, which shall be issued on the day following the date of
shipment.
LATE PAYMENT CHARGES
- --------------------
Payments due Seller representing undisputed charges for material and services
that are not paid within forty-five (45) days after the date of Seller's invoice
or within fifteen days after any remittance due to Seller under the debit
process will be subject to a late payment charge. Such charge will be computed
monthly using an annual rate of interest publicly announced by Citibank N.A. New
York, New York, as its prime rate in effect on the fifteenth (15th) day of the
month, as adjusted month to month, plus two percent (2%). Such rate will be
applied on the basis of a 365-day year against the undisputed past due amount,
commencing on the forty-sixth (46th) day (or 16th day in the debit process)
after the invoice date and continuing until payment is received by Boeing.
DEBIT/INVOICE DISPUTE PROCEDURE
- -------------------------------
Customer may dispute payment amounts due provided that (1) Customer contacts
Seller within 25 days of the date of the debit/ invoice, (2) Customer provides a
complete reason as to the dispute. If the action is Seller's to resolve, late
payment charges will not be assessed on amounts that are under dispute. Once a
dispute has been resolved, payment terms will be net 30 days from the date of
resolution.
FAILURE TO PAY
- --------------
In the event Customer fails to make payments when due, Seller reserves the right
to assert whatever remedies it may have under law, including setoffs against
amounts due from Seller to Customer on other contracts. In such an event,
Seller may, with respect to future orders, require full payment in advance or
otherwise alter the terms of payment specified earlier.
43
<PAGE>
ATTACHMENT 9 TO
SPECIAL BUSINESS PROVISIONS
COST AND PERFORMANCE REVIEWS
----------------------------
(Reference Section 11.1)
Cost Performance Reviews (CPR's) will occur on as needed basis (alternating
between Seller and Boeing locations unless otherwise agreed) at an agreeable
time. The detail of the CPR's will be defined at a later date between Boeing
and Seller. When they are defined, this attachment 9 will be updated.
44
<PAGE>
ATTACHMENT 10 TO
SPECIAL BUSINESS PROVISIONS
QUALITY ASSURANCE REQUIREMENTS
A10.1 Quality System
All work performed under this SBP shall be in accordance with the following:
A. Document D1-9000 Rev A., "Advanced Quality System", Section 1 and Section 2
Advance Quality System as amended from time to time, which is incorporated
herein and made a part hereof by this reference.
A10.2 Supplemental Quality Requirements
A10.2.1 Use of Boeing Digital Datasets as Authority for Design and/or
Inspection
When a supplier receives or uses Boeing digital data as authority for design
and/or inspection, then the supplier must comply to the requirements of D6-
51991, Quality Assurance Standards Reflecting Digital Product Definition for
Boeing Suppliers Using CAD/CAM/CAI Data, or contractual requirements.
A10.2.2 Seller's Inspection Options
The supplier shall perform either 100% inspection or acceptance sampling for
receiving inspection. The supplier shall perform 100% inspection, acceptance
sampling or statistical process control for in-process inspection or final
inspection for each characteristic of a product.
A supplier that performs acceptance sampling shall have a Boeing-approved
acceptance sampling plan. The plan shall meet the requirements of Boeing
document D1-8007, Approval Guide for Supplier statistical Sampling Plans.
When statistical process control is used as an option for either in-process or
final inspection, the supplier must satisfy the requirements of D6-82479,
Addendum 1.
In all cases, inspection requirements identified by engineering drawing or
specification take precedence over the inspection options described here and in
D6-82479, Addendum 1. Boeing reserves the right to require 100% inspection for
selected characteristics.
A10.2.3 Supplier Annual Internal Quality Audit
At least annually, the supplier shall conduct an internal audit to ensure
compliance to their quality system and the controlling quality assurance
document.
45
<PAGE>
A10.2.4 Changes Affecting Quality Control System
A10.2.4.1 Change in Quality Management Representative
The supplier shall promptly notify Boeing of any changes in the management
representative with assigned responsibility and authority for the quality
system.
A10.2.4.2 Change in Quality System Procedures
The supplier shall immediately notify Boeing in writing of any change to the
quality control system that may affect the inspection, conformity or
airworthiness of the product. After the issue of initial Boeing quality system
approval, each change to the quality control system is subject to review by
Boeing.
The supplier shall include, as part of the written notification of change to the
quality control system, a list of changed procedures identified by revision
level, a description of the intent of the changes and a signed statement that
compliance to the Boeing quality system approval has not been diminished.
A10.2.4.3 Change in Manufacturing Facility Location
The supplier shall immediately notify Boeing in writing of any change to the
manufacturing facility location of the contracted part number or assembly.
A10.2.4.4 Language
The supplier shall maintain an English language translation of (1) its quality
manual, (2) the operating instructions that implement the quality manual
requirements, and (3) an index of all other supplier procedures that contain
quality requirements. Boeing may require additional documentation to be
translated.
A10.2.5 Quality Assurance Sampling Plan
For Orders issued by Wichita or Tulsa, Seller shall submit a Quality Assurance
Sampling Plan to Boeing (less than 100 percent inspection) for all parts with
Advanced Technology Assembly (ATA) requirements. Upon Boeing approval and
Seller implementation of the Sampling Plan, Seller shall evaluate its internal
processes for cost reductions to be shared equitably (as negotiated) between
Boeing and Seller under this SBP and any Purchase Contract(s) and Order(s).
Seller and Boeing agree to review cost elements affected by the Sampling Plan,
and negotiate a mutually agreeable cost reduction. Said reductions will be
incorporated into this agreement as mutually agreed to by both Seller and Buyer.
46
<PAGE>
A10.2.6 Advanced Technology Assembly Qualification
For Orders issued by Wichita or Tulsa, The Statement of Work and the period of
performance under this SBP and any Purchase Contract and/or Order, for all parts
with Advanced Technology Assembly (ATA) requirements, is contingent upon Seller
obtaining and maintaining ATA qualification for the term of this SBP. Seller's
failure to comply with the requirements of its ATA Qualification plan for the
term of this SBP will be grounds for cancellation of ATA item requirements
pursuant to GTA Section 13.0.
47
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF PACIFIC AEROSPACE & ELECTRONICS, INC. AND IS
SUBSIDIARIES FOR THE NINE MONTH PERIOD ENDED FEBRUARY 29, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> DEC-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 1,102,000
<SECURITIES> 0
<RECEIVABLES> 21,970,000
<ALLOWANCES> 622,000
<INVENTORY> 28,333,000
<CURRENT-ASSETS> 53,963,000
<PP&E> 62,092,000
<DEPRECIATION> 17,010,000
<TOTAL-ASSETS> 151,225,000
<CURRENT-LIABILITIES> 22,870,000
<BONDS> 80,592,000
0
0
<COMMON> 21,000
<OTHER-SE> 47,426,000
<TOTAL-LIABILITY-AND-EQUITY> 151,225,000
<SALES> 84,072,000
<TOTAL-REVENUES> 84,072,000
<CGS> 67,115,000
<TOTAL-COSTS> 67,115,000
<OTHER-EXPENSES> 14,322,000
<LOSS-PROVISION> 101,000
<INTEREST-EXPENSE> 7,668,000
<INCOME-PRETAX> (4,990,000)
<INCOME-TAX> (205,000)
<INCOME-CONTINUING> (5,195,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,195,000)
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
