-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H080quCK79zcGNQbHtOnVlOM4zDzNEytO9y563xPO5BczJayP6dD1wNy+FRc9Dzv LOJOIUd8f6uiGFvzCqkgsg== /in/edgar/work/0001032210-00-002035/0001032210-00-002035.txt : 20001013 0001032210-00-002035.hdr.sgml : 20001013 ACCESSION NUMBER: 0001032210-00-002035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000831 FILED AS OF DATE: 20001012 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFIC AEROSPACE & ELECTRONICS INC CENTRAL INDEX KEY: 0000790023 STANDARD INDUSTRIAL CLASSIFICATION: [3640 ] IRS NUMBER: 911744587 STATE OF INCORPORATION: WA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26088 FILM NUMBER: 738987 BUSINESS ADDRESS: STREET 1: 430 OLDS STATION RD CITY: WENATCHEE STATE: WA ZIP: 98801 BUSINESS PHONE: 5096679600 MAIL ADDRESS: STREET 1: 430 OLDS STATION ROAD CITY: WENATCHEE STATE: WA ZIP: 98801 FORMER COMPANY: FORMER CONFORMED NAME: PCT HOLDINGS INC /NV/ DATE OF NAME CHANGE: 19950223 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 10-Q 1 0001.txt FORM 10-Q FOR THE PERIOD ENDED AUGUST 31, 2000 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 2000 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to __________________ Commission File Number: 0-26088 PACIFIC AEROSPACE & ELECTRONICS, INC. (Exact name of registrant as specified in its charter) Washington 91-1744587 (State or other jurisdiction of incorporation (I.R.S. Employer Identification No.) or organization)
430 Olds Station Road, Third Floor, Wenatchee, Washington 98801 (Address of Principal Executive Offices; Zip Code) Registrant's telephone number, including area code: (509) 667-9600 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____ ----- Applicable only to issuers involved in bankruptcy proceedings during the preceding five years: Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by court. Yes____ No____ Applicable only to corporate issuers: State the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date: As of October 5, 2000, there were 34,290,723 shares outstanding of the Company's Common Stock, par value $.001 per share. 1 ITEM 1. FINANCIAL INFORMATION Consolidated Balance Sheets - August 31, 2000 and May 31, 2000 Consolidated Statements of Operations and Comprehensive Income - First Quarters Ended August 31, 2000 and 1999 Consolidated Statements of Cash Flow - First Quarters Ended August 31, 2000 and 1999 Management's Statement and Notes to Unaudited Consolidated Financial Statements - - First Quarter Ended August 31, 2000 2 PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS August 31, 2000 and May 31, 2000
August 31, May 31, 2000 2000 ASSETS (Unaudited) (Audited) - ----------------------------------------------------------------- -------------- -------------- CURRENT ASSETS Cash $ - $ 2,154,000 Accounts receivable, net 21,349,000 21,210,000 Inventories 29,223,000 27,849,000 Deferred income taxes 867,000 872,000 Prepaid expense and other current assets 2,089,000 1,668,000 -------------- -------------- Total Current Assets 53,528,000 53,753,000 -------------- -------------- PROPERTY AND EQUIPMENT, NET 42,774,000 44,076,000 -------------- -------------- OTHER ASSETS Costs in excess of net book value of acquired subsidiaries, net 36,780,000 38,291,000 Patents, net 1,132,000 1,158,000 Deferred financing costs, net 3,528,000 3,597,000 Deferred income taxes 2,813,000 3,006,000 Other assets 395,000 404,000 -------------- -------------- Total Other Assets 44,648,000 46,456,000 -------------- -------------- TOTAL ASSETS $ 140,950,000 $ 144,285,000 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY - ----------------------------------------------------------------- CURRENT LIABILITIES Accounts payable $ 11,797,000 $ 10,630,000 Accrued liabilities 3,894,000 4,589,000 Accrued interest 597,000 2,372,000 Current portion of long-term debt 1,088,000 1,098,000 Current portion of capital lease obligations 477,000 504,000 Line of credit 6,410,000 5,379,000 -------------- -------------- Total Current Liabilities 24,263,000 24,572,000 -------------- -------------- LONG-TERM LIABILITIES Long-term debt, net of current portion 3,890,000 4,161,000 Capital lease obligations, net of current portion 965,000 1,065,000 Senior subordinated notes payable 63,700,000 63,700,000 Deferred income taxes 677,000 703,000 Deferred rent and other 316,000 316,000 -------------- -------------- Total Long Term Liabilities 69,548,000 69,945,000 -------------- -------------- Total Liabilities 93,811,000 94,517,000 -------------- -------------- STOCKHOLDERS' EQUITY Convertible preferred stock - - Common stock 34,000 30,000 Additional paid in capital 85,060,000 83,173,000 Accumulated other comprehensive income (8,516,000) (6,250,000) Accumulated deficit (29,439,000) (27,185,000) -------------- -------------- Total Stockholders' Equity 47,139,000 49,768,000 -------------- -------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 140,950,000 $ 144,285,000 ============== ==============
The accompanying notes are an integral part of these consolidated financial statements. 3 PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME First Quarters Ended August 31, 2000 and 1999 Quarters Ended -------------------------------- August 31, August 31, 2000 1999 (Unaudited) (Unaudited) ------------ ------------ NET SALES $ 27,643,000 $ 28,571,000 COST OF SALES 22,721,000 22,011,000 ------------ ------------ GROSS PROFIT 4,922,000 6,560,000 OPERATING EXPENSES 4,812,000 5,104,000 ------------ ------------ INCOME FROM OPERATIONS 110,000 1,456,000 ------------ ------------ OTHER INCOME AND EXPENSE Interest Income - 48,000 Interest Expense (2,296,000) (2,548,000) Other 47,000 3,000 ------------ ------------ (2,249,000) (2,497,000) ------------ ------------ NET LOSS BEFORE INCOME TAX EXPENSE (2,139,000) (1,041,000) INCOME TAX EXPENSE (113,000) (465,000) ------------ ------------ NET LOSS (2,252,000) (1,506,000) ------------ ------------ OTHER COMPREHENSIVE INCOME (LOSS): Foreign currency translation (2,266,000) 3,000 Income tax expense - (1,000) ------------ ------------ (2,266,000) 2,000 ------------ ------------ COMPREHENSIVE LOSS $ (4,518,000) $ (1,504,000) ============ ============ NET LOSS PER SHARE: BASIC $ (0.07) $ (0.08) DILUTED $ (0.07) $ (0.08) SHARES USED IN COMPUTATION OF NET LOSS PER SHARE: BASIC 33,113,503 19,107,521 DILUTED 33,113,503 19,107,521 The accompanying notes are an integral part of these consolidated financial statements. 4 PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW First Quarters Ended August 31, 2000 and 1999
Quarters Ended ------------------------------------------ August 31, August 31, 2000 1999 (Unaudited) (Unaudited) ------------ ------------ CASH FLOW FROM OPERATING ACTIVITIES Net cash used in operating activities $ (3,864,000) $ (2,959,000) ------------ ------------ CASH FLOW FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (813,000) (1,200,000) Acquisition of subsidiaries - (1,282,000) Increase in notes receivable - (1,365,000) ------------ ------------ Net cash used in investing activities (813,000) (3,847,000) ------------ ------------ CASH FLOW FROM FINANCING ACTIVITIES Net borrowings under line of credit 1,042,000 2,600,000 Proceeds from long-term debt 26,000 - Payments on long term debt and capital leases (407,000) (1,209,000) Sale of common stock, net of issuance costs 1,891,000 27,000 ------------ ------------ Net cash provided by financing activities 2,552,000 1,418,000 ------------ ------------ NET CHANGE IN CASH (2,125,000) (5,388,000) CASH AT BEGINNING OF PERIOD 2,154,000 8,134,000 EFFECT OF EXCHANGE RATES ON CASH (29,000) (138,000) ------------ ------------ CASH AT END OF PERIOD $ - $ 2,608,000 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 5 PACIFIC AEROSPACE & ELECTRONICS, INC. AND SUBSIDIARIES MANAGEMENT'S STATEMENT AND NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS First Quarter Ended August 31, 2000 Management's Statement - ---------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with Form 10-Q instructions and, in the opinion of management, contain all adjustments necessary to present fairly the Company's consolidated financial position as of August 31, 2000 and May 31, 2000, the consolidated results of operations and comprehensive income for the quarters ended August 31, 2000 and August 31, 1999, and the consolidated statements of cash flow for the quarters ended August 31, 2000 and August 31, 1999. All significant intercompany transactions have been eliminated in the consolidation process. These results have been determined on the basis of accounting principles generally accepted in the United States of America and practices applied consistently with those used in the preparation of the Company's annual and quarterly reports under the Securities Exchange Act of 1934, as amended. Certain information and footnote disclosures normally included in audited financial statements presented in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended May 31, 2000 and 1999. The results of operations for the quarter ended August 31, 2000 are not necessarily indicative of the results to be expected or anticipated for the full fiscal year. Note 1: Net Loss Per Share: ------------------ Basic loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted loss per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period using the treasury stock method. As the Company had a net loss for the quarters ended August 31, 2000 and August 31, 1999, basic and diluted net loss per share are the same. Note 2: Inventories ----------- Components of inventories are as follows:
August 31, May 31, 2000 2000 ---- ---- Raw materials $ 8,303,000 $ 7,176,000 Work in progress 13,079,000 13,580,000 Finished goods 7,841,000 7,093,000 ----------- ----------- Total $29,223,000 $27,849,000 =========== ===========
6 Note 3: Going Concern ------------- The Company's consolidated financial statements have been prepared assuming the Company will continue as a going concern. During the quarter ended August 31, 2000, the Company's operating activities used cash of $3,864,000. The Company's future success will depend heavily on its ability to generate cash from operating activities and to meet its obligations as they become due. If the Company is not sufficiently successful in increasing cash provided by operating activities, it may need to sell additional equity securities or sell assets outside of the ordinary course of business in order to meet its obligations. There is no assurance that the Company will be able to achieve sufficient cash from operations, to sell additional equity securities, or to sell assets for amounts in excess of book value. The Company's inability to obtain additional cash if and when needed could have a material adverse effect on its financial position, results of operations and its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Note 4: Consolidating Condensed Financial Statements --------------------------------------------- The following financial statements present consolidating condensed financial information of the Company for the indicated periods. The Company's senior subordinated notes, which were used to finance the Aeromet acquisition in July 1998, have been guaranteed by all of the Company's U.S. wholly owned subsidiaries. The guarantor subsidiaries have fully and unconditionally guaranteed this debt on a joint and several basis. This debt is not guaranteed by the Company's foreign subsidiaries, which consist of Aeromet and two related holding companies. There are no significant contractual restrictions on the distribution of funds from the guarantor subsidiaries to the parent corporation. The consolidating condensed financial information is presented in lieu of separate financial statements and other disclosures of the guarantor subsidiaries, as management has determined that such information is not material to investors. 7 Pacific Aerospace & Electronics, Inc. Consolidating Condensed Balance Sheet August 31, 2000
Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------ ------------ ------------ ------------ ------------ ASSETS - ------ CURRENT ASSETS Cash $ (45,000) $ 45,000 $ - $ - $ - Accounts receivable, net - 10,085,000 11,754,000 (470,000) 21,349,000 Inventories - 19,231,000 9,992,000 - 29,223,000 Other 2,003,000 1,375,000 584,000 (1,005,000) 2,956,000 ------------ ------------ ------------ ------------- -------------- Total current assets 1,957,000 30,716,000 22,330,000 (1,475,000) 53,528,000 PROPERTY, PLANT, AND EQUIPMENT, net 6,356,000 22,602,000 13,816,000 - 42,774,000 OTHER ASSETS Costs in excess of net book value of acquired subsidiaries, net - 3,265,000 33,515,000 - 36,780,000 Investment in and loans to subsidiaries 104,945,000 71,744,000 - (176,689,000) - Other 7,167,000 701,000 - 7,868,000 ------------ ------------ ------------ ------------- -------------- Total other assets 112,112,000 75,710,000 33,515,000 (176,689,000) 44,648,000 ------------ ------------ ------------ ------------- -------------- TOTAL ASSETS $120,425,000 $129,028,000 $ 69,661,000 $(178,164,000) $ 140,950,000 ============ ============ ============ ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Accounts payable $ 589,000 $ 5,403,000 $ 6,275,000 $ (470,000) $ 11,797,000 Current portion of long-term debt 161,000 927,000 - - 1,088,000 Line of credit 6,300,000 - 110,000 - 6,410,000 Other 1,187,000 2,497,000 2,289,000 (1,005,000) 4,968,000 ------------ ------------ ------------ ------------- -------------- Total current liabilities 8,237,000 8,827,000 8,674,000 (1,475,000) 24,263,000 LONG-TERM LIABILITIES Long-term debt, net of current portion 64,921,000 2,669,000 - - 67,590,000 Intercompany note and loan payable - 70,401,000 35,457,000 (105,858,000) - Other 125,000 644,000 1,189,000 - 1,958,000 ------------ ------------ ------------ ------------- -------------- Total long-term liabilities 65,046,000 73,714,000 36,646,000 (105,858,000) 69,548,000 SHAREHOLDERS' EQUITY Convertible preferred stock - - - - - Common stock 34,000 56,139,000 33,710,000 (89,849,000) 34,000 Additional paid-in capital 85,060,000 - - - 85,060,000 Accumulated other comprehensive loss (8,516.000) - (8,516,000) 8,516,000 (8,516,000) Accumulated deficit (29,436,000 (9,652,000 (853,000) 10,502,000 (29,439,000) ------------ ------------ ------------ ------------- -------------- Total shareholders' equity 47,142,000 46,487,000 24,341,000 (70,831,000) 47,139,000 ------------ ------------ ------------ ------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $120,425,000 $129,028,000 $ 69,861,000 $(178,164,000) $ 140,950,000 ============ ============ ============ ============= ==============
8 Pacific Aerospace & Electronics, Inc. Consolidating Condensed Balance Sheet May 31, 2000
Guarantor Non-guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------ ------------ ------------ ------------ ------------ ASSETS - ------ CURRENT ASSETS Cash $ (184,000) 58,000 2,280,000 $ - $ 2,154,000 Accounts receivable, net - 9,047,000 12,527,000 (364,000) 21,210,000 Inventories - 17,307,000 10,542,000 - 27,849,000 Other 895,000 1,145,000 500,000 - 2,540,000 ------------ ------------ ------------ -------------- -------------- Total current assets 711,000 27,557,000 25,849,000 (364,000) 53,753,000 PROPERTY, PLANT, AND EQUIPMENT, net 6,340,000 22,995,000 14,741,000 - 44,076,000 OTHER ASSETS Costs in excess of net book value of acquired subsidiaries, net - 3,296,000 34,995,000 - 38,291,000 Investment in and loans to subsidiaries 111,792,000 72,618,000 (184,410,000) - Other 5,183.000 2,982,000 - 8,165,000 ------------ ------------ ------------ -------------- -------------- Total other assets 116,975,000 78,896,000 34,995,000 (184,410,000) 46,456,000 ------------ ------------ ------------ -------------- -------------- TOTAL ASSETS $124,026,000 $129,448,000 $ 75,585,000 $ (184,774,000) $ 144,285,000 ============ ============ ============ ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Accounts payable $ 667,000 $ 3,729,000 $ 6,598,000 $ (364,000) $ 10,630,000 Current portion of long-term debt 170,000 928,000 - - 1,098,000 Line of credit 5,379,000 - - - 5,379,000 Other 2,989,000 2,898,000 1,578,000 - 7,465,000 ------------ ------------ ------------ -------------- -------------- Total current liabilities 9,205,000 7,555,000 8,176,000 (364.000) 24,572.000 LONG-TERM LIABILITIES Long-term debt, net of current portion 64,928,000 2,933,000 - - 67,861,000 Intercompany loan payable - 71,484,000 38,957,000 (110,441,000) - Other 125,000 706,000 1,253,000 - 2,084,000 ------------ ------------ ------------ -------------- -------------- Total long-term liabilities 65,053,000 75,123,000 40,210,000 (110,441,000) 69,945,000 SHAREHOLDERS' EQUITY Convertible preferred stock - - - - - Common stock 30,000 56,139,000 33,710,000 (89,849,000) 30,000 Additional paid-in capital 83,173,000 - - - 83,173,000 Accumulated other comprehensive loss (6,250,000) - (6,250,000) 6,250,000 (6,250,000) Accumulated deficit (27,185,000) (9,369,000) (261,000) 9,630.000 (27,185,000) ------------ ------------ ------------ -------------- -------------- Total shareholders' equity 49,768,000 46,770,000 27,199,000 (73,969,000) 49,768,000 ------------ ------------ ------------ -------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $124,026,000 $129,448,000 $ 75,585,000 $ (184,774,000) $ 144,285,000 ============ ============ ============ ============== ==============
9 Pacific Aerospace & Electronics, Inc. Consolidating Condensed Statement of Operations and Comprehensive Income For the Quarter Ended August 31, 2000
Guarantor Non-guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------- ------------ ------------ ------------ ------------ Net Sales $ - $ 15,781,000 $ 12,622,000 $ (760,000) $ 27,643,000 Cost of Sales - 12,928,000 11,153,000 (760,000) 22,721,000 --------------- -------------- -------------- ------------ ------------- Gross profit - 3,453,000 1,469,000 - 4,922,000 Operating expenses 1,726,000 3,649,000 1,099,000 (1,662,000) 4,812,000 --------------- -------------- -------------- ------------- ------------- Income (loss) from operations (1,726,000) (196,000) 370,000 1,662,000 110,000 Other income (expense) Parent's share of subsidiaries net income (875,000) - - 675,000 - Interest expense (2,141,000) (1,139,000) (1,026,000) 2,010,000 (2,296,000) Other 2,667,000 1,052,000 - (3,672,000) 47,000 --------------- -------------- --------------- ------------- ------------- Total other expense (349,000) (87,000) (1,026,000) 787,000) (2,249,000) --------------- -------------- --------------- ------------- -------------- Income (loss) before income taxes (2,075,000) (283,000) (656,000) 875,000 (2,139,000) Income tax benefit (expense) (177,000) - 64,000 - (113,000) --------------- -------------- --------------- ------------- ------------- Net loss (2,252,000) (283,000) (592,000) 875,000 (2,252,000) Other comprehensive loss Foreign currency transition, net of tax (2,266,000) - (2,288,000) 2,266,000 (2,266,000) ---------------- -------------- --------------- ------------- ------------- Comprehensive loss $ (4,518,000) $ (283,000) $ (2,858,000) $ 3,141,000 $ (4,518,000) ================ ============== =============== ============= =============
10 Pacific Aerospace & Electronics, Inc. Consolidating Condensed Statement of Operations and Comprehensive Income For the Quarter Ended August 31, 2000
Guarantor Non-guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------- ------------ ------------ ------------ ------------ Net Sales $ - $ 14,511,000 $ 14,373,000 $ (313,000) $ 28,571,000 Cost of Sales - 10,573,000 11,751,000 (313,000) 22,011,000 ------------- -------------- -------------- ------------ ------------- Gross profit - 3,938,000 2,622,000 - 6,560,000 Operating expenses 1,567,000 3,202,000 1,655,000 (1,320,000) 5,104,000 ------------- -------------- -------------- ------------ ------------- Income (loss) from operations (1,587,000) 736,000 967,000 1,320,000 1,456,000 Other income (expense) Parent's share of subsidiaries net loss (73,000) - - 73,000 - Interest expense (2,390,000) (1,228,000) (1,100,000) 2,170,000 (2,548,000) Other 2,413,000 1,098,000 30,000 (3,490,000) 51,000 ------------- -------------- -------------- ------------ ------------- Total other expense (50,000) (130,000) (1,070,000) (1,247,000) (2,497,000) ------------- -------------- -------------- ------------ ------------- Income (loss) before income taxes (1,617,000) 608,000 (103,000) 73,000 (1,041,000) Income tax benefit (expense) (6,000) (207,000) (252,000) - (465,000) ------------- -------------- -------------- ------------ ------------- Net income (loss) (1,623,000) 399,000 (355,000) 73,000 (1,506,000) Other comprehensive income (loss) Foreign currency transition, net of tax 4,000 - (2,000) - 2,000 ------------- -------------- -------------- ------------ ------------- Comprehensive income (loss) $ (1,619,000) $ (399,000) $ (357,000) $ 73,000 $ (1,504,000) ============= ============== ============== ============ ============
11 Pacific Aerospace & Electronics, Inc. Consolidating Condensed Statement of Cash Flows For the Quarter Ended August 31, 2000
Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------ ------------ ------------ ------------ ------------ Cash Flow From Operating Activities: - ------------------------------------ Net cash provided by (used in) operating activities $ (3,558,000) $ (2,503,000) $ 1,359,000 $ 838,000 $ (3,864,000) Cash Flow From Investing Activities: - ----------------------------------- Acquisition of property, plant and equipment (144,000) (450,000) (219,000) - (813,000) Investment in and loans to subsidiaries 1,045,000 3,500,000 - (4,545,000) - Other changes, net - - - - - ------------ ------------ ----------- ----------- ------------ Net cash provided by (used in) investing activities 901,000 3,050,000 (219,000) (4,545,000) (813,000) Cash Flow From Financing Activities: - ----------------------------------- Net borrowings under line of credit 921,000 121,000 - 1,042,000 Payments on long-term debt and capital leases (42,000) (353,000) (12,000) - (407,000) Proceeds from long-term debt 26,000 - - - 26,000 Proceeds from sale of common stock, net 1,891,000 - - - 1,891,000 Other changes, net - (207,000) (3,500,000) 3,707,000 - ------------ ------------ ----------- ----------- ------------ Net cash provided by (used in) financing activities 2,796,000 (560,000) (3,391,000) 3,707,000 2,552,000 NET CHANGE IN CASH 139,000 (13,000) (2,251,000) - (2,125,000) CASH AT BEGINNING OF PERIOD (184,000) 58,000 2,280,000 - 2,154,000) EFFECT OF EXCHANGE RATES ON CASH - - (29,000) - (29,000) ------------ ------------ ----------- ----------- ------------ CASH AT END OF PERIOD $ (45,000) $ 45,000 $ - $ - $ - ============ ============ =========== =========== ============ Supplemental Cash Flow: - ----------------------- Noncash operating expenses related to: Depreciation $ 129,000 $ 849,000 $ 614,000 $ - $ 1,592,000 Amortization - 102,000 230,000 - 332,000 Cash paid during the period for: Interest $ 3,751,000 $ 130,000 $ 25,000 $ - $ 3,906,000 Income taxes - - - - -
12 Pacific Aerospace & Electronics, Inc. Consolidating Condensed Statement of Cash Flows For the Quarter Ended August 31, 1999
Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------ ------------ ------------ ------------ ------------ Cash Flow From Operating Activities: - ------------------------------------ Net cash provided by (used in) operating activities $ (1,614,000) $ 938,000 $ (2,356,000) $ 73,000 $ (2,959,000) Cash Flow From Investing Activities: - ----------------------------------- Acquisition of property, plant and equipment (330,000) (369,000) (501,000) - (1,200,000) Acquisition of subsidiaries (1,282,000) - - - (1,282,000) Other changes, net (1,890,000) - 85,000 440,000 (1,365,000) ------------ ------------ ------------ ----------- ------------ Net cash provided by (used in) investing activities (3,502,000) (369,000) (416,000) 440,000 (3,847,000) Cash Flow From Financing Activities: - ----------------------------------- Net borrowings under line of credit 2,600,000 - - - 2,600,000 Payments on long-term debt and capital leases (6,000) (1,189,000) (14,000) - (1,209,000) Proceeds from sale of common stock, net 27,000 - - - 27,000 Other changes, net (85,000) 548,000 50,000 (513,000) - ------------ ------------ ------------ ----------- ------------ Net cash provided by (used in) financing activities 2,536,000 (641,000) 36,000 (513,000) 1,418,000 NET CHANGE IN CASH (2,580,000) (72,000) (2,736,000) - (5,388,000) CASH AT BEGINNING OF PERIOD 1,798,000 39,000 6,297,000 - 8,134,000) EFFECT OF EXCHANGE RATES ON CASH - - (138,000) - (138,000) ------------ ------------ ------------ ----------- ------------ CASH AT END OF PERIOD $ (782,000) $ (33,000) $ 3,423,000 $ - $ 2,608,000 ============ ============ ============ =========== ============ Supplemental Cash Flow: - ----------------------- Noncash operating expenses related to: Depreciation $ 107,000 $ 759,000 $ 682,000 $ - $ 1,548,000 Amortization - 102,000 243,000 - 345,000 Cash paid during the period for: Interest 4,368,000 144,000 3,527,000 (3,510,000) 4,529,000 Income taxes - - - - -
13 Inventories consist of the following:
August 31, May 31, 2000 2000 ---- ---- Guarantor subsidiaries Raw materials $ 6,577,000 $ 5,492,000 Work in progress 6,021,000 5,439,000 Finished goods 6,633,000 6,376,000 ----------- ----------- $19,231,000 $17,307,000 =========== =========== Non-guarantor subsidiaries Raw materials $ 1,727,000 $ 1,712,000 Work in progress 7,058,000 8,142,000 Finished goods 1,207,000 688,000 ----------- ----------- $ 9,992,000 $10,542,000 =========== ===========
14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Preliminary Note Regarding Forward-Looking Statements - ----------------------------------------------------- This report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is subject to the safe harbor created by those sections. Actual results could differ materially from those projected in the forward-looking statements set forth in this "Management's Discussion and Analysis of Financial Condition and Results of Operations." Overview - -------- Pacific Aerospace & Electronics, Inc., is an international engineering and manufacturing company with operations in the United States and the United Kingdom. We design, manufacture and sell components and subassemblies used in technically demanding environments. Products that we produce primarily for the aerospace and transportation industry include machined, cast, and formed metal parts and subassemblies, using aluminum, titanium, magnesium, and other metals. Products that we produce primarily for the defense, electronics, telecommunications and medical industries include components such as hermetically sealed electrical connectors and instrument packages, and ceramic capacitors, filters and feedthroughs. Our customers include global leaders in all of these industries. Results of Operations - --------------------- Quarter Ended August 31, 2000 Compared to Quarter Ended August 31, 1999 Net Sales. Net sales decreased by $1.0 million, or 3.1%, to $27.6 million for the quarter ended August 31, 2000, from $28.6 million for the quarter ended August 31, 1999. The European Aerospace Group contributed $12.6 million of net sales during the quarter ended August 31, 2000, down $1.8 million from the $14.4 million contributed during the quarter ended August 31, 1999. This decrease was partly due to the weakness of the British pound sterling versus the U.S. dollar. Our customers in the European aerospace market have also been initiating lean manufacturing methods and just-in-time inventory delivery requirements similar to those previously initiated by our customers in the U.S. aerospace market. These initiatives have resulted in decreased orders for our European Aerospace Group, which we expect to continue throughout this fiscal year. We expect this to cause the group's net sales volumes to remain flat or decrease from last year and backlog to decrease. The U.S. Aerospace Group contributed $7.2 million during the quarter ended August 31, 2000, down $0.7 million from the $7.9 million contributed during the quarter ended August 31, 1999. The U.S. Aerospace Group's casting businesses experienced unanticipated revenue decline in the first quarter of fiscal 2001 as a result of lower demand for heavy trucking products, which was driven by higher fuel costs. We have also not achieved adequate growth in our commercial aircraft components business. To attempt to address these issues, we have been downsizing operations, particularly in the U.S. Aerospace Group's Casting Division, and we are reviewing our marketing and sales efforts with the goal of increasing effectiveness. We reduced the work force in the Casting Division's Entiat, Washington plant from 140 to 103 employees in August 2000, and we are in the process of shutting down our casting operations in Tacoma, Washington. We expect that net sales 15 in our U.S. Aerospace Group will remain flat during the second quarter of fiscal 2001 and increase during the third and fourth quarters of fiscal 2001 due to new orders from non-aerospace customers, primarily in our Machining Division. Our U.S. Electronics Group contributed $7.8 million to net sales during the quarter ended August 31, 2000, up $1.5 million from the $6.3 million contributed during the quarter ended August 31, 1999. This increase was primarily attributable to additional sales by our Filter Division of products for telecommunications systems. We expect net sales volumes in our U.S. Electronics Group to remain constant or to decrease slightly during the remainder of fiscal 2001. Gross Profit. Gross profit decreased by $1.7 million, or 25.7%, to $4.9 million for the quarter ended August 31, 2000, from $6.6 million for the quarter ended August 31, 1999. As a percentage of net sales, gross profit decreased to 17.8% for the quarter ended August 31, 2000, from 23.0% for the quarter ended August 31, 1999. This decrease was primarily due to lower sales volumes from our aerospace and heavy trucking transportation products. Facilities to support the production of these products traditionally have a high amount of fixed costs which, when coupled with declining sales volumes, cause the gross profit to decrease. Pricing pressure from customers has also led to lower overall gross profit in our business from aerospace and heavy trucking customers. Operating Expenses. Operating expenses decreased by $0.3 million, or 5.9%, to $4.8 million for the quarter ended August 31, 2000, from $5.1 million for the quarter ended August 31, 1999. As a percentage of net sales, operating expenses decreased to 17.4% for the quarter ended August 31, 2000, from 17.8% for the quarter ended August 31, 1999. This decrease was primarily due to decreased levels of operations, offset by higher expenditures for sales activities during the quarter. We believe that we may have future asset impairment losses, especially in the U.S. and European Aerospace Groups, if they do not achieve acceptable profitability levels. Interest Expense. Interest expense decreased by $0.2 million, or 8.0%, to $2.3 million for the quarter ended August 31, 2000, from $2.5 million for the quarter ended August 31, 1999. This decrease was primarily due to the $11.3 million principal reduction in the fourth quarter of fiscal 2000 on our 11 1/4% senior subordinated notes, which was accomplished through an exchange for common stock. The principal reduction resulted in a decrease of approximately $0.3 million in interest expense for the quarter, which was offset by $0.1 million additional interest expense from higher average revolving debt balances during the first quarter of fiscal 2001 in comparison to the first quarter of fiscal 2000. Other Income (Expense). Other income represents non-operational income and expense for the period. Other income increased to $47,000 during the quarter ended August 31, 2000, from $3,000 during the quarter ended August 31, 1999. The other income in the current quarter primarily represents rental income derived from leasing out a building in New Jersey previously occupied by part of our U.S. Electronics Group's Interconnect Division. This building is currently held for sale. Income Tax Expense. Income tax expense for the periods primarily represents changes in the valuation allowance to adjust deferred income tax assets to amounts determined more likely than not to be realizable in accordance with the guidelines set forth in FAS 109, Accounting for Income Taxes. The adjustment for the current quarter was based upon the amount of our U.S. net operating loss (NOL) for the current quarter and carry forward amounts which will expire during this fiscal year. We believe that we will not have sufficient taxable income during the fiscal year to be able to derive any benefits from the expiring NOL's. No income tax benefit was recorded for the current period NOL's, due to the uncertainty of their realization. Deferred income tax expense will increase in the future unless it is determined that deferred tax assets are more likely than not to be realizable. 16 Net Loss. Net loss increased by $0.8 million, or 53.3%, to a net loss of $2.3 million for the quarter ended August 31, 2000, from a net loss of $1.5 million for the quarter ended August 31, 1999, due to the factors listed above. We believe that we will continue to experience downward pressure on earnings throughout fiscal 2001. Liquidity and Capital Resources - -------------------------------- Cash used in operating activities was $3.9 million during the quarter ended August 31, 2000, compared to cash used in operating activities of $3.0 million during the quarter ended August 31, 1999. The change in cash used in operating activities was primarily a result of the increased net loss during the quarter ended August 31, 2000. Our success as a company will depend heavily on our ability to generate cash from operating activities in the future. We can offer no assurance that we will achieve profitable operations or that any profitable operations will be sustained. We are focusing on initiatives that specifically address the need to increase cash provided by operating activities. Some of these initiatives include, but are not limited to staff reductions, elimination of unprofitable product offerings, selling of excess inventory, and general and administrative cost controls. If we are not successful in increasing cash provided by operating activities, we may need to sell additional equity securities or sell assets outside of the ordinary course of business in order to meet our obligations. There is no assurance that we will be able to sell additional equity securities or to sell our assets for amounts in excess of book value. In that situation, our inability to obtain sufficient cash if and when needed could have a material adverse effect on our financial position, the results of our operations, and our ability to continue in existence. Cash used in investing activities decreased from $3.8 million during the quarter ended August 31, 1999 to $0.8 million during the quarter ended August 31, 2000. Amounts invested during the quarter ended August 31, 2000 were primarily for production equipment. We expect to invest a similar amount into equipment during each of the remaining quarters of fiscal 2001, but we have not committed to do so. We currently do not expect to acquire any new businesses during fiscal 2001. Cash generated from financing activities increased to $2.6 million during the quarter ended August 31, 2000, from $1.4 million during the quarter ended August 31, 1999. Financing activities during the quarter ended August 31, 2000 included net proceeds from the issuance of common stock ($1.8 million) and borrowings under our line of credit ($1.0 million), offset by payments on long- term debt and capital leases ($0.4 million). Our existing cash and credit facilities may not be sufficient to meet our obligations as they become due during fiscal 2001. Our actual cash needs will depend primarily on the amount of cash generated from or used by operations. We cannot predict accurately the amount or timing of our future cash needs. If we cannot obtain additional cash if and when needed, we may be unable to fund our operations and pay all obligations as they become due or at all. At May 31, 2000, our primary banking relationships included a revolving line of credit of up to $6.3 million in the U.S. and a revolving line of credit of up to approximately $5.0 million ((Pounds)3.5 million) in the U.K. As of August 31, 2000 the U.S. line was drawn $6.3 million and the U.K. line was drawn $0.1 million. Our U.S. operating line of credit expired on September 5, 2000, and has been extended through November 5, 2000. Our senior lender in the U.S. is currently evaluating whether and upon what terms it will renew our credit line. Our line of credit in the U.K. expires in November 2000. We expect to request renewal of that line. We can offer no assurance that our existing credit facilities will be renewed or that they will remain available on acceptable terms or at 17 all. If we are unable to renew our credit lines, we may not have enough cash to fund our operations. In December 1998, we entered into an agreement giving us the option to purchase three parcels of land that make up our Wenatchee campus from the Port of Chelan County for $5.4 million. The purchase of the first parcel was completed in early February 1999. If we exercise our options to purchase both of the remaining two parcels, the purchase of the second parcel is expected to close in December 2000 and the third is expected to close in August 2001. As of August 31, 2000, we had no other material commitments outstanding for purchases of additional capital assets. Our working capital as of August 31, 2000 and May 31, 2000 was $29.5 million and $29.2 million, respectively. We have adopted initiatives directed at improving cash provided by operating activities during fiscal 2001. If these initiatives are successful and we are able to sell additional equity securities, we should increase our working capital during fiscal 2001. Our consolidated financial statements have been prepared assuming that we will continue as a going concern. However, our independent auditors in their report accompanying our audited consolidated financial statements for fiscal 2000 stated that we have suffered recurring losses from operations which raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. If we are not sufficiently successful in generating cash from operating activities, we may need to sell additional common stock or other securities, or we may need to sell assets outside the ordinary course of business. If we need to dispose of assets outside of the ordinary course of business to generate cash, we may not be able to realize the carrying value of those assets upon liquidation. If we are unable to generate the necessary cash, we could be unable to continue operations. With the acquisition of our European Aerospace Group, whose functional currency is the British pound sterling, we translate the activity of our European Aerospace Group into U.S. dollars on a monthly basis. The balance sheet of the European Aerospace Group is translated using the exchange rate as of the date of the balance sheet, and for purposes of the statement of operations and statement of cash flows we use the average exchange rate for the period. The value of our assets, liabilities, revenue, and expenses may vary materially from one reporting period to the next solely as a result of varying exchange rates. During the quarter ended August 31, 2000, the foreign currency translation adjustment was a loss of $2.3 million. We have not entered into any hedging activity as of August 31, 2000. At August 31, 2000, we had a NOL carry forward for federal income tax purposes of approximately $20 million, the benefits of which expire in the tax year 2001 through the tax year 2020. The NOL created by our subsidiaries prior to their acquisition and the NOL created as a consolidated group or groups subsequent to a qualifying tax free merger or acquisition have limitations related to the amount of usage by each subsidiary or consolidated group as described in the Internal Revenue Code. As a result of these limitations, approximately $2.0 million of the $20 million NOL will never become available. We have recorded a net deferred tax asset of approximately $3.0 million at August 31, 2000, related primarily to these NOL's. Our ability to realize the deferred tax asset is dependent on material increases in present levels of pre-tax income, primarily in the U.S. We expect to achieve these increases through our continued integration, cross selling, and other operational efficiencies, as well as other tax strategies. Deferred income tax expense will increase in the future unless it is determined that deferred tax assets are more likely than not to be realizable. 18 Significant Events During the Quarter - ------------------------------------- Equity Financing - Sale of Common Stock. In July 2000, we issued 1,142,860 shares of common stock and warrants to purchase additional shares to two accredited investors for gross proceeds of $2.0 million. We paid a commission of $80,000 and issued warrants to purchase up to 79,150 shares of common stock to the placement agent that represented us in the transaction. After taking into consideration other expenses related to the transaction, we received net proceeds at closing of $1,886,500, which we used to pay down our U.S. credit line. We have filed a registration statement on Form S-3 with the Securities and Exchange Commission to register the resale of the shares of Common Stock issued or issuable as a result of the transaction. The registration statement has not yet been declared effective. See "Part II - Item 2 - Changes in Securities." Orca Technologies, Inc. - ----------------------- We currently hold promissory notes from Orca Technologies, Inc. in the principal amount of $2,450,000, and 2,289,309 shares of Orca's common stock. We acquired these notes and stock in connection with our 1997 plan to form an information technology group. We terminated that effort in late 1997 and, as a result, we wrote off $1.0 million in fiscal 1998, $7.8 million in fiscal 1999 and $0.1 million in fiscal 2000. The Orca notes and common stock have no carrying value on our financial statements, and we do not expect them to have any value in the future. In September 2000, at Orca's request, and in order to facilitate a proposed sale by Orca of its assets, we signed a non-binding letter of intent to transfer the previously written-off notes and stock to a group led by Orca's chief executive officer, in exchange for a $20,000 note payable to us. We do not currently know whether that transaction will go forward. New Accounting Pronouncements - ----------------------------- In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, as amended, Revenue Recognition in Financial Statements. SAB No. 101 provides guidance for revenue recognition and the SEC staff's views on the application of accounting principles to selected revenue recognition issues. We adopted the provisions of SAB No. 101 in the first quarter of fiscal year 2001. The impact of adopting SAB No. 101 did not have a material impact on our consolidated financial statements. In March 2000, the Financial Accounting Standards Board (FASB) issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation. Interpretation No. 44 clarifies the application of APB Opinion No. 25 and is effective July 1, 2000. Interpretation No. 44 clarifies the definition of "employee" for purposes of applying APB Opinion No. 25, the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and the accounting for an exchange of stock compensation awards in a business combination. We adopted the provisions of FASB interpretation No. 44 in the first quarter of fiscal year 2001. The impact of adopting Interpretation No. 44 did not have a material impact on our consolidated financial statements. In June 1998, the FASB issued SFAS No. 133, as amended, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires the recognition of all derivatives in the consolidated balance sheet as either assets or liabilities measured at fair value. We will adopt the 19 provision of SFAS No. 133 in the first quarter of fiscal year 2002. We have not determined the impact the adoption of SFAS No. 133 will have on our consolidated financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have financial instruments that are subject to interest rate risk, primarily debt obligations issued at a fixed rate and revolving debt issued at variable rates. Our revolving debt, which is from our credit lines in the U.S. and U.K., during the period had an average outstanding balance of $5.9 million. Changes in the variable rate of interest will not have a material effect on our net income. For example, a change in the variable rate of interest of 1% would have had the effect of changing our interest expense for the quarter by approximately $15,000. Our fixed-rate debt obligations are generally not callable until maturity and therefore market fluctuations in interest rates will not affect our earnings for the period. Based upon these facts, we do not consider the market risk exposure for interest rates to be material. The fair value of such instruments approximates their face value, except for our 11 1/4% senior subordinated notes, which, as of August 31, 2000, were trading on the open market for approximately 50% of face value. We are subject to foreign currency exchange rate risk relating to receipts from and payments to suppliers in foreign currencies. Since approximately 50% of Company transactions are conducted in foreign currency, the exchange rate risk could be material. During the quarter ended August 31, 2000, the foreign currency translation adjustment was a loss of $2.3 million. We have not entered into any hedging activity as of August 31, 2000. We are exposed to commodity price fluctuations through purchases of aluminum, titanium, and other raw materials. We enter into certain supplier arrangements that guarantee quantity and price of the applicable commodity to limit the exposure to commodity price fluctuations and availability concerns. At August 31, 2000, the Company had purchase commitments for raw materials aggregating approximately $3,750,000. Of the Company's $3,750,000 purchase commitments for raw materials at August 31, 2000, $1,000,000 related to an aluminum supply purchase order with a fixed price that goes through October 2001, and the remainder relates to a titanium supply agreement with a fixed price that goes through December 2001. These commitments at August 31, 2000 represented less than 5% of the Company's cost of goods sold for fiscal 2000. 20 PART II OTHER INFORMATION ----------------- ITEM 1. LEGAL PROCEEDINGS From time to time we are involved in legal proceedings relating to claims arising out of operations in the normal course of business. We are not aware of any material legal proceedings pending or threatened against the Company or any of our properties. ITEM 2. CHANGES IN SECURITIES (a) None. (b) Dividend Payment Restrictions In connection with the issuance of our 11 1/4% Senior Subordinated Notes, due 2005, which have been exchanged for 11 1/4% Series B Senior Subordinated Notes due 2005, we are subject to an Indenture that limits our ability to pay dividends, repurchase our equity securities, make certain other kinds of restricted payments, and incur certain indebtedness. We have never declared or paid cash dividends on the Common Stock. We currently anticipate that we will retain all future earnings to fund the operation of our business, and we do not anticipate paying dividends on the Common Stock in the foreseeable future. (c) Summer 2000 Private Placement On July 27, 2000, we issued 1,142,860 shares of common stock and warrants to purchase additional shares to two accredited investors, Strong River Investments, Inc. and Bay Harbor Investments, Inc., for gross proceeds of $2.0 million. The transaction was a private placement exempt from registration under Rule 506, promulgated under the Securities Act of 1933, as amended. We paid a commission to Rochon Capital Group, Ltd. comprised of $80,000 in cash and warrants to purchase 79,150 shares of common stock, at an exercise price of $1.7688 per share, for representing us in this transaction. After taking into consideration other expenses related to the transaction, we received net proceeds at closing of $1,886,500, which we used to pay down our U.S. credit line. We also issued to the investors on July 27, 2000, warrants to purchase an aggregate of 385,000 shares of common stock at an exercise price of $2.01 per share (subject to certain adjustments), through July 27, 2003, and warrants to purchase a currently indeterminate number of shares as described below. Each investor received both adjustable warrants and vesting warrants. The purpose of the adjustable warrants is to provide a mechanism for resetting the price of the shares of common stock purchased by the investors in the transaction if the market price of our common stock does not achieve and maintain a specific level. Adjustable warrants are exercisable by the investors at an exercise price of $.001 per share for fifteen trading days following each of three vesting dates. The vesting dates begin on the twentieth trading day after the effectiveness of the registration statement and end on the sixtieth trading day after the effectiveness of the registration statement. The adjustable warrants expire fifteen trading days after the third vesting date. On each vesting date, we will determine with the investors, based on a formula contained in the adjustable warrants, whether the warrants have become exercisable for any warrant shares. Under 21 the formula, the number of shares issuable would depend on the average closing price of our common stock for the five trading days before each vesting date. Specifically, on each vesting date, the investor will be entitled to the number of shares equal to: (1) one-third of the shares purchased by the investor at closing, times (ii) the difference between $1.902 and the average of the lowest five closing prices for our stock during the 20 consecutive trading days preceding the vesting date, all divided by such average. If the average closing price of our common stock is less than $1.91 per share during the applicable period preceding a vesting date, the formula will be applied to determine the number of shares that are issuable to the investors upon exercise of the warrants as of that vesting date. If the average closing price of our common stock is $1.91 or above during the applicable period preceding a vesting date, no shares of common stock will be issuable as of that vesting date. In addition, if the average closing price of our common stock exceeds $2.19 per share for any 20 consecutive trading days, no further vesting will occur and no more shares will become issuable. The purpose of the vesting warrants is to provide for penalty shares to be issued to the investors if any of several specified events occurs. The events include, among other events, certain acquisitions, mergers or changes of control involving Pacific Aerospace, our failure to deliver certificates to the holders in a timely manner, our material breach under the transaction documents, the delisting of our common stock for ten consecutive days, our failure to obtain an effective registration statement within 180 days after the closing, or our failure to maintain the registration statement effective for the required time period. If any of these events occur, the investors will be entitled to receive the number of shares equal to the product of 30% of $3,500,000 divided by the closing price of our common stock on the trading day preceding the date of the event. The vesting warrants also provide for penalty shares under a different formula if other events occur. These events include our failure to have the registration statement effective within 60 days after the closing, other events relating to our actions in obtaining and maintaining an effective registration statement, and the delisting of our common stock for ten consecutive days. If any of these events occur, the investors will be entitled to receive the number of shares equal to the product of 3% of $3,500,000 divided by the closing price of our common stock on the trading day preceding the date of the event. On August 28, 2000, we filed a registration statement with the Securities and Exchange Commission to register the resale of the shares of common stock issued or issuable as a result of the transaction. The registration statement has not yet been declared effective by the Commission. Because the registration statement did not become effective within the 60 days after the closing, a portion of the vesting warrants vested and became exercisable. As of September 25, 2000, the investors became entitled to exercise the vesting warrants for up to 101,823 shares of common stock, for an exercise price of $.001 per share. On each monthly anniversary of September 25, 2000, the vesting warrants will vest for additional shares, until the registration statement becomes effective. If the registration statement is not effective 180 days after closing, the penalty shares would accrue under the formula in the preceding paragraph. The vesting warrants expire five business days after the expiration of the adjustable warrants. The vesting dates and expiration dates contained in the warrants and the numbers of shares issuable upon exercise of the warrants are subject to anti-dilutive adjustments under certain circumstances. We cannot yet predict how many shares of common stock, if any, may become issuable upon exercise of the adjustable warrants or the vesting warrants. However, the adjustable warrants and the vesting warrants, by their terms, cannot be exercised for a number of shares greater than the number we may issue without shareholder approval under applicable Nasdaq rules. In the event that the number of shares issuable would exceed the number of shares permitted to be issued without 22 shareholder approval under applicable Nasdaq rules. In the event that the number of shares issuable would exceed the number of shares permitted to be issued without shareholder approval under applicable Nasdaq rules, we would be entitled either to redeem the excess shares (if and to the extent permitted by our lenders) or to use our best efforts to obtain shareholder approval for the issuance of the additional shares. The indenture governing our outstanding 11 1/4% senior subordinated notes would not currently permit us to redeem excess shares. The transaction documents also provided that, upon effectiveness of the registration statement within 60 days after the first closing, a second closing would occur, and the investors would pay an additional $1.5 million and receive 857,140 additional shares of common stock. No additional warrants would be issued at a second closing. The effectiveness of the registration statement within 60 days after the first closing was the only condition to the second closing. This condition was not met, and the investors elected not to waive the condition, so a second closing will not occur. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS We did not submit any matters to a vote of security holders during the period covered by this report. ITEM 5. OTHER INFORMATION Nasdaq Our common stock is quoted on the Nasdaq National Market System. In order to remain listed on this market, we must meet Nasdaq's listing maintenance standards. The minimum bid price of our common stock has been lower than $1.00 on several occasions during September and October 2000. If the minimum bid price of our common stock were to remain below $1.00 for 30 consecutive trading days, or if we were unable to continue to meet Nasdaq's standards for any other reason, our common stock could be delisted from the Nasdaq National Market System. If our common stock were delisted, the liquidity for our common stock would be adversely affected. In addition, delisting would trigger the vesting of penalty shares under the vesting warrants held by the investors in our Summer 2000 private placement, which would result in additional dilution. Bylaws At its October 10, 2000 meeting, the Board of Directors adopted amendments to our bylaws relating to the business that can be conducted at annual or special meetings of shareholders. For a shareholder to properly bring business before an annual meeting or to properly nominate a person for election as a director, the shareholder must provide the Company with notice and the information required by the bylaws and the notice must be timely received by the Company as provided in the bylaws. For notice by a shareholder relating to an annual meeting to be timely, the Company must receive the notice at least 120 days before the anniversary of the Company's first mailing of its proxy materials for its annual shareholder meeting for the previous year. However, if the notice relates to an annual meeting that is to be held more than 30 days before or after the anniversary of the last annual meeting, the notice must be received by the Company at least 120 days before the annual meeting. For notice by a shareholder relating to the nomination of directors at a special meeting to be timely, the Company must receive the notice no earlier than 90 and no later than 70 days before the special meeting, or 10 days after a public announcement is first made by the 23 Company of the date of the special meeting and the director nominees proposed by the Board to be elected at the special meeting. The bylaw amendments provide that the only business that can be conducted at a special meeting is the business specified in the notice to shareholders for that meeting. Compliance with these bylaw provisions is the exclusive means by which shareholders can present proposals at annual meetings or nominate directors at shareholder meetings. The bylaw amendments also set forth provisions about the conduct of shareholder meetings. The notice of the 2000 annual meeting of shareholders was first mailed to our shareholders on September 7, 2000. Accordingly, under the new bylaw provisions, the deadline for the required notice to be received by the Company for the 2001 annual meeting is May 10, 2001. The foregoing is a summary of the amended by law provisions, and shareholders must comply with all of the requirements of the amended bylaws provisions, which are included in sections 1.11 and 1.12 of the bylaws filed as an exhibit to this report. 24 ITEM 6. Exhibits and Reports on Form 8-K -------------------------------- a. Exhibits. The following documents are filed as exhibits to this Quarterly Report:
Exhibit Number Description 3.1 Articles of Incorporation of Pacific Aerospace & Electronics, Inc./(6)/ 3.2 Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series A Convertible Preferred Stock, as corrected./(8)/ 3.3 Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series B Convertible Preferred Stock./(20)/ 3.4 Bylaws of Pacific Aerospace & Electronics, Inc., as amended./(35)/ 4.1 Form of specimen certificate for Common Stock./(6)/ 4.2 Form of specimen certificate for public warrants./(6)/ 4.3 Form of specimen certificate for the Series A Convertible Preferred Stock./(8)/ 4.4 Form of specimen certificate for the Series B Convertible Preferred Stock./(20)/ 4.5 Form of Common Stock Purchase Warrant issued to holders of the Series B Convertible Preferred Stock on May 15, 1998./(20)/ 4.6 Securities Purchase Agreement among Pacific Aerospace & Electronics, Inc., Strong River Investments, Inc., and Bay Harbor Investments, Inc., dated as of July 27, 2000./(33)/ 4.7 Registration Rights Agreement between Pacific Aerospace & Electronics, Inc., Strong River Investments, Inc., and Bay Harbor Investments, Inc., dated as of July 27, 2000./(33)/ 4.8 Warrant between Pacific Aerospace & Electronics, Inc. and Strong River Investments, Inc., dated as of July 27, 2000. /(33)/ 4.9 Warrant between Pacific Aerospace & Electronics, Inc. and Bay Harbor Investments, Inc., dated as of July 27, 2000. /(33)/ 4.10 Warrant between Pacific Aerospace & Electronics, Inc. and Strong River Investments, Inc., dated as of July 27, 2000. /(33)/ 4.11 Warrant between Pacific Aerospace & Electronics, Inc. and Bay Harbor Investments, Inc., dated as of July 27, 2000./(33)/ 4.12 Vesting Warrant between Pacific Aerospace & Electronics, Inc. and Strong River Investments, Inc., dated as of July 27, 2000./(33)/ 4.13 Vesting Warrant between Pacific Aerospace & Electronics, Inc. and Bay Harbor Investments, Inc., dated as of July 27, 2000./(33)/ 4.14 Placement Agent Warrant between Pacific Aerospace & Electronics, Inc. and Rochon Capital Group, Ltd., dated as of July 27, 2000./(34)/ 4.15 Common Stock Purchase Warrant between Pacific Aerospace & Electronics, Inc. and Continental Capital & Equity Corporation, dated April 17, 2000./(34)/ 4.16 Common Stock Purchase Warrant between Pacific Aerospace & Electronics, Inc. and Continental Capital & Equity Corporation, dated April 17, 2000./(34)/ 4.17 Common Stock Purchase Warrant between Pacific Aerospace & Electronics, Inc. and Continental Capital & Equity Corporation, dated April 17, 2000./(34)/ 4.18 Common Stock Purchase Warrant between Pacific Aerospace & Electronics, Inc. and Continental Capital & Equity Corporation, dated April 17, 2000./(34)/ 10.1 Amended and Restated Stock Incentive Plan./(5)/ 10.2 Amendment No. 1 to the Amended and Restated Stock Incentive Plan./(19)/
25 10.3 Amended and Restated Independent Director Stock Plan./(21)/ 10.4 1999 Stock Incentive Plan /(30)/ 10.5 1997 Employee Stock Purchase Plan./(11)/ 10.6 Employment Agreement, dated June 1, 1997, between Pacific Aerospace & Electronics, Inc. and Donald A. Wright./(9)/ 10.7 Amendment No. 1 to Employment Agreement, dated January 29, 1999, between Pacific Aerospace & Electronics, Inc. and Donald A. Wright./(27)/ 10.8 Employment Agreement, dated March 1, 1999, between Pacific Aerospace & Electronics, Inc. and Werner Hafelfinger./(27)/ 10.9 Employment Agreement, dated June 1, 1997, between Pacific Aerospace & Electronics, Inc. and Nick A. Gerde./(9)/ 10.10 Employment Agreement, dated September 1, 1997, between Pacific Aerospace & Electronics, Inc. and Sheryl A. Symonds./(12)/ 10.11 Promissory Note, dated March 18, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association./(15)/ 10.12 Incentive Compensation Program. /(35)/ 10.13 Security Agreement, dated March 18, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association./(15)/ 10.14 Loan Agreement, dated September 7, 1999, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association. /(29)/ 10.15 Promissory Note, dated September 22, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association./(22)/ 10.16 Modification and/or Extension Agreement, dated October 6, 1999, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association /(29)/ 10.17 Commercial Security Agreement, dated September 7, 1999, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association./(29)/ 10.18 Promissory Note, dated September 30, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association./(22)/ 10.19 Deed of Trust, dated September 30, 1998, between Pacific Aerospace & Electronics, Inc., KeyBank National Association and Land Title Company, Chelan-Douglas County, Inc./(22)/ 10.20 Modification and/or Extension Agreement, dated September 6, 2000, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association./(35)/ 10.21 Facility Letter, dated July 30, 1998, from Barclays Bank plc to Aeromet International plc./(20)/ 10.22 General Terms Agreement No. BCA-65323-0458 dated December 20, 1999 between The Boeing Company and Pacific Aerospace & Electronics, Inc. (U.S. Aerospace Group and European Aerospace Group)./(31)/ 10.23 Special Business Provisions No. POP-65323-0519 December 20, 1999 between The Boeing Company and Pacific Aerospace & Electronics, Inc. (U.S. Aerospace Group and European Aerospace Group)./(1)(31)/ 10.24 Long Term Agreement No. 0108098 between Northrop Grumman Corporation and Cashmere Manufacturing Co., Inc. effective as of April 6, 1998./(1)(20)/ 10.25 Option to Purchase, dated January 29, 1999, between Pacific Aerospace & Electronics, Inc. and Donald A. Wright./(27)/ 10.26 Real Estate Agreement, dated January 15, 1999, between Pacific Aerospace & Electronics, Inc. and the Port of Chelan County./(27)/ 27.1 Financial Data Schedule. /(35)/
_____________________ 26 /(1)/ Subject to confidential treatment. Omitted confidential information was filed separately with the Securities and Exchange Commission. /(2)/ Incorporated by reference to the Company's Annual Report on Form 10- KSB for the year ended May 31, 1995. /(3)/ Incorporated by reference to Amendment No. 1 to the Company's Registration Statement on Form SB-2 filed on June 19, 1996. /(4)/ Incorporated by reference to the Company's Annual Report on Form 10- KSB for the year ended May 31, 1996. /(5)/ Incorporated by reference to the Company's Current Report on Form 10- QSB for the quarterly period ended November 30, 1996. /(6)/ Incorporated by reference to the Company's Current Report on Form 8-K filed on December 12, 1996, reporting the reincorporation merger. /(7)/ Incorporated by reference to the Company's Registration Statement of Certain Successor Issuers on Form 8-B filed on February 6, 1997. /(8)/ Incorporated by reference to the Company's Current Report on Form 8-K filed on March 12, 1997, reporting the Series A Preferred Stock offering. /(9)/ Incorporated by reference to the Company's Annual Report on Form 10- KSB for the fiscal year ending May 31, 1997. /(10)/ Incorporated by reference to the Company's Registration Statement on Form S-8 filed on June 11, 1997. /(11)/ Incorporated by reference to the Company's Definitive Proxy Statement for its 1997 Annual Shareholders Meeting, filed on August 28, 1997. /(12)/ Incorporated by reference to the Post-Effective Amendment No. 1 to Form SB-2, filed on November 3, 1997. /(13)/ Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarterly period ending November 30, 1997. /(14)/ Incorporated by reference to the Company's Registration Statement on Form S-3 filed on December 3, 1997. /(15)/ Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarterly period ending February 28, 1998. /(16)/ Incorporated by reference to the Company's Current Report on Form 8- K/A, filed on May 1, 1998. /(17)/ Incorporated by reference to the Company's Current Report on Form 8-K filed on July 10, 1998. /(18)/ Incorporated by reference to the Company's Current Report on Form 8-K filed on August 14, 1998. /(19)/ Incorporated by reference to the Company's Registration Statement on Form S-8 filed on November 7, 1997. /(20)/ Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ending May 31, 1998. /(21)/ Incorporated by reference to the Company's Definitive Proxy Statement filed on September 1, 1998. /(22)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q, and Form 10-Q/A, for the quarterly period ending August 31, 1998. /(23)/ Incorporated by reference to the Company's Registration Statement on Form S-1 filed on October 30, 1998. /(24)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending November 30, 1998. /(25)/ Incorporated by reference to Registration Statement on Form S-4 filed on November 25, 1998. 27 /(26)/ Incorporated by reference to Amendment No. 1 to Registration Statement on Form S-4 filed on January 20, 1999. /(27)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending February 28, 1999. /(28)/ Incorporated by reference to the Company's Annual Report on Form 10-K filed on August 30, 1999. /(29)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending August 31, 1999. /(30)/ Incorporated by reference to the Company's Definitive Proxy Statement filed on September 1, 1999. /(31)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending February 29, 2000. /(32)/ Incorporated by reference to the Company's Current Report on Form 8-K filed on May 31, 2000. /(33)/ Incorporated by reference to the Company's Current Report on Form 8-K filed on August 8, 2000. /(34)/ Incorporated by reference to the Company's Annual Report on Form 10-K filed on August 28, 2000. /(35)/ Filed with this report. b. Reports on Form 8-K. (i) The Company filed a Current Report on Form 8-K on August 8, 2000, reporting the Summer 2000 private placement. (ii) The Company filed an amended Current Report on Form 8-K/A on July 13, 2000, including financial information related to the acquisition of Nova- Tech Engineering, Inc. 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PACIFIC AEROSPACE & ELECTRONICS, INC. Date: October 12, 2000 /s/ Donald A. Wright ---------------------------------------- Donald A. Wright President, Chief Executive Officer, and Chairman of the Board (Principal Executive Officer) Date: October 12, 2000 /s/ Nick A. Gerde ---------------------------------------- Nick A. Gerde Vice President Finance, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 29 EXHIBIT INDEX The following documents are filed as exhibits to this Quarterly Report:
Exhibit Number Description 3.1 Articles of Incorporation of Pacific Aerospace & Electronics, Inc./(6)/ 3.2 Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series A Convertible Preferred Stock, as corrected./(8)/ 3.3 Amendment to Articles of Incorporation containing Designation of Rights and Preferences of Series B Convertible Preferred Stock./(20)/ 3.4 Bylaws of Pacific Aerospace & Electronics, Inc., as amended./(35)/ 4.1 Form of specimen certificate for Common Stock./(6)/ 4.2 Form of specimen certificate for public warrants./(6)/ 4.3 Form of specimen certificate for the Series A Convertible Preferred Stock./(8)/ 4.4 Form of specimen certificate for the Series B Convertible Preferred Stock./(20)/ 4.5 Form of Common Stock Purchase Warrant issued to holders of the Series B Convertible Preferred Stock on May 15, 1998./(20)/ 4.6 Securities Purchase Agreement among Pacific Aerospace & Electronics, Inc., Strong River Investments, Inc., and Bay Harbor Investments, Inc., dated as of July 27, 2000./(33)/ 4.7 Registration Rights Agreement between Pacific Aerospace & Electronics, Inc., Strong River Investments, Inc., and Bay Harbor Investments, Inc., dated as of July 27, 2000./(33)/ 4.8 Warrant between Pacific Aerospace & Electronics, Inc. and Strong River Investments, Inc., dated as of July 27, 2000. /(33)/ 4.9 Warrant between Pacific Aerospace & Electronics, Inc. and Bay Harbor Investments, Inc., dated as of July 27, 2000. /(33)/ 4.10 Warrant between Pacific Aerospace & Electronics, Inc. and Strong River Investments, Inc., dated as of July 27, 2000. /(33)/ 4.11 Warrant between Pacific Aerospace & Electronics, Inc. and Bay Harbor Investments, Inc., dated as of July 27, 2000./(33)/ 4.12 Vesting Warrant between Pacific Aerospace & Electronics, Inc. and Strong River Investments, Inc., dated as of July 27, 2000./(33)/ 4.13 Vesting Warrant between Pacific Aerospace & Electronics, Inc. and Bay Harbor Investments, Inc., dated as of July 27, 2000./(33)/ 4.14 Placement Agent Warrant between Pacific Aerospace & Electronics, Inc. and Rochon Capital Group, Ltd., dated as of July 27, 2000./(34)/ 4.15 Common Stock Purchase Warrant between Pacific Aerospace & Electronics, Inc. and Continental Capital & Equity Corporation, dated April 17, 2000./(34)/ 4.16 Common Stock Purchase Warrant between Pacific Aerospace & Electronics, Inc. and Continental Capital & Equity Corporation, dated April 17, 2000./(34)/ 4.17 Common Stock Purchase Warrant between Pacific Aerospace & Electronics, Inc. and Continental Capital & Equity Corporation, dated April 17, 2000./(34)/ 4.18 Common Stock Purchase Warrant between Pacific Aerospace & Electronics, Inc. and Continental Capital & Equity Corporation, dated April 17, 2000./(34)/ 10.1 Amended and Restated Stock Incentive Plan./(5)/ 10.2 Amendment No. 1 to the Amended and Restated Stock Incentive Plan./(19)/ 10.3 Amended and Restated Independent Director Stock Plan./(21)/ 10.4 1999 Stock Incentive Plan /(30)/
30 10.5 1997 Employee Stock Purchase Plan./(11)/ 10.6 Employment Agreement, dated June 1, 1997, between Pacific Aerospace & Electronics, Inc. and Donald A. Wright./(9)/ 10.7 Amendment No. 1 to Employment Agreement, dated January 29, 1999, between Pacific Aerospace & Electronics, Inc. and Donald A. Wright./(27)/ 10.8 Employment Agreement, dated March 1, 1999, between Pacific Aerospace & Electronics, Inc. and Werner Hafelfinger./(27)/ 10.9 Employment Agreement, dated June 1, 1997, between Pacific Aerospace & Electronics, Inc. and Nick A. Gerde./(9)/ 10.10 Employment Agreement, dated September 1, 1997, between Pacific Aerospace & Electronics, Inc. and Sheryl A. Symonds./(12)/ 10.11 Promissory Note, dated March 18, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association./(15)/ 10.12 Incentive Compensation Program. /(35)/ 10.13 Security Agreement, dated March 18, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association./(15)/ 10.14 Loan Agreement, dated September 7, 1999, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association. /(29)/ 10.15 Promissory Note, dated September 22, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association./(22)/ 10.16 Modification and/or Extension Agreement, dated October 6, 1999, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association /(29)/ 10.17 Commercial Security Agreement, dated September 7, 1999, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association./(29)/ 10.18 Promissory Note, dated September 30, 1998, from Pacific Aerospace & Electronics, Inc. to KeyBank National Association./(22)/ 10.19 Deed of Trust, dated September 30, 1998, between Pacific Aerospace & Electronics, Inc., KeyBank National Association and Land Title Company, Chelan-Douglas County, Inc./(22)/ 10.20 Modification and/or Extension Agreement, dated September 6, 2000, between Pacific Aerospace & Electronics, Inc. and KeyBank National Association./(35)/ 10.21 Facility Letter, dated July 30, 1998, from Barclays Bank plc to Aeromet International plc./(20)/ 10.22 General Terms Agreement No. BCA-65323-0458 dated December 20, 1999 between The Boeing Company and Pacific Aerospace & Electronics, Inc. (U.S. Aerospace Group and European Aerospace Group)./(31)/ 10.23 Special Business Provisions No. POP-65323-0519 December 20, 1999 between The Boeing Company and Pacific Aerospace & Electronics, Inc. (U.S. Aerospace Group and European Aerospace Group)./(1)(31)/ 10.24 Long Term Agreement No. 0108098 between Northrop Grumman Corporation and Cashmere Manufacturing Co., Inc. effective as of April 6, 1998./(1)(20)/ 10.25 Option to Purchase, dated January 29, 1999, between Pacific Aerospace & Electronics, Inc. and Donald A. Wright./(27)/ 10.26 Real Estate Agreement, dated January 15, 1999, between Pacific Aerospace & Electronics, Inc. and the Port of Chelan County./(27)/ 27.1 Financial Data Schedule. /(35)/
___________________________ /(1)/ Subject to confidential treatment. Omitted confidential information was filed separately with the Securities and Exchange Commission. 31 /(2)/ Incorporated by reference to the Company's Annual Report on Form 10- KSB for the year ended May 31, 1995. /(3)/ Incorporated by reference to Amendment No. 1 to the Company's Registration Statement on Form SB-2 filed on June 19, 1996. /(4)/ Incorporated by reference to the Company's Annual Report on Form 10- KSB for the year ended May 31, 1996. /(5)/ Incorporated by reference to the Company's Current Report on Form 10- QSB for the quarterly period ended November 30, 1996. /(6)/ Incorporated by reference to the Company's Current Report on Form 8-K filed on December 12, 1996, reporting the reincorporation merger. /(7)/ Incorporated by reference to the Company's Registration Statement of Certain Successor Issuers on Form 8-B filed on February 6, 1997. /(8)/ Incorporated by reference to the Company's Current Report on Form 8-K filed on March 12, 1997, reporting the Series A Preferred Stock offering. /(9)/ Incorporated by reference to the Company's Annual Report on Form 10- KSB for the fiscal year ending May 31, 1997. /(10)/ Incorporated by reference to the Company's Registration Statement on Form S-8 filed on June 11, 1997. /(11)/ Incorporated by reference to the Company's Definitive Proxy Statement for its 1997 Annual Shareholders Meeting, filed on August 28, 1997. /(12)/ Incorporated by reference to the Post-Effective Amendment No. 1 to Form SB-2, filed on November 3, 1997. /(13)/ Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarterly period ending November 30, 1997. /(14)/ Incorporated by reference to the Company's Registration Statement on Form S-3 filed on December 3, 1997. /(15)/ Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarterly period ending February 28, 1998. /(16)/ Incorporated by reference to the Company's Current Report on Form 8- K/A, filed on May 1, 1998. /(17)/ Incorporated by reference to the Company's Current Report on Form 8-K filed on July 10, 1998. /(18)/ Incorporated by reference to the Company's Current Report on Form 8-K filed on August 14, 1998. /(19)/ Incorporated by reference to the Company's Registration Statement on Form S-8 filed on November 7, 1997. /(20)/ Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ending May 31, 1998. /(21)/ Incorporated by reference to the Company's Definitive Proxy Statement filed on September 1, 1998. /(22)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q, and Form 10-Q/A, for the quarterly period ending August 31, 1998. /(23)/ Incorporated by reference to the Company's Registration Statement on Form S-1 filed on October 30, 1998. /(24)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending November 30, 1998. /(25)/ Incorporated by reference to Registration Statement on Form S-4 filed on November 25, 1998. /(26)/ Incorporated by reference to Amendment No. 1 to Registration Statement on Form S-4 filed on January 20, 1999. 32 /(27)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending February 28, 1999. /(28)/ Incorporated by reference to the Company's Annual Report on Form 10-K filed on August 30, 1999. /(29)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending August 31, 1999. /(30)/ Incorporated by reference to the Company's Definitive Proxy Statement filed on September 1, 1999. /(31)/ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ending February 29, 2000. /(32)/ Incorporated by reference to the Company's Current Report on Form 8-K filed on May 31, 2000. /(33)/ Incorporated by reference to the Company's Current Report on Form 8-K filed on August 8, 2000. /(34)/ Incorporated by reference to the Company's Annual Report on Form 10-K filed on August 28, 2000. /(35)/ Filed with this report. 33 EX-3.4 2 0002.txt BYLAWS OF PACIFIC AEROSPACE & ELECTRONICS, INC. Exhibit 3.4 ----------- BYLAWS OF PACIFIC AEROSPACE & ELECTRONICS, INC. (As amended through October 10, 2000) SECTION 1. SHAREHOLDERS AND SHAREHOLDERS' MEETINGS 1.1 Annual Meeting. The annual meeting of the shareholders of this -------------- corporation (the "Corporation") for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held each year at the principal office of the Corporation, or at some other place either within or without the State of Washington as designated by the Board of Directors, on the day and at the time specified in Exhibit A, which is attached hereto and incorporated herein by this reference, or on such other day and time as may be set by the Board of Directors. If the specified day is a Sunday or a legal holiday, then the meeting will take place on the next business day at the same time or on such other day and time as may be set by the Board of Directors. 1.2 Special Meetings. Special meetings of the shareholders for any purpose ---------------- or purposes may be called at any time by the Board of Directors, the Chairman of the Board, the President, a majority of the Board of Directors, or any shareholder or shareholders holding in the aggregate one-tenth of the voting power of all votes entitled to be cast on any issue proposed to be considered at the proposed special meeting. The meetings shall be held at such time and place as the Board of Directors may prescribe, or, if not held upon the request of the Board of Directors, at such time and place as may be established by the President or by the Secretary in the President's absence. Only business within the purpose or purposes described in the meeting notice may be conducted. 1.3 Notice of Meetings. Written notice of the place, date and time of the ------------------ annual shareholders' meeting and written notice of the place, date, time and purpose or purposes of special shareholders' meetings shall be delivered not less than 10 (or, if required by Washington law, 20) or more than 60 days before the date of the meeting, either personally, by facsimile, or by mail, or in any other manner approved by law, by or at the direction of the President or the Secretary, to each shareholder of record entitled to notice of such meeting. Mailed notices shall be deemed to be delivered when deposited in the mail, first-class postage prepaid, correctly addressed to the shareholder's address shown in the Corporation's current record of shareholders. -1- 1.4 Waiver of Notice. Except where expressly prohibited by law or the ---------------- Articles of Incorporation, notice of the place, date, time and purpose or purposes of any shareholders' meeting may be waived in a signed writing delivered to the Corporation by any shareholder at any time, either before or after the meeting. Attendance at the meeting in person or by proxy waives objection to lack of notice or defective notice of the meeting unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting. A shareholder waives objection to consideration of a particular matter at a meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. 1.5 Shareholders' Action Without a Meeting. The shareholders may take any -------------------------------------- action without a meeting that they could properly take at a meeting, if one or more written consents setting forth the action so taken are signed by all of the shareholders entitled to vote with respect to the subject matter and are delivered to the Corporation for inclusion in the minutes or filing with the corporate records. If required by Washington law, all nonvoting shareholders must be given written notice of the proposed action at least ten days before the action is taken, unless such notice is waived in a manner consistent with these Bylaws. Actions taken under this section are effective when all consents are in the possession of the Corporation, unless otherwise specified in the consent. A shareholder may withdraw consent only by delivering a written notice of withdrawal to the Corporation prior to the time that all consents are in the possession of the Corporation. 1.6 Telephone Meetings. Shareholders may participate in a meeting of ------------------ shareholders by means of a conference telephone or any similar communications equipment that enables all persons participating in the meeting to hear each other during the meeting. Participation by such means shall constitute presence in person at a meeting. 1.7 List of Shareholders. At least ten days before any shareholders' -------------------- meeting, the Secretary of the Corporation or the agent having charge of the stock transfer books of the Corporation shall have compiled a complete list of the shareholders entitled to notice of a shareholders' meeting, arranged in alphabetical order and by voting group, with the address of each shareholder and the number, class, and series, if any, of shares owned by each. 1.8 Quorum and Voting. The presence in person or by proxy of the holders ----------------- of a majority of the votes entitled to be cast on a matter at a meeting shall constitute a quorum of shareholders for that matter. If a quorum exists, action on a matter shall be approved by a voting group if the votes cast within a voting group favoring the action exceed the votes cast within the voting group opposing the action, unless a greater number of affirmative votes is required by the Articles of Incorporation or by law. If the Articles of Incorporation or Washington law provide for voting by two or more voting groups on a matter, action on a matter is taken only when voted upon by each of those voting groups counted separately. Action may be taken by one voting group on a matter even though no action is taken by another voting group. -2- 1.9 Adjourned Meetings. If a shareholders' meeting is adjourned to a ------------------ different place, date or time, whether for failure to achieve a quorum or otherwise, notice need not be given of the new place, date or time if the new place, date or time is announced at the meeting before adjournment. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in these Bylaws, that determination shall apply to any adjournment thereof, unless Washington law requires fixing a new record date. If Washington law requires that a new record date be set for the adjourned meeting, notice of the adjourned meeting must be given to shareholders as of the new record date. Any business may be transacted at an adjourned meeting that could have been transacted at the meeting as originally called. 1.10 Proxies. A shareholder may appoint a proxy to vote or otherwise act ------- for the shareholder by signing an appointment form, either personally or by an agent. No appointment shall be valid after 11 months from the date of its execution unless the appointment form expressly so provides. An appointment of a proxy is revocable unless the appointment is coupled with an interest. No revocation shall be effective until written notice thereof has actually been received by the Secretary of the Corporation or any other person authorized to tabulate votes. 1.11 Business for Shareholder Meetings. --------------------------------- 1.11.1 Business at Annual Meetings. To be properly brought before an --------------------------- annual meeting of shareholders, business must be either: (a) specified in the notice of meeting (or any supplement) given by or at the direction of the Board of Directors; (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors; or (c) properly brought before the meeting by a shareholder. For business to be properly brought before the meeting by a shareholder, the shareholder must have given timely notice thereof to the Secretary of the Corporation in accordance with Section 1.11.4 of these Bylaws. Any such notice must set forth: (i) the name and address of the shareholder proposing the business; (ii) a representation that the shareholder is entitled to vote at the meeting and a statement of the number and class of voting shares of the Corporation that are beneficially owned by the shareholder; (iii) a representation that the shareholder intends to appear in person or by proxy at the meeting to propose the business; and (iv) as to each matter that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting the business at the meeting, the language of the proposal, and any material interest of the shareholder in the proposed business. In addition, the notice must comply with the requirements set forth in Rule 14a-8 under Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor provision. 1.11.2 Shareholder Nominations of Directors. Any shareholder who ------------------------------------ intends to make a nomination at an annual meeting must deliver a notice to the Secretary of the Corporation in a timely manner, as set forth in Section 1.11.4 of these Bylaws. Any such notice must set forth, as to each nominee that the shareholder proposes to nominate for election as a director: (i) the name, age, business address and residence address of the nominee; (ii) the -3- principal occupation or employment of the nominee; (iii) number of shares of the Corporation's capital stock that are beneficially owned by the nominee; and (iv) any other information concerning the nominee that would be required under the rules of the Securities and Exchange Commission in a proxy statement soliciting proxies for the election of the nominee. Any such notice must also set forth: (i) the name and address of the shareholder making the nomination; (ii) a representation that the shareholder is entitled to vote at the meeting; and (iii) a statement of the number and class of voting shares of the Corporation that are beneficially owned by the shareholder. The notice must also include a signed consent of the nominee to serve as a director of the Corporation, if elected. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required to determine the eligibility of the proposed nominee to serve as a director of the Corporation. 1.11.3 Business at Special Meetings. At any special meeting of ---------------------------- shareholders, only such business as is specified in the notice of the special meeting given by or at the direction of the person or persons calling the meeting in accordance with these Bylaws may properly come before the meeting. If directors are to be elected at a special meeting, nominations may be made at the special meeting only: (a) by or at the direction of the Board of Directors; or (b) by a shareholder of the Corporation who complies with the notice requirements set forth in Section 1.11.2 in a timely manner as set forth in Section 1.11.4. 1.11.4 Timely Notice. To be timely, a shareholder's notice given for ------------- the purposes of this Section 1.11 related to an annual meeting must be received at the principal executive offices of the Corporation at least 120 calendar days before the first anniversary of the date on which the Corporation first mailed its proxy materials to shareholders for the previous year's annual meeting. However, if the date of the annual meeting is advanced by more than 30 days or delayed by more than 30 days (for a reason other than an adjournment) from the anniversary of the previous year's annual meeting, in order to be timely, a shareholder's notice must be received by the Corporation at least 120 days prior to the annual meeting. To be timely, a shareholders' notice with respect to a nomination of persons for election to the Board of Directors at a special meeting of shareholders must be received at the principal executive offices of the Corporation no earlier than 90 days before the special meeting and no later than either 70 days before the special meeting or 10 days after the day on which a public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at the special meeting. For these purposes, "public announcement" means disclosure in a press release made on a national news or business news service or disclosure in a document publicly filed with the Securities and Exchange Commission pursuant to the Exchange Act. 1.11.5 Business Not Properly Brought. If the facts warrant, the ----------------------------- Chairman of the Board may determine and declare at a meeting that: (a) a proposal does not constitute proper business to be transacted at the meeting; or (b) the business was not properly brought before the meeting in accordance with the provisions of this Section 1.11. If so determined, any such business shall not be transacted at the meeting. -4- 1.12 Conduct of Shareholder Meetings. ------------------------------- 1.12.1 Chairman of the Meeting. Meetings of shareholders shall be ----------------------- presided over by the Chief Executive Officer, if that position is filled, or, if there is no Chief Executive Officer, the President or, in any event, by another chairman designated by the Board of Directors. The date and time of the opening and the closing of the polls for each matter upon which the shareholders will vote at a meeting shall be determined by the chairman of the meeting. 1.12.2 Rules and Regulations. The Board of Directors may adopt by --------------------- resolution any rules and regulations it deems appropriate for the conduct of any meeting of shareholders. Except to the extent inconsistent with rules and regulations adopted by the Board of Directors, the chairman of any meeting of shareholders shall have the exclusive right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of the chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to shareholders of record of the Corporation, their duly authorized and constituted proxies, or such other persons as the chairman of the meeting determines; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent otherwise determined by the Board of Directors or the chairman of the meeting, meetings of shareholders are not required to be held in accordance with the rules of parliamentary procedure. 1.12.3 Adjournment. Any annual or special meeting of shareholders may ----------- be adjourned only by the chairman of the meeting from time to time to reconvene at the same or some other time, date and place, and notice need not be given of any such adjourned meeting if the time, date and place are announced at the meeting at which the adjournment occurs. The shareholders present at a meeting shall not have authority to adjourn the meeting. At the adjourned meeting at which a quorum is present in person or by proxy, the shareholders may transact any business which might have been transacted at the original meeting. If after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. SECTION 2. BOARD OF DIRECTORS ------------------ 2.1 Number and Qualification. The business affairs and property of the ------------------------ Corporation shall be managed under the direction of a Board of Directors, the number of members of which is set forth in Exhibit A. The Board of Directors may increase or decrease this number by resolution. A decrease in the number of directors shall not shorten the term of an incumbent director. -5- 2.2 Election - Term of Office. The directors shall be elected by the ------------------------- shareholders at each annual shareholders' meeting or at a special shareholders' meeting called for such purpose. Despite the expiration of a director's term, the director continues to serve until his or her successor is elected and qualified or until there is a decrease in the authorized number of directors. 2.3 Vacancies. Except as otherwise provided by law, vacancies in the Board --------- of Directors, whether caused by resignation, death, retirement, disqualification, removal, increase in the number of directors, or otherwise, may be filled for the remainder of the term by the Board of Directors, by the shareholders, or, if the directors in office constitute less than a quorum of the Board of Directors, by an affirmative vote of a majority of the remaining directors. The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected. A vacancy that will occur at a specific later date may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs. 2.4 Quorum and Voting. At any meeting of the Board of Directors, the ----------------- presence in person (including presence by electronic means such as a telephone conference call) of a majority of the number of directors presently in office shall constitute a quorum for the transaction of business. Notwithstanding the foregoing, in no case shall a quorum be less than one-third of the authorized number of directors. If a quorum is present at the time of a vote, the affirmative vote of a majority of the directors present at the time of the vote shall be the act of the Board of Directors and of the Corporation except as may be otherwise specifically provided by the Articles of Incorporation, by these Bylaws, or by law. A director who is present at a meeting of the Board of Directors when action is taken is deemed to have assented to the action taken unless: (a) the director objects at the beginning of the meeting, or promptly upon his or her arrival, to holding it or to transacting business at the meeting; (b) the director's dissent or abstention from the action taken is entered in the minutes of the meeting; or (c) the director delivers written notice of his or her dissent or abstention to the presiding officer of the meeting before its adjournment or to the Corporation within a reasonable time after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. 2.5 Regular Meetings. Regular meetings of the Board of Directors shall be ---------------- held at such place, date and time as shall from time to time be fixed by resolution of the Board. 2.6 Special Meetings. Special meetings of the Board of Directors may be ---------------- held at any place and at any time and may be called by the Chairman of the Board, the President, Vice President, Secretary or Treasurer, or any two or more directors. 2.7 Notice of Meetings. Unless the Articles of Incorporation provide ------------------ otherwise, any regular meeting of the Board of Directors may be held without notice of the date, time, place, or purpose of the meeting. Any special meeting of the Board of Directors must be -6- preceded by at least two days' notice of the date, time, and place of the meeting, but not of its purpose, unless the Articles of Incorporation or these Bylaws require otherwise. Notice may be given personally, by facsimile, by mail, or in any other manner allowed by law. Oral notice shall be sufficient only if a written record of such notice is included in the Corporation's minute book. Notice shall be deemed effective at the earliest of: (a) receipt; (b) delivery to the proper address or telephone number of the director as shown in the Corporation's records; or (c) five days after its deposit in the United States mail, as evidenced by the postmark, if correctly addressed and mailed with first-class postage prepaid. Notice of any meeting of the Board of Directors may be waived by any director at any time, by a signed writing, delivered to the Corporation for inclusion in the minutes, either before or after the meeting. Attendance or participation by a director at a meeting shall constitute a waiver of any required notice of the meeting unless the director promptly objects to holding the meeting or to the transaction of any business on the grounds that the meeting was not lawfully convened and the director does not thereafter vote for or assent to action taken at the meeting. 2.8 Directors' Action Without A Meeting. The Board of Directors or a ----------------------------------- committee thereof may take any action without a meeting that it could properly take at a meeting if one or more written consents setting forth the action are signed by all of the directors, or all of the members of the committee, as the case may be, either before or after the action is taken, and if the consents are delivered to the Corporation for inclusion in the minutes or filing with the corporate records. Such action shall be effective upon the signing of a consent by the last director to sign, unless the consent specifies a later effective date. 2.9 Committees of the Board of Directors. The Board of Directors, by ------------------------------------ resolutions adopted by a majority of the members of the Board of Directors in office, may create from among its members one or more committees and shall appoint the members thereof. Each such committee must have two or more members, who shall be directors and who shall serve at the pleasure of the Board of Directors. Each committee of the Board of Directors may exercise the authority of the Board of Directors to the extent provided in its enabling resolution and any pertinent subsequent resolutions adopted in like manner, provided that the authority of each such committee shall be subject to applicable law. Each committee of the Board of Directors shall keep regular minutes of its proceedings and shall report to the Board of Directors when requested to do so. 2.10 Telephone Meetings. Members of the Board of Directors or of any ------------------ committee appointed by the Board of Directors may participate in a meeting of the Board of Directors or committee by means of a conference telephone or similar communications equipment that enables all persons participating in the meeting to hear each other during the meeting. Participation by such means shall constitute presence in person at a meeting. 2.11 Compensation of Directors. The Board of Directors may fix the ------------------------- compensation of directors as such and may authorize the reimbursement of their expenses. -7- SECTION 3. OFFICERS -------- 3.1 Officers Enumerated - Election. The officers of the Corporation shall ------------------------------ consist of such officers and assistant officers as may be designated by resolution of the Board of Directors. The officers may include a Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a Treasurer, and any assistant officers. The officers shall hold office at the pleasure of the Board of Directors. Unless otherwise restricted by the Board of Directors, the President may appoint any assistant officer, the Secretary may appoint one or more Assistant Secretaries, and the Treasurer may appoint one or more Assistant Treasurers; provided that any such appointments shall be recorded in writing in the corporate records. 3.2 Qualifications. None of the officers of the Corporation need be a -------------- director. Any two or more corporate offices may be held by the same person. 3.3 Duties of the Officers. Unless otherwise prescribed by the Board of ---------------------- Directors, the duties of the officers shall be as follows: Chairman of the Board. The Chairman of the Board, if one is --------------------- elected, shall preside at meetings of the Board of Directors and of the shareholders, shall be responsible for carrying out the plans and directives of the Board of Directors, and shall report to and consult with the Board of Directors. The Chairman of the Board shall have such other powers and duties as the Board of Directors may from time to time prescribe. Chief Executive Officer. The Chief Executive Officer shall be the ----------------------- chief executive officer of the Corporation and shall exercise the usual powers pertaining to such office. The Chief Executive Officer shall be in general charge of the business and affairs of the Corporation, subject to control by the Board of Directors. The Chief Executive Officer shall report to and consult with the Board of Directors and shall have such other powers and duties as the Board of Directors may from time to time prescribe. President. The President shall exercise the usual executive --------- powers pertaining to the office of President. In the absence of a Chairman of the Board, the President shall preside at meetings of the Board of Directors and of the shareholders, perform the other duties of the Chairman of the Board prescribed in this section, and shall have such other powers and duties as the Board of Directors may from time to time designate. In addition, if there is no Secretary in office, the President shall perform the duties of the Secretary. Vice President. Each Vice President shall perform such duties as -------------- the Board of Directors may from time to time designate. In addition, the Vice President, or if there is more than one, the most senior Vice President available, shall act as President in the absence or disability of the President. -8- Secretary. The Secretary shall be responsible for and shall keep, --------- personally or with the assistance of others, records of the proceedings of the directors and shareholders; authenticate records of the Corporation; attest all certificates of stock in the name of the Corporation; keep the corporate seal, if any, and affix the same to, or cause a facsimile thereof to be printed on, certificates of stock and other proper documents; keep a record of the issuance of certificates of stock and the transfers of the same, or cause such a record to be kept; and perform such other duties as the Board of Directors may from time to time designate. Treasurer. The Treasurer shall have the care and custody of, and be --------- responsible for, all funds and securities of the Corporation and shall cause to be kept regular books of account. The Treasurer shall cause to be deposited all funds and other valuable effects in the name of the Corporation in such depositories as may be designated by the Board of Directors. In general, the Treasurer shall perform all of the duties incident to the office of Treasurer, and such other duties as from time to time may be assigned by the Board of Directors. Assistant Officers. Assistant officers may consist of one or more ------------------ Assistant Vice Presidents, one or more Assistant Secretaries, and one or more Assistant Treasurers. Each assistant officer shall perform those duties assigned to him or her from time to time by the Board of Directors, the President, or the officer who appointed him or her. 3.4 Vacancies. Vacancies in any office arising from any cause may be --------- filled by the Board of Directors at any regular or special meeting. 3.5 Removal. Any officer or agent may be removed by action of the Board ------- of Directors with or without cause, but any removal shall be without prejudice to the contract rights, if any, of the person removed. Election or appointment of an officer or agent shall not of itself create any contract rights. SECTION 4. SHARES AND CERTIFICATES OF SHARES --------------------------------- 4.1 Share Certificates. Share certificates shall be issued in numerical ------------------ order, and each shareholder shall be entitled to a certificate signed by the President or a Vice President, and attested by the Secretary or an Assistant Secretary. Share certificates may be sealed with the corporate seal, if any. Facsimiles of the signatures and seal may be used as permitted by law. Every share certificate shall state: (a) the name of the Corporation; (b) that the Corporation is organized under the laws of the State of Washington; (c) the name of the person to whom the share certificate is issued; -9- (d) the number, class and series (if any) of shares that the certificate represents; and (e) if the Corporation is authorized to issue shares of more than one class or series, that upon written request and without charge, the Corporation will furnish any shareholder with a full statement of the designations, preferences, limitations and relative rights of the shares of each class or series, and the authority of the Board of Directors to determine variations for future series. 4.2 Consideration for Shares. Shares of the Corporation may be issued for ------------------------ such consideration as shall be determined by the Board of Directors to be adequate. The consideration for the issuance of shares may be paid in whole or in part in cash, or in any tangible or intangible property or benefit to the Corporation, including but not limited to promissory notes, services performed, contracts for services to be performed, or other securities of the Corporation. Establishment by the Board of Directors of the amount of consideration received or to be received for shares of the Corporation shall be deemed to be a determination that the consideration so established is adequate. 4.3 Transfers. Shares may be transferred by delivery of the certificate, --------- accompanied either by an assignment in writing on the back of the certificate, or by a written power of attorney to sell, assign and transfer the same, signed by the record holder of the certificate. Except as otherwise specifically provided in these Bylaws, no shares of stock shall be transferred on the books of the Corporation until the outstanding certificate therefor has been surrendered to the Corporation. 4.4 Loss or Destruction of Certificates. In the event of the loss or ----------------------------------- destruction of any certificate, a new certificate may be issued in lieu thereof upon satisfactory proof of such loss or destruction, and upon the giving of security against loss to the Corporation by bond, indemnity or otherwise, to the extent deemed necessary by the Board of Directors, the Secretary, or the Treasurer. 4.5 Fixing Record Date. The Board of Directors may fix in advance a date ------------------ as the record date for determining shareholders entitled: (i) to notice of or to vote at any shareholders' meeting or any adjournment thereof; (ii) to receive payment of any share dividend; or (iii) to receive payment of any distribution. The Board of Directors may in addition fix record dates with respect to any allotment of rights or conversion or exchange of any securities by their terms, or for any other proper purpose, as determined by the Board of Directors and by law. The record date shall be not more than 70 days and, in case of a meeting of shareholders, not less than 10 days (or such longer period as may be required by Washington law or applicable federal securities law or the rules of any exchange or automated quotation system on which shares of the Corporation are listed or quoted) prior to the date on which the particular action requiring determination of shareholders is to be taken. If no record -10- date is fixed for determining the shareholders entitled to notice of or to vote at a meeting of shareholders, the record date shall be the date before the day on which notice of the meeting is mailed. If no record date is fixed for the determination of shareholders entitled to a distribution (other than one involving a purchase, redemption, or other acquisition of the Corporation's own shares), the record date shall be the date on which the Board adopted the resolution declaring the distribution. If no record date is fixed for determining shareholders entitled to a share dividend, the record date shall be the date on which the Board of Directors authorized the dividend. SECTION 5. BOOKS, RECORDS AND REPORTS -------------------------- 5.1 Records of Corporate Meetings, Accounting Records and Share Registers. --------------------------------------------------------------------- The Corporation shall keep, as permanent records, minutes of all meetings of the Board of Directors and shareholders, and all actions taken without a meeting, and all actions taken by a committee exercising the authority of the Board of Directors. The Corporation or its agent shall maintain, in a form that permits preparation of a list, a list of the names and addresses of its shareholders, in alphabetical order by class of shares, and the number, class, and series, if any, of shares held by each. The Corporation shall also maintain appropriate accounting records, and at its principal place of business shall keep copies of: (a) its Articles of Incorporation or restated Articles of Incorporation and all amendments in effect; (b) its Bylaws or restated Bylaws and all amendments in effect; (c) minutes of all shareholders' meetings and records of all actions taken without meetings for the past three years; (d) the year-end balance sheets and income statements for the past three fiscal years, prepared as required by Washington law; (e) all written communications to shareholders generally in the past three years; (f) a list of the names and business addresses of its current officers and directors; and (g) its most recent annual report to the Secretary of State. 5.2 Copies of Corporate Records. Any person dealing with the Corporation --------------------------- may rely upon a copy of any of the records of the proceedings, resolutions, or votes of the Board of Directors or shareholders, when certified by the Chairman of the Board, President, Vice President, Secretary or Assistant Secretary. 5.3 Examination of Records. A shareholder shall have the right to inspect ---------------------- and copy, during regular business hours at the principal office of the Corporation, in person or by his or her attorney or agent, the corporate records referred to in the last sentence of Section 5.1 of these Bylaws if the shareholder gives the Corporation written notice of the demand at least five business days before the date on which the shareholder wishes to make such inspection. In addition, if a shareholder's demand is made in good faith and for a proper purpose, a shareholder may inspect and copy, during regular business hours at a reasonable location specified by the Corporation, excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors, records of actions taken by the Board of Directors without a meeting, minutes of shareholders' meetings held or records of action taken by shareholders without a meeting not within the past three years, -11- accounting records of the Corporation, or the record of shareholders; provided that the shareholder shall have made a demand describing with reasonable particularity the shareholder's purpose and the records the shareholder desires to inspect, and provided further that the records are directly connected to the shareholder's purpose. This section shall not affect any right of shareholders to inspect records of the Corporation that may be otherwise granted to the shareholders by law. 5.4 Financial Statements. Not later than four months after the end of -------------------- each fiscal year, or in any event prior to its annual meeting of shareholders, the Corporation shall prepare a balance sheet and income statement in accordance with Washington law. The Corporation shall furnish a copy of each to any shareholder upon written request. SECTION 6. FISCAL YEAR ----------- The fiscal year of the Corporation shall be as set forth in Exhibit A. SECTION 7. CORPORATE SEAL -------------- The corporate seal of the Corporation, if any, shall be in the form shown on Exhibit A. SECTION 8. MISCELLANEOUS PROCEDURAL PROVISIONS ----------------------------------- The Board of Directors may adopt rules of procedure to govern any meetings of shareholders or directors to the extent not inconsistent with law, the Corporation's Articles of Incorporation, or these Bylaws, as they are in effect from time to time. In the absence of any rules of procedure adopted by the Board of Directors, the chairman of the meeting shall make all decisions regarding the procedures for any meeting. SECTION 9. AMENDMENT OF BYLAWS ------------------- The Board of Directors is expressly authorized to make, alter and repeal the Bylaws of the Corporation, subject to the power of the shareholders of the Corporation to change or repeal the Bylaws. SECTION 10. INDEMNIFICATION OF DIRECTORS AND OTHERS --------------------------------------- 10.1 Grant of Indemnification. Subject to Section 10.2, each person who ------------------------ was or is made a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any threatened, pending, or completed action, suit or proceeding, -12- whether formal or informal, civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or officer of the Corporation or who, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of this or another corporation or of a partnership, joint venture, trust, other enterprise, or employee benefit plan, whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by applicable law, as then in effect, against all expense, liability and loss (including attorneys? fees, costs, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators. 10.2 Limitations on Indemnification. Notwithstanding Section 10.1, no ------------------------------ indemnification shall be provided hereunder to any such person to the extent that such indemnification would be prohibited by the Washington Business Corporation Act or other applicable law as then in effect, nor, except as provided in Section 10.4 with respect to proceedings seeking to enforce rights to indemnification, shall the Corporation indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person except where such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. 10.3 Advancement of Expenses. The right to indemnification conferred in ----------------------- this section shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition, except where the Board of Directors shall have adopted a resolution expressly disapproving such advancement of expenses. Such an advancement of expenses shall be made upon delivery to the Corporation of an undertaking, by or on behalf of the claimant, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such claimant is not entitled to be indemnified for such expenses under this Section 10.3. 10.4 Right to Enforce Indemnification. If a claim under Section 10.1 is -------------------------------- not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, or if a claim for expenses incurred in defending a proceeding in advance of its final disposition authorized under Section 10.3 is not paid within 20 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, to the extent successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. The claimant shall be presumed to be entitled to indemnification hereunder upon submission of a written claim (and, in an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition, where the required undertaking has been tendered to the Corporation), and thereafter the Corporation shall have the burden of proof to overcome the presumption that the claimant is so entitled. It shall be a -13- defense to any such action (other than an action with respect to expenses authorized under Section 10.3) that the claimant has not met the standards of conduct which make it permissible hereunder or under the Washington Business Corporation Act for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of or reimbursement or advancement of expenses to the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth herein or in the Washington Business Corporation Act nor (except as provided in Section 10.3) an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its shareholders) that the claimant is not entitled to indemnification or to the reimbursement or advancement of expenses shall be a defense to the action or create a presumption that the claimant is not so entitled. 10.5 Nonexclusivity. The right to indemnification and the payment of -------------- expenses incurred in defending a proceeding in advance of its final disposition conferred in this section shall be valid to the extent consistent with Washington law. 10.6 Indemnification of Employees and Agents. The Corporation may, by --------------------------------------- action of its Board of Directors from time to time, provide indemnification and pay expenses in advance of the final disposition of a proceeding to employees and agents of the Corporation on the same terms and with the same scope and effect as the provisions of this section with respect to the indemnification and advancement of expenses of directors and officers of the Corporation or pursuant to rights granted pursuant to, or provided by, the Washington Business Corporation Act or on such other terms as the Board may deem proper. 10.7 Insurance and Other Security. The Corporation may maintain insurance, ---------------------------- at its expense, to protect itself and any individual who is or was a director, officer, employee or agent of the Corporation or another Corporation, partnership, joint venture, trust or other enterprise against any liability asserted against or incurred by the individual in that capacity or arising from his or her status as an officer, director, agent, or employee, whether or not the Corporation would have the power to indemnify such person against the same liability under the Washington Business Corporation Act. The Corporation may enter into contracts with any director or officer of the Corporation in furtherance of the provisions of this section and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this section. 10.8 Amendment or Modification. This section may be altered or amended at ------------------------- any time as provided in these Bylaws, but no such amendment shall have the effect of diminishing the rights of any person who is or was an officer or director as to any acts or omissions taken or omitted to be taken prior to the effective date of such amendment. -14- 10.9 Effect of Section. The rights conferred by this section shall be ----------------- deemed to be contract rights between the Corporation and each person who is or was a director or officer. The Corporation expressly intends each such person to rely on the rights conferred hereby in performing his or her respective duties on behalf of the Corporation. SECTION 11. REPRESENTATION OF SHARES OF OTHER CORPORATIONS ---------------------------------------------- Unless otherwise restricted by the Board of Directors, the Chairman, President, and any Vice President of the Corporation are each authorized to vote, represent and exercise on behalf of the Corporation all rights incident to any and all shares of other corporations standing in the name of the Corporation. This authority may be exercised by such officers either in person or by a duly executed proxy or power of attorney. -15- EXHIBIT A Section 1.1. Date and time of annual shareholders' meeting: First Tuesday in November at 10:00 a.m. Section 2.1. Number of members of Board of Directors, unless and until changed by resolution of the Board of Directors: Seven Section 6. Fiscal year: June 1 through May 31 Section 7. Corporate Seal: As imprinted on this page. EX-10.12 3 0003.txt INCENTIVE COMPENSATION PROGRAM Exhibit 10.12 ------------- INCENTIVE COMPENSATION PROGRAM OUTLINE AND MEASUREMENT FISCAL YEAR 2001 INCENTIVE COMPENSATION INCREMENTS: Up to 15% of base salary can be earned by each participant upon successfully achieving budgeted revenue and operating income levels for the year, based on applicable budgets, as follows: A. 10% upon achieving the budgeted revenue and operating income for the fiscal year 2001, and B. 5% upon exceeding budgeted revenue and operating income by 10%. PARTICIPATION: Participants will be identified by the Company's CEO and COO and advised of their eligibility to participate at the beginning of the fiscal year. Any bonuses earned by executive officers of the Company must be reviewed and approved by the Compensation Committee of the Board of Directors prior to payment. MEASUREMENT AND PAYMENT: Measurement will be based on the actual revenues and results of operations for the Company for the fiscal year ended May 31, 2001, after completion of the annual financial audit. As noted, actual operating income, as defined below, will be compared to budgeted operating income. Earned bonuses will be paid prior to the end of the first quarter of fiscal 2002 (August 31, 2001). DEFINITION OF OPERATING INCOME: "Operating Income" is defined as net revenue less cost of goods sold and sales, general and administrative expenses, including allocation of corporate costs, accounting department costs, human resource department costs, and information technology department costs to each division/company/unit. Operating income will be an identifiable line item on each division, group and consolidated budget. EX-10.20 4 0004.txt MODIFICATION AND/OR EXTENSION AGREEMENT EXHIBIT 10.20 ------------- MODIFICATION AND/OR EXTENSION AGREEMENT Date: September 6, 2000 AG/HAV Borrower(s): PACIFIC AEROSPACE & ELECTRONICS, INC. Lender: KEYBANK NATIONAL ASSOCIATION Note: Dated September 22, 1998, in the principal amount of $6,300,000.00, including any and all amendments thereto. Loan #: 31-357577-3000009903 FOR VALUE RECEIVED, Borrower and Lender hereby agree to modify the above referenced Loan and Promissory Note and/or Loan Agreement as follows: 1. MODIFICATION AND/OR EXTENSION PROVISIONS ---------------------------------------- . The maturity date of the Loan is hereby extended to November 5, 2000. 2. CONDITIONS. The modifications and/or extension described above are subject ---------- to and conditioned upon Borrower's full satisfaction of all of the following conditions on or before the date first stated above, time being of the essence. A. There shall be no uncured event of default under the Loan, nor any event or condition which with notice or the passage of time would be an event of default thereunder. B. Borrower shall deliver to Lender a fully executed original of this Modification and/or Extension Agreement C. All expenses incurred by Lender in connection with this Agreement (including without limitation, attorney fees, recording charges, charges for title policy update(s), escrow charges, costs of obtaining updated or additional appraisal(s) or collateral valuations, if required by Lender) shall be paid by Borrower. D. Borrower shall comply with the following additional conditions: . No additional conditions apply. 3. GENERAL PROVISIONS. Except as modified above, all other provisions of the ------------------ Promissory Note and any other documents securing or relating to the Loan (the "Loan -1- Documents") remain in full force and effect. All security given for the Loan and all guarantees of the Loan (as applicable) shall continue in full force. Borrower warrants and represents to Lender that it has full right, power and authority to enter into this agreement and to perform all its obligations hereunder, and that all information and materials submitted to Lender in connection with this modification are accurate and complete. Borrower warrants that no default exists under the Loan Documents. Borrower reaffirms its obligation to pay the Loan in full and reaffirms the validity and enforceability of the Loan Documents, without set-off, counterclaim or defense. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. LENDER: BORROWER: KEYBANK NATIONAL ASSOCIATION PACIFIC AEROSPACE & ELECTRONICS, INC. By: /s/ John C. Thoren By: /s/ Donald A. Wright ---------------------------- ---------------------------------- John C. Thoren, Vice President Donald A. Wright, CEO & President -2- EX-27.1 5 0005.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED STATEMENTS OF PACIFIC AEROSPACE & ELECTRONICS, INC., AND ITS SUBSIDIARIES FOR THE THREE-MONTH PERIOD ENDED AUGUST 31, 2000 (AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.) 3-MOS MAY-31-2000 JUN-01-2000 AUG-31-2000 0 0 21,960,000 611,000 29,223,000 53,528,000 60,001,000 17,227,000 140,950,000 24,263,000 68,678,000 0 0 34,000 47,105,000 140,950,000 27,643,000 27,643,000 27,721,000 22,721,000 4,812,000 0 2,296,000 (2,139,000) 113,000 (2,252,000) 0 0 0 (2,252,000) (0.07) (0.07)
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