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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] For the Fiscal Year Ended JUNE 30, 1997 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number: 0-27932
PRAEGITZER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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OREGON 93-0790158
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1270 S.E. Monmouth Cut-Off Road
Dallas, Oregon 97338-9532 (503) 623-9273
(Address of principal (Registrant's zip code) (Registrant's telephone number,
executive offices) including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Indicate by check mark whether the registrant (1) has 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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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The aggregate market value of voting Common Stock held by non-
affiliates of the registrant at September 5, 1997 was approximately $41,886,000.
For purposes of this calculation, officers and directors are considered
affiliates.
Number of shares of Common Stock outstanding at September 5, 1997: 12,659,818.
DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-K INTO WHICH
DOCUMENT DOCUMENT ARE INCORPORATED
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Proxy Statement for 1997 Annual Meeting of Part III
Shareholders
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TABLE OF CONTENTS
PART I
Item 1 Business 1
Item 1(a) Executive Officers of the Registrant 9
Item 2 Properties 10
Item 3 Legal Proceedings 10
Item 4 Submission of Matters to a Vote of Security Holders 11
PART II
Item 5 Market for the Registrant's Common Equity and
Related Shareholder Matters 11
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 8 Financial Statements and Supplementary Data 17
Item 9 Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure 36
PART III
Item 10 Directors and Executive Officers of the Registrant 36
Item 11 Executive Compensation 36
Item 12 Security Ownership of Certain Beneficial Owners and
Management 36
Item 13 Certain Relationships and Related Transactions 36
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 37
Signatures 39
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FORWARD-LOOKING STATEMENTS
The statements concerning working capital needs constitute forward-looking
statements that are subject to risks and uncertainties. Factors that could
adversely affect the Company's working capital needs include, but are not
limited to, business conditions and growth in the electronics industry and
general economies, both domestic and international, lower than expected customer
orders, competitive factors (including increased competition, new product
offerings by competitors and price pressures), the availability of third party
parts and supplies at reasonable prices and technological difficulties and
resource constraints encountered in developing new products.
PART I
ITEM 1. BUSINESS
GENERAL
Praegitzer Industries, Inc. (the "Company" or "Praegitzer") is a leader in
the design, quick-turnaround, pre-production and volume production of complex,
rigid multilayer printed circuit boards. Printed circuit boards perform critical
functions in products in the data communications and telecommunications,
instrumentation and industrial equipment, computers and peripherals and business
systems and consumer segments of the broad electronics market. The Company
pursues long-term relationships with rapidly growing original equipment
manufacturers ("OEM"), as well as their contract assembly manufacturers, that
are technology leaders in their industry segments and whose product requirements
generally drive the advancement of electronic interconnect manufacturing
technology. The Company's principal customers include Compaq, DSC
Communications, Hewlett-Packard, IEC Electronics, Intel, Motorola, NEC,
Solectron, Xerox and Xylan. Praegitzer was incorporated under Oregon law in
1981.
In November 1995 Praegitzer acquired Circuit Technology, Inc. ("CTI"), a
printed circuit board manufacturer with production facilities located in
Redmond, Washington. The acquisition was accomplished by a merger of CTI with
and into Praegitzer. In November 1995 Praegitzer also acquired Praegitzer
Design, Inc. ("PDI"), a provider of schematic capture and printed circuit design
services. The acquisition was accomplished by a merger of PDI with and into
Praegitzer. In April 1996 the Company acquired from Praegitzer Property Group
all of the real property and improvements on which the Company's Dallas and
White City, Oregon manufacturing facilities are located.
In August 1996 Praegitzer acquired Trend Circuits, Inc. ("Trend"), a
printed circuit board manufacturer with production facilities located in
Fremont, California. The acquisition was accomplished by a merger of Trend with
and into Praegitzer. During the fiscal year ending June 30, 1997 ("fiscal 1997")
the Company also acquired six new design centers strategically located near
Philadelphia, Pennsylvania, Denver, Colorado, Orlando, Florida, Huntsville,
Alabama, Dallas, Texas, and Portland, Oregon. In addition, the Company has
opened a design center and sales office in Tel Aviv, Israel during fiscal 1997.
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In July 1997 the Company completed an acquisition of a design center near
Boston, Massachusetts.
INDUSTRY OVERVIEW
Printed circuit boards are the basic platforms used to interconnect the
integrated circuits and other essential components of electronic products and
consist of interconnected layers of etched copper patterns of electrical
circuitry that have been laminated to insulating material. According to the
Institute for Interconnecting and Packaging Electronic Circuits ("IPC"), the
United States printed circuit board market totaled approximately $7.9 billion in
sales in 1996. Multilayer printed circuit boards, which consist of more than two
layers, accounted for approximately 71% of printed circuit board sales in 1996.
The IPC estimates sales of printed circuit boards in the United States will
increase at an average annual rate of 7.6% from 1995 through 2000.
The overall market for electronics products has grown steadily over the
past 20 years as end users increasingly seek products with attractive
price/performance characteristics and as technological advances have created new
markets. To compete in the broader electronics market, OEMs require product
components with increased functionality at lower cost per function. The
interconnect densities, signal speeds and layer counts of printed circuit boards
have increased to meet these requirements. Many of these increasingly complex
printed circuit boards are manufactured using a variety of complex processes and
equipment, further complicating the production process. Competitive pressures
and rapid technological change have shortened product life cycles. As a result,
time-to-market and time-to-volume have become increasingly important competitive
factors.
To compete in the market for increasingly complex and technologically
advanced printed circuit boards and to meet shorter time-to-market and
time-to-volume requirements, printed circuit board manufacturers must make
substantial capital investments and develop greater manufacturing specialization
and expertise. These factors have resulted in two trends in the printed circuit
board industry. As capital requirements have increased, the industry has
consolidated. According to the IPC, the number of United States printed circuit
board manufacturers has decreased from over 2,500 in 1976 to fewer than 700 in
1996. In addition, OEMs have increased the outsourcing of printed circuit board
production to focus resources on their core strengths and have relied on outside
suppliers to overcome increasingly complex manufacturing challenges. According
to the IPC, the independent manufacturers' portion of the total printed circuit
board market increased to 86% in 1996 from 66% in 1991. This market, however,
remains highly fragmented. The IPC estimates that in 1996 the 8 largest
independent manufacturers accounted for about 25% of total printed circuit board
sales by independent manufacturers.
DEFINITION OF PRODUCTS AND SERVICES
The design and manufacture of printed circuit boards progress in
stages: schematic capture and circuit design, quick-turnaround prototype,
pre-production and volume production. The Company's business strategy is to be
the one-stop provider of these services to its customers. In fiscal 1997
approximately 62%, 32% and 6% of the Company's net sales were derived from
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volume production, quick-turnaround and design of printed circuit boards,
respectively.
SCHEMATIC CAPTURE AND CIRCUIT DESIGN. Schematic capture involves the input of
an electronic schematic diagram into a high-performance computer workstation
that generates a net list of the electronic components and interconnects
required to design a printed circuit board. Circuit design is accomplished using
specialized computer-aided design ("CAD") software programs. Computer-generated
data describe the locations of holes and conductors (the "layout") which, along
with manufacturing information, may be transmitted electronically from the
designer to the manufacturer.
QUICK-TURNAROUND PROTOTYPE. Quick-turnaround is characterized by shorter than
standard lead time requirements, typically one to 10 days, and involves
producing a small quantity, usually fewer than 50 pieces. Prototype evaluation
is critical to product development and frequently requires several iterations to
finalize the design. Because time is critical, most prototypes are manufactured
on a quick-turnaround basis. Consequently, high quality and timely delivery
generally are the most important competitive factors.
PRE-PRODUCTION. Pre-production or pilot runs involve the manufacture of
limited quantities of printed circuit boards during the transition from
prototype to volume production. Pre-production may require quick-turnaround
delivery because of overall time-to-market pressures and shorter product life
cycles or as a temporary solution in the event of volume production delay.
Accordingly, high quality and timely delivery continue to be the factors most
important to the OEM or contract manufacturer, although price is also a
significant factor.
VOLUME PRODUCTION. Volume production is characterized by longer lead times and
increased emphasis on lower cost as the product moves to full-scale commercial
production. At this stage of production, price, quality, on-time delivery and
process capability are the factors most important to the OEM or contract
manufacturer. As product life cycles grow shorter, the ability to meet shorter
lead time requirements becomes an increasingly significant competitive factor.
Each stage of product development and production requires substantially
different capabilities and as a result most printed circuit board suppliers
specialize in only one stage. Consequently, OEMs and contract manufacturers
typically use different suppliers at each stage, which requires costly and time-
consuming duplicative tooling and pre-production engineering. Accordingly, many
OEMs and contract manufacturers are establishing strategic relationships with
fewer electronic interconnect suppliers that provide a full range of services,
including design consultation and quick-turnaround manufacturing, together with
low to high volume production capability.
The Company is one of a limited number of independent manufacturers that
offers a full range of integrated electronic interconnect solutions from
schematic capture and circuit design services through high volume production. By
offering this broad range of services, the Company can provide design and
manufacturing solutions for its customers while reducing time-to-market,
time-to-volume and product development costs.
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MARKETS AND MARKETING
The Company concentrates its marketing efforts on segments of the broad
electronics market characterized by high growth, rapid technological advances,
short product development cycles and accelerated time-to-market and
time-to-volume requirements. The Company focuses on customers that seek
suppliers with advanced design and manufacturing capabilities. In response to
these customers' broadening requirements, the Company has expanded its
quick-turnaround and low volume capabilities through the acquisitions of CTI in
November 1995 and Trend in August 1996, low volume and quick-turnaround
production facilities respectively. These strategic acquisitions completed the
Company's repositioning as an integrated solutions provider of electronic
interconnect products and services for the rigid printed circuit board market.
The Company believes its strong relationships with pre-production and volume
production customers will assist its continued expansion into the
quick-turnaround market. The Company believes larger manufacturers with the
capability to supply a broad range of products with a diverse mix of performance
characteristics have the greatest opportunity to capture additional market share
in the printed circuit board industry. The Company is one of a limited number of
independent manufacturers that offers a range of integrated electronic
interconnect solutions from schematic capture and circuit design services
through high volume production. By offering this broad range of services, the
Company can provide design and manufacturing solutions for its customers while
reducing time-to-market, time-to-volume and product development costs.
The Company pursues long-term relationships with rapidly growing OEM
customers that are technology leaders in their industry segments. The Company's
customers include a diverse group of leading OEMs of data communications and
telecommunications equipment, instrumentation and industrial equipment,
computers and peripherals and business systems and consumer electronics. These
customers often use leading technologies, and their product requirements
generally drive the advancement of electronic interconnect manufacturing
technology. The Company also sells to leading contract manufacturers and
electronics distributors that provide access to a large number of OEM customers.
The following table shows, for fiscal 1997 and 1996, the Company's percentage of
its net sales for the principal end-user markets it serves.
MARKETS 1997 1996
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Instrumentation/Industrial 30% 35%
Data/Telecommunications 35% 33%
Computers and Peripherals 28% 22%
Business/Consumer 7% 10%
Total Net Sales 100% 100%
The Company sells its products primarily through direct sales
personnel located in Washington, Oregon, California, Texas, Minnesota, Alabama,
Florida, Massachusetts, Illinois, Pennsylvania, North Carolina, Japan, Hong Kong
and Israel. The Company's sales organization consists of a senior vice president
of sales, a vice president of customer service, two regional vice presidents,
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four regional managers and 24 account executives. Each division of the Company
also has an experienced inside sales and customer service organization to
support its outside sales personnel and to promote customer relationships.
Praegitzer is pursuing the international markets with the recent
establishment of sales offices in Japan, Hong Kong and Israel. The Company is
seeking to identify other international business opportunities.
The Company is expanding its marketing activities to enhance awareness of
its broad range of products and services. In addition to paid advertisements and
promotional items, the marketing efforts include business and technical
editorials for industry publications, participation in trade shows and industry
conferences, customer newsletters and satisfaction surveys as well as scheduled
press releases.
CUSTOMERS
The following table sets forth in alphabetical order the Company's largest
customers during fiscal 1997:
DATA COMMUNICATIONS AND TELECOMMUNICATIONS
ADTRAN Inc. Paradyne Corp.
Cisco Systems Xylan Corporation (1)
DSC Communications, Inc. Verilink Corporation
Motorola, Inc. Watkins Johnson Company
NEC Corporation
INSTRUMENTATION AND INDUSTRIAL
Hewlett-Packard Company Spectra-Physics, Inc.
COMPUTERS AND PERIPHERALS
Compaq Computer Corporation Intel Corporation
Hewlett-Packard Company Silicon Graphics
BUSINESS SYSTEMS AND CONSUMER ELECTRONICS
Digidesign Inc. Xerox Corporation
In Focus Systems, Inc.
CONTRACT MANUFACTURERS AND ELECTRONICS DISTRIBUTORS (2)
Benchmark Electronics, Inc. Solectron Corporation
IEC Electronics Corp. Technical Services, Inc.
SCI Systems, Inc. Xylan Corporation
(1) Includes sales of Company products sold through contract manufacturers or
electronics distributors.
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(2) Because the Company serves some OEM customers through contract manufacturers
and electronics distributors, some sales indicated in this segment are also
included under sales in the other listed segments.
For fiscal 1997 and 1996, sales to Hewlett-Packard accounted for
approximately 11.5% and 12.7% of the Company's revenue, respectively, and sales
to Compaq accounted for approximately 6.7% and 10.0% of the Company's revenue,
respectively. For fiscal 1997 and 1996, the Company's ten largest customers
accounted for approximately 44.5% and 52.7% of the Company's revenue,
respectively.
MANUFACTURING AND ENGINEERING PROCESSES
The Company believes its substantial capital investment and its
manufacturing expertise in a number of specialized areas have contributed to its
position as a leader in the production of complex, rigid multilayer printed
circuit boards. To meet its customers' high density requirements, the Company
can manufacture printed circuit boards with layer counts in excess of 20 layers,
blind and buried vias, buried resistors, laser microvias, buried capacitance and
designs using materials as thin as .0015 inches. The Company believes its
capabilities in the following areas are of particular significance: design for
manufacturability ("DFM") tools, Computer Aided Manufacturing ("CAM") systems,
including computer controlled drilling, routing and plating, alternative surface
finishes, including hot air leveling, electroless nickel/immersion gold,
selective gold plate and OSP. The Company's substantial investment in four
modern production facilities and state-of-the-art equipment permits high yield
fabrication of dense multilayer printed circuit boards. The Company uses
advanced drilling and plating equipment to produce technologically advanced
products with extremely tight tolerance holes as small as .006 inches in
diameter to interconnect printed circuit layers, including controlled depth
holes for blind vias. The Company produces fine line circuitry in Class 10,000
clean room environments. The Company has invested in automated optical
inspection and electrical test systems, including dual-sided simultaneous
testers, in-house fixturing processes, and flying probe technology to verify the
quality of these high-density designs. The Company uses specialty materials such
as GETEK-Registered Trademark-, cyanate ester and polyimide for high
temperature, fast signal speed and other high-performance requirements.
MATERIALS AND SUPPLIES
The Company orders certain materials and supplies based on purchase
orders received and seeks to minimize its inventory of other materials that are
not identified for use in filling specific orders. For example, at the Company's
request, a laminate supplier operates a warehouse near the Company's Dallas
facility to store laminates previously shipped by the supplier from California.
Raw materials used in the Company's products consist primarily of inorganic
chemicals, copper foil, copper-clad epoxy/glass laminate, epoxy glass prepreg
and liquid and dry film resist.
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To enhance its relationships with suppliers, in 1991 the Company
implemented a "STAR Supplier" program to improve key supplier performance by
measuring product quality, on-time delivery, technological support, sales
support and other criteria. The Company believes it has realized significant
benefits from the program, including lower costs of materials.
Although the Company uses a select group of suppliers, the materials
used to manufacture printed circuit boards generally are readily available from
multiple suppliers. The Company has established strategic alliances and stocking
arrangements with key suppliers to increase protection against shortages.
Although adequate amounts of raw materials have been available in the past,
there is no assurance that raw materials will continue to be available in the
future.
COMPETITION
The printed circuit board industry is highly fragmented and
characterized by intense competition, which the Company believes will increase.
The Company competes principally in the market for complex, rigid multilayer
printed circuit boards. The Company's competitors include large domestic
manufacturers, offshore manufacturers located primarily in Asia, small or
regional domestic manufacturers and captive printed circuit board operations of
larger OEMs. Some of the Company's competitors are substantially larger and have
substantially greater manufacturing, financial and marketing resources than the
Company. During periods of recession in the electronics industry, increasingly
price sensitive customers may place less value on the Company's competitive
strengths, such as quick-turnaround manufacturing and responsive customer
service. In addition, OEMs with captive printed circuit board manufacturing
operations may seek open market orders to fill excess capacity, which increases
price competition. The Company may be at a disadvantage in the lower technology
segments of the printed circuit board market when competing with manufacturers
with lower cost structures, particularly those with offshore facilities where
labor and other costs may be lower. Although capital requirements are a
significant barrier to entry for manufacturing technologically complex printed
circuit boards, the basic interconnect technology is generally not protected by
patents or copyrights. There is no assurance that the Company will be able to
compete successfully against present or future competitors or that competitive
pressures faced by the Company will not materially adversely affect the Company.
The principal independent competitors of the Company are based in the United
States and include Continental Circuits Corp., Hadco Corporation, Merix
Corporation and Viasystems Group Inc.
The Company believes the primary competitive factors in the market for
complex, rigid multilayer printed circuit boards are product quality,
responsiveness to customers, on-time delivery, lead time, volume production
capabilities, advanced manufacturing technology, engineering skills and price.
The Company believes its primary competitive strengths include its ability to
provide technologically advanced manufacturing services, respond to customers
reliably and effectively and deliver finished products on a quick-turnaround
through high volume basis while maintaining superior product quality. During
periods of recession in the electronics industry, however, the Company's
competitive advantages in these areas may be less significant to customers that
may become more price sensitive. Many of the Company's actual and potential
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competitors have financial, technological and marketing resources significantly
greater than those of the Company and may have established relationships with
customers or potential customers that afford them a competitive advantage. There
is no assurance that the Company will continue to be able to compete effectively
in its markets or that competitive pressures will not materially adversely
affect the Company.
BACKLOG
The Company's backlog at June 30, 1997 was approximately $25 million,
compared to a backlog of approximately $16.3 million at June 30, 1996. The
Company includes in its backlog all purchase orders scheduled for delivery
within the next 12 months, although the majority of the backlog typically is
scheduled for delivery within 60 days. There are no orders in the Company's
backlog that it does not reasonably expect to have filled by June 30, 1998. For
a variety of reasons, including the timing of orders, delivery intervals,
customer and product mix and the possibility of customer changes in delivery
schedules, backlog as of any particular date may not be a reliable measure of
sales for any succeeding period. Cancellation charges generally vary depending
upon the time of cancellation and, therefore, a significant portion of the
Company's backlog may be subject to cancellation without significant penalty.
ENVIRONMENTAL MATTERS
Printed circuit board manufacturing requires the use of metals and
chemicals. Water used in the manufacturing process must be treated to remove
metal particles and other contaminates before it can be discharged into the
municipal sanitary sewer system. The Company operates and maintains effluent
water treatment systems and uses approved laboratory testing procedures at its
manufacturing facilities. The Company operates these systems under effluent
discharge permits issued by a number of governmental authorities. These permits
must be renewed periodically and are subject to revocation in the event of
violations of environmental laws. The Company believes the waste treatment
systems at its facilities are in compliance with applicable environmental laws
in all material respects. There is no assurance, however, that violations will
not occur in the future. The Company also is subject to environmental laws
relating to the storage, use and disposal of chemicals, solid waste and other
hazardous materials, as well as air quality regulations. Environmental laws
could become more stringent over time, and the costs of compliance with more
stringent laws could be substantial.
The Company eliminated all ozone depleting compounds from its
manufacturing processes in December 1993. In 1993 the Company was also
recognized by the United Nations as an environmentally conscious manufacturer.
In 1994 the Environmental Protection Agency recognized the Company for its
participation in the 33/50 Program, a voluntary initiative aimed at reducing
emissions and disposals of toxic substances.
EMPLOYEES
At June 30, 1997, the Company had 1,642 full-time employees. None of
the Company's employees is represented by a labor union, and the Company has
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never experienced a work stoppage, slowdown or strike. The Company believes it
maintains good employee relations.
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, titles with Praegitzer Industries
and principal occupations and employment for the last five years of the
executive officers of Praegitzer Industries, Inc. The officers are appointed by
the Board of Directors and serve at its discretion.
NAME AGE POSITION
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Robert L. Praegitzer 65 President, Chief Executive Officer and Chairman of
the Board
Matthew J. Bergeron 34 Executive Vice President, Chief Operating Officer
and Director
Daniel J. Barnett 46 Senior Vice President and Director
Robert J. Versiackas 48 Senior Vice President of Operations
Gregory L. Lucas 52 Senior Vice President of Technology
William J. Thale 37 Corporate Vice President and Chief Financial
Officer
ROBERT L. PRAEGITZER founded the Company in 1981 and has been its
President, Chief Executive Officer and Chairman of the Board since that time. He
was also the founder and President of Praegitzer Design, Inc. which merged into
the Company in 1995, and Praegitzer Property Group, the assets of which were
acquired by the Company in 1996. Mr. Praegitzer is married to Sally Praegitzer,
a director and Secretary of the Company.
MATTHEW J. BERGERON joined the Company in 1990 as Chief Financial Officer.
He became Senior Vice President in 1993, a director in November 1995 and the
Executive Vice President and Chief Operating Officer in April 1997. Prior to
joining the Company, Mr. Bergeron was an accountant at Johnson & Shute P.S., a
public accounting firm. Mr. Bergeron is a certified public accountant.
DANIEL J. BARNETT joined the Company as Senior Vice President and a
director in August 1996 in connection with the merger of Trend into the Company.
Prior to the merger, Mr. Barnett had been the president of Trend since 1992.
ROBERT J. VERSIACKAS joined Trend in 1990 as Vice President of Operations
and upon the merger of Trend into the Company in August 1996 was appointed Vice
President of Operations - Fremont Division. In February 1997, Mr. Versiackas
became Senior Vice President of Operations.
GREGORY L. LUCAS joined the Company in June 1997 as Senior Vice President
of Technology. Prior to joining Praegitzer, Mr. Lucas had been Vice President of
Technology for Zycon Corporation since 1991. Mr. Lucas holds several patents
primarily in the field of buried passive components.
WILLIAM J. THALE joined the Company in 1990 and worked as controller in
both the Assembled Products Division, an operation discontinued in 1994, and
Praegitzer Design, a division of Praegitzer Industries.
Mr. Thale became Vice President and Chief Financial Officer in April 1997.
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ITEM 2. PROPERTIES
The Company owns or leases approximately 325,400 square feet of
administrative, design, production, storage, and shipping space in 16
facilities. Of this space, 224,000 square feet are dedicated to manufacturing.
The Company's principal properties are as follows:
OWNERSHIP SQUARE
LOCATION STATUS FEET
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Dallas, Oregon Owned 130,000
Dallas, Oregon Leased 15,000
White City, Oregon Owned 64,000
Redmond, Washington Leased 42,000
Fremont, California Leased 40,000
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The Dallas manufacturing facility specializes in medium to high volume
production of complex, rigid multilayer printed circuit boards. The White City
facility specializes in medium volume production of complex, rigid multilayer
printed circuit boards. The Redmond facility specializes in low volume and high
technology production of complex, rigid multilayer printed circuit boards. The
Fremont facility specializes in quick-turnaround prototype and low volume
production of complex, rigid multilayer printed circuit boards.
The Dallas warehouse facility is subject to a month-to-month lease with
total monthly lease costs of approximately $7,500. The Redmond facility is
subject to two leases with total current monthly lease costs of approximately
$44,000. Each lease expires in 2000, with an option to renew for an additional
five-year period. The Fremont facility is subject to a monthly lease cost of
approximately $30,000 which expires in 2002.
ITEM 3. LEGAL PROCEEDINGS
On August 10, 1994, Virtual Vision, Inc., a former customer, filed an
adversary proceeding in the United States Bankruptcy Court for the Western
District of Washington against the Company and another creditor, D. Blech &
Company Incorporated ("Blech"), each of which held a security interest in the
customer's accounts receivable, inventory and equipment, to determine the
extent, validity and priority of each party's security interest. On October 19,
1994 the court entered a default judgment in favor of the Company. Blech
appealed the decision to the United States District Court for the Western
District of Washington, which reversed the bankruptcy court's denial of a motion
to vacate the default judgment. This reversal is now on appeal by the Company to
the Ninth Circuit Court of Appeals. If the district court's decision is upheld,
a trial will be held on the merits, and the Company could be found liable to
Blech for up to approximately $500,000, which represents the amount received by
the Company as the result of its security interest.
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On July 21, 1996, Pacific Communication Sciences, Inc. filed a claim in the
San Diego County, California Superior Court against the Company on account of a
written guaranty of indebtedness owing by Carillon Corporation in the amount of
$500,740 plus interest and attorney fees. The Company believes the claim is
without merit and intends to vigorously defend against the claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended June 30, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock commenced trading on the Nasdaq National Market
on April 4, 1996 under the symbol "PGTZ". The following table sets forth for the
periods indicated the highest and lowest closing sales prices for the Common
Stock, as reported by the Nasdaq National Market.
Fiscal 1996 High Low
Fourth quarter (beginning April 4, 1996) $16.00 $8.125
Fiscal 1997
First quarter $14.25 $8.125
Second quarter $12.00 $9.00
Third quarter $12.625 $8.25
Fourth quarter $11.75 $8.50
As of September 5, 1997 there were approximately 1,423 shareholders of
record.
Since incorporation and through April 4, 1996, the Company was treated for
state and federal income tax purposes as an S corporation. As a result, the
Company's earnings from inception through April 4, 1996 were taxed directly to
the Company shareholders rather than to the Company. In fiscal 1996 the Company
paid cash dividends to its shareholders in the aggregate amount of $6.8 million,
most of which was for the payment of the shareholders' income tax liabilities.
No dividends have been paid since April 4, 1996.
The Company expects to retain any earnings to finance the expansion and
development of its business and has no plans to pay cash dividends. The payment
of dividends is within the discretion of the Company's Board of Directors and
will depend on the earnings, capital requirements and operating and financial
condition of the Company, among other factors.
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As of August 26, 1996 the Company issued 1,000,000 shares of Common Stock
in a private placement exempt from registration under Rule 506 of the Securities
Act to the shareholders of Trend as partial consideration for the merger of
Trend with and into the Company. As of December 31, 1996, the Company issued
10,000 shares of Common Stock in a private placement exempt from registration
under Rule 505 of the Securities Act to the shareholders of TravTech, Inc. as
consideration for the merger of TravTech, Inc. with and into the Company. As of
February 25, 1997, the Company issued 90,000 shares of Common Stock in a private
placement exempt from registration under Rule 505 of the Securities Act to
shareholders of Off-Site Solutions, Inc. as consideration for the merger of Off-
Site Solutions, Inc. with and into the Company. On March 28, 1997, the Company
issued 230,000 shares in a private placement exempt from registration under Rule
505 of the Securities Act to the shareholders of PCB West, Inc. as partial
consideration for the merger of PCB West, Inc. with and into the Company. As of
July 28,1997, the Company issued 200,000 shares of Common Stock in a private
placement exempt from registration under Rule 506 of the Securities Act to the
shareholders of Mosher Design Services, Inc. as consideration for the merger of
Mosher Design Services, Inc. with and into the Company. As of August 1, 1997 the
Company issued a total of 1,364 shares to employees. The shares were issued one
per employee in an one-time bonus to employees. The market price on the date of
the issuance was $14.875.
- 12 -
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $50,447 $51,757 $58,096 $95,101 $147,947
Cost of goods sold 40,332 46,244 48,343 72,941 122,013
Gross profit 10,115 5,513 9,753 22,160 25,934
Selling, general and administrative
expense 5,116 6,082 6,406 8,896 19,188
Impairment and in-process
technology expense 11,650
Income (loss) from operations 4,999 (569) 3,347 13,264 (4,904)
Interest expense 1,444 1,217 1,563 1,799 2,295
Other income (expense) 60 (353) 92 302 568
Income (loss) from continuing
operations 3,615 (2,139) 1,876 11,767 (6,631)
Income (loss) from discontinued
operations (289) (3,081) (612) -
Provision (benefit) for income taxes 1,178 (1) (2,101) (1) 691 (1) 4,239 (1) 1,670
Net income (loss) $2,148 (1) ($3,119) (1) $1,185 (1) $6,916 (1) ($8,301)
Net income (loss) per share (1) $0.13 (1) $0.76 (1) ($0.68)
Weighted average shares outstanding 8,824 9,110 12,234
Balance Sheet Data:
Working capital (deficiency) ($154) ($5,999) ($1,897) $10,743 $17,031
Total assets 38,977 29,051 30,352 52,836 87,286
Notes payable and current portion
of long-term obligations 8,870 9,750 6,097 871 3,565
Long-term obligations, net of
current portion 10,603 7,496 10,188 7,695 29,785
Shareholders' equity 11,472 4,118 5,699 34,641 37,641
</TABLE>
- --------------------
(1) The Company was an S corporation and accordingly was not subject to federal
and state income taxes during the periods indicated. During these periods
income tax expense, net income and income per share are shown pro forma. Pro
forma amounts reflects federal and state income taxes as if the Company had been
a C corporation, based on the effective tax rates that would have been in effect
during these periods. See Note 12 of Notes to Financial Statements of
Praegitzer.
- 13 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the Company for
the periods indicated as a percentage of revenue:
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Cost of Goods Sold 82.5 76.7 83.2
Gross profit 17.5 23.3 16.8
Selling, general and adminstrative expense 12.9 9.3 11.0
One time charges 7.9 - -
Income (loss) from operations (3.3) 14.0 5.8
Interest expense 1.6 1.9 2.7
Other income (expense) 0.4 0.3 0.1
Income (loss) from continuing operations (4.5) 12.4 3.2
Provisions for income taxes 1.1 4.7 * 1.2 *
Net income (loss) from continuing operations (5.6)% 7.7% * 2.0% *
</TABLE>
* Provision for income taxes and net income from continuing operations are
pro forma for the years ended June 30, 1996 and 1995
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30 1996
Revenue for the fiscal year ended June 30, 1997 was $147.9 million,
an increase of $52.8 million or 55.6% from the fiscal year ended June 30, 1996.
The increase resulted from several factors including the acquisition of Trend,
which added $26.8 million to revenue after August 24, 1996. Revenue
contribution from the design division increased $5.5 million for the year ended
June 30, 1997 due primarily to the acquisition of six strategically located
design centers during the current year. The balance of the increase was due to
improved sales resulting from the efforts of the Company's expanded sales force
as well as increased capacity in the Company's White City and Dallas, Oregon
facilities.
Gross profit for the year ended June 30, 1997 was $25.9 million or 17.5% of
revenue, compared to $22.2 million or 23.3% of revenue for the fiscal year ended
June 30, 1996. Cost of goods sold includes direct labor, materials and
manufacturing overhead costs. The decrease in gross margins as a percentage of
revenue was primarily due to capacity constraints in inner layer production at
the Dallas facility caused by a transition to new technologies. To overcome the
constraints the Company realigned the inner layer department through process
changes and the purchase of additional equipment. The transition period
extended into the third quarter and resulted in increased scrap rates, decreased
throughput and forced outsourcing of some processes for the division. In
addition to the Dallas inner layer expansion the Company had expansions
- 14 -
<PAGE>
at its Redmond and White City facilities to increase capacity. Associated with
these expansions, the Company experienced an increase in fixed costs which
should decrease as a percentage of revenue as sales increase.
Selling, general and administrative expense consists of salaries, incentive
compensation and benefits for sales, marketing and administrative personnel,
advertising and promotional expenses, professional fees and office expenses.
Selling, general and administrative expense for the fiscal year ended June 30,
1997 was $19.2 million or 12.9% of revenue, as compared to $8.9 million or 9.3%
of revenue for the fiscal year ended June 30, 1996. The increase was primarily a
result of increased personnel and fixed costs required to support higher levels
of sales and the overall growth of the Company. The Company experienced higher
than expected integration costs related to the acquisitions of Trend, CTI and
several design centers. The increase in goodwill amortization was $1.1 million
during the fiscal year ended June 30, 1997.
During the first quarter of fiscal year 1997, the Company took a one-time
write-off of $11.65 million of certain goodwill associated with the CTI
acquisition and purchased research and development costs related to the
acquisition of Trend. See Notes 2 and 8 of Notes to Financial Statements
Interest expense for the fiscal year ended June 30, 1997 was $2.3 million,
an increase of $496,000 or 27.6% from the fiscal year ended June 30, 1996. The
increase was the result of increased borrowings required to finance the
acquisition of Trend, increased sales and equipment purchases.
The Company had a positive tax expense for the year ended June 30, 1997 on
a pre-tax book loss primarily due to the addback of goodwill and the write off
of in-process technology which are not tax deductible. However federal and state
research and experimental tax credits partially offset the effect of these
addbacks. Absent the addback of the goodwill and in-process technology the
effective tax rate would have been 29.4%.
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30 1995
Revenue for the fiscal year ended June 30, 1996 was $95.1 million,
an increase of $37.0 million or 63.7% from the fiscal year ended June 30, 1995.
The increase resulted primarily from a net increase of $21.9 million or 38.0% in
unit volume sales and approximately $15.1 million due to the acquisition of CTI
in November 1995.
Gross profit for the year ended June 30, 1996 was $22.2 million or 23.3% of
revenue, compared to $9.8 million or 16.8% of revenue for the fiscal year ended
June 30, 1995. The increase in gross margin was primarily the result of improved
capacity utilization, changes in product mix, which resulted in increased sales
of higher-priced printed circuit boards with higher average layer count and
higher gross margin, and greater yields at the Company's manufacturing
facilities.
- 15 -
<PAGE>
Selling, general and administrative expense for the fiscal year ended June
30, 1996 was $8.9 million or 9.3% of revenue, an increase of $2.5 million or
38.9% from the fiscal year ended June 30, 1996, primarily as a result of
increased personnel and fixed costs required to support higher levels of sales
and the acquisition of CTI. Selling, general and administrative expense
decreased as a percentage of revenue from 11% to 9.3%, primarily as a result of
operating efficiencies achieved by spreading fixed costs over a larger revenue
base.
Interest expense for the fiscal year ended June 30, 1996 was $1.8 million,
an increase of $236,000 or 15.1% from the fiscal year ended June 30, 1995. The
increase was the result of increased borrowing costs, increased borrowings
required to finance the acquisition of CTI and increased sales.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and capital
expenditures with cash from operations and debt financing, as well as an initial
public offering in April 1996. Net cash provided by operating activities for
the fiscal year ended June 30, 1997 was $1.7 million, compared to net cash
provided by operating activities of $8.9 million and $5.0 million for fiscal
1996 and 1995, respectively. As of June 30, 1997, the Company had $442,000 in
cash and cash equivalents and working capital of approximately $17.0 million.
The Company increased its bank line of credit from $10.0 million at June
30, 1996 to $15.0 million at June 30, 1997. At June 30, 1997 borrowings of
$12.4 million were outstanding and $2.6 million was available for borrowings
based on eligible accounts receivable and inventory. Amounts outstanding under
the line of credit bear interest at an annual rate equal to 8.5%. The
Company's bank line of credit provides that it may not, without the bank's
consent, borrow more than $20 million unless such borrowings are subordinated to
the bank debt. Under the line of credit, the Company must also maintain a
tangible net worth of at lease $30 million plus 50% of its positive net income,
and certain financial ratios, including an assets to liabilities ratio of 1.1 to
1, and an earnings before interest and taxes to interest expense ratio of at
least 2.0 to 1. As of June 30, 1997 the Company was in compliance with all loan
covenants.
During the fiscal year ended June 30, 1997, the Company also borrowed $15
million from Heller Financial, Inc. secured by real property and miscellaneous
equipment at the Company's White City and Dallas facilities and $4.6 million
from Finova Capital, secured by miscellaneous equipment.
Capital expenditures were $24.8 million for the fiscal year ended June 30,
1997, and $7.5 million and $3.7 million in fiscal 1996 and 1995, respectively.
These capital expenditures were primarily for manufacturing equipment, plant
expansions and modernization. Although the Company has no commitments in
material amounts, it expects capital
- 16 -
<PAGE>
expenditures for the next 12 months to range from 8% to 12% of revenue for
facility expansions and equipment.
The Company believes that existing cash and cash equivalents, funds
generated from operations, its credit facility with the bank and equipment
financings will be sufficient to fund its operations for the next twelve months.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Financial Statements and the Report of Independent Public
Accountants thereon are presented in the following pages. The Financial
Statements filed in Item 8 are as follows:
Independent Auditors' Report
Statements of Operations for the years ended June 30, 1997, 1996 and 1995
Balance Sheets as of June 30, 1997 and 1996
Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995
Statements of Shareholders' Equity for the years ended June 30, 1997, 1996
and 1995
Notes to Financial Statements
- 17 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Praegitzer Industries, Inc.
We have audited the accompanying balance sheets of Praegitzer Industries,
Inc. as of June 30, 1997 and 1996, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended June 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Praegitzer Industries, Inc. as of June 30,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended June 30, 1997, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
July 22, 1997
- 18 -
<PAGE>
PRAEGITZER INDUSTRIES, INC.
BALANCE SHEETS
JUNE 30, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 6/30/97 6/30/96
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 441,950 $ 38,687
Receivables, net of allowance for doubtful accounts
of $400,000 and $265,000 at June 30, 1997 and 1996, respectively 24,452,506 13,073,861
Inventories (Note 4) 8,534,428 6,211,755
Prepaid expenses 454,304 206,129
Current deferred tax asset (Note 12) 628,532 394,000
------------ ------------
Total current assets 34,511,720 19,924,432
PROPERTY, PLANT, AND EQUIPMENT, Net (Note 5) 40,036,399 24,795,705
RESTRICTED CASH (Note 6) 162,903 305,956
OTHER ASSETS (Note 7) 12,574,899 7,809,968
------------ ------------
TOTAL $ 87,285,921 $ 52,836,061
------------ ------------
------------ ------------
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 2,041,554 $ 530,817
Taxes payable - 943,000
Accounts payable 8,504,485 5,157,913
Accrued payroll and related benefits 2,878,913 1,623,439
Other current liabilities 491,610 55,045
Current portion of long-term obligations 3,564,591 870,874
------------ ------------
Total current liabilities 17,481,153 9,181,088
LONG-TERM OBLIGATIONS, Net of current portion (Notes 9 and 10) 29,784,885 7,694,590
DEFERRED TAX LIABILITY (Note 12) 2,306,426 896,000
COMMITMENTS AND CONTINGENCIES - 423,450
DEFERRED GAIN 72,578 -
SHAREHOLDERS' EQUITY:
Preferred stock; 500,000 shares authorized,
no shares issued and outstanding - -
Common stock, 50,000,000 shares authorized and
12,434,518 shares issued and outstanding at
June 30, 1997 and 11,061,875 at June 30, 1996 41,232,502 29,932,049
Retained earnings (deficit) (3,591,623) 4,708,884
------------ ------------
Total shareholders' equity 37,640,879 34,640,933
------------ ------------
TOTAL $ 87,285,921 $ 52,836,061
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
- 19 -
<PAGE>
PRAEGITZER INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6/30/97 6/30/96 6/30/95
<S> <C> <C> <C>
REVENUE $ 147,947,303 $ 95,101,170 $ 58,096,178
COST OF GOODS SOLD 122,012,818 72,941,213 48,343,022
-------------- -------------- --------------
Gross profit 25,934,485 22,159,957 9,753,156
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE 17,517,683 8,283,048 6,405,667
IMPAIRMENT AND IN-PROCESS TECHNOLOGY EXPENSE (Notes 2 and 8) 11,650,000
AMORTIZATION OF GOODWILL 1,670,772 612,500 -
-------------- -------------- --------------
INCOME (LOSS) FROM OPERATIONS (4,903,970) 13,264,409 3,347,489
Interest expense 2,295,140 1,798,914 1,562,790
Other income, net 568,412 301,642 91,689
-------------- -------------- --------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (6,630,698) 11,767,137 1,876,388
PROVISION FOR INCOME TAXES 1,669,809 1,445,000 -
-------------- -------------- --------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (8,300,507) 10,322,137 1,876,388
DISCONTINUED OPERATIONS (Note 3):
Loss on lawsuit - (612,000) -
NET INCOME (LOSS) $ (8,300,507) $ 9,710,137 $ 1,876,388
-------------- -------------- --------------
-------------- -------------- --------------
PRO FORMA NET INCOME DATA (Note 13) (Unaudited):
Income from continuing operations before income taxes,
as reported $ 11,767,137 $ 1,876,388
Pro forma provision for income taxes (4,472,000) (690,865)
Discontinued operations, as reported (612,000) -
Pro forma tax benefit of discontinued operations 233,000 -
-------------- --------------
Pro forma net income $ 6,916,137 $ 1,185,523
-------------- --------------
-------------- --------------
NET INCOME (LOSS) PER SHARE (Note 18) (1996 and 1995
Pro Forma unaudited) from:
Continuing operations $ (0.68) $ 0.80 $ 0.13
Discontinued operations - (0.04) -
-------------- -------------- --------------
TOTAL NET INCOME (LOSS) PER SHARE $ (0.68) $ 0.76 $ 0.13
-------------- -------------- --------------
-------------- -------------- --------------
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 18) ( 1996 and 1995 Pro Forma unaudited) 12,233,769 9,110,233 8,823,717
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to financial statements.
- 20 -
<PAGE>
PRAEGITZER INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (8,300,507) $ 9,710,137 $ 1,876,388
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 7,376,595 4,911,279 3,704,780
Gain on sale of fixed assets (564,858) (111,730) (177,844)
Deferred taxes 474,325 502,000 -
Deferred gain 87,092 - -
Provision for doubtful accounts 135,000 292,354 64,518
Recognition of deferred gain (14,514) (43,271) (18,547)
Impairment and in-process technology expense 11,650,000 - -
Loss on discontinued operations - 612,000 -
Changes in operating assets and liabilities:
Receivables (8,474,182) (3,361,233) (1,132,447)
Inventory (1,366,761) (688,624) 76,265
Accounts payable 1,301,094 (2,684,743) 446,285
Income taxes payable (980,835) 943,000 -
Accrued payroll and related benefits 345,317 288,645 252,468
Other current liabilities 214,561 (1,336,809) (67,269)
Other (163,490) (89,664) (20,892)
-------------- -------------- --------------
Net cash provided by operating activities 1,718,837 8,943,341 5,003,705
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (24,760,670) (7,525,631) (3,663,114)
Additions to other assets (121,502) - (372,897)
Proceeds from sale of property, plant, and equipment 11,187,029 217,955 371,821
Acquisitions, net of cash acquired (5,375,122) (2,000,000) -
Net reductions in amounts due from
related parties and shareholders - (2,594,714) (138,050)
Change in restricted cash 143,053 (2,331) (13,946)
-------------- -------------- --------------
Net cash used in investing activities (18,927,212) (11,904,721) (3,816,186)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net additions to (reductions in) short-term borrowings 11,463,066 (5,199,771) (2,887,768)
Borrowing of long-term debt 21,814,498 3,880,409 4,496,890
Payments on long-term debt (16,386,981) (7,713,451) (2,401,743)
Proceeds from initial public offering, net of expenses - 19,340,185 -
Issuances of common stock under employee stock plans 307,964
Capital contributions - - 497,153
Dividends paid - (6,783,635) (793,095)
Payments on capital leases (636,884) (108,460) (169,576)
Increase (decrease) in bank overdrafts 1,049,975 (438,270) 69,595
-------------- -------------- --------------
Net cash provided by (used in) financing activities 17,611,638 2,977,007 (1,188,544)
-------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ 403,263 $ 15,627 $ (1,025)
</TABLE>
(continued)
- 21 -
<PAGE>
PRAEGITZER INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ 403,263 $ 15,627 $ (1,025)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR $ 38,687 $ 23,060 $ 24,085
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 441,950 $ 38,687 $ 23,060
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the year for interest $1,915,515 $1,789,375 $1,553,460
Cash paid during the year for income taxes, net $2,165,392 - -
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended June 30, 1996, the Company used $526,720 of operating
lease deposits toward the purchase of equipment.
During the year ended June 30, 1996, the Company distributed dividends of
$468,087 to a shareholder by reducing amounts due from shareholder.
During the year ended June 30, 1997, the Company recorded a deferred gain of
$87,092 for equipment which was sold and subsequently leased back.
See notes to financial statements.
(Concluded)
- 22 -
<PAGE>
PRAEGITZER INDUSTRIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRAEGITZER INDUSTRIES, INC. TOTAL
-------------------------------------------------------
COMMON STOCK
-------------------------
RETAINED
NUMBER EARNINGS
OF SHARES AMOUNT (DEFICIT)
<S> <C> <C> <C> <C>
BALANCES, JUNE 30, 1994 8,086,875 $ 4,519,404 $ (401,231) $ 4,118,173
Net earnings June 30, 1995 - (705,390) 2,581,778 1,876,388
Contributions - 497,153 - 497,153
Dividends - (2,251) (790,844) (793,095)
---------- ----------- ----------- -----------
BALANCES, JUNE 30, 1995 8,086,875 4,308,916 1,389,703 5,698,619
Stock issued in connection with acquisitions 700,000 7,143,714 - 7,143,714
Net earnings June 30, 1996 - (392,679) 10,102,816 9,710,137
Initial public offering, net of expenses 2,275,000 19,340,185 - 19,340,185
Dividends - (468,087) (6,783,635) (7,251,722)
---------- ----------- ----------- -----------
BALANCES, JUNE 30, 1996 11,061,875 29,932,049 4,708,884 34,640,933
Stock issued in connection with acquisitions 1,330,000 10,992,489 - 10,992,489
Proceeds from exercise of Incentive Stock Options 12,000 114,000 - 114,000
Proceeds from issuance under the ESPP 30,643 193,964 - 193,964
Net loss June 30, 1997 - - (8,300,507) (8,300,507)
---------- ----------- ----------- -----------
BALANCES, JUNE 30,1997 12,434,518 $41,232,502 $(3,591,623) $37,640,879
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
See notes to financial statements.
- 23 -
<PAGE>
PRAEGITZER INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Praegitzer Industries, Inc. (the "Company" or
"Praegitzer") is incorporated under the laws of the State of Oregon, and
its principal business is the design, manufacture and sale of electronic
circuit boards.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. Actual results could differ from those
estimates.
REVENUE RECOGNITION - Revenue is recognized when goods are shipped to the
customer.
INVENTORIES are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
CASH AND CASH EQUIVALENTS includes all cash and short-term debt
instruments, including nonrestricted certificates of deposit, purchased
with an original maturity of three months or less.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially
subject the Company to concentations of credit risk consist principally of
trade accounts receivable. The risk is limited due to the fact that the
Company's trade accounts receivable are derived from sales in various
geographic areas to numerous companies varying in size within the
electronics industry. Additionally, the Company performs ongoing credit
evaluations of its customers' financial condition and generally does not
require collateral, such as letters of credit or security agreements.
Credit losses have consistently been within management's expectations.
PROPERTY AND EQUIPMENT - Depreciation of property and equipment is provided
on the straight-line method based on the estimated useful lives of the
individual assets, primarily 3 to 10 years for equipment and 31 years for
buildings. The Company records the assets and the related obligations of
capital leases at amounts based upon the cash purchase price of the assets
involved at the beginning of the lease term. Depreciation and amortization
expense also includes amortization of equipment recorded under capital
leases provided on the basis of the estimated useful lives of the
individual assets, primarily 5 years, on the straight-line method.
LOAN FEES - Other assets include loan fees incurred by the Company. These
fees are being amortized straight-line over the terms of the loans.
GOODWILL - The Company amortizes costs in excess of fair value of net
assets of businesses acquired using the straight-line method over a period
of eight years. Management reviews, on an ongoing basis, the continuing
appropriateness of the remaining amortizable life and the net realizable
value of the unamortized balance.
INCOME TAXES - The Company elected to be taxed under the S corporation
provisions of the Internal Revenue Code through the effective date of the
initial public offering by Praegitzer of common stock (the "Offering").
Under those provisions, the Company did not pay federal or state corporate
income
- 24 -
<PAGE>
taxes on its taxable income. Instead, the shareholders were liable for
federal and state income taxes on the Company's taxable income.
Actual and pro forma income taxes have been provided for under Statement of
Financial Accounting Standards ("SFAS") No. 109, ACCOUNTING FOR INCOME
TAXES. Under this method, deferred tax assets and liabilities are
recognized based on differences between financial statement and tax basis
of assets and liabilities using presently enacted tax rates.
S CORPORATION DIVIDENDS - Historically, the Company has paid dividends to
its shareholders in amounts which approximate the federal and state income
taxes that are due as a result of the Company electing to be taxed as an S
corporation as discussed above. In connection with the Offering, the
Company distributed to its former shareholders substantially all of the
undistributed cumulative income that had been taxed or was taxable to its
former shareholders. This dividend was paid from the proceeds of the
Offering.
FUTURE ACCOUNTING PRONOUNCEMENTS - In February 1997, the Financial
Accounting Standards Board issued SFAS No. 128, EARNINGS PER SHARE. SFAS
No.128 requires all companies whose capital structures include convertible
securities and options to make a dual presentation of basic and diluted
earnings per share (EPS) on the face of the income statements and requires
additional disclosures regarding the computation of EPS. The new standard
becomes effective for the interim statements issued after December 15,
1997. The effect on earnings per share for all periods reported is
immaterial.
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE
EARNING. SFAS No. 130 establishes requirements for disclosure of
comprehensive income and becomes effective for the Company's fiscal year
ending June 30, 1999. Reclassification of prior year financial statements
for comparative purposes is required.
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards
for disclosure about operating segments in annual financial statements and
selected information in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. The new standard becomes effective for the
Company's fiscal year ending June 30, 1999.
2 ACQUISITIONS
On August 28, 1996, the Company acquired Trend Circuits, Inc. ("Trend"), a
circuit board manufacturing company. The acquisition was accomplished by a
merger of Trend with and into Praegitzer. The purchase price included
$5,000,000 of cash and 1,000,000 shares of Praegitzer's common stock valued
at $10.65 per share.
The acquisition was accounted for under the purchase method of accounting
and, accordingly, the operating results of Trend from the date of purchase
are included in the Company's financial statements. The estimated fair
market value of assets and liabilities acquired was approximately
$9,600,000 and $11,900,000, respectively. The Company incurred a one-time
charge of $8,000,000 related to a portion of the purchase price allocated
to in-process technology which was expensed at the closing of the
transaction. The remaining excess of the aggregate purchase price over the
fair market value of the net assets acquired of $9,900,000 was recognized
as goodwill and is being amortized over eight years.
On November 15, 1995, Praegitzer acquired Circuit Technology, Inc. ("CTI"),
a circuit board manufacturing company. The acquisition was accomplished by
a merger of CTI with and into
- 25 -
<PAGE>
Praegitzer. The purchase price included $2,000,000 of cash and 700,000
shares of Praegitzer's common stock which was valued at $10.21 per share.
The acquisition has been accounted for under the purchase method of
accounting and, accordingly, the operating results of CTI have been
included in the Company's combined financial statements since the date of
acquisition. The estimated fair market value of assets and liabilities
acquired was approximately $8,000,000 and $7,300,000, respectively. The
excess of the aggregate purchase price over the fair market value of net
assets acquired of $8,400,000 was recognized as goodwill and is being
amortized over eight years. During the year ended June 30, 1997 the
Company recorded an impairment of goodwill related to CTI of $3,650,000
(See Note 8). The remaining goodwill is being amortized over the remaining
life at the time of the impairment.
The following unaudited pro forma results of operations assume the
acquisitions occurred on July 1, 1995:
YEAR ENDED JUNE 30,
--------------------------------
1997 1996
Revenue $ 152,334,303 $131,445,830
Net income (loss) (136,507) 11,712,538
Net income (loss) per share (0.01) 1.13
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the CTI and Trend
acquisitions been consummated as of July 1, 1995 nor is it necessarily
indicative of future operating results.
In April 1996, Praegitzer acquired all the assets and the related
liabilities of Praegitzer Property Group ("PPG") for net consideration of
$12,120,000. Praegitzer issued 1,369,875 shares of its common stock to the
sole proprietor of PPG. As the entities are commonly controlled, the
transaction was accounted for in a manner similar to a pooling of interests
which resulted in a restatement of prior years financial statements.
In addition, the Company acquired several other companies during the last
three years, which were not significant to its financial position or
results of operations. During 1997, two acquisitions were accounted for as
pooling of interests; however, prior period financial statements were not
restated because the retroactive effect was not material. All other
acquisitions were accounted for using the purchase method. Under the
purchase method, the results of operations of acquired companies are
included prospectively from the date of acquisition, and the acquisition
cost is allocated to the acquirees' assets and liabilities based upon their
fair market values at the date of the acquisition. To accomplish the
mergers a total of 330,000 shares were issued.
At June 30, 1997 and 1996, the net book value of goodwill associated with
acquisitions was $12,414,228 and $7,787,500, respectively, and is being
amortized on a straight-line basis over 8 years.
3. DISCONTINUED OPERATIONS
On July 1, 1993, the Company adopted a formal plan to sell its assembly
contract manufacturing division. On April 25, 1994, the sale of
substantially all of the assets of the assembly division was completed.
During 1996, the Company paid $612,000 in settlement of a prior contingency
related to the assembly division. This amount was recorded as a loss from
discontinued operations during the year ended June 30, 1996.
- 26 -
<PAGE>
4. INVENTORIES
Inventories consist of the following:
1997 1996
Raw materials and supplies $ 3,117,427 $ 1,824,463
Work-in-process 5,417,001 4,387,292
------------ ------------
Total inventories $ 8,534,428 $ 6,211,755
------------ ------------
------------ ------------
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
USEFUL JUNE 30,
LIFE ----------------------------
(YEARS) 1997 1996
<S> <C> <C> <C>
Land - $ 3,302,576 $ 489,729
Buildings and leasehold improvements 10 to 31 14,453,908 10,546,332
Equipment 3 to 10 42,770,430 34,393,561
Office furniture and fixtures 5 to 7 660,388 537,190
Projects in process - 1,669,207
Deposits on equipment - 2,962,150 949,724
------------- ------------
65,818,659 46,916,536
Less accumulated depreciation and
amortization (25,782,260) (22,120,831)
------------- ------------
Property and equipment $ 40,036,399 $ 24,795,705
------------- ------------
------------- ------------
</TABLE>
At June 30, 1997 and 1996, the Company had equipment of $3,678,970 and
$347,208, respectively, financed with capital leases. The total accumulated
amortization at June 30, 1997 and 1996 was $617,499, and $31,568,
respectively.
6. RESTRICTED CASH
Restricted cash at June 30, 1997 and 1996 consisted of $162,903 and
$155,956, respectively, reserved for payment of medical insurance claims
that may arise subsequent to termination of the Company's current insurance
contract. The June 30, 1996 balance included a $150,000 certificate of
deposit maintained as collateral for a note payable which was paid off in
August 1996. The Company has renewed the insurance contract through
June 30, 1998.
- 27 -
<PAGE>
7. OTHER ASSETS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Goodwill, net of accumulated amortization of $2,290,772
and $612,500 at June 30, 1997 and 1996, respectively $ 12,414,228 $ 7,787,500
Loan fees, net of accumulated amortization of $6,174
and $20,088 at June 30, 1997 and 1996, respectively 102,197 22,468
Other 58,474 -
------------- ------------
Total other assets $ 12,574,899 $ 7,809,968
------------- ------------
------------- ------------
</TABLE>
8. IMPAIRMENT OF GOODWILL
Effective July 1, 1996, the Company adopted SFAS 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
During the year ended June 30, 1997 the Company recorded an impairment of
$3,650,000 of certain goodwill associated with the CTI acquisition. The
impairment was due to the inability of the CTI operation (now Redmond
Division), which was purchased to serve as the Company's quick-turn
operation, to move its product mix from 75% production 25%
quick-turnaround. Further, it was anticipated that turning Redmond's
operation into a quick-turnaround operation would be very costly in both
time and cash flow. Recognizing the problem, the Company acquired Trend,
an operation that is 80% to 90% quick-turnaround. The Company plans to
utilize Trend for the bulk of its quick-turnaround requirements. This
resulted in an impairment of goodwill related to the CTI acquisition.
In determining the amount of the impairment charge, the Company developed
estimates of operating cash flows over the remaining business life cycle.
Future cash flows, excluding interest charges, were discounted using an
estimated 8% incremental borrowing rate.
- 28 -
<PAGE>
9. LONG-TERM NOTES PAYABLE
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Line of credit of $15,000,000 payable to Key Bank, 8.5% at June 30, 1997,
collateralized by inventory and accounts receivable, expires September 30, 1998 $12,447,658 $ 984,592
Note payable to Heller Financial, Inc., 8.4375% at June 30, 1997 payable in monthly
installments of $111,111 plus accrued interest at LIBOR plus 2.75%, collaterialized
by real property and equipment at the Dallas, Oregon facility due November 1, 2004 10,000,000 -
Note payable to Heller Financial, Inc., 8.2375% at June 30, 1997 payable in monthly
installments of $55,555 plus accrued interest at LIBOR plus 2.55%, collateralized by
real property and equipment at the White City, Oregon facility, due February 1, 2004 4,500,000 -
Note payable to Finova Capital Corporation, 9.93%, payable in 35 monthly installments
plus accrued interest, through August 1, 1999, $2.2 million due September 1, 1999 3,995,278 -
Mortgage payable to SeaFirst Mortgage Corporation, 8% at
September 30, 1996, rate varies based on six month certificates
of deposit plus 2.75%, payable in monthly installments of
$24,267 including interest, collateralized by plant facilities, paid May 1997 - 3,054,815
Notes payable to Oregon Department of Energy, 7.4% to 9.95%, due in monthly
installments of $22,489 including interest, collateralized by equipment and a
second deed of trust on land and facilities located in Dallas, Oregon and
personally guaranteed by a shareholder, paid August 1996 and May 1997 - 1,936,902
Notes payable to Heller Financial, Inc., 10.10% at June 30, 1996, interest rate
varies at highest defined rate announced by The First National Bank of Chicago
1.85%, due in monthly installments of $47,207 plus interest, collateralized
by machinery and equipment and personally guaranteed by a shareholder,
paid August 1996 - 1,333,374
Note payable to MetLife Capital Corporation, 7.67% at June 30, 1996, interest
rate varies at 30 day commercial paper rate plus 2.35%, payable in monthly
installments of $7,622 including interest, collateralized by a $150,000
certificate of deposit and a deed of trust on facilities located in
White City, Oregon, paid August 1996 - 943,783
Other notes payable, 7.06% to 11% at June 30, 1997 305,779 104,152
----------- ----------
Subtotal 31,248,715 8,357,618
Less current portion (2,917,466) (767,227)
----------- ----------
Total long-term notes payable $28,331,249 $7,590,391
----------- ----------
----------- ----------
</TABLE>
To reduce the risk of fluctuations in interest rates the Company entered
into an interest rate swap agreement with Key Bank during the year ended
June 30, 1997. The swap has a notional amount of $5 million and
effectively changes the Company's interest rate exposure on the Key Bank
lease line from a variable rate to a 6.10% fixed rate. This agreement
matures in 2003.
The Company's loan agreements with Heller Financial, Inc. and Key Bank
contain covenants pertaining to maintenance of tangible net worth and
maintenance of certain financial ratios. The Company was not in violation
of any covenants at June 30, 1997.
- 29 -
<PAGE>
Maturities on the notes payable as of June 30, 1997 were as follows:
YEAR ENDING JUNE 30,
------------------------------------------
1998 2,917,466
1999 15,398,938
2000 4,391,139
2001 1,032,231
2002 2,005,509
Thereafter 4,503,432
-----------
Total $31,248,715
-----------
-----------
10. COMMITMENTS AND CONTINGENCIES
CAPITAL LEASES
The Company has acquired certain equipment under capital lease obligations
bearing interest rates ranging from 9.25% to 13.69% and monthly
installments totaling $68,136 including interest at June 30, 1997 and
interest rates ranging from 10.4% to 12.75% and monthly installments
totaling $9,533 including interest at June 30, 1996.
OPERATING LEASES
Praegitzer leases buildings and equipment under operating lease agreements
which expire at various times through 2004.
The following table is a schedule of future minimum lease payments under
capital leases and future minimum rentals under operating lease agreements
at June 30, 1997:
CAPITAL OPERATING
YEAR ENDING JUNE 30, LEASES LEASES
------------------------------------------------
1998 647,125 5,743,945
1999 669,449 5,114,850
2000 666,751 4,331,883
2001 117,436 3,571,354
2002 - 3,460,389
Thereafter - 3,819,354
---------- -----------
Total $2,100,761 $26,041,775
---------- -----------
---------- -----------
Several of Praegitzer's operating leases contain renewal options.
Rent expense relating to the building and equipment leases totaled
$3,834,948, $796,642, and $1,072,481 for the years ended June 30, 1997,
1996, and 1995 respectively.
The Company is involved as a defendant in litigation in the ordinary course
of business, the outcome of which cannot be predicted with certainty.
Management believes that any ultimate liability with respect to such
litigation will not materially affect the financial position or results of
operations of the Company.
- 30 -
<PAGE>
11. RELATED-PARTY TRANSACTIONS
During the year ended June 30, 1996, the Company had notes payable to
shareholders of $3,337,960. The notes payable represented the
undistributed cumulative income that had been taxed or was taxable to the
previous shareholders of PDI and CTI, who are now shareholders of
Praegitzer. The notes payable were repaid in April 1996.
12. INCOME TAXES
The following information reflects income taxes on the Company's earnings
from April 4, 1996 the date of the closing of the Company's initial
offering of common stock to the public, to June 30, 1996 and for the year
ended June 30, 1997. The Company terminated its S corporation election on
April 4, 1996 and is now taxed as a C corporation. The following
information also includes unaudited pro forma information as if the
Company's earnings from continuing operations had been subject to federal
and state income taxes as a C corporation for all periods presented.
<TABLE>
<CAPTION>
(UNAUDITED)
PRO FORMA
YEAR ENDED PERIOD APRIL 4, 1996- YEAR ENDED JUNE 30,
JUNE 30, 1997 JUNE 30, 1996 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal $ 1,126,752 $ 891,000 $4,278,000 $ 946,858
State 68,732 52,000 742,000 -
------------ ---------- ---------- ----------
1,195,484 943,000 5,020,000 946,858
Deferred:
Federal 425,676 466,000 (595,000) (299,874)
State 48,649 36,000 47,000 43,881
------------ ---------- ---------- ----------
474,325 502,000 (548,000) (255,993)
------------ ---------- ---------- ----------
$ 1,669,809 $1,445,000 $4,472,000 $ 690,865
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------
</TABLE>
The income tax provision on earnings from continuing operations subsequent
to the date of the Offering which are subject to income taxes and the pro forma
tax provision on earnings from continuing operations subject to income taxes
differs from the statutory federal income tax rate due to the following:
- 31 -
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
PRO FORMA
YEAR ENDED PERIOD APRIL 4, 1996- YEAR ENDED JUNE 30,
JUNE 30, 1997 JUNE 30, 1996 1996 1995
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal income taxes at the staturtory rate $ (2,320,744) $ 1,402,000 $ 4,118,000 $ 637,972
State income tax, net of federal benefit (265,228) 67,000 323,000 81,811
Tax credits utilized (626,778) (23,000) (171,000) (39,084)
Goodwill 4,856,150 - - -
Other 26,409 (1,000) 202,000 10,166
------------- ------------ ------------ ----------
$ 1,669,809 $ 1,445,000 $ 4,472,000 $ 690,865
------------- ------------ ------------ ----------
------------- ------------ ------------ ----------
</TABLE>
Pro forma income taxes related to discontinued operations differs from the
statutory rate primarily due to state income taxes, net of federal benefit.
The significant items comprising the Company's net deferred tax liability
are as follows:
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
---------------------------------
Reserves and other liabilities $ 415,777 $ 493,000
Other 268,986 117,000
Property, plant and equipment (2,362,657) (1,112,000)
------------ ------------
$ (1,677,894) $ (502,000)
------------ ------------
------------ ------------
Net deferred tax assets and liabilities are included in the following
balance sheet accounts at June 30, 1997 and 1996:
1997 1996
--------------------------------
Current deferred asset $ 628,532 $ 394,000
Deferred tax liability (2,306,426) (896,000)
-------------- ------------
Net deferred tax liability $ (1,677,894) $ (502,000)
-------------- ------------
-------------- ------------
13. MAJOR CUSTOMERS
For the year ended June 30, 1997 the Company recognized 12% of total
revenue from one customer. For the years ended June 30, 1996 and 1995, the
Company recognized 23% and 29% of total revenue, respectively, from two
customers.
14. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan which covers all employees and permits
discretionary contributions by the participants. The Company has
contributed approximately $132,588 and $251,188 to the plan for the years
ended June 30, 1997 and 1996. The Company had not contributed to the plan
on behalf of the employees prior to June 30, 1995.
- 32 -
<PAGE>
15. STOCK INCENTIVE PLAN AND STOCK WARRANTS
Under the Company's Stock Incentive Plan, the Board of Directors may grant
incentive and non-qualified options, stock bonuses, restricted stock, stock
appreciation rights, and cash bonus rights to employees and directors to
purchase up to 1,500,000 shares of common stock. The Stock Incentive Plan
shall continue in effect until all shares available for issuance have been
issued. However, the Board of Directors can suspend or terminate the Stock
Incentive Plan at any time except with respect to options and shares
subject to restrictions then outstanding under the Stock Incentive Plan.
Under the Stock Incentive Plan, the option price is equal to fair market
value at the grant date. Options currently expire no later than ten years
from the grant date and generally vest after four years
The following table summarizes the stock option activity under the
Company's option plan:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
---------------------------------------------------------------
OPTIONS OUTSTANDING AT JUNE 30, 1995 -
Granted 667,000 $ 9.56
---------
OPTIONS OUTSTANDING AT JUNE 30, 1996 667,000 9.56
Granted 499,563 9.84
Canceled (68,800) 9.51
Exercised (12,000) 9.50
---------
OPTIONS OUTSTANDING AT JUNE 30, 1997 1,085,763 $ 9.80
---------
---------
Options exercisable at:
June 30, 1996 - -
June 30, 1997 130,357 $ 9.69
The range of exercise prices for options outstanding at June 30, 1997 was
$8.375-$13.3125. Options available for grant at June 30, 1997 totaled
402,237.
The Company has elected to account for its stock based compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees;" however, as required by SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company has computed for pro forma
disclosure purposes the value of options granted during the years ended
June 30, 1997 and 1996 using the Black-Scholes option pricing model. The
weighted average assumptions used for stock option grants in 1997 and 1996
were a risk free interest rate of 6.44% and 6.19%, respectively, no
expected dividend yield, an expected life of 6 years and 6.5 years,
respectively, and an expected volatility of 44% and 52%, respectively. The
weighted average estimated fair value of employee stock options granted
during the years ended June 30, 1997 and 1996 was $5.13 and $5.67 per
share, respectively.
If the Company had accounted for the plan in accordance with SFAS No. 123,
the Company's net income and pro forma net income per share would have been
reported as follows:
- 33 -
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1997 1996
<S> <C> <C>
Net income (loss) as reported, 1996 pro forma $ (8,300,507) $ 6,916,137
Pro forma net income (loss) $ (8,992,908) $ 6,512,685
Pro forma net income (loss) per share $ (0.74) $ 0.71
</TABLE>
The effects of applying SFAS No. 123 for providing pro forma disclosures
for the years ended June 30, 1997 and 1996 are not likely to be
representative of the effects on reported net income and earnings per share
for future years since options vest over several years and additional
awards are made each year.
The Company has an Employee Stock Purchase Plan ("ESPP"). Under the ESPP
employees may purchase shares of the Company's common stock at 85% of fair
market value at specific, predetermined dates. There are 250,000
authorized to be issued under the ESPP.
In connection of the acquisition of CTI (see Note 2), Praegitzer issued
stock warrants to purchase 46,333 shares of common stock to the former
shareholders of CTI. The warrants can be exercised at $12 per share and
expire in 2006. At June 30, 1997, no shares had been purchased under the
stock warrants.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of long-term debt has been estimated by discounting
projected future cash flows, using current rate at which similar loans
would be made to borrowers with similar credit ratings and for the same
maturities. Current maturities of long-term debt were included and capital
lease obligations were excluded. The fair value of the Company's long-term
debt is estimated to be $31,944,045, or 102.2% of the carrying value of
$31,248,714 at June 30, 1997 and $8,400,289, or 100.5% of the carrying
value of $8,357,617 at June 30, 1996. The fair value of the Key Bank
interest rate swap is estimated to be $5,189,703 or 109.2% of the carrying
value of $4,753,683 at June 30, 1997.
17. PRO FORMA EARNINGS PER SHARE (UNAUDITED)
Pro forma net income per share is based on the weighted average number of
shares of common stock outstanding and dilutive common equivalent shares
from stock options (using the treasury stock method). The shares
outstanding for all periods give effect to the following pro forma
adjustments:
YEAR ENDED JUNE 30,
-----------------------------
1996 1995
Average outstanding shares 7,161,872 6,717,000
Common stock equivalents - net 40,024 -
Shares deemed issued for S
corporation dividend 538,462 736,842
Shares issued for merger of PPG 1,369,875 1,369,875
--------- ---------
Pro forma average shares 9,110,233 8,823,717
--------- ---------
--------- ---------
Common and common equivalent shares issued during the 12-month period prior
to the proposed offering have been included in the calculation using the
treasury stock method as if they were outstanding for all periods
presented.
- 34 -
<PAGE>
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
In the opinion of management, this unaudited quarter financial summary
includes all adjustments, which are of a normal and recurring nature,
necessary to present fairly the financial position, the results of
operations, and the cash flows of the Company for the periods represented,
with the exception of the one-time charges reported in the quarter ended
September 30, 1996, see further discussion in Notes 2 and 8 (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1997 1997
<S> <C> <C> <C> <C>
Net sales $ 29,449 $ 34,791 $ 38,303 $ 45,405
Gross profit 5,086 6,965 5,208 8,677
Income (loss) from operations (9,846) 2,172 (50) 2,823
Income (loss) before taxes (10,088) 1,900 (801) 2,361
Net income (loss) (10,673) 1,185 (546) 1,736
Net income (loss) per share (0.93) 0.10 (0.04) 0.14
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996
<S> <C> <C> <C> <C>
Net sales $ 17,951 $ 22,618 $ 25,778 $ 28,754
Gross profit 3,954 4,966 5,977 7,263
Income from operations 2,540 2,839 3,717 4,168
Income before taxes 2,103 2,445 2,602 4,005
Pro forma net income 1,262 1,480 1,653 2,521
Pro forma earnings per share 0.14 0.16 0.22 0.23
</TABLE>
- 35 -
<PAGE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of the Company is included under
"Election of Directors" in the Company's definitive Proxy Statement for its
Annual Meeting of Stockholders filed or to be filed not later than 120 days
after the end of the fiscal year covered by this Report and is incorporated
herein by reference.
For information concerning the executive officers of the Company, see
"Executive Officers of the Registrant" under Part I of this report.
Information with respect to Section 16(a) of the Securities Exchange Act is
included under "Compliance with Section 16(a) of the Exchange Act" in the
Company's definitive Proxy Statement for its 1997 Annual Meeting of Stockholders
filed or to be filed not later than 120 days after the end of the fiscal year
covered by this Report and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is included under
"Executive Compensation" in the Company's definitive Proxy Statement for its
1997 Annual Meeting of Stockholders filed or to be filed not later than 120 days
after the end of the fiscal year covered by this Report and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners
and management is included under "Voting Securities and Principal Shareholders"
in the Company's definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders filed or to be filed not later than 120 days after the end of the
fiscal year covered by this Report and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions
with management is included under "Certain Relationships and Related
Transactions" in the Company's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders filed or to be filed not later than 120 days after the
end of the fiscal year covered by this Report and is incorporated herein by
reference.
- 36 -
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. FINANCIAL STATEMENTS:
The following consolidated financial statements are included in Item 8:
Independent Auditors' Report
Balance Sheets as of June 30, 1997 and 1996
Statements of Operations for the years ended June 30, 1997, June 30, 1996 and
June 30, 1995
Statements of Cash Flows for the years ended June 30, 1997, June 30, 1996 and
June 30, 1995
Statements of Shareholders' Equity for the years ended June 30,1997, June 30,
1996 and June 30, 1995
Notes to Financial Statements
(a)2. FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted since they are either not required or the
information is otherwise included.
(a)3. EXHIBITS:
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3(i) Restated Articles of Incorporation (Incorporated by reference to
Exhibit 3(i) of the Company's Registration Statement on Form S-1,
Registration No. 333-01228 (the "Form S-1")
3(i)(a) Form of Second Amended and Restated Articles of Incorporation
(Incorporated by reference to Exhibit 3(i)(a) of the Form S-1)
3(ii) Bylaws (Incorporated by reference to Exhibit 3(ii) of the Form S-1)
4.1 See Article II of Exhibit 3(i)(a) and Articles II and V of Exhibit
3(ii)
10.1 * 1995 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1
of the Form S-1)
10.2 Form of Incentive Stock Option Agreement (Incorporated by reference to
Exhibit 10.2 of the Form S-1)
10.3 Form of Nonstatutory Stock Option Agreement (Incorporated by reference
to Exhibit 10.3 of the Form S-1)
10.4 Borrowing Agreement between the Registrant and Key Bank dated August
18, 1996 (Incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q for Quarter Ending September 30, 1996)
- 37 -
<PAGE>
10.5 Borrowing Agreement between the Registrant and Heller Financial dated
August 22, 1996 (Incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for Quarter Ending September
30, 1996)
10.6 Borrowing Agreement between the Registrant and Finova Capital dated
July 19, 1996 (Incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for Quarter Ending September
30, 1996)
10.7 Swap Agreement between the Registrant and Key Bank dated December 10,
1996 (Incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q for Quarter Ending December 31, 1996)
10.8 Borrowing Agreement between the Registrant and Heller Financial dated
May 30, 1997
10.9 10.9 Lease Agreement between CTI and Seapointe Development, Inc. dated
April 1989 and amendments thereto (Incorporated by reference to
Exhibit 10.13 of the Form S-1)
10.10 Lease between CTI and Redmond Quadrant Associates, LP dated June 15,
1995 (Incorporated by reference to Exhibit 10.14 of Form S-1)
10.11 Borrowing Agreement between the Registrant and Key Bank dated April
12, 1996 (Incorporated by reference to Exhibit 10.11 of the Company's
Annual Report on Form 10-K for Fiscal Year 1996 ("1996 Form 10-K"))
10.12 Merger Agreement between the Registrant and Trend dated August 16,
1996 (Incorporated by reference to Exhibit 2.1 of the Company's Form
8-K filed September 11, 1996)
10.13* Employment Agreement between the Registrant and Robert L.
Praegitzer dated November 17, 1995 (Incorporated by reference to
Exhibit 10.20 of the Company's Registration Statement on Form
S-1)
10.14* Employment Agreement between the Registrant and Robert G.
Baldridge dated November 17, 1995 (Incorporated by reference to
Exhibit 10.21 of the Company's Registration Statement on Form
S-1)
10.15* Employment Agreement between the Registrant and Charles N. Hall
dated November 17, 1995 (Incorporated by reference to Exhibit
10.22 of the Company's Registration Statement on Form S-1)
10.16* Employment Agreement between the Registrant and Daniel J. Barnett
dated August 26, 1996 the Company's Registration on Form S-1)
10.17 The 1996 Employee Stock Purchase Plan
27 FINANCIAL DATA SCHEDULE (ELECTRONIC FILING)
- --------------------------------------------------------------------------------
* Represents a compensatory plan.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1997.
- 38 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PRAEGITZER INDUSTRIES, INC.
BY:
-----------------------------------
Robert L. Praegitzer
Chairman of the Board, President,
Chief Executive Officer
Dated: September 26, 1997
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below appoints Matthew J. Bergeron as his true and lawful attorney-in-fact and
agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
Chairman of the Board, September 26, 1997
- ------------------------ President, Chief
Robert L. Praegitzer Executive Officer
Executive Vice President, September 26, 1997
- ------------------------ Chief Operating Officer
Matthew J. Bergeron and Director
Director September 26, 1997
- ------------------------
Charles N. Hall
Director September 26, 1997
- ------------------------
Robert G. Baldridge
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<PAGE>
Senior Vice President, September 26, 1997
- ------------------------ Director
Daniel J. Barnett
Director September 26, 1997
- ------------------------
T.L. Stebbins
Director September 26, 1997
- ------------------------
William Healey
- 40 -
<PAGE>
Loan No. 1910069-0004
---------------------
[Heller Logo]
PROMISSORY NOTE
$10,000,000.00 May 30, 1997
FOR VALUE RECEIVED, PRAEGITZER INDUSTRIES, INC., an Oregon corporation
("MAKER"), promises to pay to the order of HELLER FINANCIAL, INC., a Delaware
corporation (together with any holder of this Note, "PAYEE"), at its office
located at 500 West Monroe Street, Chicago, Illinois 60661, or at such other
place as Payee may from time to time designate, the principal sum of Ten
Million and 00/100 Dollars ($10,000,000.00), together with interest thereon
at a rate per annum equal to the One Month LIBOR Rate (hereafter defined),
PLUS two and 75/100 percent (2.75%), payable in ninety (90) consecutive
monthly installments of principal plus interest commencing July 1, 1997, and
continuing on the same day of each consecutive calendar month thereafter
until this Note is fully paid. The first eighty-nine (89) such monthly
installments shall each be in the principal amount of one hundred eleven
thousand one hundred eleven and 11/100 Dollars ($111,111.11), plus accrued
interest, and the final monthly installment shall be in the principal amount
of one hundred eleven thousand one hundred eleven and 21/100 Dollars
($111,111.21), plus accrued interest. All payments shall be applied first to
interest and then to principal. Interest shall be computed on the basis of a
360-day year and charged for the actual number of days elapsed.
For purposes of this Note, "ONE MONTH LIBOR RATE" means, for each
calendar month, a rate of interest equal to:
(a) the rate of interest determined by Payee at which deposits in
U.S. Dollars are offered for the one (1) month interest period based on
information presented on the Reuters Screen LIBO Page as of 11:00 A.M. (London
time) on the day which is two (2) business days (defined as any day other
than a Saturday or Sunday or holiday on which commercial banks in London,
England and New York City, New York, are authorized to close) prior to the
first day of each calendar month; provided that if at least two such offered
rates appear on the Reuters Screen LIBO Page in respect of such interest
period, the arithmetic mean of all such rates (as determined by Payee) will
be the rate used; provided further that if there are fewer than two offered
rates or Reuters ceases to provide LIBOR quotations, such rate shall be the
average rate of interest determined by Payee at which deposits in U.S.
Dollars are offered for the one (1) month interest period by Bankers Trust
Company and The Chase Manhattan Bank and National Association (or their
respective successors) to banks with combined capital and surplus in excess
of $500,000,000 in the London interbank market as of 11:00 A.M. (London time)
on the applicable interest rate determination date, divided by
(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) business days prior to the
beginning of each calendar month (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the
Board of Governors of the Federal Reserve System or other governmental
authority having jurisdiction with respect thereto, as now and from time to
time in effect) for Eurocurrency funding (currently referred to as
"Eurocurrency liabilities" in Regulation D of such Board) which are required
to be maintained by a member bank of the Federal Reserve System;
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<PAGE>
(such rate to be adjusted to the nearest one sixteenth of one percent
(1/16 of 1%) or, if there is no nearest one sixteenth of one percent (1/16 of
1%), to the next higher one sixteenth of one percent (1/16 of 1%)).
For the initial funding month (or any fraction thereof) under this Note,
the applicable floating rate shall be the One Month LIBOR Rate in effect on
the day of funding, with interest payable in arrears and calculated daily on
the basis of a 360 day year for the actual number of days elapsed during such
calendar month.
Notwithstanding the foregoing, if at any time implementation of any
provision hereof shall cause the interest contracted for or charged herein or
collectable hereunder to exceed the applicable lawful maximum rate, then the
interest shall be limited to such applicable lawful maximum.
This Note is secured by the collateral described in the Trust Deed,
Security Agreement, Assignment of Leases and Rents and Fixture Filing dated
May 30, 1997, made by Maker as "Grantor" in favor of Oregon Title Insurance
Company, an Oregon corporation, as "Trustee" and Payee as "Beneficiary" (the
"TRUST DEED") and in the Security Agreement dated May 30, 1997, between Maker
and Payee (the "SECURITY AGREEMENT;" and together with the Trust Deed and all
documents and instruments related to this Note, the Trust Deed and/or the
Security Agreement, the "LOAN DOCUMENTS") to which reference is made for a
statement of the nature and extent of protection and security afforded,
certain rights of Payee and certain rights and obligations of Maker,
including Maker's rights, if any, to prepay the principal balance hereof.
Time is of the essence hereof. If payment of any installment or any
other sum due under this Note or the Loan Documents is not paid when due,
Maker agrees to pay a late charge equal to the lesser of (i) five cents (5
cents) per dollar on, and in addition to, the amount of each such payment, or
(ii) the maximum amount Payee is permitted to charge by law. In the event of
the occurrence of an Event of Default (as defined in the Security Agreement),
then the entire unpaid principal balance hereof with accrued and unpaid
interest thereon, together with all other sums payable under this Note or the
Loan Documents, shall, at the option of Payee and without notice or demand,
become immediately due and payable, such accelerated balance bearing interest
until paid at the rate of six percent (6%) per annum above the One Month
LIBOR Rate.
Maker and all endorsers, guarantors or any others who may at any time
become liable for the payment hereof hereby consent to any and all extensions
of time, renewals, waivers and modifications of, and substitutions or release
of security or of any party primarily or secondarily liable on, or with
respect to, this Note or any of the Loan Documents or any of the terms and
provisions thereof that may be made, granted or consented to by Payee, and
agree that suit may be brought and maintained against any one or more of
them, at the election of Payee, without joinder of the others as parties
thereto, and that Payee shall not be required to first foreclose, proceed
against, or exhaust any security herefor, in order to enforce payment of this
Note by any one or more of them. Maker and all endorsers, guarantors or any
others who may at any time become liable for the payment hereof hereby
severally waive presentment, demand for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor, and all other notices in
connection with this Note, filing of suit and diligence in collecting this
Note or enforcing any of the security herefor, and, without limiting any
provision of any of the Loan Documents, agree to pay, if permitted by law,
all expenses incurred in collection, including reasonable attorneys' fees,
and hereby waive all benefits of valuation, appraisement and exemption laws.
If there be more than one Maker, all the obligations, promises,
agreements and covenants of Maker under this Note are joint and several.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. AT PAYEE'S ELECTION AND WITHOUT LIMITING
PAYEE'S RIGHT TO COMMENCE AN ACTION IN ANY OTHER JURISDICTION,
2
<PAGE>
MAKER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURT
(FEDERAL, STATE OR LOCAL) HAVING SITUS WITHIN THE STATE OF ILLINOIS,
EXPRESSLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE BY
CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED TO THE CHIEF FINANCIAL OFFICER OF
MAKER AT THE LAST KNOWN ADDRESS OF MAKER, WHICH SERVICE SHALL BE DEEMED
COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF.
MAKER HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE. THIS WAIVER IS INFORMED AND
FREELY MADE. MAKER ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT IT HAS ALREADY RELIED ON THE WAIVER
IN ENTERING INTO THIS NOTE, AND THAT IT WILL CONTINUE TO RELY ON THE WAIVER
IN ITS RELATED FUTURE DEALINGS. MAKER FURTHER WARRANTS AND REPRESENTS THAT
IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
Witness/Attest: PRAEGITZER INDUSTRIES, INC.,
an Oregon corporation
/s/ Charles R. Markley By: /s/ Matthew J. Bergeron
- ---------------------- ---------------------------
Name: Matthew J. Bergeron
-------------------------
Title: Chief Operating Officer
------------------------
3
<PAGE>
Loan No.: 1910069-0004
--------------
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("AGREEMENT") is made this 30th day of May 1997, by
and between PRAEGITZER INDUSTRIES, INC., an Oregon corporation ("DEBTOR"),
whose business address is 1270 Monmouth Cutoff, Dallas, Oregon 97338, and
HELLER FINANCIAL, INC., a Delaware corporation ("SECURED PARTY"), whose
address is Commercial Equipment Finance Division, 500 West Monroe Street,
Chicago, Illinois 60661.
WITNESSETH:
1. SECURE PAYMENT. To secure payment of indebtedness in the principal sum
of up to Ten Million and 00/ 100 Dollars ($10,000,000.00), as evidenced by a
note or notes executed and delivered by Debtor to Secured Party (the "NOTES")
and any obligations now or hereafter arising under the Loan Documents (as
defined below) (all the foregoing hereinafter called the "INDEBTEDNESS"),
Debtor hereby grants and conveys to Secured Party a first priority continuing
lien and security interest in the property described on the Schedule(s)
attached hereto (the "SCHEDULES"), all products and proceeds (including
insurance proceeds) thereof, if any, and all substitutions, replacements,
attachments, additions, and accessions thereto, all or any of the foregoing
hereinafter called the "COLLATERAL." The Schedules may be supplemented from
time to time to evidence the Collateral subject to this Agreement.
2. WARRANTIES, REPRESENTATIONS AND COVENANTS. Debtor warrants, represents,
covenants and agrees as follows:
(a) PERFORM OBLIGATIONS. Debtor shall pay as and when due all of the
Indebtedness secured by this Agreement and perform all of the obligations
contained in this Agreement according to its terms. Debtor shall use the
loan proceeds for business uses and not for personal, family, household, or
agricultural uses.
(b) PERFECTION. This Agreement creates a valid and first priority
continuing lien and security interest in the Collateral, securing the payment
and performance of the Indebtedness and, assuming UCC-1 financing statements
describing the Collateral in substantially the same manner as described on
the attached Schedule A is duly filed with
1
<PAGE>
the Secretary of State of the State of Oregon and with the official real
estate records of the County of Polk, Oregon, all actions necessary to
perfect such security interest have been duly taken.
(c) COLLATERAL FREE AND CLEAR. Except as may be set forth on the
Schedules, Debtor shall keep the Collateral free and clear of all liens,
claims, charges, encumbrances and other security interests of any kind (other
than the security interest granted hereby and any lien securing payment of ad
valorem property taxes, fees or assessments that are not delinquent). Debtor
shall defend the title to the Collateral against all persons and against all
claims and demands whatsoever. At the request of Secured Party, Debtor shall
furnish further assurance of title, execute any written agreement and do any
other acts necessary to effectuate the purposes and provisions of this
Agreement, including in order to perfect, continue, or terminate the security
interest of Secured Party in the Collateral, and pay all costs in connection
therewith.
(d) POSSESSION AND OPERATING ORDER OF THE COLLATERAL. Subject to
Secured Party's rights and remedies upon the occurrence of an Event of
Default (defined below), Debtor shall retain possession of the Collateral at
all times and shall not sell, exchange, assign, loan, deliver, lease,
mortgage, or otherwise dispose of the Collateral or any part thereof without
the prior written consent of Secured Party, provided, however, that (i) in
each succeeding yearly period following the date of this Agreement (each such
yearly period shall begin on the date of this Agreement or an anniversary
date thereof, as the case may be, and end on the day immediately preceding
the next anniversary date of this Agreement), Debtor shall be permitted to
sell or otherwise transfer for consideration to an unaffiliated entity items
of Collateral with a fair market value, in the aggregate, of a maximum amount
of Fifty Thousand and 00/100 Dollars ($50,000.00), and (ii) Debtor may
encumber items of Collateral acquired by Debtor after the date hereof ("AFTER
ACQUIRED COLLATERAL") if (1) such After Acquired Collateral is not a
replacement or substitution of any item(s) of Collateral existing on the date
hereof (where "replacement" and "substitution" means situations in which the
After Acquired Collateral serves the same function or service as Collateral
existing on the date hereof (regardless of whether it also serves other
functions) and such Collateral existing on the date hereof is no longer in
service by Debtor at its operations in Dallas, Oregon), or an attachment,
addition or accession to any item(s) of Collateral existing on the date
hereof that can not reasonably be removed without materially and adversely
affecting the value or utility of the items of Collateral existing on the
date hereof, and (2) such encumbrance is a purchase money security interest
(as defined in the Uniform Commercial Code) with respect to such After
Acquired Collateral, that is duly perfected on, before or within ninety (90)
days after the date Debtor first receives possession of such After Acquired
Collateral, and, upon request therefor from Debtor, Secured Party will
subordinate its security interest arising hereunder in such After Acquired
Collateral pursuant to a subordination agreement in form and substance
satisfactory to Secured Party. Debtor shall at all times keep the Collateral
at the location[s] specified on the Schedules (except for removals thereof in
the
2
<PAGE>
usual course of business for temporary periods). At Debtor's sole cost and
expense, Debtor shall also keep the Collateral in good repair and condition
and shall not misuse, abuse, waste or otherwise allow it to deteriorate,
except for normal wear and tear. Secured Party may verify any Collateral in
any reasonable manner which Secured Party may consider appropriate, and
Debtor shall furnish all reasonable assistance and information and perform
any acts which Secured Party may reasonably request in connection therewith.
(e) INSURANCE. Debtor shall insure the Collateral against loss by fire
(including extended coverage), theft and other hazards (not including flood
or earth movement), for its full insurable value including replacement costs,
with a deductible not to exceed One Hundred Thousand and 00/100 Dollars
($100,000.00) per occurrence and without co-insurance. In addition, Debtor
shall obtain liability insurance covering liability for bodily injury,
including death and property damage, in an amount of at least Five Million
and 00/100 Dollars ($5,000,000.00) per occurrence or such greater amount as
may comply with general industry standards, or in such other amounts as
Secured Party may otherwise require. All policies of insurance required
hereunder shall be in such form, amounts, and with such companies as Secured
Party may approve; shall provide for at least thirty (30) days prior written
notice to Secured Party prior to any modification or cancellation thereof;
shall name Secured Party as loss payee or additional insured, as applicable,
and shall be payable to Debtor and Secured Party as their interests may
appear; shall waive any claim for premium against Secured Party; and, with
respect to the policies insuring against loss by fire, theft and other
hazards, shall provide that no act or neglect of Debtor shall invalidate the
coverage afforded thereunder to Secured Party, and with respect to liability
insurance policies, shall provide coverage unless Debtor intentionally fails
to disclose all hazards existing as of the inception of the policy.
Certificates of insurance or policies evidencing the insurance required
hereunder along with satisfactory proof of the payment of the premiums
therefor shall be delivered to Secured Party who is authorized but under no
duty, to obtain such insurance upon failure of Debtor to do so. Debtor shall
give immediate written notice to Secured Party and to insurers of loss or
damage to the Collateral and shall promptly file proofs of loss with
insurers. Debtor hereby irrevocably appoints Secured Party as Debtor's
attorney-in-fact, coupled with an interest, for the purpose of obtaining,
adjusting and canceling any such insurance and endorsing settlement drafts.
Debtor hereby assigns to Secured Party, as additional security for the
Indebtedness, all sums which may become payable under such insurance.
(f) IF COLLATERAL ATTACHES TO REAL ESTATE. If the Collateral or any
part thereof has been attached to or is to be attached to real estate, an
accurate description of the real estate and the name and address of the
record owner is set forth on the Schedules. Debtor shall, on demand of
Secured Party, furnish Secured Party with a disclaimer or waiver of any
interest in any such Collateral satisfactory to Secured Party and signed by
all persons other than Debtor having an interest in the real estate.
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<PAGE>
(g) FINANCIAL STATEMENTS. Debtor shall furnish to Secured Party, as
soon as practicable, and in any event within sixty (60) days after the end of
each fiscal quarter of Debtor and each guarantor of all or any part of the
Indebtedness (each, a "GUARANTOR"), respectively, Debtor's and each
Guarantor's unaudited financial statements including in each instance,
balance sheets, income statements, and statements of cash flow, on a
consolidated and consolidating basis, as appropriate, and separate profit and
loss statements as of and for the quarterly period then ended and for the
respective person's fiscal year to date, prepared in accordance with
generally accepted accounting principles, consistently applied ("GAAP").
Debtor shall also furnish to Secured Party, as soon as practicable, and in
any event within ninety (90) days after the end of each fiscal year of Debtor
and each Guarantor, respectively, Debtor's and each Guarantor's annual
audited financial statements, including balance sheets, income statements and
statements of cash flow for the fiscal year then ended, on a consolidated and
consolidating basis, as appropriate, which have been prepared by its
independent accountants in accordance with GAAP. Such audited financial
statements shall be accompanied by the independent accountant's opinion,
which opinion shall be in form generally recognized as "unqualified."
(h) AUTHORIZATION. Debtor is now, and will at all times remain, duly
licensed, qualified to do business and in good standing in every jurisdiction
where failure to be so licensed or qualified and in good standing would have
a material adverse effect on its business, properties or assets. Debtor has
the power to authorize, execute and deliver this Agreement, the Notes and any
other documents and instruments relating thereto (the Agreement, Notes and
other documents and instruments, all as amended from time to time, are
hereafter collectively referred to as the "LOAN DOCUMENTS"), to incur and
perform obligations hereunder and thereunder, and to grant the security
interests created hereby. As of the time of delivery thereof to Secured
Party, the Loan Documents will have been duly authorized, executed, and
delivered by or on behalf of Debtor, and will constitute the legal, valid,
and binding obligations of Debtor, enforceable against Debtor in accordance
with their respective terms. Debtor shall preserve and maintain its existence
and shall not wind up its affairs or otherwise dissolve. Debtor shall not,
without thirty (30) days prior written notice to Secured Party, (1) change
its name or so change its structure such that any financing statement or
other record notice becomes misleading or (2) change its principal place of
business or chief executive or accounting offices from the address stated
herein.
(i) LITIGATION. There are no actions, suits, proceedings, or
investigations ("LITIGATION") pending or, to the knowledge of Debtor,
threatened against Debtor or otherwise affecting the Collateral other than as
disclosed in Schedule 2(i) attached hereto. Debtor shall promptly notify
Secured Party in writing of Litigation against it if: (1) the outcome of such
Litigation may materially or adversely affect the finances or operations of
Debtor (for purposes of this provision, Five Hundred Thousand and 00/100
Dollars
4
<PAGE>
($500,000.00) shall be deemed material) or (2) such Litigation questions the
validity of any Loan Document or any action taken or to be taken pursuant
thereto. Debtor shall furnish to Secured Party such information regarding
any such Litigation as Secured Party shall reasonably request.
(j) NO CONFLICTS. Debtor is not in violation of any material term or
provision of its by-laws, or of any material agreement or instrument, or of
any judgment, decree, order, or any statute, rule, or governmental regulation
applicable to it. The execution, delivery, and performance of the Loan
Documents do not and will not violate, constitute a default under, or
otherwise conflict with any such term or provision or result in the creation
of any security interest, lien, charge, or encumbrance upon any of the
properties or assets of Debtor, except for the security interest herein
created.
(k) COMPLIANCE WITH LAWS. Debtor shall use and maintain the Collateral
in a lawful manner in accordance with all applicable laws, regulations,
ordinances, and codes and shall otherwise comply in all material respects
with all applicable laws, rules, and regulations and duly observe all valid
requirements of all governmental authorities, and all statutes, rules and
regulations relating to its business, including (i) the Internal Revenue Code
of 1986, as amended from time to time, (ii) all federal, state, and local
laws, rules, regulations, orders, and decrees relating to health, safety,
hazardous substances, and environmental matters, including the Resource
Recovery and Reclamation Act of 1976, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, the Toxic Substances
Control Act, the Clean Water Act of 1977, and the Clean Air Act, all as
amended from time to time (collectively, "ENVIRONMENTAL LAWS"), (iii) the
Employees Retirement Income Security Act of 1974, as amended from time to
time, and (iv) the Fair Labor Standards Act, as amended from time to time.
(1) TAXES. Debtor has timely filed all tax returns (federal, state,
local, and foreign) required to be filed by it and has paid or established
reserves for all taxes, assessments, fees, and other governmental charges in
respect of its properties, assets, income and franchises. Debtor shall
promptly pay and discharge all taxes, assessments, license fees (related to
the Collateral) and other governmental charges prior to the date on which
penalties are attached thereto, establish adequate reserves for the payments
of such taxes, assessments, and other governmental charges and make all
required withholding and other tax deposits, and, upon request, provide
Secured Party with receipts or other proof that any or all of such taxes,
assessments, license fees or governmental charges have been paid in a timely
fashion; provided, however, that nothing contained herein shall require the
payment of any tax, assessment, or other governmental charge so long as its
validity is being diligently contested in good faith and by appropriate
proceedings diligently conducted and Debtor has established cash reserves
therefor in accordance with GAAP. Should any stamp, excise, or other tax,
including mortgage, conveyance, deed, intangible, or recording taxes become
payable in connection with or respect of any of the Loan
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Documents, Debtor shall pay the same (including interest and penalties, if
any) and shall hold Secured Party harmless with respect thereto.
(m) ENVIRONMENTAL LAWS. Except as disclosed by Debtor (or Debtor's
representative or agent) in writing to Secured Party's counsel (including
internal counsel) on or prior to the date hereof, Debtor has (1) not received
any summons, complaint, order, or other notice that it is not in compliance
with, or that any public authority is investigating its compliance with, any
Environmental Laws and (2) no knowledge of any material violation of any
Environmental Laws on or about its assets or property. Debtor shall provide
Secured Party, promptly following receipt, copies of any correspondence,
notice, complaint, order, or other document that it receives asserting or
alleging a circumstance or condition which requires or may require a cleanup,
removal, remedial action or other response by or on the part of Debtor under
any Environmental Laws, or which seeks damages or civil, criminal or punitive
penalties from Debtor for an alleged violation of any Environmental Laws.
(n) REGULATIONS. No proceeds of the loans or any other financial
accommodation hereunder will be used, directly or indirectly, for the purpose
of purchasing or carrying any margin security, as that term is defined in
Regulations G, T, U, X of the Board of Governors of the Federal Reserve
System.
(o) BOOKS AND RECORDS. Debtor shall maintain, at all times, true and
complete books and records in accordance with GAAP and consistent with those
applied in the preparation of Debtor's financial statements. At all
reasonable times, upon reasonable notice, and during normal business hours,
Debtor shall permit Secured Party or its agents to audit, examine and make
extracts from or copies of any of its books, ledges, reports, correspondence,
and other records relating to the Collateral.
(p) SETOFF. Without limiting any other right of Secured Party, whenever
Secured Party has the right to declare any Indebtedness to be immediately due
and payable (whether or not it has so declared), Secured Party is hereby
authorized at any time and from time to time to the fullest extent permitted
by law, to set off and apply against any and all of the Indebtedness, any and
all monies then or thereafter owed to Debtor by Secured Party in any
capacity, whether or not the obligation to pay such monies owed by Secured
Party is then due. Secured Party shall be deemed to have exercised such
right of setoff immediately at the time of such election even though any
charge therefor is made or entered on Secured Party's records subsequent
thereto.
(q) STANDARD OF CARE; NOTICE OF CLAIMS. Debtor acknowledges and agrees
that Secured Party shall not be liable for any acts or omissions nor for any
error of judgment or mistake of fact or law other than as a sole and direct
result of Secured Party's gross negligence willful misconduct. Debtor shall
give Secured Party written notice of any action or inaction by Secured Party
or any agent or attorney of Secured Party that may
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give rise to a claim against Secured Party or any agent or attorney of
Secured Party or that may be a defense to payment or performance of and of
the Indebtedness for any reason, including commission of a tort (subject, in
any event, to the first sentence of this paragraph) or violation of any
contractual duty or duty implied by law. Debtor agrees that unless such
notice is fully given as promptly as possible (and in any event within thirty
(30) days) after the Chairman of the Board, Chief Executive Officer,
President, Chief Operating Officer, Chief Financial Officer, Secretary, any
Senior or Executive Vice President or internal counsel of Debtor, or any Vice
President of Business and/or Technical Operations of Debtor's Dallas, Oregon
operations, has knowledge, or with the exercise of reasonable diligence
should have had knowledge, of any such action or inaction, Debtor shall not
assert, and Debtor shall be deemed to have waived, any claim or defense
arising therefrom.
(r) INDEMNITY. Debtor shall indemnify, defend and hold Secured Party,
its parent, affiliates, officers, directors, agents, employees, and attorneys
harmless from and against any loss, expense (including reasonable attorneys'
fees and costs), damage or liability arising directly or indirectly out of
(i) any breach of any representation, warranty or covenant contained in any
Loan Document, (ii) any claim or cause of action that would deny Secured
Party the full benefit or protection of any provision in any Loan Document,
or (iii) the ownership, possession, lease, operation, use, condition, sale,
return, or other disposition of the Collateral, except to the extent the
loss, expense, damage or liability arises solely and directly from Secured
Party's gross negligence or willful misconduct. If after receipt of any
payment of all or any part of the Indebtedness, Secured Party is for any
reason compelled to surrender such payment to any person or entity, because
such payment is determined to be void or voidable as a preference,
impermissible set-off, or a diversion of trust funds, or for any other
reason, the Loan Documents shall continue in full force and effect and Debtor
shall be liable to Secured Party for the amount of such payment surrendered.
The provisions of the preceding sentence shall be and remain effective
notwithstanding any contrary action which may have been taken by Secured
Party in reliance upon such payment, and any such contrary action so taken
shall be without prejudice to Secured Party's rights under this Agreement and
shall be deemed to have been conditioned upon such payment having become
final and irrevocable. Additionally, Debtor shall be liable for all charges,
costs, expenses and attorneys' fees incurred by Secured Party (including a
reasonable allocation of the compensation, costs and expenses of internal
counsel, based upon time spent): (i) in perfecting, defending or protecting
its security interest in the Collateral, or any part thereof, (ii) in the
negotiation, execution, delivery, administration, amendment or enforcement of
the Loan Documents or the collection of any amounts due under any Note or
other Loan Document; (iii) in any lawsuit or other legal proceeding in any
way connected with any of the Loan Documents, including any contract or tort
or other actions, any arbitration or other alternative dispute resolution
proceeding, all appeals and judgment enforcement actions and any bankruptcy
proceeding (including any relief from stay and/or adequate protection
motions, cash collateral disputes, assumption/rejection motions and disputes
or objections to any
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proposed disclosure statement or reorganization plan). Debtor acknowledges
and agrees that the preceding sentence shall survive and not be merged with
any judgment in connection with any exercise of any right or remedy by
Secured Party provided under this Agreement. The provisions of this
paragraph shall survive the termination of this Agreement and the other Loan
Documents.
(s) COMPLETE INFORMATION. No representation or warranty made by Debtor
in any Loan Document and no other document or statement furnished to Secured
Party by or on behalf of Debtor contains any material misstatement of a
material fact or omits to state any material fact necessary in order to make
the statements contained therein not misleading. Except as expressly set
forth in the Schedules, there is no fact known to Debtor that will or could
have a materially adverse affect on the business, operation, condition
(financial or otherwise), performance, properties or prospects of Debtor or
Debtor's ability to timely pay all of the Indebtedness and perform all of its
other obligations contained in or secured by this Agreement. Each
representation and warranty made by Debtor in this Agreement shall be deemed
to have been made as of the date of this Agreement and as of the date of each
advance of funds under a Note.
(t) COLLATERAL DOCUMENTATION. Debtor shall deliver to Secured Party
prior to any advance or loan, satisfactory documentation regarding the
Collateral to be financed, including such invoices, canceled checks
evidencing payments, or other documentation as may be reasonably requested by
Secured Party. Additionally, Debtor shall satisfy Secured Party that Debtor's
business and financial information is as has been represented and there has
been no material change in Debtor's business, financial condition, or
operations.
3. PREPAYMENT. Upon forty-five (45) days prior written notice to Secured
Party, Debtor may prepay in whole, but not in part (except as set forth
below), on any regularly scheduled payment date under the Note, the then
entire unpaid principal balance of any Note, together with all accrued and
unpaid interest thereon to the date of such prepayment, provided that along
with and in addition to such prepayment, Debtor shall pay (i) any and all
other sums then due under any of the Loan Documents, and (ii) a prepayment
fee as liquidated damages and not as a penalty, in a sum equal to three
percent (3%) of the principal balance being prepaid for any prepayment on or
before the first anniversary of the date of the Note, two percent (2%) of the
principal balance being prepaid for any prepayment after the first
anniversary of the date of the Note and on or before the second anniversary
of the date of the Note, and one percent (1%) of the principal balance being
prepaid for any prepayment after the second anniversary of the date of the
Note and before the seventh anniversary date of the Note. The prepayment fee
described in clause (ii) above shall also be due upon the acceleration of the
maturity date of any Note following the occurrence of any Event of Default.
Notwithstanding anything to the contrary set forth above, provided no Event
of Default has occurred and is continuing, in each yearly period following
the date of this Agreement (each such yearly
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period shall begin on the date of this Agreement or an anniversary date
thereof, as the case may be, and end on the day immediately preceding the
next anniversary date of this Agreement), Debtor shall be permitted to prepay
(without paying any fee, liquidated damages or other penalties) principal
outstanding under the Note in the amount of One Hundred Thousand and 00/100
Dollars ($100,000.00), or less, together with all accrued and unpaid interest
thereon to the date of such prepayment, provided, however, that each such
prepayment shall be made on a regularly scheduled payment date under the Note.
4. EVENTS OF DEFAULT. If any one of the following events (each of which is
herein called an "EVENT OF DEFAULT") shall occur: (a) Debtor fails to pay any
part of the Indebtedness within ten (10) calendar days of its due date, or (b)
any warranty or representation of Debtor in any Loan Document is materially
untrue, misleading or inaccurate, or (c) Debtor breaches or defaults in the
performance of any of its obligations under Paragraphs (c) through (e) of
Section 2, above, or (d) Debtor or any Guarantor breaches or defaults in the
performance of any other agreement or covenant under any Loan Document and
fails to cure such breach or default within thirty (30) days after written
notice of the breach or default from Secured Party, or (e) Debtor or any
Guarantor breaches or defaults in the payment or performance of any debt or
other obligation owed by it to Secured Party or any affiliate of Secured
Party and fails to cure such breach or default within the applicable cure
period, if any, or (f) Debtor breaches or defaults in the payment or
performance of any debt or other obligation, whether now or hereafter
existing, with an outstanding principal balance in excess of One Million and
00/100 Dollars ($1,000,000.00), and the same is subsequently accelerated, or
(g) there shall be a change in the beneficial ownership and control, directly
or indirectly, of the majority of the outstanding voting securities or other
interests entitled (without regard to the occurrence of any contingency) to
elect or appoint members of the board of directors or other managing body of
Debtor or any Guarantor other than any such change as the result of the death
of Robert L. Praegitzer or Sally E. Praegitzer, or as the result of a
transfer for estate planning purpose of any shares of Debtor owned by Robert
L. Praegitzer or Sally E. Praegitzer to a trust for the benefit of his or her
heirs, as to which Robert L. Praegitzer or Sally E. Praegitzer, or both, are
the sole trustee(s) (a "CHANGE OF CONTROL"), or there is any merger,
consolidation, dissolution, liquidation, winding up or sale or other transfer
of all or substantially all of the assets of Debtor or any Guarantor pursuant
to which there is a change of control or cessation of Debtor or the Guarantor
or the business of either, or (h) Debtor or any Guarantor shall file a
voluntary petition in bankruptcy, shall apply for or permit the appointment
by consent or acquiescence of a receiver, conservator, administrator,
custodian or trustee for itself or all or a substantial part of its property,
shall make an assignment for the benefit of creditors or shall be unable,
fail or admit in writing its inability to pay its debts generally as such
debts become due, or (i) there shall have been filed against Debtor or any
Guarantor an involuntary petition in bankruptcy or Debtor or any Guarantor
shall suffer or permit the involuntary appointment of a receiver,
conservator, administrator, custodian or trustee for all or a substantial
part of its property or the issuance of a warrant of attachment, diligence,
execution or similar process against
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all or any substantial part of its property; unless, in each case, such
petition, appointment or process is fully bonded against, vacated or
dismissed within forty-five (45) days from its effective date, but not later
than ten (10) days prior to any proposed disposition of any assets pursuant
to any such proceeding, or (j) if there is a material adverse change in the
business or financial condition or prospects of Debtor, then, and in any such
event, Secured Party shall have the right to exercise any one or more of the
remedies hereinafter provided.
Each of the following events shall also constitute an Event of Default
hereunder and upon the occurrence of any one or more of them, Secured Party
shall have the right to exercise any one or more of the remedies hereinafter
provided:
(aa) If at the end of the first fiscal year of Debtor ending after the
date of this Agreement, and each fiscal year ending thereafter (each a
"Fiscal Year"), Debtor's operating income before interest expense, income
taxes, depreciation, amortization and extraordinary gains and/or losses, all
as determined in accordance with GAAP ("EBITDA"), for each such Fiscal Year,
is less than one and one-half (1.5) times as much as the sum of all of
Debtor's interest expense incurred during the Fiscal Year plus the current
portion of long term debt and capitalized leases reported as of the end of
the Fiscal Year, all as determined in accordance with GAAP; or
(bb) If Debtor at any time has a net worth as determined in accordance
with GAAP of less than thirty million and 00/100 Dollars ($30,000,000)
increasing annually by an amount equal to 50% of the reported net after-tax
earnings beginning with the Fiscal Year ending June 30, 1997 and each
subsequent year thereafter; or
(cc) If at the end of any Fiscal Year End of Debtor, the sum of Debtor's
notes payable, capitalized lease obligations and all other borrowed funds
(whether reflected as a current liability or a long-term liability) as
determined by GAAP is greater than three (3.0) times Debtor's EBITDA for the
Fiscal Year then ended.
5. REMEDIES. If an Event of Default shall occur, in addition to all rights
and remedies of a secured party under the Uniform Commercial Code, Secured
Party may, at its option, at any time (a) declare the entire unpaid
Indebtedness to be immediately due and payable; (b) without demand or legal
process, enter into the premises where the Collateral may be found and take
possession of and remove the Collateral, all without charge to or liability
on the part of Secured Party; or (c) require Debtor to discontinue its use of
the Collateral, and, to the extent it is not permanently affixed to or
otherwise a part of real property, assemble, crate, pack, ship, and deliver
the Collateral to Secured Party in such manner and at such place as Secured
Party may require, all at Debtor's sole cost and expense. DEBTOR HEREBY
EXPRESSLY WAIVES ITS RIGHTS, IF ANY, TO (1) PRIOR NOTICE OF REPOSSESSION AND
(2) A JUDICIAL OR ADMINISTRATIVE HEARING PRIOR TO SUCH REPOSSESSION. Secured
Party may, at its option, ship,
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store and repair the Collateral so removed and sell any or all of it at a
public or private sale or sales. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Secured Party will give Debtor reasonable notice of the
time and place of any public sale thereof or of the time after which any
private sale or any other intended disposition thereof is to be made, it
being understood and agreed that Secured Party may be a buyer at any such
sale and Debtor may not, either directly or indirectly, be a buyer at any
such sale. The requirements, if any, for reasonable notice will be met if
such notice is delivered to Debtor in accordance with Section 10 of this
Agreement at least ten (10) days before the time of sale or disposition. In
accordance with Section 2(r), Debtor shall also be liable for and shall upon
demand pay to Secured Party all expenses incurred by Secured Party in
connection with the undertaking or enforcement by Secured Party of any of its
rights or remedies hereunder or at law, all of which costs and expenses shall
be additional Indebtedness hereby secured. After any such sale or
disposition, Debtor shall be liable for any deficiency of the Indebtedness
remaining unpaid, with interest thereon at the rate set forth in the related
Notes.
6. CUMULATIVE REMEDIES. All remedies of Secured Party hereunder are
cumulative, are in addition to any other remedies provided for by law or in
equity and may, to the extent permitted by law, be exercised concurrently or
separately, and the exercise of any one remedy shall not be deemed an
election of such remedy or to preclude the exercise of any other remedy. No
failure on the part of Secured Party to exercise, and no delay in exercising
any right or remedy, shall operate as a waiver thereof or in any way modify
or be deemed to modify the terms of this Agreement or any other Loan Document
or the Indebtedness, nor shall any single or partial exercise by Secured
Party of any right or remedy preclude any other or further exercise of the
same or any other right or remedy.
7. ASSIGNMENT. Secured Party may transfer or assign all or any part of the
Indebtedness and the Loan Documents without releasing Debtor or the
Collateral, and upon such transfer or assignment the assignee or holder shall
be entitled to all the rights, powers, privileges and remedies of Secured
Party to the extent assigned or transferred. The obligations of Debtor shall
not be subject, as against any such assignee or transferee, to any defense,
set-off, or counter-claim available to Debtor against Secured Party and any
such defense, set-off, or counter-claim may be asserted only against Secured
Party.
8. TIME IS OF THE ESSENCE. Time and manner of performance by Debtor of its
duties and obligations under the Loan Documents is of the essence. If Debtor
shall fail to comply with any provision of any of the Loan Documents,
Secured Party shall have the right, but shall not be obligated, to take
action to address such non-compliance, in whole or in part, and all moneys
spent and expenses and obligations incurred or assumed by Secured Party shall
be paid by Debtor upon demand and shall be added to the Indebtedness. Any
such action by Secured Party shall not constitute a waiver of Debtor's
default.
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9. ENFORCEMENT. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. AT SECURED PARTY'S
ELECTION AND WITHOUT LIMITING SECURED PARTY'S RIGHT TO COMMENCE AN ACTION IN
ANY OTHER JURISDICTION, DEBTOR HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION
AND VENUE OF ANY COURT (FEDERAL, STATE OR LOCAL) HAVING SITUS WITHIN THE
STATE OF ILLINOIS, EXPRESSLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS
TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED TO THE CHIEF
FINANCIAL OFFICER OF DEBTOR AT THE LAST KNOWN ADDRESS OF DEBTOR, WHICH
SERVICE SHALL BE DEEMED COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF
MAILING THEREOF.
10. FURTHER ASSURANCE; NOTICE. Debtor shall, at its expense, do, execute and
deliver such further acts and documents as Secured Party may from time to
time reasonably require to assure and confirm the rights created or intended
to be created hereunder, to carry out the intention or facilitate the
performance of the terms of the Loan Documents or to assure the validity,
perfection, priority or enforceability of any security interest created
hereunder. Debtor agrees to execute any instrument or instruments necessary
or expedient for filing, recording, perfecting, notifying, foreclosing,
and/or liquidating of Secured Party's interest in the Collateral upon request
of, and as determined by, Secured Party, and Debtor hereby specifically
authorizes Secured Party to prepare and file Uniform Commercial Code
financing statements and other documents and to execute same for and on
behalf of Debtor as Debtor's attorney-in-fact, irrevocably and coupled with
an interest, for such purposes. All notices required or otherwise given by
either party shall be in writing and shall be delivered by hand, by
registered or certified first class United States mail, return receipt
requested, or by overnight courier to the other party at its address stated
herein or at such other address as the other party may from time to time
designate by written notice (and, if to Debtor, directed to the Chief
Financial Officer of Debtor). All notices shall be deemed given when
received, when delivery is refused or when the returned for failure to be
called for.
11. WAIVER OF JURY TRIAL. DEBTOR AND SECURED PARTY HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS. THIS WAIVER IS
INFORMED AND FREELY MADE. DEBTOR AND SECURED PARTY ACKNOWLEDGE THAT THIS
WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT
EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THE LOAN DOCUMENTS,
AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE
DEALINGS. DEBTOR AND SECURED PARTY FURTHER WARRANT AND REPRESENT THAT EACH
HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
12. COMPLETE AGREEMENT. The Loan Documents are intended by Debtor and Secured
Party to be the final, complete, and exclusive expression of the agreement
between them.
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The Loan Documents may not be altered, modified or terminated in any manner
except by a writing duly signed by the parties thereto. Debtor and Secured
Party intend the Loan Documents to be valid and binding and no provisions
hereof and thereof which may be deemed unenforceable shall in any way
invalidate any other provisions of the Loan Documents, all of which shall
remain in full force and effect. The Loan Documents shall be binding upon
the respective successors, legal representatives, and assigns of the parties.
The singular shall include the plural, the plural shall include the
singular, and the use of any gender shall be applicable to all genders. The
use in any of the Loan Documents of the word "including," or words of similar
import, when following any general term, statement or matter shall not be
construed to limit such term, statement or matter to any specific item or
matters, whether or not language of nonlimitation, such as "without
limitation" or "but not limited to," or words of similar import, are used
with reference thereto, but rather shall be deemed to refer to all other
items or matters that could reasonably fall within the broadest possible
scope of such term, statement or matter. If there be more than one Debtor,
the warranties, representations and agreements contained herein and in the
other Loan Documents shall be joint and several. The Schedules on the
following page[s] are incorporated herein by this reference and made a part
hereof. Sections and subsections headings are included for convenience of
reference only and shall not be given any substantive effect.
[signatures on next page]
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IN WITNESS WHEREOF, Secured Party and Debtor have each signed this Security
Agreement as of the day and year first above written.
HELLER FINANCIAL, INC., PRAEGITZER INDUSTRIES, INC.,
a Delaware corporation an Oregon corporation
By: /s/ John Watson By: /s/ Matthew J. Bergeron
----------------------- ----------------------------
Name: John Watson Name: /s/ Matthew J. Bergeron
--------------------- --------------------------
Title: VP Title: Chief Operating Officer
-------------------- -------------------------
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Loan No. 1910069-0004
--------------
AFTER RECORDING RETURN TO:
Heller Financial, Inc.
Commercial Equipment Finance Division
One Montgomery Street, Suite 2250
San Francisco, California 94104
BE ADVISED THAT THE PROMISSORY NOTE SECURED BY THIS
TRUST DEED PROVIDES FOR A VARIABLE RATE OF INTEREST.
TRUST DEED, SECURITY AGREEMENT,
ASSIGNMENT OF LEASES AND RENTS
AND FIXTURE FILING
THIS TRUST DEED, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND
FIXTURE FILING ("Trust Deed"), is made this 30 day of May, 1997 among PRAEGITZER
INDUSTRIES, INC. the address of which is 1270 Monmouth Cutoff, Dallas, Oregon
97338 ("Grantor"); OREGON TITLE INSURANCE COMPANY, an Oregon corporation, the
address of which is 1515 S.W. 5th Avenue, Suite 800, Portland, Oregon 97201, and
its successors in trust and assigns ("Trustee"), and HELLER FINANCIAL, INC., a
Delaware corporation, the address of which is Commercial Equipment Finance
Division, 500 West Monroe Street, Chicago, Illinois 60661 ("Beneficiary").
1. GRANTING CLAUSE. Grantor, in consideration of the acceptance by
Trustee of the trust hereunder, and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and in order to
secure the payment of the indebtedness evidenced by the Note (as hereinafter
defined) with interest thereon, and any other sums payable thereunder and
hereunder, and to secure the performance of the obligations contained herein,
grants, bargains, sells, and conveys to Trustee and its successors in trust and
assigns, forever, in trust, with power of sale, all of Grantor's estate, right,
title, interest, claim and demand in and to the property in the county of Polk,
state of Oregon, described as follows, whether now existing or hereafter
acquired (all of the property described in all parts of this Section 1 and all
additional property, if any, described in Section 2 is herein called the
"Property"):
1.1 LAND AND APPURTENANCES. The land described on Exhibit A hereto
and incorporated herein by this reference, and all tenements, hereditaments,
rights-of-way, easements, appendages and appurtenances thereto belonging or in
any way appertaining, including without limitation all of the right, title and
interest of Grantor in and to any avenues,
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streets, ways, alleys, vaults, strips or gores of land adjoining that property,
and all claims or demands of Grantor either in law or in equity in possession or
expectancy of, in and to that property; and
1.2 IMPROVEMENTS AND FIXTURES. All buildings, structures and other
improvements now or hereafter erected on the property described in 1.1 above,
and all facilities, fixtures, machinery, apparatus, installations, goods
(excluding inventory), equipment, furniture and other tangible properties of
whatsoever nature (including without limitation all heating, ventilating, air
conditioning, plumbing and electrical equipment, all elevators and escalators,
all sprinkler systems, all engines and motors, all lighting, laundry, cleaning,
fire prevention and fire extinguishing equipment, all ducts and compressors, all
refrigerators, stoves and other appliances, attached cabinets, partitions, rugs,
carpets and draperies, all building materials and supplies, and all construction
forms and equipment), now or hereafter located in or used or procured for use in
connection with that property, it being the intention of the parties that all
property of the character hereinabove described which is now owned or hereafter
acquired by Grantor and which is affixed or attached to or used in connection
with the property described in 1.1 above shall be, remain or become a portion of
that property and shall be covered by and subject to the lien of this Trust
Deed, TOGETHER WITH all contracts, agreements, permits, plans, specifications,
drawings, surveys, engineering reports and other work products relating to the
construction of the existing or any future improvements on the Property, any and
all rights of Grantor in, to or under any architect's contracts or construction
contracts relating to the construction of the existing or any future
improvements on the Property, and any performance and/or payment bonds issued in
connection therewith; and
1.3 MACHINERY AND EQUIPMENT. All of Grantor's right, title and
interest in and to the following property and interests in property, whether now
owned or hereafter acquired or arising and wheresoever located: all of the goods
described on Schedule A attached hereto and incorporated herein by this
reference.
1.4 ENFORCEMENT AND COLLECTION. Any and all rights of Grantor
without limitation to make claim for, collect, receive and receipt for any and
all rents, income, revenues, issues, royalties, and profits, including mineral,
oil and gas right and profits, insurance proceeds, condemnation awards and other
moneys, payable or receivable from or on account of any of the Property,
including interest thereon, or to enforce all other provisions of any other
agreement (including those described in Section 1.2 above) affecting or relating
to any of the Property, to bring any suit in equity, action at law or other
proceeding for the collection of such moneys or for the specific or other
enforcement of any such agreement, award or judgment, in the name of Grantor or
otherwise, and to do any and all things which Grantor is or may be or become
entitled to do with respect thereto, provided, however, that no obligation of
Grantor under the provisions of any such agreements, awards or judgments shall
be impaired or diminished by virtue hereof, nor shall any such obligation be
imposed upon Trustee or Beneficiary; and
1.5 [INTENTIONALLY OMITTED]
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1.6 LEASES. All of Grantor's rights as landlord in and to all
existing and future Leases (defined below) and tenancies, whether written or
oral and whether for a definite term or month to month, now or hereafter
demising all or any portion of the property described in 1.1 and 1.2 above,
including all renewals and extensions thereof and all rents and deposits and
other amounts received or receivable thereunder, provided, however that in
accepting this Trust Deed neither Beneficiary nor Trustee assumes any liability
for the performance of any such Lease.
2. SECURITY AGREEMENT. To the extent any of the property described in
Section 1 is personal property, Grantor, as debtor, grants to Beneficiary, as
secured party, a security interest therein together with a security interest in
all other personal property of whatsoever nature which is located on or used or
to be used in connection with any of the property described in Section 1, and
any products or proceeds of any thereof, pursuant to the Uniform Commercial Code
of the state of Oregon (the "UCC"), on the terms and conditions contained herein
except that where any provision hereof is in conflict with that certain Security
Agreement dated May 30, 1997, between Grantor and Beneficiary (the "Security
Agreement"), or the UCC, the Security Agreement or UCC, as the case may be,
shall control. Beneficiary hereby assigns such security interest, together with
the security interest granted to Beneficiary under the Security Agreement to
Trustee, in trust, for the benefit of Beneficiary to be dealt with as a portion
of the "Property" except as otherwise specified herein.
3. OBLIGATIONS SECURED. This Trust Deed is given for the purpose of
securing:
3.1 PERFORMANCE AND PAYMENT. The performance of the obligations
contained herein and the payment of Ten Million and 00/100 DOLLARS
($10,000,000.00) with interest thereon, according to the terms of a promissory
note dated May 30, 1997, made by Grantor and payable to Beneficiary or order,
having a maturity date of December 1, 2004, and any and all extensions,
renewals, modifications or replacements thereof, whether the same be in greater
or lesser amounts (the "Note"), which Note contains provision for a variable
rate of interest; and
3.2. FUTURE ADVANCES. The repayment of any and all sums advanced or
expenditures made by Beneficiary subsequent to the execution of this Trust Deed
for the maintenance or preservation of the Property or advanced or expended by
Beneficiary pursuant to any provision of this Trust Deed subsequent to its
execution or pursuant to any provision of the Security Agreement subsequent to
its execution, in either case together with interest thereon at the Default Rate
(defined below).
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4. WARRANTIES AND COVENANTS OF GRANTOR. Grantor warrants, covenants, and
agrees:
4.1 WARRANTIES.
(a) Grantor has full power and authority to grant the Property to
Trustee and warrants the Property to be free and clear of all liens, charges,
and other encumbrances except Permitted Liens (defined in Section 4.13 below)
and those, if any, noted on Exhibit B hereto and incorporated herein by this
reference.
(b) The Property is free from damage and no matter has come to
Grantor's attention (including, but not limited to, knowledge of any
construction defects or nonconforming work) that would materially impair the
value of the Property as security.
4.2 PRESERVATION OF LIEN. Grantor will preserve and protect the
priority of this Trust Deed as a first lien on the Property.
4.3 REPAIR AND MAINTENANCE OF PROPERTY. Grantor will keep the
Property in good condition and repair, which duty shall include but is not
limited to continual cleaning, painting, landscaping, repairing and refurbishing
of the Property; will complete and not remove or demolish, alter, or make
additions to any building or other improvement which is part of the Property
without the express written consent of Beneficiary; will underpin and support
when necessary any such building or other improvement and protect and preserve
the same; will complete or restore promptly and in good and workmanlike manner
any such building or other improvement which may be damaged or destroyed and pay
when due all claims for labor performed and materials furnished therefor; will
not commit, suffer or permit any act upon the Property in violation of law; and
will do all other acts which from the character or use of the Property may be
reasonably necessary for the continued operation of the Property in a safe and
legal manner, the specific enumerations herein not excluding the general.
4.4 INSURANCE.
4.4.1 HAZARD. Grantor will provide, maintain and deliver to
Beneficiary, as further security for the faithful performance of this Trust
Deed, insurance covering fire, casualty and such other hazards as may be
specified by Beneficiary (including insurance against flood, if the Property is
situated in a designated flood zone) in an amount equal to one hundred percent
(100%) of the replacement cost of the Property and naming Beneficiary as first
loss payee pursuant to a loss-payee form acceptable to Beneficiary, with such
deductibles as approved by Beneficiary but that are, in any event, not more than
$100,000 (except with respect to flood insurance, as to which the deductible
shall not exceed $2,000,000, and earth movement insurance, as to which the
deductible shall not exceed 1% of Grantor's current "property and time element"
values). Grantor shall be responsible for any uninsured losses and any
deductibles. All existing and future policies for such insurance, and the
proceeds thereof, are hereby assigned to Beneficiary, but no such assignment
shall be effective to
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invalidate or impair any insurance policy. Should the Property or any part
thereof be damaged by reason of any cause covered by insurance, Beneficiary may,
at its option, commence, appear in and prosecute, in its own name, any action or
proceeding, or make any reasonable compromise or settlement in connection with
such damage, and obtain all proceeds, or other relief therefor, and Grantor
agrees to pay Beneficiary's costs and reasonable attorneys' fees in connection
therewith. No insurance proceeds at any time assigned to or held by Beneficiary
shall be deemed to be held in trust, and Beneficiary may commingle such proceeds
with its general assets and shall not be liable for the payment of any interest
thereon. The amount collected under any insurance policies required to be
maintained by Grantor pursuant to this Section 4.4.1 may be applied by
Beneficiary upon any indebtedness secured hereby and in such order as
Beneficiary may determine, or at the option of Beneficiary, the entire amount so
collected or any part thereof may be released to Grantor. Beneficiary shall in
no case be obligated to see to the proper application of any amount paid over to
Grantor. Such application or release shall not cure or waive any default or
notice of default hereunder or invalidate any act done pursuant to such notice.
4.4.2 LIABILITY. Grantor will maintain comprehensive general
liability insurance covering the legal liability of Grantor against claims for
bodily injury, death, or property damage occurring on, in, or about the Property
with coverage of Five Million Dollars ($5,000,000) per occurrence, and naming
Beneficiary an additional insured.
4.4.3 RENTAL INTERRUPTION. In the event the portion of the
Property leased, licensed or otherwise set aside for occupancy by any person
other than Grantor under the Leases is at any time twenty thousand (20,000)
square feet or more, Grantor shall maintain rental or business interruption
insurance in an amount equal to at least twelve (12) months' gross rental income
from the Property, and naming Beneficiary as first loss payee, provided that
Grantor may collect and retain any payments under said policies so long as it is
not in default hereunder.
4.4.4 [INTENTIONALLY OMITTED.]
4.4.5 GENERAL PROVISIONS. All policies of insurance required
to be maintained by Grantor pursuant to this Section 4.4 shall be in form and
substance and with companies acceptable to Beneficiary. All policies and
renewals thereof shall contain provision for thirty (30) days' written notice to
Beneficiary prior to any cancellation or modification thereof. Notwithstanding
any of the foregoing, neither Trustee nor Beneficiary shall be responsible for
any such insurance or for the collection of any insurance moneys, or for any
insolvency of any insurer or insurance underwriter. Any and all unexpired
insurance shall inure to the benefit of and pass to the purchaser of the
Property at any trustee's or sheriff's sale held hereunder.
4.4.6 WARNING REGARDING INSURANCE. Unless Grantor
provides Beneficiary with evidence of the insurance coverage as required by
this Trust Deed, Beneficiary may purchase insurance at Grantor's expense to
protect Beneficiary's interest. This insurance may, but need not, also
protect Grantor's interest. If the collateral becomes damaged, the coverage
Beneficiary purchases may not pay any claim Grantor makes or any
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claim made against Grantor. Grantor may later cancel this coverage by
providing evidence that Grantor has obtained property coverage elsewhere.
Grantor is responsible for the cost of any insurance purchased by
Beneficiary. The cost of any insurance may be added to the sums secured by
this Trust Deed. If the cost is added to Grantor's loan balance, interest at
the Default Rate on the loan will apply to this added amount. The effective
date of coverage may be the date Grantor's prior coverage lapsed or the date
Grantor failed to provide proof of coverage.
The coverage Beneficiary purchases may be considerably more expensive than
insurance Grantor can obtain on Grantor's own and may not satisfy any need for
property damage coverage or any mandatory liability insurance requirements
imposed by applicable law.
4.5 RIGHT OF INSPECTION. Grantor shall permit Beneficiary or its
agents, at all reasonable times, to enter upon and inspect the Property.
4.6 PRESERVATION OF LICENSES, ETC. Grantor shall observe and
comply with all requirements necessary to the continued existence and
validity of all rights, licenses, permits, privileges, franchises and
concessions relating to any existing or presently contemplated use of the
Property, including but not limited to any zoning variances, special
exceptions and nonconforming use permits.
4.7 FURTHER ASSURANCES. Grantor will, at its expense, from time
to time execute and deliver any and all such instruments of further assurance
and other instruments and do any and all such acts, or cause the same to be
done, as Trustee or Beneficiary deems necessary or advisable to grant to
Trustee the Property or to carry out more effectively the purposes of this
Trust Deed.
4.8 LEGAL ACTIONS. Grantor will appear in and defend any action
or proceeding before any court or administrative body purporting to affect
the security hereof or the rights or powers of Beneficiary or Trustee; and
will pay all costs and expenses, including cost of evidence of title and any
attorneys' fees, incurred by Beneficiary and Trustee, in a reasonable sum, in
any such action or proceeding in which Beneficiary or Trustee may appear, and
in any suit brought by Beneficiary or Trustee to foreclose this Trust Deed.
4.9 TAXES, ASSESSMENTS AND OTHER LIENS. Grantor will pay before
delinquency all taxes, assessments, encumbrances, charges, and liens with
interest, on the Property or any part thereof, which at any time appear to be
or are alleged to be prior and superior hereto, including but not limited to
any tax on or measured by rents of the Property, the Note, this Trust Deed,
or any obligation or part thereof secured hereby.
4.10 TRUST EXPENSES. Grantor will pay all costs, fees and expenses of
this trust including all such costs, fees and expenses incident to any default
hereunder, including reasonable attorneys' fees.
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4.11 REPAYMENT OF EXPENDITURES. Immediately upon notice thereof,
Grantor will pay immediately and without demand all sums expended hereunder by
Beneficiary or Trustee with interest from date of expenditure at the default
rate of interest specified in the Note (the "Default Rate") and the repayment
thereof shall be secured hereby.
4.12 FINANCIAL & OPERATING INFORMATION. Grantor shall comply with
Section 2(g) of the Security Agreement.
4.13 SALE, TRANSFER, OR ENCUMBRANCE OF PROPERTY. Except as
permitted in the Security Agreement and Permitted Liens (defined below),
Grantor will not, without the prior written consent of Beneficiary (which
consent shall be subject to the conditions set forth below) sell, transfer or
otherwise convey the Property or any interest therein, further encumber the
Property or any interest therein or agree to do any of the foregoing without
first repaying in full the Note and all other sums secured hereby. As used
herein, the term "Permitted Liens" means any lien arising after the date
hereof that is (i) a mechanic's, materialmen's, carrier's, repairer's or
other non-consensual statutory lien, arising in the ordinary course of
Grantor's business and securing obligations either not delinquent or (A)
being contested in good faith by appropriate proceedings promptly and
diligently instituted and conducted, (B) with prompt written notice to
Beneficiary of the commencement of and any material developments in such
proceedings, and (C) as to which (1) the sum necessary to discharge the lien
plus all costs and other charges that could accrue as a result of a
foreclosure or sale under the lien is less than One Hundred Thousand and
00/100 Dollars ($100,000.00), or (2) an undertaking sufficient under the
internal laws of the state of Oregon to discharge the lien plus all costs and
other charges that could accrue as a result of a foreclosure or sale under
the lien, or (ii) a lien arising out of a judgment against Grantor for the
payment of money not exceeding One Hundred Thousand and 00/100 Dollars
($100,000.00), so long as (A) prompt written notice is furnished to
Beneficiary of the entry of the judgment and any further material
developments in the proceedings, and (1) such lien has been outstanding not
more than ten (10) business days, or (2) execution thereof has been
effectively stayed and bonded against (by an undertaking sufficient under the
internal laws of the state of Oregon) pending and through appeal of the
judgment, or (iii) a lien on any items of the Property to secure payment of
ad valorem property taxes, fees or assessments which are not delinquent.
4.14 [INTENTIONALLY OMITTED.]
4.15 GRANTOR EXISTENCE. Beneficiary is making this loan in reliance
on Grantor's continued existence, ownership and control in its present corporate
form. Grantor will not cause, permit, acquiesce in or suffer any change of
control (as defined in Section 4(g) of the Security Agreement) nor any merger,
consolidation, dissolution, liquidation, winding up or sale or other transfer of
all or substantially all of its assets pursuant to which there is a change of
control or cessation of its business, and will do all things necessary to
preserve and maintain said corporate existence and to insure its continuous
right to carry on its business, including but not limited to, filing within the
prescribed time all corporate tax returns and reports, and paying when due all
such taxes.
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4.16 TAX AND INSURANCE RESERVES. In addition to the payments
required by the Note, Grantor agrees to pay Beneficiary, at Beneficiary's
request following and during the continuance of the occurrence of an Event of
Default (defined below), such sums as Beneficiary may from time to time
estimate will be required to pay, at least 30 days before due, the next due
taxes, assessments, insurance premiums, and similar charges affecting the
Property, less all sums already paid therefor divided by the number of months
to elapse before one month prior to the date when such taxes, assessments and
premiums will become delinquent, such sums to be held by Beneficiary without
interest or other income to the Grantor to pay such taxes, assessments and
premiums. Should this estimate as to taxes, assessments and premiums prove
insufficient, the Grantor upon demand agrees to pay Beneficiary such
additional sums as may be required to pay them before delinquent.
If the total of the above-described payments in any one year shall exceed
the amounts actually paid by Beneficiary for taxes, assessments and premiums,
such excess may be credited by Beneficiary on subsequent payments under this
section. If an Event of Default occurs for which Beneficiary elects to
realize upon this Trust Deed, then at the time of the Trustee's sale or final
decree of foreclosure, Beneficiary shall apply any balance of funds it may
hold pursuant to this Section 4.16 first to interest on and then to the
principal of the Note. If Beneficiary acquires the Property in lieu of
realizing on this Trust Deed, the balance of funds it holds shall become the
property of Beneficiary.
Any transfer in fee of all or a part of the Property shall automatically
transfer to the grantee all or a proportionate part of Grantor's rights and
interest in the fund accumulated hereunder.
4.17 LEASES.
(a) Grantor will in all respects promptly and faithfully
keep, perform and comply with all of the terms, provisions, covenants,
conditions and agreements in each of the agreements pursuant to which any
tenant or licensee of any part of the Property is occupying the Property (the
"Leases") to be kept, performed and complied with by the lessor therein, and
will require, demand and strictly enforce, by all available means, the prompt
and faithful performance of and compliance with all of the terms, provisions,
covenants, conditions and agreements in the Leases to be performed and
complied with by the lessees therein.
(b) Grantor shall not receive or collect any rents from any
present or future tenant of the Property or any part thereof in advance in
excess of five percent (5.00 %) of gross annual rental income from the
Property or collect a security deposit in excess of two (2) months' rent.
(c) [INTENTIONALLY OMITTED.]
(d) In the event any tenant or licensee under the Leases
should be the subject of any proceeding under the Federal Bankruptcy Act or
any other federal, state or local statute that provides for the possible
termination or rejection of the Leases, Grantor covenants
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and agrees that in the event any of the Leases is so rejected, no damages
settlement shall be made without the prior written consent of Beneficiary;
and further that any check in payment of damages for rejection of any such
Lease shall be made payable both to Grantor and Beneficiary; and Grantor
hereby assigns any such payment to Beneficiary and further covenants and
agrees that upon request of Beneficiary it will duly endorse to the order of
Beneficiary any such check, the proceeds of which will be applied to any
portion of the indebtedness secured by this Trust Deed as Beneficiary may
elect.
4.18 HAZARDOUS WASTE.
(a) For purposes of this Trust Deed, "hazardous substance"
means any hazardous or toxic substances, materials or wastes, including, but
not limited to, those substances, materials, and wastes listed in the United
States Department of Transportation Hazardous Materials Table (49 CFR 172.101)
or by the Environmental Protection Agency as hazardous substances (40
CFR Part 302) and amendments thereto, or such substances, materials and
wastes which are or become regulated under any applicable local, state or
federal law including, without limitation, any material, waste or substance
which is (i) petroleum, (ii) asbestos, (iii) polychlorinated biphenyls, (iv)
defined as a "hazardous waste", "extremely hazardous waste", "restricted
hazardous waste" or "hazardous substance" under Hazardous Substances,
Radiation Sources, ORS Chapters 453.001, et seq., Solid Waste Control, ORS
Chapters 459.005, et seq., Hazardous Waste and Hazardous Materials, ORS
Chapters 466.005, et seq., Pollution Control, ORS Chapters 468.005, et. seq.,
Oregon Drinking Water Quality Act, ORS Chapters 448.123, et seq., and Ground
Water Act of 1955, ORS Chapters 537.505, et seq., (v) designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act, 33
U.S.C. Section 1251 et seq. (33 U.S.C. Section 1321) or listed pursuant to
Section 307 of the Clean Water Act (33 U.S.C. Section 1317), (vi) defined as
a "hazardous waste" pursuant to Section 1004 of the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6903), or (vii) defined as a "hazardous
substance" pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Section 9601, et seq.
(42 U.S.C. Section 9601), all as amended, replaced or succeeded, and any
other substance or matter defined as a toxic or hazardous substance or
material or pollutant or contaminant under any other federal, state or local
laws, ordinances or regulations or under any reported decision of a state or
federal court, or any substance or matter imposing liability for clean-up
costs or expenses on any person or entity under any statutory or common law
theory.
(b) Grantor hereby represents, warrants, covenants and agrees
that all operations and activities upon, and all uses and occupancies of, the
Property, or any portion thereof, by Grantor, any tenant, occupant or other
user of the Property, or any part thereof, are presently and, so long as any
indebtedness secured hereby is outstanding, shall be in all material respects
in compliance with all federal, state and local laws, regulations, rules and
orders governing or any way relating to the generating, handling,
manufacturing, treatment, storage, use, transportation, spillage, leakage,
dumping, discharge or disposal of any hazardous substance; that there is not
now, nor, to the best knowledge of Grantor after due and diligent inquiry,
has there ever been any underground tank on, under or at the Property which
contain or contained any materials which, if known to be present in soils or
groundwater,
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would require cleanup, removal or some other remedial action under any of
those federal, state or local laws, regulations, rules or orders. To the
best of Grantor's knowledge after due and diligent inquiry, there is not
present in the soils or groundwater on, under or at the Property any
hazardous material which require cleanup, removal or other remedial action
under an federal, state or local law, regulation, rule or order.
(c) If the presence, release, threat of release, placement on
or in the Property, or the generation, transportation, storage, treatment or
disposal at the Property of any hazardous substance: (i) gives rise to
liability (including but not limited to, a response action, remedial action
or removal action) under RCRA, CERCLA, state toxic waste laws, or otherwise,
or (ii) causes a significant public health effect, or (iii) pollutes or
threatens to pollute the environment, Grantor shall, at its sole expense,
promptly take any and all remedial and removal action necessary to clean up
the Property and mitigate exposure to liability arising from the hazardous
substance, whether or not required by law. Any provision of this Trust Deed
to the contrary notwithstanding, if Grantor fails to perform its obligations
under this subsection 4.18(c), any funds advanced by Beneficiary to pay for
any and all remedial and removal action to clean up the Property and mitigate
exposure to liability from the hazardous substance shall NOT be secured by
the lien of this Trust Deed but rather shall be covered by the separate
Certificate and Indemnity Agreement Regarding Hazardous Substances executed
concurrently herewith.
(d) Grantor shall promptly give Beneficiary: (i) written
notice and a copy of any notice or correspondence it receives from any
federal, state or other government authority regarding hazardous substances
on the Property or hazardous substances which materially and adversely affect
or will affect the Property, and (ii) written notice of any knowledge or
information Grantor obtains regarding hazardous substances in a material
amount on or released from the Property or hazardous substances which will
otherwise materially and adversely affect the Property or material expenses
or losses incurred or expected to be incurred by Grantor or any government
agency to study, assess, contain or remove any hazardous substances on or
near the Property.
(e) In the event Beneficiary requires, from time to time
following the occurrence of an Event of Default, Grantor to implement an
operations and maintenance plan because of the presence or potential presence
of asbestos, or lead containing paint or other hazardous substances on the
Property, Grantor shall implement and follow the requirements of any such
operations and maintenance plan, maintain records of such compliance at the
Property and make such records immediately available to Beneficiary upon
request by Beneficiary.
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5. DEFAULT.
5.1 DEFINITION. Any of the following shall constitute an "Event of
Default" as that term is hereinafter used:
(a) Any representation or warranty made by or for the benefit
of Grantor herein or elsewhere in connection with the loan secured hereby,
including but not limited to any representations in connection with the
security therefor, shall prove to have been incorrect or misleading in any
material respect;
(b) Grantor or any other person or entity liable therefor shall
fail to pay within ten (10) calendar days of its due date any part of the
indebtedness secured hereby;
(c) Grantor or any other signatory thereto shall default in the
performance of any of its obligations under Sections 4.3, 4.4, 4.9 or 4.13 of
this Trust Deed;
(d) Grantor or any other signatory thereto shall default in the
performance of any covenant or agreement contained in this Trust Deed and such
default is not cured within thirty (30) days after written notice thereof from
Beneficiary or Trustee; or
(e) Any Event of Default (as defined in the security Agreement)
shall occur.
5.2 BENEFICIARY'S AND TRUSTEE'S RIGHT TO PERFORM. Upon the
occurrence of any Event of Default, Beneficiary or Trustee, but without the
obligation so to do and without notice to or demand upon Grantor and without
releasing Grantor from any obligations hereunder, may: make any payments or
do any acts required of Grantor hereunder in such manner and to such extent
as either may deem necessary to protect the security hereof, Beneficiary or
Trustee being authorized to enter upon the Property for such purposes;
commence, appear in and defend any action or proceeding purporting to affect
the security hereof or the rights or powers of Beneficiary or Trustee; pay,
purchase, contest or compromise any encumbrance, charge or lien in accordance
with the following paragraph; and in exercising any such powers, pay
necessary expenses, employ counsel and pay a reasonable fee therefor. All
sums so expended shall be payable on demand by Grantor, be secured hereby
(except as otherwise provided in Section 4.18) and bear interest at the
Default Rate from the date advanced or expended until repaid.
Beneficiary or Trustee in making any payment herein and hereby
authorized, in the place and stead of the Grantor, in the case of a payment
of taxes, assessments, water rates, sewer rentals and other governmental or
municipal charges, fines, impositions or liens asserted against the Property,
may make such payment in reliance on any bill, statement or estimate procured
from the appropriate public office without inquiry into the accuracy of the
bill, statement or estimate or into the validity of any tax, assessment,
sale, forfeiture, tax lien or title or claim thereof; in the case of any
apparent or threatened adverse claim of title, lien, statement of lien,
encumbrance, deed of trust, claim or charge Beneficiary or Trustee, as the
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case may be, shall be the sole judge of the legality or validity of same; and
in the case of a payment for any other purpose herein and hereby authorized,
but not enumerated in this paragraph, such payment may be made whenever, in
the sole judgment and discretion of Trustee or Beneficiary, as the case may
be, such advance or advances shall seem necessary or desirable to protect the
full security intended to be created by this instrument, provided further,
that in connection with any such advance, Beneficiary at its option may and
is hereby authorized to obtain a continuation report of title prepared by a
title insurance company, the cost and expenses of which shall be repayable by
the Grantor without demand and shall be secured hereby.
5.3 REMEDIES ON DEFAULT. Upon the occurrence of any Event of
Default all sums secured hereby shall become immediately due and payable,
without notice or demand, at the option of Beneficiary and Beneficiary may:
(a) Have a receiver appointed as a matter of right, without
regard to the sufficiency of the Property or any other security for the
indebtedness secured hereby;
(b) Foreclose this Trust Deed as a mortgage or otherwise
realize upon the Property;
(c) Cause Trustee to exercise its power of sale; or
(d) Sue on the Note according to law.
5.4 NO WAIVER. By accepting payment of any sum secured hereby after
its due date, Beneficiary does not waive its right either to require prompt
payment when due of all other sums so secured or to declare an Event of Default
for failure to do so.
6. CONDEMNATION. Any award of damages, whether paid as a result of
judgment or prior settlement, in connection with any condemnation or other
taking of any portion of the Property, for public or private use, or for
injury to any portion of the Property is hereby assigned and shall be paid to
Beneficiary which may apply such moneys received by it in the same manner and
with the same effect as provided in Section 4.4.1 above for disposition of
proceeds of hazard insurance. Should the Property or any part or
appurtenance thereof or right or interest therein be taken or threatened to
be taken by reason of any public or private improvement, condemnation
proceeding (including change of grade), or in any other manner, Beneficiary
may, at its option, commence, appear in and prosecute, in its own name, any
action or proceeding, or make any reasonable compromise or settlement in
connection with such taking or damage, and obtain all compensation, awards or
other relief therefor, and Grantor agrees to pay Beneficiary's costs and
reasonable attorneys' fees incurred in connection therewith. No condemnation
award at any time assigned to or held by Beneficiary shall be deemed to be
held in trust, and Beneficiary may commingle such award with its general
assets and shall not be liable for the payment of any interest thereon.
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7. TRUSTEE.
7.1 GENERAL POWERS AND DUTIES OF TRUSTEE. At any time or from
time to time, without liability therefor and without notice and without
affecting the liability of any person for the payment of the indebtedness
secured hereby, upon written request of Beneficiary, payment of its own fees
and presentation of this Trust Deed and the Note for endorsement (in case of
full reconveyance, for cancellation or retention), Trustee may:
(a) Consent to the making of any map or plat of the Property;
(b) Join in granting any easement or creating any restriction
thereon;
(c) Join in any subordination or other agreement affecting this
Trust Deed or the lien or charge thereof; or
(d) Reconvey, without warranty, all or any part of the
Property.
7.2 RECONVEYANCE. Upon written request of Beneficiary stating
that all sums secured hereby have been paid, and upon surrender of this Trust
Deed and the Note to Trustee for cancellation and retention and upon payment
of its fees, Trustee shall reconvey, without warranty, the Property then held
hereunder. The recitals in any reconveyance executed under this Trust Deed
of any matters of fact shall be conclusive proof of the truthfulness thereof.
The grantee in such reconveyance may be described as "the person or persons
legally entitled thereto".
7.3 POWERS AND DUTIES ON DEFAULT. Upon written request therefor
by Beneficiary specifying the nature of the default, or the nature of the
several defaults, and the amount or amounts due and owing, Trustee shall
execute a written notice of breach and of its election to cause the Property
to be sold to satisfy the obligation secured hereby, and shall cause such
notice to be recorded and otherwise given according to law.
Notice of sale having been given as then required by law and not less
than the time then required by law having elapsed after recordation of such
notice of breach, Trustee, without demand on Grantor, shall sell the Property
at the time and place of sale specified in the notice, as provided by
statute, either as a whole or in separate parcels and in such order as it may
determine, at public auction to the highest and best bidder for cash in
lawful money of the United States, payable at time of sale. Grantor agrees
that such a sale (or a sheriff's sale pursuant to judicial foreclosure) of
all the Property as real estate constitutes a commercially reasonable
disposition thereof, but that with respect to all or any part of the Property
which may be personal property Trustee shall have and exercise, at
Beneficiary's sole election, all the rights and remedies of a secured party
under the UCC. Whenever notice is permitted or required hereunder or under
the UCC, ten (10) days shall be deemed reasonable. Trustee may postpone sale
of all or any portion of the Property, and from time to time thereafter may
postpone such sale, as provided by statute. Trustee shall deliver to the
purchaser its deed and bill of sale conveying the Property so sold, but
without any covenant or warranty, express or
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implied. The recital in such deed and bill of sale of any matters or facts
shall be conclusive proof of the truthfulness thereof. Any person other than
Trustee, including Grantor or Beneficiary, may purchase at such sale.
After deducting all costs, fees and expenses of Trustee and of this
trust, including the cost of evidence of title search and reasonable counsel
fees in connection with sale, Trustee shall apply the proceeds of sale to
payment of: all sums expended under the terms hereof not then repaid, with
accrued interest at the Default Rate; all other sums then secured hereby; and
the remainder, if any, to Grantor.
7.4 REASSIGNMENT OF SECURITY INTEREST. At the request of
Beneficiary, Trustee shall reassign to Beneficiary the security interest
created hereby and assigned hereby and after such reassignment Beneficiary
shall have the right, upon the occurrence or continuance of any Event of
Default, to realize upon the personal property subject to this Trust Deed,
independent of any action of Trustee, pursuant to the UCC.
7.5 ACCEPTANCE OF TRUST. Trustee accepts this trust when this
Trust Deed, duly executed and acknowledged, is made a public record as
provided by law. Trustee is not obligated to notify any party hereto except
Beneficiary of pending sale under any other deed of trust or of any action or
proceeding in which Grantor, Beneficiary or Trustee shall be a party unless
brought by Trustee.
7.6 RELIANCE. Trustee, upon presentation to it of an affidavit
signed by Beneficiary setting forth facts showing a default by Grantor under
this Trust Deed, is authorized to accept as true and conclusive all facts and
statements therein, and to act thereon hereunder.
7.7 REPLACEMENT OF TRUSTEE. Beneficiary may, from time to time,
as provided by statute, appoint another trustee in place and stead of Trustee
herein named, and thereupon Trustee herein named shall be discharged and the
trustee so appointed shall be substituted as Trustee hereunder, with the same
effect as if originally named Trustee herein.
8. APPLICATION OF RENTS. Grantor hereby gives to and confers upon
Beneficiary the right, power and authority during the continuance of this
Trust Deed to collect the rents, issues and profits of the Property,
reserving unto Grantor the right, prior to any default in payment of any
indebtedness secured hereby or hereunder, to collect and retain such rents,
issues and profits as they become due and payable. Upon any such default,
Beneficiary may at any time and without notice, either in person, by agent,
or by a receiver to be appointed by a court, without regard to the adequacy
of any security for the indebtedness hereby secured, enter upon and take
possession of the Property or any part thereof, or in its own name sue for or
otherwise collect such rents, issues, and profits, including those past due
and unpaid, and apply the same, less costs and expenses of operation and
collection, including reasonable attorneys' fees, upon any indebtedness
secured hereby, and in such order as Beneficiary may determine. The entering
upon and taking possession of the Property, the collection of such
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rents, issues and profits and the application thereof as aforesaid, shall not
cure or waive any default or notice of default hereunder or invalidate any
act done pursuant to such notice.
9. NOTICES.
9.1 TRUSTEE. Any notice or demand upon Trustee may be given or made
at:
Oregon Title Insurance Company
1515 SW Fifth Avenue, Suite 800
Portland, Oregon 97201
9.2 GRANTOR AND BENEFICIARY. Any notice to or demand upon Grantor
(including any notice of default or notice of sale) or notice to or demand
upon Beneficiary shall be deemed to have been sufficiently made for all
purposes when deposited in the United States mails, postage prepaid,
registered or certified, return receipt requested, addressed as follows:
GRANTOR: Praegitzer Industries, Inc.
1270 Monmouth Cutoff
Dallas, Oregon 97338
Attention: Chief Financial Officer
BENEFICIARY: Heller Financial, Inc.
Commercial Equipment Finance Division
One Montgomery Street, Suite 2250
San Francisco, California 94104
Attention: Region Credit Manager
or to such other address as may be filed in writing by Grantor or Beneficiary
with Trustee.
9.3 WAIVER OF NOTICE. The giving of notice may be waived in
writing by the person or persons entitled to receive such notice, either
before or after the time established for the giving of such notice.
10. MODIFICATIONS. Upon written request of any party then liable for
any sum secured hereby, Beneficiary reserves the right to extend the term, or
otherwise modify the terms, hereof or of the Note as Beneficiary and such
person may from time to time deem appropriate and any such change shall not
operate to release, in any manner, the liability of the original Grantor or
Grantor's successors in interest.
11. SUCCESSORS AND ASSIGNS. All provisions herein contained shall be
binding upon and inure to the benefit of the respective successors and
assigns of the parties.
15
<PAGE>
12. GOVERNING LAW; SEVERABILITY. This Trust Deed shall be governed by
the law of the state of Oregon. In the event that any provision or clause of
this Trust Deed or the Note conflicts with applicable law, the conflict shall
not affect other provisions of this Trust Deed or the Note which can be given
effect without the conflicting provision and to this end the provisions of
this Trust Deed and the Note are declared to be severable.
13. GRANTOR'S RIGHT TO POSSESSION. Grantor may be and remain in
possession of the Property for so long as it is not in default hereunder or
under the terms of the Note and Grantor may, while it is entitled to
possession of the Property, use the same.
14. MAXIMUM INTEREST. No provision of this Trust Deed or of the Note
shall require the payment or permit the collection of interest in excess of
the maximum permitted by law. If any excess of interest in such respect is
herein or in the Note provided for, neither Grantor nor its successors or
assigns shall be obligated to pay that portion of such interest which is in
excess of the maximum permitted by law, and the right to demand the payment
of any such excess shall be and is hereby waived and this Section 14 shall
control any provision of this Trust Deed or the Note which is inconsistent
herewith.
15. ATTORNEYS' FEES. In the event any action or proceeding is brought
to enforce or interpret the provisions of this Trust Deed, the prevailing
party shall be entitled to recover, as a part of the prevailing party's
costs, a reasonable attorneys' fee at trial, in bankruptcy proceedings and on
appeal, the amount of which shall be fixed by the court and made a part of
any judgment rendered.
16. PREPAYMENT PROVISIONS. If at any time after default and
acceleration of the indebtedness secured hereby there shall be a tender of
payment of the amount necessary to satisfy such indebtedness by or on behalf
of the Grantor, its successors or assigns, the same shall be deemed to be a
voluntary prepayment such that the sum required to satisfy such indebtedness
in full shall include, to the extent permitted by law, the additional payment
required under the prepayment privilege as stated in the Note. Similarly,
should the Property at any time be destroyed or be the subject of any
successful condemnation proceeding, the portion of any insurance proceeds or
condemnation award, as the case may be, due the Beneficiary shall include the
additional payment required under the prepayment privilege as stated in the
Note.
17. TIME OF ESSENCE. Time is of the essence under this Trust Deed and
in the performance of every term, covenant and obligation contained herein.
18. MISCELLANEOUS.
18.1 Whenever the context so requires the singular number includes
the plural herein, and the impersonal includes the personal.
16
<PAGE>
18.2 The headings to the various sections have been inserted for
convenient reference only and shall not modify, define, limit or expand the
express provisions of this Trust Deed.
THIS TRUST DEED WILL NOT ALLOW USE OF THE PROPERTY DESCRIBED IN THIS
TRUST DEED IN VIOLATION OF APPLICABLE LAND USE LAWS AND REGULATIONS.
BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON ACQUIRING FEE
TITLE TO THE PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR COUNTY
PLANNING DEPARTMENT TO VERIFY APPROVED USES, AND TO DETERMINE ANY LIMITS
OR LAWSUITS AGAINST FARMING OR FOREST PRACTICES AS DEFINED IN ORS 30.390.
DATED as of the day and year first above written.
GRANTOR: PRAEGITZER INDUSTRIES, INC.
By: /s/ Matthew J. Bergeron
---------------------------
Its: Chief Operating Officer
-------------------------
[Acknowledgment follows]
17
<PAGE>
STATE OF OREGON )
) ss.
County of [Illegible]
This instrument was acknowledged before me on the 23 day of May, 1997, by
Matthew Bergeron as, Chief Operating Officer of Praegitzer Industries, Inc.
/s/ Nancy E. Brown
------------------------------------
Notary Public for Oregon
My Commission Expires:
--------------
[Official Seal]
18
<PAGE>
EXHIBIT 10.17
PRAEGITZER INDUSTRIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Employee Stock Purchase Plan
of Praegitzer Industries, Inc.
1. PURPOSE.
The purpose of the Plan is to provide employees of the Company and its
Designated Subsidiaries with an opportunity to purchase Common Stock of the
Company. It is the intention of the Company to have the plan qualify as an
"Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of
1986, as amended. The provisions of the Plan shall, accordingly, be construed
so as to extend and limit participation in a manner consistent with the
requirements of that section of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean Praegitzer Industries, Inc., an Oregon
corporation.
(e) "COMPENSATION" shall mean all cash compensation, including variable
compensation for field sales/service personnel, incentives, bonuses, overtime
and shift premium.
(f) "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
not more than 90 days or re-employment upon the expiration of such leave is
guaranteed by contract or statute.
(g) "CUSTODIAN" shall mean the brokerage firm selected by the Company to
hold shares purchased for Employee's accounts under the Plan.
(h) "DESIGNATED SUBSIDIARIES" shall mean the Subsidiaries whose employees
are eligible to participate in the Plan, as such subsidiaries may be designated
by the Board from time to time in its sole discretion.
<PAGE>
(i) "EMPLOYEE" shall mean any person, including an officer, who is
customarily employed for at least twenty (20) hours per week by the Company or
any Designated Subsidiary.
(j) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "EXERCISE DATE" shall mean the last trading day of each Offering
Period of the Plan.
(l) "OFFERING DATE" shall mean the first trading day of each Offering
Period of the Plan.
(m) "OFFERING PERIOD" shall mean a period of six (6) months.
(n) "PLAN" shall mean this Employee Stock Purchase Plan.
(o) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
3. ELIGIBILITY.
(a) Any person who has been continuously employed as an Employee for three
(3) months as of the Offering Date of a given Offering Period shall be eligible
to participate in such Offering Period under the Plan, subject to the
requirements of paragraph 5 and the limitations imposed by Section 423(b) of the
Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424 (d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any subsidiary of the Company, or (ii) which permits his or her
rights to purchase stock under all employee stock purchase plans (described in
Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate
which exceeds Twenty Five Thousand Dollars ($25,000) of fair market value of
such stock (determined at the time such option is granted) for each calendar
year in which such option is outstanding at any time.
4. OFFERING PERIODS.
The Plan shall be implemented by a series of Offering Periods, with a new
Offering Period commencing on February 15th and August 15th of each year and
ending on
<PAGE>
August 14 and February 14 of each year. The Board shall have the power to
change the duration and/or the frequency of Offering Periods with respect to
future offerings without stockholder approval if such change is announced at
least fifteen (15) days prior to the scheduled beginning of the first
Offering Period to be affected.
5. PARTICIPATION.
An eligible Employee may become a participant in the Plan by completing a
subscription agreement authorizing payroll deductions in the form of Exhibit A
to this Plan and filing it with the Company's payroll office at least ten (10)
business days prior to the applicable Offering Date, unless a later time for
filing the subscription agreement is set by the Board for all eligible Employees
with respect to a given Offering Period.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription agreement, he
or she shall elect to have payroll deductions made on each payday during the
Offering Period, subject to such dollar or percentage limitations during an
Offering Period as the Company shall determine prior to such Offering Period as
described in the applicable subscription agreement; provided, however, that the
aggregate of such payroll deductions during the Offering Period shall not exceed
twenty percent (20%) of the participant's aggregate Compensation during said
Offering Period and the minimum payroll deduction shall be $20 per paycheck.
(b) All payroll deductions made for a participant shall be credited to his
or her account under the Plan. A participant may not make any additional
payments into such account.
(c) A participant may discontinue his or her participation in the Plan as
provided in paragraph 10 or may increase or decrease the rate or amount of his
or her payroll deductions (within the limitations of paragraph 6(a)) by
completing and filing with the Company a new subscription agreement authorizing
a change in the rate or amount of payroll deductions; provided however that a
participant may not change the rate or amount of his or her payroll deductions
more than four times in any one calendar year; and provided further, however,
that an increase in payroll deductions shall not be effective until the first
payday of the next Offering Period. The change in rate or amount shall be
effective with the first full payroll period following ten (10) business days
after the Company's receipt of the new subscription agreement. Subject to the
limitations of paragraph 6(a), a participants subscription agreement shall
remain in effect for successive Offering Periods unless revised as provided
herein or terminated as provided in paragraph 10.
7. GRANT OF OPTION.
<PAGE>
(a) On the Offering Date of each Offering Period each eligible Employee
participating in such Offering Period shall be granted an option to purchase on
the Exercise Date of such Offering Period up to a number of shares of common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Employee's account as of the
Exercise Date by the lower of (i) eighty-five percent (85%) of the fair market
value of a share of Common Stock on the Offering Date or (ii) eighty-five
percent (85%) of the fair market value of a share of Common Stock on the
Exercise Date; provided that in no event shall an employee be permitted to
purchase during any Offering Period more than three thousand (3,000) shares of
Common Stock, and provided further that such purchase shall be subject to the
limitations set forth in paragraphs 3(b) and 12 hereof. Exercise of the
option shall occur as provided in paragraph 8, unless the participant has
withdrawn pursuant to paragraph 10. Fair market value of a share of the
Company's Common Stock shall be determined as provided in paragraph
7(b) herein.
(b) The option price per share of the shares offered in a given Offering
Period shall be the lower of: (i) 85% of the fair market value of a share of
Common Stock on the Offering Date; or (ii) 85% of the fair market value of a
share of Common Stock on the Exercise Date. The fair market value of the Common
Stock on a given date shall be the closing price of the Common Stock for such
date as reported by the National Association of Securities Dealers Automated
Quotation (NASDAQ) National Marketing System or, if such price is not reported,
the mean of the bid and asked prices per share of the Common Stock as reported
by NASDAQ or, in the event the Common Stock is listed on a stock exchange, the
fair market value shall be the closing price on such exchange on such date as
reported in the Wall Street Journal.
8. EXERCISE OF OPTION.
Unless a participant withdraws from the Plan as provided in paragraph 10,
his or her option for the purchase of shares will be exercised automatically on
the Exercise Date of the Offering Period, and the maximum number of full and
fractional shares subject to option will be purchased for him or her at the
applicable option price with the accumulated payroll deductions in his or her
account. Any amount remaining in a participant's account after an Exercise Date
because of the limitations in paragraphs 3(b), 7 or 12 hereof will be repaid to
the participant. The shares purchased upon exercise of an option hereunder
shall be deemed to be transferred to the participant on the Exercise Date.
9. DELIVERY AND CUSTODY OF SHARES.
As promptly as practicable after the Exercise Date of each Offering Period,
the Company shall deliver shares purchased by the participants to the Custodian
who shall hold the shares for the participants' accounts. By appropriate
instructions to the Custodian, a participant may instruct the Custodian to sell
shares held by the Custodian for the participant's account (with brokerage fees
to be paid by the participant). If a participant desires to sell all of the
shares in his or her account, the Custodian or the
<PAGE>
Company will purchase any fraction of a share in the account at the same price
per share that the whole shares are sold on the market. A participant may make
a gift of shares held in his or her account by giving the Custodian appropriate
instructions to transfer such shares to the name of the gift recipient. Except
for a sale or gift permitted by this paragraph, a participant may not transfer
shares from his or her account with the Custodian until two years after the
termination of the participant's employment.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account under the Plan at any time prior to
the 10th business day prior to the Exercise Date of the Offering Period by
giving written notice to the Company. All of the participant's payroll
deductions credited to his or her account will be paid to him or her promptly
after receipt of his or her notice of withdrawal and his or her option for the
current period will be automatically terminated, and no further payroll
deductions for the purchase of shares will be made unless the participant
reinstates participation in the Plan by filing a subscription agreement for a
subsequent Offering Period.
(b) Upon termination of the participant's Continuous Status as an Employee
prior to the Exercise Date of the Offering Period for any reason, including
retirement or death, the payroll deductions credited to his or her account will
be returned to him or her or, in the case of his or her death, to the person or
persons entitled thereto under paragraph 14, and his or her option will be
automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as an
Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the Employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the payroll deductions credited to
his or her account will be returned to him or her and his or her option
terminated.
(d) A participant's withdrawal from an offering will not have any effect
upon his or her eligibility to participate in a succeeding offering or in any
similar plan which may hereafter be adopted by the Company.
11. INTEREST.
No interest will accrue on the payroll deductions of a participant under
the Plan.
12. STOCK.
(a) The maximum number of shares of Common Stock which shall be made
available for sale under the Plan shall be 200,000 shares, subject to adjustment
upon changes in capitalization of the Company as provided in paragraph 18. If,
on a given Exercise Date, the total number of shares with respect to which
options are to be exercised, exceeds the number of shares then available under
the Plan, the Company shall make a pro rata allocation of the shares remaining
available for purchase in as uniform a manner as shall
<PAGE>
be practicable and as it shall determine to be equitable. Any amounts remaining
in an Employee's account not applied to the purchase of stock pursuant to this
paragraph 12 shall be refunded on or promptly after the Exercise Date.
(b) A participant will have no interest or voting right in shares covered
by his or her option until such option has been exercised.
13. ADMINISTRATION.
The Board, or a committee named by the Board, shall supervise and
administer the Plan and shall have full power to adopt, amend and rescind any
rules deemed desirable and appropriate for the administration of the Plan and
not inconsistent with the Plan, to construe and interpret the Plan, and to make
all other determinations necessary or advisable for the administration of the
Plan.
14. DESIGNATION OF BENEFICIARY.
A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death. Such designation of beneficiary
may be changed by the participant at any time by written notice. In the event
of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
15. TRANSFERABILITY.
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or the receipt of shares under
the Plan may be assigned, transferred, pledged or otherwise disposed of in any
way (other than by will, the laws of descent and distribution or as provided in
paragraph 14 hereof) by the participant. Any such attempt at assignment,
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds in accordance with
paragraph 10.
16. USE OF FUNDS.
All payroll deductions received or held by the Company under the Plan may
be used by the Company for any corporate purpose, and the Company shall not be
obligated to segregate such payroll deductions.
<PAGE>
17. REPORTS.
Individual accounts will be maintained for each participant in the Plan.
Statements of account will be given to participating Employees promptly
following each Exercise Date which statements will set forth the amounts of
payroll deductions, the per share purchase price and the number of shares
purchased.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Subject to any required action by the stockholders of the Company, the
number of shares of Common Stock covered by each option under the Plan which has
not yet been exercised and the number of shares of Common Stock which have been
authorized for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves") as well as the price per share of Common Stock
covered by each option under the Plan which has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, the conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration". Such adjustment shall be made by
the Board, whose determination in this respect shall be final, binding and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Plan shall be assumed or an equivalent option shall be assumed or substituted by
such successor corporation or a parent or subsidiary of such successor
corporation, unless the Board determines, in the exercise of its sole discretion
and in lieu of such assumption or substitution, that the Offering Period will
terminate immediately prior to the consummation of such proposed action.
The Board may, if it so determines in the exercise of its sole discretion
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights or
offerings or other increases or reductions of shares of its outstanding Common
Stock, and in the event of the Company being consolidated with or merged into
any other corporation.
<PAGE>
19. AMENDMENT OR TERMINATION.
The Board may at any time and for any reason terminate or amend the Plan
except that any amendment to increase the number of shares of Common Stock
available for issuance under the Plan must be approved by the stockholders
within 12 months of adoption by the Board. In addition, except as provided in
paragraph 18, no amendment or termination shall be made which would impair the
rights of any participant under any grant theretofore made, without his or her
consent. In addition, to the extent necessary to comply with Rule 16b-3 under
the Exchange Act or Section 423 of the Code (or any other successor rule or
provision or any other applicable law or regulation), the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
20. NOTICES.
All notices or other communications by a participant to the Company under
or in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.
21. STOCKHOLDER APPROVAL.
Continuance of the Plan shall be subject to approval of the stockholders of
the Company within 12 months after the date the Plan was adopted.
22. CONDITIONS UPON ISSUANCE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of
such option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
23. TERM OF PLAN.
The Plan became effective upon its adoption by the Board of Directors on
May 17, 1996 and shall continue in effect until all shares available for
issuance under the Plan have been issued unless sooner terminated under
paragraph 19.
<PAGE>
24. TAX WITHHOLDING.
Each participant who has purchased shares under the Plan shall immediately
upon notification of the amount due, if any, pay to the Company in cash amounts
necessary to satisfy any applicable federal, state and local tax withholding
determined by the Company to be required. If the Company determines that
additional withholding is required beyond any amount deposited at the time of
purchase, the participant shall pay such amount to the Company on demand. If
the participant fails to pay the amount demanded, the Company may withhold that
amount from other amounts payable by the Company to the participant, including
salary, subject to applicable law.
25. EXPENSES.
The Company shall pay all expenses incident to the operation of the Plan,
other than expenses in connection with the sale of shares by the Custodian at
the request of a participant.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 442
<SECURITIES> 0
<RECEIVABLES> 24,852
<ALLOWANCES> 400
<INVENTORY> 8,534
<CURRENT-ASSETS> 34,512
<PP&E> 65,819
<DEPRECIATION> 25,782
<TOTAL-ASSETS> 87,286
<CURRENT-LIABILITIES> 17,481
<BONDS> 0
0
0
<COMMON> 41,233
<OTHER-SE> (3,592)
<TOTAL-LIABILITY-AND-EQUITY> 87,286
<SALES> 147,947
<TOTAL-REVENUES> 147,947
<CGS> 122,013
<TOTAL-COSTS> 122,013
<OTHER-EXPENSES> 30,838
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,295
<INCOME-PRETAX> (6,631)
<INCOME-TAX> 1,670
<INCOME-CONTINUING> (8,301)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,301)
<EPS-PRIMARY> (.68)
<EPS-DILUTED> (.68)
</TABLE>
