-----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, B6Vqk+sUcFkIMUwpqcLPSnItQDO0j/pHl1s+F4FVb16tJ8RLeRTwL0yKOiRj25VK F9Or5bOGm0uythDQwLsSXg== 0000891618-02-002656.txt : 20020531 0000891618-02-002656.hdr.sgml : 20020531 20020531144908 ACCESSION NUMBER: 0000891618-02-002656 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20020531 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PACIFIC AEROSPACE & ELECTRONICS INC CENTRAL INDEX KEY: 0000790023 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 911744587 STATE OF INCORPORATION: WA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-47828 FILM NUMBER: 02667736 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 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MW POST ADVISORY GROUP LLC CENTRAL INDEX KEY: 0001170789 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 11766 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90025 BUSINESS PHONE: 3109969622 MAIL ADDRESS: STREET 1: 11766 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90025 SC 13D 1 f82067mwsc13d.txt SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 Pacific Aerospace & Electronics, Inc. - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock, $0.001 par value per share - -------------------------------------------------------------------------------- (Title of Class of Securities) 693758104 - -------------------------------------------------------------------------------- (CUSIP Number) M.W. Post Advisory Group, L.L.C. 11766 Wilshire Boulevard, Suite 1660 Los Angeles, California 90025 (310) 996-9600 Attention: Carl Goldsmith - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) March 19, 2002 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box [ ]. NOTE: Schedules filed in paper format shall include a signed original and five copies of the Schedule, including all exhibits. See Section 240.13d-7 for other parties to whom copies are to be sent. The information required on this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Exchange Act (however, see the Notes). (Continued on following pages) Page 1 of 21 Pages SCHEDULE 13D - --------------------- -------------------- CUSIP No. 693758104 Page 2 of 21 Pages - --------------------- -------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON M.W. Post Advisory Group, L.L.C. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [X] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS OO - -------------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER NUMBER OF 0 SHARES -------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 4,161,126,746* EACH -------------------------------------------------------- REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 0 -------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 1,323,486,097 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 4,161,126,746* - -------------------------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 83.95%* - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON OO - -------------------------------------------------------------------------------- * Due to M.W. Post Advisory Group, L.L.C.'s participation in the negotiations relating to the Exchange (as defined herein) and pursuant to the Voting Agreement (as defined herein), M.W. Post Advisory Group, L.L.C. may be deemed to have been a member of the 13D Group (as defined herein) and therefore may be deemed to have had shared voting power over an aggregate of 2,837,640,649 shares held by the Other Holders (as defined herein) (including 192,984,266 shares held by the William E. Simon Group Members (as defined herein)). Notwithstanding the foregoing, pursuant to the subsequent Amendment (as defined herein), such entity disclaims beneficial ownership of the shares held by the William E. Simon Group Members and claims beneficial ownership only with respect to 3,968,142,480 shares or 80.06% over which it and the GSC Group Members (as defined herein) have shared voting power and then only to the extent such beneficial ownership may arise as a result of the negotiation of the Exchange and entering into the Voting Agreement. Page 2 of 21 Pages This Schedule 13D is being filed pursuant to Rule 13d-1(a)(1) of Regulation 13D-G of the General Rules and Regulations under the Exchange Act, on behalf of M.W. Post Advisory Group, L.L.C. (the "Reporting Person") to report its beneficial ownership of greater than five percent (5%) of the Common Stock (as defined below) of Pacific Aerospace & Electronics, Inc. (the "Issuer") as a result of the acquisition by investment advisory clients of M.W. Post Advisory Group, L.L.C. on March 19, 2002 of an aggregate of 13,839,559 shares of Common Stock of the Issuer and 271 shares of Series C Voting Convertible Preferred Stock, par value $0.001 per share, of the Issuer (the "Series C Preferred Stock") that are convertible into shares of Common Stock of the Issuer. GSC Recovery II, L.P.; GSC Recovery II GP, L.P.; GSC RII, L.L.C., GSCP (NJ) Holdings, L.P.; GSCP (NJ), Inc.; GSCP Recovery, Inc.; Greenwich Street Capital Partners II, L.P.; GSCP Offshore Fund, L.P.; Greenwich Street Employees Fund, L.P.; Greenwich Fund, L.P.; TRV Executive Fund, L.P.; Greenwich Street Investments II, L.L.C.; GSCP (NJ), L.P.; Keith W. Abell; Alfred C. Eckert III; Robert A. Hamwee; Richard M. Hayden; Thomas V. Inglesby; Matthew C. Kaufman; Sanjay H. Patel and Christine K. Vanden Beukel (the "GSC Group Members") and William E. Simon & Sons Special Situation Partners II, L.P.; William E. Simon & Sons Special Situations II, L.L.C.; and WESKIDS III, LLC (the "William E. Simon Group Members" and together with the GSC Group Members, the "Other Holders") concurrently have acquired an aggregate of 29,672,928 shares of Common Stock and 581 shares of Series C Preferred Stock that are convertible into shares of Common Stock of the Issuer. Pursuant to an Exchange Agreement dated March 19, 2002 (the "Exchange Agreement"), the Reporting Person and the Other Holders have entered into an agreement regarding, among other things, the manner in which their shares will be voted as to the election of members of the Board of Directors of the Issuer (the "Voting Agreement"). As a result of the Voting Agreement and the participation by the Reporting Person and the Other Holders in the negotiation of the Exchange (as defined below), the Reporting Person and the Other Holders may be deemed to have been a group (the "13D Group") for purposes of Rule 13d-5(b)(1) under the Exchange Act. Accordingly, the 13D Group may be deemed to have been the beneficial owner of the shares of Common Stock and Series C Preferred Stock owned by each member of the 13D Group and each member of the 13D Group may be deemed to have shared beneficial ownership of the shares of Common Stock and Series C Preferred Stock owned by each other member of the 13D Group. Subsequent to the execution of the Exchange Agreement, the Reporting Person and the Other Holders entered into the Amendment to Exchange Agreement dated as of March 19, 2002 (the "Amendment"), whereby the parties to the Amendment agreed that the William E. Simon Group Members would not be a party to the Voting Agreement. As a result of the Amendment, as of the date hereof, the Reporting Person disclaims beneficial ownership of the shares of Common Stock and Series C Preferred Stock of each William E. Simon Group Member and claims beneficial ownership only with respect to the shares of Common Stock and Series C Preferred Stock over which it and the GSC Group Members have shared voting power and then only to the extent such beneficial ownership may arise as a result of the negotiation of the Exchange (as defined below) and entering into the Voting Agreement. Page 3 of 21 Pages ITEM 1. SECURITY AND ISSUER. This Statement on Schedule 13D (the "Schedule 13D") relates to the common stock, par value $0.001 per share (the "Common Stock"), of Pacific Aerospace & Electronics, Inc., a Washington corporation. The Issuer's principal executive offices are located at 430 Olds Station Road, Wenatchee, Washington 98801. ITEM 2. IDENTITY AND BACKGROUND. (a) See Cover Page, Item 1. Other members of the 13D Group, which are filing separately pursuant to Rule 13d-1(k)(2) under the Exchange Act, are the GSC Group Members and the William E. Simon Group Members. (b) The business addresses of the Reporting Person is as follows: M.W. Post Advisory Group, L.L.C. 11766 Wilshire Boulevard, Suite 1660 Los Angeles, California 90025 (c) The principal business or occupation of the Reporting Person is as follows: M.W. Post Advisory Group, L.L.C. is an investment advisor registered under Section 203 of the Investment Advisors Act of 1940. (d) and (e) During the past five (5) years, the Reporting Person has not been (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to United States federal or state securities laws or finding any violation with respect to such laws. (f) See Cover Page, Item 6. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATIONS. The consideration for the acquisition of the shares of Common Stock and Series C Preferred Stock by investment advisory clients of M.W. Post Advisory Group, L.L.C. was the exchange of 11 1/4% senior subordinated notes due 2005 of the Issuer (the "Notes"), including accrued interest, held by such persons, as more fully described in the next paragraph. On August 1, 2001, the Issuer failed to make its interest payment on the Notes and was unable to subsequently cure the payment default within the 30-day grace period provided in the indenture governing the Notes. On September 1, 2001, the Issuer Page 4 of 21 Pages was in payment default under its Notes, and was therefore also in default under the terms of its Senior Debt (as defined below). On January 11, 2002, the Issuer and holders of approximately 98% (the "Participating Noteholders") of the outstanding Notes entered into an amended lock-up agreement (the "Amended Lock-Up Agreement"), pursuant to which the Issuer and the Participating Noteholders agreed to restructure the Issuer's debt and equity (the "Transaction"). The Amended Lock-Up Agreement amended and replaced in full lock-up agreements that were originally entered into by the Issuer and the Participating Noteholders on September 7, 2001 and October 19, 2001. The Participating Noteholders exchanged their outstanding Notes, including accrued interest, for a combination of Common Stock, Series C Preferred Stock and new notes on March 19, 2002 (the "Exchange"), as more fully described in Item 6 below. ITEM 4. PURPOSE OF TRANSACTION. The Reporting Person acquired the shares of Common Stock and Series C Preferred Stock pursuant to the Exchange. As of the date of this Schedule 13D, the Reporting Person has no plans or proposals which relate to or would result in any of the actions set forth in parts (a) through (j) of Item 4 as set forth below, except as disclosed herein and except that the Reporting Person or its affiliates may, from time to time or at any time, subject to market conditions and other factors, purchase additional shares of Common Stock or Series C Preferred Stock in the open market, in privately negotiated transactions or otherwise, or sell at any time all or a portion of the shares of Common Stock or Series C Preferred Stock now owned or hereafter acquired by them to one or more purchasers. Immediately following the consummation of the Exchange, it is contemplated that the Issuer will effect a reverse stock split. The final terms of such reverse stock split have not been determined as yet. Shareholder approval of the reverse stock split will be solicited pursuant to a proxy statement to be filed with the Securities and Exchange Commission (the "SEC") and mailed to the shareholders of the Issuer. Pursuant to the Voting Agreement, the Participating Noteholders agreed to vote their shares in favor of the reverse stock split. The affirmative vote of such shares assures the vote required to approve the reverse stock split. Item 4. Purpose of Transaction State the purpose or purposes of the acquisition of securities of the issuer. Describe any plans or proposals which the reporting persons may have which relate to or would result in: a. The acquisition by any person of additional securities of the issuer, or the disposition of securities of the issuer; b. An extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the issuer or any of its subsidiaries; c. A sale or transfer of a material amount of assets of the issuer or any of its subsidiaries; Page 5 of 21 Pages d. Any change in the present board of directors or management of the issuer, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board; e. Any material change in the present capitalization or dividend policy of the issuer; f. Any other material change in the issuer's business or corporate structure including but not limited to, if the issuer is a registered closed-end investment company, any plans or proposals to make any changes in its investment policy for which a vote is required by Section 13 of the Investment Company Act of 1940; g. Changes in the issuer's charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the issuer by any person; h. Causing a class of securities of the issuer to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; i. A class of equity securities of the issuer becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Act; or j. Any action similar to any of those enumerated above. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) See Cover Page 2, Items 11 and 13. Investment advisory clients of M.W. Post Advisory Group, L.L.C. are the direct beneficial owners of 13,839,559 shares of Common Stock and 271 shares of Series C Preferred Stock (which may be converted into 1,309,646,538 shares of Common Stock). M.W. Post Advisory Group, L.L.C. may be deemed the beneficial owner of such shares. In addition, as a result of the negotiation of the Exchange and entering into the Voting Agreement, it may be deemed to have been the beneficial owner of 29,672,928 shares of Common Stock and 581 shares of Series C Preferred Stock (which may be converted into 2,807,967,721 shares of Common Stock) beneficially owned by the other members of the 13D Group (including 2,018,017 shares of Common Stock and 40 shares of Series C Preferred Stock (which may be converted into 190,966,249 shares of Common Stock) beneficially owned by the William E. Simon Group Members (the "William E. Simon Shares")). Therefore, in the aggregate, it may be deemed to be the beneficial owner of 43,512,487 shares of Common Stock and 852 shares of Series C Preferred Stock (which may be converted into 4,117,614,259 shares of Common Stock) (the "13D Group Shares"). Notwithstanding the foregoing, as a result of the Amendment, the Reporting Person disclaims beneficial ownership of the William E. Simon Shares and claims beneficial ownership only with respect to the shares of Common Stock and Series C Preferred Stock over which it and the GSC Group Members have shared voting power and then only to the extent such beneficial ownership may arise as a result of the negotiation of the Exchange and entering into the Voting Agreement. The aggregate percentage of shares of Common Stock and Series C Preferred Stock reported in Item 13 of the Cover Page is based upon the 90,734,386 shares Page 6 of 21 Pages of Common Stock outstanding as of April 5, 2002, as reported in the Issuer's 10-Q Quarterly Report relating to the quarter ended February 28, 2002, and 1,000 shares of Series C Preferred Stock (which may be converted into 4,865,820,023 shares of Common Stock) outstanding as of March 19, 2002, as reported to the Reporting Person by the Issuer. For purposes of calculating the aggregate percentage of shares of Common Stock, the Reporting Person has assumed the conversion of all outstanding shares of Series C Preferred Stock. GSC Recovery II, L.P. has represented to the Reporting Person that it is the direct beneficial owner of 8,072,070 shares of Common Stock and 158 shares of Series C Preferred Stock (which may be converted into 763,902,730 shares of Common Stock). GSP Recovery, Inc. has represented to the Reporting Person that it is the direct beneficial owner of 19,582,841 shares of Common Stock and 383 shares of Series C Preferred Stock (which may be converted into 1,853,098,742 shares of Common Stock). Each of the GSC Group Members may be deemed to have been the indirect beneficial owner of the 13D Group Shares. Notwithstanding the foregoing, as a result of the Amendment, each of the GSC Group Members has disclaimed beneficial ownership of the William E. Simon Shares and has claimed beneficial ownership only with respect to the shares of Common Stock, and Series C Preferred Stock over which it, the other GSC Group Members and the Reporting Person have shared voting power and then only to the extent such beneficial ownership may arise as a result of the negotiation of the Exchange and entering into the Voting Agreement. William E. Simon & Sons Special Situation Partners II, L.P. has represented to the Reporting Person that it is the direct beneficial owner of 2,018,017 shares of Common Stock and 40 shares of Series C Preferred Stock (which may be converted into 190,966,249 shares of Common Stock). Each of the William E. Simon Group Members may be deemed to have been the indirect beneficial owner of the 13D Group Shares. Notwithstanding the foregoing, as a result of the Amendment, each of the William E. Simon Group Members has disclaimed beneficial ownership of the 13D Group Shares other than the William E. Simon Shares. The Reporting Person disclaims beneficial ownership of the Common Stock and Series C Preferred Stock beneficially owned by the Other Holders, except to the extent that such beneficial ownership may have arisen as a result of the negotiation of the Exchange and entering into the Voting Agreement. (b) See Cover Page, Items 7 through 10. As a result of the Voting Agreement, the Reporting Person may be deemed to have shared the power to vote, but not the dispositive power, over the shares of Series C Preferred Stock and Common Stock with each other member of the 13D Group. As a result of the Amendment, the Reporting Person no longer shares the power to vote the William E. Simon Shares. (c) Except as described in Items 4 and 6, the Reporting Person has not, during the past 60 days, engaged in any transactions in the Series C Preferred Stock or the Common Stock. Page 7 of 21 Pages (d) Not applicable. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. EXCHANGE AGREEMENT The Exchange was consummated pursuant to the Exchange Agreement whereby the Participating Noteholders exchanged approximately $62.5 million aggregate principal amount of Notes, and accrued interest thereon, for: (i) shares of Common Stock of the Issuer in an amount sufficient to give the Participating Noteholders a majority of the outstanding Common Stock of the Issuer; (ii) 1,000 shares of Series C Preferred Stock of the Issuer, which will be automatically convertible, upon an increase in the Issuer's authorized Common Stock, into that number of shares of Common Stock which, when added to the Common Stock issued in the Exchange, will be sufficient to give the Participating Noteholders beneficial ownership of 95.52% of the Issuer's outstanding Common Stock, on a fully-diluted basis, upon completion of the Transaction; and (iii) $15 million in aggregate principal amount of new 10% senior subordinated pay-in-kind notes due 2007 (the "PIK Notes"). Upon consummation of the Transaction, the Participating Noteholders will beneficially own approximately 95.52% of the outstanding shares of Common Stock of the Issuer on a fully-diluted basis, as well as the PIK Notes. The Series C Preferred Stock to be received by all holders participating in the Exchange will be automatically converted (the "Automatic Conversion") into that number of shares of Common Stock of the Issuer which, when added to the shares of Common Stock distributed in the Exchange, will equal approximately 97.5% of the outstanding shares of Common Stock of the Issuer on a fully-diluted basis. The Automatic Conversion of the Series C Preferred Stock into Common Stock will take place immediately following shareholder approval of an increase in the number of authorized shares of Common Stock to at least 6,000,000,000 shares. Such shareholder approval will be solicited pursuant to a proxy statement to be filed with the SEC and mailed to the shareholders of the Issuer. Pursuant to the Voting Agreement, the Participating Noteholders agreed to vote their shares in favor of such increase. The affirmative vote of such shares assures the vote required to approve such increase in the authorized shares of Common Stock. Until the Automatic Conversion occurs, the Series C Preferred Stock has an aggregate liquidation preference equal to $45 million and has a cumulative dividend rate of 10% per annum, which will automatically increase to 14% per annum if the Automatic Conversion has not occurred on or before June 1, 2002. The Series C Preferred Stock ranks senior to all other classes of capital stock of the Issuer as to liquidation and distributions. In addition, the Series C Preferred Stock is entitled to vote with the Common Stock on all matters brought before the Common Stock for approval and is entitled to that number of votes equal to the number of shares of Common Stock into which the Series C Preferred Stock would be convertible upon the Automatic Conversion as set forth in the Certificate of Designations (as defined below) (without requiring such conversion). Page 8 of 21 Pages Pursuant to the Exchange Agreement, for so long as the holders who executed the Exchange Agreement own securities having, in the aggregate, at least 33.3% of the outstanding voting power of the Issuer, the Reporting Person, the Other Holders, the Chief Executive Officer and Chief Operating Officer of the Issuer agreed to vote or cause to be voted the shares of capital stock of the Issuer held by such person (1) in favor of approving the amendment to the Issuer's Articles of Incorporation to increase the authorized number of shares of Common Stock to effect the Automatic Conversion and (2) to cause the Board of Directors of the Issuer to consist of (i) three persons nominated by GSCP Recovery, Inc. and GSC Recovery II, L.P. or their affiliates, (ii) one person nominated by M.W. Post Advisory Group, L.L.C. or its affiliates and (iii) the Chief Executive Officer of the Issuer. Additionally, such parties agreed that if any Participating Noteholder's nominee listed in (2) above ceases to serve as a director of the Issuer for any reason during his or her term, a nominee for the vacancy resulting therefrom will be designated by the Participating Noteholder or Participating Noteholders that nominated such director. Such parties also agreed that for so long as the holders who executed the Exchange Agreement own securities having, in the aggregate, at least 33.3% of the outstanding voting power of the Issuer, if any Participating Noteholder or Participating Noteholders that nominated any nominee pursuant to (2) above shall notify the Issuer in writing of its desire to have removed from the Board of Directors, with or without cause, a nominee, each Participating Noteholder will, if necessary, subject to all applicable requirements of law, use its respective best efforts to take or cause to be taken all such action as may be required to remove such nominee from the Board of Directors. Pursuant to the Amendment, the holders who executed the Exchange Agreement agreed that the William E. Simon Group Members would no longer be subject to the voting provisions described above. As of the closing of the Exchange, the Board of Directors consisted of Messrs. Robert A. Hamwee, Matthew Kaufman and Richard Detweiler, nominated by GSCP Recovery, Inc. and GSC Recovery II, L.P. or their affiliates, Carl Goldsmith, nominated by M.W. Post Advisory Group, L.L.C. or its affiliates, and Donald A. Wright, the Issuer's Chief Executive Officer. Pursuant to the Exchange Agreement, the Participating Noteholders are entitled to certain demand, shelf and piggyback registration rights with respect to (1) the shares of Common Stock, (2) the shares of Common Stock into which the Series C Preferred Stock is convertible and (3) the PIK Notes. The Issuer has agreed in the Exchange Agreement that it shall within 5 business days following its receipt of an unqualified audit report on its 2001 financial statements, (i) prepare and file with the SEC a registration statement pursuant to which the holders may resell from time to time any and all securities received in the Exchange or upon the Automatic Conversion (the "Resale Registration Statement") and (ii) use its best efforts to have the Resale Registration Statement declared effective by the SEC as promptly as practicable following the filing thereof. The description contained in this Item 6 of the Exchange Agreement is qualified in its entirety by reference to the full text of the Exchange Agreement which is incorporated by reference herein and included as Exhibits 1 and 2 hereto. Page 9 of 21 Pages PIK NOTES INDENTURE The PIK Notes were issued pursuant to an Indenture dated March 19, 2002 between the Issuer, the Guarantors (as defined therein) and the Bank of New York, as Trustee (the "Indenture"). The PIK Notes bear interest at a rate of 10% per annum, which, if the Automatic Conversion has not occurred on or before June 1, 2002, will increase to 14% per annum until the Automatic Conversion occurs. Interest on the PIK Notes is payable semi-annually in additional PIK Notes. The Issuer's U.S. subsidiaries named in the Indenture executed a Subsidiary Guarantee, unconditionally guaranteeing the principal of, and premium, if any, and interest on the PIK Notes in accordance with the provisions of the Indenture. The PIK Notes are unsecured senior subordinated obligations of the Issuer and its U.S. subsidiaries. The PIK Notes mature in November 2007, but the Issuer may redeem the PIK Notes in full or in part at any time prior to the maturity date without penalty. Additionally, after the Issuer has indefeasibly repaid in full or otherwise fully discharged all of the obligations in respect of Senior Indebtedness (as defined in the Indenture), then upon the occurrence of a Change of Control (as defined in the Indenture), each holder of PIK Notes shall have the right, at such holder's option, pursuant to an offer by the Issuer (the "Change of Control Offer"), to require the Issuer to repurchase all or any part of such holder's PIK Notes (provided, that the principal amount of such PIK Notes must be $1,000 or an integral multiple thereof) on a date (the "Change of Control Purchase Date") that is no later than 35 Business Days after the occurrence of such Change of Control at a cash price equal to 101% of the principal amount thereof, together with accrued and unpaid interest to the Change of Control Purchase Date. The Indenture contains covenants of the Issuer, including, without limitation, a limitation on Restricted Payments (as defined in the Indenture), a limitation on liens securing indebtedness, a limitation on dividends and other payment restrictions affecting subsidiaries, and limitations on transactions with Affiliates (as defined in the Indenture). The Indenture defines an "Event of Default" to include, among other things, (1) the failure by the Issuer to pay any installment of interest on the PIK Notes as and when the same becomes due and payable and the continuance of any such failure for 30 days, (2) the failure by the Issuer to pay all or any part of the principal, or premium, if any, on the PIK Notes when and as the same becomes due and payable at maturity, redemption, by acceleration or otherwise, including, without limitation, payment of the Change of Control Purchase Price (as defined in the Indenture) or otherwise, (3) the failure by the Issuer or any Subsidiary (as defined in the Indenture) of the Issuer to observe or perform any other covenant or agreement contained in the PIK Notes or the Indenture and, the continuance of such failure for a period of 30 days after written notice, (4) specified events of bankruptcy, insolvency or reorganization under applicable bankruptcy laws in respect of the Issuer or any of its Significant Subsidiaries (as defined in the Indenture), (5) a default in any issue of Indebtedness (as defined in the Indenture) of the Issuer or any of its Subsidiaries with an aggregate principal amount in excess of $5.0 million (a) resulting from any payment default or (b) as a result of which the maturity of such Indebtedness has been accelerated Page 10 of 21 Pages prior to its stated maturity, and (6) final unsatisfied judgments not covered by insurance aggregating in excess of $5.0 million, at any one time rendered against the Issuer or any of its Subsidiaries and not stayed, bonded or discharged within 60 days. Except as set forth in the Indenture, if an Event of Default occurs and is continuing, then in every such case (other than as specified in the Indenture), unless the principal of all of the PIK Notes shall have already become due and payable, either the Trustee (as defined in the Indenture) or the holders of at least 33.3% in aggregate principal amount of the PIK Notes then outstanding, by notice in writing to the Issuer, may declare all principal and accrued interest thereon to be due and payable immediately. The description contained in this Item 6 of the Indenture and the Subsidiary Guarantees are qualified in their entirety by reference to the full text of the Indenture and Subsidiary Guarantees which are incorporated by reference herein and included as Exhibits 5 and 7, respectively, hereto. DESIGNATION OF RIGHTS AND PREFERENCES OF SERIES C PREFERRED STOCK Following are a summary of certain terms of the Series C Preferred Stock. This summary is not complete and is qualified in its entirety by reference to the Designation of Rights and Preferences of Series C Voting Convertible Preferred Stock of Pacific Aerospace & Electronics, Inc. (the "Certificate of Designations"), which is included hereto as Exhibit 3 and which is hereby incorporated herein by reference. Dividends. Except as set forth in the Certificate of Designations, the Series C Preferred Stock shall be entitled to receive, out of any funds and assets of the Issuer legally available therefor, cumulative preferential dividends accruing at the rate of ten percent (10%) of the Liquidation Preference (as defined below) thereof per share per annum (the "Dividend Rate"), payable only in shares of Series C Preferred Stock (in lieu of cash) (valued for this purpose at the Liquidation Preference). Such cumulative preferential dividends shall be payable prior and in preference to the payment of any dividend or other distribution on all other classes or series of capital stock of the Issuer, including, without limitation, the Issuer's Common Stock. In the event that the date of the Automatic Conversion is not on or prior to June 1, 2002, such Dividend Rate will increase, from and after June 1, 2002, to the rate of fourteen percent (14%) of the Liquidation Preference per share per annum. Liquidation, Dissolution or Winding Up. In the event of any liquidation, dissolution, or winding up of the Issuer, whether voluntary or involuntary, the holders of Series C Preferred Stock shall be entitled to be paid, before any sums are paid or any assets distributed among the holders of the shares of the Common Stock or any other junior series or class of preferred stock, out of the assets of the Issuer available for distribution to holders of the Issuer's capital stock, an amount (the "Liquidation Preference") equal to the greater of (i) forty five thousand dollars ($45,000) (plus any declared but unpaid dividends) per share of Series C Preferred Stock (which amount shall be subject to proportionate adjustment on any stock split, combination, reclassification, or other similar event involving the Series C Preferred Stock) or (ii) the amount the holders of the Series C Preferred Stock would be entitled to receive as if all of the Series C Preferred Stock were Page 11 of 21 Pages converted into that number of shares of Common Stock contemplated to be received by the holders upon the Automatic Conversion of Series C Preferred Stock as set forth below (without requiring such conversion) immediately before such liquidation, dissolution or winding up of the Issuer. If the assets of the Issuer are insufficient to permit payment in full to the holders of Series C Preferred Stock as provided above, then the entire assets of the Issuer available for such distribution shall be distributed ratably among the holders of Series C Preferred Stock. After payment is made in full to the holders of Series C Preferred Stock, or funds needed for such payments shall have been set aside by the Issuer in trust for the account of holders of Series C Preferred Stock so as to be available for such payments, all remaining assets available for distribution to shareholders shall be distributed ratably solely among holders of shares of other classes of capital stock. Consolidations, Mergers and Sales of Assets. At least 20 days before the consolidation or merger of the Issuer into or with another entity as a result of which the holders of more than 50% of the shares of Common Stock receive cash, securities of another entity, or other property in exchange for their shares, or a sale of all or substantially all of the assets of the Issuer, the Issuer shall notify the holders of Series C Preferred Stock thereof in writing, and the closing of such event shall be regarded as a liquidation, dissolution, or winding up of the affairs of the Issuer as provided above; provided, however, that for 20 days after the date of such notice, each holder of Series C Preferred Stock shall have the right, exercisable by written notice to the Issuer, to elect the benefits described in the succeeding sentence in lieu of receiving payment in liquidation, dissolution, or winding up of the Issuer. As part of any consolidation, merger, or sale of assets, provision shall be made so that each holder of Series C Preferred Stock shall be entitled to elect to receive in such transaction for or in respect of the Series C Preferred Stock held by such holder, the number of shares of stock or other securities or property to which such holder would have been entitled if such holder had converted its shares of Series C Preferred Stock into the number of shares of the Issuer's Common Stock contemplated to be received pursuant to the conversion provisions of the Certificate of Designations (without requiring such conversion) immediately before the closing of such consolidation, merger, or sale of assets. Conversion Rights. On the date (the "Automatic Conversion Date") upon which an amendment to the Issuer's Articles of Incorporation increasing the number of authorized shares of Common Stock of the Issuer to at least 6,000,000,000 shares becomes effective, each share of then-unconverted Series C Preferred Stock shall automatically convert into fully paid and nonassessable shares of Common Stock at a conversion price (the "Automatic Conversion Price") equal to $.008900664 without any action on the part of the holder by dividing the Liquidation Preference by the Automatic Conversion Price then in effect, and whether or not the certificates representing such shares are surrendered to the Issuer or its transfer agent; provided, however, that in the event the Series C Preferred Stock converts into a number of shares of Common Stock which in the aggregate, when added to the number of shares of Common Stock issued pursuant to the Exchange (in an amount of approximately 51,419,101 shares) (the "Exchange Shares"), would exceed 97.5% of the shares of the Issuer's Common Stock on a fully-diluted basis, "as converted" basis, the Automatic Conversion Price shall be re-adjusted so that the aggregate number of shares of Common Stock issuable upon the Automatic Conversion shall equal in the Page 12 of 21 Pages aggregate, when added to the Exchange Shares, 97.5% of the Issuer's Common Stock on a fully-diluted, "as converted" basis. The Automatic Conversion Price shall be adjusted from time to time in accordance with and subject to the provisions set forth in the Certificate of Designations. Redemption. The Issuer shall not be entitled to redeem or retire all or any part of the Series C Preferred Stock without the consent or affirmative vote of the holder of record of each share to be redeemed or retired. General Voting Rights. The Series C Preferred Stock shall vote with the Issuer's Common Stock, together as a class, on all matters on which the Common Stock is entitled to vote and each share of Series C Preferred Stock shall have that number of votes equal to the number of shares of Common Stock into which such share of Series C Preferred Stock would be convertible upon the Automatic Conversion as set forth in the Certificate of Designations (without requiring such conversion). Class Voting Rights. The Series C Preferred Stock shall not be entitled to vote separately as a class except as otherwise provided in the Certificate of Designations or required by Washington law. In the event voting as a separate voting group by the holders of the Series C Preferred Stock is expressly required by Washington law, any vote by the holders of Series C Preferred Stock as a separate voting group shall be effective if approved by a majority of the outstanding shares of Series C Preferred Stock at a meeting or by written consent. Required Approval by Holders of Series C Preferred Stock. At any time when there are outstanding any shares of Series C Preferred Stock, except where the vote or written consent of the holders of a greater number of shares is required by law or by the Articles of Incorporation of the Issuer, and in addition to any other vote required by law or the Articles of Incorporation, without the approval of the holders of two-thirds of the then outstanding shares of Series C Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case maybe) separately as a series, the Issuer will not: (1) amend or modify the Certificate of Designations; (2) authorize or issue, or increase the authorized amount of, any class or series of capital stock of the Issuer ranking on a parity or superior to the Series C Preferred Stock as to dividends or upon liquidation, dissolution or winding up; (3) repeal, amend, restate or otherwise modify any provision of the Issuer's Articles of Incorporation, excluding, however, the creation, authorization, issuance and/or increase of any class or series of capital stock of the Issuer that ranks junior to the Series C Preferred Stock as to dividends and upon liquidation, dissolution or winding up; (4) consent to (i) the acquisition of the Issuer by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) in which a majority of the outstanding capital stock of the Issuer or surviving entity is held by persons who were not stockholders of the Issuer prior to such transaction(s), or (ii) the sale of all or substantially all of the assets of the Issuer; (5) consent to the liquidation, dissolution or winding up of the Issuer; (6) purchase or set aside any sums for the purchase of any shares of stock; (7) change the authorized number of directors of the Issuer from five (5); or (8) agree to do any of the foregoing. Page 13 of 21 Pages Voting for Directors. The holders of the Series C Preferred Stock then outstanding shall be entitled, voting together as a class, to elect all five (5) directors of the Issuer at each election of directors. Pursuant to this provision, Messrs. Robert A. Hamwee, Matthew Kaufman, Carl Goldsmith, Richard Detweiler and Donald A. Wright are currently serving on the Board of Directors. CONVERSION ADJUSTMENT AGREEMENT Pursuant to the Conversion Adjustment Agreement dated March 19, 2002 by and among the Issuer and the Holders named therein (the "Conversion Adjustment Agreement"), the Holders and the Issuer have agreed that due to the distribution of the securities issued in the Exchange via the book-entry system of The Depository Trust Company ("DTC") and the effects of rounding down to the nearest whole share, there shall be a conversion adjustment to the number of shares of Common Stock to be received by each Holder upon an Automatic Conversion. Pursuant to the Conversion Adjustment Agreement, notwithstanding the provisions set forth in the Certificate of Designations or the number of shares of shares of Series C Preferred Stock received by each Holder in the Exchange, the Automatic Conversion shall be calculated on a pro-rata basis as determined by the aggregate principal amount of Notes tendered by such Holder in relation to the aggregate principal amount of Notes tendered by all of the Holders in the Exchange, the aggregate principal amount of which shall be $63,700,000. This adjustment is designed solely to effect the true economic transaction agreed to between the Issuer and the Holders and to resolve any disproportionate distributions of the Series C Preferred Stock that would otherwise arise as a result of the rounding down of shares in DTC's book-entry system. The description contained in this Item 6 of the Conversion Adjustment Agreement is qualified in its entirety by reference to the full text of the Conversion Adjustment Agreement which is incorporated by reference herein and included as Exhibit 13 hereto. NEW SENIOR NOTES The Issuer repaid its outstanding senior secured debt (the "Senior Debt") for which DDJ Capital Management acted as agent on behalf of the lenders on March 19, 2002 with the approximately $22.0 million of gross proceeds from the sale of new Senior Secured Notes (the "New Senior Notes"). GSC Recovery II, L.P.; GSC Recovery IIA, L.P.; GSC Partners CDO Fund, Limited and GSC Partners CDO Fund II, Limited, each an affiliate of the GSC Group Members, purchased the New Senior Notes from Jefferies & Company, Inc., as initial purchaser pursuant to the Note Purchase Agreement dated March 19, 2002 (the "Note Purchase Agreement") and pursuant to Rule 144A under the Securities Act of 1933, as amended. The Issuer utilized the proceeds from the sale of the New Senior Notes to repay the Senior Debt, for working capital, to pay certain fees and expenses of the Issuer's restructuring and for general corporate purposes. The New Senior Notes were issued in $36.0 million aggregate principal amount and bear interest at a rate of 5.0% per annum. Interest on the New Senior Notes is be payable semi-annually in cash. The Issuer's U.S. subsidiaries named in the Note Purchase Agreement executed a Subsidiary Guaranty, unconditionally guaranteeing the principal of, and premium, if any, and interest on the New Page 14 of 21 Pages Senior Notes in accordance with the provisions of the Note Purchase Agreement. The New Senior Notes mature on May 1, 2007, but the Issuer may redeem the New Senior Notes in full or in part at any time prior to the maturity date at a premium over the principal amount of the New Senior Notes that declines over time. The Issuer shall, within ninety (90) days of any Change of Control (as defined in the Note Purchase Agreement), give written notice of such Change of Control to the holders of the New Senior Notes continuing and constituting an offer (the "Change of Control Offer") to repurchase all or, at the option of any holder, part (equal to $1,000,000 or an integral multiple thereof) of the Outstanding Accreted Principal Amount of the Notes (as defined in the Note Purchase Agreement) held by such holder. The offer price in any Change of Control Offer will be equal to a specified percentage of the Accreted Principal Amount of the Notes, together with accrued and unpaid interest to the date of repurchase. The percentage ranges from 104% to 100% depending upon when the Change of Control Offer occurs. As soon as practicable after the end of each fiscal year of the Issuer, and in any event no later than August 31 of each year, the Issuer shall make an offer to all Holders to purchase the maximum outstanding Accreted Principal Amount of Notes that may be purchased with 100% of the Excess Cash Flow of the Issuer (as defined in the Note Purchase Agreement) for the immediately preceding fiscal year (each such offer, an "Excess Cash Flow Offer"). The offer price in any Excess Cash Flow Offer will be equal to the Accreted Principal Amount of the Notes a premium ranging from 104% to 100% depending upon when the Excess Cash Flow Offer occurs, together with accrued and unpaid interest to the date of repurchase, and will be payable in cash. EVENTS OF DEFAULT The Note Purchase Agreement defines an "Event of Default" to include, among other things, (1) failure of the Issuer to pay any principal or Offer Payment (as defined in the Note Purchase Agreement), if any, on any New Senior Note when due, whether at stated maturity or at a date fixed for payment, prepayment, by an acceptance of an Offer (as defined in the Note Purchase Agreement), by acceleration or otherwise, (2) failure of the Issuer to pay any other Obligation (as defined in the Note Purchase Agreement), when due, whether at stated maturity, or at a date fixed for payment, prepayment, by an acceptance of an Offer by acceleration or otherwise and such failure shall continue for a period of five (5) days, (3) (i) failure of the Issuer to perform, comply with or observe any term, covenant or agreement applicable to it contained in Section 9 of the Note Purchase Agreement; or (ii) failure of the Issuer or any of its Subsidiaries (as defined in the Note Purchase Agreement) to perform, comply with or observe any other term, covenant or agreement applicable to it in the Note Purchase Agreement (other than a provision covered by subparagraph (i) above) or in any other Operative Agreement (as defined in the Note Purchase Agreement) and the failure shall continue unremedied for five (5) business days after the delivery by the holders of written notice to the Issuer of such failure, (4) any representation or warranty made or deemed made by the Issuer or any of its Subsidiaries in the Note Purchase Agreement, the other Operative Agreements or any other agreement, document, instrument or in any certificate furnished to the holders pursuant to the terms of any thereof shall prove to have been false or misleading as of the time made or furnished in any material respect, (5) the Issuer or any of its Subsidiaries shall commence Page 15 of 21 Pages any case, proceeding or other action relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, (6) the Company or any of its Subsidiaries shall (i) default in any payment of principal of or interest on any Debt (as defined in the Note Purchase Agreement) or in the payment of any Guarantee (as defined in the Note Purchase Agreement) the aggregate principal amount of the series of Debt under which such Debt is issued and the aggregate principal amount of the obligation guaranteed by such Guarantee equals or exceeds $200,000; or (ii) default in the observance or performance of any other agreement or condition relating to any such Debt or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, (7) any covenant, agreement or obligation of any party contained in or evidenced by any Operative Agreement shall cease to be enforceable in accordance with its terms, (8) any of the other Operative Agreements shall cease for any reason to be in full force and effect (other than in accordance with the terms hereof or thereof), (9) any court or other governmental authority shall issue a final judgment, order, decree or ruling for the payment of money, and such judgment is in an amount in excess of $200,000, (10) any security interest or Lien purported to be created by any of the Collateral Documents (as defined in the Note Purchase Agreement) shall cease to be valid and (to the extent required by the Collateral Documents) perfected, and (11) the holders of all or any of the PIK Notes shall accelerate the maturity of all or any the PIK Notes or any of the PIK Notes shall be prepaid, redeemed or repurchased in whole or part. The New Senior Notes are secured by all of the assets of the Issuer and its U.S. subsidiaries and rank senior as to liquidation to all other debt of the Issuer and its U.S. subsidiaries. The New Senior Notes are also secured by the pledge of the stock of the Issuer's non-U.S. subsidiaries. The New Senior Notes contain customary covenants, including without limitation a restriction on the Issuer's ability to incur additional indebtedness. The description contained in this Item 6 of the New Senior Notes is qualified in its entirety by reference to the full text of the Note Purchase Agreement, Subsidiary Guaranty, Security Agreement and Stock Pledge Agreement and which are incorporated by reference herein and included as Exhibits 8, 10, 11 and 12, respectively, hereto. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit No. Description ----------- ----------- 1 Exchange Agreement by and among Pacific Aerospace & Electronics, Inc. (the "Company"), Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc. and certain holders of the Company's 11 1/4% Senior Subordinated
Page 16 of 21 Pages Notes due 2005, dated as of March 19, 2002.* 2 Amendment to Exchange Agreement by and among the Company, Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc. and certain holders of the Company's 11 1/4% Senior Subordinated Notes due 2005, dated as of March 19, 2002. 3 Designation of Rights and Preferences of Series C Voting Convertible Preferred Stock of Pacific Aerospace & Electronics, Inc.* 4 Form of Global Preferred Stock Certificate.* 5 Indenture dated as of March 19, 2002, among Pacific Aerospace & Electronics, Inc., as issuer, Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc., each as guarantors, and U.S. Bank National Association, as trustee.* 6 Global 10% Senior Subordinated Pay-In-Kind Note due 2007.* 7 Subsidiary Guarantee dated March 19, 2002 executed by Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc. in favor of the holders of 10% Senior Subordinated Pay-In-Kind Notes due 2007.* 8 Note Purchase Agreement by and among Pacific Aerospace & Electronics, Inc., the Initial Purchaser and First Union National Bank dated as of March 19, 2002.* 9 5.0% Senior Secured Note due May 1, 2007.* 10 Subsidiary Guaranty Agreement dated March 25, 2002, executed by Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc., and Skagit Engineering & Manufacturing, Inc., in favor of the holders of 5% senior secured notes due 2007 and First Union National Bank, as collateral agent.* 11 Security Agreement dated as of March 25, 2002, by and among Pacific Aerospace & Electronics, Inc., Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc.,
Page 17 of 21 Pages Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc., Skagit Engineering & Manufacturing, Inc., and First Union National Bank, as collateral agent.* 12 Stock Pledge Agreement dated as of March 25, 2002, by and among Pacific Aerospace & Electronics, Inc., PA&E International, Inc. and First Union National Bank, as collateral agent.* 13 Conversion Adjustment Agreement dated as of March 19, 2002, by and among Pacific Aerospace & Electronics, Inc., GSCP Recovery, Inc., GSC Recovery II, L.P., Alliance Capital Management L.P., M.W. Post Advisory Group, L.L.C., William E. Simon Special Situation Partners II, L.P. and HBK Master Fund L.P.*
* Incorporated by reference from the Issuer's filing on Form 8-K filed with the Securities and Exchange Commission on April 3, 2002. Page 18 of 21 Pages SIGNATURE After reasonable inquiry and to the best of our knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: May 31, 2002 M.W. Post Advisory Group, L.L.C. By: /s/ Carl H. Goldsmith ----------------------------- Name: Carl H. Goldsmith Title: Managing Director Page 19 of 21 Pages EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- 1 Exchange Agreement by and among Pacific Aerospace & Electronics, Inc. (the "Company"), Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc. and certain holders of the Company's 11 1/4% Senior Subordinated Notes due 2005, dated as of March 19, 2002.* 2 Amendment to Exchange Agreement by and among Pacific Aerospace & Electronics, Inc. (the "Company"), Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc. and certain holders of the Company's 11 1/4% Senior Subordinated Notes due 2005, dated as of March 19, 2002. 3 Designation of Rights and Preferences of Series C Voting Convertible Preferred Stock of Pacific Aerospace & Electronics, Inc.* 4 Form of Global Preferred Stock Certificate.* 5 Indenture dated as of March 19, 2002, among Pacific Aerospace & Electronics, Inc., as issuer, Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc., each as guarantors, and U.S. Bank National Association, as trustee.* 6 Global 10% Senior Subordinated Pay-In-Kind Note due 2007.* 7 Subsidiary Guarantee dated March 19, 2002 executed by Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc. in favor of the holders of 10% Senior Subordinated Pay-In-Kind Notes due 2007.*
Page 20 of 21 Pages 8 Note Purchase Agreement by and among Pacific Aerospace & Electronics, Inc., the Initial Purchaser and First Union National Bank dated as of March 19, 2002.* 9 5.0% Senior Secured Note due May 1, 2007.* 10 Subsidiary Guaranty Agreement dated March 25, 2002, executed by Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc., and Skagit Engineering & Manufacturing, Inc., in favor of the holders of 5% senior secured notes due 2007 and First Union National Bank, as collateral agent.* 11 Security Agreement dated as of March 25, 2002, by and among Pacific Aerospace & Electronics, Inc., Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc., Skagit Engineering & Manufacturing, Inc., and First Union National Bank, as collateral agent.* 12 Stock Pledge Agreement dated as of March 25, 2002, by and among Pacific Aerospace & Electronics, Inc., PA&E International, Inc. and First Union National Bank, as collateral agent.* 13 Conversion Adjustment Agreement dated as of March 19, 2002, by and among Pacific Aerospace & Electronics, Inc., GSCP Recovery, Inc., GSC Recovery II, L.P., Alliance Capital Management L.P., M.W. Post Advisory Group, L.L.C., William E. Simon Special Situation Partners II, L.P. and HBK Master Fund L.P.*
* Incorporated by reference from the Issuer's filing on Form 8-K filed with the Securities and Exchange Commission on April 3, 2002. Page 21 of 21 Pages EX-2 3 f82067mwexv2.txt EXHIBIT 2 EXHIBIT 2 AMENDMENT TO EXCHANGE AGREEMENT BY AND AMONG PACIFIC AEROSPACE & ELECTRONICS, INC., AEROMET AMERICA, INC., BALO PRECISION PARTS, INC., CASHMERE MANUFACTURING CO., INC., CERAMIC DEVICES, INC., ELECTRONIC SPECIALTY CORPORATION, NORTHWEST TECHNICAL INDUSTRIES, INC., PACIFIC COAST TECHNOLOGIES, INC., PA&E INTERNATIONAL, INC., SEISMIC SAFETY PRODUCTS, INC., SKAGIT ENGINEERING & MANUFACTURING, INC. AND THE HOLDERS OF THE OUTSTANDING 11 1/4% SENIOR SUBORDINATED NOTES DUE 2005 OF PACIFIC AEROSPACE & ELECTRONICS, INC. NAMED IN EXHIBIT A HERETO Dated as of March 19, 2002 THIS AMENDMENT TO EXCHANGE AGREEMENT (this "Amendment") dated as of March 19, 2002 is by and among Pacific Aerospace & Electronics, Inc., a corporation organized under the laws of the State of Washington (the "Company"), Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies, Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit Engineering & Manufacturing, Inc. (collectively, the "Subsidiary Guarantors") and the noteholders named in Exhibit A (the "Holders") of the Company's 11 1/4% Senior Subordinated Notes due 2005 (the "Old Notes") issued pursuant to that certain indenture dated as of July 30, 1998 by and among the Company, the Guarantors (as defined therein) and the Bank of New York (as successor to IBJ Schroeder Bank & Trust Company), as Trustee. Capitalized terms used herein but not defined herein shall have the meanings set forth in the Exchange Agreement (as defined below). WHEREAS, the Company, the Subsidiary Guarantors and the Holders have entered into an Exchange Agreement (the "Exchange Agreement"), dated as of March 19, 2002, pursuant to which the Holders exchanged their Old Notes for certain other securities of the Company, including common stock, convertible preferred stock and pay-in-kind senior subordinated notes, as more particularly described therein; WHEREAS, pursuant to Section 9.10 of the Exchange Agreement, such agreement may not be amended unless such amendment is consented to in writing by all parties thereto; and WHEREAS, the Company, the Subsidiary Guarantors and the Holders wish to amend the Exchange Agreement to remove Alliance Capital Management L.P. and William E. Simon & Sons Special Situation Partners II, L.P. from the voting obligations of Sections 6.5, 6.6 and 6.7 of the Exchange Agreement. NOW, THEREFORE, in consideration of the foregoing recitals and other valuable consideration, and intending to be legally bound hereby, the parties hereto agree as follows: AGREEMENT 1. Amendment. Section 6.8 of the Exchange Agreement is hereby amended and restated in its entirety to read as follows: "6.8. No Voting Obligations - HBK Master Fund L.P., Alliance Capital Management L.P. and William E. Simon & Sons Special Situation Partners II, L.P. Solely for purposes of Sections 6.5, 6.6 and 6.7 above, the term "Holders" shall not include HBK Master Fund L.P., Alliance Capital Management L.P. or William E. Simon & Sons Special Situation Partners II, L.P. and, accordingly, HBK Master Fund L.P., Alliance Capital Management L.P. and William E. Simon 1 & Sons Special Situation Partners II, L.P. shall not be entitled to any of the rights or remedies, nor subject to any of the obligations or restrictions, contemplated in Sections 6.5, 6.6 and 6.7. 2. Miscellaneous. (a) Counterparts. Any number of counterparts of this Amendment may be executed and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute one instrument. (b) Applicable Law. This Amendment shall be governed by the laws of the State of New York applicable to contracts made and to be wholly performed in the State of New York without giving effect to the principles of conflicts of laws thereof. [Signature Page Follows] 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be signed in their respective names by their respective duly authorized representatives, all as of the day and year first above written. PACIFIC AEROSPACE & ELECTRONICS, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Chief Executive Officer and President DONALD A. WRIGHT (solely for purposes of Sections 6.5, 6.6, 6.7 and 6.9 of the Exchange Agreement) /s/ Donald A. Wright ---------------------------------------------- WERNER HAFELFINGER (solely for purposes of Sections 6.5, 6.6 and 6.7 of the Exchange Agreement) /s/ Werner Hafelfinger ---------------------------------------------- AEROMET AMERICA, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President BALO PRECISION PARTS, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President CASHMERE MANUFACTURING CO., INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President CERAMIC DEVICES, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President ELECTRONIC SPECIALTY CORPORATION By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President NORTHWEST TECHNICAL INDUSTRIES, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President PACIFIC COAST TECHNOLOGIES, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President PA&E INTERNATIONAL, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: President SEISMIC SAFETY PRODUCTS, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President SKAGIT ENGINEERING & MANUFACTURING, INC. By: /s/ Donald A. Wright ------------------------------------------ Name: Donald A. Wright Title: Executive Vice President HOLDERS: GSCP RECOVERY, INC. By: /s/ Matthew C. Kaufman ------------------------------------------ Name: Matthew C. Kaufman Title: Managing Director ALLIANCE CAPITAL MANAGEMENT L.P., as investment advisor By: Alliance Capital Management Corp. By: /s/ Michael E. Sohr ------------------------------------------ Name: Michael E. Sohr Title: Vice President M.W. POST ADVISORY GROUP, L.L.C., as investment advisor By: /s/ Carl Goldsmith ------------------------------------------ Name: Carl Goldsmith Title: Managing Director WILLIAM E. SIMON & SONS SPECIAL SITUATION PARTNERS II, L.P. By: /s/ John E. Klinge ------------------------------------------ Name: John E. Klinge Title: Principal HBK MASTER FUND L.P. By: HBK Investments L.P., Investment Manager By: /s/ Kevin O'Neal ------------------------------------------ Name: Kevin O'Neal Title: Authorized Signatory GSC RECOVERY II, L.P. By: GSC Recovery II GP, L.P., its general partner By: GSC RII, LLC, its general partner By: GSCP (NJ) Holdings, L.P., its sole member By: GSCP (NJ), Inc., its general partner By: /s/ Matthew C. Kaufman ------------------------------------------ Name: Matthew C. Kaufman Title: Managing Director Exhibit A HOLDERS GSCP Recovery, Inc. GSC Recovery II, L.P. Alliance Capital Management L.P. M.W. Post Advisory Group, L.L.C. William E. Simon & Sons Special Situation Partners II, L.P. HBK Master Fund L.P. -----END PRIVACY-ENHANCED MESSAGE-----