<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1998
REGISTRATION NO. 333-63003
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRAEGITZER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
OREGON 3672 93-0790158
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation) Classification Code Number) Identification Number)
</TABLE>
1270 SE MONMOUTH CUT OFF ROAD
DALLAS, OREGON 97338
(503) 623-1000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
SCOTT D. GILBERT
VICE PRESIDENT AND TREASURER
PRAEGITZER INDUSTRIES, INC.
1270 SE MONMOUTH CUT OFF ROAD
DALLAS, OREGON 97338
(503) 623-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
STEPHEN E. BABSON EDMUND M. KAUFMAN
ROBERT J. MOORMAN ERIC A. WEBBER
STOEL RIVES LLP IRELL & MANELLA LLP
900 SW FIFTH AVENUE, SUITE 2600 333 SOUTH HOPE STREET, SUITE 3300
PORTLAND, OREGON 97204 LOS ANGELES, CALIFORNIA 90071
(503) 224-3380 (213) 620-1555
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 11, 1998
$15,000,000
[PRAEGITZER LOGO]
------------------
% CONVERTIBLE SUBORDINATED NOTES DUE DECEMBER , 2008
------------------
Praegitzer Industries, Inc. ("Praegitzer" or the "Company") hereby offers
$15,000,000 aggregate principal amount of its % Convertible Subordinated
Notes due 2008 (the "Notes"), and an indeterminate number shares of its common
stock ("Common Stock") issuable upon conversion of the Notes (all such Common
Stock, the "Shares" and, together with the Notes, the "Securities"). The Notes
will mature on December , 2008. Interest on the Notes is payable semi-annually
in arrears on July 15 and January 15 of each year, commencing July 15, 1999. The
Notes are convertible into shares of Common Stock at any time on or before the
close of business on the last trading day prior to maturity, unless previously
redeemed, at a conversion price of $ per share, subject to adjustment in
certain events as described herein. See "Description of Notes-- Conversion." The
Common Stock is traded on the Nasdaq National Market under the symbol "PGTZ." On
December 10, 1998 the last reported sale price of the Common Stock was $8.00 per
share. See "Market Price of Common Stock." The Company has applied to list the
Shares on the Nasdaq National Market, subject only to notice of issuance.
Until December , 2001, the Notes are redeemable by the Company at the
redemption prices set forth herein plus accrued interest, but only if (i) it
redeems all of the Notes then outstanding, (ii) after the date of this offering
and prior to the redemption, there is completed one or more registered public
offerings of Common Stock of the Company pursuant to which the aggregate price
to the public of shares sold by the Company and/or the selling shareholders
participating in such offering(s) equals or exceeds $15 million, and (iii) the
closing price of the Common Stock exceeds the percentages of the conversion
price set forth herein for at least 30 consecutive trading days ending on the
fifth trading day prior to the notice of redemption. On or after December ,
2001, the Notes are redeemable, in whole or from time to time in part, at the
option of the Company, at the redemption prices set forth herein plus accrued
interest. No sinking fund is provided for the Notes. In addition, following the
occurrence of a Designated Event (i.e., a Change of Control or Termination of
Trading (each as defined)), each holder has the right to cause the Company to
purchase the Notes at 100% of their principal amount together with accrued and
unpaid interest. See "Description of Notes."
The Notes are general unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future Senior Debt (as
defined herein) of the Company and will be effectively subordinated to all
indebtedness and other liabilities of the Company's subsidiaries. As of
September 30, 1998, the Company had approximately $77.3 million of Senior Debt
outstanding, and the subsidiaries of the Company had approximately $3.9 million
of outstanding indebtedness (other than indebtedness to the Company). After
giving effect to the offering of the Notes and the application of net proceeds
therefrom, the Company, as of September 30, 1998, would have had approximately
$74.2 million of Senior Debt outstanding. The Indenture (as defined) will not
restrict the Company or its subsidiaries from incurring Senior Debt or other
indebtedness. See "Description of Notes" for a more complete discussion of the
Indenture's provisions.
Prior to the offering, there has not been a public market for the Notes. The
Company has applied for approval to list the Notes on the Nasdaq SmallCap
Market.
SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC(1) DISCOUNTS(2) COMPANY(3)
<S> <C> <C> <C>
Per Note................................................. % % %
Total(4)................................................. $ $ $
</TABLE>
(1) Plus accrued interest from December , 1998.
(2) See "Underwriting" for information concerning indemnification of the
Underwriters by the Company and other matters.
(3) Before deducting expenses payable by the Company, estimated at $500,000.
(4) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional $2,250,000 principal amount of Notes at the Price to
Public, less the Underwriting Discount, solely to cover over-allotments, if
any. If the Underwriters exercise this option in full, the Price to Public,
Underwriting Discounts and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
--------------------------
The Notes are being offered hereby by the Underwriters named herein, subject
to prior sale, when, as and if issued by the Company and delivered to and
accepted by the Underwriters and subject to certain prior conditions, including
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the Notes will be made in New York, New York in
book-entry form only through the facilities of The Depository Trust Company on
or about , 1998.
--------------------------
ADVEST, INC. BLACK & COMPANY, INC.
The date of this Prospectus is , 1998
<PAGE>
SCHEMATIC CAPTURE
[Illustration of an electronic schematic diagram]
CIRCUIT DESIGN
[Illustration of a computer-generated circuit design]
Schematic capture involves the input of an electronic schematic diagram into
a high-performance computer workstation that generates a list of the electronic
components and interconnects required to design a printed circuit board. Circuit
design is accomplished using specialized computer aided design software
programs.
ENTEK-Registered Trademark- PROCESS LINE
[Photograph of two printed circuit board production lines]
ELECTROLESS NICKEL GOLD LINE
HIGH PERFORMANCE CIRCUITS
[Photograph of two printed circuit boards]
Praegitzer Industries, Inc. has the expertise and specialized engineering
processes to manufacture high-performance circuit boards with a broad range of
materials, processes and requirements including GETEK-Registered Trademark- (a
fiberglass material resistant to high temperatures), laser microvias and buried
capacitance. The Company provides a wide assortment of alternative surface
finishes, including Entek-Registered Trademark-, an organic surface protection,
and electroless nickel immersion gold.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE NOTES ON THE NASDAQ SMALLCAP MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. CERTAIN UNDERWRITERS MAY ALSO ENGAGE
IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK OR NOTES. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH
THE OFFERING AND MAY BID FOR AND PURCHASE COMMON STOCK OR NOTES IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all amendments
and exhibits thereto, the "Registration Statement"), under the Securities Act of
1933 (the "Securities Act"), with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company, and the securities offered hereby, reference is made to the
Registration Statement and the exhibits and the financial statements, notes and
schedules filed as a part thereof or incorporated by reference therein, which
may be inspected at the public reference facilities of the Commission, at the
addresses set forth below. Statements made in this Prospectus concerning the
contents of any documents referred to herein are not necessarily complete, and
in each instance are qualified in all respects by reference to the copy of such
document filed as an exhibit to the Registration Statement.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Commission. Reports,
proxy statements and other information filed by the Company can be inspected and
copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Judiciary Plaza, Washington, D.C. 20549, and at the following Regional Offices
of the Commission: Chicago Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and New York Regional Office, 7
World Trade Center, Suite 1300, New York, New York 10048. The Commission also
maintains a Web site (http://www.sec.gov) at which reports, proxy and
information statements and other information regarding the Company may be
accessed.
The Company will provide to the holders of the Notes annual reports
containing financial statements audited by the Company's independent auditors
and other reports determined by the Company or required by law. The Company will
also furnish annual reports on Form 10-K and quarterly reports on Form 10-Q
(except for exhibits) free of charge to holders of the Notes who so request in
writing to the Company.
3
<PAGE>
(This page has been left blank intentionally.)
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH
PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE COMPANY
The Company is a leader in providing electronics original equipment
manufacturers ("OEMs") and contract manufacturers with a full range of printed
circuit board ("PCB") and interconnect solutions, including schematic capture
and design, quick-turnaround, prototyping and pre-production, and large volume
production. The Company provides its solutions to four key electronics industry
segments (with corresponding percentages of Company revenue for the fiscal year
ended June 30, 1998): (i) data and telecommunications (31%), (ii) computers and
peripherals (36%), (iii) industrial and instrumentation (25%) and (iv) business
and consumer (8%). The Company's growth has been driven by sales to industry
leaders whose products require increasingly complex and technologically advanced
electronic interconnects. The Company's principal customers include Compaq,
Hewlett Packard, Intel, Dell, EMC, IEC Electronics, SCI, Solectron, Motorola,
Xylan and Xerox. The Company has obtained ISO 9002 certifications for five of
its manufacturing facilities and has received awards from a number of its
customers in recognition of its superior performance in meeting their PCB needs.
In fiscal 1998 the Company served more than 650 customers worldwide.
The 1997 worldwide PCB market was estimated at $29.7 billion by the
Institute for Interconnecting Packaging Electronic Circuits ("IPC"), of which
the U.S. market was $7.8 billion and was forecast to grow 6.5% annually through
2001. As electronics OEMs respond to competitive pressures, they place ever-
greater emphasis on faster product time-to-market and greater PCB complexity in
tight space tolerances, and face increasing pressure to shorten the
design-to-manufacture cycles. Additionally, as OEMs increasingly focus on core
competencies, non-core activities are contracted to independent specialty
vendors. As a result of these market forces, outsourcing of PCBs and electronic
interconnects has grown from 66% of total OEM requirements in 1991 to 93% in
1997.
Addressing these trends, Praegitzer in 1997 implemented its One-Stop
Shopping-TM- strategy to provide its customers with advanced technology and
integrated manufacturing capabilities for the entire cycle of PCB creation. In
the last three years, the Company has acquired production facilities in Redmond,
Washington; Fremont, California; and Huntsville, Alabama, and a 51% interest in
a production facility in Melaka, Malaysia. During this same period, Praegitzer
acquired or opened 11 design centers in the U.S. and one in Israel. The Company
has experienced 46.5% compound revenue growth during fiscal years 1995 through
1998, compared with a compound revenue growth rate for the U.S. PCB industry of
8.5%. Excluding revenue generated by acquired facilities, the Company's compound
revenue growth rate during the same period would have been 21.7%. During this
period the Company produced increasingly complex PCBs with higher density and
layer counts.
The Company's goal is to be the leading provider of electronic interconnect
one-stop design and manufacturing services, while continuing to increase its
technological and services advantages.
The address of the Company's principal executive offices is 1270 SE Monmouth
Cut Off Road, Dallas, Oregon 97338, and the Company's telephone number is (503)
623-1000.
5
<PAGE>
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Prospectus contains statements that are forward-looking, such as statements
relating to plans for future activities. This forward-looking information is
subject to significant known and unknown risks, uncertainties and other factors
that could significantly affect actual results, performance or achievements of
the Company in the future and, accordingly, the actual results, performance or
achievements may materially differ from those expressed or implied in any
forward-looking statements made by the Company. These risks, uncertainties and
factors include, but are not limited to, those relating to business conditions
and growth in the electronics industry and general economies, both domestic and
international, lower than expected customer orders, competitive factors
(including increased competition, new product offerings by competitors and price
pressures), the availability of parts and supplies at reasonable prices,
technological difficulties and resource constraints encountered in developing
new products, and outstanding indebtedness. For a more specific and detailed
discussion of some of these risks, uncertainties and factors, see "Risk
Factors." The words "believe," "expect," "anticipate," "intend" and "plan" and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date the statement was made.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers of the Notes.
THE OFFERING
<TABLE>
<S> <C>
ISSUER............................ Praegitzer Industries, Inc., an Oregon corporation
SECURITIES OFFERED................ $15,000,000 aggregate principal amount % Convertible
Subordinated Notes, together with an indeterminate
number of shares of Common Stock issuable upon
conversion of the Notes.
MATURITY.......................... The Notes will mature on December , 2008, unless
earlier redeemed or converted.
INTEREST.......................... Interest on the Notes at the rate of % per annum is
payable semi-annually in arrears on January 15 and July
15 of each year, commencing July 15, 1999.
CONVERSION AT THE OPTION OF THE
HOLDER.......................... The Notes are convertible into Common Stock at the
option of the holder at any time on or before the close
of business on the last trading day prior to maturity,
unless previously redeemed, at a conversion price of
$ per share, subject to adjustment in certain events.
See "Description of Notes--Conversion."
REDEMPTION AT THE OPTION OF THE
COMPANY......................... Until December , 2001, the Company may, upon at least
15 days notice, redeem the Notes then outstanding at the
redemption prices set forth herein plus accrued
interest, but only if (i) the Company redeems all of the
Notes then outstanding, (ii) after the date of this
offering and prior to the redemption, there is completed
one or more registered public offerings of Common Stock
of the Company pursuant to which the aggregate
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
price to the public of shares sold by the Company and/or
the selling shareholders participating in such
offering(s) equals or exceeds $15 million, and (iii) the
closing price of the Common Stock exceeds the
percentages of the conversion price set forth herein for
at least 30 consecutive trading days ending on the fifth
trading day prior to the notice of redemption. On or
after December , 2001, the Company may, upon at least
15 days notice, redeem the Notes, in whole or from time
to time in part, at the redemption prices set forth
herein, together with accrued and unpaid interest
thereon. See "Description of Notes-- Redemption."
REPURCHASE UPON A DESIGNATED
EVENT........................... The Notes are required to be repurchased at 100% of
their principal amount together with accrued and unpaid
interest thereon, at the option of the holder, upon the
occurrence of a Designated Event (i.e., a Change of
Control or a Termination of Trading (each as defined)).
See "Risk Factors--Limitations on Repurchase of Notes"
and "Description of Notes--Repurchase at Option of
Holders upon a Designated Event."
SUBORDINATION..................... The Notes will be general unsecured obligations of the
Company, subordinated in right of payment to all
existing and future Senior Debt of the Company and
effectively subordinated to all existing and future
liabilities and obligations of the Company's
subsidiaries. As of September 30, 1998, the Company had
approximately $77.3 million of outstanding indebtedness
that would have constituted Senior Debt, and the
indebtedness and other liabilities of the Company's
subsidiaries (excluding intercompany liabilities and
obligations of a type not required to be reflected on
the balance sheet of such subsidiary in accordance with
generally accepted accounting principles ("GAAP")) that
would effectively have been senior to the Notes were
approximately $3.9 million. After giving effect to
planned debt repayments by the Company prior to the
offering and the application of the estimated net
proceeds to the Company of the offering, these amounts
will be approximately $74.2 million and $3.9 million,
respectively. See "Risk Factors--Subordination of
Notes," "Use of Proceeds" and "Description of Notes--
Subordination."
USE OF PROCEEDS................... The Company will use the net proceeds of this offering
to repay balances under one of its existing agreements
for Senior Debt and for general corporate purposes. See
"Use of Proceeds."
LISTING OF THE SHARES............. The Common Stock is listed on the Nasdaq National Market
under the symbol "PGTZ." The Company has applied to list
the Shares on the Nasdaq National Market, subject only
to notice of issuance.
LISTING OF THE NOTES.............. The Company has applied for approval to list the Notes
on the Nasdaq SmallCap Market under the symbol "PGTZG."
</TABLE>
7
<PAGE>
SUMMARY COMPANY CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------- --------------------
1996 1997 1998 1997 1998
---------- ---------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT GROWTH RATES, RATIOS AND PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue............................................... $ 95,101 $ 147,947 $ 182,773 $ 42,595 $ 55,396
Cost of goods sold.................................... 72,941 122,013 148,487 34,563 46,202
---------- ---------- ---------- --------- ---------
Gross profit.......................................... 22,160 25,934 34,286 8,032 9,194
Selling, general and administrative expenses.......... 8,896 19,188 23,456 5,803 7,012
Impairment and in-process technology expense.......... -- 11,650 -- -- --
---------- ---------- ---------- --------- ---------
Income (loss) from operations......................... 13,264 (4,904) 10,830 2,229 2,182
Interest expense...................................... 1,799 2,295 3,757 726 1,467
Other income.......................................... 302 568 224 98 208
---------- ---------- ---------- --------- ---------
Income (loss) from continuing operations before income
taxes............................................... 11,767 (6,631) 7,297 1,601 923
Provision for income taxes............................ 4,472(1) 1,670 2,215 494 330
---------- ---------- ---------- --------- ---------
Income (loss) from continuing operations.............. 7,295(1) (8,301) 5,082 1,107 593
Income (loss) from discontinued operations............ (379) -- -- -- --
---------- ---------- ---------- --------- ---------
Net income (loss)..................................... $ 6,916(1) $ (8,301) $ 5,082 $ 1,107 $ 593
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
Net income (loss) per share--basic and diluted........ $ 0.76 $ (0.68) $ 0.40 $ 0.09 $ 0.05
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
Weighted average number of shares
outstanding--diluted................................ 9,110 12,234 12,846 12,931 12,797
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
OTHER DATA:
EBITDA (2)............................................ $ 18,175 $ 2,473 $ 19,733 $ 4,288 $ 5,475
Adjusted EBITDA (2)(3)................................ 18,175 14,123 19,733 4,288 5,475
Depreciation and amortization......................... 4,911 7,377 8,903 2,059 3,293
Capital expenditures.................................. 7,526 24,761 39,334 4,352 10,651
Net cash provided by operating activities............. 8,943 1,719 10,353 2,406 4,581
Net cash (used in) investing activities............... (11,905) (18,927) (54,844) (4,543) (5,835)
Net cash provided by financing activities............. 2,977 17,612 45,219 2,053 425
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
GROWTH RATES:
Revenue........................................................... 63.7% 55.6% 23.5% 44.6% 30.1%
Adjusted EBITDA (2)(3)............................................ 157.7% (22.3)% 39.7% 87.2% 27.7%
Adjusted income from operations (3)............................... 296.3% (49.1)% 60.5% 23.6% (2.1)%
MARGINS (4):
Adjusted EBITDA (2)(3)............................................ 19.1% 9.5% 10.8% 10.1% 9.9%
Adjusted income from operations (3)............................... 13.9% 4.6% 5.9% 5.2% 3.9%
Net income (loss)................................................. 7.3% (5.6)% 2.8% 2.6% 1.1%
RATIOS:
Adjusted EBITDA to interest expense (2)(3)........................ 10.1x 6.2x 5.3x 5.9x 3.7x
Earnings to fixed charges (5)..................................... 6.7x -- 2.2x 2.3x 1.3x
Adjusted earnings to fixed charges (3)(5)......................... 6.7x 2.4x 2.2x 2.3x 1.3x
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------
ACTUAL AS ADJUSTED(6)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................................... $ 20,439 $ 34,308
Inventories.......................................................................... 16,560 16,560
Total assets......................................................................... 158,822 170,755
Short-term debt...................................................................... 8,889 5,852
Long-term obligations................................................................ 72,271 72,271
Convertible Subordinated Notes....................................................... -- 15,000
Shareholders' equity................................................................. 44,970 44,940
</TABLE>
- ------------------------
(1) The Company was an S corporation prior to April 1996 and accordingly was not
subject to federal and state income taxes prior to April 1996. For this
portion of 1996 income tax expense, net income and net income per share are
shown pro forma. Pro forma amounts reflect federal and state income taxes as
if the Company had been a C corporation based on the effective tax rates
that would have been in effect during these periods. See Note 12 to the
Company's Financial Statements.
(2) EBITDA represents income from operations before depreciation and
amortization. EBITDA is not a measurement determined under GAAP and does not
represent cash generated from operating activities in accordance with GAAP.
EBITDA should not be considered by the reader as an alternative to net
income as an indicator of financial performance or as an alternative to cash
flows as a measure of liquidity. In addition, the Company's definition of
EBITDA may not be identical to similarly entitled measures used by other
companies. The derivation of EBITDA and EBITDA, as adjusted, is set forth in
the following table.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income (loss) from operations.......................... $ 13,264 $ (4,904) $ 10,830 $ 2,229 $ 2,182
Depreciation and amortization.......................... 4,911 7,377 8,903 2,059 3,293
--------- --------- --------- --------- ---------
EBITDA................................................. 18,175 2,473 19,733 4,288 5,475
Impairment and in-process technology expense (see
footnote 3).......................................... -- 11,650 -- -- --
--------- --------- --------- --------- ---------
EBITDA, as adjusted.................................... $ 18,175 $ 14,123 $ 19,733 $ 4,288 $ 5,475
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
9
<PAGE>
(3) Adjusted earnings, adjusted EBITDA and adjusted income from operations
reflect the Company's earnings, EBITDA and income from operations,
respectively, adjusted to exclude an aggregate non-cash charge of $11.65
million representing the write-off of goodwill associated with the
acquisition of Circuit Technology, Inc. ("CTI") in fiscal 1996 and the
write-off of purchased research and development costs related to the
acquisition of Trend Circuits ("Trend") in fiscal 1997. Adjusted earnings,
adjusted EBITDA and adjusted income from operations are not measurements
determined under GAAP. Adjusted earnings, adjusted EBITDA and adjusted
income from operations should not be considered by the reader as
alternatives to net income, EBITDA and income from operations as indicators
of financial performance.
(4) Margins represent the indicated items expressed as a percentage of revenue.
(5) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before income taxes, plus fixed charges. "Fixed charges"
consist of interest on all indebtedness, amortization of deferred debt
financing costs and one-third of rental expense (the portion deemed
representative of the interest factor). Earnings were insufficient to cover
fixed charges for the year ended June 30, 1997 by $6.6 million. For each
period presented, the ratio of earnings to fixed charges plus preferred
dividends is identical to the corresponding ratio of earnings to fixed
charges.
(6) As adjusted to give effect to the issuance of the $15,000,000 principal
amount of Notes offered hereby, the receipt by the Company of the net
proceeds, and the application of the net proceeds as described under "Use of
Proceeds."
10
<PAGE>
RISK FACTORS
EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER, IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING INFORMATION BEFORE
PURCHASING THE NOTES OFFERED HEREBY.
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations have fluctuated and may continue to
fluctuate from period to period, including on a quarterly basis. Variations in
design, quick-turnaround and pre-production and high volume production orders
and in the average number of layers per printed circuit board have significantly
affected both revenue and gross margins. Operating results may also be affected
by other factors, including the receipt and shipment of large orders, plant
utilization, manufacturing process yields, the timing of expenditures in
anticipation of future sales, raw material availability, the length of sales
cycles and economic conditions in the electronics industry. A significant
portion of the Company's operating expenses are fixed. Any inability to adjust
spending quickly enough to compensate for any revenue shortfall could magnify
the shortfall's adverse impact on the Company. Moreover, the Company's business
involves highly complex manufacturing processes that are subject to occasional
failure. Process failures have occurred in the past and have resulted in delays
in product shipments. There is no assurance that process failures will not occur
in the future, and the loss of revenue as the result of such failures could have
a material adverse effect on the Company. Results of operations in any period
should not be considered indicative of the results to be expected for any future
period. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
LACK OF LONG-TERM SALES COMMITMENTS
Several factors contribute to the volatility of the Company's results of
operations, including backlog and order management, product mix changes, order
cancellations and process failures. The Company's customers generally require
short delivery cycles, and a substantial portion of the Company's backlog is
typically scheduled for delivery within 60 days. The Company has no long-term
sales commitments other than a two-year contract with Intergraph Corporation
("Intergraph"). Quarterly sales and operating results therefore depend in large
part on the volume and timing of orders received during the quarter, which are
difficult to forecast. The level and timing of orders placed by the Company's
customers vary due to customer inventory management, changes in customer
manufacturing strategy, variation in demands for customer products and other
factors. In the case of orders for prototype and pre-production runs, the
Company's lead time may be reduced to as little as one day and, due to its
dependence on customer product launches and design changes, the Company's
operating results from its quick-turnaround business are subject to particular
volatility. The short lead times inherent in the Company's backlog also affect
its ability to plan production and inventory levels, which could lead to
fluctuation in operating results. In addition, a variety of conditions, both
those specific to individual customers and those generally affecting their
industry segments, such as a general downturn in the economic conditions in the
United States and other regions of the world, including Asia, may cause
customers to cancel, reduce or delay orders that were previously made or
anticipated. Generally, customers may cancel, reduce or delay purchase orders
and commitments without penalty, except for payment for work and materials
expended through the cancellation date. Significant or numerous cancellations,
reductions or delays in orders by customers could have a material adverse effect
on the Company. See "Business--Customers" and "Business--Sales and Marketing."
DEPENDENCE ON ELECTRONICS INDUSTRY
The Company's customers include OEMs and contract manufacturers of data
communications and telecommunications equipment, instrumentation and industrial
equipment, computers and peripherals, and business and consumer electronics.
These industry segments, as well as the electronics industry as a whole, are
subject to rapid technological change and product obsolescence. Because the
Company's
11
<PAGE>
products are highly specialized and are specified into an OEM's product,
discontinuation or modification of these products could have a material adverse
effect on the Company. The electronics industry is subject to economic cycles
and has experienced and is likely in the future to experience recessionary
periods. Pricing pressures, a general recession or any other event leading to
excess capacity or a downturn in the electronics industry likely would result in
intensified price competition, reduced gross margins and a decrease in unit
volume, which could have a material adverse effect on the Company. See
"Business-- Customers" and "Business--Sales and Marketing."
TECHNOLOGICAL CHANGE
Technological change in the PCB industry is rapid and continuous. The
manufacture of complex PCBs requires increasing technological and manufacturing
expertise. To satisfy customers' needs for increasingly complex products, the
Company must continue to develop improved manufacturing processes and invest in
new facilities and systems. New technologies and equipment may be required for
the Company to remain competitive, and the acquisition and implementation of
these technologies and equipment may require significant capital investment. In
addition, the printed circuit board industry may in the future encounter
competition from new technologies, including ceramic and deposited multichip
modules, that may reduce the number of printed circuit boards required in
electronic equipment or may render existing technology less competitive or
obsolete. There is no assurance that the Company will have adequate capital to
maintain technological adequacy, that the Company's future process development
efforts will be successful or that the emergence of new technologies, industry
standards or customer requirements will not render the Company's technology,
equipment or systems inadequate. See "Business--Manufacturing and Engineering
Processes and Quality Assurance"
UNCERTAIN ABILITY TO MANAGE GROWTH; RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS
The Company has recently experienced significant growth and expansion,
particularly in connection with the acquisitions of CTI, Trend, a 51% ownership
interest in Praegitzer Asia Sdn. Bhd. ("Praegitzer Asia"), the Huntsville PCB
facility of Intergraph and several design centers, which has placed, and is
expected to continue to place, significant demands on the Company's managerial,
technical, financial and other resources. The Company's growth strategy will
require increased personnel throughout the Company, expanded customer service
and support, expanded operational and financial systems and the implementation
of new control procedures. There is no assurance that the Company will be able
to attract qualified personnel, successfully manage expanded operations or
accomplish other measures necessary for its successful growth. As the Company
expands, it may from time to time experience constraints that will adversely
affect its ability to satisfy customer demands in a timely fashion. Failure to
manage growth effectively, including costs of integrating acquired facilities,
could have an adverse effect on the Company. Results may fluctuate as a result
of the acquisitions.
The Company intends to continue pursuing acquisitions. Although the Company
has no understandings, commitments or agreements with respect to any
acquisition, the Company anticipates that one or more potential acquisition
opportunities may become available in the future. Acquisitions would require
investment of operational and financial resources and could require integration
of dissimilar operations, assimilation of new employees, diversion of management
resources, increases in administrative costs and additional costs associated
with debt or equity financing. If attractive acquisition opportunities become
available, the Company intends to pursue them actively. There is no assurance
that the Company will complete any acquisition, that any future acquisition will
be successful or that a future acquisition will not materially and adversely
affect the Company. See "Use of Proceeds" and "Business--Strategy."
DEPENDENCE ON KEY PERSONNEL
The Company's future success will depend in part on the continued service of
certain key management, engineering and other personnel, including Robert
Praegitzer, the Company's Chief Executive
12
<PAGE>
Officer and Chairman of the Board, and Matthew Bergeron, the Company's President
and Chief Operating Officer, and the Company's ability to attract and retain
qualified managerial, engineering, technical, sales and marketing personnel.
Competition for these employees is intense. There is no assurance that the
Company can retain its existing key personnel or that it can attract and retain
sufficient numbers of qualified employees in the future. The loss of key
employees or the inability to hire or retain qualified personnel in the future
could have a material adverse effect on the Company. See "Management."
CUSTOMER CONCENTRATION
For fiscal 1998, sales to Hewlett-Packard and Victron/Xylan accounted for
approximately 8% and 6.1% of the Company's revenue, respectively, and the
Company's ten largest customers accounted for approximately 45% of the Company's
revenue. The Company expects a significant portion of its revenue will continue
to be concentrated in a small number of customers. The loss of, or significant
curtailment of purchases by, one or more of these customers could have a
material adverse effect on the Company. In addition, future consolidation in the
electronics industry could reduce the number of the Company's customers and
increase the possibility that the loss of, or significant curtailment of
purchases by, one or more of these customers could have a material adverse
effect on the Company. See "Business-- Customers" and "Business--Sales and
Marketing."
COMPETITION
The PCB industry is highly fragmented and characterized by intense
competition, which the Company believes will increase. The Company competes
principally in the market for complex, rigid multilayer PCBs. The Company's
competitors are primarily large domestic manufacturers, offshore manufacturers
located primarily in Asia, small or regional domestic manufacturers and captive
PCB operations of large OEMs such as IBM. The principal competitors of the
Company include Nanya, Compeq, Hadco and Viasystems. Some of the Company's
competitors are substantially larger and have substantially greater
manufacturing, financial and marketing resources than the Company. During
periods of recession in the electronics industry, increasingly price sensitive
customers may place less value on the Company's competitive strengths, such as
quick-turnaround manufacturing and responsive customer service. In addition,
OEMs with captive PCB manufacturing operations may seek open market orders to
fill excess capacity, which increases price competition. The Company may be at a
disadvantage in the lower technology segments of the PCB market when competing
with manufacturers with lower cost structures, particularly those with offshore
facilities where labor and other costs may be lower. Although capital
requirements are a significant barrier to entry for manufacturing
technologically complex PCBs, the basic interconnect technology is generally not
protected by patents or copyrights. There is no assurance that the Company will
be able to compete successfully against present or future competitors or that
competitive pressures faced by the Company will not have a material adverse
effect on the Company. See "Business-- Competition."
AVAILABILITY AND COST OF MATERIALS
The Company has no fixed price contracts or arrangements for some of the raw
materials and supplies it purchases. Shortages of, and price increases for,
certain raw materials used by the Company have occurred in the past and may
occur in the future. As the use of proprietary materials increases, the
potential for shortages in supply also increases. Future shortages or price
fluctuations in raw materials could have a material adverse effect on the
Company. There is no assurance that the Company will be successful in mitigating
these risks through contracts with its suppliers. Delays or interruptions in
obtaining raw materials would have a particularly pronounced effect on the
Company's quick-turnaround business because of the short lead times associated
with that business. See "Business--Manufacturing and Engineering Processes and
Quality Assurance" and "Business--Materials and Supplies."
13
<PAGE>
ENVIRONMENTAL MATTERS
The Company uses certain materials in its manufacturing processes that are
classified as hazardous substances. Proper waste disposal and environmental
regulation are major considerations for PCB manufacturers because metals and
chemicals are used in the manufacturing process. If violations of environmental
laws occur, the Company could be liable for damages and for the costs of
remedial actions and could also be subject to revocation of permits necessary to
conduct its business. Any such revocation could require the Company to cease or
limit production at one or more of its facilities, which could have a material
adverse effect on the Company. The Company is also subject to laws relating to
the storage, use and disposal of chemicals, solid waste and hazardous materials,
as well as air quality regulations. As a generator of hazardous materials, the
Company is subject to financial exposure even if it fully complies with these
laws. Because of the nature and quantity of hazardous substances used in PCB
manufacturing, the Company could be required under environmental laws to conduct
investigation and remediation of past releases of hazardous substances.
Environmental laws could become more stringent over time, imposing greater
compliance costs and increasing risks and penalties associated with a violation.
See "Business--Environmental Matters."
INTERNATIONAL OPERATIONS
In April 1998, the Company acquired a 51% interest in Praegitzer Asia, a PCB
manufacturer located in Malaysia. As a result, the Company's business is subject
to the risks generally associated with doing business abroad, such as foreign
governmental regulations, foreign consumer preferences, tariffs and other trade
barriers, political unrest, disruptions or delays in shipments and changes in
economic conditions in countries in which the Company manufactures or sells its
products. For example, the recent turmoil in Asian markets may adversely affect
the Company's ability to sell products produced by Praegitzer Asia. Some of the
Company's international sales are denominated in Malaysian Ringgit.
Consequently, a decrease in the value of the Malaysian currency in relation to
the U.S. dollar would have an adverse impact on the Company's results of
operations. Moreover, the Malaysian government has recently imposed certain
currency controls relating to the Ringgit, which may adversely impact the
Company's ability to transfer funds into and out of its Malaysian subsidiary.
These factors, among others, could influence the Company's ability to sell its
products in international markets, as well as its ability to manufacture its
products or procure certain materials. If any such factors were to render the
conduct of business in Malaysia undesirable or impractical, there could be a
material adverse effect on the Company. The Company's management has limited
experience in operating foreign manufacturing facilities, and there is no
assurance that the Company will be able to operate the new facility profitably.
INTELLECTUAL PROPERTY
The Company's success depends in part on its proprietary techniques and
manufacturing expertise, particularly in the area of complex multilayer PCBs.
The Company has no patents and relies principally on trade secret protection of
its intellectual property. There is no assurance that the Company will be able
to protect its trade secrets or that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets. In addition, litigation may be
necessary to protect the Company's trade secrets, to determine the validity and
scope of the proprietary rights of others or to defend against claims of patent
infringement. With one exception, the Company is not aware of any pending or
threatened claims that affect any of the Company's intellectual property rights.
The exception is a claim asserted by a former iron powder supplier to the
Company, which has claimed that the Company's use of iron powder purchased from
another source in certain copper recovery processes infringes on a patent held
by such former supplier. The Company believes that it has valid defenses to this
claim, and intends to defend against the claim vigorously. If any other
infringement claim is asserted against the Company, the Company may seek to
obtain a license of the other party's intellectual property rights. There is no
assurance that third parties will not assert infringement claims
14
<PAGE>
against the Company in the future or that, in such circumstances, a license
would be available on reasonable terms or at all. Litigation with respect to
patents or other intellectual property matters could result in substantial costs
and diversion of management and other resources and could have a material
adverse effect on the Company.
SUBORDINATION OF NOTES
All obligations of the Company under the Notes are unsecured and rank
subordinate and junior in right of payment to all current and future Senior Debt
of the Company, the amount of which is unlimited.
The Company will use approximately $3.1 million of the proceeds from this
offering to pay off the entire balance under the Finova Agreement (as defined
herein). All obligations of the securities described herein will be effectively
subordinated to all outstanding existing and future obligations of the Company
and its subsidiaries. As of September 30, 1998, on a pro forma basis after
giving effect to the offering and the application of the estimated net proceeds
therefrom, the Company would have had approximately $74.2 million of
indebtedness outstanding, all of which (except for the indebtedness relating to
the Notes themselves) effectively would have been senior to the securities
described herein. The Company will have nothing available for borrowing under
its existing credit agreements upon completion of this offering. The Company has
entered into a letter of intent (the "Letter of Intent") with another commercial
bank to provide funds to replace funding under an existing credit agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." All of the Company's existing
credit agreements provide for the acceleration of outstanding amounts under any
such agreement in the event of default. Such an acceleration might restrict the
ability of the Company to pay interest on the Notes.
POSSIBLE REDEMPTION PRIOR TO STATED MATURITY
The Company may, at its option, on or after December , 2001, redeem the
Notes in whole at any time or in part from time to time at the redemption prices
set forth herein plus accrued but unpaid interest to the date fixed for
redemption. The Company may redeem the Notes in whole before December , 2001
at the redemption prices set forth herein if, after the date of this offering,
there is completed one or more registered public offerings of Common Stock of
the Company pursuant to which the aggregate price to the public of shares sold
by the Company and/or the selling shareholders participating in such offering(s)
equals or exceeds $15 million and the closing price for the Common Stock exceeds
the percentages of the conversion price set forth herein for at least 30
consecutive trading days ending on the fifth day prior to the redemption notice.
See "Description of the Notes--Redemption."
ABILITY TO MAKE PAYMENTS ON THE NOTES
The Company will have significant interest expense under the Notes. As of
September 30, 1998, after giving effect to the offering and the application of
net proceeds therefrom, the Company would have approximately $74.2 million in
outstanding indebtedness on a consolidated basis, all of which (except for
indebtedness relating to the Notes themselves) effectively would have been
senior to the Notes described herein. The Company's ability to pay interest on
the Notes depends primarily on the cash and liquid investments of the Company
and on the profitability, financial condition, and capital expenditure and other
cash flow requirements of the Company. In addition, the Indenture does not
restrict the ability of the Company or its subsidiaries to incur additional
indebtedness, including indebtedness secured by their assets or properties, and
does not prohibit the Company or its subsidiaries from entering into credit
agreements or other financial arrangements that restrict such subsidiaries from
making payments to the Company. Although the Company expects that its operating
cash flow will be sufficient to cover its expenses including interest costs,
there is no assurance in this regard. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
15
<PAGE>
LIMITED COVENANTS; ABSENCE OF SINKING FUND
The covenants in the Indenture are limited. The Company is not required
under the Indenture to meet any financial tests that measure the Company's
working capital, interest coverage or net worth in order to comply with the
terms of the Indenture. As a result, the Indenture does not offer substantial
protection to holders of Notes in the event of a material adverse change in the
Company's financial condition or results of operations. Therefore, the
provisions of the Indenture should not be considered a significant factor in
evaluating whether the Company will be able to comply with its obligations under
the Notes. Further, the Notes do not have the benefit of any sinking fund
payments by the Company.
RISKS ASSOCIATED WITH LEVERAGE
The Company operates with significant amounts of debt relative to its
equity. At September 30, 1998, the Company had outstanding $81.2 million in
principal amount of indebtedness, and the Company has incurred prior to the
offering and intends to continue to incur bank debt in addition to the Notes. In
fiscal 1997 and 1998, the Company's payments under long-term debt agreements
were $16.4 million and $3.3 million, respectively. Following the expected
application of the estimated net proceeds to the Company of the offering and
repayments of debt after September 30, 1998 and prior to the offering, the
Company will continue to have at least $78.1 million in principal amount of
indebtedness outstanding including $5.9 million of short-term borrowings and
current portion of long-term debt.
LIMITATIONS ON REPURCHASE OF NOTES
Upon a Designated Event, which includes a Change of Control and a
Termination of Trading (each as defined), each holder of Notes will have certain
rights, at the holder's option, to require the Company to repurchase all or a
portion of such holder's Notes. If a Designated Event occurs, there is no
assurance that the Company would have sufficient funds to pay the repurchase
price for all Notes tendered. In addition, the terms of the Company's existing
or future credit or other agreements relating to indebtedness (including Senior
Debt) may prohibit the Company from purchasing any Notes and may also provide
that a Designated Event, as well as certain other change-of-control events with
respect to the Company, would constitute an event of default thereunder. In the
event a Designated Event occurs when the Company is prohibited from purchasing
Notes, the Company could seek the consent of its lenders to the purchase of
Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain a consent or repay the borrowings,
the Company would be prohibited from purchasing Notes. In such case, the
Company's failure to purchase tendered Notes would be an Event of Default under
the Indenture, which may, in turn, constitute a further default under the terms
of other indebtedness that the Company has entered into or may enter into from
time to time. In these circumstances, the subordination provisions in the
Indenture would likely restrict payments to the holders of Notes. See
"Description of Notes--Repurchase at Option of Holders Upon a Designated Event."
NO PRIOR OR EXISTING MARKET; LIQUIDITY; VOLATILITY OF MARKET PRICES
There is no existing market for the Notes. The Company has applied for
approval to list the Notes on the Nasdaq SmallCap Market. There is no assurance,
however, that an active and liquid trading market for the Notes will develop or
that continued quotation of the Notes will be available on the Nasdaq SmallCap
Market. Future trading prices of the Notes will depend on many factors
including, among other things, prevailing interest rates, the operating results
and financial condition of the Company, and the market for similar securities.
As a result of the Company's right to redeem the Notes in certain circumstances,
the market price of the Notes may be more volatile than the market prices of
debt securities that are not subject to optional redemption. Accordingly, the
Notes may trade at a discount from the price that the investor paid to purchase
the Notes.
16
<PAGE>
Although the Underwriters have advised the Company that they intend to make
a market in the Notes, they are not obligated to do so and may discontinue
market-making at any time without notice. There is no assurance that an active
public market for the Notes will develop or be sustained after the offering or
that the market price of the Common Stock or the Notes will not decline. The
trading price of the Common Stock and Notes could be subject to wide
fluctuations in response to quarter-to-quarter variations in operating results,
announcements of technological innovations or new products by the Company or its
competitors, general conditions in the PCB industry, changes in earnings
estimates or recommendations by analysts, or other events or factors. In
addition, the public stock markets have experienced extreme price and trading
volume volatility in recent months. This volatility has significantly affected
the market prices of securities of high technology companies for reasons
frequently unrelated to the operating performances of the specific companies.
Those broad market fluctuations may adversely affect the market price of the
Common Stock and Notes. See "Underwriting."
CONTROL BY PRINCIPAL SHAREHOLDER
Robert L. Praegitzer, Chairman of the Board and Chief Executive Officer of
the Company, beneficially owns approximately 64% of the outstanding Common
Stock. As a result, he will be able to control all matters requiring approval by
the shareholders of the Company, including the election of directors and the
amendment of the Company's articles of incorporation, without the cooperation of
any other shareholder. As a shareholder, Mr. Praegitzer is not prohibited from
acting in his own interest in respect of, among other things, the voting or
disposing of his shares of Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Common Stock in the public
market following this offering, or the prospect of such sales, could adversely
affect the market price of the Common Stock and the Company's ability to raise
capital in the future in the equity markets. At September 30, 1998, there were
12,807,442 shares of Common Stock outstanding. Of these shares, approximately
5.8 million shares were eligible for immediate resale without restriction under
the Securities Act of 1933, as amended (the "Securities Act"). There were
approximately 7.0 million shares eligible for immediate resale subject to the
limitations of Rule 144. As of September 30, 1998, options to purchase 1,406,520
shares of Common Stock had been granted under the Company's 1995 Stock Incentive
Plan (the "Stock Incentive Plan"). The Company has filed a registration
statement on Form S-8 under the Securities Act covering shares of Common Stock
reserved for issuance under the Stock Incentive Plan. This registration
statement is effective. Subject to the satisfaction of applicable exercisability
periods and Rule 144 volume limitations applicable to affiliates, shares of
Common Stock issued upon exercise of outstanding options granted pursuant to the
Stock Incentive Plan will be available for immediate resale in the open market.
POTENTIAL ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER EFFECT OF OREGON LAW
The Company is authorized to issue up to 500,000 shares of Preferred Stock,
and the Board of Directors may fix the preferences, limitations and relative
rights of those shares without any vote or action by the shareholders. The
potential issuance of Preferred Stock, certain provisions of Oregon law and the
concentrated ownership of the Company could make it more difficult for a party
to gain control of the Company. See "Description of Capital Stock."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes are estimated to
be approximately $13.9 million (approximately $16.3 million if the Underwriters'
over-allotment option is exercised in full).
The Company intends to use approximately $3.1 million of the net proceeds to
repay the entire balance under the Finova Agreement. Under the Finova Agreement,
interest accrues on outstanding balances at 9.9% per annum and the outstanding
balance is payable in full by September 1, 1999. The remaining proceeds will be
used for working capital and other general corporate purposes, including the
possible acquisition of businesses or products which the Company believes will
enhance its business. Although the Company actively seeks and evaluates possible
acquisition opportunities, the Company has no agreements, commitments,
understandings or arrangements with respect to any acquisition.
Proceeds not immediately required for the purposes set forth above will be
invested principally in U.S. government securities, short-term certificates of
deposit, money market funds or other investment grade interest-bearing
investments.
DIVIDEND POLICY
The Company has not declared any cash dividends in the past two fiscal
years. The Company expects to retain any earnings to finance the expansion and
development of its business and has no plans to declare cash dividends. The
payment of dividends is within the discretion of the Company's Board of
Directors and will depend on the earnings, capital requirements and operating
and financial condition of the Company, among other factors. Certain of the
Company's credit agreements restrict the Company's ability to pay dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources."
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<PAGE>
MARKET PRICE OF COMMON STOCK
The Company's Common Stock trades on the Nasdaq National Market under the
symbol "PGTZ." The following table sets forth, for the periods indicated, the
high and low closing sale prices for the Common Stock, as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1997
First Quarter............................................................................... $ 14.00 $ 8.125
Second Quarter.............................................................................. 12.00 9.250
Third Quarter............................................................................... 12.375 8.625
Fourth Quarter.............................................................................. 11.375 8.50
FISCAL 1998
First Quarter............................................................................... $ 14.938 $ 10.50
Second Quarter.............................................................................. 15.00 9.25
Third Quarter............................................................................... 11.125 8.50
Fourth Quarter.............................................................................. 9.438 5.469
FISCAL 1999
First Quarter............................................................................... $ 9.00 $ 5.50
Second Quarter (through December 10, 1998).................................................. 9.50 6.375
</TABLE>
As of October 15, 1998 there were approximately 1,435 holders of record of
the Company's Common Stock. The Company believes the number of beneficial owners
is substantially greater than the number of record holders because a large
portion of the Company's outstanding Common Stock is held of record in broker
"street names" for the benefit of individual investors. A recent reported sale
price of the Common Stock on the Nasdaq National Market is set forth on the
cover page of this Prospectus.
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<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of September 30, 1998 and as adjusted to give effect to the issuance
by the Company of the $15,000,000 principal amount of Notes offered hereby and
the application by the Company of the net proceeds therefrom as described under
"Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt.......................................................................... $ 8,889 $ 5,852
Long-term obligations, net of current portion............................................ 72,271 72,271
Convertible Subordinated Notes........................................................... -- 15,000
Shareholders' equity
Preferred stock, 500,000 shares authorized, no shares issued and outstanding........... -- --
Common Stock, 50,000,000 shares authorized, 12,807,442 shares issued and outstanding... 42,653 42,653
Retained earnings...................................................................... 2,317 2,287(1)
---------- -----------
Total shareholders' equity........................................................... 44,970 44,940
---------- -----------
Total capitalization............................................................... $ 126,130 $ 138,063
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Reflects payment of prepayment penalties.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
The following statement of income data for the years ended June 30, 1996,
1997 and 1998 and actual balance sheet data at June 30, 1997 and 1998 have been
derived from the Company's consolidated financial statements included elsewhere
in this Prospectus, which have been audited by Deloitte & Touche LLP,
independent auditors, as indicated in their report included elsewhere in this
Prospectus. The financial data given below as of and for the three months ended
September 30, 1997 and 1998 have been derived from unaudited consolidated
financial statements included elsewhere in this Prospectus and, in the opinion
of management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of results for the unaudited interim
periods. Results for the three months ended September 30, 1998 are not
necessarily indicative of results that can be expected for the full fiscal year.
Such information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements of the Company, including the notes thereto, appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES, RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue................................................ $51,757 $58,096 $95,101 $147,947 $182,773
Cost of goods sold..................................... 46,244 48,343 72,941 122,013 148,487
------- ------- ------- -------- --------
Gross profit........................................... 5,513 9,753 22,160 25,934 34,286
Selling, general and administrative expenses........... 6,082 6,406 8,896 19,188 23,456
Impairment and in-process technology expense........... -- -- -- 11,650 --
------- ------- ------- -------- --------
Income (loss) from operations.......................... (569) 3,347 13,264 (4,904) 10,830
Interest expense....................................... 1,217 1,563 1,799 2,295 3,757
Other income (expense)................................. (353) 92 302 568 224
------- ------- ------- -------- --------
Income (loss) from continuing operations before income
taxes................................................ (2,139) 1,876 11,767 (6,631) 7,297
Provision (benefit) for income taxes................... (919)(1) 691(1) 4,472(1) 1,670 2,215
------- ------- ------- -------- --------
Income (loss) from continuing operations............... (1,220)(1) 1,185(1) 7,295(1) (8,301) 5,082
Income (loss) from discontinued operations............. (1,899)(1) -- (379)(1) -- --
------- ------- ------- -------- --------
Net income (loss)...................................... $(3,119)(1) $ 1,185(1) $ 6,916(1) $ (8,301) $ 5,082
------- ------- ------- -------- --------
------- ------- ------- -------- --------
Net income (loss) per share--basic and diluted......... $ 0.13(1) $ 0.76(1) $ (0.68) $ 0.40
------- ------- -------- --------
------- ------- -------- --------
Weighted average number of shares outstanding--
diluted.............................................. 8,824 9,110 12,234 12,846
------- ------- -------- --------
------- ------- -------- --------
OTHER DATA:
EBITDA(2).............................................. $ 3,145 $ 7,052 $18,175 $ 2,473 $ 19,733
Adjusted EBITDA(2)(3).................................. 3,145 7,052 18,175 14,123 19,733
Depreciation and amortization.......................... 3,714 3,705 4,911 7,377 8,903
Capital expenditures................................... 3,951 3,663 7,526 24,761 39,334
Net cash provided by operating activities.............. 2,057 5,004 8,943 1,719 10,353
Net cash provided by (used in) investing activities.... 3,421 (3,816) (11,905) (18,927) (54,844)
Net cash provided by (used in) financing activities.... (5,477) (1,189) 2,977 17,612 45,219
GROWTH RATES:
Revenue................................................ 2.6% 12.2% 63.7% 55.6% 23.5%
Adjusted EBITDA(2)(3).................................. (65.9)% 124.2% 157.7% (22.3)% 39.7%
Adjusted income from operations(3)..................... (111.4)% NA 296.3% (49.1)% 60.5%
MARGINS(4):
Adjusted EBITDA(2)(3).................................. 6.1% 12.1% 19.1% 9.5% 10.8%
Adjusted income (loss) from operations(3).............. (1.1)% 5.8% 13.9% 4.6% 5.9%
Net income (loss)...................................... (6.0)% 2.0% 7.3% (5.6)% 2.8%
RATIOS:
Adjusted EBITDA to interest expense(2)(3)(5)........... 2.6x 4.5x 10.1x 6.2x 5.3x
Earnings, to fixed charges(6).......................... -- 2.0x 6.7x -- 2.2x
Adjusted earnings to fixed charges(3)(6)............... -- 2.0x 6.7x 2.4x 2.2x
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1998
------- -------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Revenue................................................ $42,595 $55,396
Cost of goods sold..................................... 34,563 46,202
------- -------
Gross profit........................................... 8,032 9,194
Selling, general and administrative expenses........... 5,803 7,012
Impairment and in-process technology expense........... -- --
------- -------
Income (loss) from operations.......................... 2,229 2,182
Interest expense....................................... 726 1,467
Other income (expense)................................. 98 208
------- -------
Income (loss) from continuing operations before income
taxes................................................ 1,601 923
Provision (benefit) for income taxes................... 494 330
------- -------
Income (loss) from continuing operations............... 1,107 593
Income (loss) from discontinued operations............. -- --
------- -------
Net income (loss)...................................... $ 1,107 $ 593
------- -------
------- -------
Net income (loss) per share--basic and diluted......... $ 0.09 $ 0.05
------- -------
------- -------
Weighted average number of shares outstanding--
diluted.............................................. 12,931 12,797
------- -------
------- -------
OTHER DATA:
EBITDA(2).............................................. $ 4,288 $ 5,475
Adjusted EBITDA(2)(3).................................. 4,288 5,475
Depreciation and amortization.......................... 2,059 3,293
Capital expenditures................................... 4,352 10,651
Net cash provided by operating activities.............. 2,406 4,581
Net cash provided by (used in) investing activities.... (4,543) (5,835)
Net cash provided by (used in) financing activities.... 2,053 425
GROWTH RATES:
Revenue................................................ 44.6% 30.1%
Adjusted EBITDA(2)(3).................................. 87.2% 27.7%
Adjusted income from operations(3)..................... 23.6% (2.1)%
MARGINS(4):
Adjusted EBITDA(2)(3).................................. 10.1% 9.9%
Adjusted income (loss) from operations(3).............. 5.2% 3.9%
Net income (loss)...................................... 2.6% 1.1%
RATIOS:
Adjusted EBITDA to interest expense(2)(3)(5)........... 5.9x 3.7x
Earnings, to fixed charges(6).......................... 2.3x 1.3x
Adjusted earnings to fixed charges(3)(6)............... 2.3x 1.3x
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998 1998
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................... $ (5,999) $ (1,897) $ 10,743 $ 17,031 $ 19,297 $ 20,439
Inventories........................................ 3,449 4,002 6,212 8,534 16,491 16,560
Total assets....................................... 29,051 30,352 52,836 87,286 151,494 158,822
Short-term debt.................................... 2,068 1,302 871 3,565 6,394 8,889
Long-term obligations.............................. 7,496 10,188 7,695 29,785 73,413 72,271
Shareholders' equity............................... 4,118 5,699 34,641 37,641 43,980 44,970
</TABLE>
- ------------------------------
(1) The Company was an S corporation prior to April 1996 and accordingly was not
subject to federal and state income taxes prior to April 1996. For this
portion of 1996 income tax expense, net income and net income per share are
shown pro forma. Pro forma amounts reflect federal and state income taxes as
if the Company had been a C corporation based on the effective tax rates
that would have been in effect during these periods. See Note 12 to the
Company's Financial Statements.
(2) EBITDA represents income from operations before depreciation and
amortization. EBITDA is not a measurement determined under GAAP and does not
represent cash generated from operating activities in accordance with GAAP.
EBITDA should not be considered by the reader as an alternative to net
income as an indicator of financial performance or as an alternative to cash
flows as a measure of liquidity. In addition, the Company's definition of
EBITDA may not be identical to similarly entitled measures used by other
companies. The derivation of EBITDA and EBITDA, as adjusted, is set forth in
the following table.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from operations................... $ (569) $ 3,347 $ 13,264 $ (4,904) $ 10,830 $ 2,229 $ 2,182
Depreciation and amortization................... 3,714 3,705 4,911 7,377 8,903 2,059 3,293
--------- --------- --------- --------- --------- --------- ---------
EBITDA.......................................... 3,145 7,052 18,175 2,473 19,733 4,288 5,475
Impairment and in-process technology expense
(see footnote 3).............................. -- -- -- 11,650 -- -- --
--------- --------- --------- --------- --------- --------- ---------
EBITDA, as adjusted............................. $ 3,145 $ 7,052 $ 18,175 $ 14,123 $ 19,733 $ 4,288 $ 5,475
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
(3) Adjusted earnings, adjusted EBITDA and adjusted income from operations
reflect the Company's earnings, EBITDA and income from operations,
respectively, adjusted to exclude an aggregate non-cash charge of $11.65
million representing the write-off of goodwill associated with the CTI
acquisition in fiscal 1996 and the write-off of purchased research and
development costs related to the acquisition of Trend in fiscal 1997.
Adjusted earnings, adjusted EBITDA and adjusted income from operations are
not measurements determined under GAAP. Adjusted earnings, adjusted EBITDA
and adjusted income from operations should not be considered by the reader
as alternatives to net income, EBITDA and income from operations as
indicators of financial performance.
(4) Margins represent the indicated items expressed as a percentage of revenue.
(5) EBITDA was insufficient to cover interest expense for the year ended June
30, 1994.
(6) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before taxes, plus fixed charges. "Fixed charges" consist
of interest on all indebtedness, amortization of deferred debt financing
costs and one-third of rental expense (the portion deemed representative of
the interest factor). Earnings were insufficient to cover fixed charges for
the years ended June 30, 1994 and June 30, 1997 by $2.1 million and $6.6
million, respectively. For each period presented, the ratio of earnings to
fixed charges plus preferred dividends is identical to the corresponding
ratio of earnings to fixed charges.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading provider of a full range of PCB and interconnect
solutions, including schematic capture and design, quick-turnaround, prototyping
and pre-production, and large volume production to electronics OEMs and contract
manufacturers. The Company provides its solutions to four key electronics
industry segments (with corresponding percentages of Company revenue for fiscal
1998): (i) data and telecommunications (31%), (ii) computers and peripherals
(36%), (iii) industrial and instrumentation (25%) and (iv) business and consumer
(8%).
In 1997 the Company implemented its One-Stop Shopping-TM- strategy to
provide its customers with advanced technology and integrated manufacturing
capabilities for the entire cycle of PCB creation. As part of that
implementation the Company has made a number of strategic acquisitions. In
November 1995 the Company acquired CTI (now its Redmond facility) to increase
its prototype production capability. In August 1996 the Company acquired Trend
(now its Fremont facility) to increase its quick-turnaround capability. In March
1998 the Company acquired its Huntsville facility to increase its pre-production
capability. In the last three years, Praegitzer also acquired or opened 11
design centers in the United States and one in Israel.
The Company has experienced 46.5% compound revenue growth in fiscal years
1995 through 1998, compared with a U.S. PCB industry compound revenue growth
rate of 8.5% over the same period. The Company attributes this growth, in part,
to its One-Stop Shopping-TM- strategy, which is intended to provide the full
spectrum of PCB services, from initial design, schematic capture and layout to
prototype fabrication and full-volume production. By providing extensive design
services, the Company has been able to attract additional quick-turnaround and
high volume production business.
The Company derives pricing for its products and services from a series of
matrices. In volume and quick-turnaround production, bare board pricing
generally depends on order size, board complexity (e.g., density and layer
count), technology and special processes involved (e.g., microvias, buried vias
and blind vias), and required turnaround time. The design division generally
charges based on an hourly rate. The Company invoices its customers at the time
the product is shipped. Pursuant to the Company's standard payment terms,
invoices are due within 30 days after receipt. The Company typically offers a
discount of up to 1.0% on payments made within 10 days of invoicing.
For the three months ended September 30, 1998, the PCB industry generally
experienced a decline in demand which caused pricing and margin pressure on the
remaining projects on which the industry was competing. In this environment of
shrinking demand, excluding revenue generated by acquired facilities Praegitzer
was able to achieve revenue growth of over 20% compared to the same period in
the prior year.
An additional important impact on the Company was the unprofitable results
of its recently acquired facilities in Huntsville and Malaysia, which
experienced slower-than-expected increases in demand. The Company nonetheless
reported net income of $593,000 for this period.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the Company for
the periods indicated as a percentage of revenue.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------- -------------------
1996 1997 1998 1997 1998
----------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue.......................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............................................... 76.7 82.5 81.2 81.1 83.4
----------- --------- -------- -------- --------
Gross profit..................................................... 23.3 17.5 18.8 18.9 16.6
Selling, general and administrative expense...................... 9.3 13.0 12.8 13.6 12.7
Impairment and in-process technology expense..................... -- 7.9 -- -- --
----------- --------- -------- -------- --------
Income (loss) from operations.................................... 14.0 (3.4) 6.0 5.3 3.9
Interest expense................................................. 1.9 1.6 2.1 1.7 2.6
Other income..................................................... 0.3 0.4 0.1 0.2 0.4
----------- --------- -------- -------- --------
Income (loss) from continuing operations......................... 12.4 (4.6) 4.0 3.8 1.7
Provision for income taxes....................................... 4.7(1) 1.1 1.2 1.2 0.6
----------- --------- -------- -------- --------
Net income (loss) from continuing operations..................... 7.7%(1) (5.7)% 2.8% 2.6% 1.1%
----------- --------- -------- -------- --------
----------- --------- -------- -------- --------
</TABLE>
- ------------------------
(1) Provision for income taxes and net income from continuing operations are pro
forma for the year ended June 30, 1996. The Company was an S corporation and
accordingly was not subject to federal and state income taxes for the year
ended June 30, 1996. See Note 12 to the Company's Financial Statements.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
REVENUE. Revenue for the three months ended September 30, 1998 increased
30.1% to $55.4 million from $42.6 million for the three months ended September
30, 1997. The increase in revenue resulted primarily from increased volume
production and quick-turnaround and prototype fabrication sales, the acquisition
of the Malaysia facility in April 1998 and the Huntsville facility in March 1998
and improved capacity utilization company-wide.
COST OF GOODS SOLD. Cost of goods sold includes direct labor, materials and
manufacturing overhead costs. The cost of goods sold for the three months ended
September 30, 1998 was $46.2 million, or 83.4% of revenue, compared to $34.6
million, or 81.1% of revenue for the three months ended September 30, 1997. This
increase was due primarily to increased costs at the Malaysia and Huntsville
facilities and pressures related to diminishing market demand and increased
offshore competition.
GROSS PROFIT. Gross profit for the three months ended September 30, 1998
increased 14.4% to $9.2 million from $8.0 million for the three months ended
September 30, 1997. Gross margin decreased to 16.6% for the three months ended
September 30, 1998 compared to 18.9% for the three months ended September 30,
1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended September 30, 1998 increased
$1.2 million, or 20.8%, to $7.0 million from $5.8 million for the three months
ended September 30, 1997. The increase in expenses was due to the increased
personnel and fixed costs associated with the acquisitions of the Malaysia and
Huntsville facilities, as well as the Company's investment in its expanded
design division and corporate sales force. As a percentage of revenue, selling,
general and administrative expenses decreased to 12.7% for the three months
ended
24
<PAGE>
September 30, 1998 from 13.6% for the three months ended September 30, 1997 due
to greater efficiencies due to higher sales volume.
INCOME FROM OPERATIONS. Operating income for the three months ended
September 30, 1998 decreased $46,000 to $2.18 million, or 3.9% of revenue,
compared to $2.23 million for the three months ended September 30, 1997. This
decrease resulted from increased expenses associated with acquisitions and
facility expansions, and lower margins due to weaker demand and increased
competition.
INTEREST EXPENSE. Interest expense for the three months ended September 30,
1998 increased $741,000, or 102.1%, to $1.5 million, or 2.6% of revenue, from
$726,000 in the prior year. The increase was primarily the result of increased
borrowings required to finance the acquisition of the Huntsville facility,
equipment purchases and working capital needs.
INCOME TAXES. Income taxes for the three months ended September 30, 1998
were $330,000 compared to an income tax provision of $494,000 for the three
months ended September 30, 1997. The effective tax rate for the three month
periods ended September 30, 1998 and 1997 were 35.7% and 30.8%, respectively.
NET INCOME. Net income for the three months ended September 30, 1998 was
$593,000, a decrease of $514,000 from net income of $1.1 million for the three
months ended September 30, 1997. This decrease was primarily due to higher costs
associated with acquisitions and expansions as well as lower margins resulting
from weaker customer demand and increased offshore competition.
YEAR ENDED JUNE 30, 1998 ("FISCAL 1998") COMPARED TO YEAR ENDED JUNE 30,
1997 ("FISCAL 1997")
REVENUE. Revenue for fiscal 1998 increased 23.5% to $182.8 million from
$147.9 million for fiscal 1997. The Company's three primary products and
services, (i) volume production, (ii) quick-turnaround, prototype and
pre-production, and (iii) design, accounted for 72.0%, 21.1%, and 6.9% of
revenues, respectively, in fiscal 1998 compared to 79.5%, 14.8%, and 5.7%,
respectively, in fiscal 1997. The Company's increased revenue from design
through pre-production is the result of the Company's increasing emphasis on its
One-Stop Shopping-TM- strategy.
Revenue growth in fiscal 1998 was the result of several factors, including
gains in market share due to industry consolidation, increased capacity,
improved technological capabilities and strategic advantages offered by the
Company's One-Stop Shopping-TM- strategy. The balance of the increase in revenue
was the result of several acquisitions in fiscal 1998, including the acquisition
of the Huntsville facility in March 1998, and the acquisitions of two design
centers, which added $3.2 million and $3.6 million to revenue during fiscal
1998, respectively.
Volume production revenue increased 17.4% to $103.6 million in fiscal 1998
from $88.1 million in fiscal 1997. The increase in volume production business
can be attributed to additional capacity, new customers, increased sales to
existing customers, and new technology offerings. Significant new volume
customers in fiscal 1998 included SMTC/Dell, EMC, Celestica, RadiSys, and
Teradyne, among others. Existing customers with increased sales in 1998 included
Xerox, Motorola, SCI and PSC.
Quick-turnaround, prototype and pre-production revenue increased 26.0% to
$65.3 million in fiscal 1998 from $51.9 million in fiscal 1997. These increases
in revenue can be attributed to increased prototype production generated by the
Company's design division, the addition of the Huntsville facility and enhanced
technological capabilities.
Design revenue increased 76.3% to $13.9 million in fiscal 1998 compared to
$7.9 million in fiscal 1997. The revenue increase can be primarily attributed to
two design acquisitions that added $3.6 million of revenue in fiscal 1998. The
balance of revenue growth can be attributed to higher average bill rates, more
designers and other factors, including increased business from existing and new
customers such as Intel, NEC, Bay Networks and 3Com.
25
<PAGE>
COST OF GOODS SOLD. The cost of goods sold for fiscal 1998 was $148.5
million, or 81.2% of revenue, compared to $122.0 million, or 82.5% of revenue,
for fiscal 1997. This decrease was primarily due to lower materials costs and
labor costs as a percentage of revenues, achieved through supplier price
concessions, lower scrap rates, improved yields, higher employee productivity
and improved process efficiencies.
GROSS PROFIT. Gross profit for fiscal 1998 increased 32.2% to $34.3 million
from $25.9 million for fiscal 1997. Gross margin increased to 18.8% for fiscal
1998 compared to 17.5% for fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal 1998 increased $4.3 million, or 22.2%, to
$23.5 million from $19.2 million for fiscal 1997. The increase in expenses was
due to increased personnel and fixed costs associated with the expansion of the
design division and corporate sales force. As a percentage of revenue, selling,
general and administrative expenses decreased to 12.8% for fiscal 1998 from
13.0% for fiscal 1997.
INCOME (LOSS) FROM OPERATIONS. Operating income for fiscal 1998 increased
$15.7 million to $10.8 million, or 6.0% of total revenues, compared to an
operating loss of $4.9 million for fiscal 1997. The gains in operating income
were driven by improvements in gross margin and the benefit from the elimination
of the $11.7 million nonrecurring expense related to impairment and in-process
technology for fiscal 1997. Excluding this write-off, income from operations was
$6.7 million, or 4.6% of revenue, for fiscal 1997. The increase in income from
operations in fiscal 1998, excluding the one-time write-off from fiscal 1997,
was primarily the result of increased efficiency in the Company's expanded
manufacturing facilities.
INTEREST EXPENSE. Interest expense for fiscal 1998 increased $1.5 million,
or 63.7%, to $3.8 million from $2.3 million for fiscal 1997. The increase was
primarily the result of increased borrowings required to finance the Intergraph
acquisition and equipment purchases.
INCOME TAXES. Income taxes for fiscal 1998 were $2.2 million compared to an
income tax provision of $1.7 million for fiscal 1997. The effective tax rate in
fiscal 1998 was 30.4%. During fiscal 1997, the Company had a tax expense on a
pre-tax book loss primarily due to the add-backs of goodwill and an in-process
technology write-off, neither of which were tax deductible. Federal and state
research and experimental tax credits, however, partially offset the effect of
these add-backs. Absent the add-back of the goodwill and in-process technology
write-offs, the Company's effective tax rate for fiscal 1997 would have been
29.4%.
NET INCOME. As a result of the factors described above, including the
write-off of $11.7 million non-recovery expenses related to impairment and
in-process technology expense, net income for fiscal 1998 of $5.1 million
represents an increase of $13.4 million compared to the net loss of $8.3 million
for fiscal 1997.
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996 ("FISCAL
1996")
REVENUE. Revenue for fiscal year 1997 increased 55.6% to $147.9 million
from $52.8 million for fiscal 1996. The increase resulted primarily from the
Company's acquisitions in fiscal 1997, including the acquisition of Trend, now
the Company's Fremont division, which increased revenue by $26.8 million.
Revenue contribution from the design division increased $5.5 million for fiscal
1997, due in part to the acquisition of six strategically located design centers
in fiscal 1997, which increased revenue by $1.9 million. The increase was also
due to improved sales resulting from the efforts of the Company's expanded sales
force, as well as increased capacity in the Company's White City and Dallas,
Oregon facilities.
COST OF GOODS SOLD. The cost of goods sold for fiscal 1997 was $122.0
million, or 82.5% of revenue, compared to $72.9 million, or 76.7% of revenue,
for fiscal 1996. This increase was primarily due to capacity constraints in
inner layer production at the Dallas facility caused by a transition to new
technologies. The transition period, which extended into the third quarter,
resulted in increased scrap rates, decreased throughput and forced outsourcing
of some processes for the division. In addition, the Company had expansions at
its Redmond and White City facilities to increase capacity.
26
<PAGE>
GROSS PROFIT. Gross profit for fiscal 1997 increased 17.0% to $25.9 million
from $22.2 million for fiscal 1996. Gross margin decreased to 17.5% for fiscal
1997 compared to 23.3% for fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for fiscal 1997 increased $10.3 million, or 115.7%, to
$19.2 million from $8.9 million for fiscal 1996. The increase was primarily a
result of increased personnel and fixed costs required to support higher levels
of sales and the overall growth of the Company. The Company also experienced
higher than expected integration costs related to the acquisitions of Trend, CTI
and several design centers. In addition, goodwill amortization increased by $1.1
million during fiscal 1997 as a result of the Trend acquisition. As a percentage
of revenue, selling, general and administrative expenses increased to 13.0% for
fiscal 1997 from 9.3% for fiscal 1996.
IMPAIRMENT AND IN-PROCESS TECHNOLOGY EXPENSE. In the first quarter of
fiscal 1997, the Company took a one-time write-off of $11.7 million of certain
goodwill associated with the CTI acquisition and purchased research and
development costs related to the acquisition of Trend. This write-off is defined
as impairment and in-process technology.
INCOME (LOSS) FROM OPERATIONS. Net loss from operations for fiscal 1997 was
$4.9 million compared to operating income of $13.3 million for fiscal 1996. The
decrease, primarily the result of a one-time write-off of goodwill and purchased
research and development costs, was adversely affected by capacity constraints
and higher scrap rates arising from transitions to new technologies, and
decreased utilization of capacity at expanded facilities. Excluding this
write-off, income from operations was $6.7 million, or 4.6% of revenue, for
fiscal 1997.
INTEREST EXPENSE. Interest expense for fiscal 1997 increased $496,000, or
27.6%, to $2.3 million from $1.8 million for fiscal 1996. The increase was the
result of increased borrowings required to finance the acquisition of Trend,
increased working capital needs and capital expenditures.
INCOME TAXES. Although the Company had a pre-tax book loss, the Company had
a tax expense of $1.7 million in fiscal 1997, due to the add-back of goodwill
and the write-off of in-process technology which are not tax deductible. Federal
and state research and experimental tax credits, however, partially offset the
effect of these add-backs. Absent these nonrecurring items, the Company's
effective tax rate would have been 29.4% in fiscal 1997 compared to a pro forma
effective tax rate of 36.0% in fiscal 1996.
NET INCOME (LOSS). Net loss for fiscal 1997 was $8.3 million, compared to
pro forma net income of $6.9 million for fiscal 1996. This loss resulted
primarily from a one-time write-off of goodwill and purchased research and
development costs associated with the Trend and CTI acquisitions, as well as
higher sales costs.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and capital
expenditures with cash from operations and debt financing, as well as an initial
public offering in April 1996. Net cash provided by operating activities was
$8.9 million, $1.7 million and $10.4 million for fiscal 1996, 1997 and 1998,
respectively. As of September 30, 1998, the Company had $305,000 in cash and
cash equivalents and working capital of approximately $20.4 million.
Capital expenditures were $7.5 million, $24.8 million and $39.3 million for
fiscal 1996, 1997 and 1998, respectively. These capital expenditures were
primarily for manufacturing equipment and plant expansions and modernization.
Although the Company has no commitments in material amounts, it expects capital
expenditures for fiscal 1999 to be between 8% to 12% of revenue.
The Company increased its bank line of credit under the Key Agreement (as
defined herein) to $40.0 million at June 30, 1998 from $15.0 million at June 30,
1997. At September 30, 1998 borrowings of $40.0 million were outstanding and
there were no amounts available for borrowing based on eligible
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accounts receivable and inventory. Amounts outstanding under the line of credit
bear interest at the bank's prime rate (8.5% per annum at September 30, 1998).
Under the line of credit, the Company must maintain certain financial ratios and
other covenants. The line of credit, as amended, matures on March 31, 2000 and
requires that the Company issue at least $15 million in subordinated debt or
equity prior to January 1, 1999 and pay a fee of $300,000 if the amounts
outstanding under the Key Agreement are not repaid before January 1, 1999 (if
the Company repays such amounts by January 31, 1999, the Company will be
reimbursed $150,000, provided that the fee was paid before January 1, 1999).
In October 1998, the Company entered into separate equipment leases with the
CIT Group/ Equipment Financing, Inc. ("CIT") and Copelco Capital, Inc.
("Copelco"). In connection with these equipment leases, the Company sold certain
equipment to CIT and Copelco for an aggregate of approximately $8.3 million. The
Company used the proceeds of the equipment sales to reduce its outstanding
liabilities.
In an effort to expand its available credit, in addition to the subordinated
debt financing to be provided by the Notes, the Company has entered into a
letter of intent (the "Letter of Intent") with another commercial bank to
provide funds to replace and enhance the funding provided by the Key Agreement.
The Letter of Intent provides for a $53 million secured credit facility (the
"Proposed Credit Facility"), consisting of a $40 million revolving credit line,
a $3 million term loan and a $10 million capital expenditure facility.
Borrowings available under the Proposed Credit Facility would be restricted to
certain percentages of eligible accounts receivable, eligible inventory, the
appraised value of eligible used fixed assets, the appraised fair market value
of real estate and the appraised value of new and used acquired fixed assets.
Under the terms of the Letter of Intent, amounts outstanding under the Proposed
Credit Facility would bear interest at (i) the Base Rate (as defined therein)
plus up to 0.50% or (ii) LIBOR plus up to 2.75%. The Letter of Intent provides
that certain financial ratios and other covenants would be required to be
maintained under the Proposed Credit Facility. The Letter of Intent contemplates
the Proposed Credit Facility would mature five years following closing of the
financing. Based on these negotiations, the Company believes an amount between
$10.0 million and $14.0 million will be available for additional borrowing under
the Proposed Credit Facility. The closing of the Proposed Credit Facility is
conditioned on completion of this offering. The Company believes the Letter of
Intent will lead to a credit arrangement with the new lender, but the Letter of
Intent is subject to the lender's due diligence and final credit review and the
negotiation and execution of definitive documentation, and thus does not
represent a final commitment to lend by the lender.
In fiscal 1998, the Company borrowed $15.2 million from Heller Financial,
Inc., secured by real property and miscellaneous equipment at the Company's
Huntsville facilities.
The Company is in compliance with all the terms of each of its revolving
credit agreement with Key Bank National Association (the "Key Agreement"), its
multiple secured term loans with Heller Financial, Inc. (the "Heller
Agreements") and its term loan with Finova Capital Corporation (the "Finova
Agreement"), and no events of default exist under any of these agreements. The
Company has received waivers and going-forward covenant modifications with
respect to each of the Key Agreement, the Heller Agreements and the Finova
Agreement relating to certain technical defaults and events of default that
arose as a result of noncompliance with certain financial covenants in the
Heller Agreements and the Finova Agreement. The Company has made all payments on
all indebtedness related to these agreements.
In connection with the credit arrangements contemplated by the Letter of
Intent, the Company will pay commitment and other fees of between $400,000 and
$600,000 in the aggregate, which will be amortized over the five-year period of
the facility. In addition, in connection with the contemplated termination of
the Key Agreement and the repayment of the Finova Agreement, the Company will
pay aggregate prepayment penalties of approximately $30,000, which will be a
charge against income in the period in which they are paid. If the Key Agreement
is terminated and amounts outstanding thereunder are repaid in January 1999, the
$150,000 fee will be a charge against income in the period when incurred. If
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<PAGE>
the Key Agreement is not terminated early, the $300,000 fee will be amortized
over the remaining term of the loan.
The Company believes existing cash and cash equivalents and funds generated
from operations and equipment financings as well as proceeds from this offering
will be sufficient to fund its operations for the next 12 months. See "Use of
Proceeds."
The Company intends to use approximately $3.1 million of the net proceeds
from this offering to pay off the outstanding balance under the Finova
Agreement.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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 standards become effective for the Company's fiscal
year ending June 30, 1999. Adoption of this statement may result in additional
disclosures but will have no material impact on the Company's results of
operations or financial position.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new statement will require recognition
of all derivatives as either assets or liabilities on the balance sheet at fair
value. The new statement becomes effective for the first quarter of the fiscal
year ending June 30, 2000. Management has not completed an evaluation of the
effects this standard will have on the Company's financial position or results
of operations.
YEAR 2000 COMPLIANCE
Certain computer hardware and software use two-digit data fields to store
and recognize years, assuming the first two digits of the year are "19" (e.g.,
the number "98" is recognized as "1998"). This and certain similar protocols
give rise to possible problems related to the recognition of dates in years
after 1999--so-called "Year 2000" issues. The Company continues to assess and
address the business risks associated with Year 2000 issues. Some of the
Company's systems include hardware and packaged software recently purchased from
vendors who have represented that these systems are Year 2000 compliant.
Other hardware and software used by the Company has been identified by the
Company as not being Year 2000 compliant. The Company expects that Year 2000
upgrades to the software used in its manufacturing systems and replacement
components for certain older hardware used in these systems will soon be
available from vendors. The cost of these upgrades and replacements is not
expected to be material.
The Company relies on a number of vendors and suppliers, including banks,
telecommunication providers, and other providers of goods and services. The
inability of these third parties to conduct their business for a significant
period of time due to the Year 2000 issue could have a material adverse impact
on the Company's operations. The Company has not determined whether all of its
vendors and suppliers are Year 2000 compliant. The Company's reliance on single
source suppliers, however, is minimal, and the Company seeks to limit sole
source supply relationships. The Company is continuing to assess potential Year
2000 issues and is developing contingency plans. At this time, the Company
believes costs incurred in responding to other parties' Year 2000 computer
system deficiencies, together with the cost of any required modifications to the
Company's systems, will not have a material impact on the Company's results of
operations or financial condition. This analysis may be modified as the
Company's assessment of potential Year 2000 issues progresses.
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<PAGE>
BUSINESS
The Company is a leader in providing OEMs and contract manufacturers with a
full range of PCB and interconnect solutions, including schematic capture and
design, quick-turnaround, prototyping and pre-production, and large volume
production. The Company provides its solutions to four key electronics industry
segments (with corresponding percentages of Company revenue for the fiscal year
ended June 30, 1998): (i) data and telecommunications (31%), (ii) computers and
peripherals (36%), (iii) industrial and instrumentation (25%) and (iv) business
and consumer (8%). The Company's growth has been driven by sales to industry
leaders whose products require increasingly complex and technologically advanced
electronic interconnects. The Company's principal customers include Compaq,
Hewlett Packard, Intel, Dell, EMC, IEC Electronics, SCI, Solectron, Motorola,
Xylan and Xerox. The Company has obtained ISO 9002 certifications for five of
its manufacturing facilities and has received awards from a number of its
customers in recognition of its superior performance in meeting their PCB needs.
In fiscal 1998 the Company served more than 650 customers worldwide.
The 1997 worldwide PCB market was estimated at $29.7 billion by the
Institute for Interconnecting Packaging Electronic Circuits ("IPC"), of which
the U.S. market was $7.8 billion and was forecast to grow 6.5% annually through
2001. As electronics OEMs respond to competitive pressures, they place ever-
greater emphasis on faster product time-to-market and greater PCB complexity in
tight space tolerances, and face increasing pressure to shorten the
design-to-manufacture cycles. Additionally, as OEMs increasingly focus on core
competencies, non-core activities are contracted to independent specialty
vendors. As a result of these market forces, outsourcing of PCBs and electronic
interconnects has grown from 66% of total OEM requirements in 1991 to 93% in
1997.
Addressing these trends, Praegitzer in 1997 implemented its One-Stop
Shopping-TM- strategy to provide its customers with advanced technology and
integrated manufacturing capabilities for the entire cycle of PCB creation. In
the last three years, the Company has acquired production facilities in Redmond,
Washington; Fremont, California; and Huntsville, Alabama, and a 51% interest in
a production facility in Melaka, Malaysia. During this same period, Praegitzer
acquired or opened 11 design centers in the U.S. and one in Israel. The Company
has experienced 46.5% compound revenue growth during fiscal years 1995 through
1998, compared with a compound revenue growth rate for the U.S. PCB industry of
8.5%. Excluding revenue generated by acquired facilities, the Company's compound
revenue growth rate during the same period would have been 21.7%. During this
period the Company produced increasingly complex PCBs with higher density and
layer counts.
The Company's goal is to be the leading provider of electronic interconnect
one-stop design and manufacturing services, while continuing to increase its
technological and services advantages.
INDUSTRY OVERVIEW
PCBs, consisting of interconnected layers of etched copper patterns of
electrical circuitry that have been laminated to insulating material, are the
basic platforms used to interconnect the integrated circuits and other essential
components of electronic products. The Company primarily focuses on the
multilayer PCB market, which accounted for approximately 76.1% and 73.3% of U.S.
PCB sales in 1997 and 1996, respectively.
The overall market for electronic products has grown steadily over the past
20 years as end users increasingly seek products with attractive
price/performance characteristics and as technological advances have created new
markets. To compete in the broader electronics market, OEMs require product
components with increased functionality at lower cost per function. The
interconnect densities, signal speeds and layer counts of PCBs have increased to
meet these requirements. Many of these increasingly complex PCBs are
manufactured using a variety of complex processes and equipment, further
complicating
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the production process. Furthermore, competitive pressures and rapid
technological change have shortened product life cycles. As a result,
time-to-market and time-to-volume have become increasingly important competitive
factors.
To compete in the market for increasingly complex and technologically
advanced PCBs and to meet shorter time-to-market and time-to-volume
requirements, PCB manufacturers must make substantial capital investments and
develop greater manufacturing specialization and expertise. These factors have
resulted in two trends in the PCB industry. First, as capital requirements have
increased, the industry has consolidated. According to IPC, the number of United
States PCB manufacturers has decreased from over 2,500 in 1976 to fewer than 700
in 1996. Second, OEMs have increased the outsourcing of PCB production to focus
resources on their core strengths and have relied on outside suppliers to
overcome increasingly complex manufacturing challenges. According to IPC, the
independent manufacturers' portion of the total PCB market increased to 93% in
1997 from 66% in 1991. IPC estimates that in 1997 the nine largest independent
manufacturers accounted for about 32% of total PCB sales in the United States by
independent manufacturers.
PCB DESIGN AND PRODUCTION PROCESS
The creation of PCBs progresses in stages: (1) initial design and
simulation, (2) schematic capture and circuit design, (3) quick-turnaround,
prototype and pre-production, and (4) volume production.
[CHART]
1. INITIAL DESIGN. Initial design is performed by the OEMs and encompasses
the process of idea formation, conceptual analysis, engineering design
(including specifications and features), functional simulation and simulation of
the processed layout of a PCB.
2. SIMULATION. Simulation of proposed locations of holes and conductors
(the "layout") provides information regarding potential layout problems to the
initial design engineer and creates revised design guidelines for the schematic
capture and circuit design technicians. Due to the increasing number of
high-speed devices being used on PCBs, physical layout guidelines must be
tailored to each particular design to resolve problems regarding circuit timing,
signal-integrity and electromagnetic interference ("EMI"). These problems, if
not resolved in up-front board layout design, can result in low manufacturing
yields and inconsistent product performance that can increase time and cost to
market for OEMs. Up-front simulation by knowledgeable professionals using
computer aided design ("CAD") simulation tools is required to model and resolve
problematic issues prior to manufacturing.
3. SCHEMATIC CAPTURE AND CIRCUIT DESIGN. Schematic capture involves the
input of an electronic schematic diagram into a high-performance computer
workstation that generates a list of the electronic components and interconnects
required to design a PCB. Circuit design is accomplished using specialized CAD
software programs. Computer-generated data describe the layout which, along with
manufacturing information, may be transmitted electronically from the designer
to the manufacturer. When transmitting data to its internal manufacturing
organizations, the Company typically uses specialized computer aided
manufacturing ("CAM") software prior to sending the data to ensure design for
manufacturability ("DFM") and to help speed the quick-turnaround process.
Historically, circuit design was the step in the PCB production process least
likely to be outsourced by OEMs. As PCB related design-for-
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manufacture challenges become more complex, however, more OEMs are relying on
outside resources for these services.
4. QUICK-TURNAROUND, PROTOTYPE AND PRE-PRODUCTION. Quick-turnaround is
characterized by shorter than standard lead time requirements, typically one to
10 days, and involves producing a small quantity, usually fewer than 50 PCBs.
Prototype evaluation is critical to product development and frequently requires
several iterations to finalize the design. Because time is critical, most
prototypes are manufactured on a quick-turnaround basis. Consequently, high
quality and timely delivery generally are the most important competitive factors
for the quick-turnaround market. Pre-production runs involve the manufacture of
limited quantities of PCBs during the transition from prototype to volume
production. Pre-production may require quick-turnaround delivery because of
overall time-to-market pressures and shorter product life cycles or as a
temporary solution in the event of volume production delay. Accordingly, high
quality and timely delivery continue to be the factors most important to the OEM
or contract manufacturer, although price is also a significant factor. Many OEMs
take advantage of a PCB manufacturer's quick-turnaround capability, even when
circuit design or volume production is done in-house or by other PCB
manufacturers. PCB manufacturers use quick-turnaround capabilities to build
relationships with OEMs, thereby developing additional OEM design and volume
production business.
5. VOLUME PRODUCTION. Volume production is characterized by longer lead
times and increased emphasis on lower cost as the product moves to full-scale
commercial production. At this stage of production, price, quality, on-time
delivery and process capability are the factors most important to the OEM or
contract manufacturer. As product life cycles grow shorter, the ability to meet
shorter lead time requirements becomes an increasingly significant competitive
factor.
Each stage of the PCB creation process requires substantially different
capabilities and as a result most companies specialize in only one stage.
Consequently, OEMs and contract manufacturers typically use different suppliers
at each stage, which requires costly and time-consuming duplicative tooling and
pre-production engineering. Accordingly, many OEMs and contract manufacturers
are establishing strategic relationships with fewer suppliers such as the
Company that provide a full range of services.
THE PRAEGITZER APPROACH
The Company provides a full range of PCB and electronic interconnect
solutions that meet the growing technological demands of electronics OEMs and
contract manufacturers. The Company's One Stop Shopping-TM- strategy was
conceived to provide OEM customers with integrated PCB services, including
design services, quick-turnaround, prototyping, pre-production and volume
production. By integrating these processes the Company addresses its customers'
need to minimize time-to-market and time-to-manufacture at a lower cost of
manufacturing. The Company seeks to expand its supplier relationships with
electronics OEMs because these customers have the greatest incentive to fully
exploit the advantages provided by the Company's integrated design and
fabrication of complex PCBs. By working with high-end customers, the Company can
influence the design of customers' PCBs, optimize performance, minimize
production costs and shorten development and production time.
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PRAEGITZER'S ONE STOP SHOPPING-TM-
[CHART]
For fiscal 1998 and 1997, respectively, the Company derived 7% and 6% of its
revenue from design, 21% and 15% of its revenue from quick-turnaround, prototype
and pre-production, and 72% and 79% of its revenue from volume production of
PCBs.
STRATEGY
LEVERAGE ONE-STOP SHOPPING-TM- CAPABILITIES. In response to customer
requirements, in 1997 the Company implemented its One-Stop Shopping-TM-
strategy, which provides customers with integrated design to manufacturing
services. By offering this complete range of services, the Company can provide
integrated design and manufacturing solutions while reducing time-to-market,
time-to-volume and product development costs. The Company believes its strong
relationships with pre-production and volume production customers will assist
its continued expansion into the design and quick-turnaround markets.
ENHANCE AND MAINTAIN TECHNOLOGICAL LEADERSHIP POSITION. The Company's
significant capital investments in technology, facilities and equipment over the
past two years have positioned the Company among the leading designers and
manufacturers of PCBs in the U.S. As a result of these initiatives, the Company
is able to design and produce complex, high layer, high density PCBs rapidly and
efficiently. The Company intends to maintain its technological advantage in the
future.
INCREASE LONG-TERM RELATIONSHIPS WITH LEADING ELECTRONICS
MANUFACTURERS. The Company pursues long-term relationships with rapidly growing
OEMs, as well as their contract manufacturers, that are technology leaders in
their industry segments and whose product requirements generally drive the
advancement of electronic interconnect manufacturing technology. These
relationships enable the Company to work closely with its customers to
continually improve its products and develop new technologies and allow it to
remain a leader in the PCB industry.
EXPAND GEOGRAPHICALLY. The Company has design and manufacturing locations
throughout the United States as well as selected locations abroad. The Company's
strategic location of U.S. production facilities near OEMs allows the Company to
be close to its customer base, thereby facilitating communications and reducing
delivery times. Physical proximity to customers is particularly important for
design and quick-turnaround facilities. Accordingly, the Company seeks to locate
its production facilities in the U.S. strategically near OEMs.
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MARKETS
The Company concentrates on the broad electronics market, which is
characterized by high growth, rapid technological advances, short product
development cycles and accelerated time-to-market and time-to-volume
requirements. In response to this market's broadening requirements, the Company
implemented its One-Stop Shopping-TM- strategy and expanded its design,
quick-turnaround and production volume capabilities.
The Company's principal customers are electronics OEMs and contract
manufacturers in four vertical markets--(i) computers and peripherals, (ii) data
communications and telecommunications, (iii) instrumentation and industrial, and
(iv) business and consumer.
COMPUTERS AND PERIPHERALS. The computer and peripheral market accounted for
approximately $65.8 million, or 36%, of the Company's 1998 revenue. The most
significant component of growth in this market is unit sales of computers. Since
fiscal 1996, Company sales to this sector have increased at a compound annual
rate of 77%. Future drivers of growth in this area include (i) growth in the
personal computer (PC) market, (ii) emerging global markets and (iii) rapid
advancement of technology.
DATA COMMUNICATIONS AND TELECOMMUNICATIONS. The data communications and
telecommunications market accounted for approximately $56.7 million, or 31%, of
the Company's fiscal 1998 revenue. Products incorporating the Company's PCBs
include portable communication devices such as cellular telephones, microwave
relays, telecommunications and telephone switching equipment, and mobile radios.
Since fiscal 1996, Company sales to this sector have increased at a compound
annual rate of 34%. Future drivers of growth in this area include (i) heavy
demand expected for portable communication devices, (ii) infrastructure
build-out in the telecommunications industry, and (iii) rapid pace of new
product introductions.
INSTRUMENTATION AND INDUSTRIAL. The instrumentation and industrial market
accounted for approximately $45.7 million, or 25%, of the Company's 1998
revenue. Products incorporating the Company's circuit boards include machine and
process controls, sensors, test and measurement equipment and medical
instruments. Since fiscal 1996, Company sales to this sector have increased at a
compound annual rate of 17%. Future drivers of growth in this area include (i)
increasing capital expenditures by OEMs, (ii) improvements in technology, (iii)
increasing research and development budgets, and (iv) emerging global healthcare
markets.
BUSINESS AND CONSUMER. The business and consumer market accounted for
approximately $14.6 million, or 8%, of the Company's 1998 revenue. Products
incorporating the Company's circuit boards include copy machines, inventory
tracking systems and cash registers. Since fiscal 1996, Company sales to this
sector have increased at a compound annual rate of 24%. Future drivers of growth
in this area include (i) increasing demand for complex consumer electronics and
(ii) continued investment by companies in modern business systems.
MANUFACTURING AND ENGINEERING PROCESSES AND QUALITY ASSURANCE
The Company believes its substantial capital investment and manufacturing
expertise in a number of specialized areas have contributed to its position as a
leader in the production of complex, rigid multilayer PCBs. The Company's
One-Stop Shopping-TM- strategy, incorporating design, quick-turnaround and
prototyping, and volume production requires periodic upgrades of the Company's
capabilities and resources.
The Company believes that its design capabilities are facilitated by tools
focused on DFM and CAM systems. These systems take full advantage of the
Company's materials technologies, including the ability to use materials as thin
as .0015 inches, alternative surface finishes, electroless nickel/immersion
gold, selective gold plate and Entek-Registered Trademark- (an organic surface
protection). The Company also uses specialty
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materials such as GETEK-Registered Trademark-, OHMEGA-PLY-Registered Trademark-,
cyanate ester and polyimide for high temperature, fast signal speed and other
high-performance requirements.
The Company's substantial investment in six modern prototyping and volume
production facilities and state-of-the-art equipment permits high-yield
fabrication of complex PCBs. The Company can produce PCBs with more than 20
layers incorporating blind vias, buried vias, laser microvias and buried
resistors and capacitance. Most vias (holes drilled in the PCBs to facilitate
electronic interconnects) are made with computer-controlled drills, with
tolerances as small as .004 inches.
The performance of a PCB is highly sensitive to quality standards. In
recognition of the need for quality, the Company has obtained ISO 9002
certifications for five of its manufacturing facilities and is obtaining ISO
9002 certification for its Huntsville facility and ISO 9001 certification for
all of its design centers. Certain of the Company's manufacturing facilities
also are Bellcore compliant. The Company's fine-line circuitry is produced
within the Company's Class 10,000 clean room environment, and completed PCBs are
subject to rigorous automated optical inspection, dual-side simultaneous
testing, flying probe technology and a variety of customized test fixtures that
have been designed and produced by the Company.
CUSTOMERS
The following table sets forth in alphabetical order a selection of the
Company's customers who purchased at least $1 million of products sold by the
Company in fiscal 1998.*
<TABLE>
<CAPTION>
<S> <C>
DATA COMMUNICATIONS AND TELECOMMUNICATIONS
ADTRAN NEC
DSC Communications Verilink
Motorola Xylan
INSTRUMENTATION AND INDUSTRIAL
Hewlett-Packard PSC/Spectra-Physics
RadiSys Teradyne
COMPUTERS AND PERIPHERALS
Compaq Intel
Dell Silicon Graphics
EMC IBM
BUSINESS SYSTEMS AND CONSUMER ELECTRONICS
In Focus Systems Xerox
CONTRACT MANUFACTURERS
Benchmark Electronics SMT Centre
IEC Electronics Solectron
SCI Systems Victron
</TABLE>
- ------------------------
* The Company serves OEM customers directly as well as through contract
manufacturers and electronics distributors. Some sales indicated in the
Contract Manufacturers segment are also included under sales in the other
listed segments.
For fiscal 1998, the Company's ten largest customers accounted for
approximately 45% of the Company's revenue. During fiscal 1998 the Company
served more than 650 customers worldwide.
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SALES AND MARKETING
The Company's sales organization emphasizes the Company's One-Stop
Shopping-TM- solution. The Company has sales personnel located in Washington,
Oregon, California, Texas, Minnesota, Alabama, Florida, New Hampshire,
Massachusetts, Illinois, Pennsylvania, North Carolina, Canada, Japan, Malaysia,
Singapore and Israel, locations that are in close proximity to many of the
Company's existing and potential customers. The Company's sales organization
consists of a senior vice president of sales and marketing, a vice president of
customer service, four regional managers and 30 account executives. Each
division of the Company also has an experienced inside sales and customer
service organization to support its outside sales personnel and to promote
customer relationships.
The Company engages in a number of marketing activities to enhance awareness
of its broad range of products and services. In addition to paid advertisements
and promotional items, the marketing efforts include business and technical
editorials for industry publications, participation in trade shows and industry
conferences, customer newsletters and satisfaction surveys as well as scheduled
press releases.
MATERIALS AND SUPPLIES
The Company orders certain materials and supplies based on purchase orders
received and seeks to minimize its inventory of other materials that are not
identified for use in filling specific orders. Although the Company uses a
select group of suppliers, the materials necessary to manufacture PCBs are
generally available from multiple suppliers.
To enhance its relationships with suppliers, in 1991 the Company implemented
a "STAR Supplier" program to improve key supplier performance by measuring
product quality, on-time delivery, technological support, sales support and
other criteria. The Company believes it has realized significant benefits from
the program, including lower costs of materials.
The Company has established strategic relationships and stocking programs
with certain key vendors and negotiated price discounts based on the volume of
the Company's purchases. For example, certain laminate suppliers operate
warehouses near the Company and are beginning to work directly from the
Company's materials requirement projections to better meet the Company's needs.
The Company also uses suppliers' technical support and engineering capabilities.
For example, several proprietary chemistry and equipment vendors have provided
personnel to work full-time within the Company's facilities.
MANAGEMENT INFORMATION SYSTEMS
The Company uses its management information systems to shorten turnaround
times for customer orders, increase output, improve inventory management, and
reduce costs by allowing the Company to more efficiently manage and control the
PCB production process. The Company has developed information systems that
integrate key management data to facilitate operations under its One-Stop
Shopping-TM- strategy. The Company uses both internally developed and third
party software, with applications for manufacturing and shop floor control, DFM
analysis, quality assurance, CAD/CAM, human resources, and finance and
accounting.
In fiscal 1999, the Company anticipates completing Phase I of a rapid
multiphase rollout of the SAP R/3 enterprise resource planning software solution
("Phase I"). Costs associated with Phase I are estimated to be approximately
$3.5 million in fiscal 1999. Phase I will integrate the Company's financial and
accounting systems as well as provide manufacturing, sales order entry and
materials management for the Fremont facility and all the design centers. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
The Company anticipates utilizing the SAP R/3 system to shorten turnaround
times for customer orders, increase output, improve inventory management and
reduce costs by eliminating duplication of work and reducing errors in ordering
of parts. The fully installed system will consist of a material resources
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<PAGE>
planning module, a shop floor control module, an inventory control and parts
tracing module and a general accounting module.
COMPETITION
The PCB industry is highly fragmented and characterized by intense
competition, which the Company believes will increase. The Company's competitors
include large domestic manufacturers, offshore manufacturers located primarily
in Asia, small or regional domestic manufacturers and captive PCB operations of
larger OEMs. The principal competitors of the Company include Nanya (Taiwan),
Compeq (Taiwan and North America), Hadco (North America and Malaysia) and
Viasystems (North America and Europe).
The Company believes the primary competitive factors in the market for
complex, rigid multilayer printed circuit boards are product quality,
responsiveness to customers, on-time delivery, lead time, volume production
capabilities, advanced manufacturing technology, engineering skills and price.
The Company believes its primary competitive strengths stem from its One-Stop
Shopping-TM- strategy, including its ability to provide technologically advanced
manufacturing services, respond to customers reliably and effectively and
deliver finished products on a quick-turnaround through high volume basis while
maintaining superior product quality. See "Risk Factors--Competition."
BACKLOG
The Company's backlog at September 30, 1998 was approximately $29.8 million,
compared to a backlog of approximately $20.8 million at September 30, 1997. The
Company includes in its backlog all purchase orders scheduled for delivery
within the next 12 months, although the majority of the backlog typically is
scheduled for delivery within 60 days. There are no orders in the Company's
backlog that it does not reasonably expect to have filled by June 30, 1999. For
a variety of reasons, including timing of orders and shipments, delivery
intervals, customer and product mix and the possibility of customer changes in
delivery schedules, backlog as of any particular date may not be a reliable
measure of sales for any succeeding period. Cancellation charges generally vary
depending upon the time of cancellation and, therefore, the Company's backlog
may be subject to cancellation without significant penalty to the customer.
ENVIRONMENTAL MATTERS
The Company is subject to environmental laws relating to the storage, use
and disposal of chemicals, solid waste and other hazardous materials, as well as
air quality regulations. Water used in the manufacturing process must be treated
to remove metal particles and other contaminates before it can be discharged
into the municipal sanitary sewer system. The Company operates and maintains
effluent water treatment systems and uses approved laboratory testing procedures
at its manufacturing facilities. The Company operates these systems under
effluent discharge permits issued by a number of governmental authorities. These
permits must be renewed periodically and are subject to revocation in the event
of violations of environmental laws. See "Risk Factors--Environmental Matters."
The Company believes its activities and facilities are in compliance with
applicable environmental laws in all material respects. The Company eliminated
all ozone depleting compounds from its manufacturing processes in December 1993.
In 1993 the Company was also recognized by the United Nations as an
environmentally conscious manufacturer. In 1994 the Environmental Protection
Agency recognized the Company for its participation in the 33/50 Program, a
voluntary initiative aimed at reducing emissions and disposals of toxic
substances.
INSURANCE
The Company maintains insurance against property damage (including business
interruption) and against product liability claims in amounts that the Company
believes to be adequate. There is no
37
<PAGE>
assurance that such coverages will continue to be available in the amounts
desired or on terms acceptable to the Company, or that these coverages will be
adequate for losses or liabilities actually incurred. Any uninsured or
underinsured loss suffered by, or claim brought against, the Company, or any
claim or product recall that results in significant cost to or adverse publicity
against the Company, could have a material adverse effect on the Company.
EMPLOYEES
At September 30, 1998, the Company had approximately 2,200 employees. None
of the Company's employees is represented by a labor union, and the Company has
never experienced a work stoppage, slowdown or strike. The Company believes it
maintains good employee relations.
PROPERTIES
The Company's principal properties are as follows:
<TABLE>
<CAPTION>
OWNERSHIP SQUARE
LOCATION PURPOSE STATUS FEET
- ------------------------- --------------------------------- ---------- ---------
<S> <C> <C> <C>
Dallas, Oregon Volume production Owned 130,000
White City, Oregon Volume production Owned 105,000
Redmond, Washington Pre-production and prototype Leased 48,000
Fremont, California Quick-turnaround Leased 30,000
Huntsville, Alabama Pre-production and prototype Owned(1) 98,000
Melaka, Malaysia Volume production Leased 120,000
</TABLE>
- ------------------------
(1) The property is under a long-term lease pursuant to which the Company pays
nominal rent and has the right to acquire fee-simple ownership by payment of
nominal consideration.
The Dallas and White City manufacturing facilities specialize in medium to
high volume production of complex, rigid multilayer PCBs. The Fremont facility
specializes in quick-turnaround prototype production, and the Redmond and
Huntsville facilities specialize in prototype pre-production of complex, rigid
multilayer PCBs. The Malaysian facility specializes in medium to high volume
production of lower technology rigid PCBs. The Company also has 12 design
centers worldwide, 11 in the U.S. and one in Israel.
The Redmond facility is subject to two leases with total current monthly
lease costs of approximately $44,000. One lease expires in 2000 and the other
lease expires in 2002. Both leases contain an option to renew for an additional
five-year period. The Fremont facility is subject to a monthly lease cost of
approximately $30,000 which expires in 2002. The Melaka, Malaysia facility is
subject to a lease with a current monthly lease cost of approximately $24,000
(based on the Malaysian Ringgit exchange rate (as fixed by the Malaysian
government) on November 2, 1998). This lease expires in 2002, with an option to
renew for an additional three-year period.
38
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES
The following table sets forth, as of September 30, 1998, the directors,
executive officers and certain key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ----------------------------------------------------------------
<S> <C> <C>
Robert L. Praegitzer...................... 67 Chief Executive Officer and Chairman of the Board
Matthew J. Bergeron....................... 35 President, Chief Operating Officer and Director
William J. Thale.......................... 39 Corporate Vice President and Chief Financial Officer
Robert J. Versiackas...................... 49 Senior Vice President of Operations
James M. Buchanan......................... 51 Senior Vice President of Sales and Marketing
Gregory L. Lucas.......................... 53 Senior Vice President of Technology
Daniel J. Barnett......................... 48 Director
Theodore L. Stebbins...................... 57 Director
Merrill A. McPeak......................... 62 Director
Gordon B. Kuenster........................ 65 Director
</TABLE>
ROBERT L. PRAEGITZER founded the Company in 1981 and has been its Chief
Executive Officer and Chairman of the Board since that time and was the
President since that time until January 1998. He was also the founder and
President of Praegitzer Design, Inc. which merged into the Company in 1995, and
Praegitzer Property Group, the assets of which were acquired by the Company in
1996.
MATTHEW J. BERGERON joined the Company in 1990 as Chief Financial Officer.
He became Senior Vice President in 1993, a director in November 1995, the
Executive Vice President and Chief Operating Officer in April 1997 and President
and Chief Operating Officer in January 1998. Prior to joining the Company, Mr.
Bergeron was an accountant at Johnson & Shute P.S., a public accounting firm.
WILLIAM J. THALE joined the Company in 1990 and served as controller in both
the Assembled Products Division, an operation discontinued in 1994, and
Praegitzer Design, a division of the Company. Mr. Thale became Vice President
and Chief Financial Officer in April 1997. Mr. Thale is a certified public
accountant.
ROBERT J. VERSIACKAS joined Trend in 1990 as Vice President of Operations
and upon the merger of Trend into the Company in August 1996 was appointed Vice
President of Operations--Fremont Division. In February 1997 Mr. Versiackas
became Senior Vice President of Operations.
JAMES M. BUCHANAN joined the Company as Senior Vice President of Sales and
Marketing in April 1998. Prior to joining the Company, Mr. Buchanan served as
Vice President of Sales for Zycon Corporation from 1984 until January 1997, Vice
President of Sales for Hadco Corporation from January 1997 until August 1997 and
Senior Vice President of Sales for Continental Circuits from August 1997 until
April 1998.
GREGORY L. LUCAS joined the Company in June 1997 as Senior Vice President of
Technology. Prior to joining the Company, Mr. Lucas had been Vice President of
Technology for Zycon Corporation since 1991. Mr. Lucas holds several patents
primarily in the field of buried passive components.
DANIEL J. BARNETT joined the Company as a director in August 1996 in
connection with the merger of Trend into the Company. He served as Vice
President of Sales of the Company from August 1996 to May 1998. Prior to the
merger, Mr. Barnett had been the President of Trend since 1992.
39
<PAGE>
THEODORE L. STEBBINS is a Managing Director of Adams, Harkness & Hill, an
investment banking firm, and was appointed to the Board of Directors of the
Company in May 1996.
MERRILL A. MCPEAK joined the Company as a director in April 1997. He is a
retired general in the United States Air Force. General McPeak served as Chief
of Staff of the U.S. Air Force from October 1990 until October 1994. General
McPeak is the Chairman of the Board of ECC International. He also serves on the
boards of Tektronix Inc., Thrustmaster Incorporated, Trans World Airlines and
Western Power and Equipment.
GORDON B. KUENSTER is Chief Executive Officer of Seattle Sight Systems,
Incorporated, which he founded in 1996 and which manufactures
application-specific high resolution computer displays. Mr. Kuenster was founder
and Chief Executive Officer of Virtual Vision, Incorporated from 1991 to 1994
and Virtual Image Displays, Incorporated from 1994 to 1996. He was Chairman and
Chief Executive Officer of Advanced Technology Labs, Inc., Chief Executive
Officer of Neopath, Inc., Group Vice President and Member of the Board of
Directors of Squibb Pharmaceuticals, Inc., General Manager of Eldec Power Supply
Division, Vice President of Engineering for Pacific Electrodynamics and
Engineering Manager of Boeing Aerospace.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee comprised of Messrs. McPeak, Stebbins and
Kuenster. The Audit Committee will, among other things, make recommendations to
the Board of Directors with respect to the engagement of the Company's
independent certified public accountants and the review of the scope and effect
of the audit engagement. The Company has a Compensation Committee of its Board
of Directors, comprised of Messrs. Kuenster, McPeak and Stebbins. The
Compensation Committee will, among other things, make recommendations to the
Board of Directors with respect to the compensation of the executive officers of
the Company.
40
<PAGE>
EXECUTIVE COMPENSATION
The following table discloses the compensation awarded by the Company, for
the three fiscal years ended June 30, 1996, 1997 and 1998, to the Chief
Executive Officer and the four other most highly compensated executive officers
whose annual compensation exceeded $100,000 (together, the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------------------------------
LONG TERM
COMPENSATION
-------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION(1)
- --------------------------------------- --------- ---------- --------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Robert L. Praegitzer, 1998 $ 300,000 $ 0 0 $ 9,640
Chairman and Chief 1997 274,999 0 125,000 9,640
Executive Officer 1996 195,972 0 0 29,684
Matthew J. Bergeron, 1998 199,423 0 25,000 4,983
President and 1997 149,999 0 25,000 4,983
Chief Operating Officer 1996 134,084 15,000 50,000 0
Robert J. Versiackas, 1998 199,892 0 58,957 0
Senior Vice President of 1997 141,731 0 16,043 0
Operations 1996 -- -- -- --
Daniel J. Barnett (2), 1998 189,904 0 0 0
Senior Vice President of 1997 162,500 0 50,000 0
Sales 1996 -- -- -- --
Gregory L. Lucas 1998 181,442 0 25,000 0
Senior Vice President of 1997 7,115(3) 0 50,000 0
Technology 1996 -- -- -- --
</TABLE>
- ------------------------
(1) Consists of automobile allowances.
(2) Mr. Barnett terminated his employment with the Company on May 29, 1998. Mr.
Barnett continues to serve as a director of the Company.
(3) Mr. Lucas commenced employment with the Company on June 16, 1997.
41
<PAGE>
The following table discloses information concerning options granted in
fiscal 1998 to the Named Executives.
OPTION GRANTS IN FISCAL YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- ---------------------------------------------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF RATE OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED EXERCISE TERM($)(1)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED(#) FISCAL YEAR(%) ($/SH) DATE 5% 10%
- ------------------------------------ ----------- ----------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Praegitzer................ 0 -- -- -- -- --
Matthew J. Bergeron................. 25,000(2) 6.5 13.00 7/18/07 204,388 517,964
Robert J. Versiackas................ 33,957(2) 8.9 13.00 7/18/07 277,618 703,541
25,000(3) 6.5 9.38 4/01/08 147,396 373,532
Daniel J. Barnett(4)................ 0 -- -- -- -- --
Gregory L. Lucas.................... 25,000(3) 6.5 9.38 4/01/08 147,396 373,532
</TABLE>
- ------------------------
(1) The potential realizable value columns of the table illustrate values that
might be realized upon exercise of the options immediately prior to their
expiration, assuming the Company's Common Stock appreciates at the
compounded rates specified over the term of the options. These numbers do
not take into account provisions of options providing for termination of the
option following termination of employment or nontransferability of the
options and do not make any provision for taxes associated with exercise.
Because actual gains will depend upon, among other things, future
performance of the Common Stock, there can be no assurance that the amounts
reflected in this table will be achieved.
(2) These options became exercisable on July 18, 1998.
(3) These options become exercisable on April 1, 1999.
(4) Mr. Barnett terminated his employment with the Company on May 29, 1998. Mr.
Barnett continues to serve as a director of the Company.
The following table sets forth information concerning the number of options
owned by the Named Executives and the value of any in-the-money unexercised
options as of June 30, 1998. No options were exercised by the Named Executives
during fiscal 1998 and no options are in-the-money:
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
JUNE 30, 1998 JUNE 30, 1998(1)
-------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
Robert L. Praegitzer.................. 31,250 93,750 $ 0 $ 0
Matthew J. Bergeron................... 31,249 68,751 $ 0 $ 0
Robert J. Versiackas.................. 4,010 70,990 $ 0 $ 0
Daniel J. Barnett..................... 0 0 -- --
Gregory L. Lucas...................... 12,500 62,500 $ 0 $ 0
</TABLE>
- ------------------------
(1) Year-end values for unexercised in-the-money options represent the positive
spread between the exercise price of such options and the fiscal year-end
market value of the Common Stock. An option is "in-the-money" if the fiscal
year-end fair market value of the Common Stock exceeds the option exercise
price. The last sale price (the fair market value) of the Common Stock on
June 30, 1998 was $5.75 per share.
42
<PAGE>
EMPLOYMENT ARRANGEMENTS
In November 1995 the Company entered into an employment agreement with
Robert L. Praegitzer, providing an annual base salary of $250,000 with increases
over time, and eligibility for bonuses and other company benefits. Mr.
Praegitzer's employment agreement is of an indefinite duration.
In August 1996 the Company entered into an employment agreement with Robert
J. Versiackas providing for an annual base salary of $130,000 with eligibility
for bonuses and other Company benefits. If at the end of each quarter during the
first two years of this Agreement the total salary and bonus paid to Mr.
Versiackas is less than an annualized rate of $165,000, the Company is required
to pay Mr. Versiackas an amount equal to the difference. The agreement may be
terminated at any time by the Company for cause, or by Mr. Versiackas upon a
material breach by the Company. Upon termination, Mr. Versiackas is entitled to
all payments customary under Company policies. Upon termination by the Company
without cause, or termination by Mr. Versiackas for cause, Mr. Versiackas, is
also entitled to his base compensation for the lesser of (i) one year, and (ii)
the time remaining until the expiration of two years after the date of the
agreement. After an initial term ending August 26, 1998, the agreement with Mr.
Versiackas may be terminated by either party with or without cause upon 30 days
written notice (or, in the case of termination by the Company, with payment of
60 days of base compensation in lieu of 30 days notice).
Mr. Versiackas has also entered into an agreement with the Company
restricting his ability to compete with the Company until two years after
termination of his employment and prohibiting disclosure of confidential
information and solicitation of the Company's customers or employees.
In March 1998, the Company entered into an agreement with James M. Buchanan
providing for an annual base salary of $185,000 with eligibility for bonuses and
other Company benefits. The agreement provides that Mr. Buchanan's stock options
will become fully exercisable upon a change of control of the Company. In
addition, if Mr. Buchanan's employment is terminated other than for cause within
18 months of such a change of control, he will be entitled to receive his full
base salary, insurance coverage and car allowance for 18 months following
termination. If Mr. Buchanan is terminated other than for causes related to
criminal activity or ethical misconduct during his first 12 months of
employment, he will be entitled to receive his base salary for two years
following termination.
COMPENSATION OF DIRECTORS
Directors who are not officers of the Company are reimbursed for reasonable
out-of-pocket expenses incurred in attending meetings. In addition, each
individual who becomes a nonemployee director of the Company receives a
non-statutory option to purchase 10,000 shares of Common Stock when the
individual becomes a director, and each nonemployee director of the Company is
automatically granted an annual non-discretionary, non-statutory option to
purchase 5,000 shares of Common Stock upon re-election.
CERTAIN TRANSACTIONS
The Company leases its Dallas warehouse facility from Robert L. Praegitzer,
a director, officer, and principal shareholder in the Company, on a
month-to-month basis at a monthly rate of $7,930. Lease payments totaled $95,150
for the 12-month period ended September 30, 1998. The lease rates for the
warehouse facility were determined by Mr. Praegitzer, who was the sole
shareholder of the Company at the time of determination. The Board of Directors
of the Company unanimously concluded that these rates were comparable to rates
that could have been obtained from an independent party. The Company believes
that these payments reflect the fair market rental value of the warehouse.
In April 1996, the Company and Robert Praegitzer entered into a Tax
Indemnification Agreement with respect to the status of Company's, CTI's and
Praegitzer Design, Inc.'s ("PDI") as S corporations. Pursuant to that agreement,
the Company is obligated to indemnify Mr. Praegitzer for certain federal or
state income tax liability (including penalties and interest) he may incur or
any increased taxable income
43
<PAGE>
resulting from a final determination of any adjustment with respect to the
Company's, CTI's or PDI's income or deductions for certain periods prior to the
termination of the Company's S corporation status (the "Termination Date"). In
addition, the Company is obligated to indemnify Mr. Praegitzer for any federal
and state income taxes he must pay as a result of receiving the indemnification
payment. If there is a final determination that the Company, CTI or PDI was not
an S corporation for certain periods prior to the S corporation Termination
Date, Mr. Praegitzer is obligated to pay the Company any federal and state
income tax refund actually received by him as a result of that determination.
The agreement requires the shareholders, including Mr. Praegitzer, to file a
refund claim if requested to do so by the Company. In addition, in connection
with the CTI transaction, Mr. Praegitzer received certain rights with respect to
the registration of his shares of the Company's common stock under the
Securities Act.
In August 1996 the Company acquired Trend by means of a merger of Trend with
and into the Company (the "Merger"). In the Merger, each outstanding share of
Trend was converted into (i) 277.085 shares of Company's common stock and (ii)
the right to receive a cash payment of $1,385.43. On completion of the Merger,
the shareholders of Trend held a total of 1,000,000 shares of Praegitzer, or
approximately 8.5% of the outstanding Praegitzer Common Stock, and received a
total of $5,000,000 cash. Daniel J. Barnett, a director of the Company and the
former president of Trend and a former senior vice president of the Company, and
his spouse received 185,370 shares of the Company's common stock and a cash
payment of $926,853. Pursuant to a voting agreement between Mr. Praegitzer and
Mr. Barnett, Mr. Praegitzer has agreed to vote his shares to nominate and to
elect Mr. Barnett to the Board of Directors of the Company. The voting agreement
will expire on December 31, 1998. Robert Versiackas, now a senior vice president
of the Company, and his spouse received 160,432 shares of the Company's common
stock and a cash payment of $802,163.
44
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information at September 30, 1998, based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person known by the
Company to be the owner of more than 5% of the outstanding shares of Common
Stock, (ii) each director, (iii) each Named Executive and (iv) all executive
officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP OWNERSHIP(1) CLASS
- ------------------------------------------------------------ -------------- -----------
<S> <C> <C>
Robert L. Praegitzer ....................................... 8,181,875(2) 63.9%
1270 S.E. Monmouth Cut Off Road
Dallas, Oregon 97338
Matthew J. Bergeron......................................... 51,050(3) *
Daniel J. Barnett........................................... 142,370 1.1%
Robert J. Versiackas........................................ 176,942(4) 1.4%
Gregory L. Lucas............................................ 12,500(5) *
Theodore L. Stebbins........................................ 13,333(6) *
Merrill A. McPeak........................................... 8,666(7) *
Gordon B. Kuenster.......................................... 0(8) --
All directors and executive officers as a group
(11 persons)............................................. 8,622,951(9) 67.3%
</TABLE>
- ------------------------
* Less than 1%
(1) Shares that the person has the right to acquire within 60 days after
September 30, 1998 are deemed to be outstanding in calculating the
percentage ownership of the person or group but are not deemed to be
outstanding as to any other person or group.
(2) Includes options to purchase 62,500 shares of Common Stock that are
exercisable within 60 days after September 30, 1998 and excludes options to
purchase 62,500 shares of Common Stock not exercisable within 60 days after
September 30, 1998.
(3) Includes options to purchase 43,750 shares of Common Stock that are
exercisable within 60 days after September 30, 1998 and excludes options to
purchase 56,250 shares of Common Stock not exercisable within 60 days after
September 30, 1998.
(4) Includes options to purchase 16,510 shares of Common Stock that are
exercisable within 60 days after September 30, 1998 and excludes options to
purchase 58,490 shares of Common Stock not exercisable within 60 days after
September 30, 1998.
(5) Includes options to purchase 12,500 shares of Common Stock that are
exercisable within 60 days after September 30, 1998, and excludes options to
purchase 62,500 shares of Common Stock not exercisable within 60 days after
September 30, 1998.
(6) Includes options to purchase 13,333 shares of Common Stock that are
exercisable within 60 days after September 30, 1998, and excludes options to
purchase 6,667 shares of Common Stock not exercisable within 60 days after
September 30, 1998.
(7) Includes options to purchase 6,666 shares of Common Stock that are
exercisable within 60 days after September 30, 1998, and excludes options to
purchase 13,334 shares of Common Stock not exercisable within 60 days after
September 30, 1998.
(8) Excludes options to purchase 10,000 shares of Common Stock not exercisable
within 60 days after September 30, 1998.
(9) Includes options to purchase 175,509 shares of Common Stock that are
exercisable within 60 days after September 30, 1998. Excludes options to
purchase 429,491 shares of Common Stock not exercisable within 60 days after
September 30, 1998.
45
<PAGE>
DESCRIPTION OF NOTES
The Notes will be issued under an indenture to be dated as of December ,
1998 (the "Indenture") between the Company and U.S. Trust Company, N.A., as
trustee (the "Trustee"), a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The terms of the
Notes will include those stated in the Indenture and those made a part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"), as in effect on the date of the Indenture. The Notes will be subject to
all such terms, and holders of the Notes are referred to the Indenture and the
TIA for a statement of such terms. The following is a summary of important terms
of the Notes and does not purport to be complete. Reference should be made to
all provisions of the Indenture, including the definitions therein of certain
terms and all terms made a part of the Indenture by reference to the TIA.
Certain definitions of terms used in the following summary are set forth under
"--Certain Definitions" below. As used in this section, the "Company" means
Praegitzer Industries, Inc., but not any of its Subsidiaries, unless the context
requires otherwise.
GENERAL
The Notes will be general unsecured subordinated obligations of the Company,
will mature on December , 2008 (the "Maturity Date"), and will be limited to
an aggregate principal amount of $15,000,000 ($17,250,000 if the Underwriters'
over-allotment option is exercised in full). The Notes will be issued in
denominations of $50 and integral multiples of $50 in fully registered form. The
Notes are exchangeable and transfers thereof will be registrable without charge
therefor, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge in connection therewith.
The Notes will accrue interest at a rate of % per annum from December
, 1998, or from the most recent interest payment date to which interest has
been paid or duly provided for, and accrued and unpaid interest will be payable
semi-annually in arrears on January 15 and July 15 of each year, commencing July
15, 1999. Interest will be paid to the person in whose name a Note is registered
at the close of business on the January 1 or July 1 immediately preceding the
relevant interest payment date (other than with respect to a Note or portion
thereof called for redemption on a redemption date, or repurchased in connection
with a Designated Event on a repurchase date, during the period from a record
date to (but excluding) the next succeeding interest payment date (in which case
accrued interest shall be payable (unless such Note or portion thereof is
converted) to the holder of the Note or portion thereof redeemed or
repurchased)). Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable at
the office or agency of the Company maintained for such purpose or, at the
option of the Company, payment of interest may be made by check mailed to the
holders of the Notes at their respective addresses set forth in the register of
holders of Notes. Until otherwise designated by the Company, the Company's
office or agency maintained for such purpose will be the principal corporate
trust office of the Trustee.
The Indenture does not contain any financial covenants or restrictions on
the payment of dividends or the issuance or repurchase of securities of the
Company. The Indenture contains no covenants or other provisions to afford
protection to holders of the Notes in the event of a highly leveraged
transaction or a change in control of the Company except to the extent of the
right to require the Company to repurchase Notes upon a Designated Event (as
defined below). See "--Repurchase at Option of Holders upon a Designated Event."
CONVERSION
The holders of Notes will be entitled at any time on or before the close of
business on the last trading day prior to the Maturity Date of the Notes,
subject to prior redemption or repurchase, to convert any Notes or portions
thereof (in denominations of $50 or multiples thereof) into Common Stock of the
46
<PAGE>
Company, at the conversion price of $ per share of Common Stock, subject to
adjustment as described below (the "Conversion Price"). Except as described
below, no adjustment will be made on conversion of any Notes for interest
accrued thereon or for dividends on any Common Stock issued. If Notes not called
for redemption are converted after a record date for the payment of interest and
prior to the next succeeding interest payment date, such Notes must be
accompanied by funds equal to the interest payable on such succeeding interest
payment date on the principal amount so converted. The Company is not required
to issue fractional shares of Common Stock upon conversion of Notes and, in lieu
thereof, will pay a cash adjustment based upon the market price of the Common
Stock on the last trading day prior to the date of conversion. In the case of
Notes called for redemption, conversion rights will expire at the close of
business on the trading day preceding the date fixed for redemption, unless the
Company defaults in payment of the redemption price, in which case the
conversion right will terminate at the close of business on the date such
default is cured. In the event any holder exercises its right to require the
Company to repurchase Notes upon a Designated Event, such holder's conversion
right will terminate on the close of business on the Designated Event Offer
Termination Date (as defined) unless the Company defaults in the payment due
upon repurchase or the holder elects to withdraw the submission of election to
repurchase. See "--Repurchase at Option of Holders Upon a Designated Event."
The right of conversion attaching to any Note may be exercised by the holder
by delivering the Note at the specified office of a conversion agent,
accompanied by a duly signed and completed notice of conversion, together with
any funds that may be required as described in the preceding paragraph. Such
notice of conversion can be obtained from the Trustee. Beneficial owners of
interests in a Global Note (as defined) may exercise their right of conversion
by delivering to The Depository Trust Company ("DTC") the appropriate
instruction form for conversion pursuant to DTC's conversion program. The
conversion date shall be the date on which the Note, the duly signed and
completed notice of conversion, and any funds that may be required as described
in the preceding paragraph shall have been so delivered. A holder delivering a
Note for conversion will not be required to pay any taxes or duties payable in
respect of the issue or delivery of Common Stock on conversion, but will be
required to pay any tax or duty which may be payable in respect of any transfer
involved in the issue or delivery of the Common Stock in a name other than the
holder of the Note. Certificates representing shares of Common Stock will not be
issued or delivered unless all taxes and duties, if any, payable by the holder
have been paid.
The Conversion Price is subject to adjustment (under formulae set forth in
the Indenture) in certain events, including: (i) the issuance of Common Stock as
a dividend or distribution on Common Stock; (ii) certain subdivisions and
combinations of the Common Stock; (iii) the issuance to all or substantially all
holders of Common Stock of certain rights or warrants to purchase Common Stock;
(iv) the dividend or other distribution to all holders of Common Stock of shares
of capital stock of the Company (other than Common Stock) or evidences of
indebtedness of the Company or assets (including securities, but excluding those
rights, warrants, dividends and distributions referred to above or paid
exclusively in cash); (v) dividends or other distributions consisting
exclusively of cash (excluding any cash portion of distributions referred to in
clause (iv)) to all holders of Common Stock to the extent such distributions,
combined together with (A) all such all-cash distributions made within the
preceding 12 months in respect of which no adjustment has been made plus (B) any
cash and the fair market value of other consideration payable in respect of any
tender offers by the Company or any of its Subsidiaries for Common Stock
concluded within the preceding 12 months in respect of which no adjustment has
been made, exceeds 10% of the Company's market capitalization (being an amount
equal to the then current market price of the Common Stock multiplied by the
number of shares of Common Stock then outstanding) on the record date for such
distribution; (vi) the purchase of Common Stock pursuant to a tender offer made
by the Company or any of its subsidiaries to the extent that the aggregate
consideration, together with (A) any cash and the fair market value of any other
consideration payable in any other tender offer made by the Company or any of
its subsidiaries expiring within 12 months preceding such tender offer in
respect of which no adjustment has been made plus (B) the aggregate amount of
any such all-cash distributions referred to in clause (v) above to all holders
of Common Stock within the 12 months preceding the expiration of such tender
offer
47
<PAGE>
in respect of which no adjustments have been made, exceeds 10% of the Company's
market capitalization on the expiration of such tender offer; and (vii) the
issuance of Common Stock or securities convertible into, or exchangeable for,
Common Stock at a price per share (or having a conversion or exchange price per
share) that is less than the then Current Market Price (as defined) (but
excluding issuances (A) pursuant to any bona fide plan for the benefit of
employees, directors or consultants of the Company or any Subsidiary in effect
on the date of the Indenture or thereafter, (B) to acquire all or any portion of
a business in an arm's-length transaction between the Company and an
unaffiliated third party including, if applicable, issuances upon exercise of
options or warrants assumed in connection with such an acquisition, (C) in a
bona fide public offering pursuant to a firm commitment underwriting (or similar
type of offering made pursuant to Rule 144A and/or Regulation S under the
Securities Act) or sales at the market pursuant to a continuous offering stock
program, (D) pursuant to the exercise of warrants, rights (including, without
limitation, earnout rights) or options, or upon the conversion of convertible
securities, which are issued and outstanding on the date of the Indenture, or
which may be issued in the future at fair value and with an exercise price or
conversion price at least equal to the Current Market Price at the time of
issuance of such warrant, right, option or convertible security, and (E)
pursuant to a dividend reinvestment plan or other plan hereafter adopted for the
reinvestment of dividends or interest, provided that such Common Stock is issued
at a price at least equal to 95% of the Current Market Price at the time of such
issuance).
In the case of (i) any reclassification or change of the Common Stock or
(ii) a consolidation, merger or combination involving the Company or a sale or
conveyance to another corporation of the property and assets of the Company as
an entirety or substantially as an entirety, in each case as a result of which
holders of Common Stock shall be entitled to receive stock, other securities,
other property or assets (including cash) with respect to or in exchange for
such Common Stock, the holders of the Notes then outstanding will be entitled
thereafter to convert such Notes into the kind and amount of shares of stock,
other securities or other property or assets, which they would have owned or
been entitled to receive upon such reclassification, change, consolidation,
merger, combination, sale or conveyance had such Notes been converted into
Common Stock immediately prior to such reclassification, change, consolidation,
merger, combination, sale or conveyance (assuming, in a case in which the
Company's shareholders may exercise rights of election, that a holder of Notes
would not have exercised any rights of election as to the stock, other
securities or other property or assets receivable in connection therewith and
received per share the kind and amount received per share by a plurality of
non-electing shares). Certain of the foregoing events may also constitute or
result in a Designated Event requiring the Company to offer to repurchase the
Notes. See "--Repurchase at Option of Holders Upon a Designated Event."
In the event of a taxable distribution to holders of Common Stock (or other
transaction) that results in any adjustment of the Conversion Price, the holders
of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain other
circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain United States Federal
Income Tax Consequences."
The Company from time to time may, to the extent permitted by law, reduce
the Conversion Price of the Notes by any amount for any period of at least 20
days, in which case the Company shall give at least 15 days notice of such
decrease, if the Board of Directors has made a determination that such decrease
would be in the best interests of the Company, which determination shall be
conclusive. The Company may, at its option, make such reductions in the
Conversion Price, in addition to those set forth above, as the Board of
Directors deems advisable to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for income tax purposes. See
"Certain United States Federal Income Tax Consequences."
No adjustment in the Conversion Price will be required unless such
adjustment would require a change of at least 1% of the Conversion Price then in
effect; provided that any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the Conversion Price will not be adjusted for the
issuance of Common
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<PAGE>
Stock or any securities convertible into or exchangeable for Common Stock or
carrying the right to purchase any of the foregoing.
REDEMPTION
Subject to the limitations on redemption prior to December , 2001
(described below), the Notes may be redeemed at the option of the Company, in
whole or from time to time in part, on not less than 15 nor more than 30 days
prior written notice to the holders thereof by first class mail, at the
following redemption prices (expressed as percentages of principal amount) if
redeemed during the 12-month period beginning December of each year indicated,
plus accrued and unpaid interest to the date fixed for redemption:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- ---------------
<S> <C>
1999............................................................................. 110%
2000............................................................................. 108%
2001............................................................................. 106%
2002............................................................................. 105%
2003............................................................................. 103%
2004............................................................................. 101%
2005............................................................................. 100%
2006............................................................................. 100%
2007............................................................................. 100%
2008............................................................................. 100%
</TABLE>
Notwithstanding the foregoing, the Company may redeem the Notes prior to
December , 2001 only if (i) it redeems all of the Notes then outstanding, (ii)
after the date of this offering and prior to the redemption, there is completed
one or more registered public offerings of Common Stock of the Company pursuant
to which the aggregate price to the public of shares sold by the Company and/or
the selling shareholders participating in such offering(s) equals or exceeds $15
million, and (iii) the closing price of the Common Stock on the principal stock
exchange or market on which the Common Stock is then quoted or admitted to
trading equals or exceeds the following percentage of the then-effective
Conversion Price for at least 30 consecutive trading days ending on the fifth
trading day prior to the date the notice of redemption is first mailed to the
holders of the Notes:
<TABLE>
<CAPTION>
PERCENTAGE OF
REDEMPTION NOTICE DATE CONVERSION PRICE
- ----------------------------------------------------------------------------- -------------------
<S> <C>
Before December , 1999..................................................... 117%
On or after December , 1999 but before December , 2000................... 137%
On or after December , 2000 but before December , 2001................... 163%
</TABLE>
If less than all the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis by lot
or by any other method that the Trustee considers fair and appropriate. The
Trustee may select for redemption a portion of the principal of any Note that
has a denomination larger than $50. Notes and portions thereof will be redeemed
in the amount of $50 or integral multiples of $50. The Trustee will make the
selection from Notes outstanding and not previously called for redemption;
provided that if a portion of a holder's Notes are selected for partial
redemption and such holder converts a portion of such Notes, such converted
portion shall be deemed to be taken from the portion selected for redemption.
Provisions of the Indenture that apply to the Notes called for redemption
also apply to portions of the Notes called for redemption. If any Note is to be
redeemed in part, the notice of redemption will state the portion of the
principal amount to be redeemed. Upon surrender of a Note that is redeemed in
part only,
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<PAGE>
the Company will execute and the Trustee will authenticate and deliver to the
holder a new Note equal in principal amount to the unredeemed portion of the
Note surrendered.
On and after the redemption date, unless the Company shall default in the
payment of the redemption price, interest will cease to accrue on the principal
amount of the Notes or portions thereof called for redemption and for which
funds have been set apart for payment. In the case of Notes or portions thereof
redeemed on a redemption date which is also a regularly scheduled interest
payment date, the interest payment due on such date shall be paid to the person
in whose name the Note is registered at the close of business on the relevant
record date.
The Notes are not entitled to any sinking fund.
REPURCHASE AT OPTION OF HOLDERS UPON A DESIGNATED EVENT
Upon the occurrence of a Designated Event, each holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $50 or
an integral multiple thereof) of such holder's Notes pursuant to the offer
described below (the "Designated Event Offer") at an offer price in cash equal
to 100% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon to the date of purchase (the "Designated Event Payment").
Within 20 days following any Designated Event, the Company will mail a notice to
each holder describing the transaction or transactions that constitute the
Designated Event and offering to repurchase Notes pursuant to the procedures
required by the Indenture and described in such notice.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Designated Event. Rule 13e-4 under the
Exchange Act requires, among other things, the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to holders of
the Notes. The Company will comply with this rule to the extent applicable at
that time.
On the date specified for termination of the Designated Event Offer, the
Company will, to the extent lawful, (1) accept for payment all Notes or portions
thereof properly tendered pursuant to the Designated Event Offer, (2) deposit
with the paying agent an amount equal to the Designated Event Payment in respect
of all Notes or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. On the date specified for payment of the
Designated Event Payment (the "Designated Event Payment Date"), the paying agent
will mail to each holder of Notes so accepted the Designated Event Payment for
such Notes, and the Trustee will authenticate and mail (or cause to be
transferred by book entry) to each holder a new Note equal in principal amount
to any unpurchased portion of the Notes surrendered, if any; provided that each
such new Note will be in a principal amount of $50 or an integral multiple
thereof.
The foregoing provisions would not necessarily afford holders of the Notes
protection in the event of highly leveraged or other transactions involving the
Company that may adversely affect holders.
The right to require the Company to repurchase Notes as a result of a
Designated Event could have the effect of delaying, deferring or preventing a
Change of Control or other attempts to acquire control of the Company unless
arrangements have been made to enable the Company to repurchase all the Notes at
the Designated Event Payment Date. Consequently, this right may render more
difficult or discourage a merger, consolidation or tender offer (even if such
transaction is supported by the Company's Board of Directors or is favorable to
the shareholders), the assumption of control by a holder of a large block of the
Company's shares and the removal of incumbent management.
50
<PAGE>
Except as described above with respect to a Designated Event, the Indenture
does not contain provisions that permit the holders of the Notes to require that
the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring. Subject to the limitation on mergers
and consolidations described below, the Company, its management or its
Subsidiaries could in the future enter into certain transactions, including
refinancings, certain recapitalizations, acquisitions, the sale of all or
substantially all of its assets, the liquidation of the Company or similar
transactions, that would not constitute a Designated Event under the Indenture
but that would increase the amount of Senior Debt (or any other indebtedness)
outstanding at such time or substantially reduce or eliminate the Company's
assets.
The terms of the Company's existing or future credit or other agreements
relating to indebtedness (including Senior Debt) may prohibit the Company from
purchasing any Notes and may also provide that a Designated Event, as well as
certain other change-of-control events with respect to the Company, would
constitute an event of default thereunder. In the event a Designated Event
occurs at a time when the Company is prohibited from purchasing Notes, the
Company could seek the consent of its then-existing lenders to the purchase of
Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company would remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture, which may, in turn, constitute a further default
under the terms of other indebtedness that the Company has entered into or may
enter into from time to time. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the holders of
Notes.
A "Designated Event" will be deemed to have occurred upon a Change of
Control or a Termination of Trading.
A "Change of Control" will be deemed to have occurred when: (i) any person
has become an Acquiring Person, (ii) the Company consolidates with or merges
into any other corporation, or conveys, transfers, or leases all or
substantially all of its assets to any person, or any other corporation merges
into the Company, and, in the case of any such transaction, the outstanding
Common Stock of the Company is changed or exchanged as a result, unless the
shareholders of the Company immediately before such transaction own, directly or
indirectly immediately following such transaction, at least a majority of the
combined voting power of the outstanding voting securities of the corporation
resulting from such transaction in substantially the same proportion as their
ownership of the Voting Stock immediately before such transaction, or (iii) any
time the Continuing Directors do not constitute a majority of the Board of
Directors of the Company (or, if applicable, a successor corporation to the
Company).
The definition of Change of Control includes a phrase relating to the lease,
transfer or conveyance of "all or substantially all" of the assets of the
Company. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of Notes to require
the Company to repurchase such Notes as a result of a lease, transfer or
conveyance of less than all of the assets of the Company to another person or
group is uncertain.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
A "Termination of Trading" will be deemed to have occurred if the Common
Stock (or other common stock into which the Notes are then convertible) is
neither listed for trading on a United States national securities exchange nor
approved for trading on an established automated over-the-counter trading market
in the United States; PROVIDED, HOWEVER, that a "Termination of Trading" shall
not be deemed to occur on account of an involuntary de-listing of such
securities by any such exchange or over-the-counter trading
51
<PAGE>
market if either (A), within 45 days following such involuntary de-listing, such
securities are again listed or approved for trading on any such exchange or
over-the-counter trading market or (B) such securities are not eligible for
listing or trading on any such exchange or over-the-counter trading market.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may not, in a single transaction or
a series of related transactions, consolidate or merge with or into (whether or
not the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, another corporation, person or
entity as an entirety or substantially as an entirety unless either (a)(i) the
Company shall be the surviving or continuing corporation or (ii) the entity or
person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or person which acquires by sale, assignment,
transfer, lease, conveyance or other disposition the properties and assets of
the Company substantially as an entirety (x) is organized and validly existing
under the laws of the United States, any State thereof or the District of
Columbia and (y) assumes the due and punctual payment of the principal of, and
premium, if any, and interest on all the Notes and the performance of every
covenant of the Company under the Notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (b)
immediately after such transaction no Default or Event of Default exists; and
(c) the Company or such person shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that such transaction and
the supplemental indenture comply with the Indenture and that all conditions
precedent in the Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of the
Company, the capital stock of which constitutes all or substantially all of the
properties and assets of the Company, shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company.
Upon any such consolidation, merger, sale, assignment, conveyance, lease,
transfer or other disposition in accordance with the foregoing, the successor
person formed by such consolidation or into which the Company is merged or to
which such sale, assignment, conveyance, lease, transfer or other disposition is
made will succeed to, and be substituted for, and may exercise every right and
power of, the Company under the Indenture with the same effect as if such
successor had been named as the Company therein, and thereafter (except in the
case of a sale, assignment, transfer, lease, conveyance or other disposition)
the predecessor corporation will be relieved of all further obligations and
covenants under the Indenture and the Notes.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes will
be subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full in cash or other payment satisfactory to the Senior Debt of all
Senior Debt, whether outstanding on the date of the Indenture or thereafter
incurred. Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full in cash or other payment satisfactory to the holders of such
Senior Debt of all obligations in respect of such Senior Debt before the holders
of Notes will be entitled to receive any payment with respect to the Notes.
In the event of any acceleration of the Notes because of an Event of
Default, the holders of any Senior Debt then outstanding will be entitled to
payment in full in cash or other payment satisfactory to the holders of such
Senior Debt of all obligations in respect of such Senior Debt before the holders
of the
52
<PAGE>
Notes are entitled to receive any payment or distribution in respect thereof. If
payment of the Notes is accelerated because of an Event of Default, the Company
or the Trustee shall promptly notify the holders of Senior Debt or the
trustee(s) for such Senior Debt of the acceleration. The Company may not pay the
Notes until five business days after such holders or trustee(s) of Senior Debt
receive notice of such acceleration and, thereafter, may pay the Notes only if
the subordination provisions of the Indenture otherwise permit payment at that
time.
The Company also may not make any payment upon or in respect of the Notes if
(i) a default in the payment of the principal of, premium, if any, interest,
rent or other obligations in respect of Senior Debt occurs and is continuing
beyond any applicable period of grace or (ii) a default, other than a payment
default, occurs and is continuing with respect to Designated Senior Debt that
permits holders of the Designated Senior Debt as to which such default relates
to accelerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from the Company or other person permitted to give
such notice under the Indenture. Payments on the Notes may and shall be resumed
(a) in the case of a payment default, upon the date on which such default is
cured or waived or ceases to exist and (b) in case of a nonpayment default, the
earlier of the date on which such nonpayment default is cured or waived or
ceases to exist or 179 days after the date on which the applicable Payment
Blockage Notice is received if the maturity of the Senior Debt has not been
accelerated. No new period of payment blockage may be commenced unless and until
365 days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice.
By reason of the subordination provisions described above, in the event of
the Company's liquidation or insolvency, holders of Senior Debt may receive
more, ratably, and holders of the Notes may receive less, ratably, than the
other creditors of the Company. Such subordination will not prevent the
occurrences of any Event of Default under the Indenture.
The Notes are obligations exclusively of the Company. However, to the extent
the operations of the Company are conducted through one or more Subsidiaries,
the cash flow and the consequent ability of the Company to service its debt,
including the Notes, are dependent upon the earnings of such Subsidiaries and
the distribution of those earnings to, or upon loans or other payments of funds
by those Subsidiaries to, the Company. The payment of dividends and the making
of loans and advances to the Company by its Subsidiaries may be subject to
statutory or contractual restrictions, are dependent upon the earnings of those
Subsidiaries and are subject to various business considerations.
Any right of the Company to receive assets of any of its Subsidiaries upon
their liquidation or reorganization (and the consequent right of the holders of
the Notes to participate in those assets) will be effectively subordinated to
the claims of that Subsidiary's creditors (including trade creditors), except to
the extent that the Company is itself recognized as a creditor of such
Subsidiary, in which case the claims of the Company would still be subordinate
to any security interests in the assets of such Subsidiary and any indebtedness
of such Subsidiary senior to that held by the Company.
As of September 30, 1998, the Company had approximately $77.3 million of
outstanding indebtedness that would have constituted Senior Debt, and the
indebtedness and other liabilities of the Company's Subsidiaries (excluding
intercompany liabilities and obligations of a type not required to be reflected
on the balance sheet of such subsidiary in accordance with GAAP) that would
effectively have been senior to the Notes were approximately $3.9 million. After
giving effect to planned debt repayments by the Company prior to the Offering
and the application of the estimated net proceeds to the Company of this
offering, such amounts will be approximately $74.2 million and $3.9 million,
respectively. The Indenture will not limit the amount of additional
indebtedness, including Senior Debt, that the Company can create, incur, assume
or guarantee, nor will the Indenture limit the amount of indebtedness and other
liabilities that any Subsidiary can create, incur, assume or guarantee.
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<PAGE>
In the event that, notwithstanding the foregoing, the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind in contravention of any of the terms of the Indenture, whether in cash,
property or securities, including, without limitation, by way of set-off or
otherwise, in respect of the Notes before all Senior Debt is paid in full in
cash or other payment satisfactory to the holders of Senior Debt, then such
payment or distribution will be held by the recipient in trust for the benefit
of holders of Senior Debt, and will be immediately paid over or delivered to the
holders of Senior Debt or their representative or representatives to the extent
necessary to make payment in full in cash or other payment satisfactory to such
holders of all Senior Debt remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to or for the holders
of Senior Debt.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in the Indenture as being (i) default in
payment of the principal of, or premium, if any, on the Notes, whether or not
such payment is prohibited by the subordination provisions of the Indenture;
(ii) default for 30 days in payment of any installment of interest on the Notes,
whether or not such payment is prohibited by the subordination provisions of the
Indenture; (iii) default by the Company for 60 days after notice in the
observance or performance of any other covenants in the Indenture; (iv) default
in the payment of the Designated Event Payment in respect of the Notes on the
date therefor, whether or not such payment is prohibited by the subordination
provisions of the Indenture; (v) failure to provide timely notice of a
Designated Event; (vi) failure of the Company or any Material Subsidiary to make
any payment at maturity, including any applicable grace period, in respect of
indebtedness for borrowed money of, or guaranteed or assumed by, the Company or
any Material Subsidiary, which payment is in an amount in excess of $1,000,000,
and continuance of such failure for 30 days after notice; (vii) default by the
Company or any Material Subsidiary with respect to any such indebtedness, which
default results in the acceleration of any such indebtedness of an amount in
excess of $1,000,000 without such indebtedness having been paid or discharged or
such acceleration having been cured, waived, rescinded or annulled for 30 days
after notice; or (viii) certain events involving bankruptcy, insolvency or
reorganization of the Company or any Material Subsidiary.
If an Event of Default (other than an Event of Default specified in clause
(viii) above with respect to the Company) occurs and is continuing, then and in
every such case the Trustee, by written notice to the Company, or the holders of
not less than 25% in aggregate principal amount of the then outstanding Notes,
by written notice to the Company and the Trustee, may declare the unpaid
principal of, premium, if any, and accrued and unpaid interest on all the Notes
then outstanding to be due and payable. Upon such declaration, such principal
amount, premium, if any, and accrued and unpaid interest will become immediately
due and payable, notwithstanding anything contained in the Indenture or the
Notes to the contrary, but subject to the provisions limiting payment described
in "--Subordination." If any Event of Default specified in clause (viii) above
occurs with respect to the Company, all unpaid principal of, and premium, if
any, and accrued and unpaid interest on the Notes then outstanding will
automatically become due and payable, subject to the provisions described in
"--Subordination," without any declaration or other act on the part of the
Trustee or any holder of Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to the provisions of the Indenture relating
to the duties of the Trustee, the Trustee is under no obligation to exercise any
of its rights or powers under the Indenture at the request, order or direction
of any of the holders, unless such holders have offered to the Trustee a
security or an indemnity satisfactory to it against any cost, expense or
liability. Subject to all provisions of the Indenture and applicable law, the
holders of a majority in aggregate principal amount of the then outstanding
Notes have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. If a Default or Event of Default occurs and is
continuing and is known to the Trustee, the Indenture requires the Trustee to
mail a notice of Default or
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<PAGE>
Event of Default to each holder within 60 days of the occurrence of such Default
or Event of Default, provided, however, that the Trustee may withhold from the
holders notice of any continuing Default or Event of Default (except a Default
or Event of Default in the payment of principal of, premium, if any or interest
on the Notes) if it determines in good faith that withholding notice is in their
interest. The holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may rescind any acceleration of the
Notes and its consequences if all existing Events of Default (other than the
nonpayment of principal of, premium, if any, and interest on the Notes that has
become due solely by virtue of such acceleration) have been cured or waived and
if the rescission would not conflict with any judgment or decree of any court of
competent jurisdiction. No such rescission shall affect any subsequent Default
or Event of Default or impair any right consequent thereto.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to any
date on which the Company is prohibited from redeeming the Notes by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding the prohibition on redemption of the
Notes prior to such date, then the premium specified in the Indenture shall also
become immediately due and payable to the extent permitted by law upon the
acceleration of the Notes.
The holders of a majority in aggregate principal amount of the Notes then
outstanding may, on behalf of the holders of all the Notes, waive any past
Default or Event of Default under the Indenture and its consequences, except
Default in the payment of principal of, premium, if any, or interest on the
Notes (other than the non-payment of principal of, premium, if any, and interest
on the Notes that has become due solely by virtue of an acceleration that has
been duly rescinded as provided above) or in respect of a covenant or provision
of the Indenture that cannot be modified or amended without the consent of all
holders of Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
BOOK-ENTRY; DELIVERY AND FORM
The Notes will be issued in the form of one or more global notes (the
"Global Note") deposited with, or on behalf of, DTC and registered in the name
of Cede & Co. as DTC's nominee, or will remain in the custody of the Trustee
pursuant to a FAST Balance Certificate Agreement between DTC and the Trustee.
Owners of beneficial interests in the Notes represented by the Global Note will
hold such interests pursuant to the procedures and practices of DTC and must
exercise any rights in respect of their interests (including any right to
convert or require repurchase of their interests) in accordance with those
procedures and practices. Such beneficial owners will not be holders for
purposes of the Indenture, and will not be entitled to any rights under the
Global Note or the Indenture, with respect to the Global Note, and the Company
and the Trustee, and any of their respective agents, may treat DTC as the sole
holder and owner of the Global Note for all purposes under the Indenture.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC holds securities for its participants
and facilitates the clearance and settlement of securities transactions, such as
transfers and pledges, in deposited securities through electronic
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computerized book-entry changes in participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations. DTC is owned by a number of its
direct participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a direct participant, either directly or indirectly. The rules
applicable to DTC and its participants are on file with the Commission.
Unless and until they are exchanged in whole or in part for certificated
Notes in definitive form as set forth below, the Global Note may not be
transferred except as a whole by DTC to a nominee of DTC, or by a nominee of DTC
to DTC or another nominee of DTC.
The Notes represented by the Global Note will not be exchangeable for
certificated Notes, provided that if DTC is at any time unwilling, unable or
ineligible to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, the Company will issue individual Notes in
definitive form in exchange for the Global Note. In addition, the Company may at
any time in its sole discretion determine not to have a Global Note, and, in
such event, will issue individual Notes in definitive form in exchange for the
Global Note previously representing all such Notes. In either instance, an owner
of a beneficial interest in a Global Note will be entitled to physical delivery
of Notes in definitive form equal in principal amount to such beneficial
interest and to have such Notes registered in its name. Individual Notes so
issued in definitive form will be issued in denominations of $50 and any larger
amount that is an integral multiple of $50 and will be issued in registered form
only, without coupons.
The laws of some states require that certain persons take physical delivery
in definite form of securities that they own and that security interests in
negotiable instruments can only be perfected by delivery of certificates
representing the instruments. Consequently, the ability to transfer Notes
evidenced by the Global Note will be limited to such extent.
Payments of principal of and interest on the Notes will be made by the
Company through the Trustee to DTC or its nominee, as the case may be, as the
registered owner of the Global Note. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests of the Global Note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. The Company expects that DTC, upon receipt of
any payment of principal or interest in respect of the Global Note, will credit
the accounts of the related participants with payment in amounts proportionate
to their respective holdings in principal amount of beneficial interest in the
Global Note as shown on the records of DTC. The Company also expects that
payments by participants to owners of beneficial interests in the Global Note
will be covered by standing customer instructions and customary practices, as is
now the case with securities held for the accounts of customers in bearer form
or registered in "street name," and will be the responsibility of such
participants.
So long as the Notes are represented by a Global Note, DTC or its nominee
will be the only entity that can exercise a right to repayment pursuant to the
holder's option to elect repayment of its Notes or the right of conversion of
the Notes. Notice by participants or by owners of beneficial interests in a
Global Note held through such participants of the exercise of the option to
elect repayment, or the right of conversion, of beneficial interests in Notes
represented by the Global Note must be transmitted to DTC in accordance with its
procedures on a form required by DTC and provided to participants. In order to
ensure that DTC's nominee will timely exercise a right to repayment, or the
right of conversion, with respect to a particular Note, the beneficial owner of
such Notes must instruct the broker or other participant through which it holds
an interest in such Notes to notify DTC of its desire to exercise a right to
repayment, or the right of conversion. Different firms have different cut-off
times for accepting instructions from their customers and, accordingly, each
beneficial owner should consult the broker or other
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participant through which it holds an interest in a Note in order to ascertain
the cut-off time by which such an instruction must be given in order for timely
notice to be delivered to DTC. The Company will not be liable for any delay in
delivery of such notice to DTC.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable. The
Company will have no responsibility for the performance by DTC or its
participants of their respective obligations as described hereunder or under the
rules and procedures governing their respective operations.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any participant or indirect participant in DTC in identifying the beneficial
owners of the Notes, and the Company and the Trustee may conclusively rely on,
and shall be protected in relying on, instructions from DTC for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the Notes to be issued).
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder): (a) reduce the
principal amount of Notes whose holders must consent to an amendment, supplement
or waiver, (b) reduce the principal of or change the fixed maturity of any Note
or, other than as set forth in the next paragraph, alter the provisions with
respect to the redemption of the Notes, (c) reduce the rate of or change the
time for payment of interest on any Notes, (d) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (e) make any Note payable
in money other than that stated in the Indenture and the Notes, (f) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of holders of Notes to receive payments of principal of, premium,
if any, or interest on the Notes, (g) waive a redemption payment with respect to
any Note, (h) except as permitted by the Indenture, increase the Conversion
Price or, other than as set forth in the next paragraph, modify the provisions
of the Indenture relating to conversion of the Notes in a manner adverse to the
holders thereof or (i) make any change to the abilities of holders of Notes to
enforce their rights under the Indenture or the provisions of clause (a) through
(i) hereof. In addition, any amendment to the provisions of Article 11 of the
Indenture (which relate to subordination) will require the consent of the
holders of at least 75% in aggregate principal amount of the Notes then
outstanding if such amendment would adversely affect the rights of holders of
Notes.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to (a) cure any ambiguity, defect or inconsistency or make any other changes in
the provisions of the Indenture which the Company and the Trustee may deem
necessary or desirable, provided such amendment does not materially and
adversely affect the Notes, (b) provide for uncertificated Notes in addition to
or in place of certificated Notes, (c) provide for the assumption of the
Company's obligations to holders of Notes in the circumstances required under
the Indenture as described under "--Merger and Consolidation," (d) provide for
conversion rights of holders of Notes in certain events such as a consolidation,
merger or sale of all or substantially all of the assets of the Company, (e)
reduce the Conversion Price, (f) make any change that
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would provide any additional rights or benefits to the holders of Notes or that
does not adversely affect the legal rights under the Indenture of any such
holder, or (g) comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the TIA.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture while Notes
remain outstanding if (i) all outstanding Notes will become due and payable at
their scheduled maturity within one year or (ii) all outstanding Notes are
scheduled for redemption within one year, and, in either case, the Company has
(a) deposited with the Trustee an amount sufficient to pay and discharge all
outstanding Notes on the date of their scheduled maturity or the scheduled date
of redemption and (b) paid all other sums then payable by the Company under the
Indenture.
GOVERNING LAW
The Indenture will provide that the Notes will be governed by, and construed
in accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption or repurchase. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. In case an Event of Default shall occur (and shall not
be cured) and holders of the Notes have notified the Trustee, the Trustee will
be required to exercise its powers with the degree of care and skill of a
prudent person in the conduct of such person's own affairs. Subject to such
provisions, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request of any of the holders of Notes, unless
they shall have offered to the Trustee security and indemnity satisfactory to
it.
The Indenture and the TIA will contain certain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received in respect of
any such claim as security or otherwise. Subject to the TIA, the Trustee will be
permitted to engage in other transactions, provided, however, that if it
acquires any conflicting interest (as described in the TIA), it must eliminate
such conflict or resign.
CERTAIN DEFINITIONS
"Acquiring Person" means any person (as defined in Section 13(d)(3) of the
Exchange Act) who or which, together with all affiliates and associates (each as
defined in Rule 12b-2 under the Exchange Act), becomes the beneficial owner (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act and as further defined
below) of shares of Common Stock or other voting securities of the Company
having more than 50% of the total voting power of the Voting Stock of the
Company; provided, however, that an Acquiring Person shall not include (i) the
Company, (ii) any Subsidiary of the Company, (iii) any Permitted Holder, (iv) an
underwriter engaged in a firm commitment underwriting in connection with a
public offering of the
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Voting Stock of the Company or (v) any current or future employee or director
benefit plan of the Company or any Subsidiary of the Company or any entity
holding Common Stock of the Company for or pursuant to the terms of any such
plan. For purposes hereof, a person shall not be deemed to be the beneficial
owner of (A) any securities tendered pursuant to a tender or exchange offer made
by or on behalf of such person or any of such person's affiliates until such
tendered securities are accepted for purchase or exchange thereunder, or (B) any
securities if such beneficial ownership (1) arises solely as a result of a
revocable proxy delivered in response to a proxy or consent solicitation made
pursuant to the applicable rules and regulations under the Exchange Act, and (2)
is not also then reportable on Schedule 13D (or any successor schedule) under
the Exchange Act.
"Capital Stock" of any person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such person, but excluding any debt securities
convertible into such equity.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Debt" means any particular Senior Debt if the instrument
creating or evidencing the same or the assumption or guarantee thereof (or
related agreements or documents to which the Company is a party) expressly
provides that such Indebtedness shall be "Designated Senior Debt" for purposes
of the Indenture (provided that such instrument, agreement or other document may
place limitations and conditions on the right of such Senior Debt to exercise
the rights of Designated Senior Debt).
"Event of Default" has the meaning set forth under "--Events of Default and
Remedies" herein.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect from time to time.
"Indebtedness" means, with respect to any person, all obligations, whether
or not contingent, of such person (i) (a) for borrowed money (including, but not
limited to, any indebtedness secured by a security interest, mortgage or other
lien on the assets of the Company that is (1) given to secure all or part of the
purchase price of property subject thereto, whether given to the vendor of such
property or to another, or (2) existing on property at the time of acquisition
thereof), (b) evidenced by a note, debenture, bond or other written instrument,
(c) under a lease required to be capitalized on the balance sheet of the lessee
under GAAP or under any lease or related document (including a purchase
agreement) that provides that the Company is contractually obligated to purchase
or cause a third party to purchase and thereby guarantee a minimum residual
value of the lease property to the lessor and the obligations of the Company
under such lease or related document to purchase or to cause a third party to
purchase such leased property, (d) in respect of letters of credit, bank
guarantees or bankers' acceptances (including reimbursement obligations with
respect to any of the foregoing), (e) with respect to Indebtedness secured by a
mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or
resulting in an encumbrance to which the property or assets of such person are
subject, whether or not the obligation secured thereby shall have been assumed
by or shall otherwise be such person's legal liability, (f) in respect of the
balance of deferred and unpaid purchase price of any property or assets, (g)
under interest rate or currency swap agreements, cap, floor and collar
agreements, spot and forward contracts and similar agreements and arrangements;
(ii) with respect to any obligation of others of the type described in the
preceding clause (i) or under clause (iii) below assumed by or guaranteed in any
manner by such person or in effect guaranteed by such person through an
agreement to purchase (including, without limitation, "take or pay" and similar
arrangements), contingent or otherwise (and the obligations of such person under
any such assumptions,
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guarantees or other such arrangements); and (iii) any and all deferrals,
renewals, extensions, refinancings and refundings of, or amendments,
modifications or supplements to, any of the foregoing.
"Issue Date" means the date on which the Notes are first issued and
authenticated under the Indenture.
"Material Subsidiary" means any Subsidiary of the Company which at the date
of determination is a "significant subsidiary" as defined in Rule 1-02(w) of
Regulation S-X under the Securities Act and the Exchange Act.
"Maturity Date" means December , 2008.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Holders" means Robert L. Praegitzer and his estates, spouses,
ancestors and lineal descendants (and spouses thereof), the legal
representatives of any of the foregoing, and the trustee of any bona fide trust
of which one or more of the foregoing are the sole beneficiaries or the
grantors, or any person of which any of the foregoing, individually or
collectively, beneficially own (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) voting securities representing at least a majority of the total
voting power of all classes of Capital Stock of such person (exclusive of any
matters as to which class voting rights exist).
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization, limited liability company or
government or any agency or political subdivision thereof.
"Senior Debt" means the principal of, premium, if any, and interest on, rent
under, and any other amounts payable on or in or in respect of any Indebtedness
of the Company (including, without limitation, any Obligations in respect of
such Indebtedness and, in the case of Designated Senior Debt, any interest
accruing after the filing of a petition by or against the Company under any
bankruptcy law, whether or not allowed as a claim after such filing in any
proceeding under such bankruptcy law), whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed, guaranteed or in effect
guaranteed by the Company (including all deferrals, renewals, extensions or
refundings of, or amendments, modifications or supplements to the foregoing);
provided, however, that Senior Debt does not include (v) Indebtedness evidenced
by the Notes, (w) any liability for federal, state, local or other taxes owed or
owing by the Company, (x) Indebtedness of the Company to any Subsidiary of the
Company except to the extent such Indebtedness is of a type described in clause
(ii) of the definition of Indebtedness, (y) trade payables of the Company for
goods, services or materials purchased in the ordinary course of business (other
than, to the extent they may otherwise constitute such trade payables, any
obligations of the type described in clause (ii) of the definition of
Indebtedness), and (z) any particular Indebtedness in which the instrument
creating or evidencing the same expressly provides that such Indebtedness shall
not be senior in right of payment to, or is pari passu with, or is subordinated
or junior to, the Notes.
"Subsidiary" means, with respect to any person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of equity capital entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
person or one or more of the other Subsidiaries of that person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such person or a Subsidiary of such person or (b)
the only general partners of which are such person or of one or more
Subsidiaries of such person (or any combination thereof).
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock and 500,000 shares of Preferred Stock.
COMMON STOCK
As of September 30, 1998, 12,807,442 shares of Common were outstanding.
Holders of Common Stock are entitled to receive dividends as may from time to
time be declared by the Board of Directors of the Company out of funds legally
available therefor. See "Dividend Policy." Holders of Common Stock are entitled
to one vote per share on all matters on which the holders of Common Stock are
entitled to vote and do not have any cumulative voting rights. Holders of Common
Stock have no preemptive, conversion, redemption or sinking fund rights. In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share equally and ratably in the assets of the
Company, if any, remaining after the payment of all liabilities of the Company
and the liquidation preference of any outstanding class or series of Preferred
Stock. The outstanding shares of Common Stock are, and the shares of Common
Stock issued upon conversion of the Notes, if any, will be, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common Stock
are subject to any series of Preferred Stock that the Company may issue in the
future, as described below. The Company's Second Amended and Restated Articles
of Incorporation limit the personal liability of a director to the Company or
its shareholders for monetary damages for conduct as a director, except such
limitation does not apply to (i) any breach of the director's duty of loyalty to
the Company or its shareholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) any
unlawful distribution or (iv) any transaction from which the director derived an
improper personal benefit.
PREFERRED STOCK
The Board of Directors has the authority to issue Preferred Stock in one or
more series and to fix the number of shares constituting any such series and the
preferences, limitations and relative rights, including dividend rights,
dividend rate, voting rights, terms of redemption, redemption price or prices,
conversion rights and liquidation preferences of the shares constituting any
series, without any further vote or action by the shareholders of the Company.
The issuance of Preferred Stock by the Board of Directors could adversely affect
the rights of holders of Common Stock.
The potential issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company, may discourage bids for the
Common Stock at a premium over the market price of the Common Stock and may
adversely affect the market price of, and the voting and other rights of the
holders of, Common Stock. There are no shares of Preferred Stock outstanding.
REGISTRATION RIGHTS
Certain holders of Common Stock are entitled to certain rights with respect
to the registration of these shares under the Securities Act. Under the terms of
agreements between the Company and these holders, if the Company proposes to
register any of its securities under the Securities Act for its own account or
for the account of other security holders, the holders are entitled to notice of
such registration and to include in such registration any shares of Common Stock
they own, subject to cutback limitations that may be imposed by the underwriter
of any underwritten public offering of the Common Stock. No holder of Common
Stock with these registration rights will participate in this offering.
OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES
The Company is subject to the Oregon Control Share Act (the "Control Share
Act"). The Control Share Act generally provides that a person (the "Acquiror")
who acquires voting stock of an Oregon corporation in a transaction (other than
a transaction in which voting shares are acquired from the issuing
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public corporation) that results in the Acquiror holding more than 20%, 33 1/3%
or 50% of the total voting power of the corporation (a "Control Share
Acquisition") cannot vote the shares it acquires in the Control Share
Acquisition ("control shares") unless voting rights are accorded to the control
shares by (i) a majority of each voting group entitled to vote and (ii) the
holders of a majority of the outstanding voting shares, excluding the control
shares held by the Acquiror and shares held by the Company's officers and inside
directors. The term "Acquiror" is broadly defined to include persons acting as a
group.
The Acquiror may, but is not required to, submit to the Company a statement
setting forth certain information about the Acquiror and its plans with respect
to the Company. The statement may also request that the Company call a special
meeting of shareholders to determine whether voting rights will be accorded to
the control shares. If the Acquiror does not request a special meeting of
shareholders, the issue of voting rights of control shares will be considered at
the next annual or special meeting of shareholders. If the Acquiror's control
shares are accorded voting rights and represent a majority or more of all voting
power, shareholders who do not vote in favor of voting rights for the control
shares will have the right to receive the appraised "fair value" of their
shares, which may not be less than the highest price paid per share by the
Acquiror for the control shares.
The Company is also subject to certain provisions of the Oregon Business
Corporation Act that govern business combinations between corporations and
interested shareholders (the "Business Combination Act"). The Business
Combination Act generally provides that if a person or entity acquires 15% or
more of the outstanding voting stock of an Oregon corporation (an "Interested
Shareholder"), the corporation and the Interested Shareholder, or any affiliated
entity of the Interested Shareholder, may not engage in certain business
combination transactions for three years following the date the person became an
Interested Shareholder. Business combination transactions for this purpose
include (a) a merger or plan of share exchange, (b) any sale, lease, mortgage or
other disposition of 10% or more of the assets of the corporation and (c)
certain transactions that result in the issuance or transfer of capital stock of
the corporation to the Interested Shareholder. These restrictions do not apply
if (i) the Interested Shareholder, as a result of the transaction in which such
person became an Interested Shareholder, owns at least 85% of the outstanding
voting stock of the corporation (disregarding shares owned by directors who are
also officers and certain employee benefit plans), (ii) the board of directors
approves the business combination or the transaction that resulted in the
shareholder becoming an Interested Shareholder before the Interested Shareholder
acquires 15% or more of the corporation's voting stock or (iii) the board of
directors and the holders of at least two-thirds of the outstanding voting stock
of the corporation (disregarding shares owned by the Interested Shareholder)
approve the business combination after the Interested Shareholder acquires 15%
or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C., Ridgefield Park, New Jersey.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following statements represent a general summary of certain United
States federal income tax consequences attributable to the conversion option of
the Notes. Moreover, the discussion deals only with Notes that are held as
capital assets and not held as part of a hedging transaction or a "straddle,"
nor with special situations, such as those of dealers in securities, financial
institutions, life insurance companies, persons who mark-to-market their
securities, holders whose "functional currency" is not the U.S. dollar, holders
that own or are deemed to own 10 percent or more of the capital or profits
interest in the Company, or holders that are not "United States persons," as
defined in section 7701(a)(30) of the Internal Revenue Code of 1986, as amended
(the "Code"). In addition, the discussion does not describe any tax consequences
arising under the tax laws of any state, locality or foreign jurisdiction.
Furthermore, the discussion below is based upon the provisions of the Code and
regulations, rulings, and judicial
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decisions thereunder as of the date hereof, and these authorities may be
repealed, revoked or modified so as to result in federal income tax consequences
different from those discussed below. THE DISCUSSION BELOW DOES NOT COVER ALL
POSSIBLE TAX CONSEQUENCES OF PURCHASE, OWNERSHIP OR DISPOSITION OF THE NOTES,
AND IT IS NOT INTENDED AS TAX ADVICE. PROSPECTIVE INVESTORS SHOULD CONTACT THEIR
OWN TAX ADVISERS FOR SPECIFIC ADVICE RELATIVE TO THEIR PARTICULAR CIRCUMSTANCES.
A holder of a Note will not recognize any income, gain or loss upon
conversion of a Note into Common Stock except to the extent Common Stock is
received in lieu of accrued interest or to the extent cash is received in lieu
of fractional shares of Common Stock. Except to the extent Common Stock is
received in lieu of accrued interest, the adjusted basis of shares of Common
Stock received on conversion will equal the adjusted basis of the Notes
converted (reduced by the portion of adjusted basis allocated to any fractional
shares of Common Stock exchanged for cash), and the holding period of the Common
Stock received on conversion will include the period during which the converted
Notes were held by the holder. If any cash is received in lieu of fractional
shares, the holder will recognize gain or loss determined as if the holder had
received such fractional shares on conversion and immediately sold the shares
for cash.
The conversion price applicable to the Notes is subject to adjustments in
certain circumstances. Under section 305 of the Code and the regulations
promulgated thereunder, a holder of a Note may be treated as having received a
constructive distribution, resulting in ordinary income to the extent of the
Company's current and accumulated earnings and profits, if, and to the extent
that, certain adjustments in the conversion price (such as adjustments to
compensate for taxable distributions on shares of Common Stock) increase the
proportionate interest of a holder of a Note in the assets or in the earnings
and profits of the Company. As such, in certain circumstances that may occur, an
adjustment in the conversion price may be treated as a taxable distribution to
holders of the Notes, without regard to whether the holders receive any cash or
other property, and without regard to whether the holders ever exercise
conversion rights.
A holder of a Note or Common Stock may be subject to "backup withholding" at
a rate of 31% with respect to certain "reportable payments," including dividend
payments, interest payments, and, in certain circumstances, principal payments
on the Notes. These backup withholding rules apply only if the holder fails to
furnish a correct social security number or other taxpayer identification number
or otherwise fails to comply with applicable backup withholding rules and
certification requirements. Any amount withheld from a payment to a holder under
the backup withholding rules is creditable against the holder's federal income
tax liability if the required information is furnished to the Internal Revenue
Service. Backup withholding will not apply, however, with respect to payments
made to certain holders, generally including corporations and tax-exempt
organizations, if they properly establish their exemption from backup
withholding.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") among the Company and each of the underwriters
named below (the "Underwriters"), for whom Advest, Inc. and Black & Company,
Inc. are acting as representatives (the "Representatives"), the Company has
agreed to sell to each of the Underwriters and each of the Underwriters has
severally agreed to purchase from the Company the principal amount of the Notes
set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Advest, Inc. ...............................................................
Black & Company, Inc. ......................................................
----------------
Total................................................................... $ 15,000,000
----------------
----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the Notes listed above are subject to certain conditions set forth
therein. The Underwriters are committed to purchase all of the Notes agreed to
be purchased by the Underwriters pursuant to the Underwriting Agreement (other
than those covered by the over-allotment option described below), if any Notes
are purchased. In the event of default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, the purchase commitments of
the non-defaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.
The Representatives have advised the Company that the Underwriters propose
initially to offer such Notes to the public at the initial public offering price
thereof set forth on the cover page of this Prospectus, and to certain dealers
at such price less a concession not in excess of % of the principal amount
of such Notes. The relevant Underwriters may allow, and such dealers may
reallow, a discount not in excess of % of the principal amount of the Notes
on sales to certain other dealers. After the initial public offering of the
Notes, the public offering price and such concessions may be changed.
The Company has granted to the Underwriters an option to purchase up to an
additional $2,250,000 principal amount of the Notes at the applicable price to
the public less the applicable underwriting discount set forth on the cover page
of this Prospectus, solely to cover over-allotments, if any. Such option may be
exercised at any time up to 30 days after the date of this Prospectus. To the
extent such option is exercised, each of the Underwriters will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional principal amount of Notes as the percentage it was obligated to
purchase pursuant to the Underwriting Agreement.
The Company has agreed with the Underwriters not to offer, pledge, sell,
contract to sell, or otherwise dispose of (or enter into any transaction which
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise) by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company), directly or
indirectly, or announce the offering of, any other shares of Common Stock or any
securities or options convertible into, or exchangeable or exercisable for,
shares of Common Stock (other than the Notes) for a period of 180 days following
the date hereof without the prior written consent of Advest, Inc., subject to
certain limited exceptions. Advest, Inc. currently does not intend to release
any securities subject to such lock-up agreement, but may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to such lock-up agreement.
64
<PAGE>
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities under the Securities Act, or
contribute to payments the Underwriters may be required to make in respect
thereof.
In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock or
the Notes. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may bid
for or purchase Common Stock or Notes for the purpose of stabilizing their
market price. The Underwriters also may create a short position for the account
of the Underwriters by selling more Notes in connection with the offering than
they are committed to purchase from the Company, and in such case may purchase
Notes in the open market following completion of the offering to cover all or a
portion of such short position. The Underwriters may also cover all or a portion
of such short position, up to $2,250,000 principal amount of the Notes, by
exercising the Underwriters' over-allotment option referred to above. In
addition, the Representatives, on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby they
may reclaim from an Underwriter (or dealer participating in the offering), for
the account of the other Underwriters, the selling concession with respect to
Notes that are distributed in the offering but subsequently purchased for the
account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock and/or the Notes at a level above that which might otherwise
prevail in the open market. None of the transactions described in this paragraph
is required, and, if they are undertaken, they may be discontinued at any time.
The Underwriters do not intend to confirm sales in the offering to any
accounts over which they exercise discretionary authority.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Stoel Rives
LLP, Portland, Oregon. Certain legal matters relating to the offering will be
passed upon for the Underwriters by Irell & Manella LLP, Los Angeles,
California.
EXPERTS
The financial statements of Praegitzer Industries, Inc. included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and are included in reliance upon such
report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Praegitzer Asia Sdn. Bhd. included in this
Prospectus have been audited by Deloitte Touche Tohmatsu, independent auditors,
as stated in their report appearing herein, and are included in reliance upon
such report of such firm given upon their authority as experts in accounting and
auditing.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report of Deloitte & Touche LLP...................................................... F-1
Consolidated Balance Sheets at June 30, 1997 and 1998 and September 30, 1998 (unaudited)................... F-2
Consolidated Statements of Operations for the years ended June 30, 1996, 1997 and 1998 and for the three
months ended September 30, 1997 and 1998 (unaudited)..................................................... F-3
Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1997 and 1998 and for the three
months ended September 30, 1997 and 1998 (unaudited)..................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended June 30, 1996, 1997 and 1998 and for
the three months ended September 30, 1997 and 1998 (unaudited)........................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
Independent Auditors' Report of Deloitte Touche Tohmatsu................................................... F-22
Balance Sheet at June 30, 1998............................................................................. F-23
Statement of Operations for the year ended June 30, 1998................................................... F-24
Statement of Shareholders' Equity for the year ended June 30, 1998......................................... F-25
Statement of Cash Flows for the year ended June 30, 1998................................................... F-26
Notes to Financial Statements.............................................................................. F-27
Pro Forma Statement of Operations for the year ended June 30, 1998 (unaudited)............................. F-31
Notes to Pro Forma Combined Statements of Operations (unaudited)........................................... F-32
</TABLE>
66
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Praegitzer Industries, Inc.
We have audited the accompanying consolidated balance sheets of Praegitzer
Industries, Inc. and subsidiary as of June 30, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended June 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Praegitzer Industries, Inc. and
subsidiary as of June 30, 1998 and 1997, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1998,
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
September 4, 1998
F-1
<PAGE>
PRAEGITZER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1998 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
JUNE 30,
------------------------- SEPTEMBER 30,
1997 1998 1998
----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 441,950 $ 1,169,912 $ 305,357
Receivables, net of allowance for doubtful accounts of
$400,000 at June 30, 1997 and 1998 and September 30,
1998.................................................... 24,452,506 28,562,209 33,018,920
Inventories (Note 5)...................................... 8,534,428 16,491,325 16,559,509
Prepaid expenses.......................................... 454,304 2,438,844 6,818,620
Current deferred tax asset (Note 12)...................... 628,532 474,175 559,175
----------- ------------ -------------
Total current assets.................................... 34,511,720 49,136,465 57,261,581
PROPERTY, PLANT, AND EQUIPMENT, Net (Note 6)................ 40,036,399 88,825,496 87,691,929
RESTRICTED CASH............................................. 162,903 -- --
OTHER ASSETS (Note 7)....................................... 12,574,899 13,532,050 13,868,569
----------- ------------ -------------
TOTAL....................................................... $87,285,921 $151,494,011 $ 158,822,079
----------- ------------ -------------
----------- ------------ -------------
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Bank overdraft............................................ $ 2,041,554 $ 3,709,446 $ 2,325,712
Accounts payable.......................................... 8,504,485 13,929,852 18,102,679
Accrued payroll and related benefits...................... 2,878,913 3,955,300 5,180,875
Other current liabilities................................. 491,610 1,851,425 2,324,362
Current portion of long-term obligations (Notes 9 and
10)..................................................... 3,564,591 6,393,664 8,888,908
----------- ------------ -------------
Total current liabilities............................... 17,481,153 29,839,687 36,822,536
LONG-TERM OBLIGATIONS, Net of current portion (Notes 9 and
10)....................................................... 29,784,885 73,413,472 72,270,836
DEFERRED TAX LIABILITY (Note 12)............................ 2,306,426 4,197,481 4,702,481
DEFERRED GAIN............................................... 72,578 63,550 56,293
COMMITMENTS AND CONTINGENCIES (Note 10)..................... -- -- --
SHAREHOLDERS' EQUITY:
Preferred stock; 500,000 shares authorized, no shares
issued and outstanding.................................. -- -- --
Common stock, 50,000,000 shares authorized and 12,434,518
shares issued and outstanding at June 30, 1997,
12,750,214 at June 30, 1998 and 12,807,442 at September
30, 1998................................................ 41,232,502 42,324,553 42,652,929
Accumulated other comprehensive earnings.................. -- -- 68,310
Retained earnings (deficit)............................... (3,591,623) 1,655,268 2,248,694
----------- ------------ -------------
Total shareholders' equity.............................. 37,640,879 43,979,821 44,969,933
----------- ------------ -------------
TOTAL....................................................... $87,285,921 $151,494,011 $ 158,822,079
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
PRAEGITZER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996, 1997 AND 1998
AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------- -------------------------
1996 1997 1998 1997 1998
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE........................................... $ 95,101,170 $147,947,303 $182,773,158 $42,595,029 $55,395,921
COST OF GOODS SOLD................................ 72,941,213 122,012,818 148,487,031 34,563,248 46,201,902
------------ ------------ ------------ ----------- ------------
Gross profit.................................. 22,159,957 25,934,485 34,286,127 8,031,781 9,194,019
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE...... 8,895,548 19,188,455 23,456,329 5,803,280 7,011,516
IMPAIRMENT AND IN-PROCESS TECHNOLOGY EXPENSE
(Notes 4 and 8)................................. -- 11,650,000 -- -- --
------------ ------------ ------------ ----------- ------------
INCOME (LOSS) FROM OPERATIONS..................... 13,264,409 (4,903,970) 10,829,798 2,228,501 2,182,503
Interest expense.................................. 1,798,914 2,295,140 3,757,236 725,603 1,466,874
Other income, net................................. 301,642 568,412 224,125 97,811 207,797
------------ ------------ ------------ ----------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES.................................... 11,767,137 (6,630,698) 7,296,687 1,600,709 923,426
PROVISION FOR INCOME TAXES (Note 12).............. 1,445,000 1,669,809 2,214,938 493,754 330,000
------------ ------------ ------------ ----------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS.......... 10,322,137 (8,300,507) 5,081,749 1,106,955 593,426
DISCONTINUED OPERATIONS (Note 11)................. (612,000) -- -- -- --
------------ ------------ ------------ ----------- ------------
NET INCOME (LOSS)................................. $ 9,710,137 $ (8,300,507) $ 5,081,749 $ 1,106,955 $ 593,426
------------ ------------ ------------ ----------- ------------
------------ ------------ ------------ ----------- ------------
PRO FORMA NET INCOME DATA (Note 12) (Unaudited):
Income from continuing operations before income
taxes, as reported............................ $ 11,767,137
Pro forma provision for income taxes............ (4,472,000)
Discontinued operations, as reported............ (612,000)
Pro forma tax benefit of discontinued
operations.................................... 233,000
------------
Pro forma net income........................ $ 6,916,137
------------
------------
NET INCOME (LOSS) PER SHARE, BASIC AND DILUTED
(Note 3) (1996 Pro Forma unaudited) from:
Continuing operations........................... $ 0.80 $ (0.68) $ 0.40 $ 0.09 $ 0.05
Discontinued operations......................... (0.04) -- -- -- --
------------ ------------ ------------ ----------- ------------
NET INCOME (LOSS) PER SHARE, BASIC AND DILUTED.... $ 0.76 $ (0.68) $ 0.40 $ 0.09 $ 0.05
------------ ------------ ------------ ----------- ------------
------------ ------------ ------------ ----------- ------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PRAEGITZER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1997 AND 1998
AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------- -----------------------
1996 1997 1998 1997 1998
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ 9,710,137 $(8,300,507) $ 5,081,749 $1,106,955 $ 593,426
Minority interest loss.......................... -- -- -- -- (256,033)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................. 4,911,279 7,376,595 8,902,708 2,058,999 3,292,658
Loss (gain) on sale of fixed assets........... (111,730) (564,858) (53,445) 329,869 67,715
Deferred taxes................................ 502,000 474,325 2,045,421 47,170 420,000
Provision for doubtful accounts............... 292,354 135,000 -- -- --
Impairment and in-process technology
expense..................................... -- 11,650,000 -- -- --
Loss on discontinued operations............... 612,000 -- -- -- --
Changes in operating assets and liabilities:
Receivables................................. (3,361,233) (8,474,182) (3,186,023) 1,186,540 (4,456,710)
Inventory................................... (688,624) (1,366,761) (6,475,384) (1,076,918) (68,184)
Accounts payable............................ (2,684,743) 1,301,094 4,479,382 (1,664,817) 4,172,827
Income taxes payable........................ 943,000 (980,835) (1,892,929) 153,016 (102,769)
Accrued payroll and related benefits........ 288,645 345,317 1,074,422 132,153 1,225,575
Other current liabilities................... (1,336,809) 214,561 453,904 (51,016) 225,287
Other current assets........................ (132,935) (90,912) (77,262) 183,596 (533,262)
----------- ----------- ----------- ---------- -----------
Net cash provided by operating
activities.............................. 8,943,341 1,718,837 10,352,543 2,405,547 4,580,530
----------- ----------- ----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment..... (7,525,631) (24,760,670) (39,334,464) (4,352,399) (10,650,853)
Additions to other assets....................... -- (121,502) (746,927) (190,395) (153,012)
Proceeds from sale of property, plant, and
equipment..................................... 217,955 11,187,029 4,244,785 -- 4,968,900
Acquisitions, net of cash acquired.............. (2,000,000) (5,375,122) (19,170,255) -- --
Net reductions in amounts due from related
parties and shareholders...................... (2,594,714) -- -- -- --
Change in restricted cash....................... (2,331) 143,053 162,903 -- --
----------- ----------- ----------- ---------- -----------
Net cash used in investing activities..... (11,904,721) (18,927,212) (54,843,958) (4,542,794) (5,834,965)
----------- ----------- ----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net additions to (reductions in) short-term
borrowings.................................... (5,199,771) 11,463,066 25,063,359 751,181 2,488,983
Borrowing of long-term debt..................... 3,880,409 21,814,498 21,300,000 -- 263,158
Payments on long-term debt...................... (7,713,451) (16,386,981) (3,261,600) (764,074) (1,087,656)
Proceeds from initial public offering, net of
expenses...................................... 19,340,185 -- -- -- --
Issuances of common stock under employee stock
plans......................................... -- 307,964 1,091,051 254,910 328,376
Dividends paid.................................. (6,783,635) -- -- -- --
Payments on capital leases...................... (108,460) (636,884) (641,325) (202,124) (183,732)
Increase (decrease) in bank overdrafts.......... (438,270) 1,049,975 1,667,892 2,013,378 (1,383,734)
----------- ----------- ----------- ---------- -----------
Net cash provided by financing
activities.............................. 2,977,007 17,611,638 45,219,377 2,053,271 425,395
----------- ----------- ----------- ---------- -----------
Effect of foreign currency................ -- -- -- -- (35,515)
(CONTINUED)
</TABLE>
F-4
<PAGE>
PRAEGITZER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998
AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------- -----------------------
1996 1997 1998 1997 1998
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... $ 15,627 $ 403,263 $ 727,962 $ (83,976) $ (864,555)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.......................................... 23,060 38,687 441,950 441,950 1,169,912
----------- ----------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........ $ 38,687 $ 441,950 $ 1,169,912 $ 357,974 $ 305,357
----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ---------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
Cash paid during the period for interest........ $ 1,789,375 $ 1,915,515 $ 3,734,173 $ 762,845 $ 1,813,813
Cash paid during the period for income taxes,
net........................................... -- $ 2,165,392 $ 2,062,324 $ 294,861 $ 12,831
NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended June 30, 1996, the Company
used $526,720 of operating lease deposits
toward the purchase of equipment.
During the year ended June 30, 1996, the Company
distributed dividends of $468,087 to a
shareholder by reducing amount due from
shareholder.
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PRAEGITZER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1997, AND 1998
AND THREE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
--------------------------- RETAINED OTHER
NUMBER EARNINGS COMPREHENSIVE
OF SHARES AMOUNT (DEFICIT) INCOME TOTAL
------------ ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES, JUNE 30, 1995................ 8,086,875 $ 4,308,916 $ 1,389,703 -- $ 5,698,619
Stock issued in connection with
acquisitions......................... 700,000 7,143,714 -- -- 7,143,714
Initial public offering, net of
expenses............................. 2,275,000 19,340,185 -- -- 19,340,185
Dividends.............................. -- (468,087) (6,783,635) -- (7,251,722)
Net income June 30, 1996............... -- (392,679) 10,102,816 -- 9,710,137
------------ ------------- ------------ ------- -------------
BALANCES, JUNE 30, 1996................ 11,061,875 29,932,049 4,708,884 -- 34,640,933
Stock issued in connection with
acquisitions......................... 1,330,000 10,992,489 -- -- 10,992,489
Proceeds from exercise of Incentive
Stock Options........................ 12,000 114,000 -- -- 114,000
Proceeds from issuance under the
ESPP................................. 30,643 193,964 -- -- 193,964
Net loss June 30, 1997................. -- -- (8,300,507) -- (8,300,507)
------------ ------------- ------------ ------- -------------
BALANCES, JUNE 30, 1997................ 12,434,518 41,232,502 (3,591,623) -- 37,640,879
Stock issued in connection with
acquisitions......................... 200,000 1,000 165,142 -- 166,142
Proceeds from exercise of Incentive
Stock Options........................ 54,048 499,738 -- -- 499,738
Proceeds from issuance under the
ESPP................................. 61,648 591,313 -- -- 591,313
Net income June 30, 1998............... -- -- 5,081,749 -- 5,081,749
------------ ------------- ------------ ------- -------------
BALANCES, JUNE 30, 1998................ 12,750,214 42,324,553 1,655,268 -- 43,979,821
Proceeds from issuance under the ESPP
(unaudited).......................... 57,228 328,376 -- -- 328,376
Cummulative Effect of Currency
Adjustements (unaudited)............. -- 68,310 68,310
Net income September 30, 1998
(unaudited).......................... -- -- 593,426 -- 593,426
------------ ------------- ------------ ------- -------------
BALANCES, SEPTEMBER 30, 1998
(unaudited).......................... 12,807,442 $ 42,652,929 $ 2,248,694 $ 68,310 $ 44,969,933
------------ ------------- ------------ ------- -------------
------------ ------------- ------------ ------- -------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
PRAEGITZER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS--Praegitzer Industries, Inc. (the "Company" or
"Praegitzer") is incorporated under the laws of the State of Oregon, and its
principal business is the design, manufacture and sale of electronic circuit
boards.
PRINCIPLES OF CONSOLIDATION--The accompanying financial statements include
the accounts of the Company and its majority owned subsidiary, since its
acquisition on April 3, 1998. All significant intercompany transactions and
balances have been eliminated.
QUARTERLY FINANCIAL STATEMENTS--In the opinion of management, the
accompanying unaudited condensed consolidated financial statements of Praegitzer
Industries, Inc. contain all adjustments necessary to present fairly the
financial position of the Company as of September 30, 1998, and the results of
operations and cash flows for the three months ended September 30, 1997 and
1998. The results of operations for the three months ended September 30, 1998
are not necessarily indicative of the results expected for the entire fiscal
year ending June 30, 1999.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
REVENUE RECOGNITION--Revenue is recognized when goods are shipped to the
customer.
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Cash and Cash Equivalents includes all cash and short-term debt instruments,
purchased with an original maturity of three months or less.
CONCENTRATION OF CREDIT RISK--Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of trade
accounts receivable. The risk is limited due to the fact that the Company's
trade accounts receivable are derived from sales in various geographic areas to
numerous companies varying in size within the electronics industry.
Additionally, the Company performs ongoing credit evaluations of its customers'
financial condition and generally does not require collateral, such as letters
of credit or security agreements. Credit losses have consistently been within
management's expectations.
PROPERTY, PLANT, AND EQUIPMENT--Depreciation of property and equipment is
provided on the straight-line method based on the estimated useful lives of the
individual assets, primarily 3 to 10 years for equipment and 31 years for
buildings. The Company records the assets and the related obligations of capital
leases at amounts based upon the cash purchase price of the assets involved at
the beginning of the lease term. Depreciation and amortization expense also
includes amortization of equipment recorded under capital leases provided on the
basis of the estimated useful lives of the individual assets, primarily 5 years,
on the straight-line method.
LOAN FEES--Other assets include loan fees incurred by the Company. These
fees are being amortized over the terms of the loans.
F-7
<PAGE>
PRAEGITZER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL--The Company amortizes costs in excess of fair value of net assets
of businesses acquired using the straight-line method over a period of fifteen
years. Management reviews, on an ongoing basis, the continuing appropriateness
of the remaining amortizable life and the net realizable value of the
unamortized balance.
ASSET IMPAIRMENTS--Long-lived assets to be held and used by the Company are
reviewed for impairment when events and circumstances indicate costs may not be
recoverable. Losses are recognized when the book values exceed expected
undiscounted future cash flows. If impairment exists, the asset's book value is
written down to its estimated fair value. Assets to be disposed are written down
to their fair value, less sales costs. See Note 8 for a discussion of a charge
in 1997 related to impairment of goodwill.
DERIVATIVE FINANCIAL INSTRUMENTS--The Company has only limited involvement
with derivative financial instruments. See note 9 for a discussion of the
Company's derivative instruments as of June 30, 1998.
INCOME TAXES--The Company elected to be taxed under the S corporation
provisions of the Internal Revenue Code through the effective date of the
initial public offering by Praegitzer of common stock (the "Offering"). Under
those provisions, the Company did not pay federal or state corporate income
taxes on its taxable income. Instead, the shareholders were liable for federal
and state income taxes on the Company's taxable income.
Actual and pro forma income taxes have been provided for under Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
Under this method, deferred tax assets and liabilities are recognized based on
differences between financial statement and tax basis of assets and liabilities
using presently enacted tax rates.
S CORPORATION DIVIDENDS--Historically, the Company has paid dividends to its
shareholders in amounts which approximate the federal and state income taxes
that are due as a result of the Company electing to be taxed as an S corporation
as discussed above. In connection with the Offering, the Company distributed to
its former shareholders substantially all of the undistributed cumulative income
that had been taxed or was taxable to its former shareholders. This dividend was
paid from the proceeds of the Offering.
FUTURE ACCOUNTING PRONOUNCEMENTS--In June 1997, the Financial Accounting
Standards Board ("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. Adoption of this statement may result in additional
disclosures but will have no material impact on the Company's results of
operations or financial position.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The new statement will require recognition
of all derivatives as either assets or liabilities on the balance sheet at fair
value. The new statement becomes effective for the first quarter of fiscal year
ending June 30, 2000. Management has not completed an evaluation of the effects
this standard will have on the Company's financial position or results of
operations.
F-8
<PAGE>
PRAEGITZER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS--Certain amounts from the prior year's financial
statements have been reclassified to be consistent with the current year
presentation.
2. COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, Reporting Comprehensive Income, as of
the first quarter of fiscal year 1999. SFAS No. 130 establishes new rules for
the reporting of comprehensive income and its components, but has no impact on
the Company's net earnings or total shareholders' equity.
Comprehensive income and its components, net of tax, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------- --------------------
1996 1997 1998 1997 1998
---------- ----------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)................................. $9,710,137 $(8,300,507) $5,081,749 $1,106,955 $593,426
Other comprehensive income:
Currency translation adjustment................. 68,310
---------- ----------- ---------- ---------- --------
Total comprehensive income (loss)................. $9,710,137 $(8,300,507) $5,081,749 $1,106,955 $661,736
---------- ----------- ---------- ---------- --------
---------- ----------- ---------- ---------- --------
</TABLE>
3. EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, Earnings per Share, which
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, if the common equivalent shares were not anti-dilutive. The difference
between the basic and diluted weighted average shares is due to common stock
equivalent shares resulting from outstanding stock options and warrants. Net
income for the calculation of both basic and diluted EPS is the same for all
periods presented. The calculation of the weighted average outstanding shares is
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------- --------------------------
1996 1997 1998 1997 1998
---------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding-basic... 9,070,209 12,233,769 12,694,039 12,647,553 12,778,828
Common stock options and warrants........... 40,024 -- 151,757 283,148 17,695
---------- ------------ ------------ ------------ ------------
Weighted average shares outstanding-
diluted................................... 9,110,233 12,233,769 12,845,796 12,930,701 12,796,523
---------- ------------ ------------ ------------ ------------
</TABLE>
F-9
<PAGE>
PRAEGITZER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
4. ACQUISITIONS
Effective April 13, 1998, the Company acquired 51% of the outstanding
capital stock of Likom PCB Sdn Bhd ("Likom"), a printed circuit board
manufacturer located in Malaysia. The purchase price was up to 5.2 million
Ringgit, $1,432,000 based on the currency exchange rate on April 27, 1998, which
consisted of the transfer and contribution to Likom of third-party software
license rights, machinery and equipment currently owned or purchased by the
Company and cash.
The acquisition of Likom has been accounted for using the purchase method of
accounting. The operating results from the date of purchase have been
consolidated in the Company's financial statements. No goodwill was recognized
related to this acquisition.
On March 31, 1998, the Company acquired a printed circuit board fabrication
facility located in Huntsville, Alabama from Intergraph Corporation
("Intergraph"). The acquisition consisted of land, building, equipment and
inventory. The purchase price for the assets was $15.95 million, which was paid
in cash.
The acquisition was accounted for under the purchase method of accounting
and, accordingly, the operating results of Intergraph from the date of purchase
are included in the Company's financial statements. The estimated fair market
value of assets approximate the fair market value of the liabilities and,
accordingly, no goodwill was recognized.
On August 28, 1996, the Company acquired Trend Circuits, Inc. ("Trend"), a
circuit board manufacturing company. The acquisition was accomplished by a
merger of Trend with and into Praegitzer. The purchase price included $5,000,000
of cash and 1,000,000 shares of Praegitzer's common stock valued at $10.65 per
share.
The acquisition was accounted for under the purchase method of accounting
and, accordingly, the operating results of Trend from the date of purchase are
included in the Company's financial statements. The estimated fair market value
of assets and liabilities acquired was approximately $9,600,000 and $11,900,000,
respectively. The Company incurred a one-time charge of $8,000,000 related to a
portion of the purchase price allocated to in-process technology which was
expensed at the closing of the transaction. The remaining excess of the
aggregate purchase price over the fair market value of the net assets acquired
of $9,900,000 was recognized as goodwill and is being amortized over fifteen
years.
On November 15, 1995, Praegitzer acquired Circuit Technology, Inc. ("CTI"),
a circuit board manufacturing company. The acquisition was accomplished by a
merger of CTI with and into Praegitzer. The purchase price included $2,000,000
of cash and 700,000 shares of Praegitzer's common stock which was valued at
$10.21 per share.
The acquisition has been accounted for under the purchase method of
accounting and, accordingly, the operating results of CTI have been included in
the Company's combined financial statements since the date of acquisition. The
estimated fair market value of assets and liabilities acquired was approximately
$8,000,000 and $7,300,000, respectively. The excess of the aggregate purchase
price over the fair market value of net assets acquired of $8,400,000 was
recognized as goodwill and is being amortized over fifteen years. During the
year ended June 30, 1997 the Company recorded an impairment of goodwill related
to CTI of $3,650,000 (See Note 8). The remaining goodwill is being amortized
over the remaining life of 15 years.
F-10
<PAGE>
PRAEGITZER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
4. ACQUISITIONS (CONTINUED)
The following unaudited pro forma results of operations assume the
acquisitions occurred on July 1, 1996:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Revenue...................................................... $ 172,511,303 $ 197,332,158
Net income (loss)............................................ (2,761,507) 2,630,749
Net income (loss) per share.................................. (0.23) 0.21
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the Likom, Intergraph, CTI and
Trend acquisitions been consummated as of July 1, 1996 nor is it necessarily
indicative of future operating results.
In April 1996, Praegitzer acquired all the assets and the related
liabilities of Praegitzer Property Group ("PPG") for net consideration of
$12,120,000. Praegitzer issued 1,369,875 shares of its common stock to the sole
proprietor of PPG. As the entities are commonly controlled, the transaction was
accounted for in a manner similar to a pooling of interests which resulted in a
restatement of prior years financial statements.
In addition, the Company acquired several other companies during the last
three years, which were not significant to its financial position, results of
operations or cash flows. During the year ended June 30, 1998, one acquisition
was accounted for as a pooling of interests; however, prior period financial
statements were not restated because the retroactive effect was not material.
During the year ended June 30, 1997, two acquisitions were accounted for as
pooling of interests; however, prior period financial statements were not
restated because the retroactive effect was not material. All other acquisitions
were accounted for using the purchase method. Under the purchase method, the
results of operations of acquired companies are included prospectively from the
date of acquisition, and the acquisition cost is allocated to the acquirees'
assets and liabilities based upon their fair market values at the date of the
acquisition. To accomplish the mergers a total of 330,000 and 200,000 shares
were issued during the years ended June 30, 1997 and 1998, respectively.
At June 30, 1997 and 1998 and September 30, 1998 (unaudited), the net book
value of goodwill associated with acquisitions was $12,414,228, $11,486,072 and
$11,264,144, respectively, and is being amortized on a straight-line basis over
15 years.
F-11
<PAGE>
PRAEGITZER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------- SEPTEMBER 30,
1997 1998 1998
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and supplies...................... $ 3,117,427 $ 6,430,638 $ 6,378,513
Work-in-process................................. 5,417,001 10,060,687 10,180,996
------------- ------------- -------------
Total inventories............................. $ 8, 534,428 $ 16,491,325 $ 16,559,509
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
USEFUL JUNE 30, SEPTEMBER
LIFE ------------------------ 30,
(YEARS) 1997 1998 1998
--------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land...................................... -- $ 3,302,576 $ 1,468,212 $ 1,870,008
Buildings and leasehold improvements...... 10 to 31 14,453,908 21,899,123 24,702,024
Equipment................................. 3 to 10 42,770,430 83,949,892 84,372,221
Office furniture and fixtures............. 5 to 7 660,388 1,086,121 1,281,859
Projects in process....................... -- 1,669,207 10,670,668 13,505,575
Deposits on equipment..................... -- 2,962,150 5,726,843 851,087
----------- ----------- -----------
65,818,659 124,800,859 126,582,774
Accumulated depreciation and
amortization............................ (25,782,260) (35,975,363) (38,890,845)
----------- ----------- -----------
Property, plant and equipment......... $40,036,399 $88,825,496 $87,691,929
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
At June 30, 1997 and 1998 and September 30, 1998 (unaudited), the Company
had equipment of $3,678,970, $2,535,381 and $2,535,381, respectively, financed
with capital leases. The total accumulated amortization at June 30, 1997 and
1998 and September 30, 1998 (unaudited) was $617,499, $946,712 and $1,113,624,
respectively.
7. OTHER ASSETS
<TABLE>
<CAPTION>
JUNE 30,
---------------------------- SEPTEMBER 30,
1997 1998 1998
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill........................................ $ 12,414,228 $ 11,486,072 $ 11,264,144
Other........................................... 160,671 2,045,978 2,604,425
------------- ------------- -------------
Total other assets.......................... $ 12,574,899 $ 13,532,050 $ 13,868,569
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-12
<PAGE>
PRAEGITZER INDUSTRIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
7. OTHER ASSETS (CONTINUED)
Other assets are presented net of related accumulated amortization of
$2,296,946, $3,302,606 and $3,574,523, at June 30, 1997 and 1998 and September
30, 1998 (unaudited), respectively.
8. IMPAIRMENT OF GOODWILL
During the year ended June 30, 1997 the Company recorded an impairment of
$3,650,000 of certain goodwill associated with the CTI acquisition. The
impairment was due to the inability of the CTI operation (now Redmond Division),
which was purchased to serve as the Company's quick-turn operation, to move its
product mix from 75% production 25% quick-turnaround. Further, it was
anticipated that turning Redmond's operation into a quick-turnaround operation
would be very costly in both time and cash flow. Recognizing the problem, the
Company acquired Trend (now Fremont Division), an operation that is 80% to 90%
quick-turnaround. The Company plans to utilize the Fremont Division for the
majority of its quick-turnaround requirements. This resulted in an impairment of
goodwill related to the CTI acquisition.
In determining the amount of the impairment charge, the Company developed
estimates of operating cash flows over the remaining business life cycle. Future
cash flows, excluding interest charges, were discounted using an estimated 8%
incremental borrowing rate.
9. LONG-TERM NOTES PAYABLE
<TABLE>
<CAPTION>
JUNE 30,
---------------------------- SEPTEMBER 30,
1997 1998 1998
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Line of credit of $40,000,000 payable to Key Bank, 8.5% at June 30,
1998, collateralized by inventory and accounts receivable, expires
March 31, 2000.................................................... $ 12,447,658 $ 37,511,017 $ 40,000,000
Note payable to Heller Financial, Inc., 9.9375% at June 30, 1998
payable in monthly installments of $180,952 beginning February 1,
1999 plus accrued interest at LIBOR plus 4.25% collaterialized by
real property and equipment at the Huntsville, Alabama facility,
$6.1 million due April 1, 2003.................................... -- 15,200,000 15,200,000
Note payable to Heller Financial, Inc., 8.4375% at June 30, 1998
payable in monthly installments of $111,111 plus accrued interest
at LIBOR plus 2.75%, collaterialized by real property and
equipment at the Dallas, Oregon facility due November 1, 2004..... 10,000,000 8,666,667 8,333,333
Notes payable to Heller Financial, Inc., 7.8% to 7.9%, due in
monthly installments of $94,697 including interest, collateralized
by machinery and equipment due January 1, 2005 and April 1,
2005.............................................................. -- 5,864,824 5,695,081
</TABLE>
F-13
<PAGE>
PRAEGITZER INDUSTRIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
9. LONG-TERM NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30,
---------------------------- SEPTEMBER 30,
1997 1998 1998
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to Heller Financial, Inc., 8.2375% at June 30, 1998
payable in monthly installments of $55,555 plus accrued interest
at LIBOR plus 2.55%, collateralized by real property and equipment
at the White City, Oregon facility, due February 1, 2004.......... 4,500,000 3,833,333 3,666,667
Note payable to Finova Capital Corporation, 9.93%, payable in 35
monthly installments plus accrued interest, through August 1,
1999, $2.2 million due September 1, 1999.......................... 3,995,278 3,251,862 3,037,140
Shareholder loan payable to Rubitasi Holding Company, 0%, at June
30, 1998 payable in 36 monthly installments plus accrued interest
at the Maybank rate, interest begins to accrue on November 12,
1998 at which time the first payment is due....................... -- 1,763,224 1,842,105
Other notes payable, 0% to 10% at June 30, 1998..................... 305,779 977,004 1,250,243
------------- ------------- -------------
Subtotal........................................................ 31,248,715 77,067,931 79,024,569
Current portion..................................................... (2,917,466) (4,874,852) (7,577,865)
------------- ------------- -------------
Total long-term notes payable................................... $ 28,331,249 $ 72,193,079 $ 71,446,704
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
To reduce the risk of fluctuations in interest rates the Company entered
into an interest rate swap agreement with Key Bank during the year ended June
30, 1997. The swap has a notional amount of $5 million and effectively changes
the Company's interest rate exposure on the Key Bank lease line from a variable
rate to a 6.10% fixed rate. This agreement matures in 2003.
The Company's loan agreements with Heller Financial, Inc. and Key Bank
contain covenants pertaining to maintenance of tangible net worth and
maintenance of certain financial ratios, including an asset to liabilities ratio
of 1.1 to 1, an earnings before interest, taxes, depreciation, amortization
("EBITDA") plus rents to interest expense plus rents of 2.5 to 1, and an EBITDA
to borrowed funds ratio of 3.5 to 1. At June 30, 1998 the Company was in
violation of a covenant relating ot the ratio of EBITDA to borrowed funds. The
Company obtained a waiver from the lender and was in compliance with all other
covenants at June 30, 1995. At September 30, 1998 the Company was in compliance
with all debt covenants.
F-14
<PAGE>
PRAEGITZER INDUSTRIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
9. LONG-TERM NOTES PAYABLE (CONTINUED)
Maturities on the notes payable as of June 30, 1998 were as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- -------------------------------------------------------------------------------
<S> <C>
1999........................................................................... $ 4,874,852
2000........................................................................... 45,454,708
2001........................................................................... 5,589,016
2002........................................................................... 5,254,857
2003........................................................................... 10,738,420
Thereafter..................................................................... 5,156,078
-------------
Total...................................................................... $ 77,067,931
-------------
-------------
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
CAPITAL LEASES
The Company has acquired certain equipment under capital lease obligations
bearing interest rates ranging from 9.25% to 13.69% and monthly installments
totaling $68,136 including interest at June 30, 1997 and interest rates ranging
from 9.25% to 31.03% and monthly installments totaling $143,591 including
interest at June 30, 1998 and September 30, 1998 (unaudited).
OPERATING LEASES
Praegitzer leases buildings and equipment under operating lease agreements
that expire at various times through 2004.
The following table is a schedule of future minimum principal payments under
capital leases and future minimum rentals under operating lease agreements at
June 30, 1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING JUNE 30, LEASES LEASES
- ----------------------------------------------------------------- ------------ -------------
<S> <C> <C>
1999............................................................. $ 1,518,812 $ 4,656,795
2000............................................................. 1,051,225 3,248,599
2001............................................................. 148,807 2,505,892
2002............................................................. 15,282 2,405,742
2003............................................................. 5,079 1,304,314
Thereafter....................................................... -- 450,765
------------ -------------
Total........................................................ $ 2,739,205 $ 14,572,107
------------ -------------
------------ -------------
</TABLE>
Several of Praegitzer's operating leases contain renewal options. Rent
expense relating to the building and equipment leases totaled $796,642,
$3,834,948, and $5,781,332, for the years ended June 30, 1996, 1997, and 1998
respectively; and $1,552,606 and $1,772,410 for the three months ended September
30, 1997 and 1998 (unaudited), respectively.
F-15
<PAGE>
PRAEGITZER INDUSTRIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is involved as a defendant in litigation in the ordinary course
of business, the outcome of which can not be predicted with certainty.
Management believes that any ultimate liability with respect to such litigation
will not materially affect the financial position, results of operations or cash
flows of the Company.
11. DISCONTINUED OPERATIONS
On July 1, 1993, the Company adopted a formal plan to sell its assembly
contract manufacturing division. On April 25, 1994, the sale of substantially
all of the assets of the assembly division was completed. During 1996, the
Company paid $612,000 in settlement of a prior contingency related to the
assembly division. This amount was recorded as a loss from discontinued
operations during the year ended June 30, 1996.
12. INCOME TAXES
The following information reflects income taxes on the Company's earnings
from April 4, 1996 the date of the closing of the Company's initial offering of
common stock to the public, to June 30, 1996 and the years ended June 30, 1997
and 1998 and for the three months ended September 30, 1997 and 1998. The Company
terminated its S corporation election on April 4, 1996 and is now taxed as a C
corporation. The following information also includes unaudited pro forma
information as if the Company's earnings from continuing operations had been
subject to federal and state income taxes as a C corporation for all periods
presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PRO FORMA YEAR PERIOD APRIL 4, YEAR ENDED JUNE 30, SEPTEMBER 30,
ENDED 1996- -------------------- --------------------
JUNE 30, 1996 JUNE 30, 1996 1997 1998 1997 1998
----------------- --------------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal............. $ 4,278,000 $ 891,000 $1,126,752 $ 475,382 $ 435,444 $ 35,000
State............... 742,000 52,000 68,732 (305,865) 11,140 (125,000)
----------------- --------------- --------- --------- --------- ---------
5,020,000 943,000 1,195,484 169,517 446,584 (90,000)
Deferred:
Federal............. (595,000) 466,000 425,676 1,976,712 30,660 340,000
State............... 47,000 36,000 48,649 68,709 16,510 80,000
----------------- --------------- --------- --------- --------- ---------
(548,000) 502,000 474,325 2,045,421 47,170 420,000
----------------- --------------- --------- --------- --------- ---------
$ 4,472,000 $ 1,445,000 $1,669,809 $2,214,938 $ 493,754 $ 330,000
----------------- --------------- --------- --------- --------- ---------
----------------- --------------- --------- --------- --------- ---------
</TABLE>
F-16
<PAGE>
PRAEGITZER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
12. INCOME TAXES (CONTINUED)
The income tax provision on earnings from continuing operations subsequent
to the date of the Offering which are subject to income taxes and the pro forma
tax provision on earnings from continuing operations subject to income taxes
differs from the statutory federal income tax rate due to the following:
<TABLE>
<CAPTION>
PROFORMA APRIL 4, THREE MONTHS
YEAR ENDED 1996- YEAR ENDED JUNE 30, ENDED SEPTEMBER 30,
JUNE 30, JUNE 30, ---------------------- ----------------------
1996 1996 1997 1998 1997 1998
----------- ----------- ---------- ---------- --------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes at the
statutory rate.............. $4,118,000 $1,402,000 $(2,320,744) $2,480,870 $ 560,249 $ 322,350
State income tax, net of
federal benefit............. 323,000 67,000 (265,228) 364,834 64,028 36,840
Tax credits utilized.......... (171,000) (23,000) (626,778) (1,097,843) (317,600) (140,000)
Goodwill...................... -- -- 4,856,150 360,296 174,720 87,750
Other......................... 202,000 (1,000) 26,409 106,781 12,357 23,060
----------- ----------- ---------- ---------- --------- -----------
$4,472,000 $1,445,000 $1,669,809 $2,214,938 $ 493,754 $ 330,000
----------- ----------- ---------- ---------- --------- -----------
----------- ----------- ---------- ---------- --------- -----------
</TABLE>
Pro forma income taxes related to discontinued operations differs from the
statutory rate primarily due to state income taxes, net of federal benefit.
The significant items comprising the Company's net deferred tax liability
are as follows:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER
---------------------- 30,
1997 1998 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Reserves and other liabilities......................... $ 415,777 $ 217,527 $ 213,257
Other.................................................. 268,986 321,733 320,070
Property, plant, and equipment......................... (2,362,657) (4,262,566) (4,676,633)
---------- ---------- -----------
$(1,677,894) $(3,723,306) ($4,143,306)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
Net deferred tax assets and liabilities are included in the following
balance sheet accounts at June 30, 1997 and 1998 and September 30, 1998:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER
---------------------- 30,
1997 1998 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current deferred asset................................. $ 628,532 $ 474,175 $ 559,175
Deferred tax liability................................. (2,306,426) (4,197,481) (4,702,481)
---------- ---------- -----------
Net deferred tax liability............................. $(1,677,894) $(3,723,306) ($4,143,306)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
F-17
<PAGE>
PRAEGITZER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
13. MAJOR CUSTOMERS
During the three-month period ended September 30, 1997 and 1998 (unaudited)
and for the year ended June 30, 1998 the Company had no customers that
represented more than 10% of total revenue. For the year ended June 30, 1997 the
Company recognized 12% of total revenue from one customer. For the year ended
June 30, 1996 the Company recognized 23% of total revenue from two customers.
14. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan that covers all employees and permits
discretionary contributions by the participants. The Company has contributed
$251,188, $132,588 and $318,938, to the plan for the years ended June 30, 1996,
1997 and 1998. During the three-month periods ended September 30, 1997 and 1998
(unaudited) the Company made no contributions to the plan.
15. STOCK INCENTIVE PLAN AND STOCK WARRANTS
Under the Company's Stock Incentive Plan, the Board of Directors may grant
incentive and non-qualified options, stock bonuses, restricted stock, stock
appreciation rights, and cash bonus rights to employees and directors to
purchase up to 1,500,000 shares of common stock. The Stock Incentive Plan shall
continue in effect until all shares available for issuance have been issued.
However, the Board of Directors can suspend or terminate the Stock Incentive
Plan at any time except with respect to options and shares subject to
restrictions then outstanding under the Stock Incentive Plan. Under the Stock
Incentive Plan, the option price is equal to fair market value at the grant
date. Options currently expire no later than ten years from the grant date and
generally vest after four years.
F-18
<PAGE>
PRAEGITZER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
15. STOCK INCENTIVE PLAN AND STOCK WARRANTS (CONTINUED)
The following table summarizes the stock option activity under the Company's
option plan:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
---------- -----------
<S> <C> <C>
Options outstanding at June 30, 1995....................................................... --
Granted.................................................................................... 667,000 $ 9.56
----------
Options outstanding at June 30, 1996....................................................... 667,000 9.56
Granted.................................................................................... 499,563 9.84
Canceled................................................................................... (68,800) 9.51
Exercised.................................................................................. (12,000) 9.50
----------
Options outstanding at June 30, 1997....................................................... 1,085,763 $ 9.80
Granted.................................................................................... 383,457 10.75
Canceled................................................................................... (222,318) 9.95
Exercised.................................................................................. (17,382) 9.57
----------
Options outstanding at June 30, 1998....................................................... 1,229,520 $ 10.03
----------
----------
Granted (unaudited)........................................................................ 177,000 7.28
Canceled (unaudited)....................................................................... -- --
Exercised (unaudited)...................................................................... -- --
----------
Options outstanding at September 30, 1998 (unaudited)...................................... 1,406,520 $ 9.68
----------
----------
Options exercisable at:
June 30, 1996.............................................................................. -- --
June 30, 1997.............................................................................. 130,357 $ 9.69
June 30, 1998.............................................................................. 310,744 $ 9.65
September 30, 1998 (unaudited)............................................................. 408,143 $ 9.83
</TABLE>
The range of exercise prices for options outstanding at June 30, 1997 and
1998 was $8.375-$13.50. The range of exercise prices for options outstanding at
September 30, 1998 (unaudited) was $5.813-$13.50. Options available for grant at
September 30, 1998 (unaudited) totaled 64,098.
The Company has elected to account for its stock based compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees;" however, as required by SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has computed for pro forma disclosure purposes the
value of options granted during the years ended June 30, 1996, 1997 and 1998 and
during the three months ended September 30, 1997 and 1998 (unaudited) using the
Black-Scholes option pricing model. The weighted average assumptions used for
stock option grants during the years ended June 30, 1996, 1997 and 1998 and
during the three months ended September 30, 1997 and 1998 (unaudited) were a
risk free interest rate of 6.19%, 6.44%, 5.48%, 6.44% and 5.48%, respectively,
no
F-19
<PAGE>
PRAEGITZER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
15. STOCK INCENTIVE PLAN AND STOCK WARRANTS (CONTINUED)
expected dividend yield, an expected life of 6.5 years, 6 years, 4.8 years, 6
years and 4.8 years, respectively, and an expected volatility of 52%, 44%, 55%,
44% and 55%, respectively. The weighted average estimated fair value of employee
stock options granted during the years ended June 30, 1996, 1997 and 1998 and
during the three months ended September 30, 1997 and 1998 (unaudited) was $5.67,
$5.13, $5.49, $5.43 and $5.34 per share, respectively.
If the Company had accounted for the plan in accordance with SFAS No. 123,
the Company's net income and pro forma net income per share would have been
reported as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------- ----------------------
1996 1997 1998 1997 1998
--------- ---------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss) as reported, 1996
pro forma........................ $6,916,137 $(8,300,507) $5,081,749 $1,106,955 $ 593,426
Pro forma net income (loss)........ $6,512,685 $(8,992,908) $4,386,882 $ 952,767 $ 388,566
Pro forma diluted net income (loss)
per share........................ $ 0.71 $ (0.74) $ 0.34 $ 0.07 $ 0.03
</TABLE>
The effects of applying SFAS No. 123 for providing pro forma disclosures for
the years ended June 30, 1996, 1997 and 1998 and the three months ended
September 30, 1997 and 1998 are not likely to be representative of the effects
on reported net income and earnings per share for future years since options
vest over several years and additional awards are made each year.
The Company has an Employee Stock Purchase Plan ("ESPP"). Under the ESPP
employees may purchase shares of the Company's common stock at 85% of fair
market value at specific, predetermined dates. There are 200,000 shares
authorized to be issued under the ESPP.
In connection of the acquisition of CTI (see Note 4), Praegitzer issued
stock warrants to purchase 46,333 shares of common stock to the former
shareholders of CTI. The warrants can be exercised at $12 per share and expire
in 2006. At September 30, 1998, no shares had been purchased under the stock
warrants.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of long-term debt has been estimated by discounting projected
future cash flows, using current rate at which similar loans would be made to
borrowers with similar credit ratings and for the same maturities. Current
maturities of long-term debt were included and capital lease obligations were
excluded. The fair value of the Company's long-term debt is estimated to be
$31,944,045, or 102.2% of the carrying value of $31,248,714 at June 30, 1997,
$77,182,424, or 100.1% of the carrying value of $77,067,931 at June 30, 1998 and
$79,109,957, or 100.1% of the carrying value of $79,024,569 at September 30,
1998 (unaudited). The fair value of the Key Bank interest rate swap is estimated
to be the settlement amount. The Company could settle the swap at a loss of
$24,000, $23,000, and $31,000 at June 30, 1997 and 1998 and September 30, 1998
(unaudited), respectively.
F-20
<PAGE>
PRAEGITZER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
In the opinion of management, this unaudited quarter financial summary
includes all adjustments, which are of a normal and recurring nature, necessary
to present fairly the financial position, the results of operations, and the
cash flows of the Company for the periods represented, with the exception of the
one-time charges reported in the quarter ended September 30, 1996, see further
discussion in Notes 4 and 8 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1997 1998 1998
------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales.................................................... $ 42,595 $ 46,032 $ 44,713 $ 49,433
Gross profit................................................. 8,032 10,034 8,773 7,447
Income from operations....................................... 2,229 4,019 3,379 1,203
Income (loss) before taxes................................... 1,601 3,379 2,545 (228)
Net income................................................... 1,107 2,269 1,732 (26)
Net income per share, basic and diluted...................... 0.09 0.18 0.14 0.00
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1997 1997
------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales.................................................... $ 29,449 $ 34,791 $ 38,303 $ 45,404
Gross profit................................................. 5,086 6,965 5,208 8,675
Income (loss) from operations................................ (9,846) 2,172 (50) 2,820
Income (loss) before taxes................................... (10,088) 1,900 (801) 2,358
Net income (loss)............................................ (10,673) 1,185 (546) 1,733
Net income (loss) per share, basic and diluted............... (0.93) 0.10 (0.04) 0.14
</TABLE>
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Praegitzer Asia Sdn. Bhd.
Kawasan Perindustarian Chang
Fusa III, Mukum Chang
Daerah Melaka Tengah
72250 Melaka
Malaysia
We have audited the accompanying balance sheet of Praegitzer Asia Sdn. Bhd.
as of June 30, 1998, and the related statements of operations, shareholders'
deficit, and cash flows for the year ended June 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in Malaysia and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Praegitzer Asia Sdn. Bhd. as of June 30,
1998, and the results of its operations and its cash flows for the year ended
June 30, 1998 in conformity with accounting principles generally accepted in the
United States of America.
DELOITTE TOUCHE TOHMATSU
Kuala Lumpur, Malaysia
September 17, 1998
F-22
<PAGE>
PRAEGITZER ASIA SDN. BHD.
(INCORPORATED IN MALAYSIA)
BALANCE SHEET
JUNE 30, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 95,501
Restricted cash (Note 1)..................................................... 36,040
Accounts receivable (Note 2)................................................. 901,829
Inventories (Note 3)......................................................... 634,700
Prepaid expenses............................................................. 29,245
-----------
Total current assets..................................................... 1,697,315
PROPERTY, PLANT, AND EQUIPMENT, Net (Note 4)................................... 4,705,570
LONG-TERM INVESTMENTS.......................................................... 9,815
-----------
TOTAL.......................................................................... $ 6,412,700
-----------
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade...................................................................... $ 974,068
Others..................................................................... 1,324,590
Due to holding company (Note 5).............................................. 579,746
Accrued and other liabilities................................................ 119,340
Current portion of long-term obligation (Note 6)............................. 999,016
-----------
Total current liabilities................................................ 3,996,760
-----------
LONG-TERM OBLIGATIONS, Net of current portion (Note 6)......................... 2,491,405
-----------
SHAREHOLDERS' DEFICIT:
Common stock--50,000,000 shares authorized and 42,740,000 shares issued...... 16,963,684
Additional paid-in capital................................................... 1,432,000
Accumulated deficit.......................................................... (17,658,775)
Cumulative foreign currency translation adjustments.......................... (812,374)
-----------
Total shareholders' deficit.............................................. (75,465)
-----------
TOTAL.......................................................................... $ 6,412,700
-----------
-----------
</TABLE>
See notes to financial statements.
F-23
<PAGE>
PRAEGITZER ASIA SDN. BHD.
(INCORPORATED IN MALAYSIA)
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
<TABLE>
<S> <C>
NET SALES....................................................................... $3,219,300
COST OF GOODS SOLD.............................................................. 4,624,439
----------
Gross loss................................................................ (1,405,139)
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE.................................... 1,004,849
----------
OPERATING LOSS.................................................................. (2,409,988)
----------
OTHER EXPENSE:
Interest expense.............................................................. 223,806
Other expense................................................................. 45,887
----------
Total other expense....................................................... 269,693
----------
NET LOSS........................................................................ $(2,679,681)
----------
----------
</TABLE>
See notes to financial statements.
F-24
<PAGE>
PRAEGITZER ASIA SDN. BHD.
(INCORPORATED IN MALAYSIA)
STATEMENT OF SHAREHOLDERS' DEFICIT
YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL RETAINED CURRENCY
COMMON PAID-IN EARNINGS TRANSLATION
STOCK CAPITAL (DEFICIT) ADJUSTMENTS TOTAL
------------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year........... $ 16,963,684 $ -- $ (14,979,094) $ -- $ 1,984,590
Capital contribution from
shareholder.......................... -- 1,432,000 -- -- 1,432,000
Foreign currency translation
adjustments.......................... -- -- -- (812,374) (812,374)
Net loss............................... -- -- (2,679,681) -- (2,679,681)
------------- ------------ -------------- ----------- -------------
Balance at end of year................. $ 16,963,684 $ 1,432,000 $ (17,658,775) $(812,374) $ (75,465)
------------- ------------ -------------- ----------- -------------
------------- ------------ -------------- ----------- -------------
</TABLE>
See notes to financial statements.
F-25
<PAGE>
PRAEGITZER ASIA SDN. BHD.
(INCORPORATED IN MALAYSIA)
STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................................... $(2,679,681)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................ 554,024
Effect of foreign exchange rate fluctuation on net loss..................... (58,724)
Changes in operating assets and liabilities:
Accounts receivable....................................................... (477,627)
Inventories............................................................... (403,164)
Prepaid expenses.......................................................... (13,298)
Accounts payable.......................................................... 2,176,332
Accrued and other liabilities............................................. 34,077
----------
Net cash used in operating activities................................... (868,061)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment.................................... (1,208,521)
Placement of deposit with a licensed bank..................................... (36,040)
----------
Net cash used in investing activities................................... (1,224,561)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term obligations........................................ 2,548,072
Payments of long-term obligations............................................. (679,820)
Proceeds from additional paid-in capital...................................... 282,875
----------
Net cash provided by financing activities............................... 2,151,127
----------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES......................................... (37,156)
----------
INCREASE IN CASH AND CASH EQUIVALENTS........................................... 1,349
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.................................. 94,152
----------
CASH AND CASH EQUIVALENTS AT END OF YEAR........................................ $ 95,501
----------
----------
</TABLE>
See notes to financial statements.
F-26
<PAGE>
PRAEGITZER ASIA SDN. BHD.
(INCORPORATED IN MALAYSIA)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS--Praegitzer Asia Sdn. Bhd. (the "Company") is
incorporated in Malaysia and is principally involved in manufacturing and
selling of printed circuit boards.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in its financial statements and
accompanying notes. The Company's financial statements include amounts that are
based on management's best estimates and judgments. Actual results could differ
from those estimates.
Cash and Cash Equivalents include highly liquid investments, which are
readily convertible into cash and have original maturities of three months or
less.
RESTRICTED CASH--As of June 30, 1998, a deposit placed with a local licensed
bank amounting to $36,040 was pledged as collateral on an outstanding bank
guarantee with a third party. This amount is classified as restricted cash on
the balance sheet.
Inventories are stated at the lower of cost and net realizable value. Cost
is determined on the weighted average method.
PROPERTY, PLANT, AND EQUIPMENT--Property, plant, and equipment are stated at
cost less accumulated depreciation. Depreciation, except for
construction-in-progress and plant and machinery under installation which are
not depreciated, is computed on the straight-line method based on the following
estimated useful lives:
<TABLE>
<S> <C>
2 1/2 to 10
Plant and machinery.......................................... years
Furniture, fittings, and equipment........................... 3 to 10 years
Computers.................................................... 5 years
Motor vehicles............................................... 5 years
</TABLE>
REVENUE RECOGNITION--Revenue is recognized upon shipment of products.
INCOME TAXES--The Company accounts for income taxes using the liability
method under which deferred tax assets and liabilities are recognized for the
future tax consequences of temporary differences between the carrying amounts
and tax bases of assets and liabilities using enacted rates. Future tax benefits
are recognized to the extent that realization of such benefits can be reasonably
anticipated.
FOREIGN CURRENCY TRANSLATION--The local currency, Malaysian Ringgit, has
been primarily used as the functional currency. Gains and losses resulting from
transactions in other than the functional currency are reflected in net income.
Assets and liabilities of the Company are translated into U.S. Dollars at the
closing rate while revenue and expenses are translated at average rates
prevailing during the year. Translation adjsutments are reported as a component
of shareholders' equity.
F-27
<PAGE>
PRAEGITZER ASIA SDN. BHD.
(INCORPORATED IN MALAYSIA)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED JUNE 30, 1998
2. ACCOUNTS RECEIVABLE
<TABLE>
<S> <C>
Accounts receivable consist of:
Trade (net of allowance for doubtful accounts of $35,320)....... $ 675,489
Other........................................................... 226,340
---------
Total accounts receivable..................................... $ 901,829
---------
---------
</TABLE>
3. INVENTORIES
<TABLE>
<S> <C>
Inventories consist of:
Raw materials................................................... $ 364,171
Work-in-process................................................. 248,566
Finished goods.................................................. 21,963
---------
Total inventories............................................. $ 634,700
---------
---------
</TABLE>
4. PROPERTY, PLANT, AND EQUIPMENT
Plant, equipment, and motor vehicles consist of the following:
<TABLE>
<S> <C>
Plant and machinery............................................. $5,522,852
Plant and machinery under installation.......................... 1,755,697
Furniture, fitting, and equipment............................... 208,189
Computers....................................................... 131,557
Motor vehicles.................................................. 99,323
Construction in progress........................................ 288,456
----------
8,006,074
Accumulated depreciation........................................ (3,300,504)
----------
Total property, plant, and equipment, net................... $4,705,570
----------
----------
Property, plant, and equipment above include the following
amounts for capitalized leases:
Plant and machinery........................................... $3,842,158
Motor vehicles................................................ 84,907
----------
3,927,065
Accumulated depreciation........................................ (2,663,800)
----------
Total....................................................... $1,263,265
----------
----------
</TABLE>
5. DUE TO HOLDING COMPANY
Effective April 13, 1998, the holding company, Praegitzer Industries, Inc.,
a company incorporated in the United States of America, entered into an
agreement to acquire 51% equity interest in the Company from Ributasi Holdings
Sdn. Bhd., a company incorporated in Malaysia. In exchange for the shares, the
holding company agreed to contribute third-party software license rights,
machinery and equipment, and
F-28
<PAGE>
PRAEGITZER ASIA SDN. BHD.
(INCORPORATED IN MALAYSIA)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED JUNE 30, 1998
5. DUE TO HOLDING COMPANY (CONTINUED)
cash with a total value of up to 5.2 million Malaysian Ringgit ($1,432,000)
based on the currency exchange rate on April 27, 1998. As of June 30, 1998, the
equity had not been transferred to Praegitzer Industries, Inc.'s name.
The amount due to the holding company of $579,746 arose mainly from
interest-free advances with no fixed terms of repayment and expenses paid on
behalf of the Company. In addition, the selling shareholders agreed to provide
additional funding in the form of a line of credit of up to 5 million Malaysian
Ringgit of which 2,262,800 Malaysian Ringgit ($569,975) had been borrowed and
included in long-term debt as of June 30, 1998.
6. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<S> <C>
Hire purchase installments payable in monthly installments of
$55,811 plus interest at an average rate of 5.87% per annum,
collateralized by plant and equipment......................... $ 896,581
Hire purchase installments payable in monthly installments of
$880 plus interest at an average rate of 7.73% per annum,
collateralized by motor vehicles.............................. 45,768
Shareholder loan payable to Ributasi Holding Company, 0% at June
30, 1998, payable in 36 monthly installments plus accrued
interest at the Maybank rate, interest begins to accrue on
November 12, 1998 at which time the first payment is due...... 2,225,565
Loan payable to Lion Plastic Industries, an affiliated company,
no fixed payment terms........................................ 322,507
---------
3,490,421
Less current portion............................................ 999,016
---------
Total long-term obligations..................................... $2,491,405
---------
---------
</TABLE>
The long-term obligations are repayable over the following periods:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- --------------------------------------------------------------------------------
<S> <C>
1999............................................................................ $ 999,016
2000............................................................................ 840,859
2001............................................................................ 583,198
2002............................................................................ 197,438
2003............................................................................ 3,522
Thereafter...................................................................... 866,388
------------
$ 3,490,421
------------
------------
</TABLE>
F-29
<PAGE>
PRAEGITZER ASIA SDN. BHD.
(INCORPORATED IN MALAYSIA)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED JUNE 30, 1998
7. INCOME TAXES
There is no current or deferred tax expense for the year ended June 30, 1998
as the Company is in a loss position. The carryforward tax loss and unutilized
capital allowance as of June 30, 1998 amounted to $8,695,810 and $3,242,026,
respectively, and have an indefinite carryforward period.
The income tax effect of temporary differences comprising the deferred tax
assets and deferred tax liabilities is a result of the following:
<TABLE>
<S> <C>
Deferred tax assets:
Tax loss carryforwards........................................ $2,434,827
Tax capital allowances carryforwards.......................... 686,157
Other......................................................... 42,905
----------
3,163,889
Less: Valuation allowance....................................... (3,163,889)
----------
$ --
----------
----------
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Company has transactions in the normal course of business with companies
affiliated with certain of its directors. Sales to and rental of premises
payable to these affiliated companies for the year ended June 30, 1998 amounted
to $168,451 and $213,718, respectively. As of June 30, 1998, accounts receivable
and accounts payable include amounts owed by or to these affiliated companies
amounting to $45,352 and $436,067, respectively.
9. COMMITMENTS
As of June 30, 1998, the Company has the following capital commitments for
plant and machinery:
<TABLE>
<S> <C>
Approved and contracted for............................ $ 1,268,617
Approved but not contracted for........................ 1,585,582
-----------
Total.............................................. $ 2,854,199
-----------
-----------
</TABLE>
F-30
<PAGE>
PRAEGITZER INDUSTRIES, INC.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRAEGITZER PRO FORMA
INDUSTRIES, LIKOM PCB PRO FORMA JUNE 30,
INC. SDN BHD ADJUSTMENTS 1998
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue........................................... $ 182,773 $ 3,219 $ (859)(2) $ 185,133
Cost of goods sold................................ 148,487 4,624 (536)(2) 152,575
----------- --------- ----------- ---------
Gross profit (loss)............................. 34,286 (1,405) (323) 32,558
Selling, general and administrative expense....... 23,456 1,005 (278)(2) 24,183
----------- --------- ----------- ---------
EARNINGS (LOSS) FROM OPERATIONS................... 10,830 (2,410) (45) 8,375
Interest expense.................................. 3,757 224 (53)(2) 3,928
Other income (expense)............................ 224 (161) 29(2) 92
Minority interest loss............................ -- -- 1,370(1)
(10)(2) 1,360
----------- --------- ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES................. 7,297 (2,795) 1,397 5,899
PRO FORMA PROVISION (BENEFIT) FOR INCOME TAXES.... 2,215 -- -- 2,215
----------- --------- ----------- ---------
PRO FORMA INCOME (LOSS)........................... $ 5,082 $(2,795) $ 1,397 $ 3,684
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Pro forma loss per share--basic and diluted....... $ 0.40 $ 0.29
----------- ---------
----------- ---------
Pro forma weighted average shares outstanding..... 12,846 12,846
----------- ---------
----------- ---------
</TABLE>
F-31
<PAGE>
PRAEGITZER INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
Effective April 13, 1998, Praegitzer Industries, Inc. ("Praegitzer")
acquired 51% of the outstanding capital stock of Likom PCB Sdn Bhd ("Likom"), a
printed circuit board manufacturer located in Malaysia. The acquisition of Likom
has been accounted for using the purchase method of accounting. The purchase
price is up to $5.2 million Malaysian Ringgit ($1,432,000) based on the currency
exchange rate on April 27, 1998, which will consist of the transfer and
contribution to Likom over an eighteen-month period ending in October 1999 of
third-party software license rights, machinery and equipment currently owned by
Praegitzer. At its option Praegitzer may contribute cash in lieu of this
property. The unaudited pro forma combined financial statements reflect an
adjustment for the recognition of the minority interest. No purchase price
adjustments have been recognized as the historical cost of the assets and
liabilities approximates the fair value; accordingly, no goodwill has been
recognized. The pro forma balance sheet has not at June 30, 1998 been included
as the amounts are included within the consolidated balance sheet included
elsewhere. The pro forma statement of operations was prepared as if the
transaction had occurred on July 1, 1997.
In the opinion of management of Praegitzer, all adjustments necessary to
present fairly such pro forma financial statements have been made. These
unaudited pro forma financial statements are not necessarily indicative of what
actual results would have been had the transaction occurred at the beginning of
the respective period nor do they purport to indicate the results of future
operations of Praegitzer.
- ------------------------
(1) The recognition of the minority interest in the loss from operations during
the respective period.
(2) Elimination of the account balances which have been included in Praegitzer's
consolidated statement of operations from the acquisition date through June
30, 1998.
F-32
<PAGE>
PRAEGITZER INDUSTRIES, INC.
MANUFACTURING FACILITIES
<TABLE>
<S> <C> <C> <C>
[Photograph of HUNTSVILLE DIVISION [Photograph of REDMOND DIVISION
production facility] Huntsville, Alabama manufacturing Redmond, Washington
98,000 sq. ft. facility] 48,000 sq. ft.
130+ employees 260+ employees
PROTOTYPE AND PROTOTYPE AND
PRE-PRODUCTION PRE-PRODUCTION
FREMONT DIVISION [Photograph of [Photograph of DALLAS DIVISION
Fremont, California production manufacturing Dallas, Oregon
30,000 sq. ft. facility] facility] 130,000 sq. ft.
290+ employees 700+ employees
QUICK- VOLUME
TURNAROUND
[Photograph of MALAYSIA DIVISION WHITE CITY DIVISION [Photograph of
production Melaka, Malaysia White City, Oregon production facility]
facility] 120,000 sq. ft. 105,000 sq. ft.
160+ employees 350+ employees
VOLUME VOLUME
</TABLE>
DESIGN DIVISIONS
PORTLAND, OREGON - SAN JOSE,
CALIFORNIA - LOS ANGELES, CALIFORNIA - SAN DIEGO, CALIFORNIA - DENVER, COLORADO
- - ORLANDO, FLORIDA - NASHUA, NEW HAMPSHIRE - PHILADELPHIA, PENNSYLVANIA -
DALLAS, TEXAS - AUSTIN, TEXAS - SEATTLE, WASHINGTON - TEL AVIV, ISRAEL
[Praegitzer Industries, Inc. Logo]
Praegitzer Industries, Inc.
The Fine Line in Printed Circuits
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN, OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE SECURITIES OFFERED
BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 11
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Market Price of Common Stock.............................................. 19
Capitalization............................................................ 20
Selected Consolidated Financial Data and Other Information................ 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 23
Business.................................................................. 30
Management................................................................ 39
Certain Transactions...................................................... 43
Principal Shareholders.................................................... 45
Description of Notes...................................................... 46
Description of Capital Stock.............................................. 61
Certain United States Federal Income Tax Consequences..................... 62
Underwriting.............................................................. 64
Legal Matters............................................................. 65
Experts................................................................... 65
Index to Financial Statements............................................. 66
</TABLE>
$15,000,000
PRAEGITZER INDUSTRIES, INC.
% CONVERTIBLE SUBORDINATED NOTES
DUE DECEMBER , 2008
OF
[PRAEGITZER INDUSTRIES, INC. LOGO]
---------------------
PROSPECTUS
---------------------
ADVEST, INC.
BLACK & COMPANY, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of fees and other
expenses (other than underwriting commissions) payable by the Company in
connection with the issuance and distribution of the Notes pursuant to the
Prospectus contained in this Registration Statement. The Company will pay all of
these expenses.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 4,796
NASD fee.......................................................... 2,000
Nasdaq listing fees............................................... 22,500
Legal fees and expenses........................................... 275,000
Accounting fees and expenses...................................... 100,000
Printing and engraving expenses................................... 30,000
Miscellaneous expenses............................................ 65,704
---------
Total......................................................... $ 500,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IV of the Company's Second Amended and Restated Articles of
Incorporation, as amended (the "Articles"), requires indemnification of current
or former directors of the Company to the fullest extent not prohibited by the
Oregon Business Corporation Act (the "Act"). The Act permits or requires
indemnification of directors and officers in certain circumstances. The effects
of the Articles and the Act (the "Indemnification Provisions") are summarized as
follows:
(a) The Indemnification Provisions grant a right of indemnification in
respect of any proceeding (other than an action by or in the right of the
Company), if the person concerned acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
Company, was not adjudged liable on the basis of receipt of an improper personal
benefit and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct was unlawful. The termination of a
proceeding by judgment, order, settlement, conviction or plea of nolo
contendere, or its equivalent, is not, of itself, determinative that the person
did not meet the required standards of conduct.
(b) The Indemnification Provisions grant a right of indemnification in
respect of any proceeding by or in the right of the Company against the expenses
(including attorney fees) actually and reasonably incurred if the person
concerned acted in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the Company, except that no right
of indemnification will be granted if the person is adjudged to be liable to the
Company.
(c) Every person who has been wholly successful, on the merits or otherwise,
in the defense of any proceeding to which the person was a party because of the
person's status as a director or officer of a controversy described in (a) or
(b) above is entitled to indemnification as a matter of right.
(d) Because the limits of permissible indemnification under Oregon law are
not clearly defined, the Indemnification Provisions may provide indemnification
broader than that described in (a) and (b).
(e) The Company may advance to a director or officer the expenses incurred
in defending any proceeding in advance of its final disposition if the director
or officer affirms in writing in good faith that he or she has met the standard
of conduct to be entitled to indemnification as described in (a) or (b) above
and undertakes to repay any amount advanced if it is determined that the person
did not meet the required standard of conduct.
II-1
<PAGE>
The Company may obtain insurance for the protection of its directors and
officers against any liability asserted against them in their official
capacities. The rights of indemnification described above are not exclusive of
any other rights of indemnification to which the persons indemnified may be
entitled under any bylaw, agreement, vote of shareholders or directors or
otherwise.
The Company has agreed to indemnify the Underwriters and the Underwriters
have agreed to indemnify the Company for certain liabilities, including
liabilities under the Securities Act of 1933, as amended. Reference is made to
the Underwriting Agreement filed as Exhibit 1.1 herewith.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Within the last three years, the Company has issued securities without
registration under the Securities Act in the transactions and in reliance on the
exemptions from registration described below:
(a) In connection with the merger of Circuit Technology, Inc. ("CTI") into
the Company in November 1995, the Company issued 350,000 shares of Common Stock
and warrants to purchase up to 23,166.5 shares of Common Stock at $12 per share
to each of Robert G. Baldridge and Charles N. Hall in exchange for their
interests in CTI. The issuance of these shares was exempt from registration
under Section 4(2) of the Securities Act.
(b) In connection with the merger of Praegitzer Design, Inc. ("PDI") into
the Company in November 1995, the Company issued 73,500 shares of Common Stock
to Robert L. Praegitzer, Chief Executive Officer, Chairman of the Board and
principal shareholder of the Company, and 10,500 shares of Common Stock to
Thomas Witten in exchange for their shares of PDI. The issuance of these shares
was exempt from registration under Section 4(2) of the Securities Act.
(c) In connection with the acquisition by the Company of real property owned
by Robert L. Praegitzer, the Company agreed in December 1995 to issue
approximately 1,086,022 shares of Common Stock to Mr. Praegitzer in exchange for
the property. The sale of these shares was exempt from registration under
Section 4(2) of the Securities Act.
(d) As of August 26, 1996 the Company issued 1,000,000 shares of Common
Stock in a private placement exempt from registration under Rule 506 of the
Securities Act to the shareholders of Trend Circuits ("Trend") as partial
consideration for the merger of Trend with and into the Company. As of December
31, 1996, the Company issued 10,000 shares of Common Stock in a private
placement exempt from registration under Rule 505 of the Securities Act to the
shareholders of TravTech, Inc. as consideration for the merger of TravTech, Inc.
with and into the Company. As of February 25, 1997, the Company issued 90,000
shares of Common Stock in a private placement exempt from registration under
Rule 505 of the Securities Act to shareholders of Off-Site Solutions, Inc. as
consideration for the merger of Off-Site Solutions, Inc. with and into the
Company. On March 28, 1997, the Company issued 230,000 shares in a private
placement exempt from registration under Rule 505 of the Securities Act to the
shareholders of PCB West, Inc. as partial consideration for the merger of PCB
West, Inc. with and into the Company.
(e) As of July 28, 1997, the Company issued 200,000 shares of Common Stock
in a private placement exempt from registration under Rule 506 of the Securities
Act to the shareholders of Mosher Design Services, Inc. as consideration for the
merger of Mosher Design Services, Inc. with and into the Company. As of August
1, 1997 the Company issued a total of 1,364 shares to employees. The shares were
issued one per employee in a one-time bonus to employees. The aggregate market
value on the date of the issuance was $14,875.
II-2
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
*3.1 Second Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3(i) of the Company's Annual Report on Form 10-K
for the year ended June 30, 1998 (the "1998 Form 10-K"))
*3.2 Bylaws (incorporated by reference to Exhibit 3(ii) of the Company's
Registration Statement on Form S-1, Registration No. 333-01228 (the
"Form S-1"))
*4.1 See Article II of Exhibit 3.1 and Articles II and V of Exhibit 3.2
4.2 Form of Indenture to be entered into between Praegitzer Industries, Inc.
and U.S. Trust Company, N.A. as the Indenture Trustee
5.1 Opinion of Stoel Rives LLP regarding the legality of the securities being
registered
*10.1 1995 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of
the Form S-1)
*10.2 Form of Incentive Stock Option Agreement (incorporated by reference to
Exhibit 10.2 of the Form S-1)
*10.3 Form of Nonstatutory Stock Option Agreement (incorporated by reference to
Exhibit 10.3 of the Form S-1)
*10.4 1996 Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.17 of the Company's Annual Report on Form 10-K for the year ending
June 30, 1997 (the "1997 Form 10-K"))
*10.5 Borrowing Agreement between the Company and Heller Financial dated August
22, 1996 (incorporated by reference to Exhibit 10.2 of the Company's
Quarterly Report on Form 10-Q for the quarter ending September 30, 1996
(the "September 30, 1996 Form 10-Q"))
*10.6 Borrowing Agreement between the Company and Finova Capital dated July 19,
1996 (incorporated by reference to Exhibit 10.3 of the September 30,
1996 Form 10-Q)
*10.7 First Amendment to Loan and Security Agreement between the Company and
Finova Capital dated as of September 4, 1998 (incorporated by reference
to Exhibit 10.7 of the 1998 Form 10-K)
*10.8 Swap Agreement between the Company and Key Bank dated December 10, 1996
(incorporated by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q for the quarter ending December 31, 1996)
*10.9 Borrowing Agreement between the Company and Heller Financial dated May 30,
1997 (incorporated by reference to Exhibit 10.8 of the 1997 Form 10-K)
*10.10 Borrowing Agreement between the Company and Heller Financial dated
December 29, 1997 (incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the quarter ending December
31, 1997 (the "December 31, 1997 Form 10-Q"))
*10.11 Borrowing Agreement between the Company and Heller Financial dated
December 29, 1997 (incorporated by reference to Exhibit 10.2 of the
December 31, 1997 Form 10-Q)
*10.12 Borrowing Agreement between the Company and Heller Financial dated March
27, 1998 (incorporated by reference to Exhibit 10.1 of the March 31,
1998 Form 10-Q (the "March 31, 1998 Form 10-Q"))
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
*10.13 Borrowing Agreement between the Company and Heller Financial dated March
31, 1998 (incorporated by reference to Exhibit 10.12 of the 1998 Form
10-K)
*10.14 Credit Agreement between the Company and Key Bank National Association
dated March 31, 1998 (incorporated by reference to Exhibit 10.2 of the
March 31, 1998 Form 10-Q)
*10.15 First Amendment to Credit Agreement between the Company and Key Bank
National Association dated as of August 6, 1998 (incorporated by
reference to Exhibit 10.14 of the 1998 Form 10-K)
*10.16 Lease Agreement between CTI and Seapointe Development, Inc. dated April
1989 and amendments thereto (incorporated by reference to Exhibit 10.13
of the Form S-1)
*10.17 Lease between CTI and Redmond Quadrant Associates LP dated June 15, 1995
(incorporated by reference to Exhibit 10.14 of the Form S-1)
*10.18 Employment Agreement between the Company and Robert L. Praegitzer dated
November 17, 1995 (incorporated by reference to Exhibit 10.20 of the
Form S-1)
*10.19 Employment Agreement between the Company and Robert J. Versiackas dated
August 26, 1996 (incorporated by reference to Exhibit 10.18 of the 1998
Form 10-K)
*10.20 Offer Letter between the Company and James M. Buchanan dated March 24,
1998 (incorporated by reference to Exhibit 10.19 of the 1998 Form 10-K)
10.21 Second Amendment to Credit Agreement between the Company and Key Bank
National Association dated as of December 8, 1998
*12.1 Statement re Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 of
the 1998 Form 10-K)
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Deloitte Touche Tohmatsu
23.3 Consent of Stoel Rives LLP (included in Exhibit 5.1)
*24.1 Power of Attorney (included on signature page)
25.1 Form T-1 Statement of Eligibility of U.S. Trust Company, N.A. to act as
trustee for the % Convertible Subordinated Notes of Praegitzer
Industries, Inc.
*27.1 Financial Data Schedule
*27.2 Financial Data Schedule for the quarter ended September 30, 1998
</TABLE>
- ------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to any arrangement, provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the
II-4
<PAGE>
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(2) The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
497(h) under the Securities Act is part of this Registration Statement as of
the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement for the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amended Registration Statement to be signed on its behalf
by the undersigned, in the City of Dallas, State of Oregon, on the 11th day of
December, 1998.
PRAEGITZER INDUSTRIES, INC.
BY: /s/ MATTHEW J. BERGERON
-----------------------------------------
Matthew J. Bergeron
PRESIDENT AND CHIEF OPERATING OFFICER
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Chairman and Chief December 11, 1998
Robert L. Praegitzer Executive Officer
/s/ MATTHEW J. BERGERON
- ------------------------------ President, Chief Operating December 11, 1998
Matthew J. Bergeron Officer and Director
*
- ------------------------------ Director December 11, 1998
Daniel J. Barnett
*
- ------------------------------ Director December 11, 1998
Theodore L. Stebbins
*
- ------------------------------ Director December 11, 1998
Merrill A. McPeak
*
- ------------------------------ Director December 11, 1998
Gordon B. Kuenster
*
- ------------------------------ Chief Financial Officer December 11, 1998
William J. Thale
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By /s/ MATTHEW J. BERGERON
-------------------------
Matthew J. Bergeron
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
*3.1 Second Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3(i) of the Company's Annual Report on Form 10-K
for the year ended June 30, 1998 (the "1998 Form 10-K"))
*3.2 Bylaws (incorporated by reference to Exhibit 3(ii) of the Company's
Registration Statement on Form S-1, Registration No. 333-01228 (the
"Form S-1"))
*4.1 See Article II of Exhibit 3.1 and Articles II and V of Exhibit 3.2
4.2 Form of Indenture to be entered into between Praegitzer Industries, Inc.
and U.S. Trust Company, N.A. as the Indenture Trustee
5.1 Opinion of Stoel Rives LLP regarding the legality of the securities being
registered
*10.1 1995 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of
the Form S-1)
*10.2 Form of Incentive Stock Option Agreement (incorporated by reference to
Exhibit 10.2 of the Form S-1)
*10.3 Form of Nonstatutory Stock Option Agreement (incorporated by reference to
Exhibit 10.3 of the Form S-1)
*10.4 1996 Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.17 of the Company's Annual Report on Form 10-K for the year ending
June 30, 1997 (the "1997 Form 10-K"))
*10.5 Borrowing Agreement between the Company and Heller Financial dated August
22, 1996 (incorporated by reference to Exhibit 10.2 of the Company's
Quarterly Report on Form 10-Q for the quarter ending September 30, 1996
(the "September 30, 1996 Form 10-Q"))
*10.6 Borrowing Agreement between the Company and Finova Capital dated July 19,
1996 (incorporated by reference to Exhibit 10.3 of the September 30,
1996 Form 10-Q)
*10.7 First Amendment to Loan and Security Agreement between the Company and
Finova Capital dated as of September 4, 1998 (incorporated by reference
to Exhibit 10.7 of the 1998 Form 10-K)
*10.8 Swap Agreement between the Company and Key Bank dated December 10, 1996
(incorporated by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q for the quarter ending December 31, 1996)
*10.9 Borrowing Agreement between the Company and Heller Financial dated May 30,
1997 (incorporated by reference to Exhibit 10.8 of the 1997 Form 10-K)
*10.10 Borrowing Agreement between the Company and Heller Financial dated
December 29, 1997 (incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the quarter ending December
31, 1997 (the "December 31, 1997 Form 10-Q"))
*10.11 Borrowing Agreement between the Company and Heller Financial dated
December 29, 1997 (incorporated by reference to Exhibit 10.2 of the
December 31, 1997 Form 10-Q)
*10.12 Borrowing Agreement between the Company and Heller Financial dated March
27, 1998 (incorporated by reference to Exhibit 10.1 of the March 31,
1998 Form 10-Q (the "March 31, 1998 Form 10-Q"))
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
*10.13 Borrowing Agreement between the Company and Heller Financial dated March
31, 1998 (incorporated by reference to Exhibit 10.12 of the 1998 Form
10-K)
*10.14 Credit Agreement between the Company and Key Bank National Association
dated March 31, 1998 (incorporated by reference to Exhibit 10.2 of the
March 31, 1998 Form 10-Q)
*10.15 First Amendment to Credit Agreement between the Company and Key Bank
National Association dated as of August 6, 1998 (incorporated by
reference to Exhibit 10.14 of the 1998 Form 10-K)
*10.16 Lease Agreement between CTI and Seapointe Development, Inc. dated April
1989 and amendments thereto (incorporated by reference to Exhibit 10.13
of the Form S-1)
*10.17 Lease between CTI and Redmond Quadrant Associates LP dated June 15, 1995
(incorporated by reference to Exhibit 10.14 of the Form S-1)
*10.18 Employment Agreement between the Company and Robert L. Praegitzer dated
November 17, 1995 (incorporated by reference to Exhibit 10.20 of the
Form S-1)
*10.19 Employment Agreement between the Company and Robert J. Versiackas dated
August 26, 1996 (incorporated by reference to Exhibit 10.18 of the 1998
Form 10-K)
*10.20 Offer Letter between the Company and James M. Buchanan dated March 24,
1998 (incorporated by reference to Exhibit 10.19 of the 1998 Form 10-K)
10.21 Second Agreement to Credit Amendment between the Company and Key Bank
National Association dated as of December 8, 1998
*12.1 Statement re Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 of
the 1998 Form 10-K)
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Deloitte Touche Tohmatsu
23.3 Consent of Stoel Rives LLP (included in Exhibit 5.1)
*24.1 Power of Attorney (included on signature page)
25.1 Form T-1 Statement of Eligibility of U.S. Trust Company, N.A. to act as
trustee for the % Convertible Subordinated Notes of Praegitzer
Industries, Inc.
*27.1 Financial Data Schedule
*27.2 Financial Data Schedule for the quarter ended September 30, 1998
</TABLE>
- ------------------------
* Previously filed.
II-8
<PAGE>
- --------------------------------------------------------------------------------
$15,000,000 OF __% CONVERTIBLE SUBORDINATED NOTES DUE _____, 2008
(PLUS $2,250,000 OF NOTES TO COVER OVER-ALLOTMENTS, IF ANY)
PRAEGITZER INDUSTRIES, INC.
UNDERWRITING AGREEMENT
________ __, 1998
ADVEST, INC.
&
BLACK & COMPANY, INC.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. The Notes. . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Registration Statement and Prospectus . . . . . . . . . . . 2
3. Agreements to Sell and Purchase . . . . . . . . . . . . . . 2
4. Agreements of the Company as to Delivery and Payment. . . . 3
5. Further Agreements of the Company . . . . . . . . . . . . . 4
6. Representations and Warranties. . . . . . . . . . . . . . . 8
7. Indemnification.. . . . . . . . . . . . . . . . . . . . . .17
8. Conditions of the Obligations of the Underwriters . . . . .20
9. Effective Date of Agreement, Termination and
Defaults. . . . . . . . . . . . . . . . . . . . . . . . . .23
10. Effectiveness of Registration Statement . . . . . . . . . .25
11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . .25
</TABLE>
-i-
<PAGE>
$15,000,000 of __% Convertible Subordinated Notes Due _______, 2008
(plus $2,250,000 of Notes to Cover Over-Allotments, if any)
Praegitzer Industries, Inc.
UNDERWRITING AGREEMENT
_________ __, 1998
Advest, Inc.
Black & Company, Inc.
As Representatives of the Several Underwriters
c/o ADVEST, Inc.
90 State House Square
Hartford, CT 06103
Ladies and Gentlemen:
Praegitzer Industries, Inc., an Oregon corporation (the "Company")
confirms its agreement with the several underwriters listed in Schedule I
hereto (the "Underwriters"), for whom Advest, Inc. and Black & Company, Inc.
(the "Representatives") have been duly authorized to act as representatives,
as follows:
1. THE NOTES. Subject to the terms and conditions set forth in this
agreement (the "Agreement"), the Company proposes to issue and sell to the
Underwriters (the "Offering") $15,000,000 aggregate principal amount of its
Convertible Subordinated Notes due _______, 2008 (the "Firm Notes"). The
Company also proposes to grant to the Underwriters an option to purchase up
to $2,250,000 aggregate principal amount of Convertible Subordinated Notes
due , 2008 (the "Additional Notes") solely for the purpose of covering
over-allotments, if any, if requested by the Underwriters as provided in
Section 3 hereof. The Firm Notes and the Additional Notes are herein
collectively called the "Notes." The Notes will be issued pursuant to an
indenture (the "Indenture") to be entered into between the Company, as
issuer, and U.S. Trust Company, National Association, as trustee (the
"Indenture Trustee"). The Notes are convertible into shares of the Company's
common stock (the "Conversion Shares") at a conversion price of $ per
share, subject to adjustment as set forth in the Indenture. In connection
with the Offering, the Company is entering into [and closing the initial
borrowings under a Credit Agreement (the "New Credit Agreement") with
_____________, as agent, and ______________ as lenders, to provide the Company
a $53 million secured credit facility], [or: certain amendments (the
"Existing Credit Agreement Amendments") to the Company's Revolving Credit
Agreement with Key Bank]. The Offering, the initial borrowings under the
[New Credit Agreement] [or: the Existing Credit Agreement Amendments] are
collectively referred to as the "Transactions."
<PAGE>
The closing of the Transactions, and the other transactions contemplated
thereby, will be concurrent, and the Offering is conditioned upon completion
of the other components of the Transactions.
The Company hereby confirms its agreement with the Underwriters as follows:
2. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 (File No. 333-63003) including a
prospectus, relating to the Notes and the Conversion Shares. To the extent
the registration statement has been amended, each such amendment has been
prepared and filed with the Commission. Such registration statement, as
amended, at the time when it became effective, and any registration statement
filed with the Commission pursuant to Rule 462(b) under the Act, at the time
when it becomes effective, including all financial schedules and exhibits
thereto and all of the information (if any) deemed to be part of the
registration statements at the time of effectiveness pursuant to Rule 430A
under the Act ("Rule 430A"), is hereinafter referred to as the "Registration
Statement"; the prospectus in the form first provided to the Underwriters by
the Company for use in connection with the offering and sale of the Notes and
the Conversion Shares (whether or not required to be filed pursuant to Rule
424(b) under the Act ("Rule 424(b)")), and including all documents
incorporated or deemed incorporated by reference therein, is hereinafter
referred to as the "Prospectus," except that if any revised prospectus shall
be provided to the Underwriters by the Company for use in connection with the
offering of the Notes and/or the Conversion Shares that differs from the
Prospectus (whether or not any such revised prospectus is required to be
filed by the Company pursuant to Rule 424(b)), the term "Prospectus" shall
refer to the revised prospectus from and after the time it is first provided
to the Underwriters for such use. Each preliminary prospectus included in
the Registration Statement prior to the time it became effective is herein
referred to as a "Preliminary Prospectus."
3. AGREEMENTS TO SELL AND PURCHASE.
(a) On the basis of the representations and warranties contained
in this Agreement, and subject to the terms and conditions hereof, the
Company agrees to issue and sell to the Underwriters, and each Underwriter
agrees, severally and not jointly, to purchase from the Company, at a
purchase price equal to 94.5% of the principal amount thereof, the respective
aggregate principal amounts of Firm Notes set forth opposite the name of such
Underwriter in Schedule I hereto.
(b) On the basis of the representations and warranties contained
in this Agreement, and subject to the terms and conditions hereof, (i) the
Company agrees to issue and sell to the Underwriters, and the Underwriters
shall have the right, from time to time (subject to the last sentence of
Section 4(b)) to purchase from the Company, severally and not jointly, up to
the aggregate number of Additional Notes at a purchase price equal to 94.5%
of the principal amount thereof. Additional Notes may be purchased as
provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Notes. If
any Additional Notes are to be purchased, each Underwriter, severally and not
jointly, agrees to purchase the aggregate principal amount of
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<PAGE>
Additional Notes (subject to such adjustments to eliminate fractional Notes
as the Representatives may determine) that bears the same proportion to the
total number of Additional Notes to be purchased as the number of Firm Notes
set forth opposite the name of such Underwriter in Schedule I bears to the
total number of Firm Notes.
(c) The Company is advised by the Representatives that the
Underwriters propose to make a public offering of their prospective portions of
the Notes as soon after the Registration Statement and this Agreement become
effective as in the Representatives' judgment is advisable.
(d) The Company covenants and agrees that it will not, for a period
of 180 days following the date this Agreement becomes effective, without the
prior, written consent of Advest, Inc. on behalf of the Underwriters, offer,
pledge, sell or contract to sell, or otherwise dispose of (or enter into any
transaction which is designed to, or could be expected to, result in the
disposition (whether by actual disposition or effective economic disposition due
to cash settlement or otherwise) by the Company or any affiliate of the
Company), directly or indirectly, or announce the offering of, any other shares
of capital stock of the Company or any securities or options convertible into,
or exchangeable or exercisable for, shares of capital stock (other than the
Notes); PROVIDED, HOWEVER, that the Company may grant options and may issue and
sell shares of capital stock pursuant to any employee stock option plan,
employee share purchase plan, stock ownership plan or dividend reinvestment plan
of the Company that was approved by the Board of Directors of the Company prior
to the date this Agreement becomes effective, and the Company may issue shares
of capital stock issuable upon the conversion of securities or the exercise of
warrants outstanding at the time this Agreement becomes effective.
4. AGREEMENTS OF THE COMPANY AS TO DELIVERY AND PAYMENT. The Company
agrees with each Underwriter that:
(a) Delivery to the Underwriters of and payment for the Firm Notes
shall be made at 10:00 A.M., New York City time, on the third (or, in the event
this Agreement is executed after 4:30 p.m., New York City time, the fourth) full
business day (such time and date being referred to as the "Closing Date") after
this Agreement is executed or at such other time and date as the Representatives
and the Company may agree upon in writing, at such place as the Representatives
shall designate.
(b) Delivery to the Underwriters of and payment for any Additional
Notes to be purchased by the Underwriters shall be made at such place as the
Representatives shall designate, at 10:00 A.M., New York City time, on such date
or dates (individually, an "Option Closing Date" and collectively, the "Option
Closing Dates"), which may be the same as the Closing Date but shall in no event
be earlier than the Closing Date, as shall be specified in a written notice from
the Representatives to the Company of the Underwriters' determination to
purchase an aggregate principal amount, specified in said notice, of Additional
Notes. Any such notice may be given at any time prior to the thirty-first
(31st) day after the date of this Agreement.
(c) Unless otherwise agreed, the certificates in definitive form
for the Notes to be purchased by each Underwriter in book-entry form and in
authorized
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<PAGE>
denominations and registered in the name of the nominee of The Depository
Trust Company ("DTC") shall be delivered by or on behalf of the Company
through the facilities of DTC for the account of such Underwriter, against
payment of the purchase price therefor by wire transfer of same day funds to
the Company, or upon its order, to an account designated by the Company, with
any transfer taxes payable upon initial issuance or the transfer thereof duly
paid by the Company for the respective accounts of the Underwriters. The
Company will make one or more certificates in definitive form for the Notes
available for checking and packaging by the Underwriters at the offices in
New York, New York of Advest, Inc. at least 24 hours prior to the Closing
Date.
5. FURTHER AGREEMENTS OF THE COMPANY. The Company also agrees with
each Underwriter that:
(a) the Company will, if the Registration Statement has not
heretofore become effective under the Act, file an amendment to the
Registration Statement or, if necessary pursuant to Rule 430A under the Act,
a post-effective amendment to the Registration Statement, as soon as
practicable after the execution and delivery of this Agreement, and will use
its best efforts to cause the Registration Statement or such post-effective
amendment to become effective at the earliest possible time; and the Company
will comply fully and in a timely manner with the applicable provisions of
Rule 424(b), Rule 430A and the other rules under the Act;
(b) the Company will advise the Underwriters promptly and, if
requested by the Representatives, shall confirm such advice in writing (and
provide copies of any relevant correspondence and other documents) to the
Representatives (i) when the Registration Statement has become effective, if
and when the Prospectus is sent for filing pursuant to Rule 424 under the
Act, and when any post-effective amendment to the Registration Statement
becomes effective, (ii) of the receipt of any comments or correspondence from
the Commission that relate to the Registration Statement or requests by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement, or of the suspension of qualification of the
Notes or the Conversion Shares for offering or sale in any jurisdiction, or,
to the knowledge of the Company, of the threat or initiation of any
proceedings for such purpose by the Commission or any state securities
commission or other regulatory authority, and (iv) of the happening of any
event or information becoming known during the period referred to in
paragraph (e) below that makes any statement of a material fact made in the
Registration Statement untrue or that requires the making of any additions to
or changes in the Registration Statement (as amended or supplemented from
time to time) in order to make the statements therein not misleading or that
makes any statement of a material fact made in the Prospectus (as amended or
supplemented from time to time) untrue or that requires the making of any
additions to or changes in the Prospectus (as amended or supplemented from
time to time) in order to make the statements therein not misleading; if at
any time the Commission shall issue or institute proceedings (or threaten to
institute any such proceedings) to issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue or institute proceedings
(or threaten to institute proceedings) to issue an order suspending the
qualification or exemption of the Notes or the Conversion Shares under any
state securities
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<PAGE>
or Blue Sky laws, the Company shall use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time;
(c) the Company will furnish to each of the Representatives
without charge one signed copy of the Registration Statement as first filed
with the Commission and of each amendment to it, including all exhibits filed
therewith, and will furnish to the Representatives such number of conformed
copies of the Registration Statement as so filed and of each amendment to it,
without exhibits, as the Representatives may reasonably request;
(d) the Company will not file any amendment or supplement to the
Registration Statement, whether before or after the time when it becomes
effective, or make any amendment or supplement to the Prospectus of which the
Representatives shall not previously have been advised and provided a copy a
reasonable period of time prior to the filing thereof and to which the
Representatives or their counsel shall reasonably object; and the Company will
prepare and file with the Commission, promptly upon the Representatives'
reasonable request, any amendment to the Registration Statement or supplement to
the Prospectus that may be necessary or advisable in connection with the
distribution of the Notes by the Representatives in their or their counsel's
reasonable opinion, and will use its best efforts to cause the same to become
effective as promptly as possible;
(e) promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as a prospectus is required by the
Act to be delivered in connection with the sales by an underwriter or a dealer
(in the reasonable written opinion of the Representatives' counsel, it being
understood that no opinion of the Representatives' counsel shall be necessary
for distribution of the Prospectus prior to or on the Closing Date), the Company
will furnish to each Representative, Underwriter and dealer without charge as
many copies of the Prospectus (and any amendment or supplement of the
Prospectus) as the Representatives or such Underwriters or dealers may
reasonably request for the purposes contemplated by the Act; the Company
consents to the lawful use of the Prospectus and any amendment or supplement
thereto by any Underwriter or any dealer, both in connection with the offering
or sale of the Notes and for such period of time thereafter as the Prospectus is
required by the Act to be delivered in connection therewith;
(f) if during the period specified in paragraph (e) any event shall
occur or information become known as a result of which in the reasonable opinion
of the Representatives' counsel it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in light of the
circumstances existing as of the date the Prospectus is delivered to a
purchaser, not misleading, or it is necessary to amend or supplement the
Prospectus to comply with any law, the Company will forthwith prepare and,
subject to paragraph 5(d) above, file with the Commission at the sole expense of
the Company an appropriate amendment or supplement to the Prospectus so that the
statements of any material facts in the Prospectus, as so amended and
supplemented, will not in light of the circumstances when it is so delivered, be
misleading, or so that the Prospectus will comply with law and the Company will
furnish to the Representatives and to such Underwriters and dealers as the
Representatives shall specify, at the sole expense of the Company, such number
of copies thereof as the Representatives or such Underwriters or dealers may
reasonably request;
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<PAGE>
(g) without limiting the generality of the foregoing clause (f), the
Company acknowledges and agrees that if, prior to the exercise in full or
termination or expiration of the option to purchase the Additional Notes, the
Company incurs any liability or obligation, direct or contingent, or enters into
any material transaction, or otherwise takes any action or experiences any
change in situation or circumstances which may render the Prospectus (as it then
exists) misleading, the Company shall (i) promptly notify Advest, Inc. in
writing of such event, such notice to explain the nature and scope of such event
in reasonable detail insofar as possible, and (ii) as may be necessary or
advisable in connection with the distribution of the Notes by the
Representatives in their counsel's reasonable opinion, forthwith prepare and,
subject to paragraph 5(d) above, file with the Commission at the sole expense of
the Company an appropriate amendment to the Registration Statement or supplement
to the Prospectus, and (iii) at the sole expense of the Company, reproduce and
distribute such amendment or supplement to such persons or institutions as
Advest, Inc. shall reasonably request;
(h) prior to any public offering of the Notes and/or Conversion
Shares, the Company will cooperate with the Representatives and counsel for the
Representatives in connection with the registration or qualification of the
Notes and/or Conversion Shares for offer and sale by the several Underwriters
and by dealers under the state securities or Blue Sky laws of such jurisdictions
as the Representatives may request (provided, that the Company shall not be
obligated to qualify as a foreign corporation or business trust in any
jurisdiction in which it is not otherwise required to be so qualified or to take
any action which would subject it to general consent to service of process in
any jurisdiction in which it is not now otherwise required to be so subject);
the Company will continue such cooperation so long as required by law for the
distribution of the Notes and/or Conversion Shares and will file such consents
to service of process or other documents as may be necessary in order to effect
such registration or qualification (provided, that the Company shall not be
obligated to take any action that would subject it to general consent to service
of process in any jurisdiction in which it is not now otherwise required to be
so subject);
(i) the Company will not acquire any Notes or any capital stock of
the Company prior to the exercise in full or termination or expiration of the
option to purchase the Additional Notes, nor will the Company declare or pay any
dividend or make any other distribution upon its capital stock payable to
stockholders of record on a date prior to the exercise in full or termination or
expiration of the option to purchase the Additional Notes;
(j) the Company will mail and make generally available to holders of
Notes and/or Conversion Shares and furnish to the Representatives as soon as
reasonably practicable a consolidated earnings statement covering a period of at
least 12 months beginning after the "effective date" (as defined in Rule 158
under the Act) of the Registration Statement (but in no event commencing later
than 90 days after such date) that will satisfy the provisions of Section 11(a)
of the Act and Rule 158 thereunder, if applicable to holders of the Notes and/or
Conversion Shares;
(k) During the period of five (5) years after the date of this
Agreement, the Company will furnish to each of the Representatives a copy (i) as
soon as practicable after the filing thereof, of each report filed by it with
the Commission, any securities exchange or the National Association of
Securities Dealers, Inc. ("NASD"); (ii) as soon as
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<PAGE>
practicable after the release thereof, of each press release relating to the
Company; (iii) as soon as available, of each report of the Company mailed to
the Company's shareholders; and (iv) as soon as available, such other
publicly available information concerning the Company as the Representatives
may reasonably request;
(l) whether or not the transactions contemplated hereby are
consummated or this Agreement becomes effective as to all of its provisions or
is terminated, to pay all costs, fees, expenses and taxes incident to the
performance by the Company of its obligations hereunder, including (i) the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including financial statements and exhibits), each Preliminary
Prospectus, the Prospectus and all amendments and supplements to any of them
prior to or during the period specified in paragraph (e) above of this
Section 5, (ii) the word processing, reproduction and distribution of the Blue
Sky Survey and any related memoranda, correspondence and other documents
prepared and delivered by the Underwriters or their counsel (including in each
case the fees and disbursements of counsel for the Underwriters relating to such
preparation and delivery), (iii) the filing of notices of the offer and sale of
the Notes and/or the Conversion Shares by the several Underwriters and by
dealers under the securities or Blue Sky laws of the several states (including
in each case the fees and disbursements of counsel for the Underwriters relating
to such filings), (iv) the filings and clearance with the NASD in connection
with the offering and sale of the Notes and/or Conversion Shares (including the
filing fees relating to such filings and clearance), (v) the approval for
listing of the Notes on the Nasdaq SmallCap Market, and the approval of the
Conversion Shares for listing on the Nasdaq National Market, (vi) furnishing
such copies of the Registration Statement, each Preliminary Prospectus, the
Prospectus and all amendments and supplements thereto as may be reasonably
requested by the Representatives for use in connection with the offering or sale
of the Notes by the Underwriters or by dealers to whom the Notes may be sold,
(vii) obtaining the opinions to be provided pursuant to Section 8(f)-(h) of this
Agreement, (viii) the fees and expenses of the Indenture Trustee, including the
fees and disbursements of counsel for the Indenture Trustee, (ix) the cost of
approving the Notes for eligibility with DTC, and (x) the performance by the
Company of all of its other obligations under this Agreement; if the sale of the
Notes provided for herein is not consummated because the Underwriters exercise
their right to terminate this Agreement pursuant to Section 9 hereof or the
Company shall refuse or be unable to comply with any provision hereof (except as
the result of a breach of this Agreement by the Underwriters), the Company will
promptly reimburse the Underwriters upon demand for all reasonable out-of-pocket
expenses (including the fees and disbursements of counsel for the Underwriters)
that shall have been incurred by the Underwriters in connection with the
proposed purchase and sale of the Notes;
(m) the Company intends to use the net proceeds received by it from
the sale of the Notes being sold by it in the manner specified in the
Prospectus;
(n) if, at the time of effectiveness of the Registration Statement,
any information shall have been omitted therefrom in reliance upon Rule 430A,
then immediately following the execution and delivery of this Agreement, the
Company will prepare, and file or transmit for filing with the Commission in
accordance with Rule 430A and Rule 424(b), copies of an amended prospectus, or,
if required by Rule 430A, a post-
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<PAGE>
effective amendment to the Registration Statement (including an amended
prospectus), containing all information so omitted;
(o) the Company will cause the Notes and the Conversion Shares to be
approved for listing, subject to notice of issuance or sale, on the Nasdaq
SmallCap Market and Nasdaq National Market, respectively, and will comply with
all registration, filing and reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") in connection with the sale of the
Notes and issuance of the Conversion Shares; and
(p) the Company will use its best efforts to do and perform all
things required to be done and performed under this Agreement by it prior to or
after the Closing Date or any Option Closing Date, as the case may be, and to
satisfy all conditions precedent required to be satisfied under this Agreement
prior to the delivery of the Notes.
6. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to each Underwriter as of the
date hereof, the Closing Date and each Option Closing Date that:
(i) The Commission has not issued any order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Notes and/or Conversion Shares nor, to the Company's knowledge, instituted or
threatened any proceedings for that purpose. The Registration Statement, on the
date it became effective, and the Prospectus and any amendment or supplement
thereto, on the date of filing thereof with the Commission (or if not filed, on
the date provided by the Company to the Underwriters in connection with the
offering and sale of the Notes and/or Conversion Shares) and at the Closing Date
and each Option Closing Date conformed or will conform with the requirements of
the Act and the Trust Indenture Act of 1939, as amended, and the rules and
regulations promulgated thereunder (collectively, the "Trust Indenture Act").
When the Registration Statement or any amendment thereto was or is declared
effective, it did not and will not contain an untrue statement of material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, not misleading. The Prospectus and any amendment
or supplement thereto, on the date of filing thereof with the Commission (or if
not filed, on the date provided by the Company to the Underwriters in connection
with the offering and sale of the Notes) and at the Closing Date and each Option
Closing Date did not and will not include an untrue statement of material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The foregoing shall not apply to statements in or
omissions from the Registration Statement and the Prospectus made or omitted in
reliance upon, and in conformity with, information relating to the Underwriters
furnished in writing to the Company by or on behalf of the Underwriters
expressly for use therein. The Company hereby acknowledges for all purposes
under this Agreement that the inormation furnished to the Company by or on
behalf of the Underwriters for use in the preparation of the Registration
Statement or the Prospectus or any amendment or supplement thereto (the
"Underwriters' Information") consists only of (A) the last paragraph of text set
forth on the outside front cover page of the Prospectus, (B) the stabilization
and passive market-making legends set forth on the inside front cover page of
the Prospectus, and (C) the statements set
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<PAGE>
forth in the fourth, seventh and eighth paragraphs under the caption
"Underwriting" in the Prospectus.
(ii) The only subsidiaries of the Company are as set forth
on Exhibit A to this Agreement (singularly, a "Subsidiary" and collectively, the
"Subsidiaries"). The Company has been duly incorporated and is a validly
existing corporation under the laws of Oregon, with full corporate power and
authority to own or lease its properties and assets and to conduct its business
as described in the Registration Statement and the Prospectus and is duly
qualified to do business in each jurisdiction in which it owns or leases real
property or in which the conduct of its business or the ownership or leasing of
property requires such qualification, except where the failure to be so
qualified would not (i) have a material adverse effect on the condition
(financial or other), business, assets, prospects, net worth or results of
operations of the Company and its Subsidiaries, taken as a whole, or (ii) give
rise (whether with notice or a lapse of time, or both, or otherwise) to a
default or event of default with respect to the Notes (either, a "Material
Adverse Effect"). Each Subsidiary has been duly incorporated and is a validly
existing corporation and, if applicable, in good standing under the laws of the
jurisdiction set forth opposite its name on Exhibit A, with full corporate power
and authority to own or lease its properties and assets and to conduct its
business as described in the Registration Statement and the Prospectus and is
duly qualified to do business in each jurisdiction in which it owns or leases
real property or in which the conduct of its business or the ownership or
leasing of property requires such qualification, except where the failure to be
so qualified would not have a Material Adverse Effect.
(iii) All of the issued shares of capital stock of each
Subsidiary have been duly authorized and validly issued, are fully paid and
nonassessable and are owned beneficially by the Company or one of its
Subsidiaries (except in the case of Praegitzer Asia Sdn. Bhd. ("Praegitzer
Asia"), only 51% of whose capital stock is owned by a Subsidiary of the
Company), free and clear of all liens, security interests, pledges, charges,
encumbrances, defects, shareholders' agreements, voting agreements, proxies,
voting trusts, equities or claims of any nature whatsoever (collectively,
"Adverse Interests"), except for such Adverse Interests which, individually or
in the aggregate, do not and could not reasonably be expected to have a Material
Adverse Effect or, in the case of Praegitzer Asia or Praegitzer Industries
(B.V.I.) Inc., materially impair the Company's ability to exercise control over
any such Subsidiary. Other than the Subsidiaries, the Company does not own,
directly or indirectly, any capital stock or other equity securities of any
other corporation or any ownership interest in any partnership, joint venture or
other association.
(iv) The capitalization of the Company is, and upon
consummation of the transactions contemplated hereby and by the Prospectus will
be, as set forth in the Registration Statement and the Prospectus under the
caption "Capitalization." All of the outstanding shares of capital stock of the
Company have been duly authorized and are validly issued, are fully paid and
non-assessable and conform to the description thereof in the Registration
Statement and the Prospectus and were not issued in violation of any preemptive
rights or other rights to subscribe for or purchase securities. Except for the
Notes, and except as set forth in the Registration Statement and the Prospectus
with respect to the Company's stock option and employee share purchase plans and
options, warrants or other rights to acquire shares of the Company's capital
stock granted outside of the
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<PAGE>
Company's stock option and employee share purchase plans, no options,
warrants or other rights to purchase from the Company, agreements or other
obligations of the Company to issue or other rights to convert any obligation
into, or exchange any securities for, shares of the Company's capital stock
of or ownership interests in the Company are outstanding. None of the
securities of the Company or any Subsidiary has been issued in violation of
applicable U.S. federal or state securities laws except for such violations
which, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in any Material Adverse Effect.
(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and except
as described therein, (A) neither the Company nor any Subsidiary has incurred
any liabilities or obligations, direct or contingent, or entered into any
transactions which liabilities, obligations or transactions, individually or
in the aggregate, would be material to the Company and its Subsidiaries taken
as a whole, (B) neither the Company nor any Subsidiary has purchased any of
its outstanding capital stock or declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock or otherwise, and
(C) there has not been any material adverse change in the condition
(financial or other), business, assets, prospects, net worth or results of
operations of the Company and its Subsidiaries, taken as a whole, or the
Company's or any Subsidiary's capital stock, short-term debt or long-term
debt.
(vi) The Notes have been duly authorized by the Company,
will be duly executed and delivered by the Company on the Closing Date and on
each Option Closing Date, and, when authenticated in the manner provided for
in the Indenture and delivered against payment therefor as described in the
Registration Statement and the Prospectus, will be legal, valid and binding
obligations of the Company enforceable in accordance with their terms, except
(i) as enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general equity principles, and (ii) as rights to indemnity
or contribution hereunder may be limited by Federal or state securities laws
or the public policy underlying such laws, and will be entitled to the
benefits of the Indenture. The Notes conform in all material respects with
the description thereof and all statements relating thereto in the
Registration Statement and the Prospectus. The Notes have been approved for
listing on the Nasdaq SmallCap Market, subject only to notice of issuance.
(vii) The Conversion Shares have been or will be duly
authorized and, upon conversion of the Notes, will be validly issued, fully
paid and nonassessable and will conform to the description of the capital
stock in the Registration Statement and the Prospectus. The Conversion
Shares, upon issuance, will not be subject to any statutory (or to the
knowledge of the Company, any other ) preemptive rights, or to any
encumbrances. A sufficient number of shares of the Company's common stock
have been reserved for issuance upon conversion of the Notes into Conversion
Shares. The Conversion Shares are and will be approved for listing on the
Nasdaq National Market, subject only to notice of issuance.
(viii) This Agreement has been duly authorized, executed
and delivered by the Company and is a legal, valid and binding agreement of
the Company enforceable in accordance with its terms, except (i) as
enforceability thereof may be limited
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<PAGE>
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general equity principles, and
(ii) as rights to indemnity or contribution hereunder may be limited by
Federal or state securities laws or the public policy underlying such laws.
(ix) The Indenture has been duly authorized by the
Company, will be duly executed and delivered by the Company on the Closing
Date, and will be a legal, valid and binding agreement of the Company
enforceable in accordance with its terms, except (i) as enforceability
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally and by general
equity principles, and (ii) as rights to indemnity or contribution hereunder
may be limited by Federal or state securities laws or the public policy
underlying such laws. The Indenture conforms in all material respects with
the description thereof and all statements relating thereto in the
Registration Statement and the Prospectus and, upon the effectiveness of the
Registration Statement, will be qualified under the Trust Indenture Act.
(x) None of the Company or any Subsidiary is in
violation of its Certificate or Articles of Incorporation or by-laws, as the
case may be. Before and after giving effect to the Transactions, none of the
Company or any Subsidiary is in violation of or in breach of or in default in
(nor has any event occurred that with notice or lapse of time, or both, would
be a breach of or a default in) the performance of any obligation, agreement
or condition contained in any agreement, lease, contract, permit, license,
franchise agreement, mortgage, loan agreement, debenture, note, deed of
trust, bond, indenture or other evidence of indebtedness or any other
instrument or obligation (collectively, "Obligations and Instruments") to
which it is a party or by which it or any of its properties or assets are
bound or affected, except for such violation, breach, default as, either
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect. Without limiting the generality of the foregoing
sentence, before and after giving effect to the Transactions, there is no
default or event of default (nor has any event occurred that with notice or
lapse of time, or both, would result in a default or event of default) under
or in connection with any of the Key Agreement, the Heller Agreements, the
Finova Agreement or any other Senior Debt and/or Indebtedness (all as defined
in the Prospectus) that has not been waived by valid, effective and
enforceable waivers, true and correct copies of which have been provided to
the Representatives and their counsel in advance of the date hereof. None of
the Company or any Subsidiary is in violation of any statute, judgment,
decree, order, rule or regulation (collectively, "Laws") applicable to it or
any of its properties or assets that, alone or together with other violations
of Laws, could reasonably be expected to result in a Material Adverse Effect.
(xi) The execution, delivery and performance of this
Agreement and delivery of the Notes (and upon conversion thereof, the
Conversion Shares) by the Company and compliance by the Company with all the
provisions hereof and the consummation of the transactions contemplated
hereby and as described in the Registration Statement and the Prospectus
(including, without limitation, the Transactions) will not, alone or upon
notice or the passage of time or both (A) require any consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body or third party (except (1) such as may be
required under the Act and the securities or Blue Sky laws of the various
states or by the NASD or (2) such as have been
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obtained prior to the date hereof and true and correct copies of which have
been provided to the Representatives and their counsel in advance of the date
hereof), (B) result in the creation or imposition of any material lien,
charge or encumbrance upon any of the properties or assets of the Company or
any Subsidiary pursuant to the terms and provisions of any Obligation or
Instrument, (C) conflict with or constitute a breach or default under any
Obligation or Instrument to which the Company or any Subsidiary is a party or
by which it or any of its properties or assets are bound (including without
limitation the Key Agreement, the Finova Agreement, the Heller Agreements or
any other Senior Debt and/or Indebtedness Obligations and Instruments), or
(D) assuming compliance with the Act and all applicable state securities or
Blue Sky laws, violate or conflict with any Laws applicable to the Company or
any Subsidiary or any of its properties or assets except, with respect to
clauses (B), (C) and (D) hereof, for such liens, charges, encumbrances,
conflicts, breaches, defaults or violations as could not, either individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(xii) Except as set forth in the Registration Statement
and the Prospectus, there is no action, suit, proceeding, inquiry or
investigation, governmental or otherwise before any court, arbitrator or
governmental agency or body (collectively, "Proceedings") pending to which
the Company or any Subsidiary is a party or to which any of their properties
or assets are subject, that, individually or in the aggregate, if determined
adversely to the Company or such Subsidiary, could reasonably be expected to
result in a Material Adverse Effect, or that seeks to restrain, enjoin,
prevent the consummation of or otherwise challenge the issuance or sale of
any of the Notes and/or Conversion Shares to be sold hereunder or the
consummation of the transactions described in the Registration Statement and
the Prospectus and, to the knowledge of the Company, no such Proceedings are
threatened or contemplated. There is no contract, document, agreement or
transaction to which the Company or any Subsidiary is a party, or that
involved or involves the Company or any Subsidiary or any of its properties
or assets that is required to be described in or filed as an exhibit to the
Registration Statement by the Act that has not been so described or filed.
To the knowledge of the Company, no action has been taken by any governmental
agency that suspends the effectiveness of the Registration Statement,
prevents or suspends the use of any Preliminary Prospectus or the Prospectus
or suspends the sale of the Notes and/or Conversion Shares in any
jurisdiction referred to in Section 5(h) hereof. No injunction, restraining
order or order of any nature by a federal or state court of competent
jurisdiction has been issued with respect to the Company or any Subsidiary
that could reasonably be expected to prevent the issuance of the Notes and/or
Conversion Shares, suspend the effectiveness of the Registration Statement,
prevent or suspend the use of any Preliminary Prospectus or the Prospectus or
suspend the sale of the Notes and/or Conversion Shares in any jurisdiction
referred to in Section 5(h) hereof. Every request of the Commission, or any
securities authority or agency of any jurisdiction, for additional
information (to be included in the Registration Statement or the Prospectus
or otherwise) has been complied with in all material respects.
(xiii) Neither the Company nor any Subsidiary has violated any
Federal or state law, statute, ordinance, rule, regulation or common law, as the
same may be interpreted or administered by any Federal, state, regional, county
or local agencies, relating to (A) the protection, investigation, remediation,
or restoration of the environment or natural resources, (B) the handling, use,
storage, treatment, disposal, release or threatened release of
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any Hazardous Material (as defined below), or (C) pollution or contamination
("Environmental Laws"), except for such violations as could not, either
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, nor, to the knowledge of the Company, are there any
circumstances, past, present or reasonably foreseeable, that may lead to such
violation in the future that, in each case or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect. No property
owned or leased by the Company or any Subsidiary is included or, to the
knowledge of the Company, proposed for inclusion on the National Priorities
List promulgated under the Comprehensive Environmental Response Compensation
and Liability Act of 1980, U.S.C. Sections 9601 et seq. Except for any
asbestos - containing materials or lead-based paint that may be, or may have
been contained, on property, to the knowledge of the Company no property
currently, or in the past, owned or leased by the Company or any Subsidiary
contains, or contained, as the case may be, any Hazardous Material that
requires or required, as the case may be, investigation or remediation under
any Environmental Law, except for such investigation or remediation as could
not, either individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect. Neither the Company nor any Subsidiary has caused
or allowed the release of any Hazardous Material on, in, under or from any
property currently or in the past owned or leased by the Company or any
Subsidiary, except for such releases as could not, either individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect, nor
may the Company or any Subsidiary be deemed an "owner or operator" of a
"facility" or "vessel" that owns, possesses, transports, generates,
discharges or disposes of a "hazardous substance" as those terms are defined
in Section 9601 of the Comprehensive Response Compensation and Liability Act
of 1980, U.S.C. Section 9601 et seq. Neither the Company nor any Subsidiary
has received any notice of a claim under or pursuant to any Environmental Law
relating to any Hazardous Material on or originating from any property
currently or in the past owned or leased by the Company or any Subsidiary,
except for such claims as could not, either individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. "Hazardous
Material" means any substance, material, or waste that is (A) listed,
classified or regulated as a hazardous substance or waste in any
concentration pursuant to any Environmental Law, or (B) any other substance,
material, or waste which may be the subject of regulatory action by any
governmental entity pursuant to any Environmental Law.
(xiv) The Company and each Subsidiary has such permits,
licenses, registrations, franchises and authorizations of governmental or
regulatory authorities or third parties ("Permits"), including, without
limitation, under any applicable Environmental Laws, as are necessary to own,
lease and operate its properties and assets and to conduct its businesses or
operations, except where the failure to have any such Permit could not
reasonably be expected to have a Material Adverse Effect. The Company and
each Subsidiary are in compliance with such Permits, except where such
failure to comply with such Permits could not, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. No
event has occurred that allows, or after notice or lapse of time, or both
would allow, revocation or termination thereof or result in any other
material impairment of the rights of the holder of any such Permits.
(xv) Neither the Company nor any Subsidiary is in violation
of any foreign, Federal, state or local law relating to discrimination in the
hiring, promotion or pay of employees for any applicable foreign, Federal or
state wages and hours laws, nor any
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provisions of the Employee Retirement Income Security Act of 1974, as
amended, or the rules and regulations promulgated thereunder ("ERISA") or
similar foreign laws, the violation of which in each case or in the aggregate
could reasonably be expected to result in a Material Adverse Effect. No
"reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) which in each case or in the aggregate
would result in a Material Adverse Effect. The Company has not incurred any
material liability under (i) Title IV of ERISA with respect to the
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412
or 4971 of the Internal Revenue Code of 1986, as amended.
(xvi) None of the Company or any Subsidiary is, or intends
to conduct its business in a manner in which it would become, an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(xvii) Except as otherwise set forth in the Registration
Statement and the Prospectus, the Company and each Subsidiary has good and
marketable title, free and clear of all liens, claims, encumbrances and
restrictions (except liens for taxes not yet due and payable) to all property
and assets described in the Registration Statement as being owned by it,
except for such liens, claims, encumbrances and restrictions as would not
have a Material Adverse Effect. All leases to which the Company or any
Subsidiary is a party are subsisting, valid and binding obligations of the
Company or such Subsidiary and no default of the Company or the Subsidiary
or, to the knowledge of the Company, any other person has occurred or is
continuing thereunder that could reasonably be expected to result in a
Material Adverse Effect. The Company and each Subsidiary enjoys peaceful and
undisturbed possession under all such leases to which the Company or the
Subsidiary is a party as lessee with such exceptions as do not materially
interfere with the use made thereof by the Company or the Subsidiary.
(xviii) The Company and each Subsidiary is insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as is reasonable and prudent for the business in which it
is engaged.
(xix) No labor dispute with the employees of the Company
or any Subsidiary exists or, to the best knowledge of the Company, is
imminent that could reasonably be expected to result in a Material Adverse
Effect. The Company does not know of any existing or imminent labor
disturbance by the employees of any of its or its Subsidiaries' principle
suppliers, customers, manufacturers or contractors that could reasonably be
expected to result in a Material Adverse Effect.
(xx) Deloitte & Touche LLP, the accounting firm that has
audited the required annual financial statements filed or to be filed with
the Commission as part of the Registration Statement and the Prospectus, is
an independent public accounting firm with respect to the Company as required
by the Act.
(xxi) The consolidated financial statements of the Company,
together with related notes of the Company included in the Registration
Statement and the Prospectus, are accurate and present fairly the financial
position, results of operations and
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cash flows of the Company as consolidated with its Subsidiaries at the
indicated dates and for the indicated periods. Such financial statements have
been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied throughout the periods involved, and all
adjustments necessary for a fair presentation of results for such periods
have been made; any unaudited financial statements have been prepared on a
basis substantially consistent with that of the audited financial statements
included in the Registration Statement and the Prospectus. The summary and
selected financial and operating data included in the Registration Statement
and the Prospectus presents fairly the information shown therein and have
been prepared on a basis consistent with the audited and any unaudited
financial statements, as the case may be, included therein, except as
otherwise set forth therein. The pro forma information included in the
Registration Statement and the Prospectus present fairly the information
shown therein, has been prepared in accordance with GAAP and the Commission's
rules and guidelines with respect to pro forma financial statements and other
pro forma information, and has been properly prepared on the pro forma basis
described therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate under the
circumstances.
(xxii) No holder of any security of the Company has any
right to require inclusion of any such security in the Registration Statement
or, to the extent such rights exist, (a) such rights have been waived or (b)
the securities as to which such rights exist are subject to an effective
registration statement under the Act. There are no preemptive rights with
respect to the offering being made by the Prospectus or the issuance of the
Conversion Shares upon conversion of the Notes.
(xxiii) The Company and each Subsidiary has filed or caused
to be filed, or has properly filed extensions for, all foreign, federal,
state and local income, value added and franchise tax returns and has paid
all taxes and assessments shown thereon as due, except for such taxes and
assessments as are disclosed or adequately reserved against and that are
being contested in good faith by appropriate proceedings, promptly instituted
and diligently conducted. All material tax liabilities are adequately
provided for on the books of the Company and each Subsidiary, and there is no
material tax deficiency that has been or might be asserted against the
Company or any Subsidiary that is not so provided for. During the time the
Company had elected to be treated as an "S" corporation under the Internal
Revenue Code of 1986, as amended (the "Code"), and any applicable state law,
the Company's election of such status was validly made, and at all times
until April 4, 1996 the Company qualified continuously for treatment as an
"S" corporation under the Code.
(xxiv) The Company and each Subsidiary owns or possesses,
or can acquire on reasonable terms, the patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names
(collectively, "Patents and Proprietary Rights") employed by it in connection
with the business it now operates except where the failure to so own, possess
or acquire such Patents and Proprietary Rights could not reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any
Subsidiary has received any notice and the Company is not otherwise aware of
any infringement of or conflict with asserted rights of others with respect
to any Patent or Proprietary Rights that, if the subject of any unfavorable
decision, ruling or finding, singly or in the aggregate, could result in a
Material Adverse Effect.
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<PAGE>
(xxv) Each of the Company and each Subsidiary has
conducted, is conducting and intends to conduct its business so as to comply
in all material respects with applicable federal, state, local and foreign
government Laws, except where the failure to comply could not reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any
Subsidiary is charged with or, to the Company's knowledge, under
investigation with respect to, any material violation of any such Laws.
(xxvi) None of the Company or any Subsidiary has taken or
will take, directly or indirectly, any action designed to or which has
constituted or that might reasonably be expected to cause or result in, under
the Exchange Act or otherwise, stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Notes or
the Conversion Shares.
(xxvii) None of the Company, any Subsidiary or, to the best
knowledge of the Company, any employee or agent of the Company or any
Subsidiary has made any payment of funds of the Company or the Subsidiary or
received or retained any funds in violation of any law, Rule or regulation
(including, without limitation, the Foreign Corrupt Practices Act) or of a
character required to be disclosed in the Prospectus. Neither the Company
nor any Subsidiary has, at any time during the past five years, (1) made any
unlawful contributions to any candidate for any political office, or failed
fully to disclose any contribution in violation of law, or (2) made any
unlawful payment to state, federal or foreign government officer or officers,
or other person charged with similar public or quasi-public duty.
(xxviii) No transaction has occurred between or among the
Company or any Subsidiary and any of the Company's or such Subsidiary's
officers, directors or trustees or any affiliate or affiliates of any such
officer, director or trustee that is required to be described in and is not
described in the Registration Statement and the Prospectus. There is no
material contract, document, agreement, transaction or relationship of a
character required by the Act to be described in the Registration Statement
or the Prospectus or to be filed as an exhibit to the Registration Statement
that is not described or filed as required.
(xxix) Other than as provided to the Underwriters under
this Agreement, none of the Company or any Subsidiary has incurred any
liability for finder's or broker's fees or agent's commissions in connection
with the execution and delivery of this Agreement, the offer and sale of the
Notes and/or the Conversion Shares or the transactions hereby contemplated.
(xxx) The Company and each Subsidiary maintains a system
of internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for inventory is compared with the existing inventory
at reasonable intervals and appropriate action is taken with respect to any
differences.
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<PAGE>
(xxxi) The Company has been subject to the requirements of
Section 12 or 15(d) of the Exchange Act and has filed in a timely manner all
reports and other material required to be filed pursuant to Sections 13, 14
or 15(d) of the Exchange Act since April 4, 1996 and, if the Company has used
Rule 12b-25(b) under the Exchange Act with respect to a report or a portion
of any such report, that report or portion thereof has actually been filed
within the time period prescribed by that rule. All such reports and other
materials filed pursuant to the Exchange Act were, at the time of their
filing, complete and accurate in all material respects.
(xxxii) The Company has not, since the end of its fiscal
year ended June 30, 1998 (for which audited financial statements of the
Company were included in the 1998 Form 10-K, a report filed pursuant to
Section 13(a) or 15(d) of the Exchange Act) defaulted on any (a) installment
or installments of indebtedness for borrowed money or (b) rental on one or
more long term leases, which defaults in the aggregate are material to the
financial position of the Company.
(xxxiii) No Subsidiary is prohibited, directly or indirectly,
from paying any dividends to the Company, from making any other distribution
on any such Subsidiary's capital stock, from repaying to the Company any
loans or advances to such Subsidiary from the Company or from transferring
any of such Subsidiary's property or assets to the Company or any other
Subsidiary.
(xxxiv) The Company has delivered to the Representatives and
their counsel true and correct copies of the [New Credit Agreement]
[or: the Existing Credit Agreement Amendments] in advance of the date
hereof, and there have been no amendments, alterations, modifications or
waivers thereto or in the exhibits or schedules thereto; there shall exist at
and as of each Closing Date and the Option Closing Date (after giving effect
to the transactions contemplated by this Agreement and the
[New Credit Agreement] [or: the Existing Credit Agreement Amendments]) no
conditions that would constitute a default or event of default under the
[New Credit Agreement] [or: the Key Agreement, as amended by the Existing
Credit Agreement Amendments].
(xxxv) The Company has not distributed and will not
distribute any offering material in connection with the offering and sale of
the Notes and/or the Conversion Shares other than the Registration Statement,
a Preliminary Prospectus, the Prospectus and other material, if any,
permitted by the Act.
(b) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to counsel for the Underwriters shall be
deemed a representation and warranty made by the Company, as the case may be,
to each Underwriter as to the matters covered thereby and shall be deemed
incorporated herein in its entirety and shall be effective as if such
representation and warranty were made herein.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each of
the Underwriters and each person, if any, who controls each of the
Underwriters within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act (collectively the
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Underwriters and each such person are sometimes referred to in this Section 7
as the "indemnified parties") from and against any and all losses, claims,
damages, liabilities and judgments caused by, arising out of, related to or
based upon: (i) any inaccuracy of any representation or warranty by the
Company contained in Section 6 hereof; (ii) any failure of the Company to
perform its obligations hereunder or under law; or (iii) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), including the information deemed to be
part of the Registration Statement at the time of effectiveness pursuant to
Rule 430A, if applicable, or the Prospectus or any Preliminary Prospectus or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; PROVIDED, HOWEVER, that the indemnification contained in this
paragraph with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person controlling such
Underwriter or any employee of such Underwriter) on account of any such loss,
liability, claim, damage or expense arising from the sale of the Notes by
such Underwriter to any person if a copy of the Prospectus shall not have
been sent to such person within the time required by the Act and the
Regulations, and the untrue statement or alleged untrue statement or omission
or alleged omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus, as amended or supplemented,
provided that the Company had delivered the Prospectus, as amended or
supplemented, to the several Underwriters on a timely basis to permit such
delivery or sending; and PROVIDED FURTHER, that the Company shall not be
liable in any such case to the extent that such losses, claims, damages,
liabilities or judgments are caused by an untrue statement or omission made
or omitted in reliance upon, and in conformity with, Underwriters'
Information.
(b) In case any action shall be brought against any of the
indemnified parties, based upon any Preliminary Prospectus, the Registration
Statement or the Prospectus or any amendment or supplement thereto, or
otherwise, and with respect to which indemnity may be sought against the
Company, such indemnified parties shall promptly notify the Company in
writing (but the failure so to notify shall not relieve the Company of any
liability that it may otherwise have to such indemnified parties under this
Section 7, although the Company's liability to an indemnified party may be
reduced on a monetary basis to the extent, but only to the extent, it has
been prejudiced by such failure on the part of such indemnified party), and
the Company shall promptly assume the defense thereof, including the
employment of counsel satisfactory to such indemnified party and payment of
all fees and expenses. The indemnified parties shall each have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such indemnified parties unless (i) the employment of such counsel shall have
been specifically authorized by the Company, (ii) the Company shall have
failed to assume promptly the defense, or (iii) the named parties to any such
action (including any impleaded parties) include both the indemnified parties
and the Company, and an indemnified party shall have been advised by counsel
that there may be a conflict of interest between the indemnified parties, on
the one hand, and the Company, on the other hand, (in which case the Company
shall not have the right to assume the defense of such action on behalf of
such indemnified party, it being understood, however, that the Company shall
not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
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general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel)
for the indemnified parties, which firm shall be designated in writing by
Advest, Inc., and that all such fees and expenses shall be reimbursed
promptly as they are incurred). The Company shall not be liable for any
settlement of any such action effected without its written consent, which
consent shall not be unreasonably withheld, but if settled with the written
consent of the Company, the Company agrees to indemnify and hold harmless the
indemnified parties from and against any and all loss or liability by reason
of such settlement. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested the Company to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the
second sentence of this paragraph, the Company agrees that it shall be liable
for any settlement of any proceeding effected without its written consent if
(i) such settlement is entered into more than 10 business days after delivery
by registered or certified mail to the proper address for notice to the
Company of the aforesaid request (whether or not such delivery is accepted)
and (ii) the Company shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. The
Company shall not, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in
respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional and complete release in writing of
such indemnified party from any and all liability on claims that are the
subject matter of such proceeding, which settlement shall be in form and
substance reasonably satisfactory to the indemnified party. The
indemnification provided in this Section 7 will be in addition to any
liability which the Company may otherwise have.
(c) The Underwriters agree, severally and not jointly, to
indemnify and hold harmless each of the Company and its directors and
officers who sign the Registration Statement, and any person controlling the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, to the same extent as the indemnity provided in Section
7(a)(iii) above from the Company to the Underwriters, but only with reference
to information stated in or omitted from the Registration Statement, the
Prospectus or any Preliminary Prospectus in reliance upon, and in conformity
with, the Underwriters' Information. In case any action shall be brought
against the Company, any of the Company's directors, any such officers or any
person controlling the Company based on the Registration Statement, the
Prospectus or any Preliminary Prospectus and in respect of which indemnity
may be sought against the Underwriters, the Underwriters shall have the
rights and duties given to the Company by Section 7(b) hereof (except that if
the Company shall have assumed the defense thereof, such Underwriter shall
not be required to do so, but may employ separate counsel therein and
participate in the defense thereof but the fees and expenses of such counsel
shall be at the expense of such Underwriter), and the Company, its directors,
any such officers and any person controlling the Officers shall have the
rights and duties given to the "indemnified parties" by Section 7(b) hereof.
(d) If the indemnification provided for in this Section 7 is for
any reason unavailable to an indemnified party or insufficient to hold such
indemnified party harmless in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims,
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damages, liabilities and judgments (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one hand and
the Underwriters on the other from the offering of the Notes or (ii) if the
allocation provided in clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company on the one hand and the Underwriters on the other in connection with
the statements or omissions or alleged statements or omissions that resulted
in such losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering and
sale of the Notes (before deducting expenses) received by the Company on the
one hand, and the total underwriting discounts received by the Underwriters
on the other, bears to the total price to the public of the Notes, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault of the Company and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or the alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of the
amount of Underwriting discount received by such Underwriter in connection
with the Notes underwritten by it and distributed to the public. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligation in
this Section 7(d) to contribute are several in proportion to the respective
amount of Notes purchased hereunder by each Underwriter and not joint.
8. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations
of the several Underwriters to purchase and pay for the Firm Notes on the
Closing Date and the Additional Notes on any Option Closing Date are subject
to the fulfillment of each of the following conditions on or prior to the
Closing Date and each Option Closing Date:
(a) All the representations and warranties of the Company
contained in this Agreement and in any certificate delivered hereunder shall
be true and correct on the Closing Date and each Option Closing Date with the
same force and effect as if made on and as of the Closing Date or Option
Closing Date, as applicable. On and prior to the Closing Date or Option
Closing Date, as applicable, the Company shall have performed or complied in
all material respects with all of the agreements herein contained and
required to be
-20-
<PAGE>
performed or complied with by the Company at or prior to the Closing Date or
the Option Closing Date, as applicable.
(b) If the Registration Statement is not effective at the time
of the execution and delivery of this Agreement, the Registration Statement
shall have become effective (or, if a post-effective amendment is required to
be filed pursuant to Rule 430A under the Act, such post-effective amendment
shall have become effective) not later than 9:00 A.M., New York City time, on
the day following the date of this Agreement or such later time as the
Representatives may approve in writing or, if the Registration Statement has
been declared effective prior to the execution and delivery hereof in
reliance on Rule 430A, the Prospectus shall have been filed as required by
the Act, if necessary; and at the Closing Date and each applicable Option
Closing Date, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
have been commenced or shall be pending before or, to the knowledge of the
Underwriters or the Company, threatened by the Commission; every request for
additional information on the part of the Commission shall have been complied
with to the Underwriters' satisfaction; no stop order suspending the sale of
the Notes and/or the Conversion Shares in any jurisdiction referred to in
Section 5(h) shall have been issued and no proceeding for that purpose shall
have been commenced or shall be pending or, to the best knowledge of the
Underwriters or the Company, threatened.
(c) The Notes and the Conversion Shares shall have been
qualified for sale (or an exemption from such qualification shall have been
secured) under the Blue Sky laws of such states as shall have been specified
by the Representatives.
(d) The legality and sufficiency of the authorization, issuance
and sale or transfer and sale of the Notes and the Conversion Shares
hereunder, the validity and form of the certificates representing the Notes,
the execution and delivery of this Agreement and all corporate proceedings
and other legal matters incident thereto, and the form of the Registration
Statement and the Prospectus (except financial statements) shall have been
approved by counsel for the Underwriters exercising reasonable judgment, and
no Underwriter shall have advised the Company that the Registration Statement
or the Prospectus, or any amendment or supplement thereto, contains an untrue
statement of material fact, or omits to state a fact that in the
Representatives' reasonable opinion is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
(e) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any material change, or any development
involving a prospective material change, in or affecting particularly the
business or properties of the Company or any Subsidiary, whether or not
arising in the ordinary course of business, that, in the reasonable judgment
of the Representatives, makes it impractical or inadvisable to proceed with
the public offering or purchase of the Notes as contemplated hereby, or (ii)
any event described in clauses (ii)-(vii) of the second paragraph of Section
9 hereof.
(f) The Underwriters shall have received an opinion
(satisfactory to them and their counsel) dated the Closing Date or the Option
Closing Date, as the case may be, of
-21-
<PAGE>
Lillick & Charles LLP, special counsel for the Indenture Trustee, in form and
substance satisfactory to the Representatives and attached hereto as Exhibit
B-1.
(g) The Underwriters shall have received an opinion
(satisfactory to them and their counsel) dated the Closing Date or the Option
Closing Date, as the case may be, of Stoel Rives LLP, counsel for the
Company, in form and substance satisfactory to the Representatives and
attached hereto as Exhibit B-2.
(h) The Underwriters shall have received an opinion
(satisfactory to the Underwriters and their counsel) dated the Closing Date
or the Option Closing Date, as the case may be, of Greene & Markley, counsel
for the Company, in form and substance satisfactory to the Representatives
and attached hereto as Exhibit B-3.
(i) The Underwriters shall have received an opinion of Irell &
Manella LLP, counsel for the Underwriters, dated the Closing Date or the
Option Closing Date, as the case may be, in form and substance satisfactory
to the Representatives and attached hereto as Exhibit B-4.
(j) The Underwriters shall have received, in connection with the
execution of this Agreement and on the Closing Date and each Option Closing
Date, a "cold comfort" letter from Deloitte & Touche LLP, dated as of each
such date in form and substance satisfactory to the Representatives with
respect to the financial statements and certain financial information and
data contained in the Registration Statement and the Prospectus.
(k) The Underwriters shall have received from the Company a
certificate, signed by Matthew J. Bergeron and William J. Thale in their
capacities as the President and Chief Operating Officer of the Company and
Vice President and Chief Financial Officer of the Company, respectively,
addressed to the Underwriters and dated the Closing Date or Option Closing
Date, as applicable, to the effect that:
(i) such officer does not know of any Proceedings instituted,
threatened or contemplated against the Company or any Subsidiary of a
character required to be disclosed in the Prospectus that are not so
disclosed; such officer does not know of any material contract required to
be filed as an exhibit to the Registration Statement which is not so filed;
(ii) such officer has carefully examined the Registration Statement
and the Prospectus and all amendments or supplements thereto and, in such
officer's opinion, such Registration Statement or such amendment as of its
effective date and as of the Closing Date, and the Prospectus or such
supplement as of its date and as of the Closing Date, did not contain an
untrue statement of material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein
not misleading and, in such officer's opinion, since the effective date of
the Registration Statement, no event has occurred or information become
known that should have been set forth in an amendment to the Registration
-22-
<PAGE>
Statement or a supplement to the Prospectus which has not been so set forth
in such amendment or supplement;
(iii) the representations and warranties of the Company set forth in
Section 6 of this Agreement are true and correct as of the date of this
Agreement and as of the Closing Date or the Option Closing Date, as the
case may be, and the Company has complied in all material respects with all
the agreements and satisfied all the conditions on its part to be performed
or satisfied at or prior to such Closing Date or the Option Closing Date,
as the case may be; and
(iv) the Commission has not issued an order preventing or
suspending the use of the Prospectus or any preliminary prospectus filed as
a part of the Registration Statement or any amendment thereto; no stop
order suspending the effectiveness of the Registration Statement has been
issued; and, to the knowledge of the respective officers, no proceedings
for that purpose have been instituted or are pending or contemplated under
the Act.
The delivery of the certificate provided for in this subparagraph shall be
and constitute a representation and warranty of the Company as to the facts
set forth in said certificate.
(l) The Company's common stock shall continue to be listed on
the Nasdaq National Market. The Notes to be sold by the Company at the
Closing Date and the Option Closing Date shall have been duly listed, subject
to notice of issuance, on the Nasdaq SmallCap Market; the Conversion Shares
shall have been duly listed, subject to otice of issuance, on the Nasdaq
National Market.
(m) The Company and each of the other parties to the
[New Credit Agreement] [or: the Existing Credit Agreement Amendments] shall
have entered into the [New Credit Agreement] [or: the Existing Credit Agreement
Amendments]and all conditions precedent to the effectiveness thereof shall
have been satisfied or waived, and the Company shall have provided to each of
the Representatives and counsel to the Representatives copies of all material
closing documents delivered to the parties relating to the [New Credit
Agreement] [or: the Existing Credit Agreement Amendments]. The Representatives
and their counsel shall be satisfied with the form and substance of the
[New Credit Agreement] [or: the Existing Credit Agreement Amendments] in
their sole discretion.
(n) The Underwriters and Irell & Manella LLP, counsel for the
Underwriters, shall have received on or before the Closing Date or the Option
Closing Date, as the case may be, such further documents, opinions,
certificates and schedules or instruments relating to the business,
corporate, legal and financial affairs of the Company as the Underwriters and
they shall have reasonably requested from the Company.
9. EFFECTIVE DATE OF AGREEMENT, TERMINATION AND DEFAULTS. This
Agreement shall become effective upon, and shall not be deemed delivered
until, the later of (i) execution of this Agreement by or on behalf of all
parties hereto, and (ii) when
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<PAGE>
notification of the effectiveness of the Registration Statement has been
released by the Commission.
This Agreement may be terminated at any time prior to the Closing Date
and any exercise of the option to purchase Additional Notes may be canceled
at any time prior to any Option Closing Date by the Underwriters by written
notice to the Company if any of the following has occurred: (i) since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or development
involving a prospective material adverse change in the condition, financial
or other, of the Company or the earnings, assets, liabilities, prospects,
management or business of the Company, whether or not arising in the ordinary
course of business, that would, in the Representatives' sole judgment, make
it impracticable to market the Notes on the terms and in the manner
contemplated in the Prospectus, (ii) any outbreak or escalation of
hostilities or other national or international calamity or crisis or change
in economic conditions or in the financial markets of the United States that,
in the Representatives' judgment, is material and adverse and would, in the
Representatives' judgment, make it impracticable to market the Notes on the
terms and in the manner contemplated in the Prospectus, (iii) the suspension
or material limitation of trading in securities on the New York Stock
Exchange, Inc., the Nasdaq SmallCap Market or the Nasdaq National Market or
limitation on prices for securities on either such exchange, the Nasdaq
SmallCap Market or the Nasdaq National Market, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, Rule or order of any court or other governmental authority that
in the Representatives' opinion materially and adversely affects, or will
materially and adversely affect, the business or operations of the Company,
(v) the declaration of a banking moratorium by either federal or Oregon,
California, Connecticut or New York state authorities, (vi) the taking of any
action by any Federal, state or local government or agency in respect of its
monetary or fiscal affairs that in the Representatives' opinion has a
material adverse effect on the financial markets in the United States, (vii)
any change in financial markets or in political, economic or financial
conditions which, in the opinion of the Representatives, either renders it
impracticable or inadvisable to proceed with the offering and sale of the
Notes on the terms set forth in the Prospectus or materially adversely
affects the market for the Notes and/or the Company's common stock, or (viii)
any conditions to the Underwriters' obligations under this Agreement shall
not have been fulfilled when and as required by this Agreement.
If on the Closing Date or on any Option Closing Date, as the case may be,
any of the Underwriters shall fail or refuse to purchase the Firm Notes or
Additional Notes, as the case may be, which it has agreed to purchase hereunder
on such date, and the aggregate number of Firm Notes or Additional Notes, as the
case may be, that such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase does not exceed, in the aggregate, 10% of the total
number of Notes that all Underwriters are obligated to purchase on such date,
each non-defaulting Underwriter shall be obligated, in the proportion which the
number of Firm Notes set forth opposite its name in Schedule I hereto bears to
the total number of Firm Notes or Additional Notes, as the case may be, that all
the non-defaulting Underwriters have agreed to purchase, or in such other
proportion as the non-defaulting Underwriters may specify, to purchase the Firm
Notes or Additional Notes, as the case may be, that such defaulting Underwriter
or Underwriters agreed but failed or refused to purchase on such date. If, on
the Closing Date or on the Option Closing Date, as the case may be, any
-24-
<PAGE>
of the Underwriters shall fail or refuse to purchase the Firm Notes or
Additional Notes, as the case may be, in an amount that exceeds, in the
aggregate, 10% of the total number of the Notes, and arrangements
satisfactory to the non-defaulting Underwriters and the Company for the
purchase of such Notes are not made within 48 hours after such default, this
Agreement shall terminate without liability on the part of the non-defaulting
Underwriters and the Company, except as otherwise provided in this Section 9.
In any such case that does not result in termination of this Agreement,
either the Representatives or the Company may postpone the Closing Date or
the Option Closing Date, as the case may be, for not longer than seven (7)
days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve a
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
The indemnity and contribution provisions and other agreements,
representations and warranties of the Company and the Company's officers and
directors set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and
payment for the Notes, regardless of (i) any investigation, or statement as
to the results thereof, made by or on behalf of any of the Underwriters or by
or on behalf of the Company or the officers or directors of the Company or
any controlling person of the Company, (ii) acceptance of the Notes and
payment therefor hereunder or (iii) termination of this Agreement.
Notwithstanding any termination of this Agreement, the Company shall be
liable for and shall pay all expenses they have agreed to pay pursuant to
Section 5(l).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of, and shall be binding upon, the Company, the Underwriters,
any indemnified person referred to herein and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this Agreement.
The terms "successors and assigns" shall not include a purchaser of any of
the Notes from any of the several Underwriters merely because of such
purchase.
10. EFFECTIVENESS OF REGISTRATION STATEMENT. The Underwriters and the
Company will use their best efforts to cause the Registration Statement to
become effective, if it has not yet become effective, and to prevent the
issuance of any stop order suspending the effectiveness of the Registration
Statement and, if such stop order be issued, to obtain as soon as possible
the lifting thereof.
11. MISCELLANEOUS. All communications hereunder will be in writing
and, if sent to the Underwriters will be mailed, delivered or telegraphed and
confirmed to the Representatives c/o Advest, Inc., 90 State House Square,
Hartford, CT 06103, Attention: [Robert Keane], with a copy to Irell &
Manella LLP, 333 South Hope Street, Suite 3300, Los Angeles, California
90071-1560, Attention: Eric A. Webber, Esq.; and if sent to the Company will
be mailed, delivered or telegraphed and confirmed to the Company at the
Company's corporate headquarters with a copy to Stoel Rives LLP, 900 SW Fifth
Avenue, Suite 2300, Portland, Oregon 97204-1260, Attention: Robert J.
Moorman, Esq.
-25-
<PAGE>
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAW THEREOF.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters, including the Representatives.
Very truly yours,
PRAEGITZER INDUSTRIES, INC.
By:
-----------------------------------
Matthew J. Bergeron
President and Chief Operating Officer
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<PAGE>
The foregoing Underwriting Agreement is hereby confirmed and accepted as
of the date first above written.
ADVEST, INC.
BLACK & COMPANY, INC.
Acting as Representatives of the several Underwriters named in Schedule I.
By: Advest, Inc.
By:
---------------------------------
Name:
Its:
-27-
<PAGE>
EXHIBIT A
SUBSIDIARIES
Name of Subsidiary Jurisdiction of Incorporation
------------------ -----------------------------
<PAGE>
EXHIBIT B-1
OPINION OF [ ]
AS COUNSEL TO THE INDENTURE TRUSTEE
<PAGE>
EXHIBIT B-2
OPINION OF STOEL RIVES LLP,
AS COUNSEL TO THE COMPANY
<PAGE>
EXHIBIT B-3
OPINION OF GREENE & MARKLEY,
AS COUNSEL TO THE COMPANY
<PAGE>
EXHIBIT B-4
OPINION OF IRELL & MANELLA LLP,
AS UNDERWRITERS' COUNSEL
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Aggregate Principal Amount
of Firm
Underwrter Notes to be Purchased
- ---------- ---------------------
<S> <C>
Advest, Inc.. . . . . . . . . . . . . . . . . . . . . . [ ]
Black & Company . . . . . . . . . . . . . . . . . . . . [ ]
---------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . $15,000,000
---------------
---------------
</TABLE>
<PAGE>
PRAEGITZER INDUSTRIES, INC.
AND
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
AS TRUSTEE
$15,000,000
_____% Convertible Subordinated Notes due 2008*
------------------
INDENTURE
Dated as of December __, 1998
- ----------
*Plus an over-allotment option to purchase up to $2,250,000 principal amount of
____% Convertible Subordinated Notes due 2008.
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
TRUST INDENTURE ACT SECTION INDENTURE SECTION
<S> <C>
310(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10.10
(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.8, 7.10, 10.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.6
(b)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.6
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.6, 10.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.6
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.1, 10.2
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4
(c)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4
(c)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.5, 10.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.9
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.4
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.7
317(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.8
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.4
</TABLE>
N.A. means not applicable.
- ----------
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Other Definitions. . . . . . . . . . . . . . . . . . 8
SECTION 1.3 Incorporation by Reference of Trust Indenture Act. . 9
SECTION 1.4 Rules of Construction. . . . . . . . . . . . . . . . 9
ARTICLE 2 THE CONVERTIBLE SUBORDINATED NOTES . . . . . . . . . . . . . . 10
SECTION 2.1 Form and Dating. . . . . . . . . . . . . . . . . . . 10
SECTION 2.2 Execution and Authentication . . . . . . . . . . . . 10
SECTION 2.3 Registrar, Paying Agent and Conversion Agent . . . . 11
SECTION 2.4 Paying Agent To Hold Money in Trust. . . . . . . . . 12
SECTION 2.5 Holder Lists . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.6 Transfer and Exchange. . . . . . . . . . . . . . . . 12
SECTION 2.7 Replacement Convertible Subordinated Notes . . . . . 14
SECTION 2.8 Outstanding Convertible Subordinated Notes . . . . . 15
SECTION 2.9 When Treasury Convertible Subordinated Notes
Disregarded. . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.10 Temporary Convertible Subordinated Notes . . . . . . 16
SECTION 2.11 Cancellation . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.12 Defaulted Interest . . . . . . . . . . . . . . . . . 17
SECTION 2.13 CUSIP Number . . . . . . . . . . . . . . . . . . . . 17
-i-
<PAGE>
ARTICLE 3 REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3.1 Optional Redemption. . . . . . . . . . . . . . . . . 17
SECTION 3.2 Notices to Trustee . . . . . . . . . . . . . . . . . 18
SECTION 3.3 Selection of Convertible Subordinated Notes To Be
Redeemed . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.4 Notice of Redemption . . . . . . . . . . . . . . . . 19
SECTION 3.5 Effect of Notice of Redemption . . . . . . . . . . . 20
SECTION 3.6 Deposit of Redemption Price. . . . . . . . . . . . . 20
SECTION 3.7 Convertible Subordinated Notes Redeemed in Part. . . 21
SECTION 3.8 Conversion Arrangement on Call for Redemption. . . . 21
ARTICLE 4 COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 4.1 Payment of Convertible Subordinated Notes. . . . . . 22
SECTION 4.2 Commission Reports . . . . . . . . . . . . . . . . . 23
SECTION 4.3 Compliance Certificate . . . . . . . . . . . . . . . 23
SECTION 4.4 Maintenance of Office or Agency. . . . . . . . . . . 23
SECTION 4.5 Continued Existence. . . . . . . . . . . . . . . . . 24
SECTION 4.6 Repurchase Upon Designated Event . . . . . . . . . . 24
SECTION 4.7 Appointments to Fill Vacancies in Trustee's Office . 27
SECTION 4.8 Stay, Extension and Usury Laws . . . . . . . . . . . 27
SECTION 4.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . 27
-ii-
<PAGE>
ARTICLE 5 SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.1 When the Company May Merge, Etc. . . . . . . . . . . 27
SECTION 5.2 Successor Substituted. . . . . . . . . . . . . . . . 29
SECTION 5.3 Purchase Option on Change of Control . . . . . . . . 29
ARTICLE 6 DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . 29
SECTION 6.1 Events of Default. . . . . . . . . . . . . . . . . . 29
SECTION 6.2 Acceleration . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.3 Other Remedies . . . . . . . . . . . . . . . . . . . 32
SECTION 6.4 Waiver of Past Defaults. . . . . . . . . . . . . . . 32
SECTION 6.5 Control by Majority. . . . . . . . . . . . . . . . . 33
SECTION 6.6 Limitation on Suits. . . . . . . . . . . . . . . . . 33
SECTION 6.7 Rights of Holders To Receive Payment . . . . . . . . 34
SECTION 6.8 Collection Suit by Trustee . . . . . . . . . . . . . 34
SECTION 6.9 Trustee May File Proofs of Claim . . . . . . . . . . 34
SECTION 6.10 Priorities . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.11 Undertaking for Costs. . . . . . . . . . . . . . . . 35
ARTICLE 7 THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 7.1 Duties of the Trustee. . . . . . . . . . . . . . . . 35
SECTION 7.2 Rights of the Trustee. . . . . . . . . . . . . . . . 37
SECTION 7.3 Individual Rights of the Trustee . . . . . . . . . . 38
SECTION 7.4 Trustee's Disclaimer . . . . . . . . . . . . . . . . 39
SECTION 7.5 Notice of Defaults . . . . . . . . . . . . . . . . . 39
SECTION 7.6 Reports by the Trustee to Holders. . . . . . . . . . 39
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<PAGE>
SECTION 7.7 Compensation and Indemnity . . . . . . . . . . . . . 40
SECTION 7.8 Replacement of the Trustee . . . . . . . . . . . . . 41
SECTION 7.9 Successor Trustee by Merger, etc.. . . . . . . . . . 42
SECTION 7.10 Eligibility, Disqualification. . . . . . . . . . . . 42
SECTION 7.11 Preferential Collection of Claims Against Company. . 42
ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE. . . . . . . . . . . . 43
SECTION 8.1 Discharge of Indenture . . . . . . . . . . . . . . . 43
SECTION 8.2 Deposited Monies to be Held in Trust by Trustee. . . 44
SECTION 8.3 Paying Agent to Repay Monies Held. . . . . . . . . . 44
SECTION 8.4 Return of Unclaimed Monies . . . . . . . . . . . . . 44
SECTION 8.5 Reinstatement. . . . . . . . . . . . . . . . . . . . 44
ARTICLE 9 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9.1 Without the Consent of Holders . . . . . . . . . . . 45
SECTION 9.2 With the Consent of Holders. . . . . . . . . . . . . 46
SECTION 9.3 Compliance with the Trust Indenture Act. . . . . . . 47
SECTION 9.4 Revocation and Effect of Consents. . . . . . . . . . 47
SECTION 9.5 Notation on or Exchange of Convertible Subordinated
Notes. . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 9.6 Trustee Protected. . . . . . . . . . . . . . . . . . 48
ARTICLE 10 GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . 49
SECTION 10.1 Trust Indenture Act Controls . . . . . . . . . . . . 49
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<PAGE>
SECTION 10.2 Notices. . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.3 Communication by Holders With Other Holders. . . . . 50
SECTION 10.4 Certificate and Opinion as to Conditions Precedent . 50
SECTION 10.5 Statements Required in Certificate or Opinion. . . . 50
SECTION 10.6 Rules by Trustee and Agents. . . . . . . . . . . . . 51
SECTION 10.7 Legal Holidays . . . . . . . . . . . . . . . . . . . 51
SECTION 10.8 No Recourse Against Others . . . . . . . . . . . . . 52
SECTION 10.9 Counterparts . . . . . . . . . . . . . . . . . . . . 52
SECTION 10.10 Other Provisions . . . . . . . . . . . . . . . . . . 52
SECTION 10.11 Governing Law. . . . . . . . . . . . . . . . . . . . 53
SECTION 10.12 No Adverse Interpretation of Other Agreements. . . . 53
SECTION 10.13 Successors . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.14 Severability . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.15 Table of Contents, Headings, Etc . . . . . . . . . . 53
ARTICLE 11 SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 11.1 Agreement to Subordinate . . . . . . . . . . . . . . 54
SECTION 11.2 Liquidation; Dissolution; Bankruptcy . . . . . . . . 54
SECTION 11.3 Default on Senior Debt and/or Designated Senior
Debt . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 11.4 Acceleration of Convertible Subordinated Notes . . . 56
SECTION 11.5 When Distribution Must Be Paid Over. . . . . . . . . 56
SECTION 11.6 Notice by Company. . . . . . . . . . . . . . . . . . 57
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<PAGE>
SECTION 11.7 Subrogation. . . . . . . . . . . . . . . . . . . . . 57
SECTION 11.8 Relative Rights. . . . . . . . . . . . . . . . . . . 57
SECTION 11.9 Subordination May Not Be Impaired by Company . . . . 58
SECTION 11.10 Distribution or Notice to Representative . . . . . . 58
SECTION 11.11 Rights of Trustee and Paying Agent . . . . . . . . . 58
SECTION 11.12 Authorization to Effect Subordination. . . . . . . . 59
SECTION 11.13 Article Applicable to Paying Agents. . . . . . . . . 59
SECTION 11.14 Senior Debt Entitled to Rely . . . . . . . . . . . . 59
ARTICLE 12 CONVERSION OF CONVERTIBLE SUBORDINATED NOTES. . . . . . . 60
SECTION 12.1 Right to Convert . . . . . . . . . . . . . . . . . . 60
SECTION 12.2 Exercise of Conversion Privilege; Issuance of Common
Stock on Conversion; No Adjustment for Interest or
Dividends. . . . . . . . . . . . . . . . . . . . . . 60
SECTION 12.3 Cash Payments in Lieu of Fractional Shares . . . . . 62
SECTION 12.4 Conversion Price . . . . . . . . . . . . . . . . . . 63
SECTION 12.5 Adjustment of Conversion Price . . . . . . . . . . . 63
SECTION 12.6 Effect of Reclassification, Consolidation, Merger or
Sale . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 12.7 Taxes on Shares Issued . . . . . . . . . . . . . . . 76
SECTION 12.8 Reservation of Shares; Shares to Be Fully Paid; Listing
of Common Stock. . . . . . . . . . . . . . . . . . . 77
SECTION 12.9 Responsibility of Trustee. . . . . . . . . . . . . . 77
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<PAGE>
SECTION 12.10 Notice to Holders Prior to Certain Actions . . . . . 78
</TABLE>
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<PAGE>
THIS INDENTURE, dated as of December __, 1998, is between Praegitzer
Industries, Inc., an Oregon corporation (the "Company"), and U.S. Trust
Company, National Association, a national banking association duly organized
and existing under federal laws of the United States (the "Trustee"). The
Company has duly authorized the creation of its ___% Convertible Subordinated
Notes due 2008 (the "Convertible Subordinated Notes") and to provide therefor
the Company and the Trustee have duly authorized the execution and delivery
of this Indenture. Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the holders from time to time
of the Convertible Subordinated Notes:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS.
"Acquiring Person" means any person (as defined in Section 13(d)(3) of
the Exchange Act) who or which, together with all affiliates and associates
(each as defined in Rule 12b-2 under the Exchange Act), becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act
and as further defined below) of shares of Common Stock or other voting
securities of the Company having more than 50% of the total voting power of
the Voting Stock of the Company; PROVIDED, HOWEVER, that an Acquiring Person
shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii)
any Permitted Holder, (iv) an underwriter engaged in a firm commitment
underwriting in connection with a public offering of the Voting Stock of the
Company or (v) any current or future employee or director benefit plan of the
Company or any Subsidiary of the Company or any entity holding Common Stock
of the Company for or pursuant to the terms of any such plan. For purposes
hereof, a person shall not be deemed to be the beneficial owner of (A) any
securities tendered pursuant to a tender or exchange offer made by or on
behalf of such person or any of such person's affiliates until such tendered
securities are accepted for purchase or exchange thereunder, or (B) any
securities if such beneficial ownership (1) arises solely as a result of a
revocable proxy delivered in response to a proxy or consent solicitation made
pursuant to the applicable rules and regulations under the Exchange Act, and
(2) is not also then reportable on Schedule 13D (or any successor schedule)
under the Exchange Act.
"Affiliate" means, when used with reference to any person, any other
person directly or indirectly controlling, controlled by, or under direct or
indirect common control of, the referent person. For the purposes of this
definition,
<PAGE>
"control" when used with respect to any specified person means the power to
direct or cause the direction of management or policies of the referent
person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise. The terms "controlling" and
"controlled" have meanings correlative of the foregoing.
"Agent" means any Registrar, Paying Agent, Conversion Agent or
co-registrar.
"Agent Member" means any member of, or participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Note or beneficial interest therein, the rules
and procedures of the Depositary for such Global Note to the extent
applicable to such transaction and as in effect from time to time.
"Board of Directors" means the Board of Directors of the Company or
any authorized committee of the Board of Directors.
"Capital Stock" of any person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of
or interests in (however designated) equity of such person, but excluding any
debt securities convertible into such equity.
"Change of Control" means the occurrence of one or more of the
following events: (a) any person has become an Acquiring Person, (b) the
Company consolidates with or merges into any other corporation, or conveys,
transfers or leases all or substantially all of its assets to any person, or
any other corporation merges into the Company, and, in the case of any such
transaction, the outstanding Common Stock of the Company is changed or
exchanged as a result, unless the shareholders of the Company immediately
before such transaction own, directly or indirectly immediately following
such transaction, at least a majority of the combined voting power of the
outstanding voting securities of the person resulting from such transaction
in substantially the same proportion as their ownership of the Voting Stock
of the Company immediately before such transaction, or (c) any time the
Continuing Directors do not constitute a majority of the Board of Directors
of the Company (or, if applicable, a successor person to the Company).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means any stock of any class of the Company which has
no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Company and
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<PAGE>
which is not subject to redemption by the Company. Subject to the provisions
of Section 12.6, however, shares issuable on conversion of Convertible
Subordinated Notes shall include only shares of the class designated as
Common Stock of the Company at the date of this Indenture or shares of any
class or classes resulting from any reclassification or reclassifications
thereof and which have no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company and which are not subject to redemption by the
Company; PROVIDED that if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such
class resulting from all such reclassifications bears to the total number of
shares of all such classes resulting from all such reclassifications.
"Company" means the party named as such above until a successor
replaces it in accordance with Article 5 and thereafter means the successor.
A "consolidated subsidiary" of any person means a subsidiary which for
financial reporting purposes is or, in accordance with GAAP, should be,
accounted for by such person as a consolidated subsidiary.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors who (i) was a member of such Board of
Directors on the date of this Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Convertible Subordinated Notes" means the ____% Convertible
Subordinated Notes due 2008 issued, authenticated and delivered under this
Indenture.
"Conversion Price" means the initial conversion price specified in the
form of Convertible Subordinated Note in Paragraph 16 of such form, as
adjusted in accordance with the provisions of Article 12.
"Corporate Trust Office" means the corporate trust office of the
Trustee at which at any particular time the trust created by this Indenture
shall principally be administered; as of the date hereof, the Corporate Trust
Office is located at One Embarcadero Center, Suite 2050, San Francisco, CA
94111.
"Default" means any event that is, or after notice or passage of time,
or both, would be, an Event of Default.
-3-
<PAGE>
"Depositary" means, with respect to any Global Notes, a clearing
agency that is registered as such under the Exchange Act and is designated by
the Company to act as Depositary for such Global Notes (or any successor
securities clearing agency so registered), which shall initially be DTC.
"Designated Event" means the occurrence of a Change of Control or a
Termination of Trading.
"Designated Senior Debt" means any particular Senior Debt if the
instrument creating or evidencing the same or the assumption or guarantee
thereof (or related agreements or documents to which the Company is a party)
expressly provides that such Indebtedness shall be "Designated Senior Debt"
for purposes of this Indenture (PROVIDED that such instrument, agreement or
other document may place limitations and conditions on the right of such
Senior Debt to exercise the rights of Designated Senior Debt.)
"DTC" means The Depository Trust Company, a New York corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment
of the accounting profession of the United States, which are in effect from
time to time.
"Global Note" means a Convertible Subordinated Note that is registered
in the Register.
"Indebtedness" means, with respect to any person, all obligations,
whether or not contingent, of such person (i) (a) for borrowed money
(including, but not limited to, any indebtedness secured by a security
interest, mortgage or other lien on the assets of the Company that is (1)
given to secure all or part of the purchase price of property subject
thereto, whether given to the vendor of such property or to another, or (2)
existing on property at the time of acquisition thereof), (b) evidenced by a
note, debenture, bond or other written instrument, (c) under a lease required
to be capitalized on the balance sheet of the lessee under GAAP or under any
lease or related document (including a purchase agreement) that provides that
the Company is contractually obligated to purchase or cause a third party to
purchase and thereby guarantee a minimum residual value of the leased
property to the lessor and the obligations of the Company under such lease
-4-
<PAGE>
or related document to purchase or to cause a third party to purchase such
leased property, (d) in respect of letters of credit, bank guarantees or
bankers' acceptances (including reimbursement obligations with respect to any
of the foregoing), (e) with respect to Indebtedness secured by a mortgage,
pledge, lien, encumbrance, charge or adverse claim affecting title or
resulting in an encumbrance to which the property or assets of such person
are subject, whether or not the obligation secured thereby shall have been
assumed by or shall otherwise be such person's legal liability, (f) in
respect of the balance of deferred and unpaid purchase price of any property
or assets, (g) under interest rate or currency swap agreements, cap, floor
and collar agreements, spot and forward contracts and similar agreements and
arrangements; (ii) with respect to any obligation of others of the type
described in the preceding clause (i) or under clause (iii) below assumed by
or guaranteed in any manner by such person through an agreement to purchase
(including, without limitation, "take or pay" and similar arrangements),
contingent or otherwise (and the obligations of such person under any such
assumptions, guarantees or other such arrangements); and (iii) any and all
deferrals, renewals, extensions, refinancings and refundings of, or
amendments, modifications or supplements to, any of the foregoing.
"Indenture" means this Indenture as amended or supplemented from time
to time.
"Interest Payment Date" means January 15 and July 15 of each year,
beginning July 15, 1999.
"Issue Date" means the date on which Convertible Subordinated Notes
are first issued and authenticated under this Indenture.
"Material Subsidiary" means any subsidiary of the Company which at the
date of determination is a "significant subsidiary" as defined in Rule
1-02(w) of Regulation S-X under the Securities Act and the Exchange Act.
"Maturity Date" means December __, 2008.
"Note Custodian" means U.S. Trust Company, National Association, as
custodian with respect to any Global Note, or any successor entity thereto.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, collection expenses, legal fees,
late charges, and other liabilities payable under the documentation governing
any Indebtedness.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Financial Officer, the Chief Accounting
Officer, any Executive Vice President,
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<PAGE>
Senior Vice President or Vice President (whether or not designated by a
number or numbers or word or words before or after the title "Vice
President"), the Treasurer, any other executive officer, the Secretary and
any Assistant Treasurer or any Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers,
one of whom must be the principal executive officer, principal financial
officer or principal accounting officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who
may be an employee of or counsel to the Company or the Trustee except to the
extent otherwise indicated in this Indenture.
"Permitted Holders" means Robert L. Praegitzer and his estates,
spouses, ancestors and lineal descendants (and spouses thereof), the legal
representatives of any of the foregoing, and the trustee of any bona fide
trust of which one or more of the foregoing are the sole beneficiaries or the
grantors, or any person of which any of the foregoing, individually or
collectively, beneficially own (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) voting securities representing at least a majority of the total
voting power of all classes of Capital Stock of such person (exclusive of any
matters as to which class voting rights exist).
A "person" means any individual, corporation, partnership, joint
venture, trust, estate, unincorporated organization, limited liability
company or government or any agency or political subdivision thereof.
"redemption date" when used with respect to any of the Convertible
Subordinated Notes to be redeemed, means the date fixed by the Company for
such redemption pursuant to Article 3 of this Indenture and the Convertible
Subordinated Notes.
"redemption price" when used with respect to any of the Convertible
Subordinated Notes to be redeemed, means the price fixed for such redemption
pursuant to Article 3 of this Indenture and the Convertible Subordinated
Notes.
"Regular Record Date" means the January 1 or July 1 immediately
preceding each Interest Payment Date.
"Representative" means (a) the indenture trustee or other trustee,
agent or representative for any Senior Debt or (b) with respect to any Senior
Debt that does not have any such trustee, agent or other representative, (i)
in the case of such Senior Debt issued pursuant to an agreement providing for
voting arrangements as among the holders or owners of such Senior Debt, any
holder or owner of such Senior Debt acting
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<PAGE>
with the consent of the required persons necessary to bind such holders or
owners of such Senior Debt and (ii) in the case of all other such Senior
Debt, the holder or owner of such Senior Debt.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Senior Debt" means the principal of, premium, if any, and interest
on, rent under, and any other amounts payable on or in respect of any
Indebtedness of the Company (including, without limitation, any Obligations
in respect of such Indebtedness and, in the case of Designated Senior Debt,
any interest accruing after the filing of a petition by or against the
Company under any bankruptcy law, whether or not allowed as a claim after
such filing in any proceeding under such bankruptcy law), whether outstanding
on the date of this Indenture or thereafter created, incurred, assumed,
guaranteed or in effect guaranteed by the Company (including all deferrals,
renewals, extensions or refundings of, or amendments, modifications or
supplements to the foregoing); PROVIDED, HOWEVER, that Senior Debt does not
include (v) Indebtedness evidenced by the Convertible Subordinated Notes, (w)
any liability for federal, state, local or other taxes owed or owing by the
Company, (x) Indebtedness of the Company to any Subsidiary of the Company
except to the extent such Indebtedness is of a type described in clause (ii)
of the definition of Indebtedness, (y) trade payables of the Company for
goods, services or materials purchased in the ordinary course of business
(other than, to the extent they may otherwise constitute trade payables, any
obligations of the type described in clause (ii) of the definition of
Indebtedness), and (z) any particular Indebtedness in which the instrument
creating or evidencing the same expressly provides that such Indebtedness
shall not be senior in right of payment to, or is pari passu with, or is
subordinated or junior to, the Convertible Subordinated Notes.
A "Subsidiary" means, with respect to any person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of equity capital entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such person or one or more of the other subsidiaries of that
person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or managing general partner of which is such person or a
subsidiary of such person or (b) the only general partners of which are such
person or of one or more subsidiaries of such person (or any combination
thereof).
"Termination of Trading" will be deemed to have occurred if the Common
Stock (or other common stock into which the
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<PAGE>
Convertible Subordinated Notes are then convertible) is neither listed for
trading on a United States national securities exchange nor approved for
trading on an established automated over-the-counter trading market in the
United States; PROVIDED, HOWEVER, that a "Termination of Trading" shall not
be deemed to occur on account of an involuntary de-listing of such securities
by any such exchange or over-the-counter trading market if (A) within 45 days
following such involuntary de-listing, such securities are again listed or
approved for trading on any such exchange or over-the-counter market or (B)
such securities are not eligible for listing or trading on any such exchange
or over-the-counter market.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) as in effect on the date of execution of this Indenture, except
as provided in Sections 9.3 and 12.6.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture
and thereafter manes the successor.
"Trust Officer" means an officer in the Corporate Trust Office of the
Trustee.
"U.S. Government Obligations" means direct obligation of the United
States of America for the payment of which the full faith and credit of the
United States of America is pledged. In order to have money available on a
payment date to pay principal or interest on the Convertible Subordinated
Notes, the U.S. Government Obligations shall be payable as to principal or
interest on or before such payment date in such amounts as will provide the
necessary money. U.S. Government Obligations shall not be callable at the
issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled to vote in the
election of directors.
SECTION 1.2 OTHER DEFINITIONS.
<TABLE>
<CAPTION>
DEFINED IN
SECTION
<S> <C>
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
"business day" . . . . . . . . . . . . . . . . . . . . . . . . . . 10.7
"Current Market Price" . . . . . . . . . . . . . . . . . . . . . . 12.5
"closing price". . . . . . . . . . . . . . . . . . . . . . . . . . 12.5
"Conversion Agent" . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Custodian". . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
"Designated Event Date" . . . . . . . . . . . . . . . . . . . . . 4.6
"Designated Event Offer" . . . . . . . . . . . . . . . . . . . . . 4.6
"Designated Event Offer Termination Date" . . . . . . . . . . . . 4.6
-8-
<PAGE>
"Designated Event Payment" . . . . . . . . . . . . . . . . . . . . 4.6
"Designated Event Payment Date" . . . . . . . . . . . . . . . . . 4.6
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . 6.1
"Expiration Time" . . . . . . . . . . . . . . . . . . . . . . . . 12.5
"fair market value" . . . . . . . . . . . . . . . . . . . . . . . 12.5
"Legal Holiday" . . . . . . . . . . . . . . . . . . . . . . . . . 10.7
"New Rights Plan". . . . . . . . . . . . . . . . . . . . . . . . . 12.5
"non-electing share" . . . . . . . . . . . . . . . . . . . . . . . 12.6
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Payment Blockage Notice" . . . . . . . . . . . . . . . . . . . . 10.4
"Purchased Shares" . . . . . . . . . . . . . . . . . . . . . . . . 12.5
"Record Date". . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5
"Register" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5
"trading day" . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5
"Trigger Event" . . . . . . . . . . . . . . . . . . . . . . . . . 12.5
</TABLE>
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"Commission" means the Commission;
"indenture securities" means the Convertible Subordinated Notes;
"indenture security holder" means a holder of a Convertible
Subordinated Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the Convertible Subordinated Notes means the Company
or any other obligor on the Convertible Subordinated Notes.
All other terms in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by Commission rule under the
TIA have the meanings so assigned to them.
SECTION 1.4 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
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(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) the male, female and neuter genders include one another.
ARTICLE 2
THE CONVERTIBLE SUBORDINATED NOTES
SECTION 2.1 FORM AND DATING.
The Convertible Subordinated Notes and the Trustee's certificate of
authentication relating thereto shall be substantially in the form set forth
in EXHIBIT A hereto, which is part of this Indenture, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture. The Convertible Subordinated Notes may have
notations, legends or endorsements required by law, stock exchange rule or
the Depositary or usage. The Company shall approve the form of the
Convertible Subordinated Notes and any notation, legend or endorsement on
them. Each Convertible Subordinated Note shall be dated the date of its
authentication.
The terms and provisions contained in the Convertible Subordinated
Notes shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
SECTION 2.2 EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Convertible Subordinated Notes for the
Company by manual or facsimile signature. The Company's seal shall be
reproduced on the Convertible Subordinated Notes.
If an Officer whose signature is on a Convertible Subordinated Note no
longer holds that office at the time the Convertible Subordinated Note is
authenticated, the Convertible Subordinated Note shall nevertheless be valid.
A Convertible Subordinated Note shall not be valid until authenticated
by the manual signature of the Trustee. The
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signature shall be conclusive evidence that the Convertible Subordinated Note
has been authenticated under this Indenture.
Upon a written order of the Company signed by an Officer of the
Company, the Trustee shall authenticate Convertible Subordinated Notes for
original issue up to an aggregate principal amount of $15,000,000 (plus up to
$2,250,000 aggregate principal amount of Convertible Subordinated Notes that
may be sold by the Company pursuant to the over-allotment option granted
pursuant to the Underwriting Agreement, dated as of December __, 1998, among
the Company and Advest, Inc. and Black & Company, Inc.). The aggregate
principal amount of Convertible Subordinated Notes outstanding at any time
may not exceed that amount except as provided in Section 2.7.
The Convertible Subordinated Notes shall be issuable only in
registered form without coupons and only in denominations of $50 or any
integral multiple thereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Convertible Subordinated Notes. An authenticating
agent may authenticate Convertible Subordinated Notes whenever the Trustee
may do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such agent. An authenticating agent has the same
right as an Agent to deal with the Company or an Affiliate of the Company.
SECTION 2.3 REGISTRAR, PAYING AGENT AND CONVERSION AGENT.
The Company shall maintain or cause to be maintained in such locations
as it shall determine, which may be the Corporate Trust Office, an office or
agency: (i) where securities may be presented for registration of transfer
or for exchange ("Registrar"); (ii) where Convertible Subordinated Notes may
be presented for payment ("Paying Agent"); (iii) an office or agency where
Convertible Subordinated Notes may be presented for conversion (the
"Conversion Agent"); and (iv) where notices and demands to or upon the
Company in respect of Convertible Subordinated Notes and this Indenture may
be served by the holders of the Convertible Subordinated Notes. The
Registrar shall keep a Register ("Register") of the Convertible Subordinated
Notes and of their transfer and exchange. The Company may appoint one or
more co-registrars, one or more additional paying agents and one or more
additional conversion agents. The term "Paying Agent" includes any
additional paying agent and the term "Conversion Agent" includes any
additional Conversion Agent. The Company may change any Paying Agent,
Registrar, Conversion Agent or co-registrar without prior notice. The Company
shall notify the Trustee of the name and address of any Agent not a party to
this Indenture and shall enter into an appropriate agency agreement with any
Registrar, Paying Agent, Conversion Agent or co-registrar not a party to this
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Indenture. The agreement shall implement the provisions of this Indenture
that relate to such Agent. The Company or any of its Subsidiaries may act as
Paying Agent, Registrar, Conversion Agent or co-registrar, except that for
purposes of Articles 3 and 8 and Section 4.6, neither the Company nor any of
its Subsidiaries shall act as Paying Agent. If the Company fails to appoint
or maintain another entity as Registrar, or Paying Agent or Conversion Agent,
the Trustee shall act as such, and the Trustee shall initially act as such.
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent (other than the Trustee,
who hereby so agrees), to agree in writing that the Paying Agent will hold in
trust for the benefit of holders of the Convertible Subordinated Notes or the
Trustee all money held by the Paying Agent for the payment of principal or
interest on the Convertible Subordinated Notes, and will notify the Trustee
of any default by the Company in respect of making any such payment. While
any such default continues, the Trustee may require a Paying Agent to pay all
money held by it to the Trustee. The Company at any time may require a
Paying Agent to pay all money held by it to the Trustee. Upon payment over
to the Trustee, the Paying Agent (if other than the Company or a Subsidiary
of the Company) shall have no further liability for the money. If the
Company or a Subsidiary of the Company acts as Paying Agent, it shall
segregate and hold in a separate trust fund for the benefit of the holders of
the Convertible Subordinated Notes all money held by it as Paying Agent.
SECTION 2.5 HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses
of holders of Convertible Subordinated Notes and shall otherwise comply with
TIA Section 312(a). If the Trustee is not the Registrar, the Company shall
furnish to the Trustee at least seven business days before each Interest
Payment Date, and as the Trustee may request in writing within fifteen (15)
days after receipt by the Company of any such request (or such lesser time as
the Trustee may reasonably request in order to enable it to timely provide
any notice to be provided by it hereunder), a list in such form and as of
such date as the Trustee may reasonably require of the names and addresses of
holders of Convertible Subordinated Notes.
SECTION 2.6 TRANSFER AND EXCHANGE.
When Convertible Subordinated Notes are presented to the Registrar or
a co-registrar with a request to register a transfer or to exchange them for
an equal principal amount of Convertible Subordinated Notes for other
denominations, the Registrar shall register the transfer or make the exchange
if
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its requirements for such transactions (including appropriate endorsements
and evidence of transfer) are met. To permit registrations of transfers and
exchanges, the Company shall issue and the Trustee shall authenticate
Convertible Subordinated Notes at the Registrar's request, bearing
registration numbers not contemporaneously outstanding. No service charge
shall be made to a holder for any registration of transfer or exchange
(except as otherwise expressly permitted herein), but the Company may require
payment of a sum sufficient to cover any transfer tax or other governmental
charge payable upon exchanges pursuant to Sections 2.10, 3.7, 9.5 or 12.2.
The Company or the Registrar shall not be required (i) to issue,
register the transfer of or exchange Convertible Subordinated Notes during a
period beginning at the opening of business fifteen (15) days before the day
of any selection of Convertible Subordinated Notes for redemption under
Section 3.3 and ending at the close of business on the day of selection, (ii)
to register the transfer or exchange of any Convertible Subordinated Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Convertible Subordinated Note being redeemed in part or (iii) to register
the transfer of any Convertible Subordinated Notes surrendered for repurchase
pursuant to Section 4.6.
All Convertible Subordinated Notes issued upon any transfer or
exchange of Convertible Subordinated Notes in accordance with this Indenture
shall be the valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture as the Convertible
Subordinated Notes surrendered upon such registration of transfer or exchange.
The provisions of Clauses (1), (2), (3), (4) and (5) below shall apply
only to Global Notes:
(1) Each Global Note authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Note or a
nominee thereof and delivered to such Depositary or a nominee thereof or Note
Custodian therefor, and each such Global Note shall constitute a single
Convertible Subordinated Note for all purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture, in the
event that (i) the Depositary is unwilling, unable or ineligible to continue
as Depositary and a successor Depositary is not appointed by the Company
within 90 days, or (ii) if, at any time in the Company's sole discretion, the
Company determines not to have a Global Note, the Company will issue
Convertible Subordinated Notes in definitive form in exchange for the Global
Notes.
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(3) Subject to Clause (2) above, any exchange of a Global Note for
other Securities may be made in whole or in part, and all Securities issued
in exchange for a Global Note or any portion thereof shall be registered in
such names as the Depositary for such Global Note shall direct.
(4) Every Convertible Subordinated Note authenticated and delivered
upon registration of transfer of, or in exchange for or in lieu of, a Global
Note or any portion thereof, whether pursuant to this Article 2 or otherwise,
shall be authenticated and delivered in the form of, and shall be, a Global
Note, unless such Convertible Subordinated Note is registered in the name of
a person other than the Depositary for such Global Note or a nominee thereof.
(5) The Depositary or its nominee, as registered owner of a Global
Note, shall be the Holder of such Global Note for all purposes under the
Indenture and the Convertible Subordinated Notes, and owners of beneficial
interests in a Global Note shall hold such interests pursuant to the
Applicable Procedures. Accordingly, any such owner's beneficial interest in
a Global Note will be shown only on, and the transfer of such interest shall
be effected only through, records maintained by the Depositary or its nominee
or its Agent Members and such owners of beneficial interests in a Global Note
will not be considered the owners or holders thereof.
SECTION 2.7 REPLACEMENT CONVERTIBLE SUBORDINATED NOTES.
If the holder of a Convertible Subordinated Note claims that the
Convertible Subordinated Note has been lost, destroyed or wrongfully taken,
the Company shall issue and the Trustee shall authenticate a replacement
Convertible Subordinated Note if the Trustee's, the Company's and any
authenticating agent's requirements are met. If required by the Trustee or
the Company as a condition of receiving a replacement Convertible
Subordinated Note, the holder of a Convertible Subordinated Note must provide
a certificate of loss and an indemnity and/or an indemnity bond sufficient,
in the judgment of both the Company and the Trustee, to fully protect the
Company, the Trustee, any Agent and any authenticating agent from any loss,
liability, cost or expense which any of them may suffer or incur if the
Convertible Subordinated Note is replaced. The Company and the Trustee may
charge the relevant holder for their expenses in replacing any Convertible
Subordinated Note.
The Trustee or any authenticating agent may authenticate any such
substituted Convertible Subordinated Note, and deliver the same upon the
receipt of such security or indemnity as the Trustee, the Company and, if
applicable, such authenticating agent may require. Upon the issuance of any
substituted Convertible Subordinated Note, the Company may
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require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith. In case any Convertible Subordinated Note
which has matured or is about to mature, or has been called for redemption
pursuant to Article 3, submitted for repurchase pursuant to Section 4.6 or is
about to be converted into Common Stock pursuant to Article 12, shall become
mutilated or be destroyed, lost or stolen, the Company may, instead of
issuing a substitute Convertible Subordinated Note, pay or authorize the
payment of or convert or authorize the conversion of the same (without
surrender thereof except in the case of a mutilated Convertible Subordinated
Note), as the case may be, if the applicant for such payment or conversion
shall furnish to the Company, to the Trustee and, if applicable, to the
authenticating agent such security or indemnity as may be required by them to
save each of them harmless for any loss, liability, cost or expense caused by
or connected with such substitution, and, in case of destruction, loss or
theft, evidence satisfactory to the Company, the Trustee and, if applicable,
any paying agent or conversion agent of the destruction, loss or theft of
such Convertible Subordinated Note and of the ownership thereof.
Every replacement Convertible Subordinated Note is an additional
obligation of the Company and shall be entitled to all the benefits provided
under this Indenture equally and proportionately with all other Convertible
Subordinated Notes duly issued, authenticated and delivered hereunder.
SECTION 2.8 OUTSTANDING CONVERTIBLE SUBORDINATED NOTES.
The Convertible Subordinated Notes outstanding at any time are all the
Convertible Subordinated Notes properly authenticated by the Trustee except
for those canceled by the Trustee, those delivered to it for cancellation,
and those described in this Section as not outstanding.
If a Convertible Subordinated Note is replaced pursuant to Section
2.7, it ceases to be outstanding unless the Trustee receives proof
satisfactory to it that the replaced Convertible Subordinated Note is held by
a bona fide purchaser.
If Convertible Subordinated Notes are considered paid under Section
4.1 or converted under Article 12, they cease to be outstanding and interest
on them ceases to accrue.
Subject to Section 2.9 hereof, a Convertible Subordinated Note does
not cease to be outstanding because the Company or an Affiliate of the
Company holds the Convertible Subordinated Note.
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SECTION 2.9 WHEN TREASURY CONVERTIBLE SUBORDINATED NOTES DISREGARDED.
In determining whether the holders of the required principal amount of
Convertible Subordinated Notes have concurred in any direction, waiver or
consent, Convertible Subordinated Notes owned by the Company or an Affiliate of
the Company shall be considered as though they are not outstanding except that
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Convertible Subordinated
Notes which the Trustee knows are so owned shall be so disregarded.
SECTION 2.10 TEMPORARY CONVERTIBLE SUBORDINATED NOTES.
Until definitive Convertible Subordinated Notes are ready for delivery,
the Company may prepare and the Trustee shall authenticate temporary Convertible
Subordinated Notes. Temporary Convertible Subordinated Notes shall be
substantially in the form of definitive Convertible Subordinated Notes but may
have variations that the Company considers appropriate for temporary Convertible
Subordinated Notes. If temporary Convertible Subordinated Notes are issued, the
Company will cause definitive Convertible Subordinated Notes to be prepared
without unreasonable delay. After the preparation of definitive Convertible
Subordinated Notes, the temporary Convertible Subordinated Notes shall be
exchangeable for definitive Convertible Subordinated Notes upon surrender of the
temporary Convertible Subordinated Notes at any office or agency of the Company
designated pursuant to Section 2.3 without charge to the holder of the
Convertible Subordinated Note, except as specified in Section 2.6. Upon
surrender for cancellation of any one or more temporary Convertible Subordinated
Notes the Company shall execute and the Trustee shall authenticate and deliver
in exchange therefor a like principal amount of definitive Convertible
Subordinated Notes of authorized denominations. Until so exchanged, the
temporary Convertible Subordinated Notes shall in all respects be entitled to
the same benefits under this Indenture as definitive Convertible Subordinated
Notes.
SECTION 2.11 CANCELLATION.
The Company at any time may deliver Convertible Subordinated Notes to the
Trustee for cancellation. The Registrar and Paying Agent shall forward to the
Trustee any Convertible Subordinated Notes surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else may cancel
Convertible Subordinated Notes surrendered for registration of transfer,
exchange, payment, replacement, conversion, redemption, repurchase or
cancellation. Upon written instructions of the Company, the Trustee shall
destroy and dispose of canceled Convertible Subordinated Notes as the Company
directs and, after such
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destruction, shall deliver a certificate of destruction to the Company. The
Company may not issue new Convertible Subordinated Notes to replace
Convertible Subordinated Notes that it has paid, redeemed or repurchased or
that have been delivered to the Trustee for cancellation or that any holder
has (i) converted pursuant to Article 12 hereof, (ii) submitted for
redemption pursuant to Article 3 hereof or (iii) submitted for repurchase
pursuant to Section 4.6 hereof (unless revoked).
SECTION 2.12 DEFAULTED INTEREST.
If the Company fails to make a payment of interest on the Convertible
Subordinated Notes, it shall pay such defaulted interest plus, to the extent
lawful, any interest payable on the defaulted interest. It may pay such
defaulted interest, plus any such interest payable on it, to the persons who are
holders of Convertible Subordinated Notes on a subsequent special record date.
The Company shall fix any such record date and payment date. At least 15 days
before any such record date, the Company shall mail to holders of the
Convertible Subordinated Notes a notice that states the record date, payment
date and amount of such interest to be paid.
SECTION 2.13 CUSIP NUMBER.
The Company in issuing the Convertible Subordinated Notes may use a
"CUSIP" number, and if so, such CUSIP number shall be included in notices of
redemption, repurchase or exchange as a convenience to holders of Convertible
Subordinated Notes; PROVIDED, HOWEVER, that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Convertible Subordinated Notes and that reliance
may be placed only on the other identification numbers printed on the
Convertible Subordinated Notes. The Company will promptly notify the Trustee of
any change in the CUSIP number.
ARTICLE 3
REDEMPTION
SECTION 3.1 OPTIONAL REDEMPTION.
The Company may redeem all or any portion of the Convertible Subordinated
Notes upon the terms and at the redemption prices set forth in each of the
Convertible Subordinated Notes, subject to the other terms and conditions set
forth in Paragraph 5 of the Convertible Subordinated Notes. Any redemption
shall be made pursuant to Paragraph 5 of the Convertible Subordinated Notes and
this Article 3.
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SECTION 3.2 NOTICES TO TRUSTEE.
If the Company elects to redeem Convertible Subordinated Notes pursuant
to the optional redemption provisions of paragraph 5 of the Convertible
Subordinated Notes, it shall furnish to the Trustee, at least 15 (20 if less
than all of the then outstanding Convertible Subordinated Notes are to be
redeemed or if the Company requests the Trustee to give notice of redemption
pursuant to Section 3.4) days but not more than 60 days before a redemption date
(unless a shorter period shall be satisfactory to the Trustee), an Officers'
Certificate setting forth (i) the Section of this Indenture pursuant to which
the redemption shall occur, (ii) the redemption date, (iii) the principal amount
of Convertible Subordinated Notes (if less than all) to be redeemed, (iv) the
redemption price and (v) the CUSIP number of the Convertible Subordinated Notes
being redeemed.
SECTION 3.3 SELECTION OF CONVERTIBLE SUBORDINATED NOTES TO BE REDEEMED.
If less than all the Convertible Subordinated Notes are to be redeemed,
the Trustee shall select the Convertible Subordinated Notes to be redeemed, on a
pro rata basis by lot or by such method that the Company shall direct in writing
at least 30 days prior to the applicable redemption date. The Trustee shall make
the selection not more than 30 days and not less than 15 days before the
redemption date from Convertible Subordinated Notes outstanding and not
previously called for redemption. The Trustee may select for redemption a
portion of the principal of any Convertible Subordinated Note that has a
denomination larger than $50. Convertible Subordinated Notes and portions
thereof will be redeemed in the amount of $50 or integral multiples of $50.
Provisions of this Indenture that apply to Convertible Subordinated Notes
called for redemption also apply to portions of Convertible Subordinated Notes
called for redemption. The Trustee shall notify the Company promptly of the
Convertible Subordinated Notes or portions of Convertible Subordinated Notes to
be called for redemption.
If any Convertible Subordinated Note selected for partial redemption
is converted in part after such selection, the converted portion of such
Convertible Subordinated Note shall be deemed (so far as may be) to be the
portion to be selected for redemption. The Convertible Subordinated Notes
(or portion thereof) so selected shall be deemed duly selected for redemption
for all purposes hereof, notwithstanding that any such Convertible
Subordinated Note is converted in whole or in part before the mailing of the
notice of redemption. Upon any redemption of less than all the Convertible
Subordinated Notes, the Company and the Trustee may treat as outstanding any
Convertible Subordinated Notes surrendered for conversion
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during the period of 15 days next preceding the mailing of a notice of
redemption and need not treat as outstanding any Convertible Subordinated
Note authenticated and delivered during such period in exchange for the
unconverted portion of any Convertible Subordinated Note converted in part
during such period.
SECTION 3.4 NOTICE OF REDEMPTION.
At least 15 days but not more than 30 days before a redemption date, the
Company shall mail by first class mail a notice of redemption to each holder
whose Convertible Subordinated Notes are to be redeemed.
The notice shall identify the Convertible Subordinated Notes to be
redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any Convertible Subordinated Note is being redeemed in part,
the portion of the principal amount of such Convertible Subordinated Note to be
redeemed and that, after the redemption date, upon surrender of such Convertible
Subordinated Note, a new Convertible Subordinated Note or Convertible
Subordinated Notes in principal amount equal to the unredeemed portion will be
issued in the name of the holder thereof;
(4) that Convertible Subordinated Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(5) that interest on Convertible Subordinated Notes called for
redemption and for which funds have been set apart for payment, ceases to accrue
on and after the redemption date (unless the Company defaults in the payment of
the redemption price or the Paying Agent is prohibited from making such payment
pursuant to the terms of this Indenture);
(6) the paragraph of the Convertible Subordinated Notes pursuant to
which the Convertible Subordinated Notes called for redemption are being
redeemed;
(7) the aggregate principal amount of Convertible Subordinated Notes
(if less than all) that are being redeemed;
(8) the CUSIP number of the Convertible Subordinated Notes (PROVIDED
that the disclaimer permitted by Section 2.13 may be made);
(9) the name and address of the Paying Agent;
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(10) that Convertible Subordinated Notes called for redemption may be
converted at any time prior to the close of business on the last trading day
immediately preceding the redemption date and if not converted prior to the
close of business on such date, the right of conversion will be lost; and
(11) that in the case of Convertible Subordinated Notes or portions
thereof called for redemption on a date that is also an Interest Payment Date,
the interest payment due on such date shall be paid to the person in whose name
the Convertible Subordinated Note is registered at the close of business on the
relevant Regular Record Date.
The notice if mailed in the manner herein provided shall be conclusively
presumed to have been given, whether or not the holder receives such notice. In
any case, failure to give such notice my mail or any defect in the notice to the
holder of any Convertible Subordinated Note designated for redemption as a whole
or in part shall not affect the validity of the proceedings for the redemption
of any Convertible Subordinated Note.
At the Company's request, the Trustee shall give notice of redemption in
the Company's name and at its expense.
SECTION 3.5 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed, Convertible Subordinated Notes
called for redemption become due and payable on the redemption date at the
redemption price set forth in the Convertible Subordinated Note.
SECTION 3.6 DEPOSIT OF REDEMPTION PRICE.
On or before the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent money in immediately available funds sufficient
to pay the redemption price of and accrued interest on all Convertible
Subordinated Notes to be redeemed on that date. The Trustee or the Paying Agent
shall return to the Company any money not required for that purpose.
On and after the redemption date, unless the Company shall default in the
payment of the redemption price, interest will cease to accrue on the principal
amount of the Convertible Subordinated Notes or portions thereof called for
redemption and for which funds have been set apart for payment and such
Convertible Subordinated Notes shall cease after the close of business on the
trading day immediately preceding the Redemption Date to be convertible into
Common Stock and, except as provided in this Section 3.6 and Section 8.4, shall
cease after the close of business on the business day immediately preceding the
Redemption Date to be entitled to
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any benefit or security under this Indenture, and the holders thereof shall
have no right in respect of such Convertible Subordinated Notes except the
right to receive the Redemption Price thereof and unpaid interest to (but
excluding) the Redemption Date. In the case of Convertible Subordinated
Notes or portions thereof redeemed on a redemption date which is also an
Interest Payment Date, the interest payment due on such date shall be paid to
the person in whose name the Convertible Subordinated Note is registered at
the close of business on the relevant Regular Record Date.
SECTION 3.7 CONVERTIBLE SUBORDINATED NOTES REDEEMED IN PART.
Upon surrender of a Convertible Subordinated Note that is redeemed in
part only, the Company shall issue and the Trustee shall authenticate and
deliver to the holder of a Convertible Subordinated Note a new Convertible
Subordinated Note equal in principal amount to the unredeemed portion of the
Convertible Subordinated Note surrendered, at the expense of the Company, except
as specified in Section 2.6.
SECTION 3.8 CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION.
In connection with any redemption of Convertible Subordinated Notes, the
Company may arrange for the purchase and conversion of any Convertible
Subordinated Notes by an arrangement with one or more investment bankers or
other purchasers to purchase such Convertible Subordinated Notes by paying to
the Trustee in trust for the holders, on or before the date fixed for
redemption, an amount not less than the applicable redemption price, together
with interest accrued to the date fixed for redemption, of such Convertible
Subordinated Notes. Notwithstanding anything to the contrary contained in this
Article 3, the obligation of the Company to pay the redemption price of such
Convertible Subordinated Notes, together with interest accrued to the date fixed
for redemption, shall be deemed to be satisfied and discharged to the extent
such amount is so paid by the purchasers. If an agreement reflecting such an
arrangement is entered into, a copy of such agreement will be filed with the
Trustee prior to the date fixed for redemption (it being understood that, unless
the Trustee otherwise agrees, the Trustee shall have no responsibility for
content of any such agreement), any Convertible Subordinated Notes not duly
surrendered for conversion by the holders thereof may, at the option of the
Company, be deemed, to the fullest extent permitted by law, acquired by such
purchasers from such holders and (notwithstanding anything to the contrary
contained in Article 12) surrendered by such purchasers for conversion, all as
of immediately prior to the close of business on the date fixed for redemption
(and the right to convert any such Convertible Subordinated Notes shall be
deemed to have been extended through such time), subject to payment of the above
amount as
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aforesaid. At the direction of the Company, the Trustee shall hold
and dispose of any such amount paid to it in the same manner as it would monies
deposited with it by the Company for the redemption of Convertible Subordinated
Notes. Without the Trustee's prior written consent, no arrangement between the
Company and such purchasers for the purchase and conversion of any Convertible
Subordinated Notes shall increase or otherwise affect any of the powers, duties,
responsibilities or obligations of the Trustee as set forth in this Indenture,
and the Company agrees to indemnify the Trustee from, and hold it harmless
against, any loss, liability or expense arising out of or in connection with any
such arrangement for the purchase and conversion of any Convertible Subordinated
Notes between the Company and such purchasers to which the Trustee has not
consented in writing, including the costs and expenses incurred by the Trustee
in the defense of any claim or liability arising out of or in connection with
the exercise or performance of any of its powers, duties, responsibilities or
obligations under this Indenture.
ARTICLE 4
COVENANTS
SECTION 4.1 PAYMENT OF CONVERTIBLE SUBORDINATED NOTES.
The Company shall pay the principal of and interest on the Convertible
Subordinated Notes on the dates and in the manner provided in the Convertible
Subordinated Notes. Principal, interest, the redemption price and the
Designated Event Payment shall be considered paid on the date due if the Trustee
or Paying Agent (other than the Company or a Subsidiary of the Company) holds as
of 10:00 a.m. New York City time on that date immediately available funds
designated for and sufficient to pay all principal, interest, the redemption
price and the Designated Event Payment then due, PROVIDED, HOWEVER, that money
held by the Agent for the benefit of holders of Senior Debt pursuant to the
provisions of Article 11 hereof or the payment of which to the holders of the
Convertible Subordinated Notes is prohibited by Article 11 shall not be
considered to be designated for the payment of any principal of or interest on
the Convertible Subordinated Notes within the meaning of this Section 4.1.
To the extent lawful, the Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on
(i) overdue principal, at the rate borne by Convertible Subordinated Notes,
compounded semiannually; and (ii) overdue installments of interest (without
regard to any applicable grace period) at the same rate, compounded
semiannually.
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SECTION 4.2 COMMISSION REPORTS.
The Company shall comply with Section 314(a) of the TIA.
SECTION 4.3 COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee within 120 days after the end of
each fiscal year of the Company (which fiscal year, as of the date hereof,
coincides with the calendar year), an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has fully performed its
obligations under this Indenture and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge, the Company
is not in default in the performance or observance of any of the terms and
conditions hereof (or, if any Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he or she may have
knowledge) and, that to the best of his or her knowledge, no event has occurred
and remains in existence by reason of which payments on account of the principal
of or interest on the Convertible Subordinated Notes are prohibited.
The Company shall, so long as any of the Convertible Subordinated Notes
are outstanding, deliver to the Trustee, forthwith upon becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default or
Event of Default.
SECTION 4.4 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain or cause to be maintained the office or agency
required under Section 2.3. The Company shall give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency not maintained by the Trustee. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, presentations, surrenders, notices and demands with
respect to the Convertible Subordinated Notes may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Convertible Subordinated Notes may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designation.
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SECTION 4.5 CONTINUED EXISTENCE.
Subject to Article 5, the Company shall do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence.
SECTION 4.6 REPURCHASE UPON DESIGNATED EVENT.
Following a Designated Event (the date of each such occurrence being the
"Designated Event Date"), the Company shall notify the holders of Convertible
Subordinated Notes in writing of such occurrence and shall make an offer (the
"Designated Event Offer") to repurchase all or any part (equal to $50 or an
integral multiple thereof) Convertible Subordinated Notes then outstanding at a
repurchase price in cash (the "Designated Event Payment") equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to, but
excluding, the Designated Event Payment Date (as defined below).
Notice of a Designated Event shall be mailed by or at the direction of
the Company to the holders of Convertible Subordinated Notes as shown on the
Register of such holders maintained by the Registrar not more than 20 days after
the applicable Designated Event Date at the addresses as shown on the Register
of holders maintained by the Registrar, with a copy to the Trustee and the
Paying Agent. The Designated Event Offer shall remain open until a specified
date (the "Designated Event Offer Termination Date") which is at least 20
business days from the date such notice is mailed. During the period specified
in such notice, holders of Convertible Subordinated Notes may elect to tender
their Convertible Subordinated Notes in whole or in part in integral multiples
of $50 in exchange for cash. Payment shall be made by the Company in respect of
Convertible Subordinated Notes properly tendered pursuant to this Section on a
specified business day (the "Designated Event Payment Date") which shall be no
earlier than five business days after the applicable Designated Event Offer
Termination Date and no later than 60 days after the applicable Designated
Event.
The notice, which shall govern the terms of the Designated Event Offer,
shall include such disclosures as are required by law and shall state:
(a) that a Designated Event Offer is being made pursuant to this
Section 4.6 and that all Convertible Subordinated Notes will be accepted for
payment;
(b) the transaction or transactions that constitute the Designated
Event;
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(c) the Designated Event Payment for each Convertible Subordinated
Note, the Designated Event Offer Termination Date and the Designated Event
Payment Date;
(d) that any Convertible Subordinated Note not accepted for payment
will continue to accrue interest in accordance with the terms thereof;
(e) that, unless the Company defaults on making the Designated Event
Payment, any Convertible Subordinated Note accepted for payment pursuant to the
Designated Event Offer shall cease to accrue interest on the Designated Event
Payment Date and no further interest shall accrue on or after such date;
(f) that holders electing to have Convertible Subordinated Notes
repurchased pursuant to a Designated Event Offer will be required to surrender
their Convertible Subordinated Notes to the Paying Agent at the address
specified in the notice prior to 5:00 p.m., New York City time, on the
Designated Event Offer Termination Date and must complete any form letter of
transmittal proposed by the Company and acceptable to the Trustee and the Paying
Agent;
(g) that holders of Convertible Subordinated Notes will be entitled to
withdraw their election if the Paying Agent receives, not later than 5:00 p.m.,
New York City time, on the Designated Event Offer Termination Date, a facsimile
transmission or letter setting forth the name of the holder, the principal
amount of Convertible Subordinated Notes the holder delivered for purchase, the
Convertible Subordinated Note certificate number (if any) and a statement that
such holder is withdrawing his election to have such Convertible Subordinated
Notes purchased;
(h) that holders whose Convertible Subordinated Notes are repurchased
only in part will be issued Convertible Subordinated Notes equal in principal
amount to the unpurchased portion of the Convertible Subordinated Notes
surrendered;
(i) the instructions that holders must follow in order to tender their
Convertible Subordinated Notes; and
(j) that in the case of a Designated Event Offer Termination Date that
is also an interest payment date, the interest payment due on such date shall be
paid to the person in whose name the Convertible Subordinated Note is registered
at the close of business on the relevant Designated Event Offer Termination
Date.
On the Designated Event Offer Termination Date the Company shall, to the
extent lawful, (i) accept for payment all Convertible Subordinated Notes or
portions thereof
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properly tendered pursuant to the Designated Event Offer, (ii) deposit with
the Paying Agent money sufficient to pay the Designated Event Payment with
respect to all Convertible Subordinated Notes or portions thereof so tendered
and (iii) deliver or cause to be delivered to the Trustee the Convertible
Subordinated Notes so accepted together with an Officers' Certificate setting
forth the aggregate principal amount of Convertible Subordinated Notes or
portions thereof tendered to and accepted for payment by the Company. On the
Designated Event Payment Date, the Paying Agent shall mail or deliver to the
holders of Convertible Subordinated Notes so accepted, the Designated Event
Payment, and on such date the Trustee shall authenticate and mail or cause to
be transferred by book entry to such holders a new Convertible Subordinated
Note equal in principal amount to any unpurchased portion of the Convertible
Subordinated Note surrendered, if any; PROVIDED that such new Convertible
Subordinate Notes will be in a principal amount of $50 or an integral
multiple thereof. Any Convertible Subordinated Notes not so accepted shall
be promptly mailed or delivered by the Company to the holder thereof.
In the case of any reclassification, change, consolidation, merger,
combination or sale or conveyance to which Section 12.6 applies, in which the
Common Stock of the Company is changed or exchanged as a result into the right
to receive stock, securities or other property or assets (including cash) which
includes shares of common stock of the Company or another person that are, or
upon issuance will be, traded on a United States national securities exchange or
approved for trading on an established automated over-the-counter trading market
in the United States and such shares constitute at the time such change or
exchange becomes effective in excess of 50% of the aggregate fair market value
of such stock, securities other property and assets (including cash) (as
determined by the Company, which determination shall be conclusive and binding),
then the person formed by such consolidation or resulting from such merger or
which acquires such assets, as the case may be, shall execute and deliver to the
Trustee a supplemental indenture (which shall comply with the TIA as in force at
the date of execution of such supplemental indenture) modifying the provisions
of this Indenture relating to the right of holders of Convertible Subordinated
Notes to cause the Company to repurchase Convertible Subordinated Notes
following a Designated Event, including the applicable provisions of this
Section 4.6 and the definitions of Designated Event, Change of Control and
Termination of Trading, as appropriate, as determined in good faith by the
Company (which determination shall be conclusive and binding), to make such
provision apply to such common stock and the issuer thereof if different from
the Company and Common Stock of the Company (in lieu of the Company and the
Common Stock of the Company).
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The Designated Event Offer shall be made by the Company in compliance
with all applicable provisions of the Exchange Act, and all applicable tender
offer rules promulgated thereunder, to the extent such laws and regulations are
then applicable and shall include all instructions and materials that the
Company shall reasonably deem necessary to enable such holders of Convertible
Subordinated Notes to tender their Convertible Subordinated Notes.
SECTION 4.7 APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE.
The Company, whenever necessary to avoid or fill a vacancy in the office
of Trustee, will appoint, in the manner provided in Section 7.8, a Trustee, so
that there shall at all times be a Trustee hereunder.
SECTION 4.8 STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter enforced, that may affect the Company's
obligation to pay the Convertible Subordinated Notes; and the Company (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law insofar as such law applies to the Convertible
Subordinated Notes, and covenants that it shall not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law has been enacted.
SECTION 4.9 TAXES.
The Company shall, and shall cause each of its Subsidiaries to, pay prior
to delinquency all taxes, assessments and government levies, except as contested
in good faith and by appropriate proceedings.
ARTICLE 5
SUCCESSORS
SECTION 5.1 WHEN THE COMPANY MAY MERGE, ETC.
The Company may not, in a single transaction or series of related
transactions, consolidate or merge with or into (whether or not the Company is
the surviving corporation), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or
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more related transactions to, any person as an entirety or substantially as
an entirety unless:
(a) either
(i) the Company shall be the surviving or continuing
corporation or
(ii) the person formed by or surviving any such consolidation or
into which the Company is merged (if other than the Company) or the person which
acquires by sale, assignment, transfer, lease, conveyance or other disposition
the properties and assets of the Company substantially as an entirety
(1) shall be organized and validly existing under the
laws of the United States or any State thereof or the District of Columbia and
(2) shall expressly assume, by supplemental indenture in
form reasonably satisfactory to the Trustee, executed and delivered to the
Trustee, the due and punctual payment of the principal of, and premium, if any,
and interest on all of the Convertible Subordinated Notes and the performance of
every covenant of the Convertible Subordinated Notes and this Indenture on the
part of the Company to be performed or observed, including, without limitation,
modifications to rights of holders to cause the repurchase of Convertible
Subordinated Notes upon a Designated Event in accordance with the last paragraph
of Section 4.6 and conversion rights in accordance with Section 12.6 to the
extent required by such Sections;
(b) immediately after giving effect to such transaction no Default and
no Event of Default shall have occurred and be continuing; and
(c) the Company or such person shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating that such
consolidation, merger, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture, comply with this provision of this Indenture and that all conditions
precedent in this Indenture relating to such transaction have been satisfied.
For purposes of this Section 5.1, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of the
Company, the capital stock of which constitutes all or substantially all of the
properties and assets of the Company, shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company.
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SECTION 5.2 SUCCESSOR SUBSTITUTED.
Upon any such consolidation, merger, sale, assignment, conveyance,
lease, transfer or other disposition in accordance with Section 5.1, the
successor person formed by such consolidation or into which the Company is
merged or to which such sale, assignment, conveyance, lease, transfer or
other disposition is made will succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor had been named as the Company therein, and
thereafter (except in the case of a sale, assignment, transfer, lease,
conveyance or other disposition) the predecessor corporation will be relieved
of all further obligations and covenants under this Indenture and the
Convertible Subordinated Notes.
SECTION 5.3 PURCHASE OPTION ON CHANGE OF CONTROL.
This Article 5 does not affect the obligations of the Company
(including without limitation, any successor to the Company) under Section
4.6.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT.
An "Event of Default" with respect to any Convertible Subordinated
Notes occurs if:
(a) the Company defaults in the payment (whether or not such
payment is prohibited by the subordination provisions set forth in Article 11
of this Indenture) of principal of, or premium, if any, on the Convertible
Subordinated Notes when due at maturity, upon repurchase, upon acceleration
or otherwise, including, without limitation, failure of the Company to make
any optional redemption payment when required pursuant to Article 3; or
(b) the Company defaults in the payment (whether or not such
payment is prohibited by the subordination provisions set forth in Article 11
of this Indenture) of any installment of interest on the Convertible
Subordinated Notes when due (including any interest payable in connection
with a repurchase pursuant to Section 4.6 or in connection with any optional
redemption payment pursuant to Article 3) and continuance of such default for
30 days or more; or
(c) the Company defaults (other than a default set forth in clauses
(a) and (b) above and clause (d) below) in the performance of, or breaches, any
other covenant or warranty of the Company set forth in this Indenture or the
Convertible
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Subordinated Notes and fails to remedy such default or breach within a period
of 60 days after the receipt of written notice from the Trustee or the
holders of at least 25% in aggregate principal amount of the then outstanding
Convertible Subordinated Notes; or
(d) the Company defaults in the payment of the Designated Event
Payment in respect of the Convertible Subordinated Notes on the date
therefor, whether or not such payment is prohibited by the subordination
provisions set forth in Article 11 of this Indenture; or
(e) the Company fails to provide timely notice of any Designated
Event in accordance with Section 4.6; or
(f) failure of the Company or any Material Subsidiary to make any
payment at maturity, including any applicable grace period, in respect of
indebtedness for borrowed money of, or guaranteed or assumed by, the Company
or any Material Subsidiary, which payment is in an amount in excess of
$1,000,000, and continuance of such failure for 30 days after notice thereof
from the Trustee or the holders of at least 25% in aggregate principal amount
of the then outstanding Convertible Subordinated Notes; or
(g) default by the Company or any Material Subsidiary with respect
to any indebtedness referred to in clause (f) above, which default results in
the acceleration of any such indebtedness of an amount in excess of
$1,000,000 without such indebtedness having been paid or discharged or such
acceleration having been cured, waived, rescinded or annulled for 30 days
after notice thereof from the Trustee or the holders of at least 25% in
aggregate principal amount of the then outstanding Convertible Subordinated
Notes; or
(h) the Company or any Material Subsidiary, pursuant to or within
the meaning of any Bankruptcy Law:
(v) commences a voluntary case,
(w) consents to the entry of an order for relief against it
in an involuntary case,
(x) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(y) makes a general assignment for the benefit of its
creditors, or
(z) makes the admission in writing that it generally is
unable to pay its debts as the same become due; or
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(i) a court of competent jurisdiction enters a judgment, order or
decree under any Bankruptcy Law that:
(i) is for relief against the Company or any Material
Subsidiary in an involuntary case,
(ii) appoints a Custodian of the Company or any Material
Subsidiary, and the order or decree remains unstayed and in effect for 30
days, or
(iii) orders the liquidation of the Company or any Material
Subsidiary, and the order or decree remains unstayed and in effect for 30
days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal or state law for the relief of debtors. The term "Custodian" means
any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
In the case of any Event of Default, pursuant to the provisions of
this Section 6.1, occurring by reason of any wilful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding payment of the premium which the Company would have had to pay if
the Company then had elected to redeem the Convertible Subordinated Notes
pursuant to Paragraph 5 of the Convertible Subordinated Notes, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law, upon the acceleration of the Convertible Subordinated Notes
notwithstanding anything contained in this Indenture or in the Convertible
Subordinated Notes to the contrary.
If an Event of Default occurs prior to any date on which the Company
is prohibited from redeeming the Convertible Subordinated Notes, pursuant to
Paragraph 5 of the Convertible Subordinated Notes, by reason of any wilful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding the prohibition on redemption of the Convertible
Subordinated Notes prior to such date, then the premium specified in this
Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Convertible Subordinated Notes.
SECTION 6.2 ACCELERATION.
If an Event of Default (other than an Event of Default with respect to
the Company specified in clauses (h) and (i) of Section 6.1) occurs and is
continuing, then and in every such case the Trustee, by written notice to the
Company, or the holders of at least 25% in aggregate principal amount of the
then outstanding Convertible Subordinated Notes, by written notice to the
Company and the Trustee, may declare the unpaid principal of, premium, if
any, and accrued and unpaid interest on all the Convertible Subordinated
Notes to be due
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and payable. Upon such declaration such principal amount, premium, if any,
and accrued and unpaid interest shall become immediately due and payable,
notwithstanding anything contained in this Indenture or the Convertible
Subordinated Notes to the contrary, but subject to the provisions of Article
11 hereof. If any Event of Default with respect to the Company specified in
clauses (h) or (i) of Section 6.1 occurs, all unpaid principal of and
premium, if any, and accrued and unpaid interest on the Convertible
Subordinated Notes then outstanding shall become automatically due and
payable subject to the provisions of Article 11 hereof, without any
declaration or other act on the part of the Trustee or any holder of
Convertible Subordinated Notes.
The holders of a majority in aggregate principal amount of the then
outstanding Convertible Subordinated Notes by notice to the Trustee may
rescind an acceleration of the Convertible Subordinated Notes and its
consequences if all existing Events of Default (other than nonpayment of
principal of or premium, if any, and interest on the Convertible Subordinated
Notes which has become due solely by virtue of such acceleration) have been
cured or waived and if the rescission would not conflict with any judgment or
decree of any court of competent jurisdiction. No such rescission shall
affect any subsequent Default or Event of Default or impair any right
consequent thereto.
SECTION 6.3 OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Convertible Subordinated Notes or
to enforce the performance of any provision of the Convertible Subordinated
Notes or this Indenture. The Trustee may maintain a proceeding even if it
does not possess any of the Convertible Subordinated Notes or does not
produce any of them in the proceeding. A delay or omission by the Trustee or
any holder of a Convertible Subordinated Note in exercising any right or
remedy occurring upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of Default.
All remedies are cumulative to the extent permitted by law.
SECTION 6.4 WAIVER OF PAST DEFAULTS.
The holders of a majority in aggregate principal amount of the
Convertible Subordinated Notes then outstanding may, on behalf of the holders
of all the Convertible Subordinated Notes, waive an existing Default or Event
of Default and its consequences, except a Default or Event of Default in the
payment of the principal of, premium, if any, or interest on the
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Convertible Subordinated Notes (other than the non-payment of principal of
and premium, if any, and interest on the Convertible Subordinated Notes which
has become due solely by virtue of an acceleration which has been duly
rescinded as provided above), or in respect of a covenant or provision of
this Indenture which cannot be modified or amended without the consent of all
holders of Convertible Subordinated Notes. When a Default or Event of
Default is waived, it is cured and stops continuing. No waiver shall extend
to any subsequent or other Default or Event of Default or impair any right
consequent thereon.
SECTION 6.5 CONTROL BY MAJORITY.
The holders of a majority in aggregate principal amount of the then
outstanding Convertible Subordinated Notes may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture that
the Trustee determines may be unduly prejudicial to the rights of other
holders of Convertible Subordinated Notes or that may involve the Trustee in
personal liability; PROVIDED that the Trustee shall have no duty or
obligation (subject to Section 7.1) to ascertain whether or not such actions
of forebearances are unduly prejudicial to such holders; PROVIDED, FURTHER,
that the Trustee may take any other action the Trustee deems proper that is
not inconsistent with such directions.
SECTION 6.6 LIMITATION ON SUITS.
A holder of a Convertible Subordinated Note may not pursue any remedy
with respect to this Indenture or the Convertible Subordinated Notes unless:
(1) the holder gives to the Trustee notice of a continuing Event of
Default;
(2) the holders of at least 25% in principal amount of the then
outstanding Convertible Subordinated Notes make a request to the Trustee to
pursue the remedy;
(3) such holder or holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability or
expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(5) during such 60-day period the holders of a majority in
principal amount of the then outstanding Convertible Subordinated Notes do
not give the Trustee a direction inconsistent with the request.
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A holder of a Convertible Subordinated Note may not use this Indenture
to prejudice the rights of another holder or to obtain a preference or
priority over another holder.
SECTION 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Subject to the provisions of Article 11 hereof, notwithstanding any
other provision of this Indenture, the right of any holder of a Convertible
Subordinated Note to receive payment of principal, premium, if any, and
interest on the Convertible Subordinated Note, on or after the respective due
dates expressed in the Convertible Subordinated Note, or to bring suit for
the enforcement of any such payment on or after such respective dates, or to
bring suit for the enforcement of the right to convert the Convertible
Subordinated Note shall not be impaired or affected without the consent of
the holder of a Convertible Subordinated Note.
SECTION 6.8 COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.1(a), (b) or (d) occurs
and is continuing, the Trustee may recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal and interest remaining unpaid on the Convertible Subordinated Notes
and interest on overdue principal and interest and such further amount as
shall be sufficient to cover the costs and, to the extent lawful, expenses of
collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee and the holders of Convertible Subordinated Notes allowed in any
judicial proceedings relative to the Company, its creditors or its property.
Nothing contained herein shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any holder of a
Convertible Subordinated Note any plan of reorganization, arrangement,
adjustment or composition affecting the Convertible Subordinated Notes or the
rights of any holder thereof, or to authorize the Trustee to vote in respect
of the claim of any holder in any such proceeding.
SECTION 6.10 PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.7, including
payment of all compensation, expenses and
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liabilities incurred, and all advances made, by the Trustee, and the costs
and expenses of collection;
Second: to holders of Senior Debt to the extent required by Article 11;
Third: ratably (a) to holders of Convertible Subordinated Notes for
amounts due and unpaid on the Convertible Subordinated Notes for principal,
premium, if any, and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Convertible
Subordinated Notes for principal, premium, if any, and interest,
respectively, and (b) to the holders of any Indebtedness PARI PASSU with the
Convertible Subordinated Notes; and
Fourth: to the Company.
Except as otherwise provided in Section 2.12, the Trustee may fix a
record date and payment date for any payment to holders of Convertible
Subordinated Notes.
SECTION 6.11 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted
by it as a Trustee, a court in its discretion may require the filing by any
party litigant in the suit, other than the Trustee, of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or
defenses made by the party litigant. This Section does not apply to a suit
by the Trustee, a suit by a holder pursuant to Section 6.7 or a suit by
holders of more than 10% in principal amount of the then outstanding
Convertible Subordinated Notes.
ARTICLE 7
THE TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed. Whether
or not herein expressly so provided, every provision of this Indenture
relating to the conduct or affecting the liability of or affording protection
to the Trustee shall be subject to the provisions of this Article 7.
SECTION 7.1 DUTIES OF THE TRUSTEE.
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(a) If an Event of Default known to the Trustee has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested
in it by this Indenture and use the same degree of care and skill in their
exercise as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.
(b) Except during the continuance of an Event of Default known to
the Trustee:
(1) The duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no others
and no implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon any statements, certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and opinions
to determine whether or not they conform to the form required by this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph
(b) of this Section;
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that is in any way related to the Trustee is subject to
paragraphs (a), (b) and (c) of this Section 7.1.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any financial liability in the performance of any
of its duties or the exercise of any of its rights and powers hereunder, if it
shall have reasonable grounds for believing that repayment of
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such funds or adequate indemnity against such risk of liability is not
reasonably assured to it.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree with the Company. Money held
in trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.2 RIGHTS OF THE TRUSTEE.
(a) The Trustee may rely on and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate, or any
other certificate, statement, instrument, opinion, report, notice, request,
consent, order, security or other document believed by it to be genuine and
to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter contained therein.
(b) Any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an Officers' Certificate
(unless other evidence in respect thereof is herein specifically prescribed).
In addition, before the Trustee acts or refrains from acting, it may require
an Officers' Certificate, an Opinion of Counsel or both. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee
may consult with counsel and the written advice of such counsel or any
Opinion of Counsel shall be full and complete authorization and protection
from liability in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
(c) The Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through its
attorneys and agents and other persons not regularly in its employ and shall
not be responsible for the misconduct or negligence of any attorney or agent
appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith without negligence or willful misconduct which it
believes to be authorized or within its discretion, rights or powers.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by Officers of the Company.
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(f) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(g) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
discretion of any of the holders of Convertible Subordinated Notes pursuant
to the provisions of this Indenture, unless such holders have offered to the
Trustee security or indemnity satisfactory to it against the costs, expenses
and liabilities which might be incurred therein or thereby.
(h) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, security or
other document unless requested in writing to do so by the holders of not
less than a majority in aggregate principal amount of the Convertible
Subordinated Notes then outstanding, PROVIDED that if the Trustee determines
in its discretion to make any such investigation, then it shall be entitled,
upon reasonable prior notice and during normal business hours, to examine the
books and records and the premises of the Company, personally or by agent or
attorney, and the reasonable expenses of every such examination shall be paid
by the Company or, if paid by the Trustee or any predecessor Trustee, shall
be reimbursed by the Company upon demand.
(i) The permissive rights of the Trustee to do things enumerated in
this Indenture shall not be construed as a duty and the Trustee shall not be
answerable for other than its negligence or wilful misconduct.
(j) The Trustee shall not be responsible for the computation of any
adjustment to the Conversion Price or for any determination as to whether an
adjustment is required and shall not be deemed to have knowledge of any
adjustment unless and until it shall have received the notice from the
Company contemplated by Section 12.5(k).
SECTION 7.3 INDIVIDUAL RIGHTS OF THE TRUSTEE.
Subject to Sections 7.10 and 7.11, the Trustee in its individual or
any other capacity may become the owner or pledgee of Convertible
Subordinated Notes with the same rights it would have if it were not the
Trustee and may otherwise deal with the Company or an Affiliate of the
Company and receive, collect, hold and retain collections from the Company
with the same rights it would have if it were not Trustee. Any Agent may do
the same with like rights.
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SECTION 7.4 TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Convertible
Subordinated Notes. It shall not be accountable for the Company's use of the
proceeds from the Convertible Subordinated Notes or any money paid to the
Company or upon the Company's direction under any provision of this
Indenture. It shall not be responsible for the use or application of any
money received by any Paying Agent other than the Trustee, and it shall not
be responsible for any statement or recital herein or any statement in the
Convertible Subordinated Notes or any other document in connection with the
sale of the Convertible Subordinated Notes or pursuant to this Indenture
other than its certificate of authentication.
SECTION 7.5 NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to each holder of a Convertible
Subordinated Note a notice of the Default or Event of Default within 60 days
after it occurs. A Default or an Event of Default shall not be considered
known to the Trustee unless it is a Default or Event of Default in the
payment of principal or interest when due under Section 6.1(a), (b) or (d) or
the Trustee shall have received notice thereof, in accordance with this
Indenture (including Section 10.12 hereof), from the Company or from the
holders of a majority in principal amount of the outstanding Convertible
Subordinated Notes. Except in the case of a Default or Event of Default in
payment of principal of, premium, if any, or interest on any Convertible
Subordinated Note, the Trustee may withhold the notice if and so long as a
committee of its Trust Officers in good faith determines that withholding the
notice is in the interest of the holders of the Convertible Subordinated
Notes.
SECTION 7.6 REPORTS BY THE TRUSTEE TO HOLDERS.
Within 60 days after the reporting date stated in Section 10.10, the
Trustee shall mail to holders of Convertible Subordinated Notes a brief
report dated as of such reporting date that complies with TIA Section 313(a)
(but if no event described in TIA Section 313(a) has occurred within twelve
months preceding the reporting date, no report need be transmitted). The
Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also
transmit by mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to holders of
Convertible Subordinated Notes shall be filed, at the expense of the Company, by
the Trustee with the Commission and each stock exchange or securities market, if
any, on which
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the Convertible Subordinated Notes are listed. The Company shall timely
notify the Trustee when the Convertible Subordinated Notes are listed or
quoted on any stock exchange or securities market.
SECTION 7.7 COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time and the Trustee
shall be entitled to reasonable compensation for its acceptance of this
Indenture and its services hereunder. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by or on behalf of it
in addition to the compensation for its services. Such expenses may include
the reasonable compensation, disbursements and expenses of the Trustee's
agents, counsel and other persons not regularly in its employ.
The Company shall indemnify the Trustee against any loss, liability or
expense incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture and the trusts hereunder,
including the costs and expenses of defending itself against or investigating
any claim of liability in the premises, except as set forth in the next
paragraph. The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity. The Company shall defend the claim with counsel
designated by the Company, who may be outside counsel to the Company but
shall in all events be reasonably satisfactory to the Trustee, and the
Trustee shall cooperate in the defense. In addition, the Trustee may retain
separate counsel and, if deemed advisable by such counsel, local counsel, and
the Company shall pay the reasonable fees and expenses of such separate
counsel and local counsel. The indemnification herein extends to any
settlement, PROVIDED that the Company will not be liable for any settlement
made without its consent, PROVIDED, FURTHER, that such consent will not be
unreasonably withheld.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through its own negligence or
wilful misconduct.
The Trustee shall have a lien prior to the Convertible Subordinated
Notes on all money or property held or collected by the Trustee to secure the
Company's payment obligations in this Section 7.7, except that held in trust
to pay principal and interest on Convertible Subordinated Notes. Such liens
and the Company's obligations under this Section 7.7 shall survive the
satisfaction and discharge of this Indenture.
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When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(h) or (i) occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
SECTION 7.8 REPLACEMENT OF THE TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance
of appointment as provided in this Section 7.8.
The Trustee may resign at any time and be discharged from the trust
hereby created by so notifying the Company. The holders of a majority in
principal amount of the then outstanding Convertible Subordinated Notes may
remove the Trustee by so notifying the Trustee and the Company in writing and
may appoint a successor Trustee. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(3) a Custodian or public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the holders of a majority in principal amount of the then outstanding
Convertible Subordinated Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the holders of at least 10% in principal amount of the then outstanding
Convertible Subordinated Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee after written request by any holder of a Convertible
Subordinated Note who has been a holder for at least six months fails to
comply with Section 7.10, such holder may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
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A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and
the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. The successor Trustee shall mail a notice of
its succession to holders of Convertible Subordinated Notes. The retiring
Trustee shall promptly transfer all property held by it as Trustee to the
successor Trustee, PROVIDED that all sums owing to the retiring Trustee
hereunder have been paid and subject to the lien provided for in Section 7.7.
Notwithstanding the replacement of the Trustee pursuant to this Section 7.8,
the Company's obligations under Section 7.7 shall continue for the benefit of
the retiring Trustee with respect to expenses and liabilities incurred by it
prior to such replacement.
Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts
referred to in the preceding paragraph.
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business (including
the trust created by this Indenture) to, another corporation or national
banking association, the resulting, surviving or transferee corporation or
national banking association without any further act shall be the successor
Trustee with the same effect as if the successor Trustee had been named as
the Trustee herein.
SECTION 7.10 ELIGIBILITY, DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1). The Trustee shall always have a
combined capital and surplus as stated in Section 10.10. The Trustee is
subject to TIA Section 310(b) regarding the disqualification of a trustee
upon acquiring a conflicting interest.
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship set forth in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
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ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.1 DISCHARGE OF INDENTURE.
When (a) the Company delivers to the Trustee for cancellation all
Convertible Subordinated Notes theretofore authenticated (other than any
Convertible Subordinated Notes which have been destroyed, lost or stolen and
in lieu of or in substitution for which other Convertible Subordinated Notes
have been authenticated and delivered) and not theretofore canceled, or (b)
all the Convertible Subordinated Notes not theretofore canceled or delivered
to the Trustee for cancellation have become due and payable, or by their
terms will become due and payable within one year or are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption, and the Company deposits with the
Trustee, in trust, amounts sufficient to pay at maturity or upon redemption
of all of the Convertible Subordinated Notes (other than any Convertible
Subordinated Notes which have been mutilated, destroyed, lost or stolen and
in lieu of or in substitution for which other Convertible Subordinated Notes
have been authenticated and delivered) not theretofore canceled or delivered
to the Trustee for cancellation, including principal and premium, if any, and
interest due or to become due to such date of maturity or redemption date, as
the case may be, and if in either case the Company also pays, or causes to be
paid, all other sums payable hereunder by the Company, then this Indenture
shall cease to be of further effect (except as to (i) rights of registration
of transfer, substitution, replacement and exchange and conversion of
Convertible Subordinated Notes, (ii) rights hereunder of holders of
Convertible Subordinated Notes to receive payments of principal of and
premium, if any, and interest on, the Convertible Subordinated Notes, (iii)
the obligations under Sections 2.3 and 8.5 hereof and (iv) the rights,
obligations and immunities of the Trustee hereunder), and the Trustee, on
demand of the Company accompanied by an Officers' Certificate and an Opinion
of Counsel as required by Section 10.4 and at the Company's cost and expense,
shall execute proper instruments acknowledging satisfaction of and
discharging this Indenture; the Company, however, hereby agrees to reimburse
the Trustee for any costs or expenses thereafter reasonably and properly
incurred by the Trustee and to compensate the Trustee for any services
thereafter reasonably and properly rendered by the Trustee in connection with
this Indenture or the Convertible Subordinated Notes.
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SECTION 8.2 DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE.
Subject to Section 8.4, all monies deposited with the Trustee pursuant
to Section 8.1 shall be held in trust and applied by it to the payment,
notwithstanding the provisions of Article 11, either directly or through the
Paying Agent, to the holders of the particular Convertible Subordinated Notes
for the payment or redemption of which such monies have been deposited with
the Trustee, of all sums due and to become due thereon for principal and
interest and premium, if any.
SECTION 8.3 PAYING AGENT TO REPAY MONIES HELD.
Upon the satisfaction and discharge of this Indenture, all monies then
held by any Paying Agent (other than the Trustee) shall, upon the Company's
demand, be repaid to it or paid to the Trustee, and thereupon such Paying
Agent shall be released from all further liability with respect to such
monies.
SECTION 8.4 RETURN OF UNCLAIMED MONIES.
Anything contained herein to the contrary notwithstanding, and subject
to any applicable law, any money held by the Trustee in trust for the payment
and discharge of the interest or premium (if any) on or principal of any of
the Convertible Subordinated Notes which remains unclaimed for two (2) years
after the date when each payment of such interest, premium and principal has
become payable shall be repaid within sixty (60) days of such date by the
Trustee to the Company as its absolute property free from trust, and the
Trustee shall thereupon be released and discharged with respect thereto and
the holders shall look only to the Company for the payment of the principal
of and interest and redemption premium (if any) on such Convertible
Subordinated Notes. The Company may cause, or, if requested by the Company,
the Trustee shall cause notice of such payment to the Company to be mailed to
each holder of a Convertible Subordinated Note entitled thereto prior to such
payment. The Trustee shall not be liable to the Company or any holder for
interest on funds held by it for the payment and discharge of the interest,
or premium (if any) on or principal of any of the Convertible Subordinated
Notes to any holder. The Company shall not be liable for any interest on the
sums paid to it pursuant to this paragraph and shall not be regarded as a
trustee of such money.
SECTION 8.5 REINSTATEMENT.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with Section 8.2 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the
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Company's obligations under this Indenture and the Convertible Subordinated
Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.1 until such time as the Trustee or the Paying Agent is
permitted to apply all such money in accordance with Section 8.2; PROVIDED,
HOWEVER, that if the Company makes any payment of interest on or principal of
any Convertible Subordinated Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the holders
thereof to receive such payment from the money held by the Trustee or Paying
Agent.
ARTICLE 9
AMENDMENTS
SECTION 9.1 WITHOUT THE CONSENT OF HOLDERS.
The Company and the Trustee may amend or supplement this Indenture or
the Convertible Subordinated Notes without notice to or the consent of any
holder of a Convertible Subordinated Note for the purposes of:
(a) curing any ambiguity or correcting or supplementing any
defective or inconsistent provision contained in this Indenture or making any
other changes in the provisions of this Indenture which the Company and the
Trustee may deem necessary or desirable PROVIDED such amendment does not
adversely affect the legal rights under the Indenture of the holders of
Convertible Subordinated Notes.
(b) providing for uncertificated Convertible Subordinated Notes in
addition to or in place of certificated Convertible Subordinated Notes;
(c) evidencing the succession of another person to the Company and
providing for the assumption by such successor of the covenants and
obligations of the Company thereunder and in the Convertible Subordinated
Notes as permitted by Section 5.1;
(d) providing for conversion rights and/or repurchase rights of
holders of Convertible Subordinated Notes in the event of consolidation,
merger or sale of all or substantially all of the assets of the Company as
required to comply with Sections 5.1 and/or 12.6;
(e) reducing the Conversion Price;
(f) making any changes that would provide the holders of the
Convertible Subordinated Notes with any additional rights or benefits or that
does not adversely affect the legal rights under this Indenture of any such
holder; or
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(g) complying with the requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the TIA.
SECTION 9.2 WITH THE CONSENT OF HOLDERS.
Subject to Section 6.7, the Company and the Trustee may amend or
supplement this Indenture or the Convertible Subordinated Notes with the
written consent of the holders of at least a majority in principal amount of
the then outstanding Convertible Subordinated Notes (including consents
obtained in connection with a tender offer or exchange offer for Convertible
Subordinated Notes).
Subject to Sections 6.4 and 6.7, the holders of a majority in
principal amount of the Convertible Subordinated Notes then outstanding may
also waive any existing default or compliance in a particular instance by the
Company with any provision of this Indenture or the Convertible Subordinated
Notes.
However, without the consent of each holder of a Convertible
Subordinated Note affected, an amendment or waiver under this Section may not
(with respect to any Convertible Subordinated Notes held by a non-consenting
holder):
(a) reduce the principal amount of Convertible Subordinated Notes
whose holders must consent to an amendment, supplement or waiver;
(b) reduce the principal of or premium on or change the fixed
maturity of any Convertible Subordinated Note or, except as permitted
pursuant to Section 9.1(a), alter the redemption provisions with respect
thereto;
(c) reduce the rate of, or change the time for payment of,
interest, including defaulted interest, on any Convertible Subordinated Note;
(d) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Convertible Subordinated Notes
(except a rescission of acceleration of the Convertible Subordinated Notes by
the holders of at least a majority in aggregate principal amount of the
Convertible Subordinated Notes then outstanding and a waiver of the payment
default that resulted from such acceleration);
(e) make the principal of, or premium, if any, or interest on, any
Convertible Subordinated Note payable in money other than as provided for
herein and in the Convertible Subordinated Notes;
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(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or Events of Default or the rights of holders of
Convertible Subordinated Notes to receive payments of principal of, premium,
if any, or interest on the Convertible Subordinated Notes;
(g) waive a redemption payment with respect to any Convertible
Subordinated Notes;
(h) except as permitted herein (including Section 9.1(a)), increase
the Conversion Price or modify the provisions contained herein relating to
conversion of the Convertible Subordinated Notes in a manner adverse to the
holders thereof; or
(i) make any change to the abilities of holders of Convertible
Subordinated Notes to enforce their rights under the provisions of clauses
(a) through (i) of this Section 9.2.
To secure a consent of the holders of Convertible Subordinated Notes
under this Section, it shall not be necessary for such holders to approve the
particular form of any proposed amendment or waiver, but it shall be
sufficient if such consent approves the substance thereof.
After an amendment or waiver under this Section becomes effective, the
Company shall mail to holders of Convertible Subordinated Notes a notice
briefly describing the amendment or waiver. In order to amend any provisions
of Article 11, holders of at least 75% in aggregate principal amount of
Convertible Subordinated Notes then outstanding must consent to such
amendment if such amendment would adversely affect the rights of holders of
Convertible Subordinated Notes.
SECTION 9.3 COMPLIANCE WITH THE TRUST INDENTURE ACT.
Every amendment to this Indenture or the Convertible Subordinated
Notes shall be set forth in a supplemental indenture that complies with the
TIA as then in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment or waiver becomes effective, a consent to it by a
holder of a Convertible Subordinated Note is a continuing consent by the
holder and every subsequent holder of a Convertible Subordinated Note or
portion of a Convertible Subordinated Note that evidences the same debt as
the consenting holder's Convertible Subordinated Note, even if notation of
the consent is not made on any Convertible Subordinated Note. However, any
such holder or subsequent holder may revoke the consent as to his or her
Convertible Subordinated Note or portion of a Convertible Subordinated Note
if the Trustee receives the notice of revocation before the date on which the
Trustee receives an Officers'
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Certificate certifying that the holders of the requisite principal amount of
Convertible Subordinated Notes have consented to the amendment or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the holders of Convertible Subordinated Notes
entitled to consent to any amendment or waiver. If a record date is fixed,
then notwithstanding the provisions of the immediately preceding paragraph,
those persons who were holders of Convertible Subordinated Notes at such
record date (or their duly designated proxies), and only those persons, shall
be entitled to consent to such amendment or waiver or to revoke any consent
previously given, whether or not such persons continue to be valid or
effective for more than 90 days after such record date unless consents from
holders of the principal amount of Convertible Subordinated Notes required
hereunder for such amendment or waiver to be effective shall have also been
given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every
holder of a Convertible Subordinated Note, unless it is of the type described
in clauses (a)-(i) of Section 9.2. In such case, the amendment or waiver
shall bind each holder of a Convertible Subordinated Note who has consented
to it and every subsequent holder of a Convertible Subordinated Note or
portion of a Convertible Subordinated Note that evidences the same debt as
the consenting holder's Convertible Subordinated Note.
SECTION 9.5 NOTATION ON OR EXCHANGE OF CONVERTIBLE SUBORDINATED NOTES.
Convertible Subordinated Notes authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article 9 may, and
shall if required by the Trustee, bear a notation in the form approved by the
Trustee as to any matter provided for in such supplemental indenture. If the
Company shall so determine, new Convertible Subordinated Notes so modified as
to conform, in the opinion of the Company and the Trustee, to any such
supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for outstanding
Convertible Subordinated Notes without charge to the holders of the
Convertible Subordinated Notes, except as specified in Section 2.6.
SECTION 9.6 TRUSTEE PROTECTED.
The Trustee shall sign any amendment or supplemental indenture authorized
pursuant to this Article 9 if such amendment or supplemental indenture does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may, but need not, sign it. In
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signing such amendment or supplemental indenture, the Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel as conclusive evidence that
such amendment or supplemental indenture is authorized or permitted by this
Indenture, that it is not inconsistent herewith, and that it will be valid
and binding upon the Company in accordance with its terms.
ARTICLE 10
GENERAL PROVISIONS
SECTION 10.1 TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), such duties imposed by such section
of the TIA shall control. If any provision of this Indenture expressly
modifies or excludes any provision of the TIA that may be so modified or
excluded, the Indenture provision so modifying or excluding such provision of
the TIA shall be deemed to apply.
SECTION 10.2 NOTICES.
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in person or mailed by first-class
mail, with postage prepaid (registered or certified, return receipt
requested), or sent by facsimile or overnight air couriers guaranteeing next
day delivery, to the other's address as stated in Section 10.10. The Company
or the Trustee by notice to the other may designate additional or different
addresses for subsequent notices or communications.
All notices and communications (other than those sent to holders of
Convertible Subordinated Notes) shall be deemed to have been duly given at
the time delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; when transmission is
confirmed, if transmitted by facsimile; and the next business day after
timely delivery to the courier, if sent by overnight air courier guaranteeing
next day delivery. Notwithstanding the foregoing, all notices to the Trustee
shall be effective only upon receipt by a Trust Officer.
Any notice or communication to a holder of a Convertible Subordinated
Note shall be mailed by first-class mail, with postage prepaid, to his or her
address shown on the Register kept by the Registrar. Failure to mail a
notice or communication to a holder or any defect in it shall not affect its
sufficiency with respect to other holders.
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If a notice or communication is sent in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company sends a notice or communication to holders of
Convertible Subordinated Notes, it shall send a copy to the Trustee and each
Agent at the same time.
All notices or communications shall be in writing.
SECTION 10.3 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA Section 312(b) with other
holders with respect to their rights under this Indenture or the Convertible
Subordinated Notes. The Company, the Trustee, the Registrar and anyone else
shall have the protection of TIA Section 312(c).
SECTION 10.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate in form and substance
reasonably satisfactory to the Trustee (which shall include the statements
set forth in Section 10.5) stating that, in the opinion of such person, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.5) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been complied with.
SECTION 10.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a
certificate provided pursuant to TIA Section 314(a)(4)) shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained
in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he or she
has made such examination or investigation
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as is necessary to enable him or her to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any Officers' Certificate may be based, insofar as it relates to legal
matters, upon an Opinion of Counsel, unless such Officer knows that the
opinion with respect to the matters upon which his or her certificate may be
based as aforesaid is erroneous. Any Opinion of Counsel may be based,
insofar as it relates to factual matters, upon certificates, statements or
opinions of, or representations by an officer or officers of the Company, or
other persons or firms deemed appropriate by such counsel, unless such
counsel knows that the certificates, statements or opinions or
representations with respect to the matters upon which his or her opinion may
be based as aforesaid are erroneous.
Any Officers' Certificate, statement or Opinion of Counsel may be
based, insofar as it relates to accounting matters, upon a certificate or
opinion of or representation by an accountant (who may be an employee of the
Company), or firm of accountants, unless such Officer or counsel, as the case
may be, knows that the certificate or opinion or representation with respect
to the accounting matters upon which his or her certificate, statement or
opinion may be based as aforesaid is erroneous.
SECTION 10.6 RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by, or a meeting of,
holders of Convertible Subordinated Notes. The Registrar or Paying Agent may
make reasonable rules and set reasonable requirements for its functions.
SECTION 10.7 LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in the City of New York, the city in which the Corporate Trust
Office of the Trustee is located or the City of Portland, Oregon are not
required to be open, and a "business day" is any day that is not a Legal
Holiday. If a payment date is a Legal Holiday at a place of payment, payment
may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period. If any
date specified in this Indenture, including, without limitation, a redemption
date under Paragraph 5 of Convertible Subordinated Notes, is a Legal Holiday,
then such date shall be the next succeeding business day.
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SECTION 10.8 NO RECOURSE AGAINST OTHERS.
No director, officer, employee or shareholder, as such, of the Company
from time to time shall have any liability for any obligations of the Company
under the Convertible Subordinated Notes or this Indenture or for any claim
based on, in respect of, or by reason of such obligations or their creation.
Each holder by accepting a Convertible Subordinated Note waives and releases
all such liability. This waiver and release are part of the consideration
for the Convertible Subordinated Notes. Each of such directors, officers,
employees and shareholders is a third party beneficiary of this Section 10.8.
SECTION 10.9 COUNTERPARTS.
This Indenture may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
SECTION 10.10 OTHER PROVISIONS.
The Company initially appoints the Trustee as Paying Agent, Registrar
and authenticating agent.
The reporting date for Section 7.6 is [May 15] of each year. The
first reporting date is the [May 15] following the issuance of Convertible
Subordinated Notes hereunder.
The Trustee shall always have, or shall be a Subsidiary of a bank or
bank holding company which has, a combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of
condition.
The Company's address is:
Praegitzer Industries, Inc.
1270 S.E. Monmouth Cutoff
Dallas, OR 97338-9532
Attention: Chief Financial Office
Facsimile: (503) 623-3403
Telephone: (503) 623-1000
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The Trustee's address is:
U.S. Trust Company, National Association
One Embarcadero Center, Suite 2050
San Francisco, CA 94111
Attention: Corporate Trust Department (Praegitzer
Industries, Inc.
____% Convertible Notes due 2008)
Facsimile: (415) 956-2545
Telephone: (415) 743-9033
SECTION 10.11 GOVERNING LAW.
The internal laws of the State of New York shall govern this Indenture
and the Convertible Subordinated Notes, without regard to the conflict of
laws provisions thereof.
SECTION 10.12 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary of the Company. Any such other
indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 10.13 SUCCESSORS.
All agreements of the Company in this Indenture and the Convertible
Subordinated Notes shall bind its successor. All agreements of the Trustee
in this Indenture shall bind its successor.
SECTION 10.14 SEVERABILITY.
In case any provision in this Indenture or in the Convertible
Subordinated Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
SECTION 10.15 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
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ARTICLE 11
SUBORDINATION
SECTION 11.1 AGREEMENT TO SUBORDINATE.
The Company agrees, and each holder of Convertible Subordinated Notes by
accepting a Convertible Subordinated Note agrees, that the indebtedness
evidenced by the Convertible Subordinated Note is subordinated in right of
payment, to the extent and in the manner provided in this Article 11, to the
prior payment in full in cash or payment satisfactory to holders of Senior Debt
of all Senior Debt (whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed), and that the subordination is for the benefit
of the holders of Senior Debt.
SECTION 11.2 LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, in
an assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities:
(1) holders of Senior Debt shall be entitled to receive payment
in full of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Debt) in cash or other payment satisfactory to the holders
of the Senior Debt before holders of Convertible Subordinated Notes shall be
entitled to receive any payment with respect to the Convertible Subordinated
Notes (except that the holders of Convertible Subordinated Notes may receive
(i) securities that are subordinated to at least the same extent as the
Convertible Subordinated Notes to (a) Senior Debt and (b) any securities issued
in exchange for Senior Debt and (ii) payments and other distributions made from
any trust created pursuant to Section 8.1 hereof); and
(2) until all Senior Debt is paid in full in cash or other
payment satisfactory to the holders of the Senior Debt, any distribution to
which holders of Convertible Subordinated Notes would be entitled but for this
Article 11 shall be made to holders of Senior Debt (except that holders of
Convertible Subordinated Notes may receive securities that are subordinated to
at least the same extent as the Convertible Subordinated Notes to (a) Senior
Debt and (b) any securities issued in exchange for Senior Debt), as their
interests may appear.
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SECTION 11.3 DEFAULT ON SENIOR DEBT AND/OR DESIGNATED SENIOR DEBT.
The Company may not make any payment or distribution to the Trustee or
any holder of Convertible Subordinated Notes in respect of Obligations with
respect to the Convertible Subordinated Notes and may not acquire from the
Trustee or any holder of Convertible Subordinated Notes any Convertible
Subordinated Notes (other than, in each case, (i) distributions of securities
that are subordinated to at least the same extent as the Convertible
Subordinated Notes to (a) Senior Debt and (b) any securities issued in exchange
for Senior Debt and (ii) payments and other distributions made from any trust
created pursuant to Section 8.1 hereof) until all Senior Debt has been paid in
full in cash or other payment satisfactory to the holders of the Senior Debt if:
(i) a default in the payment of any principal of, premium, if
any, interest, rent or other Obligations in respect of Senior Debt occurs and is
continuing beyond any applicable grace period in the agreement, indenture or
other document governing such Senior Debt; or
(ii) a default, other than a payment default, on Designated
Senior Debt occurs and is continuing that then permits holders of such
Designated Senior Debt to accelerate its maturity and the Trustee receives a
notice of the default (a "Payment Blockage Notice") from a person who may give
it pursuant to Section 11.11 hereof.
If the Trustee receives any Payment Blockage Notice pursuant to Section
11.3 (ii) hereof, no subsequent Payment Blockage Notice shall be effective for
purposes of such Section unless and until at least 365 days shall have elapsed
since the effectiveness of the immediately prior Payment Blockage Notice. No
nonpayment default that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice.
The Company may and shall resume payments on and distributions in respect
of the Convertible Subordinated Notes and may acquire them upon the earlier of:
(1) in the case of a payment default, upon the date upon which
the default is cured or waived or ceases to exist, or
(2) in the case of a nonpayment default referred to in
Section 11.3(ii) hereof, the earlier of the date upon which the default is
cured or waived ceases to exist or 179 days after the date on which the
Payment Blockage Notice is received if the maturity of such Designated Senior
Debt has not been accelerated,
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if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
SECTION 11.4 ACCELERATION OF CONVERTIBLE SUBORDINATED NOTES.
In the event of the acceleration of the Convertible Subordinated Notes
because of an Event of Default, the Company may not make any payment or
distribution to the Trustee or any holder of Convertible Subordinated Notes in
respect of Obligations with respect to Convertible Subordinated Notes and may
not acquire or purchase from the Trustee or any holder of Convertible
Subordinated Notes any Convertible Subordinated Notes (other than, in each case,
(i) distributions of securities that are subordinated to at least the same
extent as the Convertible Subordinated Notes to (a) Senior Debt and (b) any
securities issued in exchange for Senior Debt, and (ii) payments and other
distributions made from any trust created pursuant to Section 8) until all
Senior Debt has been paid in full in cash or other payment satisfactory to the
holders of Senior Debt or such acceleration is rescinded in accordance with the
terms of this Indenture.
If payment of the Convertible Subordinated Notes is accelerated because
of an Event of Default, the Company or the Trustee shall promptly notify holders
of Senior Debt or trustee(s) of such Senior Debt of the acceleration. The
Company may not pay the Convertible Subordinated Notes until five business days
after such holders or trustee(s) of Senior Debt receive notice of such
acceleration and, thereafter, may pay the Convertible Subordinated Notes only if
the provisions of this Article 11 otherwise permit payment at that time.
SECTION 11.5 WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee, any holder of Convertible Subordinated
Notes or any other person receives any payment or distributions of assets of the
Company of any kind with respect to the Convertible Subordinated Notes in
contravention of any terms contained in this Indenture, whether in cash,
property or securities, including, without limitation, by way of set-off or
otherwise, then such payment shall be held by the recipient in trust for the
benefit of holders of Senior Debt, and shall be immediately paid over and
delivered to the holders of Senior Debt or their representative(s), to the
extent necessary to make payment in full of all Senior Debt remaining unpaid,
after giving effect to any concurrent payment or distribution or provision
therefor, to or for the holders of Senior Debt; PROVIDED that the foregoing
shall apply to the Trustee only if the Trustee has actual knowledge (as
determined in accordance with Section 11.11) that such payment or distribution
is prohibited by this Indenture.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the
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Trustee as are specifically set forth in this Article 11, and no implied
covenants or obligations with respect to the holders of Senior Debt shall be
read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not
be liable to any such holders if the Trustee shall pay over or distribute to
or on behalf of holders of Convertible Subordinated Notes or the Company or
any other person money or assets to which any holders of Senior Debt shall be
entitled by virtue of this Article 11, except if such payment is made as a
result of the wilful misconduct or gross negligence of the Trustee.
SECTION 11.6 NOTICE BY COMPANY.
The Company shall promptly notify the Trustee of any facts known to the
Company that would cause a payment of any Obligations with respect to the
Convertible Subordinated Notes or the purchase of any Convertible Subordinated
Notes by the Company to violate this Article, but failure to give such notice
shall not affect the subordination of the Convertible Subordinated Notes to the
Senior Debt as provided in this Article.
SECTION 11.7 SUBROGATION.
After all Senior Debt is paid in full and until the Convertible
Subordinated Notes are paid in full, holders of Convertible Subordinated Notes
shall be subrogated (equally and ratably with all other indebtedness pari passu
with the Convertible Subordinated Notes) to the rights of holders of Senior Debt
to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the holders of Convertible Subordinated Notes
have been applied to the payment of Senior Debt. A distribution made under this
Article to holders of Senior Debt that otherwise would have been made to holders
of Convertible Subordinated Notes is not, as between the Company and holders of
Convertible Subordinated Notes, a payment by the Company on the Convertible
Subordinated Notes.
SECTION 11.8 RELATIVE RIGHTS.
This Article defines the relative rights of holders of Convertible
Subordinated Notes and holders of Senior Debt. Nothing in this Indenture
shall:
(1) impair, as between the Company and holders of Convertible
Subordinated Notes, the obligation of the Company, which is absolute and
unconditional, to pay principal of, premium, if any, and interest on the
Convertible Subordinated Notes in accordance with their terms;
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(2) affect the relative rights of holders of Convertible
Subordinated Notes and creditors (other than with respect to Senior Debt) of the
Company, other than their rights in relation to holders of Senior Debt; or
(3) prevent the Trustee or any holder of Convertible
Subordinated Notes from exercising its available remedies upon a Default or
Event of Default, subject to the rights of holders and owners of Senior Debt to
receive distributions and payments otherwise payable to holders of Convertible
Subordinated Notes.
If the Company fails because of this Article to pay principal of or
interest on a Convertible Subordinated Note on the due date, the failure is
still a Default or Event of Default.
SECTION 11.9 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Debt to enforce the subordination of the
indebtedness evidenced by the Convertible Subordinated Notes shall be impaired
by any act or failure to act by the Company or any holder of Convertible
Subordinated Notes or by the failure of the Company or any such holder to comply
with this Indenture.
SECTION 11.10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to in
this Article 11, the Trustee and the holders of Convertible Subordinated Notes
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other person making any distribution to the
Trustee or to the holders of Convertible Subordinated Notes for the purpose of
ascertaining the persons entitled to participate in such distribution, the
holders of the Senior Debt and other indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article 11.
SECTION 11.11 RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 11 or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts that would prohibit the making of any payment or
distribution by the Trustee (other than pursuant to Section 11.4), and the
Trustee may continue to make payments on the Convertible
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Subordinated Notes, unless a Trust Officer shall have received at least two
business days prior to the date of such payment or distribution written
notice of facts that would cause such payment or distribution with respect to
the Convertible Subordinated Notes to violate this Article. Only the Company
or a Representative may give the notice.
Nothing in this Article 11 shall impair the claims of, or payments to,
the Trustee under or pursuant to Section 7.7 hereof.
The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights.
SECTION 11.12 AUTHORIZATION TO EFFECT SUBORDINATION.
Each holder of a Convertible Subordinated Note by the holder's acceptance
thereof authorizes and directs the Trustee on the holder's behalf to take such
action as may be necessary or appropriate to effectuate the subordination as
provided in this Article 11, and appoints the Trustee to act as the holder's
attorney-in-fact for any and all such purposes. If the Trustee does not file a
proper proof of claim or proof of debt in the form required in any proceeding
referred to in Section 6.9 hereof at least 30 days before the expiration of the
time to file such claim, the holders of any Senior Debt or their Representatives
are hereby authorized to file an appropriate claim for and on behalf of the
holders of the Convertible Subordinated Notes.
SECTION 11.13 ARTICLE APPLICABLE TO PAYING AGENTS.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee; PROVIDED,
HOWEVER, that the second and third paragraphs of Section 11.11 shall not apply
to the Company or any Subsidiary of the Company if it or such Subsidiary acts as
Paying Agent.
SECTION 11.14 SENIOR DEBT ENTITLED TO RELY.
The holders of Senior Debt shall have the right to rely upon this Article
11, and no amendment or modification of the provisions contained herein shall
diminish the rights of such holders unless such holders shall have agreed in
writing thereto.
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ARTICLE 12
CONVERSION OF CONVERTIBLE SUBORDINATED NOTES
SECTION 12.1 RIGHT TO CONVERT.
Subject to and upon compliance with the provisions of this Indenture,
each holder of Convertible Subordinated Notes shall have the right, at his or
her option, at any time on or before the close of business on the last trading
day prior to the Maturity Date (except that, (a) with respect to any Convertible
Subordinated Note or portion thereof which is called for redemption prior to
such date, such right shall terminate, except as provided in the fourth
paragraph of Section 12.2, at the close of business on the last trading day
preceding the date fixed for redemption (unless the Company defaults in payment
of the redemption price in which case the conversion right will terminate at the
close of business on the date such default is cured) and (b) with respect to any
Convertible Subordinated Note or portion thereof subject to a duly completed
election for repurchase, such right shall terminate on or before the close of
business on the Designated Event Offer Termination Date (unless the Company
defaults in the payment due upon repurchase or such holder elects to withdraw
the submission of such election to repurchase)) to convert the principal amount
of any Convertible Subordinated Note held by such holder, or any portion of such
principal amount which is $50 or an integral multiple thereof, into that number
of fully paid and non-assessable shares of Common Stock (as such shares shall
then be constituted) obtained by dividing the principal amount of the
Convertible Subordinated Note or portion thereof to be converted by the
Conversion Price in effect at such time, by surrender of the Convertible
Subordinated Note so to be converted in whole or in part in the manner provided
in Section 12.2. A holder of Convertible Subordinated Notes is not entitled to
any rights of a holder of Common Stock until such holder of Convertible
Subordinated Notes has converted his or her Convertible Subordinated Notes to
Common Stock, and only to the extent such Convertible Subordinated Notes are
deemed to have been converted to Common Stock under this Article 12.
SECTION 12.2 EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON STOCK ON
CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS.
To exercise, in whole or in part, the conversion privilege with respect
to any Convertible Subordinated Note, the holder of such Convertible
Subordinated Note shall surrender such Convertible Subordinated Note, duly
endorsed, at an office or agency maintained by the Company pursuant to Section
4.4, accompanied by the funds, if any, required by the penultimate paragraph of
this Section 12.2, and shall give written notice of conversion in the form
provided on the
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Convertible Subordinated Notes (or such other notice which is acceptable to
the Company) to the office or agency that the holder of Convertible
Subordinated Notes elects to convert such Convertible Subordinated Note or
such portion thereof specified in said notice. Such notice shall also state
the name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock which are issuable on such conversion
shall be issued, and shall be accompanied by transfer taxes, if required
pursuant to Section 12.7. Each such Convertible Subordinated Note
surrendered for conversion shall, unless the shares issuable on conversion
are to be issued in the same name as the registration of such Convertible
Subordinated Note, be duly endorsed by, or be accompanied by instruments of
transfer in form satisfactory to the Company duly executed by, the holder of
Convertible Subordinated Notes or his or her duly authorized attorney. The
holder of such Convertible Subordinated Notes will not be required to pay any
tax or duty which may be payable in respect of the issue or delivery of
Common Stock on conversion, but will be required to pay any tax or duty which
may be payable in respect of any transfer involved in the issue or delivery
of Common Stock in a name other than the same name as the registration of
such Convertible Subordinated Note.
As promptly as practicable after satisfaction of the requirements for
conversion set forth above, the Company shall issue and shall deliver to such
holder at the office or agency maintained by the Company for such purpose
pursuant to Section 4.4, a certificate or certificates for the number of full
shares of Common Stock issuable upon the conversion of such Convertible
Subordinated Note or portion thereof in accordance with the provisions of this
Article 12 and a check or cash in respect of any fractional interest in respect
of a share of Common Stock arising upon such conversion, as provided in Section
12.3 (which payment, if any, shall be paid no later than five business days
after satisfaction of the requirements for conversion set forth above).
Certificates representing shares of Common Stock will not be issued or delivered
unless all taxes and duties, if any, payable by the holder have been paid. In
case any Convertible Subordinated Note of a denomination of an integral multiple
greater than $50 is surrendered for partial conversion, and subject to Section
2.2, the Company shall execute, and the Trustee shall authenticate and deliver
to the holder of the Convertible Subordinated Note so surrendered, without
charge to him or her, a new Convertible Subordinated Note or Convertible
Subordinated Notes in authorized denominations in an aggregate principal amount
equal to the unconverted portion of the surrendered Convertible Subordinated
Note.
Each conversion shall be deemed to have been effected as to any such
Convertible Subordinated Note (or portion thereof) on the date on which the
requirements set forth above in this
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Section 12.2 have been satisfied as to such Convertible Subordinated Note (or
portion thereof), and the person in whose name any certificate or
certificates for shares of Common Stock are issuable upon such conversion
shall be deemed to have become on said date the holder of record of the
shares represented thereby; PROVIDED, HOWEVER, that any such surrender on any
date when the Company's stock transfer books are closed shall constitute the
person in whose name the certificates are to be issued as the record holder
thereof for all purposes on the next succeeding day on which such stock
transfer books are open, but such conversion shall be at the Conversion Price
in effect on the date upon which such Convertible Subordinated Note is
surrendered.
Any Convertible Subordinated Note or portion thereof surrendered for
conversion during the period from the close of business on the record date for
any interest payment through the close of business on the last trading day
immediately preceding such interest payment date shall (unless such Convertible
Subordinated Note or portion thereof being converted has been called for
redemption pursuant to a notice of redemption mailed by the Company to the
holders in accordance with the provisions of Section 3.4) be accompanied by
payment, in funds acceptable to the Company, of an amount equal to the interest
otherwise payable on such interest payment date on the principal amount being
converted; PROVIDED HOWEVER, that no such payment need be made if there exists
at the time of conversion a default in the payment of interest on the
Convertible Subordinated Notes. An amount equal to such payment shall be paid
by the Company on such interest payment date to the holder of such Convertible
Subordinated Note at the close of business on such record date; PROVIDED,
HOWEVER, that if the Company defaults in the payment of interest on such
interest payment date, such amount shall be paid to the person who made such
required payment. Except as provided above in this Section 12.2, no adjustment
shall be made for interest accrued on any Convertible Subordinated Note
converted or for dividends on any shares issued upon the conversion of such
Convertible Subordinated Note as provided in this Article 12.
SECTION 12.3 CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES.
No fractional shares of Common Stock or scrip representing fractional
shares shall be issued upon conversion of Convertible Subordinated Notes. If
more than one Convertible Subordinated Note shall be surrendered for conversion
at one time by the same holder, the number of full shares which shall be
issuable upon conversion shall be computed on the basis of the aggregate
principal amount of the Convertible Subordinated Notes (or specified portions
thereof to the extent permitted hereby) so surrendered for conversion. If any
fractional share of stock otherwise would be issuable upon the conversion of any
Convertible Subordinated Note or
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Convertible Subordinated Notes, the Company shall pay a cash adjustment
therefor in an amount equal to the Current Market Price of the Common Stock
on the last trading day prior to the date of conversion.
SECTION 12.4 CONVERSION PRICE.
The conversion price shall be as specified in the form of Convertible
Subordinated Note attached as EXHIBIT A hereto, subject to adjustment as
provided in this Article 12.
SECTION 12.5 ADJUSTMENT OF CONVERSION PRICE.
The Conversion Price shall be adjusted from time to time by the Company
as follows:
(a) If the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock, the Conversion Price in effect at the opening of business on the date
following the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the Record Date
(as defined in Section 12.5(h)) fixed for such determination and the denominator
shall be the sum of such number of shares and the total number of shares
constituting such dividend or other distribution, such reduction to become
effective immediately after the opening of business on the day following the
Record Date. If any dividend or distribution of the type described in this
Section 12.5(a) is declared but not so paid or made, the Conversion Price shall
again be adjusted to the Conversion Price which would then be in effect if such
dividend or distribution had not been declared.
(b) If the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the Conversion Price
in effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately reduced, and,
conversely, if the outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the opening
of business on the day following the day upon which such subdivision or
combination becomes effective.
(c) If the Company shall issue rights or warrants to all or
substantially all holders of its outstanding shares of Common Stock entitling
them to subscribe for or purchase
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shares of Common Stock at a price per share less than the Current Market
Price (as defined in Section 12.5(h)) on the Record Date fixed for the
determination of shareholders entitled to receive such rights or warrants,
the Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect at the opening of
business on the date after such Record Date by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the
close of business on the Record Date plus the number of shares which the
aggregate offering price of the total number of shares so offered would
purchase at such Current Market Price, and of which the denominator shall be
the number of shares of Common Stock outstanding on the close of business on
the Record Date plus the total number of additional shares of Common Stock so
offered for subscription or purchase. Such adjustment shall become effective
immediately after the opening of business on the day following the Record
Date fixed for determination of shareholders entitled to receive such rights
or warrants. To the extent that shares of Common Stock are not delivered
pursuant to such rights or warrants, upon the expiration or termination of
such rights or warrants the Conversion Price shall be readjusted to be the
Conversion Price which would then be in effect had the adjustments made upon
the issuance of such rights or warrants been made on the basis of delivery of
only the number of shares of Common Stock actually delivered. If such rights
or warrants are not so issued, the Conversion Price shall again be adjusted
to be the Conversion Price which would then be in effect if such date fixed
for the determination of shareholders entitled to receive such rights or
warrants had not been fixed. In determining whether any rights or warrants
entitle the holders to subscribe for or purchase shares of Common Stock at
less than such Current Market Price, and in determining the aggregate
offering price of such shares of Common Stock, there shall be taken into
account any consideration received for such rights or warrants, with the
value of such consideration, if other than cash, to be determined by the
Board of Directors.
(d) If the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock shares of any class of capital stock of the
Company (other than any dividends or distributions to which Section 12.5(a)
applies) or evidences of its indebtedness, cash or other assets (including
securities, but excluding (i) any rights or warrants of a type referred to in
Section 12.5(c) and (ii) dividends and distributions paid exclusively in cash)
(the foregoing hereinafter in this Section 12.5(d) called the "Securities"),
then, in each such case, the Conversion Price shall be reduced so that the same
shall be equal to the price determined by multiplying the Conversion Price in
effect immediately prior to the close of business on the Record Date (as defined
in Section 12.5(h)) with respect to such distribution by a fraction of which the
numerator shall be the
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Current Market Price (determined as provided in Section 12.5(h)) on such date
less the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Board
of Directors) on such date of the portion of the Securities so distributed
applicable to one share of Common Stock and the denominator shall be such
Current Market Price, such reduction to become effective immediately prior to
the opening of business on the day following the Record Date; PROVIDED,
HOWEVER, that in the event the then fair market value (as so determined) of
the portion of the Securities so distributed applicable to one share of
Common Stock is equal to or greater than the Current Market Price on the
Record Date, in lieu of the foregoing adjustment, adequate provision shall be
made so that each holder of Convertible Subordinated Notes shall have the
right to receive upon conversion of a Convertible Subordinated Note (or any
portion thereof) the amount of Securities such holder would have received had
such holder converted such Convertible Subordinated Note (or portion thereof)
immediately prior to such Record Date. If such dividend or distribution is
not so paid or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or
distribution had not been declared. If the Board of Directors determines the
fair market value of any distribution for purposes of this Section 12.5(d) by
reference to the actual or when issued trading market for any securities
comprising all or part of such distribution, it must in doing so consider the
prices in such market over the same period used in computing the Current
Market Price pursuant to Section 12.5(h) to the extent possible.
Notwithstanding any other provision of this Section 12.5(d) to the
contrary, rights, warrants, evidences of indebtedness, other securities, cash or
other assets (including, without limitation, any rights distributed pursuant to
any shareholder rights plan) shall be deemed not to have been distributed for
purposes of this Section 12.5(d) if the Company makes proper provision so that
each holder of Convertible Subordinated Notes who converts a Convertible
Subordinated Note (or any portion thereof) after the date fixed for
determination of shareholders entitled to receive such distribution shall be
entitled to receive upon such conversion, in addition to the shares of Common
Stock issuable upon such conversion, the amount and kind of such distributions
that such holder would have been entitled to receive if such holder had,
immediately prior to such determination date, converted such Convertible
Subordinated Note into Common Stock.
Rights or warrants distributed by the Company to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of the
Company's capital stock (either initially or under certain circumstances), which
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rights or warrants, until the occurrence of a specified event or events
("Trigger Event"): (i) are deemed to be transferred with such shares of
Common Stock; (ii) are not exercisable; and (iii) are also issued in respect
of future issuances of Common Stock, shall be deemed not to have been
distributed for purposes of this Section 12.5(d) (and no adjustment to the
Conversion Price under this Section 12.5(d) shall be required) until the
occurrence of the earliest Trigger Event, whereupon such rights and warrants
shall be deemed to have been distributed and an appropriate adjustment to the
Conversion Price under this Section 12.5(d) shall be made. If any such
rights or warrants, including any such existing rights or warrants
distributed prior to the date of this Indenture, are subject to subsequent
events, upon the occurrence of each of which such rights or warrants shall
become exercisable to purchase different securities, evidences of
indebtedness or other assets, then the occurrence of each such event shall be
deemed to be such date of issuance and record date with respect to new rights
or warrants (and a termination or expiration of the existing rights or
warrants without exercise by the holder thereof). In addition, in the event
of any distribution (or deemed distribution) of rights or warrants, or any
Trigger Event with respect thereto, that was counted for purposes of
calculating a distribution amount for which an adjustment to the Conversion
Price under this Section 12.5 was made, (1) in the case of any such rights or
warrants which shall all have been redeemed or repurchased without exercise
by any holders thereof, the Conversion Price shall be readjusted upon such
final redemption or repurchase to give effect to such distribution or Trigger
Event, as the case may be, as though it were a cash distribution, equal to
the per share redemption or repurchase price received by a holder or holders
of Common Stock with respect to such rights or warrants (assuming such holder
had retained such rights or warrants), made to all holders of Common Stock as
of the date of such redemption or repurchase, and (2) in the case of such
rights or warrants which shall have expired or been terminated without
exercise by any holders thereof, the Conversion Price shall be readjusted as
if such rights and warrants had not been issued.
For purposes of this Section 12.5(d) and Sections 12.5(a) and (c), any
dividend or distribution to which this Section 12.5(d) is applicable that also
includes shares of Common Stock, or rights or warrants to subscribe for or
purchase shares of Common Stock to which Section 12.5(c) applies (or both),
shall be deemed instead to be (1) a dividend or distribution of the evidences of
indebtedness, assets, shares of capital stock, rights or warrants other than
such shares of Common Stock or rights or warrants to which Section 12.5(c)
applies (and any Conversion Price reduction required by this Section 12.5(d)
with respect to such dividend or distribution shall then be made) immediately
followed by (2) a dividend or distribution of such shares of Common Stock or
such rights or
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warrants (and any further Conversion Price reduction required by
Sections 12.5(a) and (c) with respect to such dividend or distribution shall
then be made, except that (A) the Record Date of such dividend or distribution
shall be substituted as "the date fixed for the determination of shareholders
entitled to receive such dividend or other distribution", "Record Date fixed for
such determination" and "Record Date" within the meaning of Section 12.5(a) and
as "the date fixed for the determination of shareholders entitled to receive
such rights or warrants", "the Record Date fixed for the determination of the
shareholders entitled to receive such rights or warrants" and "such Record Date"
within the meaning of Section 12.5(c) and (B) any shares of Common Stock
included in such dividend or distribution shall not be deemed "outstanding at
the close of business on the date fixed for such determination" within the
meaning of Section 12.5(a)).
(e) If the Company shall, by dividend or otherwise, distribute
cash to all holders of its Common Stock (excluding any cash that is distributed
upon a merger or consolidation to which Section 12.6 applies or as part of a
distribution referred to in Section 12.5(d)) in an aggregate amount that,
combined together with (1) the aggregate amount of any other such all-cash
distributions to all holders of its Common Stock within the 12 months preceding
the date of payment of such distribution, and in respect of which no adjustment
pursuant to this Section 12.5(e) has been made, and (2) the aggregate of any
cash plus the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Board of
Directors) of consideration payable in respect of any tender offer by the
Company or any of its Subsidiaries for all or any portion of the Common Stock
concluded within the 12 months preceding the date of payment of such
distribution, and in respect of which no adjustment pursuant to Section 12.5(f)
has been made, exceeds 10% of an amount equal to the Current Market Price
(determined as provided in Section 12.5(h)) on the Record Date with respect to
such distribution multiplied by the number of shares of Common Stock outstanding
on such date, then, and in each such case, immediately after the close of
business on such date, the Conversion Price shall be reduced so that the same
shall equal the price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on such Record Date by a fraction
(i) the numerator of which shall be equal to the Current Market Price on the
Record Date less an amount equal to the quotient of (x) the excess of such
combined amount over such 10% and (y) the number of shares of Common Stock
outstanding on the Record Date and (ii) the denominator of which shall be equal
to the Current Market Price on such Record Date; PROVIDED, HOWEVER, that if the
portion of the cash so distributed applicable to one share of Common Stock is
equal to or greater than the Current Market Price of the Common Stock on the
Record Date, in lieu of the foregoing adjustment, adequate provision shall
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be made so that each holder of Convertible Subordinated Notes shall have the
right to receive upon conversion of a Convertible Subordinated Note (or any
portion thereof) the amount of cash such holder would have received had such
holder converted such Convertible Subordinated Note (or portion thereof)
immediately prior to such Record Date. If such dividend or distribution is
not so paid or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or
distribution had not been declared. Any cash distribution to all holders of
Common Stock as to which the Company makes the election permitted by Section
12.5(n) and as to which the Company has complied with the requirements of
such Section shall be treated as not having been made for all purposes of
this Section 12.5(e).
(f) If a tender offer made by the Company or any of its
Subsidiaries for all or any portion of the Common Stock expires and such
tender offer (as amended upon the expiration thereof) requires the payment to
shareholders (based on the acceptance (up to any maximum specified in the
terms of the tender offer) of Purchased Shares (as defined below)) of an
aggregate consideration having a fair market value (as determined by the
Board of Directors, whose determination shall be conclusive and described in
a resolution of the Board of Directors) that, combined together with (1) the
aggregate of the cash plus the fair market value (as determined by the Board
of Directors, whose determination shall be conclusive and described in a
resolution of the Board of Directors), as of the expiration of such tender
offer, of consideration payable in respect of any other tender offers, by the
Company or any of its Subsidiaries for all or any portion of the Common
Stock, expiring within the 12 months preceding the expiration of such tender
offer and in respect of which no adjustment pursuant to this Section 12.5(f)
has been made and (2) the aggregate amount of any such all-cash distributions
to all holders of the Common Stock within 12 months preceding the expiration
of such tender offer and in respect of which no adjustment pursuant to
Section 12.5(e) has been made, exceeds 10% of an amount equal to the Current
Market Price (determined as provided in Section 12.5(h)) as of the last time
(the "Expiration Time") tenders could have been made pursuant to such tender
offer (as it may be amended) multiplied by the number of shares of Common
Stock outstanding (including any tendered shares) on the Expiration Time,
then, and in each such case, immediately prior to the opening of business on
the day after the date of the Expiration Time, the Conversion Price shall be
adjusted so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to close of business on the date
of the Expiration Time by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding (including any tendered shares)
on the Expiration Time multiplied by the Current Market Price of the Common
Stock on the trading day
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next succeeding the Expiration Time and the denominator shall be the sum of
(x) the fair market value (determined as aforesaid) of the aggregate
consideration payable to shareholders based on the acceptance (up to any
maximum specified in the terms of the tender offer) of all shares validly
tendered and not withdrawn as of the Expiration Time (the shares deemed so
accepted, up to any such maximum, being referred to as the "Purchased
Shares") and (y) an amount equal to the number of shares of Common Stock
outstanding (less any Purchased Shares) on the Expiration Time multiplied by
the Current Market Price of the Common Stock on the trading day next
succeeding the Expiration Time, such reduction (if any) to become effective
immediately prior to the opening of business on the day following the
Expiration Time. If the Company is obligated to purchase shares pursuant to
any such tender offer, but the Company is permanently prevented by applicable
law from effecting any such purchases or all such purchases are rescinded,
the Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such tender offer had not been made. If the
application of this Section 12.5(f) to any tender offer would result in an
increase in the Conversion Price, no adjustment shall be made for such tender
offer under this Section 12.5(f).
(g) If the Company shall issue Common Stock or securities
convertible into, or exchangeable for, Common Stock at a price per share (or, as
applicable, having a conversion or exchange price per share) that is less than
the Current Market Price (determined as provided in Section 12.5(h)) determined
at the time of such issuance, the Conversion Price shall be adjusted so that the
holder of each Convertible Note shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock determined by
multiplying (i) the Conversion Price on the date (the "Measurement Date")
immediately prior to the day of such issuance by (ii) a fraction, the numerator
of which shall be the sum of (1) the number of shares of Common Stock
outstanding on the Measurement Date day and (2) the number of shares of Common
Stock which the aggregate consideration receivable by the Company for the total
number of shares of Common Stock so issued (or into which the convertible
securities may convert) would purchase at such Conversion Price on the
Measurement Date, and the denominator of which shall be the sum of (x) the
number of shares of Common Stock outstanding on the Measurement Date and (y) the
number of additional shares of Common Stock so issued (or into which the
convertible securities may convert). An adjustment made pursuant to this
Section 12.5 (g) shall be made on the next business day following the day on
which any such issuance is made and shall be effective retroactively to the day
of such issuance immediately after the close of business on such date. For
purposes of this Section 12.5 (g), the aggregate consideration receivable by the
Company in connection with the issuance of
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shares of Common Stock or of securities convertible into shares of Common
Stock shall be deemed to be equal to the sum of the aggregate offering price
(before deduction of underwriting discounts or commissions and expenses
payable to third parties) of all such securities plus the minimum aggregate
amount, if any, payable upon conversion of any such convertible securities
into shares of Common Stock; PROVIDED, HOWEVER, that any non-cash
consideration received or receivable by the Company shall be valued at its
fair market value as of the date of the adjustment made pursuant to this
Section 12.5(g), such fair market value to be as determined in good faith by
the Company's board of directors.
Notwithstanding any other provision of this Section 12.5(g) to the
contrary, the following shall be deemed not to have been issued for purposes
of this Section 12.5(g): (A) issuances pursuant to any bona fide plan for
the benefit of employees, directors or consultants of the Company or any
Subsidiary in effect on the date of the Indenture or thereafter, (B)
issuances to acquire all or any portion of a business in an arm's-length
transaction between the Company and an unaffiliated third party including, if
applicable, issuances upon exercise of options or warrants assumed in
connection with such an acquisition, (C) issuances in a bona fide public
offering pursuant to a firm commitment underwriting (or similar type of
offering made pursuant to Rule 144A and/or Regulation S under the Securities
Act) or sales at the market pursuant to a continuous offering stock program,
(D) issuances pursuant to the exercise of warrants, rights (including,
without limitation, earnout rights) or options, or upon the conversion of
convertible securities, which are issued and outstanding on the date of this
Indenture, or which may be issued in the future at fair value and with an
exercise price or conversion price at least equal to the Current Market Price
(determined as provided in Section 12.5(h)) at the time of issuance of such
warrant, right, option or convertible security, (E) issuances pursuant to a
dividend reinvestment plan or other plan hereafter adopted for the
reinvestment of dividends or interest, PROVIDED that such Common Stock is
issued at a price at least equal to 95% of the Current Market Price
(determined as provided in Section 12.5(h)) determined at the time of such
issuance, and (f) issuances to which Section 12.5(a), (c) or (d) applies.
(h) For purposes of this Section 12.5, the following terms
shall have the meaning indicated:
(1) "closing price" with respect to any securities on
any day means the closing price on such day or, if no such sale takes place on
such day, the average of the reported high and low prices on such day, in each
case on the Nasdaq National Market or New York Stock Exchange, as applicable,
or, if such security is not listed or admitted to trading on such national
market or exchange, on the principal
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national securities exchange or quotation system on which such security is
quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation system,
the average of the high and low prices of such security on the
over-the-counter market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similar generally accepted reporting
service, or, if not so available, in such manner as furnished by any New York
Stock Exchange member firm selected from time to time by the Board of
Directors for that purpose, or a price determined in good faith by the Board
of Directors, whose determination shall be conclusive and described in a
resolution of the Board of Directors.
(2) "Current Market Price" means the average of the
daily closing prices per share of Common Stock for the 10 consecutive trading
days immediately prior to the date in question; PROVIDED, HOWEVER, that (1) if
the "ex" date (as hereinafter defined) for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Sections 12.5(a), (b), (c), (d), (e), (f) or (g)
occurs during such 10 consecutive trading days, the closing price for each
trading day prior to the "ex" date for such other event shall be adjusted by
multiplying such closing price by the same fraction by which the Conversion
Price is so required to be adjusted as a result of such other event, (2) if the
"ex" date for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Conversion Price pursuant to
Section 12.5(a), (b), (c), (d), (e), (f) or (g) occurs on or after the "ex" date
for the issuance or distribution requiring such computation and prior to the day
in question, the closing price for each trading day on and after the "ex" date
for such other event shall be adjusted by multiplying such closing price by the
reciprocal of the fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, and (3) if the "ex" date for the
issuance or distribution requiring such computation is prior to the day in
question, after taking into account any adjustment required pursuant to clause
(1) or (2) of this proviso, the closing price for each trading day on or after
such "ex" date shall be adjusted by adding thereto the amount of any cash and
the fair market value (as determined by the Board of Directors in a manner
consistent with any determination of such value for purposes of Sections 12.5(d)
or (f), whose determination shall be conclusive and described in a resolution of
the Board of Directors) of the evidences of indebtedness, shares of capital
stock or assets being distributed applicable to one share of Common Stock as of
the close of business on the day before such "ex" date. For purposes of any
computation under Section 12.5(f), the Current Market Price on any date shall be
deemed to be the average of the daily closing prices per share of Common Stock
for such day and the next two succeeding trading days; PROVIDED,
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HOWEVER, that if the "ex" date for any event (other than the tender offer
requiring such computation) that requires an adjustment to the Conversion
Price pursuant to Section 12.5(a), (b), (c), (d), (e), (f) or (g) occurs on
or after the Expiration Time for the tender or exchange offer requiring such
computation and prior to the day in question, the closing price for each
trading day on and after the "ex" date for such other event shall be adjusted
by multiplying such Closing Price by the reciprocal of the fraction by which
the Conversion Price is so required to be adjusted as a result of such other
event. For purposes of this paragraph, the term "ex" date, (1) when used
with respect to any issuance or distribution, means the first date on which
the Common Stock trades regular way on the relevant exchange or in the
relevant market from which the closing price was obtained without the right
to receive such issuance or distribution, (2) when used with respect to any
subdivision or combination of shares of Common Stock, means the first date on
which the Common Stock trades regular way on such exchange or in such market
after the time at which such subdivision or combination becomes effective,
and (3) when used with respect to any tender or exchange offer means the
first date on which the Common Stock trades regular way on such exchange or
in such market after the Expiration Time of such offer. Notwithstanding the
foregoing, whenever successive adjustments to the Conversion Price are called
for pursuant to this Section 12.5, such adjustments shall be made to the
Current Market Price as may be necessary or appropriate to effectuate the
intent of this Section 12.5 and to avoid unjust or inequitable results as
determined in good faith by the Board of Directors.
(3) "fair market value" shall mean the amount which a
willing buyer would pay a willing seller in an arm's length transaction.
(4) "Record Date" shall mean, with respect to any
dividend, distribution or other transaction or event in which the holders of
Common Stock have the right to receive any cash, securities or other property or
in which the Common Stock (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other property, the date
fixed for determination of shareholders entitled to receive such cash,
securities or other property (whether such date is fixed by the Board of
Directors or by statute, contract or otherwise).
(5) "trading day" shall mean (x) if the applicable
security is listed or admitted for trading on the New York Stock Exchange or
another national securities exchange, a day on which the New York Stock Exchange
or such other national securities exchange is open for business or (y) if the
applicable security is quoted on the Nasdaq National Market, a day on which
trades may be made thereon or (z) if the applicable security is not so listed,
admitted for
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trading or quoted, any day other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by
law or executive order to close.
(i) The Company may make such reductions in the Conversion
Price, in addition to those required by Sections 12.5(a), (b), (c), (d), (e),
(f) and (g), as the Board of Directors considers to be advisable to avoid or
diminish any income tax to holders of Common Stock or rights to purchase
Common Stock resulting from any dividend or distribution of stock (or rights
to acquire stock) or from any event treated as such for income tax purposes.
The Company from time to time may, to the extent permitted by law,
reduce the Conversion Price by any amount for any period of at least 20 days,
if the Board of Directors has made a determination that such reduction would
be in the Company's best interests, which determination shall be conclusive
and described in a resolution of the Board of Directors. The reduction in
Conversion Price shall be irrevocable during this period. Whenever the
Conversion Price is reduced pursuant to the preceding sentence, the Company
shall mail to the holders of Convertible Subordinated Notes at his or her
last address appearing on the Register of holders maintained for that purpose
a notice of the reduction at least 15 days prior to the date the reduced
Conversion Price takes effect, and such notice shall state the reduced
Conversion Price and the period during which it will be in effect.
(j) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least 1%
in such price; PROVIDED, HOWEVER, that any adjustments which by reason of
this Section 12.5(j) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Article 12 shall be made by the Company and shall be made to the nearest cent
or to the nearest one hundredth of a share, as the case may be.
No adjustment need be made for a change in the par value or no
par value of the Common Stock.
(k) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Trustee and any Conversion
Agent other than the Trustee an Officers' Certificate setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment. Promptly after delivery of such
certificate, the Company shall prepare a notice of such adjustment of the
Conversion Price setting forth the adjusted Conversion Price and the date on
which each adjustment becomes effective and shall mail such notice of such
adjustment of the Conversion Price to each holder of Convertible Subordinated
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Notes at his or her last address appearing on the Register of holders
maintained for that purpose within 20 days of the effective date of such
adjustment. Failure to deliver such notice shall not affect the legality or
validity of any such adjustment.
(l) In any case in which this Section 12.5 provides that an
adjustment shall become effective immediately after a Record Date for an
event, the Company may defer until the occurrence of such event issuing to
the holder of any Convertible Subordinated Note converted after such Record
Date and before the occurrence of such event the additional shares of Common
Stock issuable upon such conversion by reason of the adjustment required by
such event over and above the Common Stock issuable upon such conversion
before giving effect to such adjustment.
(m) For purposes of this Section 12.5, the number of shares
of Common Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock. The
Company shall not pay any dividend or make any distribution on shares of
Common Stock held in the treasury of the Company.
(n) In lieu of making any adjustment to the Conversion Price
pursuant to Section 12.5(e), the Company may elect to reserve an amount of
cash for distribution to the holders of Convertible Subordinated Notes upon
the conversion of the Convertible Subordinated Notes so that any such holder
converting Convertible Subordinated Notes will receive upon such conversion,
in addition to the shares of Common Stock and other items to which such
holder is entitled, the full amount of cash which such holder would have
received if such holder had, immediately prior to the Record Date for such
distribution of cash, converted its Convertible Subordinated Notes into
Common Stock, together with any interest accrued with respect to such amount,
in accordance with this Section 12.5(n). The Company may make such election
by providing an Officers' Certificate to the Trustee to such effect on or
prior to the payment date for any such distribution and depositing with the
Trustee on or prior to such date an amount of cash equal to the aggregate
amount that the holders of Convertible Subordinated Notes would have received
if such holders had,
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immediately prior to the Record Date for such distribution, converted all of
the Convertible Subordinated Notes into Common Stock. Any such funds so
deposited by the Company with the Trustee shall be invested by the Trustee in
U.S. Government Obligations with a maturity not more than three (3) months
from the date of issuance. Upon conversion of Convertible Subordinated Notes
by a holder thereof, such holder shall be entitled to receive, in addition to
the Common Stock issuable upon conversion, an amount of cash equal to the
amount such holder would have received if such holder had, immediately prior
to the Record Date for such distribution, converted its Convertible
Subordinated Note into Common Stock, along with such holder's pro-rata share
of any accrued interest earned as a consequence of the investment of such
funds. Promptly after making an election pursuant to this Section 12.5(n),
the Company shall give or shall cause the Trustee to give notice to all
holders of Convertible Subordinated Notes of such election, which notice
shall state the amount of cash per $50 principal amount of Convertible
Subordinated Notes such holders shall be entitled to receive (excluding
interest) upon conversion of the Convertible Subordinated Notes as a
consequence of the Company having made such election.
SECTION 12.6 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any of the following events occur: (i) any reclassification or
change of the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), (ii) any consolidation,
merger or combination of the Company with another corporation as a result of
which holders of Common Stock shall be entitled to receive stock, securities
or other property or assets (including cash) with respect to or in exchange
for such Common Stock, or (iii) any sale or conveyance of the properties and
assets of the Company as an entirety or substantially as an entirety to any
other person as a result of which holders of Common Stock shall be entitled
to receive stock, other securities or other property or assets (including
cash) with respect to or in exchange for such Common Stock, then the Company
or the successor or purchasing person, as the case may be, shall execute with
the Trustee a supplemental indenture (which shall comply with the TIA as in
force at the date of execution of such supplemental indenture if such
supplemental indenture is then required to so comply) providing that the
Convertible Subordinated Notes shall be convertible into the kind and amount
of shares of stock and other securities or property or assets (including
cash) receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance by a holder of a number of shares of Common
Stock issuable upon conversion of the Convertible Subordinated Notes
(assuming, for such purposes, a sufficient number of authorized shares of
Common Stock available to convert all such Convertible Subordinated Notes)
immediately prior to such reclassification, change, consolidation, merger,
combination, sale or conveyance assuming such holder of Common Stock did not
exercise his or her rights of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance (PROVIDED that, if the kind or
amount of securities, cash or other property receivable upon such
consolidation, merger,
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statutory exchange, sale or conveyance is not the same for each share of
Common Stock in respect of which such rights of election have not been
exercised ("non-electing share"), then, for the purposes of this Section
12.6, the kind and amount of securities, cash or other property receivable
upon such consolidation, merger, statutory exchange, sale or conveyance for
each non-electing share by a plurality of the non-electing shares). Such
supplemental indenture shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Article 12. If, in the case of any such reclassification, change,
consolidation, merger, combination, sale or conveyance, the stock or other
securities and assets receivable thereupon by a holder of shares of Common
Stock includes shares of stock or other securities and assets of a person
other than the successor or purchasing person, as the case may be, in such
reclassification, change, consolidation, merger, combination, sale or
conveyance, then such supplemental indenture shall also be executed by such
other person and shall contain such additional provisions to protect the
interests of the holders of the Convertible Subordinated Notes as the Board
of Directors shall reasonably consider necessary by reason of the foregoing.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Convertible Subordinated Notes at
his or her address appearing on the Register of holders for that purpose
within 20 days after execution thereof. Failure to deliver such notice shall
not affect the legality or validity of such supplemental indenture.
The above provisions of this Section 12.6 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
If this Section 12.6 applies to any event or occurrence, Section 12.5
shall not apply.
SECTION 12.7 TAXES ON SHARES ISSUED.
The issue of stock certificates on conversions of Convertible
Subordinated Notes shall be made without charge to the converting holder for any
tax in respect of the issue thereof. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of stock in any name other than that of the holder of
any Convertible Subordinated Note converted, and the Company shall not be
required to issue or deliver any such stock certificate unless and until the
person or persons requesting the issue thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
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<PAGE>
SECTION 12.8 RESERVATION OF SHARES; SHARES TO BE FULLY PAID; LISTING OF COMMON
STOCK.
The Company shall provide, free from preemptive rights, out of its
authorized but unissued shares or shares held in treasury, sufficient shares to
provide for the conversion of the Convertible Subordinated Notes from time to
time as such Convertible Subordinated Notes are presented for conversion.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Convertible Subordinated Notes, the Company
shall take all corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue shares of such
Common Stock at such adjusted Conversion Price.
The Company covenants that all shares of Common Stock issued upon
conversion of Convertible Subordinated Notes will be fully paid and
non-assessable by the Company and free from all taxes, liens and charges with
respect to the issue thereof.
The Company further covenants that as long as the Common Stock is quoted
on the Nasdaq National Market, or its successor, the Company shall cause all
Common Stock issuable upon conversion of the Convertible Subordinated Notes to
be eligible for such quotation in accordance with, and at the times required
under, the requirements of such market, and if at any time the Common Stock
becomes listed on the New York Stock Exchange or any other national securities
exchange, the Company shall cause all Common Stock issuable upon conversion of
the Convertible Subordinated Notes to be so listed and kept listed.
SECTION 12.9 RESPONSIBILITY OF TRUSTEE.
The Trustee shall not at any time be under any duty of responsibility to
any holders of Convertible Subordinated Notes to determine whether any facts
exist which may require any adjustment of the Conversion Price, or with respect
to the nature or extent or calculation of any such adjustment when made, or with
respect to the method employed, or herein or in any supplemental indenture
provided to be employed, in making the same. The Trustee shall not be
accountable with respect to the validity or value (or the kind or amount) of any
shares of Common Stock, or of any securities or property, which may at any time
be issued or delivered upon the conversion of any Convertible Subordinated Note;
and the Trustee makes no representations with respect thereto. Subject to the
provisions of Section 7.1, the Trustee shall not be responsible for any failure
of the Company to issue, transfer or deliver any shares of Common Stock or stock
certificates or
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other securities or property or cash upon the surrender of any Convertible
Subordinated Note for the purpose of conversion or to comply with any of the
duties, responsibilities or covenants of the Company contained in this
Article 12. Without limiting the generality of the foregoing, the Trustee
shall not have any responsibility to determine the correctness of any
provisions contained in any supplemental indenture entered into pursuant to
Section 12.6 relating either to the kind or amount of shares of stock or
securities or property (including cash) receivable by holders of Convertible
Subordinated Notes upon the conversion of their Convertible Subordinated
Notes after any event referred to in such Section 12.6 or to any adjustment
to be made with respect thereto, but, subject to the provisions of Section
7.1, may accept as conclusive evidence of the correctness of any such
provisions, and shall be protected in relying upon, the Officers' Certificate
and Opinion of Counsel (which the Company shall be obligated to file with the
Trustee prior to the execution of any such supplemental indenture) with
respect thereto.
SECTION 12.10 NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS.
If
(a) the Company declares a dividend (or any other distribution)
on its Common Stock (other than in cash out of retained earnings or other
than a dividend that results in an adjustment in the Conversion Price
pursuant to Section 12.5 as to which the Company has made an election in
accordance with Section 12.5(n)); or
(b) the Company authorizes the granting to the holders of its
Common Stock of rights or warrants to subscribe for or purchase any share
of any class of Common Stock or any other rights or warrants; or
(c) there is any reclassification of the Common Stock (other
than a subdivision or combination of outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no par
value to par value), or of any consolidation or merger to which the
Company is a party and for which approval of any shareholders of the
Company is required, or of the sale or transfer of all or substantially
all of the assets of the Company; or
(d) there is any voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then the Company shall cause to be filed with the Trustee and to be mailed to
each holder of Convertible Subordinated Notes at his or her address appearing on
the Register maintained for that purpose as promptly as possible but in any
event at least 15 days prior to the applicable date hereinafter specified, a
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notice stating (x) the date on which a record is to be taken for the purpose
of such dividend, distribution or rights or warrants, or, if a record is not
to be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution or rights are to be determined, or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up is expected to become
effective or occur, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or
winding-up. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of such dividend, distribution,
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up.
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed and attested, all as of the date first above written, signifying their
agreements contained in this Indenture.
PRAEGITZER INDUSTRIES, INC.
By
---------------------------------------
Name:
Title:
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
By
---------------------------------------
Name:
Title:
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<PAGE>
EXHIBIT A
(Face of Security)
[The following legend shall appear on the face of each Global Note:
THIS CONVERTIBLE SUBORDINATED NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF
THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITARY OR A NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY,
THE TRUSTEE AND ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS CONVERTIBLE
SUBORDINATED NOTE FOR ALL PURPOSES.]
[The following legend shall appear on the face of each Global Note for which The
Depository Trust Company is to be the Depositary:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY THE AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OR DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR REGISTERED
CONVERTIBLE SUBORDINATED NOTES IN DEFINITIVE REGISTERED FORM IN THE LIMITED
CIRCUMSTANCES REFERRED TO IN THE INDENTURE, THIS GLOBAL NOTE MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY
OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR
A NOMINEE OR SUCH SUCCESSOR DEPOSITARY.]
No. _____ $___________
CUSIP ________
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<PAGE>
PRAEGITZER INDUSTRIES, INC.
___% CONVERTIBLE SUBORDINATED NOTE DUE 2008
promises to pay to _________________________ or registered assigns, the
principal sum of ________________ Dollars ($____) on December ___, 2008
Interest Payment Dates: January 15 and July 15, commencing July 15, 1999
Regular Record Dates: January 1 and July 1
Certificate of Authentication:
This is one of the Convertible Subordinated Notes described in the
within-mentioned Indenture.
[Trustee Name], as Trustee PRAEGITZER INDUSTRIES, INC.
By By
------------------------------- -----------------------------------
Authorized Signatory Chief Financial Officer
Dated: By
-----------------------------------
Assistant Secretary
(SEAL)
(Back of Security)
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<PAGE>
PRAEGITZER INDUSTRIES, INC.
___% CONVERTIBLE SUBORDINATED NOTE DUE 2008
1. INTEREST. Praegitzer Industries, Inc., an Oregon corporation (the
"Company"), promises to pay interest on the principal amount of this Convertible
Subordinated Note at the rate per annum shown above. The Company will pay
interest semi-annually in arrears on January 15 and July 15 of each year,
beginning July 15, 1999. Interest on the Convertible Subordinated Notes will
accrue from the most recent interest payment date to which interest has been
paid or, if no interest has been paid, from December __ 1998. Interest will be
computed on the basis of a 360-day year composed of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the
Convertible Subordinated Notes (except defaulted interest) to the person in
whose name each Convertible Subordinated Note is registered at the close of
business on the January 1 or July 1 immediately preceding the relevant interest
payment date (each a "Regular Record Date") (other than with respect to a
Convertible Subordinated Note or portion thereof called for redemption on a
redemption date, or repurchased in connection with a Designated Event on a
repurchase date, during the period from the close of business on a Regular
Record Date to (but excluding) the next succeeding interest payment date, in
which case accrued interest shall be payable (unless such Convertible
Subordinated Note or portion thereof is converted) to the holder of the
Convertible Subordinated Note or portion thereof redeemed or repurchased in
accordance with the applicable redemption or repurchase provisions of the
Indenture). Holder must surrender Convertible Subordinated Notes to a Paying
Agent to collect principal payments. The Company will pay the principal of,
premium, if any, and interest on the Convertible Subordinated Notes at the
office or agency of the Company maintained for such purpose, in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. However, the Company may pay principal, premium, if any, and
interest by check payable in such money, and may mail such check to the holders
of the Convertible Subordinated Notes at their respective addresses as set forth
in the Register of holders of Convertible Subordinated Notes. Until otherwise
designated by the Company, the Company's office or agency maintained for such
purpose will be the principal Corporate Trust Office of the Trustee (as defined
below).
3. PAYING AGENT AND REGISTRAR. [Trustee Name] (together with any
successor Trustee under the Indenture referred to below, the "Trustee"), will
act as Paying Agent and Registrar. The Company may change the Paying Agent,
Registrar or co-registrar without prior notice. Subject to
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certain limitations in the Indenture, the Company or any of its Subsidiaries
may act in any such capacity.
4. INDENTURE. The Company issued the Convertible Subordinated
Notes under an Indenture dated as of December __, 1998 (the "Indenture")
between the Company and the Trustee. The terms of the Convertible
Subordinated Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.
Code Sections 77aaa-77bbbb) (the "TIA") as in effect on the date of the
Indenture. The Convertible Subordinated Notes are subject to, and qualified
by, all such terms, certain of which are summarized hereon, and holders are
referred to the Indenture and the TIA for a statement of such terms. The
Convertible Subordinated Notes are unsecured general obligations of the
Company limited to (except as otherwise provided in the Indenture) up to
$15,000,000 in aggregate principal amount, unless an election has been made
as set forth in Article 2 of the Indenture to increase such aggregate
principal amount by an amount not to exceed $2,250,000. Capitalized terms
not defined below have the same meaning as is given to them in the Indenture.
5. OPTIONAL REDEMPTION. Subject to the limitations on redemption
prior to December __, 2001 (described below), the Convertible Subordinated Notes
may be redeemed by the Company at its option, in whole or from time to time in
part, on not less than 15 nor more than 30 days prior written notice to the
holders thereof by first class mail, at the following redemption prices
(expressed as percentages of principal amount) if redeemed during the 12-month
period beginning December __ of each year indicated, plus accrued and unpaid
interest to the date fixed for redemption:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
<S> <C>
1999............................... 110%
2000............................... 108%
2001............................... 106%
2002............................... 105%
2003............................... 103%
2004............................... 101%
2005............................... 100%
2006............................... 100%
2007............................... 100%
2008............................... 100%
</TABLE>
Notwithstanding the foregoing, the Company may redeem the Convertible
Subordinated Notes prior to December __, 2001 only if (i) it redeems all of the
Convertible Subordinated Notes then outstanding, (ii) after the date of this
offering and prior to the redemption, there is completed one or more registered
public offerings of the Company's Common Stock
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<PAGE>
pursuant to which the aggregate price to the public of shares sold by the
Company and/or the selling shareholders participating in such offering(s)
equals or exceeds $15 million, and (iii) the closing price of the Common
Stock on the principal stock exchange or market on which the Common Stock is
then quoted or admitted to trading equals or exceeds the following percentage
of the then-effective Conversion Price for at least 30 consecutive trading
days ending on the fifth trading day prior to the date the notice of
redemption is first mailed to the holders of the Convertible Subordinated
Notes:
<TABLE>
<CAPTION>
REDEMPTION PERCENTAGE OF
NOTICE DATE CONVERSION PRICE
<S> <C>
Before December __, 1999...................... 117%
On or after December __, 1999
but before December __, 2000............. 137%
On or after December __, 2000
but before December __, 2001............. 163%
</TABLE>
Notice of redemption will be mailed by first class mail at least 15
days but not more than 60 days before the date fixed for redemption to each
holder of Convertible Subordinated Notes to be redeemed at his or her
registered address. Convertible Subordinated Notes in denominations larger
than $50 may be redeemed in part but only in integral multiples of $50. If
less than all the Convertible Subordinated Notes are to be redeemed, the
Trustee shall select the Convertible Subordinated Notes to be redeemed, on a
pro rata basis by lot or by such method that the Company shall direct in
writing at least 30 days prior to the applicable redemption date. On and
after the redemption date, interest ceases to accrue on Convertible
Subordinated Notes or portions thereof called for redemption (unless the
Company defaults in the payment of the redemption price). If this Convertible
Subordinated Note is redeemed on a date which is also an Interest Payment
Date, the interest payment due on such date will be paid to the person in
whose name this Convertible Subordinated Note is registered at the close of
business on such record date.
6. DESIGNATED EVENT. Upon a Designated Event, the Company shall
make a Designated Event Offer to repurchase all outstanding Convertible
Subordinated Notes at a price equal to 100% of the aggregate principal amount
of the Convertible Subordinated Notes, plus accrued and unpaid interest to,
but excluding, the date of repurchase, such offer to be made as provided in
the Indenture. To accept the Designated Event Offer, the holder hereof must
comply with the terms thereof, including surrendering this Convertible
Subordinated Note, with the "Option of Holder to Elect Repurchase" portion
hereof completed, to the Company, a depositary, if appointed by the
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Company, or a Paying Agent, at the address specified in the notice of the
Designated Event Offer mailed to holders as provided in the Indenture, prior
to termination of the Designated Event Offer.
7. SUBORDINATION. The Company's payment of the principal of,
premium, if any, and interest on the Convertible Subordinated Notes is
subordinated to the prior payment in full of the Company's Senior Debt as set
forth in the Indenture. Each holder of Convertible Subordinated Notes by his
or her acceptance hereof covenants and agrees that all payments of the
principal of, premium, if any, and interest on the Convertible Subordinated
Notes by the Company shall be subordinated in accordance with the provisions
of Article 11 of the Indenture, and each holder of Convertible Subordinated
Notes accepts and agrees to be bound by such provisions.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Convertible
Subordinated Notes are in registered form without coupons in denominations of
$50 and integral multiples of $50. The transfer of Convertible Subordinated
Notes may be registered and Convertible Subordinated Notes may be exchanged
as provided in the Indenture. As a condition of transfer, the Registrar and
the Trustee may require a holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a holder to
pay any taxes and fees required by law or permitted by the Indenture. The
Company or the Registrar need not exchange or register the transfer of any
Convertible Subordinated Note or portion of a Convertible Subordinated Note
selected for redemption or submitted for repurchase. Also, the Company or
the Registrar need not exchange or register the transfer of any Convertible
Subordinated Note for a period of 15 days before a selection of Convertible
Subordinated Notes to be redeemed.
9. PERSONS DEEMED OWNERS. The registered holder of a Convertible
Subordinated Note may be treated as its owner for all purposes.
10. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Convertible Subordinated Notes may be amended or
supplemented with the consent of the holders of at least a majority in
principal amount of the then outstanding Convertible Subordinated Notes and
any existing default may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Convertible Subordinated
Notes.
Without the consent of any holder, the Indenture or the Convertible
Subordinated Notes may be amended to: (a) cure any ambiguity or correct or
supplement any defective or inconsistent provision contained in the Indenture,
or make any other changes in the provisions of the Indenture which the Company
and the Trustee may deem necessary or desirable
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<PAGE>
PROVIDED such amendment does not adversely affect the legal rights under the
Indenture of the holders of Convertible Subordinated Notes; (b) provide for
uncertificated Convertible Subordinated Notes in addition to or in place of
certificated Convertible Subordinated Notes; (c) evidence the succession of
another person to the Company and providing for the assumption by such
successor of the covenants and obligations of the Company thereunder and in
the Convertible Subordinated Notes as permitted by Section 5.1 of the
Indenture; (d) provide for conversion rights and/or repurchase rights of
holders of Convertible Subordinated Notes in the event of consolidation,
merger or sale of all or substantially all of the assets of the Company as
required to comply with Sections 5.1 and/or 12.6 of the Indenture; (e) reduce
the Conversion Price; (f) make any change that would provide any additional
rights or benefits to the holders of Convertible Subordinated Notes or that
does not adversely affect the legal rights under the Indenture of any such
holder; or (g) comply with the requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the TIA.
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Convertible Subordinated Notes held by a non-consenting
holder): (a) reduce the principal amount of Convertible Subordinated Notes whose
holders must consent to an amendment, supplement or waiver; (b) reduce the
principal of, or premium on, or change the fixed maturity of any Convertible
Subordinated Note or, except as permitted pursuant to clause (a) of the
immediately preceding paragraph, alter the provisions with respect to the
redemption of the Convertible Subordinated Notes; (c) reduce the rate of or
change the time for payment of interest, including defaulted interest, on any
Convertible Subordinated Notes; (d) waive a Default or Event of Default in the
payment of principal of or premium, if any, or interest on the Convertible
Subordinated Notes (except a rescission of acceleration of the Convertible
Subordinated Notes by the holders of at least a majority in aggregate principal
amount of the Convertible Subordinated Notes and a waiver of the payment default
that resulted from such acceleration); (e) make the principal of, or premium, if
any, or interest on, any Convertible Subordinated Note payable in money other
than as provided for in the Indenture and in the Convertible Subordinated Notes;
(f) make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of holders of Convertible Subordinated Notes to
receive payments of principal of, premium, if any, or interest on the
Convertible Subordinated Notes; (g) waive a redemption payment with respect to
any Convertible Subordinated Note; (h) make any change in the foregoing
amendment and waiver provisions, or (i) except as permitted by the Indenture
(including Section 9.1(a)), increase the Conversion Price or modify the
provisions of the Indenture relating to conversion of the Convertible
Subordinated Notes in a manner adverse to the
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holders thereof. In addition, any amendment to the provisions of Article 11
of the Indenture (which relate to subordination) will require the consent of
the holders of at least 75% in aggregate principal amount of the Convertible
Subordinated Notes then outstanding if such amendment would adversely affect
the rights of holders of Convertible Subordinated Notes.
11. DEFAULTS AND REMEDIES. An Event of Default is: (a) default in
payment of the principal of, or premium, if any, on the Convertible
Subordinated Notes, when due at maturity, upon repurchase, upon acceleration
or otherwise, whether or not such payment is prohibited by the subordination
provisions of the Indenture; (b) default for 30 days or more in payment of
any installment of interest on the Convertible Subordinated Notes, whether or
not such payment is prohibited by the subordination provisions of the
Indenture; (c) default by the Company for 60 days or more after notice in the
observance or performance of any other covenants in the Indenture; (d)
default in the payment of the Designated Event Payment in respect of the
Convertible Subordinated Notes on the date therefor, whether or not such
payment is prohibited by the subordination provisions of the Indenture; (e)
failure to provide timely notice of a Designated Event; (f) failure of the
Company or any Material Subsidiary to make any payment at maturity, including
any applicable grace period, in respect of indebtedness for borrowed money
of, or guaranteed or assumed by, the Company or any Material Subsidiary which
payment is in an amount in excess of $1,000,000 and continuance of such
failure for 30 days after notice; (g) default by the Company or any Material
Subsidiary with respect to any such indebtedness, which default results in
the acceleration of such indebtedness of an amount in excess of $1,000,000
without such indebtedness having been paid or discharged or such acceleration
having been cured, waived, rescinded, or annulled for 30 days after notice;
or (h) certain events involving bankruptcy, insolvency or reorganization of
the Company or any Material Subsidiary. If an Event of Default occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the then outstanding Convertible Subordinated Notes may declare the unpaid
principal of, premium, if any, and accrued and unpaid interest on all
Convertible Subordinated Notes then outstanding to be due and payable
immediately, except that in the case of an Event of Default arising from
certain events of bankruptcy, insolvency, or reorganization with respect to
the Company all outstanding Convertible Subordinated Notes become due and
payable without further action or notice. Holders of Convertible
Subordinated Notes may not enforce the Indenture or the Convertible
Subordinated Notes except as provided in the Indenture. The Trustee may
require an indemnity satisfactory to it before it enforces the Indenture or
the Convertible Subordinated Notes. Subject to certain limitations, holders
of a majority in principal amount of the then outstanding Convertible
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Subordinated Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from holders notice of any continuing
default (except a default in payment of principal, premium, if any, or
interest) if it determines that withholding notice is in their interests.
The Company must furnish annual compliance certificates to the Trustee.
12. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee or any of its
Affiliates, in their individual or any other capacities, may make or continue
loans to or guaranteed by, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not Trustee.
13. NO RECOURSE AGAINST OTHERS. No director, officer, employee or
shareholder, as such, of the Company shall have any liability for any
obligations of the Company under the Convertible Subordinated Notes or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each holder by accepting a Convertible
Subordinated Note waives and releases all such liability. The waiver and
release are part of the consideration for the Convertible Subordinated Notes.
14. AUTHENTICATION. This Convertible Subordinated Note shall not
be valid until authenticated by the manual signature of the Trustee or an
authenticating agent.
15. ABBREVIATIONS. Customary abbreviations may be used in the name
of a holder or an assignee, such as: TEN CO = tenants in common, TEN ENT =
tenants by the entireties, JT TEN = joint tenants with right of survivorship
and not as tenants in common, CUST = Custodian and U/G/M/A = Uniform Gifts to
Minors Act.
16. CONVERSION. Subject to and upon compliance with the provisions of
the Indenture, the registered holder of this Convertible Subordinated Note has
the right at any time on or before the close of business on the last trading day
prior to December __, 2008 (or in case this Convertible Subordinated Note or any
portion hereof that is (a) called for redemption prior to such date, before the
close of business on the last trading day preceding the date fixed for
redemption (unless the Company defaults in payment of the redemption price, in
which case the conversion right will terminate at the close of business on the
date such default is cured) or (b) subject to a duly completed election for
repurchase, on or before the close of business on the Designated Event Offer
Termination Date (unless the Company defaults in payment due upon repurchase or
such holder elects to withdraw the submission of such election to repurchase )
to convert the principal amount hereof, or any portion of such principal amount
which is $50 or an integral multiple thereof, into that number of fully paid and
non-assessable shares of common stock of the Company
A-9
<PAGE>
("Common Stock") obtained by dividing the principal amount of the Convertible
Subordinated Note or portion thereof to be converted by the conversion price
of $________ per share, as adjusted from time to time as provided in the
Indenture (the "Conversion Price"), upon surrender of this Convertible
Subordinated Note to the Company at the office or agency maintained for such
purpose (and at such other offices or agencies designated for such purpose by
the Company), accompanied by written notice of conversion duly executed (and
if the shares of Common Stock to be issued on conversion are to be issued in
any name other than that of the registered holder of this Convertible
Subordinated Note by instruments of transfer, in form satisfactory to the
Company, duly executed by the registered holder or its duly authorized
attorney) and, in case such surrender shall be made during the period from
the close of business on the Regular Record Date immediately preceding any
Interest Payment Date through the close of business on the last trading day
immediately preceding such Interest Payment Date (unless this Convertible
Subordinated Note or the portion thereof being converted has been called for
redemption on a date in such period), also accompanied by payment, in funds
acceptable to the Company, of an amount equal to the interest otherwise
payable on such Interest Payment Date on the principal amount of this
Convertible Subordinated Note then being converted. Subject to the aforesaid
requirement for a payment in the event of conversion after the close of
business on a Regular Record Date immediately preceding an Interest Payment
Date, no adjustment shall be made on conversion for interest accrued hereon
or for dividends on Common Stock delivered on conversion. The right to
convert this Convertible Subordinated Note is subject to the provisions of
the Indenture relating to conversion rights in the case of certain
consolidations, mergers, or sales or transfers of substantially all the
Company's assets.
The Company shall not issue fractional shares or scrip representing
fractions of shares of Common Stock upon any such conversion, but shall make
an adjustment therefor in cash based upon the Current Market Price of the
Common Stock on the last trading day prior to the date of conversion.
The Company will furnish to any holder upon written request and
without charge a copy of the Indenture. Requests may be made to: Chief
Financial Officer, Praegitzer Industries, Inc., 1270 S.E. Monmouth Cutoff,
Dallas, OR 97338-9532.
A-10
<PAGE>
FORM OF CONVERSION NOTICE
To: PRAEGITZER INDUSTRIES, INC.
The undersigned registered owner of the Convertible Subordinated Note
hereby irrevocably exercises the option to convert this Convertible Subordinated
Note, or portion hereof (which is $50 or an integral multiple thereof) below
designated, into shares of Common Stock of Praegitzer Industries, Inc. in
accordance with the terms of the Indenture referred to in this Convertible
Subordinated Note, and directs that the shares issuable and deliverable upon the
conversion, together with any check in payment for fractional shares and
Convertible Subordinated Notes representing any unconverted principal amount
hereof, be issued and delivered to the registered holder hereof unless a
different name has been indicated below. If shares or any portion of this
Convertible Subordinated Note not converted are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. Any amount required to be paid by the undersigned
on account of interest and taxes accompanies this Convertible Subordinated Note.
Dated:
Fill in for registration of -----------------------------------
shares if to be delivered,
and Convertible Subordinated -----------------------------------
Notes if to be issued, other
than to and in the name of -----------------------------------
the registered holder Signature(s)
(Please Print):
Principal amount to be
- ----------------------------- converted (if less than
(Name) all):
- ----------------------------- $_______
(Street Address)
- -----------------------------
(City, State and Zip Code) -----------------------------------
Social Security or other
Signature Guarantee: Taxpayer Identification
Number
- -----------------------------
[Signatures must be guaranteed by an eligible Guarantor Institution (banks,
brokers, dealers, savings and loan associations and credit unions) with
membership in an approved signature guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15 if shares are to be issued, or
Convertible Subordinated Notes are to be delivered, other than to and in the
name of the registered holder(s).]
A-11
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Convertible Subordinated Note,
fill in the form below and have your signature guaranteed:
I or we assign and transfer this Convertible Subordinated Note to
___________________________
(Insert assignee's social security or tax ID number) _________
_____________________________________________________
_____________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint __________________________________ agent to transfer
this Convertible Subordinated Note on the books of the Company. The agent may
substitute another to act for him.
Date: Your Signature:
--------------- ---------------------------------
(Sign exactly as your
name appears on the
other side of this
Convertible Subordinated
Note)
Signature Guarantee:
-----------------------------------------------------------
[Signatures must be guaranteed by an eligible Guarantor Institution (banks,
brokers, dealers, savings and loan associations and credit unions) with
membership in an approved signature guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15 if shares are to be issued, or
Convertible Subordinated Notes are to be delivered, other than to and in the
name of the registered holder(s).]
A-12
<PAGE>
OPTION OF HOLDER TO ELECT REPURCHASE
If you wish to have this Convertible Subordinated Note repurchased by
the Company pursuant to Section 4.6 of the Indenture, check the Box: [ ]
If you wish to have a portion of this Convertible Subordinated Note
purchased by the Company pursuant to Section 4.6 of the Indenture, state the
amount (in multiples of $50): $________
Date: Your Signature:
--------------- ----------------------------------
(Sign exactly as your name appears on
the other side of this Convertible
Subordinated Note)
Signature Guarantee:
--------------------------------------------------
A-13
<PAGE>
December 10, 1998
Board of Directors
Praegitzer Industries, Inc.
1270 SE Monmouth Cutoff
Dallas, OR 97338-9532
We have acted as counsel for Praegitzer Industries, Inc., an Oregon
corporation, (the "Company") in connection with the preparation and filing of a
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act of 1933, as amended, covering $17,250,000 aggregate principal
amount of __% Convertible Subordinated Notes due 2002 (the "Notes") of the
Company and an indeterminate number of shares of common stock of the Company
(the "Shares") issuable upon conversion of the Notes. The Notes will be issued
under an Indenture (the "Indenture") to be entered into by the Company and U.S.
Trust Company, N.A., as Trustee (the "Trustee"), and sold pursuant to the terms
of an underwriting agreement to be executed by and among the Company and Advest,
Inc. and Black & Company, Inc. (the "Underwriters"). We have reviewed the
corporate action of the Company in connection with this matter and have
examined the documents, corporate records and other instruments we deemed
necessary for the purpose of this opinion.
Based on the foregoing, it is our opinion that:
(1) The Company is a corporation existing under the laws of the state of
Oregon;
(2) The Notes have been duly authorized and, when duly executed,
authenticated and delivered by or on behalf of the Company, duly authenticated
by the Trustee and duly paid for by the Underwriters, will be legal, valid and
binding obligations of the Company and entitled to the benefits of the
Indenture; and
(3) The Shares have been duly authorized and duly reserved for issuance
upon conversion of the Notes and, when issued and delivered pursuant to the
terms of the Indenture, will be legally issued, fully paid and nonassessable.
In rendering the opinion set forth in paragraph (2) above, we rely
with respect to matters of New York law upon an opinion of Squadron, Ellenoff,
Plesent & Sheinfeld, LLP with respect to such matters.
<PAGE>
Board of Directors
Praegitzer Industries, Inc.
December 10, 1998
Page 2
We consent to the use of our name in the Registration Statement and in
the Prospectus filed as a part thereof and to the filing of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
/s/ Stoel Rives LLP
STOEL RIVES LLP
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT entered into as of December 8th,
1998 by and between PRAEGITZER INDUSTRIES, INC., an Oregon corporation,
("Borrower"), and KEYBANK NATIONAL ASSOCIATION ("Bank"), is as follows:
1. RECITALS. Borrower and Bank are parties to that certain Credit
Agreement dated as of March 31, 1998, as amended by the First Amendment to
Credit Agreement dated August 6, 1998 ("Agreement"). Borrower and Bank desire
to revise the Agreement in the manner set forth herein.
2. EQUITY OR SUBORDINATED DEBT.
(a) Section 7.17 is amended in its entirety to read as follows:
During the period after the Closing Date and before
January 1, 1999, Borrower shall issue not less than
$15,000,000 of equity or subordinated debt, which debt shall
be explicitly subordinated to all Senior Indebtedness on
terms satisfactory to Bank in its sole discretion.
(b) Bank hereby consents to and approves the issuance by Borrower of
subordinated debt in the principal amount of not less than $15,000,000
containing subordination terms substantially similar to or the same as the
subordination terms attached hereto as EXHIBIT A.
3. DIAMOND LEASE (USA), INC. If the aggregate amount of equity or
subordinated debt described in the amendment to Section 7.17 above is at least
$20,000,000, Borrower may use up to $8,500,000 of the proceeds of such equity or
subordinated debt for the purpose of prepaying in full its obligations to
Diamond Lease (USA), Inc.
4. AMENDMENT FEE. As consideration for Bank entering into this Second
Amendment to Credit Agreement, Borrower hereby agrees to pay Bank an amendment
fee of $300,000 on December 31, 1998; provided, however, that if before
January 1, 1999 Borrower repays all of the Obligations and agrees to the
termination of Bank's obligations under the Agreement, Bank agrees to waive
Borrower's payment of the $300,000 fee, and, provided, further, if during the
month of January, 1999 Borrower repays all of the Obligations and agrees to the
termination of Bank's obligations under the Agreement, Bank agrees to reimburse
Borrower $150,000 of the $300,000 fee if Borrower paid such fee before 1999.
5. RELEASE. Borrower hereby waives any and all defenses, claims,
counterclaims and offsets against Bank which may have arisen or accrued through
the date of this Second Amendment and acknowledges that Bank and its officers,
agents and attorneys have made no
<PAGE>
representations or promises to Borrower except as specifically reflected in
the Agreement as amended hereby.
6. EFFECTIVE DATE. This Second Amendment shall be effective upon the
execution of this Second Amendment by Borrower and Bank.
7. RATIFICATION. Except as otherwise provided in this Second Amendment,
all of the provisions of the Agreement are hereby ratified and confirmed and
shall remain in full force and effect.
8. ONE AGREEMENT. The Agreement, as modified by the provisions of this
Second Amendment, shall be construed as one agreement.
9. COUNTERPARTS. This Second Amendment may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original, and all of which when taken together shall constitute one and the same
agreement.
10. OREGON STATUTORY NOTICE.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE
ENFORCEABLE.
IN WITNESS WHEREOF, Borrower and Bank have caused this Second Amendment to
be executed as of the date first above written.
PRAEGITZER INDUSTRIES, INC.
By: /s/ Scott Gilbert
-----------------------------------
Title: Vice President of Finance and
Treasurer
--------------------------------
KEYBANK NATIONAL ASSOCIATION
By: /s/ John Brock
-----------------------------------
Title: Vice President
--------------------------------
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
- ---- ----------------
<S> <C>
Praegitzer International, LLC Oregon
Praegitzer Asia Sdn Bhd Malaysia
Praegitzer International (H.K.) Limited Hong Kong
Praegitzer Industries (B.V.I.) Inc. British Virgin Islands
Praegitzer Industries FSC, Inc. Guam
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-63003 of Praegitzer Industries, Inc. on Form S-1 of our report dated
September 4, 1998, appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the
headings "Selected Consolidated Financial Data and Other Information" and
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Portland, Oregon
December 9, 1998
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Praegitzer
Industries, Inc. on Form S-1 of our report dated September 17, 1998,
appearing in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE TOUCHE TOHMATSU
Kuala Lumpur, Malaysia
December 9, 1998
<PAGE>
SECURITIES AND EXCHANGE COMMISSIONPRIVATE
WASHINGTON, D.C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)___
---------------
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
515 South Flower Street Suite 2700 95-4311476
Los Angeles , CA 90071 (I.R.S. employer
(Address of principal identification No.)
executive offices)
DWIGHT LIU
515 South Flower Street, Suite 2700
Los Angeles, California 90071
(213) 861-5000
(Name, address, including zip code and telephone number of agent for service)
-------------------------
Praegitzer Industries, Inc.
(Exact name of obligor as specified in its charter)
OREGON 93-0790158
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1270 S E Monmouth Cutoff
Dallas, OR 97338-9532
(Address of principal chief executive offices)
<PAGE>
$15,000,000 Convertible Subordinated Notes due 2008
(Title of indenture securities)
<PAGE>
GENERAL
1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
490 L'Enfant Plaza East, S.W.
Washington, D.C. 20219
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Federal Reserve Bank (12th District)
San Francisco, California
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15.
The obligor currently is not in default under any of its outstanding
securities for which U.S. Trust Company, National Association Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15
of Form T-1 are not required under General Instruction B.
<PAGE>
16. LIST OF EXHIBITS
T-1.1 - A copy of the Articles of Association of U.S. Trust Company,
National Association currently in effect.
T-1.2 - A copy of the Certificate of Authority of the Trustee to Commence
Business; incorporated by reference to Exhibit T-1.1 filed with Form T-1
Statement, Registration No. 33-33031.
T-1.3 - A copy of the Authorization of the Trustee to exercise Corporate
Trust Powers; incorporated by reference to Exhibit T-1.1 filed with Form T-1
Statement, Registration No. 33-33031.
T-1.4 - A copy of the By-Laws of U.S. Trust Company, National
Association.
T-1.6 - The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939; incorporated by reference to Exhibit T-1.6 filed
with Form T-1 Statement, Registration No. 33-33031.
T-1.7 - A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority.
NOTE
As of July 1, 1998 the Trustee had 20,000 shares of Capital Stock outstanding,
all of which are owned by U.S. Trust Corporation
The responses to Items 2, 5, 6, 7, 8, 9, 10, 11 and 14 set forth the information
requested as though U. S. Trust Company, National Association, and U.S. Trust
Corporation were the "trustee."
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
<PAGE>
---------------
Pursuant to the requirements of the Trust Indenture of Act of 1939, the
trustee, U.S. Trust Company, National Association, a corporation organized
and existing under the laws of the State of California, has duly caused this
statement of eligibility and qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Los Angeles, and
State of California, on the 1st day of December, 1998.
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
Trustee
By:
-------------------------------------------
Josephine Libunao
Authorized Signatory
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
U.S. TRUST COMPANY OF CALIFORNIA, N.A. Call Date: 13/31/98 ST-BK: 06-0784 FFIEC 033
515 SOUTH FLOWER STREET, SUITE 2700 Vendor ID: D Cert #: 33332 Page RC-1
LOS ANGELES, CA 90071 Transit #: 12204024 /9/
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
<TABLE>
<CAPTION>
C200 LESS THAN
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A) RCON
----
a. Noninterest-bearing balances and currency and coin (1)................ 0081 7,317 1.a
---- ---- ---------
b. Interest bearing balances (2)......................................... 0071 141 1.b
---- ---- ---------
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)............ 1754 0 2.a
---- ---- ---------
b. Available-for-sale securities (from Schedule RC-B, column D).......... 1773 176,441 2.b
---- ---- ---------
3. Federal funds sold and securities purchased under agreements to resell.... 1350 62,000 3.
---- ---- ---------
4. Loans and lease financing receivables: RCON
----
a. Loans and leases, net of unearned income (from Schedule RC-C)......... 2122 56,321 4.a
---- --------
b. LESS: Allowance for loan and lease losses............................ 3123 979 4.b
---- --------
c. LESS: Allocated transfer risk reserve................................ 3128 0 4.c
---- --------
RCON
d. Loans and leases, net of unearned income, allowance, and reserve ----
(item 4.a minus 4.b and 4.c).......................................... 2125 55,432 4.d
---- ---- ---------
5. Trading assets............................................................ 3545 0 5.
---- ---- ---------
6. Premises and fixed assets (including capitalized leases).................. 2145 8,213 6.
---- ---- ---------
7. Other real estate owned (from Schedule RC-M).............................. 2150 0 7.
---- ---- ---------
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M)...................................................... 2130 0 8.
---- ---- ---------
9. Customers' liability to this bank on acceptances outstanding.............. 2155 0 9.
---- ---- ---------
10. Intangible assets (from Schedule RC-M).................................... 2143 2,331 10.
---- ---- ---------
11. Other assets (from Schedule RC-F)......................................... 2160 5,418 11.
---- ---- ---------
12. Total assets (sum of items 1 through 11).................................. 2170 317,203 12.
---- ---- ---------
</TABLE>
- -------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
U.S. TRUST COMPANY OF CALIFORNIA, N.A. Call Date: 13/31/98 ST-BK: 06-0784 FFIEC 033
515 SOUTH FLOWER STREET, SUITE 2700 Vendor ID: D Cert #: 33332 Page RC-2
LOS ANGELES, CA 90071 Transit #: 12204024 /10/
</TABLE>
SCHEDULE RC - CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits: RCON
a. In domestic offices (sum of totals of ----
columns A and C from Schedule RC-E).................................... 2200 277,776 13.a
----------
RCON
----
(1) Noninterest-bearing (1)............................................... 6631 32,591 13.a.1
-------
(2) Interest-bearing...................................................... 6636 245,185
-------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing...................................................
(2) Interest-bearing......................................................
RCON
14. Federal funds purchased(2) and securities sold under agreements to ----
repurchase: 2800 0 14
15. a. Demand notes issued to the U.S. Treasury............................... 2840 0 15.a
---- ------- ----------
b. Trading liabilities ................................................... 3548 0 15.b
---- ------- ----------
16. Other borrowed money (includes mortgage indebtedness and obligations
under capitalized leases):
a. WITH A REMAINING MATURITY OF ONE YEAR OR LESS.......................... 2332 0 16.a
---- ------- ----------
b. WITH A REMAINING MATURITY OF MORE THAN ONE YEAR THROUGH THREE YEARS.... A547 0 16.b
---- ------- ----------
C. WITH A REMAINING MATURITY OF MORE THAN THREE YEARS..................... A548 0 16.c
---- ------- ----------
17. Not applicable
18. Bank's liability on acceptances executed and outstanding................... 2920 0 18.
---- ------- ----------
19. Subordinated notes and debentures.......................................... 3200 0 19.
---- ------- ----------
20. Other liabilities (from Schedule RC-G)..................................... 2930 7,486 20.
---- ------- ----------
21. Total liabilities (sum of items 13 through 20)............................. 2948 285,262 21.
---- ------- ----------
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.............................. 3838 5,000 23.
---- ------- ----------
24. Common stock............................................................... 3230 2,000 24.
---- ------- ----------
25. Surplus (exclude all surplus related to preferred stock)................... 3839 12,745 25.
---- ------- ----------
26. a. Undivided profits and capital reserves................................. 3632 11,096 26.a
---- ------- ----------
b. Net unrealized holding gains (losses) on available-for-sale
securities............................................................. 8434 1,100 26.b
---- ------- ----------
27. Cumulative foreign currency translation adjustments........................
28. a. Total equity capital (sum of items 23 through 27)...................... 3210 31,941 28.
---- ------- ----------
29. Total liabilities and equity capital (sum of items 21 and 28).............. 3300 317,203 29.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best
describes the most comprehensive level of auditing work performed for the
bank by independent external auditors as of any date during 1997 ........... RCON
----------- ----
6724 1 M.1
</TABLE>
<TABLE>
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which
submits a report on the consolidated holding company (but 6 = Compilation of the bank's financial statements by
not on the bank separately) external auditors
3 = Directors' examination of the bank conducted in accordance 7 = Other audit procedures (excluding tax preparation
with generally accepted auditing standards by a certified work)
public accounting firm (may be required by state chartering
authority) 8 = No external audit work
</TABLE>
- ------------------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited life preferred stock and related surplus.
