-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, jLckZiUD2CPMKTdtJv5VYUWw85kA/brdEUEQAgAFA644dXScMjlWgolI2nMpalGx pLxWqnmrUeB1R+6mE/H/jw== 0000893877-95-000105.txt : 19950830 0000893877-95-000105.hdr.sgml : 19950830 ACCESSION NUMBER: 0000893877-95-000105 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 33 CONFORMED PERIOD OF REPORT: 19950531 FILED AS OF DATE: 19950829 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PCT HOLDINGS INC /NV/ CENTRAL INDEX KEY: 0000790023 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 870431483 STATE OF INCORPORATION: NV FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26088 FILM NUMBER: 95568663 BUSINESS ADDRESS: STREET 1: 434 OLDS STATION ROAD CITY: WENATCHEE STATE: WA ZIP: 98801 BUSINESS PHONE: 5096648000 MAIL ADDRESS: STREET 2: 434 OLDS STATION ROAD CITY: WENATCHEE STATE: WA ZIP: 98801 FORMER COMPANY: FORMER CONFORMED NAME: VERAZZANA VENTURES LTD DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: VERAZZANA VENTURES SYSTEMS LTD DATE OF NAME CHANGE: 19890618 10KSB 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended May 31, 1995, or [ ] 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 33-3442-LA PCT HOLDINGS, INC. (Name of small business issuer in its charter) NEVADA 87-0431483 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 434 OLDS STATION ROAD WENATCHEE, WASHINGTON 98801 (Address of principal executive offices) (Zip Code) Issuer's telephone number: (509) 664-8000 Securities registered pursuant to Section 12(b) of the Exchange Act Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 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 --- --- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, 2 in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. X --- State issuer's revenues for its most recent fiscal year: $11,035,595 State the aggregate market value of the voting stock held by non-affiliates, based on the closing price for the registrant's Common Stock on the NASDAQ Electronic Bulletin Board, as of August 15, 1995: approximately $13,935,531.50 State the number of shares of Common Stock outstanding at August 15, 1995: 5,332,008 Documents Incorporated by Reference: None Transitional small business disclosure format: Yes No X --- --- i TABLE OF CONTENTS Item of Form 10-KSB Page PART I..................................................................... 1 Item 1 - Description of Business.......................................... 1 Item 2 - Description of Property.......................................... 10 Item 3 - Legal Proceedings................................................ 11 Item 4 - Submission of Matters to a Vote of Security Holders.............. 12 PART II.................................................................... 12 Item 5 - Market for the Registrant's Common Equity and Related Shareholder Matters........................... 12 Item 6 - Management's Discussion and Analysis or Plan of Operation............................................. 12 Item 7 - Financial Statements............................................. 18 Item 8 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................... 38 PART III................................................................... 39 Item 9 - Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act................ 39 Item 10 - Executive Compensation........................................... 42 Item 11 - Security Ownership of Certain Beneficial Owners and Management............................................ 45 Item 12 - Certain Relationships and Related Transactions..................................................... 47 Item 13 - Exhibits and Reports on Form 8-K................................. 49 SIGNATURES................................................................. 54 1 PART I ITEM 1. DESCRIPTION OF BUSINESS Historical Development PCT Holdings, Inc. (formerly known as Verazzana Ventures, Ltd.) (the "Company") was organized under the laws of the State of Nevada on January 31, 1986. From the time of the Company's incorporation to February 17, 1995, the Company had no substantial operations. Its primary activity during that time was seeking a possible acquisition opportunity. Merger of PCT Holdings, Inc., a Washington Corporation, with a Subsidiary of the Company On February 15, 1995, the Company entered into an Agreement and Plan of Merger, pursuant to which PCT Holdings, Inc., a Washington corporation with two operating subsidiaries ("PCTH"), merged with and into PCT Merger Corporation, a Washington corporation and a wholly owned subsidiary of the Company that was formed for purposes of the merger ("PCT Subsidiary"). PCT Subsidiary was the survivor in the merger (the "PCTH Merger") and changed its name to PCT Holdings, Inc., a Washington corporation. The PCTH Merger became effective on February 17, 1995, and was accomplished by an exchange of 2,963,675 previously unissued shares of the Company's common stock, $.001 par value ("Common Stock"), for all outstanding shares of PCTH's common stock, no par value. Concurrently with the PCTH Merger the Company changed its name from Verazzana Ventures, Ltd. to PCT Holdings, Inc., a Nevada corporation. Prior to the PCTH Merger, PCTH and its operating subsidiaries were engaged in separate operations unrelated to the Company. There had been no relationship between the Company or any of its affiliates, on one hand, and PCTH or any of its affiliates, on the other hand. Effective upon the PCTH Merger, there was a change in control of the Company. Immediately after the effective date of the PCTH Merger, approximately 88% of the issued and outstanding shares of Common Stock of the Company were held by former stockholders of PCTH. Additionally, the management of the Company was replaced by former management of PCTH. After the PCTH Merger, PCT Subsidiary continues to be a wholly owned subsidiary of the Company. PCT Subsidiary owns two operating subsidiaries, Pacific Coast Technologies, Inc. ("PCTI") and Cashmere Manufacturing Co., Inc. ("CMC"), which continue to operate the businesses operated by them prior to the PCTH Merger. PCTI and CMC were organized in 1990 and 1965, respectively, under Washington law. PCTI's 2 predecessor, Kyle Technology Corporation, a California corporation, was organized in 1981. PCTH, which merged into PCT Subsidiary in the PCTH Merger, was organized in May 1994 to hold the stock of PCTI and CMC. Merger of Ceramic Devices, Inc. With a Subsidiary of the Company On February 28, 1995, the Company entered into an Agreement and Plan of Merger, pursuant to which Ceramic Devices, Inc., a California corporation ("CDI Merged Corporation"), merged with and into Ceramic Devices, Inc., a Washington corporation and wholly owned subsidiary of the Company ("CDI"). The merger (the "CDI Merger") was effective for financial reporting purposes on February 28, 1995, and was consummated under California state law on May 10, 1995. Prior to the CDI Merger, CDI Merged Corporation was engaged in separate operations unrelated to the Company. There was no relationship between the Company or any of its affiliates, on one hand, and CDI Merged Corporation or any of its affiliates, on the other hand, prior to the CDI Merger. CDI Merged Corporation was organized in 1982 in the State of California. Pursuant to the CDI Merger, CDI, as a matter of law, acquired all of the assets and assumed all of the liabilities of CDI Merged Corporation. After the consummation of the CDI Merger, CDI continued the business of CDI Merged Corporation as a wholly owned subsidiary of the Company. As consideration for the Company's acquisition by merger of the business of CDI Merged Corporation, the Company tendered to the shareholders of CDI Merged Corporation two promissory notes in the aggregate principal amount of $600,000 and issued 133,333 shares of Common Stock of the Company. The promissory notes are secured by a security interest in all of the assets of CDI, subject to the right of the Company to subordinate that lien, insofar as it pertains to assets of CDI constituting inventory and accounts receivable, to the present and future institutional and commercial lenders of CDI. The total amount of consideration paid by the Company in connection with the CDI Merger was approximately one and one-half times the represented book value of CDI Merged Corporation. That total purchase price was determined pursuant to arms-length negotiations between the Company and CDI Merged Corporation. The Company intends to satisfy its obligations under the promissory notes out of revenues from operations and investment activities and anticipates timely payment of such obligations. The parties valued the 133,333 shares of the Company's Common Stock at $6.00 per share as of the date of the letter of intent in December 1994. Notwithstanding this valuation by the parties, the Company valued the 133,333 shares issued to the shareholders of CDI Merged Corporation, for financial accounting purposes, at $4.80 per share, as of February 28, 1995. After the CDI Merger, the former shareholders of CDI Merged Corporation owned 2.86% of the total 3 4,669,008 shares of the Company's common stock issued and outstanding as of the effective date of the CDI Merger. Businesses of the Company The Company, through its operating subsidiaries, PCTI, CMC and CDI, conducts operations in three lines of business, which the Company believes complement each other. PCTI designs, manufactures and markets hermetically sealed electronic packages and interconnect devices, using its proprietary KRYOFLEX hermetic sealant technology. Its products are engineered to provide the ultimate protection for applications in harsh environments, where extremes in temperature, pressure or corrosiveness often cause electronic packaging failure. CMC operates a precision machine shop that produces diversified components and assemblies for the aerospace component, electronics and automotive industries. CDI designs and manufactures specialized devices for use in filtering out electromagnetic interference. CDI's products, like those of PCTI, are used in hostile environments. Pacific Coast Technologies, Inc. Background. Electronic equipment is frequently required to operate in hostile climates, including the depths of the oceans and the far reaches of space. Electronic devices are also implanted in the human body, which is a complex operating environment. The worst enemies of electronics are extreme temperature, pressure and corrosion. Protection of electronic packages becomes even more difficult when such electronic packages must be connected by wires to something outside the confines of the enclosing package. Electronic units are most vulnerable at points where connecting wires pass from inside the package to the outside. For this reason, a critical part of any electronic package is the sealant surrounding the connecting wire (feedthrus). Manufacturers of electronic equipment traditionally have used one of two materials as sealants: glass or brazed ceramics. Both are effective under relatively mild conditions. Each, however, has weaknesses in environmental extremes. For example, glass is suitable as a sealant in many applications, but at high temperatures it becomes a conductor of electricity, causing short circuits. Glass is also brittle and highly susceptible to shock, which causes fractures. Once a fracture is present it tends to spread, rendering the glass useless as a hermetic sealant. In addition, when a glass seal is implanted in the body, there is a tendency for tree-like growths (dendrites) to develop that also cause short circuits. Brazed ceramics work well under certain conditions, but being inert they may not adhere to the materials involved. As a result they are not compatible with many of the materials used in modern electronic equipment. PCTI Products. PCTI designs, manufactures and distributes proprietary, hermetically sealed electrical connectors and instrument packages primarily in the medical, 4 energy, aerospace and general electronics industries. Electronic equipment manufactured by PCTI operates in every type of climate in the world, in the oceans, in space and in situations where electronics must operate reliably in otherwise hostile environments. The primary distinctive feature of PCTI's products is their ability to operate in harsh environments in which modern day electronics are used. KRYOFLEX is a sealant material which PCTI owns and which forms a key component to its products. PCTI's patented dissimilar metal connector technology is also utilized in several key products. PCTI's products can be found in pacemakers, oil wells, aerospace and defense products. PCTI also helped develop the world's first hermetically sealed fiber optic connector used on the international space station Alpha. KRYOFLEX, the licensed proprietary sealant material used by PCTI, is a multiple-phase derivative of ceramic oxide crystalline silicates, which the Company believes provides the ultimate level in hermetic seal protection. PCTI offers a variety of KRYOFLEX-based products. A typical KRYOFLEX seal may be composed of a dozen different silicates and oxides, and there can be as many as five distinctly different layers in any one type of KRYOFLEX. A seal made of KRYOFLEX may be likened to a sheet of bulletproof glass, in that the physical properties of each layer are different from the next. A KRYOFLEX seal is able to overcome and operate under any of the harsh environments known to the Company in which modern day electronics operate. PCTI's products consist of electrical connectors, feedthrus, and component packages and are marketed in the medical, energy, aerospace and general electronic industries. For example, PCTI's feedthrus are used in medical pacemakers; hermetic connectors are used in down-hole drilling tools; hermetic fiber optic termini are used for the space station; and Micro-D connectors are used in radar and general electronic applications. PCTI's Market. PCTI's customer base includes Fortune 1000 companies as well as smaller, specialized firms. Customers in the aerospace market include such companies as Texas Instruments, Honeywell, McDonnell Douglas, Boeing, Hughes, TRW, and Martin/Lockheed. Customers in the medical market include Pacesetter, Advanced Bionics, MidiMed, and Electro Biology, Inc. Customers in the energy market include Quartzdyne, Schlumberger, Baker Hughes, and Western Atlas. PCTI's products are marketed domestically and in the international marketplace. PCTI has created a network of sales representatives to cover the United States, and internationally, a group of distributors has been assigned to key customers and markets in Europe and Asia. PCTI has a varied customer listing, and no single customer accounts for more than 10% of its revenue on an annual basis. PCTI maintains a number of customer and government approved ratings and qualifications, and is continuously upgrading and refining these qualifications based upon customer requirements and emerging technologies. PCTI's Strategies. PCTI's overall strategy is to expand the applications of its products in medical, energy, communications and aerospace industries. PCTI plans to grow through internal product development, aggressive marketing strategies, and the strategic 5 acquisition of additional high-end technologies, new operating subsidiaries to complement PCTI's existing and planned product base and contribute to the vertical integration and improve operating efficiency and profitability of the Company. PCTI's products were originally developed for medical applications. PCTI continues to supply Pacesetter, an original account, with products for its pacemaker line. It has also produced prototype devices for application in an artificial heart. PCTI's business strategy includes broadening the applications for its proprietary technologies. For example, PCTI has identified that its sealant material may be useful for certain new medical developments, including bone growth stimulators, neurostimulators, pain repressors and audiostimulators. It is currently producing parts for an audio implant to help the hearing impaired. PCTI's strategy in the energy market is to continue to qualify its devices on new tool designs. For example, a drilling log is a complex, delicate and expensive electronics package. The log is lowered into newly drilled oil and natural gas well shafts to take a geological and geophysical look at the structure of a well. It is also used during the drilling phase and after the well has been completed. It must operate at pressures up to 20,000 pounds per square inch and in temperatures as great as 800 degrees Fahrenheit, all the time being exposed to highly corrosive substances. KRYOFLEX is used to make the pressure resistant connector seals through which the data transmission wires pass. The materials that interface with PCTI's connector seals degrade when subjected to pressure, temperature and corrosion extremes, and must be periodically replaced. Management believes that this creates the potential for additional business for PCTI. The aerospace and military support industries require smaller, lighter, hermetically-sealed connectors with a record of proven performance and reliability. PCTI believes that its KRYOFLEX sealants offer performance improvement over standard sealants. Its Micro-D connector series meets or exceeds the requirements of MIL-C-83513, providing an unsurpassed hermetic seal. The Company believes the PCTI's Micro-D connector series is setting the standard against which other connectors are evaluated. PCTI's SMA Smart connectors meet MIL-C-39012 and are used extensively in the industry. Both products can be laser-welded to ensure a permanent seal. Management believes that there is significant potential for worldwide use of these products in the aerospace and military industries. PCTI's new aluminum compatible technology has resulted in initial orders for connectors to be used in space, phased array radar, avionics, countermeasures, and telecommunications applications. The electronic packaging and modules market integrates PCTI's connectors and piece-parts into hermetically sealed aluminum housings or modules, and is believed by the Company to be an area of substantial growth for PCTI. One customer uses a module incorporating a 16-pin in-line connector, a SSMA connector and other components, all of which are integrated into a PCTI-supplied aluminum housing. 6 Applications have been found in the HI-REL segment of the aerospace, telecommunications, computer and military support industries. PCTI is developing a series of semiconductor packages and large hybrid enclosures for specific applications. PCTI has developed the technology to hermetically seal copper alloy contacts, an industry-first capability that is generating strong interest from avionics and electronics companies having applications for power packages and modules. PCTI is also developing a product family of sealable electronics packages using proprietary metal matrix composites. PCTI recently received two new patents covering this technology. PCTI plans to offer its connectors and standard aluminum or metal matrix composite packages individually or as complete units. PCTI Technologies. PCTI currently owns 27 United States patents covering a variety of applications and product areas and has one application pending for a U.S. patent. As PCTI's products evolve in the field, it is expected that PCTI will continue to develop new technologies and file for additional patents. PCTI's patents are as follows:
Patent # Title Patent Issue Date - -------- ----- ----------------- 4,220,813 Terminal for Medical Instrument September 2, 1980 4,220,814 Terminal for Medical Instrument & Assembly September 2, 1980 4,352,951 Ceramic Seal October 5, 1982 4,371,588 Ceramic Seal February 1, 1983 4,401,766 Ceramic Seal August 30, 1983 4,411,680 Ceramic Seal October 25, 1983 4,421,947 Polycrystalline Insulating Material December 20, 1983 4,424,090 Insulating Material & Method of Making January 3, 1984 4,425,476 Progressively Fused Ceramic Seal January 10, 1984 4,436,955 Terminal Assembly March 13, 1984 4,456,786 Terminal Assembly for Heart Pacemaker June 26, 1984 4,461,926 Hermetically Sealed Insulating Assembly July 24, 1984 4,493,218 Transducer System January 15, 1985 4,493,378 Terminal Assembly January 15, 1985 4,507,522 Terminal Assembly March 26, 1985 4,514,207 Method for Making Terminal Assembly April 30, 1985 4,514,590 Electrical Terminal Assembly April 30, 1985
7
Patent # Title Patent Issue Date - -------- ----- ----------------- 4,512,791 Hermetically Sealed Insulating Assembly April 23, 1985 4,518,820 Terminal Assembly for Pacemakers May 21, 1985 4,593,758 Hermetically Sealed Insulating Assembly June 10, 1986 4,654,752 Terminal Assembly & Method of Making March 31, 1987 4,657,337 Electrical Connector & Production Method April 14, 1987 4,690,480 Tubular Bi-Metal Connector September 1, 1987 5,109,594 Method of Making a Sealed Transition Joint May 5, 1992 5,041,019 Transition Joint for Microwave Package August 20, 1991 5,298,683 Dissimilar Metal Connectors March 29, 1994 5,433,260 Sealable Electronics Packages and Method of July 18, 1995 Producing and Sealing Such Packages
KRYOFLEX materials are protected by a family of patents. However, even without patent protection, the Company believes that KRYOFLEX would be extremely difficult to duplicate. The production of the sealant involves a number of steps, each with different ingredients and processes. Qualitative analysis could determine the ingredients of a particular KRYOFLEX, but management does not believe that any analytical process can identify how many steps are involved and what is done at each point in the process. Of the many permutations and combinations involving the ingredients in KRYOFLEX, only a very few would result in a usable product. The Company believes that it has, and will continue to have, a secure position with regard to the technology involved in sealing its products. PCTI has three principal trademarks. One of the trademarks, KRYOFLEX, is registered with the U.S. Patent and Trademark Office and is used in connection with the Company's proprietary ceramic compounds. The other marks, HERMETIC ADVANTAGE and PARTNERS WITH TOMORROW, are used with PCTI's hermetic connectors. Applications to register these two marks are pending at the Patent and Trademark Office. Competition. The market for PCTI's products is highly competitive. PCTI's top competitors include Balo Precision Parts, Ampheno/Bendix, Hermetic Seal Corp., Hittman Materials, Kemlon Products, ITT Canon and Alberox Corp. These companies compete with PCTI in the areas of pricing, location, existing product line, quality, sales and engineering support. Many of these companies have greater financial and technical resources and are in better geographical locations than the Company. The Company is aware of no competitors that compete across the breadth of PCTI's product lines, although competitors do exist for each market segment individually. See "Legal Proceedings" regarding litigation involving Balo Precision Parts. 8 Other Items of Note. Competitive sources are generally available to supply all of PCTI's needs for raw, processed and machined materials. However, from time to time PCTI experiences delivery and quality problems from its vendors. PCTI maintains a qualified, effective quality control function to help manage this factor. PCTI also maintains a continuous effort to improve its standard and custom products, and to respond to customer demand for process and product research and development. These efforts are closely aligned with standard production procedures for ease of implementation, and consequently PCTI does not segregate these R&D costs. The Company is not aware of any material violations of environmental or safety laws or regulations with respect to PCTI. PCTI's Safety Committee, comprised of management, production and quality control personnel, meets regularly. As of August 16, 1995, PCTI has 78 full-time employees. Twelve are involved in SG & A functions, eight in engineering, and 58 in direct or indirect support of manufacturing. Cashmere Manufacturing Co., Inc. CMC Products. CMC operates a precision machine shop that produces diversified components and assemblies for the aerospace component, electronics and automotive industries. Its operations use a full compliment of CNC machines to handle a variety of applications. This mixture of light to medium CNC machine equipment provides a wide range of engineering capabilities. CMC produces components from the smallest connectors to very complex assemblies. CMC has no proprietary technology. CMC Market. Historically, CMC's sales have come almost exclusively from the aerospace industry, with over 90% of its sales going to Boeing. Since May 31, 1994, when CMC was acquired by PCTH and thereby became affiliated with PCTI, CMC has been diversifying its customer base and supporting the machining requirements of PCTI. Through access to the broader customer base of PCTI, management is aggressively implementing strategies to lower the dependency of CMC on one customer. During the fiscal year ended May 31, 1995, 24.4% of CMC's sales were to companies other than Boeing (including PCTI). CMC has no proprietary technology and competes with many other companies in its industry. Other Operational Factors. CMC currently operates as a job-shop and does not maintain its own research and development effort, relying primarily upon customer engineered machining specifications. CMC maintains various levels of ratings and qualifications, including ISO 9000, and is continuously upgrading quality control standards based upon customer demands. Sources of supply for raw material requirements are readily available through product distributors. Delivery and quality may vary or change from time to time, depending upon aluminum source supplies. CMC competes for qualified machinists 9 and is actively involved in internal training strategies to develop employee capabilities and encourage longevity of employment. The Company is not aware of any material violations of environmental or safety laws or regulations with respect to CMC. CMC's Safety Committee, comprised of management, production and quality control personnel, meets regularly. As of August 15, 1995, CMC employs 72 full-time persons, with six in SG & A, eight in engineering, contracts and scheduling and 58 in indirect and indirect support of manufacturing. Ceramic Devices, Inc. CDI Products. CDI designs and manufactures devices to filter out electromagnetic interference ("EMI") and has been a military-qualified supplier of ceramic filtering devices since 1982. EMI poses significant problems for the manufacturers and users of high-performance, high reliability electronic systems. EMI filters designed by CDI are for use with electronic circuits operating in hostile environments. A fully integrated filter manufacturer, CDI fabricates the high quality discoidal multilayer capacitors and multilayer filters that meet stringent military requirements and individualized customer specifications. CDI plans to target the medical filter industry, custom filter assemblies and custom capacitor arrays. CDI Market. CDI markets and sells its products through a network of manufacturers' representative organizations, generally established on a geographic basis. CDI maintains an internal sales and customer service staff and engineering capability to support customers' requirements for technical support. The market for CDI's products is competitive, and market share is maintained and expanded through providing a superior quality product, with service and product design expertise required to satisfy specialized needs. The customer base for CDI is generally the same as the customer base of PCTI, including large defense oriented companies manufacturing systems incorporating highly sophisticated electronic packaging. No one customer currently accounts for more than 10% of CDI's revenue base. CDI also maintains numerous qualifications requested by customers as to the nature and scope of capabilities in product specification and testing. CDI is DESC (Defense Electronic Supply Center) approved for its manufactured products. DESC approval is a national industry-wide specification. Other Items of Note. CDI performs the majority of its manufacturing to military specifications and customer specifications and has very little company directed research and development. CDI has multiple sources of supply for its raw, processed and machined materials and piece parts. Quality and delivery of CDI's supplies tend to vary from time to time and, consequently, CDI is constantly seeking secondary sources for its outside 10 purchases. CDI competes with other manufacturers for semi-skilled and entry level employees and depends upon internal training programs to maintain a qualified work force. The Company is not aware of any material violations of environmental or safety laws or regulations with respect to CDI. CDI's Safety Committee, comprised of management, production and quality control personnel, meets regularly. As of August 15, 1995, CDI has 28 full-time employees. Six are engaged in SG&A support and 22 are employed in direct and indirect support of manufacturing. ITEM 2. DESCRIPTION OF PROPERTY PCTI operates from offices in Wenatchee, Washington, where it leases approximately 31,000 square feet under a lease with the Port of Chelan County. This lease expires in the year 2003. PCTI has options to renew the lease for two additional five-year terms. Base rent under the lease is $13,250 per month. CMC operates from facilities in nearby Cashmere, Washington, where it leases approximately 42,000 square feet from a shareholder of the Company for $9,000 per month. See "Certain Relationships and Related Transactions." The lessor has agreed to terminate the lease in mid-October 1995, at which time CMC's operations are expected to be relocated to a new 42,000 square foot building adjacent to the PCTI facility. The new facility will be operated under a lease with the Port of Chelan County, which lease is for an initial 10-year term with two additional five-year terms. Base rent under the Port of Chelan County lease will be approximately $13,000 per month, subject to adjustment based upon finalization of the project and total project costs. In May 1995, CMC entered into an agreement to reacquire from two shareholders of the Company certain real property adjacent to the current Cashmere manufacturing facility in exchange for the forgiveness of the outstanding balance of a note payable by one of the shareholders to CMC and assumption by the shareholders of the outstanding bank debt on the Property. The property is currently listed for sale, and is being used by the Company for storage. See "Certain Relationships and Related Transactions." CDI occupies approximately 9,900 square feet of office and manufacturing space in two buildings located on Ronson Road in San Diego, California. That leased property is subject to two commercial leases with a common lessor, which leases expire on April 30, 1997. Each lease may be extended for an additional three-year term. The total rent is $6,775 per month. CDI's principal executive offices are located at the Company's headquarters in Wenatchee, Washington. CDI is scheduled to relocate its manufacturing operations to the Company's new facility in Wenatchee, Washington during late 1995 and early 1996. The leased space in San Diego is expected to be subleased in whole or in part through the end of the initial lease term. 11 As noted above, the Company is currently engaged, through the Port of Chelan County, in an approximately $2.5 million plant expansion. Upon completion, the Company will have approximately 80,000 square feet of manufacturing facility. By January 1996, the Company expects to consolidate its subsidiaries, PCTI, CMC and CDI at its renovated and expanded facilities. All three current operating subsidiaries of the Company support the machinery and equipment components of their operations through purchases of equipment and leases from traditional equipment manufacturers. Equipment required by the businesses is generally readily available within a reasonably short time period. Customization of equipment is not extensive and generally falls within the specifications offered by the manufacturer to a broad range of customers in similar manufacturing environments. The Company generally acquires its equipment through traditional bank, leasing or vendor supported purchase contracts or lease financing arrangements. ITEM 3. LEGAL PROCEEDINGS In July 1992, Balo Precision Parts, Inc. ("Balo") informed PCTI that Balo believed that PCTI's hermetic connectors infringed Balo's U.S. Patent No. 5,110,307. Balo and PCTI were unable to resolve this matter and, on May 17, 1993, PCTI requested the U.S. Patent and Trademark Office to reexamine Balo's patent. The next day Balo filed a patent infringement action against PCTI in the U.S. District Court for the District of New Jersey. Balo's lawsuit was stayed pending the outcome of the Patent Office's reexamination of Balo's patent. The reexamination of Balo's patent has been concluded, and the New Jersey lawsuit has resumed. PCTI has answered Balo's complaint, pursued discovery and has brought a motion for summary judgment in its favor. PCTI also filed a patent infringement action against Balo, which has been consolidated with Balo's lawsuit. PCTI's lawsuit alleges that Balo's sales of hermetic connectors infringes U.S. Patent Nos. 4,690,480 and 5,041,019, both owned by PCTI. Balo and PCTI are seeking damages and an injunction against each other's continued manufacture and sale of hermetic connectors. The Company believes, and has been advised by its patent counsel, that PCTI has meritorious defenses to Balo's claims and that Balo infringes PCTI's patents. However, such opinions are not binding on the court, and it is not possible to predict the outcome of this litigation with certainty. If PCTI is not successful in this litigation, it could suffer a serious, material adverse impact on its financial condition and its operations, particularly its hermetic connector business. 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS. Until March 13, 1995, there was no public market for the Company's Common Stock. Since that date, the Company's Common Stock has been quoted and traded on the NASDAQ Electronic Bulletin Board. There has not been, however, a large volume of trading in the Company's shares. The Company presently is in the process of applying for a NASDAQ SmallCap listing. The listing, if obtained, will enhance the public market for its securities by improving the liquidity of investments in the Company. There can be no assurance that the Company will obtain a NASDAQ SmallCap listing or that any public market for its securities will be sustained. Because there was no established public market for the Company's Common Stock prior to March 13, 1995, high and low bid information through that date is not available. The following table sets forth the range of high and low closing bid prices, as reported by the NASDAQ Electronic Bulletin Board, for the quarter ended May 31, 1995. The high and low bid prices on May 31, 1995 were both $5.50 per share. The prices reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not represent actual transactions. High Low Fourth Quarter $8.00 $5.00 At the close of business on August 15, 1995, the Company had 893 shareholders of record. During the two most recent fiscal years, the Company has not declared any dividends on its Common Stock. For the foreseeable future, the Company intends to retain all earnings and does not plan to declare any dividends on its Common Stock. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussions should be read in conjunction with the Consolidated Financial Statements and Notes thereto. 13 General The Company's revenues are derived from its operating subsidiaries, PCTI, CMC and CDI. PCTI and CMC are wholly owned subsidiaries of PCT Holdings, Inc., a Washington corporation and wholly owned subsidiary of the Company (referred to elsewhere in this report as "PCT Subsidiary"). CDI is a wholly owned subsidiary of the Company. See "Description of Business - General History" for a discussion of when and how the operating subsidiaries were acquired by the Company. For the years ended May 31, 1993 and 1992, because the Company had no operations (other than investigating and evaluating acquisition opportunities) and because PCTH had not been formed and did not acquire CMC until May 31, 1994, the revenues shown on the Company's financial statements contained in this report were generated solely through PCTI. PCTI's revenues were derived from the manufacture and sale of hermetically sealed electronic connectors and electronic packages incorporating technologies which are proprietary to the Company within the scope of its patents and trade secrets and the design requirements of its customers. A significant portion of these revenues was a direct result of short-run prototype orders involving a high degree of engineering. The revenue contribution of CMC during the year ended May 31, 1995 totalled $6,756,064. CMC is a precision machine shop producing diversified machined components (primarily aluminum) for the aerospace, electronics and automotive industries. As of February 28, 1995, the Company acquired CDI, a manufacturer of electronic filtering devices to filter electromagnetic interference in high performance, high reliability electronic systems. The three-month revenue contribution of CDI included in the year ended May 31, 1995 totalled $399,442. On a comparative basis, PCTI's net sales were $3,880,089; $2,940,019 and $2,804,332, respectively, for the years ended May 31, 1995, 1994 and 1993. 14 Selected Financial Data: PCT HOLDINGS, INC. CONSOLIDATED STATEMENT OF OPERATIONS
Years Ended May 31 ---------------------------------------------------------------------------- 1995 1994 1993 ---------------------------------------------------------------------------- Net Sales $11,035,595 $2,940,019 $2,804,332 Cost of Sales 9,092,157 2,859,791 2,760,477 Gross Profit 1,943,438 80,228 43,855 Operating Expenses 2,788,940 963,811 953,124 Loss from Operations (845,502) (883,583) (909,269) Other Income and Expense Interest Income 74,352 4,008 1,264 Interest Expense (356,360) (207,205) (365,770) Other 13,835 (11,227) 225,853 ---------- ----------- (268,173) (214,424) (138,653) Loss Before Merger and Equity Capital Costs (1,113,675) (1,098,007) (1,047,922) Merger and Equity Capital Costs (538,040) ---------- ----------- ----------- Net Loss Before Income Tax (1,651,715) (1,098,007) (1,047,922) Federal Income Tax Benefit 241,000 ---------- ----------- ----------- Net Loss for the Period ($1,410,715) ($1,098, 007) ($1,047,922) ---------- ----------- ----------- Per Share of Common Stock ($0.41) ($0.60) ($0.17) ---------- ----------- ----------- Net Working Capital $1,758,782 ($1,236,571) ($1,480,860) Total Assets $11,629,912 $7,893,531 $2,176,697 Long Term Liabilities $1,086,210 $934,736 $277,440
15 Years Ended May 31, 1994 and 1993 Net sales increased $135,687, or 4.8%, in fiscal year 1994 versus fiscal year 1993. The increase was due in part to larger order sizes and additions to PCTI's customer base. The increase would have been larger but for expenses incurred as a result of PCTI's move from Roseburg, Oregon to its existing site in Wenatchee, Washington. The move caused a significant interruption in revenues during the first and second quarters of fiscal year 1994 while PCTI's current facility was being completed and the manufacturing operation was located in temporary facilities. PCTI's motivations for the move were to provide better access to an acceptable work force, a more positive local economic environment for the day to day operations of the Company, closer proximity to the Company's director and shareholder group, and a location including regularly scheduled airline service for more convenient customer access to the Company's engineering and manufacturing operations. Although gross profit for the two periods nearly doubled from $43,855 in fiscal year 1993 to $80,228 in fiscal year 1994, gross margins for both periods were negligible, again reflecting short-run prototype and start-up orders which needed to be aggressively priced to attract customers, but did not allow for production efficiencies. Interest expense declined significantly, reflecting the small shareholder group's willingness to exchange debt for equity. In fiscal year 1993, PCTI also recognized a gain of $85,187 on the sale of its production and office facilities in Roseburg, Oregon and gain on the forgiveness of debt of $123,599 related to an agreement with a former stockholder of PCTI's predecessor for reduced payment on a note payable and accrued royalties. The net working capital position of the Company improved substantially from a deficit of $1,480,860 to a deficit of $1,236,571, reflecting balance sheet consolidation with CMC at May 31, 1994 and investment by PCTH's shareholders through stock purchases and loans. Years ended May 31, 1995 and 1994 Net sales increased a total of $8,095,576 during fiscal year 1995, $6,756,064 from the added increment of CMC, $399,442 from the added increment of CDI, and an increase of $696,914, or 27.7%, from increased revenues of PCTI ($2,940,019 in fiscal year 1994 increased to $3,880,089 in fiscal year 1995). The PCTI increase reflects PCTI's ability to achieve a larger average order size during fiscal year 1995. Management believes that this is in part a result of PCTI's relocation to the current location, which provides better access by customers for source inspection, engineering design collaboration and manufacturing coordination. The Company's addition of the CMC subsidiary also provides vendor support to PCTI for machined aluminum electronic package bodies and parts, which PCTI would otherwise need to purchase from outside vendors. Intercompany sales, which were eliminated in consolidation and not included in the above analysis, totalled $286,742 for fiscal year 1995, sales for CMC and purchases by PCTI. 16 Gross profits increased substantially from fiscal year 1994 to fiscal year 1995, from $80,228 in 1994, to $1,943,438 in 1995, or 17.6% of sales. The increase in gross profit is attributable in part to the addition of CMC and the improvement in margins by PCTI, with both operations experiencing comparable margins during the year. CDI's contribution on sales of $399,442 was negligible due to the costs of the CDI Merger and the costs of integrating CDI into the Company's operations. Interest income for fiscal year 1995 of $74,352 compared to interest income for fiscal year 1994 of $4,008 is a direct result of a note receivable on the sale of the CMC office and manufacturing facility to two shareholders prior to the acquisition of CMC by PCTH in May 1994. The interest income level is not expected to repeat in light of the Company's reacquisition of a portion of the property in exchange for a portion of the note receivable in late May 1995. Interest expense increased from $207,205 to $356,360 due to the debt assumed as a part of the CMC acquisition, including a banking arrangement with a term loan secured by equipment of $900,310 at May 31, 1994 and a short term working capital loan of $1,388,779 at May 31, 1994 (under a short-term working capital note for borrowings up to $1,500,000 secured by receivables and inventories). Merger and equity capital costs incurred in fiscal year 1995 reflect conversion of warrants and options to common stock coincident with the PCTH Merger transaction in February 1995 and acquisition costs associated with the PCTH Merger and CDI Merger. The federal income tax benefit in 1995 of $241,000 resulted from estimated timing differences in book/tax depreciation methods of CMC calculated at the acquisition date in May 1994 have been reversed for financial statement reporting purposes during 1995. Liquidity and Capital Resources The Company (or its subsidiaries) has funded its operations over the last three years primarily through the sale of equity securities, primarily common stock privately placed and the Regulation S placement in 1995, and through bank indebtedness. During the past two fiscal years, the Company (or its subsidiaries) has received proceeds totalling $5,730,064 from the sale of common stock ($4,582,858 in fiscal year 1995 and $1,147,206 in fiscal year 1994) and $2,000,000 in fiscal year 1994 from a Chelan County loan sponsored through the Washington State Department of Trade and Economic Development. Generally, the proceeds have been used to purchase patents which are the basis for the Company's technologies, to pay down shareholder loans previously extended to support operations, to purchase and to make down payments for equipment to support higher revenue levels, and to fund operating losses. As noted in the above schedule of selected financial data, the Company's working capital position at May 31, 1995 totalled $1,758,782. Coupled with a working capital and equipment term loan arrangement with the Silicon Valley Bank (the "Bank"), under a Loan and Security Agreement entered into on April 24, 1994 between the Bank and 17 the Company, PCTI, CMC and CDI, pursuant to which the Bank has agreed to lend the Company and its subsidiaries up to $1,750,000, the Company expects to be in a position to support current and expected levels of operations for the foreseeable future. The Company is also working towards being in a position to attract additional capital through additional sales of stock for use in growth through strategic acquisitions. 18 ITEM 7. FINANCIAL STATEMENTS INDEPENDENT AUDITOR'S REPORT To the Board of Directors PCT Holdings, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheet of PCT Holdings, Inc. and Subsidiaries (the Company) as of May 31, 1995 and 1994, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PCT Holdings, Inc. and Subsidiaries as of May 31, 1995 and 1994, and the results of their operations and cash flows for the years then ended in conformity with generally accepted accounting principles. MOSS ADAMS LLP Everett, Washington July 14, 1995 19 PCT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ASSETS ------
MAY 31, ------------------------ 1995 1994 ---- ---- CURRENT ASSETS Cash $ 1,078,637 $ 27,208 Accounts receivable, net of allowances for doubtful accounts and returns of $45,000 and $30,000 1,075,999 923,894 Inventory 4,375,162 3,459,969 Prepaid expenses and other 39,721 62,242 Current portion of note receivable from stockholder 278,795 23,000 ------------ ----------- Total current assets 6,848,314 4,496,313 ------------ ----------- PROPERTY AND EQUIPMENT, at cost, net 3,008,122 2,307,564 ------------ ----------- OTHER ASSETS Note receivable from stockholder, net of current portion 952,207 Real estate held for resale 676,253 Patents, net of accumulated amortization of $33,000 and $3,200 478,092 46,781 Costs in excess of net book value of acquired subsidiary net of accumulated amortization of $7,800 462,687 Non-compete agreement 100,000 Other 56,444 90,666 ------------ ----------- 1,773,476 1,089,654 ------------ ----------- $ 11,629,912 $ 7,893,531 ============ ===========
(continued) 20 PCT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (continued) LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------
MAY 31, ---------------------------- 1995 1994 ---- ---- CURRENT LIABILITIES Note payable $ 1,388,779 Accounts payable $ 1,527,467 958,850 Accrued liabilities 518,065 371,417 Current portion of long-term debt 2,448,000 1,008,000 Current portion of notes payable to stockholders 510,000 1,917,838 Current portion of capital lease obligations 51,000 88,000 Current portion of non-compete agreement payable 35,000 ------------ ------------ Total current liabilities 5,089,532 5,732,884 LONG-TERM LIABILITIES Long-term debt, net of current portion 319,574 415,329 Notes payable to stockholders, net of current portion 457,644 160,000 Capital lease obligations, net of current portion 115,281 73,407 Non-compete agreement payable, net of current portion 65,000 Deferred income tax 241,000 Deferred rent 128,711 45,000 ------------ ------------ Total liabilities 6,175,742 6,667,620 ------------ ------------ COMMITMENTS AND CONTINGENCY (Notes 10 and 13) STOCKHOLDERS' EQUITY Common stock 11,018,406 5,379,432 Accumulated deficit (5,564,236) (4,153,521) ------------ ------------ 5,454,170 1,225,911 ------------ ------------ $ 11,629,912 $ 7,893,531 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 21 PCT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, ------------------------------- 1995 1994 ---- ---- NET SALES $ 11,035,595 $ 2,940,019 COST OF SALES 9,092,157 2,859,791 ------------ ------------ GROSS PROFIT 1,943,438 80,228 OPERATING EXPENSES 2,788,940 963,811 ------------ ------------ LOSS FROM OPERATIONS (845,502) (883,583) ------------ ------------ OTHER INCOME AND EXPENSE Interest income 74,352 4,008 Interest expense (356,360) (207,205) Other 13,835 (11,227) ------------ ------------ (268,173) (214,424) ------------ ------------ LOSS BEFORE MERGER AND EQUITY CAPITAL COSTS (1,113,675) (1,098,007) MERGER AND EQUITY CAPITAL COSTS (538,040) ------------ ------------ LOSS BEFORE FEDERAL INCOME TAX (1,651,715) (1,098,007) FEDERAL INCOME TAX BENEFIT 241,000 ------------ ------------ NET LOSS $ (1,410,715) $ (1,098,007) ============ ============ LOSS PER SHARE OF COMMON STOCK $ (0.41) $ (0.60) ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 22 PCT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED MAY 31, 1995 AND 1994
Common Stock Preferred Stock ------------------------ --------------------------- Accumulated Shares Amount Shares Amount Deficit ------ ------ ------ ------ ----------- BALANCE, May 31, 1993 As previously reported, retroactively adjusted for effects of stock splits 1,092,592 $ 1,505,000 $ 383,000 $ 478,750 $ (2,790,554) Pooling of interest with: Pacific Coast Technologies, Inc. Verazzana Ventures, Ltd. 187,500 219,000 (219,000) --------- ------------ ------------ ------------ ------------ Balance, as restated 1,280,092 1,724,000 383,000 478,750 (3,009,544) Common stock issued 442,968 1,204,741 Dividend paid through issu- ance of preferred stock 45,960 45,960 (45,960) Exchange of preferred stock for common stock 250,226 524,710 (428,960) (524,710) Acquisition of Cashmere Manufacturing Co., Inc. 791,666 1,925,981 Net loss (1,098,007) --------- ------------ ------------ ------------ ----------- BALANCE, May 31, 1994 2,764,952 $ 5,379,432 -- -- (4,153,521) Common stock issued 2,137,680 4,682,091 Stock options and warrants exercised 160,043 316,883 Acquisition of Ceramic Devices, Inc. 133,333 640,000 Net loss (1,410,715) --------- ------------ ------------ ------------ ----------- BALANCE, May 31, 1995 5,196,008 $ 11,018,406 -- -- $ (5,564,236) ========= ============ ============ ============ ===========
The Company has authorized 100,000,000 shares of common stock and 5,000,000 shares of preferred stock. The accompanying notes are an integral part of these consolidated financial statements. 23 PCT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED MAY 31, ----------------------------- 1995 1994 ---------- ---------- CASH FLOW FROM OPERATING ACTIVITIES Cash received from customers $ 11,151,726 $ 2,636,024 Cash paid to suppliers and employees (11,309,618) (3,791,763) Interest paid (333,106) (122,930) Interest received 74,352 4,008 ------------ ------------ Net cash from operating activities (416,646) (1,274,661) ------------ ------------ CASH FLOW FROM INVESTING ACTIVITIES Purchase of property and equipment (604,904) (81,189) Proceeds from sale of property and equipment 100,030 Purchase of patents (461,000) Payments received on note receivable 20,159 -- ------------ ------------ Net cash from investing activities (1,045,745) 18,841 ------------ ------------ CASH FLOW FROM FINANCING ACTIVITIES Net change in note payable (1,388,779) (287,344) Proceeds from long-term debt 2,229,336 88,571 Payments on long-term debt and capital lease obligations (1,299,601) (322,709) Proceeds from notes payable to stockholders 50,000 616,838 Payments on notes payable to stockholders (1,659,994) Sale of common stock 4,582,858 1,147,206 ------------ ------------ Net cash from financing activities 2,513,820 1,242,562 ------------ ------------ NET CHANGE IN CASH 1,051,429 (13,258) CASH, beginning of year 27,208 40,466 ------------ ------------ CASH, end of year $ 1,078,637 $ 27,208 ============ ============
(continued) 24 PCT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
YEAR ENDED MAY 31, ------------------------------ 1995 1994 ---------- ---------- RECONCILIATION OF NET LOSS TO NET CASH FROM OPERATING ACTIVITIES Net loss $(1,410,715) $(1,098,007) Adjustments to reconcile net loss to net cash from operating activities Depreciation and amortization 408,541 144,655 Loss on sale of property and equipment 15,526 Merger and equity capital costs paid in common stock 336,888 Federal income tax benefit (241,000) Changes in operating assets and liabilities Accounts receivable 102,296 (303,995) Inventory (215,675) (190,136) Prepaid expenses and other 70,965 (2,248) Accounts payable and accrued liabilities 532,054 159,544 ----------- ----------- NET CASH FROM OPERATING ACTIVITIES $ (416,646) $(1,274,661) =========== =========== SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES Acquisition of Subsidiaries (Note 1): Fair value of assets acquired, other than cash $ 1,589,374 $ 5,442,433 Liabilities assumed (370,346) (3,528,659) Notes payable issued (600,000) ----------- ----------- Common stock issued $ 619,028 $ 1,913,774 =========== =========== Payment of dividend through issuance of preferred stock $ 45,960 Payment of interest through issuance of common stock $ 69,742 Payment on note payable through issuance of stock $ 100,200 Seller financed non-compete note payable $ 100,000 Collateral recovery of building for note receivable $ 676,253 Seller financed purchase of property and equipment $ 202,697 Equipment purchased through capital leases $ 151,074
The accompanying notes are an integral part of these consolidated financial statements. 25 PCT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1995 AND 1994 NOTE 1 - FORMATION AND ACQUISITIONS On February 15, 1995, PCT Holdings, Inc. (formerly Verazzana Ventures, Ltd.), a Nevada corporation, (the Company) entered into an Agreement and Plan of Merger for the merger of PCT Merger Corporation, a wholly-owned subsidiary corporation of the Company (the Surviving Corporation) with PCT Holdings, Inc., a Washington corporation (the Merging Corporation). The business previously conducted by the Merging Corporation and its operating subsidiaries is owned and operated as a wholly-owned subsidiary of the Company following the exchange of shares by the Surviving Corporation. The merger was accounted for as a pooling of interests. Concurrent with the merger, the Company changed its name from Verazzana Ventures, Ltd. to PCT Holdings, Inc. The merger, effective February 17, 1995, was accomplished by an exchange of 2,963,675 shares of the Company's authorized, but previously unissued, common stock for all issued and outstanding shares of the Merging Corporation as of the date of the merger. Prior to the exchange of shares, there had been no relationship between the Company or any of its affiliates and the Merging Corporation or any of its affiliates. The Company had conducted only limited business operations, consisting primarily of investigating and evaluating acquisition opportunities. The Merging Corporation had conducted separate, unrelated operations prior to the merger. These consolidated financial statements report results of operations as if the Merging Corporation and the Company were combined as of the beginning of the year ended May 31, 1994. A finders and consulting fee related to the merger of $50,000 cash and 212,500 shares of the Company's common stock was paid to a consultant. Included in merger and equity capital costs during the year ended May 31, 1995 is $155,000 related to the cash payment and the fair market value of the stock issued. The Merging Corporation was organized on May 31, 1994 to acquire the outstanding stock of Pacific Coast Technologies, Inc. (PCTI) and Cashmere Manufacturing Co., Inc. (CMC). The stockholders of PCTI and CMC became the stockholders of the Merging Corporation, and PCTI and CMC became wholly-owned subsidiaries. The acquisition of PCTI was accounted for as a pooling of interests, whereby the assets and liabilities of both companies were combined at historical cost. These consolidated financial statements report results of operations as if PCTI and the Merging Corporation were combined as of the beginning of the year ended May 31, 1994. 26 PCT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1995 AND 1994 (continued) The purchase method of accounting was used to account for the acquisition of CMC. Management established the value of the stock issued as equivalent to CMC's net book value (equity) of $1,925,981 at May 31, 1994. CMC's sales, costs and expenses were not included in operating results for the year ended May 31, 1994. On February 28, 1995, the Company acquired the outstanding stock of Ceramic Devices, Inc. (CDI) for $1,240,000, consisting of 133,333 shares of the Company's common stock at $4.80 per share, or $640,000, and notes payable totaling $600,000 (Note 8). The acquisition, accounted for using the purchase method of accounting, resulted in costs in excess of net book value of CDI of $470,529 which are being amortized over 15 years. CDI's sales, costs and expenses are included in the consolidated operating results for the three months ended May 31, 1995. Concurrent with the purchase of CDI, the Company entered into a non-compete agreement with the president of CDI for $100,000, payable in annual installments of $35,000 in February 1996 and 1997 and $30,000 in February 1998. The non-compete agreement covers the three-year period following the termination of employment of CDI's president, and is being amortized over 6 years which management estimates to be the period of benefit of the agreement. The following summary, prepared on a pro forma basis, combines the consolidated condensed balance sheets and results of operations as if CMC and CDI had been acquired as of the beginning of the year ended May 31, 1993. There are no material adjustments which impact the summary.
MAY 31, ------------------------------ 1994 1993 (UNAUDITED) (UNAUDITED) ----------- ----------- Inventories $ 4,139,000 $ 4,285,000 Other current assets 1,370,000 1,203,000 Property and equipment 2,457,000 3,764,000 Other non-current assets 1,699,000 1,012,000 ----------- ----------- $ 9,665,000 $10,264,000 =========== =========== Current liabilities $ 6,522,000 $ 5,441,000 Long-term liabilities 1,117,000 1,993,000 Stockholders' equity 2,026,000 2,830,000 ----------- ----------- $ 9,665,000 $10,264,000 =========== ===========
27 PCT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1995 AND 1994 (continued)
YEAR ENDED MAY 31, ------------------------------------------------- 1995 1994 1993 (UNAUDITED) (UNAUDITED) (UNAUDITED) ----------- ----------- ----------- Net sales $ 12,267,000 $ 9,217,000 $ 11,596,000 Loss from operations $ (992,000) $ (1,174,000) $ (1,235,000) Net loss $ (1,548,000) $ (1,486,000) $ (1,501,000) Loss per common share $ (0.45) $ (0.51) $ (0.53)
NOTE 2 - OPERATIONS The Company serves as a holding company for PCTI, CMC, and CDI. Its fiscal year end is May 31. PCTI, located in Wenatchee, Washington, manufactures and distributes hermetically sealed connectors and components for the medical, energy, aerospace, communications, and general electronics industries. PCTI's customers are located throughout the United States and Europe. CMC, located in Cashmere, Washington, manufactures machined aluminum parts and sub-assemblies primarily for the aerospace industry. The majority of CMC's customers are located in the Puget Sound region of Western Washington. Included in accounts receivable at May 31, 1995 and 1994 is $134,000 and $180,000, respectively, which is due from The Boeing Company. Sales to The Boeing Company were approximately $5.3 million in the year ended May 31, 1995. CDI, located in San Diego, California, designs, manufactures and distributes ceramic capacitors and filters for the medical, space and defense industries which reduce to tolerable levels electromagnetic interference in sensitive electronic systems. CDI's customers are located throughout the United States. The Company plans to relocate CMC and CDI to Wenatchee, Washington during the Fall of 1995 (Note 10). 28 PCT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1995 AND 1994 (continued) NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Principles of consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions have been eliminated. (b) Inventory - Inventory is generally stated at the lower of cost (first-in, first-out method) or market. (c) Depreciation - Property and equipment is depreciated for financial reporting purposes using the straight-line method over the estimated useful lives of the assets. For federal income tax purposes, accelerated methods are used over statutory lives. (d) Patents - Patents are recorded at cost less accumulated amortization using the straight-line method over the estimated useful lives of the patents of 15 to 17 years. (e) Federal income tax - The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes in 1994. The effect of adopting SFAS No. 109 was not material to the consolidated financial statements. SFAS No. 109 requires a company to recognize deferred tax liabilities and assets for the expected future tax consequences of events recognized in the financial statement and tax returns. Deferred tax liabilities and assets are based on the difference between financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates expected to be in effect in the years the differences are anticipated to reverse. (f) Retirement plan - The Company maintains a 401(k) plan covering all eligible employees who meet service requirements as provided in the plan. Company contributions to the profit sharing plan are determined annually by the Board of Directors. No contributions were made to the plan during the years ended May 31, 1995 and 1994. (g) Per share information - Loss per share of common stock is based upon the weighted average number of shares of common stock outstanding during the period, retroactively adjusted for stock splits. The weighted average number of shares outstanding was 3,468,741 and 1,826,423 during the year ended May 31, 1995 and 1994, respectively. Stock options which have been granted are not included in the weighted average number of shares outstanding as their effect would be anti-dilutive. (h) Reclassifications - Certain 1994 amounts have been reclassified to conform with the 1995 presentation. 29 PCT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1995 AND 1994 (continued) NOTE 4 - INVENTORY
MAY 31, --------------------------- 1995 1994 ---------- ---------- Raw materials $1,479,054 $1,526,768 Work in progress 1,142,701 651,528 Purchased and manufactured components and finished goods 1,753,407 1,281,673 ---------- ---------- $4,375,162 $3,459,969 ========== ==========
NOTE 5 - PROPERTY PLANT AND EQUIPMENT Property and equipment, including assets under capital lease arrangement, are as follows:
Estimated Useful MAY 31, Life in ----------------------------- Years 1995 1994 ---------- ---------- ---------- Machinery and equipment 5-20 $ 3,980,275 $ 3,295,096 Furniture and fixtures 5-10 478,226 380,915 Leasehold improvements 7 119,233 12,475 ----------- ----------- 4,577,734 3,688,486 Less accumulated depreciation and amortization 1,569,612 1,380,922 ----------- ----------- $ 3,008,122 $ 2,307,564 =========== ===========
Included in prepaid expenses at May 31, 1995 is $18,000 in deposits related to equipment purchase commitments of approximately $221,000. Machinery and equipment and furniture and fixtures at May 31, 1995 and 1994, includes $230,515 and $345,628, respectively, of assets acquired under capital lease. Accumulated amortization related to leased assets was $33,714 and $151,481, respectively. The Company recognized depreciation of property and equipment of $343,968 and $90,948 during the years ended May 31, 1995 and 1994, respectively, and $27,042 and $50,571, respectively, of amortization of capital leases. 30 PCT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1995 AND 1994 (continued) NOTE 6 - NOTE RECEIVABLE FROM STOCKHOLDER In May 1994, CMC sold land and buildings which include the CMC manufacturing facilities to a stockholder for $975,207. CMC received a note for the sales price, due in monthly installments of $7,600 through May 2014, including interest at 7 percent. The note was collateralized by the land and buildings, subject to priority liens of a bank and an individual. No gain or loss resulted from this transaction. The Company entered into an agreement to lease the facilities from the majority stockholder (Note 10). In May 1995, the Company reacquired an undivided interest in a portion of the land and buildings from the stockholder. The portion acquired did not include the part of the buildings that house the manufacturing facilities leased by CMC. The outstanding note receivable due from the stockholder at the time of the reacquisition was reduced to $284,839, and the remainder of that note was exchanged for the land and buildings with a fair market value of $676,253. The stockholder has agreed to assume the remaining note payable collateralized by the land and building. Negotiations are not yet finalized to fully relieve the Company of responsibility for the note payable (Note 9). The terms of the note receivable mirror the terms of the note payable, with interest at 8.75 percent, due in installments of $5,900 through February 1996 with the remaining balance due in March 1996. NOTE 7 - NOTE PAYABLE CMC had an operating line of credit with a bank through April 1995 with interest at the bank's prime rate plus 2 percent. On April 26, 1995, the line of credit with the bank was repaid. The Company and its subsidiaries are finalizing a new lending arrangement with a bank for a line of credit of $2.5 million and a capital equipment line of credit of up to $250,000. A standby letter of credit, which will provide replacement collateral for borrowings from Chelan County, State of Washington (Note 9), reduces funds available to the Company under the operating line of credit to $1.5 million, as $1.0 million is to be considered applied against the standby letter of credit. The Company will be required to establish a $1.0 million certificate of deposit at the bank as security to issue the letter of credit. Total borrowings under the line of credit are limited to a variable collateral base consisting of 40 percent of the book value of the Company's inventory to a maximum value of $1.0 million and 75 percent of eligible accounts receivable. The operating line of credit arrangement is to be available through April 1996. The capital equipment line of credit is to be available until October 31, 1995, at which time any balance will be amortized and paid over a three-year period. The loan agreement contains restrictive covenants related to tangible net worth levels, certain other financial ratios, and minimum profitability levels. 31 PCT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1995 AND 1994 (continued) NOTE 8 - NOTES PAYABLE TO STOCKHOLDERS
MAY 31, ------------------------ 1995 1994 ---------- ---------- Note payable to stockholders in November 1995, bearing interest at 8 percent. Collateralized by assets of CDI. $ 400,000 Note payable to stockholders in installments of $50,000 in February 1996 and $75,000 in February 1997 and 1998, plus interest at 8 percent. Collateralized by assets of CDI. 200,000 Note payable to a stockholder, due in monthly installments of $8,300, including interest at 10.25 percent, plus a balloon payment of $181,000 due February 1, 1998. Collateralized by patents and accounts receivable of PCTI. 367,644 $ 560,000 Notes payable to various stock- holders which were paid in full in June 1994. 1,517,838 ---------- ---------- 967,644 2,077,838 Current portion 510,000 1,917,838 ---------- ---------- Long-term portion $ 457,644 $ 160,000 ========== ==========
Interest paid to stockholders was $30,644 and $69,742 for the years ended May 31, 1995 and 1994, respectively. Interest in 1994 was paid through the issuance of common stock. Notes payable to stockholders mature as follows: YEAR ENDING MAY 31, ----------- 1996 $510,000 1997 146,000 1998 311,644 -------- $967,644 ======== 32 PCT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1995 AND 1994 (continued) NOTE 9 - LONG-TERM DEBT
MAY 31, ------------------------- 1995 1994 ---------- ---------- Chelan County, State of Washington Principal amount is payable in June 1997, however, the holder may demand payment at any time. Interest is payable quarterly at 3 percent. Collateralized by all assets of PCTI, a $2,000,000 letter of credit and guarantees of certain stockholders (Note 7). $2,000,000 Bank Note payable in monthly installments of $5,900, including interest at 8.75 percent through March 1996, at which time the balance of $242,710 is due. Collateralized by the real property described in Note 6. 278,795 $ 323,207 Various Notes payable in installments, plus interest at 6 percent to 12.5 percent. Collateralized by certain assets of PCTI and guarantees of cer- tain stockholders. 488,779 199,812 Bank Note payable which was paid in full in April 1995. 900,310 ---------- ---------- 2,767,574 1,423,329 Current portion 2,448,000 1,008,000 ---------- ---------- Long-term portion $ 319,574 $ 415,329 ========== ==========
33 PCT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1995 AND 1994 (continued) Long-term debt matures as follows: YEAR ENDING MAY 31, AMOUNT ----------- ------ 1996 $ 2,448,000 1997 98,000 1998 75,000 1999 55,000 2000 91,574 ----------- $ 2,767,574 =========== NOTE 10 - LEASING ARRANGEMENTS AND COMMITMENTS (a) Capital lease obligations - The Company is obligated under several capital lease arrangements to finance the acquisition of machinery and office equipment. Assets under capital leases are capitalized using interest rates appropriate at the inception of the lease. Minimum lease payments under the capital leases and the present value of the minimum lease payments are as follows: YEAR ENDING MAY 31, AMOUNT ----------- ------ 1996 $ 76,000 1997 71,000 1998 47,000 1999 15,000 2000 5,000 ----------- Total minimum lease payments 214,000 Less: Amount representing interest 47,719 ----------- Present value of minimum lease payments 166,281 Current portion 51,000 ----------- Long-term portion $ 115,281 =========== (b) Operating facility leases - During 1994, the Company entered into a lease agreement for the manufacturing facility in which PCTI is located through July 2003 with the Port of Chelan County. Rent payments for the first five years of the lease are based on a percentage of the base rent, resulting in a deferred rent liability. Rental expense is recorded ratably over the term of the lease. Total rental expense related to this lease was $128,000 and $80,000 for the years ended May 31, 1995 and 1994, respectively. 34 PCT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1995 AND 1994 (continued) On May 31, 1994, the Company entered into an agreement to lease the manufacturing facility in which CMC is located from a stockholder for three years at $9,000 per month. In March 1995, the Company committed to lease new space, for the CMC manufacturing operations, from the Port of Chelan County (Note 2). The scheduled completion date of the building and anticipated beginning of the lease term is September 1995. The Company and the stockholder have agreed to cancel the existing lease on the CMC facility upon completion of the building for $108,000, which has been paid and charged to operations in the year ended May 31, 1995. The Company leases the manufacturing facilities in which CDI is located under two leases. Monthly payments on the leases are $6,700. The leases expire in April 1997. Costs related to canceling the leases upon CDI's planned move to Wenatchee, Washington have not been determined. Minimum lease payments under these leases are as follows: AMOUNT ----------- Year ending May 31, 1996 $ 327,400 1997 391,700 1998 231,000 1999 202,000 2000 164,000 Thereafter 620,300 ----------- $ 1,936,400 =========== (c) Employment agreements - The Company has employment agreements with certain officers and key employees. The agreements are generally for three year terms and cancelable for cause. Compensation under the agreements includes base compensation plus incentives including up to 159,999 stock options with exercise prices ranging from $2 to $8 per share, based on the Company's performance. No options under these agreements have been granted as of May 31, 1995. NOTE 11 - FEDERAL INCOME TAX The federal income tax benefit is based on the estimated effective annual tax rate for the fiscal year. The benefit includes the tax effect of anticipated differences between the financial reporting and tax basis of assets and liabilities, and the expected utilization of net operating loss (NOL) carryforwards. The benefit of $241,000 in the year ended May 31, 1995 represents a reversal of temporary differences in book/tax depreciation methods of CMC calculated at the acquisition date in May 1994. 35 PCT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1995 AND 1994 (continued) The Company has NOL carryforwards of approximately $6.3 million available for federal income tax purposes through 2010. As a result of the greater than 50 percent change in ownership in the consolidated companies during the year, the NOL's from the subsidiaries existing prior to the respective acquisitions are limited to use by the subsidiary which originally generated the NOL. These NOL's are further limited by the amount which can be utilized in any one fiscal year. Approximately $4.8 million of the NOL's are limited to offsetting future PCTI federal taxable income. The amount which can be utilized each year is approximately $400,000. The deferred tax liabilities (assets) are comprised of the tax effect of the following at May 31: 1995 1994 --------- --------- Inventory $ 185,000 $ 102,000 Depreciation (355,000) (346,000) Other 55,000 58,000 Net operating loss carryforwards 2,130,000 1,620,000 Valuation allowance (2,015,000) (1,434,000) --------- --------- $ -- $ (241,000) ========= ========= SFAS No. 109 requires the Company to record a valuation allowance when it is "more likely than not that some portion or all of the deferred tax assets will not be realized." Management believes that some or all of the excess of NOL carryforwards over temporary differences may be utilized in future periods. However, due to the uncertainty of future federal taxable income, a valuation allowance for the full amount of the deferred tax asset has been recorded at May 31, 1995. Due to limitations on the use of NOL carryforwards the valuation allowance at May 31, 1994 was established for the full amount of the net deferred tax assets resulting from the temporary differences and NOL's of PCTI only. The Company will file a consolidated tax return for the year ended May 31, 1995. NOTE 12 - CAPITAL STOCK On July 18, 1994, the Board of Directors approved a one-for-three reverse split of the Company's common stock. This split resulted in a decrease of 10,309,834 shares of common stock outstanding. On January 26, 1995, the Company's Board of Directors approved a one-for-two reverse split of the Company's common stock. This split resulted in a decrease of 2,963,675 shares of common stock outstanding. All share and per share amounts have been restated to retroactively reflect these stock splits. 36 PCT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1995 AND 1994 (continued) NOTE 12 - CAPITAL STOCK (continued) On January 12, 1995, the Company granted stock options for 160,000 shares of the Company's common stock to certain management employees, exercisable at $2.00 per share. These shares are fully vested and exercisable. Subsequent to May 31, 1995, the Company granted additional stock options for 125,000 shares of common stock to certain management employees with an exercise price equal to the fair market value of the stock at the date of grant. The stock options expire between December 2000 and February 2005. During the year ended May 31, 1995, the Board of Directors gave all option and warrant holders the choice of exercising options and warrants at one-half the original exercise price, or exercise the options at no price and receive one share of common stock for every four shares of options or warrants held. Options and warrants totaling 94,444 and 292,965, respectively, were exercised with resulting proceeds of $30,000 and $54,995, respectively. The holders of the options and warrants received 48,610 and 111,433 shares of common stock, respectively. The fair market value of the Company's common stock at the date of exercise was $1.98 per share. Included in merger and equity capital costs during the year ended May 31, 1995 is $231,888 related to the repricing of the options. No options were exercised during the year ended May 31, 1994. The Company entered into an agreement with a Swiss company to find suitable and qualified investors for the purchase of up to 800,000 shares of the Company's common stock at a price of not less than $5.00 per share in an offering qualifying under Regulation S of the Securities Act of 1933. The Swiss company received a minimum commission of 5 percent of the gross proceeds, plus reimbursement of out-of-pocket costs and 1,000,000 shares of the Company's common stock, which according to the agreement, were earned in fiscal 1995 and are reflected as issued and outstanding in these consolidated financial statements. The Company is awaiting instructions from the Swiss company as to the actual preparation of the stock certificate(s) for the 1,000,000 shares of stock, and will accommodate actual issuance within the scope of the agreement and securities regulations for qualification under Regulation S. During the year ended May 31, 1995, 699,000 shares of stock were sold under the Swiss company agreement with net proceeds to the Company of $3,595,667, or $5.14 per share. Using proceeds from the stock sales, the Company paid off the CMC line of credit (Note 7) and the term loan collateralized by equipment (Note 9). NOTE 13 - MANAGEMENT'S PLAN FOR FUTURE OPERATIONS As shown in the consolidated financial statements, the Company has incurred net losses of $1,410,715 and $1,098,007 during the years ended May 31, 1995 and 1994, respectively. While current assets exceed current liabilities by $1,758,782 as of May 31, 1995, the Company must maintain future cash flows sufficient to meet its ongoing obligations while improving operating results. 37 PCT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1995 AND 1994 (continued) Management has developed and is implementing its plan to improve operating results and maintain cash flows during fiscal 1996. Significant components of management's plans for operations include: * Bringing each Subsidiary to profitable operating results on a month-to-month basis through additional revenue opportunities with current customers. Unaudited financial information prepared by management for June 1995 presents a consolidated operating loss of $34,700 during that month, based on net revenues of $1,153,600. * Consolidating manufacturing locations by relocating the manufacturing facilities of CMC and CDI adjacent to PCTI in Wenatchee, Washington during fiscal 1996. This facility consolidation is expected to provide significant operating efficiencies and improved management control of operations. * Recruiting management personnel to enhance manufacturing operations, inventory control and marketing. PCTI hired a vice-president of manufacturing who assumed responsibilities during March 1995. * Building the sales backlog. The Company's consolidated sales backlog has grown to nearly $10.5 million at August 1, 1995, compared with approximately $7.5 million in January of 1995 and $5.5 million in August of 1994. * Continuing revenue growth through internal product development, utilization of the Company's patented technologies and strategic acquisitions. The Company will continue to develop products and support customers in the aerospace, transportation, communications, energy and medical industries. To sustain operations and cash flows while operational improvements are being implemented, the Company has historically been successful in maintaining sufficient cash flow through equity and debt financing arrangements. Management expects to continue to maintain liquidity as it has demonstrated in historical periods. A summary of past financing results and future financing plans follows. During fiscal 1995, the Company made significant progress in building its equity base, reducing debt and creating an improved business environment by trading its stock in the public market. Historical achievements include: * Raising approximately $981,000 in a private stock placement during the Fall of 1994 to support operations. * Raising approximately $3,596,000 during fiscal 1995 in an offering of 800,000 shares qualifying under Regulation S under the Securities Act of 1933. Additional proceeds have 38 PCT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1995 AND 1994 (continued) been received through this offering during fiscal year 1996 bringing total net proceeds of the offering during fiscal 1995 and 1996 to approximately $4,107,000. * Entering into and completing an Agreement and Plan of Merger with a public shell corporation, resulting in the Company becoming publicly traded on the bulletin board or "pink sheets." * After completing the two equity offerings referred to above, repaying debt of $2.2 million, developing a new banking relationship, purchasing equipment to support operating activities, paying the costs associated with merger transactions and providing working capital to support on-going operations. * Purchasing CDI in a stock transaction which provided vertical integration for the Company's product base to its customers. CDI added an approximate $1.5 million revenue base and growth opportunities within the existing PCT Holdings, Inc. customer group. * Achieving equity, asset and revenue levels to qualify the Company for listing under the NASDAQ small cap market. The Company has made application for listing. * Arranging and currently in the process of finalizing a new lending arrangement with a bank which includes a net operating line of credit of $1.5 million, a capital equipment line of credit of $250,000, and a letter of credit arrangement in support of the Chelan County loan (Note 7). Management intends to consider additional stock offerings under Regulation S as strategically necessary to support future working capital requirements or merger opportunities. Management believes the Company's historical achievements and future plans for operations, improved equity base, reduction of debt, completion of a new lending arrangement, and the addition of equity through the sale of common stock will provide sufficient liquidity, debt and equity financing to permit the Company to meet its future obligations. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE As disclosed in its Form 8-K filed with the Securities and Exchange Commission ("SEC") on June 2, 1995, the Company's Board of Directors dismissed the Company's principal independent accountant, Schvaneveldt and Company, a Salt Lake City, Utah, certified public accounting firm ("Schvaneveldt"). The purpose for dismissing Schvaneveldt was to replace that firm with the Seattle, Washington-based certified public accounting firm of Moss Adams LLP. Moss Adams had been the independent accountant of 39 PCTH until it merged with PCT Subsidiary. Because prior to the PCTH Merger the Company's sole business activity was seeking a possible merger candidate, and because PCTH had significant pre-merger business operations with which Moss Adams was familiar, the Board determined that it would be in the best interests of the Company to engage Moss Adams to continue as its independent certifying accountant after the merger. Accordingly, at its June meeting, the Board voted to engage Moss Adams as the Company's principal independent accountant as of February 17, 1995. During the Company's past two fiscal years, Schvaneveldt prepared no financial statement for the Company which contained an adverse opinion or disclaimer of opinion, or was modified as to uncertainty, audit scope, or accounting principles. At the time the Board acted to replace Schvaneveldt with Moss Adams, Schvaneveldt was not preparing any financial statements for the Company. There were no disagreements between the Company and Schvaneveldt on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to Schvaneveldt's satisfaction, would have caused it to make reference to the subject matter of such disagreement in connection with any report it may have prepared. Schvaneveldt furnished the Company a letter addressed to the SEC stating that it agreed with the above statements. A copy of that letter, dated June 20, 1995, is attached as Exhibit 16 to the Company's Form 8-K/A, filed on June 22, 1995. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The following table sets forth information as of August 21, 1995 (unless otherwise noted) regarding the directors and executive officers of the Company.
Director or Name Age Officer Since Position with Company - ---- --- ------------- --------------------- Donald A. Wright 43 02/95 Chairman of the Board, Chief Executive Officer and President Herman L. "Jack" Jones 63 02/95 Executive Vice President and Director Roger P. Vallo 60 02/95 Secretary and Director Robert L. Smith 80 02/95 Treasurer and Director 40 Nick A. Gerde 50 02/95 Vice President and Chief Financial Officer Arthur S. Robinson 60 02/95 Director Donald B. Cotton 56 02/95 Director Roger D. Dudley 43 02/95 Director Allen W. Dahl, M.D. 67 02/95 Director John M. Eder 52 02/95 Director Ronald E. Marshall 52 02/95 Director (resigned effective July 31, 1995)
Donald A. Wright has been the Chief Executive Officer, President and a Director of the Company since February 1995 and served PCTH in the same capacity from May 1994 to February 1995. He has been an officer and director of PCTI and its predecessor, Kyle Technology Corporation since 1990. Prior to that time, Mr. Wright was the founder and president of a Washington-based high technology corporation known as Component Concepts, Inc. Herman L. "Jack" Jones has been the Executive Vice President and a Director of the Company since February 1995 and served PCTH in the same capacity from May 1994 to February 1995. He has also served as a director and officer of CMC since 1969. Roger P. Vallo has been a Director and the Secretary of the Company since February 1995 and served in the same capacity with PCTH from May 1994 to February 1995, and with PCTI from June 1993 to May 12, 1994. From 1990 he served as a Director of the predecessor of PCTI and then subsequently as a Director of PCTI. Since 1986, Mr. Vallo has been the President and Chief Executive Officer of Prudential Preferred Properties in Everett, Washington, known formerly as Duryee Realty. Robert L. Smith has been Director and Treasurer of the Company since February 1995 and served in the capacity with PCTH from May 1994 to February 1995. Prior to May 1994, he also served as a Director and officer of PCTI. Mr. Smith has been engaged in the commercial real estate business for Prudential Preferred Properties in Everett, Washington for many years. Nick A. Gerde has been the Vice President of Finance and Chief Financial Officer of the Company since February 1995 and served in the same capacity with PCTH from August 1994 to February 1995. Mr. Gerde served as Vice President/CFO with Print Northwest, Inc., a regional commercial printer located in the Puget Sound region from 1986 41 through 1990; Controller/CFO with Hydraulic Repair & Design, Inc., a regional hydraulic component repair and wholesale distribution company in Washington and Oregon from 1990 through mid-1993; Business Development Specialist with the Economic Development Council of North Central Washington from July 1993 to June 1994; and Vice President and a shareholder of Televar Northwest, Inc., a closely held telecommunications company in North Central Washington from July 1994 to March 1995. Mr. Gerde is a CPA with over twenty years of financial management and business experience. Arthur S. Robinson has been a Director of the Company since February 1995 and served in the same capacity with PCTH from May 1994 to February 1995. He has also been a Director of PCTI since October 1993. For the past five years, Mr. Robinson has been the chairman of the Robinson Group, an asset management business consulting firm. Donald B. Cotton has been a Director of the Company since February 1995 and served in the same capacity with PCTH from May 1994 to February 1995. He has been a Director of PCTI since October 1993. Mr. Cotton retired from GTE in 1993, where he had been employed from 1962 to retirement and served more recently as a vice president. He is currently self-employed as a software consultant. Roger D. Dudley has been a Director of the Company since February 1995. Mr. Dudley serves as Vice President of Studdert Companies Corp., a Salt Lake City, Utah based private investment company since February 1993. He also serves as Director, Executive Vice President, Treasurer and Secretary of fonix corporation (NASDAQ Bulletin Board "FONX") since October 1993. Mr. Dudley also serves as Secretary of Capital International Fund Limited, an international investment fund, and Executive Vice President of C.I. International Ltd., the Fund's investment manager. Mr. Dudley also served as Executive Vice President and Trustee of Pacific American Investors from June 1990 through April 1995. Allen W. Dahl, M.D. has been a Director of the Company since February 1995 and served in the same capacity with PCTH since October 1994. Dr. Dahl is a semi- retired physician, having been in practice since 1957 in the Puget Sound region of Washington State. John M. Eder has been a Director of the Company since February 1995. Mr. Eder served in the same capacity with PCTH since May 1994. Mr. Eder has served as Vice President and General Manager of CMC since May of 1989. Ronald E. Marshall was a Director of the Company from February 1995 through July 31, 1995, and served in the same capacity with PCTH and PCTI since 1994. Since 1981, Mr. Marshall has been an owner of Marshall and Sullivan, Inc., an investment advisor in Washington State. On July 31, 1995, Mr. Marshall tendered his resignation as a Director to the Company. Mr. Marshall's resignation was for personal reasons and did not 42 result from any disagreement with the Board or management of the Company. A replacement for the position held by Mr. Marshall has not yet been considered. Directors of the Company hold office until the next annual meeting of the Company's shareholders and until their successors have been elected and duly qualified. Executive officers are elected by the Board of Directors of the Company at the first meeting after each annual meeting of shareholders and hold office until their successors are elected and duly qualified. Compliance with Section 16(a) of the Securities Exchange Act of 1934. Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Act"), requires the reporting persons (as defined in Section 16(a) of the Act) to file reports of ownership and changes in ownership with the SEC. Such reporting persons are required by the SEC regulations to provide the Company with copies of all Section 16(a) reports they file. Based solely on a review of the copies of the forms provided to the Company, or written representations that no filing of forms was required, the Company believes that during the fiscal year ended May 31, 1995, all Section 16(a) filing requirements applicable to such reporting persons were complied with. ITEM 10. EXECUTIVE COMPENSATION Summary Compensation Table. The following table sets forth the annual and long-term compensation for services in all capacities to the Company and its subsidiaries, for the fiscal years indicated, of Messrs. Donald A. Wright and Andrew A. Chudd ("Named Executives"). No other officer of the Company received annual salary and bonuses exceeding $100,000 in the fiscal year ended May 31, 1995.
Long Term Compensation - ----------------------------------------------------------------------------------------------------------------------------- Annual Compensation Awards Payouts - ------------------------------------------------------------------------------------------------------------------------------------ Name and principal Year Salary ($) Bonus Other Restricted Securities LTIP All position ($) Annual Stock Underlying Payouts Other Compen- Awards Options/ ($) Com sation($) ($) SARs ($) pen- sation ($) - ------------------------------------------------------------------------------------------------------------------------------------ Donald A. Wright(1) 1995 $100,000 - 0 - - 0 - - 0 - $350,000(4) - 0 - - 0 - CEO and President 1994 N/A N/A N/A N/A N/A N/A N/A 1993 N/A N/A N/A N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Andrew A. Chudd(2) 1995 $2,000 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - President (CEO) 1994 $11,000(3) ==================================================================================================================================== 43 (1) Mr. Wright became the Chief Executive Officer of the Company in February 1995, upon effectiveness of the merger of PCTH into PCT Subsidiary. (2) Mr. Chudd resigned his position as President (CEO) of the Company in February 1995, upon effectiveness of the merger of PCTH into PCT Subsidiary. (3) Amount includes salary paid by the Company during the indicated fiscal year to Margaret A. Chudd, spouse of Mr. Chudd and an officer of the Company. As of the filing date the Company does not have access to the information regarding the allocation of the $11,000 paid in fiscal 1994 to Mr. and Mrs. Chudd. (4) See "Aggregated Option/SAR Exercise and Fiscal Year-End Option/SAR Value Table," below. Represents the value of unexercised, but exercisable, warrants to purchase Common Stock of the Company granted on December 24, 1994.
Option Grants Table. The following table sets forth information on grants of stock options or other similar rights during the last fiscal year to the Named Executives.
Name Number of securities Percent of total options/ Exercise or Expiration underlying options/ SARs SARs granted to employees base price Date granted (#) in fiscal year ($/Share) - ----------------------------------------------------------------------------------------------------------------------------- Donald A. Wright 100,000(1) 80% $2.00 December 24, 2004 - ----------------------------------------------------------------------------------------------------------------------------- Andrew A. Chudd - 0 - - 0 - N/A N/A ============================================================================================================================= (1) Represents warrants to purchase 100,000 shares of Common Stock that were granted to Mr. Wright on December 24, 1994.
Aggregated Option/SAR Exercise and Fiscal Year-End Option/SAR Value Table - ------------------------------------------------------------------------- The following table sets forth information concerning exercise of stock options and/or warrants during the last fiscal year by each Named Executive and the fiscal year end value of unexercised options:
Number of securities Value of unexercised underlying unexercised in-the-money options/SARs options/SARs at FY-end at fiscal year-end ($) - ---------------------------------------------------------------------------------------------------------------------------------- Name Shares Acquired Value Exercisable Unexercisable Exercisable Unexercisable on Exercise (#) Realized - ---------------------------------------------------------------------------------------------------------------------------------- Donald A. Wright - 0 - - 0 - 100,000(1) - 0 - $350,000 - 0 - - ---------------------------------------------------------------------------------------------------------------------------------- Andrew A. Chudd - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - ================================================================================================================================== (1) Represents warrants to purchase 100,000 shares of Common Stock that were granted to Mr. Wright on December 24, 1994.
Long-Term Incentive Plans - Awards in Last Fiscal Year - ------------------------------------------------------ The following table sets forth information regarding each award made to each Named Executive in the last fiscal year under any LTIP: 44
Estimated Future Payouts under Non-Stock Price-Based Plans - -------------------------------------------------------------------------------------------------------------------------------- Name Number of Shares, Performance or Other Units or Other Period Until Maturation Threshold Target Maximum Rights (#) or Payout ($ or #) ($ or #) ($ or #) - -------------------------------------------------------------------------------------------------------------------------------- Donald A. Wright - 0 - - 0 - - 0 - - 0 - - 0 - - -------------------------------------------------------------------------------------------------------------------------------- Andrew A. Chudd - 0 - - 0 - - 0 - - 0 - - 0 - ================================================================================================================================
No employee of the Company receives any additional compensation for his services as a director. Non-management directors receive no salary for their services as such and receive no fee for their participation in meetings. The Board of Directors has authorized payment of reasonable travel or other out-of-pocket expenses incurred by non-management directors in attending meetings of the Board. The Company has established a 401(k) plan for the benefit of its employees, allowing for pre-tax contributions of a portion of gross compensation within federal guidelines. The 401(k) plan allows, but does not require, Company contributions on a non- discriminatory basis. The Company has not contributed to the plan since its inception, but pays for the costs of administration. The 401(k) plan is intended to qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended, so that contributions to the plan by employees or by the Company, and the investment earnings thereon, are not taxable to employees until withdrawn from the 401(k) plan, and so that contributions by the Company, if any, will be deductible by the Company when made. Employment Agreements. Mr. Wright entered into an employment agreement with PCTH, which agreement has been assumed by PCT Subsidiary. The agreement requires that Mr. Wright devote his full business time to PCT Subsidiary. The employment is for a period of three years, commencing on January 1, 1995, ending on December 31, 1997, unless earlier terminated by PCT Subsidiary for "cause" (as defined in the agreement). The agreement prohibits Mr. Wright from competing with the Company for two years following termination of the agreement. Under the agreement, Mr. Wright will receive an annual base salary of $100,000, $125,000 and $150,000 for calendar years ending 1995, 1996 and 1997. In addition, based on his performance as judged by the Board of Directors, Mr. Wright may receive stock options to purchase 15,000 shares of Common Stock per year at an exercise price of $2.00 per share for each of the fiscal years ending 1995, 1996 and 1997. Finally, Mr. Wright may be eligible for bonuses for each of the fiscal years ending 1995, 1996 and 1997 for up to $48,500 per year. The Company and its operating subsidiaries have employment agreements with a total of seven employees (including Mr. Wright). These employment agreements generally have three-year terms and provide for annual salaries, bonuses, and the grant of options based on performance. 45 Stock Incentive Plans The Company does not currently have any stock incentive plans. PCTH adopted its 1994 Stock Incentive Plan (the "1994 Plan") in May 1994. All options outstanding under the 1994 Plan were converted to common stock of PCTH immediately prior to the PCTH Merger. The 1994 Plan has been superseded by the PCT Holdings, Inc. Amended and Restated Long-Term Stock Investment and Incentive Plan (the "1995 Plan"), which was approved by the shareholders of PCTH on February 8, 1995. Although the 1995 Plan is currently a plan of PCT Subsidiary, management has proposed to the Board of Directors that the Company terminate the 1995 Plan as a plan of PCT Subsidiary and either adopt the 1995 Plan or a similar plan and recommend such plan to the Company's shareholders at the next annual meeting of shareholders. The 1995 Plan provides for the issuance of up to 2,000,000 shares of common stock of PCT Subsidiary pursuant to incentive stock options, nonqualified stock options, and other types of awards and rights. Nonqualified stock options may be granted to employees, directors and consultants of the Company and its subsidiaries, while incentive stock options may be granted only to employees. No options may be granted under the 1995 Plan subsequent to May 15, 2004. The 1995 Plan is required to be administered by a committee consisting of at least three disinterested persons, at least two of whom must be directors. Among other things, the committee has authority to determine the terms and conditions of the options granted under the 1995 Plan, including the exercise price (which must be 100% of the fair market value of the common stock on the date of grant), number of shares subject to the option, and the exercisability thereof. No options are currently outstanding under the 1995 Plan. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of August 15, 1995, by (i) each person known by the Company to own beneficially more than 5% of the Company's outstanding Common Stock, (ii) each of the Company's named executive officers and directors, and (iii) all executive officers and directors as a group. Shares not outstanding but deemed beneficially owned by virtue of the right of an individual to acquire them within 60 days are treated as outstanding only when determining the amount and percentage of Common Stock owned by such individual. Shares for which beneficial ownership is disclaimed by an individual are included for purposes of determining the amount, but not the percentage, of Common Stock owned by such individual. Each person has sole voting and sole investment power with respect to the shares shown except as noted. 46
Name/Address of 5% Number of Percentage of Beneficial Owner, Shares Class(1) Director, Officer - ----------------------------------------------------------------------------------------------------------------------- Melvin B. Hoelzle 380,500(2) 7.10% 8105 South Broadway Everett, WA 98203 - ----------------------------------------------------------------------------------------------------------------------- Roger Vallo 242,526(3) 4.55% 2731 Wetmore Avenue Everett, WA 98201 - ----------------------------------------------------------------------------------------------------------------------- Donald A. Wright 368,499(4) 6.78% 434 Olds Station Rd. Wenatchee, WA 98801 - ----------------------------------------------------------------------------------------------------------------------- Herman L. "Jack" Jones 699,437 13.12% 102 Maple Street Cashmere, WA 98815 - ----------------------------------------------------------------------------------------------------------------------- Arthur S. Robinson 127,086(5) 2.38% P.O. Box 707 Snohomish, Washington 98291-0707 - ----------------------------------------------------------------------------------------------------------------------- Robert L. Smith 116,882 2.19% 20008 Grand Avenue, Apt. 201 Everett, Washington 98201 - ----------------------------------------------------------------------------------------------------------------------- Donald B. Cotton 102,110 1.92% 538 TimberRidge Drive Trophy Club, Texas 76262 - ----------------------------------------------------------------------------------------------------------------------- John M. Eder 41,666 0.78% 4222 Knowles Road Wenatchee, Washington 98801 - ----------------------------------------------------------------------------------------------------------------------- Allen W. Dahl 27,776 0.52% 7300 Madrona Drive N.E. Bainbridge Island, Washington 98110 - ----------------------------------------------------------------------------------------------------------------------- Roger D. Dudley 266,043(6) 1.67% 60 East South Temple St., #1225 Salt Lake City, Utah 84111 - ----------------------------------------------------------------------------------------------------------------------- Gomez Stiftung 704,700 13.22% Austrasse 15 Postfach 1117 FL/9490 Vaduz, Lichtenstein - -----------------------------------------------------------------------------------------------------------------------
47
Name/Address of 5% Number of Percentage of Beneficial Owner, Shares Class(1) Director, Officer - ----------------------------------------------------------------------------------------------------------------------- Officers and Directors 2,018,025(7) 33.74% as a group (10 persons) ======================================================================================================================= (1) Rounded to the nearest 1/100 of one percent. (2) Includes 83,333 shares held by Dain Bosworth, Incorporated, custodian for Melvin B. Hoelzle IRA; and 2,083 shares held in the RHUC Trust, of which Mr. Hoelzle disclaims ownership. (3) Includes 241,666 shares held by Seattle-First National Bank, Custodian for Roger P. Vallo, IRA. (4) Includes 32,666 shares held by Dain Bosworth, Incorporated, custodian for Donald A. Wright. Also includes warrants to purchase 100,000 shares, all of which presently are exercisable. (5) Includes 2,083 shares owned by Deborah K. Robinson. (6) Includes 743 shares held by trusts of which Mr. Dudley and/or his spouse are beneficiaries. Also includes 265,300 shares held by a limited liability company of which another limited liability company owned by Mr. Dudley's family holds a one-third interest. Mr. Dudley disclaims beneficial ownership of the remaining two-thirds, or 176,867, of such shares. (7) Includes 125,000 shares issuable upon the exercise of warrants that are fully exercisable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On May 18, 1994, PCTH received a $2,000,000 loan from the County of Chelan, Washington, pursuant to a Community Development Block Grant Float Agreement by and among PCTH, the County of Chelan and the State of Washington Department of Community, Trade and Economic Development. To secure that loan from the County of Chelan, PCTH arranged for a Standby Letter of Credit from the Frontier Bank of Everett, Washington. To secure PCTH's obligations under the letter of credit, Melvin B. Hoelzle, a more than 5% beneficial owner of the Company's stock, and Robert L. Smith, a director 48 of the Company and a more than 5% shareholder each agreed to provide a $500,000 certificate of deposit and to execute a guaranty for the entire amount of PCTH's obligations, if any, under the letter of credit ($2,000,000). The Company recently arranged, through alternate financing, to retire the obligations of Messrs. Hoelzle and Smith with respect to the letter of credit and anticipates such alternate financing to be available in the immediate future. On May 31, 1994, PCTH acquired all of the outstanding shares of CMC from the shareholders of CMC, in exchange for common stock of PCTH. Herman L. "Jack" Jones, a shareholder, executive officer and director of the Company, and John M. Eder, a shareholder and director of the Company, each received shares of PCTH in that transaction. In connection with the acquisition of CMC by PCTH in May 1994, CMC sold the land and buildings, located in Cashmere, Washington, where its manufacturing facilities are located, to Mr. Jones (95%) and Mr. Eder (5%) for $975,207. CMC received a note from Mr. Jones for the sales price, payable in monthly installments of $7,600 through May 2014, including interest at 7% per annum. The note was collateralized by the land and the buildings which currently house CMC's operations. No significant gain or loss to the Company resulted from this transaction. CMC presently leases these premises for its operations from Mr. Jones. That lease had a term of three years and provided for monthly lease payments of $9,000. In May 1995, the Company and Messrs. Jones and Eder reached an agreement for CMC to reacquire a portion of the land and buildings. Under that agreement, CMC forgave the outstanding note receivable related to the May 1994 purchase by Messrs. Jones and Eder, and Mr. Jones and Mr. Eder agreed to assume from CMC certain bank debt related to the building. Mr. Jones also agreed to terminate the lease upon completion of a new facility in Wenatchee, Washington, for CMC's operations, which will be leased from the Port of Chelan County. The Company paid Mr. Jones $108,000 in February 1995 for the cancellation of the lease. On January 3, 1995, PCTH entered into a funding agreement (the "Funding Agreement") with Lysys Ltd., a Swiss limited liability company ("Lysys"). Under the Funding Agreement, Lysys agreed to use its best efforts to find suitable and qualified investors to purchase up to $4 million of PCTH's common stock after PCTH merged with or was acquired by a company whose shares were publicly traded. In consideration for its efforts under the Funding Agreement, PCTH agreed that Lysys would be entitled to receive 1,000,000 shares of PCTH's post-merger common stock. Roger D. Dudley, one of the Company's present directors, is associated with Lysys; however, he is not a director, executive officer or equity owner of Lysys. Pursuant to Mr. Dudley's relationship with Lysys, he has provided certain services to Lysys in connection with its performance under the Funding Agreement. As compensation for such services, 265,300 of the shares issuable to Lysys pursuant to the Funding Agreement were issued to SMD Ltd., LLC, a limited liability company, one-third of which is owned by another limited liability company owned by Mr. Dudley's family. Mr. Dudley claims beneficial ownership of 88,433 of such shares, and disclaims beneficial ownership of the remaining two-thirds, or 176,867 shares. 49 Roger D. Dudley is an executive officer of C.I. International Ltd. ("Manager"), which is the manager of Capital International Ltd. ("Fund"), a foreign investment fund. While Mr. Dudley was serving in these capacities, the Fund purchased 86,000 shares of the Company's Common Stock. Mr. Dudley has no ownership interest in and, except as an executive officer of Manager, exercises no control over the Manager or the Fund. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. Document - ------- -------- 3.1.1 Articles of Incorporation of the Company as filed on January 30, 1986 with the Secretary of State of the State of Nevada.* 3.1.2 Certificate of Amendment to the Articles of Incorporation of the Company as filed on February 16, 1995 with the Secretary of State of the State of Nevada.* 3.1.3 Bylaws of the Company. 4.1 Form of specimen certificate for common stock of the Company.* 10.1.1 Stock Purchase Agreement, dated May 19, 1994, by and between Cashmere Manufacturing Co., Inc., Herman L. Jones, John M. Eder, Fred R. Paquette, Dan A. Paquette and PCT Holdings, Inc. 10.1.2 Exchange Agreement, dated May 31, 1994, by and between PCT Holdings, Inc., and its shareholders. 10.1.3 Letter Agreement, dated January 3, 1995, by and between PCT Holdings, Inc., and Lysys Ltd. 10.1.4 Agreement and Plan of Merger, dated February 15, 1995, among the Company, PCT Merger Corporation and PCT Holdings, Inc.** 10.1.5 Agreement and Plan of Merger, dated February 28, 1995, among PCT Holdings, Inc., Ceramic Devices, Inc. (a Washington corporation), and Ceramic Devices, Inc. (a California corporation).*** 50 10.1.6 Promissory Note, dated May 10, 1995, in the principal amount of $200,000, payable by the Company to William H. Payne, Ivan G. Sarda, Elinor A. Walters and Katrina A. Knowles. 10.1.7 Promissory Note, dated May 10, 1995, in the principal amount of $400,000, payable by the Company to William H. Payne, Ivan G. Sarda, Elinor A. Walters and Katrina A. Knowles. 10.1.8 Security Agreement, dated May 10, 1995, by and between Ceramic Devices, Inc., and William H. Payne, Ivan G. Sarda, Elinor A. Walters and Katrina A. Knowles. 10.1.9 Intellectual Property Acquisition and License Agreement, dated June 1, 1994, by and between Pacific Coast Technologies, Inc., and James C. Kyle. 10.1.10(a) Promissory Note, dated June 1, 1994, in the principal amount of $400,000, payable by Pacific Coast Technologies, Inc., to James C. Kyle and Carol A. Kyle. 10.1.10(b) Promissory Note Extension, dated January 1, 1995 in the principal amount of $387,800, payable by Pacific Coast Technologies, Inc., to James C. Kyle and Carol A. Kyle. 10.1.11 Loan and Security Agreement, dated April 24, 1995, between Silicon Valley Bank and the Company, Ceramic Devices, Inc., Cashmere Manufacturing Co., Inc., and Pacific Coast Technologies, Inc. 10.1.12 Community Development Block Grant Float Agreement, dated May 18, 1994, by and among the State of Washington Department of Community, Trade and Economic Development, the County of Chelan, and Pacific Coast Technologies, Inc. 10.1.13 Commercial Guaranty by Melvin B. Hoelzle to Frontier Bank, dated May 18, 1994, on behalf of Pacific Coast Technologies, Inc. 10.1.14 Commercial Guaranty by Robert L. Smith and Mary Smith to Frontier Bank, dated May 18, 1994, on behalf of Pacific Coast Technologies, Inc. 10.1.15 Lease Agreement, dated February 1, 1993, between the Port of Chelan County and Pacific Coast Technologies, Inc. 51 10.1.16 Addendum to Lease Agreement with Pacific Coast Technologies, Inc., dated April 22, 1993, between the Port of Chelan County and Pacific Coast Technologies, Inc. 10.1.17 Lease dated May 31, 1994, by and between Herman L. "Jack" Jones and Cashmere Manufacturing Co., Inc. 10.1.18 Standard Industrial Lease, dated April 20, 1994, between The Manufacturers Life Insurance Company and Ceramic Devices, Inc., for certain real property situated at 8170 Ronson Road, San Diego, Ca. 10.1.19 Standard Industrial Lease, dated April 20, 1994, between The Manufacturers Life Insurance Company and Ceramic Devices, Inc., for certain real property situated at 8145 Ronson Road, San Diego, Ca. 10.1.20 Employment and Non-competition Agreement, dated May 31, 1994, by and between PCT Holdings, Inc., and Herman L. "Jack" Jones. 10.1.21 Employment and Non-competition Agreement, dated May 18, 1994, by and between Cashmere Manufacturing Co., Inc., and John M. Eder. 10.1.22 Employment Agreement, dated January 1, 1995, by and between PCT Holdings, Inc., and Donald A. Wright. 10.1.23 Employment Agreement, dated January 1, 1995, by and between PCT Holdings, Inc., and Nick A. Gerde. 10.1.24 Employment Agreement, dated January 1, 1995, by and between Pacific Coast Technologies, Inc., and Edward A. Taylor. 10.1.25 Employment Agreement, dated April 3, 1995, by and between Ceramic Devices, Inc., and Ivan G. Sarda. 10.1.26 Employment Agreement, dated March 1, 1995, by and between Pacific Coast Technologies, Inc., and Lewis L. Wear. 10.1.27 1994 Stock Incentive Plan, adopted by PCT Holdings, Inc., on May 15, 1994. 10.1.28 Amended and Restated Long-Term Stock Investment and Incentive Plan, approved by the shareholders of PCT Holdings, Inc., on February 8, 1995. 11. Computation of per share earnings. 52 16. Letter from accountant regarding a change of accountants.**** 21. List of subsidiaries. 23. Consent of Moss Adams LLP. 27. Financial Data Schedule. * Incorporation by reference from the Company's Form 8-A filed on May 16, 1995 (SEC file No. 33-3442-LA) ** Incorporation by reference from the Company's Form 8-K filed on March 1, 1995 (SEC file No. 33-3442-LA) *** Incorporation by reference from the Company's Form 8-K filed on May 10, 1995 (SEC file No. 33-3442-LA) **** Incorporation by reference from the Company's Form 8-K/A filed on June 22, 1995 (SEC file No. 33-3442-LA) (b) Reports on Form 8-K. On March 1, 1995, the Company filed a Form 8-K report of the change in control of the registrant, Verazzana Ventures, Ltd. The 8-K filing includes the Agreement and Plan of Merger and audited financial statements of PCTH for the fiscal years ended May 31, 1994, 1993 and 1992. That Form 8-K was subsequently amended on March 16, 1995, to revise the schedule of beneficial ownership reported under Item 1. On April 29, 1995, the Form 8-K report was again amended to include the pro forma unaudited financial statements of the registrant that reflected the merger of PCTH with PCT Subsidiary. The pro forma financial statements consisted of balance sheets as of February 28, 1995 and May 31, 1994, and 1993, and income statements for the nine months ended February 28, 1995 and the years ended May 31, 1994 and 1993. On May 10, 1995, the Company filed a Form 8-K report of the Agreement and Plan of Merger in connection with the merger of CDI Merged Corporation with CDI. The merger constitutes the acquisition of a significant amount of assets other than in the ordinary course of business. Financial statements of CDI Merged Corporation for the years ended June 30, 1992, 1993 and 1994 were included in the filing. On July 21, 1995, the Company filed a Form 8-K/A report to amend the Form 8-K filed on May 10, 1995. By this amendment the Company submitted an unaudited balance sheet, income state, and statement of cash flow for Ceramic Devices, Inc., for the eight-month period from July 1, 1994 to February 28, 1995. 53 On June 9, 1995, the Company filed a Form 8-K report in which, under Item 4, it reported the change of accountant and, under Item 8, the change of fiscal year from January 31 to May 31. On June 22, 1995, the Company filed a Form 8-K/A report to amend Form 8-K filed on June 9, 1992. The amendment included a statement from Schvaneveldt consenting to the Company's characterization of termination of Schvaneveldt as the Company's principal independent accountant. 54 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. PCT HOLDINGS, INC. Date: August 29, 1995 By DONALD A. WRIGHT ------------------------ Donald A. Wright President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the following capacities on August 29, 1995. Signature Title /s/ Donald A. Wright President, Chief Executive Officer, - ---------------------------------- Chairman of the Board Donald A. Wright (Principal Executive Officer) /s/ Nick A. Gerde Vice President, Chief Financial - ---------------------------------- Officer (Principal Financial Nick A. Gerde and Accounting Officer) /s/ Roger P. Vallo Secretary and Director - ---------------------------------- Roger P. Vallo /s/ Robert L. Smith Treasurer and Director - ---------------------------------- Robert L. Smith 55 /s/ Jack Jones Executive Vice President and - ---------------------------------- Director Herman L. "Jack" Jones /s/ Arthur S. Robinson Director - ---------------------------------- Arthur S. Robinson /s/ Donald B. Cotton Director - ---------------------------------- Donald B. Cotton /s/ Roger D. Dudley Director - ---------------------------------- Roger D. Dudley /s/ John M. Eder Director - ---------------------------------- John M. Eder /s/ Allen W. Dahl Director - ---------------------------------- Allen W. Dahl 56 EXHIBIT INDEX The following documents are filed herewith or have been included as exhibits to previous filings with the Securities and Exchange Commission and are incorporated by reference as indicated below. Sequential Exhibit No. Document Page No. - ----------- -------- ---------- 3.1.1 Articles of Incorporation of the Company as filed on January 30, 1986 with the Secretary of State of the State of Nevada.* 3.1.2 Certificate of Amendment to the Articles of Incorporation of the Company as filed on February 16, 1995 with the Secretary of State of the State of Nevada.* 3.1.3 Bylaws of the Company. 4.1 Form of specimen certificate for common stock of the Company.* 10.1.1 Stock Purchase Agreement, dated May 19, 1994, by and between Cashmere Manufacturing Co., Inc., Herman L. Jones, John M. Eder, Fred R. Paquette, Dan A. Paquette and PCT Holdings, Inc. 10.1.2 Exchange Agreement, dated May 31, 1994, by and between PCT Holdings, Inc., and its shareholders. 10.1.3 Letter Agreement, dated January 3, 1995, by and between PCT Holdings, Inc., and Lysys Ltd. 10.1.4 Agreement and Plan of Merger, dated February 15, 1995, among the Company, PCT Merger Corporation and PCT Holdings, Inc.** 10.1.5 Agreement and Plan of Merger, dated February 28, 1995, among PCT Holdings, Inc., Ceramic Devices, Inc. (a Washington corporation), and Ceramic Devices, Inc. (a California corporation).*** 57 10.1.6 Promissory Note, dated May 10, 1995, in the principal amount of $200,000, payable by the Company to William H. Payne, Ivan G. Sarda, Elinor A. Walters and Katrina A. Knowles. 10.1.7 Promissory Note, dated May 10, 1995, in the principal amount of $400,000, payable by the Company to William H. Payne, Ivan G. Sarda, Elinor A. Walters and Katrina A. Knowles. 10.1.8 Security Agreement, dated May 10, 1995, by and between Ceramic Devices, Inc., and William H. Payne, Ivan G. Sarda, Elinor A. Walters and Katrina A. Knowles. 10.1.9 Intellectual Property Acquisition and License Agreement, dated June 1, 1994, by and between Pacific Coast Technologies, Inc., and James C. Kyle. 10.1.10(a) Promissory Note, dated June 1, 1994, in the principal amount of $400,000, payable by Pacific Coast Technologies, Inc., to James C. Kyle and Carol A. Kyle. 10.1.10(b) Promissory Note Extension, dated January 1, 1995 in the principal amount of $387,800, payable by Pacific Coast Technologies, Inc., to James C. Kyle and Carol A. Kyle. 10.1.11 Loan and Security Agreement, dated April 24, 1995, between Silicon Valley Bank and the Company, Ceramic Devices, Inc., Cashmere Manufacturing Co., Inc., and Pacific Coast Technologies, Inc. 10.1.12 Community Development Block Grant Float Agreement, dated May 18, 1994, by and among the State of Washington Department of Community, Trade and Economic Development, the County of Chelan, and Pacific Coast Technologies, Inc. 10.1.13 Commercial Guaranty by Melvin B. Hoelzle to Frontier Bank, dated May 18, 1994, on behalf of Pacific Coast Technologies, Inc. 58 10.1.14 Commercial Guaranty by Robert L. Smith and Mary Smith to Frontier Bank, dated May 18, 1994, on behalf of Pacific Coast Technologies, Inc. 10.1.15 Lease Agreement, dated February 1, 1993, between the Port of Chelan County and Pacific Coast Technologies, Inc. 10.1.16 Addendum to Lease Agreement with Pacific Coast Technologies, Inc., dated April 22, 1993, between the Port of Chelan County and Pacific Coast Technologies, Inc. 10.1.17 Lease dated May 31, 1994, by and between Herman L. "Jack" Jones and Cashmere Manufacturing Co., Inc. 10.1.18 Standard Industrial Lease, dated April 20, 1994, between The Manufacturers Life Insurance Company and Ceramic Devices, Inc., for certain real property situated at 8170 Ronson Road, San Diego, Ca. 10.1.19 Standard Industrial Lease, dated April 20, 1994, between The Manufacturers Life Insurance Company and Ceramic Devices, Inc., for certain real property situated at 8145 Ronson Road, San Diego, Ca. 10.1.20 Employment and Non-competition Agreement, dated May 31, 1994, by and between PCT Holdings, Inc., and Herman L. "Jack" Jones. 10.1.21 Employment and Non-competition Agreement, dated May 18, 1994, by and between Cashmere Manufacturing Co., Inc., and John M. Eder. 10.1.22 Employment Agreement, dated January 1, 1995, by and between PCT Holdings, Inc., and Donald A. Wright. 10.1.23 Employment Agreement, dated January 1, 1995, by and between PCT Holdings, Inc., and Nick A. Gerde. 10.1.24 Employment Agreement, dated January 1, 1995, by and between Pacific Coast Technologies, Inc., and Edward A. Taylor. 59 10.1.25 Employment Agreement, dated April 3, 1995, by and between Ceramic Devices, Inc., and Ivan G. Sarda. 10.1.26 Employment Agreement, dated March 1, 1995, by and between Pacific Coast Technologies, Inc., and Lewis L. Wear. 10.1.27 1994 Stock Incentive Plan, adopted by PCT Holdings, Inc., on May 15, 1994. 10.1.28 Amended and Restated Long-Term Stock Investment and Incentive Plan, approved by the shareholders of PCT Holdings, Inc., on February 8, 1995. 11. Computation of per share earnings. 16. Letter from accountant regarding a change of accountants.**** 21. List of subsidiaries. 23. Consent of Moss Adams LLP. 27. Financial Data Schedule. * Incorporation by reference from the Company's Form 8-A filed on May 16, 1995 (SEC file No. 33-3442-LA) ** Incorporation by reference from the Company's Form 8-K filed on March 1, 1995 (SEC file No. 33-3442-LA) *** Incorporation by reference from the Company's Form 8-K filed on May 10, 1995 (SEC file No. 33-3442-LA) **** Incorporation by reference from the Company's Form 8-K/A filed on June 22, 1995 (SEC file No. 33-3442-LA) EX-3.1.3 2 1 BYLAWS OF PCT HOLDINGS, INC., A Nevada Corporation ARTICLE I OFFICES The principal office of the corporation in the State of Nevada shall be located in Clark County, State of Nevada. The Board of Directors may change the location of the principal office of the corporation and may, from time to time, designate other offices within or without the State of Nevada as the business of the corporation may require. The registered office of the corporation shall be the office of the registered agent of the corporation as required by the Nevada Revised Statutes Chapter 78 (the "Act"). The registered office of the corporation shall be maintained in the State of Nevada and may be, but need not be, identical with the principal office of the corporation in the State of Nevada, and the address of such registered office of the corporation, the agent's office, may be changed from time to time by the Board of Directors as provided in Section 78.095 of the Act. ARTICLE II SHAREHOLDERS 1. Place of Shareholder Meetings. Shareholder meetings of the corporation shall be held at such suitable place convenient to the shareholders, either within the United States, 2 whether for any annual meeting or special meeting of the shareholders called by the Board of Directors. 2. Annual Meeting. The annual meeting of the shareholders for the election of directors and the transaction of such other business as may properly come before it shall be held at such place within the United States as shall be set forth in the notice of the meeting. The meeting shall be held on the first Tuesday of November of each and every year at 10:00 a.m. or at such other time as the directors shall designate. 3. Special Meetings. Special meetings of the shareholders, other than those regulated by statute, for any purpose or purposes, may be called at any time by a majority of the directors or the president, and must be called by the president upon written request of the holders of ten percent (10%) of the outstanding shares entitled to vote at such special meeting. Special meetings of the shareholders shall be held within the United States as designated by the Board of Directors in the notice for the meeting. 4. Notice of Shareholders' Meetings. The secretary of the corporation shall give personally or by mail, not less than ten (10) nor more than sixty (60) days before the date of the meeting to each shareholder entitled to vote at such meeting, written notice of the annual or special shareholders' meetings stating the place, date and hour of the meeting. In the case of a special shareholders' meeting, the notice shall also state the purposes for which it is called and the name of the person by 3 whom or at whose direction the meeting is called. If mailed, the notice shall be addressed to the shareholder at his or her address as it appears on the record of the shareholders of the corporation unless he or she shall have filed with the secretary of the corporation a written request that notices intended for him or her be mailed to a different address, in which case it shall be mailed to the address designated in the request. In the case of a special shareholders' meeting no business other than that specified in the notice of the meeting shall be transacted at any such special meeting. 5. Waiver of Notice. Whenever under the provisions of these Bylaws or of any statute any shareholder or director is entitled to notice of any regular or special meeting or of any action to be taken by the corporation, such meeting shall be held or such action may be taken without the giving of such notice, provided every shareholder or director entitled to such notice in writing waives the requirements of these Bylaws in respect thereto. Any notice of the annual or any special shareholders' meeting may be waived by a shareholder by submitting a signed waiver either before or after the meeting, or by the shareholder's attendance without objection at such meeting. Pursuant to Section 78.320(4) of the Act, any shareholder may attend and participate in an annual or special meeting of the shareholders by telecommunication by which all persons participating in the meeting can hear each other. 4 6. Record Date. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of the shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, and in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may provide that the stock transfer books shall be closed for an extended period but not to exceed in any case sixty (60) days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the stock transfer books the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than sixty (60) days and in the case of a meeting of the shareholders, not less than ten (10) days prior to the date on which the particular action requiring action such determination of shareholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which the notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to 5 vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof except where the determination has been made through the closing of the stock transfer books and the stated period of closing has expired. 7. Proxies. At all meetings of shareholders, a shareholder may vote either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. Every proxy must be dated and signed by the shareholder or his attorney in fact. No proxy shall be valid after the expiration of six (6) months from the date of its execution, unless, as provided in such proxy, it is coupled with an interest or the shareholder specifies the length of time for which it is to continue in force, which may not exceed 7 years from the date of its creation. Every proxy shall be revocable at the pleasure of the shareholder executing it, except where an irrevocable proxy is permitted by statute. 8. Quorum. The presence in person or by proxy of the holders of a majority of the outstanding shares entitled to vote thereat shall be necessary to constitute a quorum for the transaction of business at all meetings of the shareholders. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present and personally represented by proxy, shall have 6 the power to adjourn the meeting to a future date at which a quorum shall be present or represented without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. A meeting at which a quorum is initially present may continue to transact business, not withstanding the withdrawal of certain shareholders representing enough shares to leave less than a quorum remaining. Such transacted business shall become the act of the corporation if it is approved by at least a majority of the required quorum for that meeting. 9. Voting of Shares. A shareholder entitled to vote at a meeting may vote at such meeting in person or by proxy except as otherwise provided by law or the Certificate of Incorporation. Every shareholder shall be entitled to one (1) vote for each share standing in his or her name on the corporation's record of shareholders as of the record date. Except as herein or in the Certificate of Incorporation or by statute otherwise provided, all corporate action shall be determined by vote of a majority of the votes cast at a meeting of the shareholders at which a quorum is present by the holders of shares entitled to vote thereon. 10. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by such officer, agent or proxy of such other corporation as the bylaws of such corporation may prescribe or, in the absence of such provision, 7 as the Board of Directors of such other corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him or her, either in person or by proxy, without a transfer of such shares into his or her name. Shares standing in the name of a trustee may be voted by him or her, either in person or by proxy, but no trustee shall be entitled to vote shares held by him or her without a transfer of such shares into his or her name as trustee. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of the receiver may be voted by such receiver without the transfer thereof into his or her name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. The shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Shares of its own stock belonging to the corporation, treasury shares, or shares of its own stock held by the corporation in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time. 11. Action Without Meeting by Consent of Required Majority. Pursuant to all of the provisions of Section 78.320(2) and (3) of the Act, whenever a provision of statute or of the Certificate of Incorporation, or whenever by these Bylaws the vote of 8 shareholders is required or permitted to be taken at a meeting thereof in connection with any corporate action, the meeting and the vote of shareholders may be dispensed with if one or more consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or to take the action at a meeting at which all shares entitled to vote thereon were present and voted. In no instance where action is authorized by written consent need a meeting of shareholders be called or notice given. The written consent must be filed with the minutes of the shareholders' meeting. ARTICLE III BOARD OF DIRECTORS 1. Number and Qualifications. The number of directors, all of whom shall be of age eighteen (18) years or older, of the corporation shall be not less than one (1) nor more than thirteen (13). The number of directors within this range may be fixed or changed from time to time by resolution of the directors. Directors need not be shareholders of the corporation nor residents of the State of Nevada. The shareholders may change the number of directors by amending the Bylaws. 2. Manner of Election. The directors shall be elected at the annual meeting of the shareholders by a majority of the votes in favor of each director to be elected except as otherwise prescribed by statute. There shall be no cumulative voting for directors. Each shareholder entitled to vote at the election of 9 directors has the right to cast all of the votes to which the shareholder's shares are entitled for as many persons as there are directors to be elected and for whose election the shareholder has the right to vote. 3. Term of Office. The term of the office of each director shall be until the next annual meeting of the shareholders and until his or her successor has been duly elected and has qualified. 4. Duties and Powers. The Board of Directors shall have under their direction the control and management of the affairs and business of the corporation. The directors shall in all cases act as a board, regularly convened, and in the transaction of business the act of a majority present at a meeting, except as otherwise provided by law or by the Certificate of Incorporation, shall be the act of the board, provided a quorum is present. Notwithstanding the foregoing, the directors may take action without a meeting if, before or after the action, all members of the board consent to the action in a writing signed by all the members of the board or committee pursuant to Section 78.315 of the Act. Such written consent shall be filed with the minutes of the board meeting. The directors may adopt such rules and regulations for the conduct of their meetings and the management of the corporation as they may deem proper, not inconsistent with law or the Certification of Incorporation or these Bylaws. 10 5. Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as the annual meeting of shareholders. The Board of Directors may provide by resolution the time and place, within the United States, for the holding of additional regular meetings without other notice than such resolution. Members of the Board of Directors may participate in a board meeting by means of a telephone conference or similar method of communication by which all persons participating in the meeting can hear each other. Such participation constitutes presence in person at the meeting. 6. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the president or any two (2) directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, within the United States, as the place for holding any such special meeting of the Board of Directors. 7. Notice of Meetings. No notice need be given of any regular meeting of the board. Notice of special meetings shall be served upon each director in person or by mail addressed to him or her at his or her last known post office address, at least two (2) days prior to the date of such special meeting, specifying the time and place of the meeting and the business to be transacted thereat. If mailed, such notice shall be deemed to be delivered when deposited in the United States Mail so addressed with the postage prepaid thereon. Any director may 11 waive notice of any meeting by a signed writing. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened, provided such objection is made by such director at the beginning of the special directors' meeting. 8. Quorum. At any meeting of the Board of Directors, the presence of a majority of the board shall be necessary to constitute a quorum for the transaction of business. However, should a quorum not be present a lesser number may adjourn the meeting to some further time, not more than seven (7) days later, without further notice. 9. Voting. At all meetings of the Board of Directors, each director shall have one (1) vote irrespective of the number of shares that any director may hold. 10. Compensation. By resolution of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors, may be paid a fixed sum for attendance at such meeting of the Board of Directors, or may be paid a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 11. Vacancies. Any vacancy occurring in the Board of Directors by death, resignation or otherwise shall be filled promptly by majority vote of the remaining directors at a special 12 meeting which shall be called for that purpose within thirty (30) days after the occurrence of the vacancy. The director thus chosen shall hold office for the unexpired term of his predecessor and the election and qualification of his successor. Where a vacancy is required to be filled by reason of an increase in the number of directors by shareholder action, then the vacant directorship(s) shall be filled by majority vote of the shareholders at the meeting at which the increased number of directorships is approved. 12. Removal of Directors. Any director may be removed either with or without cause, at any time, by a vote of a majority of the shareholders who are entitled to vote for the election of the directors sought to be removed, at any special meeting called for that purpose, or at the annual meeting. Where a director is removed by the shareholders, then the vacant directorship shall be filled by the shareholders at the meeting at which the director or directors are so removed. Except as otherwise prescribed by statute, a director may be removed for cause by vote of a majority of the entire board. In such event the Board of Directors shall choose a new director to fill such vacancy. 13. Resignation. Any director may resign his office at any time. Such resignation shall be made in writing and shall take effect immediately without acceptance. ARTICLE IV OFFICERS 13 1. Officers and Qualifications. The officers of the corporation shall be at a minimum a president, a secretary and a treasurer. There may also be such other officers as the Board of Directors may determine including, but not limited to, one (1) or more vice presidents, assistant secretaries and assistant treasurers. Any two (2) or more offices, except the offices of president and secretary, may be held by the same natural person. 2. Election. All officers of the corporation shall be elected annually by the Board of Directors at its meeting held immediately after the annual meeting of shareholders. 3. Term of Office. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his or her death, or until he or she shall resign or shall have been removed in the manner as hereinafter provided. An officer or agent elected or appointed by the Board of Directors may be removed either with or without cause by the vote of a majority of the Board of Directors whenever, in the board's judgment, the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the persons so removed. 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise may be filled by the Board of Directors for the unexpired portion of the term of such office. 14 5. Duties of Officers. The duties and powers of the officers of the corporation shall be as follows and as shall hereafter be set by resolution of the Board of Directors: PRESIDENT A. The president shall be the principal executive officer of the corporation, shall be subject to the control of the Board of Directors, and shall in general supervise and control all of the business affairs of the corporation. He or she shall, when present, preside at all meetings of the shareholders and of the Board of Directors. B. He or she shall present at each annual meeting of the shareholders and directors a report of the condition of the business of the corporation. C. He or she shall cause to be called regular and special meetings of the shareholders and directors in accordance with the requirements of the statute and of these Bylaws. D. He or she shall appoint, discharge and fix the compensation of all employees and agents of the corporation other than the duly elected officers, subject to the approval of the Board of Directors. He or she shall sign and execute, with the secretary or any other proper officer of the corporation thereunto authorized by the Board of Directors, all contracts in the name of the corporation, and all notes, drafts or other orders for payment of money, any deed, mortgages, bonds or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof 15 shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed. E. He or she shall sign and execute, with the secretary or any other proper officer of the corporation thereunto authorized by the Board of Directors, certificates representing shares of the corporation. F. He or she shall cause all books, reports, statements and certificates to be properly kept and filed as required by law. G. He or she shall enforce these Bylaws and perform all the duties incident to his or her office and which are required by law, and, generally, he or she shall supervise and control the business and affairs of the corporation and perform such other duties as may be prescribed by the Board of Directors from time to time. VICE PRESIDENT During the absence or incapacity of the president, the vice president in order of seniority of election shall perform the duties of the president, and when so acting, he or she shall have all the powers and be subject to all the responsibilities of the office of president and shall perform such other duties and functions as the board may from time to time prescribe. SECRETARY 16 A. The secretary shall keep the minutes of the meetings of the Board of Directors and of the shareholders in appropriate books. B. He or she shall attend to the giving of notice of special meetings of the Board of Directors and of all the meetings of the shareholders of the corporation. C. He or she shall be custodian of the records and seal of the corporation and shall affix the seal to the certificates representing shares and other corporate papers when required. D. He or she shall keep in the principal office of the corporation a book or record containing the names, alphabetically arranged, of all persons who are shareholders of the corporation, showing their places of residence, the number and class of shares held by them respectively, and the dates when they respectively became owners of record thereof. He shall keep such book or record and the minutes of the proceedings of its shareholders open daily during the usual business hours, for inspection, within the limits prescribed by law, by any person duly authorized to inspect such records. At the request of the person entitled to an inspection thereof, he shall prepare and make available a current list of the officers and directors of the corporation and their resident addresses. E. He or she shall sign all certificates representing shares and affix the corporate seal thereto. 17 F. He or she shall attend to all correspondence and present to the Board of Directors at its meetings all official communications received by him or her. G. He or she shall perform all the duties incident to the office of secretary of the corporation and such other duties as from time to time may be assigned to him or her by the president or by the Board of Directors. TREASURER A. The treasurer shall have the care and custody of and be responsible for all the funds and securities of the corporation, and shall deposit such funds and securities in the name of the corporation in such banks or safe deposit companies as the Board of Directors may designate. B. He or she shall make, sign and endorse in the name of the corporation all checks, drafts, notes and other orders for payment of money, and pay out and dispose of such under the direction of the president or the Board of Directors. C. He or she shall keep at the principal office of the corporation accurate books of account of all its business transactions and shall at all reasonable hours exhibit books and accounts to any director upon application at the office of the corporation during business hours. D. He or she shall render a report of the condition of the finances of the corporation at each regular meeting of the Board of Directors and at such other times as shall be required 18 of him or her, and he or she shall make a full financial report at the annual meeting of the shareholders. E. He or she shall further perform all duties incident to the office of treasurer of the corporation and such other duties as from time to time may be assigned to him or her by the president or by the Board of Directors. F. If required by the Board of Directors, he or she shall give such bond as the Board shall determine appropriate for the faithful performance of his or her duties. OTHER OFFICERS Other officers shall perform such duties and have such powers as may be assigned to them by the Board of Directors. 6. Vacancies. All vacancies in any office shall be filled promptly by the Board of Directors, either at regular meetings or at a meeting specially called for that purpose. 7. Compensation of Officers. The officers shall receive their salary or compensation as may be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such salary by reason of the fact that he or she is also a director of the corporation. ARTICLE V Officers' and Directors' Contracts No contract or other transaction between this corporation and any other corporation, limited liability company, association, partnership or business shall be affected by the 19 fact that a director, officer, member, manager or partner of such other corporation, limited liability company, association, partnership or business, and any director or officer, individually or jointly, may be a party to, or may be interested in, any business, partnership, association, limited liability company, corporation or transaction of this corporation or in which this corporation is interested; and no contract or other transaction of this corporation with any person, firm, partnership, limited liability company, or corporation shall be affected by the fact that any director or officer of this corporation is a party to, or is interested in, such contract, act, or transaction or in any way connected with such person, firm, partnership, association, limited liability company, or corporation, and every person, who may become a director or officer of this corporation, is hereby relieved from liability that might otherwise exist from contracting with the corporation for the benefit of himself or any person, firm, association, partnership, limited liability company or corporation in which he may be in any way interested, provided said director or officer acts in good faith. ARTICLE VI CONTRACTS, NOTES, CHECKS AND DEPOSITS 1. General. The execution of all bills payable, notes, checks, drafts, warrants or other negotiable instruments of the corporation shall be made in the name of the corporation and shall be signed by such officer or officers as the Board of 20 Directors shall from time to time by resolution direct. No officer or agent of the corporation, either singly or jointly with others, shall have the power to make any bill payable, note, check, draft or warrant or other negotiable instrument, or endorse the same in the name of the corporation, or contract or cause to be contracted any debt or liability in the name and on behalf of the corporation, except as herein expressly prescribed and provided. 2. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or to execute and to deliver any instrument in the name and on behalf of the corporation, and such authority may be general or confined to specific instances. 3. Loans. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by resolution of the Board of Directors. Such authority may be general or confined to specific instances. 4. Checks, Drafts, etc. All checks, drafts, or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. 5. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of 21 the corporation in such banks, trust companies or other depositories as the Board of Directors may select. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER 1. Certificates. The shares of the corporation shall be represented by certificates prepared by the Board of Directors and signed by the president or the vice president, and by the secretary or an assistant secretary, and sealed with the seal of the corporation or a facsimile. Subject to the restrictions of and to the extent allowed by Section 78.235 of the Act, countersigned certificates may have facsimile signatures. The certificates shall be numbered consecutively and in the order in which they are issued; they shall be bound in a book and shall be issued in consecutive order therefrom, and in the margin thereof shall be entered the name and address of the person to whom the shares represented by such certificate are issued, the number and class or series of such shares, and the date of issue. Each certificate shall state the registered holder's name, the number and class of shares represented thereby, the date of issue, the par value of such shares, or that they are without par value. Certificates of shares of the corporation may also be in such other form as shall be determined by the Board of Directors hereafter. All certificates of shares of the corporation surrendered to the corporation for transfer shall be cancelled and no new certificates shall be issued until the former certificate for a like number of shares shall have been 22 surrendered and cancelled, except in the case of a lost, destroyed or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors may prescribe. 2. Subscriptions. Subscriptions to the shares shall be paid at such times and in such installments as the Board of Directors may determine. If default shall be made in the payment of any installment as required by such resolution, the board may declare the shares and all previous payments thereon forfeited for the use of the corporation, in the manner prescribed by statute. 3. Transfer of Shares. Transfer or assignment of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his or her legal representative, who shall furnish proper evidence of authority to transfer, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the corporation, and only upon surrender for cancellation of the certificate for such shares duly and properly endorsed. The corporation shall issue a new certificate for the shares surrendered to the person or persons entitled thereto. The person in whose name the shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. 4. Returned Certificates. All certificates for shares changed or returned to the corporation for transfer shall be 23 marked by the secretary "Cancelled", with the date of cancellation, and the transaction shall be immediately recorded in the certificate book opposite the memorandum of their issue. The returned certificate may be inserted in the certificate book. ARTICLE VIII DIVIDENDS The Board of Directors at any regular or special meeting may declare dividends payable out of the surplus of the corporation, whenever in the exercise of its discretion it may deem such declaration advisable. Such dividends may be paid in cash, property, or shares of the corporation. ARTICLE IX SEAL The Board of Directors may provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the state of incorporation and the words "Corporate Seal". It may be affixed in such manner and on such occasion as deemed advisable by the Board of Directors. ARTICLE X WAIVER OF NOTICE Whenever any notice is required to be given to any shareholder or director of the corporation under the provisions of these Bylaws or under the provisions of the Articles of Incorporation or under the provisions of the Act pursuant to Sections 706, 823, and other Sections of the Act, then a waiver thereof in writing, signed by the person or persons entitled to 24 such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XI Restrictions on Transfers of Shares No Shareholder shall have the right or power to pledge, sell or otherwise dispose of or encumber any shares of stock in this corporation without prior approval of the Board of Directors or without first offering such shares for sale to the corporation. Such offer shall be made in writing, signed by the shareholder, and mailed or delivered to the corporation at its principal place of business, and may be accepted by the corporation at any time within thirty (30) days from the date of mailing or delivery. In the event the corporation fails to purchase said stock within the thirty-day period, then the other stockholders of record, at the time thereof, shall have the right to purchase said stock on the same terms and conditions as those available to the corporation, and may elect to so purchase within thirty (30) days after the expiration of the first thirty-day period. Should less than all of the remaining shareholders desire to exercise their right of purchase, those so desiring shall be allowed to purchase all of the selling shareholder's stock so offered for sale in the proportion that the total shares then owned by each respective buyer bears to the total number of shares of all such buyers. On expiration of the second thirty-day period, any such stock not so disposed of may be sold or 25 disposed of by the selling shareholder upon such terms and conditions as he or she shall select, except that said shareholder may not sell or dispose of his stock to third parties upon terms and conditions more favorable than first offered to the corporation and other shareholders under this Article. This provision shall also be binding upon any executor, administrator, or other personal representative of any shareholder in case of the sale or pledge of any share or shares of such stock by such executor, administrator, or other legal representative, and reference to this provision shall be embodied in writing, printed or stamped upon each certificate of stock and this provision shall be part thereof, whether such stock was acquired by will or otherwise. The shareholders may, by agreement, establish other conditions, limitations, or requirements relating to the sale and/or transfer of shares. ARTICLE XII AMENDMENTS The corporation's Articles of Incorporation may be amended, altered, repealed, or added to according to the provisions of Section 78.390 of the Act. These Bylaws may be amended, altered, repealed or added to by the affirmative vote of the holders of a majority of the shares entitled to vote in the election of any director at an annual meeting or at a special meeting called for that purpose, provided that a written notice of such meeting shall have been sent to each shareholder as required by these 26 Bylaws, which notice shall state the amendments, alterations, additions or other changes which are proposed to be made in such Bylaws. Only such changes shall be made as have been specified in the notice. The Bylaws may also be altered, amended, repealed or new Bylaws adopted by majority of the entire Board of Directors at a regular or special meeting of the board. However, any Bylaws adopted by the board may be altered, amended or repealed by the shareholders. DATED this 8th day of June, 1995. ----- PCT HOLDINGS, INC. By: ROGER P. VALLO -------------------------------- Its: Secretary EX-10.1.1 3 1 STOCK PURCHASE AGREEMENT CASHMERE MANUFACTURING CO., INC. PCT HOLDINGS, INC. HERMAN L. "JACK" JONES JOHN M. EDER FRED R. PAQUETTE DAN A. PAQUETTE MAY 19, 1994 2 TABLE OF CONTENTS Page ---- ARTICLE 1 PURCHASE AND SALE OF SHARES . . . . . . . . . . . . 1 1.1 Share Exchange. . . . . . . . . . . . . . . . . . . 1 ARTICLE 2 CLOSING . . . . . . . . . . . . . . . . . . . . . . 2 2.1 Closing . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Deliveries at Closing . . . . . . . . . . . . . . . 2 ARTICLE 3 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . 2 3.1 Representations and Warranties of the Company and Sellers . . . . . . . . . . . . . . . . 2 3.2 Representations and Warranties of Buyer . . . . . . 12 ARTICLE 4 COVENANTS . . . . . . . . . . . . . . . . . . . . . 15 4.1 Covenants of Sellers. . . . . . . . . . . . . . . . 15 4.2 Covenants of Buyer. . . . . . . . . . . . . . . . . 18 4.3 Post-Closing Covenant . . . . . . . . . . . . . . . 18 ARTICLE 5 CONDITIONS PRECEDENT TO CLOSING . . . . . . . . . . 19 5.1 Condition to Each Party's Obligations . . . . . . . 19 5.2 Conditions to Buyer's Obligations . . . . . . . . . 19 5.3 Conditions to Sellers' Obligations. . . . . . . . . 21 ARTICLE 6 TERMINATION . . . . . . . . . . . . . . . . . . . . 21 6.1 Right to Terminate. . . . . . . . . . . . . . . . . 21 6.2 Obligations to Cease. . . . . . . . . . . . . . . . 22 ARTICLE 7 INDEMNIFICATION . . . . . . . . . . . . . . . . . . 22 7.1 Definitions . . . . . . . . . . . . . . . . . . . . 22 7.2 Indemnification . . . . . . . . . . . . . . . . . . 22 7.3 Notice. . . . . . . . . . . . . . . . . . . . . . . 23 7.4 Limitation on Indemnification by the Company. . . . 23 ARTICLE 8 GENERAL PROVISIONS. . . . . . . . . . . . . . . . . 23 8.1 Survival of Representations and Warranties. . . . . 23 8.2 Reliance. . . . . . . . . . . . . . . . . . . . . . 23 8.3 Assignment. . . . . . . . . . . . . . . . . . . . . 24 8.4 Notices . . . . . . . . . . . . . . . . . . . . . . 24 3 8.5 Governing Law . . . . . . . . . . . . . . . . . . . 24 8.6 Counterparts. . . . . . . . . . . . . . . . . . . . 24 8.7 Severability. . . . . . . . . . . . . . . . . . . . 25 8.8 Amendment and Modification. . . . . . . . . . . . . 25 8.9 Waiver. . . . . . . . . . . . . . . . . . . . . . . 25 8.10 Binding Effect. . . . . . . . . . . . . . . . . . . 25 8.11 Further Assurances. . . . . . . . . . . . . . . . . 25 8.12 Transaction Expenses. . . . . . . . . . . . . . . . 25 8.13 Entire Agreement. . . . . . . . . . . . . . . . . . 25 8.14 Attorneys' Fees . . . . . . . . . . . . . . . . . . 25 4 STOCK PURCHASE AGREEMENT ------------------------ THIS STOCK PURCHASE AGREEMENT is made as of May 19, 1994, by and between CASHMERE MANUFACTURING CO., INC., a Washington corporation (the "Company"), HERMAN L. "JACK" JONES, JOHN M. EDER, FRED R. PAQUETTE and DAN A. PAQUETTE (individually, "Seller" and collectively, "Sellers"), and PCT HOLDINGS, INC., a Washington Corporation ("Buyer"). RECITALS A. Sellers own 100% of the outstanding shares of common stock of the Company. B. Sellers desire to sell, and Buyer desires to purchase, all of the shares of common stock of the Company, on the terms and conditions contained in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the parties agree as follows: ARTICLE 1 PURCHASE AND SALE OF SHARES 1.1 Share Exchange. Subject to the terms and conditions of this Agreement, each Seller agrees to sell to Buyer, and Buyer agrees to purchase from each Seller, at the Closing (as defined in Section 2.1), the number of shares of the issued and outstanding shares of common stock of the Company set forth opposite such Seller's name below. As consideration therefor, each Seller shall receive such number of shares of common stock, no par value, of Buyer ("Buyer Common Stock") set forth opposite such Seller's name. No. of Shares of Common No. of Shares of Common Seller Stock of the Company Sold Stock of Buyer Received - ------ ------------------------- ----------------------- Herman L. "Jack" Jones 930 4,417,500 John M. Eder 50 237,500 Fred R. Paquette 10 47,500 Dan A. Paquette 10 47,500 TOTAL: 1,000 4,750,000 5 (The shares of common stock of the Company sold to Buyer are referred to as the "Shares." The shares of Buyer Common Stock transferred to Sellers are referred to as the "Buyer's Shares.") ARTICLE 2 CLOSING 2.1 Closing. The closing of the transactions contemplated in this Agreement (the "Closing") shall take place at the offices of Buyer's counsel, Stoel Rives Boley Jones & Grey, at 3600 One Union Square, 600 University Street, Seattle, Washington on May 31, 1994 (the "Closing Date"), or at such other place and time as the parties may mutually agree. 2.2 Deliveries at Closing. At or prior to the Closing, the parties will deliver or cause to be delivered all documents or instruments required to be delivered by them pursuant to this Agreement. At the Closing, each Seller will deliver to Buyer certificates representing the number of the Shares owned by such Seller, as indicated in section 1.1 above, duly endorsed in blank or with appropriate stock powers, and Buyer will deliver to each Seller a certificate in such Seller's name representing the number of the Buyer's Shares to be issued as indicated in Section 1.1 above. ARTICLE 3 REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of the Company and Sellers. Each of the Company and Sellers, jointly and severally, make the following representations and warranties to Buyer: 3.1.1 Incorporation; Qualification; Articles and Bylaws. The Company is a corporation duly organized and validly existing under the laws of the State of Washington and has all requisite 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 duly qualified and in good standing as a foreign corporation in any jurisdiction where the properties owned, leased or operated, or the business conducted, by it require such qualification. The Company has delivered to Buyer complete and accurate copies of its Articles of Incorporation and Bylaws. 3.1.2 Capitalization and Title to Outstanding Capital Stock. The Company has authorized capital stock consisting of 1,000 shares of common stock, no par value. On the date of this Agreement, 1,000 shares of such common stock are outstanding. All of the outstanding shares of capital stock of the Company have been duly authorized and are validly issued, fully paid and 6 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 or otherwise. Other than pursuant to this Agreement, (i) there is no outstanding subscription, option, warrant, call, or other right, binding upon the Company or any of Sellers (A) relating to the issuance, sale, delivery, voting, transfer, or ownership of the Company's capital stock or (B) relating to the payment of amounts measured by changes in the value or price of any capital stock of the Company, and (ii) the Company has no obligation of any kind to issue any additional securities. The Company has no outstanding obligations to repurchase, redeem or otherwise acquire any of its outstanding shares of capital stock. All of the outstanding shares of capital stock of the Company are owned beneficially and of record by Sellers, free and clear of all pledges, security interests, liens, charges, encumbrances, equities, claims, options or limitations. 3.1.3 Title to Shares; Restricted Shares. At the Closing, Buyer will acquire good title to the Shares, free and clear of all pledges, security interests, liens, charges, encumbrances, equities, claims, options or limitations of any nature. There is no public market for the Shares. The Shares have not been registered under the federal Securities Act of 1933, as amended, or any applicable state securities acts ("Acts"), and neither the Company nor Sellers has any obligation or current intention to register the Shares under the Acts. 3.1.4 No Subsidiaries. The Company does not have any subsidiaries, and neither Sellers nor the Company has any investments in any other corporation, partnership, association, joint venture or entity. 3.1.5 Authority; Authorization. The Company has full corporate power and corporate authority, and each Seller has full power and authority, to execute and deliver this Agreement, to consummate the transactions contemplated by this Agreement, and to carry out their obligations under this Agreement. This Agreement has been duly and validly authorized by the Board of Directors of the Company, has been duly and validly executed and delivered by the Company and Sellers, and constitutes the valid and binding obligation of each of the Company and Sellers, enforceable in accordance with its terms. 3.1.6 Financial Matters. (a) Financial Statements. The Company has delivered to Buyer true and correct copies of the Company's (a) unaudited balance sheets and statements of income for the fiscal years ended December 31, 1992 and 1993 (collectively, the "Historical Financial Statements"), and (b) a balance sheet as 7 of March 31, 1994 (the "Current Balance Sheet") and the related statement of income for the two months then ended (collectively, the "Current Financial Statements"). The Historical Financial Statements and the Current Financial Statements are collectively referred to as the "Company Financial Statements." The Company Financial Statements are complete and accurate and, as of their respective dates, 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. (b) Absence of Undisclosed Liabilities. Except for current liabilities incurred after March 31, 1994, in the ordinary course of business and of a type and in an amount consistent with past practices, or as described on Schedule 3.1.6(b), the Company does not have any liability or obligation (whether absolute, accrued, contingent or otherwise, and whether due or to become due) that is not accrued, reserved against, or disclosed in the Company Financial Statements. (c) Accounts Receivable. The Company has provided to Buyer 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"). 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 within 120 days after Closing, without resort to litigation and without offset, deduction or counterclaim, except to the extent of any normal allowance for doubtful accounts reflected in the Current Balance Sheet. (d) Inventories. The inventories of the Company, whether finished goods, work in process or raw materials, shown on the Current Balance Sheet or thereafter acquired, are all usable or saleable in the ordinary course of business. The present quantities of all inventory of the Company, taken as a whole, are reasonable and warranted in the present circumstances of its business, in accordance with the past practices of the Company. 3.1.7 Litigation. Except as disclosed on Schedule 3.1.7, 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 best knowledge of the Company and each Seller, 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 8 of the Company and each Seller, threatened, that question the validity of this Agreement or any actions taken or to be taken pursuant hereto. 3.1.8 Absence of Changes. Except as set forth on Schedule 3.1.8, since March 31, 1994, the Company has not: (a) Adverse Changes. Suffered or been threatened with any adverse change in its business, results of operations, financial condition, properties, assets or prospects; (b) Damage. Suffered any damage, destruction, 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; (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, except an employment agreement with John M. Eder ("Eder") that was approved in advance by Buyer; 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 of payment or performance of any loan or obligation of another; or any amendment, modification or termination of any existing agreement, commitment or transaction), involving an obligation to pay an amount greater than $10,000, except the commitment to sell the premises in which the Company's business is operated, and related real property, to Herman L. "Jack" Jones ("Jones") and to lease such premises back to the Company; (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; 9 (h) Certificates and Bylaws. Amended its Articles of Incorporation or Bylaws; (i) Business Not in the Ordinary Course. Conducted any business outside the ordinary course of business; (j) Liabilities. 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 any labor dispute, organizational activities or disturbances that could affect in an adverse manner its business, operations, financial condition, assets or prospects; (m) Customers. Received any indication from any customer that such customer intends to or may terminate or materially reduce its purchases from historical purchasing patterns for any reason; or (n) Further Adverse Changes. Experienced or been threatened with any change in its assets, liabilities, licenses or permits, or 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 on its business, operations, financial condition, properties, assets or prospects. 3.1.9 Taxes. With respect to Taxes (as defined below): (a) Returns. The Company has timely filed all returns, declarations, reports, estimates, information returns and statements ("Returns") required to be filed by it under federal, state, local or any foreign laws, and all such Returns are true, correct and complete in all material respects. The Company has delivered to Buyer true and complete copies of all federal, state and foreign income tax returns filed by the Company for taxable years ending December 31, 1993, 1992 and 1991. (b) Payment. The Company has, within the time and in the manner prescribed by law, paid all Taxes (as defined below) that are due and payable by the Company. Either the statute of limitations for the assessment of Taxes has expired for all applicable Returns of the Company or such returns have 10 been examined by the appropriate tax authorities for all periods through December 31, 1990. No deficiency for any Taxes has been proposed, asserted or assessed against the Company which has not been resolved and paid in full. No outstanding waivers or comparable consents have been given by the Company regarding the application of the statute of limitations with respect to any Taxes or Returns. (c) Tax Liens. There are no liens for Taxes upon the assets of the Company, except liens for Taxes not yet due. (d) Withholding. The Company has complied in all respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes and has, within the time and in the manner prescribed by law, withheld from wages and other amounts paid or owing to any employee, creditor, independent contractor or any third party, and has paid over to the proper government authorities all amounts required to be withheld and paid over. (e) Definition. For purposes of this Agreement, "Taxes" shall mean all taxes, charges, fees, levies or other assessments (together with any interest, penalties or additional amounts) imposed by any taxing authority (domestic or foreign) upon or payable by the Company. 3.1.10 Compliance with Laws. The Company is not operating its business in violation of any applicable laws or regulations. The Company is not subject to any outstanding judgment, order, writ, injunction or decree and has not been charged with, or threatened with a charge of, a violation of any provision of any applicable law or regulation. 3.1.11 Contracts and Commitments; Absence of Defaults; Violation of Agreements. The Company has provided Buyer with copies of all of the contracts or agreements to which the Company is a party or by which the Company or any of its properties is subject or bound (the "Contracts"), including without limitation: (i) notes, mortgages, deeds of trust, loan agreements, security agreements, guaranties, debentures, indentures, credit agreements and other evidences of indebtedness; (ii) contracts or agreements with any director, officer or shareholder; (iii) leases of real property and leases of equipment or other personal property under which the Company is the lessor or 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 property; and (v) licenses and sublicenses material to the Company. Except as set forth on Schedule 3.1.11, (a) the Contracts are valid, binding and enforceable in accordance with their terms, (b) the Company is not in default under or in violation of any provision of any Contract; (c) no third party has asserted any claim, dispute or controversy with 11 the Company or withheld payments from or performance to the Company with respect to any Contract; (d) the Company has not received notice or warning of alleged nonperformance or other noncompliance with respect to its obligations under any Contract or any notice that any Contract may be totally or partially terminated or suspended by the other party or parties thereto; and (e) the Company has not entered into any contract or agreement containing covenants limiting its right to compete in any business or with any person. Neither the execution and delivery of this Agreement by the Company nor the consummation by it of the transactions contemplated hereby 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. 3.1.12 Intellectual Property. The Company owns, or has a valid and binding license or licenses 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 its business as now conducted and as proposed to be conducted. Schedule 3.1.12 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, including a description of any agreements relating to the acquisition by or license to the Company of the Intellectual Property. Schedule 3.1.12 also describes all 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. 3.1.13 Insurance. The Company has provided Buyer with complete and accurate copies of all insurance policies and all endorsements thereto maintained by the Company. Except as set forth on Schedule 3.1.13, all such policies are in full force and effect, all premiums have been paid when due, and no notice of cancellation or termination has been received with respect to any such policy. 3.1.14 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 12 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, any material containing more than one percent by weight of asbestos, and any other substance that is prohibited or regulated by any applicable Environmental Law. "Real Property" means any real property currently or previously owned, leased, controlled, operated or occupied by the Company. (b) Hazardous Substances. Except as disclosed on Schedule 3.1.14, no Hazardous Substance has been disposed of, spilled, leaked or otherwise released in, on, under or from the Real Property. Except as described on Schedule 3.1.14, no Hazardous Substance (a) is or has been used, treated, stored, generated, manufactured or otherwise handled on the Real Property, or (b) has otherwise come to be located in, on or under the Real Property. To the best knowledge of the Company and each Seller, 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. (c) Underground Storage Tanks. Except as set forth on Schedule 3.1.14, there are no underground storage tanks on the Real Property, whether in use, out of service, closed or decommissioned in place. (d) Waste Disposal. No wastes, including without limitation garbage and refuse, have been disposed of on the Real Property. All wastes generated by the business of the Company are and have been properly transported off site and disposed of in compliance with all applicable Environmental Laws. (e) Claims. Neither the Company nor Sellers have received notice, or have knowledge, of any claim that the Company is a potentially responsible party under any state or local Environmental Law. (f) Environmental Reports. The Company has disclosed and made available to Buyer 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. 3.1.15 Labor Matters. The Company does not have a collective bargaining agreement with any labor union. There has not been any strike, slowdown, picketing or work stoppage by employees of the Company, nor has any unfair labor practice charge, complaint or proceeding been brought against the Company. The Company has complied in all material respects with all 13 material laws relating to employment, and no person has asserted, and to the knowledge of the Company and each Seller there is no basis for any person to assert, that the Company is liable in any material amount for any arrears of wages, taxes, penalties or damages for failure to comply with any of the foregoing. 3.1.16 Employee Benefit Matters. Schedule 3.1.16 includes a complete list of all "employee benefit plans," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Company is in compliance in all material respects with all applicable provisions of ERISA and the Internal Revenue Code of 1986, as amended, relating to employee benefits. No "Reportable Event" within the terms of ERISA has occurred with respect to any pension plan subject to Title IV of ERISA that is administered by it or any administrator designated by it. Except as disclosed in Schedule 3.1.16, no liabilities with respect to any employee benefit plan have been incurred or threatened that would result in material liability to the Company. 3.1.17 Other Employee Matters. Except as set forth on Schedule 3.1.17, the Company is not bound by or liable for any employment contract, commitment or arrangement, whether written or oral, entered into prior to the Closing Date with respect to any employee, and all employees of the Company are employees at will. The Company has provided Buyer with a list of all vacation, holiday or sick leave policies or arrangement. The Company has also provided Buyer with information regarding all employees of the Company, whether employed directly by the Company or on behalf of the Company by any other company, their salaries, wages, and any other compensation, including compensation in the form of benefits, allowances, perquisites or otherwise, dates of employment, positions and birthdates. 3.1.18 Title to and Condition of Real and Tangible Personal Property. (a) The Company has provided Buyer with a complete and accurate list of all tangible personal property owned or leased by the Company (the "Tangible Personal Property"). The Company has good and marketable title to all of the Tangible Personal Property owned by it, free and clear of all liens, mortgages, pledges, leases, restrictions and other claims and encumbrances of any nature. 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. (b) Schedule 3.1.18(b) contains a list of all real property owned or leased by the Company (the "Current Real Property"), including the dates of and parties to all leases and any amendments thereof. The Company has ordered a title report 14 for Buyer's benefit on the Current Real Property. The Company has good and marketable fee simple title to any Current Real Property owned by it, free and clear of all liens, mortgages, pledges, covenants, easements, restrictions, leases, charges, and other claims and encumbrances of any nature, except for (i) a certain Real Property Sale Agreement to be entered into between the Company and Jones, a copy of which will be attached to Schedule 3.1.18(b) at or prior to Closing, and (ii) covenants, easements and restrictions of record as shown in the title report, and except as otherwise set forth on Schedule 3.1.18(b). All Current Real Property (including improvements thereon) is in satisfactory condition and repair. Neither the operations of the Company on any Current Real Property, nor any improvements on the Current Real Property, violate any applicable building or zoning code or regulation of any governmental authority having jurisdiction. 3.1.19 Permits and Licenses. Schedule 3.1.19 contains a complete and accurate list of all governmental licenses, permits, easements and authorizations (collectively, "Permits") held by the Company. The Company holds, and at all times has held, 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. The Company is in compliance with each of the terms of each of its 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 Buyer. 3.1.20 Certain Interests. Except as set forth on Schedule 3.1.20, neither Sellers nor any officer or director of the Company (or any entity owned or controlled by one or more of such parties) (a) has any material 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 3.1.20, the Company is not indebted to any of Sellers, or to any 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. 3.1.21 Consents and Approvals. Except as set forth on Schedule 3.1.21, no consent, approval, or authorization of, or filing or registration with, any court, regulatory authority, governmental body, or any other 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 Sellers. 15 3.1.22 Records. The books of account, minute books, and stock records of the Company are complete and accurate in all material respects. Complete and accurate copies of such books and records have been provided to Buyer. 3.1.23 Bank Accounts. Schedule 3.1.23 contains a complete and accurate list of all the banks or other financial institutions at which the Company maintains accounts or safe deposit boxes, together with the numbers of such accounts and boxes and the names of the persons authorized to draw thereon or permitted access thereto. All cash in such accounts is held in demand deposits and is not subject to any restriction or limitation as to withdrawal. 3.1.24 Product Warranties, Recalls and Liabili- ties. Schedule 3.1.24 contains any standard forms of product warranties provided by the Company. The Company has not undertaken any performance obligations or made any warranties or guarantees with respect to its products other than those disclosed in Schedule 3.1.24, and the aggregate cost to the Company to comply with its product warranties has not and will not exceed $5,000 per year. 3.1.25 Brokers and Finders. Neither the Company nor Sellers or any 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 by this Agreement. 3.1.26 No Adverse Consequences. Neither the execution and delivery of this Agreement by the Company nor the consummation of the transactions contemplated in this Agreement will (i) result in the creation or imposition of any lien, charge or encumbrance on any of the assets or properties of the Company, (ii) violate any provision of the Articles of Incorporation or Bylaws of the Company, (iii) violate any law, judgment, order, injunction, decree, rule, regulation or ruling of any governmental authority applicable to the Company, or (iv) either alone or with the giving of notice or the passage of time or both, conflict with, constitute grounds for termination of, result in the breach of the terms, conditions or provisions of, or constitute a default under any agreement, instrument, license or permit to which the Company is a party or by which it is bound. 3.2 Representations and Warranties of Buyer. Buyer makes the following representations and warranties to Sellers and the Company: 16 3.2.1 Existence. Buyer is a corporation duly organized and existing under the laws of the State of Washington and has all requisite corporate power and authority to own, operate and lease its assets and to carry on its business as now conducted and as proposed to be conducted. 3.2.2 Authority and Validity. Buyer has full corporate power and corporate authority to execute and deliver this Agreement, to consummate the transactions contemplated by this Agreement, and to carry out its obligations under this Agreement. This Agreement has been duly and validly authorized by the Board of Directors of Buyer, has been duly and validly executed and delivered by Buyer, and constitutes the valid and binding obligation of Buyer, enforceable in accordance with its terms. 3.2.3 Capitalization and Capital Stock. Buyer has authorized capital stock consisting of twenty-five million shares of common stock, no par value and five million shares of preferred stock, no par value ("Buyer Preferred Stock"). On the date of this Agreement, prior to giving effect to the issuance of the Buyer's Shares, no shares of Buyer Common Stock and no shares of Buyer Preferred Stock are outstanding. Other than pursuant to this Agreement or the share exchange between the shareholders of Pacific Coast Technologies, Inc. ("PCT") and Buyer (the "Share Exchange") as set forth on Schedule 3.2.3, (i) there is no subscription, option, warrant, call or other right binding upon Buyer or any shareholders of Buyer (A) relating to the issuance, sale, delivery, voting, transfer, or ownership of Buyer's capital stock or (B) relating to the payment of amounts measured by changes in the value or price of any capital stock of Buyer, and (ii) Buyer has no obligation of any kind to issue any additional securities. Buyer has no outstanding obligations to repurchase, redeem or otherwise acquire any of its outstanding shares of capital stock. Schedule 3.2.3 sets forth a complete and accurate list of all shareholders of PCT as of the date hereof who, to the best of Buyer's knowledge, will on May 31, 1994, (i) surrender their shares of common stock, no par value, of PCT in exchange for the same number of shares of Buyer Common Stock; (ii) if applicable, surrender their warrants to purchase shares of common stock of PCT in exchange for the warrants to purchase the same number of shares of Buyer Common Stock under the same terms and conditions ("Buyer Warrants"); and (iii) if applicable, surrender their options to purchase shares of common stock of PCT and be granted options to purchase the same number of shares of Buyer common stock ("Buyer Options"). Schedule 3.2.3 indicates the number of shares of Buyer Common Stock and Buyer Warrants which may be issued to such shareholders on May 31, 1994 and the number of Buyer Options that are to be granted on or immediately after that date. 17 3.2.4 Title to Shares; Restricted Shares. All of Buyer's Shares to be issued pursuant to this Agreement, when issued, will be duly authorized and validly issued, fully paid and nonassessable. At the Closing, Buyer will acquire good title to the Buyer's Shares, free and clear of all pledges, security interests, liens, charges, encumbrances, equities, claims, options or limitations of any nature. There is no public market for the Buyer Shares. The Buyer Shares have not been registered under the Acts, and Buyer has no obligation or current intention to register the Buyer Shares. 3.2.5 No Subsidiaries. Buyer does not have any subsidiaries, and Buyer does not have any investments in any corporation, partnership, association, joint venture or entity, except that upon completion of the Share Exchange and the transactions contemplated hereby, PCT and the Company will become the subsidiaries of Buyer. 3.2.6 Financial Matters. (a) Financial Statements. Buyer has delivered to Jones true and correct copies of Buyer's (a) audited balance sheet and statement of income for the fiscal year ended May 31, 1993 (collectively, the "Buyer Historical Financial Statements"), and (b) a balance sheet as of April 30, 1994 (the "Buyer Current Balance Sheet") and the related statement of income for the three quarters then ended (collectively, the "Buyer Current Financial Statements"). The Buyer Historical Financial Statements and the Buyer Current Financial Statements are collectively referred to as the "Buyer Financial Statements." The Buyer Financial Statements are complete and accurate and, as of their respective dates, present fairly the financial position, results of operations, and changes in financial position of Buyer as of the dates and for the periods indicated therein in accordance with GAAP applied on a consistent basis. (b) Absence of Undisclosed Liabilities. Except for current liabilities incurred after April 30, 1994, in the ordinary course of business and of a type and in an amount consistent with past practices, or as described on Schedule 3.2.6, Buyer does not have any liability or obligation (whether absolute, accrued, contingent or otherwise, and whether due or to become due) that is not accrued, reserved against, or disclosed in the Buyer Financial Statements. 3.2.7 Litigation. Except as set forth on Schedule 3.2.7, there is no claim, litigation, proceeding or investigation of any kind pending by Buyer or against Buyer, or the officers or directors of Buyer in their capacities as such, or against the properties or business of Buyer, and, to the best knowledge of Buyer, no such claim, litigation, proceeding or investigation has been threatened and there is no basis for any such claim, 18 litigation, proceeding or investigation. There are no actions, proceedings, suits, investigations, or inquiries pending, or to the best knowledge of Buyer, threatened, that question the validity of this Agreement or any actions taken or to be taken pursuant hereto. 3.2.8 Compliance with Laws. Buyer is not operating its business in violation of any applicable laws or regulations. Buyer is not subject to any outstanding judgment, order, writ, injunction or decree and has not been charged with, or threatened with a charge of, a violation of any provision of any applicable law or regulation. 3.2.9 Consents and Approvals. Except as set forth on Schedule 3.2.9, no consent, approval, or authorization of, or filing or registration with, any court, regulatory authority, governmental body, or any other entity or person not a party to this Agreement is required for the consummation of the transactions described in this Agreement by Buyer. 3.2.10 Brokers and Finders. Neither Buyer nor any shareholder, officer, director or employee of 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. ARTICLE 4 COVENANTS 4.1 Covenants of Sellers. Each of Sellers and the Company jointly and severally agree that between the date of this Agreement and the Closing Date, unless Buyer consents in writing: 4.1.1 Business Operations. The business of the Company will be operated in the ordinary course consistent with past practice, and no new method of operation will be introduced. Sellers and the Company will use their best efforts to preserve the ongoing business and assets of the Company and will not take any action that might impair the business, results of operations, financial condition or prospects of the Company or take or fail to take any action that would cause or permit the representations made by them in this Agreement to be materially inaccurate on the Closing Date or preclude them from making such representations and warranties at the Closing. 4.1.2 Access. Sellers and the Company will permit Buyer and its authorized representatives full access to, and make available for inspection, all of the assets and business of the 19 Company, including its employees, customers, suppliers and creditors. Sellers and the Company will furnish to Buyer all documents, records and information with respect to the affairs of the Company as Buyer and its representatives may reasonably request. 4.1.3 Dividends; Changes in Capital Stock. The Company will not (i) declare, set aside or pay any dividends on, or make any distributions in respect of, any of its common stock, (ii) split, combine or reclassify any of its capital stock or issue, authorize, or propose the issuance of any other securities in respect of, in lieu of, or in substitution for shares of its capital stock, or (iii) repurchase, redeem or otherwise acquire any shares of its capital stock or any other outstanding securities. 4.1.4 No Issuance of Securities. The Company will not issue, deliver or sell, or agree to or authorize or propose the issuance, delivery or sale of (i) any shares of its capital stock or any other securities, or (ii) any rights, warrants or options to acquire any such securities. 4.1.5 Articles and Bylaws. The Company will not amend or propose to amend its Articles of Incorporation or Bylaws. 4.1.6 No Acquisitions. The Company will not acquire or agree to acquire by merger or consolidation with, or by purchase of a substantial portion of the assets of, or by any other manner, any business of any corporation, partnership, association or other business organization or division thereof. 4.1.7 No Dispositions. The Company will not sell, lease, encumber, pledge, grant a security interest in, or otherwise dispose of, or agree to sell, lease or otherwise dispose of, any of its assets or any interest in any of its assets, except in the ordinary course of business consistent with prior practice. 4.1.8 Employee Compensation. The Company will not grant any increase in the compensation or rate of compensation payable or to become payable to any officer, employee or director without the prior consent of Buyer. No bonus, profit sharing, retirement, insurance, death, fringe benefit, severance or other extraordinary or indirect compensation shall accrue, be set aside, or be paid to, for or on behalf on any such person, other than as required by plans or agreements in effect on the date of this Agreement. The Company will not amend or make any commitment to enter into or amend any employment, consulting, employee benefit or other similar agreement. 20 4.1.9 Contracts. The Company will not waive any material right or cancel any material contract, debt or claim or assume or enter into any contract, lease, license, obligation, indebtedness, commitment, purchase or sale, except in the ordinary course of business. 4.1.10 Confidentiality. Neither Sellers nor the Company will disclose to any person other than their officers, directors, agents and representatives (or cause or permit any of their respective affiliates, employees, officers, directors, agents or other representatives to disclose) any of the terms or conditions of this Agreement, except as may be approved by Buyer or required by law, valid legal process or administrative order. If such disclosure is required, Sellers will provide Buyer a copy of the proposed disclosure at least two business days prior to making the disclosure. 4.1.11 No Solicitation. Neither Sellers nor the Company will, directly or indirectly, solicit or encourage any person, entity or group (other than Buyer) or enter into any negotiations, discussions or communications with such persons, concerning any merger, sale of substantial assets not in the ordinary course of business, or sale of any capital stock of the Company. Sellers and the Company will each promptly communicate to Buyer the terms of any proposal which they may receive in respect of any such transactions. 4.1.12 Material Changes. Until the Closing, Sellers and the Company will promptly inform Buyer in writing of (i) any material adverse change (or any condition, event or development that could cause a material adverse change) in the business, properties, assets, liabilities, capitalization, shareholder's equity, condition (financial or other), operations, or prospects of either of the Company, (ii) any governmental complaints, investigations or hearings (or threat thereof), and (iii) the institution or threat of litigation involving the Company or any of its capital stock. 4.1.13 Failure to Fulfill Conditions. If either any of Sellers or the Company determines that it will be unable to fulfill, at or before the Closing, any of its obligations under this Agreement or any of its conditions to Closing, it will promptly notify Buyer. 4.1.14 Consultation with Buyer. Until the Closing of this transaction, Sellers and the Company will consult with Buyer with respect to (i) cancellation, modification or continuation of contracts, agreements, commitments or other understandings or arrangements; (ii) retention or termination of employment of 21 employees; and (iii) cancellation, modification or continuation of purchasing, pricing or selling policies. 4.2 Covenants of Buyer. Buyer agrees that between the date of this Agreement and the Closing Date, unless Sellers consent in writing: 4.2.1 Confidentiality. Buyer will not disclose to any person other than its officers, directors, agents and representatives (or cause or permit any of its affiliates, employees, officers, directors, agents or other representatives to disclose) any of the terms or conditions of this Agreement, except as may be approved by Sellers or the Company or required by law, valid legal process or administrative order. If such disclosure is required, Buyer will provide Jones a copy of the proposed disclosure at least two business days prior to making the disclosure. 4.2.2 Failure to Fulfill Conditions. If Buyer determines that it will be unable to fulfill, on or before Closing, any of its obligations under this Agreement or any of its conditions to Closing, it will promptly notify Sellers. 4.2.3 Issuance of Capital Stock. Buyer will not issue any shares of Buyer Common or Preferred Stock, except pursuant to the Share Exchange. 4.3 Post-Closing Covenant. 4.3.1 Election of Directors. Buyer and each Seller agree that after Closing, unless the other otherwise agrees in writing, Buyer shall use its best efforts to cause the shareholders of Buyer to vote their shares so that (i) Jones would be a director for so long as he remains a shareholder of Buyer and Buyer remains a private company; and (ii) Eder would be a director for so long as he is employed by the Company or Buyer and a shareholder of Buyer, and for so long as Buyer remains a private Company. In the event that Buyer becomes a public company, the management of Buyer shall use its reasonable efforts to cause Jones and Eder to be elected to the Board of Directors. 4.3.2 Shareholders Agreement. Each Seller agrees that upon Closing and the consummation of the Share Exchange, he will become a party to a certain Shareholders Agreement by and between PCT and the shareholders of PCT, dated July 2, 1990, as amended and as assigned to Buyer (the "Shareholders Agreement") and that he will comply with all obligations as a shareholder thereunder. A copy of the Shareholders Agreement has been provided to each Seller. Subject to the Closing and the consummation of the Share 22 Exchange, execution of this Agreement by each Seller shall be deemed to be his execution of the Shareholders Agreement. ARTICLE 5 CONDITIONS PRECEDENT TO CLOSING 5.1 Condition to Each Party's Obligations. The obligations of each party hereunder are subject to the fulfillment, at or prior to Closing, of the condition that there shall be no pending or threatened claim, action, suit, investigation or proceeding against Buyer, any Seller, or the Company for the purpose of enjoining or preventing the consummation of the transactions contemplated in this Agreement or otherwise claiming that this Agreement or the consummation of the transactions contemplated herein are illegal. 5.2 Conditions to Buyer's Obligations. The obligations of Buyer hereunder are subject to the fulfillment, at or prior to Closing, of the following conditions (unless waived in writing by Buyer): 5.2.1 Representations and Warranties. The representations and warranties of each Seller and the Company contained herein shall be true and correct in all material respects as of the Closing as if made on and as of the Closing Date, and each of Sellers and the Company shall have delivered to Buyer a certificate, dated as of the Closing Date, with respect to their respective representations and warranties. The Company's certificate shall be executed by a person acceptable to Buyer. 5.2.2 Covenants. Each of Sellers and the Company shall have performed and complied with all covenants or conditions required by this Agreement to be performed and complied with by them prior to Closing, and each of Sellers and the Company shall have delivered to Buyer a certificate, dated as of the Closing Date, with respect to their respective covenants and conditions. The Company's certificate shall be executed by a person acceptable to Buyer. 5.2.3 No Material Adverse Change. There shall not have been any material adverse change (or any condition, event or development that could cause a material adverse change) in the business, properties, assets, liabilities, capitalization, shareholder's equity, condition (financial or other), operations, or prospects of the Company between the date of this Agreement and the Closing. 5.2.4 Consents. The Company and Sellers shall have obtained all consents and approvals necessary to the execution, 23 delivery and performance of this Agreement by them. Such consents and approvals shall include, but are not limited to, a consent from Cashmere Valley Bank, consenting to the transactions contemplated in this Agreement and the transfer and conveyance of the Current Real Property to Buyer. 5.2.5 Corporate Proceedings. All corporate proceedings necessary to be taken by the Company in connection with the transactions contemplated in this Agreement and all documents reflecting or evidencing such proceedings shall be reasonably satisfactory to Buyer and its legal counsel, and Buyer and its legal counsel shall have received all such counterpart original, certified or other copies of such documents as they may reasonably request. 5.2.6 Employment Agreement. Jones and Eder shall each have executed and delivered to Buyer an employment and noncompetition agreement with Buyer and the Company, respectively, in substantially the forms attached as Exhibit A and Exhibit B to this Agreement. 5.2.7 Due Diligence. Buyer shall have completed its due diligence investigations with respect to the business and affairs of the Company and shall be satisfied with the results. 5.2.8 Share Certificates. Each Seller shall have delivered to Buyer certificates representing the number of Shares indicated in section 1.1, duly endorsed in blank or with appropriate stock powers. 5.2.9 Sale of Current Real Property. Jones shall have executed and delivered to the Company a Real Property Sale Agreement in connection with the sale by the Company to Jones of the Current Real Property (the "Real Property Sale Agreement"). The Real Property Sale Agreement, which shall be in a form and on terms satisfactory to Buyer and its counsel and will be attached hereto as Schedule 3.1.18(b). 5.2.10 Current Real Property Lease. Jones shall have executed and delivered to the Company a lease (the "Lease") in a form satisfactory to Buyer and its counsel, which shall provide that (i) the Company will lease from Jones and Jones will lease to the Company, a portion of the Current Real Property equal to approximately 42,000 square feet for a period of three years, commencing as of the date of Closing, at a monthly rent of Nine Thousand Dollars ($9,000); and (ii) the Company shall have the right to offset any rent due against the payment of the purchase price due under the Real Property Sale Agreement, in the event that Jones is in default of the Real Property Sale Agreement. 24 5.3 Conditions to Sellers' Obligations. The obligations of Sellers and the Company hereunder are subject to the fulfillment, at or prior to Closing, of the following conditions (unless waived in writing by Sellers and the Company): 5.3.1 Representations and Warranties. The representations and warranties of Buyer contained herein shall be true and correct in all material respects as of the Closing as if made on and as of the Closing Date, and Buyer shall have delivered to Sellers and the Company a certificate of its President, dated as of the Closing Date, with respect to its representations and warranties. 5.3.2 Covenants. Buyer shall have performed and complied with all covenants or conditions required by this Agreement to be performed and complied with by it prior to Closing, and Buyer shall have delivered to Sellers and the Company a certificate of its President, dated as of the Closing Date, with respect to its covenants and conditions. 5.3.3 Employment Agreement. Buyer shall have executed and delivered to Jones an employment and noncompetition agreement in substantially the form attached as Exhibit A. 5.3.4 Due Diligence. Sellers shall have completed their due diligence investigations with respect to the business and affairs of Buyer and shall be satisfied with the results. 5.3.5 Delivery of Stock Certificate. Buyer shall have delivered to each Seller a stock certificate issued in the name of such Seller representing the number of Buyer's Shares indicated in Section 1.1. ARTICLE 6 TERMINATION 6.1 Right to Terminate. Notwithstanding anything to the contrary in this Agreement, this Agreement may be terminated and the transactions contemplated herein abandoned at any time prior to the Closing: 6.1.1 Mutual Agreement. By mutual agreement of Buyer and the Company; 6.1.2 Delay. By either party if the Closing has not occurred by June 15, 1994, provided that the party seeking to terminate the Agreement did not cause the delay. 25 6.1.3 Breach by Buyer. By Sellers if Buyer breaches any of Buyer's representations and warranties in any material respect or fails to timely comply in any material respect with any of Buyer's covenants or agreements contained herein; or 6.1.4 Breach by Sellers or the Company. By Buyer if either any of Sellers or the Company breaches any of its representations and warranties in any material respect or fails to timely comply in any material respect with any of its covenants or agreements contained herein. 6.2 Obligations to Cease. If this Agreement is terminated pursuant to Section 6.1, all obligations of the parties to this Agreement shall terminate and there shall be no liability of any party hereto to any other party except (i) as set forth in Section 8.12 and (ii) that nothing herein will relieve any party from liability for any willful breach of this Agreement. ARTICLE 7 INDEMNIFICATION 7.1 Definitions. For the purpose of this Article 7, the "Indemnitor" shall be either Sellers and the Company, jointly and severally, or Buyer, whichever is obligated to the other under this Article 7, and the "Indemnitee" shall be the party with the right to indemnification. 7.2 Indemnification. Subject to Section 8.1, the Indemnitor agrees to defend, indemnify and hold harmless the Indemnitee and any of its subsidiaries, affiliates, employees, officers, directors, agents, successors and assigns from and against any loss, claim, cause of action, damage, liability, expense or cost of any kind or amount, including without limitation any loss of earnings or diminution in the fair market value of the Shares or Buyer's Shares, as the case may be, or any taxes, reasonable attorneys', actuaries', and accountants' fees and expenses, and liabilities arising under ERISA or the Code (collectively, the "Claims"), which may be incurred by the Indemnitee, which results from: (i) any breach of or inaccuracy in any representation, warranty or agreement made by or on behalf of the Indemnitor; or (ii) any misrepresentations in or any omission from any certificate or other document furnished or to be furnished by or on behalf of the Indemnitor. The Indemnitor shall not be liable hereunder with respect to amounts as to which a claim shall have not been made within the appropriate period provided in Section 7.3 of this Agreement. However, except for Receivables governed by Sections 3.1.6(c), no claim may be made with respect to any breach, inaccuracy, misrepresentation or omission if the loss, claim, cause of action, damage or liability 26 to the party claiming such loss (before the addition of any reasonable attorneys' actuaries' or accountants' fees or other expenses incurred in connection therewith) is less than $10,000, unless the aggregate amount of all such claims exceeds $10,000. 7.3 Notice. The Indemnitee shall notify the Indemnitor in writing of any claim for indemnification under this Agreement, specifying each breach, misrepresentation, omission, exercise, pension claim, or failure forming the basis for such claim, and the amount being claimed as a result thereof, which notice shall be given within 90 days of the discovery of such breach, misrepresentation, omission, exercise, pension claim, or failure and prior to the expiration of the applicable survival period stated in Section 8.1. With respect to any third-party claim, the parties hereto shall make mutually available to each other all relevant information in their possession material to any such claim. The Indemnitor shall have the right to defend at its expense any such third-party claim against the Indemnitee, in which defense the Indemnitee shall cooperate with the Indemnitor, and the Indemnitor shall have the right to dispose of any such claim as it sees fit, as long as such disposition is without prejudice to the Indemnitee or to any subsidiary or affiliate of the Indemnitee. 7.4 Limitation on Indemnification by the Company. The obligations of the Company pursuant to this Article 7 to indemnify Buyer or any of Buyer's subsidiaries, affiliates, employees, officers, directors, agents, successors and assigns from and against any loss, claim, cause of action, damage, liability, expense or cost shall terminate immediately upon the Closing, and such termination shall have no effect upon the joint and several obligations of Sellers pursuant to this Article 7. ARTICLE 8 GENERAL PROVISIONS 8.1 Survival of Representations and Warranties. Except as stated below, the representations and warranties contained in this Agreement shall survive for a period of two years after the Closing Date. The representations and warranties contained in Sections 3.1.10 (Taxes) and 3.1.15 (Environmental Matters) shall survive for a period equal to the statute of limitations for such matters. From and after the Closing, the representations and warranties contained in Section 3.1 shall be deemed to be representations of Sellers only. 8.2 Reliance. Sellers and the Company recognize and agree that, notwithstanding any investigation by Buyer, Buyer and any of its affiliates (including without limitation Buyer's parent 27 corporation) shall be entitled to rely upon their representations and warranties set forth this Agreement. 8.3 Assignment. Neither this Agreement nor any right or obligation created hereby may be assigned by any party without the prior written consent of the other parties or their successors. 8.4 Notices. All notices or other communications required or permitted to be given hereunder shall be in writing, shall be addressed as provided below and shall be considered as properly given (i) if delivered in person, (ii) if sent by overnight delivery service, (iii) if mailed by first-class United States mail, postage prepaid, registered or certified with return receipt requested, or (iv) if sent by prepaid telegram or by telex or facsimile copy and confirmed. Notice so given shall be effective upon receipt by the addressee; provided, however, that if any notice is tendered to an addressee and the delivery thereof is refused by such addressee, such notice shall be effective upon tender. For the purposes of notice, the addresses of the parties shall be as noted below; provided that any party shall have the right to change its address for notice hereunder by giving written notice to the other parties. The initial addresses and facsimile numbers of the parties are as follows: BUYER: Pacific Coast Technologies, Inc. 410 Olds Station Road Wenatchee, WA 98801 Attn: Donald A. Wright, President Fax No. (509) 664-6868 Copies to: Sheryl A. Symonds, Esq. Stoel Rives Boley Jones & Grey 36th Floor One Union Square 600 University Street Seattle, WA 98101-3197 Fax No. (206) 386-7500 Company and Sellers: 102 Maple Street Cashmere, WA 98815 Attn: Jack Jones Fax No. (509) 782-2580 8.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington. 8.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute a single agreement. 28 8.7 Severability. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the same shall not affect any other provision of this Agreement, but this Agreement shall be construed in a manner which, as nearly as possible, reflects the original intent of the parties. 8.8 Amendment and Modification. This Agreement may be amended or modified only by written agreement executed by all parties hereto. 8.9 Waiver. Any waiver of any of the provisions or conditions of this Agreement or any of the rights of a party hereto shall be valid only if set forth in an instrument in writing signed by the party granting such waiver. Any waiver or failure to insist upon strict compliance with any obligation, covenant, agreement or condition shall not operate as a waiver of any other provision. 8.10 Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties, their legal representative, successors, and permitted assigns. 8.11 Further Assurances. Subject to the terms and conditions of this Agreement, each of the parties hereto will use its 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 under applicable laws and regulations, to consummate and make effective the transactions contemplated in this Agreement. 8.12 Transaction Expenses. Whether or not the transactions contemplated in this Agreement are consummated, Buyer and each Seller shall each pay its own costs and expenses (including without limitation attorneys' and accountants' fees and expenses) and Sellers shall pay the costs and expenses of the Company (including without limitation attorneys' and accountants' fees and expenses). 8.13 Entire Agreement. This Agreement, including the Schedules and the Exhibits hereto, sets forth the entire understanding and agreement of the parties relating to the purchase and sale of the Shares and supersedes any and all other understandings, negotiations or agreements between the parties hereto relating to the purchase and sale of the Shares. 8.14 Attorneys' Fees. In the event of a dispute between the parties resulting in litigation with respect to the subject matters hereof, the substantially prevailing party as determined 29 by a court shall be entitled to a judgment for its costs through appeal, including reasonable attorneys' fees. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. BUYER: PCT HOLDINGS, INC. By /s/ DONALD A. WRIGHT ----------------------------------- Its President COMPANY: CASHMERE MANUFACTURING CO., INC. By /s/ JACK JONES ----------------------------------- Its President SELLERS: /s/ JACK JONES -------------------------------------- Herman L. "Jack" Jones /s/ JOHN M. EDER -------------------------------------- John M. Eder /s/ FRED R. PAQUETTE -------------------------------------- Fred R. Paquette /s/ DAN A. PAQUETTE -------------------------------------- Dan A. Paquette 30 EXHIBITS -------- THE EXHIBITS AND SCHEDULES ACCOMPANYING THIS AGREEMENT ARE IMMATERIAL AND THE FILING THEREOF HAS BEEN OMITTED FROM THIS FORM 10-KSB EX-10.1.2 4 1 EXCHANGE AGREEMENT This Exchange Agreement is made as of May 31, 1994, by and between PCT HOLDINGS, INC., a Washington corporation (the "Company"), and each of the persons or entities whose signatures appear below (collectively, the "Shareholders" and individually the "Shareholder"). RECITALS -------- WHEREAS, the Shareholders wish to exchange shares of common stock, no par value (the "PCT Common Stock"), of Pacific Coast Technologies, Inc. ("PCT") and/or warrants to purchase PCT Common Stock (the "PCT Warrants") for shares of common stock, no par value, of the Company (the "Company Common Stock") and/or warrants to purchase Company Common Stock (the transaction is referred to as the "PCT Share Exchange"); and WHEREAS, the Company believes that the PCT Share Exchange is in the best interests of the Company; NOW, THEREFORE, in consideration of the covenants contained in this Agreement, the parties agree as follows: 1. Share Exchange. (a) Each of the Shareholders hereby (i) transfers and assigns to the Company his or her rights and title to the number of shares of PCT Common Stock indicated opposite his or her name on Schedule A hereto; and (ii) agrees to execute and deliver to the Company any and all documents deemed by the Company to be necessary to effectuate such transfer and assignment. The Company hereby agrees to deliver to each of the Shareholders a stock certificate in the name of such Shareholder evidencing his or her ownership of the number of shares of Company Common Stock indicated opposite his or her name on Schedule A as soon as practical after the Company receives from such Shareholder any and all documents deemed by the Company to be necessary to effectuate such transfer and assignment. (b) In the event that a Shareholder also holds PCT Warrants as indicated on Schedule A, such Shareholder hereby transfers and assigns to the Company all of his or her rights and title to such PCT Warrants. The Company hereby agrees to grant to each such Shareholder warrants to purchase an equal number of shares of PCT Common Stock (the "Company Warrants"), as indicated in Schedule A. The Company Warrants shall have the same conditions and terms as those of the PCT Warrants. 2 2. Representations and Warranties of Shareholders. Each Shareholder represents and warrants that: (a) Agreement. Shareholder has the legal capacity to enter into this Agreement. This Agreement has been duly executed and delivered by Shareholder and constitutes his or her legal and binding obligation enforceable in accordance with its terms. No authorization, consent or approval of any third party is necessary for the execution of this Agreement by Shareholder, the consummation of the transactions contemplated hereby, or the performance of his or her obligations hereunder. (b) Title to the Shares of PCT Common Stock. With respect to the shares of PCT Common Stock and/or PCT Warrants owned by such Shareholder, as indicated on Schedule A, at the time of transfer and assignment by such Shareholder to the Company of such shares of PCT Common Stock and/or PCT Warrants, Shareholder has good title to such shares of PCT Common Stock and/or PCT Warrants, free and clear of all pledges, security interests, liens, charges, encumbrances, equities, claims, options or limitations of any nature. (c) No Registration. Shareholder acknowledges that neither the Company Common Stock nor the Company Warrants to be issued pursuant to this Agreement have been registered under the Securities Act of 1933, as amended (the "Act"), or any state securities laws. Shareholder recognizes that he or she must bear the economic risk of his or her investment for an indefinite period of time because the securities cannot be sold, transferred or assigned except in compliance with the registration provisions of the Act and applicable state securities laws, or with an opinion of counsel satisfactory to the Company that registration under the Act and applicable securities laws is not required if disposition is made without such registration. (d) Investment Intent. Shareholder is the sole party in interest as to the ownership of the Company Common Stock and/or the Company Warrants being purchased by him or her, and Shareholder is acquiring the Company Common Stock and/or Company Warrants solely for investment for his or her own account, without a view to sale or distribution. Shareholder has no present agreements, understandings or arrangements to sell, assign, transfer or otherwise dispose of all or any part of the shares to any other person. (e) Legend. Shareholder consents to the placement of a legend on the certificates for the Company Common Stock received by him or her, indicating his or her investment intent and the restrictions on transfer of the Company Common Stock, and also to the placement of a "stop transfer" order on 3 the transfer books of the Company until the Company Common Stock may be legally resold or distributed. (f) No Public Market. Shareholder understands that the Company is not subject to, and may never be subject to, the periodic reporting requirements of the Securities Exchange Act of 1934 (the "Exchange Act"); that there is no public market for the Company Common Stock or the Company Warrants and there may never be a public market; and that, as a result, Shareholder may not be able to rely on Rule 144 promulgated under the Exchange Act for the resale of the Company Common Stock or Company Warrants. Shareholder acknowledges that the Company has no obligation to register the Company Common Stock or the Company Warrants with the Securities and Exchange Commission. (g) Due Diligence; Suitability. Shareholder has had the opportunity to inspect to his or her satisfaction the books and records of the Company, and to ask questions of and receive answers from the Company concerning the exchange of his or her PCT Common Stock and/or PCT Warrants for Company Common Stock and/or Company Warrants. Shareholder has been furnished with all information that he or she deems necessary to evaluate the merits and risks of an investment in the Company. Shareholder has read and fully understands the Offering Memorandum dated May 20, 1994, describing the Company and the Share Exchange and the Cashmere Acquisition, and Shareholder believes that the transactions described therein represent a suitable investment. Shareholder has truthfully and accurately completed Schedule B attached to this Agreement. (h) Risk Factors. Shareholder understands that an investment in the Company may involve a high degree of risk, and that he or she is capable of evaluating the merits and risks of his or her investment in the Company. Shareholder is prepared to bear the economic risk of his or her investment for an indefinite period of time and is able to withstand a total loss of his or her investment. Shareholder understands that neither the Company nor PCT has a history of being profitable, and there can be no assurance that either the Company or PCT will become profitable in the future. Shareholder understands that future operating results will depend on many factors, including the Company's ability to obtain additional financing. Shareholder understands that there can be no assurance that the Company will be able to obtain additional financing that is currently required to fund operations of the Company or PCT and to pay outstanding debts of PCT. 3. Representations, Warranties and Agreements of the Company. The Company represents, warrants and agrees that: (a) Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Washington, and has all 4 requisite power and authority to own, lease and operate its properties and carry on its business as it is now being conducted. (b) Capitalization. The authorized capital stock of the Company consists of 25,000,000 shares of common stock, no par value, none of which are issued and outstanding, except for those issued or to be issued pursuant to the PCT Share Exchange, or pursuant to a Stock Purchase Agreement with the shareholders of Cashmere Manufacturing Co., Inc., a Washington corporation ("Cashmere Acquisition"); and 5,000,000 shares of preferred stock, no par value, none of which is issued and outstanding or will be issued in the PCT Share Exchange or the Cashmere Acquisition. Schedule A sets forth (i) the name of each shareholder of PCT; (ii) the number of shares of PCT Common Stock and the number of PCT Warrants which are to be transferred and assigned to the Company by each Shareholder; and (iii) the number of shares of Company Common Stock and Company Warrants which will be issued by the Company to Shareholders in the PCT Share Exchange. Schedule A also sets forth the number of options to purchase PCT Common Stock which are outstanding and which will be cancelled and the number of options to purchase Company Common Stock which will be issued in the PCT Share Exchange, subject to approval by the shareholders and the Board of Directors of the Company of a stock incentive plan. Other than this Agreement, the Cashmere Acquisition, and as set forth on Schedule A, there are no options, warrants, calls, subscriptions, convertible securities, or other rights or agreements or commitments of any character obligating the Company or any shareholder to issue or sell any shares of the Company's capital stock or any securities convertible into or exchangeable or exercisable for, or otherwise evidencing a right to acquire, any shares of the Company's capital stock or other securities of any kind of the Company. (c) Agreement. The Company has corporate power and corporate authority to enter into this Agreement. This Agreement has been duly executed and delivered by the Company and constitutes the legal and binding obligation of the Company enforceable in accordance with its terms. No authorization, consent or approval of any third party is necessary for the execution of this Agreement by the Company or its consummation of the transactions contemplated hereby or the performance of its obligations hereunder. 4. Shareholders' Agreement. Each of the Shareholders consents to the assignment by PCT to the Company of all of PCT's rights and obligations under the Shareholders Agreement, dated July 2, 1990, as amended, by and among PCT and the shareholders of PCT (the "Shareholders Agreement"). All references to PCT in the Shareholders Agreement are hereby replaced and shall hereafter be deemed to be references to the Company, and all Shareholders and the Company shall be bound by the Shareholders Agreement. An addendum to the foregoing effect will be added to 5 the Shareholders Agreement. In addition, any Shareholder who is not concurrently a party to the Shareholders Agreement hereby agrees, by executing this Agreement, to become a party to and be bound by the Shareholders Agreement. 5. Assignments, Binding Effect. This Agreement may not be assigned by any party hereto, nor may the performance of any of the duties hereunder be delegated by any party hereto, without the written consent of the other parties. This Agreement shall not be assignable by operation of law. This Agreement shall be binding upon and inure to the benefit of the respective parties and their executors, legal representatives, successors, assigns and heirs. 6. Amendment and/or Modification. Neither this Agreement nor any term or provision hereof may be changed, waived, discharged, amended, modified or terminated orally, or in any manner other than by an instrument in writing signed by all of the parties hereto. 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be deemed to be an original but all of which shall constitute one agreement. 8. Waiver of Breach. The failure of any party hereto to insist upon strict performance of any of the covenants and agreements herein contained, or to exercise any option or right herein conferred, in any one or more instances, shall not be construed to be a waiver or relinquishment of any such option or right, or of any other covenants or agreements, but the same shall be and remain in full force and effect. 9. Independent Counsel. The parties hereto acknowledge and agree that they have each had the opportunity to be represented in connection with this Agreement by independent counsel of their choice, and that they have read this Agreement or had the opportunity to have its contents fully explained to them by such counsel and are fully aware of the contents hereof and of its legal effect. 10. Entire Agreement. This Agreement (and any attached exhibits and schedules) contains the entire agreement and understanding of the parties with respect to the PCT Share Exchange, and there are no representations, inducements, promises or agreements, oral or otherwise, not embodied herein or therein. 11. Law. This Agreement shall be governed by, construed and enforced in accordance with the internal laws of the State of Washington, without giving effect to principles of conflict or choice of laws. 6 IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement as of the date first above written. COMPANY: PCT HOLDINGS, INC. By: /s/ DONALD A. WRIGHT ----------------------------- Donald A. Wright, President SHAREHOLDERS: /s/ MELVIN B. HOELZLE --------------------------------- Melvin B. Hoelzle DAIN BOSWORTH INCORPORATED, CUSTODIAN FOR MEL HOELZLE IRA By: /s/ P.H. COLBERT ------------------------------ Its First Vice President SEATTLE-FIRST NATIONAL BANK, CUSTODIAN FOR ROGER P. VALLO, IRA By: /s/ PETER G. ACKER ------------------------------ Its Vice President /s/ ROBERT M. SMITH, attorney-in-fact ------------------------------------- Randy M. Smith /s/ ROBERT M. SMITH, attorney-in-fact ------------------------------------- Linda H. Smith /s/ RICHARD N. SMITH --------------------------------- Richard N. Smith /s/ MAYUMI N. SMITH --------------------------------- Mayumi N. Smith /s/ ROBERT B. SMITH --------------------------------- Robert B. Smith 7 /s/ ROBERT L. SMITH --------------------------------- Robert L. Smith /s/ DONALD A. WRIGHT --------------------------------- Donald A. Wright /s/ ARTHUR S. ROBINSON --------------------------------- Arthur S. Robinson LINCOLN TRUST COMPANY, CUSTODIAN FBO DONALD COTTON By: /s/ ------------------------------ Its_________________________ SMITH BROTHERS PARTNERSHIP By:/s/ RICHARD SMITH ------------------------------ Its__________________________ /s/ RAYMOND F. CRERAND --------------------------------- Raymond F. Crerand /s/ DONALD B. COTTON --------------------------------- Donald B. Cotton DAIN BOSWORTH, INCORPORATED, CUSTODIAN FOR DONALD A. WRIGHT By:/s/ P.H. COLBERT ------------------------------ Its First Vice President /s/ THOMAS H. ELZEY --------------------------------- Thomas H. Elzey /s/ JOHN J. FORD, JR. --------------------------------- John J. Ford, Jr. /s/ BENJAMIN C. HANSEN --------------------------------- Benjamin C. Hansen 8 /s/ FLORENCE R. HANSEN --------------------------------- Florence R. Hansen RHUC TRUST By:/s/ MELVIN B. HOELZLE ------------------------------ Melvin B. Hoelzle, Trustee /s/ MICHAEL A. SHERRY --------------------------------- Michael A. Sherry /s/ RICHARD SMITH --------------------------------- Richard Smith, Trustee for Mariko Smith /s/ RICHARD SMITH --------------------------------- Richard Smith, Trustee for Schuyler Smith /s/ DEBORAH K. ROBINSON --------------------------------- Deborah K. Robinson /s/ ALLEN W. DAHL --------------------------------- Allen W. Dahl /s/ RONALD E. MARSHALL --------------------------------- Ronald E. Marshall (JTWROS) /s/ PATRICIA A. MARSHALL --------------------------------- Patricia A. Marshall (JTWROS) /s/ EVABLANCHE ARMSON --------------------------------- Evablanche Armson /s/ GREGORY S. ROBINSON --------------------------------- Gregory S. Robinson (JTWROS) /s/ KIMBERLY A. ROBINSON --------------------------------- Kimberly A. Robinson (JTWROS) /s/ GLENN F. BERG --------------------------------- Glenn F. Berg 9 /s/ JOHN M. EDER --------------------------------- John M. Eder /s/ DAVID HEARN --------------------------------- David Hearn /s/ PAUL J. SHLESSGER --------------------------------- Paul J. Shlessger (JTWROS) /s/ BERNICE G. SHLESSGER --------------------------------- Bernice G. Shlessger (JTWROS) /s/ KENNETH L. ANDERSEN --------------------------------- Kenneth L. Andersen /s/ L. BRIEN ELVINS --------------------------------- L. Brien Elvins (Co-Tenant) /s/ DEBORAH A. ELVINS --------------------------------- Deborah A. Elvins (Co-Tenant) /s/ WALTER C. SAND --------------------------------- Walter C. Sand (JTWROS) /s/ HAZEL R. SAND --------------------------------- Hazel R. Sand (JTWROS) /s/ HARRY F. JOHNSON --------------------------------- Harry F. Johnson (Joint-Tenant) /s/ GLORIA J. JOHNSON --------------------------------- Gloria J. Johnson (Joint-Tenant) /s/ MICHAEL A. HENDRICKSON --------------------------------- Michael A. Hendrickson /s/ --------------------------------- Piper Jaffray as Custodian fbo Robert E. Wendel 10 By /s/ ------------------------------- Its Managing Director /s/ ROGER P. VALLO --------------------------------- Roger P. Vallo 11 EXHIBITS -------- THE EXHIBITS AND SCHEDULES ACCOMPANYING THIS AGREEMENT ARE IMMATERIAL AND THE FILING THEREOF HAS BEEN OMITTED FROM THIS FORM 10-KSB EX-10.1.3 5 1 January 3, 1995 PCT Holdings, Inc. ATTENTION: Mr. Donald A. Wright 434 Olds Station Road Wenatchee, Washington 98801 Dear Mr. Wright: This will confirm the agreement and understanding made and entered this 4th day of January, 1995 by and between PCT Holdings, Inc., a Washington corporation (the "Company"), and Lysys Ltd., a Swiss limited company ("Lysys"), with reference to proposed financing for the Company. This Agreement is accepted and executed by Lysys in Salt Lake City, Utah. Specifically, we agree as follows: 1. Lysys will use its best efforts to find suitable and qualifying investors for the purchase of up to $4,000,000 of the Company's common stock, no par value per share (the "Shares"), at a price of no less than $5.00 per Share for up to 800,000 shares on terms and conditions mutually acceptable to the parties hereto, in an offering qualifying under Regulation S promulgated under the Securities Act of 1933, as amended (the "Act"), relating to exemptions from registration of securities under such Act in connection with certain offers and sales to non-U.S. investors. Such offers and sales shall be made by the Company in accordance with the provisions of said Regulation S and all other applicable provisions of the U.S. securities laws, including, but not limited to, the laws and regulations governing disclosure of business and financial information to prospective investors. 2. To induce Lysys to enter into this Agreement, the Company hereby represents and warrants to and agrees with Lysys as follows: a. at the time of the offer and sale under Regulation S, the Company shall have completed a merger with a corporation whose shares are traded on the public market and shall have applied for listing of its Shares for trading on the Nasdaq Stock Market and such Shares shall be trading at or above $8.00 per share in the over-the-counter market; 2 b. the Company shall be current in all reporting obligations as a public company under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and nothing shall have occurred which would prevent its Shares from being traded under the Act or the 1934 Act, as the case may be; c. the Company shall have caused to be prepared a private placement memorandum or similar offering document in accordance with the Rules and Regulations promulgated under the Act and shall have delivered the same to Lysys and to all prospective investors introduced to the Company by Lysys in connection with this Agreement, and all statements of material fact contained in such memorandum will be true and correct to the best knowledge of the Company and the memorandum will not include any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; d. the financial statements of the Company together with related notes as set forth therein will present fairly the financial condition of the Company and have been or will have been at the time of the offer and sale of the Shares prepared by an independent certified public accountant within the meaning of the Act and in accordance with generally accepted accounting principles consistently applied throughout the period concerned except as otherwise stated therein; e. subsequent to the dates as of which information is given in the private placement memorandum and prior to the date funds are received by the Company (i) there shall not be any material adverse change in the condition, financial or otherwise, of the Company or in its business taken as a whole; (ii) there shall not have been any material transaction entered into by the Company other than transactions in the ordinary course of business;(1) (iii) the Company shall not have incurred any material obligations, contingent or otherwise, which are not disclosed in the memorandum; (iv) there shall not have been nor will there be any change in the capital stock(2) or long-term debt (except current payments) of the Company; and (v) the Company has not and will not have paid or declared any dividends or other distributions on its common stock; f. the Company is not in any default which has not been waived in the performance of any obligation, agreement or condition contained in any debenture, note or other evidence of indebtedness or any material indenture or loan agreement of the Company; - ------------------------- (1) The Company has entered into a letter of intent to acquire a company situated in San Diego, California. Subject to review of the final terms of said acquisition, Lysys agrees that consummation of that transaction will not constitute a breach or violation of section 2(e)(ii). (2) The Company is presently negotiating with certain holders of warrants and options to purchase its common stock in order to induce said holders to exercise those warrants and options. The Company may agree to reduce the exercise price of the warrants and options by as much as fifty percent (50%). Subject to review of the final terms for exercise of said warrants and options offered by the Company, Lysys agrees that the exercise of said (continued...) 3 g. the Company is and will be duly incorporated and validly existing in good standing as a corporation under the laws of the State of Washington, with authorized and outstanding capital stock of 25,000,000 common and 5,000,000 preferred shares, respectively, with full power and authority (corporate and other) to own its property and conduct its business, present and proposed, in whatever jurisdiction the same shall be located or conducted, as the case may be; h. the Shares will be and the issued and outstanding capital stock of the Company has been duly and validly authorized, issued and fully paid and nonassessable and will conform to all statements with regard thereto contained in the - ------------------------- (...continued) warrants and options by the holders and the resulting issuance of additional shares of common stock will not constitute a breach or violation of section 2(e)(iv). The Company has also been engaged since July 18, 1994 in an offering of its common stock pursuant to exemptions provided by Section 4(2) of the Act and Regulation D thereunder. The Company has agreed to immediately terminate said offering; provided, however, that any shares of common stock issued by the Company pursuant to subscriptions made prior to the date hereof shall not constitute a breach or violation of section 2(e)(iv). (3) The Company is presently negotiating with a lending institution to provide new long- and short-term credit facilities for the Company. Subject to review of the final terms of said credit facility or facilities, Lysys agrees that obtaining said credit facility in replacement of certain existing indebtedness will not constitute a breach or violation of section 2(e)(iv). (4) The Company believes that a wholly-owned subsidiary may be in technical default under the terms of a loan agreement with a U.S. bank. The Company and its subsidiary are currently negotiating to cure said default. Subject to the curing of said default and review of the final terms whereby said default is cured, Lysys agrees that said default shall not constitute a breach or violation of section 2(f). 4 offering memorandum and no sales of securities have been made by the Company in violation of the registration provisions of the Act; and i. except as previously disclosed to Lysys and as disclosed in the memorandum, there is and at the time of the offer and sale of the Shares there will be no action, suit or proceeding before any court or governmental agency, authority or body pending or to the knowledge of the Company threatened which might result in judgments against the Company not adequately covered by insurance or which collectively might result in any material adverse change in the condition (financial or otherwise), the business or the prospects of the Company, or would materially affect the properties or assets of the Company. 3. In consideration of Lysys' efforts hereunder, the Company agrees that it shall (a) pay Lysys an amount equal to a minimum of five percent (5%) of the gross proceeds from the sale of the Shares and (b) convey to Lysys or its assigns 1,000,000 shares of the Company's common stock issued under Regulation S promulgated under the Act, which shares shall be due Lysys at closing of the merger with the public corporation. Lysys shall not sell or transfer any of the Shares to any person, regardless of the residence of such person, for a period of thirty (30) days following the approval of Sellers' application for listing of its common stock on the NASDAQ Stock Market or until September 1, 1995, whichever occurs first. At the time of execution of this Agreement, the Company shall pay Lysys an expense allowance of $25,000, which allowance shall be used as a retainer for its legal counsel. Furthermore, the Company shall reimburse Lysys within ten (10) days after billing for each and every expense it may incur, including administrative cost and professional fees, mailing, telephone, travel, clerical or other office costs incurred by Lysys or its personnel in connection with this matter. Unless otherwise agreed and exclusive of Lysys professional fees (legal and accounting), the Company shall not be obligated to reimburse Lysys for its expenses and administrative fees in excess of $50,000.00. If at any time the Company does not or cannot proceed with the offering of the Shares, or the covenants or representations set out in this Agreement are not materially correct or cannot be complied with, or if there is a material change in the financial condition, business, prospects or obligations of the Company (of which the Company will notify Lysys promptly), the Company shall immediately reimburse Lysys in full for its accountable out-of-pocket expenses, including legal fees and disbursements, subject to this paragraph. 4. The Company covenants and agrees with Lysys that: a. following the date of this Agreement, the Company will not use any offering materials or supplement or amend any such materials unless and until a copy of such materials, as amended or supplemented, shall first be furnished to Lysys within 5 a reasonable time period prior to the proposed use thereof, or of which Lysys or counsel for Lysys has reasonably objected, in writing, on the ground that such materials are not in compliance with the Act or the Rules and Regulations thereunder; b. the Company, at its own expense, will prepare and give and will continue to give such financial statements and other information to and as may be required by the Securities and Exchange Commission (the "Commission") or the proper public bodies of the states in which the Shares may be qualified; c. during the three (3) years following the offer and sale as contemplated hereunder, the Company will deliver to Lysys copies of all reports, other communications and financial statements furnished to its stockholders and deliver to Lysys as soon as available all reports and financial statements furnished to or filed with the Commission and, as soon as practicable and to the extent the Company has knowledge of such information, every press release and every material news item and article in respect of the Company or its affairs and such additional information concerning the business and financial condition of the Company as Lysys may from time to time reasonably request; d. the Company will pay, whether or not the transactions contemplated hereunder are consummated or this Agreement is prevented from becoming effective or is terminated, all costs and expenses incident to the performance of its obligations under this Agreement, including all expenses incident to the offer and sale of the Shares, fees incident to the filing of the application for and obtaining approval of listing with Nasdaq, the costs and counsel fees and disbursements of counsel and accountants for the Company, costs for preparing and printing the memorandum, the cost and charges of any transfer agent or registrar, travel and other related costs incurred in due diligence, and all other direct and indirect costs and expenses incident to the performance of the obligations of the Company not otherwise specifically provided in this section, and will furnish Lysys and its attorneys with a completed bound volume, prepared by the Company and its counsel, containing all appropriate documents relating to the merger of the Company and the offering contemplated by this Agreement; e. the Company shall supply Lysys with such financial statements, contracts and other corporate records and documents as Lysys shall deem necessary and it shall supply Lysys' counsel or such parties performing due diligence functions for Lysys with all corporate papers, contracts, documents and information as may be required by them in connection with their examination; Lysys shall be entitled to receive interim 6 financial statements and other information from the Company upon reasonable request after consummation of the transactions contemplated herein and in addition, Lysys and its counsel and any accounting experts it deems necessary shall have the right to examine the audits and working papers of the Company and to meet with the Company's independent accountants; at all times the Company will cooperate with Lysys in such investigation as Lysys may make or cause to be made of all the properties, business and operations of the Company; and f. prior to commencement of the offering of Shares described in section 1 hereof, the Company shall reduce the number of members of its Board of Directors from nine (9) to seven (7) and one (1) person nominated by Lysys shall be selected as a member thereof to serve a term of not less than three (3) years. 5. The Company agrees to indemnify and hold harmless Lysys and each person, if any, who controls Lysys, against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act or any other statute or at common law and to reimburse the persons indemnified as above for any legal or other expenses (including the cost of any investigation and preparation) incurred by them in connection with any litigation, whether or not resulting in any liability, but only insofar as such losses, claims, damages, liabilities and litigation arise out of or are based upon any untrue statement or alleged untrue statement or the omission or alleged omission of any material fact. Lysys shall notify the Company within ten (10) days after the receipt by it of any action against Lysys or any of the aforesaid persons, in respect of which indemnity may be sought from the Company on account of this agreement, to notify the Company in writing of the commencement of such an action. 6. Lysys agrees to indemnify and hold harmless the Company and each person, if any, who controls the Company, against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act or any other statute or at common law and to reimburse the persons indemnified as above for any legal or other expenses (including the cost of any investigation and preparation) incurred by them in connection with any litigation, whether or not resulting in any liability, but only insofar as such losses, claims, damages, liabilities and litigation arise out of or are based upon any untrue statement or alleged untrue statement or the omission or alleged omission of any material fact. The Company shall notify Lysys within ten (10) days after the receipt by it of any action against the Company or any of the aforesaid persons, in respect of which indemnity may be sought from Lysys on account of this agreement, to notify Lysys in writing of the commencement of such an action. 7 7. The Company agrees, at its expense, to provide such opinions of counsel and letters of its auditors as Lysys may reasonably request in connection with the condition of the Company prior to the offer and sale of any of the Shares. In addition, the Company shall provide certificates from its officers and Chairman of its Board of Directors as reasonably requested by Lysys, in connection with the representations and warranties of the Company contained in this Agreement and the representations and disclosures contained in any memorandum or other document prepared in connection with the offer and sale of the Shares. 8. This Agreement shall remain in force and effect for a term of six (6) months from the date of the execution of this writing and may be extended for additional thirty (30) day periods in a writing between the parties attached hereto. The Agreement may be terminated by either party by notice to the other if the Company shall have failed or been unable to comply with any of the terms, conditions or provisions of this Agreement. 9. Any termination of this Agreement shall be without liability of any character on the part of any party hereto, except that the Company shall remain obligated to pay the costs and expenses provided to be paid by it specified hereinabove and the Company and Lysys shall remain obligated under the covenants of indemnification in sections 5 and 6, above. 10. Both parties shall be given notice for the purpose of this Agreement at the address stated below the authorized signatures for such parties on the last page hereof; provided that should a party change its address, it shall provide the other party with notice of such change and attach onto this Agreement a certificate of such change of address. All notice shall be given in writing and in the English language. This writing constitutes the entire Agreement between Lysys and the Company with regard to the subject matter hereof and it shall not be amended or expanded by parol evidence and may be changed only in a writing attached hereto, signed by both parties. A copy of each notice to Lysys shall also be delivered to its counsel, Jeffrey M. Jones, Esq., Durham, Evans, Jones & Pinegar, 50 South Main Street, Suite 850, Salt Lake City, UT 84144. 11. This Agreement is made solely for the benefit of the named parties hereto, their respective officers and directors and controlling person referred to in Section 15 of the Act, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successor" or the term "successors and assigns" as used in this Agreement shall not include any purchasers, as such, of any of the Shares. The respective indemnities, agreements, representations, warranties, covenants and other statements of the Company or its officers as set forth in or made pursuant to this Agreement and the indemnity agreement of the Company in section 6, above, shall survive and remain in full force and effect, regardless of delivery of or payment for the Shares, and any successor of the Company 8 and Lysys shall be entitled to the benefits hereof. This Agreement is accepted and entered into by the Company and Lysys in Utah, U.S.A. It shall be controlled and governed by Utah law. If this Agreement is translated into a language other than English and there are discrepancies or differences between the English language version of the text and the foreign language version, the English language version shall prevail. Should any part or provision of this Agreement be found void or voidable, the balance shall be given reasonable interpretation and implied so far as possible. This Agreement may be executed in any number of counterparts, each of which may be deemed an original and all of which together will constitute one and the same instrument. Please indicate your acceptance and agreement with the terms of this letter by signing the enclosed copies and the original hereof and returning the original and one or more signed copies to the undersigned. Very truly yours, Lysys Ltd. /s/ ROGER DUDLEY --------------------------------------- By: Roger Dudley Its: Agent ADDRESS: c/o Studdert Companies Corp. 1225 Eagle Gate Tower 60 East South Temple Salt Lake City, Utah 84111 ATTENTION: Roger D. Dudley We hereby confirm as of the date hereof that the above letter sets forth the agreement between the Company and Lysys: PCT Holdings, Inc. /s/ DONALD A. WRIGHT ------------------------ By: Donald A. Wright Title: President ADDRESS: 434 Olds Station Road Wenatchee, Washington 98801 Attention: Donald A. Wright EX-10.1.6 6 1 $200,000.00 May 10, 1995 PROMISSORY NOTE FOR VALUE RECEIVED, PCT HOLDINGS, INC., a Nevada corporation (hereinafter "Borrower"), promises to William H. Payne, Ivan G. Sarda, Elinor A. Walters and Katrina A. Knowles, (hereinafter collectively "Lenders") as follows: 1. Principal and Interest. Borrower promises to pay to Lenders or order at c/o William H. Payne, 4274 Pt. Loma Avenue, San Diego, California, in lawful money of the United States of America, the principal sum of TWO HUNDRED THOUSAND DOLLARS ($200,000.00) together with interest on the unpaid principal balance thereon from the date hereof until paid in full at a rate of eight percent (8.0%) per annum. 2. Nature of Indebtedness. This Note evidences a portion of the consideration to Lender due from Borrower in connection with the merger of Ceramic Devices, Inc., a California corporation, of which Lenders are the sole shareholders, into and with Ceramic Devices, Inc., a Washington corporation and a wholly-owned subsidiary of Borrower ("CDI") under the terms of an Agreement and Plan of Merger (the "Merger Agreement") dated February 28, 1995. 3. Repayment. Borrower shall pay principal and interest as follows: a. On the following dates, Borrower shall make the following installments of principal, together with accrued interest: Date Amount of Payment ---- ----------------- 2/28/96 $ 50,000.00, plus accrued interest 2/28/97 75,000.00, plus accrued interest 2 2/28/98 75,000.00, plus accrued interest ---------- Total: $200,000.00, plus accrued interest b. The entire unpaid principal balance, together with accrued interest thereon, shall be due and payable on or before February 28, 1998. All payments received shall be applied first to accrued interest, then to the costs of collection and the balance, if any, to the reduction of principal. c. Borrower may prepay the obligation evidenced by this Note at any time. 4. Collateral. As collateral for the performance of all obligations and liabilities hereunder, Borrower shall and does hereby grant or shall cause to be granted to Lenders a security interest in: (a) All furniture, leasehold improvements, motor vehicles, appliances, fixtures, furnishings, tools, machinery and equipment and other goods of Debtor, now owned or hereafter acquired, and all additions and accessions thereto and replacements therefor; (b) All supplies and materials of Debtor now owned or hereafter acquired, together with all additions and accessions thereto and replacements therefor; (c) All accounts, accounts receivable, negotiable documents, notes, drafts, acceptances, claims, lease rights, securities, instruments, choses in action, whether in contract or in tort, proceeds of lawsuits, and general intangibles of Debtor (including, but not limited to goodwill, permits, licenses, trademarks, trade names and trade secrets), and all other rights of Debtor to the payment of money, now existing or hereafter arising; (d) All deposit accounts of Debtor maintained with any bank or other financial institution; 3 (e) All records, papers and books of account or other documents or papers relating to, affecting or describing any of the foregoing Collateral, in whatever form, including without limitation all computerized records, diskettes, programs, etc. relating thereto; (f) All of Debtor's contract rights and insurance policies, including that certain life insurance policy issued by Transamerica Occidental in the face amount of $2,000,000.00 (Policy No. 9242497) (the "Policy"); and (g) All proceeds of the foregoing Collateral. For purposes of this Security Agreement, the term "proceeds" includes whatever is receivable or received when Collateral or proceeds is sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes, without limitation, all rights to payment, including return premiums, with respect to any insurance relating thereto. All of the foregoing is collectively referred to as the "Collateral". Lenders' security interest shall be further evidenced by and subject to the terms of financing statements and such other documents as Lenders may request. 5. Events of Default. An Event of Default shall occur if any of the following events shall occur: a. Failure to pay any principal or interest hereunder within 30 days after such payment becomes due. b. Any of the documents executed and delivered in connection herewith shall for any reason cease to be in full force and effect. c. An assignment by Borrower for the benefit of its creditors. d. Any uncured default or breach of the Merger Agreement or any other document or instrument executed or delivered in connection therewith, including but 4 not limited to Promissory Note I and Promissory Note II referred to in the Merger Agreement. e. Filing by Borrower of a voluntary petition in bankruptcy or a voluntary petition seeking reorganization, adjustment, readjustment of debts or any other relief under the Bankruptcy Code as amended or any insolvency act or law, state or federal, now or hereafter existing. f. Filing of an involuntary petition against Borrower in bankruptcy or seeking reorganization, arrangement, readjustment of debts or any other relief under the Bankruptcy Code as amended or under any other insolvency act or law, state or federal, now or hereafter existing, and the continuance thereof for 60 days undismissed, unbonded, or undischarged. g. All or any substantial part of the property of Borrower shall be condemned, seized or otherwise appropriated or custody or control of such property shall be assumed by any governmental agency or any court of competent jurisdiction and shall be retained for a period of 30 days. h. There is a default in any term, condition, or covenant hereof, or contained in any document given in connection herewith. i. There is a material default in any term, condition or covenant contained in any document representing an obligation in favor of any third party which is secured by the Collateral or any other default as a result of which said third party declares a default and exercised any remedies affecting the Collateral. 6. Remedies. Upon default by Borrower as defined above, Lenders may declare the entire unpaid balance, together with accrued interest, to be immediately due and payable without presentment, demand, protest or other notice of any kind. To the extent permitted 5 by law, Borrower waives any rights to presentment, demand, protest, or notice of any kind in connection with this Note. No failure or delay on the part of Lenders in exercising any right, power, or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power, or privilege provided at law, in equity, or by contract. The rights and remedies provided herein are cumulative and not exclusive of any other rights or remedies. Borrower agrees to pay all costs of collection incurred by reason of the default, including court costs, and reasonable attorney's fees (whether or not the attorney is a salaried employee of Lenders), including such expenses incurred before legal action or bankruptcy proceedings, during the pendency thereof, and continuing to all such expenses in connection with appeals to high courts arising out of matters associated herewith. If the attorney is a salaried employee of Lenders, a reasonable attorney's fee will be an amount charged by attorneys in private practice for similar services. 7. General Provisions. This Note shall be binding upon Borrower, its successors and assigns. This Note and all documents and instruments associated herewith shall be governed by and construed and interpreted in accordance with the laws of the State of Washington. Time is of the essence hereof. 8. Entire Agreement in Writing. This written agreement, and any other documents executed in connection herewith, are the final expression of the agreement and understanding of Borrower and Lenders with respect to the general subject matter hereof and supersede any previous understandings, negotiations or discussions, whether written or oral. This written agreement, and any other documents executed in connection herewith, may not be contradicted by evidence of any alleged oral agreement. DATED as of the date first above written. 6 PCT HOLDINGS, INC., a Nevada corporation By: /s/ DONALD A. WRIGHT ------------------------------------ Donald A. Wright, President EX-10.1.7 7 1 $400,000.00 May 10, 1995 PROMISSORY NOTE FOR VALUE RECEIVED, PCT HOLDINGS, INC., a Nevada corporation (hereinafter "Borrower"), promises to William H. Payne, Ivan G. Sarda, Elinor A. Walters and Katrina A. Knowles, (hereinafter collectively "Lenders") as follows: 1. Principal and Interest. Borrower promises to pay to Lenders or order at c/o William H. Payne, 4274 Pt. Loma Avenue, San Diego, California, in lawful money of the United States of America, the principal sum of FOUR HUNDRED THOUSAND DOLLARS ($400,000.00) together with interest on the unpaid principal balance thereon from the date hereof until paid in full at a rate of eight percent (8.0%) per annum. 2. Nature of Indebtedness. This Note evidences a portion of the consideration to Lender due from Borrower in connection with the merger of Ceramic Devices, Inc., a California corporation, of which Lenders are the sole shareholders, into and with Ceramic Devices, Inc., a Washington corporation and a wholly-owned subsidiary of Borrower ("CDI") under the terms of an Agreement and Plan of Merger (the "Merger Agreement") dated February 28, 1995. 3. Repayment. Borrower shall pay principal and all accrued interest in full on November 30, 1995. All payments received shall be applied first to accrued interest, then to costs of collection, and the balance, if any, to the reduction of principal. Borrower may prepay the obligation evidenced by this Note at any time. 4. Collateral. As collateral for the performance of all obligations and liabilities hereunder, Borrower shall and does hereby grant or shall cause to be granted to Lenders a security interest in: (a) All furniture, leasehold improvements, motor vehicles, appliances, 2 fixtures, furnishings, tools, machinery and equipment and other goods of Debtor, now owned or hereafter acquired, and all additions and accessions thereto and replacements therefor; (b) All supplies and materials of Debtor now owned or hereafter acquired, together with all additions and accessions thereto and replacements therefor; (c) All accounts, accounts receivable, negotiable documents, notes, drafts, acceptances, claims, , lease rights, securities, instruments, choses in action, whether in contract or in tort, proceeds of lawsuits, and general intangibles of Debtor (including, but not limited to goodwill, permits, licenses, trademarks, trade names and trade secrets), and all other rights of Debtor to the payment of money, now existing or hereafter arising; (d) All deposit accounts of Debtor maintained with any bank or other financial institution; (e) All records, papers and books of account or other documents or papers relating to, affecting or describing any of the foregoing Collateral, in whatever form, including without limitation all computerized records, diskettes, programs, etc. relating thereto; (f) All of Debtor's contract rights and insurance policies, including that certain life insurance policy issued by Transamerica Occidental in the face amount of $2,000,000.00 (Policy No. 9242497) (the "Policy"); and (g) All proceeds of the foregoing Collateral. For purposes of this Security Agreement, the term "proceeds" includes whatever is receivable or received when Collateral or proceeds is sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes, without limitation, all rights to payment, including return premiums, with respect to any insurance relating thereto. All of the foregoing is collectively referred to as the "Collateral". Lenders' security interest shall be further evidenced by and subject to the terms of financing statements and such other documents as Lenders may request. 3 5. Events of Default. An Event of Default shall occur if any of the following events shall occur: a. Failure to pay any principal or interest hereunder within 30 days after such payment becomes due. b. Any of the documents executed and delivered in connection herewith shall for any reason cease to be in full force and effect. c. An assignment by Borrower for the benefit of its creditors. d. Any uncured default or breach of the Merger Agreement or any other document or instrument executed or delivered in connection therewith, including but not limited to Promissory Note I and Promissory Note II referred to in the Merger Agreement. e. Filing by Borrower of a voluntary petition in bankruptcy or a voluntary petition seeking reorganization, adjustment, readjustment of debts or any other relief under the Bankruptcy Code as amended or any insolvency act or law, state or federal, now or hereafter existing. f. Filing of an involuntary petition against Borrower in bankruptcy or seeking reorganization, arrangement, readjustment of debts or any other relief under the Bankruptcy Code as amended or under any other insolvency act or law, state or federal, now or hereafter existing, and the continuance thereof for 60 days undismissed, unbonded, or undischarged. g. All or any substantial part of the property of Borrower shall be condemned, seized or otherwise appropriated or custody or control of such property shall be assumed by any governmental agency or any court of competent jurisdiction and shall be retained for a period of 30 days. h. There is a default in any term, condition, or covenant hereof, or contained in any document given in connection herewith. 4 i. There is a material default in any term, condition or covenant contained in any document representing an obligation in favor of any third party which is secured by the Collateral or any other default as a result of which said third party declares a default and exercised any remedies affecting the Collateral. 6. Remedies. Upon default by Borrower as defined above, Lenders may declare the entire unpaid balance, together with accrued interest, to be immediately due and payable without presentment, demand, protest or other notice of any kind. To the extent permitted by law, Borrower waives any rights to presentment, demand, protest, or notice of any kind in connection with this Note. No failure or delay on the part of Lenders in exercising any right, power, or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power, or privilege provided at law, in equity, or by contract. The rights and remedies provided herein are cumulative and not exclusive of any other rights or remedies. Borrower agrees to pay all costs of collection incurred by reason of the default, including court costs, and reasonable attorney's fees (whether or not the attorney is a salaried employee of Lenders), including such expenses incurred before legal action or bankruptcy proceedings, during the pendency thereof, and continuing to all such expenses in connection with appeals to high courts arising out of matters associated herewith. If the attorney is a salaried employee of Lenders, a reasonable attorney's fee will be an amount charged by attorneys in private practice for similar services. 7. General Provisions. This Note shall be binding upon Borrower, its successors and assigns. This Note and all documents and instruments associated herewith shall be governed by and construed and interpreted in accordance with the laws of the State of Washington. Time is of the essence hereof. 8. Entire Agreement in Writing. This written agreement, and any other documents executed in connection herewith, are the final expression of the agreement and understanding of Borrower and Lenders with respect to the general subject matter hereof and 5 supersede any previous understandings, negotiations or discussions, whether written or oral. This written agreement, and any other documents executed in connection herewith, may not be contradicted by evidence of any alleged oral agreement. DATED as of the date first above written. PCT HOLDINGS, INC., a Nevada corporation By: /s/ DONALD A. WRIGHT --------------------------------------- Donald A. Wright, President EX-10.1.8 8 1 SECURITY AGREEMENT THIS SECURITY AGREEMENT is made and entered into May 10, 1995, by and between WILLIAM H. PAYNE, IVAN G. SARDA, ELINOR A. WALTERS and KATRINA A. KNOWLES (hereinafter collectively "Secured Party") and CERAMIC DEVICES, INC., a Washington corporation ("Debtor"). 1. Debtor, a wholly-owned subsidiary of PCT Holdings, Inc., a Nevada corporation ("Borrower"), at the direction of and as an accommodation to Borrower, hereby grants to Secured Party a security interest in all of the following described assets (the "Collateral") to secure payment to Secured Party of all promissory notes and other obligations of Borrower executed and delivered concurrently herewith (the "Obligations"), including those referred to in that certain Agreement and Plan of Merger (the "Merger Agreement") dated February 28, 1995 between and among Borrower, Debtor and Ceramic Devices, Inc., a California corporation: (a) All furniture, leasehold improvements, motor vehicles, appliances, fixtures, furnishings, tools, machinery and equipment and other goods of Debtor, now owned or hereafter acquired, and all additions and accessions thereto and replacements therefor; (b) All supplies and materials of Debtor now owned or hereafter acquired, together with all additions and accessions thereto and replacements therefor; (c) All accounts, accounts receivable, negotiable documents, notes, drafts, acceptances, claims, lease rights, securities, instruments, choses in action, whether in contract or in tort, proceeds of lawsuits, and general intangibles of Debtor (including, but not limited to goodwill, permits, licenses, trademarks, trade names and trade secrets), and all other rights of Debtor to the payment of money, now existing or hereafter arising; (d) All deposit accounts of Debtor maintained with any bank or other financial institution; (e) All records, papers and books of account or other documents or papers relating to, affecting or describing any of the foregoing Collateral, in whatever form, including without limitation all computerized records, diskettes, programs, etc. relating thereto; (f) All of Debtor's contract rights and insurance policies, including that certain life insurance policy issued by Transamerica Occidental in the 2 face amount of $2,000,000.00 (Policy No. 9242497) (the "Policy"); and (g) All proceeds of the foregoing Collateral. For purposes of this Security Agreement, the term "proceeds" includes whatever is receivable or received when Collateral or proceeds is sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes, without limitation, all rights to payment, including return premiums, with respect to any insurance relating thereto. 2. Debtor has full power and authority to execute this Security Agreement, to perform Debtor's obligations hereunder, and to subject the Collateral to the security interest created hereby. 3. Debtor has acquired title to and will at all times keep the Collateral free of all liens and encumbrances, except the security interest created hereby; provided, however, that Borrower and Debtor may subject that part and/or portion of the Collateral which constitutes accounts receivables and inventory to a lien and security interest in favor of Borrower's institutional lender(s). In connection therewith, Secured Party agrees that the amount of financing (principal plus interest) provided by Borrower's institutional lender(s) shall be a lien and charge upon Debtor's inventory and accounts receivable prior and superior to the lien and charge thereon created by this Security Agreement. Secured Party further agrees to execute and deliver such subordination agreements and other documents hereafter and during the term of this Security Agreement as Borrower and its institutional lender(s) reasonably require to effect said subordination and to do so promptly upon the request of Borrower and/or Debtor. Debtor further promises: (a) To make all payments due under the Obligations to Secured Party and perform all the obligations to Secured Party in a timely manner; (b) To furnish Secured party with such information concerning Debtor and the Collateral as Secured Party may from time to time reasonably request, including, but not limited to, current financial statements; and (c) To maintain the Collateral in good condition and not use the Collateral for any unlawful purpose or in any way that would void an effective insurance policy. 3 4. Unless Debtor is in default hereunder, Debtor may sell, transfer, convey, encumber and/or hypothecate the Collateral, other than the Policy and manufacturing and testing equipment, in the normal course of its business. 5. Debtor will pay promptly when due all taxes and assessments upon the Collateral or for its use or operation or upon this Security Agreement or upon any note or notes evidencing the secured obligations, if any. Further, Debtor will promptly pay all obligations regarding or relating to the Collateral necessary to maintain and preserve Debtor's rights and interests therein, including premiums hereafter due and owing under the terms of the Policy. 6. Debtor will not use or permit use of the Collateral in violation of any statute, ordinance, or state or federal regulation. 7. The following shall constitute events of default ("Events of Default") under this Security Agreement: (a) The Debtor's failure to make any payment to Secured Party when due, or to perform any other obligations in a timely manner, including all of Borrower's obligations under the Merger Agreement; (b) The Debtor's breach of this Security Agreement, or any present or future rider or supplement to this Security Agreement, or any other agreement between Debtor and Secured Party evidencing the Obligations or securing them, including the Merger Agreement; (c) That any warranty, representation, or statement, made by or on behalf of Debtor in or with respect to this Security Agreement, is false; and (d) The Debtor becomes insolvent, or is adjudged bankrupt, or application for appointment of a receiver for the debts of Debtor is made, or Debtor requests an extension or arrangement from Debtor's creditors, including an assignment for the benefit of creditors, or if Secured Party deems itself insecure. 8. Upon the occurrence of an Event of Default Secured Party, at its option, may: (a) Declare the Obligations immediately due and payable without demand, presentment, protest or notice to Debtor, all of which Debtor expressly waives; (b) Exercise all rights and remedies available to a secured creditor after default, including but not limited to the rights and remedies of secured creditors under the Uniform Commercial Code; 4 (c) Perform any of Debtor's obligations under this Security Agreement for Debtor's account. Any money expended or obligations incurred in doing so, including reasonably attorneys' fees and interest at the highest rate permitted by law, will be charged to Debtor and added to the Obligations secured by this Agreement; and/or (d) Secured Party may take possession of the Collateral and may demand payment of, institute, and maintain suits for, compound or compromise any and all sums due or to become due as proceeds of the Collateral in its own name or in the name of Debtor, and otherwise avail itself of any action it deems necessary. 9. Debtor agrees to execute all financing statements and other necessary documents to perfect Secured Party's interest in the Collateral as set forth herein. 10. No delay or failure by Secured Party in the exercise of any right or remedy shall constitute a waiver thereof, and no single or partial exercise by Secured Party of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. Secured Party shall not be deemed to have waived any of Secured Party's rights hereunder or under any other writing signed by Debtor unless such waiver be in writing and signed by Secured Party. No consent or waiver, express or implied, by any party to, or of any breach or default by any other party in, the performance of its obligations hereunder shall be deemed or construed to be a consent to or waiver of any other breach or default in the performance by such other party of the same or any other obligations hereunder. Failure on the part of a party to complain of any act of the other party or to declare a party in default, irrespective of how long such failure continues, shall not constitute a waiver of such party of its rights hereunder. All Secured Party's rights and remedies, whether evidenced hereby or by any other writings, statutes or case law, shall be cumulative and may be exercised singularly or concurrently. Any demand upon or notice to Debtor that Secured Party may elect to give shall be effective when deposited in the mails or delivered to Debtor. If at any time or times by assignment or otherwise Secured Party transfers any obligations and collateral therefor, such transfer shall carry with it Secured Party's powers and rights under this Agreement with respect to the obligations and collateral transferred and 5 the transferee shall become vested with said powers and rights, whether or not they are specifically referred to in the transfer. This Agreement shall be governed by the laws of the State of Washington and is intended to take effect when signed by Debtor and delivered to Secured Party. 11. Except for any notice required under applicable law to be given in another manner, any notice or other communication required or permitted to be given hereunder and any approval by any party shall be in writing and shall be personally delivered or delivered by overnight courier in each case with receipt acknowledged, or deposited in an official depository of the United States Postal Service, first-class postage prepaid, by registered or certified mail, return receipt requested, to the other party or parties at the addresses listed below. All notices and other communications shall be deemed to have been duly given on (a) the date of receipt thereof (including all required copies thereof as set forth below) if delivered personally or by overnight courier or (b) five (5) business days after the date of mailing thereof (including all required copies thereof as set forth below) if transmitted by mail. Each party may change its address for receipt of notices by a notice given to the other parties in accordance with this provision. Notices shall be addressed as follows: To the Debtor: Ceramic Devices, Inc. c/o PCT Holdings, Inc. 434 Olds Station Road Wenatchee, Washington 98801 With a copy to: Durham, Evans, Jones & Pinegar, P.C. Attention: Jeffrey M. Jones 50 South Main, Suite 850 Salt Lake City, Utah 84144 To the Secured Party: William H. Payne, Ivan G. Sarda, Elinor A. Walters and Katrina A. Knowles c/o William H. Payne 4274 Pt. Loma Avenue 6 San Diego, California 92107 With a copy to: Reish & Luftman Attention: Jonathan A. Karp 11755 Wilshire Boulevard, Tenth Floor Los Angeles, California 90025-1516 12. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law but, if any provision of this Agreement shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 13. This Agreement, together with the agreements and warranties herein contained, shall inure to the benefit of Secured Party and it successors and assigns and shall be binding upon Debtor and his respective heirs, successors and assigns. 14. This Agreement inures to the benefit of the Secured Party, its successors and assigns, and shall bind (as may be applicable) the respective heirs, personal representatives, successors and assigns of Debtor, and if more than one party shall sign this Agreement, the term "Debtor" shall mean all such parties, and each of them, and all such parties shall be jointly and severally obligated hereunder. Words used herein shall take the singular or plural number, and such gender, as the number and gender of parties Debtor herein shall require. 15. Debtor agrees to pay upon demand all of Secured Party's costs and expenses, including reasonable attorneys' fees and legal expenses, incurred in connection with the enforcement of this Security Agreement. Secured Party may pay someone else to help enforce this Security Agreement, and Debtor shall pay the costs and expenses of such enforcement. Costs and expenses include Secured Party's reasonable attorneys' fees and legal expenses whether or not performed by a salaried employee of Secured Party and whether or not there is a lawsuit, including reasonable attorneys' fees and legal expenses for bankruptcy proceedings (and including efforts to modify or vacate any automatic stay or 7 injunction), all appearances in bankruptcy or insolvency proceedings, fees and expenses incurred in connection with the appointment of a receiver, appeals, and any anticipated post-judgment collection services. Debtor also shall pay all court costs and such additional fees as may be directed by the court. 16. This Security Agreement may be executed in one or more counterparts, any one of which, if originally executed, shall be binding upon each of the parties signing thereon, and all of which taken together shall constitute one and the same instrument. One or more photostatic copies of this Security Agreement may be originally executed by the parties hereto, and such photostatic copies shall be deemed originals and shall be valid, binding and enforceable in accordance with their terms. 17. The parties hereto represent and warrant that they have full power, authority and legal right to execute and deliver, and to perform and observe the provisions of, this Security Agreement and to carry out the transactions contemplated hereby. The execution, delivery and performance by the parties of this Security Agreement have been duly authorized by all necessary legal action and the parties have obtained any necessary consent, approval of, notice to, or any action by, and person, firm, corporation or governmental entity or agency necessary or appropriate to consummate the transaction contemplated hereby. 18. Each party agrees and covenants that it will at any time and from time to time, upon the request of the other execute, acknowledge, deliver or perform all such further acts, deeds, assignments, transfers, conveyances and assurances as may be required to carry out the terms and provisions of this Security Agreement. 19. The rights and remedies of the parties hereunder shall not be mutually exclusive, and the exercise by any party of any right to which he or it is entitled shall not preclude the exercise of any other right he or it may have. 8 IN WITNESS WHEREOF, this Agreement has been executed on the day and date first above written. "SECURED PARTY" WILLIAM H. PAYNE, IVAN G. SARDA, ELINOR A. WALTERS and KATRINA KNOWLES By: /s/ --------------------------------- "DEBTOR" CERAMIC DEVICES, INC., a Washington corporation By: /s/ IVAN G. SARDA --------------------------------- President EX-10.1.9 9 1 INTELLECTUAL PROPERTY ACQUISITION AND LICENSE AGREEMENT THIS INTELLECTUAL PROPERTY ACQUISITION AND LICENSE AGREEMENT (the "Agreement") is entered into as of June 1, 1994, by and between PACIFIC COAST TECHNOLOGIES, INC., a Washington Corporation (the "Company"), and JAMES C. KYLE ("Kyle"). WHEREAS, the Company currently licenses from Kyle and Kyle licenses to the Company certain patents, trade secrets and technologies pursuant to a certain Technology License Agreement (the "License Agreement"), dated as of April 5, 1990, by and between Kyle and Kyle Technology Corporation, the predecessor of the Company; WHEREAS, the Company wishes to purchase from Kyle and Kyle wishes to sell to the Company certain patents, trade secrets and technologies, subject to the terms and conditions set forth hereinafter; WHEREAS, the parties also wish to settle other obligations of the Company to Kyle under the License Agreement and modify the License Agreement; NOW, THEREFORE, in consideration of the mutual promises and covenants contained, in this Agreement, the parties agree as follows: 1. DEFINITIONS. "Technology" means Patents, Trade Secrets, and Know How as defined herein, and all other information and expertise relating to Components and Finished Products, and methods for making Components and Finished Products. "Patents" means the U.S. Patents listed on Exhibit A, attached hereto. Patents shall include any corresponding foreign patents and applications relating to the Technology. "Trade Secrets" means information developed by or in the possession of Kyle and used by Kyle in connection with Components and Finished Products consisting of drawings, cost data, customer lists, formulae, patterns, compilations, programs, devices, methods, techniques, processes and other information that: (a) derive independent economic value from their disclosure or use; and (b) at the subject of efforts that are reasonable under the circumstances to maintain their secrecy. "Code" means information which (a) was developed by or is in the possession of Kyle relating to certain chemical formulations, 2 methods and codes used in manufacturing KRYOFLEX ceramic compositions for use in Components and Finished Products; and (b) is contained in a confidential Code Book, copies of which are in the Company's possession. The Code is included within the definition of Trade Secrets herein, except where it is expressly excluded. "Know-How" means information which is not a Trade Secret and not described or claimed in Patents, but which relates to the practice of the Technology. Know-How includes information, techniques, materials methods and other technologies described in pending and abandoned patent applications, manuals, test data and procedures, flow charts, apparatus plans, drawings, designs and other information. Know-How specifically includes information contained in certain procedure manuals, code books, as well as certain materials and methods developed by Kyle to: (a) facilitate diffusion plating of nickel and other materials onto a surface; (b) facilitate the drilling of holes; (c) manufacture integrated circuit chips and enclosures; and (d) clean surfaces. "Components" are electrical connectors, insulating ceramics, integrated circuit chip carriers, electrical terminal assemblies, hermetic electrical seals, electrical enclosures and related components. All Components under this Agreement either: (a) incorporate a KRYOFLEX ceramic composition and utilize Trade Secrets; or (b) are encompassed by a valid, enforceable claim of one or more of the Patents. "Finished Products" means devices incorporating one or more Components as parts of more complex assembly. All Finished Products under this Agreement either: (a) incorporate a KRYOFLEX ceramic composition and utilize Trade Secrets; or (b) are encompassed by or contain a Component that is encompassed by a valid, enforceable claim of one or more of the Patents. "Improvements" means all developments made by Kyle with respect to Technology, whether or not patentable, prior to and as of the date hereof. 2. Acquisition of Intellectual Property. (a) Kyle hereby sells, conveys, assigns, transfers and delivers to the Company, and the Company hereby purchases and accepts from Kyle, all of Kyle's right, title and interest in and to the Patents, Trade Secrets, Know-How, Code and Improvements (the Patents, Trade Secrets, Know-How, Code and Improvements are collectively referred to as the "Intellectual Property"). (b) Pending/Future Patents. Kyle will grant the Company "First Right of Refusal" for any future or pending patents that are issued within 48 months of the date of this Agreement. The Company shall have the right to exclusively License these patents within ninety days after notification of an issued patent by Kyle at a mutually agreed to Royalty rate. 3 Or the Company may negotiate with Kyle for purchase of the patent or match any legitimate offer that Kyle has received in writing. (c) Kyle shall retain the right to use Patent #4,425,476 (Progressive Fused Ceramic seals between spaced members), #4,436,955 (Terminal Assembly), #4,493,378 (Terminal Assembly), #4,654,752 (Terminal Assembly & Method of Making), #4,935,583 (Insulated conductor with ceramic-connector elements) for the development of future patents and products that may be licensed or purchased by the Company according to the conditions of paragraph 2b of this agreement. 3. Instruments of Conveyance and Transfer. The sale, conveyance, assignment, transfer and delivery of the Intellectual Property are being effected simultaneously with the execution of this Agreement (the "Closing") by the Company's payment of the consideration set forth in Section 6 below and Kyle's execution and delivery to the Company of a bill of sale in substantially the form of the Assignment and Bill of Sale attached hereto as Exhibit B, an Assignment of Patents in the form attached hereto as Exhibit B, and such other bills of sale, endorsements, assignments and other instruments of transfer and conveyance, in form and substance sufficient to vest in the Company all of Kyle's right, title and interest in and to the Intellectual Property, as may be reasonably requested by the Company or its counsel. Kyle may substitute a like form if acceptable by both parties. 4. Delivery of Intellectual Property. Any part of the Intellectual Property that is in the Company's possession pursuant to the License Agreement shall be deemed to be delivered, effective as of the Closing, without any further action by Kyle other than the execution of the Assignment of Patents. 5. Discharge of the Company's Obligations to Kyle. Subject to all the terms and conditions of this Agreement and for the consideration herein stated, Kyle hereby forever discharges and releases the Company from its obligations under the License Agreement to pay Kyle any accrued and unpaid royalties existing on the date of this Agreement (the "Company Obligations"). 6. Consideration. As consideration for Kyle's (a) sale, conveyance, assignment transfer and delivery of the Intellectual Property, and (b) discharge of the Company Obligations, the Company shall pay Kyle Four Hundred Fifty Thousand Dollars ($450,000) in cash or readily available funds at the Closing. 7. Representation and Warranties of the Company. The Company makes the following representations and warranties to Kyle: 4 (a) Existence. The Company is a corporation duly organized and existing under the laws of the State of Washington and has all requisite corporate power and authority to own, operate and lease its assets and carry on its business as now conducted and as proposed to be conducted. (b) Authority and Validity. The Company has full corporate power and corporate authority to execute and deliver this Agreement, to consummate the transactions contemplated by this Agreement, and to carry out its obligations under this Agreement. This Agreement has been duly and validly authorized by the Board of Directors of the Company, and has been duly and validly executed and delivered by the Company, and constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms. 8. Representation and Warranties of Kyle. Kyle makes the following representations and warranties to the Company: (a) Title to Intellectual Property. Kyle is (a) the sole inventor and the exclusive owner and owner of record in the U.S. Patent and Trademark Office of all Patents; (b) the sole and exclusive owner of all Trade Secrets, Know-How, Code and Improvements. Kyle has had and will have, on or as of Closing, good and marketable title to the Intellectual Property, legal and equitable, free and clear of all pledges, security interests, liens, charges, encumbrances, equities, claims, options or limitations of any nature, and on the Closing, Kyle will transfer to the Company and the Company will acquire from Kyle such good and marketable title to the Intellectual Property. To the best of his knowledge all Patents are valid and enforceable. Except for the licenses granted to the Company under the License Agreement, there are no licenses granted or promised to be granted by Kyle with respect to the Technology to any person or entity as of the date hereof. (b) No Claims. To the best of his knowledge, there is no claim or allegation made by or threatened to be made by third parties that Components or Finished Products infringe the patent or proprietary rights of third parties, or that Patents are invalid or unenforceable or that Trade Secrets have been misappropriated or are known to the public. (c) Non-Disclosure. Except as set forth in Exhibit E, Kyle has maintained as confidential and has not disclosed to any person or entity (other than the Company or the individuals specifically designated by the Company) any Trade Secret, Know- How and Code information relating the Technology. (d) Maintenance of Patents. Kyle has maintained and has paid all maintenance fees on the Patents, and except as set forth in Exhibit F, none of the Patents has lapsed. 5 9. Covenant of Kyle. Kyle agrees that he will not disclose any information relating to Trade Secrets, Know-How, Code or Improvements to any person or entity and shall not and will not use such information for any purpose, including research, development or commercialization, except as stated in paragraph 2C of this document. 10. General Provisions. (a) Survival of Representations and Warranties. The representations and warranties contained in this Agreement shall survive the Closing of the transactions contemplated hereby. (b) Notices. All notices required hereunder shall be in writing, and shall be sent by registered or certified mail, postage prepaid and return receipt requested. All documentation, reports, correspondence and notices to the Company shall be addressed to: Pacific Coast Technologies, Inc. 434 Olds Station Road Wenatchee, Washington 98801 Attention: Donald A. Wright cc: Sheryl A. Symonds, Esq. Stoel Rives 600 University Street, 36th Floor Seattle, Washington 98101-3197 All documentation, reports, correspondence and notices to Kyle shall be addressed to: James C. Kyle 2547 Fisher Road Roseburg, Oregon 97470 cc: ------------------------------------ ------------------------------------ (c) Integration. This Agreement contains the entire understanding of the parties and is intended as a final expression of their agreement. This Agreement superseded all previous discussions and agreements concerning the subject matter contained herein. This Agreement shall not be modified, supplemented or amended except in writing signed by duly authorized representatives of the parties hereto. (d) Waiver. Any waiver of any of the provisions or conditions of this Agreement or any of the rights of a party 7 hereto shall be valid only if set forth in an instrument in writing signed by the party granting such waiver. Any waiver or failure to insist upon strict compliance with any obligation, covenant, agreement or condition shall not operate as a waiver of any other provision. (e) Attorneys' Fees. In the event of a dispute between the parties resulting in litigation with respect to the subject matter hereof, the substantially prevailing party as determined by the court shall be entitled to a judgment for its costs through appeal, including reasonable attorneys' fees. (f) Applicable Law. This Agreement shall be interpreted and governed according to the laws of the State of Washington, except for United States federal laws applicable, in which case this Agreement shall be governed by and interpreted in accordance with such federal laws. (g) Execution in Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. (h) Divisible. This Agreement is and shall be construed to be divisible and separable with the effect that if any provision or provisions hereof shall at any time be found or declared invalid or unenforceable by competent judicial authority, such finding or declaration shall not impair the remaining provisions hereof, but the same shall remain valid and enforceable. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. PACIFIC COAST TECHNOLOGIES, INC. By /s/ DONALD A. WRIGHT ----------------------------- Donald A. Wright Its President /s/ JAMES C. KYLE - ------------------------------- JAMES C. KYLE 8 In connection with the foregoing Intellectual Property Acquisition and License Agreement, Carol A. Kyle hereby acknowledges that she has no claim to or interest in the Technology as defined therein. /s/ CAROL A. KYLE ------------------------------- CAROL A. KYLE DATE: 28 May 1994 9 KYLE PATENTS Exhibit A Patent Number Patent Description - ------------- ------------------ 4,220,813 TERMINAL FOR MEDICAL INSTRUMENT 4,220,814 TERMINAL FOR MEDICAL INSTRUMENT & ASSEMBLY 4,352,951 CERAMIC SEAL 4,371,588 CERAMIC SEAL 4,401,766 CERAMIC SEAL 4,411,680 CERAMIC SEAL 4,421,947 POLYCRYSTALLINE INSULATING MATERIAL 4,424,090 INSULATING MATERIAL & METHOD OF MAKING 4,425,476 PROGRESSIVELY FUSED CERAMIC SEAL 4,436,955 TERMINAL ASSEMBLY 4,456,786 TERMINAL ASSEMBLY FOR HEART PACEMAKER 4,461,926 HERMETICALLY SEALED INSULATING ASSEMBLY 4,493,378 TERMINAL ASSEMBLY 4,507,522 TERMINAL ASSEMBLY 4,514,207 METHOD FOR MAKING TERMINAL ASSEMBLY 4,514,590 ELECTRICAL TERMINAL ASSEMBLY 4,512,791 HERMETICALLY SEALED INSULATING ASSEMBLY 4,518,820 TERMINAL ASSEMBLY FOR HEART PACEMAKER 4,593,758 HERMETICALLY SEALED INSULATING ASSEMBLY 4,654,752 TERMINAL ASSEMBLY & METHOD OF MAKING 4,657,337 ELECTRICAL CONNECTOR & PRODUCTION METHOD 4,935,583 INSULATED CONDUCTOR/CERAMIC CONNECTED ELEMENTS Pacific Coast Technologies, Inc. By /s/ DONALD A. WRIGHT /s/ JAMES C. KYLE --------------------------- -------------------------- Donald A. Wright JAMES C. KYLE President 10 ASSIGNMENT AND BILL OF SALE Exhibit B This Assignment and Bill of Sale is given as of the 28th day of May, 1994, by JAMES C. KYLE ("Kyle"), to PACIFIC COAST TECHNOLOGIES, INC., a Washington corporation ("Buyer"), pursuant to Section 2 of that certain Intellectual Property Acquisition Agreement dated as of the 28th day of May, 1994 (the "Agreement"), by and between Kyle and Buyer, whereby Kyle is to sell, convey, assign, transfer, and deliver to Buyer all of his Secrets, Know-How, Code and Improvements as those terms are defined in the Agreement (the "Intellectual Property"). WHEREAS, Section 3 of the Agreement provides for the execution and delivery of an Assignment and Bill of Sale evidencing the transfer of such right, title and interest; NOW, THEREFORE, in accordance with and subject to the Agreement, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Kyle hereby sells, conveys, assigns, transfers, and delivers to Buyer all of Kyle's right, title and interest, legal and equitable, in and to all of the Intellectual Property referred to in Section 2 of the Agreement. TO HAVE AND TO HOLD the Intellectual Property unto Buyer and its successors and assigns forever. Kyle agrees to execute any additional instruments, documents, and certificates needed to effect the transfer of and to vest title in the Intellectual Property in buyer on the terms set forth above. This Assignment and Bill of Sale shall be binding on, inure to the benefit of, and be enforceable by and against Kyle and Buyer and their respective successors and assigns. This Assignment and Bill of Sale shall be construed and enforced in accordance with the laws of the State of Washington. IN WITNESS WHEREOF, Kyle has executed this Assignment and Bill of Sale as of the date first set forth above. /s/JAMES C. KYLE - ------------------------------ JAMES C. KYLE EX-10.1.10(A) 10 1 PROMISSORY NOTE $400,000.00 June 1, 1994 For value received Pacific Coast Technologies, Inc. agrees to pay James C. Kyle and Carol A. Kyle the sum of $400,000 under the following terms and conditions. 1. It is understood that this amount ($400,000) is the balance of a negotiated sum of $560,000 [due] the Kyles from the original purchase of the Company (KTC) by Mr. Wright in 1990. 2. This negotiated sum of $560,000 includes all principal and interest due and past due the Kyles. 3. The Kyles agree to make an effort to purchase $100,200 worth of common stock from PCT Holdings, Inc. per the company's private placement to occur within sixty days of the date of this document. If for any reason the Kyles do not purchase this stock. The balance of $160,000 will become a separate note effective August 1, 1994. The note will bear interest at 8.5% interest (annual rate) with interest only payable on a monthly basis. The principal amount of $160,000 will be due in one lump sum payment on June 1, 1995. 4. The original note balance of $400,000 shall bear interest at 8.5% (annual rate) payable interest only on a monthly basis until October 21, 1994. A principal payment of $200,000 will be paid on October 21, 1994. Interest only payments on the balance of $200,000 will be made monthly at 8.5% interest (annual rate) until January 3, 1995 when the remaining balance of $200,000 will be paid in full. 5. The Patents purchased by this agreement as well as the Company's receivables and inventory shall serve as collateral for this Loan subject to subordination to the Company's senior lender or institution. 6. The payment on any and all monthly interest to the Kyles by Pacific Coast Technology will not be subject to any subordination as agreed by telecon and fax May 27, 1994. 7. The Term of this note is from June 1, 1994 until January 3, 1995. Pacific Coast Technologies, Inc. By: /s/ JAMES C. KYLE By: /s/ DON A. WRIGHT ------------------------- ----------------------------- James C. Kyle Donald A. Wright, President By: /s/ CAROL A. KYLE ------------------------- Carol A. Kyle EX-10.1.10(B) 11 PROMISSORY NOTE EXTENSION $387,800.00 January 1, 1995 For value received Pacific Coast Technologies, Inc. agrees to pay James C. Kyle and Carol A. Kyle the sum of $387,800.00 under the following terms and conditions. 1. It is understood that this amount ($387,800.00) is the balance of a negotiated sum of $560,000 due the Kyles from the original purchase of the Company (Kyle Technology Corporation) by Mr. Wright in 1990. 2. All rights of the Kyles and all collateral associated with the original note issued for the purchase of Kyle Technology Corporation in 1990 remain unchanged and are an integral part of this note. 3. In addition to the original collateral as referenced above, the patents purchased May 28, 1994 as well as Pacific Coast Technologies, Inc.'s receivables and inventory shall serve as collateral for the loan subject to subordination to the Company's senior lender or institution, provided that the monthly payments of principal and interest will not be subject to any subordination. 4. The note balance of $387,800.00 shall bear interest at 10.25 percent (nominal annual rate) payable in equal monthly payments of principal and interest in the amount of $8,287.39 for thirty-six (36) months beginning February 1, 1995. The final payment of principal and interest of $180,676.63 will be payable on February 1, 1998. Pacific Coast Technologies, INc. By: /s/ JAMES C. KYLE By: /s/ DON A. WRIGHT ------------------------- ------------------------------ James C. Kyle Donald A. Wright, President By: /s/ CAROL A. KYLE ------------------------- Carol A. Kyle EX-10.1.11 12 1 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT Co-Borrowers: PCT Holdings, Inc. a Nevada corporation Ceramic Devices, Inc. a California corporation Cashmere Manufacturing Co., Inc. a Washington corporation Pacific Coast Technologies, Inc. a Washington corporation Address: c/o PCT Holdings, Inc. 434 Olds Station Road Wenatchee, WA 98801 Date: April 24, 1995 THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between SILICON VALLEY BANK ("Silicon"), whose address is 3000 Lakeside Drive, Santa Clara, California 95054-2895 and the co-borrowers named above (each, a "Borrower", and collectively, the "Borrowers"), whose chief executive office is located at the above address ("Borrowers' Address"). PCT Holdings, Inc. owns a majority of the outstanding capital stock of Ceramic Devices, Inc., Cashmere Manufacturing Co., Inc., and Pacific Coast Technologies, Inc. (collectively, the "Subsidiaries"). From time to time, PCT Holdings, Inc. provides management expertise to the Subsidiaries. Borrowers are entering into this Loan and Security Agreement as co-borrowers since they will benefit from the use of the proceeds of the loans described in this Agreement. 1. LOANS. 1.1 Loans. Silicon will make loans to the Borrowers (the "Loans") in amounts determined by Silicon in its discretion up to the amount (the "Credit Limit") shown on the Schedule to this Agreement (the "Schedule"), the terms of which are incorporated into this Agreement. The Borrowers are responsible for monitoring the total amount of Loans and other Obligations outstanding from time to time, and the Borrowers shall not permit that amount, at any time, to exceed the Credit Limit. If at any time the total of all outstanding Loans and all other Obligations 2 exceeds the Credit Limit, the Borrowers shall immediately pay the amount of the excess to Silicon, without notice or demand. 1.2 Interest; Debit to Deposit Accounts. All Loans and all other monetary Obligations shall bear interest at the rate shown on the Schedule hereto. Interest shall be payable monthly, on the due date shown on the monthly billing from Silicon to the Borrowers. The Borrowers shall regularly deposit all funds received from their business activities in accounts maintained by the Borrowers at Silicon. The Borrowers hereby request and authorize Silicon to debit any of the Borrowers' accounts with Silicon, including without limitation account no. 09002758-70, for payments of interest and principal due on the Loans and all other obligations owing by the Borrowers to Silicon. Silicon shall promptly notify the Borrowers of all debits which Silicon makes against the Borrowers' accounts. Any such debit against the Borrowers' accounts shall in no way be deemed a set-off by Silicon 1.3 Fees. The Borrowers shall pay to Silicon loan fees in the amounts shown on the Schedule hereto. These fees are in addition to all interest and other sums payable to Silicon and are not refundable. 2. GRANT OF SECURITY INTEREST. 2.1 Obligations. The term "Obligations" as used in this Agreement means the following: the obligation to pay all Loans and all interest thereon when due, and to pay and perform when due all other present and future indebtedness, liabilities, obligations, guarantees, covenants, agreements, warranties and representations of the Borrowers to Silicon, whether joint or several, monetary or non-monetary, and whether created pursuant to this Agreement or any other present or future agreement or otherwise. Silicon may, in its discretion, require that the Borrowers pay monetary Obligations in cash to Silicon, or charge them to Borrowers' Loan account, in which event they shall bear interest at the same rate applicable to the Loans. 2.2 Collateral. As security for all Obligations, the Borrowers each hereby grant Silicon a continuing security interest in all of each Borrower's assets, including but not limited to all of each Borrowers' interest in the types of property described below, whether now owned or hereafter acquired, and wherever located (collectively, the "Collateral"): (a) All accounts, contract rights, chattel paper, letters of credit, documents, securities, money, and instruments, and all other obligations now or in the future owing to the Borrowers; (b) All inventory, goods, merchandise, materials, raw materials, work in process, finished goods, farm products, advertising, packaging and shipping materials, supplies, and all other tangible personal property which is held for sale or lease or 3 furnished under contracts of service or consumed in any Borrower's business, and all warehouse receipts and other documents; (c) All equipment, including without limitation all machinery, fixtures, trade fixtures, vehicles, furnishings, furniture, materials, tools, machine tools, office equipment, computers and peripheral devices, appliances, apparatus, parts, dies, and jigs; (d) All general intangibles including, but not limited to, deposit accounts, goodwill, names, trade names, trademarks and the goodwill of the business symbolized thereby, trademark applications, trade secrets, drawings, blueprints, customer lists, patents, patent applications, copyrights, copyright applications, security deposits, loan commitment fees, federal, state and local tax refunds and claims, all rights in all litigation presently or hereafter pending for any cause or claim (whether in contract, tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of any Borrower against Silicon, all rights to purchase or sell real or personal property, all rights as a licensor or licensee of any kind, all royalties, licenses, processes, telephone numbers, proprietary information, purchase orders, and all insurance policies and claims (including without limitation credit, liability, property and other insurance), and all other rights, privileges and franchises of every kind; (e) All books and records, whether stored on computers or otherwise maintained; (f) All of each Borrower's cash; (g) A $1,000,000 certificate of deposit pledged by any Borrower or a third party; and (h) All substitutions, additions and accessions to any of the foregoing, and all products, proceeds and insurance proceeds of the foregoing, and all guaranties of and security for the foregoing; and all books and records relating to any of the foregoing. Silicon's security interest in any present or future technology (including patents, trade secrets, and other technology) shall be subject to any licenses or rights now or in the future granted by the Borrowers to any third parties in the ordinary course of the Borrowers' business; provided that if the Borrowers proposed to sell, license or grant any other rights with respect to any technology in a transaction that, in substance, conveys a major part of the economic value of that technology, Silicon shall first be requested to release its security interest in the same, and Silicon may withhold such release in its discretion The Borrowers shall not, either directly or through any agent, employee, licensee or designee, (a) file an application for the registration of any patent, trademark or copyright with the U.S. Patent and Trademark Office, the U.S. Copyright Office, or any similar office or agency in any other country, state, or any political subdivision (the "Offices"), or (b) file any assignment of any patent, trademark, or copyright which any Borrower may acquire from a third party with any one of the Offices unless the Borrowers shall, on or prior to the date of such filing, notify Silicon thereof; and, upon request of Silicon, execute and deliver any and all assignments, agreements, instruments, documents and papers as Silicon may request to evidence Silicon's 4 interest in such patents, trademarks, or copyrights, as the case may be, including the goodwill and general intangibles of the Borrowers relating thereto or represented thereby, and the Borrowers authorize Silicon to amend any applicable notice of security interest or assignment executed pursuant to Section 4.9 of this Agreement without first obtaining the Borrowers' approval of or signature to such amendment and to record such assignment with one or more of the Offices. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWERS. The Borrowers represent and warrant to Silicon as follows, and the Borrowers covenant that the following representations shall continue to be true, and that the Borrowers shall comply with all of the following covenants: 3.1 Corporate Existence and Authority. PCT Holdings, Inc. is and shall continue to be duly authorized, validly existing and in good standing under the laws of the state of Washington. Ceramic Devices, Inc. is and shall continue to be duly authorized, validly existing and in good standing under the laws of the state of California. Cashmere Manufacturing Co., Inc. is and shall continue to be duly authorized, validly existing and in good standing under the laws of the state of Washington. Pacific Coast Technologies, Inc. is and shall continue to be duly authorized, validly existing and in good standing under the laws of the state of Washington. The Borrowers are and shall continue to be qualified and licensed to do business in all jurisdictions in which any failure to do so would have a material adverse effect on any Borrower. The execution, delivery and performance by the Borrowers of this Agreement, and all other documents contemplated hereby have been duly and validly authorized, are enforceable against the Borrowers in accordance with their terms, and do not violate any law or any provision of; and are not grounds for acceleration under, any agreement or instrument which is binding upon any Borrower. 3.2 Name, Trade Names and Styles. The name of each Borrower set forth in the heading to this Agreement is its correct name. Listed on the Schedule hereto are all prior names of the Borrowers and all of the Borrowers' present and prior trade names. Each Borrower shall give Silicon 15 days' prior written notice before changing its name or doing business under any other name. The Borrowers have complied, and shall in the future comply, with all laws relating to the conduct of business under a fictitious business name. 3.3 Place of Business: Location of Collateral. The address set forth in the heading to this Agreement is the chief executive office for each Borrower. In addition, the Borrowers have places of business only at, and Collateral of any Borrower 5 is located only at, the locations set forth on the Schedule to this Agreement. Each Borrower shall give Silicon at least 15 days prior written notice before changing its chief executive office or moving the Collateral to any other location. 3.4 Title to Collateral: Permitted Liens. The Borrowers are now, and shall at all times in the future be, the sole owner of all the Collateral, except for items of equipment which are leased by the Borrowers. The Collateral now is and shall remain free and clear of any and all liens, charges, security interests, encumbrances and adverse claims, except for the following ("Permitted Liens"): (i) purchase money security interests in specific items of equipment; (ii) leases of specific items of equipment; (iii) liens for taxes not yet payable; (iv) additional security interests and liens consented to in writing by Silicon in its sole discretion; and (v) security interests being terminated substantially concurrently with this Agreement Silicon shall have the right to require, as a condition to its consent under subparagraph (iv) above, that the holder of the additional security interest or lien sign an intercreditor agreement on terms satisfactory to Silicon in its sole discretion, acknowledge that the holder's security interest is subordinate to the security interest in favor of Silicon, and that the Borrowers agree that any uncured default in any obligation secured by the subordinate security interest shall also constitute an Event of Default under this Agreement. Silicon now has, and shall continue to have, a first priority, perfected and enforceable security interest in all of the Collateral. The Collateral shall not be subject to any other liens or security interests of any type except for the Permitted Liens. The Borrowers shall at all times defend Silicon and the Collateral against all claims of others. None of the Collateral now is or shall be affixed to any real property in such a manner, or with such intent, as to become a fixture. 3.5 Maintenance of Collateral. The Borrowers shall maintain the Collateral in good working condition. The Borrowers shall not use the Collateral for any unlawful purpose. The Borrowers shall immediately advise Silicon in writing of any material loss or damage to the Collateral. 3.6 Books and Records. The Borrowers have maintained and shall maintain at the Borrowers' Address complete and accurate books and records, comprising an accounting system in accordance with generally accepted accounting principles. 3.7 Financial Condition and Statements. All financial statements now or in the future delivered to Silicon have been, and shall be, prepared in conformity with generally accepted accounting principles and now and in the future shall completely and accurately reflect the financial condition of the Borrowers, on a consolidated and consolidating basis, at the times and for 6 the periods therein stated. Since the last date covered by any such statement, there has been no material adverse change in the financial condition or business of the Borrowers. Each Borrower is now and shall continue to be solvent. Each Borrower shall provide Silicon: (i) within 30 days after the end of each month, a monthly financial statement (consisting of a income statement and a balance sheet) prepared by each Borrower; (ii) within 15 days after the end of each month, an accounts receivable report, an accounts payable report and an inventory listing in such form as Silicon shall reasonably specify; (iii) within 15 days after the end of each month, a Borrowing Base Certificate in the form attached to this Agreement as Exhibit A, as Silicon may reasonably modify such Certificate from time to time, signed by the Chief Financial Officer of each Borrower; (iv) within 30 days after the end of each of the first three calendar quarters of each year and within 90 days after the end of the fourth quarter, a Compliance Certificate in such form as Silicon shall reasonably specify, signed by the Chief Financial Officer of each Borrower, certifying that throughout such quarter each Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth on the Schedule hereto and such other information as Silicon shall reasonably request; and (v) within 90 days following the end of the Borrowers' fiscal year, complete annual audited financial statements, together with an unqualified opinion of the auditors, such audit being conducted by independent certified public accountants reasonably acceptable to Silicon. 3.8 Tax Returns and Payments: Pension Contributions. The Borrowers have timely filed, and shall timely file, all tax returns and reports required by foreign, federal, state and local law. The Borrowers have timely paid, and shall timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions now or in the future owed by the Borrowers. The Borrowers may, however, defer payment of any contested tax, provided that the Borrowers (i) in good faith contests the Borrowers' obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (ii) notify Silicon in writing of the commencement of, and any material development in, the proceedings, and (iii) post bonds or take any other steps required to keep the contested taxes from becoming a lien upon any of the Collateral. The Borrowers are unaware of any claims or adjustments proposed for any of the Borrowers' prior tax years which could result in additional taxes becoming due and payable by the Borrowers. The Borrowers have paid, and shall continue to pay all amounts necessary to fund all present and future pension, profit sharing and deferred compensation plans in accordance with their terms. The Borrowers have not and shall not withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other 7 event with respect to, any such plan which could result in any liability of the Borrowers, including, without limitation, any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency. 3.9 Compliance with Law. The Borrowers have complied, and shall comply, in all material respects, with all provisions of all foreign, federal, state and local laws and regulations relating to the Borrowers, including, but not limited to, those relating to ownership of real or personal property, conduct and licensing of each Borrower's business, and environmental matters. 3.10 Litigation. Except as disclosed in the Schedule hereto, there is no claim, suit, litigation, proceeding or investigation pending or (to best of each Borrower's knowledge) threatened by or against or affecting any Borrower in any court or before any governmental agency (or any basis therefor known to any Borrower) which may result, either separately or in the aggregates in any material adverse change in the financial condition or business of any Borrower, or in any material impairment in the ability of the Borrowers to carry on its business in substantially the same manner as it is now being conducted. The Borrowers shall promptly inform Silicon in writing of any claim, proceeding, litigation or investigation in the future threatened or instituted by or against the Borrowers or any of them involving amounts in excess of $100,000. 3.11 Use of Proceeds. All proceeds of all Loans shall be used solely for lawful business purposes. 3.12 No Patents or Trademarks. None of the Borrowers own, and none of the Borrowers have pending any application for the registration of, any patent or trademark with the U.S. Patent and Trademark Office or any similar office or agency of any state, of the United States of America or of any foreign jurisdiction except as disclosed in the Schedule. 3.13 Hazardous Substances. The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. The Borrowers represent and warrant that: (a) the Borrowers have no knowledge of (i) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or 8 substance by any prior owners or occupants of any of the properties, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters; (b) none of the Borrowers nor any subtenant, contractor, agent or other user authorized by any of the Borrowers of any of the properties shall use, generate, manufacture, store, treat, dispose of; or release any hazardous waste or substance on, under, or about any of the properties owned or operated by the Borrowers; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. The Borrowers authorize Silicon and its agents, upon 24 hours prior notice (which need not be in writing), to enter upon the properties to make such inspections and tests as Silicon may deem appropriate to determine compliance of the properties owned or operated by the Borrowers with this section of the Agreement. Any inspections or tests made by Silicon shall be for Silicon's purposes only and shall not be construed to create any responsibility or liability on the part of Silicon to the Borrowers or to any other person. The Borrowers hereby (a) release and waive any future claims against Silicon for indemnity or contribution in the event the Borrowers become liable for cleanup or other costs under any such laws, and (b) agree to indemnity and hold harmless Silicon against any and all losses, liabilities, damages, penalties, and expenses which Silicon may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring prior to the Borrowers' ownership or interest in the properties, whether or not the same was or should have been known to the Borrowers. The provisions of this section of the Agreement, including the obligation to indemnity, shall survive the payment of the Indebtedness and the termination or expiration of this Agreement and shall not be affected by Silicon's acquisition of any interest in any of the properties, whether by foreclosure or otherwise. 4. ADDITIONAL DUTIES OF THE BORROWERS. 4.1 Financial and Other Covenants. The Borrowers shall at all times comply with the financial and other covenants set forth in the Schedule to this Agreement. 4.2 Overadvance; Proceeds of Accounts. If for any reason the total of all outstanding Loans and all other Obligations exceeds the Credit Limit, without limiting Silicon's other remedies, and whether or not Silicon declares an Event of Default, the Borrowers shall remit to Silicon all checks and other proceeds of the Borrowers' accounts and general intangibles, in the same form as received by the Borrowers, within one business day after the Borrowers' receipt of the same, 9 to be applied to the Obligations in such order as Silicon shall determine in its discretion. 4.3 Insurance. The Borrowers shall at all times insure all of the tangible personal property Collateral and carry such other business insurance, with insurers reasonably acceptable to Silicon, in such form and amounts as Silicon may reasonably require. All such insurance policies shall name Silicon as an additional loss payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such insurance, Silicon shall apply such proceeds in reduction of the Obligations as Silicon shall determine in its sole and absolute discretion, except that, provided no Event of Default has occurred, Silicon shall release to the Borrowers insurance proceeds with respect to equipment totalling less than $100,000, which shall be utilized by the Borrowers for the replacement of the equipment with respect to which the insurance proceeds were paid. Silicon may require reasonable assurance that the insurance proceeds so released shall be so used. If the Borrowers fail to provide or pay for any insurance, Silicon may, but is not obligated to, obtain the same at the Borrowers' expense. The Borrowers shall promptly deliver to Silicon copies of all reports made to insurance companies. 4.4 Report. The Borrowers shall provide Silicon with such written reports with respect to the Borrowers, as Silicon shall from time to time reasonably specify. 4.5 Access to Collateral, Books and Records. At all reasonable times, and upon one business day notice, Silicon, or its agents, shall have the right to inspect the Collateral, and the right to audit and copy the Borrowers' accounting books, records, ledgers, journals, or registers and the Borrowers' books and records relating to the Collateral. Silicon shall take reasonable steps to keep confidential all information obtained in any such inspection or audit, but Silicon shall have the right to disclose any such information to its auditors, regulatory agencies and attorneys, and pursuant to any subpoena or other legal process. The Borrowers shall reimburse Silicon for Silicon's actual costs (up to $1,250 per audit) for conducting two audits per year. Silicon may debit the Borrowers' deposit accounts with Silicon for the cost of such accounts receivable audits (up to the limit stated above), in which event Silicon shall send notification thereof to the Borrowers. Notwithstanding the foregoing, during the continuation of an Event of Default all audits shall be at the Borrower's expense. 4.6 Negative Covenants. Except as may be permitted in the Schedule hereto, the Borrowers shall not, without Silicon's prior written consent, do any of the following: (i) pledge or otherwise encumber the collateral of Borrower other than to Silicon; (ii) 10 merge or consolidate with another corporation, except that any Borrower may merge or consolidate with another corporation if that Borrower is the surviving corporation in the merger and the aggregate value of the assets acquired in the merger do not exceed 25% of that Borrower's Tangible Net Worth (as defined in the Schedule hereto) as of the end of the month prior to the effective date of the merger, and the assets of the corporation acquired in the merger are not subject to any liens or encumbrances, except Permitted Liens; (iii) acquire any assets, including stock of any other entity, outside the ordinary course of business for an aggregate purchase price (whether paid in cash, in stock of any Borrower or other consideration) exceeding 25% of such Borrower's Tangible Net Worth (as defined in the Schedule hereto) as of the end of the month prior to the effective date of the acquisition; (iv) enter into any other transaction outside the ordinary course of business (except as permitted by the other provisions of this Section); (v) sell or transfer any Collateral, except for the sale of finished inventory in the ordinary course of the Borrowers' business, and except for the sale of obsolete or unneeded equipment in the ordinary course of business; (vi) make any loans of any money or any other assets to shareholders, employees or any other person except in the ordinary course of business; (vii) incur any debts that are outside the ordinary course of business or that would have a material, adverse effect on the Borrowers or on the prospect of repayment of the Obligations; (viii) guarantee or otherwise become liable with respect to the obligations of another party or entity; (ix) pay or declare any dividends on the stock of any Borrower (except for dividends payable solely in stock of the Borrowers); (x) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of the stock of any Borrower; (xi) make any change in any Borrower's capital structure which has a material adverse effect on that Borrower or on the prospect of repayment of the Obligations; or (xii) dissolve or elect to dissolve. Except as may be permitted in the Schedule hereto, PCT Holdings, Inc. shall not sell or transfer any stock it owns of any of the Borrowers. Transactions permitted by the foregoing provisions of this Section are only permitted if no Event of Default and no event which (with notice or passage of time or both) would constitute an Event of Default would occur as a result of such transaction. 4.7 Litigation Cooperation. Should any third-party suit or proceeding be instituted by or against Silicon with respect to any Collateral or in any manner relating to the Borrowers, the Borrowers shall, without expense to Silicon, make available the Borrowers and their officers, employees and agents and the Borrowers' books and records to the extent that Silicon may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding. 11 4.8 Verification. Silicon may, from time to time, following prior notification to the Borrowers, verify directly with the respective account debtors the validity, amount and other matters relating to the Borrowers' accounts, by means of mail, telephone or otherwise, either in the name of any Borrower or Silicon or such other name as Silicon may reasonably choose, provided that no prior notification shall be required following an Event of Default. Silicon shall not be required to obtain any Borrower's consent prior to any such verification of accounts, whether or not an Event of Default has occurred. 4.9 Execute Additional Documentation. The Borrowers agree, at their expense, on request by Silicon, to execute from time to time all documents in form satisfactory to Silicon, as Silicon may deem reasonably necessary or useful in order to perfect and maintain Silicon's perfected security interest in the Collateral, and in order to fully consummate all of the transactions contemplated by this Agreement. 5. TERM 5.1 Maturity Date. This Agreement shall continue in effect until the payment in full of the Obligations, provided, however, that the Borrowers shall repay in full each Loan not later than the Maturity Date for such Loan as stated in the Schedule. 5.2 Early Termination. Subject to Section 5.3, this Agreement may be terminated, without penalty, prior to the Maturity Date as follows: (i) by the Borrowers, effective three business days after written notice of termination is given to Silicon; or (ii) by Silicon at any time after the occurrence of an Event of Default, without notice, effective immediately. 5.3 Payment of Obligations. On the due dates stated in the Schedule, or on any earlier effective date of termination, the Borrowers shall pay and perform in full all Obligations, whether evidenced by installment notes or otherwise, and whether or not all or any part of such obligations are otherwise then due and payable. Notwithstanding any termination of this Agreement, all of Silicon's security interests in all of the Collateral and all of the terms and provisions of this Agreement shall continue in full force and effect until all Obligations have been paid and performed in full; provided that, without limiting the fact that Loans are discretionary on the part of Silicon, Silicon may, in its sole discretion, refuse to make any further Loans after termination. No termination shall in any way affect or impair any right or remedy of Silicon, nor shall any such termination relieve the Borrowers of any Obligation to Silicon, until all of the Obligations have been paid and performed in full. Upon payment and performance in full of all the Obligations, Silicon shall promptly deliver to the Borrowers termination statements, 12 requests for reconveyances and such other documents as may be required to fully terminate any of Silicon's security interests. 6. EVENTS OF DEFAULT AND REMEDIES. 6.1 Events of Default. The occurrence of any of the following events shall constitute an "Event of Default" under this Agreement, and the Borrowers shall give Silicon immediate written notice thereof: (a) any warranty, representation, statement, report or certificate made or delivered to Silicon by any Borrower or any of the Borrowers' officers or employees, now or in the future, shall be untrue or misleading in any material respect; or (b) any Borrower shall fail to pay when due any Loan or any interest thereon or any other monetary Obligation; or (c) the total Loans and other Obligations outstanding at any time exceed the Credit Limit; or (d) any Borrower shall fail to comply with any of the financial covenants set forth in the Schedule to this Agreement or shall fail to perform any other non-monetary Obligation which by its nature cannot be cured; or (e) any Borrower shall fail to pay or perform any other non-monetary Obligation, under this Agreement or any other agreement or document relating to the Loans; or (f) any levy, assessment, attachment, seizure, lien or encumbrance is made on all or any part of the Collateral; or (g) dissolution, termination of existence, insolvency or business failure of any Borrower, or appointment of a receiver, trustee or custodian, for all or any part of the property of; assignment for the benefit of creditors by, or the commencement of any proceeding by any of the Borrowers under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or (h) the commencement of any proceeding against any of the Borrowers or any guarantor of any of the Obligations under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect, which is not cured by the dismissal thereof within 30 days after the date commenced; or (i) revocation or termination of, or limitation of liability upon, any guaranty of the Obligations; or (j) commencement of proceedings by any guarantor of any of the Obligations under any bankruptcy or insolvency law; or (k) any Borrower makes any payment on account of any indebtedness or obligation which has been subordinated to the Obligations, unless such payment is permitted in the applicable subordination agreement, or if any person who has subordinated such indebtedness or obligations terminates or in any way limits his subordination agreement; (l)any of the Borrowers shall generally not pay its debts as they become due; or any of the Borrowers shall conceal, remove or transfer any part of its property, with intent to hinder, delay or defraud its creditors, or make or suffer any transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (m) any of the Borrowers 13 or any other party thereto shall breach any subordination agreement executed in connection with the Loans. If any of the foregoing defaults, other than a failure to pay money, is curable and no Borrower has been given a notice of a similar default within the preceding twelve months, it may be cured (and no Event of Default shall have occurred) if the Borrower, after receiving written notice from Lender demanding cure of such default cures the failure within fifteen days. Silicon may cease making any Loans hereunder during any of the above cure periods, and thereafter if an Event of Default has occurred. 6.2 Remedies. Upon the occurrence of any Event of Default and the expiration of any applicable cure period under Section 6.1, and at any time thereafter, Silicon, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by the Borrowers), may do any one or more of the following: (a) Cease making Loans or otherwise extending credit to the Borrowers under this Agreement or any other document or agreement; (b) Accelerate and declare all or any part of the Obligations to be immediately due, payable, and performable, notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Obligation; (c) Take possession of any or all of the Collateral wherever it may be found, and for that purpose the Borrowers hereby authorize Silicon without judicial process to enter onto any of the Borrowers' premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof without charge for so long as Silicon deems it reasonably necessary in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should Silicon seek to take possession of any or all of the Collateral by Court process, the Borrowers hereby irrevocably waive: (i) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession; (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (iii) any requirement that Silicon retain possession of and not dispose of any such Collateral until after trial or final judgment; (d) Require the Borrowers to assemble any or all of the Collateral and make it available to Silicon at places designated by Silicon which are reasonably convenient to Silicon and the Borrowers, and to remove the Collateral to such locations as Silicon may deem advisable; (e) Require the Borrowers to deliver to Silicon, in kind, all checks and other payments received with respect to all accounts and general intangibles, together with any necessary indorsements, within one day after the date received by the Borrowers; (f) Complete the processing, manufacturing or repair of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, Silicon shall have the right to use the Borrowers' premises, 14 vehicles, hoists, lifts, cranes, equipment and all other property without charge; (g) Sell, lease or otherwise dispose of any of the Collateral in its condition at the time Silicon obtains possession of it or after further manufacturing, processing or repair, at any one or more public and/or private sales, in lots or in bulk, for cash, exchange or other property, or on credit, and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale. Silicon shall have the right to conduct such disposition on the Borrowers' premises without charge, for such time or times as Silicon deems reasonable, or on Silicon's premises, or elsewhere and the Collateral need not be located at the place of disposition. Silicon may directly or through any affiliated company, purchase or lease any Collateral at any such public disposition, and if permissible under applicable law, at any private disposition. Any sale or other disposition of Collateral shall not relieve the Borrowers of any liability the Borrowers may have if any Collateral is defective as to title or physical condition or otherwise at the time of sale; (h) Demand payment of, and collect any accounts and general intangibles comprising Collateral and, in connection therewith, the Borrowers irrevocably authorize Silicon to endorse or sign any of the Borrower's names on all collections, receipts, instruments and other documents, to take possession of and open mail addressed to the Borrowers and remove therefrom payments made with respect to any item of the Collateral or proceeds thereof, and, in Silicon's sole discretion, to grant extensions of time to pay, compromise claims and settle accounts and the like for less than face value; (i) Offset against any sums in any general, special or other deposit accounts maintained by any Borrower with Silicon; and (j) Demand and receive possession of any of the Borrowers' federal and state income tax and the books and records utilized in the preparation thereof or referring thereto. All reasonable fees of professionals (including attorneys' fees), expenses, costs, liabilities and obligations incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. Without limiting any of Silicon's rights and remedies, from and after the occurrence of any Event of Default, the interest rate applicable to the Obligations shall be increased by an additional four percent per annum 6.3 Standards for Determining Commercial Reasonableness. The Borrowers and Silicon agree that a sale or other disposition (collectively, "sale") of any Collateral which complies with the following standards shall conclusively be deemed to be commercially reasonable: (i) Notice of the sale is given to the Borrowers at least seven days prior to the sale, and, in the case of a public sale, notice of the sale is published at least seven days before the sale in a newspaper of general circulation in the county where the sale is to be conducted; (ii) Notice of the sale 15 describes the Collateral in general, non-specific terms; (iii) The sale is conducted at a place designated by Silicon, with or without the Collateral being present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in cash or by cashier's check or wire transfer is required; (vi) With respect to any sale of any of the Collateral, Silicon may (but is not obligated to) direct any prospective purchaser to ascertain directly from the Borrowers any and all information concerning the same. Silicon may employ other methods of noticing and selling the Collateral, in its discretion, if they are commercially reasonable. 6.4 Power of Attorney. Upon the occurrence of any Event of Default, without limiting Silicon's other rights and remedies, the Borrowers each grant to Silicon an irrevocable power of attorney coupled with an interest, authorizing and permitting Silicon (acting through any of its employees, attorneys or agents) at any time, at its option, but without obligation, with or without notice to the Borrowers, and at the Borrowers' expense, to do any or all of the following, in the Borrowers' name or otherwise: (a) Execute on behalf of the Borrowers any documents that Silicon may, in its sole and absolute discretion, deem advisable in order to perfect and maintain Silicon's security interest in the Collateral, or in order to exercise a right of the Borrowers or Silicon, or in order to fully consummate all the transactions contemplated under this Agreement, and all other present and future agreements; (b) Execute on behalf of the Borrowers any document exercising, transferring or assigning any option to purchase, sell or otherwise dispose of or to lease (as lessor or lessee) any real or personal property which is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute on behalf of the Borrowers, any invoices relating to any account, any draft against any account debtor and any notice to any account debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other lien, or assignment or satisfaction of mechanic's, materialman's or other lien; (d) Take control in any manner of any cash or non-cash items of payment or proceeds of Collateral; endorse the name of the Borrowers upon any instruments, or documents, evidence of payment or Collateral that may come into Silicon's possession; (e) Endorse all checks and other forms of remittances received by Silicon; (f) Pay, contest or settle any lien, charge, encumbrance, security interest and adverse claim in or to any of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; (g) Grant extensions of time to pay, compromise claims and settle accounts and general intangibles for less than face value and execute all releases and other documents in connection therewith; (h) Pay any sums required on account of the Borrowers' taxes or to secure the release of any liens therefor, or both; (i) Settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral and 16 obtain payment therefor; (j) Instruct any third party having custody or control of any books or records belonging to, or relating to, the Borrowers to give Silicon the same rights of access and other rights with respect thereto as Silicon has under this Agreement; and (k) Take any action or pay any sum required of the Borrowers pursuant to this Agreement and any other present or future agreements. Silicon shall exercise the foregoing powers in a commercially reasonable manner. Any and all reasonable sums paid and any and all reasonable costs, expenses, liabilities, obligations and attorneys' fees incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be payable on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. In no event shall Silicon's rights under the foregoing power of attorney or any of Silicon's other rights under this Agreement be deemed to indicate that Silicon is in control of the business, management or properties of the Borrowers. 6.5 Application of Proceeds. All proceeds realized as the result of any sale of the Collateral shall be applied by Silicon first to the costs, expenses, liabilities, obligations and attorneys' fees incurred by Silicon in the exercise of its rights under this Agreement, second to the interest due upon any of the Obligations, and third to the principal of the Obligations, in such order as Silicon shall determine in its sole discretion. Any surplus shall be paid to the Borrowers or other persons legally entitled thereto; the Borrowers shall remain liable to Silicon for any deficiency. If Silicon, in its sole discretion, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale or other disposition of Collateral, Silicon shall have the option, exercisable at any time, in its sole discretion, of either reducing the Obligations by the principal amount of purchase price or deferring the reduction of the Obligations until the actual receipt by Silicon of the cash therefor. 6.6 Remedies Cumulative. In addition to the rights and remedies set forth in this Agreement, Silicon shall have all the other rights and remedies accorded a secured patty under the Washington Uniform Commercial Code and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between Silicon and any Borrower, and all of such rights and remedies are cumulative and none is exclusive. Exercise or partial exercise by Silicon of one or more of its rights or remedies shall not be deemed an election, nor bar Silicon from subsequent exercise or partial exercise of any other rights or remedies. The failure or delay of Silicon to exercise any rights or remedies shall not operate as a waiver thereof; but all rights and remedies shall continue in full force and effect until all of the Obligations have been fully paid and performed. 17 7. GENERAL PROVISIONS 7.1 Notices. All notices to be given under this Agreement shall be in writing and shall be given either personally or by regular first-class mail, or certified mail return receipt requested, addressed to Silicon or the Borrowers at the addresses shown in the heading to this Agreement, or at any other address designated in writing by one party to the other party. All notices shall be deemed to have been given upon delivery in the case of notices personally delivered to the Borrowers or to Silicon, or at the expiration of two business days following the deposit thereof in the United States mail, with postage prepaid. 7.2 Severability. Should any provision of this Agreement be held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect the remainder of this Agreement, which shall continue in full force and effect. 7.3 Intention. This Agreement and such other written agreements, documents and instruments as may be executed in connection herewith are the final, entire and complete agreement between the Borrower and Silicon and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY AND CREDIT OR FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. 7.4 Waivers. The failure of Silicon at any time or times to require the Borrowers to strictly comply with any of the provisions of this Agreement or any other present or future agreement between the Borrowers and Silicon shall not waive or diminish any right of Silicon later to demand and receive strict compliance therewith. Any waiver of any default shall not waive or affect any other default, whether prior or subsequent thereto. None of the provisions of this Agreement or any other agreement now or in the future executed by the Borrowers and delivered to Silicon shall be deemed to have been waived by any act or knowledge of Silicon or its agents or employees, but only by a specific written waiver signed by an officer of Silicon and delivered to the Borrowers. The Borrowers waive demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, general intangible, document or guaranty at any time held by Silicon on which the Borrowers are or may in any way be liable, and notice of any action taken by Silicon, unless expressly required by this Agreement. 7.5 No Liability for Ordinary Negligence. Neither Silicon, nor any of its directors, officers, employees, agents, attorneys 18 or any other person affiliated with or representing Silicon shall be liable for any claims, demands, losses or damages, of any kind whatsoever, made, claimed, incurred or suffered by the Borrowers or any other party through the ordinary negligence of Silicon, or any of its directors, officers, employees, agents, attorneys or any other person dated with or representing Silicon. 7.6 Amendment. The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by the Borrowers and a duly authorized officer of Silicon. 7.7 Time of Essence. Time is of the essence in the performance by the Borrowers of each and every obligation under this Agreement. 7.8 Attorneys' Fees and Costs. The Borrowers shall reimburse Silicon for all reasonable attorneys' fees and fees of other professionals, and all filing, recording, search, title insurance, appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to, or in connection with, or relating to this Agreement (whether or not a lawsuit is filed), including, but not limited to, any reasonable attorneys' fees and costs Silicon incurs in order to do the following: prepare and negotiate this Agreement and the documents relating to this Agreement; obtain legal advice in connection with this Agreement; enforce, or seek to enforce, any of its rights; prosecute actions against, or defend actions by, account debtors; commence, intervene in, or defend any action or proceeding; initiate any complaint to be relieved of the automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party claim, or other claim; examine, audit, copy, and inspect any of the Collateral or any of the Borrowers' books and records; protect, obtain possession of, lease, dispose of, or otherwise enforce Silicon's security interest in, the Collateral and otherwise represent Silicon in any litigation relating to the Borrowers. If either Silicon or the Borrowers file any lawsuit against the other predicated on a breach of this Agreement, the prevailing party in such action shall be entitled to recover its reasonable costs and professionals' fees, including (but not limited to) reasonable attorneys' fees and costs incurred in the enforcement of, execution upon or defense of any order, decree, award or judgment. All fees and costs to which Silicon may be entitled pursuant to this Paragraph shall immediately become part of the Borrowers' Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. 7.9 Benefit of Agreement. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of the parties hereto; provided, however, that the Borrowers may not assign or transfer any of their rights under this Agreement 19 without the prior written consent of Silicon, and any prohibited assignment shall be void. No consent by Silicon to any assignment shall release the Borrowers from their liability for the Obligations. The Borrowers agree and consent to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Silicon. Silicon may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Silicon may have about the Borrowers or about any other matter relating to the Loans and the Borrowers hereby waive any rights to privacy it may have with respect to such matters. The Borrowers additionally waive any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. The Borrowers also agree that the purchasers of any such participation interests shall be considered as the absolute owners of such interests in the Loans and shall have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. 7.10 Joint and Several Liability. The liability of the Borrowers under this Agreement shall be joint and several, and the compromise of any claim with, or the release of, any Borrower shall not constitute a compromise with, or a release of, any other Borrower. Each Borrower agrees to repay the Loans made to that Borrower or any of the other Borrowers, and acknowledges that all of the Obligations are secured by all of the assets of each of the Borrowers. 7.11 Paragraph Heading; Construction. Paragraph headings are only used in this Agreement for convenience. The Borrowers acknowledges that the headings may not describe completely the subject matter of the applicable paragraph, and the headings shall not be used in any manner to construe, limit, define or interpret any term or provision of this Agreement. This Agreement has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against Silicon or the Borrowers under any rule of construction or other. 7.12 Mutual Waiver of Jury Trial. The Borrowers and Silicon each hereby waive the right to trial by jury in any action or proceeding based upon, arising out of, or in any way relating to, this Agreement or any other present or future instrument or agreement between Silicon and the Borrowers, or any conduct, acts or omissions of Silicon or the Borrowers or any of their directors, officers, employees, agents, attorneys or any other persons affiliated with Silicon or the Borrowers, in all of the foregoing cases, whether sounding in contract or tort or otherwise. 20 7.13 Governing Law: Jurisdiction; Venue. This Agreement and all acts and transactions hereunder and all rights and obligations of Silicon and the Borrower shall be governed by, and construed in accordance with, the laws of the State of Washington. Any undefined term used in this Agreement that is defined in the Washington Uniform Commercial Code shall have the meaning assigned to that term in the Washington Uniform Commercial Code. As a material part of the consideration to Silicon to enter into this Agreement, the Borrower (i) agrees that all actions and proceedings relating directly or indirectly hereto shall at Silicon's option, be litigated in courts located within Washington, and that the exclusive venue therefor shall be, at Silicon's option, King County or the county in which the Borrower's chief executive office is located; (ii) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (iii) waives any and all rights the Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding. Borrowers: PCT HOLDINGS, INC. By: /s/ DONALD A. WRIGHT ------------------------------------ Title: President CERAMIC DEVICES, INC. By: /s/ DONALD A. WRIGHT ------------------------------------ Title: CEO CASHMERE MANUFACTURING CO., INC. By: /s/ DONALD A. WRIGHT ------------------------------------ Title: CEO PACIFIC COAST TECHNOLOGIES, INC. By: /s/ DONALD A. WRIGHT ------------------------------------ Title: President 21 Silicon: SILICON VALLEY BANK By: /s/ J. BAUMGARDNER ------------------------------------ Title: Vice President 22 SCHEDULE TO LOAN AND SECURITY AGREEMENT Co-Borrowers: PCT Holdings, Inc. Ceramic Devices, Inc. Cashmere Manufacturing Co., Inc. Pacific Coast Technologies, Inc. Address: 434 Olds Station Road Wenatchee, WA 98801 Date: April 24, 1995 Secured Accounts Receivable Line of Credit Credit Limit: (Section 1.1) An amount not to exceed the lesser of: (i) $2,500,000.00 at any one time outstanding; or (ii) the amount of the "Borrowing Base", as defined below. For purposes of this Schedule, the "Borrowing Base" shall mean the sum of (a) 75% of the Net Amount of Borrowers' eligible accounts receivable; plus (b) 40% of the book value of Borrowers' eligible inventory, as defined below, as reported to Silicon on a monthly basis, up to a maximum advance of $1,000,000. "Net Amount" means the gross amount of the account, minus all applicable sales, use, excise and other similar taxes and minus all discounts, credits and allowances of any nature granted or claimed. The amount of all letters of credit issued by Silicon at the request of the Borrowers (other than the $2,000,000 Standby Letter of Credit described below) shall reduce, dollar for dollar, the amount otherwise available to be borrowed under the formula described in this paragraph. With respect to the Standby Letter of Credit, $1,000,000 of this Secured Accounts Receivable Line of Credit shall be held in reserve against during all periods in which the Standby Letter of Credit has been issued and remains in effect. Without limiting the fact that the determination of which accounts are eligible for borrowing is a matter of Silicon's discretion, the following shall not be deemed eligible for borrowing: accounts outstanding for more than 90 days from the invoice date, accounts subject to any contingencies, accounts owing from an account debtor outside the United States (except for those backed by a letter of credit in form and substance 23 satisfactory to Silicon), accounts owing from governmental agencies, accounts owing from one account debtor to the extent they exceed 25% of the total eligible accounts outstanding (35% on accounts receivable from Boeing), accounts owing from one Borrower to another or owing from an affiliate of a Borrower, and accounts owing from an account debtor to whom a Borrower is or may be liable for goods purchased from such account debtor or otherwise. In addition, if more than 50% of the accounts owing from an account debtor are outstanding more than 90 days from the invoice date or are otherwise not eligible accounts, then all accounts owing from that account debtor shall be deemed ineligible for borrowing. Without limiting the fact that the determination of which inventory is eligible for borrowing is a matter of Silicon's discretion, the following shall not be deemed eligible for borrowing: any inventory other than raw material or finished goods that are owned by a Borrower and located in Wenatchee, Washington, Cashmere, Washington and San Diego, California, inventory that is used, obsolete or returned goods, inventory that is stored at a location other than the Borrowers' Address or any location owned, leased or rented by Borrowers and previously identified to Silicon, inventory that is subject to a landlord's lien, and inventory that is not in the possession of the Borrowers. Interest Rate: (Section 1.2) The interest rate applicable to the Secured Accounts Receivable Line of Credit shall be a rate equal to the "Prime Rate" in effect from time to time, plus 1.0% per annum. Interest calculations shall be made on the basis of a 360- day year and the actual number of days elapsed. "Prime Rate" means the rate announced from time to time by Silicon as its "prime rate"; it is a base rate upon which other rates charged by Silicon are based, and it is not necessarily the best rate available at Silicon. The interest rate applicable to the Obligations shall change on each date there is a change in the Prime Rate. Commitment Fee: (Section 1.3) $12,500, which is fully earned and payable at closing. (Any Commitment Fee previously paid by the Borrowers in connection with this Loan shall be credited against this Fee.) 24 Amortization: Borrowers shall pay Silicon monthly payments of interest on or before the last day of each month, commencing May 31,1995. Maturity Date: (Section 1.3) One year from the date of this Agreement, at which time all unpaid principal and accrued but unpaid interest shall be due and payable. Maturities of Letters of Credit: Commercial or standby letters of credit issued by Silicon shall have a maximum maturity of not later than the Maturity Date. Repayment: The Borrowers shall repay on demand any amount drawn on a letter of credit issued by Silicon. Silicon may, but is not obligated to, add to the principal amount outstanding under the Secured Accounts Receivable Line of Credit any amount drawn on a letter of credit issued by Silicon. Any such amount shall be subject to the terms applicable to the Secured Accounts Receivable Line of Credit. Issuance: The issuance of any letter of credit under this Agreement is subject to Silicon's written approval and must be in form and content satisfactory to Silicon and in favor of a beneficiary reasonably acceptable to Silicon. The Borrowers shall execute Silicon's then- current application forms, reimbursement agreement and related documents as a condition to Silicon's issuance of any letter of credit. Fees: The Borrowers shall pay Silicon the fees and costs customarily charged by Silicon (at the time of issuance of the letter of credit) with respect to the issuance of letters of credit. Secured Equipment Revolving Term Loan Credit Limit: An amount not to exceed (i) $250,000.00 at any one time outstanding; or (ii) the amount of the "Equipment Borrowing Base", as defined below. For purposes of this Schedule, the "Equipment Borrowing Base" shall mean 80% of the invoice value of equipment purchased by Borrower after the date of this Agreement. Silicon shall have no obligation to advance against taxes, freight charges, installation charges or other similar 25 amounts relating to Borrower's equipment, whether or not such amounts are identified on the invoices submitted to Silicon. Equipment to be included in the Equipment Borrowing Base must be new equipment, at the time of purchase by Borrower, owned by Borrower, in good working order, must not be subject to any liens in favor of any person or entity other than Silicon, and must be subject to a first perfected security interest in favor of Silicon. Silicon shall make advances under this Secured Equipment Line of Credit from time to time, based on invoices and other documentation as shall be requested by Silicon to support such advances. Borrower shall submit to Silicon such invoices, advance requests and other information, in form acceptable to Silicon, as Silicon shall require from time to time. Once the total amount of the principal has been advanced under this Secured Equipment Revolving Term Loan, Borrower is no longer entitled to further advances. Advances may be requested in writing by Borrower or an authorized person. Silicon may, but need not, require that all oral requests be confirmed in writing. The unpaid principal balance owing on this Secured Equipment Line of Credit at any time may be evidenced by endorsements to this Schedule or by Silicon's internal records, including daily computer printouts. Purpose: Borrowers shall use the proceeds of this Revolving Term Loan to finance the purchase of capital equipment. Interest Rate: The interest rate applicable to the Secured Equipment Revolving Term Loan shall be a rate equal to the "Prime Rate" (as defined above) in effect from time to time, plus 1.75% per annum. Interest calculations shall be made on the basis of a 360-day year and the actual number of days elapsed. Revolving Period: The Revolving Period shall be from the date of closing until September 30, 1995. Term Period: The Term Period shall be the period from September 30, 1995 to September 30, 1998. 26 Amortization: Borrowers shall pay Silicon monthly payments of interest only during the Revolving Period. Commencing on October 31, 1995, the Borrowers shall pay Silicon 36 equal monthly payments of principal, in the amount necessary to repay fully the outstanding principal of Secured Equipment Revolving Term Loan in 36 payments, plus interest calculated as provided in this Schedule. Subsequent payments are due on the last day of each month after October 31, 1995. Maturity Date: September 30, 1998, at which time all unpaid principal and accrued but unpaid interest shall be due and payable. Commitment Fee (Section 1.3) $1,250.00, which is fully earned and payable at closing. (Any Commitment Fee previously paid by the Borrowers in connection with this loan shall be credited against this Fee.) Standby Letter of Credit Credit Limit: $2,000,000. Purpose: To provide credit enhancement to Chelan County and/or the State of Washington Department of Community Trade and Economic Development, replacing the existing standby letter of credit issued by Frontier Bank. Maturity Date: The Standby Letter of Credit shall have a maximum maturity of not later than April ___, 1996. Repayment: The Borrowers shall repay on demand any amount drawn on the Standby Letter of Credit. Silicon may, but is not obligated to, add to the principal amount outstanding under the Secured Accounts Receivable Line of Credit any amount drawn on a letter of credit issued by Silicon. Any such amount shall be subject to the terms applicable to the Secured Accounts Receivable Line of Credit. Issuance: The issuance of the Standby Letter of Credit must be in form and content satisfactory to Silicon and in favor of a beneficiary reasonably acceptable to Silicon. The Borrowers shall execute Silicon's then-current application forms, reimbursement agreement and related documents as a condition to Silicon's issuance of the Standby Letter of Credit. 27 Commitment Fee: $20,000, which is fully earned and payable at closing. (Any Commitment Fee previously paid by the Borrowers in connection with this Standby Letter of Credit shall be credited against this Fee.) Prior Names of Borrowers: (Section 3.2) See attached Exhibit B Trade Names of Borrowers: (Section 3.2) See attached Exhibit B Trademarks of Borrowers: See attached Exhibit B Other Locations and Addresses: (Section 3.3) See attached Exhibit B Material Adverse Litigation: (Section 3.10) None. Financial Covenants: (Section 4.1) The Borrowers shall comply with all of the following covenants, all of which shall be determined and measured on a consolidated basis in accordance with generally accepted accounting principles, except as otherwise stated below: Tangible Net Worth: The Borrowers shall at all times maintain a Tangible Net Worth (defined below) of not less than $3,650,000, plus 50% of all new equity contributed to a Borrower in excess of $3,000,000 raised in the Equity Offering (see below), measured quarterly. Debt to Tangible Net Worth Ratio: The Borrowers shall at all times maintain a ratio of total liabilities (excluding deferred revenues and subordinated debt) to Tangible Net Worth of not more than 1.5:1.0, measured quarterly. Current Ratio: The Borrowers shall at all times maintain a ratio of current assets to current liabilities of not 28 less than 1.75:1.0, measured quarterly. The note payable to the County of Chelan for $2,000,000 shall not be considered a current liability solely due to its demand provisions, but rather shall be characterized as a current or long term liability based upon its maturity date. "Current assets" and "current liabilities" shall be determined in accordance with generally accepted accounting principles. Debt Service Coverage Ratio: The Borrowers shall at all times maintain a ratio of earnings before interest, taxes, depreciation and amortization ("EBITDA") to current maturities of long-term debt plus interest in excess of 1.25:1.0, measured quarterly by annualizing EBITDA, beginning with the year ending May 31, 1996. Profit- ability: The Borrowers shall not incur a quarterly loss after tax in excess of $100,000, beginning with the quarter ending May 31, 1995. For purposes of this paragraph, "loss" means net sales less costs of goods sold less operating expenses less nonrecurring expenses less tax expenses. Definitions: "Tangible Net Worth" means stockholders' equity plus debt that has been subordinated to the Loans on terms satisfactory to Silicon, and accrued interest thereon, less goodwill, patents, capitalized software costs, deferred organizational costs, tradenames, trademarks, and all other assets which would be classified as intangible assets under generally accepted accounting principles. Other Covenants: (Section 4.1) The Borrowers shall at all times comply with all of the following additional covenants: 1. Banking Relationship. The Borrowers shall maintain their primary banking relationship with Silicon until such time as the Secured Operating Line of Credit described in this Schedule has been repaid in full and Silicon's obligations with respect to the Secured Operating Line of Credit under the Agreement and this Schedule have been terminated. 29 Conditions to Closing: Before requesting any advance under this Agree- ment, the Borrowers shall satisfy each of the following conditions: 1. Loan Documents: Silicon shall have received the Agreement and this Schedule, and such other loan documents as Silicon shall require, each duly executed and delivered by the Borrowers, a Patent and Trademark Security and Conditional Assignment. 2. Documents Relating to Authority, Etc: Silicon shall have received each of the following in form and substance satisfactory to it: (a) Certified copies of the Articles of Incorporation and Bylaws of the Borrowers; (b) A Certificate of good standing issued by the Secretary of State of the Borrowers' state of incorporation with respect to the Borrowers; (c) A certified copy of a resolution adopted by the Board of Directors of the Borrowers authorizing the execution, delivery and performance of the Agreement, and any other documents or certificates to be executed by the Borrowers in connection with this transaction; and (d) Incumbency certificates describing the office and identifying the specimen signatures of the individuals signing all such loan documents on behalf of the Borrowers. 3. Perfection and Priority of Security: Silicon shall have received evidence satisfactory to it that its security interest in the Collateral has been duly perfected and that such security interest is prior to all other liens, charges, security interests, encumbrances and adverse claims in or to the Collateral other than Permitted Liens, which evidence shall include, without limitation, evidence from the Washington Department of 30 Licensing showing the due filing of the UCC Financing Statements to be signed by the Borrowers covering the Collateral and evidence of the first priority of Silicon's security interests in the Collateral as required under the Agreement. 4. Insurance: Silicon shall have received evidence satisfactory to it that all insurance required by the Agreement is in full force and effect, with loss payee designations and additional insured designations as required by the Agreement. 5. Equity Offering: Borrower shall have completed its current equity offering in an amount of not less than $3,000,000 and provided Borrower's legal counsel shall have provided Silicon with written notification and assurances that at least $3,000,000 in cash has been raised, that such cash has been collected and is available for immediate use by Borrower. 5. Other Information: Silicon shall have received such other statements, opinions, certificates, documents and information with respect to matters contemplated by the Agreement as it may reasonably request. Silicon and the Borrowers agree that the terms of this Schedule supplement the Loan and Security Agreement between Silicon and the Borrowers and agree to be bound by the terms of this Schedule. Borrowers: PCT Holdings, Inc. By: /s/ DONALD A. WRIGHT ------------------------------------ Title: President Ceramic Devices, Inc. By: /s/ DONALD A. WRIGHT ------------------------------------ Title: CEO 31 Cashmere Manufacturing Co., Inc By: /s/ DONALD A. WRIGHT ------------------------------------ Title: CEO Pacific Coast Technologies, Inc By: /s/ DONALD A. WRIGHT ------------------------------------ Title: President Silicon: Silicon Valley Bank By: /s/ J. BAUMGARDNER ------------------------------------ Title: Vice President 32 Exhibit A [Insert Borrowing Base Certificate] 33 EXHIBIT B [Insert List of Tradenames, Trademarks and other Locations and Addresses] EX-10.1.12 13 1 DEPARTMENT OF COMMUNITY, TRADE AND ECONOMIC DEVELOPMENT Community Development Block Grant Float Agreement ------------------------------------------------- THIS COMMUNITY DEVELOPMENT BLOCK GRANT FLOAT AGREEMENT (the "Agreement") is made and entered into this day of 18th day of May, 1994, by and among the State of Washington Department of Community, Trade and Economic Development (the "Department"), the County of Chelan (the "County"), and Pacific Coast Technologies, Inc. (the "Borrower") (collectively the "Parties"). RECITALS -------- A. The Department receives federal Community Development Block Grant (CDBG) funds and is authorized to approve applications from local governments for these funds. B. The Department desires to make such funds available to private borrowers through local governments in order to encourage and increase the employment of members of lower-income households. C. The Department has determined that the County's application on behalf of the Borrower for a loan meets the Department's requirements. D. The County's grant application to the Department, on behalf of the Borrower, has been approved by the Department. E. The Borrower has obtained from Frontier Bank, a banking corporation doing business at Everett, Washington, (the "Bank"), a commitment for a two million dollar ($2,000,000) irrevocable, unconditional sight letter of credit to secure a loan made by the jurisdiction, and which has been approved by the Department. F. The Department has obtained a Programmatic Revision to its CDBG Program to enable the Department to implement the Community Development Block Grant Float Interim Loan Program (the "Program"). G. The Program establishes a policy of utilizing allocated, but unspent (not drawn down) CDBG funds, hereinafter referred to as "CDBG funds" for the development of qualified projects. H. The CDBG funds have been made available to the County on the condition that the CDBG funds, notwithstanding the loan of same to the Borrower, shall as necessary, be at all times immediately available for such purposes as may from time to 2 time be determined by the County, Department, and the U.S. Department of Housing and Urban Development (HUD). I. Based upon the scope of work submitted to the Department by the Borrower, the County acknowledges that it is unable to demonstrate that Program income will be used to continue the specific activity from which such income was derived. J. The County recognizes and affirms that to maintain the viability and integrity of the interim use of CDBG funds and to preserve the benefit of this program for all eligible Washington communities, it waives the right to lay claim to any and all funds allocated for specific uses under the interim use of CDBG Program funds by the Department. K. The County desires to loan funds to the Borrower, and the Borrower desires to borrow funds from the County under the terms and conditions set forth in this Agreement, which is intended to control the relationship among the Parties. L. It is understood by all Parties that the loan proceeds will be used by the Borrower for working capital requirements and equipment needs (the "Project"). AGREEMENT NOW THEREFORE, in consideration of the mutual promises contained in this Agreement, the Parties agree as follows: 1. LOAN BY THE COUNTY. Under this Agreement, the County will lend two million dollars ($2,000,000) to the Borrower at an interest rate of three percent (3 percent) per annum with funds received from a grant from the Department. The purpose of the Loan is for the Borrower to finance the Project and for no other purpose; 2. LOAN REPAYMENT. In consideration of the undertakings of the County and of the ban made hereunder, the Borrower hereby agrees to pay to the County or its order the sum of two million dollars ($2,000,000), including interest thereon at the rate of three percent (3 percent) per annum, payable as set forth in the Promissory Note (the "Note") of even date herewith, in the form attached hereto and incorporated herein as Exhibit A and by this reference incorporated herein, made and executed by the Borrower to the order of the County; 3. SECURITY AND SOURCE OF PAYMENT. Payment of principal and interest hereunder and under the Note shall be secured by an unconditional, irrevocable, sight letter of credit, hereinafter referred to as "letter of Credit," in the amount of two million dollars ($2,000,000) in form and substance 3 satisfactory to the County and/or Department from the Bank addressed to the County and the Department as cobeneficiaries. Payment of the Letter of Credit shall not be conditioned upon any action or omission to take such action on the part of the County, whether under this Agreement, under the terms of any document executed or delivered hereunder or otherwise. Neither the acceptance of, the transfer of, or receipt of monies under the Letter of Credit shall in any manner relieve the Borrower of any obligation hereunder or under the terms of any document executed or given herewith, except to the extent of the payment actually received under the Letter of Credit. 4. COUNTY'S ASSIGNMENT. Concurrent with the execution of the note, the County shall execute an assignment of its right to receive the Note Repayments in favor of the Department, substantially in the same form as Exhibit B attached hereto and incorporated herein by this reference; the County shall continue to own the Promissory Note in all other respects. In consideration of this assignment, the Department agrees that its acceptance of Promissory Note repayments shall constitute a waiver of its right to an equal amount of Grant Income repayment due from the County under Section 13. Following the Department's receipt of all Note repayments under this Agreement, the repayment of Grant Income shall be deemed to be waived in full by the Department. 5. BORROWER'S REPRESENTATION, WARRANTIES, AND COVENANTS. To induce the other Parties to enter into this Agreement, the Borrower hereby makes the following representations, warranties, and covenants: a. Authority. The Borrower represents and warrants that it is duly organized, validly existing, and in good standing under the laws of the State of Washington in force as of the date of this Agreement; that it has the legal power to enter into this Agreement; and that all corporate and other actions required to authorize the mailing, execution, and performance of this Agreement have been duly taken; b. Lower-Income Employees. The Borrower covenants and agrees that, for job openings related to the Project, to the extent allowed by applicable employment laws, it will make its best efforts to employ members of households whose income, prior to being employed by the Borrower for the Project, does not exceed eighty percent (80 percent) of the median family income for the area, as determined by HUD, with adjustments for smaller and larger families. The Borrower will comply with all terms of the Employment and Training Agreement by and 4 between the Borrower, County, and Employment Security Department of even date herewith; c. Government Relations. The Borrower covenants and agrees that it will comply with all applicable state and local laws, regulations, and requirements, and acknowledges that some or all of those laws, regulations, and requirements outlined in Exhibits C and D attached hereto and incorporated herein by this reference may be applicable to Borrower, as they pertain to the design, implementation, and administration of the Project; and d. Use of Funds. The Borrower covenants and agrees that it will use the proceeds of the loan for the purposes of the Project only. 6. COUNTY'S REPRESENTATIONS, WARRANTIES AND COVENANTS. To induce the other parties to enter into this Agreement, the County hereby makes the following representations and warranties: a. Public Participation and Resolution by Board of County Commissioners. The County represents and warrants that, at a meeting held in compliance with Chapter 42.30 RCW, it adopted Resolution No. 94-93, authorizing the County to enter into this Agreement and to extend the loan to the Borrower; b. Public Meeting. The County represents and warrants that at least two (2) public meetings have been held with regard to the County's participation in the loan in the Borrower, and that all interested parties received adequate notice of the hearing and were given adequate opportunity to present their views; and c. Government Regulations. The County covenants and agrees that it will comply with all applicable state and local laws, regulations, and requirements, and with those laws, regulations, and requirements outlined in Exhibits C and D attached hereto and incorporated herein by this reference, as they pertain to the County's loan. 7. COMPLIANCE REPORT. a. Monitoring. The County agrees upon request from the Department to monitor the Borrower's compliance with the covenants contained in Sections 5 of this Agreement (the "Section Five Covenants"). Not less frequently than once every six (6) months while any balance of the Loan remains outstanding, the County shall take 5 affirmative steps to ascertain whether or not the Borrower has breached any of the Section Five Covenants. The Department agrees to assist the County in establishing its monitoring procedures and files. b. Report. If requested by the Department, the County shall issue a Compliance Report to the Department, which shall state whether or not the Borrower is in compliance with each Section Five Covenant. If the Borrower has breached any Section Five Covenant, the Compliance Report shall describe the Borrower's breach with sufficient specificity for the Department to determine whether or not the breach is a material breach. 8. CONDITIONS TO THE COUNTY MAKING LOAN. The obligation of the County to make any advance under this Agreement shall at all times be conditioned for the sole benefit of the County upon: a. The execution of this Agreement by the County, the Department, and the Borrower; b. The receipt by the County and/or the Department of the Letter of Credit; c. The receipt by the County of such documents, certifications, and opinions as may be reasonably satisfactory to the County and the Department, evidencing that this Agreement, the Note, the Letter of Credit, and all other documents given or executed in connection herewith are duly and validly executed by and on behalf of and constitute the valid and enforceable obligation of the Borrower thereunder, pursuant to the respective terms of each, and that the execution and delivery of the Agreement, the Note, the Letter of Credit, and all other documents executed, or given hereunder and the performances by the Borrower thereunder will not breach or violate any articles of incorporation, any bylaw restriction, or any law or governmental regulation, or constitute any breach of default under any instrument or agreement to which the Borrower may be a party. d. The availability to the County of two million dollars ($2,000,000) in proceeds of allocated, but not drawn- down CDBG funds. 9. OBLIGATIONS OF BORROWER UNCONDITIONAL. The obligations of the Borrower to make payments required in Section 2 hereof ("Loan Repayment") shall be absolute and unconditional, and 6 until such time as the principal of and interest on the Note shall have been fully paid, Borrower: a. Will use the funds for working capital requirements and equipment needs; b. Will not suspend or discontinue any payment for which provision is made in this Agreement or in any other document executed hereunder in connection herewith; and c. Will not terminate or suspend this agreement or the payment of any obligations hereunder or any other document executed hereunder or in connection herewith for any cause, including without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, commercial frustration of purpose, or any duty, liability, or obligation arising out of or connected with this Agreement or any document executed hereunder or in connection herewith (except with respect to the foregoing, those arising from a failure by the County to make the Loan pursuant to Paragraph 1 hereof ["Loan by the County"]). 10. DEFAULT AND REMEDIES. a. Default. The failure of the Borrower to pay or perform any obligation hereunder or under the terms of any documents executed in connection herewith or the falsity of any representation or breach of any warranty or covenant made by the Borrower under the terms of any document executed in connection herewith, shall constitute a default hereunder. b. Remedies. Upon the occurrence of a default by the Borrower, the County or Department may take any one or more of the following steps: (1) Declare the entire principal balance then unpaid under the terms of this Agreement and evidenced by the Note, together with unpaid interest immediately due and payable, which sums thereafter shall bear interest at the rate of PRIME (the PRIME Rate published in the Wall Street Journal) + 2 percent per annum, compounded monthly, from the date of such declaration until paid in full; (2) Take any or all actions necessary in accordance with the terms of the Letter of Credit to secure payment from the issuing bank of the Letter of Credit of all or any part of the outstanding 7 obligations arising out of this agreement existing at the time of default; (3) To take any and all actions and do any and all things which are allowed, permitted, or provided by law to enforce or rely upon the Letter of Credit. At the direction of the Department, the County shall take any and all actions necessary to transfer the proceeds of the Letter of Credit to the Department; (4) Take whatever action at law or in equity as may appear necessary or desirable, in the sole discretion of the County or Department to collect the amounts then due and thereafter to become due or to enforce performance and observance of any obligation, agreement, or covenant of the Borrower under this Agreement or under any other document executed in connection herewith; (5) Institute any action or proceeding at law or in equity for the collection of the sums so due and unpaid and to prosecute any such action or proceeding to judgment or final decree and to enforce any such judgment or final decree and collect, in a manner provided by law, the monies adjudged or decreed to be payable; and (6) If there shall be pending, at any time, proceedings pertaining to the bankruptcy or reorganization of the Borrower under the federal bankruptcy laws or any other applicable law, or in the case of a receiver, trustee, or custodian shall have been appointed for the property of the Borrower in the case of any other similar judicial proceeding relative to the Borrower or its creditors, the County or Department shall be entitled and empowered by intervention in such proceedings or otherwise to file and prove a claim for the whole amount owing and unpaid pursuant to the Agreement and evidenced by the Note and, in the case of any judicial proceedings, to file such proof of claim and other papers or documents as may be necessary or advisable in order to have the claims of the County or Department allowed in such judicial proceeding relative to the Borrower and to collect and receive any monies or other property payable or deliverable on any such claims. c. No remedy exclusive. No remedy herein conferred upon or reserved to the County or Department is intended to 8 be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now existing at law or in equity or by statute and may be exercised in such number, at such times and in such order as the County or Department may determine in its discretion. No delay or omission to exercise any right or power securing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient by the County or Department. In order to entitle the County or Department to exercise any right or remedy reserved to it under this Agreement, it shall not be necessary to give notice, other than notices expressly required herein. 11. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. In the event the County or Department utilizes the services of an attorney in an attempt to collect any sums due under this Agreement or any other documents executed in connection with this Agreement, or if the County or Department becomes a party plaintiff or defendant or otherwise appears in any legal proceeding relating to this Agreement or any documents issued hereunder or in connection herewith, the Borrower shall pay to the County or Department all costs and expenses as incurred, including reasonable attorneys' fees. The term costs shall include those fees, expenses, and attorneys' fees incurred after the filing by or against the Borrower of any proceedings under any federal or state laws relating to bankruptcy or insolvency and whether incurred in connection with the involvement of the County or Department as a creditor in such proceeding or otherwise. 12. COSTS AND EXPENSES OF THE COUNTY. The Department, after receipt from the County of satisfactory evidence and/or County certification, shall pay or reimburse to the County costs incurred by the County in connection with this Agreement, including without limitation all legal, monitoring, or auditing expenses up to One Thousand Dollars ($1,000). 13. GRANT INCOME. Subject to the Agreement included in Section 4, upon the County's receipt of Note Repayments, the County shall remit to the Department all Grant Income; in no instance shall the County be obligated to remit to the Department a larger sum than it receives in each instance from the Borrower. All Grant Income remitted to the Department pursuant to this Section 13 shall be sent by check within three (3) business days of the County's receipt of such funds from the Borrower. 9 14. CONFLICT OF INTEREST, NO INDIVIDUAL LIABILITY. No official or employee of the County shall have any personal interest, direct or indirect, in this Agreement, nor shall any official or employee of the County participate in any decision relating to this Agreement which affects such official's or employee's pecuniary interest in any corporation, partnership, or association in which such official or employee is directly or indirectly interested. No official or employee of the County shall be personally liable in the event of any default or breach of this Agreement by the County. 15. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable shall be prohibited or unenforceable without invalidating the remaining provision hereof. To the extent permitted by law, the Borrower hereby waives any provision of law which renders any provision thereof prohibited or unenforceable. 16. AMENDMENTS, CHANGES AND MODIFICATIONS. This Agreement may not be amended, changed, modified, altered, or terminated without the prior written consent of the County, the Department, and the Borrower. 17. RELATIONSHIP BETWEEN PARTIES. This Agreement is solely for the benefit of the Parties to the Agreement and gives no right to any other party. The Borrower acknowledges that the County and the Department are acting only as lenders and are not in any way directing or controlling its business as a manager, partner, owner, principal, or otherwise. No joint venture, association, or partnership is formed as a result of this Agreement. 18. INDEMNITY. Each party shall be responsible for its own wrongful and negligent acts or omissions, or those of its officers, agents, or employees to the fullest extent required by law, and shall indemnify, defend, and hold the other parties harmless from any such liability. In the case of negligence of more than one party, any damages allowed shall be levied in proportion to the percentage of negligence attributable to each party and each party shall have the right to seek contribution from each of the other parties in proportion to the percentage of negligence attributable to each of the other parties. 19. NOTICE. a. All notices required or permitted under this Agreement shall be in writing and personally delivered or mailed to the offices set forth below by certified mail, 10 return receipt requested, postage prepaid, addressed to the Parties as follows: To the Department: Development Loan Fund Manager, CPD Dept. of Community, Trade and Economic Development 906 Columbia Street Southwest Post Office Box 48300 Olympia, Washington 98504-8300 To the County: Attention: Chairman, Chelan County Commissioners Chelan County Courthouse 350 Orondo Street Wenatchee, Washington 98801 To the Borrower: Attention: Don Wright, President Pacific Coast Technologies, Inc. 434 Olds Station Road Wenatchee, Washington 98801 A copy shall be sent to the financial institution providing the Letter of Credit addressed as follows: Frontier Bank 332 Southwest Everett Mall Way Everett, Washington 98204 b. Any party may from time to time change the address to which its notices are to be sent by written notice to all other Parties pursuant to this Section. c. Whenever notice is required or permitted to be given to fewer than all the Parties, copies of the notice shall also be mailed to all other Parties. 20. NOTICE OF MANDATORY PREPAYMENT. It is acknowledged by the Parties hereto that the County or Department may require prepayment (either in whole or in part) of the monies loaned hereunder. Prior to calling for any Prepayment, and as a condition precedent thereto, either the County or the Department shall give the Borrower at least ten (10) days prior written notice, which notice shall set forth the date and amount of such Prepayment. 21. GOVERNING LAW. This agreement shall be governed by the laws of the State of Washington. Venue shall lie in Thurston County, Washington. 11 IN WITNESS WHEREOF, the Parties have executed this Loan Agreement the date and year first above written. THE COUNTY OF CHELAN By: /s/ 17 May 94 ---------------------------------------- PACIFIC COAST TECHNOLOGIES, INC. By: /s/ DON WRIGHT ---------------------------------------- Don Wright, President DEPARTMENT OF COMMUNITY, TRADE AND ECONOMIC DEVELOPMENT By: _____________________________________ Mike Fitzgerald, Director Approved As To Form: /s/ SUZANNE SHAW 4/29/94 - -------------------------- --------------------------------- Suzanne Shaw Date Assistant Attorney General 12 WASHINGTON STATE DEPARTMENT OF COMMUNITY TRADE AND ECONOMIC DEVELOPMENT LOAN PROGRAMS EMPLOYMENT AND TRAINING AGREEMENT The Parties of this agreement are: County of Chelan (Jurisdiction); Pacific Coast Technologies, Inc. (Business); Washington State Employment Security Department (ESD); and Washington State Department of Community, Trade and Economic Development (DCTED) PURPOSE The purpose of this agreement is to provide qualified, lower-income individuals who may be eligible for various federal, state, and local training and job placement programs, first opportunity for employment for positions generated as the result of funding through one of the following programs: 1. ____ Washington State Development Loan Fund Program (DLF) 2. X Washington State Community Development Block Grant ---- (CDBG) Float Program (Float) 3. ____ Washington State Revolving loan Fund Program (RLP) 4. ____ Washington State Revolving Technical Assistance Loan Fund Program (RTA) Please indicate which program is being utilized by the business listed above. The Business recognizes that if the DLF or Float Program is being utilized, the public funds are being loaned by the Jurisdiction to the Business, and if the RLF or RTA Program is being utilized, the public funds are being loaned by the Washington State Department of Community Development (DCTED) to the business. The business recognizes the Jurisdiction/State's desire to increase employment opportunities for qualified people by lending these public funds to the business at a special interest rate or term. The Business' job creation/retention goals are outlined in Exhibit A, attached. TERMS The Jurisdiction/State and Business recognize that the ESD has the capacity to meet the training and placement service needs of qualified individuals. The Jurisdiction/State and the Business agree that the ESD will be the designated organization for the purpose of carrying out the terms of this agreement. 13 This agreement becomes effective upon execution by all the parties and shall remain in effect until the ESD receives notice from the DCTED that the employment goals for the business for the above indicated program have been met. The Business agrees to report for a maximum of two years or until such time that the DCTED has determined that the Business has met its projected job creation goal specified in Exhibit A. The Business agrees to forward all applicant certification forms to the DCTED on a quarterly basis, along with a properly completed Quarterly Job Report. At the end of the reporting period, the Business agrees to properly complete a Necessary and Appropriate Certification. The Business shall notify the ESD of its need for new or replacement employees as soon as the Business decides to hire new or replacement employees. The notice shall describe the nature of the job, estimated hours, wages, skills required, number of employees sought, number of referrals requested for each position, etc. Job openings filled by internal promotion within the Business' work force shall not be subject to this recruitment process. The ESD will refer applicants according to the qualifications set forth by the Business. Only the number of applicants requested by the Business will be referred. The final hiring decision for each job created shall be the responsibility of the Business, but in any event, the Business will make a good faith effort to hire individuals referred through the ESD. Pursuant with RCW 50.13.090, the ESD will make records of applicants available to the DCTED upon request by the DCTED. The ESD will provide a certification form, designed and provided by the DCTED, to all applicants referred to the Business. The applicant will take the certification form to the Business at the time of the applicant interview and leave the form with the Business. SIGNATURES JURISDICTION: By: /s/ --------------------------------- Title: Chairman Date: May 17, 1994 BUSINESS: By: /s/ Don A. Wright --------------------------------- 14 Title: President Date: May 18, 1994 ESD: By: _________________________________ Title: _________________________________ Date: _________________________________ DCTED: By: _________________________________ Title: _________________________________ Date: _________________________________ 15 Exhibit A PROMISSORY NOTE --------------- $2,000,000 FOR VALUE RECEIVED, the undersigned, Pacific Coast Technologies, Inc., ("Maker"), having offices at Wenatchee, Washington 98801, promises to pay to the order of the County of Chelan ("Holder"), a body corporate and politic of the State of Washington, the principal sum of two million dollars ($2,000,000) as follows: principal repayment in full of two million dollars ($2,000,000) will be due on the loan's third anniversary. Interest shall be calculated at three percent (3 percent) per annum and payable quarterly. Principal and interest payments shall be made payable to the Department of Community, Trade and Economic Development in behalf of the County of Chelan. All accrued and unpaid interest shall be due and payable on demand, but not later than the maturity date of the Note. The Maker shall, upon demand by the Holder hereof, make and pay to the Holder hereof, Mandatory Prepayments (as hereinafter defined) of principal at such times and in such amounts as the Holder, in its discretion, may determine from time to time. Mandatory Prepayment is herein defined to mean a call for prepayment by the County of Chelan or the Department of Community, Trade and Economic Development, co-beneficiaries of the letter of credit, for the partial or total prepayment of the loan evidenced by this Note. The Holder shall give the Maker ten (10) days prior written notice of any Mandatory Prepayment. The Maker may, at any time prior to maturity, provided that this Note shall not be in default, prepay the principal balance of the Note, either in whole or in part, together with accrued interest, without penalty. The Maker and endorsers hereof waive grace, presentment, notice of dishonor, and protest. In the event of default in the payment of principal or interest hereunder, the Holder hereof shall be entitled to all costs incurred in connection therewith, including without limitation, reasonable attorneys fees. In the event of default hereunder, the Holder hereof, among other remedies, may declare the unpaid balance hereof, together with unpaid interest on the original principal balance hereunder, immediately due and payable, which sums shall thereafter bear interest at the rate of PRIME + 2 percent per annum, compounded monthly, from the date of such declaration until paid in full. 16 This Promissory Note is given pursuant to the terms of, and is secured in the manner provided by, a Community Development Block Grant Float Agreement of even date by and between the Maker and Holder and an irrevocable, clean, sight letter of credit, issued by Frontier Bank in favor of the co-beneficiaries. This Note is to be governed by and construed in accordance with the laws of the State of Washington and the Community Development Block Grant Float Agreement. DATED: May 18, 1994 PACIFIC COAST TECHNOLOGIES, INC. ("MAKER") By: /s/ Don A. Wright, President ------------------------------ 17 EXHIBIT C --------- The following governmental regulations are those referred to in the attached Development Loan Fund Agreement: 1. Public Law 88-352, Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et seq.) (24 CFR Part 1). The Borrower shall comply with the provisions of "Public Law 88-352," which refers to Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et seq.). The law provides that no person in the United States shall, on the grounds of race, color, or national origin, be denied the benefits of, be excluded from participation in, or be subjected to discrimination under any program or activity receiving federal financial assistance. 2. Public Law 90-284, Title VIII of the Civil Rights Act of 1968 (42 U.S.C. 3601 et seq.). The Borrower shall comply with the provisions of "Public Law 90-284," which refers to Title VIII of the Civil Rights Act of 1968 (42 U.S.C. 3601 et seq.). The law states that it is the policy of the United States to provide, within constitutional limitation, for fair housing throughout the United States, and prohibits any person from discriminating in the sale or rental of housing, the financing of housing or the provisions of brokerage services, including in any way making unavailable or denying a dwelling to any person, because of race, color, religion, sex or national origin. The Borrower must also administer programs and activities relating to housing and urban development in a manner that affirmatively promotes fair housing and furthers the purposes of Title VIII. 3. Executive Order 11063, As Amended by Executive Order 12259 (24 CFR Part 197). The Borrower shall comply with the provisions of Executive Order 11063, as amended by Executive Order 12259, which directs Borrower to take all action necessary and appropriate to prevent discrimination because of race, color, religion, creed,sex or national origin in the sale, leasing, rental and other disposition of residential property and related facilities (including land to be developed for residential use), or in the use or occupancy thereof, if such property and related facilities are, among other things provided in whole or in part with the aid of loans, advances, grants or contributions from the federal government. 4. Section 109 of the Housing and Community Development Act of 1974, As Amended through 1981. The Borrower shall comply with the provisions of Section 109 of the Housing and Community Development Act of 1974, as amended through 1981, which require that no person in the United States shall, on 18 the grounds of race, color, national origin or sex be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity funded in whole or in part with federal community development funds made available pursuant to Title I of the Act. 5. Age Discrimination Act of 1975, As Amended (42 U.S.C. 6101 et seq.). The Borrower shall comply with the Age Discrimination Act of 1975, as amended, which provides that no person shall be excluded from participation, denied program benefits or subject to discrimination on the basis of age under any program or activity receiving federal funding assistance. 6. Section 504 of the Rehabilitation Act of 1973, As Amended (29 U.S.C. 794). The Borrower shall comply with Section 504 of the Rehabilitation Act of 1973, as amended, which provides that no otherwise qualified individual shall, solely by reason of his or her handicap, be excluded from participation (including employment), denied program benefits or subjected to discrimination under any program or activity receiving federal assistance funds. 7. Section 3 of the Housing and Urban Development Act of 1968 (12 U.S.C. 1701u) (24 CFR Part 135). The Borrower shall comply with the provisions of Section 3 of the Housing and Urban Development Act of 1968 which require, in connection with the planning and carrying out of any project assisted under the Act, to the greatest extent feasible, that opportunities for training and employment be given to lower- income persons residing within the unit of local government or the non-metropolitan county in which the project is located, and that contracts for work in connection with the project be awarded to eligible business concerns which are located in, or owned in substantial part by persons residing in, the project area. The Borrower must assure good faith efforts toward compliance with the statutory directive of Section 3. 8. Executive Order 11246, As Amended by Executive Order 11375. The Borrower shall comply with Executive Order 11246 as amended, which applies to all federally assisted construction contracts and subcontracts. The Borrower and subcontractors, if any, shall not discriminate against any employee or applicant for employment because of race, color, religion, sex or national origin. Borrower and subcontractors, if any, shall take affirmative action to ensure that applicants are employed, and that employees are treated, during employment, without regard to their race, color, religion, sex or national origin. Such action shall include, but shall not be limited to, the following: 19 employment, upgrading, demotion or transfer; recruitment or recruitment advertising; layoff or termination; rate of pay or other forms of compensation; and selection for training, including apprenticeship. Borrower and subcontractors shall post in conspicuous places, available to employees and applicants for employment, notices to be provided setting forth the provisions of this nondiscrimination clause. For contracts over $10,000, the Borrower or subcontractors shall send to each applicable labor union a notice of the above requirements. The Borrower and subcontractors shall comply with relevant rules, regulations and orders of the U.S. Secretary of Labor. The Borrower or subcontractors will make their books and records available to city, state, and federal officials for purposes of investigation to ascertain compliance. 9. Davis-Bacon Act, As Amended (40 U.S.C. 276a-276a-5). The Borrower shall comply with the provisions of the Davis- Bacon Act, as amended. This Act mandates that all laborers and mechanics be paid unconditionally and not less often than once a week, and without subsequent deduction or rebate on any account except "permissible" salary deductions, the full amounts due at the time of payments, computed at wage rates not less than those contained in the wage determination issued by the U.S. Department of Labor. Weekly certified payrolls are required to be submitted to the federally-funded recipient by the contractor. These requirements apply to rehabilitation of residential property only if such property is designed for residential use for eight or more families. 10. Copeland Act (Anti-Kickback Act) (40 U.S.C. 276c). The Borrower shall comply with the Copeland Act, which makes it a criminal offense for any person to induce, by any manner whatsoever, any other person employed in the construction, prosecution, completion, or repair of any public building, public work or building, or work financed in whole or in part by loans or grants from the United States, to give up any part of the compensation to which he or she is entitled under his or her contract of employment. Compensation shall consist of wages and approved fringe benefits. 11. Contract Work Hours and Safety Standards Act (40 U.S.C. 327 et seq.). The Borrower shall comply with the provisions of the Contract Work Hours and Safety Standards Act. According to this Act, no contract work may involve or require laborers or mechanics to work in excess of eight hours in a calendar day, or in excess of 40 hours in a work week, unless compensation of not less than one and one-half times the basic rate is paid for the overtime hours. If this Act is violated, the contractor or subcontractor shall be liable to any affected employee for unpaid damages as well as to 20 the United States for liquidated damages. These requirements apply to rehabilitation of residential property only if such property is designed for residential use for eight or more families. 12. The National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq., and 24 CFR Part 58). The Borrower shall comply with the provisions of the National Environmental Policy Act of 1969. The purpose of this Act is to attain the widest use of the environment without degradation, risk to health or safety or other undesirable and unintended consequences. Environmental review procedures, including determining and publishing a Finding of Significance or of No Significance for a proposal, are a necessary part of this process. Pursuant to these provisions, the Borrower shall certify that the proposed project will not significantly impact the environment and that the Borrower has complied with environmental regulations and fulfilled its obligations to give public notice of the funding request, environmental findings, and compliance performance. 13. The Clean Air Act. As Amended (4, U.S.C. 7401 et seq.). The Borrower shall comply with the Clean Air Act which prohibits (1) engaging in, (2) supporting in any way or providing financial assistance for, (3) licensing or permitting, or (4) approving any activity which does not conform to the state implementation plan for natural primary and secondary ambient air quality standards. The Borrower shall ensure that the facilities under its ownership, lease, or supervision which shall be utilized in the accomplishment of the program are not listed on the U.S. Environmental Protection Agency's (EPA) list of Violating Facilities. The Borrower shall notify the Agency of the receipt of any communication from the Director of the EPA Office of Federal Activities indicating that a facility to be used in the project is under consideration for listing by EPA. 14. HUD Environmental Criteria and Standards (24 CFR Part 51). The borrower shall comply with the Department of Housing and Urban Development ("HUD") noise abatement and control standards, which prohibit HUD support for most new construction of noise-sensitive uses on sites having unacceptable noise exposure. HUD assistance for the construction of new noise-sensitive uses is prohibited in general for projects with unacceptable noise exposures and is discouraged for projects with normally unacceptable noise exposure. 15. Executive Order 11990, May 24, 1977: Protection of Wetlands (42 F.R 26961 et seq.). The Borrower shall comply with Executive Order 11990, the intent of which is, (1) to avoid, to the extent possible, adverse impacts associated with the 21 destruction or modification of wetlands, and (2) to avoid direct or indirect support of new construction in wetlands wherever there is a practical alternative. The Borrower, to the extent permitted by law, must avoid undertaking or providing assistance for new construction located in wetlands, unless there is no practical alternative to such construction and the proposed action includes all practical measures to minimize harm to wetlands which may result form such use. In making this determination, the Borrower may take into account economic, environmental, and other pertinent factors. 16. The Wild and Scenic Rivers Act of 1968, As Amended (16 U.S.C. 1271 et seq.). The Borrower shall comply with the Wild and Scenic Rivers Act. The purpose of this Act is to preserve selected rivers or section of rivers in their free- flowing condition, to protect the water quality of such rivers and to fulfill other vital national conservation goals. Federal assistance by loan, grant, license, or other mechanism can not be provided to water resources construction projects that would have a direct and adverse effect on any river included or designed for study or inclusion in the National Wild and Scenic River System. 17. Executive Order 11988, May 24, 1977: Floodplain Management (42 F.R. 26951 et seq.). The Borrower shall comply with the provisions of Executive Order 11988. The intent of this Executive Order is to avoid, to the extent possible, adverse impacts associated with the occupancy and modification of floodplains, and to avoid direct or indirect support of floodplain development wherever there is a practical alternative. If the Borrower proposes to conduct, support, or allow an action to be located in the floodplain, the Borrower must consider alternatives to avoid adverse effects and incompatible involvement in the floodplains. If sitting in a floodplain is the only practical alternative, the Borrower must, prior to taking any action, design or modify its actions in order to minimize a potential harm to the floodplains, and prepare and circulate a notice containing an explanation of why the action is proposed to be located in a floodplain. 18. Coastal Zone Management Act of 1972, As Amended (16 U.S.C. 1451 et seq.). The Borrower shall comply with the Coastal Zone Management Act of 1972, as amended. The intent of this Act is to preserve, protect, develop, and where possible, restore or enhance the resources of the nation's coastal zone. Federal agencies cannot approve assistance for proposed projects that are inconsistent with the state's coastal management program, except upon a finding by the U.S. Secretary of Commerce that such a project is consistent 22 with the purpose of this chapter or necessary in the interests of national security. 19. The Endangered Species Act of 1973, As Amended (16 U.S.C. 1531 et seq.). The Borrower shall comply with the Endangered Species Act of 1973, as amended. The intent of this Act is to ensure that all federally-assisted projects seek to preserve endangered or threatened species. Federally authorized and funded projects may not jeopardize the continued existence of endangered and threatened species or result in the destruction of or modification of habitat of such species which is determined by the U.S. Department of the Interior, after consultation with the state, to be critical. 20. The Reservoir Salvage Act of 1960, As Amended by the Archaeological and Historic Preservation Act of 1974 (16 U.S.C. 469 et seq.). Under the Reservoir Salvage Act, the Borrower must comply with provisions for the preservation of historical and archaeological data (including relics and specimens) that might otherwise be irreparably lost or destroyed as a result of any alteration of the terrain caused as a result of any federal construction project or federally-licensed activity or program. Whenever any federal agency finds, or is notified in writing by an appropriate historical or archaeological authority, that its activities in connection with any federal construction project or federally-licensed project, activity or program may cause irreparable loss or destruction of significant scientific, prehistoric, historical or archaeological data, the federal agency must notify the U.S. Secretary of Interior in writing and provide appropriate information concerning the project, program or activity. 21. The Safe Drinking Water Act of 1974, As Amended (42 U.S.C. 201,300(f) et seq. and U.S.C. Section 349. The Borrower must comply with the Safe Drinking Water Act, as amended, which is intended to protect underground sources of water. No commitment for federal financial assistance, according to this Act, shall be entered into for any project which the U.S. Environmental Protection Agency determines may contaminate an aquifer which is the sole or principal drinking water source for an area. 23 22. The Federal Water Pollution Control Act of 1972, As Amended including the Clean Water Act of 1977. Public law 92-212 (33 U.S.C. 1251 et seq.). The Borrower shall assure compliance with the Water Pollution Control Act, as amended, which provides for the restoration of chemical, physical and biological integrity of the nation's water. 23. The Solid Waste Disposal Act, As Amended by the Resource Conversation and Recovery Act of 1976 (42 U.S.C. 6901 et seq.). The Borrower shall assure compliance with The Solid Waste Disposal Act, as amended. The purpose of this Act is to promote the protection of health and the environment and to conserve valuable material and energy resources. 24. The Fish and Wildlife Coordination Act of 1958, As Amended (16 U.S.C. 661 et seq.). The Borrower shall assure compliance with the Fish and Wildlife Coordination Act, as amended. The Act assures that wildlife conservation received equal consideration and is coordinated with other features of water resource development programs. 25. The National Historic Preservation Act of 1966 (16 U.S.C. 470). The Borrower shall evaluate the effects of its activity on any district, site, building, structure, and object listed in, or eligible for, the National Register of Historic Places, and shall give the state Office of Archaeology and Historical Preservation a reasonable opportunity to comment on the proposed activity. 26. The Archaeological and Historical Data Preservation Act of 1974 (16 U.S.C. 469a-1 et seq.). The Borrower shall comply with the Archaeological and Historical Data Preservation Act, which provides for the preservation of historic and archaeological information that would be lost due to development and construction activities as a result of federally-funded activities. 27. Executive Order 11593, Protection and Enhancement of the Cultural Environment, May 13, 1971. The Borrower shall assure that plans for federally-funded projects contribute to the preservation and enhancement of sites, structures, and objects of historical, architectural, or archaeological significance. 28. Title II and III of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (42 U.S.C. 4630). The Borrower shall comply with Sections 301 and 302 of Title III (Uniform Real Property Acquisition Policy) of the Uniform Relocation Assistance and Real Property Policies Act of 1970 and shall comply with Section 303 and 304 of the Title III, and HUD implementing instructions contained in 24 CFR Part 42. The Borrower shall inform affected persons of their rights and of the acquisition policies and procedures set forth in the regulations of 24 CFR Part 42 and 24 CFR 570.602(b). The Borrower shall comply with Title II (Uniform Relocation Assistance) of the Uniform Relocation Assistance and Property Acquisition Act of 1970 and HUD implementing regulations of 24 CFR Part 42 and 24 CFR 570.602(a) which require the Borrower to provide relocation 24 payments and offer relocation assistance as described in Section 205 of the Uniform Relocation Assistance Act to all persons displaced as a result of acquisition of real property for an activity assisted under the Community Development Block Grant Program. Such payments and assistance shall be provided in a fair, consistent and equitable manner that ensures that the relocation process does not result in a different or separate treatment of such persons on account of race, color, religion, national origin, sex or source of income. The Borrower shall assure that, within a reasonable period of time prior to displacement, decent, safe and sanitary replacement dwellings will be available to all displaced families and individuals and that the range of choices available to such persons will not vary on account of their race, color, religion, national origin, sex or source of income. 29. Title IV of the Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 4831 et seq.). The Borrower shall comply with the provision of the Title IV of the Lead-Based Point Poisoning Prevention Act, which prohibits the use of lead-based paint in residential structures constructed or rehabilitated with federal assistance of any kind. 30. The Americans with Disabilities Act of 1990, Public Law 101- 336, also referred to as "ADA" 28 CFR Part 35. The grantee must comply with the ADA, which provides comprehensive civil rights protection to individuals with disabilities in the areas of employment, public accommodations, state and local government services, and telecommunication. 25 EXHIBIT D The following governmental regulations are those referred to in the attached Development Loan Fund Agreement: 1. U.S. Office of Management and Budget Circular A-87, Principles for Determining Costs Applicable to Grants and Contracts with State, Local, and Federally Recognized Indian Tribal Governments. The Local Government shall comply with the guidelines of Federal Circular A-87, which set forth principles and standards for determining the costs allowable under grants and contracts involving federal funds. 2. U.S. Office of Management and Budget Circular A-102 Uniform Administrative Requirements for Grants-in-Aid to State and Local Governments. The Local Government shall comply with the requirements of Office of Management and Budget (OMB) Circular A-102, or any equivalent procedures and requirements that the state may prescribe. The Circular is the basis for a number of specific requirements on the financial management and recordkeeping of CDBG funds. The directive applies to cash depositories, bonding and insurance, record keeping, program income, property management, procurement, close-out, audit, and other requirements. The following Attachments to OMB Circular A- 102 do not specifically apply to the Borrower's project: "Attachment D-Waiver of Single State Agency Requirements," "Attachment F-Matching Share," and "Attachment M-Standard Forms for Application." 26 Exhibit A PROMISSORY NOTE --------------- $2,000,000 FOR VALUE RECEIVED, the undersigned, Pacific Coast Technologies, Inc., ("Maker"), having offices at Wenatchee, Washington 98801, promises to pay to the order of the County of Chelan ("Holder"), a body corporate and politic of the State of Washington, the principal sum of two million dollars ($2,000,000) as follows: principal repayment in full of two million dollars ($2,000,000) will be due on the loan's third anniversary. Interest shall be calculated at three percent (3 percent) per annum and payable quarterly. Principal and interest payments shall be made payable to the Department of Community, Trade and Economic Development in behalf of the County of Chelan. All accrued and unpaid interest shall be due and payable on demand, but not later than the maturity date of the Note. The Maker shall, upon demand by the Holder hereof, make and pay to the Holder hereof, Mandatory Prepayments (as hereinafter defined) of principal at such times and in such amounts as the Holder, in its discretion, may determine from time to time. Mandatory Prepayment is herein defined to mean a call for prepayment by the County of Chelan or the Department of Community, Trade and Economic Development, co-beneficiaries of the letter of credit, for the partial or total prepayment of the loan evidenced by this Note. The Holder shall give the Maker ten (10) days prior written notice of any Mandatory Prepayment. The Maker may, at any time prior to maturity, provided that this Note shall not be in default, prepay the principal balance of the Note, either in whole or in part, together with accrued interest, without penalty. The Maker and endorsers hereof waive grace, presentment, notice of dishonor, and protest. In the event of default in the payment of principal or interest hereunder, the Holder hereof shall be entitled to all costs incurred in connection therewith, including without limitation, reasonable attorneys fees. In the event of default hereunder, the Holder hereof, among other remedies, may declare the unpaid balance hereof, together with unpaid interest on the original principal balance hereunder, immediately due and payable, which sums shall thereafter bear interest at the rate of PRIME + 2 percent per annum, compounded monthly, from the date of such declaration until paid in full. This Promissory Note is given pursuant to the terms of, and is secured in the manner provided by, a Community Development Block 27 Grant Float Agreement of even date by and between the Maker and Holder and an irrevocable, clean, sight letter of credit, issued by Frontier Bank in favor of the co-beneficiaries. This Note is to be governed by and construed in accordance with the laws of the State of Washington and the Community Development Block Grant Float Agreement. DATED: May 18, 1994 PACIFIC COAST TECHNOLOGIES, INC. ("MAKER") By: /s/ DON A. WRIGHT, President --------------------------------- EX-10.1.13 14 1 COMMERCIAL GUARANTY Borrower: PACIFIC COAST TECHNOLOGIES, INC. Lender: FRONTIER BANK 434 OLDS STATION ROAD EVERGREEN WAY OFFICE WENATCHEE, WA 98801 P.O. BOX 2215 EVERETT, WA 98203 Guarantor: MELVIN B. HOELZLE 8015 BROADWAY AVE. EVERETT, WA 98201 AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including without limitation the principal Note amount of Two Million & 00/100 Dollars ($2,000,000.00). GUARANTY. For good and valuable consideration, MELVIN B. HOELZLE ("Guarantor") absolutely and unconditionally guarantees and promises to pay to FRONTIER BANK ("Lender") or its order, in legal tender of the United States of America, the Indebtedness (as that term is defined below) of PACIFIC COAST TECHNOLOGIES, INC. ("Borrower") to Lender on the terms and conditions set forth in this Guaranty. DEFINITIONS. The following words shall have the following meanings when used in this Guaranty: Borrower. The word "Borrower" means PACIFIC COAST TECHNOLOGIES, INC. Guarantor. The word "Guarantor" means MELVIN B. HOELZLE. Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for the benefit of Lender dated May 18, 1994. Indebtedness. The word "Indebtedness" means the Note, including (a) all principal, (b) all interest, (c) all late charges, (d) all loan fees and loan charges, and (e) all collection costs and expenses relating to the Note or to any collateral for the Note. Collection costs and expenses include without limitation all of Lender's attorneys' fees and Lender's legal expenses, whether or not suit is instituted, and attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals and any anticipated post-Judgment collection services. Lender. The word "Lender" means FRONTIER BANK, its successors and assigns. Note. The word "Note" means the promissory note or credit agreement dated May 18, 1994, in the original principal amount of $2,000,000.00 from Borrower to Lender, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the promissory note or agreement. Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty shall not exceed at any one time the amount of the Indebtedness described above, plus all costs and expenses of (a) enforcement of this Guaranty and (b) collection and sale of any collateral securing this Guaranty. The above limitation on liability is not a restriction on the amount of the indebtedness of Borrower to Lender either in the aggregate or at any one time. If Lender presently holds one or more guaranties, or hereafter receives additional guaranties from Guarantor, the rights of Lender under all guaranties shall be cumulative. This Guaranty shall not (unless specifically provided below to the contrary) affect or invalidate any such other guaranties. The liability of Guarantor will be the aggregate liability of Guarantor under the terms of this Guaranty and any such other unterminated guaranties. NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance and prompt payment when due, whether at maturity or earlier by reason of acceleration or otherwise, of all Indebtedness within the limits set forth in the preceding section of this Guaranty. Any married person who signs this Guaranty as the Guarantor hereby expressly agrees that recourse under this agreement may be had against both his or her separate property and community property, whether now owned or hereafter acquired. DURATION OF GUARANTY. This Guaranty will take effect when received by Lender without the necessity of any acceptance by Lender, or any notice to Guarantor or to Borrower, and will continue in full force until all indebtedness shall have been fully and finally paid and satisfied and all other obligations of Guarantor under this Guaranty shall have been performed in full. Release of any other guarantor or termination of any other guaranty of the Indebtedness shall not affect the liability of Guarantor under this Guaranty. A revocation received by Lender from any one or more Guarantors shall not affect the liability of any remaining Guarantors under this Guaranty. 2 GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, wIthout notice or demand and without lessening Guarantor's liability under this Guaranty, from time to time: (a) to make one or more additional secured or unsecured loans to Borrower, to lease equipment or other goods to Borrower, or otherwise to extend additional credit to Borrower; (b) to alter, compromise, renew, extend, accelerate, or otherwise change one or more times the time for payment or other terms of the indebtedness or any part of the indebtedness, including increases and decreases of the rate of interest on the Indebtedness; extensions may be repeated and may be for longer than the original loan term; (c) to take and hold security for the payment of this Guaranty or the Indebtedness, and exchange, enforce, waive, fail or decide not to perfect, and release any such security, with or without the substitution of new collateral; (d) to release, substitute, agree not to sue, or deal with any one or more of Borrower's sureties, endorsers, or other guarantors on any terms or in any manner Lender may choose; (e) to determine how, when and what application of payments and credits shall be made on the indebtedness; (f) to apply such security and direct the order or manner of sale thereof, including without limitation, any nonjudicial sale permitted by the terms of the controlling security agreement or dead of trust, as Lender in its discretion may determine; (g) to sell, transfer, assign, or grant participations in all or any part of the Indebtedness; and (h) to assign or transfer this Guaranty in whole or in part. GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Lender that (a) no representations or agreements of any kind have been made to Guarantor which would limit or qualify in any way the terms of this Guaranty; (b) this Guaranty is executed at Borrower's request and not at the request of Lender; (c) Guarantor has not and will not, without the prior written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise dispose of all or substantially all of Guarantor's assets, or any interest therein; (d) Lender has made no representation to Guarantor as to the creditworthiness of Borrower; (e) upon Lender's request, Guarantor will provide to Lender financial and credit information in form acceptable to Lender, and all such financial information provided to Lender is true and correct in all material respects and fairly presents the financial condition of Guarantor as of the dates thereof, and no material adverse change has occurred in the financial condition of Guarantor since the date of the financial statements; and (f) Guarantor has established adequate means of obtaining from Borrower on a continuing basis information regarding Borrower's financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events, or circumstances which might in any way effect Guarantor's risks under this Guaranty, and Guarantor further agrees that, absent a request for information, Lender shall have no obligation to disclose to Guarantor any information or documents acquired by Lender in the course of its relationship with Borrower. GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives any right to require Lender (a) to continue lending money or to extend other credit to Borrower; (b) to make any presentment, protest, demand, or notice of any kind, including notice of any nonpayment of the Indebtedness or of any nonpayment related to any collateral, or notice of any action or nonaction on the part of Borrower, Lender, any surety, endorser, or other guarantor in connection with the Indebtedness or in connection with the creation of new or additional loans or obligations; (c) to resort for payment or to proceed directly or at once against any person, including Borrower or any other guarantor; (d) to proceed directly against or exhaust any collateral held by Lender from Borrower, any other guarantor, or any other person; (e) to pursue any other remedy within Lender's power; or (f) to commit any act or omission of any kind, or at any time, with respect to any matter whatsoever. If now or hereafter (a) Borrower shall be or become insolvent, and (b) the Indebtedness shall not at all times until paid be fully secured by collateral pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor of Lender and Borrower, and their respective successors, any claim or right to payment Guarantor may now have or hereafter have or acquire against Borrower, by subrogation or otherwise, so that at no time shall Guarantor be or become a "creditor" of Borrower within the meaning of 11 U.S.C. Section 547(b), or any successor provision of the Federal bankruptcy laws. Guarantor also waives any and all rights or defenses arising by reason of (a) any "one action" or "anti-deficiency" law or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender's commencement or completion of any foreclosure action, either judicially or by exercise of a power of sale; (b) any election of remedies by Lender which destroys or otherwise adversely affects Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower for reimbursement, including without limitation, any loss of rights Guarantor may suffer by reason of any law limiting, qualifying, or discharging the indebtedness; (c) any disability or other defense of Borrower, of any other guarantor, or of any other person, or by reason of the cessation of Borrower's liability from any cause whatsoever, other than payment in full in legal tender, of the Indebtedness; (d) any right to claim discharge of the indebtedness on the basis of unjustified impairment of any collateral for indebtedness; (e) any statute of limitations, if at any time any action or suit brought by Lender against Guarantor is commenced there is outstanding indebtedness of Borrower to Lender which is not barred by any applicable statute of limitations; or (f) any defenses given to guarantors at law or in equity other than actual payment and performance of the indebtedness. If payment is made by Borrower, whether voluntarily or otherwise, or by any third party, on the Indebtedness and thereafter Lender is forced to remit the amount of that payment to Borrower's trustee in bankruptcy or to any similar person under any federal or state bankruptcy law or law for the relief of debtors, the Indebtedness shall be considered unpaid for the purpose of enforcement of this Guaranty. Guarantor further waives and agrees not to assert or claim at any time any deductions to the amount guaranteed under this Guaranty for any claim of setoff, counterclaim, counter demand, recoupment or similar right, whether such claim, demand or right may be asserted by the Borrower, the Guarantor, or both. GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees that each of the waivers set forth above is made with Guarantor's full knowledge of its significance and consequences and that, under the 3 circumstances, the waivers are reasonable and not contrary to public policy or law. If any such waiver is determined to be contrary to any applicable law or public policy, such waiver shall be effective only to the extent permitted by law or public policy. LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff against the moneys, securities or other property of Guarantor given to Lender by law, Lender shall have, with respect to Guarantor's obligations to Lender under this Guaranty and to the extent permitted by law, a contractual possessory security interest in and a right of setoff against, and Guarantor hereby assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's right, title and interest in end to, all deposits, moneys, securities and other property of Guarantor now or hereafter in the possession of or on deposit with Lender, whether held in a general or special account or deposit, whether held Jointly with someone else, or whether held for safekeeping or otherwise, excluding however all IRA, Keogh, and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to Guarantor. No security interest or right of setoff shall be deemed to have been waived by any act or conduct on the part of Lender or by any neglect to exercise such right of setoff or to enforce such security interest or by any delay in so doing. Every right of setoff and security interest shall continue in full force and effect until such right of setoff or security interest is specifically waived or released by an instrument in writing executed by Lender. SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the Indebtedness of Borrower to Lender, whether now existing or hereafter created, shall be prior to any claim that Guarantor may now have or hereafter acquire against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby expressly subordinates any claim Guarantor may have against Borrower, upon any account whatsoever, to any claim that Lender may now or hereafter have against Borrower. In the event of insolvency and consequent liquidation of the assets of Borrower, through bankruptcy, by an assignment for the benefit of creditors, by voluntary liquidation, or otherwise, the assets of Borrower applicable to the payment of the claims of both Lender and Guarantor shall be paid to Lender and shall be first applied by Lender to the Indebtedness of Borrower to Lender. Guarantor does hereby assign to Lender all claims which it may have or acquire against Borrower or against any assignee or trustee in bankruptcy of Borrower; provided however, that such assignment shall be effective only for the purpose of assuring to Lender full payment in legal tender of the Indebtedness. If Lender so requests, any notes or credit agreements now or hereafter evidencing any debts or obligations of Borrower to Guarantor shall be marked with a legend that the same are subject to this Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor, from time to time to execute end file financing statements and continuation statements and to execute such other documents and to take such other actions as Lender deems necessary or appropriate to perfect, preserve end enforce its rights under this Guaranty. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Guaranty: Amendments. This Guaranty, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Guaranty. No alteration of or amendment to this Guaranty shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Applicable Law. This Guaranty has been delivered to Lender and accepted by Lender in the State of Washington. If there is a lawsuit, Guarantor agrees upon Lender's request to submit to the jurisdiction of the courts of SNOHOMISH County, State of Washington. This Guaranty shall be governed by and construed in accordance with the laws of the State of Washington. Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all of Lender's costs and expenses, including attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Guaranty. Lender may pay someone else to help enforce this Guaranty, and Guarantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (and including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Guarantor also shall pay all court costs and such additional fees as may be directed by the court. Notices. All notices required to be given by either party to the other under this Guaranty shall be in writing and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier, or when deposited in the United States mail, first class postage prepaid, addressed to the party to whom the notice is to be given at the address shown above or to such other addresses as either party may designate to the other in writing. If there is more than one Guarantor, notice to any Guarantor will constitute notice to all Guarantors. For notice purposes, Guarantor agrees to keep Lender informed at all times of Guarantor's current address. Interpretation. In all cases where there is more than one Borrower or Guarantor, then all words used in this Guaranty in the singular shall be deemed to have been used in the plural where the context and construction so require; and where there is more than one Borrower named in this Guaranty or when this Guaranty is executed by more than one Guarantor, the words "Borrower" and "Guarantor" respectively shall mean all and any one or more of them. The words "Guarantor," "Borrower," and "Lender" include the heirs, successors, assigns, and transferees of each of them. Caption headings in this Guaranty are for convenience purposes only and are not to be used to interpret or define the provisions of this Guaranty. If a court of competent jurisdiction finds any provision of this Guaranty to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances, and all provisions of this Guaranty in all other respects shall 4 remain valid and enforceable. If any one or more of Borrower or Guarantor are corporations or partnerships, it is not necessary for Lender to inquire into the powers of Borrower or Guarantor or of the officers, directors, partners, or agents acting or purporting to act on their behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Guaranty. Waiver. Lender shall not be deemed to have waived any rights under this Guaranty unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Guaranty shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Guaranty. No prior waiver by Lender, nor any course of dealing between Lender and Guarantor, shall constitute a waiver of any of Lender's rights or of any of Guarantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Guaranty, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL ACCEPTANCE BY LENDER' IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE, THIS GUARANTY IS DATED MAY 10,1984. GUARANTOR: X /s/ MELVIN B. HOELZLE ---------------------------------- MELVIN B. HOELZLE EX-10.1.14 15 1 COMMERCIAL GUARANTY Borrower: PACIFIC COAST TECHNOLOGIES, INC. Lender: FRONTIER BANK 434 OLDS STATION ROAD EVERGREEN WAY OFFICE WENATCHEE, WA 98801 P.O. BOX 2215 EVERETT, WA 98203 Guarantor: ROBERT L. SMITH and MARY SMITH 2008 GRAND AVE EVERETT, WA 98201 AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including without limitation the principal Note amount of Two Million & 00/100 Dollars ($2,000,000.00). GUARANTY. For good and valuable consideration, ROBERT L. SMITH and MARY SMITH ("Guarantor") absolutely and unconditionally guarantee and promise to pay, Jointly and severally, to FRONTIER BANK ("Lender") or its order, in legal tender of the United States of America, the Indebtedness (as that term is defined below) of PACIFIC COAST TECHNOLOGIES, INC. ("Borrower") to Lender on the terms and conditions set forth in this Guaranty. DEFINITIONS. The following words shall have the following meanings when used in this Guaranty: Borrower. The word "Borrower" means PACIFIC COAST TECHNOLOGIES, INC. Guarantor. The word "Guarantor" means ROBERT L. SMITH and MARY SMITH, who are signing this Guaranty jointly and severally. Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for the benefit of Lender dated May 18, 1994. Indebtedness. The word "Indebtedness" means the Note, including (a) all principal, (b) all interest, (c) all late charges, (d) all loan fees and loan charges, and (e) all collection costs and expenses relating to the Note or to any collateral for the Note. Collection costs and expenses include without limitation all of Lender's attorneys' fees and Lender's legal expenses, whether or not suit is instituted, and attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Lender. The word "Lender" means FRONTIER BANK, its successors and assigns. Note. The word "Note" means the promissory note or credit agreement dated May 18, 1994, in the original principal amount of $2,000,000.00 from Borrower to Lender, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the promissory note or agreement. Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. MAXIMUM LIABILITY. The maximum liability of Guarantor under this Guaranty shall not exceed at any one time the amount of the Indebtedness described above, plus all costs and expenses of (a) enforcement of this Guaranty and (b) collection and sale of any collateral securing this Guaranty. The above limitation on liability is not a restriction on the amount of the indebtedness of Borrower to Lender either in the aggregate or at any one time. If Lender presently holds one or more guaranties, or hereafter receives additional guaranties from Guarantor, the rights of Lender under all guaranties shall be cumulative. This Guaranty shall not (unless specifically provided below to the contrary) affect or invalidate any such other guaranties. The liability of Guarantor will be the aggregate liability of Guarantor under the terms of this Guaranty and any such other unterminated guaranties. NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance and prompt payment when due, whether at maturity or earlier by reason of acceleration or otherwise, of all indebtedness within the limits set forth in the preceding section of this Guaranty. Any married person who signs this Guaranty as the Guarantor hereby expressly agrees that recourse under this agreement may be had against both his or her separate property and community property, whether now owned or hereafter acquired. The obligations of Guarantors shall be joint and several. Lender may proceed against any of the Guarantors individually, against any group of Guarantors, or against all the Guarantors in one action, without affecting the right of Lender to proceed against other Guarantors for amounts that are covered by this Guaranty. Any inability of Lender to proceed against any Guarantor (whether caused by actions of a Guarantor or of Lender) will not affect Lender's right to proceed against any or all remaining Guarantors for all or part of the amounts covered by this Guaranty. 2 DURATION OF GUARANTY. This Guaranty will take effect when received by Lender without the necessity of any acceptance by Lender, or any notice to Guarantor or to Borrower, and will continue in full force until all indebtedness shall have boon fully and finally paid and satisfied and all other obligations of Guarantor under this Guaranty shall have been performed in full. Release of any other guarantor or termination of any other guaranty of the indebtedness shall not affect the liability of Guarantor under this Guaranty. A revocation received by Lender from any one or more Guarantors shall not affect the liability of any remaining Guarantors under this Guaranty. GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice or demand and without lessening Guarantor's liability under this Guaranty, from time to time: (a) to make one or more additional secured or unsecured loans to Borrower, to lease equipment or other goods to Borrower, or otherwise to extend additional credit to Borrower; (b) to alter, compromise, renew, extend, accelerate, or otherwise change one or more times the time for payment or other terms of the indebtedness or any part of the indebtedness, including increases and decreases of the rate of interest on the indebtedness; extensions may be repeated and may be for longer than the original loan term; (c) to take and hold security for the payment of this Guaranty or the indebtedness, and exchange, enforce, waive, fail or decide not to perfect, and release any such security, with or without the substitution of new collateral; (d) to release, substitute, agree not to sue, or deal with any one or more of Borrower's sureties, endorsers, or other guarantors on any terms or in any manner Lender may choose; (e) to determine how, when and what application of payments and credits shall be made on the indebtedness; (f) to apply such security and direct the order or manner of sale thereof, including without limitation, any nonjudicial sale permitted by the terms of the controlling security agreement or deed of trust, as Lender in its discretion may determine; (g) to sell, transfer, assign, or grant participations in all or any part of the indebtedness; and (h) to assign or transfer this Guaranty in whole or in part. GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Lender that (a) no representations or agreements of any kind have been made to Guarantor which would limit or qualify in any way the terms of this Guaranty; (b) this Guaranty is executed at Borrower's request and not at the request of Lender; (c) Guarantor has not and will not, without the prior written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise dispose of all or substantially all of Guarantor's assets, or any interest therein; (d) Lender has made no representation to Guarantor as to the creditworthiness of Borrower; (e) upon Lender's request, Guarantor will provide to Lender financial and credit information in form acceptable to Lender, and all such financial information provided to Lender is true and correct in all material respects and fairly presents the financial condition of Guarantor as of the dates thereof, and no material adverse change has occurred in the financial condition of guarantor since the date of the financial statements; and (f) Guarantor has established adequate means of obtaining from Borrower on a continuing basis information regarding Borrower's financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events, or circumstances which might in any way affect Guarantor's risks under this guaranty, and Guarantor further agrees that, absent a request for information, Lender shall have no obligation to disclose to guarantor any information or documents acquired by Lender in the course of its relationship with Borrower. GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives any right to require Lender (a) to continue lending money or to extend other credit to Borrower; (b) to make any presentment, protest, demand, or notice of any kind, including notice of any nonpayment of the Indebtedness or of any nonpayment related to any collateral, or notice of any action or nonaction on the part of Borrower, Lender, any surety, endorser, or other guarantor in connection with the indebtedness or in connection with the creation of new or additional loans or obligations; (c) to resort for payment or to proceed directly or at once against any person, including Borrower or any other guarantor; (d) to proceed directly against or exhaust any collateral held by Lender from Borrower, any other guarantor, or any other person; (e) to pursue any other remedy within Lender's power; or (f) to commit any act or omission of any kind, or at any time, with respect to any matter whatsoever. If now or hereafter (a) Borrower shall be or become insolvent, and (b) the indebtedness shall not at all times until paid be fully secured by collateral pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor of Lender and Borrower, and their respective successors, any claim or right to payment Guarantor may now have or hereafter have or acquire against Borrower, by subrogation or otherwise, so that at no time shall Guarantor be or become a "creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any successor provision of the Federal bankruptcy laws. Guarantor also waives any and all rights or defenses arising by reason of (a) any "one action" or "anti-deficiency" law or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender's commencement or completion of any foreclosure action, either judicially or by exercise of a power of sale; (b) any election of remedies by Lender which destroys or otherwise adversely affects Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower for reimbursement, including without limitation, any loss of rights Guarantor may suffer by reason of any law limiting, qualifying, or discharging the indebtedness; (c) any disability or other defense of Borrower, of any other guarantor, or of any other person, or by reason of the cessation of Borrower's liability from any cause whatsoever, other than payment in full in legal tender, of the Indebtedness; (d) any right to claim discharge of the indebtedness on the basis of unjustified impairment of any collateral for the indebtedness; (e) any statute of limitations, if at any time any action or suit brought by Lender against Guarantor is commenced there is outstanding Indebtedness of Borrower to Lender which is not barred by any applicable statute of limitations; or (f) any defenses given to guarantors at law or in equity other than actual payment and performance of the indebtedness. If payment is made by Borrower, whether voluntarily or otherwise, or by any third party, on the indebtedness and thereafter Lender is forced to remit the amount of that payment to Borrower's trustee in bankruptcy or to any similar person under any federal or state bankruptcy law or law for the relief of debtors, the Indebtedness shall be considered unpaid for the purpose of enforcement of this Guaranty. 3 Guarantor further waives and agrees not to assert or claim at any time any deductions to the amount guaranteed under this Guaranty for any claim of setoff, counterclaim, counter demand, recoupment or similar right, whether such claim, demand or right may be asserted by the Borrower, the Guarantor, or both. GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees that each of the waivers set forth above is made with Guarantor's full knowledge of its significance and consequences and that, under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any such waiver is determined to be contrary to any applicable law or public policy, such waiver shall be effective only to the extent permitted by law or public policy. LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff against the moneys, securities or other property of Guarantor given to Lender by law, Lender shall have, with respect to Guarantor's obligations to Lender under this Guaranty and to the extent permitted by law, a contractual possessory security interest in and a right of setoff against, and Guarantor hereby assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's right, title and interest in and to, all deposits, moneys, securities and other property of Guarantor now or hereafter in the possession of or on deposit with Lender, whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding however all IRA, Keogh, and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to Guarantor. No security interest or right of setoff shall be deemed to have been waived by any act or conduct on the part of Lender or by any neglect to exercise such right of setoff or to enforce such security interest or by any delay in so doing. Every right of setoff and security interest shalt continue in full force and effect until such right of setoff or security interest is specifically waived or released by an instrument in writing executed by Lender. SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the indebtedness of Borrower to Lender, whether now existing or hereafter created, shall be prior to any claim that Guarantor may now have or hereafter acquire against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby expressly subordinates any claim Guarantor may have against Borrower, upon any account whatsoever, to any claim that Lender may now or hereafter have against Borrower. In the event of insolvency and consequent liquidation of the assets of Borrower, through bankruptcy, by an assignment for the benefit of creditors, by voluntary liquidation, or otherwise, the assets of Borrower applicable to the payment of the claims of both Lender and Guarantor shall be paid to Lender and shall be first applied by Lender to the indebtedness of Borrower to Lender. Guarantor does hereby assign to Lender all claims which it may have or acquire against Borrower or against any assignee or trustee in bankruptcy of Borrower; provided however, that such assignment shall be effective only for the purpose of assuring to Lender full payment in legal tender of the indebtedness. If Lender so requests, any notes or credit agreements now or hereafter evidencing any debts or obligations of Borrower to Guarantor shall be marked with a legend that the same are subject to this Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor, from time to time to execute and file financing statements and continuation statements and to execute such other documents and to take such other actions as Lender deems necessary or appropriate to perfect, preserve and enforce its rights under this Guaranty. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Guaranty: Amendments. This Guaranty, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Guaranty. No alteration of or amendment to this Guaranty shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Applicable Law. This Guaranty has been delivered to Lender and accepted by Lender in the State of Washington. If there is a lawsuit, Guarantor agrees upon Lender's request to submit to the jurisdiction of the courts of SNOHOMISH County, State of Washington. This Guaranty shall be governed by and construed in accordance with the laws of the State of Washington. Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all of Lender's costs and expenses, including attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Guaranty. Lender may pay someone else to help enforce this Guaranty, and Guarantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (and including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Guarantor also shall pay all court costs and such additional fees as may be directed by the court. Notices. All notices required to be given by either party to the other under this Guaranty shall be in writing and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier, or when deposited in the United States mail, first class postage prepaid, addressed to the party to whom the notice is to be given at the address shown above or to such other addresses as either party may designate to the other in writing. If there is more than one Guarantor, notice to any Guarantor will constitute notice to all Guarantors. For notice purposes, Guarantor agrees to keep Lender informed at all times of Guarantor's current address. Interpretation. in all cases where there is more than one Borrower or Guarantor, then all words used in this Guaranty in the singular shall be deemed to have been used in the plural where the context and construction so require; and 4 where there is more than one Borrower named in this Guaranty or when this Guaranty is executed by more than one Guarantor, the words "Borrower" and "Guarantor" respectively shall mean all and any one or more of them. The words "Guarantor," "Borrower," and 'Lender' include the heirs, successors, assigns, and transferees of each of them. Caption headings in this Guaranty are for convenience purposes only and are not to be used to interpret or define the provisions of this Guaranty. If a court of competent jurisdiction finds any provision of this Guaranty to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances, and all provisions of this Guaranty in all other respects shall remain valid and enforceable. if any one or more of Borrower or Guarantor are corporations or partnerships, it is not necessary for Lender to inquire into the powers of Borrower or Guarantor or of the officers, directors, partners, or agents acting or purporting to act on their behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Guaranty. Waiver. Lender shall not be deemed to have waived any rights under this Guaranty unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Guaranty shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Guaranty. No prior waiver by Lender, nor any course of dealing between Lender and Guarantor, shall constitute a waiver of any of Lender's rights or of any of Guarantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Guaranty, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY IS DATED MAY 18, 1994. GUARANTOR: /s/ ROBERT L. SMITH /s/ MARY SMITH - --------------------------------- ------------------------------------ ROBERT L. SMITH MARY SMITH EX-10.1.15 16 1 LEASE AGREEMENT PACIFIC COAST TECHNOLOGIES, INC. 1993 THIS LEASE is entered into this date, between PORT OF CHELAN COUNTY, a Washington municipal corporation, hereafter referred to as "Landlord," and PACIFIC COAST TECHNOLOGIES, INC., a Washington corporation, hereafter referred to as "Tenant." 1. PREMISES. Landlord hereby leases to Tenant, and Tenant leases from Landlord, upon the terms and conditions included in this lease, the following described Property consisting of approximately two acres: See attached Exhibit "A" The above-described property along with all the buildings and other improvements now or hereafter placed on it are hereafter called the "Property," "Leased Premises" or "Premises." 2. TERM OF LEASE. This lease shall be for a term of ten (l0) years commencing on August 1, 1993, and ending on July 31, 2003. If the Landlord does not deliver substantial possession (such that the Tenant can move in and prepare for initial operations) of the Leased Premises at the commencement of the term of this lease, rent shall be abated, or pro rated if only part of the premises are delivered, until substantial possession is tendered by the Landlord. This lease shall remain in full force and effect in all other respects and the lease term shall be extended thereby. If Landlord offers possession of the Leased Premises prior to the lease's commencement and if Tenant accepts early possession, then both parties shall be bound by all the covenants and terms contained in this lease, including rent payment for the period of early possession. 3. OPTION TO RENEW. Tenant shall have the option to renew this lease for two additional five (5) year periods, each term to commence immediately upon the expiration of the preceding term. The option to renew shall be exercised in writing and delivered to Landlord not less than one hundred and twenty (120) days prior to the expiration of the current lease term. Such renewal term shall be on the same terms and conditions applicable to the original lease term, except for the rent which shall be adjusted as provided for in paragraph 4.5. 2 Landlord shall not be obligated to renew this Lease, if at the time of the exercise of the option, or if at the time the renewal term is to begin, Tenant is in default under this Lease, which default is not cured within a reasonable time, not exceeding the time for cure set out in paragraph 26, or if, during the Lease Tenant has been in default on five (5) or more occasions when Landlord has given written notice of such default to Tenant, and which default has not been cured within a reasonable time, not to exceed the time for cure set out in paragraph 26. Landlord shall annually provide a written report to Tenant of the number of Tenant's defaults not cured within the time allowed, if any. If Tenant disputes the number designated in the Landlord's notice it shall so advise the Landlord in writing within ten (10) days of receipt of the annual report. Final determination of whether or not such default actually occurred without timely cure shall be made by arbitration as set out in paragraph 31, if it becomes an issue at the time of exercise of the option. 4. RENT. During the Lease's initial term and any renewal term, Tenant shall pay Landlord monthly rental based on the amount determined as set out below in paragraph 4.2 ("Base Rent"), adjusted as set forth in paragraphs 4.1 - 4.7 below, payable in lawful money of the United States. Rent shall be paid in equal installments in advance on the first day of each month of the lease term and any renewals thereof. 4.1 RENT SCHEDULE FOR FIRST FIVE YEARS. During the first five lease years, Tenant shall pay the percent of Base Rent as follows: Year 1 25% of Base Rent Year 2 50% of Base Rent Year 3 125% of Base Rent Year 4 150% of Base Rent Year 5 150% of Base Rent 4.2 BASE RENT. The actual Base Rent amount will be determined when the cost of construction is fixed. The Base Rent will be an amount equal to the monthly payment necessary to amortize the costs of construction, together with the value of the land described above at $2.50 per square foot for $217,800 for the two acres leased, over twenty (20) years at an interest rate of seven (7) percent per annum, payable monthly, with the resulting amount being converted to a per square foot per month cost for the basic building and then being reduced by an amount equal to five cents per square foot per month for the basic building. The cost of construction is defined in the Construction Agreement of even date executed between Port of Chelan County and Pacific Coast Technologies, Inc., and is incorporated by this reference. Base Rent does not include 3 leasehold tax. If the Base Rent exceeds 35.45 cents per square foot per month, so that Base Rent together with the leasehold tax due as set out in paragraph 4.3 exceeds 40 cents per square foot per month for the basic building (35.45 plus the leasehold tax of 12.84% of 35.45 equals 40 cents), the amount of the Base Rent for the basic building, as calculated herein, shall be reduced to 35.45 cents per square foot per month so that the total amount of Base Rent, before the reduction set out above or any increases set out below, plus leasehold tax, equals 40 cents per square foot per month. 4.3 LEASEHOLD TAX. In addition to Rent, Tenant shall pay to the Landlord such sums as may be required by law for payment of leasehold tax as required by the State of Washington or other tax entity, as such laws now exists or as they hereafter be amended (such leasehold tax currently being 12.84%). If leasehold tax is increased or decreased, the total amount payable for Rent plus leasehold tax shall increase or decrease, but the amount of Rent shall not be changed. 4.4 PRO RATA RENT. In the event the lease term commences or terminates on a date that is not the first or last day of the month, respectively, Tenant shall pay a pro-rated monthly installment, in advance, on the first day of the lease term or the first day of the last month of the lease term, respectively, at the then current rate, based on the number of days of actual occupancy during the first or last calendar month of the lease term. In the event some but not all of the premises are delivered by Landlord for occupancy, rent shall be adjusted to reflect a pro-rata amount for the portion delivered. 4.5 INCREASE TO BASE RENT IN YEARS SIX THROUGH NINE, BEFORE CONSUMER PRICE INDEX ADJUSTMENTS. In years six through nine the Base Rent shall be increased as set forth below, before the Consumer Price Index (CPI) adjustments called for in paragraph 4.6 below are made (the Base Rent after the increase is referred to as the "Adjusted Base Rent.") Lease Year Increase Over Base Rent 6 1 cent 7 2 cents 8 3.5 cents 9 5 cents (For example, if Base Rent is 31 cents per square foot per month, then Adjusted Base Rent in year 6 will be 32 cents per square foot per month and in year 9 Adjusted Base Rent will be 36 cents per square foot per month.) 4 4.6 CONSUMER PRICE INDEX. 4.6.1 Beginning with the first month of the sixth year of the Lease, and again on the first month of each year thereafter, including each year of a renewal term, if the Lease is renewed (the "adjustment years"), the Adjusted Base Rent as determined in paragraph 4.5 for the adjustment year in question, but without reduction allowed in paragraph 4.1, shall be adjusted in accordance with the Consumer Price Index to the amount determined as hereafter set out. The Adjusted Base Rent shall be further adjusted to an amount equal to the product obtained by multiplying the full Adjusted Base Rent calculated as set out in paragraph 4.5, by a fraction, the denominator of which is the semi-annual data for the half year ending December, 1992, from the "Consumer Price Indexes Pacific Cities and U.S. City Average" for "All Items Indexes" for "All Urban Consumers (1982-84 = 100)", published by the Bureau of Labor Statistics of the United States Department of Labor, as adjusted semi-annually for the Seattle area ("CPI-U"), and the numerator of which is the CPI-U for the half year period ending the December closest to and before the first month of the period for which the adjustment is then being made; provided however, that in the event the period designated above shall not be listed in the Index, the closest period, or month if the reporting data is monthly, preceding December shall be used; and provided that rent shall not fall below the amount calculated in paragraph 4.2 above. By way of example, the CPI adjustment for the monthly rent shall be calculated as follows: Semi-annual CPI-U for the December ending closest to and before the first month of the Monthly rent period for which The Adjusted beginning the adjustment is Base Rent as with the being made, for calculated in first month Seattle X paragraph 4.5 = of the app- _______________ licable ad- justment yr Semi-annual CPI-U ending 12-92 for Seattle 4.6.2 The Rent payable after the fifth lease year shall be the Adjusted Base Rent, as it is adjusted for the CPI pursuant to paragraph 4.6.1. 5 4.6.3 Notwithstanding the foregoing, the maximum increase in Rent in any one year shall be the greater of 4% or 2/3 of the amount of the increase calculated according to the formula set forth in paragraph 4.6.1 (eg If the percent increase is 4% or less, rent will increase by the full percentage amount. If the percent increase exceeds 4%, rent will be capped at 4% until the increase exceeds 6%, and above 6% the increase will be 2/3 of the actual increase). 4.6.4 If the U.S. Department of Labor, Bureau of Labor Statistics, shall discontinue publication of the Consumer Price Index, then another index generally recognized as authoritative shall be substituted by agreement, and if the parties should not agree, such substituted index shall be selected by the then presiding Judge of the, Chelan County Superior Court upon the application of either party. 4.7 Example - First five years. The following is an example of the Rent schedule payable for the first five years. Assume the cost of construction plus the land value is such that the monthly payment necessary to amortize the cost at 7% per annum over twenty years is $10,800, and assume the basic building is 30,000 square feet. Dividing $10,800 by 30,000 square feet to arrive at the cost per square foot per month, results in a figure of 36 cents per square foot per month. This 36 cents shall be reduced to 31 cents which results in the Base Rent of $9,300 per month. In the first five years Rent would be payable as follows, in this example: Year Formula From Paragraph 4.1 Monthly Rental 1 $9,300 x 25% $ 2,325 2 $9,300 x 50% $ 4,650 3 $9,300 x 125% $11,625 4 $9,300 x 150% $13,950 5 $9,300 x 150% $13,950 Leasehold tax would be payable in addition to the above rental. 4.8 Example - Years six through nine. The following are two examples for rent which would be payable in the sixth and ninth year of the Lease term, assuming a Base Rent of 31 cents per square foot per month for a 30,000 square foot building, and assuming a constant CPI increase of 3% per year (12-92 being equal to 100). 4.8.1 Year 6: 115.927 (12-97 CPI-U) x 9600 ($.32 per sq. ft.) = $11,128.99 (mo. rent) 100(12-92 CPI-U) 6 4.8.2 Year 9: 126.677 (12-00 CPI-U) x 10,800 ($.36 per sq.ft.) $13,681.11 (mo.rent) 100(12-92 CPI-U) 4.9 TAXES. Tenant shall pay, before the same become delinquent, all taxes assessed against Tenant's personal property, furniture, fixtures, equipment, inventory and other property mentioned on the Leased Premises. Any tax related to the value of the property that may be assessed against Landlord or Tenant during the term of this Lease will be paid by Tenant, upon demand by Landlord. 4.10 NET LEASE. Landlord shall have no obligation relative to the property for such things as repair, upkeep, snow removal, standby water, fire protection costs, utilities, taxes, assessments, inspections (e.g. fire alarm and sprinkler systems) and the pro-rata share of irrigation water and fire protection, etc., unless set out herein, and Tenant shall pay and be responsible for all expenses associated with the property. 4.11 DEPOSIT. Tenant shall deposit with Landlord a security deposit in the amount of $150,000, in the form of a bond or other deposit acceptable to Landlord, to be held by Landlord as security for the full and faithful performance by Tenant of each and every term, covenant and condition of the lease. If Tenant breaches any of the lease terms, including the obligation to pay Rent, Landlord may, at Landlord's option, make demand upon such security and apply the proceeds thereof to cure the breach. 4.12 LATE CHARGE. In the event any rental amount called for herein, including the leasehold tax, is not paid within ten (10) days from the date it is due Tenant shall pay to Landlord a late charge of five percent (5%) of the rental amount per month for each unpaid lease payment until such payment is paid. The late charge is due immediately and is in addition to all of Landlord's other rights in this lease. In the event Landlord gives written notice of Tenant's default, delinquency or other lease violations, Tenant agrees to pay Landlord's actual costs and attorneys' fees reasonably incurred in providing such notice, in addition to the late charge and all other payments and obligations called for herein. 7 5. CONSTRUCTION COMMENCEMENT. The Leased Premises currently consist of vacant land. Landlord agrees to construct a multipurpose building consistent with plans and specifications prepared, after consulting with the Landlord and Tenant, by the Landlord's engineer (the "Facility"). The terms of the agreement between Landlord and Tenant regarding construction of the building are set out in a "Construction Agreement" which is incorporated herein by this reference. The building of this date shall be generally as depicted on the attached Drawing, labeled Exhibit "B". 6. PLANS AND SPECIFICATIONS. Upon Landlord's and Tenant's acceptance of the plans and specifications, those plans shall be incorporated herein by reference. The plans and specifications are subject to amendment by agreement of the parties. 7. DELIVERY OF POSSESSION. Landlord and Tenant understand and acknowledge that it is unlikely all of the Premises will be complete or available for occupancy by August 1, 1993, Landlord and Tenant agree to cooperate in good faith within the time frames established by this lease and the Construction Agreement. The Landlord agrees to work in good faith and with reasonable diligence to complete construction of the Facility within a reasonable time in order to facilitate occupancy by Tenant of the Leased Premises. 7.1 Interim Lease. In recognition of these time constraints, the Landlord agrees to rent to Tenant approximately 3800 square feet in another building located on property owned by Landlord, other than the Property described in paragraph 1, at 30 cents per square foot per month ("Interim Facility"). In addition to Rent for the Interim Facility, Tenant shall pay to the Landlord such sums as may be required by law for payment of leasehold tax as required by the State of Washington or other tax entity, as such laws now exist or as they hereafter be amended (such leasehold tax currently being 12.84%). The Interim Facility is immediately available for occupancy and use by the Tenant. The rental period shall begin upon occupancy by Tenant of the Interim Facility, and shall end upon Tenant's vacating it for occupancy of the Leased Premises. The parties will execute a different lease, consistent with the provisions of this Agreement, for the Interim Facility. 7.2 Possession as of August 1, 1993. Possession of that portion of the Property to be used by Tenant for its production and machine shop area, as will be designated on the plans and specifications ("Production Area"), shall be delivered to Tenant upon substantial completion of the Production Area. For purposes of this sub-paragraph, the Production Area shall be substantially completed when the Tenant can occupy the Production Area for purposes of installing its equipment and operating its 8 business, even if the Production Area is not totally complete, understanding that Tenant's business operations may encounter inconvenience until final completion, as provided for in paragraph 7.3. In the event the Production area is not suitably, substantially completed for Tenant to begin installation of its equipment and operation of its business on August 1, 1993, Landlord and Tenant agree that Tenant will suffer damages that are difficult to determine and both parties wish to liquidate those damages. For each day after August 1, 1993, that Landlord is unable to deliver possession of the premises to Tenant for conduct of Tenant's business as set forth in this sub-paragraph, Landlord shall pay Tenant as liquidated damages the sum of $600.00, up to a maximum of seventy-five (75) days. Such liquidated damages are Tenant's sole and exclusive remedy in the event Landlord fails to deliver possession for conduct of Tenant's business as set forth in this sub-paragraph by August 1, 1993. In the event the Property is not substantially complete for delivery upon the expiration of the period during which liquidated damages are present, this lease shall terminate and the parties shall have their remedies at law. 7.3 Possession as of October 15, 1993. Possession of the entire Facility shall be delivered upon substantial completion of the Facility in accordance with the plans and specifications for the entire Facility. For purposes of this sub-paragraph, the entire Facility shall be substantially completed when the Facility may by occupied by the Tenant for purposes of operating its business, understanding that Tenant's business operations may encounter inconvenience until final completion. In the event the Property is not suitably, substantially completed for Tenant to operate its business on October 15, 1993, Landlord and Tenant agree that Tenant will suffer damages that are difficult to determine and both parties wish to liquidate those damages, for each day after October 15, 1993, that Landlord is unable to deliver possession of the premises to Tenant for conduct of Tenant's business as set forth in this sub-paragraph, Landlord shall pay Tenant as liquidated damages the sum of $600.00, up to a maximum of twenty-five (25) days. Such liquidated damages are in addition to those set out in paragraph 7.2 and are Tenant's sole and exclusive remedy in the event Landlord fails to deliver possession for conduct of Tenant's business as set forth in this sub-paragraph by October 15, 1993. In the event the Facility is not substantially complete for delivery upon the expiration of the period during which liquidated damages are present, this lease shall terminate and the parties shall have their remedies at law. 9 7.4 Lease Construction. The provisions of this lease shall be construed so that they apply reasonably to the actual occupancy and use of the Property, or any portion of the Property actually occupied, in whole or in part, by Tenant. In the event of a dispute as to how the parties should resolve an issue, because of the occupancy of less than the entire Facility, the dispute shall be resolved by arbitration as set out herein. 8. TENANT'S ACCEPTANCE. The parties understand the Tenant may be in possession of some or all of the Leased Premises prior to Landlord finally accepting the building from Contractor. Landlord shall give written notice to Tenant of its intent to finally accept the building prior to actual acceptance as provided in the Construction Agreement. No representation, statement or warranty, expressed or implied, is or shall be made by or on behalf of the Landlord as to the building's condition, or as to the use that may be made of such building unless specifically set forth in writing. Tenant releases Landlord from any responsibility for any representation that may have been made to the Tenant about the property that is not specifically set out in this Lease Agreement. 9. USE OF LEASED PREMISES. The Leased Premises shall be used by Tenant for the purpose of manufacturing, warehousing and distributing hermetic connectors, semiconductors and hybrid microelectronic packages and other electronic packaging products in the Leased Premises and for no other purpose unless agreed to in advance by Landlord. Further, the Tenant agrees that: 9.1 Tenant shall not allow the use of the Leased Premises in a manner which would increase Landlord's insurance premiums unless Tenant agrees to reimburse Landlord for such increase, or for any illegal purpose. 9.2 Tenant shall comply with all laws and shall observe all applicable ordinances, including the Protective Covenants for Olds Station Industrial Park, and any amendments thereto ("Protective Covenants") a copy of which has been received and reviewed by Tenant and which Protective Covenants are incorporated herein by this reference, related to the use of the Leased Premises. Landlord shall not be responsible to Tenant for the nonperformance by any other Tenant or occupant of the Olds Station Industrial Park of any said rules and regulations. 10. SERVICES AND UTILITIES. Tenant shall make all arrangements for and pay all utilities, including, but not limited to: gas, electricity, water, waste treatment, garbage, 10 telephone and all other utilities furnished to the Leased Premises. Landlord does not warrant that any utilities and services will be free from interruption. The Landlord shall not be liable to Tenant for any loss or damage caused by or resulting from any variation, interruption, or failure of heat or any utility services due to any cause, other than Landlord's negligent or willful acts. No temporary interruption or failure of services due to the making of repairs, alterations, or improvements, or due to accident, strike or conditions or events beyond Landlord's control shall be deemed an eviction of Tenant or relieve Tenant from any of Tenant's obligations under this lease. 11. ALTERATIONS AND IMPROVEMENTS. Landlord acknowledges that the tenant may need to make alterations within portions of the Leased Premises. Tenant shall make no changes, improvements or alterations, to the Leased Premises without the Landlord's prior written consent. Landlord agrees not to unreasonably deny approval for changes, improvements or alterations; provided design plans are submitted to Landlord for review and approval. Approval for structural changes must be approved in advance by Landlord's engineer. Tenant shall bear Landlord's reasonable costs of investigation for requested changes, including engineer's and other expert's fees. All such approved changes, shall be at the Tenant's sole cost and expense; and Tenant shall use a licensed and bonded contractor or contractors for such alterations. Tenant agrees that any alterations or improvements made shall not abate the rent. In the performance of such work, Tenant agrees to comply with all laws and ordinances and to hold Landlord harmless from any damage, loss or expense caused by work performed by Tenant. Any alterations of the Leased Premises shall become at once a part of the realty and belong to the Landlord, except trade fixtures supplied and paid for by the Tenant subject to the Tenant's duty to remove as set out in this Agreement. At Landlord's request, within thirty (30) days prior to the Lease's termination, Tenant shall restore the Leased Premises to the condition that existed at the commencement of the Lease, except for normal wear and tear. Tenant shall keep the Leased Premises free from any liens, and shall indemnify and hold Landlord harmless and defend it from any liens or encumbrances, damage, loss or expense arising out of any work performed or materials furnished by or at the direction of Tenant, or otherwise, to the Leased Premises. 11 12. TRADE FIXTURES. Tenant may install on the Leased Premises such equipment as is customarily used in the type of business conducted by Tenant. At the termination of this lease, at the direction of the Landlord, Tenant shall, or at Tenant's option Tenant may, remove from the Leased Premises all such equipment and all other property of Tenant provided that Tenant repairs the damage caused by the removal or restores, at the Tenant's sole cost and expense, the Leased Premises, consistent with paragraph 12. Any equipment or fixtures not removed by the expiration or sooner termination of this Lease or any renewal period, shall at the option of the Landlord become the property of the Landlord. 13. REPAIR AND MAINTENANCE. Unless otherwise agreed, Tenant shall, at its own expense, make all necessary repairs and replacement to the Leased Premises. Tenant shall be responsible for all maintenance and repair, including, but not limited to: the piping, heating system, window glass, fixtures, electrical and mechanical systems, and all other appliances and equipment used in connection with the Leased Premises. Such repairs and replacements, interior and exterior, structural and non-structural, shall be made promptly as and when necessary. All repairs and replacements shall be approved in advance by Landlord and must be of quality and class at least equal to the original work as reasonably determined by Landlord. On default of the Tenant in making such repairs or replacements, the Landlord may, but shall not be required to, make such repairs and replacements for the Tenant's account, and the expense thereof shall constitute and be collectible as additional rent. Notwithstanding the foregoing, Landlord shall be responsible for the repair and maintenance of the roof and structural damage to the Leased Premises to the extent not necessitated or caused by Tenant's negligence or conduct; provided that Tenant shall be responsible for removal of snow or other accumulations on the roof, including ice and water, and shall be responsible and pay for any damage occurring because of such accumulations. It is the intention of this Agreement that except for roof and structural repair stated above and Landlord's share of Capital Expense set out below, Landlord shall have no obligation for expenses associated with the building beyond its own debt payments, except as otherwise provided herein. Capital improvements, replacements or repairs ("Capital Expense") not necessitated or caused by Tenant's neglect or conduct, shall be made by Landlord. "Capital Expense" means a repair or replacement not normally occurring during the ordinary useful life of the item being repaired or replaced, and which repair or replacement has a useful life extending beyond the then 12 existing lease term. For example, replacement of a toilet seat, fan belt on a motor, light ballast or carpeting, repair of a gouge in the floor or wall, minor repair of exterior walls, or repainting are not "Capital Expenses." Repair of major damage to the building's exterior is a "Capital Expense." Cost of the Capital Expense shall be amortized over the reasonably expected useful life of the Capital item, as determined in good faith by the Landlord after consulting with its engineer. Tenant shall pay, as additional rent, a pro-rated amount of the Capital Expense each month, equal to the total Capital Expense divided by the number of months of useful life of the Capital Expense. Landlord shall not be obligated to repair or replace any fixtures or equipment installed by Tenant and Landlord shall not be obligated to make any repair or replacement occasioned by any act or omission of Tenant, its employees, agents, invitees or licensees. 14. RIGHT OF ENTRY. Landlord may enter the Leased Premises at all times for emergencies, and at reasonable times, after reasonable notice, during or after business hours, for the purpose of inspecting, cleaning, repairing, altering, improving or exhibiting the Leased Premises, but nothing in this lease shall be construed as imposing any obligation on the Landlord to perform any such work. Landlord may place "FOR RENT" or "FOR SALE" signs on the exterior of the Leased Premises and after reasonable notice may enter the Leased Premises for purposes of showing the Leased Premises to prospective tenants, purchasers and lenders. 15. DAMAGE OR DESTRUCTION. 15.1 DAMAGE. All damage or injury done to the Leased Premises by Tenant or by any persons who may be in or upon the Leased Premises shall be paid for by Tenant. 15.2 DESTRUCTION. If the Property or the Leased Premises are destroyed or damaged by fire or any other casualty to the extent that a substantial part of the Property or the Leased Premises is rendered untenantable, or if the uninsured portion of the cost of repairing the damage to the Property or Leased Premises exceeds $50,000, either Landlord or Tenant may terminate this lease by notice in writing to the other within sixty (60) days after the destruction or damage, unless Landlord agrees in writing within 30 days after the destruction to pay the uninsured portion of the cost of repair, in which case the lease shall not terminate. The notice shall be effective thirty (30) days after receipt. 15.3 PARTIAL DESTRUCTION. If the Leased Premises shall be partially destroyed or rendered partially untenantable 13 and if the lease is not terminated by Landlord, Landlord shall restore the Leased Premises to its previous condition, and in the meantime the monthly rent shall be abated in the same proportion as the untenantable portion of the Leased Premises bears to the whole of the Leased Premises. Notwithstanding the foregoing, Landlord shall have no obligation to repair, reconstruct, or restore the Leased Premises when the damage or destruction occurs during the last twelve (12) months of either the initial or first renewal lease term, if Tenant has not exercised a renewal option, or, within 12 months of the last renewal lease term. 15.4 LIMIT OF LANDLORD LIABILITY. Landlord's liability shall be limited to its contractual obligation in this lease, its negligent or otherwise wrongful conduct. 16. INDEMNITY. The Tenant shall indemnify the Landlord from and against any and all claims, demands, cause of actions, suits or judgments (including fees, costs and expenses [including attorney fees] incurred in connection therewith and in enforcing the indemnity) for deaths or injuries to persons or for loss of or damage to property arising out of or in connection with the condition, use or occupancy of the Leased Premises or any improvements thereon; or by Tenant's non-observance or nonperformance of any law, ordinance or regulation applicable to the Lease Premises; or incurred in obtaining possession of the Leased Premises after a default by the Tenant, or after the Tenant's default in surrendering possession upon expiration or earlier termination of the term of the lease, or enforcing any of the Tenant's covenants in this lease. This includes, without limitation, any liability or injury to the person or property of Tenant, its agents, officers, employees, or invitee. The tenant specifically waives any immunity provided by Washington's Industrial Insurance Act. This indemnification covers claims by Tenant's own employees. In the event of any such claims made or suits filed, Landlord shall give Tenant prompt written notice thereof and Tenant shall have the right to defend or settle the same to the extent of its interests thereunder. Tenant, as a material part of the consideration to be rendered to Landlord, waives all claims against Landlord for damages to goods, wares, merchandise and loss of business in, upon or about the Leased Premises and for injury to Tenant, its agents, employees, invitee or their persons in or about the Leased Premises from any cause arising at any time, including Landlord's breach of this lease. 17. INSURANCE. Tenant shall provide its own property damage insurance. 14 From and after the commencement date of the term of this lease, Tenant shall insure the Leased Premises, at its sole cost and expense, against claim for personal injury and property damage under a policy of general liability insurance, with limits of $1,000,000.00 single limit or its equivalent for bodily injury, and $500,000.00 for property damage. Such policy shall name Landlord and Tenant as insureds. Before taking possession of the Leased Premises, the Tenant shall furnish the Landlord with a certificate evidencing the aforesaid insurance coverage. The aforementioned minimum limits of policies shall in no event limit the liability of Tenant hereunder. No policy of Tenant's insurance shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Landlord by the insurer. Tenant shall, at least thirty (30) days prior to the expiration of the policies, furnish Landlord with renewals or binders. Tenant shall insure the Leased Premises to the full replacement value with an "all risk" or equivalent policy of property insurance, naming Landlord as insured. Landlord may provide Tenant the option of insuring the building through Landlord's carrier, and reimbursing Landlord for the cost of such insurance. The insurance shall be issued by carriers acceptable to the Landlord, and Landlord's approval shall not be unreasonably withheld. The Tenant agrees that if Tenant does not take out and maintain such insurance, Landlord may (but shall not be required to) procure such insurance on Tenant's behalf and charge Tenant the premiums together with a twenty-five percent (25%) handling charge, payable upon demand. 18. MUTUAL RELEASE. In addition to, and not by way of limitation of, the tenant's obligation to indemnify Landlord, Landlord and Tenant hereby mutually waive their respective rights of recovery against each other for any loss insured by fire, extended coverage, and other property insurance policies existing for the benefit of the respective parties. Each party shall obtain any special endorsements, if required, by their insurer to evidence compliance with the waiver. Each insurance policy obtained by the Landlord and Tenant shall provide that the insurance company waives all rights of recovery by way of subrogation against either party in connection with any damage covered by the policy. Neither party shall be liable to the other for any damage caused by fire or any other risk insured against under any property insurance policy 15 carried under the terms of this lease to the extent of such insurance. If an additional premium is required to be paid to obtain a waiver of subrogation, the applicant shall, within ten (10) days after notice to it of the required premium, give written notice of the additional premium to the one to whom the waiver would apply, and the one to whom the waiver would apply shall either pay the additional premium or this mutual release shall not be applicable to damages covered by that insurance policy. (e.g. If Landlord's insurance carrier requires an additional premium, Tenant would be required to pay the additional premium or this paragraph would not release Tenant. Tenant would then be subject to suit and liable for damages caused by Tenant, whether or not Landlord's loss was covered by insurance.) 19. ASSIGNMENT AND SUBLETTING. The Tenant may assign, transfer, mortgage, pledge, hypothecate or encumber this lease or any interest therein, and may sublet the Leased Premises or any part thereof, upon receiving prior written consent from Landlord. If Tenant intends to mortgage, pledge, encumber or hypothecate this lease or the Leased Premises or any interest therein, Landlord shall not unreasonably withhold consent, provided such action in no way restricts Landlord in executing its rights, or purports to grant to any third party rights in excess of those rights of Tenant under this Lease Agreement. If Tenant intends to transfer, assign or sublet the Lease Premises or any interest therein to another tenant, Landlord will not unreasonably withhold its consent. Any attempt to assign or sublet without such consent shall be null and void and shall constitute a breach of this lease. if the Landlord does give written consent to an assignment or sublet, Tenant shall still be liable for full performance of all the Tenant's obligations in this lease. In the event Landlord is desirous of leasing the Leased Premises to a third party on terms and conditions acceptable to the Landlord (which include the terms and conditions of this lease) during a time when Tenant has vacated or abandoned the premises, Tenant agrees to terminate this lease effective the date the new tenant takes possession of the Leased Premises if Landlord so requests. Upon such termination, Landlord and Tenant agree that all rights and responsibilities of this lease shall end as though the lease had ended according to its terms effective that date. Landlord agrees to give Tenant at least thirty (30) days notice of a potential subtenant or replacement tenant. In the event Tenant determines it desires to retain full possession and control of the Leased Premises in order to continue its business operations on the Leased Premises after a period of time not to exceed nine (9) months from the date of vacation or abandonment, then Tenant shall provide written 16 notice, within fifteen (15) days following receipt of notice from Landlord of the prospective subtenant or replacement tenant, that the Tenant desires to continue in sole possession and control of the Leased Premises and to reject the subtenant or replacement tenant and will agree to reoccupy and reuse the Leased Premises for its manufacturing and assembling operation, or such other operations as may be agreed to between Landlord and Tenant, within a period of time not to exceed nine (9) months from the date of vacation or abandonment. Failure of the Tenant to commence such reuse of the premises within the nine (9) month period is a default by Tenant and a breach of the lease. An assignment or sublet includes the following: (1) any action which causes a change in control of the Tenant corporation at any time during the Term; (2) if all or substantially all of the assets of Tenant shall be sold, assigned or transferred with or without a specific assignment of the Lease; or (3) if Tenant shall merge or consolidate with any firm or corporation. Landlord, at its option, may, by giving sixty (60) days prior written notice to Tenant after discovery of the action, declare such change to be an assignment or subletting in violation of this Lease, subject to the remedies provided for in event of breach of this Lease. 20. QUIET ENJOYMENT. Landlord covenants that Tenant, upon performance of all Tenant's obligations under this lease, shall lawfully and quietly hold, occupy and enjoy the Leased Premises during the term of this lease without disturbance by the Landlord or from any person claiming through the Landlord. 21. SIGNS. All signs must comply with sign ordinances and be placed in accordance with the required permits and be consistent with the Olds Station Protective Covenants. The Landlord may demand the removal of any signs which do not receive its prior written approval. Tenant's failure to comply with Landlord's demand to remove within forty-eight (48) hours of such demand shall constitute a breach of this paragraph and shall entitle the Landlord to cause the sign to be removed and the building repaired at the Tenant's sole expense. At the termination of this lease, Tenant shall remove all signs placed by it upon the Leased Premises, and shall repair any damage caused by such removal. 22. VACATING UPON TERMINATION. Tenant covenants and agrees that upon the expiration of the lease or renewal term, or upon the termination of the Lease for any cause, Tenant shall at once peacefully surrender and deliver the whole of the above-described Leased Premises together with all improvements, except trade fixtures, thereon to the Landlord, Landlord's agents or 17 assigns unless Tenant shall have expressly acquired the right to remain through another written extension of this Lease. 23. PRESENCE AND USE OF HAZARDOUS SUBSTANCES. Tenant shall not, without Landlord's prior written consent, keep on or around the Leased Premises, for use, disposal, treatment, generation, storage or sale, any substances designated as, or containing designated as hazardous, dangerous, toxic or harmful (collectively referred to as "Hazardous Substances"), and/or which are subject to regulation by any federal, state or local law, regulation, statute or ordinance. 23.1 With respect to any Hazardous Substance, Tenant shall: 23.1.1 Comply promptly, timely, and completely with all governmental requirements for reporting, keeping and submitting manifests, and obtaining and keeping current identification numbers; 23.1.2 Submit to Landlord true and correct copies of all reports, manifests and identification numbers at the same time as they are required to be and/or submitted to the appropriate governmental authorities; 23.1.3 Within five (5) days of Landlord's request, submit written reports to Landlord regarding Tenant's use, storage, treatment, transportation, generation, disposal or sale of Hazardous Substances and provide evidence satisfactory to Landlord of Tenant's compliance with the applicable governmental regulation; 23.1.4 Allow Landlord or Landlord's agents or representatives to come on the Leased Premises at all times, after reasonable notice, to check Tenant's compliance with all applicable governmental regulations regarding Hazardous Substances; 23.1.5 Comply with minimum levels, standards or other performance standards or requirements which may be set forth or established for certain Hazardous Substances (if minimum standards or levels are applicable to Hazardous Substances present on the Leased Premises, these levels or standards shall be established by an on-site inspection by the appropriate governmental authorities and shall be set forth in an addendum to this Lease); and 23.1.6 Comply with all governmental rules, regulations and requirements regarding the proper and lawful use, sale, transportation, generation, treatment and disposal of Hazardous Substances. 18 23.1.7 Landlord shall have the right, at reasonable times and upon reasonable notice to Tenant, to inspect the Leased Premises to monitor Tenant's compliance with this section. Landlord shall pay and be responsible for the costs of its own inspection. Notwithstanding the foregoing, if an inspection reveals the use or presence of Hazardous Substances requiring clean-up or other action, then Tenant shall pay, as part of the clean-up cost incorporated in Paragraph 24.2 below, Landlord's actual costs, including reasonable attorney's fees and costs, incurred in making or providing for such inspection and any follow-up inspections. 23.2 CLEANUP COSTS. DEFAULT AND INDEMNIFICATION. 23.2.1 Tenant shall be fully and completely liable to Landlord for any and all clean-up costs and any and all charges, fees, penalties (civil and criminal) imposed by any governmental authority with respect to Tenant's use, disposal, transportation, generation and/or sale of Hazardous Substances, in or about the Leased Premises. 23.2.2 Tenant shall indemnify, defend and hold Landlord harmless from any and all costs, fees, penalties and charges assessed against or imposed upon Landlord including reasonable Landlord's attorneys' fees and costs as a result of Tenant's use, disposal, transportation, generation and/or sale of Hazardous Substances. 23.2.3 Upon Tenant's default under this Article, in addition to the rights and remedies set forth elsewhere in this Lease, Landlord shall be entitled to the following rights and remedies. 23.2.3.1 At Landlord's option, to terminate this Lease immediately; and 23.2.3.2 To recover any and all damage associated with the default, including, but not limited to clean-up costs and charges, civil and criminal penalties and fees, loss of business and sales by Landlord and any and all damages and claims asserted by third parties together with reasonable attorneys' fees and costs. 24. LICENSES AND PERMITS. Tenant, at its sole expense, shall obtain all licenses or permits which may be required for conducting its business within the terms of this lease, or for the making of repairs, alterations, improvements or additions, and the Landlord, when necessary, will join with the Tenant in applying for all such permits and licenses. 25. DEFAULT AND RE-ENTRY. If Tenant defaults in any rent payment due under the terms of this lease, and such default 19 is not cured within ten (10) calendar days after written notice from Landlord or within thirty (30) calendar days after written notice from Landlord if the default is other than the payment of rent, Landlord may terminate this lease and re-enter the Leased Premises; or Landlord may, without terminating this lease, re-enter said Leased Premises, and relet the whole or any part upon as favorable terms and conditions as the market will allow for the balance of the lease term. Notwithstanding any re-entry, the liability of the Tenant for the full amounts payable by the Tenant under this lease shall not be extinguished for the balance of the lease or renewal term. Tenant shall make good to Landlord any deficiency arising from a reletting of the Leased Premises at a lesser rental or on different economic terms plus the reasonable costs and expenses of re-letting the Leased Premises including, but not limited, to commissions, advertising, attorney's fees, and the costs of renovating or altering the Leased Premises. At Landlord's sole option, the deficiency between the amount to be received by the relet and the amount to be received if Tenant had fulfilled the lease may be reduced to present cash value based on a six percent (6%) yield, and be declared due and owing, at any time after the property is relet. Tenant shall pay such amount upon demand. If Landlord elects this remedy, Landlord shall have no other remedy against Tenant for rent. Alternatively Tenant shall pay any deficiency caused by Tenant's default each month. The ability of Landlord to re-enter and relet shall not impose upon Landlord the obligation to do so. Each of the following events is a default by Tenant and a breach of this lease: 25.1 Any failure by Tenant to make any payment required to be made by Tenant on or before the time the payment is due. 25.2 The abandonment or vacation of the Leased Premises by the Tenant. 25.3 A failure by Tenant to observe and perform any provisions of this lease which is to be observed or performed by the Tenant. 25.4 The appointment of a receiver to take possession of all or substantially all the assets of the Tenant. 25.5 A general assignment by Tenant for the benefit of creditors. 25.6 Any action taken or suffered by Tenant under any insolvency or bankruptcy act. If Tenant becomes insolvent, 20 bankrupt, or if a receiver, assignee, or other liquidating officer is appointed for the Tenant's business, Landlord may cancel this lease, subject to Section 365 of Bankruptcy Code, 11 U.S.C. 365. 26. LANDLORD'S EXPENSES ON TENANT'S DEFAULT. If either party to this lease fails (the "Defaulting Party") to make any payment or perform any obligations under this lease, the non-defaulting party, with reasonable notice to or demand upon the Defaulting Party and without waiving or releasing the Defaulting Party from any obligations under this lease, may make any payment or perform any other obligation of the Defaulting Party, in such manner and to such extent as the non-defaulting party deems desirable. All costs and expenses paid by the non-defaulting party in connection with the performance of any such obligations, together with interest at the rate of 12% per annum, compounded annually, from the date of making such expenditure by the non-defaulting party, shall be payable to the non-defaulting party upon demand. 27. REMOVAL OF PROPERTY. If the Landlord, after Tenant's default, lawfully re-enters the Leased Premises, Landlord shall have the right, but not the obligation, to remove all property located therein and to place such property in storage at the Tenant's expense and risk. If the Tenant does not pay the storage cost, after it has been stored for a period of thirty (30) calendar days or more and after giving Tenant ten (10) days written notice of sale, Landlord may, at its sole discretion, sell, or permit to be sold, any or all of the property at public or private sale. Landlord, at its sole discretion, may retain any trade fixtures and other items of Tenant's property, which are not removed by the Tenant at the expiration of the lease term or any renewal period or at such earlier time as Tenant's rights under this lease may be terminated for default. At Landlord's option, title to the fixtures and other property shall be vested in the Landlord without any duty to account or pay to Tenant for the value of the property or for any other matter in connection for the Landlord's acquisition of the fixtures and attached property. 28. HOLDOVER. If Tenant, with the implied or expressed consent of the Landlord, shall holdover after the expiration of the term of this lease, Tenant, shall remain bound by all this lease's covenants and agreements, except that the tenancy shall be from month to month, and the monthly rent shall be the rent amount due the last month of the immediately preceding term plus fifteen percent (15 percent). If Tenant should holdover beyond the expiration of this lease term, or the renewal thereof, without consent of the Landlord, Tenant shall pay as liquidated damages a sum equal to 21 double the rent amount due the last month of the immediately preceding term. This paragraph shall not affect any of the Landlord's rights to terminate this lease and declare a forfeiture or to otherwise take possession of the Leased Premises. 29. NON-WAIVER OF COVENANTS. The Landlord's failure to insist upon the strict performance of any provision of this lease shall not be construed as depriving the Landlord of the right to insist on strict performance of such provision in the future. The subsequent acceptance of rent, whether full or partial payment, by the Landlord shall not be deemed a waiver of any preceding breach by the Tenant of any term, covenant, or condition of this lease, other than the failure of the Tenant to pay the particular part of the rent accepted, regardless of the Landlord's knowledge of the proceeding breach at the time of the acceptance of that part of the rent. 30. ARBITRATION. In the event that the parties cannot agree on any matter of this agreement, they shall consult together with a view of resolving the dispute. In the event they cannot agree upon a resolution to the dispute, the same shall be settled pursuant to RCW Chapter 7.04 et. seq. except as herein modified. Such arbitration shall be before one disinterested arbitrator, if one can be agreed upon, otherwise before three disinterested arbitrators, one named by the Landlord, one by the Tenant, and one by the two thus chosen. If all arbitrators have not been appointed within fifteen (15) days after demand for arbitration, then either side may apply to the Chelan County Superior Court, upon ten (10) days notice to the other, for appointment of the necessary arbitrators remaining to be appointed, and the judicial appointment shall be binding and final. The arbitrator or arbitrators shall determine the controversy in accordance with the laws of the State of Washington as applied to the facts found by him or them. The arbitrator or arbitrators may grant injunctions or other relief in such controversy or claims. The decision of the arbitrator or arbitrators shall be final, conclusive and binding on the parties and a judgment may be obtained thereon in any Court having jurisdiction. Landlord and Tenant shall each pay one-half of the cost and expenses of such arbitration, and each party shall separately pay for its own attorneys' fees and expenses. 31. COST AND ATTORNEY'S FEES. In the event it is necessary for either party to utilize the services of an attorney to enforce any of the terms of this agreement, such enforcing party shall be entitled to compensation for its reasonable attorney's fees and costs. In the event of litigation regarding 22 any of the terms of this agreement, the prevailing party shall be entitled, in addition to other relief, to such reasonable attorney's fees and costs as determined by the court. 32. CONDEMNATION. If all the Leased Premises are taken by any public authority under the power of eminent domain, this lease shall terminate as of the date possession by said public authority. A condemnation or taking by public authority shall not be grounds for terminating this lease unless twenty five percent (25%) or more of the Property is taken. No award for any partial or entire taking shall be apportioned. However, the Tenant will not be required to give or assign the Landlord any interest in any award made to the Tenant for the taking of personal property and fixtures belonging to the Tenant or for the interruption or damage to Tenant's business or for Tenant's unamortized cost of any leasehold improvements. In the event of a partial taking which does not result in the termination of this lease, rent shall be proportionately abated based on the amount of Leased Premises made unusable. 33. FORCE MAJEURE. Landlord's or Tenant's failure to perform any of its obligations under this lease shall be excused if due to causes beyond the control of Landlord or Tenant, including but not restricted to acts of God, acts of the public enemy, acts of any government, fires, floods, earthquakes, epidemics and strikes. 34. LIGHT, AIR AND VIEW. Landlord does not guarantee the continued present status of light, air or view over any premises adjoining or in the vicinity of the Industrial Building. 35. CAPTIONS AND CONSTRUCTION. The titles to sections of the lease are not a part of this lease and shall have no effect upon the construction and interpretation of any part of the lease. 36. TIME. TIME IS OF THE ESSENCE IN THIS LEASE. 37. BINDING ON HEIRS, SUCCESSORS AND ASSIGNS. All the covenants, agreement terms and conditions contained in this lease shall apply to and be binding upon Landlord and Tenant and their respective heirs, executors, administrators, successors and assigns, except as may be provided to the contrary in other sections of this lease. 38. SAVINGS CLAUSE. Nothing in this Lease shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provisions of this Lease and any statute, law, public regulation or 23 ordinance, the latter shall prevail, but in such event, the provisions of this Lease affected shall be curtailed and limited only to the extent necessary to bring it within legal requirements. 39. INCORPORATION. This agreement represents the entire agreement of the parties. Unless set forth herein in writing, neither party shall be bound by any statements or representations made, and each agrees that there are no such statements or representations being relied upon in making this lease. No alterations, changes, or amendments to this lease will be binding upon either party unless such party has executed a written statement acknowledging such alteration, change or amendment. 40. GOVERNING LAW. This lease shall be governed by the law of the State of Washington and venue for any action arising from this Lease shall be in Chelan County, Washington. 41. REMEDIES CUMULATIVE. The specified remedies to which the Landlord may resort under the terms of this lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which the Landlord may be lawfully entitled in case of any breach or threatened breach by Tenant of any provision of this lease. In addition to the other remedies provided in this lease, Landlord shall be entitled to the restraint by injunction of the violation, or attempted or threatened violation, of any of the covenants, conditions, or provisions of this lease. The Landlord's selection of one or more remedies shall not constitute an election of remedies to the exclusion of any other remedies. 42. LEASE YEAR. As used herein, the term "lease year" shall mean a twelve month period commencing on the date the term of this lease commences and each twelve month period thereafter commencing on each anniversary of the commencement date. 43. CONFLICT OF PROVISIONS. In case of conflict, the more specific provisions of this lease shall control. 44. STATUS OF A CORPORATION. Each individual executing this lease on behalf of Tenant corporation represents and warrants that he is duly authorized to execute and deliver this lease on behalf of said corporation in accordance with a duly adopted resolution of the Board of Directors or in accordance with the Bylaws of said corporation, and that this lease is binding upon said corporation in accordance with its terms. 24 45. NOTICES. Any notices shall be effective if personally served upon the other party or if mailed by registered or certified mail, return receipt requested, to the following addresses: Landlord: Port of Chelan County Post Office Box 849 Wenatchee, Washington 98807-0849 Tenant: Pacific Coast Technologies, Inc. Upon possession by Tenant of premises, notices shall be sent to new address of tenant in the leased premises. Notices mailed shall be deemed given on the date of mailing. Landlord and Tenant shall notify each other of any change of address. 46. INTERPRETATION. This lease has been submitted to the scrutiny of all parties and their counsel, if desired, and it shall be given a fair and reasonable interpretation in accordance with its words, without consideration to or weight given to its being drafted by any party or its counsel. All words used in the singular shall include the plural; the present tense shall include the future tense; and the masculine gender shall include the feminine and neuter genders. IN WITNESS WHEREOF, the parties have set their hands this 1st day of February, 1993, and state that they are authorized to execute this agreement. LANDLORD TENANT Port of Chelan County Pacific Coast Technologies, Inc. By: /s/ RICHARD C. HARRIS By: /s/ DON A. WRIGHT ---------------------- --------------------------- Its: Manager Its: President STATE OF WASHINGTON ) )ss. County of Chelan ) I certify that I know or have satisfactory evidence that Richard C. Harris is the person who appeared before me, and 25 said person acknowledged that he/she signed this instrument, on oath stated that he/she was authorized to execute the instrument and acknowledged it as the Manager of Port of Chelan County to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument. Dated this 1 day of February, 1993. /s/ DAYLE S. RUSHING ---------------------------------- NOTARY PUBLIC, State of Washington My appointment expires 3-3-93 STATE OF WASHINGTON ) )ss. County of Chelan ) I certify that I know or have satisfactory evidence that Don A. Wright is the person who appeared before me, and said person acknowledged that he/she signed this instrument, on oath stated that he/she was authorized to execute the instrument and acknowledged it as the President of Pacific Coast Technologies to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument. Dated this 1 day of February, 1993. /s/ DAYLE S. RUSHING ---------------------------------- NOTARY PUBLIC, State of Washington My appointment expires 3-3-93 EX-10.1.16 17 1 ADDENDUM TO LEASE AGREEMENT WITH PACIFIC COAST TECHNOLOGIES, INC. 1993 THIS ADDENDUM to the Lease Agreement, which was executed on February 1, 1993, ("Lease") is entered into this date, between the Port of Chelan County, a Washington municipal corporation, ("Landlord"), and Pacific Coast Technologies, Inc., a Washington corporation, ("Tenant"), sometimes collectively referred to as the "Parties." The Parties agree as follows: 1. Paragraph 4.2 of the Lease, entitled "Base Rent" provides that the Base Rent will be an amount, excluding leasehold tax, equal to the monthly payment necessary to amortize the cost of construction of the basic building, together with the value of land described in paragraph 1 of the Lease, over twenty (20) years at an interest rate of seven percent (7%) per annum. The cost of construction is defined in the Construction Agreement dated February 1, 1993, which is incorporated by reference into the Lease. 2. The basic building does not include the cost of the following items: air distribution system; electrical services to equipment; additional requirements of heating, ventilation, and air conditioning ("HVAC") system beyond that originally contemplated; chemical storage; sign and flag pole; relights; a suspended ceiling in the production area and the built in Lobby reception counter and office fixtures (collectively referred to as the "Improvements"). The Tenant agrees that in addition to the Base Rent as defined in the Lease, Tenant shall pay an additional rental amount ("Additional Rent") based on the cost of the Improvements as set forth below. Landlord agrees to include the Improvements as part of the total construction package submitted for competitive bidding and require that each Improvement be bid as a separate line item, except for the additional HVAC requirements, which could not be separately set out. The cost of the additional HVAC will be determined by agreement between Landlord and Tenant, after consulting with the Contractor, and if a dispute arises the cost shall be determined as set forth in paragraph 9 of the Construction Agreement between the Parties dated February 1, 1993. 3. The Additional Rent shall be determined by calculating the total cost of the Improvements, plus sales tax ("Cost of Improvements"). The Cost of Improvements shall then be amortized over twenty (20) years at seven percent (7%) interest per annum, payable monthly, with the resulting monthly amount being the Additional Rent. During the first five (5) years of the Lease, 2 Tenant shall pay the same percent of Additional Rent as it pays of Base Rent, as set out in paragraph 4.1 of the Lease. The Additional Rent shall not be subject to the increase set forth in paragraph 4.2 of the Lease during the Initial Lease Term or any renewals thereof. Tenant agrees to pay leasehold tax on the Additional Rent payment. 4. In the event Tenant does not renew the Lease for additional terms totalling ten (lO) years, for a total Lease Term of twenty (20) years, Tenant agrees to pay a Lease Cancellation Fee of an amount equal to the unamortized portion of the Cost of Improvements based on the calculations utilized to arrive at the Additional Rent; due and payable at the termination of the Lease. 5. The other provisions of the Lease are incorporated herein, ratified and reaffirmed and remain in full force and effect. DATED this 22nd day of April 1993. LANDLORD: TENANT: Port of Chelan County Pacific Coast Technologies, Inc. By: /s/ RICHARD C. HARRIS By: /s/ DONALD WRIGHT ------------------------ ----------------------------- RICHARD C. HARRIS DONALD WRIGHT Manager President STATE OF WASHINGTON ) ) ss. County of Chelan ) I certify that I know or have satisfactory evidence that RICHARD C. HARRIS is the person who appeared before me, and said person acknowledged that he signed this instrument, on oath stated that he was authorized to execute the instrument and acknowledged it as the Manager of the PORT OF CHELAN COUNTY to be the free and voluntary act of such party for the uses' and purposes mentioned in the instrument. DATED this 22nd day of April, 1993. /s/ CRICKET BRUNZ ---------------------------------- NOTARY PUBLIC, State of Washington My appointment expires 12/9/96 STATE OF WASHINGTON ) ) ss. County of Chelan ) 3 I certify that I know or have satisfactory evidence that DONALD WRIGHT is the person who appeared before me, and said person acknowledged that he signed this instrument, on oath stated that he was authorized to execute the instrument and acknowledged it as the President of PACIFIC COAST TECHNOLOGIES to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument. DATED this 22nd day of April, 1993. /s/ CRICKET BRUNZ ---------------------------------- NOTARY PUBLIC, State of Washington My appointment expires 12/9/96 EX-10.1.17 18 1 LEASE THIS LEASE is made and entered into as of May 31, 1994, by and between HERMAN L. "JACK" JONES (the "Lessor") and CASHMERE MANUFACTURING CO., INC., a Washington corporation (the "Lessee"). RECITALS A. Lessor is the owner of certain real property including all buildings, fixtures and improvements located thereon situated in Chelan County, Washington, and described in Exhibit A attached hereto (the "Property"). B. Lessee desires to lease a part of the Property described in Exhibit B attached hereto (the "Premises") from Lessor, and Lessor desires to lease the Premises to Lessee. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. Agreement to Lease; Term. Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the Premises, commencing as of the date hereof and terminating on June 30, 1997 (the "Lease Term"). 2. Rent. In consideration of the performance of Lessor's covenants, Lessee agrees to pay Lessor, at such place as Lessor may from time to time designate in writing, the sum of Nine Thousand Dollars ($9,000) per month, commencing with the date hereof and continuing on the first day of every month until the end of the Lease Term. 3. Delivery and Acceptance. Lessor agrees to deliver the Premises to Lessee in good condition, suitable for Lessee's business purposes and all activities related thereto. The Premises shall be suitable for Lessee's business purposes if they are reasonably clean and free from obstruction, are in full compliance with all local building, zoning, health, fire, safety, occupancy and similar regulations and ordinances in light of Lessee's intended use of the Premises, and are in full compliance with federal, state and other similar occupational safety and health acts, including, but not limited to, what is commonly termed and referred to as "OSHA." The parties agree that if, when Lessee first uses any equipment or any part of the Premises, it is not in good working condition, or if any other defect is not likely to be discovered until the happening of some event (such as a leaking roof following rain), such shall be deemed to have existed prior to the term of this lease and Lessor shall be responsible for promptly repairing such equipment or defects. 2 4. Use of Premises and Lease. Lessee shall have the right to use the Premises for any lawful business purpose. Lessor agrees to execute amendments to this lease and estoppel certificates confirming the validity of this lease, the status of rents, non-existence of defaults and granting the Lessee's lender reasonable opportunity to cure defaults, all to the extent required by Lessee's lender, provided that no such amendments or certificates materially affect any of the Lessor's rights herein. 5. Alterations and Substitutions. Lessor grants Lessee the right to make such alterations, additions and substitutions to the Premises as Lessee's business may from time to time require, at Lessee's sole cost and expense. Any such alterations, additions and substitutions shall become the property of Lessor upon termination of this lease. 6. Signs and Advertisements. Lessor grants Lessee the right to erect and maintain upon the Premises such signs or other means of identifying or advertising its business as Lessee may from time to time deem appropriate, provided the same comply with all applicable laws, ordinances and regulations and do no permanent injury or damage to the Premises. 7. Repairs and Maintenance. Lessor shall (a) maintain the foundations, roof, exterior walls, gutters and downspouts of the Premises in good condition and repair, (b) maintain the sewer, water, gas, telephone and power lines and meters serving the Premises in good condition and repair, (c) maintain the electrical, plumbing, heating, ventilating and air-conditioning equipment, ducts and appurtenances in good condition and repair; (d) make such repairs to the Premises as may be required or become necessary because of any defects therein which exist as of the first day of the term hereof or because of faulty workmanship or the use of faulty materials, and (e) make such repairs and alterations as may be required by federal, state or local laws, ordinances or regulations. Notwithstanding the foregoing, it shall be the duty of Lessee to make all repairs to the Premises required because of (a) the negligence of Lessee or any of Lessee's agents or employees, (b) the construction, installation, maintenance, operation, repair, replacement or removal of any sign, trade fixture or equipment which Lessee may cause to be installed and maintained in, on or about the Premises, or (c) any change, alteration or improvement made by Lessee in and to the Premises. Subject to such duties and obligations of Lessor, Lessee shall and covenants and agrees to keep and maintain the Premises in such condition and repair as to enable Lessee to employ the same for the operation of its business, ordinary wear and tear, damage by casualty, and any defects existing as of the first day of the term of this lease excepted. 3 8. Destruction or Damage to the Premises. In the event the Premises or any part thereof are substantially damaged by fire or other casualty, this lease shall be subject to cancellation at the option of either party. If this lease is so cancelled, all rent or other sums paid in advance by Lessee not earned as of the date of such damage shall be refunded to Lessee. If this lease is not so cancelled, Lessor shall proceed, at its sole cost and expense and with due diligence to restore the damaged property to substantially the same condition existing immediately prior to such damage, and from and after the date of such damage to the date of completion of the repairs, the rent and other payments required by Lessee under this lease shall abate. For the purposes of this paragraph, the Premises shall be deemed substantially damaged if such damage materially interferes with the operation of Lessee's business and is not capable of being repaired within thirty (30) days following the date of the casualty. If at any time during the term of this lease the Premises are damaged by fire or other casualty and are fully restored and ready for Lessee's occupancy within thirty (30) days following the date of the casualty, this lease shall remain in full force and effect. Lessor shall proceed with due diligence to repair and restore the Premises to the condition existing prior to such damage, and from the date of the damage to the date of completion of said repairs the rent payable by Lessee hereunder shall abate to the extent the Premises are unusable for Lessee's business. 9. Insurance. Lessor shall, during the entire term of this lease, keep the Premises constantly insured, with a company licensed to do business in the State of Washington against fire, lightning and such other risk and perils as may from time to time be included under the extended coverage insurance endorsement then in use in the State of Washington, in an amount equal to the actual cash value thereof, less reasonable loss deductible provisions. The proceeds of all casualty insurance policies shall be used to restore the Premises to substantially the same condition existing immediately prior to the damage unless this lease is cancelled, in which event any proceeds shall belong to Lessor. Lessor shall in all events be entitled to any proceeds in excess of what is necessary to restore the Premises. Lessee shall carry and pay for public liability insurance in an insurance company licensed to do business in the State of Washington during the entire term of this lease in amounts not less than $__________ for injury to persons and $_______ for damage to property arising from any claim made against Lessor or Lessee and which is related to the Premises or the use thereof. 10. Subrogation. As a part of the consideration of this lease, each of the parties hereto releases the other from 4 all liability for damage due to any act or neglect the other party caused to property owned by said parties which is the result of fire or other casualty covered by insurance carried at the time of such casualty by either party hereto; provided, however, the releases herein contained shall not apply to loss or damage resulting from the willful or premeditated acts of either of the parties hereto, their agents or employees; and provided further, nothing in this paragraph shall be interpreted or have the effect of relieving or modifying any obligation of any insurance company. Any party required by this lease to maintain any casualty insurance shall make reasonable attempts to obtain the written consent to this waiver of subrogation from its insurer. 11. Lessee's Property. Lessor shall not be responsible for loss or damage to the personal property of Lessee, its sublessees, employees, customers or invitees, in the absence of the receipt of an insurance payment by Lessor attributable to such loss (in which event said payment shall be delivered forthwith to Lessee), or unless such loss or damage was occasioned by the intentional or reckless act of Lessor, its agents, servants or employees. 12. Taxes and Assessments. All property taxes levied against the Premises or any portion thereof shall be paid by Lessor. 13. Utilities. The bills for all utilities used by Lessee during the term of this lease shall be paid by Lessee. 14. Condemnation. In the event that a portion or all of the Premises are taken or condemned by any public or quasi-public authority having the power of eminent domain, or if the grade of any street or alley adjacent to the Premises is changed by any competent authority and such change of grade makes it necessary or desirable to remodel the Premises to conform to the changed grade, or should the uses to which the Premises may be placed become in any manner restricted, and, in the reasonable opinion of Lessee, any of the foregoing substantially interferes with Lessee's business or use of the Premises, Lessee shall have the option of cancelling this lease by affording Lessor written notice to that effect within thirty (30) days of the effective date of such condemnation, interference or use restriction. In such event rent shall abate as of the date of such condemnation, interference or restriction, and all rent paid in advance by Lessee not actually earned as of said date shall be refunded to Lessee. If this lease is not so cancelled, Lessor shall promptly restore the Premises to the condition existing immediately prior to such condemnation or as similar thereto as is practicable, and from and after the date of the condemnation the rent and other payment obligations of Lessee hereunder shall be adjusted based upon that portion of the Premises taken and/or the Lessee's use 5 thereof altered or restricted. Lessee shall be entitled to all condemnation awards which are attributable to or made on account of any interest, loss or expense of Lessee, including the value of this lease, Lessee's moving expenses, and the unamortized value of Lessee's improvements to the Premises which are not capable of being moved by Lessee. 15. Default. In the event that Lessee defaults in the performance of any covenant applicable to it under this lease, Lessor shall have the right to cancel this tenancy; provided, however, that Lessee shall be afforded written notice of such default and shall be given an opportunity to cure the same within ten (10) days of its receipt of such notice if the default is for failure to pay rent or any other sum, or within thirty (30) days of its receipt of such notice if the default is of any other nature. If Lessee is not able, with reasonable effort, to cure a default, other than a default for failure to pay rent or any other sum, within said 30-day period, Lessor shall not cancel this lease if Lessee undertakes to cure the same within thirty (30) days and proceeds to effect such cure with due diligence. Any default by Lessor hereunder which is not cured within the same grace periods and conditions shall afford Lessee the right to cancel this lease. 16. Lessee's Ability to Cure Defaults. In the event that Lessor fails or neglects to perform or observe any of its covenants herein, Lessee shall have the right (but not the duty), upon ten (10) days' notice to Lessor, to remedy such default. All sums expended by Lessee to remedy such default, together with interest thereon from the date of expenditure at the rate of twelve per cent (12%) per annum, but not to exceed the maximum interest rate permitted by law, shall, at Lessee's option, be deemed to constitute prepaid rent or be refunded to Lessee on demand. 17. Hazardous Materials of Lessor. Lessor represents and warrants that it has not received notification of any kind from any governmental agency regarding actual, potential, or threatened contamination of the Property by Hazardous Substances. Lessor agrees to indemnify and hold Lessee harmless against any and all losses, liabilities, suits, obligations, fines, damages, judgments, penalties, claims, costs and expenses (including attorneys' fees and disbursements) which may be imposed on, incurred or paid by or asserted against Lessee, including without limitation, all costs of any governmentally required remedial action or cleanup suffered or incurred by Lessee, arising out of or related to any use of the Premises or Property or presence of asbestos or Hazardous Substances in Premises or Property or portion thereof occurring prior to the date hereof. The term "Hazardous Substances" shall mean any and all hazardous, toxic, infectious, or radioactive substances, wastes, 6 or materials listed or defined by any Environmental Law and include without limitation petroleum oil and its fractions, any material containing more than one percent by weight of asbestos, and any other substance that is prohibited or regulated by any applicable Environmental Law. The term "Environmental Laws" means any and all federal, state, and local statutes, regulations, and ordinances pertaining to the protection of human health or the environment and any applicable orders, judgements, decrees, permits, licenses or other authorizations or mandates under such laws. 18. Hazardous Substances of Lessee. Lessor acknowledges that Lessee may, in the conduct of its manufacturing business, use, generate, transport, store, or otherwise handle Hazardous Substances on the Premises. Upon expiration or termination of this lease for any reason, Lessee shall remove all Hazardous Substances and their containers from the Premises that were placed there by Lessee or resulted from Lessee's use of the Premises, and, upon request of Lessor, Lessee shall certify in writing to Lessor that during the term of the lease no Hazardous Substance has been leaked, spilled, released or disposed of and still remains on the Premises. Lessee agrees to indemnify and hold Lessor harmless against any and all losses, liabilities, suits, obligations, fines, damages, judgments, penalties, claims, costs and expenses (including attorneys' fees and disbursements) which may be imposed on, incurred or paid by or asserted against Lessor as a result of Lessee's use, generation, transportation, storage or handling of Hazardous Substances on the Premises during the term of this lease. 19. Encumbrances. Lessor shall not and hereby covenants and agrees not to encumber or permit the filing of any lien against the Premises or any part thereof except for such liens or encumbrances disclosed to and permitted by Lessee. Unless otherwise agreed to by Lessee, any such encumbrance shall be subject and subordinate to this lease. 20. Quiet Enjoyment. Lessor hereby covenants and represents that it is the owner of marketable fee title to the Premises and that it has full right, title, power and authority to make, execute and deliver this lease. Except for the exceptions to title set forth on Exhibit C, Lessor agrees that so long as Lessee is in compliance with the terms hereof, Lessee shall peaceably and quietly have, hold and enjoy the Premises for the Lease Term and for the term of any extension or renewals of this lease, and Lessor shall not do anything or fail to perform any obligation which would substantially interfere with or disrupt Lessee's business or frustrate Lessee's business purpose. With respect to all mortgage or deed of trust on the Premises as of the date of this lease, Lessor shall provide Lessee with a separate nondisturbance agreement executed by Lessor and the holder of such mortgage or deed of trust which preserves the 7 right of Lessee under this lease and contains the agreement of such holder that so long as Lessee is not in default hereunder this lease shall not be divested or in any way affected by a foreclosure, deed in lieu of foreclosure or any other post- default remedy or proceeding under such mortgage or deed of trust. 21. Americans with Disabilities Act. Lessor warrants that as of the date hereof, the Premises complies with the Americans with Disabilities Act of 1990 and any related rules and regulations, as amended from time to time ("ADA"). Lessor shall perform and pay for compliance that is required by changes to the ADA enacted or promulgated after the date of this lease. Throughout the term of this Lease, Lessor shall also perform and pay for compliance with the ADA outside of the Premises, including without limitation, provision of an accessible path of travel to the Premises. To the extent applicable, Lessee shall perform and pay for compliance with the ADA affecting the Premises that is required by actions taken by Lessee to alter or remodel the Premises. 22. Legal Relationship of the Parties. This lease shall not be interpreted or construed as establishing a partnership or joint venture between Lessor and Lessee, and neither party shall be liable for the debts or obligations of the other. 23. Assignments and Subleasing. Lessee shall not assign, sublease, mortgage, pledge, sell or in any other manner transfer, convey or dispose of this lease or any interest therein or part thereof, whether the same be voluntary, involuntary or by operation of law, without first receiving the express written consent of Lessor in each instance, which consent shall not be unreasonably withheld. No assignment, mortgage, pledge, sale, other transfer, conveyance or disposition or sublease shall release or discharge Lessee from Lessee's duties and obligations under this lease. 24. Notices. Any and all notices required by this lease or given pursuant thereto shall be in writing, and shall be personally delivered or forwarded by certified or registered U.S. mail, return receipt requested, with postage prepaid. Notice to Lessor shall be given where rent is payable, and to Lessee at 434 Olds Station Road, Wenatchee, Washington 98801, or at such other place as Lessee may from time to time designate in writing. Except as otherwise provided herein, notices shall be effective when personally delivered or as of the date of the deposit of same in the United States mail. 25. Holdover. In the event that Lessee continues to occupy the Premises after the last day of the Lease Term or any subsequent lease term, and if Lessor elects to accept rent 8 thereafter, only a month-to-month tenancy shall be thereby created. 26. Invalidity of Portions of Lease. If for any reason any provision of this lease is determined to be invalid or unenforceable, the validity and effect of the other provisions shall not be affected thereby. 27. Waiver of Breach. No waiver of any breach or breaches of any covenant or condition contained in this lease shall operate as a waiver of any subsequent breach of the same or any other covenant or condition. 28. Costs of Suit. In the event that any action is brought to recover any sums due under this lease or as a result of any breach of any covenant contained herein, the substantially prevailing party shall be entitled to recover from the other its costs of suit in such action, including reasonable attorneys' fees, and including such costs and fees incurred on appeal. 29. Entire Agreement. This lease contains the entire agreement between the parties hereto, and no modification hereof shall be binding upon the parties unless evidenced by an agreement in writing signed by Lessor and Lessee. 30. Covenants Run With the Land. The covenants and conditions contained in this lease shall run with the Premises and shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 31. Controlling Law; Venue. This lease shall be governed and construed in accordance with the laws of the State of Washington, and the venue of any action brought to interpret or enforce this lease shall be laid in Chelan County, Washington. 32. Recordation. The parties hereto agree to execute and cause to be properly recorded a memorandum of this lease, which shall include the commencement and expiration dates of this lease and the description of the Premises. 9 IN WITNESS WHEREOF, the parties have executed this lease as of the date first above written. LESSOR: /s/ JACK JONES ------------------------------- HERMAN L. "JACK" JONES LESSEE: CASHMERE MANUFACTURING CO., INC. a Washington corporation By /s/ JACK JONES ------------------------------ Its: President 10 EXHIBITS -------- THE EXHIBITS AND SCHEDULES ACCOMPANYING THIS AGREEMENTARE IMMATERIAL AND THE FILING THEREOF HAS BEEN OMITTED FROM THIS FORM 10-KSB EX-10.1.18 19 1 STANDARD INDUSTRIAL LEASE - GROSS AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1. Parties. This Lease, dated, for reference purposes only, April 20, 1994, is made by and between THE MANUFACTURERS LIFE INSURANCE COMPANY (herein called "Lessor") and CERAMIC DEVICES, INCORPORATED (herein called "Lessee"). 2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, that certain real property situated in the County of San Diego, State of California, commonly known as 8170 Ronson Road, Suites L, M, N and O, San Diego, CA 92111, and described as approximately 3,040 Square Feet Rentable in Kearney Mesa #9 Business Park. Said real property including the land and all improvements therein, is herein called "the Premises". 3. Term. 3.1 Term. The term of this Lease shall be for Thirty-six (36) Months commencing on May 1, 1994 and ending on April 30, 1997 unless sooner terminated pursuant to any provision hereof. 3.2 Delay In Possession. Notwithstanding said commencement date, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Lessee hereunder or extend the term hereof, but in such case, Lessee shall not be obligated to pay rent until possession of the Premises is tendered to Lessee; provided, however, that If Lessor shall not have delivered possession of the Premises within sixty (60) days from said commencement date, Lessee may, at Lessee's option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder; provided further, however, that if such written notice of Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease hereunder shall terminate and be of no further force or effect. 3.3 Early Possession. If Lessee occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions hereof, such occupancy shall not advance the termination date, and Lessee shall pay rent for such period at the initial monthly rates set forth below. 4. Rent. Lessee shall pay to Lessor as rent for the Premises, monthly payments of $2,050.00, in advance, on the 1st day of each 2 month of the term hereof. Lessee shall pay Lessor on May 1, 1994 $2,050.00 as rent for May 1, 1994 through May 31, 1994. Rent for the Term of the Lease shall be $2.050.00 per month. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing. 5. Security Deposit. Lessee has on deposit with Lessor $1,680.00 as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount hereinabove stated and Lessee's failure to do so shall be a material breach of this Lease. If the monthly rent shall, from time to time, increase during the term of this Lease, Lessee shall thereupon deposit with Lessor additional security deposit so that the amount of security deposit held by Lessor shall at all times bear the same proportion to current rent as the original security deposit bears to the original monthly rent set forth in paragraph 4 hereof. Lessor shall not be required to keep said deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not theretofore been applied by Lessor, shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest hereunder) at the expiration of the term hereof, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit. 6. Use. 6.1 Use. The Premises shall be used and occupied only for general office, light manufacturing and assembly, or any other use which is reasonably comparable and for no other purpose. 6.2 Compliance with Law. (a) Lessor warrants to Lessee that the Premises, in its state existing on the date that the Lease term commences, but without regard to the use for which Lessee will use the Premises, does not violate any covenants or restrictions of record, or any 3 applicable building code, regulation or ordinance in effect on such Lease term commencement date. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. In the event Lessee does not give to Lessor written notice of the violation of this warranty within six months from the date that the Lease term commences, the correction of same shall be the obligation of the Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of no force or effect if, prior to the date of this Lease, Lessee was the owner or occupant of the Premises, and, in such event, Lessee shall correct any such violation at Lessee's sole cost. (b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements in effect during the term or any part of the term hereof, regulating the use by Lessee of the Premises. Lessee shall not use nor permit the use of the Premises in any manner that will tend to create waste or a nuisance or, if there shall be more than one tenant in the building containing the Premises, shall tend to disturb such other tenants. 6.3 Condition of Premises. (a) Lessor shall deliver the Premises to Lessee clean and free of debris on Lease commencement date (unless Lessee is already in possession) and Lessor further warrants to Lessee that the plumbing, lighting, air conditioning, heating, and loading doors in the Premises shall be in good operating condition on the Lease commencement date. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth with specificity the nature of the violation, to promptly, at Lessor's sole cost, rectify such violation. Lessee's failure to give such written notice to Lessor within thirty (30) days after the Lease commencement date shall cause the conclusive presumption that Lessor has complied with all of Lessor's obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force or effect if prior to the date of this Lease, Lessee was the owner or occupant of the Premises. (b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises in their condition existing as of the Lease commencement date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any 4 exhibits attached hereto, Lessee acknowledges that neither Lessor nor Lessor's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business. 7. Maintenance, Repairs and Alterations. 7.1 Lessor's Obligations. Subject to the provisions of Paragraphs 6,7.2, and 9 and except for damage caused by any negligent or intentional act or omission of Lessee, Lessee's agents, employees, or invitees in which event Lessee shall repair the damage, Lessor, at Lessor's expense, shall keep in good order, condition and repair the foundations, exterior walls and the exterior roof of the Premises. Lessor shall not, however, be obligated to paint such exterior, nor shall Lessor be required to maintain the interior surface of exterior walls, windows, doors or plate glass. Lessor shall have no obligation to make repairs under this Paragraph 7.1 until a reasonable time after receipt of written notice of the need for such repairs. Lessee expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair. 7.2 Lessee's Obligations. (a) Subject to the provisions of Paragraphs 6,7.1 and 9, Lessee, at Lessee's expense, shall keep in good order, condition and repair the Premises and every part thereof (whether or not the damaged portion of the Premises or the means of repairing the same are reasonably or readily accessible to Lessee) including, without limiting the generality of the foregoing, all plumbing, heating, air conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air conditioning system maintenance contract) ventilating, electrical and lighting facilities and equipment within the Premises, fixtures, interior walls and interior surface of exterior walls, ceilings, windows, doors, plate glass, and skylights, located within the Premises. (b) If Lessee fails to perform Lessee's obligations under this Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor's option enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf and put the Premises in good order, condition and repair, and the cost thereof together with interest thereon at the maximum rate then allowable by law shall be due and payable as additional rent to Lessor together with Lessee's next rental installment. (c) On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor 5 in the same condition as received, ordinary wear and tear excepted, clean and free of debris. Lessee shall repair any damage to the Premises occasioned by the installation or removal of its trade fixtures, furnishings and equipment. Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing on the Premises in good operating condition. 7.3 Alterations and Additions. (a) Lessee shall not, without Lessor's prior written consent make any alterations, improvements, additions, or Utility Installations in, on or about the Premises, except for nonstructural alterations not exceeding $2,500 in cumulative costs during the term of this Lease. In any event, whether or not in excess of $2,500 in cumulative cost, Lessee shall make no change or alteration to the exterior of the Premises nor the exterior of the building(s) on the Premises without Lessor's prior written consent. As used in this Paragraph 7.3 the term "Utility Installation" shall mean carpeting, window coverings, air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee remove any or all of said alterations, improvements, additions or Utility Installations at the expiration of the term, and restore the Premises to their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's liens and to insure completion of the work. Should Lessee make any alterations, improvements, additions or Utility Installations without the prior approval of Lessor, Lessor may require that Lessee remove any or all of the same. (b) Any alterations, improvements, additions or Utility Installations in, or about the Premises that Lessee shall desire to make and which requires the consent of the Lessor shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so from appropriate governmental agencies, the furnishing of a copy thereof to Lessor prior to the commencement of the work and the compliance by Lessee of all conditions of said permit in a prompt and expeditious manner. (c) Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use in the Premises, which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not 6 less than ten (10) days' notice prior to the commencement of any work in the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. (d) Unless Lessor requires their removal, as set forth in Paragraph 7.3(a), all alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee), which may be made on the Premises, shall become the property of Lessor and remain upon and be surrendered with the Premises at the expiration of the term. Notwithstanding the provisions of this Paragraph 7.3(d), Lessee's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2(c). 8. Insurance; Indemnity. 8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor against any liability arising out of the use, occupancy or maintenance of the Premises and all other areas appurtenant thereto. Such insurance shall be in an amount not less than $500,000 per occurrence. The policy shall insure performance by Lessee of the indemnity provisions of this Paragraph 8. The limits of said insurance shall not, however, limit the liability of Lessee hereunder. 8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance, insuring Lessor, but not Lessee, against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto in an amount not less than $500,000 per occurrence. 7 8.3 Property Insurance. Lessor shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Premises, but not Lessee's fixtures, equipment or tenant improvements in an amount not to exceed the full replacement value thereof, as the same may exist from time to time, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood (in the event same is required by a lender having a lien on the Premises) special extended perils ("all risk", as such term is used in the insurance industry) but not plate glass insurance. In addition, the Lessor shall obtain and keep in force, during the term of this Lease, a policy of rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all real estate taxes and insurance costs for said period. 8.4 Payment of Premium Increase. (a) Lessee shall pay to Lessor, during the term hereof, in addition to the rent, the amount of any increase in premiums for the insurance required under Paragraphs 8.2 and 8.3 over and above such premiums paid during the Base Period, as hereinafter defined, whether such premium increase shall be the result of the nature of Lessee's occupancy, any act or omission of Lessee, requirements of the holder of a mortgage or deed of trust covering the Premises, increased valuation of the Premises, or general rate increases. In the event that the Premises have been occupied previously, the words "Base Period" shall mean the last twelve months of the prior occupancy. In the event that the Premises have never been previously occupied, the premiums during the "Base Period" shall be deemed to be the lowest premiums reasonably obtainable for said insurance assuming the most nominal use of the Premises. Provided, however, in lieu of the Base Period, the parties may insert a dollar amount at the end of this sentence which figure shall be considered as the insurance premium for the Base Period: $184.00. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance coverage in excess of $1,000,000 procured under paragraph 8.2. (b) Lessee shall pay any such premium increases to Lessor within 30 days after receipt by Lessee of a copy of the premium statement or other satisfactory evidence of the amount due. If the insurance policies maintained hereunder cover other improvements in addition to the Premises, Lessor shall also deliver to Lessee a statement of the amount of such increase attributable to the Premises and showing in reasonable detail, the manner in which such amount was computed. If the term of this Lease shall not expire concurrently with the expiration of the period covered by such insurance, Lessee's liability for premium increases shall be prorated on an annual basis. 8 (c) If the Premises are part of a larger building, then Lessee shall not be responsible for paying any increase in the property insurance premium caused by the acts or omissions of any other tenant of the building of which the Premises are a part. 8.5 Insurance Policies. Insurance required hereunder shall be in companies holding a "General Policyholders Rating" of at least B plus, or such other rating as may be required by a lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide". Lessee shall deliver to Lessor copies of policies of liability insurance required under Paragraph 8.1 or certificates evidencing the existence and amounts of such insurance. No such policy shall be cancellable or subject to reduction of coverage or other modification except after thirty (30) days' prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee upon demand. Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in Paragraph 8.3. 8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other for loss or damage arising out of or incident to the perils insured against under paragraph 8.3, which perils occur in, on or about the Premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Premises, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnity and hold harmless Lessor from and against any and all claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any negligence of the Lessee, or any of Lessee's agents, contractors, or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor by reason of any such claim, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property or injury to persons, in, upon or about the Premises 9 arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor. 8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person in or about the Premises, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said damage or injury results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant, if any, of the building in which the Premises are located. 9. Damage or Destruction. 9.1 Definitions. (a) "Premises Partial Damage" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is less than 50% of the fair market value of the Premises immediately prior to such damage or destruction. "Premises Building Partial Damage" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair is less than 50% of the fair market value of such building as a whole immediately prior to such damage or destruction. (b) "Premises Total Destruction" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is 50% or more of the fair market value of the Premises immediately prior to such damage or destruction. "Premises Building Total Destruction" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair is 50% or more of the fair market value of such building as a whole immediately prior to such damage or destruction. (c) "Insured Loss" shall herein mean damage or destruction which was caused by an event required to be covered by the insurance described in paragraph 8. 10 9.2 Partial Damage - Insured Loss. Subject to the provisions of paragraphs 9.4,9.5 and 9.6, if at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of Premises Partial Damage or Premises Building Partial Damage, then Lessor shall, at Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. 9.3 Partial Damage - Uninsured Loss. Subject to the provisions of Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease, as of the date of the occurrence of such damage. In the event Lessor elects to give such notice of Lessor's intention to cancel and terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event this Lease shall continue in full force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give such notice within such 10-day period this Lease shall be cancelled and terminated as of the date of the occurrence of such damage. 9.4 Total Destruction. If at any time during the term of this Lease there is damage, whether or not an Insured Loss. (including destruction required by any authorized public authority), which falls into the classification of Premises Total Destruction or Premises Building Total Destruction, this Lease shall automatically terminate as of the date of such total destruction. 9.5 Damage Near End of Term. (a) If at any time during the last six months of the term of this Lease there is damage, whether or not an Insured Loss, which falls within the classification of Premises Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within 30 days after the date of occurrence of such damage. 11 (b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an option to extend or renew this Lease, and the time within which said option may be exercised has not yet expired, Lessee shall exercise such option, if it is to be exercised at all, no later than 20 days after the occurrence of an Insured Loss falling within the classification of Premises Partial Damage during the last six months of the term of this Lease. If Lessee duly exercises such option during said 20 day period, Lessor shall, at Lessor's expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option during said 20 day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said 20 day period by giving written notice to Lessee of Lessor's election to do so within 10 days after the expiration of said 20 day period, notwithstanding any term or provision in the grant of option to the contrary. 9.6 Abatement of Rent; Lessee's Remedies. (a) In the event of damage described in paragraphs 9.2 or 9.3, and Lessor or Lessee repairs or restores the Premises pursuant to the provisions of this Paragraph 9, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence such repair or restoration within 90 days after such obligations shall accrue, Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement of such repair or restoration. In such event this Lease shall terminate as of the date of such notice. 9.7 Termination - Advance Payments. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor. 9.8 Waiver. Lessor and Lessee waive the provisions of any statutes which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease. 10. Real Property Taxes. 12 10.1 Payment of Tax Increase. Lessor shall pay the real property tax, as defined in paragraph 10.3, applicable to the Premises; provided, however, that Lessor shall pay, in addition to rent, the amount, if any, by which real property taxes applicable to the Premises increase over the fiscal real estate tax year 1994 - 1995. Such payment shall be made by Lessee within thirty (30) days after receipt of Lessor's written statement setting forth the amount of such increase and the computation thereof. If the term of this Lease shall not expire concurrently with the expiration of the tax fiscal year, Lessee's liability for increased taxes for the last partial lease year shall be prorated on an annual basis. 10.2 Additional Improvements. Notwithstanding paragraph 10.1 hereof, Lessee shall pay to Lessor upon demand therefor the entirety of any increase in real property tax if assessed solely by reason of additional improvements placed upon the Premises by Lessee or at Lessee's request. 10.3 Definition of "Real Property Tax". As used herein, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, as against Lessor's right to rent or other income therefrom, and as against Lessor's business of leasing the Premises. The term "real property tax" shall also include any tax, fee, levy, assessment or charge (i) in substitution of, partially or totally, any tax, fee, levy, assessment or charge hereinabove included within the definition of "real property tax," or (ii) the nature of which was hereinbefore included within the definition of "real property tax," or (iii) which is imposed for a service or right not charged prior to June 1, 1978, or, if previously charged, has been increased since June 1, 1978, or (iv) which is imposed as a result of a transfer, either partial or total, of Lessor's interest in the Premises or which is added to a tax or charge hereinbefore included within the definition of real property tax by reason of such transfer, or (v) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 10.4 Joint Assessment. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in 13 the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.5 Personal Property Taxes. (a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. (b) If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 11. Utilities. Lessee shall pay for all gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of all charges jointly metered with other premises. 12. Assignment and Subletting. 12.1 Lessor's Consent Required. Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's interest in this Lease or in the Premises, without Lessor's prior written consent, which Lessor shall not unreasonably withhold. Lessor shall respond to Lessee's request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a breach of this Lease. 12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any corporation which controls, is controlled by or is under common control with Lessee, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all the assets of Lessee as a going concern of the business that is being conducted on the Premises, provided that said assignee assumes, in full, the obligations of Lessee under this Lease. Any such assignment shall not, in any way affect or limit the liability of Lessee under the terms of this Lease even if after such assignment or subletting the terms of this Lease 14 are materially changed or altered without the consent of Lessee, the consent of whom shall not be necessary. 12.3 No Release of Lessee. Regardless of Lessor's consent, no subletting or assignment shall release Lessee of Lessee's obligation or alter the primary liability of Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any other person shall not be deemed to be a waiver by Lessor of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof, Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee. Lessor may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with assignees of Lessee, without notifying Lessee, or any successor of Lessee, and without obtaining its or their consent thereto and such action shall not relieve Lessee of liability under this Lease. 12.4 Attorney's Fees. In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection therewith, such attorneys fees not to exceed $350.00 for each such request. 13. Defaults; Remedies. 13.1 Defaults. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee: (a) The vacating or abandonment of the Premises by Lessee. (b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of three days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph. (c) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such failure shall continue for a period of 30 days after written notice thereof from Lessor to 15 Lessee; provided, however, that if the nature of Lessee's default is such that more than 30 days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commenced such cure within said 30-day period and thereafter diligently prosecutes such cure to completion. (d)(i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days. Provided, however, in the event that any provision of this paragraph 13.1(d) is contrary to any applicable law, such provision shall be of no force or effect. (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any of them, was materially false. 13.2 Remedies. In the event of any such material default or breach by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default or breach: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor pursuant to Paragraph 15 applicable to the unexpired term of this Lease. 16 (b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the maximum rate then allowable by law. 13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such 30-day period and thereafter diligently prosecutes the same to completion. 13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of rent, then rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any other provision of this Lease to the contrary. 17 13.5 Impounds. In the event that a late charge is payable hereunder, whether or not collected, for three (3) installments of rent or any other monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to Lessor, if Lessor shall so request, in addition to any other payments required under this Lease, a monthly advance installment, payable at the same time as the monthly rent, as estimated by Lessor, for real property tax and insurance expenses on the Premises which are payable by Lessee under the terms of this Lease. Such fund shall be established to insure payment when due, before delinquency, of any or all such real property taxes and Insurance premiums. If the amounts paid to Lessor by Lessee under the provisions of this paragraph are insufficient to discharge the obligations of Lessee to pay such real property taxes and insurance premiums as the same become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional sums necessary to pay such obligations. All moneys paid to Lessor under this paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a default in the obligations of Lessee to perform under this Lease, then any balance remaining from funds paid to Lessor under the provisions of this paragraph may, at the option of Lessor, be applied to the payment of any monetary default of Lessee in lieu of being applied to the payment of real property tax and insurance premiums. 14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the building on the Premises, or more than 25% of the land area of the Premises which is not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing only within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent shall be reduced in the proportion that the floor area of the building taken bears to the total floor area of the building situated on the Premises. No reduction of rent shall occur if the only area taken is that which does not have a building located thereon. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, 18 that Lessee shall be entitled to any award for loss of or damage to Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair. 15. Broker's Fee. (Intentionally deleted.) 16. Estoppel Certificate. (a) Lessee shall at any time upon not less than ten (10) days' prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. (b) At Lessor's option, Lessee's failure to deliver such statement within such time shall be a material breach of this Lease or shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and (iii) that not more than one month's rent has been paid in advance or such failure may be considered by Lessor as a default by Lessee under this Lease. (c) If Lessor desires to finance, refinance, or sell the Premises or any part hereof, Lessee hereby agrees to deliver to any Lender or purchaser designated by lessor such financial statements of Lessee as may be reasonably required by such lender or purchaser. Such statements shall include the past three years' financial statements of Lessee. All such financial statements shall be received by lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. Lessor's Liability. The term "Lessor" as used herein shall mean only the owner or owners at the time in question of the fee title or a lessee's interest in a ground lease of the Premises, and except as expressly provided in Paragraph 15, in the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers then the grantor) shall be 19 relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor's successors and assigns, only during their respective periods of ownership. 18. Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Interest on Past-due Obligations. Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law from the date due. Payment of such interest shall not excuse or cure any default by Lessee under this Lease, provided, however, that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee. 20. Time of Essence. Time is of the essence. 21. Additional Rent. Any monetary obligations of Lessee to Lessor under the terms of this Lease shall be deemed to be rent. 22. Incorporation of Prior Agreements; Amendments. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the real estate broker listed in Paragraph 15 hereof nor any cooperating broker on this transaction nor the Lessor or any employees or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease. 23. Notices. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, and if given personally or by mail, shall be deemed sufficiently given if addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, as the case may be. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of the 20 Premises, the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee. 24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of any act, shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 25. Recording. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, but all options and rights of first refusal, if any, granted under the terms of this Lease shall be deemed terminated and be of no further effect during said month to month tenancy. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition. 29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of Paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State wherein the Premises are located. 30. Subordination. (a) This Lease, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the real property of which the Premises are a part and to any and all 21 advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. (b) Lessee agrees to execute any documents required to effectuate an attornment, a subordination or to make this Lease prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to execute such documents within 10 days after written demand shall constitute a material default by Lessee hereunder, or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessees attorney-in-fact and in Lessee's name, place and stead, to execute such documents in accordance with this paragraph 30(b). 31. Attorney's Fee. If either party or the broker named herein brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the court. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right hereunder. 32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part as Lessor may deem necessary or desirable. Lessor may at any time place on or about the Premises any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs, all without rebate of rent or liability to Lessee. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, 22 Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. Signs. Lessee shall not place any sign upon the Premises without Lessor's prior written consent except that Lessee shall have the right, without the prior permission of Lessor to place ordinary and usual for rent or sublet signs thereon. 35. Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. 36. Consents. Except for paragraph 33 hereof, wherever in this Lease the consent of one party is required to an act of the other party, such consent shall not be unreasonably withheld. 37. Guarantor. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease. 38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized end legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Premises. 39. Options. 39.1 Definition. As used in this paragraph the word "Options" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (2) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (3) the right or option to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises or the right or option to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor or the right of first offer to purchase other property of Lessor. 23 39.2 Options Personal. Each Option granted to Lessee in this Lease are personal to Lessee and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Lessee, provided, however, the Option may be exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options herein granted to lessee are not assignable separate and apart from this Lease. 39.3 Multiple Options. In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised. 39.4 Effect of Default on Options. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the time commencing from the date Lessor gives to Lessee a notice of default pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said notice of default is cured, or (ii) during the period of time commencing on the day after a monetary obligation to Lessor is due from Lessee and unpaid (without any necessity for notice thereof to Lessee) continuing until the obligation is paid, or (iii) at any time after an event of default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) in the event that Lessor has given to Lessee three or more notices of default under paragraph 13.1(b), where a late charge becomes payable under paragraph 13.4 for each of such defaults, or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month period prior to the time that Lessee intends to exercise the Subject Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of paragraph 39.4(a) (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of 30 days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to cure a default specified in paragraph 13.1(c) within 30 days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to diligently prosecute said cure to completion, or (iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give notice of such 24 default to Lessee), or (iv) Lessor gives to Lessee three or more notices of default under paragraph 13.1(b), where a late charge becomes payable under paragraph 13.4 for each such default, or paragraph 13.1(c), whether or not the defaults are cured. 40. Multiple Tenant Building. In the event that the Premises are part of a larger building or group of buildings then Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care, and cleanliness of the building and grounds, the parking of vehicles and the preservation of good order therein as well as for the convenience of other occupants and tenants of the building. The violations of any such rules and regulations shall be deemed a material breach of this Lease by Lessee. 41. Security Measures. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of Lessee, its agents and invitees from acts of third parties. 42. Easements. Lessor reserves to itself the right, from time to time, to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material breach of this Lease. 43. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. Authority. If Lessee is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after execution of this 25 Lease, deliver to Lessor evidence of such authority satisfactory to Lessor. 45. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. Addendum. Attached hereto is an addendum or addenda containing paragraphs 47 through 51 which constitutes a part of this Lease. 47. HAZARDOUS WASTE is attached hereto and is made a part of this Lease. 48. REPAIRS is attached hereto and is made a part of this Lease. 49. PARKING is attached hereto and is made a part of this Lease. 50. OPTION TO RENEW is attached hereto and is made a part of this Lease. 51. EXHIBITS "A", "B" and "C" are attached hereto and are made a part of this Lease. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRE- SENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. The parties hereto have executed this Lease at the place on the dates specified immediately adjacent to their respective signatures. Executed at THE MANUFACTURERS LIFE INSURANCE San Diego, California COMPANY on April 30, 1994 26 Address: By: /s/ Robertson Schaefer 7510 Clairemont Mesa Blvd., -------------------------------- Suite 211 Robertson Schaefer, Director San Diego, CA 92111 "LESSOR" (Corporate seal) CERAMIC DEVICES INCORPORATED By: /s/ Ivan Sarda -------------------------------- Ivan Sarda, President "LESSEE" (Corporate seal) 27 47. HAZARDOUS WASTE. Neither Lessee nor its Agents shall cause or permit the generation, transportation, use, storage, handling or disposal of any materials or substances which are now or hereafter may be designated as, or containing components designated as, hazardous, dangerous, toxic or harmful materials and/or substances under any rules, regulations, laws or ordinances of any governmental or quasi-governmental body or regulatory authority ("Hazardous Waste") in, on, about or under the Premises, without Landlord's prior written consent, which may not be unreasonably withheld provided all such materials: 1) are in small quantities; 2) are necessary for conduct of Lessee's business; 3) are maintained in safe, closed containers; 4) are not prohibited by law or Landlord's insurance carrier, and does not result in any increase in the cost of Landlord's insurance. If Landlord consents to Hazardous Waste being on the Premises, they must be used and disposed of in compliance with all laws and regulations. Lessee shall, at its sole expense, promptly cause such Hazardous Waste, if any, to be promptly removed from the Premises at the expiration or earlier termination of this Lease, or earlier upon Landlord's request, in full compliance with all applicable rules, regulations, laws and ordinances, and if Lessee fails to do so, Landlord shall have the right, but not the obligation, to do so at Lessee's sole cost and expense. Lessee shall promptly notify Landlord of any breach of this Section and the existence of Hazardous Waste in, on, about or under the Premises as soon as Lessee becomes aware thereof. Lessee shall, at its sole cost and expense, promptly take all corrective action required by any governmental or quasi-governmental agency or by Landlord as a result of Lessee's or its Agent's breach of this Section. If Lessee fails to take any such corrective action, then Landlord shall have the right, but not the obligation, to take such corrective action and all costs and expenses thereof shall be immediately payable by Lessee to Landlord. Lessee shall indemnify, defend and hold Landlord harmless from and against any and all claims, costs and liabilities (including, without limitation, the costs of investigation, testing, removal and clean-up) in any way related to the presence or disposal of any Hazardous Waste on or about the Premises, except for hazardous waste released on the premises prior to Lessee's occupancy. Lessee's obligations under this lease shall survive the expiration or earlier termination of this Lease. As used in this Lease, an "Agent" of Lessee shall include, without limitation any contractor, employee, agent, subtenant, partner, customer, licensee or Invitee of Lessee. Notwithstanding the foregoing, Lessee may utilize materials and substances, such as common office and copier supplies, warehouse maintenance items and/or substances used in the maintenance of warehouse equipment including propane fuel to operate warehouse fork lift trucks, items as stated are now used 28 in the ordinary course of Lessee's business. See attached exhibit for approved materials. 29 HAZARDOUS MATERIAL EXHIBIT The following is a list of approved chemicals to be used on the Premises by the Tenant or its Agents, provided the same are permitted under law. Chemical Name Max. Qty. on Premises - ------------- --------------------- Isopropyl Alcohol 10 Gallons Mineral Spirits 5 Gallons Kerosene 1 Liter Ethylbenzene 1 Liter Trichloroethane (1,11)* 1.5 110 Gallons d-Limonene 1 Gallon Propylene Glycol Monomethyl ether 1 Gallon Monoethanolamine 1 Gallon Methyl Ethyl Ketone 100 Gallons Terpineol 1 Pint Dibutyl Phthalate 1 Liter Lauryl Alcohol 1 Liter Butyl Benzyl Phthalate 1 Gallon Butyl Phenylmethyl Ester 1 Gallon Benzenenedicarboxylic Acid 1 Gallon Methylene Chloride 3 Gallons Freon 3 Gallons Diesel 250 Gallons Amino Ethanol 2 Gallons Flourinert 1 Gallon Haptene 10 Gallons Nitric Acid 1 Gallon Hydrochloric Acid 1 Gallon Sulfuric Acid 1 Gallon Trichlorethylene 1.5 100 Gallons Lessor /s/ ROBERTSON SCHAEFER Date April 30, 1994 -------------------------- Lessee /s/ IVAN SARA Date April 30, 1994 -------------------------- *Until EPA Phase-out (December 31, 1995 Estimated) 48. REPAIRS In the case of air conditioning equipment, maintenance shall include servicing of equipment at the least four times a year. Such service shall be provided by a reputable maintenance service company acceptable to Lessor. Evidence of a service contract shall be provided to Lessor. In the event Lessee does not obtain such a service contract, Lessee, upon Lessor's request, agrees to pay Lessor as additional rent the cost of maintenance contract 30 for the air conditioning equipment. Said additional rent shall be paid monthly along with the rent premises stipulated in paragraph 4 of this lease. The additional rent may be adjusted annually to reflect any changes in the prevailing cost of this service. 49. PARKING Lessee agrees not to overburden the parking facilities and agrees to cooperate with Lessor and other Lessees in the use of parking facilities. Lessor reserves the right in its absolute discretion to determine whether parking facilities are becoming crowded and, in such event to allocate parking space among Lessee and other Lessees. Lessee shall not permit business vehicles to be parked or stored in the parking lot that are not in operable condition and Lessee understands that vehicles may not be repaired in the parking lot. Lessee and/or employees of the Lessee further understand that personal vehicles are not permitted to be stored in the parking lot at any time. Lessee further understands that work conducted outside the leased premises and/or in the parking lot is not permitted at anytime. 50. OPTION TO RENEW (A) The Lessor covenants with the Lessee that if the Lessee duly and regularly pays the Rent and any and all amounts required to be paid pursuant to this Lease and performs each and every covenant, proviso and agreement on the part of the Lessee to be paid, rendered, observed and performed herein, the Lessor will at the expiration of the Term on written notice by the Lessee to the Lessor given by the Lessee not less than Ninety (90) days prior to the expiration of the Term, grant to the Lessee a Thirty-six (36) Month renewal of Lease of the Leased Premises (the "Renewal Term") on the same general terms and conditions as in the lease then, at the commencement of the Renewal Term, being used by the Lessor for the Building. (B) The Rent for the first year of the Renewal Term shall be determined by negotiations between the parties hereto, and it is agreed that during such negotiations they will be guided by the then market rate for similar premises in similar buildings in the Kearny Mesa area of San Diego prevailing at the beginning of the Renewal Term. If the parties hereto are unable to agree in writing as to the Rent for the Renewal Term prior to Sixty (60) Days from the expiry of the Lease, this Lease shall end on the expiry of the Term without any option to renew. 31 EXHIBIT "A" 760 square feet 760 square feet 760 square feet 760 square feet O N M L 980 square feet P K 980 square feet 980 square feet Q J 980 square feet 980 square feet R H 980 square feet 980 square feet S G 980 square feet 980 square feet T F 980 square feet 980 square feet U E 980 square feet A B C D 1225 square feet 1225 square feet 1225 square feet 1155 square feet 8170 RONSON ROAD KEARNY MESA #9 BUSINESS PARK BUILDING NO. 2 32 EXHIBIT "B" SIGN STANDARDS -------------- KEARNY MESA #9 AND KEARNY MESA #7 SAN DIEGO, CALIFORNIA Effective this date, the following standards are established to govern all exterior signs. It is the purpose of these sign standards to protect and enhance the appearance of the development to the benefit of all occupants. 1. All signs submitted for approval shall be subject to these standards. 2. All sign work shall be done at the sole expense of Lessee. 3. Lessor will provide one wooden sign plaque. 4. Gold leaf or black lettering on the interior window or door glass, of up to one hundred forty four (144) square inches of gross area and with letters not more than three (3) inches in height may be installed upon Lessor's written approval. 5. Lessee's name in black three (3) inch block letters may be painted over the rear truck entrance upon written approval of Lessor. 6. An accurate rendering of all proposed sign work (including lettering on glass) must be submitted to and approved by Lessor in writing before installation. The rendering must provide complete data concerning the size, color, letter style, material and such other information as may be required by Lessor. 7. Sign copy shall be limited to company name only, unless otherwise approved. 8. Placement of the sign and method of attachment shall be as directed by Lessor. 9. No advertising, placard, pennant, banner, insignia, trademark or lettering of any type shall be affixed or maintained upon the glass panes or exterior walls of 33 the building other than the signs specifically authorized by Lessor in writing. 10. Any sign or lettering installed without Lessor's specific written approval, as herein provided, or which is not in strict compliance with the rendering approved by Lessor, shall be subject to immediate removal by Lessor, the cost of such removal shall be assessed to Lessee. 34 PROJECT: KEARNY MESA #9 BUSINESS PARK DATE: April 20, 1994 LESSEE: CERAMIC DEVICES, INCORPORATED UNIT ADDRESS: 8170 Ronson Road, Suites L, M, N, 0 San Diego, CA 92111 BLDG./SUITE: 2-L, M, N, O EXHIBIT "C" IMPROVEMENTS Quantity and/or Size, Height, Length, Etc. ITEM: PARTITIONS: CEILINGS: DOORS: FLOOR: LESSEE ACCEPTS THE PREMISES IN "AS IS" CONDITION WITH THE LESSOR COVENANTING TO PERFORM THE PLUMBING: FOLLOWING: LIGHTS: Electrical: 1) upgrade Suite L to 100 amp_3ph circuit and panel SWITCHES: 2) upgrade Suite M to 100 amp_3ph circuit and panel 3) upgrade Suite N to 100 amp 3ph circuit and panel 35 WALL ELEC. OUTLETS: 4) install larger circuit box in Suite O so that it will be able to accommodate additional circuits if needed by Lessee. PHONE OUTLETS: A/C OR VENT FAN: A/C HOOK-UP: WATER HEATER: PAINTING: OTHER: Unless otherwise stated, the improvements listed above will be final. Any additions will be paid for by Lessee. EX-10.1.19 20 1 STANDARD INDUSTRIAL LEASE - GROSS AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1. Parties. This Lease, dated, for reference purposes only, April 20, 1994, is made by and between THE MANUFACTURERS LIFE INSURANCE COMPANY (herein called "Lessor") and CERAMIC DEVICES, INCORPORATED (herein called "Lessee"). 2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, that certain real property situated in the County of San Diego, State of California, commonly known as 8145 Ronson Road, Suites D, E, F, G, H and I, San Diego, CA 92111 and described as approximately 6,886 Square Feet Rentable (SFR) in Manulife Business Center. Said real property including the land and all improvements therein, is herein called "the Premises". 3. Term. 3.1 Term. The term of this Lease shall be for Thirty-six (36) Months commencing on May 1, 1994 and ending on April 30, 1997 unless sooner terminated pursuant to any provision hereof. 3.2 Delay in Possession. Notwithstanding said commencement date, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Lessee hereunder or extend the term hereof, but in such case, Lessee shall not be obligated to pay rent until possession of the Premises is tendered to Lessee; provided, however, that if Lessor shall not have delivered possession of the Premises within sixty (60) days from said commencement date. Lessee may, at Lessee's option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder; provided further, however, that if such written notice of Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease hereunder shall terminate and be of no further force or effect. 3.3 Early Possession. If Lessee occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions hereof, such occupancy shall not advance the termination date, and Lessee shall pay rent for such period at the initial monthly rates set forth below. 4. Rent. Lessee shall pay to Lessor as rent for the Premises, monthly payments of $4,650.00, in advance, on the 1st day of each 2 month of the term hereof. Lessee shall pay Lessor on May 1, 1994 $4,650.00 as rent for May 1, 1994 through May 31, 1994. Rent for the term of the Lease shall be $4,650.00 per month. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing. 5. Security Deposit. Lessee has on deposit with Lessor $3,800.00 as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount hereinabove stated and Lessee's failure to do so shall be a material breach of this Lease. If the monthly rent shall, from time to time, increase during the term of this Lease, Lessee shall thereupon deposit with Lessor additional security deposit so that the amount of security deposit held by Lessor shall at all times bear the same proportion to current rent as the original security deposit bears to the original monthly rent set forth in paragraph 4 hereof. Lessor shall not be required to keep said deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not theretofore been applied by Lessor, shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest hereunder) at the expiration of the term hereof, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit. 6. Use. 6.1 Use. The Premises shall be used and occupied only for general office, light manufacturing and assembly, or any other use which is reasonably comparable and for no other purpose. 6.2 Compliance with Law. (a) Lessor warrants to Lessee that the Premises, in its state existing on the date that the Lease term commences, but without regard to the use for which Lessee will use the Premises, does not violate any covenants or restrictions of record, or any 3 applicable building code, regulation or ordinance in effect on such Lease term commencement date. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. In the event Lessee does not give to Lessor written notice of the violation of this warranty within six months from the date that the Lease term commences, the correction of same shall be the obligation of the Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of no force or effect if, prior to the date of this Lease, Lessee was the owner or occupant of the Premises, and, in such event. Lessee shall correct any such violation at Lessee's sole cost. (b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's expense. comply promptly with all applicable statutes. ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements in effect during the term or any part of the term hereof, regulating the use by Lessee of the Premises. Lessee shall not use nor permit the use of the Premises in any manner that will tend to create waste or a nuisance or, if there shall be more than one tenant in the building containing the Premises, shall tend to disturb such other tenants. 6.3 Condition of Premises. (a) Lessor shall deliver the Premises to Lessee clean and free of debris on Lease commencement date (unless Lessee is already in possession) and Lessor further warrants to Lessee that the plumbing, lighting, air conditioning, heating, and loading doors in the Premises shall be in good operating condition on the Lease commencement date. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth with specificity the nature of the violation, to promptly, at Lessor's sole cost, rectify such violation. Lessee's failure to give such written notice to Lessor within thirty (30) days after the Lease commencement date shall cause the conclusive presumption that Lessor has complied with all of Lessor's obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force or effect if prior to the date of this Lease, Lessee was the owner or occupant of the Premises. (b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises in their condition existing as of the Lease commencement date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any 4 exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business. 7. Maintenance, Repairs and Alterations. 7.1 Lessor's Obligations. Subject to the provisions of Paragraphs 6, 7.2, and 9 and except for damage caused by any negligent or intentional act or omission of Lessee, Lessee's agents, employees, or invitees in which event Lessee shall repair the damage, Lessor, at Lessor's expense, shall keep in good order, condition and repair the foundations, exterior walls and the exterior roof of the Premises. Lessor shall not, however, be obligated to paint such exterior, nor shall Lessor be required to maintain the interior surface of exterior walls, windows, doors or plate glass. Lessor shall have no obligation to make repairs under this Paragraph 7.1 until a reasonable time after receipt of written notice of the need for such repairs. Lessee expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair. 7.2 Lessee's Obligations, (a) Subject to the provisions of Paragraphs 6,7.1 and 9, Lessee, at Lessee's expense, shall keep in good order, condition and repair the Premises and every part thereof (whether or not the damaged portion of the Premises or the means of repairing the same are reasonably or readily accessible to Lessee) including, without limiting the generality of the foregoing, all plumbing, heating, air conditioning, (Lessee shall procure and maintain at Lessee's expense, an air conditioning system maintenance contract) ventilating, electrical and lighting facilities and equipment within the Premises, fixtures, interior walls and interior surface of exterior walls, ceilings, windows, doors, plate glass, and skylights, located within the Premises. (b) If Lessee fails to perform Lessee's obligations under this Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor's option enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf and put the Premises in good order, condition and repair, and the cost thereof together with interest thereon at the maximum rate then allowable by law shall be due and payable as additional rent to Lessor together with Lessee's next rental installment. 5 (c) On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as received, ordinary wear and tear excepted, clean and free of debris. Lessee shall repair any damage to the Premises occasioned by the installation or removal of its trade fixtures, furnishings and equipment. Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing on the premises in good operating condition. 7.3 Alterations and Additions. (a) Lessee shall not, without Lessor's prior written consent make any alterations, improvements, additions, or Utility Installations in, on or about the Premises, except for nonstructural alterations not exceeding $2,500 in cumulative costs during the term of this Lease. In any event, whether or not in excess of $2,500 in cumulative cost, Lessee shall make no change or alteration to the exterior of the Premises nor the exterior of the building(s) on the Premises without Lessor's prior written consent. As used in this Paragraph 7.3 the term "Utility Installation" shall mean carpeting, window coverings, air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee remove any or all of said alterations, improvements, additions or Utility installations at the expiration of the term, and restore the Premises to their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's liens and to insure completion of the work. Should Lessee make any alterations, improvements, additions or Utility Installations without the prior approval of Lessor, Lessor may require that Lessee remove any or all of the same. (b) Any alterations, improvements, additions or Utility Installations in, or about the Premises that Lessee shall desire to make and which requires the consent of the Lessor shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so from appropriate governmental agencies, the furnishing of a copy thereof to Lessor prior to the commencement of the work and the compliance by Lessee of all conditions of said permit in a prompt and expeditious manner. (c) Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use in the Premises, which claims are or may 6 be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy and such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. (d) Unless Lessor requires their removal, as set forth in Paragraph 7.3(a), all alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee), which may be made on the Premises, shall become the property of Lessor and remain upon and be surrendered with the Premises at the expiration of the term. Notwithstanding the provisions of this Paragraph 7.3(d), Lessee's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2(c). 8. Insurance; Indemnity. 8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor against any liability arising out of the use, occupancy or maintenance of the Premises and all other areas appurtenant thereto. Such insurance shall be in an amount not less than $500,000 per occurrence. The policy shall insure performance by Lessee of the indemnity provisions of this Paragraph 8. The limits of said insurance shall not, however, limit the liability of Lessee hereunder. 8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance, insuring Lessor, but not Lessee, against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto in an amount not less than $500,000 per occurrence. 7 8.3 Property Insurance. Lessor shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Premises, but not Lessee's fixtures, equipment or tenant improvements in an amount not to exceed the full replacement value thereof, as the same may exist from time to time, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood (in the event same is required by a lender having a lien on the Premises) special extended perils ("all risk", as such term is used in the insurance industry) but not plate glass insurance. In addition, the Lessor shall obtain and keep in force, during the term of this Lease, a policy of rental value Insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all real estate taxes and insurance costs for said period. 8.4 Payment of Premium Increase. (a) Lessee shall pay to Lessor, during the term hereof, in addition to the rent, the amount of any increase in premiums for the insurance required under Paragraphs 8.2 and 8.3 over and above such premiums paid during the Base Period, as hereinafter defined, whether such premium increase shall be the result of the nature of Lessee's occupancy, any act or omission of Lessee, requirements of the holder of a mortgage or deed of trust covering the Premises, increased valuation of the Premises, or general rate increases. In the event that the Premises have been occupied previously, the words "Base Period" shall mean the last twelve months of the prior occupancy. In the event that the Premises have never been previously occupied, the premiums during the "Base Period" shall be deemed to be the lowest premiums reasonably obtainable for said insurance assuming the most nominal use of the Premises. Provided, however, in lieu of the Base Period, the parties may insert a dollar amount at the end of this sentence which figure shall be considered as the insurance premium for the Base Period: $114.00. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance coverage in excess of $1,000,000 procured under paragraph 8.2. (b) Lessee shall pay any such premium increases to Lessor within 30 days after receipt by Lessee of a copy of the premium statement or other satisfactory evidence of the amount due. If the insurance policies maintained hereunder cover other improvements in addition to the Premises, Lessor shall also deliver to Lessee a statement of the amount of such increase attributable to the Premises and showing in reasonable detail, the manner in which such amount was computed. If the term of this Lease shall not expire concurrently with the expiration of the 8 period covered by such insurance, Lessee's liability for premium increases shall be prorated on an annual basis. (c) If the Premises are part of a larger building, then Lessee shall not be responsible for paying any increase in the property insurance premium caused by the acts or omissions of any other tenant of the building of which the Premises are a part. 8.5 Insurance Policies. Insurance required hereunder shall be in companies holding a "General Policyholders Rating" of at least B plus, or such other rating as may be required by a lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide". Lessee shall deliver to Lessor copies of policies of liability insurance required under Paragraph 8.1 or certificates evidencing the existence and amounts of such insurance. No such policy shall be cancellable or subject to reduction of coverage or other modification except after thirty (30) days' prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee upon demand. Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in Paragraph 8.3. 8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recovery against the other for loss or damage arising out of or incident to the perils insured against under paragraph 8.3, which perils occur in, on or about the Premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Premises, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnity and hold harmless Lessor from and against any and all claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any negligence of the Lessee, or any of Lessee's agents, contractors, or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor by reason of any such claim, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material part of 9 the consideration to Lessor, hereby assumes all risk of damage to property or injury to persons, in, upon or about the Premises arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor. 8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person in or about the Premises, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said damage or injury results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant, if any, of the building in which the Premises are located. 9. Damage or Destruction. 9.1 Definitions. (a) "Premises Partial Damage" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is less than 50 percent of the fair market value of the Premises immediately prior to such damage or destruction. "Premises Building Partial Damage" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair is less than 50 percent of the fair market value of such building as a whole immediately prior to such damage or destruction. (b) "Premises Total Destruction" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is 50 percent or more of the fair market value of the Premises immediately prior to such damage or destruction. "Premises Building Total Destruction" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair is 50 percent or more of the fair market value of such building as a whole immediately prior to such damage or destruction. (c) "Insured Loss" shall herein mean damage or destruction which was caused by an event required to be covered by the insurance described in paragraph 8. 10 9.2 Partial Damage - Insured Loss. Subject to the provisions of paragraphs 9.4,9.5 and 9.6, if at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of Premises Partial Damage or Premises Building Partial Damage, then Lessor shall, at Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. 9.3 Partial Damage - Uninsured Loss. Subject to the provisions of Paragraphs 9.4,9.5 and 9.6, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease, as of the date of the occurrence of such damage. In the event Lessor elects to give such notice of Lessor's intention to cancel and terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event this Lease shall continue in full force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give such notice within such 10-day period this Lease shall be cancelled and terminated as of the date of the occurrence of such damage. 9.4 Total Destruction. If at any time during the term of this Lease there is damage, whether or not an Insured Loss, (including destruction required by any authorized public authority), which falls into the classification of Premises Total Destruction or Premises Building Total Destruction, this Lease shall automatically terminate as of the date of such total destruction. 9.5 Damage Near End of Term. (a) If at any time during the last six months of the term of this Lease there is damage, whether or not an Insured Loss, which falls within the classification of Premises Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within 30 days after the date of occurrence of such damage. 11 (b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an option to extend or renew this Lease, and the time within which said option may be exercised has not yet expired, Lessee shall exercise such option, if it is to be exercised at all, no later than 20 days after the occurrence of an Insured Loss falling within the classification of Premises Partial Damage during the last six months of the term of this Lease. If Lessee duly exercises such option during said 20 day period, Lessor shall, at Lessor's expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option during said 20 day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said 20 day period by giving written notice to Lessee of Lessor's election to do so within 10 days after the expiration of said 20 day period, notwithstanding any term or provision in the grant of option to the contrary. 9.6 Abatement of Rent; Lessee's Remedies. (a) In the event of damage described in paragraphs 9.2 or 9.3, and Lessor or Lessee repairs or restores the Premises pursuant to the provisions of this Paragraph 9, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence such repair or restoration within 90 days after such obligations shall accrue, Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement of such repair or restoration. In such event this Lease shall terminate as of the date of such notice. 9.7 Termination - Advance Payments. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor. 9.8 Waiver. Lessor and Lessee waive the provisions of any statutes which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease. 12 10. Real Property Taxes. 10.1 Payment of Tax Increase. Lessor shall pay the real property tax, as defined in paragraph 10.3, applicable to the Premises; provided, however, that Lessor shall pay, in addition to rent, the amount, if any, by which real property taxes applicable to the Premises increase over the fiscal real estate tax year 1994 - 1995. Such payment shall be made by Lessee within thirty (30) days after receipt of Lessor's written statement setting forth the amount of such increase and the computation thereof. If the term of this Lease shall not expire concurrently with the expiration of the tax fiscal year, Lessee's liability for increased taxes for the last partial lease year shall be prorated on an annual basis. 10.2 Additional improvements. Notwithstanding paragraph 10.1 hereof, Lessee shall pay to Lessor upon demand therefor the entirety of any increase in real property tax if assessed solely by reason of additional improvements placed upon the Premises by Lessee or at Lessee's request. 10.3 Definition of "Real Property Tax". As used herein, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, as against Lessor's right to rent or other income therefrom, and as against Lessor's business of leasing the Premises. The term "real property tax" shall also include any tax, fee, levy, assessment or charge (i) in substitution of, partially or totally, any tax, fee, levy, assessment or charge hereinabove included within the definition of "real property tax," or (ii) the nature of which was hereinbefore included within the definition of "real property tax," or (iii) which is imposed for a service or right not charged prior to June 1,1978, or, if previously charged, has been increased since June 1,1978, or (iv) which is imposed as a result of a transfer, either partial or total, of Lessor's interest in the Premises or which is added to a tax or charge hereinbefore included within the definition of real property tax by reason of such transfer, or (v) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 10.4 Joint Assessment. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the real property taxes for all of the land and improvements 13 included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.5 Personal Property Taxes. (a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. (b) if any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 11. Utilities. Lessee shall pay for all gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of all charges jointly metered with other premises. 12. Assignment and Subletting. 12.1 Lessor's Consent Required. Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's interest in this Lease or in the Premises, without Lessor's prior written consent, which Lessor shall not unreasonably withhold. Lessor shall respond to Lessee's request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a breach of this Lease. 12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any corporation which controls, is controlled by or is under common control with Lessee, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all the assets of Lessee as a going concern of the business that is being conducted on the Premises, provided that said assignee assumes, in full, the obligations of Lessee under this Lease. Any such assignment shall not, in any way affect or limit the liability of Lessee under the terms of this Lease even 14 if after such assignment or subletting the terms of this Lease are materially changed or altered without the consent of Lessee, the consent of whom shall not be necessary. 12.3 No Release of Lessee. Regardless of Lessor's consent, no subletting or assignment shall release Lessee of Lessee's obligation or alter the primary liability of Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any other person shall not be deemed to be a waiver by Lessor of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof, Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee. Lessor may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with assignees of Lessee, without notifying Lessee, or any successor of Lessee, and without obtaining its or their consent thereto and such action shall not relieve Lessee of liability under this Lease. 12.4 Attorney's Fees. In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection therewith, such attorneys fees not to exceed $350.00 for each such request. 13. Defaults; Remedies. 13.1 Defaults. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee: (a) The vacating or abandonment of the Premises by Lessee. (b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of three days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph. (c) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such failure shall continue for a 15 period of 30 days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's default is such that more than 30 days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commenced such cure within said 30-day period and thereafter diligently prosecutes such cure to completion. (d)(i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days. Provided, however, in the event that any provision of this paragraph 13.1(d) is contrary to any applicable law, such provision shall be of no force or effect. (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any of them, was materially false. 13.2 Remedies. In the event of any such material default or breach by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default or breach: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor pursuant to Paragraph 15 applicable to the unexpired term of this Lease. 16 (b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the maximum rate then allowable by law. 13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such 30-day period and thereafter diligently prosecutes the same to completion. 13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to 6 percent of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of rent, then rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any other provision of this Lease to the contrary. 17 13.5 Impounds. In the event that a late charge is payable hereunder, whether or not collected, for three (3) installments of rent or any other monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to Lessor, if Lessor shall so request, in addition to any other payments required under this Lease, a monthly advance installment, payable at the same time as the monthly rent, as estimated by Lessor, for real property tax and insurance expenses on the Premises which are payable by Lessee under the terms of this Lease. Such fund shall be established to insure payment when due, before delinquency, of any or all such real property taxes and insurance premiums. If the amounts paid to Lessor by Lessee under the provisions of this paragraph are insufficient to discharge the obligations of Lessee to pay such real property taxes and insurance premiums as the same become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional sums necessary to pay such obligations. All moneys paid to Lessor under this paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a default in the obligations of Lessee to perform under this Lease, then any balance remaining from funds paid to Lessor under the provisions of this paragraph may, at the option of Lessor, be applied to the payment of any monetary default of Lessee in lieu of being applied to the payment of real property tax and insurance premiums. 14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10 percent of the floor area of the building on the Premises, or more than 25 percent of the land area of the Premises which is not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing only within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent shall be reduced in the proportion that the floor area of the building taken bears to the total floor area of the building situated on the Premises. No reduction of rent shall occur if the only area taken is that which does not have a building located thereon. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, 18 that Lessee shall be entitled to an award for loss of or damage to Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair. 15. Broker's Fee. (intentionally deleted) 16. Estoppel Certificate. (a) Lessee shall at any time upon not less than ten (10) days' prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. (b) At Lessor's option, Lessee's failure to deliver such statement within such time shall be a material breach of this Lease or shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and (iii) that not more than one month's rent has been paid in advance or such failure may be considered by Lessor as a default by Lessee under this Lease. (c) If Lessor desires to finance, refinance, or sell the Premises or any part hereof, Lessee hereby agrees to deliver to any lender or purchaser designated by Lessor such financial statements of Lessee as may be reasonably required by such lender or purchaser. Such statements shall include the past thee years' financial statements of Lessee. All such financial statements shall be received by lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. Lessor's Liability. The term "Lessor" as used herein shall mean only the owner or owners at the time in question of the fee title or a lessee's interest in a ground lease of the Premises, and except as expressly provided in Paragraph 15, in the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers then the grantor) shall 19 be relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor's successors and assigns, only during their respective periods of ownership. 18. Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Interest on Past-due Obligations. Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law from the date due. Payment of such interest shall not excuse or cure any default by Lessee under this Lease, provided, however, that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee. 20. Time of Essence. Time is of the essence. 21. Additional Rent. Any monetary obligations of Lessee to Lessor under the terms of this Lease shall be deemed to be rent. 22. Incorporation of Prior Agreements; Amendments. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the real estate broker listed in Paragraph 15 hereof nor any cooperating broker on this transaction nor the Lessor or any employees or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease. 23. Notices. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, and if given personally or by mail, shall be deemed sufficiently given if addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, as the case may be. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of the 20 Premises, the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee. 24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of any act, shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 25. Recording. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, but all options and rights of first refusal, if any, granted under the terms of this Lease shall be deemed terminated and be of no further effect during said month to month tenancy. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition. 29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of Paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State wherein the Premises are located. 30. Subordination. (a) This Lease, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the real property of which the Premises are a part and to any and all 21 advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. (b) Lessee agrees to execute any documents required to effectuate an attornment, a subordination or to make this Lease prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to execute such documents within 10 days after written demand shall constitute a material default by Lessee hereunder, or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessees attorney-in-fact and in Lessee's name, place and stead, to execute such documents in accordance with this paragraph 30(b). 31. Attorney's Fee. If either party or the broker named herein brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the court. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right hereunder. 32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part as Lessor may deem necessary or desirable. Lessor may at any time place on or about the Premises any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs, all without rebate of rent or liability to Lessee. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, 22 Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. Signs. Lessee shall not place any sign upon the Premises without Lessor's prior written consent except that Lessee shall have the right, without the prior permission of Lessor to place ordinary and usual for rent or sublet signs thereon. 35. Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. 36. Consents. Except for paragraph 33 hereof, wherever in this Lease the consent of one party is required to an act of the other party, such consent shall not be unreasonably withheld. 37. Guarantor. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease. 38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized end legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Premises. 39. Options. 39.1 Definition. As used in this paragraph the word "Options" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (2) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (3) the right or option to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises or the right or option to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor or the right of first offer to purchase other property of Lessor. 23 39.2 Options Personal. Each Option granted to Lessee in this Lease are personal to Lessee and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Lessee, provided, however, the Option may be exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options herein granted to lessee are not assignable separate and apart from this Lease. 39.3 Multiple Options. In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised. 39.4 Effect of Default on Options. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the time commencing from the date Lessor gives to Lessee a notice of default pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said notice of default is cured, or (ii) during the period of time commencing on the day after a monetary obligation to Lessor is due from Lessee and unpaid (without any necessity for notice thereof to Lessee) continuing until the obligation is paid, or (iii) at any time after an event of default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) in the event that Lessor has given to Lessee three or more notices of default under paragraph 13.1(b), where a late charge becomes payable under paragraph 13.4 for each of such defaults, or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month period prior to the time that Lessee intends to exercise the subject Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of paragraph 39.4(a) (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of 30 days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to cure a default specified in paragraph 13.1(c) within 30 days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to diligently prosecute said cure to completion, or (iii) Lessee commits a default described in paragraph 13,1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give notice of such 24 default to Lessee), or (iv) Lessor gives to Lessee three or more notices of default under paragraph 13.1(b), where a late charge becomes payable under paragraph 13.4 for each such default, or paragraph 13.1(c), whether or not the defaults are cured. 40. Multiple Tenant Building. In the event that the Premises are part of a larger building or group of buildings then Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care, and cleanliness of the building and grounds, the parking of vehicles and the preservation of good order therein as well as for the convenience of other occupants and tenants of the building. The violations of any such rules and regulations shall be deemed a material breach of this Lease by Lessee, 41. Security Measures. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of Lessee, its agents and invitees from acts of third parties. 42. Easements. Lessor reserves to itself the right, from time to lime, to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material breach of this Lease. 43. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. Authority. If Lessee is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after execution of this 25 Lease, deliver to Lessor evidence of such authority satisfactory to Lessor. 45. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. Addendum. Attached hereto is an addendum or addenda containing paragraphs 47 through 52 which constitutes a part of this Lease. 47. HAZARDOUS WASTE is attached hereto and is made a part of this Lease. 48. REPAIRS is attached hereto and is made a part of this Lease. 49. PARKING is attached hereto and is made a part of this Lease. 50. OPTION TO RENEW is attached hereto and is made a part of this Lease. 51. TERMINATION OF LEASE is attached hereto and is made a part of this Lease. 52. EXHIBITS "A", "B" and "C" are attached hereto and are made a part of this Lease. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. 26 The parties hereto have executed this Lease at the place on the dates specified immediately adjacent to their respective signatures. Executed at THE MANUFACTURERS LIFE INSURANCE San Diego, California COMPANY on April 20, 1994 Address: By: /s/ ROBERTSON SCHAEFER 7510 Clairemont Mesa Blvd., ------------------------------ Suite 211 Robertson Schaefer, Director San Diego, CA 92111 "LESSOR" (Corporate seal) CERAMIC DEVICES INCORPORATED By: /s/ Ivan Sarda ------------------------------ Ivan Sarda, President "LESSEE" (Corporate seal) 27 47. HAZARDOUS WASTE. Neither Lessee nor its Agents shall cause or permit the generation, transportation, use, storage, handling or disposal of any materials or substances which are now or hereafter may be designated as, or containing components designated as, hazardous, dangerous, toxic or harmful materials and/or substances under any rules, regulations, laws or ordinances of any governmental or quasi-governmental body or regulatory authority ("Hazardous Waste") in, on, about or under the Premises, without Landlord's prior written consent, which may not be unreasonably withheld provided all such materials: 1) are in small quantities; 2) are necessary for conduct of Lessee's business; 3) are maintained in safe, closed containers; 4) are not prohibited by law or Landlord's insurance carrier, and does not result in any increase in the cost of Landlord's insurance. If Landlord consents to Hazardous Waste being on the Premises, they must be used and disposed of in compliance with all laws and regulations. Lessee shall, at its sole expense, promptly cause such Hazardous Waste, if any, to be promptly removed from the Premises at the expiration or earlier termination of this Lease, or earlier upon Landlord's request, in full compliance with all applicable rules, regulations, laws and ordinances, and if Lessee fails to do so, Landlord shall have the right, but not the obligation, to do so at Lessee's sole cost and expense. Lessee shall promptly notify Landlord of any breach of this Section and the existence of Hazardous Waste in, on, about or under the Premises as soon as Lessee becomes aware thereof. Lessee shall, at its sole cost and expense, promptly take all corrective action required by any governmental or quasi-governmental agency or by Landlord as a result of Lessee's or its Agent's breach of this Section. If Lessee fails to take any such corrective action, then Landlord shall have the right, but not the obligation, to take such corrective action and all costs and expenses thereof shall be immediately payable by Lessee to Landlord. Lessee shall indemnify, defend and hold Landlord harmless from and against any and all claims, costs and liabilities (including, without limitation, the costs of investigation, testing, removal and clean-up) in any way related to the presence or disposal of any Hazardous Waste on or about the Premises, except for hazardous waste released on the premises prior to Lessee's occupancy. Lessee's obligations under this lease shall survive the expiration or earlier termination of this Lease. As used in this Lease, an "Agent" of Lessee shall include, without limitation any contractor, employee, agent, subtenant, partner, customer, licensee or invitee of Lessee. Notwithstanding the foregoing, Lessee may utilize materials and substances, such as common office and copier supplies, warehouse maintenance items and/or substances used in the maintenance of warehouse equipment including propane fuel to operate warehouse fork lift trucks, items as stated are now used in the ordinary course of Lessee's business. See attached exhibit for approved materials. 28 HAZARDOUS MATERIAL EXHIBIT -------------------------- The following is a list of approved chemicals to be used on the Premises by the Tenant or its Agents, provided the same are permitted under law. Chemical Name Max. Qty. on Premises Isopropyl Alcohol 10 Gallons Mineral Spirits 5 Gallons Kerosene 1 Liter Ethylbenzene 1 Liter Trichloroethane (1.1.1)* 110 Gallons d-Limonene 1 Gallon Propylene Glycol Monomethyl ether 1 Gallon Monoethanolamine 1 Gallon Methyl Ethyl Ketone 100 Gallons Terpineol 1 Pint Dibutyl Phthalate 1 Liter Lauryl Alcohol 1 Liter Butyl Benzyl Phthalate 1 Gallon Butyl Phenylmethyl Ester 1 Gallon Benzenenedicarboxylic Acid 1 Gallon Methylene Chloride 3 Gallons Freon 3 Gallons Diesel 250 Gallons Amino Ethanol 2 Gallons Flourinert 1 Gallon Heptane 10 Gallons Nitric Acid 1 Gallon Hydrochloric Acid 1 Gallon Sulphuric Acid 1 Gallon Trichlorethylene 1.5 100 Gallons Lessor /s/ Robertson Schaefer Date 4/30 , 1994 ---------------------- ---------- Lessee /s/ Ivan Sarda Date 4/30 , 1994 ----------------------- ---------- * until EPA phase-out (31 Dec '95 estimated) 29 48. REPAIRS. In the case of air conditioning equipment, maintenance shall include servicing of the equipment at least four times a year. Such service shall be provided by a reputable maintenance service company acceptable to Lessor. Evidence of a service contract shall be provided to Lessor. In the event Lessee does not obtain such a service contract, Lessee, upon Lessor's request, agrees to pay Lessor as additional rent the cost of maintenance contract for the air conditioning equipment. Said additional rent shall be paid monthly along with the rent premises stipulated in Paragraph 4 of this lease. The additional rent may be adjusted annually to reflect any changes in the prevailing cost of this service. 49. PARKING. Lessee agrees not to overburden the parking facilities and agrees to cooperate with Lessor and other Lessees in the use of parking facilities. Lessor reserves the right in its absolute discretion to determine whether parking facilities are becoming crowded and, in such event to allocate parking space among Lessee and other Lessees. Lessee shall not permit business vehicles to be parked or stored in the parking lot that are not in operable condition and Lessee understands that vehicles may not be repaired in the parking lot. Lessee and/or employees of the Lessee further understand that personal vehicles are not permitted to be stored in the parking lot at any time. Lessee further understands that work conducted outside the leased premises and/or in the parking lot is not permitted at anytime. 50. OPTION TO RENEW. (A) The Lessor covenants with the Lessee that if the Lessee duly and regularly pays the Rent and any and all amounts required to be paid pursuant to this Lease and performs each and every covenant, proviso and agreement on the part of the Lessee to be paid, rendered, observed and performed herein, the Lessor will at the expiration of the Term on written notice by the Lessee to the Lessor given by the Lessee not less than Ninety (90) days prior to the expiration of the Term, grant to the Lessee a Thirty-six (36) Month renewal of Lease of the Leased Premises (the "Renewal Term") on the same general terms and conditions as in the lease then, at the commencement of the Renewal Term, being used by the Lessor for the Building. (B) The Rent for the first year of the Renewal Term shall be determined by negotiations between the parties hereto, and it is agreed that during such negotiations they will be guided by the then market rate for similar premises in similar buildings in the Kearny Mesa area of San Diego prevailing at the beginning of the Renewal Term. If the parties hereto are unable to agree in writing as to the Rent for the Renewal Term prior to Sixty (60) Days from the expiry of the Lease, this Lease shall end on the expiry of the Term without any option to renew. 51. TERMINATION OF LEASE. Upon the commencement date of this Lease, the lease dated January 7, 1993, for the premises at 8145 Ronson Road, Suites C through K, shall be terminated by mutual consent. 30 EXHIBIT "A" ----------- Plan not included. MANULIFE BUSINESS CENTER BUILDING NO. 1 31 EXHIBIT "B" SIGN STANDARDS -------------- MANULIFE BUSINESS CENTER SAN DIEGO, CALIFORNIA 1. SIGN CRITERIA This criteria has been established for the purpose of maintaining overall appearance of the Manulife Business Center. Conformance will be strictly enforced. Any sign installed without approval of the Lessor will be brought into conformity at the expense of the Lessee. A. General Requirements: 1. Lessee shall submit a sketch of his proposed sign insert to the Lessor for approval. 2. A sign blank shall be furnished and installed by Lessor. 3. A nominal sign charge shall be imposed by Lessor to defray the cost of painting the sign insert in accordance with Paragraph 1. 4. Lessee shall be responsible for the fulfillment of all requirements of this criteria. B. General Specifications: 1. No electrical or audible signs will be permitted. 2. The sign blank's dimensions shall be one foot high by four feet wide. 3. A larger sign may be requested. Larger signs in most instances will be limited to those tenants leasing a single building. 4. The style and size of the individual company's name painted on the insert may vary. The color of the individual company's name painted on the insert shall be white or beige. 5. The sign insert must have a size, shape, composition, design and color provided. 32 6. Placement of the sign and method of attachment to the building will be directed by the Lessor. 7. The sign blank shall not be removed from the building. The sign insert may be removed by the Lessee when the premises are vacated at the end of the lease term. 8. Those tenants who do not wish an exterior sign may place gold leaf lettering on the interior window area, not to exceed more than one hundred forty-four (144) square inches (gross area). The letters are not to exceed three (3) inches in height. 9. Three (3) inch high black, block type letters identifying the tenant's business may be painted on the rear door of the premises. The name is to be centered on the door and located five (5) to six (6) feet from the bottom of the door. 10. Except as provided herein, no advertising, placards, banners, pennants, names, insignia, trademarks, or other descriptive material shall be affixed or maintained upon the glass panes or the exterior walls of the building, landscaped areas, streets, or parking areas. 33 PROJECT: MANULIFE BUSINESS CENTER DATE: April 20, 1994 LESSEE: CERAMIC DEVICES, INCORPORATED UNIT ADDRESS: 8145 Ronson Road, Suites D, E, F, G, H, I San Diego, CA 92111, BLDG./SUITE:1-D,E,F,G,H,I EXHIBIT "C" IMPROVEMENTS Quantity and/or Size, Height, Length, Etc. ITEM: PARTITIONS: CEILINGS: DOORS: FLOOR: LESSEE ACCEPTS THE PREMISES IN "AS IS" CONDITION PLUMBING: WITH THE LESSOR COVENANTING TO PERFORM THE FOLLOWING: LIGHTS: Lessor to install five (5) ton air-conditioning unit to Suites D & I. SWITCHES: WALL ELEC. OUTLETS: PHONE OUTLETS: A/C OR VENT FAN: A/C HOOK-UP: WATER HEATER: PAINTING: OTHER: Unless otherwise stated, the improvements listed above will be final. Any additions will be paid for by Lessee. EX-10.1.20 21 1 EMPLOYMENT AND NONCOMPETITION AGREEMENT THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT (the "Agreement") is made and entered into as of May 31, 1994, by and between PCT HOLDINGS, INC. a Washington corporation (the "Company") and Herman L. "Jack" Jones (the "Employee"). RECITALS -------- A. Employee is the majority shareholder and an officer and director of Cashmere Manufacturing Co., Inc., a Washington corporation ("CMC"). B. CMC, Employee, the Company, John M. Eder, Fred R. Paquette and Dan A. Paquette have entered into a Stock Purchase Agreement dated as of May 19, 1994 (the "Purchase Agreement"), pursuant to which the Company is purchasing from Employee and the others all of the outstanding shares of capital stock of CMC (the "Shares"). C. Employee has knowledge of the affairs, operations, trade secrets, customers and other proprietary information and data of CMC and has developed a unique and special expertise in CMC's business, and the execution of this Agreement by Employee is a material inducement for the Company's execution of the Purchase Agreement and purchase of the Shares. D. The Company desires to retain Employee's services, and Employee desires to provide such services to the Company, on the terms and conditions set forth in this Agreement. F. The Company requires that Employee not compete with the Company or CMC, on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the covenants and promises contained in this Agreement, the parties agree as follows: 1. Employment. The Company employs Employee and Employee accepts such employment, upon the terms and conditions of this Agreement. 2. Term. The term of Employee's employment under this Agreement (the "Term") shall begin on the date of this Agreement and continue through the third anniversary of this Agreement, or the date on which such employment is earlier terminated as set forth below. 2 3. Salary. For services rendered by Employee under this Agreement, the Company agrees to pay Employee, and Employee agrees to accept, during the term of his employment, salary at the rate of $7,500 per month, less all amounts required by law to be withheld, deducted or collected, payable in accordance with the Company's payroll policies, as such policies may be changed from time to time. 4. Benefits. The Company shall make available to Employee, during the term of his employment, all employee benefits made available by the Company to its employees having comparable responsibility as Employee, or to its employees generally, provided that Employee qualifies therefor, on the same basis with respect to requirements for employee contributions as are applicable to other employees of the Company. 5. Expenses. The Company shall pay or reimburse Employee for reasonable out-of-pocket expenses required by the Company in connection with the performance of his services under this Agreement upon presentation of appropriate documentation. 6. Duties. Employee agrees to perform such duties for the Company or any of its affiliates as may reasonably be prescribed from time to time by the officers and directors of the Company, commensurate with the abilities, experience and know-how of Employee. 7. Termination of Employment. Employee's employment may be terminated at any time by mutual agreement of the parties, or as otherwise provided in this section. 7.1 Termination for Cause. The Company may terminate Employee's employment without notice at any time for cause. For purposes of this Agreement, cause for termination shall include: continued neglect, after notice thereof, or willful misconduct by Employee with respect to his duties and obligations under this Agreement; unauthorized expenditure of the Company's funds; unethical business practices in connection with the Company's business; misappropriation of the Company's assets; any material breach by Employee of any term or provision of this Agreement; any act or action of Employee during the term of this Agreement involving embezzlement, dishonesty related to the Company or the Company's business, or habitual use of alcohol or drugs; conviction of any felony; or any similar or related act or failure to act by Employee. Upon termination for cause, Employee shall not be entitled to payment of any compensation other than salary and accrued benefits under this Agreement earned up to the date of such termination. 7.2 No Other Cause for Termination. Employee's employment may not otherwise be terminated for any reason, including Employee's death or disability, whether temporary or permanent. In the event of Employee's disability or death during 3 the term of his employment, the Company shall pay to Employee or the estate of Employee, as the case may be, salary and applicable benefits through the term of this Agreement in the same amounts and at the same intervals as if Employee were fully employed pursuant to this Agreement. 8. Confidentiality. Employee agrees not to directly or indirectly disclose or make available for use to anyone other than the Company, either during or after the Term, any Confidential Information (as defined below) known to Employee as a result of his relationship with the Company or CMC, except as required in Employee's performance of services for the Company or as authorized in writing by the Company. "Confidential Information" means, but is not limited to, all designs, know-how, software, hardware, manuals, drawings, trade secrets, calculations, research, specifications, customer lists, supplier lists, costs, marketing materials, business and financial records, and all other information related to the business or prospective business of the Company or CMC. Confidential Information does not include information that is (i) generally or readily available to the public, (ii) publicly known or becomes publicly known through no fault of Employee, or (iii) received from a third party without violation of a nondisclosure obligation. 9. Return of Confidential Records. All tangible forms of information and all physical property made or compiled by Employee prior to or during the Term containing or relating in any way to Confidential Information shall be the Company's exclusive property. All such materials and any copies thereof shall be held by Employee in trust and solely for the benefit of the Company and shall be delivered to the Company upon termination of Employee's relationship with the Company or at any other time upon the Company's request. 10. Noncompetition Covenant; Payment for Noncompetition Covenant. 10.1 Noncompetition. For a period of ten years, commencing as of the date hereof, Employee agrees that he will not directly or indirectly engage in or perform any services, whether on an employment, consulting or advisory basis, or own, manage, operate, control, be employed by, participate in or be connected in any manner with the ownership, management, operation or control of any business or undertaking that is competitive with the business of the Company or CMC in the United States. 10.2 Consideration. As consideration for the noncompetition covenant contained in Section 10.1, the Company shall pay Employee Sixty Five Thousand Dollars ($65,000) per year for a period of ten years (the "Noncompetition Payment"). The Noncompetition Payment shall be payable in equal monthly 4 installments of $5,416.67, with the first monthly installment being due thirty days after the date hereof. 11. Nonsolicitation Covenant. During the Term, and for two years thereafter, Employee agrees that he will not directly or indirectly solicit, divert, take away or attempt to solicit, divert or take away any customers, clients or business of the Company or CMC or endeavor to entice away from the Company or CMC any of the employees of the Company or CMC with whom Employee had dealings during the Term. 12. Remedies. 12.1 Equitable Relief. The parties agree that damages would be an inadequate remedy for any violation by Employee of Sections 8, 9, 10 and 11 above, and Employee specifically agrees that injunctive or other equitable relief, including without limitation specific performance, would be appropriate, and consents to the same in the event of a material breach of Sections 8, 9, 10 and 11. 12.2 Other Remedies. In addition to the remedies set forth in Section 12.1, the Company shall be entitled to pursue any remedies available in law or equity in the event of any material breach by Employee of any of the provisions of this Agreement. 13. Right to Offset. In the event that any amount that becomes due and payable to Employee pursuant to this Agreement is not paid by the Company within five business days after it is due, Employee shall have the right to offset such amount against any amounts owed by Employee to the Company. 14. Governing Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Washington. 15. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and personally delivered, sent by facsimile transmission, or mailed by registered or certified mail, return receipt requested, to a party at the address or number set forth for the party below, or to such other address or number as may be designated from time to time by written notice. 16. Attorneys' Fees. In the event of any dispute between the parties concerning the subject matter of this Agreement, the substantially prevailing party shall be entitled to an award of costs and reasonable attorneys' fees. 17. Amendments and Waivers. This Agreement may not be amended or otherwise modified, except in a writing executed by both parties. No provision of this Agreement may be waived 5 except in a writing executed by the party waiving such provision, and no waiver of breach shall constitute a subsequent waiver of the same or another breach. 18. No Assignment. Neither this Agreement nor the rights or duties of either party may be assigned by either party without the prior written consent of the other party, except that the Company may assign its rights and obligations hereunder without consent to an affiliate or successor or to a third party in the event of the sale of substantially all of the capital stock or assets of the Company. 19. Entire Agreement; Separability. This Agreement reflects the entire understanding of the parties with respect to the subject matter hereof. Any term or provision of this Agreement that is found to be invalid or unenforceable by a court of competent jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement. This Agreement has been executed as of the date set forth above. EMPLOYEE: /s/ JACK JONES ------------------------------- HERMAN L. "JACK" JONES Address: 102 Maple Street Cashmere, WA 98815 THE COMPANY: PCT HOLDINGS, INC. By /s/ DONALD A. WRIGHT ----------------------------- Donald A. Wright Its President Address: 434 Olds Station Road Wenatchee, WA 98801 EX-10.1.21 22 1 EMPLOYMENT AND NONCOMPETITION AGREEMENT THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT (the "Agreement") is made and entered into as of May 18, 1994, by and between Cashmere Manufacturing Co., Inc., a Washington corporation (the "Company"), and John M. Eder (the "Employee"). RECITALS A. Employee is a shareholder and an employee of the Company. B. PCT Holdings, Inc., a Washington corporation ("PCT Holdings"), the Company, Employee, Herman L. "Jack" Jones, Fred R. Paquette and Dan A. Paquette have entered into a Stock Purchase Agreement dated as of May 19, 1994 (the "Purchase Agreement"), pursuant to which PCT Holdings is purchasing from Employee and others all of the outstanding shares of capital stock of the Company (the "Shares"). C. Employee has knowledge of the affairs, operations, trade secrets, customers and other proprietary information and data of the Company and has developed a unique and special expertise in the Company's business, and the execution of this Agreement by Employee is a material inducement for PCT Holdings' execution of the Purchase Agreement and purchase of the Shares. D. The Company desires to retain Employee's services, and Employee desires to provide such services to the Company, on the terms and conditions set forth in this Agreement. F. The Company requires that Employee not compete with the Company or its affiliates, on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the covenants and promises contained in this Agreement, the parties agree as follows: 1. Employment. The Company employs Employee and Employee accepts such employment, upon the terms and conditions of this Agreement. 2. Term. The term of Employee's employment under this Agreement (the "Term") shall begin on the date of this Agreement and continue through the third anniversary of this Agreement, or the date on which such employment is earlier terminated as set forth below. 2 3. Salary. For services rendered by Employee under this Agreement, the Company agrees to pay Employee, and Employee agrees to accept, during the term of his employment, salary at the rate of $6,500 per month, less all amounts required by law to be withheld, deducted or collected, payable in accordance with the Company's payroll policies, as such policies may be changed from time to time. 4. Transportation. The Company will provide transportation for Mr. Eder at company expense as necessary to perform his executive duties and sales function. 5. Benefits. The Company shall make available to Employee, during the term of his employment, all employee benefits made available by the Company to its employees having comparable responsibility as Employee, or to its employees generally, provided that Employee qualifies therefor, on the same basis with respect to requirements for employee contributions as are applicable to other employees of the Company. 6. Expenses. The Company shall pay or reimburse Employee for reasonable out-of-pocket expenses required by the Company in connection with the performance of his services under this Agreement upon presentation of appropriate documentation. 7. Duties. Employee agrees to perform such duties as may reasonably be prescribed from time to time by the officers and directors of the Company, commensurate with the abilities, experience and know-how of Employee. 8. Termination of Employment. Employee's employment may be terminated at any time by mutual agreement of the parties, or as otherwise provided in this section. 8.1 Termination for Cause. The Company may terminate Employee's employment without notice at any time for cause. For purposes of this Agreement, cause for termination shall include: continued neglect, after notice thereof, or willful misconduct by Employee with respect to his duties and obligation under this Agreement; unauthorized expenditure of the Company's funds; unethical business practices in connection with the Company's business; misappropriation of the Company's assets; any material breach by Employee of any term or provision of this Agreement; any act or action of Employee during the term of this Agreement involving embezzlement, dishonesty related to the Company or the Company's business, or habitual use of alcohol or drugs; conviction of any felony; or any similar or related act or failure to act by Employee. Upon termination for cause, Employee shall not be entitled to payment of any compensation other than salary and accrued benefits under this Agreement earned up to the date of such termination. 3 8.2 Death. In the event of Employee's death while he is employed by the Company pursuant to this Agreement, the Company shall have no further obligations under this Agreement, other than to pay to the estate of Employee any unpaid compensation through the last day on which he performed services for the Company. 8.3 Permanent Disability. In the event of the Permanent Disability (as defined below) of Employee during the term of this Agreement, the Company shall have the right, by giving written notice to Employee after the Company's long-term disability plan has taken effect, to terminate Employee's employment, effective upon receipt of such notice. Upon such termination, the Company shall have no further obligations under this Agreement, other than to pay any unpaid compensation through the date of termination. "Permanent Disability" shall be deemed to occur upon the first to occur of any of the following: (a) The receipt by the Company of a written certificate from a physician approved by the Company stating that, based upon examination of Employee by such physician, it is the physician's opinion that, for a period of at least three consecutive months from the date of certification, Employee is and will be substantially unable to perform his customary duties for the Company or that it would seriously impair Employee's physical or mental health to perform such duties. The Company may require in writing that Employee submit to such examinations by giving written notice thereof to Employee. The expense of any such examinations will be borne by the party requesting the examinations. (b) The failure or refusal of Employee to submit to any examination required by the Company pursuant to clause (a) above within 15 days after the date on which Employee receives a written notice from the Company. (c) The adjudication of Employee as incompetent or disabled and the appointment of a conservator or guardian for Employee or Employee's property by a court of competent jurisdiction. 9. Confidentiality. Employee agrees not to directly or indirectly disclose or make available for use to anyone other than the Company or its affiliates, either during or after the Term, any Confidential Information (as defined below) known to Employee as a result of his relationship with the Company or its affiliates, except as required in Employee's performance of services for the Company or as authorized in writing by the Company. "Confidential Information" means, but is not limited to, all designs, know-how, software, hardware, manuals, drawings, trade secrets, calculations, research, specifications, customer lists, supplier lists, costs, marketing materials, business and financial records, and all other information related to the 4 business or prospective business of the Company or its affiliates. Confidential Information does not include information that is (i) generally or readily available to the public, (ii) publicly known or becomes publicly known through no fault of Employee, or (iii) received from a third party without violation of a nondisclosure obligation. 10. Return of Confidential Records. All tangible forms of information and all physical property made or compiled by Employee prior to or during the Term containing or relating in any way to Confidential Information shall be the Company's exclusive property. All such materials and any copies thereof shall be held by Employee in trust and solely for the benefit of the Company and shall be delivered to the Company upon termination of Employee's relationship with the Company or at any other time upon the Company's request. 11. Noncompetition Covenant. During the Term and for a period of one year thereafter, Employee agrees that he will not directly or indirectly engage in or perform any services, whether an employment, consulting or advisory basis, or own, manage, operate, control, be employed by, participate in or be connected in any manner with the ownership, management, operation or control of any business or undertaking that is competitive with the business of the Company or any of its affiliates in the United States. 12. Nonsolicitation Covenant. During the Term, and for two years thereafter, Employee agrees that he will not directly or indirectly solicit, divert, take away or attempt to solicit, divert or take away any customers, clients or business of the Company or its affiliates or endeavor to entice away from the Company or its affiliates any of the employees of the Company or its affiliates with whom Employee had dealings during the Term. 13. Remedies. 13.1 Equitable Relief. The parties agree that damages would be an inadequate remedy for any violation by Employee of Sections 8, 9, 10 and 11 above, and Employee specifically agrees that injunctive or other equitable relief, including without limitation specific performance, would be appropriate, and consents to the same in the event of a material breach of Sections 8, 9, 10 and 11. 13.2 Other Remedies. In addition to the remedies set forth in Section 13.1, the Company shall be entitled to pursue any remedies available in law or equity in the event of any material breach by Employee of any of the provisions of this Agreement. 5 14. Governing Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Washington. 15. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient in writing and personally delivered, sent by facsimile transmission, or mailed by registered or certified mail, return receipt requested, to a party at the address or number set forth for the party below, or to such other address or number as may be designated from time to time by written notice. 16. Attorneys' Fees. In the event of any dispute between the parties concerning the subject matter of this Agreement, the substantially prevailing party shall be entitled to an award of costs and reasonable attorneys' fees. 17. Amendments and Waivers. This Agreement may not be amended or otherwise modified, except in a writing executed by both parties. No provision of this Agreement may be waived and no waiver of breach shall constitute a subsequent waiver of the same or another breach. 18. No Assignment. Neither this Agreement nor the rights or duties of either party may be assigned by either party without the prior written consent of the other party, except that the Company may assign its rights and obligations hereunder without consent to an affiliate or successor or to a third party in the event of the sale of substantially all of the capital stock or assets of the Company. 19. Entire Agreement; Separability. This Agreement reflects the entire understanding of the parties with respect to the subject matter hereof. Any term or provision of this Agreement that is found to be invalid or unenforceable by a court of competent jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement. This Agreement has been executed as of the date set forth above. EMPLOYEE: /s/ JOHN M. EDER ------------------------------- JOHN M. EDER Address: 4222 Knowles Road Wenatchee, WA 98801 6 THE COMPANY: CASHMERE MANUFACTURING, INC. By /s/ JACK JONES ----------------------------- JACK JONES PRESIDENT Address: 102 Maple Street Cashmere, WA 98815 WITNESS: PCT HOLDINGS, INC. By /s/ DONALD A. WRIGHT ----------------------------- Its President Address: 434 Olds Station Wenatchee, WA 98801 EX-10.1.22 23 1 EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT, effective as of the 1st day of January, 1995, is made by and between PCT HOLDINGS, INC., a Washington corporation having its principal place of business in Wenatchee, Washington (the "Company"), and DONALD A. WRIGHT, a resident of Washington (the "Executive"). RECITALS: A. The Company desires to continue the services of the Executive, presently a shareholder, officer and director of the Company, and the Executive is willing to render such services, in accordance with the terms hereinafter set forth; and B. The Board of Directors of the Company (the "Board") by appropriate resolutions authorized the employment of the Executive as provided for in this Agreement. Accordingly, the Company and the Executive agree as follows: ARTICLE I Duties 1.1 Duties. The Executive shall be a President of the Company. The duties to be performed by the Executive under this Agreement are as specified in the Company's Bylaws, if applicable, and/or as assigned as of the date hereof by the Board. During the Contract Term, and excluding any periods of vacation, sick leave or disability to which the Executive is entitled, the Executive agrees to devote the Executive's full attention and time to the business and affairs of the Company 2 and, to the extent necessary to discharge the duties assigned to the Executive hereunder, to use the Executive's best efforts to perform faithfully and efficiently such duties. ARTICLE II Term of Agreement The term of this Agreement shall commence on the date hereof and end on December 31, 1997 (the "Contract Term"). ARTICLE III Compensation During the Contract Term, the Company shall pay or cause to be paid to the Executive in cash in accordance with the normal payroll practices of the Company for peer executives, including deductions, withholdings and collections as required by law, in installments not less frequently than monthly, an annual base salary ("Annual Base Salary") as follows: Year Annual Base Salary ---- ------------------ 1/1/95 - 12/31/95 $100,000 1/1/96 - 12/31/96 $125,000 1/1/97 - 12/31/97 $150,000 The Company may from time to time increase the Executive's Annual Base Salary, provided that it shall not be reduced after any such increase, and the term Annual Base Salary as used in this Agreement shall refer to the Annual Base Salary as so increased. ARTICLE IV Other Benefits 4.1 Incentive, Savings and Retirement Plans. In addition to Annual Base Salary, the Executive shall be entitled 3 to participate during the Contract Term in all bonuses and incentive (including annual and long-term incentives), savings and retirement plans, practices, policies and programs applicable to other peer executives of the Company. Attached hereto as Exhibit "A" is a description of bonus and stock option benefits for the Executive during the Contract Term. 4.2 Welfare Benefits. During the Contract Term, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company (including, and without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, dependent life, accidental death and travel accident insurance plans and programs) and applicable to other peer executives of the Company. 4.3 Fringe Benefits. During the Contract Term, the Executive shall be entitled to fringe benefits applicable to other peer executives of the Company. 4.4 Expenses. During the Contract Term, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment-related expenses incurred by the Executive upon the Company's receipt of accountings in accordance with practices, policies and procedures applicable to peer executives of the Company. 4.5 Office and Support Staff. During the Contract Term, the Executive shall be entitled to an office or offices of 4 a size and with furnishings and other appointments, and to personal secretarial and other assistance, provided with respect to other peer executives of the Company. 4.6 Vacation. During the Contract Term, the Executive shall be entitled to paid vacation time in accordance with the plans, policies, and programs applicable to other peer executives of the Company. 4.7 Automobile. During the Contract Term, the Executive shall have the use of an automobile of make, size and model reasonably satisfactory to the Executive and the Company. The Company shall pay all acquisition or rental costs thereof as well as costs of operation, maintenance and insurance. ARTICLE V Restrictive Covenants 5.1 Trade Secrets, Confidential and Proprietary Business Information. (a) The Company has advised the Executive and the Executive acknowledged that it is the policy of the Company to maintain as secret and confidential all Protected Information (as defined below), and that Protected Information has been and will be developed at substantial cost and effort to the Company. "Protected Information" means trade secrets, confidential and propriety business information of the Company, any information of the Company other than information which has entered the public domain (unless such information entered the public domain through effects of or on account of the Executive), and all valuable and 5 unique information and techniques acquired, developed or used by the Company relating to its business, operations, employees, customers and suppliers, which give the Company a competitive advantage over those who do not know the information and techniques and which are protected by the Company from unauthorized disclosure, including but not limited to, customer lists (including potential customers), sources of supply, processes, plan, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by the Company and its agents or employees. (b) The Executive acknowledges that the Executive will acquire Protected Information with respect to the Company and its successors in interest, which information is a valuable, special and unique asset of the Company's business and operations and that disclosure of such Protected Information would cause irreparable damage to the Company. (c) Either during or after termination of employment by the Company, the Executive shall not, directly or indirectly, divulge, furnish or make accessible to any person, firm, corporation, association or other entity (otherwise than as may be required in the regular course of the Executive's employment) nor use in any manner, any Protected Information, or cause any such information of the Company to enter the public domain. 6 5.2 Non-Competition. (a) The Executive agrees that the Executive shall not during the Executive's employment with the Company, and, for a period of two (2) years after the termination of this Agreement, directly or indirectly, in any capacity, engage or participate in, or become employed by or render advisory or consulting or other services in connection with any Prohibited Business as defined in Section 5.2(c). (b) The Executive agrees that the Executive shall not during the Executive's employment with the Company, and, for a period of two (2) years after the termination of this Agreement, make any financial investment, whether in the form of equity or debt, or own any interest, directly or indirectly, in any Prohibited Business. Nothing in this Section 5.2(b) shall, however, restrict the Executive from making any investment in any company whose stock is listed on a national securities exchange or actively traded in the over-the-counter market; provided that (i) such investment does not give the Executive the right or ability to control or influence the policy decisions of any Prohibited Business, and (ii) such investment does not create a conflict of interest between the Executive's duties hereunder and the Executive's interest in such investment. (c) For purposes of this Section 5.2, "Prohibited Business" shall be defined as any business and any branch, office or operation thereof, which is a competitor of the Company and which has established or seeks to establish contact, in whatever 7 form (including but not limited to solicitation of sales, or the receipt or submission of bids), with any entity who is at any time a client, customer or supplier of the Company (including but not limited to all subdivisions of the federal government.) 5.3 Non-Solicitation. From the date hereof until two (2) years after the Executive's termination of employment with the Company, the Executive shall not, directly or indirectly: (a) encourage any employee or supplier of the Company or its successors in interest to leave his or her employment with the Company or its successors in interest; (b) employ, hire, solicit or cause to be employed, hired or solicited (other than by the Company or its successors in interest), or encourage others to employ or hire any person who within two (2) years prior thereto was employed by the Company or its successors in interest; or (c) establish a business with, or encourage others to establish a business with, any person who within two (2) years prior thereto was an employee or supplier of the Company or its successors in interest. 5.4 Disclosure of Employee-Created Trade Secrets, Confidential and Propriety Business Information. The Executive agrees to promptly disclose to the Company all Protected Information developed in whole or in part by the Executive during the Executive's employment with the Company and which relates to the Company's business. Such Protected Information is, and shall remain, the exclusive property of the Company. All writings created during the Executive's employment with the Company 8 (excluding writings unrelated to the Company's business) are considered to be "works-for-hire" for the benefit of the Company and the Company shall own all rights in such writings. 5.5 Survival of Undertakings and Injunctive Relief. (a) The provisions of Sections 5.1, 5.2, 5.3 and 5.4 shall survive the termination of the Executive's employment with the Company irrespective of the reasons therefor. (b) The Executive acknowledges and agrees that the restrictions imposed upon the Executive by Sections 5.1, 5.2, 5.3 and 5.4 and the purpose of such restrictions are reasonable and are designed to protect the Protected Information and the continued success of the Company without unduly restricting the Executive's future employment by others. Furthermore, the Executive acknowledges that, in view of the Protected Information which the Executive has or will acquire or has or will have access to and in view of the necessity of the restrictions contained in Sections 5.1, 5.2, 5.3 and 5.4, any violation of any provision of Sections 5.1, 5.2, 5.3 and 5.4 hereof would cause irreparable injury to the Company and its successors in interest with respect to the resulting disruption in their operations. By reason of the foregoing, the Executive consents and agrees that if the Executive violates any of the provisions of Sections 5.1, 5.2, 5.3 or 5.4 of this Agreement, the Company and its successors in interest, as the case may be, shall be entitled, to any other remedies that they may have, including money damages, to an injunction to be issued by a court of competent 9 jurisdiction, restraining the Executive from committing or continuing any violation of such Sections of this Agreement. In the event of any such violation of Sections 5.1, 5.2, 5.3 and 5.4 of this Agreement, the Executive further agrees that the time periods set forth in such Sections shall be extended by the period of such violation. ARTICLE VI Termination 6.1 Termination of Employment. The Executive's employment may be terminated at any time during the Contract Term by mutual agreement of the parties, or as otherwise provided in this Article. (a) Termination for Cause. The Company may terminate the Executive's employment without notice at any time for cause. For purposes of this Agreement, cause for termination shall include: continued neglect, after notice thereof, or willful misconduct by the Executive with respect to his duties and obligations under this Agreement; unauthorized expenditure of the Company's funds; unethical business practices in connection with the Company's business; misappropriation of the Company's assets; any material breach by the Executive of any term or provision of this Agreement; any act or action of the Executive during the term of this Agreement involving embezzlement, dishonesty related to the Company or the Company's business, or habitual use of alcohol or drugs; conviction of any felony; or any similar or related act or failure to act by the Executive. 10 Upon termination for cause, the Executive shall not be entitled to payment of any compensation other than salary and accrued benefits under this Agreement earned up to the date of such termination. ARTICLE VII Miscellaneous 7.1 Assignment, Successors. The Company may freely assign its respective rights and obligations under this Agreement to a successor of the Company's business, without the prior written consent of the Executive. This Agreement shall be binding upon and inure to the benefit of the Executive and the Executive's estate and the Company and any assignee of or successor to the Company. 7.2 Beneficiary. If the Executive dies prior to receiving all of the salary payable hereunder, such salary shall be paid in a lump sum payment to the beneficiary designated in writing by the Executive ("Beneficiary") and if no such Beneficiary is designated, to the Executive's estate. 7.3 Nonalienation of Benefits. Benefits payable under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, prior to actually being received by the Executive, and any such attempt to dispose of any right to benefits payable hereunder shall be void. 11 7.4 Severability. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid. 7.5 Amendment and Waiver. This Agreement shall not be altered, amended or modified except by written instrument executed by the Company and the Executive. A waiver of any term, covenant, agreement or condition contained in this Agreement shall not be deemed a waiver of any other term, covenant, agreement or condition, and any waiver of any other term, covenant, agreement or condition, and any waiver of any default in any such term, covenant, agreement or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement or condition. 7.6 Notices. All notices and other communications hereunder shall be in writing and delivered by hand or by first class registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: PCT HOLDINGS, INC. 434 Olds Station Road Wenatchee, WA 98801 Attn: Mr. Roger Vallo, Secty. 12 If to the Executive: Mr. Donald A. Wright 150 Manhattan Square East Wenatchee, WA 98802 Either party may from time to time designate a new address by notice given in accordance with this Section. Notice and communications shall be effective when actually received by the addressee. 7.7 Counterpart Originals. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 7.8 Entire Agreement. This Agreement forms the entire agreement between the parties hereto with respect to any severance payment and with respect to the subject matter contained in the Agreement. 7.9 Applicable Law. The provisions of this Agreement shall be interpreted and construed in accordance with the laws of the State of Washington, without regard to its choice of law principles. 7.10 Effect on Other Agreements. This Agreement shall supersede all prior agreements, promises and representations regarding employment by the Company and severance or other payments contingent upon termination of employment. Notwithstanding the foregoing, the Executive shall be entitled to any other severance plan applicable to other peer executives of the Company. 13 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above. The Executive: /s/ DONALD A. WRIGHT - ----------------------------------- DONALD A. WRIGHT The Company: PCT Holdings, Inc. /s/ ROGER VALLO - ----------------------------------- ROGER VALLO, SECRETARY & DIRECTOR Witness: /s/ NICK A. GERDE - ----------------------------------- NICK A. GERDE, VICE PRESIDENT FINANCE 14 EXHIBIT "A" TO EMPLOYMENT AGREEMENT FOR DONALD A. WRIGHT STOCK OPTIONS - ------------- Based upon the Employee's performance, as judged by the Board of Directors, stock options may be awarded at the end of each fiscal year under the terms of the Company's Qualified Stock Option Plan. Said Options expire ten (10) years from date of Grant. Maximum # of Shares(1) Otion Price Fiscal Year ----------- ------------ ----------- 15,000 $2.00/share 1995 15,000 $2.00/share 1996 15,000 $2.00/share 1997 BONUS (paid at end of the fiscal year) - ----- Bonus monies are comprised of three (3) parts, each of which will be considered annually: * Top Line (Net Sales)(2) * Bottom Line (Net Profit/Income) * Booked Back Log Top Line Amount - -------- ------ Greater than 5 percent Below Approved Budget $ 0 Plus or Minus 5 percent of Approved Budget 7,000 Greater than 5 percent Above Approved Budget 17,000 Bottom Line Amount - ----------- ------ Greater than 5 percent Below Approved Budget $ 0 Plus or Minus 5 percent of Approved Budget 12,000 Greater than 5 percent Above Approved Budget 22,000 Back Log Amount - -------- ------ Less than 9 Months "of Average of last 6 months" $ 0 10-17 Months "of Average of last 6 Months" 4,500 Greater than 18 Months "of Average of last 6 Months" 7,000 Greater than 24 Months "of Average of last 6 Months" 9,500 15 INITIALS: Executive /s/ DAW -------------- Company /s/ RV --------------- Witness /s/ NAG --------------- (1) Share amounts contemplate post-split effect of proposed 1 for 2 stock split and merger into PCT Holdings, Inc., a Nevada Corporation. (2) Any bonus amounts earned for achieving or exceeding top line or back log goals will be incrementally reduced for falling below the bottom line goal. The amount of percentage to be reduced will be set by the Board of Directors. EX-10.1.23 24 1 EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT, effective as of the 1st day of January, 1995, is made by and between PCT Holdings, Inc., a Washington corporation having its principal place of business in Wenatchee, Washington (the "Company"), and NICK A. GERDE, a resident of Washington (the "Executive"). RECITALS: A. The Company desires to continue the services of the Executive, presently an officer of the Company, and the Executive is willing to render such services, in accordance with the terms hereinafter set forth; and B. The Board of Directors of the Company (the "Board") by appropriate resolutions has authorized the employment of the Executive as provided for in this Agreement. Accordingly, the Company and the Executive agree as follows: ARTICLE I. Duties 1.1 Duties. The Executive shall be a Vice-President and Chief Financial Officer of the Company. The duties to be performed by the Executive under this Agreement are as specified in the Company's Bylaws, if applicable, and/or as assigned as of the date hereof by the Board. During the Contract Term, and excluding any periods of vacation, sick leave or disability to which the Executive is entitled, the Executive agrees to devote the Executive's full attention and time to the business and 2 affairs of the Company and, to the extent necessary to discharge the duties assigned to the Executive hereunder, to use the Executive's best efforts to perform faithfully and efficiently such duties. ARTICLE II. Term of Agreement The term of this Agreement shall commence on the date hereof and end on December 31, 1997 (the "Contract Term"). ARTICLE III. Compensation During the Contract Term, the Company shall pay or cause to be paid to the Executive in cash in accordance with the normal payroll practices of the Company for peer executives, including deductions, withholdings and collections as required by law, in installments not less frequently than monthly, an annual base salary ("Annual Base Salary") as follows: Year Annual Base Salary ---- ------------------ 1/1/95 - 12/31/95 $50,000 1/1/96 - 12/31/96 60,000 1/1/97 - 12/31/97 90,000 The Company may from time to time increase the Executive's Annual Base Salary, provided that it shall not be reduced after any such increase, and the term Annual Base Salary as used in this Agreement shall refer to the Annual Base Salary as so increased. 3 ARTICLE IV. Other Benefits 4.1 Incentive, Savings and Retirement Plans. In addition to Annual Base Salary, the Executive shall be entitled to participate during the Contract Term in all bonuses and incentives (including annual and long-term incentives), savings and retirement plans, practices, policies and programs applicable to other peer executives of the Company. Attached hereto as Exhibit "A" is a description of bonus and stock option benefits for the Executive during the Contract Term. 4.2 Welfare Benefits. During the Contract Term, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company (including, and without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, dependent life, accidental death and travel accident insurance plans and programs) and applicable to other peer executives of the Company. 4.3 Fringe Benefits. During the Contract Term, the Executive shall be entitled to fringe benefits applicable to other peer executives of the Company. 4.4 Expenses. During the Contract Term, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment-related expenses incurred by the Executive upon the Company's receipt of accountings in accordance with 4 practices, policies and procedures applicable to peer executives of the Company. 4.5 Office and Support Staff. During the Contract Term, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, provided with respect to other peer executives of the Company. 4.6 Vacation. During the Contract Term, the Executive shall be entitled to be paid vacation time in accordance with the plans, policies, and programs applicable to other peer executives of the Company. ARTICLE V. Restrictive Covenants 5.1 Trade Secrets, Confidential and Proprietary Business Information. a. The Company has advised the Executive and the Executive acknowledged that it is the policy of the Company to maintain as secret and confidential all Protected Information (as defined below), and that Protected Information has been and will be developed at substantial cost and effort to the Company. "Protected Information" means trade secrets, confidential and propriety business information of the Company, any information of the Company other than information which has entered the public domain (unless such information entered the public domain through effects of or on account of the Executive), and all valuable and unique information and techniques acquired, developed or used by 5 the Company relating to its business, operations, employees, customers and suppliers, which give the Company a competitive advantage over those who do not know the information and techniques and which are protected by the Company from unauthorized disclosure, including but not limited to, customer lists (including potential customers), sources of supply, processes, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by the Company and its agents or employees. b. The Executive acknowledges that the Executive will acquire Protected Information with respect to the Company and its successors in interest, which information is a valuable, special and unique asset of the Company's business and operations and that disclosure of such Protected Information would cause irreparable damage to the Company. c. Either during or after termination of employment by the Company, the Executive shall not, directly or indirectly, divulge, furnish or make accessible to any person, firm, corporation, association or other entity (otherwise than as may be required in the regular course of the Executive's employment) nor use in any manner, any Protected Information, or cause any such information of the Company to enter the public domain. 5.2 Non-Competition. a. The Executive agrees that the Executive shall not during the Executive's employment with the Company, and, for a 6 period of two (2) years after the termination of this Agreement, directly or indirectly, in any capacity, engage or participate in, or become employed by or render advisory or consulting or other services in connection with any Prohibited Business as defined in Section 5.2(c). b. The Executive agrees that the Executive shall not during the Executive's employment with the Company, and, for a period of two (2) years after the termination of this Agreement, make any financial investment, whether in the form of equity or debt, or own any interest, directly or indirectly, in any Prohibited Business. Nothing in this Section 5.2(b) shall, however, restrict the Executive from making any investment in any company whose stock is listed on a national securities exchange or actively traded on the over-the-counter market; provided that: (i) such investment does not give the Executive the right or ability to control or influence the policy decisions of any Prohibited Business; and (ii) such investment does not create a conflict of interest between the Executive's duties hereunder and the Executive's interest in such investment. c. For purposes of this Section 5.2, "Prohibited Business" shall be defined as any business and any branch, office or operation thereof, which is a competitor of the Company and which has established or seeks to establish contact, in whatever form (including but not limited to solicitation of sales, or the receipt or submission of bids), with any entity who is at any 7 time a client, customer or supplier of the Company (including but not limited to all subdivisions of the federal government). 5.3 Non-Solicitation. From the date hereof until two (2) years after the Executive's termination of employment with the Company, the Executive shall not, directly or indirectly: (a) encourage any employee or supplier of the Company or its successors in interest to leave his or her employment with the Company or its successors in interest; (b) employ, hire, solicit or cause to be employed, hired or solicited (other than by the Company or its successors in interest), or encourage others to employ or hire any person who within two (2) years prior thereto was employed by the Company or its successors in interest; or (c) establish a business with, or encourage others to establish a business with, any person who within two (2) years prior thereto was an employee or supplier of the Company or its successors in interest. 5.4 Disclosure of Employee-Created Trade Secrets, Confidential and Proprietary Business Information. The Executive agrees to promptly disclose to the Company all Protected Information developed in whole or in part by the Executive during the Executive's employment with the Company and which relates to the Company's business. Such Protected Information is, and shall remain, the exclusive property of the Company. All writings created during the Executive's employment with the Company (excluding writings unrelated to the Company's business) are 8 considered to be "works-for-hire" for the benefit of the Company and the Company shall own all rights in such writings. 5.5 Survival of Undertakings and Injunctive Relief. a. The provisions of Sections 5.1, 5.2, 5.3 and 5.4 shall survive the termination of the Executive's employment with the Company irrespective of the reasons therefor. b. The Executive acknowledges and agrees that the restrictions imposed upon the Executive by Sections 5.1, 5.2, 5.3 and 5.4 and the purpose of such restrictions are reasonable and are designed to protect the Protected Information and the continued success of the Company without unduly restricting the Executive's future employment by others. Furthermore, the Executive acknowledges that, in view of the Protected Information which the Executive has or will acquire or has or will have access to and in view of the necessity of the restrictions contained in Sections 5.1, 5.2, 5.3 and 5.4, any violation of any provision of Sections 5.1, 5.2, 5.3 and 5.4 hereof would cause irreparable injury to the Company and its successors in interest with respect to the resulting disruption in their operations. By reason of the foregoing, the Executive consents and agrees that if the Executive violates any of the provisions of Sections 5.1, 5.2, 5.3 or 5.4 of this Agreement, the Company and its successors in interest, as the case may be, shall be entitled, in addition to any other remedies that they may have, including money damages, to an injunction to be issued by a court of competent 9 jurisdiction, restraining the Executive from committing or continuing any violation of such Sections of this Agreement. In the event of any such violation of Sections 5.1, 5.2, 5.3 and 5.4 of this Agreement, the Executive further agrees that the time periods set forth in such Sections shall be extended by the period of such violation. ARTICLE VI. Termination 6.1 Termination of Employment. The Executive's employment may be terminated at any time during the Contract Term by mutual agreement of the parties, or as otherwise provided in this Article. 6.2 Termination for Cause. The Company may terminate Executive's employment without notice at any time for cause. For purposes of this Agreement, cause for termination shall include: continued neglect, after notice thereof, or willful misconduct by the Executive with respect to his duties and obligations under this Agreement; unauthorized expenditure of the Company's funds; unethical business practices in connection with the Company's business; misappropriation of the Company's assets; any material breach by the Executive of any term or provision of this Agreement; any act or action of the Executive during the term of this Agreement involving embezzlement, dishonesty related to the Company or the Company's business, or habitual use of alcohol or drugs; conviction of any felony; or any similar or related act or failure to act by the Executive. Upon termination for cause, the 10 Executive shall not be entitled to payment of any compensation other than salary and accrued benefits under this Agreement earned up to the date of such termination. ARTICLE VII. Miscellaneous 7.1 Assignment, Successors. The Company may freely assign its respective rights and obligations under this Agreement to a successor of the Company's business, without the prior written consent of the Executive. This Agreement shall be binding upon and inure to the benefit of the Executive and the Executive's estate and the Company and any assignee of or successor to the Company. 7.2 Beneficiary. If the Executive dies prior to receiving all of the salary payable hereunder, such salary shall be paid in a lump sum payment to the beneficiary designated in writing by the Executive ("Beneficiary") and if no such Beneficiary is designated, to the Executive's estate. 7.3 Nonalienation of Benefits. Benefits payable under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution of levy of any kind, either voluntary or involuntary, prior to actually being received by the Executive, and any such attempt to dispose of any right to benefits payable hereunder shall be void. 7.4 Severability. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or 11 invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid. 7.5 Amendment and Waiver. This Agreement shall not be altered, amended or modified except by written instrument executed by the Company and the Executive. A waiver of any term, covenant, agreement or condition contained in this Agreement shall not be deemed a waiver of any other term, covenant, agreement or condition, and any waiver of any other term, covenant, agreement or condition, and any waiver of any default in any such term, covenant, agreement or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement or condition. 7.6 Notices. All notices and other communications hereunder shall be in writing and delivered by hand or by first class registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: Pacific Coast Technologies, Inc. 434 Olds Station Road Wenatchee, Washington 98801 Attn: Donald A. Wright, President If to the Executive: Mr. Nick A. Gerde 1906 Rocklund Drive Wenatchee, Washington 98801 12 Either party may from time to time designate a new address by notice given in accordance with this Section. Notice and communications shall be effective when actually received by the addressee. 7.7 Counterpart Originals. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 7.8 Entire Agreement. This Agreement forms the entire agreement between the parties hereto with respect to any severance payment and with respect to the subject matter contained in the Agreement. 7.9 Applicable Law. The provisions of this Agreement shall be interpreted and construed in accordance with the laws of the State of Washington, without regard to its choice of law principles. 7.10 Effect on Other Agreements. This Agreement shall supersede all prior agreements, promises and representations regarding employment by the Company and severance or other payments contingent upon termination of employment. Notwithstanding the foregoing, the Executive shall be entitled to any other severance plan applicable to other peer executives of the Company. 13 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above. The Executive: /s/ NICK A. GERDE - ----------------------------------- Nick A. Gerde The Company: PCT Holdings, Inc. /s/ DONALD A. WRIGHT - ----------------------------------- Donald A. Wright, President/CEO Witness: /s/ JACK JONES - ----------------------------------- Jack Jones, Vice President 14 EXHIBIT "A" TO EMPLOYMENT AGREEMENT FOR NICK A. GERDE STOCK OPTIONS - ------------- Based upon the Employee's performance, as judged by the Board of Directors, stock options may be awarded at the end of each fiscal year under the terms of the Company's Qualified Stock Option Plan. Said Options expire ten (10) years from date of Grant. Maximum # of Shares(1) Option Price Fiscal Year ----------- ------------ ----------- 8,333 $2.00/share 1995 8,333 $2.00/share 1996 8,333 $2.00/share 1997 BONUS (paid at end of the fiscal year) - ----- Bonus monies are comprised of three (3) parts, each of which will be considered annually: * Top Line (Net Sales)(2) * Bottom Line (Net Profit/Income) * Booked Back Log Top Line Amount - -------- ------ Greater than 5 percent Below Approved Budget $ 0 Plus or Minus 5 percent of Approved Budget 3,000 Plus or Minus 5 percent of Approved Budget 9,000 Bottom Line Amount - ----------- ------ Greater than 5 percent Below Approved Budget $ 0 Plus or Minus 5 percent of Approved Budget 5,000 Greater than 5 percent Above Approved Budget 10,000 15 Back Log Amount - -------- ------ Less than 9 Months "of Average of Last 6 months" $ 0 10-17 Months "of Average of last 6 Months" 1,500 Greater than 18 Months "of Average of last 6 Months" 5,000 Greater than 24 Months "of Average of last 6 Months" 6,000 - -------------------- (1) Share amounts contemplate post-split effect of proposed 1 for 2 stock split and merger into PCT Holdings, Inc., a Nevada corporation. (2) Any bonus amounts earned for achieving or exceeding top line or back log goals will be incrementally reduced for falling below the bottom line goal. The amount of percentage to be reduced will be set by the Board of Directors. INITIALS: Executive /s/ NAG --------------- Company /s/ DAW --------------- Witness /s/ JJ --------------- EX-10.1.24 25 1 EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT, effective as of the 1st day of January, 1995, is made by and between PACIFIC COAST TECHNOLOGIES, INC., a Washington corporation having its principal place of business in Wenatchee, Washington (the "Company"), and EDWARD A. TAYLOR, a resident of Washington (the "Executive"). RECITALS: A. The Company desires to continue the services of the Executive, presently an officer of the Company, and the Executive is willing to render such services, in accordance with the terms hereinafter set forth; and B. The Board of Directors of the Company (the "Board") by appropriate resolutions authorized the employment of the Executive as provided for in this Agreement. Accordingly, the Company and the Executive agree as follows: ARTICLE I. Duties 1.1 Duties. The Executive shall be a Vice-President - Engineering Technology of the Company. The duties to be performed by the Executive under this Agreement are as specified in the Company's Bylaws, if applicable, and/or as assigned as of the date hereof by the Board. During the Contract Term, and excluding any periods of vacation, sick leave or disability to which the Executive is entitled, the Executive agrees to devote the Executive's full attention and time to the business and 2 affairs of the Company and, to the extent necessary to discharge the duties assigned to the Executive hereunder, to use the Executive's best efforts to perform faithfully and efficiently such duties. ARTICLE II. Term of Agreement The term of this Agreement shall commence on the date hereof and end on December 31, 1997 (the "Contract Term"). ARTICLE III. Compensation During the Contract Term, the Company shall pay or cause to be paid to the Executive in cash in accordance with the normal payroll practices of the Company for peer executives, including deductions, withholdings and collections as required by law, in installments not less frequently than monthly, an annual base salary ("Annual Base Salary") as follows: Year Annual Base Salary ---- ------------------ 1/1/95 - 12/31/95 $52,500 1/1/96 - 12/31/96 58,000 1/1/97 - 12/31/97 65,000 The Company may from time to time increase the Executive's Annual Base Salary, provided that it shall not be reduced after any such increase, and the term Annual Base Salary as used in this Agreement shall refer to the Annual Base Salary as so increased. 3 ARTICLE IV. Other Benefits 4.1 Incentive, Savings and Retirement Plans. In addition to Annual Base Salary, the Executive shall be entitled to participate during the Contract Term in all bonuses and incentive (including annual and long-term incentives), savings and retirement plans, practices, policies and programs applicable to other peer executives of the Company. Attached hereto as Exhibit "A" is a description of bonus benefits for Executive during the Contract Term. 4.2 Welfare Benefits. During the Contract Term, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company (including, and without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, dependent life, accidental death and travel accident insurance plans and programs) and applicable to other peer executives of the Company. 4.3 Fringe Benefits. During the Contract Term, the Executive shall be entitled to fringe benefits applicable to other peer executives of the Company. 4.4 Expenses. During the Contract Term, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment-related expenses incurred by the Executive upon the Company's receipt of accountings in accordance with 4 practices, policies and procedures applicable to peer executives of the Company. 4.5 Office and Support Staff. During the Contract Term, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, provided with respect to other peer executives of the Company. 4.6 Vacation. During the Contract Term, the Executive shall be entitled to be paid vacation time in accordance with the plans, policies, and programs applicable to other peer executives of the Company. ARTICLE V. Restrictive Covenants 5.1 Trade Secrets, Confidential and Proprietary Business Information. a. The Company has advised the Executive and the Executive acknowledged that it is the policy of the Company to maintain as secret and confidential all Protected Information (as defined below), and that Protected Information has been and will be developed at substantial cost and effort to the Company. "Protected Information" means trade secrets, confidential and propriety business information of the Company, any information of the Company other than information which has entered the public domain (unless such information entered the public domain through effects of or on account of the Executive), and all valuable and unique information and techniques acquired, developed or used by 5 the Company relating to its business, operations, employees, customers and suppliers, which give the Company a competitive advantage over those who do not know the information and techniques and which are protected by the Company from unauthorized disclosure, including but not limited to, customer lists (including potential customers), sources of supply, processes, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by the Company and its agents or employees. b. The Executive acknowledges that the Executive will acquire Protected Information with respect to the Company and its successors in interest, which information is a valuable, special and unique asset of the Company's business and operations and that disclosure of such Protected Information would cause irreparable damage to the Company. c. Either during or after termination of employment by the Company, the Executive shall not, directly or indirectly, divulge, furnish or make accessible to any person, firm, corporation, association or other entity (otherwise than as may be required in the regular course of the Executive's employment) nor use in any manner, any Protected Information, or cause any such information of the Company to enter the public domain. 6 5.2 Non-Competition. a. The Executive agrees that the Executive shall not during the Executive's employment with the Company, and, for a period of two (2) years after the termination of this Agreement, directly or indirectly, in any capacity, engage or participate in, or become employed by or render advisory or consulting or other services in connection with any Prohibited Business as defined in Section 5.2(c). b. The Executive agrees that the Executive shall not during the Executive's employment with the Company, and, for a period of two (2) years after the termination of this Agreement, make any financial investment, whether in the form of equity or debt, or own any interest, directly or indirectly, in any Prohibited Business. Nothing in this Section 5.2(b) shall, however, restrict the Executive from making any investment in any company whose stock is listed on a national securities exchange or actively traded in the over-the-counter market; provided that: (i) such investment does not give the Executive the right or ability to control or influence the policy decisions of any Prohibited Business; and (ii) such investment does not create a conflict of interest between the Executive's duties hereunder and the Executive's interest in such investment. c. For purposes of this Section 5.2, "Prohibited Business" shall be defined as any business and any branch, office or operation thereof, which is a competitor of the Company and which has established or seeks to establish contact, in whatever 7 form (including but not limited to solicitation of sales, or the receipt or submission of bids), with any entity who is at any time a client, customer or supplier of the Company (including but not limited to all subdivisions of the federal government). 5.3 Non-Solicitation. From the date hereof until two (2) years after the Executive's termination of employment with the Company, the Executive shall not, directly or indirectly; (a) encourage any employee or supplier of the Company or its successors in interest to leave his or her employment with the Company or its successors in interest; (b) employ, hire, solicit or cause to be employed, hired or solicited (other than by the Company or its successors in interest), or encourage others to employ or hire any person who within two (2) years prior thereto was employed by the Company or its successors in interest; or (c) establish a business with, or encourage others to establish a business with, any person who within two (2) years prior thereto was an employee or supplier of the Company or its successors in interest. 5.4 Disclosure of Employee-Created Trade Secrets, Confidential and Propriety Business Information. The Executive agrees to promptly disclose to the Company all Protected Information developed in whole or in part by the Executive during the Executive's employment with the Company and which relates to the Company's business. Such Protected Information is, and shall remain, the exclusive property of the Company. All writings created during the Executive's employment with the Company 8 (excluding writings unrelated to the Company's business) are considered to be "works-for-hire" for the benefit of the Company and the Company shall own all rights in such writings. 5.5 Survival of Undertakings and Injunctive Relief. a. The provisions of Sections 5.1, 5.2, 5.3 and 5.4 shall survive the termination of the Executive's employment with the Company irrespective of the reasons therefor. b. The Executive acknowledges and agrees that the restrictions imposed upon the Executive by Sections 5.1, 5.2, 5.3 and 5.4 and the purpose of such restrictions are reasonable and are designed to protect the Protected Information and the continued success of the Company without unduly restricting the Executive's future employment by others. Furthermore, the Executive acknowledges that, in view of the Protected Information which the Executive has or will acquire or has or will have access to and in view of the necessity of the restrictions contained in Sections 5.1, 5.2, 5.3 and 5.4, any violation of any provision of Sections 5.1, 5.2, 5.3 and 5.4 hereof would cause irreparable injury to the Company and its successors in interest with respect to the resulting disruption in their operations. By reason of the foregoing, the Executive consents and agrees that if the Executive violates any of the provisions of Sections 5.1, 5.2, 5.3 or 5.4 of this Agreement, the Company and its successors in interest, as the case may be, shall be entitled, in addition to any other remedies that they may have, including money damages, to an injunction to be issued by a court of competent 9 jurisdiction, restraining the Executive from committing or continuing any violation of such Sections of this Agreement. In the event of any such violation of Sections 5.1, 5.2, 5.3 and 5.4 of this Agreement, the Executive further agrees that the time periods set forth in such Sections shall be extended by the period of such violation. ARTICLE VI. Termination 6.1 Termination of Employment. The Executive's employment may be terminated at any time during the Contract Term by mutual agreement of the parties, or as otherwise provided in this Article. 6.2 Termination for Cause. The Company may terminate the Executive's employment without notice at any time for cause. For purposes of this Agreement, cause for termination shall include: continued neglect, after notice thereof, or willful misconduct by the Executive with respect to his duties and obligations under this Agreement; unauthorized expenditure of the Company's funds; unethical business practices in connection with the Company's business; misappropriation of the Company's assets; any material breach by the Executive of any term or provision of this Agreement; any act or action of the Executive during the term of this Agreement involving embezzlement, dishonesty related to the Company or the Company's business, or habitual use of alcohol or drugs; conviction of any felony; or any similar or related act or failure to act by the Executive. Upon termination for cause, the 10 Executive shall not be entitled to payment of any compensation other than salary and accrued benefits under this Agreement earned up to the date of such termination. ARTICLE VII. Miscellaneous 7.1 Assignment, Successors. The Company may freely assign its respective rights and obligations under this Agreement to a successor of the Company's business, without the prior written consent of the Executive. This Agreement shall be binding upon and inure to the benefit of the Executive and the Executive's estate and the Company and any assignee of or successor to the Company. 7.2 Beneficiary. If the Executive dies prior to receiving all of the salary payable hereunder, such salary shall be paid in a lump sum payment to the beneficiary designated in writing by the Executive ("Beneficiary") and if no such Beneficiary is designated, to the Executive's estate. 7.3 Nonalienation of Benefits. Benefits payable under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution of levy of any kind, either voluntary or involuntary, prior to actually being received by the Executive, and any such attempt to dispose of any right to benefits payable hereunder shall be void. 7.4 Severability. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or 11 invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid. 7.5 Amendment and Waiver. This Agreement shall not be altered, amended or modified except by written instrument executed by the Company and the Executive. A waiver of any term, covenant, agreement or condition contained in this Agreement shall not be deemed a waiver of any other term, covenant, agreement or condition, and any waiver of any other term, covenant, agreement or condition, and any waiver of any default in any such term, covenant, agreement or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement or condition. 7.6 Notices. All notices and other communications hereunder shall be in writing and delivered by hand or by first class registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: Pacific Coast Technologies, Inc. 434 Olds Station Road Wenatchee, WA 98801 Attn: Donald A. Wright, President If to the Executive: Mr. Edward A. Taylor 333 14th Street NE East Wenatchee, WA 98802 12 Either party may from time to time designate a new address by notice given in accordance with this Section. Notice and communications shall be effective when actually received by the addressee. 7.7 Counterpart Originals. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 7.8 Entire Agreement. This Agreement forms the entire agreement between the parties hereto with respect to any severance payment and with respect to the subject matter contained in the Agreement. 7.9 Applicable Law. The provisions of this Agreement shall be interpreted and construed in accordance with the laws of the State of Washington, without regard to its choice of law principles. 7.10 Effect on Other Agreements. This Agreement shall supersede all prior agreements, promises and representations regarding employment by the Company and severance or other payments contingent upon termination of employment. Notwithstanding the foregoing, the Executive shall be entitled to any other severance plan applicable to other peer executives of the Company. 13 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above. The Executive: /s/ EDWARD A. TAYLOR - ------------------------------ Edward A. Taylor The Company: Pacific Coast Technologies, Inc. /s/ DONALD A. WRIGHT - ------------------------------ Donald A. Wright, President Witness: /s/ NICK A. GERDE - ------------------------------ Nick A. Gerde, Vice President Finance As per paragraph 7.2 Beneficiary: I hereby designate my beneficiaries under this contract to be my two (2) sons, Kenneth D. Taylor and Bradley A. Taylor, at a rate of 50% each. /s/ EDWARD A. TAYLOR ------------------------------ Edward A. Taylor 14 EXHIBIT "A" TO EMPLOYMENT AGREEMENT FOR EDWARD A. TAYLOR BONUS (paid at end of the fiscal year) - ----- Bonus monies are comprised of three (3) parts, each of which will be considered annually: * Top Line (Net Sales)(1) * Bottom Line (Net Profit/Income) * Booked Back Log Top Line Amount - -------- ------ Greater than 5 percent Below Approved Budget $ 0 Plus or Minus 5 percent of Approved Budget 1,500 Greater than 5 percent Above Approved Budget 5,000 Bottom Line Amount - ----------- ------ Greater than 5 percent Below Approved Budget $ 0 Plus or Minus 5 percent of Approved Budget 1,000 Greater than 5 percent Above Approved Budget 2,500 Back Log Amount - -------- ------ Less than 9 Months "of Average of Last 6 months" $ 0 10-17 Months "of Average of Last 6 Months" 1,000 Greater than 18 Months "of Average of Last 6 Months" 2,500 Greater than 24 Months "of Average of Last 6 Months" 3,000 INITIALS: Executive /s/ EAT --------------- Company /s/ DAW --------------- Witness /s/ NAG --------------- (1) Any bonus amounts earned for achieving or exceeding top line or back log goals will be incrementally reduced for falling below the bottom line goal. The amount of percentage to be reduced will be set by the Board of Directors. EX-10.1.25 26 1 EMPLOYMENT AGREEMENT THIS AGREEMENT, effective as of the 8th day of April, 1995, is made by and between CERAMIC DEVICES, INC., a Washington corporation having its principal place of business in San Diego, California (the "Company"), and IVAN G. SARDA, a resident of California (the "Executive"). RECITALS: A. The Company desires to continue the services of the Executive, presently an officer of the Company, and the Executive is willing to render such services, in accordance with the terms hereinafter set forth; and B. The Board of Directors of the Company (the "Board") by appropriate resolutions authorized the employment of the Executive as provided for in this Agreement. Accordingly, the Company and the Executive agree as follows: ARTICLE I Duties 1.01 Duties. The Executive shall be the President and Chief Executive Officer of the Company. The duties to be performed by the Executive under this Agreement are as specified in the Company's By-Laws, if applicable, and/or as assigned as of the date hereof by the Board. During the Contract Term, and excluding any periods of vacation, sick leave or disability to which the Executive is entitled, the Executive agrees to devote the Executive's full attention and time to the business and affairs of the Company and, to the extent necessary to discharge the duties assigned to the Executive hereunder, to use the Executive's best efforts to perform faithfully and efficiently such duties. ARTICLE II Term of Agreement The term of this Agreement shall commence on the date hereof and end on April 30, 1998 (the "Contract Term"). 2 ARTICLE III Compensation During the Contract Term, the Company shall pay or cause to be paid to the Executive in cash in accordance with the normal payroll practices for peer executives in the Company and those employed by its parent and/or affiliate corporations (the "Affiliates"), including deductions, withholdings and collections as required by law, in installments not less frequently than monthly, an annual base salary ("Annual Base Salary") of $78,000.00. The Company may from time to time increase the Executive's Annual Base Salary, provided that it shall not be reduced after any such increase, and the term Annual Base Salary as used in this Agreement shall refer to the Annual Base Salary as so increased. ARTICLE IV Other Benefits 4.01 Incentive, Savings and Retirement Plans. In addition to Annual Base Salary, the executive shall be entitled to participate during the Contract Term in all bonuses and incentive (including annual and long-term incentives), savings and retirement plans, practices, policies and programs applicable to other peer executives of the Company and the Affiliates. Attached hereto as Exhibit "A" is a description of bonus and stock option benefits for Executive during the Contract Term. 4.02 Welfare Benefits. During the Contract Term, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company (including, and without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, dependent life, accidental death and travel accident 3 insurance plans and programs) and applicable to other peer executives of the Company and the Affiliates. 4.03 Fringe Benefits. During the Contract Term, the Executive shall be entitled to fringe benefits applicable to other peer executives of the Company and the Affiliates. 4.04 Expenses. During the Contract Term, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment-related expenses incurred by the Executive upon the Company's receipt of accountings in accordance with practices, policies and procedures applicable to peer executives of the Company and the Affiliates. 4.05 Office and Support Staff. During the Contract Term, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, provided with respect to other peer executives of the Company and the Affiliates. 4.06 Vacation. During the Contract Term, the Executive shall be entitled to paid vacation time in accordance with the plans, policies, and programs applicable to other peer executives of the Company and the Affiliates. 4 ARTICLE V Restrictive Covenants 5.01 Trade Secrets, Confidential and Propriety Business Information. (a) The Company has advised the Executive and the Executive has acknowledged that it is the policy of the Company to maintain as secret and confidential all Protected Information (as defined below), and that Protected Information has been and will be developed at substantial cost and effort to the Company. "Protected Information" means trade secrets, confidential and propriety business information of the Company, any information of the Company other than information which has entered the public domain (unless such information entered the public domain through effects of or on account of the Executive), and all valuable and unique information and techniques acquired, developed or used by the Company relating to its business, operations, employees, customers and suppliers, which give the Company a competitive advantage over those who do not know the information and techniques and which are protected by the Company from unauthorized disclosure, including but not limited to, customer lists (including potential customers), sources of supply, processes, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by the Company and its agent or employees. (b) The Executive acknowledges that the Executive will acquire Protected Information with respect to the Company and its successors in interest, which information is a valuable, special and unique asset of the Company's business and operations and that disclosure of such Protected Information would cause irreparable damage to the Company. (c) Either during or after termination of employment by the Company, the Executive shall not, directly or indirectly, divulge, furnish or make accessible to any person, firm, corporation, association or other entity (otherwise than as may be required in the 5 regular course of the Executive's employment) nor use in any manner, any Protected Information of the Company or its predecessors, or cause any such information of the Company or its predecessors to enter the public domain. 5.02 Disclosure of Employee-Created Trade Secrets, Confidential and Propriety Business Information. The Executive agrees to promptly disclose to the Company all Protected Information developed in whole or in part by the Executive during the Executive's employment with the Company and which relate to the Company's business. Such Protected Information is, and shall remain, the exclusive property of the Company. All writings created during the Executive's employment with the Company (excluding writings unrelated to the Company's business) are considered to be "works-for-hire" for the benefit of the Company and the Company shall own all rights in such writings. 5.03 Survival of Undertakings and Injunctive Relief. (a) The provisions of Sections 5.01 and 5.02 shall survive the termination of the Executive's employment with the Company irrespective of the reasons therefor. (b) The Executive acknowledges and agrees that the restrictions imposed upon the Executive by Sections 5.01 and 5.02 and the purpose of such restrictions are reasonable and are designed to protect the Protected Information and the continued success of the Company without unduly restricting the Executive's future employment by others. Furthermore, the Executive acknowledges that, in view of the Protected Information which the Executive has or will acquire or has or will have access to and in view of the necessity of the restrictions contained in Sections 5.01 and 5.02, any violation of any provision of Sections 5.01 or 5.02 hereof would cause irreparable injury to the Company and its successors in interest with respect to the resulting disruption in their operations. By reason of the foregoing, the Executive consents and agrees that if the Executive violates any of the provisions of Sections 5.01 or 5.02 of this Agreement, the Company and its successors in interest as the case may be, shall be entitled, in addition to any other remedies that they may 6 have, including money damages, to an injunction to be issued by a court of competent jurisdiction, restraining the Executive from committing or continuing any violation of such Sections of this Agreement. ARTICLE VI Termination 6.01 Termination of Employment. Executive's employment may be terminated at any time during the Contract Term by mutual agreement of the parties, or as otherwise provided in this Article. 6.02 Termination for Cause. The Company may terminate Executive's employment without notice at any time for cause. For purposes of this Agreement, cause for termination shall include: continued neglect, after notice thereof, or willful misconduct by Executive with respect to his duties and obligations under this Agreement; unauthorized expenditure of the Company's funds; unethical business practices in connection with the Company's business; misappropriation of the Company's assets; any material breach by Executive of any term or provision of this Agreement; any act or action of Executive during the term of this Agreement involving embezzlement, dishonesty related to the Company or the Company's business, or habitual use of alcohol or drugs; conviction of any felony; or any similar or related act or failure to act by Executive. Upon termination for cause, Executive shall not be entitled to payment of any compensation other than salary and accrued benefits under this Agreement earned up to the date of such termination. ARTICLE VII Miscellaneous 7.01 Assignment, Successors. The Company may freely assign its respective rights and obligations under this Agreement to a successor of the Company's business, without the prior written consent of the Executive. This Agreement shall be binding upon and insure 7 to the benefit of the Executive and the Executive's estate and the Company and any assignee of or successor to the Company. 7.02 Beneficiary. If the Executive dies prior to receiving all of the salary payable hereunder, the unpaid balance of such salary shall be paid in a lump sum payment to the beneficiary designated in writing by the Executive ("Beneficiary") and if no such Beneficiary is designated, to the Executive's estate. 7.03 Nonalienation of Benefits. Benefits payable under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, prior to actually being received by the Executive, and any such attempt to dispose of any right to benefits payable hereunder shall be void. 7.04 Severability. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid. 7.05 Amendment and Waiver. This Agreement shall not be altered, amended or modified except by written instrument executed by the Company and the Executive. A waiver of any term, covenant, agreement or condition contained in this Agreement shall not be deemed a waiver of any other term, covenant, agreement or condition, and any waiver of any other term, covenant, agreement or condition, and any waiver of any default in any such term, covenant, agreement or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement or condition. 8 7.06 Notices. All notices and other communications hereunder shall be in writing and delivered by hand or by first class registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: CERAMIC DEVICES, INC. 434 Olds Station Road Wenatchee, Washington 98801 Attn: Donald A. Wright, Chairman If to the Executive: Mr. Ivan G. Sarda 4871 Campanile Drive San Diego, California 92115 Either party may from time to time designate a new address by notice given in accordance with this Section. Notice and communications shall be effective when actually received by the addressee. 7.07 Counterpart Originals. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 7.08 Entire Agreement. This Agreement forms the entire agreement between the parties hereto with respect to any severance payment and with respect to the subject matter contained in the Agreement. 7.09 Applicable Law. The provisions of this Agreement shall be interpreted and construed in accordance with the laws of the state of Washington, without regard to its choice of law principles. 7.10 Effect on Other Agreements. This Agreement shall supersede all prior agreements, promises and representations regarding employment by the Company and severance or other payments contingent upon termination of employment. Notwithstanding the foregoing, the Executive shall be entitled to any other severance plan applicable to other peer executives of the Company. 9 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above. CERAMIC DEVICES, INC. By /s/ DONALD A. WRIGHT ------------------------------------ Donald A. Wright, Chairman /s/ IVAN G. SARDA ---------------------------------- Ivan G. Sarda 10 EXHIBIT "A" TO EMPLOYMENT AGREEMENT FOR IVAN G. SARDA STOCK OPTIONS Based upon the Employee's performance, as judged by the Board of Directors, stock options may be awarded at the end of each fiscal year under the terms of the Company's Qualified Stock Option Plan. Said Options expire ten (10) years from date of grant. Maximum # of Shares Option Price Fiscal Year ----------- ------------ ----------- 5,000 $8.00/share 1995 10,000 $8.00/share 1996 10,000 $8.00/share 1997 BONUS (paid at end of the fiscal year) Bonus monies are comprised of three (3) parts, each of which will be considered annually: * Top Line (Net Sales)(1) * Bottom Line (Net Profit/Income) * Booked Back Log Top Line Amount -------- ------ Greater than 5 percent Below Approved Budget $ 0 Plus or Minus 5 percent of Approved Budget 1,500 Greater than 5 percent Above Approved Budget 4,500 Bottom Line Amount ----------- ------ Greater than 5 percent Below Approved Budget $ 0 Plus or Minus 5 percent of Approved Budget 2,500 Greater than 5 percent Above Approved Budget 5,000 Back Log Amount -------- ------ Less than 9 months "of Average of Last 6 months" $ 0 10-17 Months "of Average of Last 6 Months" 750 Greater than 18 Months "of Average of Last 6 Months" 2,500 Greater than 24 Months "of Average of Last 6 Months" 3,000 - ------------------------ (1) Any bonus amounts earned for achieving or exceeding top line or back log goals will be incrementally reduced for falling below the bottom line. The amount of percentage will be set by the Board of Directors. EX-10.1.26 27 1 EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT, effective as of the 1st day of March, 1995, is made by and between PACIFIC COAST TECHNOLOGIES, INC., a Washington corporation having its principal place of business in Wenatchee, Washington (the "Company"), and LEWIS L. WEAR, a resident of California (the "Executive"). RECITALS: A. The Company desires to obtain the services of the Executive, and the Executive is willing to render such services, in accordance with the terms hereinafter set forth; and B. The Board of Directors of the Company (the "Board") by appropriate resolutions has authorized the employment of the Executive as provided for in this Agreement. Accordingly, the Company and the Executive agree as follows: ARTICLE I. Duties 1.1 Duties. The Executive shall be a Vice-President and General Manager of the Company. The duties to be performed by the Executive under this Agreement are as specified in the Company's Bylaws, if applicable, and/or as assigned as of the date hereof by the Board. During the Contract Term, and excluding any periods of vacation, sick leave or disability to which the Executive is entitled, the Executive agrees to devote the Executive's full attention and time to the business and 2 affairs of the Company and, to the extent necessary to discharge the duties assigned to the Executive hereunder, to use the Executive's best efforts to perform faithfully and efficiently such duties. ARTICLE II. Term of Agreement The term of this Agreement shall commence on the date hereof and end on February 28, 1998 (the "Contract Term"). ARTICLE III. Compensation During the Contract Term, the Company shall pay or cause to be paid to the Executive in cash in accordance with the normal payroll practices of the Company for peer executives, including deductions, withholdings and collections as required by law, in installments not less frequently than monthly, an annual base salary ("Annual Base Salary") as follows: Year Annual Base Salary ---- ------------------ 03/01/95 - 02/28/96 $78,000 03/01/96 - 02/28/97 84,000 03/01/97 - 02/28/98 90,000 The Company may from time to time increase the Executive's Annual Base Salary, provided that it shall not be reduced after any such increase, and the term Annual Base Salary as used in this Agreement shall refer to the Annual Base Salary as so increased. 3 ARTICLE IV. Other Benefits 4.1 Incentive, Savings and Retirement Plans. In addition to Annual Base Salary, the Executive shall be entitled to participate during the Contract Term in all bonuses and incentives (including annual and long-term incentives), savings and retirement plans, practices, policies and programs applicable to other peer executives of the Company. Attached hereto as Exhibit "A" is a description of stock option benefits for the Executive during the Contract Term. 4.2 Welfare Benefits. During the Contract Term, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company (including, and without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, dependent life, accidental death and travel accident insurance plans and programs) and applicable to other peer executives of the Company. 4.3 Fringe Benefits. During the Contract Term, the Executive shall be entitled to fringe benefits applicable to other peer executives of the Company. 4.4 Expenses. During the Contract Term, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment-related expenses incurred by the Executive upon the Company's receipt of accountings in accordance with 4 practices, policies and procedures applicable to peer executives of the Company. 4.5 Office and Support Staff. During the Contract Term, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, provided with respect to other peer executives of the Company. 4.6 Vacation. During the Contract Term, the Executive shall be entitled to be paid vacation time in accordance with the plans, policies, and programs applicable to other peer executives of the Company. ARTICLE V. Restrictive Covenants 5.1 Trade Secrets, Confidential and Proprietary Business Information. a. The Company has advised the Executive and the Executive acknowledged that it is the policy of the Company to maintain as secret and confidential all Protected Information (as defined below), and that Protected Information has been and will be developed at substantial cost and effort to the Company. "Protected Information" means trade secrets, confidential and propriety business information of the Company, any information of the Company other than information which has entered the public domain (unless such information entered the public domain through effects of or on account of the Executive), and all valuable and unique information and techniques acquired, developed or used by 5 the Company relating to its business, operations, employees, customers and suppliers, which give the Company a competitive advantage over those who do not know the information and techniques and which are protected by the Company from unauthorized disclosure, including but not limited to, customer lists (including potential customers), sources of supply, processes, plan, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by the Company and its agents or employees. b. The Executive acknowledges that the Executive will acquire Protected Information with respect to the Company and its successors in interest, which information is a valuable, special and unique asset of the Company's business and operations and that disclosure of such Protected Information would cause irreparable damage to the Company. c. Either during or after termination of employment by the Company, the Executive shall not, directly or indirectly, divulge, furnish or make accessible to any person, firm, corporation, association or other entity (otherwise than as may be required in the regular course of the Executive's employment) nor use in any manner, any Protected Information, or cause any such information of the Company to enter the public domain. 6 5.2 Non-Competition. a. The Executive agrees that the Executive shall not during the Executive's employment with the Company, and, for a period of two (2) years after the termination of this Agreement, directly or indirectly, in any capacity, engage or participate in, or become employed by or render advisory or consulting or other services in connection with any Prohibited Business as defined in Section 5.2(c). b. The Executive agrees that the Executive shall not during the Executive's employment with the Company, and, for a period of two (2) years after the termination of this Agreement, make any financial investment, whether in the form of equity or debt, or own any interest, directly or indirectly, in any Prohibited Business. Nothing in this Section 5.2(b) shall, however, restrict the Executive from making any investment in any company whose stock is listed on a national securities exchange or actively traded in the over-the-counter market; provided that: (i) such investment does not give the Executive the right or ability to control or influence the policy decisions of any Prohibited Business; and (ii) such investment does not create a conflict of interest between the Executive's duties hereunder and the Executive's interest in such investment. c. For purposes of this Section 5.2, "Prohibited Business" shall be defined as any business and any branch, office or operation thereof, which is a competitor of the Company and which has established or seeks to establish contact, in whatever 7 form (including but not limited to solicitation of sales, or the receipt or submission of bids), with any entity who is at any time a client, customer or supplier of the Company (including but not limited to all subdivisions of the federal government). 5.3 Non-Solicitation. From the date hereof until two (2) years after the Executive's termination of employment with the Company, the Executive shall not, directly or indirectly: (a) encourage any employee or supplier of the Company or its successors in interest to leave his or her employment with the Company or its successors in interest; (b) employ, hire, solicit or cause to be employed, hired or solicited (other than by the Company or its successors in interest), or encourage others to employ or hire any person who within two (2) years prior thereto was employed by the Company or its successors in interest; or (c) establish a business with, or encourage others to establish a business with, any person who within two (2) years prior thereto was an employee or supplier of the Company or its successors in interest. 5.4 Disclosure of Employee-Created Trade Secrets, Confidential and Propriety Business Information. The Executive agrees to promptly disclose to the Company all Protected Information developed in whole or in part by the Executive during the Executive's employment with the Company and which relates to the Company's business. Such Protected Information is, and shall remain, the exclusive property of the Company. All writings created during the Executive's employment with the Company 8 (excluding writings unrelated to the Company's business) are considered to be "works-for-hire" for the benefit of the Company and the Company shall own all rights in such writings. 5.5 Survival of Undertakings and Injunctive Relief. a. The provisions of Sections 5.1, 5.2, 5.3 and 5.4 shall survive the termination of the Executive's employment with the Company irrespective of the reasons therefor. b. The Executive acknowledges and agrees that the restrictions imposed upon the Executive by Sections 5.1, 5.2, 5.3 and 5.4 and the purpose of such restrictions are reasonable and are designed to protect the Protected Information and the continued success of the Company without unduly restricting the Executive's future employment by others. Furthermore, the Executive acknowledges that, in view of the Protected Information which the Executive has or will acquire or has or will have access to and in view of the necessity of the restrictions contained in Sections 5.1, 5.2, 5.3 and 5.4, any violation of any provision of Sections 5.1, 5.2, 5.3 and 5.4 hereof would cause irreparable injury to the Company and its successors in interest with respect to the resulting disruption in their operations. By reason of the foregoing, the Executive consents and agrees that if the Executive violates any of the provisions of Sections 5.1, 5.2, 5.3 or 5.4 of this Agreement, the Company and its successors in interest, as the case may be, shall be entitled, in addition to any other remedies that they may have, including money damages, to an injunction to be issued by a court of competent 9 jurisdiction, restraining the Executive from committing or continuing any violation of such Sections of this Agreement. In the event of any such violation of Sections 5.1, 5.2, 5.3 and 5.4 of this Agreement, the Executive further agrees that the time periods set forth in such Sections shall be extended by the period of such violation. ARTICLE VI. Termination 6.1 Termination of Employment. The Executive's employment may be terminated at any time during the Contract Term by mutual agreement of the parties, or as otherwise provided in this Article. 6.2 Termination for Cause. The Company may terminate the Executive's employment without notice at any time for cause. For purposes of this Agreement, cause for termination shall include: continued neglect, after notice thereof, or willful misconduct by the Executive with respect to his duties and obligations under this Agreement; unauthorized expenditure of the Company's funds; unethical business practices in connection with the Company's business; misappropriation of the Company's assets; any material breach by the Executive of any term or provision of this Agreement; any act or action of the Executive during the term of this Agreement involving embezzlement, dishonesty related to the Company or the Company's business, or habitual use of alcohol or drugs; conviction of any felony; or any similar or related act or failure to act by the Executive. Upon termination for cause, the 10 Executive shall not be entitled to payment of any compensation other than salary and accrued benefits under this Agreement earned up to the date of such termination. ARTICLE VII. Miscellaneous 7.1 Assignment, Successors. The Company may freely assign its respective rights and obligations under this Agreement to a successor of the Company's business, without the prior written consent of the Executive. This Agreement shall be binding upon and inure to the benefit of the Executive and the Executive's estate and the Company and any assignee of or successor to the Company. 7.2 Beneficiary. If the Executive dies prior to receiving all of the salary payable hereunder, such salary shall be paid in a lump sum payment to the beneficiary designated in writing by the Executive ("Beneficiary") and if no such Beneficiary is designated, to the Executive's estate. 7.3 Nonalienation of Benefits. Benefits payable under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution of levy of any kind, either voluntary or involuntary, prior to actually being received by the Executive, and any such attempt to dispose of any right to benefits payable hereunder shall be void. 7.4 Severability. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or 11 invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid. 7.5 Amendment and Waiver. This Agreement shall not be altered, amended or modified except by written instrument executed by the Company and the Executive. A waiver of any term, covenant, agreement or condition contained in this Agreement shall not be deemed a waiver of any other term, covenant, agreement or condition, and any waiver of any other term, covenant, agreement or condition, and any waiver of any default in any such term, covenant, agreement or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement or condition. 7.6 Notices. All notices and other communications hereunder shall be in writing and delivered by hand or by first class registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: Pacific Coast Technologies, Inc. 434 Olds Station Road Wenatchee, Washington 98801 Attn: Donald A. Wright, President If to the Executive: Mr. Lewis L. Wear 17031 Saga Drive Yorba Linda, California 92686 12 Either party may from time to time designate a new address by notice given in accordance with this Section. Notice and communications shall be effective when actually received by the addressee. 7.7 Counterpart Originals. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 7.8 Entire Agreement. This Agreement forms the entire agreement between the parties hereto with respect to any severance payment and with respect to the subject matter contained in the Agreement. 7.9 Applicable Law. The provisions of this Agreement shall be interpreted and construed in accordance with the laws of the State of Washington, without regard to its choice of law principles. 7.10 Effect on Other Agreements. This Agreement shall supersede all prior agreements, promises and representations regarding employment by the Company and severance or other payments contingent upon termination of employment. Notwithstanding the foregoing, the Executive shall be entitled to any other severance plan applicable to other peer executives of the Company. 13 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above. PACIFIC COAST TECHNOLOGIES /s/ By: /s/ DONALD A. WRIGHT - ---------------------------- -------------------------------- Witness Donald A. Wright, President /s/ /s/ LEWIS L. WEAR - ---------------------------- ----------------------------------- Witness Lewis L. Wear 14 EXHIBIT "A" TO EMPLOYMENT AGREEMENT FOR LEWIS L. WEAR STOCK OPTIONS - ------------- Based upon the Employee's performance, as judged by the President and the Board of Directors, stock options may be awarded at the end of each fiscal year under the terms of the Qualified Stock Option Plan of PCT HOLDINGS, INC. Said Options expire ten (10) years from date of grant. Maximum # of Shares(1) Option Price Fiscal Year ----------- ------------ ----------- 5,000 $4.00/share 1996 10,000 $4.00/share 1997 15,000 $4.00/share 1998 INITIALS: Executive /s/ LLW ------------- Company /s/ DAW ------------- Witness /s/ ------------- - -------------------- (1) Share amounts contemplate post-split effect of proposed 1 for 2 stock split and the merger of PCT Holdings, Inc., a Washington corporation, into PCT Holdings, Inc., a Nevada corporation. EX-10.1.27 28 1 PCT HOLDINGS, INC. 1994 STOCK INCENTIVE PLAN 1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to enable PCT Holdings, Inc. (the "Company") and its subsidiaries to attract and retain experienced and able directors, officers, employees and other key contributors (including consultants and non-employee agents) and to provide additional incentive to these individuals to exert their best efforts for the Company and its shareholders. 2. Administration. 2.1 Board of Directors. The Plan shall be administered by the board of directors of the Company (the "Board of Directors"). The Board of Directors shall determine and designate from time to time the persons to whom grants and awards shall be made and the amounts, terms and conditions of those grants and awards. The decisions of the Board of Directors within its authority shall be final and binding on all parties. Subject to the provisions of the Plan, the Board of Directors may from time to time adopt or amend rules and regulations relating to administration of the Plan, and the interpretation and construction of the provisions of the Plan by the Board of Directors shall be final and conclusive. Whenever operation of the Plan requires that the fair market value of the Company's common stock ("Stock") be determined, fair market value shall be determined by, or in a manner approved by, the Board of Directors. 2.2 Committee. The Board of Directors may delegate to a committee of the Board of Directors (the "Committee") any and all authority for administration of the Plan. If a Committee is appointed, all references to the Board of Directors in the Plan shall mean and relate to the Committee, except that only the Board of Directors may amend, modify or terminate the Plan as provided in paragraph 11. The decisions of the Committee within its authority shall be final and binding on all parties. The Committee shall have at least three members. 3. Eligibility. 3.1 General Rule. Except as provided in paragraph 3.2, grants and awards may be made under the Plan to directors, officers, and key employees of the Company or of any parent or subsidiary of the Company, and other key individuals such as consultants and nonemployee agents to the Company whom the Board 2 of Directors believes have made or will make an essential contribution to the Company. 3.2 Incentive Stock Option Eligibility. 3.2.1 Only employees of the Company or any parent or subsidiary of the Company shall be eligible to receive an Incentive Stock Option under the Plan. 3.2.2 Any employee who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company shall be eligible to receive an Incentive Stock Option only if both (i) the option price at the time of grant is at least 110% of fair market value, and (ii) the option is not exercisable more than five years from the date of the grant. 3.2.3 Limitation on Amount of Grants. No employee may be granted Incentive Stock Options under the Plan such that the aggregate fair market value, on the date of grant, of the Stock with respect to which Incentive Stock Options are exercisable for the first time by that employee during any calendar year, under the Plan and under any other incentive stock option plan (within the meaning of I.R.C. Section 422A) of the Company or any parent or subsidiary of the Company, exceeds $100,000. 4. Shares Subject to the Plan. Except as provided in paragraph 9, the total number of shares of Stock that may be issued (i) upon exercise of all options and stock appreciation rights granted under the Plan, (ii) as bonuses under the Plan and (iii) pursuant to sales under the Plan, shall not exceed, in the aggregate, 2,000,000 shares. If any option under the Plan or stock appreciation right granted without a related option expires or is cancelled or terminated and is unexercised in whole or in part, the shares allocable to the unexercised portion shall again become available for awards under the Plan, except that shares issued on exercise of a stock appreciation right that were allocable to an option, or portion thereof, surrendered in connection with exercise of the stock appreciation right shall not again become available for awards under the Plan. If Stock sold or awarded as a bonus under the Plan is forfeited to the Company or repurchased by the Company pursuant to applicable restrictions, the number of shares forfeited or repurchased shall again be available under the Plan. Stock issued under the Plan may be subject to such restrictions on transfer, repurchase rights, or other restrictions as are determined by the Board of Directors. The certificates representing such Stock shall bear such legends as are determined by the Board of Directors. 3 5. Effective Date and Duration of Plan. 5.1 Effective Date. The Plan shall become effective when adopted by the Board of Directors (the "Effective Date"). Options and stock appreciation rights may be granted and stock may be awarded as bonuses or sold under the Plan at any time after the Effective Date and before termination of the Plan. 5.2 Duration of the Plan. The Plan shall continue until, in the aggregate, options and stock appreciation rights have been granted and exercised and Stock has been awarded as a bonus or sold and the restrictions on any such Stock have lapsed with respect to all shares subject to the Plan under paragraph 4 (subject to any adjustments under paragraph 9); provided, however, that no Incentive Stock Option may be granted on or after the tenth anniversary of the date of adoption of the Plan. The Board of Directors may suspend or terminate the Plan at any time except with respect to options, stock appreciation rights, bonus rights, and Stock subject to restrictions previously issued under the Plan. Termination shall not affect any right or obligation of the Company to repurchase, or the forfeitability of, shares issued pursuant to the Plan. 6. Grants, Awards and Sales. 6.1 Type of Stock Incentive. The Board of Directors may, from time to time, take the following actions, separately or in combination, under the Plan: (i) grant Incentive Stock Options, as defined in Section 422A of the Internal Revenue Code of 1986, as amended ("I.R.C."); (ii) grant options other than Incentive Stock Options (hereinafter "Non-Statutory Stock Options"); (iii) grant stock appreciation rights or bonus rights; (iv) award bonuses of Stock; and (v) sell Stock subject to restrictions. The Board of Directors shall specify in writing the action taken with respect to each grant, award or sale of any option or Stock under the Plan and shall specifically designate each option granted under the Plan as an Incentive Stock Option or a Non-Statutory Stock Option. 6.2 General Rules Relating to Options. 6.2.1 Time of Exercise. Except as provided in paragraph 8, options granted under the Plan may be exercised over the period stated in each option in amounts and at times prescribed by the Board of Directors and stated in the option, provided that options shall not be exercised for fractional shares. Unless otherwise specified by an agreement between the 4 Company and the optionee with respect to the option, if the optionee does not exercise an option in any period with respect to the full number of shares to which the optionee is entitled in that period, the optionee's rights shall be cumulative and the optionee may purchase those shares in any subsequent period during the term of the option. 6.2.2 Purchase of Shares. 6.2.2.1 Notice of Intent to Exercise. Shares may be purchased or acquired pursuant to an option granted under the Plan only on receipt by the Company of notice in writing from the optionee of the optionee's intention to exercise. The notice shall (i) specify the number of shares the optionee desires to purchase, (ii) specify the date on which the optionee desires to complete the transaction, which may not be more than 30 days after receipt of the notice by the Company, and (iii) include a representation that the optionee intends to acquire the shares for investment and not with a view to distribution, unless in the opinion of counsel for the Company such a representation is not required to comply with the Securities Act of 1933, as amended. 6.2.2.2 Payment. On or before the date specified for completion of the purchase, the optionee must have paid the Company the full purchase price in cash, including cash that may be the proceeds of a loan from the Company, or, if permitted by the option, in shares of Stock previously acquired by the optionee valued at fair market value or in any combination of cash and such shares of Stock. No shares shall be issued until full payment therefor has been made. 6.2.2.3 Withholding. Each optionee who has exercised an option shall, on notification of the amount due, if any, and before or concurrently with delivery of the certificates representing the shares for which the option was exercised, pay to the Company amounts necessary to satisfy any applicable federal, state, and local withholding tax requirements. If additional withholding becomes required beyond any amount deposited before delivery of the certificates, the optionee shall pay such amount to the Company on demand. If the employee fails to pay the amount demanded, the Company shall have the right to withhold that amount from other amounts payable by the Company to the optionee, including salary, subject to applicable law. 6.3 Incentive Stock Options. Incentive Stock Options shall be subject to the following additional terms and conditions: 5 6.3.1 Option Price. The option price per share under each Incentive Stock Option granted under the Plan shall be determined by the Committee, but shall be not less than 100 percent of the fair market value of the shares covered by the option on the date the option is granted. 6.3.2 Duration of Options. Subject to paragraphs 6.3.4 and 8, each Incentive Stock Option granted under the Plan shall continue in effect for the period fixed by the Committee, but shall provide that it is not exercisable after the expiration of 10 years from the date it is granted. 6.3.3 Limitations on Grants to 10 Percent Shareholders. An Incentive Stock Option may be granted under the Plan to an employee possessing more than 10 percent of the total combined voting power of all classes of stock of the Company, or of any parent or subsidiary of the Company, only if the option price is at least 110 percent of the fair market value of the Stock subject to the option on the date it is granted and the option by its terms is not exercisable after the expiration of five years from the date it is granted. 6.3.4 Eligibility for Incentive Stock Option. Eligibility for Incentive Stock Options is limited as provided in paragraph 3.2. 6.4 Non-Statutory Stock Options. Non-Statutory Stock Options shall be subject to the following additional terms and conditions: 6.4.1 Option Price. The option price per share under each Non-Statutory Stock Option granted under the Plan shall be determined by the Board of Directors. 6.4.2 Duration of Options. Non-Statutory Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors. 6.5 Stock Bonuses. 6.5.1 Terms, Conditions, and Restrictions. Stock awarded as a bonus shall be subject to the terms, conditions, and restrictions determined by the Board of Directors at the time of the award. The Board of Directors may require the recipient to sign an agreement as a condition of the award. The agreement may contain such terms, conditions, representations, and warranties as the Board of Directors may require. 6 6.5.2 Withholding. Each employee who is awarded a stock bonus shall, on notification of the amount due, if any, and before or concurrently with delivery of the certificates representing the award, pay to the Company amounts necessary to satisfy any applicable federal, state, and local withholding tax requirements. If additional withholding becomes required beyond any amount deposited before delivery of the certificates, the employee shall pay such amount to the Company on demand. If the employee fails to pay the amount demanded, the Company shall have the right to withhold that amount from other amounts payable by the Company to the employee, including salary, subject to applicable law. 6.6 Restricted Stock. 6.6.1 Terms, Conditions, and Restrictions. The Board of Directors may issue shares of Stock under the Plan for such consideration (including promissory notes and services) as it determines in accordance with the law and with such restrictions as it determines concerning transferability, repurchase by the Company, or forfeiture. In addition, all shares of Stock issued pursuant to this paragraph 6.6 shall be subject to a restrictive stock transfer agreement, which shall be executed by the Company and the prospective recipient of the Stock before delivery of certificates representing the Stock to the recipient. The restrictive stock transfer agreement shall contain such terms and conditions and representations and warranties as the Board of Directors shall require. 6.6.2 Withholding. Each employee to whom shares of Stock are issued pursuant to this paragraph 6.6 shall, on notification of the amount due, if any, and before or concurrently with delivery of the certificates representing the shares, pay to the Company amounts necessary to satisfy any applicable federal, state, and local withholding tax requirements. If additional withholding becomes required beyond any amount deposited before delivery of the certificates, the employee shall pay such amount to the Company on demand. If the employee fails to pay the amount demanded, the Company shall have the right to withhold that amount from other amounts payable by the Company to the employee, including salary, subject to applicable law. 6.7 Stock Appreciation Rights. 6.7.1 Description. Each stock appreciation right shall entitle the holder, on exercise, to receive from the Company in exchange therefor an amount equal in value to the 7 excess of the fair market value on the date of exercise of one share of Stock over its fair market value on the date of grant (or, in the case of a stock appreciation right granted in connection with an option, the option price per share under the option to which the stock appreciation right relates), multiplied by the number of shares covered by the stock appreciation right or the option, or portion thereof, that is surrendered. 6.7.2 Exercise. A stock appreciation right shall be exercisable only at the time or times established by the Board of Directors. If a stock appreciation right is granted in connection with an option, then it shall be exercisable only to the extent and on the same conditions that the related option is exercisable. Upon exercise of a stock appreciation right, any option or portion thereof to which the stock appreciation right relates must be surrendered unexercised. 6.7.3 Payment. Payment by the Company upon exercise of a stock appreciation right may be made in shares of Stock valued at fair market value, in cash, or partly in Stock and partly in cash, as determined by the Committee. No fractional shares shall be issued upon exercise of a stock appreciation right. In lieu thereof, cash may be paid in an amount equal to the value of the fraction or, in the discretion of the Board of Directors, the number of shares may be rounded to the next whole share. 6.7.4 Withholding. If payment by the Company of the stock appreciation right is in cash, or partly in cash, the Company shall have the right to withhold the amount of cash necessary to satisfy any applicable federal, state or local withholding tax requirements. If payment by the Company of the stock appreciation right is solely in shares of Stock or if the amount of the payment in cash is insufficient to satisfy the withholding requirements, the employee shall, on notification of the amount due, and before or concurrently with delivery of the certificates representing the shares, pay to the Company the amounts necessary to satisfy the withholding requirements. If additional withholding becomes required beyond any amount deposited before delivery of the certificates, the employee shall pay such amount to the Company on demand. If the employee fails to pay the amount demanded, the Company shall have the right to withhold that amount from other amounts payable by the Company to the employee, including salary, subject to applicable law. 6.7.5 Adjustment. In the event of any adjustment pursuant to paragraph 9 in the number of shares of Stock subject to an option granted under the Plan, any stock appreciation right 8 granted hereunder in connection with such option shall be proportionately adjusted. 6.8 Cash Bonus Rights. 6.8.1 Grant. The Board of Directors may grant bonus rights under the Plan in connection with (i) an option or stock appreciation right granted or previously granted, (ii) Stock awarded, or previously awarded, as a bonus, and (iii) Stock sold, or previously sold, under the Plan. Bonus rights will be subject to rules, terms, and conditions as the Committee may prescribe. 6.8.2 Bonus Rights in Connection with Options and Stock Appreciation Rights. A bonus right granted in connection with an option will entitle an optionee to a cash bonus when the related option is exercised (or surrendered in connection with exercise of a stock appreciation right related to the option) in whole or in part. A bonus right granted in connection with a stock appreciation right will entitle the holder to a cash bonus when the stock appreciation right is exercised. Upon exercise of an option, the amount of the bonus shall be determined by multiplying the amount by which the total fair market value of the shares to be acquired upon the exercise exceeds the total option price for the shares by the applicable bonus percentage. Upon exercise of a stock appreciation right, the bonus shall be determined by multiplying the total fair market value of the shares or cash received pursuant to the exercise of the stock appreciation right by the applicable bonus percentage. The bonus percentage applicable to a bonus right shall be determined from time to time by the Board of Directors but shall in no event exceed thirty percent. 6.8.3 Bonus Rights in Connection with Stock Bonus. A bonus right granted in connection with Stock awarded as a bonus will entitle the person awarded such Stock to a cash bonus either at the time the Stock is awarded or at such time as restrictions, if any, to which the Stock is subject lapse. If Stock awarded is subject to restrictions and is repurchased by the Company or forfeited by the holder, the bonus right granted in connection with such Stock shall terminate and may not be exercised. Whether any cash bonus is to be awarded and, if so, the amount and timing of such cash bonus shall be determined from time to time by the Board of Directors. 6.8.4 Bonus Rights in Connection with Stock Purchase. A bonus right granted in connection with Stock purchased hereunder (excluding Stock purchased pursuant to an 9 option) shall terminate and may not be exercised in the event the Stock is repurchased by the Company or forfeited by the holder pursuant to restrictions applicable to the Stock. The amount of cash bonus to be awarded and the time such cash bonus is to be paid shall be determined from time to time by the Board of Directors. 6.8.5 Withholding. The Company shall have the right to withhold from the bonus the amount of cash necessary to satisfy any applicable federal, state and local withholding tax requirements. If the amount of the payment in cash is insufficient to satisfy the withholding requirements, the employee shall, on notification of the amount due, and before or concurrently with delivery of the certificates representing the shares, pay to the Company the amounts necessary to satisfy the withholding requirements. If additional withholding becomes required beyond any amount deposited before delivery of the certificates, the employee shall pay such amount to the Company on demand. If the employee fails to pay the amount demanded, the Company shall have the right to withhold that amount from other amounts payable by the Company to the employee, including salary, subject to applicable law. 7. Nontransferability. Each option and, unless otherwise determined by the Board of Directors, each stock appreciation right or cash bonus right granted under the Plan by its terms shall be nonassignable and nontransferable by the holder except by will or by the laws of descent and distribution of the state or country of the holder's domicile at the time of death. Each option and, unless otherwise determined by the Board of Directors, each stock appreciation right or cash bonus right by its terms shall be exercisable during the holder's lifetime only by the holder. 8. Termination of Employment. 8.1 Retirement or General Termination. If an employee's employment by the Company or any parent or subsidiary of the Company is terminated by retirement or for any reason other than in the circumstances specified in 8.2 below, any option, stock appreciation right or cash bonus right held by the employee may be exercised at any time prior to its expiration date or the expiration of 30 days after the date of the termination, whichever is the shorter period, but only if and to the extent the employee was entitled to exercise the option, stock appreciation right or cash bonus right on the date of termination. The Board of Directors may, in its discretion, extend the expiration period beyond 30 days. Transfer of an 10 employee by the Company or any parent or subsidiary of the Company to the Company or any parent or subsidiary of the Company shall not be considered a termination for purposes of the Plan. 8.2 Death or Disability. If an employee's employment by the Company or any parent or subsidiary of the Company is terminated because of death or physical disability (within the meaning of I.R.C. Section 22(e)(3)), any option, stock appreciation right or cash bonus right held by the employee may be exercised at any time prior to its expiration date or the expiration of one year after the date of termination, whichever is the shorter period, for the greater of (i) the number of remaining shares for which the employee was entitled to exercise the option, stock appreciation right or cash bonus right on the date of termination or (ii) the number of remaining shares for which the employee would have been entitled to exercise the option, stock appreciation right or cash bonus right if such option or right had been 50 percent exercisable on the date of termination. If an employee's employment is terminated by death, any option, stock appreciation right or cash bonus right held by the employee shall be exercisable only by the person or persons to whom the employee's rights under the option, stock appreciation right or cash bonus right pass by the employee's will or by the laws of descent and distribution of the state or country of the employee's domicile at the time of death. 8.3 Termination of Unexercised Rights. To the extent an option, stock appreciation right or cash bonus right held by any deceased employee or by any employee whose employment is terminated is not exercised within the limited periods provided above, all further rights to exercise the option, stock appreciation right or cash bonus right shall terminate at the expiration of such periods. 8.4 Termination of Non-Employees. With respect to options, stock appreciation rights and cash bonus rights granted to persons who are not employees of the Company, the Board of Directors may establish provisions relating to the termination of those persons' status with the Company. 9. Changes in Capital Structure. 9.1 General Rule. If the outstanding shares of Stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of any reorganization, merger, consolidation, plan of exchange, recapitalization, reclassification, stock split, combination of 11 shares, or stock dividend, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares for the purchase of which options or stock appreciation rights may be granted and for which Stock may be awarded as bonuses or sold subject to restrictions under the Plan. In addition, subject to paragraph 9.2, the Board of Directors shall make appropriate adjustments in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable and the number and kind of shares covered by outstanding stock appreciation rights to the end that each optionee's proportionate interest shall be maintained as before the occurrence of such event. Adjustments in outstanding stock appreciation rights shall be made without change in their total value. Any such adjustment made by the Board of Directors shall be conclusive. In the event of dissolution or liquidation of the Company or a merger, consolidation, or plan of exchange affecting the Company, in lieu of making adjustments as provided for above in this paragraph 9, the Board of Directors may, in its sole discretion, provide a 30-day period prior to such event during which optionees shall have the right to exercise options or stock appreciation rights and, upon expiration of such 30-day period, all options and stock appreciation rights shall terminate. 9.2 Incentive Stock Options. Adjustments in outstanding Incentive Stock Options shall be made without change in the total price applicable to the unexercised portion of any option and with a corresponding adjustment in the option price per share; provided, however, (i) the excess of the aggregate fair market value of the shares subject to the option immediately after the adjustment over the aggregate option price of those shares shall not be more than the excess of the aggregate fair market value of the shares subject to the option immediately before the adjustment over the aggregate option price of those shares, (ii) the adjusted option shall not give the optionee additional benefits that the optionee did not have before the adjustment, and (iii) on a share-by-share comparison, the ratio of the option price to the fair market value of the shares subject to the option immediately after the adjustment shall be no more favorable to the optionee than the ratio of the option price to the fair market value of the shares subject to the option immediately before the adjustment. 10. Corporate Mergers, Acquisitions, Etc. The Board of Directors may also grant options and stock appreciation rights having terms and provisions which vary from those specified in this Plan provided that any options and stock appreciation rights granted pursuant to this section are granted in substitution for, or in connection with the assumption of, existing options and 12 stock appreciation rights granted by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a transaction involving a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation to which the Company or a subsidiary is a party. 11. Amendment of Plan. 11.1 General Amendments. Subject to paragraphs 11.2 and 11.3, the Board of Directors may at any time and from time to time modify or amend the Plan in such respects as it deems advisable because of changes in the law while the Plan is in effect or for any other reason. 11.2 Outstanding Options and Awards. After the Plan has been approved by the shareholders and except as provided in paragraph 9, no change in an option or stock appreciation right already granted to any person shall be made without the written consent of such person. 11.3 Shareholder Approval. Unless approved at an annual meeting or a special meeting by the shareholders of the Company entitled to vote thereon, no amendment or change shall be made in the Plan (i) increasing the total number of shares that may be issued under the Plan, or (ii) changing the class of persons eligible to receive options under the Plan. 12. Approvals. The obligations of the Company under the Plan are subject to the approval of state and federal authorities or agencies with jurisdiction in the matter. The Company will use its best efforts to take steps required by state or federal law or applicable regulations, including rules and regulations of the Securities and Exchange Commission in connection with the granting of any option or the issuance or sale of any shares under the Plan; provided that the Company shall not be required to register any options or Shares under federal or state securities laws. The foregoing notwithstanding, the Company shall not be obligated to issue or deliver shares of Stock under the Plan if the Company is advised by its legal counsel that such issuance or delivery would violate applicable state or federal laws. 13. Employment Rights. Nothing in the Plan or any grant pursuant to the Plan shall confer on any employee any right to be continued in the employment of the Company or any parent or subsidiary of the Company or shall interfere in any way with the right of the Company or any parent or subsidiary of the Company 13 by whom such employee is employed to terminate such employee's employment at any time, with or without cause. 14. Rights as a Shareholder. A holder of an option or a stock appreciation right, a recipient of Stock awarded as a bonus, or a purchaser of Stock shall have no rights as a shareholder with respect to any shares covered by any option, stock appreciation right, bonus award, or stock purchase agreement until the date of issue of a stock certificate to him or her for such shares. Except as otherwise provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. Effective Date: May 15, 1994. EX-10.1.28 29 1 PCT Holdings, Inc. Amended and Restated Long-Term Stock Investment and Incentive Plan ARTICLE I GENERAL 1.01. Purpose. This Amended and Restated Executive Long-Term Stock Investment Plan (the "Plan") amends, restates and supercedes all of the provisions of the PCT Holdings, Inc. 1994 Stock Incentive Plan which has an effective date of May 15, 1994. The purposes of the Plan are to: (1) closely associate the interests of the management of PCT Holdings, Inc. and its Parent and Subsidiary Corporations and Affiliates (collectively referred to as the "Company") with the shareholders of the Company by reinforcing the relationship between participants' rewards and shareholder gains; (2) provide management with an equity ownership in the Company commensurate with Company performance, as reflected in increased shareholder value; (3) maintain competitive compensation levels; and (4) provide an incentive to management to remain in continuing employment with the Company and to put forth maximum efforts for the success of its business. 1.02. Administration. (a) The Board of Directors of PCT Holdings, Inc., (the "Board") shall appoint a Committee of at least three (3) disinterested persons to administer the Plan (the "Committee"), as constituted from time to time. The Committee shall consist of at least two members of the Board. During the one year prior to commencement of service on the Committee, the Committee members will not have participated in, and while serving and for one year after serving on the Committee, such members shall not be eligible for selection as persons to whom stock may be allocated or to whom Options or Stock Appreciation Rights may be granted under the Plan or any other discretionary plan of the Company under which participants are entitled to acquire stock, Options or Stock Appreciation Rights of the Company. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase or change the size of the Committee, and appoint new members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, or remove all members of the Committee; provided, however, that at no time shall any person administer the Plan who is not otherwise "disinterested" as that term is defined in Rule 16 b-3(c)(2)(i) promulgated under the Securities Exchange Act of 1934 (the "1934 Act"). Members of the Board who are either presently eligible or who have been eligible at any time within the preceding year for Options or Stock Appreciation Rights may not vote on any matters affecting the administration of the Plan nor to the grant of any Options or Stock Appreciation Rights pursuant to the Plan. (b) The Committee shall have the authority without limitation, in its sole discretion, subject to and not inconsistent with the express provisions of the Plan, and from time to time, to: 2 (i) administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan; (ii) designate the employees or classes of employees eligible to participate in the Plan; (iii) grant awards provided in the Plan in such form, amount and under such terms as the Committee shall determine; (iv) determine the purchase price of shares of Common Stock covered by each Option (the "Option Price"); (v) determine the Fair Market Value of Common Stock for purposes of Options or of determining the appreciation of Common Stock with respect to Stock Appreciation Rights; (vi) determine the time or times at which Options and/or Stock Appreciation Rights shall be granted; (vii) determine the terms and provisions of the Option or Stock Appreciation Rights Agreements (neither of which need be identical or uniform) evidencing Options or Stock Appreciation Rights granted under the Plan and to impose such limitations, restrictions and conditions upon any such award as the Committee shall deem appropriate; and (viii) interpret the Plan, adopt, amend and rescind rules and regulations relating to the Plan, and make all other determinations and take all other action necessary or advisable for the implementation and administration of the Plan. The Committee may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable, and the Committee or any delegate may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. (c) All decisions, determinations and interpretations of the Committee on all matters relating to the Plan shall be in its sole discretion and shall be final, binding and conclusive on all Optionees and the Company. (d) One member of the Committee shall be elected by the Board as chairman. The Committee shall hold its meetings at such times and places as it shall deem advisable. All determinations of the Committee shall be made by a majority of its members either present in person or participating by conference telephone at a meeting or by written consent. The Committee may appoint a secretary and make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. (e) No member of the Board or Committee shall be liable for any action taken or decision or determination made in good faith with respect to any Option, Stock Appreciation Right, the Plan, or any award thereunder. 3 1.03. Eligibility for Participation Participants in the Plan shall be selected by the Committee, and awards under the Plan, as described in Section 1.04 below, may be granted to directors, officers and key employees of the Company and to other key individuals such as consultants, and nonemployee agents to the Company whom the Committee believes have made or will make an essential contribution to the Company; provided, however, that Incentive Stock Options may only be granted to executive officers and other key employees of the Company who occupy responsible managerial or professional positions, who have the capability of making a substantial contribution to the success of the Company, and who agree, in writing, to remain in the employ of, and to render services to, the Company for a period of at least one (1) year from the date of the grant of the award. The Committee has the authority to select particular employees within the eligible group to receive awards under the Plan. In making this selection and in determining the persons to whom awards under the Plan shall be granted and the form and amount of awards under the Plan, the Committee shall consider any factors deemed relevant in connection with accomplishing the purposes of the Plan, including the duties of the respective persons and the value of their present and potential services and contributions to the success, profitability and sound growth of the Company. A person to whom an award has been granted is sometimes referred to herein as an "Optionee." An Optionee shall be eligible to receive more than one Option and/or Stock Appreciation Rights during the term of the Plan, but only on the terms and subject to the restrictions hereinafter set forth. 1.04. Types of Awards Under Plan. Awards under the Plan may be in the form of any one or more of the following: (i) "Stock Options" which are nonqualified stock options, the tax consequences of which are governed by the provisions of Section 83 of the Internal Revenue Code (the "Code"), as described in Article II; (ii) "Incentive Stock Options" which are statutory stock options, the tax consequences of which are governed by Section 422 of the Code, as described in Article III; (iii) "Reload Options" which are also nonqualified stock options, the tax consequences of which are governed by Section 83 of the Code, as described in Article IV; (iv) "Alternate Rights" which are Stock Appreciation Rights, the tax consequences of which are governed by Section 83 of the Code, as described in Article V; and/or (v) "Limited Rights" which are also Stock Appreciation Rights, the tax consequences of which are governed by Section 83 of the Code, as described in Article VI. 4 (vi) "Stock Bonuses" which are compensation, the tax consequences of which are governed by Section 83 of the Code, as described in Article VII. (vii) "Cash Bonuses" which are compensation, the tax consequences of which are governed by Section 61 of the Code, as described in Article VIII. 1.05. Aggregate Limitation on Awards. (a) Except as may be adjusted pursuant to Section 9.12(i) below, shares of stock which may be issued as Stock Bonuses or upon exercise of Options or Alternate Rights under the Plan shall be authorized and unissued or treasury shares of Common Stock of PCT Holdings, Inc. ("Common Stock"). The number of shares of Common Stock PCT Holdings, Inc. shall reserve for issuance as Stock Bonuses or upon exercise of Options or Alternate Rights to be granted from time to time under the Plan, and the maximum number of shares of Common Stock which may be issued under the Plan, shall not exceed in the aggregate 2,000,000 shares. In the absence of an effective registration statement under the Securities Act of 1933 (the "Act"), all Stock Bonuses, Options and Stock Appreciation Rights granted and shares of Common Stock subject to their exercise will be restricted as to subsequent resale or transfer, pursuant to the provisions of Rule 144, promulgated under the Act. (b) For purposes of calculating the maximum number of shares of Common Stock which may be issued under the Plan: (i) all the shares issued (including the shares, if any, withheld for tax withholding requirements) shall be counted when cash is used as full payment for shares issued upon exercise of an Option; (ii) only the shares issued (including the shares, if any, withheld for tax withholding requirements) as a result of an exercise of Alternate Rights shall be counted; and (iii) only the net shares issued (including the shares, if any, withheld for tax withholding requirements) shall be counted when shares of Common Stock are used as full or partial payment for shares issued upon exercise of an Option. (iv) all shares issued (including the shares, if any, withheld for tax withholding requirements as Stock Bonuses shall be counted. (c) In addition to shares of Common Stock actually issued pursuant to Stock Bonuses or the exercise of Options or Alternate Rights, there shall be deemed to have been issued a number of shares equal to the number of shares of Common Stock in respect of which Limited Rights shall have been exercised. (d) Shares tendered by a participant as payment for shares issued upon exercise of an Option shall be available for issuance under the Plan. Any shares of Common Stock subject to an Option or Stock Appreciation Right granted without a related Option, which for any reason is cancelled, terminated, unexercised or expires in whole or in part shall again be available for issuance under the Plan, but shares subject to an Option or Alternate Right which are not issued as a result of the exercise of Limited Rights shall not again be available for issuance under the Plan. 5 1.06. Effective Date and Term of Plan. (a) The Plan shall become effective as of May 15, 1994, the date the original 1994 Stock Incentive Plan was adopted by a majority of the Board (the "Effective Date"), but shall be subject to approval by the holders of a majority of the issued and outstanding shares of PCT Holdings, Inc. Common Stock present in person or by proxy and entitled to vote at the earlier of either a Special Meeting of Shareholders called for that purpose or the 1995 Annual Meeting of Shareholders of PCT Holdings, Inc., which meeting shall in any event, be held not more than twelve (12) months after adoption of the original 1994 Stock Incentive Plan on May 15, 1994 the Board. (b) No awards shall be granted under the Plan after or on May 15, 2004 which dated is ten (10) years after the Effective Date (the "Plan Termination Date"). Provided, however, that the Plan and all awards made under the Plan prior to such Plan Termination Date shall remain in effect until such awards have been satisfied or terminated in accordance with the Plan and the terms of such awards. ARTICLE II STOCK OPTIONS 2.01. Award of Stock Options. The Committee may from time to time, and subject to the provisions of the Plan, and such other terms and conditions as the Committee may prescribe, grant to any participant in the Plan one or more options to purchase for cash or for Company shares the number of shares of Common Stock allotted by the Committee ("Stock Options"). The date a Stock Option is granted shall mean the date selected by the Committee as of which the Committee allots a specific number of shares to a participant pursuant to the Plan. 2.02. Stock Option Agreements. The grant of a Stock Option shall be evidenced by a written Stock Option Agreement, executed by the Company and the holder of a Stock Option (the "Optionee"), stating the number of shares of Common Stock subject to the Stock Option evidenced thereby, and in such form as the Committee may from time to time determine. 2.03 Stock Option Price. The Option Price per share of Common Stock deliverable upon the exercise of a Stock Option shall be 100 percent of the Fair Market Value of a share of Common Stock on the date the Stock Option is granted. 2.04. Term and Exercise. Each Stock Option shall be fully exercisable at any time within the period beginning not earlier than six months after the date of its grant and, unless a shorter period is provided by the Committee or by another Section of this Plan, ending not later than ten years after the date of grant thereof (the "Option Term"). No Stock Option shall be exercisable after the expiration of its Option Term. 6 2.05 Manner of Payment. Each Stock Option Agreement shall set forth the procedure governing the exercise of the Stock Option granted thereunder, and shall provide that, upon such exercise in respect of any shares of Common Stock subject thereto, the Optionee shall pay to the Company, in full, the Option Price for such shares with cash or with Common Stock previously owned by Optionee. 2.06 Restrictions on Certain Shares. As soon as practicable after receipt of payment, the Company shall deliver to the Optionee a certificate or certificates for such shares of Common Stock. Upon receipt, the Optionee shall become a shareholder of the Company with respect to Common Stock represented by share certificates so issued and as such shall be fully entitled to receive dividends, to vote and to exercise all other rights of a shareholder. Notwithstanding the foregoing, a number of shares of Common Stock received upon the exercise of the Stock Options shall be subject to certain restrictions. The number of shares subject to the restrictions shall be equal to the total number of shares received in the exercise of the Stock Options minus (i) the number of shares which have a Fair Market Value on the date of the Stock Option exercise equal to the total Option Price for all the shares received in the Stock Option exercise and (ii) the number of shares which have a Fair Market Value on the date of the Stock Option exercise equal to the applicable federal, state and local withholding tax on the total Stock Option exercise and any brokerage commission or interest charges, if applicable, to the exercise. The restrictions on these shares of Common Stock shall be as follows: (a) The Optionee shall be prohibited from the sale, exchange, transfer, pledge, hypothecation, gift or other disposition of such shares of Common Stock until the earlier of the expiration of the Option Term or termination of the Optionee's employment for any reason. Notwithstanding the foregoing, such shares of Common Stock may be used as payment of the Option Price of shares issued upon the exercise of other Stock Options. (b) The restrictions shall apply to any new, additional or different securities the Optionee may become entitled to receive with respect to such shares by virtue of a stock spilt or stock dividend or any other change in the corporate or capital structure of the Company. (c) Until such time as the restrictions hereunder lapse, the share certificate representing such shares shall contain a restrictive legend evidencing said restrictions. Alternatively, the Optionee shall be required to deposit the share certificate with the Company or its agent, endorsed in blank of accompanied by a duly executed irrevocable stock power or other instrument of transfer. 2.07. Death of Optionee. (a) Upon the death of the Optionee, any rights to the extent exercisable on the date of death may be exercised by the Optionee's estate, or by a person who acquires the right to exercise such Stock Option by bequest or inheritance or by reason of the death of the Optionee, provided that such exercise occurs within both the remaining effective term of the Stock Option and one year after the Optionee's death. 7 (b) The provisions of this Section shall apply notwithstanding the fact that the Optionee's employment may have terminated prior to death, but only to the extent of any rights exercisable on the date of death. 2.08 Retirement or Disability. Upon termination of the Optionee's employment by reason of retirement or permanent disability (as each is determined by the Committee), the Optionee may, within 36 months from the date of termination, exercise any Stock Options to the extent such options are exercisable during such 36- month period. 2.09 Termination for Other Reasons. Except as provided in Sections 2.07 and 2.08, or except as otherwise determined by the Committee, all Stock Options shall terminate three months after the termination of the Optionee's employment. 2.10 Effect of Exercise. The exercise of any Stock Option shall cancel that number of related Alternate Rights and/or Limited Rights, if any, which is equal to the number of shares of Common Stock purchased pursuant to said Stock Option. ARTICLE III INCENTIVE STOCK OPTIONS 3.01 Award of Incentive Stock Options. The Committee may, from time to time and subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, grant to any participant in the Plan one or more "incentive stock options" which are intended to qualify as such under the provisions of Section 422 of the Code, to purchase for cash or for Company shares the number of shares of Common Stock allotted by the Committee ("Incentive Stock Options"). The date an Incentive Stock Option is granted shall mean the date selected by the Committee as of which the Committee shall allot a specific number of shares to a participant pursuant to the Plan. 3.02 Incentive Stock Option Agreements. The grant of an Incentive Stock Option shall be evidenced by a written Incentive Stock Option Agreement, executed by the Company and the holder of an Incentive Stock Option (the "Optionee"), stating the number of shares of Common Stock subject to the Incentive Stock Option evidenced thereby, and in such from as the Committee may from time to time determine. 8 3.03 Incentive Stock Option Price. Except as provided in Section 3.10 below, the Option Price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall be 100 percent of the Fair Market Value of a share of Common Stock on the date the Incentive Stock Option is granted. 3.04 Term and Exercise. Except as provided in Section 3.10 below, each Incentive Stock Option shall be fully exercisable at any time within the period beginning not earlier than six months after the date of its grant and, unless a shorter period is provided by the Committee or another Section of this Plan, ending not later than ten years after the date of grant thereof (the "Option Term"). No Incentive Stock Option shall be exercisable after the expiration of its Option Term. 3.05 Maximum Amount of Incentive Stock Option Grant. The aggregate Fair Market Value (determined on the date the Incentive Stock Option is granted) of Common Stock subject to an Incentive Stock Option granted to any Optionee by the Committee in any calendar year shall not exceed $100,000. Multiple Incentive Stock Options may be granted to an Optionee in any calendar year, which Incentive Stock Options may in the aggregate exceed such $100,000 Fair Market Value limitation, so long as each such Incentive Stock Option does not exceed such $100,000 Fair Market Value limitation and so long as no two such Incentive Stock Options may be first exercised by the Optionee in the same calendar year. 3.06 Death of Optionee. (a) Upon the death of the Optionee, any Incentive Stock Option exercisable on the date of death may be exercised by the Optionee's estate or by a person who acquires the right to exercise such Incentive Stock Option by bequest or inheritance or by reason of the death of the Optionee, provided that such exercise occurs within both the remaining Option Term of the Incentive Stock Option and one year after the Optionee's death. (b) The provisions of this Section shall apply notwithstanding the fact that the Optionee's employment may have terminated prior to death, but only to the extent of any Incentive Stock Options exercisable on the date of death. 3.07 Retirement or Disability. Upon the termination of the Optionee's employment by reason of permanent disability or retirement (as each is determined by the Committee), the Optionee may, within 36 months from the date of such termination of employment, exercise any Incentive Stock Options to the extent such Incentive Stock Options were exercisable at the date of such termination of employment. Notwithstanding the foregoing, the tax treatment available pursuant to Section 422 of the Code, upon the exercise of an Incentive Stock Option will not be available to an Optionee who exercises any Incentive Stock Options more than (i) 12 months after the date of termination of employment due to permanent disability or (ii) three months after the date of termination of employment due to retirement. 9 3.08 Termination for Other Reasons. Except as provided in Sections 3.06 and 3.07 or except as otherwise determined by the Committee, all Incentive Stock Options shall terminate three months after the date of termination of the Optionee's employment. 3.09 Applicability of Stock Options Sections and Other Restrictions. Sections 2.05, Manner of Payment; 2.06, Restrictions on Certain Shares; and 2.10, Effect of Exercise, applicable to Stock Options, shall apply equally to Incentive Stock Options. Said Sections are incorporated by reference in this Article III as though fully set forth herein. In addition, the Optionee shall be prohibited from the sale, exchange, transfer, pledge, hypothecation, gift or other disposition of the shares of Common Stock underlying the Incentive Stock Options until the later of either two (2) years after the date of granting the Incentive Stock Option or one (1) year after the transfer to the Optionee of such underlying Common Stock after the Optionee's exercise of such Incentive Stock Options. 3.10 Employee/Ten Percent Shareholders. In the event the Committee determines to grant an Incentive Stock Option to an employee who is also a Ten Percent Stockholder, as defined in 9.07(i) below, (i) the Option Price shall not be less than 110 percent of the Fair Market Value of the shares of Common Stock of the Company on the date of grant of such Incentive Stock Option, and (ii) the exercise period shall not exceed 5 years from the date of grant of such Incentive Stock Option. Fair Market Value shall be as defined in 7.07(c) below. ARTICLE IV RELOAD OPTIONS 4.01. Authorization of Reload Options. Concurrently with the award of Stock Options and/or the award of Incentive Stock Options to any participant in the Plan, the Committee may, subject to the provisions of the Plan, particularly the provisions of Section 7.12 below, and such other terms and conditions as the Committee may prescribe, authorize reload options to purchase for cash or for Company shares a number of shares of Common Stock allotted by the Committee ("Reload Options"). The number of Reload Options shall equal (i) the number of shares of Common Stock used to exercise the underlying Stock Options or Incentive Stock Options and (ii) to the extent authorized by the Committee, the number of shares of Common Stock used to satisfy any tax withholding requirement incident to the exercise of the underlying Stock Options or Incentive Stock Options. The grant of a Reload Option will become effective upon the exercise of underlying Stock Options, Incentive Stock Options or other Reload Options through the use of shares of Common Stock held by the Optionee for at least 12 months. Notwithstanding the fact that the underlying Option may be an Incentive Stock Option, a Reload Option is not intended to qualify as an "incentive stock option" under Section 422 of the Code. 10 4.02. Reload Option Amendment. Each Stock Option Agreement and Incentive Stock Option Agreement shall state whether the Committee has authorized Reload Options with respect to the underlying Stock Options and/or Incentive Stock Options. Upon the exercise of an underlying Stock Option, Incentive Stock Option or other Reload Option, the Reload Option will be evidenced by an amendment to the underlying Stock Option Agreement or Incentive Stock Option Agreement. 4.03. Reload Option Price. The Option Price per share of Common Stock deliverable upon the exercise of a Reload Option shall be the Fair Market Value of a share of Common Stock on the date the grant of the Reload Option becomes effective. 4.04. Term and Exercise. Each Reload Option is fully exercisable not earlier than six months from the effective date of grant. The term of each Reload Option shall be equal to the remaining Option Term of the underlying Stock Option and/or Incentive Stock Option. 4.05. Termination of Employment. No additional Reload Options shall be granted to Optionees when Stock Options, Incentive Stock Options and/or Reload Options are exercised pursuant to the terms of this Plan following termination of the Optionee's employment. 4.06. Applicability of Stock Options Sections. Sections 2.05, Manner of Payment; 2.06, Restrictions on Certain Shares; 2.07, Death of Optionee; 2.08, Retirement or Disability; 2.09, Termination for Other Reasons; and 2.10, Effect of Exercise, applicable to Stock Options, shall apply equally to Reload Options. Said Sections are incorporated by reference in this Article IV as though fully set forth herein. ARTICLE V ALTERNATE STOCK APPRECIATION RIGHTS 5.01. Award of Alternate Rights. Concurrently with or subsequent to the award of any Option to purchase one or more shares of Common Stock, the Committee may, subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, award to the Optionee with respect to each share of Common Stock, a related alternate stock appreciation right, permitting the Optionee to be paid the appreciation on the Option in Common Stock in lieu of exercising the Option ("Alternate Right"). 11 5.02. Alternate Rights Agreement. Alternate Rights shall be evidenced by written agreements in such form as the Committee may from time to time determine. 5.03. Term and Exercise. An Optionee who has been granted Alternate Rights may, from time to time, in lieu of the exercise of an equal number of Options, elect to exercise one or more Alternate Rights and thereby become entitled to receive from the Company payment in Common Stock the number of shares determined pursuant to Sections 5.04 and 5.05. Alternate Rights shall be exercisable only to the same extent and subject to the same conditions and within the same Option Terms as the Options related thereto are exercisable, as provided in this Plan. The Committee may, in its discretion, prescribe additional conditions to the exercise of any Alternate Rights. 5.04. Amount of Payment. The amount of payment to which an Optionee shall be entitled upon the exercise of each Alternate Right shall be equal to 100 percent of the amount, if any, by which the Fair Market Value of a share of Common Stock on the exercise date exceeds the Fair Market Value of a share of Common Stock on the date the Option related to said Alternate Right was granted or became effective, as the case may be. 5.05. Form of Payment. Upon exercise of Alternate Rights, the Company shall pay Optionee the amount of payment determined pursuant to Section 5.04 in Common Stock. The number of shares to be paid shall be determined by dividing the amount of payment determined pursuant to Section 5.04 by the Fair Market Value of a share of Common Stock on the exercise date of such Alternate Rights. As soon as practicable after exercise, the Company shall deliver to the Optionee a certificate or certificates for such shares of Common Stock. All such shares shall be issued with the rights and restrictions specified in Section 2.06. 5.06. Effect of Exercise. The exercise of any Alternate Rights shall cancel an equal number of Stock Options, Incentive Stock Options, Reload Options and Limited Rights, if any, related to said Alternate Rights. 5.07. Retirement or Disability. Upon termination of the Optionee's employment (including employment as a director of the Company after an Optionee terminates employment as an officer or key employee of the Company) by reason of permanent disability or retirement (as each is determined by the Committee), the Optionee may, within six months from the date of such termination, exercise any Alternate Rights to the extent such Alternate Rights are exercisable during such six-month period. 12 5.08. Death of Optionee or Termination for Other Reasons. Except as provided in Section 5.07, or except as otherwise determined by the Committee, all Alternate Rights shall terminate three months after the date of termination of the Optionee's employment or upon the death of the Optionee. ARTICLE VI LIMITED RIGHTS 6.01. Award of Limited Rights. Concurrently with or subsequent to the award of an Option or Alternate Right, the Committee may, subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, award to the Optionee with respect to each share of Common Stock underlying such Option or Alternate Right, a related limited right permitting the Optionee, during a specified limited time period, to be paid the appreciation on the Option in cash in lieu of exercising the Option ("Limited Right"). 6.02. Limited Rights Agreement. Limited Rights granted under the Plan shall be evidenced by written agreements in such form as the Committee may from time to time determine. 6.03. Term and Exercise. An Optionee who has been granted Limited Rights may, from time to time, in lieu of the exercise of an equal number of options and Alternate Rights related thereto, elect to exercise one or more Limited Rights and thereby become entitled to receive from the Company payment in cash the amount determined pursuant to Sections 6.04 and 6.05. Limited Rights shall be exercisable only to the same extent and subject to the same conditions and within the same Option Terms as the Options related thereto are exercisable, as provided in this Plan. The Committee may, in its discretion, prescribe additional conditions to the exercise of any Limited Rights. Notwithstanding anything above to the contrary, Limited Rights are exercisable in full for a period of seven months following the date of a Change in Control of the Company, (the "Exercise Period"); provided, however, that Limited Rights may not be exercised under any circumstances until the expiration of the six-month period following the date of grant. As used in the Plan, a "Change of Control" shall be deemed to have occurred if (a) individuals who are currently directors of PCT Holdings, Inc. immediately prior to a Control Transaction shall cease, within one year of such Control Transaction, to constitute a majority of the Board (or of the Board of Directors of any successor to PCT Holdings, Inc. or to all or substantially all of its assets), or any entity, person or Group other than PCT Holdings, Inc. or a Subsidiary Corporation of PCT Holdings, Inc. acquires shares of PCT Holdings, Inc. in a transaction or series of transactions that result in such entity, person or Group directly or indirectly owning beneficially fifty-one percent (51 percent) or more of the outstanding shares of PCT Holdings, Inc. 13 As used herein, "Control Transaction" shall be (i) any tender offer for or acquisition of capital stock of PCT Holdings, Inc., (ii) any merger, consolidation, reorganization or sale of all or substantially all of the assets of PCT Holdings, Inc. which has been approved by the shareholders, (iii) any contested election of directors of PCT Holdings, Inc. or (iv) any combination of the foregoing which results in a change in voting power sufficient to elect a majority of the Board. As used herein, "Group" shall mean persons who act in concert as described in Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended. 6.04. Amount of Payment. The amount of payment to which an Optionee shall be entitled upon the exercise of each Limited Right shall be equal to 100 percent of the amount, if any, which is equal to the difference between the Fair Market Value per share of Common Stock covered by the related Option on the date the Option was granted and the Fair Market Value per share of such Common Stock on the exercise date. 6.05. Form of Payment. Payment of the amount to which an Optionee is entitled upon the exercise of Limited Rights, as determined pursuant to Section 6.04, shall be paid by the Company solely in cash. 6.06. Effect of Exercise. If Limited Rights are exercised, the Options and Alternate Rights, if any, related to such Limited Rights cease to be exercisable to the extent of the number of shares with respect to which the Limited Rights were exercised. Upon the exercise or termination of the Options and Alternate Rights, if any, related to such Limited Rights, the Limited Rights granted with respect thereto terminate to the extent of the number of shares as to which the related Options and Alternate Rights were exercised or terminated. 6.07. Retirement or Disability. Upon termination of the Optionee's employment (including employment as a director of this Company after an Optionee terminates employment as an officer or key employee of this Company) by reason of permanent disability or retirement (as each is determined by the Committee), the Optionee may, within six months from the date of termination, exercise any Limited Right to the extent such Limited Right is exercisable during such six-month period. 6.08. Death of Optionee or Termination for Other Reasons. Except as provided in Sections 6.07 and 6.09, or except as otherwise determined by the Committee, all Limited Rights granted under the Plan shall terminate three months after the date of termination of the Optionee's employment or upon the death of the Optionee. 6.09. Termination Related to a Change in Control. The requirement that an Optionee be terminated by reason of retirement or permanent disability or be employed by the Company at the time of exercise pursuant to Sections 6.07 and 6.08 respectively, is waived during the Exercise Period as to any Optionee who (i) was employed by the Company at the time of the Change in Control and (ii) is subsequently 14 terminated by the Company other than for just cause or who voluntarily terminates if such termination was the result of a good faith determination by the Optionee that as a result of the Change in Control he is unable to effectively discharge his present duties or the duties of the position which he occupied just prior to the Change in Control. As used herein "just cause" shall mean willful misconduct or dishonesty or conviction of or failure to contest prosecution for a felony, or excessive absenteeism unrelated to illness. ARTICLE VII STOCK BONUSES 7.01 Terms, Conditions and Restrictions. The Committee may from time to time, and subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, grant to any participant in the Plan one or more Stock Bonuses as compensation the number of shares of Common Stock allotted by the Committee ("Stock Bonuses"). Stock awarded as a Stock Bonus shall be subject to the terms, conditions and restrictions determined by the Committee at the time of the award. The Committee may require the recipient to sign an agreement as a condition of the award. The agreement may contain such terms, conditions, representations, and warranties as the Committee may require. ARTICLE VIII CASH BONUSES 8.01 Grant. The Committee may from time to time, and subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, grant to any participant in the Plan one or more cash bonuses as compensation ("Cash Bonuses"). The Committee may grant Cash Bonuses under the Plan outright or in connection with (i) an Option or Stock Appreciation Right granted or previously granted or (ii) a Stock Bonus awarded, or previously awarded. Bonuses will be subject to rules, terms, and conditions as the Committee may prescribe. 8.02 Cash Bonuses in Connection with Options and Stock Appreciation Rights. Cash Bonuses granted in connection with Options will entitle an Optionee to a Cash Bonus when the related Option is exercised (or surrendered in connection with exercise of a Stock Appreciation Right related to the option) in whole or in part. Cash Bonuses granted in connection with Stock Appreciation Rights will entitle the holder to a Cash Bonus when the Stock Appreciation Right is exercised. Upon exercise of an Option, the amount of the Cash Bonus shall be determined by multiplying the amount by which the total Fair Market Value of the shares to be acquired upon the exercise exceeds the total Option Price for the shares by the applicable bonus percentage. Upon exercise of a Stock Appreciation Right, the cash bonus shall be determined by multiplying the total Fair Market Value of the shares or cash received pursuant to the exercise of the Stock Appreciation Right by the applicable 15 bonus percentage. The bonus percentage applicable to a Cash Bonus shall be determined from time to time by the Committee but shall in no event exceed thirty percent. 8.03 Cash Bonuses in Connection with Stock Bonuses. Cash Bonuses granted in connection with Stock Bonuses will entitle the person awarded such Stock Bonuses to a Cash Bonus either at the time the Stock Bonus is awarded or at such time as restrictions, if any, to which the Stock Bonus is subject lapse. If a Stock Bonus awarded is subject to restrictions and is repurchased by the Company or forfeited by the holder, the Cash Bonus granted in connection with such Stock Bonus shall terminate and may not be exercised. Whether any Cash Bonus is to be awarded and, if so, the amount and timing of such Cash Bonus shall be determined from time to time by the Committee. ARTICLE IX MISCELLANEOUS 9.01. General Restriction. Each award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or Federal law, or (ii) the consent or approval of any government regulatory body, or (iii) an agreement by the grantee of an award with respect to the disposition of shares of Common Stock, is necessary or desirable as a condition of, or in connection with, the granting of such award or the issue or purchase of shares of Common Stock thereunder, such award may not be exercised or consummated in whole or in part unless and until such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. 9.02. Non-Assignability. No award under the Plan shall be assignable or transferable by the recipient thereof, except by Will or by the laws of descent and distribution. During the life of the recipient, such award shall be exercisable only by such person or by such person's guardian or legal representative. 9.03. Withholding Taxes. Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall, to the extent permitted or required by law, have the right to require the grantee, as a condition of issuance of a Stock Bonus or exercise of its Options or Stock Appreciation Rights, to remit to the Company no later than the date of issuance or exercise, or make arrangements satisfactory to the Committee regarding payment of, any amount sufficient to satisfy any Federal, state and/or local taxes of any kind, including, but not limited to, withholding tax requirements prior to the delivery of any certificate or certificates for such shares. If the participant fails to pay the amount required by the Committee, the Company shall have the right to withhold such amount from other amounts payable by the Company to the participant, including but not limited to, salary, fees or benefits, subject to applicable law. Alternatively, the Company may issue 16 or transfer such shares of Common Stock net of the number of shares sufficient to satisfy any such taxes, including, but not limited to, the withholding tax requirements. For withholding tax purposes, the shares of Common Stock shall be valued on the date the withholding obligation is incurred. 9.04. Right to Terminate Employment. Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any participant the right to continue in the employment of the Company or effect any right which the Company may have to terminate the employment of such participant. 9.05. Non-Uniform Determinations. The Committee's determinations under the Plan (including without limitation determinations of the persons to receive awards, the form, amount and timing of such awards, the terms and provisions of such awards and the agreements evidencing same) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, awards under the Plan, whether or not such persons are similarly situated. 9.06. Rights as a Shareholder. The recipient of any award under the Plan shall have no rights as a shareholder with respect thereto unless and until certificates for shares of Common Stock are issued to him or her. 9.07. Definitions. As used in this Plan, the following words and phrases shall have the meanings indicated in the following definitions: (a) "AFFILIATE" means any person or entity which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with PCT Holdings, Inc. (b) "DISABILITY" shall mean an Optionee's inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than one year. (c) "FAIR MARKET VALUE" per share in respect of any share of Common Stock as of any particular date shall mean (i) the closing sales price per share of Common Stock reflected on a national securities exchange for the last preceding date on which there was a sale of such Common Stock on such exchange; or (ii) if the shares of Common Stock are then traded on an over-the- counter market, the average of the closing bid and asked prices for the shares of Common Stock in such over-the-counter market for the last preceding date on which there was a sale of such Common Stock in such market; or (iii) in case no reported sale takes place, the average of the closing bid and asked prices on the National Association of Securities Dealers' 17 Automated Quotations System ("NASDAQ") or any comparable system, or if the shares of Common Stock are not listed on NASDAQ or comparable system, the closing sale price or, in case no reported sale takes place, the average of the closing bid and asked prices, as furnished by any member of the National Association of Securities Dealers, Inc. selected from time to time by the Company for that purpose; or (iv) if the shares of Common Stock are not then listed on a national securities exchange or traded in an over-the-counter market, such value as the Committee in its discretion may determine in any such other manner as the Committee may deem appropriate. In no event shall the Fair Market Value of any share of Common Stock be less than its par value. (d) "OPTION" means Stock Option, Incentive Stock Option or Reload Option. (e) "OPTION PRICE" means the purchase price per share of Common Stock deliverable upon the exercise of an Option. (f) "PARENT CORPORATION" shall mean any corporation (other than PCT Holdings, Inc.) in an unbroken chain of corporations ending with the Optionee's employer corporation if, at the time of granting an Option, each of the corporations other than the Optionee's employer corporation owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (g) "STOCK APPRECIATION RIGHT" shall mean Alternate Right or Limited Right. (h) "SUBSIDIARY CORPORATION" shall mean any corporation (other than PCT Holdings, Inc.) in an unbroken chain of corporations beginning with the Optionee's employer corporation if, at the time of granting an Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (i) "TEN PERCENT STOCKHOLDER" shall mean an Optionee who, at the time an Incentive Stock Option is granted, is an employee of the Company who owns stock possessing more than ten percent (10 percent) of the total combined voting power of all classes of stock of the Company or of its Parent or Subsidiary Corporations. 9.08. Leaves of Absence and Performance Targets. The Committee shall be entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect of any leave of absence taken by the recipient of any award. Without limiting the generality of the foregoing, the Committee shall be entitled to determine (i) whether or not any such leave of absence shall constitute a termination of employment within the meaning of the Plan and (ii) the impact, if any, of such leave of absence on awards under the Plan theretofore made to any recipient who takes such leave of absence. The Committee shall also be entitled to make such determination of 18 performance targets, if any, as it deems appropriate and to impose them upon an Optionee as a condition of continued employment. 9.09. Newly Eligible Employees. The Committee shall be entitled to make such rules, regulations, determinations and awards as it deems appropriate in respect of any employee who becomes eligible to participate in the Plan or any portion thereof, after the commencement of an award or incentive period. 9.10. Adjustments. In the event of any change in the outstanding Common Stock by reason of a stock dividend or distribution, recapitalization, merger, consolidation, split-up, combination, exchange of shares or the like, the Committee may appropriately adjust the number of shares of Common Stock which may be issued under the Plan, the number of shares of Common Stock subject to Options theretofore granted under the Plan, the Option Price of Options theretofore granted under the Plan, the amount of Restricted Stock Units theretofore awarded under the Plan, the performance targets referred to in Section 9.08 and any and all other matters deemed appropriate by the Committee. 9.11. Amendment of the Plan. (a) The Committee may, without further action by the shareholders and without receiving further consideration from the participants, amend this Plan or condition or modify awards under this Plan in response to changes in securities, tax or other laws or rules, regulations or regulatory interpretations thereof applicable to this Plan or to comply with stock exchange rules or requirements. (b) The Committee may at any time and from time to time terminate or modify or amend the Plan in any respect, except that without shareholder approval the Committee may not (i) increase the maximum number of shares of Common Stock which may be issued under the Plan (other than increases pursuant to Section 9.10), (ii) extend the period during which any award may be granted or exercised, or (iii) extend the term of the Plan. The termination or any modification or amendment of the Plan, except as provided in subsection (a), shall not without the consent of a participant, affect his other rights under an award previously granted to him or her. 9.12. General Terms and Conditions of Options. Each Option shall be evidenced by a written Option Agreement between the Company and the Optionee, which agreement, unless otherwise stated in Articles II, III or IV of the Plan, shall comply with and be subject to the following terms and conditions: (a) Number of Shares. Each Option Agreement shall state the number of shares of Common Stock to which the Option relates. (b) Type of Option. Each Option Agreement shall specifically identify the portion, if any, of the Option which constitutes an Incentive Stock Option and the portion, if any, which constitutes a Non-qualified Stock Option in the form of either a Stock Option or a Reload Option. 19 (c) Option Price. Each Option Agreement shall state the Option Price which, in the case of Incentive Stock Options (except to the extent provided in Article III above), shall be not less than 100 percent of the Fair Market Value of the shares of Common Stock of the Company on the date of grant of the Option. The Option Price shall be subject to adjustment as provided in 9.12(i) hereof. The date on which the Committee adopts a resolution expressly granting an Option shall be considered the day on which such Option is granted. No Options shall be granted under the Plan more than 10 years after the date of adoption of the Plan by the Board, but the validity of Options previously granted may extend and be validly exercised beyond that date. Except as provided in Section 3.10 above, Options granted under the Plan shall be for a period determined by the Committee as provided in Section 9.12(e), below. (d) Medium and Time of Payment. The Option Price shall be paid in full at the time of exercise in cash or in shares of Common Stock having a Fair Market Value equal to such Option Price or in a combination of cash and such shares, and may be effected in whole or in part (i) with monies received from the Company at the time of exercise as a compensatory cash payment, or (ii) with monies borrowed from the Company pursuant to repayment terms and conditions as shall be determined from time to time by the Committee, in its discretion, separately with respect to each exercise of Options and each Optionee; provided, however, that each such method and time for payment and each such borrowing and terms and conditions of repayment shall be permitted by and be in compliance with applicable law, and provided, further, if the Option Price is paid with monies borrowed from the Company, such fact shall be noted conspicuously on the certificate evidencing such shares in accordance with applicable law. (e) Term and Exercise of Options. Options shall be exercisable over the exercise period as and at the times and upon the conditions that the Committee may determine, as reflected in the Option Agreement; provided, however, that the Committee shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances, as it, in its sole discretion, deems appropriate. The exercise period shall be determined by the Committee for all Options; provided, however that such exercise period shall not exceed 10 years from the date of grant of such Option. The exercise period shall be subject to earlier termination as provided in Sections 9.12(f) and 9.12(g) hereof. An Option may be exercised, as to any or all full shares of Common Stock as to which the Option has become exercisable, by giving written notice of such exercise to the Committee; provided, however, that an Option may not be exercised at any one time as to fewer than 100 shares (or such number of shares as to which the Option is then exercisable if such number of shares is less than 100). (f) Termination. Except as provided in Section 9.12(e) and in this Section 9.12(f) hereof, an Option may not be exercised unless the Optionee is then in the employ of the Company or a Parent, division or Subsidiary Corporation (or a corporation issuing or assuming the Option in a transaction to which Code Section 424(a) applies), and unless the Optionee has remained continuously so employed since the date of grant of the Option. If the employment of an Optionee shall terminate (other than by reason of death, disability or retirement), all Options of such Optionee that are exercisable at the time of such termination may, unless earlier terminated 20 in accordance with their terms, be exercised within three months after such termination; provided, however, that if the employment of an Optionee shall terminate for cause, all Options theretofore granted to such Optionee shall, to the extent not theretofore exercised, terminate forthwith. Nothing in the Plan or in any Option shall limit the Company's rights under Section 9.04 above. No Option may be exercised after the expiration of its term. (g) Death, Disability or Retirement. If an Optionee shall die while employed by the Company, a Parent or a Subsidiary Corporation thereof, or die within three months after the termination of such Optionee's employment other than for cause, or if the Optionee's employment shall terminate by reason of disability or retirement, all Options theretofore granted to such Optionee (to the extent otherwise exercisable) may, unless earlier terminated in accordance with their terms, be exercised by the Optionee or by the Optionee's estate or by a person who acquired the right to exercise such Option by bequest or inheritance or otherwise by reason of the death or disability of the Optionee, at any time within one year after the date of death, disability or retirement of the Optionee. (h) Non-transferability of Options. Options granted under the Plan shall not be transferable otherwise than (i) by will; (ii) by the laws of descent and distribution; or (iii) to a revocable inter vivos trust for the primary benefit of the Optionee and his or her spouse. Options may be exercised, during the lifetime of the Optionee, only by the Optionee, his or her guardian, legal representative or the Trustee of an above described trust. Except as permitted by the preceding sentences, no Option granted under the Plan or any of the rights and privileges thereby conferred shall be transferred, assigned, pledged, or hypothecated in any way (whether by operation of law or otherwise), and no such Option, right, or privilege shall be subject to execution, attachment, or similar process. Upon any attempt so to transfer, assign, pledge, hypothecate, or otherwise dispose of the Option, or of any right or privilege conferred thereby, contrary to the provisions of this Plan, or upon the levy of any attachment or similar process upon such Option, right, or privilege, the Option and such rights and privileges shall immediately become null and void. (i) Effect of Certain Changes. (i) If there is any change in the number of shares of Common Stock through the declaration of stock dividends, or through recapitalization resulting in stock splits, or combinations or exchanges of such shares, the number of shares of Common Stock available for awards under the Plan pursuant to Section 1.05 above, the number of such shares covered by the outstanding Options and the price per share of such Options shall be proportionately adjusted by the Committee to reflect any increase or decrease in the number of issued shares of Common Stock; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. (ii) In the event of the proposed dissolution or liquidation of the Company, in the event of any corporate separation or division, including, but not limited to split-up, split-off or spin-off, or in the event of a merger, consolidation or other reorganization of the Corporation with another corporation, the Committee may provide that the holder of each Option then exercisable shall have the right to exercise such Option (at its then Option 21 Price) solely for the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable upon such dissolution, liquidation, or corporate separation or division, or merger, consolidation or other reorganization by a holder of the number of shares of Common Stock for which such Option might have been exercised immediately prior to such dissolution, liquidation, or corporate separation or division, or merger, consolidation or other reorganization; or the Committee may provide, in the alternative, that each Option granted under the Plan shall terminate as of a date to be fixed by the Committee; provided, however, that not less than 90- days' written notice of the date so fixed shall be given to each Optionee, who shall have the right, during the period of 90 days preceding such termination, to exercise the Options as to all or any part of the shares of Common Stock covered thereby, including shares as to which such Options would not otherwise be exercisable; provided, further, that failure to provide such notice shall not invalidate or affect the action with respect to which such notice was required. (iii) If while unexercised Options remain outstanding under the Plan, the stockholders of the Corporation approve a definitive agreement to merge, consolidate or otherwise reorganize the Company with or into another corporation or to sell or otherwise dispose of all or substantially all of its assets, or adopt a plan of liquidation (each, a "Disposition Transaction"), then the Committee may a) make an appropriate adjustment to the number and class of shares available for awards under the Plan pursuant to Section 1.05 above, and to the amount and kind of shares or other securities or property (including cash) receivable upon exercise of any outstanding options after the effective date of such transaction, and the price thereof, or, in lieu of such adjustment, provide for the cancellation of all options outstanding at or prior to the effective date of such transaction; b) provide that exercisability of all Options shall be accelerated, whether or not otherwise exercisable; or c) in its discretion, permit Optionees to surrender outstanding options for cancellation; provided, however, that if the stockholders approve such Disposition Transaction within five (5) years of the date of adoption of this Plan and before the Company is taken public, the Committee shall provide for the alternative in b) above. Upon any cancellation of an outstanding Option pursuant to this 9.12(i)(iii), the Optionee shall be entitled to receive, in exchange therefor, a cash payment under any such Option is an amount per share determined by the Committee in its sole discretion, but not less than the difference between the per share exercise price of such Option and the Fair Market Value of a share of Company Common Stock on such date as the Committee shall determine: (iv) Paragraphs (ii) and (iii) of this Section 9.12(i) shall not apply to a merger, consolidation or other reorganization in which the Company is the surviving corporation and shares of Common Stock are not converted into or exchanged for stock, securities of any other corporation, cash or any other thing of value. Notwithstanding the preceding sentence, in case of any consolidation, merger or other reorganization of another corporation into the Company in which the Company is the surviving corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the shares of Common Stock (other than a change 22 in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in such shares into two or more classes or series of shares), the Committee may provide that the holder of each Option then exercisable shall have the right to exercise such Option solely for the kind and amount of shares of stock and other securities (including those of any new direct or indirect parent of the Company), property, cash or any combination thereof receivable upon such reclassification, change, consolidation or merger by the holder of the number of shares of Common Stock for which such Option might have been exercised. (v) In the event of a change in the Common Stock of the Company as presently constituted which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. (vi) To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive, provided that each Incentive Stock Option granted pursuant to Article III of this Plan shall not be adjusted in a manner that causes such option to fail to continue to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code. (vii) Except as hereinbefore expressly provided in this Section 9.12(i), the Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock or any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, consolidation or other reorganization or spin-off of assets or stock of another corporation; and any issue by the Company of shares of stock of any class shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of price of shares of Common Stock subject to the Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structures or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or part of its business or assets. (j) Rights as a Shareholder. An Optionee or a transferee of an Option shall have no right as a shareholder with respect to any shares covered by the Option until the date of the issuance of a certificate evidencing such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distribution of other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9.12(i) hereof. (k) Other Provisions. The Option Agreement authorized under the Plan shall contain such other provisions, including, without limitation, (i) the imposition of restrictions upon the exercise of an Option; (ii) in the case of an Incentive Stock Option, the inclusion of any condition not inconsistent with such Option qualifying as an Incentive Stock Option; and (iii) conditions relating to compliance with applicable federal and state securities laws, as the Committee shall deem advisable. 23 9.13. Effects of Headings The Section and Subsection headings contained herein are for convenience only and shall not affect the construction hereof. APPROVED BY THE SHAREHOLDERS ON THE 8TH DAY OF FEBRUARY, 1995. /s/ NICKOLAI A. GERDE --------------------------------------- Nickolai A. Gerde Vice President and Chief Financial Officer EX-11 30 PCT HOLDINGS, INC. AND SUBSIDIARIES CALCULATION OF LOSS PER SHARE YEAR ENDED MAY 31, 1995 1994 ------------ ------------ NET LOSS $(1,410,715) $(1,098,007) NET LOSS PER SHARE $ (0.41) $ (0.60) ------------ ------------ WEIGHTED AVERAGE NUMBER OF COMMON 3,468,741 1,826,423 SHARES OUTSTANDING EX-21 31 1 Exhibit 21 LIST OF SUBSIDIARIES PCT Holdings, Inc., a Washington corporation and a wholly-owned subsidiary of the Company ("PCTH-Washington"). Cashmere Manufacturing Co., Inc., a Washington corporation and wholly-owned subsidiary of PCTH-Washington. Pacific Coast Technologies, Inc., a Washington corporation and wholly-owned subsidiary of PCTH-Washington. Ceramic Devices, Inc., a Washington corporation and a wholly-owned subsidiary of the Company. EX-23 32 AUDITORS' CONSENT (JULY 14, 1995) INDEPENDENT AUDITORS' CONSENT We consent to the use in this Annual Report of PCT Holdings, Inc., on Form 10-KSB of our report dated July 14, 1995, incorporated by reference and included as part of this Annual Report. MOSS ADAMS LLP Everett, Washington August 25, 1995 EX-27 33 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED FINANCIAL STATEMENTS OF PCT HOLDINGS, INC. AND ITS SUBSIDIARIES FOR THE TWELVE MONTH PERIOD ENDED MAY 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS MAY-31-1995 MAY-31-1995 1,078,637 0 1,075,999 45,000 4,375,162 6,848,314 4,577,734 1,569,612 11,629,912 5,089,532 1,086,210 11,018,406 0 0 (5,564,236) 11,629,912 11,035,595 11,035,595 9,092,157 11,881,097 806,213 15,000 356,360 (845,502) (241,000) (1,410,715) 0 0 0 (1,410,715) (0.41) (0.41)
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