SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
{x} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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)
OREGON 93-0790158
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1270 S.E. Monmouth Cut-Off Road
Dallas, Oregon 97338-9532
(503) 623-1000
(Address, including zip code, and telephone number, including area code,
of principal executive offices)
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 last 90 days.
Yes {x} No { }
Number of shares of Common Stock outstanding as of February 9, 1998: 12,700,858
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PRAEGITZER INDUSTRIES, INC.
Table of Contents
Page No.
--------
Part I Financial Information
Condensed Balance Sheet-
December 31, 1997 and June 30, 1997 .............................. 3
Condensed Statement of Operations-
Three months and six months ended
December 31, 1997 and 1996 ....................................... 4
Condensed Statement of Cash Flows-
Six months ended December 31, 1997 and 1996 ...................... 5
Notes to Condensed Financial Statements .......................... 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations .................... 8
Part II Other Information
Item 4 Submission of Matters to a Vote of Security Holders ......10
Item 6 Exhibits and Reports on Form 8-K .........................11
Signatures .........................................................12
2
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
PRAEGITZER INDUSTRIES, INC.
CONDENSED BALANCE SHEET
(Unaudited)
(In Thousands)
ASSETS
December 31, June 30,
1997 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 237 $ 442
Accounts receivable, net 28,823 24,453
Inventories 10,790 8,534
Prepaid expenses 1,329 1,083
----------- -----------
Total current assets 41,179 34,512
Property, plant and equipment 73,005 65,818
Less: Accumulated depreciation and amortization (29,077) (25,782)
----------- -----------
43,928 40,036
Other assets 12,444 12,738
----------- -----------
$ 97,551 $ 87,286
=========== ===========
LIABILITIES
CURRENT LIABILITIES
Bank overdraft 1,446 2,042
Accounts payable 11,054 8,504
Accrued payroll and related expenses 2,947 2,879
Other current liabilities 539 491
Current portion of long-term obligations 4,188 3,565
----------- -----------
Total current liabilities 20,174 17,481
Long-term obligations 33,383 29,785
Deferred tax liability 2,459 2,306
Other liabilities 58 73
Common stock 41,528 41,233
Accumulated deficit (51) (3,592)
----------- -----------
Total shareholders' equity 41,477 37,641
----------- -----------
$ 97,551 $ 87,286
=========== ===========
The accompanying notes are an integral part of these condensed
financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
PRAEGITZER INDUSTRIES, INC.
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $ 46,032 $ 34,791 $ 88,626 $ 64,240
Cost of sales 35,998 27,826 70,582 52,189
---------- ---------- ---------- ----------
Gross profit 10,034 6,965 18,044 12,051
Selling, general and
administrative expenses 5,567 4,347 10,884 7,341
Impairment and in-process technology
expense - - - 11,650
Amortization of goodwill 448 446 895 736
---------- ---------- ---------- ----------
Income (loss) from operations 4,019 2,172 6,265 (7,676)
Interest expense 725 647 1,451 989
Other income 85 375 166 476
---------- ---------- ---------- ----------
Income (loss) before income taxes 3,379 1,900 4,980 (8,189)
Income taxes 1,110 715 1,604 1,300
---------- ---------- ---------- ----------
Net income (loss) $ 2,269 $ 1,185 $ 3,376 $ (9,489)
========== ========== ========== ==========
Basic Net income (loss) per share $ 0.18 $ 0.10 $ 0.27 $ (0.80)
========== ========== ========== ==========
Weighted average shares outstanding 12,663,088 12,061,875 12,655,449 11,866,996
========== ========== ========== ==========
Diluted Net income (loss) per share $ 0.18 $ 0.10 $ 0.26 $ (0.80)
========== ========== ========== ==========
Weighted average shares and
equivalent shares outstanding 12,905,703 12,158,894 12,918,788 11,866,996
========== ========== ========== ==========
The accompanying notes are an integral part of these condensed
financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PRAEGITZER INDUSTRIES, INC
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
Six Months
Ended December 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net cash provided by (used in) operating activities $ 6,982 $ (426)
Cash Flows from Investing Activities:
Capital expenditures (11,245) (12,665)
Proceeds from sale of property, plant and equipment 832 7,514
Business acquisitions (477) (5,150)
Other (171) 101
----------- -----------
Net cash used in investing activities (11,061) (10,200)
----------- -----------
Cash Flows from Financing Activities:
Increase in short-term borrowings 1,449 9,603
Borrowings of long-term debt 4,581 11,814
Payments on long-term debt and capital leases (1,855) (12,097)
Increase (decrease) in bank overdrafts (596) 1,692
Issuances of common stock 295 -
----------- -----------
Net cash provided by financing activities 3,874 11,012
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents (205) 386
Cash and Cash Equivalents at Beginning of Period 442 39
----------- -----------
Cash and Cash Equivalents at End of Period $ 237 $ 425
=========== ===========
Supplemental disclosure of cash flow information: Cash paid during the
respective periods for:
Interest $ 1,419 $ 669
Income Taxes $ 1,629 $ 2,163
The accompanying notes are an integral part of these condensed
financial statements.
</TABLE>
5
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PRAEGITZER INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
financial statements of Praegitzer Industries, Inc. (the "Company") contain all
adjustments necessary to present fairly the financial position of the Company as
of December 31, 1997, and the results of operations and cash flows for the three
months ended December 31, 1997 and 1996 and the results of operations and cash
flows for the six months ended December 31, 1997 and 1996. The results of
operations for the three and six months ended December 31, 1997 are not
necessarily indicative of the results expected for the entire fiscal year ending
June 30, 1998.
These financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such regulations, although the Company believes
the disclosures provided are adequate to prevent the information presented from
being misleading.
This report on Form 10-Q for the quarter ended December 31, 1997, should be
read in conjunction with the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1997. Portions of the accompanying financial statements are
derived from the audited year-end financial statements of the Company dated June
30, 1997.
Note 2: Earnings per share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. SFAS 128
specifies new standards for computing and disclosing earnings per share and is
effective for periods ending after December 15, 1997. The Company has adopted
this standard and has restated its earnings per share ("EPS") for prior periods
presented. The basic EPS has been computed by dividing net income by the
weighted average number of shares outstanding during each period. Diluted EPS
has been computed by dividing net income by the weighted average common and
common equivalent shares outstanding during each period using the treasury stock
method. The difference between the Basic and Diluted weighted average shares is
due to common stock equivalent shares resulting from outstanding stock options.
6
<PAGE>
Note 3: Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market and consist of the following:
(In thousands)
December 31, June 30,
1997 1997
----------- -----------
Raw Materials and supplies $ 4,516 $ 3,117
Work-in-progress 6,274 5,417
=========== ===========
Total inventory $ 10,790 $ 8,534
=========== ===========
Note 4: Notes Payable
The Company has a $15 million bank line of credit, under which $13.9
million was outstanding at December 31, 1997 and $1.1 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
the prime rate (8.5% at December 31, 1997). The line of credit agreement expires
in January 1999.
An additional amount of $4.6 million was borrowed from Heller Financial,
Inc. In December 1997, secured by miscellaneous equipment. The principal amount
is amortized over an 84-month repayment period beginning February 1, 1998, plus
accrued interest equal to 7.90%.
Note 5: Future Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
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.
Implementation of SFAS No. 130 and SFAS No. 131 is not expected to have a
material effect on the Company's financial statements. The effects of
implementation will be disclosure only.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
- --------
The Company designs and manufactures complex, rigid multilayer printed
circuit boards ("PCBs"). The Company's design division provides schematic
capture and PCB layout services. The Fremont facility specializes in
quick-turnaround prototype production, the Redmond facility specializes in high
technology and low volume production, the White City facility specializes in
medium volume production, and the Dallas facility specializes in medium to high
volume production.
This discussion and analysis is designed to be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations set forth in the Company's Form 10-K for the fiscal year ended June
30, 1997.
Results of Operations
- ---------------------
Three Months Ended December 31, 1997 Compared to Three Months
Ended December 31, 1996
- -------------------------------------------------------------
Revenue for the three months ended December 31, 1997 increased 32.3% to
$46.0 million from $34.8 million for the three months ended December 31, 1996.
The increase resulted primarily from increased sales volumes made possible by
several factors including capacity expansions in the Dallas and White City
facilities completed in fiscal year ended June 30, 1997 and the acquisition of
five design centers during calendar year 1997. The increase in sales was fueled
by the expansion of the Company's sales force in September of 1996.
Gross profit for the three months ended December 31, 1997 was $10.0 million
or 21.8% of revenue, compared to $7.0 million or 20.0% of revenue for the three
months ended December 31, 1996. The increase in gross margin was primarily due
to improved yields in inner layer production at the Company's Dallas facility.
Selling, general and administrative expenses for the three months ended
December 31, 1997 were $5.6 million or 12.1% of revenue, compared to $4.3
million or 12.5% of revenue for the three months ended December 31, 1996. The
increase primarily resulted from an expansion in the Company's management team
required to support the Company's growth.
Goodwill amortization was $448,000, compared to $446,000 for the three
months ended December 31, 1997 and 1996 respectively.
Interest expense for the quarter ended December 31, 1997 was $725,000, an
increase of $78,000 or 12.1% from the quarter ended December 31, 1996. The
increase was the result of increased borrowings to finance equipment purchases.
8
<PAGE>
Six Months Ended December 31, 1997 Compared to
Six Months Ended December 31, 1996
- ----------------------------------------------
Revenue for the six months ended December 31, 1997 increased 38.0% to $88.6
million from $64.2 million for the six months ended December 31, 1996. The
increase resulted primarily from increased sales volumes made possible by
several factors including capacity expansions in the Dallas and White City
facilities completed in fiscal year ended June 30, 1997 and the acquisition of
five Design centers during calendar year 1997. In addition, the acquisition of
Trend Circuits, Inc. ("Trend") in August 1996 accounted for an increase of $3.7
million in revenue for the six months ended December 31, 1997.
Gross profit for the six months ended December 31, 1997 was $18.0 million
or 20.4% of revenue, compared to $12.1 million or 18.8% of revenue for the six
months ended December 31, 1996. The increase in gross margin as a percent of
revenue was primarily due to improved yields in inner layer production at the
Company's Dallas facility. During the first quarter of fiscal 1997, the Company
had relied on outsourcing of inner layer production to overcome capacity
restraints that resulted in higher costs. During the second quarter of fiscal
year 1997, the Company realigned some of its facilities through the purchase of
additional equipment and process changes that resulted in temporarily elevated
production costs.
Selling, general and administrative expense for the six months ended
December 31, 1997 was $10.9 million or 12.3% of revenue, compared to $7.3
million or 11.4% of revenue for the six months ended December 31, 1996. The
increase was primarily the result of increased personnel and fixed costs
required to support higher levels of sales and other integration costs related
to the acquisition of Trend subsequent to September 1996.
Goodwill amortization was $895,000, compared to $736,000 for the six months
ended December 31, 1997 and 1996 respectively. The goodwill amortization for the
six months ended December 31, 1996 included only the CTI acquisition until
August 26, 1996 when Trend was acquired.
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.
The effective income tax rate for the six months ended December 31, 1997
was 32.2%. The Company had a positive tax expense for the quarter ended December
31, 1996 on a pre-tax book loss primarily due to the addback of goodwill and the
write-off of in-process research and development tax credits, which are not tax
deductible. However, federal and state research and experimental tax credits
partially offset the effect of these addbacks.
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1997, the Company had cash of $237,000, compared to
$442,000 as of June 30, 1997, and working capital of $21.0 million at December
31, 1997, compared to $17.0 million at June 30, 1997. Principal sources of
liquidity in the first six months of fiscal 1998 were operations and net
financing of $3.6 million under the Company's
9
<PAGE>
various credit facilities. Principal uses of liquidity during the six months
ended December 31, 1997 were property, plant and equipment expenditures of $11.2
million related to expansions and capacity improvements of the Company's
manufacturing operations.
At December 31, 1997 borrowings of $13.9 million were outstanding on the
Company's $15 million bank line of credit and $1.1 million was available for
borrowings based on eligible accounts receivable and inventory. 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 least $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. The
Company is in compliance with all loan covenants.
As of December 31, 1997 the Company had $18.1 million of outstanding notes
payable to Heller Financial bearing interest at annual rates ranging from a
7.90% fixed rate to LIBOR plus 2.55% to LIBOR plus 2.75% (8.2375% to 8.4375% at
December 31, 1997) and secured by real property and miscellaneous equipment at
the Company's Dallas, Oregon and White City, Oregon facilities. The Company had
a $3.7 million note payable to Finova Capital outstanding at December 31, 1997.
The note is secured by miscellaneous equipment and bears interest at an annual
rate of 9.93%.
Although the Company has no firm purchase commitments in material amounts,
it expects total capital expenditures for the fiscal year to range from 8% to
12% of revenue for facilities expansion and equipment.
The Company believes that its 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 remainder of the
fiscal year. The Company may require additional financing for growth
opportunities, expansion and capacity enhancements to its various sites, or
strategic acquisitions.
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
Shareholders are referred to the Company's report on Form 10-Q for the
quarter ended September 30, 1997 regarding material developments in the
Company's litigation with Virtual Vision, Inc. and Pacific Communication
Sciences, Inc.
Item 4: Submission of Matters to a Vote of Security Holders
On November 14, 1997, at the Annual Meeting of Shareholders, the holders of
the Company's outstanding Common Stock took the actions described below. On
September 5, 1997 there were 12,659,818 shares of Common Stock issued and
outstanding.
10
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The shareholders elected Robert L. Praegitzer, Matthew J. Bergeron,
Daniel J. Barnett, Theodore L. Stebbins, General Merrill A. McPeak and
Gordon B. Kuenster to the Company's Board of Directors, by the votes
indicated below, to serve for the ensuing year.
11,188,793 shares in favor
4,134 shares against or withheld
0 abstentions
0 broker nonvotes
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Borrowing Agreement between the Registrant and Heller
Financial dated December 29, 1997
10.2 Borrowing Agreement between the Registrant and Heller
Financial dated December 29, 1997
27 Financial Data Schedule
(b) Reports on Form 8-K
During the three month period ending December 31, 1997,
there were no reports on Form 8-K filed.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRAEGITZER INDUSTRIES, INC
MATTHEW J. BERGERON
Date: February 17, 1997 -----------------------------------------
(Matthew J. Bergeron, President)
(Duly Authorized Officer)
WILLIAM J. THALE
-----------------------------------------
(William J. Thale)
(Principal Financial Officer)
12
Loan No.: 1910069-0005
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made this 29th day of December 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 two million five hundred seventy thousand ninety one and 06/ 100 Dollars
($2,570,091.06), as evidenced by a note or notes executed and delivered by
Debtor to Secured Party and, for so long as, but only for so long as, Secured
Party is the holder thereof, the payment of any other note made by Debtor in
favor of Secured Party that expressly provides that it is to be secured hereby
(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
1
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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 the Secretary of States of the State of Oregon, Washington and
California and with the official real estate records of Jackson and Polk
Counties, Oregon, King County, Washington and Alameda County, California, 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, Debtor shall at all times keep the Collateral at the location[s]
specified on the Schedules (except for removals thereof in the 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
2
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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.
In the event Debtor fails to provide Secured Party with evidence of the
insurance coverage required by this Agreement, Secured Party may purchase
insurance at Debtor's expense to protect Secured Party's interests in the
Collateral. This insurance may, but need not, protect Debtor's interests. The
coverage purchased by Secured Party may not pay any claim made by Debtor or any
claim that is made against Debtor in connection with the Collateral. Debtor may
later cancel any insurance purchased by Secured Party, but only after providing
Secured Party with evidence that Debtor has obtained insurance as required by
this Agreement. If Secured Party purchases insurance for the Collateral, Debtor
will be responsible for the costs of that insurance, including interest and
other charges imposed by Secured Party in connection with the placement of the
insurance, until the effective date of the cancellation or expiration of the
insurance. The costs of the insurance may be added to the Indebtedness. The
costs of the insurance may be more than the cost of insurance Debtor is able to
obtain on its own.
(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.
(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
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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 ($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
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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.
(l) 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
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
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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, ledgers, 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 or 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 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.
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(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 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
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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 second anniversary of the date
of the Noteand 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 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
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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 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
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(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, 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
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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.
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
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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. 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: JOHN WATSON By: SCOTT GILBERT
------------------------------ ------------------------------
Name: John Watson Name: Scott Gilbert
---------------------------- ----------------------------
Title: VP Title: VP Finance/Treasurer
--------------------------- ---------------------------
13
Loan No.: 1910069-0006
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made this 29th day of December 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 two million ten thousand eight hundred three and 20/100 Dollars
($2,010,803.20), as evidenced by a note or notes executed and delivered by
Debtor to Secured Party and, for so long as, but only for so long as, Secured
Party is the holder thereof, the payment of any other note made by Debtor in
favor of Secured Party that expressly provides that it is to be secured hereby
(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
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substantially the same manner as described on the attached Schedule A is duly
filed with the Secretary of States of the State of Oregon, Washington and
California and with the official real estate records of Jackson and Polk
Counties, Oregon, King County, Washington and Alameda County, California, 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, Debtor shall at all times keep the Collateral at the location[s]
specified on the Schedules (except for removals thereof in the 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;
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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.
In the event Debtor fails to provide Secured Party with evidence of the
insurance coverage required by this Agreement, Secured Party may purchase
insurance at Debtor's expense to protect Secured Party's interests in the
Collateral. This insurance may, but need not, protect Debtor's interests. The
coverage purchased by Secured Party may not pay any claim made by Debtor or any
claim that is made against Debtor in connection with the Collateral. Debtor may
later cancel any insurance purchased by Secured Party, but only after providing
Secured Party with evidence that Debtor has obtained insurance as required by
this Agreement. If Secured Party purchases insurance for the Collateral, Debtor
will be responsible for the costs of that insurance, including interest and
other charges imposed by Secured Party in connection with the placement of the
insurance, until the effective date of the cancellation or expiration of the
insurance. The costs of the insurance may be added to the Indebtedness. The
costs of the insurance may be more than the cost of insurance Debtor is able to
obtain on its own.
(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.
(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,
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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 ($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
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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.
(l) 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
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
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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, ledgers, 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 or 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 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.
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(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 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
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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 second anniversary of the date
of the Noteand 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 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
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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 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
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(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, 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
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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.
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
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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. 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: JOHN WATSON By: SCOTT GILBERT
------------------------------ ------------------------------
Name: John Watson Name: Scott Gilbert
---------------------------- ----------------------------
Title: VP Title: VP Finance/Treasurer
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13
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<PERIOD-END> DEC-31-1997
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0
0
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