<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934
For the Quarter Ended June 25, 1999 Commission File No. 0-23018
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PLANAR SYSTEMS, INC.
(exact name of registrant as specified in its charter)
Oregon 93-0835396
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1400 NW Compton Dr., Beaverton, Oregon 97006
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (503) 690-1100
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
----- -----
Number of common stock outstanding as of July 27, 1999
10,525,301 shares, no par value per share
<PAGE>
PLANAR SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations for the Three Months Ended
June 25, 1999 and June 26, 1998 3
Consolidated Statements of Operations for the Nine Months Ended
June 25, 1999 and June 26, 1998 4
Consolidated Balance Sheets at June 25, 1999 and September 25, 1998 5
Consolidated Statements of Cash Flows for the Nine Months Ended
June 25, 1999 and June 26, 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Part II. Other Information
Item 2. Changes in securities 16
Item 5. Other information 16
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
2
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Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Planar Systems, Inc.
and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 25, 1999 June 26, 1998
----------------------- --------------------
<S> <C> <C>
Sales $30,426 $32,411
Cost of sales 22,236 22,044
----------------------- --------------------
Gross profit 8,190 10,367
----------------------- --------------------
Operating expenses:
Research and development, net 3,747 2,140
Sales and marketing 2,846 2,744
General and administrative 2,202 2,013
Amortization of goodwill and excess fair market value of
acquired net assets over purchase price 47 46
----------------------- --------------------
Total operating expenses 8,842 6,943
----------------------- --------------------
Income (loss) from operations (652) 3,424
----------------------- --------------------
Non-operating income (expense):
Interest, net (56) 256
Foreign exchange, net 803 (144)
----------------------- --------------------
Total non-operating income 747 112
----------------------- --------------------
Income before income taxes 95 3,536
Provision for income taxes 27 900
----------------------- --------------------
Net income $ 68 $ 2,636
======================= ====================
Basic net income per share $0.01 $0.24
Average shares outstanding - basic 10,547 10,855
Diluted net income per share $0.01 $0.24
Average shares outstanding - diluted 10,779 11,130
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
Planar Systems, Inc.
and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 25, 1999 June 26, 1998
---------------------- --------------------
<S> <C> <C>
Sales $90,141 $95,987
Cost of sales 64,233 66,062
---------------------- --------------------
Gross profit 25,908 29,925
---------------------- --------------------
Operating expenses:
Research and development, net 9,731 6,283
Sales and marketing 8,536 8,002
General and administrative 6,588 6,624
Amortization of goodwill and excess fair market value of
acquired net assets over purchase price 139 138
---------------------- --------------------
Total operating expenses 24,994 21,047
---------------------- --------------------
Income from operations 914 8,878
---------------------- --------------------
Non-operating income (expense):
Interest, net (158) 593
Foreign exchange, net 1,969 349
---------------------- --------------------
Total non-operating income 1,811 942
---------------------- --------------------
Income before income taxes 2,725 9,820
Provision for income taxes 762 2,502
---------------------- --------------------
Net income $ 1,963 $ 7,318
====================== ====================
Basic net income per share $0.18 $0.68
Average shares outstanding - basic 10,678 10,828
Diluted net income per share $0.18 $0.66
Average shares outstanding - diluted 10,904 11,097
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
Planar Systems, Inc.
and Subsidiaries
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
ASSETS
June 25, September 25,
1999 1998
---------------------- --------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,758 $ 23,426
Short-term investments 791 -
Accounts receivable, net 20,576 22,762
Inventories 25,998 25,744
Other current assets 9,597 10,313
---------------------- --------------------
Total current assets 81,720 82,245
Property, plant and equipment, net 15,481 16,689
Long-term investments 300 200
Goodwill 4,730 5,222
Other 14,780 14,273
---------------------- --------------------
$117,011 $118,629
====================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ - $ 10,000
Accounts payable 9,054 9,288
Accrued compensation 3,041 4,039
Current portion of long-term debt 1,749 1,505
Deferred revenue 2,275 1,180
Other current liabilities 3,776 4,237
Current portion of excess fair market value of acquired net
assets over purchase price 476 476
---------------------- --------------------
Total current liabilities 20,371 30,725
Long-term debt, net of current portion 16,054 2,516
Deferred taxes 442 915
Other long-term liabilities 423 499
Long-term portion of excess fair market value of acquired net
assets over purchase price 239 596
---------------------- --------------------
Total liabilities 37,529 35,251
---------------------- --------------------
Shareholders' equity:
Common stock 75,080 74,385
Retained earnings 13,091 14,216
Foreign currency translation adjustment (8,689) (5,223)
---------------------- --------------------
Total shareholders' equity 79,482 83,378
---------------------- --------------------
$117,011 $118,629
====================== ====================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
Planar Systems, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 25, 1999 June 26, 1998
---------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,963 $ 7,318
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,204 2,943
Amortization of excess market value of acquired net
assets over purchase price (353) (354)
Goodwill amortization 492 492
Loss on sale of equipment 4 29
Change in deferred taxes 250 (34)
Foreign exchange gain (1,969) (349)
(Increase) decrease in accounts receivable 1,745 (1,090)
Increase in inventories (793) (5,574)
Increase in other current assets (2,073) (3,821)
Increase (decrease) in accounts payable (165) 3,461
Decrease in accrued compensation (883) (1,203)
Increase in deferred revenue 1,321 362
Increase (decrease) in other current liabilities 181 (836)
---------------------- --------------------
Net cash provided by operating activities 2,924 1,344
---------------------- --------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,487) (3,022)
Increase in other long-term assets (576) (7,924)
Decrease in other long-term liabilities (252) (175)
Net sales (purchases) of short-term investments (791) 8,170
Net sales (purchases) of long-term investments (100) 2,275
---------------------- --------------------
Net cash used in investing activities (4,206) (676)
---------------------- --------------------
Cash flows from financing activities:
Net proceeds (payments) of long-term debt 13,782 (4,159)
Net proceeds (payments) of short-term debt (10,000) 8,870
Net proceeds under long-term accounts receivable 91 1,203
Stock repurchase (3,088) (3,961)
Net proceeds from issuance of capital stock 695 539
---------------------- --------------------
Net cash provided by financing activities 1,480 2,492
---------------------- --------------------
Effect of exchange rate changes 1,134 (122)
---------------------- --------------------
Net increase in cash and cash equivalents 1,332 3,038
Cash and cash equivalents at beginning of period 23,426 21,777
---------------------- --------------------
Cash and cash equivalents at end of period $ 24,758 $24,815
====================== ====================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
Planar Systems, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands)
(Unaudited)
Note 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the statements include all adjustments
necessary (which are of a normal and recurring nature) for the fair presentation
of the results of the interim periods presented. These financial statements
should be read in connection with the Company's audited financial statements for
the year ended September 25, 1998.
Note 2 - INVENTORIES
Inventories, stated at the lower of cost or market, consist of:
<TABLE>
<CAPTION>
June 25, 1999 September 25, 1998
----------------------------- --------------------------
(Unaudited)
<S> <C> <C>
Raw materials $15,963 $15,892
Work in process 4,862 3,798
Finished goods 5,173 6,054
----------------------------- --------------------------
$25,998 $25,744
============================= ==========================
</TABLE>
Inventory reserves for estimated inventory obsolescence were $3,150 and $1,717
as of June 25, 1999 and September 25, 1998, respectively. Included in cost of
sales are $588 and $2,088 of charges related to inventory obsolescence reserves
for the three and nine month periods ended June 25, 1999, respectively.
Note 3 - OTHER ASSETS
Included in other assets of $14,780 and $14,273 as of June 25, 1999 and
September 25, 1998, respectively, are assets associated with the implementation
of a new production facility and equipment which had not been placed in service
as of June 25, 1999 and September 25, 1998 in the amounts of $13,231 and
$13,271, respectively.
Note 4 - LONG-TERM DEBT
On July 29, 1999, the Company entered into an additional line of credit
agreement which allows the Company to borrow up to $10 million. The line bears
interest at prime rate plus 1% as determined by the bank. The agreement expires
July 29, 2000. With this agreement the Company has available $20 million in
borrowings under two separate line of credit agreements. No borrowings were
outstanding under these agreements as of June 25, 1999.
The Company has entered into credit facilities with financial institutions to
finance equipment purchases. These loans are secured by the financed equipment
and bear interest at an average rate of 6.4%. As of June 25, 1999 and September
25, 1998, the Company had $17.8 million and $4.0 million, respectively,
outstanding under these loans.
Note 5 - RESEARCH AND DEVELOPMENT COSTS
7
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Research and development costs are expensed as incurred. The Company
periodically enters into research and development contracts with certain
governmental agencies and private sector companies. These contracts generally
provide for reimbursement of costs. The majority of the Company's current
research and development contracts are government-sponsored programs for which
the Company would not be required to refund reimbursements received, and would
not have an obligation or financial risk with regards to the ultimate future
economic benefit derived from the development efforts. Funding from research and
development contracts is recognized as a reduction in operating expenses during
the period in which the services are performed and related direct expenses are
incurred, as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 25, 1999 June 26, 1998 June 25, 1999 June 26, 1998
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Research and development $ 3,530 $ 3,601 $ 9,811 $ 9,762
Product engineering 2,825 1,734 7,471 4,845
------------------- ------------------- ------------------- -------------------
Total expense 6,355 5,335 17,282 14,607
Contract funding (2,608) (3,195) (7,551) (8,324)
------------------- ------------------- ------------------- -------------------
Research and development, net $ 3,747 $ 2,140 $ 9,731 $ 6,283
=================== =================== =================== ===================
</TABLE>
Note 6 - IN-PROCESS R&D
In connection with the acquisition of Standish Industries, Inc. at September 26,
1997, the Company allocated $8.3 million of the purchase price to in-process
research and development projects as determined by independent appraisal.
Accordingly, these costs were expensed as of the acquisition date. These
allocations represent the estimated fair value based on risk adjusted cash flows
(assuming a 23% discount rate) related to incomplete projects. The development
of these projects had not yet reached technological feasibility, and the
technology had no alternative future use. The technology acquired in these
acquisitions required substantial additional development by the Company. The
$8.3 million relates mainly to four significant projects including the Color
Enhancements project, the Low Power project, the Fast Switching project, and the
Miniature Display project.
The Color Enhancement project is targeted at developing a manufacturing process
to add a color mosaic, specifically vertical color strips to LCDs, resulting in
a full color LCD display. At the time of acquisition, the project was
approximately 60% complete. The appropriate materials had been identified, the
process had been run, color filters were created, prototype LCDs were built out
of the color filters, and electronics were attached to the prototype LCDs.
However, none of the prototypes met the design criteria necessary to offer a
color display for sale to a customer. The technological uncertainties involved
the process of applying the topcoat over the color mosaic within required
tolerances and manufacturing consistencies. This technology required the
construction of internal color filters, planarization layers and low temperature
Indium Tin Oxide deposition. Due to the recent substantial decrease in the price
of full color Active Matrix displays, it became apparent that this technology is
uncompetitive and unviable. The Company changed the direction of the development
project toward a new technology, which utilizes external color filters which
significantly reduces the process complexity and cost. Most of the original
development efforts, however, are being utilized in this new technology,
including the fundamental materials being used, the pattern development of the
electrodes, the electronic circuit design and electronic circuit integration,
and the developed knowledge of color imagery and color filters necessary to meet
required performance levels. Remaining efforts include constructing color
filters, constructing holographic elements for light manipulation, integrating
these components into a display, constructing the electrical package, and the
environmental qualification of all components. It is estimated that this project
is approximately 26% complete, and will be completed by December 2000. The
expected costs to complete this project are approximately $185,000. $3.1 million
of the $8.3 million in-process research and development related to this Color
Enhancement project. The major assumption underlying the purchase price
allocation was that revenues would reach $25 million in 2004 based upon an
annual increase in revenues of approximately $4 million per year.
8
<PAGE>
The Low Power project objective is to define materials and manufacturing
processes to reduce the drive voltage required for graphic displays. Currently
high-level multiplex graphic displays require the use of high voltage drivers,
which have a higher component cost. The combination of the liquid crystal
materials and cell design could result in a display that requires less voltage
and therefore less power and a lower cost to drive the image. At the time of the
acquisition, prototype LCDs, which require lower voltage were undergoing
qualification and image retention testing. The uniqueness of this project is to
find a liquid crystal, which offers both a wide temperature performance and a
low voltage switching characteristic. It was not known at the acquisition date
which fluids, if any, would ultimately meet the required operating criteria. At
the time of acquisition, it was estimated that the project was approximately 70%
complete. Currently, the final liquid crystal candidate has been pre-released
for production, and is waiting for final release. The project is 91% complete.
The estimated cost to complete the project is approximately $48,000.
Approximately $2.3 million of the $8.3 million purchase price allocation relates
to the Low Power project. The major assumption associated with this allocation
amount was that related revenues will increase to over $40 million by 2005.
The Fast Switching project is targeted at developing fast switching LCD shutters
for "opto-electronics" usage. Standard LCDs typically contain a nematic liquid
crystal, which does not respond to voltage fast enough to be used in fast
switching applications. This project is attempting to decrease the response time
of a nematic LCD below that of the standard LCD that is currently offered for
sale, by modifying the structure of certain liquids. Several different fluids
were being tested at the acquisition date for use in developing various
applications. This project contains several technologies including Fast Twisted
Nematic, Electrically Controlled Birefringence (ECB), and a Field Sequential
Color Active Matrix EL. These technologies have been completed and constructed
in manufacturing and are being sold to customers. Approximately $1.3 million of
the $8.3 million purchase price allocation related to this Fast Switching
project. The major assumption associated with this allocation amount was that
revenues would increase to $26 million in 2004. The impact on operations from
this project has not been material to date.
The Miniature Display Project is a co-development activity with an outside
company to create a commercially viable "miniature display" system. The system
will use optics to create a large "virtual" display by projecting the image
generated by a miniature AMLCD into the user's eye. Standish Industries'
contribution was to develop a Liquid Crystal on Silicon (LCOS) display and the
process by which silicon can be fabricated into an LCD. Changing the fabrication
material of an LCD from all glass to both silicon and glass presents particular
challenges in the processing phase. At the time of purchase, prototype LCOS
displays had been produced, however, none of the prototypes met the criteria
necessary to offer the system for sale to a customer. The project was completed
December 31, 1998. Approximately $1 million of the $8.3 million purchase price
allocation related to this project. The major assumption underlying this
allocation was that related revenues would reach $15 million in 2005, based upon
annual revenue increases of approximately $3 million per year. On October 5,
1998 the Company signed a value-added distribution partnership agreement with a
third party to provide full-color, high resolution, and full-motion micro
display solutions for select military, industrial, and commercial markets. The
Company will market, distribute, sell and support the third party's proprietary
microdisplay technology, and may also choose to manufacture the Dynamic Nematic
Liquid Crystal on Silicon (DNLCOS) based products for its customers' critical
needs. The impact of this project on operations has not been material to date.
Note 7 - INCOME TAXES
The provision for income taxes has been recorded based upon the current estimate
of the Company's annual effective tax rate. This rate differs from the federal
statutory rate primarily because of the provision for state income taxes,
permanent differences resulting from purchase accounting adjustments and the
effects of the Company's foreign tax rates. Additional differences arise from
the limitation on the utilization of net operating loss carryforwards. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations for further discussion of income taxes.
Note 8 - NET INCOME PER COMMON SHARE
Basic earnings per common share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per
common share is computed using the weighted
9
<PAGE>
average number of shares of common stock and dilutive common equivalent shares
outstanding during the period. Incremental shares of 232,000 and 275,000 for the
quarters ended June 25, 1999 and June 26, 1998, respectively, were used in the
calculations of diluted earnings per share. Incremental shares of 226,000 and
269,000 for the nine month periods ended June 25, 1999 and June 26, 1998,
respectively, were used in the calculations of diluted earnings per share.
Note 9 - COMPREHENSIVE INCOME
The comprehensive loss was $0.9 million for the quarter ended June 25, 1999 and
the comprehensive income was $2.8 million for the same quarter last fiscal year.
The comprehensive loss for the nine-month period ended June 25, 1999 was $1.5
million, compared to comprehensive income for the nine-month period ended June
26, 1998 of $6.0 million.
Note 10 - SUBSEQUENT EVENT
On July 6, 1999, the Company acquired a 20% interest in dpiX Holding Company
LLC. dpiX Holding Company LLC owns 80.1% of dpiX LLC. The Company paid $5
million in cash for its interest in dpiX Holding Company LLC. dpiX LLC
manufactures and sells amorphous silicon thin-film transistor arrays for use in
x-ray digital detectors and liquid crystal displays. The investment will be
accounted for under the equity method of accounting.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information should be read in conjunction with the consolidated
interim financial statements and the notes thereto in Part I, Item 1 of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-K for the year ended September 25, 1998.
RESULTS OF OPERATIONS
Sales
The Company's sales decreased by 6.1% to $30.4 million in the fiscal quarter
ended June 25, 1999 from $32.4 million in the same quarter last fiscal year. The
decrease in sales was principally due to a slowdown across all of the Company's
component markets in both Europe and North America as customers pushed out
shipment dates and reduced orders due to weak end-product sales. International
sales decreased by 15.6% as compared to the same quarter in the prior year due
to the decreased sales of existing product lines in the Company's foreign target
markets. For this fiscal quarter, international sales were 19.2% of total sales
compared to 21.4% in the same period last fiscal year.
For the first nine months of 1999, the Company's sales decreased by 6.1% to
$90.1 million from $96.0 million in the same period last fiscal year primarily
due to the same factors as described in the preceding paragraph. International
sales decreased by 10.3% as compared to the same period in the prior year. For
this period, international sales were 20.2% of total sales as compared to 21.2%
in the same period last fiscal year.
Gross Profit
The Company's gross profit as a percentage of sales decreased to 26.9% in this
fiscal quarter from 32.0% in the same quarter last fiscal year and for the nine
month period decreased to 28.7% from 31.2% in the same period last fiscal year.
These decreases were largely attributable to increased inventory reserves for
the end-user products and start-up manufacturing issues associated with the
military avionics AMLCD products.
Operating Expenses
The Company's operating expenses increased by 27.4% this fiscal quarter compared
to the same quarter last fiscal year and increased 18.8% for the nine months
ended June 25, 1999 over the same period last fiscal year. The increase was
primarily in two areas: 1) research and development, reflecting additional
expenses related to the development of new technologies and product engineering
primarily in the development of color AMLCD products in the commercial and
military avionics businesses, and 2) sales and marketing, reflecting additional
marketing resources. Overall, operating expenses as a percentage of sales
increased to 29.1% in this fiscal quarter compared to 21.4% in the same quarter
last fiscal year, and increased to 27.7% for the nine month period as compared
to 21.9% for the same period last fiscal year.
Non-Operating Income and Expense
Net interest income and expense for the three months and nine months ended June
25, 1999 versus the same periods last fiscal year declined due to the increase
in debt associated with a new production facility and equipment, and the
discontinuance of capitalizing related interest expense.
The Company experienced a net gain from foreign currency transactions of
$803,000 during the third quarter of fiscal 1999 compared to a net loss of
$144,000 during the third quarter of fiscal 1998 and a gain of $2.0 million for
the nine months ended June 25, 1999 compared to a gain of $349,000 for the same
period last fiscal year. These amounts are comprised of realized gains and
losses on cash transactions involving various currencies and unrealized gains
and losses related to foreign currency denominated receivables and payables
resulting from exchange rate fluctuations between the various currencies in
11
<PAGE>
which the Company operates. Foreign currency gains and losses are included as a
component of other income.
From September 25, 1998 to June 25, 1999, the U.S. dollar strengthened 11.6%
against the Finnish Markka. This strengthening of the U.S. dollar resulted in
lower reported revenues and operating expenses due to the translation of the
Finnish Markka to U.S. dollars for consolidated financial reporting.
The Company generally realizes about one fifth of its revenue outside the United
States and expects this to continue in the future. Additionally, the functional
currency of the Company's subsidiary, Planar International, is the Finnish
Markka which must be translated to U.S. dollars for consolidation. As such, the
effects of future foreign currency fluctuations will impact the Company's
business and operating results.
Provision for Income Taxes
The effective income tax rate for the quarter ended June 25,1999 was 28.4%
versus 25.5% in the same quarter in the prior year. For the nine months ended
June 25, 1999, the effective income tax rate was 28.0% versus 25.5% in the same
period last fiscal year. This increase is due to the relative profitability of
the U.S. and foreign taxable entities.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended June 25, 1999, the Company generated $2.9 million in
cash from operating activities compared to $1.3 million in the same period last
fiscal year.
For the nine month period ended June 25, 1999, additions to plant and equipment
were $2.5 million compared to $3.0 million for the same period last fiscal year.
The principal acquisitions during the first nine months of fiscal 1999 were
related to the purchase of equipment for LCD operations, military flat panel
display operations and Finland EL operations. The principal acquisitions during
the same period last fiscal year were related to upgrading the EL production
facility and equipment in North America.
Included in other assets of $14.8 million as of June 25, 1999 and $14.3 million
as of September 25, 1998, are assets associated with the implementation of a new
production facility and equipment which had not been placed in service as of
June 25, 1999 and September 25, 1998, in the amount of $13.2 million and $13.3
million, respectively.
At June 25, 1999, the Company had a bank line of credit agreement with a
borrowing capacity of $10.0 million and credit facilities for financing
equipment of $17.8 million. A similar bank line of credit was in place as of
September 25, 1998. As of June 25, 1999 and September 25, 1998, borrowings of $0
and $10.0 million, respectively, were outstanding under the credit line. Under
the equipment credit facilities, $17.8 million was outstanding at June 25, 1999
and $4.0 million at September 25, 1998.
On July 29, 1999, the Company entered into an additional line of credit
agreement which allows the Company to borrow up to $10 million. The line bears
interest at prime rate plus 1% as determined by the bank. The agreement expires
July 29, 2000. With this agreement the Company has available $20 million in
borrowings under two separate line of credit agreements.
The Company believes its existing cash and investments together with cash
generated from operations and existing borrowing capabilities will be sufficient
to meet the Company's working capital requirements for the foreseeable future.
On May 13, 1998, the Company announced that it intends to repurchase up to an
additional $5 million of the Company's currently outstanding common stock from
time to time over the next twelve months in open market and negotiated
transactions. During the nine months ended June 25, 1999, the Company
repurchased approximately 335,000 shares of its own common stock for $3.1
million. At June 25, 1999, there still remained approximately $287,000 of common
stock that had not yet been repurchased.
12
<PAGE>
On July 6, 1999, the Company acquired a 20% interest in dpiX Holding Company
LLC. dpiX Holding Company LLC owns 80.1% of dpiX LLC. The Company paid $5
million in cash for its interest in dpiX Holding Company LLC. dpiX LLC
manufactures and sells amorphous silicon thin-film transistor arrays for use in
x-ray digital detectors and liquid crystal displays. The investment will be
accounted under the equity method of accounting. The Company expects dpiX LLC to
lose approximately $5 million in the fourth quarter of 1999. Using a
disproportionate allocation of profit and losses, which is part of the
agreement, the Company expects to write-off its entire investment in the fourth
quarter.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's exposure to market risk for changes in interest rates relates
primarily to its investment portfolio, and short-term and long-term debt
obligations. The Company mitigates its risk by diversifying its investments
among high credit quality securities in accordance with the Company's investment
policy.
The Company believes that its net income or cash flow exposure relating to rate
changes for short-term and long-term debt obligations is not material. The
Company primarily enters into debt obligations to support capital expenditures
and working capital needs. The Company does not hedge any interest rate
exposures.
Interest expense is affected by the general level of U.S. interest rates and/or
LIBOR. Increases in interest expense resulting from an increase in interest
rates would be offset by a corresponding increase in interest earned on the
Company's investments.
The Finnish Markka is the functional currency of the Company's subsidiary in
Finland. The Company does not currently enter into foreign exchange forward
contracts to hedge certain balance sheet exposures and intercompany balances
against future movements in foreign exchange rates. The Company does maintain
cash balances denominated in currencies other than the U.S. dollar. If foreign
exchange rates were to weaken against the U.S. dollar, the Company believes that
the fair value of these foreign currency amounts would not decline by a material
amount.
YEAR 2000 ISSUE
Like most other companies, the Year 2000 computer issue creates risks for the
Company. The Year 2000 issue exists because many computer programs use two digit
rather than four digit fields to define the applicable year. As a result,
computer equipment and software and devices with imbedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, production delays, a
temporary inability to process transactions, send invoices, or engage in similar
normal business activities. Incomplete or untimely resolution of the Year 2000
issue by the Company or critically important suppliers or customers of the
Company could have a materially adverse effect on the Company's business,
financial condition, or results of operations.
The Company has undertaken various initiatives intended to ensure that its
computer systems, software and other operational equipment will function
properly with respect to dates in the Year 2000 and thereafter. For this
purpose, the term "computer systems and software" includes systems that are
commonly thought of as information technology ("IT") systems, including
enterprise software, operating systems, networking components, application and
data servers, PC hardware, accounting, data processing and other information
systems, as well as systems that are not commonly thought of as IT systems, such
as telephone systems, fax machines, manufacturing equipment and other
miscellaneous systems and equipment. Both IT and non-IT systems may contain
imbedded technology, which complicates the Company's Year 2000 assessment,
remediation and testing efforts.
Based upon its assessment efforts to date, the Company believes that certain of
the computer systems and software it currently uses will require replacement or
modification. Specifically, the Company has determined that certain of its
personal computer software will require replacement and that software upgrades
will be required with respect to certain of its financial management information
systems. Excluding the Company's Finland facility, all of the Company's
financial and information systems are
13
<PAGE>
believed to be Year 2000 compliant as of June 25, 1999. The Finland location is
implementing a new, Year 2000 compliant Enterprise Resource Planning (ERP)
system, which is expected to be fully operational by October 1999. The Company
has completed the process of inventorying and assessing its primary
manufacturing and other non-IT systems. To date, no significant issues have been
identified with the Company's manufacturing and other non-IT systems, and the
Company expects to resolve any compliance issues with these systems by September
1999.
The Company has been surveying its major venders, suppliers, and customers to
assess the potential impact on its operations of these key third parties. The
process includes obtaining information as to their efforts associated with Year
2000 compliance. To date, no significant compliance issues have been identified
with these third parties. The Company plans to continue to update and evaluate
compliance issues with the key third parties through 1999.
The Company currently estimates that the cost of its Year 2000 assessment,
remediation and testing efforts as well as current anticipated costs to be
incurred by the Company with respect to Year 2000 issues of third parties, will
not exceed $500,000. The expenditures will be funded from operating cash flows.
This estimate is subject to change as additional information is obtained in
connection with the Company's assessment of the Year 2000 issue. As of June 25,
1999, the Company had incurred costs of approximately $315,000 related to its
Year 2000 assessment, remediation, and testing efforts. In addition, the Company
expects to incur approximately $1 million (which will be capitalized and
amortized over the expected useful life) associated with the implementation of
the new ERP system in its Finland facility, which will also be funded from
operating cash flows and existing cash balances.
The Company presently believes that Year 2000 issues will not pose significant
problems for the Company. However, if all Year 2000 issues are not properly
identified, or assessment, remediation and testing are not effected timely with
respect to Year 2000 problems that are identified, there can be no assurance
that the Year 2000 issue will not have a material adverse impact on the
Company's business, financial condition or results of operations, or adversely
affect the Company's relationships with customers, venders, and others.
Additionally, there can be no assurance that the Year 2000 issues of other
entities, such as one or more of the Company's critical customers or suppliers,
will not have a material adverse impact on the Company's systems or its
business, financial condition or results of operations. Finally, if there are
infrastructure failures, such as disruptions in the supply of power, water,
transportation, communications services, or if major institutions, such as the
government, foreign or domestic banking systems, are unable to continue to
provide their services or support resulting in a disruption in services or
support to the Company, the Company may be unable to operate for the duration of
the disruption.
The Company has begun, but not yet completed, a comprehensive analysis of the
operational problems and costs (including loss of revenues) that would be
reasonably likely to result from the failure by the Company and certain third
parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. A contingency plan has not been developed for dealing with the
most reasonably likely worst case scenario, and such scenario has not yet been
clearly identified. The Company currently plans to complete such analysis and
contingency planning by December 31, 1999.
The costs of the Company's Year 2000 assessment, remediation and testing efforts
and the dates on which the Company believes it will complete such efforts are
forward-looking statements that are based upon management's best estimates,
which are derived using numerous assumptions regarding future events, including
the continued availability of certain resources, third party remediation plans
and certifications, and other factors. There can be no assurance that these
estimates will prove to be accurate and actual results could differ materially
from those currently anticipated. Specific factors that could cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in Year 2000 issues, the ability to identify, assess,
remediate and test all relevant computer codes and embedded technology, the
reliability of third party assessments and certifications, and similar
uncertainties.
14
<PAGE>
INTRODUCTION OF THE EURO
The Company has established a team to address the issues raised by the
introduction of the Single European Currency (Euro) for initial implementation
as of January 1, 1999 and during the transition period through January 1, 2002.
The Company expects that its internal systems that will be affected by the
initial introduction of the Euro will be Euro capable by January 1, 2000, and
does not expect the costs of system modifications to be material. The Company
does not presently expect that introduction and use of the Euro will result in
any material increase in costs to the Company. While the Company will continue
to evaluate the impact of the Euro introduction over time, based on currently
available information, management does not believe that the introduction of the
Euro currency will have a material adverse impact on the Company's financial
condition or overall trends in results of operation.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Report contain forward-looking statements
within the meaning of the Securities Litigation Reform Act of 1995 that are
based on current expectations, estimates and projections about the Company's
business, management's beliefs and assumptions made by management. Words such as
"expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates"
and variations of such words and similar expressions are intended to identify
such forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties, and assumptions that are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements due to numerous factors, including, but not limited to those
discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations, as well as those discussed below and elsewhere in this
Report and from time to time in the Company's other Securities and Exchange
Commission filings and reports. In addition, general industry and market
conditions and growth rates, and general domestic and international economic
conditions could affect such statements. The forward-looking statements
contained in this Report speak only as of the date on which they are made, and
the Company does not undertake any obligation to update any forward-looking
statement to reflect events or circumstances after the date of this Report. If
the Company does update one or more forward-looking statements, investors and
others should not conclude that the Company will make additional updates with
respect thereto or with respect to other forward-looking statements.
15
<PAGE>
Part II. OTHER INFORMATION
Item 2. Changes in Securities
(c) During the third fiscal quarter of 1999, the Company sold securities
without registration under the Securities Act of 1933, as amended (the
"Securities Act") upon the exercise of certain stock options granted under the
Company's stock option plans. An aggregate of 7,001 shares of Common Stock was
issued at exercise prices ranging from $2.25 to $6.50. These transactions were
effected in reliance upon the exemption from registration under the Securities
Act provided by Rule 701 promulgated by the Securities and Exchange Commission
pursuant to authority granted under Section 3 (b) of the Securities Act.
Item 5. Other Information
The following issues and uncertainties, among others, should be considered in
evaluating the Company's future financial performance and prospects for growth.
The following information should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations (Item
7) contained in the Company's 10-K for the year ended September 25, 1998.
Competition
The market for information displays is highly competitive, and the Company
expects this to continue. The Company believes that over time this competition
will have the effect of reducing average selling prices of flat panel displays.
Certain of the Company's competitors have substantially greater name recognition
and financial, technical, marketing and other resources than the Company. In
addition, competitors of the Company have made and continue to make significant
investments in the construction of manufacturing facilities for AMLCDs and other
advanced displays. There can be no assurance that the Company's competitors will
not succeed in developing or marketing products that would render the Company's
products obsolete or noncompetitive. To the extent the Company is unable to
compete effectively against its competitors, whether due to such practices or
otherwise, its financial condition and results of operations would be materially
adversely affected.
Development of New Products and Risks of Technological Change
The Company's future results of operations will depend upon its ability to
improve and market its existing products and to successfully develop,
manufacture and market new products. There can be no assurance that the Company
will be able to continue to improve and market its existing products or develop
and market new products, or that technological developments will not cause the
Company's products or technology to become obsolete or noncompetitive. Even
successful new product introductions typically result in pressure on gross
margins during the initial phases as costs of manufacturing start-up activities
are spread over lower initial sales volumes.
A significant portion of the Company's flat panel products relies on EL
technology, which currently constitutes only a small portion of the information
display market. Through the acquisition of Standish Industries, Inc., in
September 1997, the Company diversified its display products and expanded its
addressable market significantly to include flat panel passive liquid crystal
display applications. The Company's future success will depend in part upon
increased market acceptance of existing EL and passive LCD technologies, and
other future technological developments. In that regard, the Company's
competitors are investing substantial resources in the development and
manufacture of displays using a number of alternative technologies. In the event
these efforts result in the development of products that offer significant
advantages over the Company's products, and the Company is unable to improve its
technology or develop or acquire an alternative technology that is more
competitive, the Company's business and results of operations will be adversely
affected.
The Company's military product sales are significantly based on CRT technology.
Military avionics contractors are increasingly focused on incorporating
displays, primarily AMLCDs, into cockpit applications that have traditionally
used CRTs. The Company's ability to transition the military product line
16
<PAGE>
to flat panel displays over the next few years will be important to the long-
term success of Planar's military avionics business. The Company currently has
an agreement with dpiX to jointly develop, manufacture and market AMLCDs into
military applications.
Level of Advanced Research and Development Funding
The Company's advanced research and development activities have significantly
been funded by outside sources, including agencies of the United States and
Finnish governments and private sector companies. The Company's recently funded
research and development activities have principally focused on multi-color and
full color displays, miniature displays, low power displays, advanced packaging
and other applications. The actual funding that will be recognized in future
periods is subject to wide fluctuation due to a variety of factors including
government appropriation of the necessary funds and the level of effort spent on
contracts by the Company.
Within Congress, there has been significant debate on the level of funding to be
made available to programs that have historically supported the Company's
research activities. Additionally, government research and development funding
has been gradually shifting to a more commercial approach, and contractors are
increasingly required to share in the development costs. This trend is likely to
continue, which could increase the Company's net research and development
expenses. While the Company has historically not experienced any loss or decline
of external research funding, the loss or substantial reduction of such funding
could adversely affect the Company's results of operations and its ability to
continue research and development activities at current levels.
Reliance on Medical Equipment and Gas Pump Markets
Approximately thirty percent of the Company's sales in fiscal 1998 were made to
customers that manufacture and sell medical equipment to health care providers
worldwide. Also, over ten percent of the Company's sales in fiscal 1998 were
made to customers in the gas pump industry. The Company believes that sales in
these markets will continue to be important to the Company. As a result,
developments that adversely impact the market for medical and gas pump equipment
produced by the Company's customers could, in turn, adversely affect the
Company's business and results of operations. In addition, the Company's sales
have been and may in future periods be adversely affected due to delays in
approvals by foreign or domestic government regulatory agencies which prevent a
customer of the Company from introducing, producing or marketing products.
International Operations and Currency Exchange Rate Fluctuations
Shipments to customers outside of North America accounted for approximately
20.5%, 26.6%, and 37.1% of the Company's sales in fiscal 1998, fiscal 1997 and
fiscal 1996, respectively. The Company anticipates that international shipments
will continue to account for a significant portion of its sales. As a result,
the Company is subject to risks associated with international operations,
including trade restrictions, overlapping or differing tax structures, changes
in tariffs, export license requirements and difficulties in staffing and
managing international operations (including, in Finland, relations with
national labor unions).
Declining Military Expenditures
The Company's sales associated with military applications have been increasing.
However, military capital expenditure levels have been declining for several
years and depend largely on factors outside of the Company's control. Although
the Company believes that recent, new military contracts will result in
increased sales in the future, no assurance can be given that these military
contracts will result in the levels of sales anticipated. In addition, as a
result of the reduction in military CRT sales, several key CRT suppliers have
threatened to halt production of critical components. Although the Company
believes it has reached agreement with each of its critical vendors, no
assurance can be given that critical material supply will be available when
needed.
17
<PAGE>
Effects of Quarterly Fluctuations in Operating Results
Results of operations have fluctuated significantly from quarter to quarter in
the past, and may continue to fluctuate in the future. Various factors,
including timing of new product introductions by the Company or its competitors,
foreign currency exchange rate fluctuations, disruption in the supply of
components for the Company's products, changes in product mix, capacity
utilization, the timing of orders from major customers, production delays or
inefficiencies, seasonality, the timing of expenses and other factors affect
results of operations. Quarterly fluctuations may adversely affect the market
price of the Common Stock.
The Company's backlog at the beginning of each quarter does not normally include
all orders needed to achieve expected sales for the quarter. Consequently, the
Company is dependent upon obtaining orders for shipment in a particular quarter
to achieve its sales objectives for that quarter. The Company's expense levels
are based, in part, on expected future sales. If sales levels in a particular
quarter do not meet expectations, operating results may be adversely affected.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: 2.1 Agreement and Plan of Merger dated as
of May 13, 1999 by and among dpiX,
Inc., Xerox Corporation and New dpiX
LLC (incorporated by reference to the
Company's Current Report on Form 8-K
filed on July 20, 1999).
10.1 Credit Agreement between Planar
Systems, Inc. and Norwest Bank
Wisconsin, National Association dated
July 29, 1999
10.2 Employment Agreement between Planar
Systems, Inc. and James M. Hurd dated
as of April 30, 1999
10.3 Planar Systems, Inc. Nonqualified
Stock Option Agreement dated as of
May 13, 1999
27.1 Financial Data Schedule
(b) Reports on 8-K: The Company filed a report on Form 8-K on
April 21, 1999 in which it was reported that
Jim Hurd (CEO) will take a medical leave of
absence.
The Company filed a report on Form 8-K on
July 20, 1999 in which it was reported that
the Company acquired a 20% interest in dpiX
Holding Company LLC.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLANAR SYSTEMS, INC.
(Registrant)
DATE: August 9, 1999 /s/ Jack Raiton
--------------------
Jack Raiton
Vice President and
Chief Financial Officer
19
<PAGE>
EXHIBIT 10.1
Norwest Bank Wisconsin,
National Association Credit Agreement
================================================================================
THIS CREDIT AGREEMENT (the "Agreement") dated as of July 29, 1999 (the
"Effective Date") is between Norwest Bank Wisconsin, National Association (the
"Bank") and Planar Systems, Inc. (the "Borrower").
BACKGROUND
The Borrower has asked the Bank to provide a $10,000,000.00 line of credit to be
used for general operating purposes. The Bank is agreeable to meeting the
Borrower's request, provided that the Borrower agrees to the terms and
conditions of this Agreement.
The Revolving Note, this Agreement, the Intercreditor Agreement described in
Exhibit A, and any modifications, amendments or replacements thereto shall be
referred to collectively as the "Documents."
In consideration of the above premises, the Bank and the Borrower agree as
follows:
1. LINE OF CREDIT
1.1 Line of Credit Amount. During the Line Availability Period defined below,
the Bank agrees to provide a revolving line of credit (the "Line") to the
Borrower. Outstanding amounts under the Line shall not, at any one time,
exceed TEN MILLION AND 00/100 DOLLARS ($10,000,000.00).
1.2 Line Availability Period. The "Line Availability Period" shall mean the
period of time from the Effective Date or the date on which all conditions
precedent described in this Agreement have been met, whichever is later, to
the Line Expiration Date of July 28, 2000.
1.3 The Revolving Note. The Borrower's obligation to repay advances under the
Line shall be evidenced by a single promissory note (the "Revolving Note")
dated as of the Effective Date, and in form and content acceptable to the
Bank. Reference is made to the Revolving Note for interest rate and
repayment terms.
2. EXPENSES
The Borrower agrees to reimburse the Bank for its reasonable expenses
relating to the preparation of the Documents and any possible future
amendments to the Documents, which reimbursement may include, but shall not
be limited to, reimbursement of reasonable attorneys' fees, including the
allocated costs of the Bank's in-house counsel. Despite such reimbursement
the Borrower acknowledges that the Bank's counsel is engaged solely to
represent the Bank and does not represent the Borrower.
3. ADVANCES AND PAYMENTS
<PAGE>
3.1 Requests for Advances. The Bank may make advances under the Line in
response to any request made by telephone or in a writing delivered to the
Bank (or transmitted via facsimile) by any person reasonably believed by
the Bank to be authorized by the Borrower to do so. The Bank will not
consider any such request following an event which is, or with notice or
the lapse of time would be, an event of default under this Agreement.
Proceeds shall be deposited into the Borrower's account at the Bank or
disbursed in such other manner as the parties may agree.
3.2 Interest Rate Options. The Revolving Note shall bear interest at a floating
rate equal to our "Base Rate", as defined in the Revolving Note (the "Base
Rate Option"). The Borrower may also elect that all or part of the
principal balance will accrue interest at a fixed rate for a fixed period
of time, based upon a LIBOR Rate or Fed Funds Rate quoted by the Bank, plus
a margin of 1.0% (the "Fixed Rate Option").
The Borrower may request that the Bank lock in a fixed rate under the Fixed
Rate Option by calling us for a quote between 8:30 a.m. and 2:00 p.m.
Central Time on any Banking Day. The Borrower must specify a principal
amount of at least $100,000.00 (the "Fixed Rate Amount") that the Fixed
Rate Option will apply to, and a period of 30, 60, 90, or 180 days from the
date of fixing or any other date to which we may agree that is no later
than the Line Expiration Date (each period a "Fixed Rate Period"). The
Borrower must orally accept a quote when received or it will be deemed
rejected. If accepted, the Fixed Rate Option will remain in effect for the
Fixed Rate Period specified in the quote. At the end of each Fixed Rate
Period, the principal amount subject to the Fixed Rate Option shall bear
interest at the Base Rate Option (as defined in the Revolving Note).
The LIBOR Rate or Fed Funds Rate quoted by the Bank will be an annual rate
equal to what the Bank in its discretion determines to be its cots of funds
in approximately the same amount as the Fixed Rate Amount and which are
deliverable on the first day of the Fixed Rate Interest Period requested
for approximately the same number of days as the Fixed Rate Interest
Period. Quotations are based on the cost of funds available to the Bank in
international and domestic money markets, including but not limited to the
rates offered for U.S. dollar deposits on the London interbank market and
the domestic Fed Funds market.
3.3 Payments. All principal, interest and fees due under the Documents shall be
paid by the direct debit of available funds deposited in the Borrower's
account with the Bank. The Bank shall debit the account on the dates the
payments become due. If a due date does not fall on a day on which the Bank
is open for substantially all of its business (a "Banking Day", except as
otherwise provided), the Bank shall debit the account on the next Banking
Day, and interest shall continue to accrue during the extended period. If
there are insufficient funds in the account on the day the Bank enters any
debit authorized by this Agreement, the debit will be reversed and the
payment shall be due immediately without necessity of demand by direct
remittance of immediately available funds. For amounts bearing interest at
the Fixed Rate Option (if any), a Banking Day is a day on which the Bank is
open for business and on which dealings in U.S. dollar deposits are carried
on in the London Interbank Market or the domestic Fed Funds market.
4. CONDITIONS PRECEDENT.
The Borrower must deliver to the Bank the documents described in Exhibit A,
properly executed and in form and content acceptable to the Bank, prior to
the Bank's initial advance or disbursement under this Agreement.
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<PAGE>
5. REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, the Borrower, to the best
of its knowledge and upon due inquiry, makes the representations and
warranties contained in Exhibit B. Each request for an advance or a
disbursement under this Agreement following the Effective Date constitutes
a reaffirmation of these representations and warranties.
6. COVENANTS
6.1 Financial Information and Reporting.
Except as otherwise stated in this Agreement, all financial information
provided to the Bank shall be compiled using generally accepted accounting
principles consistently applied.
During the time period that credit is available under this Agreement, and
afterward until all amounts due under the Documents are paid in full,
unless the Bank shall otherwise agree in writing, the Borrower agrees to
(a) Annual Financial Statements. Provide the Bank within 90 days of the
---------------------------
Borrower's fiscal year end, the Borrower's annual financial statements. The
statements must be audited with an unqualified opinion by a certified
public accountant acceptable to the Bank, and must be accompanied by a
certificate of such accountants stating that, in conducting their audit,
they have no knowledge of any event of default under this Agreement, or any
event which would, after the lapse of time or the giving of notice, or
both, constitute an event of default under this Agreement or any of the
other Documents, specifying the nature and duration of the default.
(b) Interim Financial Statements. Provide the Bank within 30 days of each
----------------------------
fiscal quarter end, the Borrower's interim financial statements for the
interim period then ending. The statements must be current through the end
of that period and must be certified as correct by an officer of the
Borrower in form acceptable to the Bank. 10Q and 10K reports filed by the
Borrower with the SEC and available at the company's web site shall satisfy
the interim financial statement reporting requirement. The Bank reserves
the right to request financial information directly from the Borrower.
(c) Compliance Certificate. Provide the Bank concurrently with the interim
----------------------
financial statements required above, a Compliance Certificate in the form
of Exhibit C, that has been signed by an officer of the Borrower, which:
(1) certifies that the statements have been accurately prepared in
accordance with generally accepted accounting principles applied
consistently with the last annual financial statements provided by the
Borrower; (2) certifies that the officer has no knowledge of any event
which has or might, after the lapse of time or the giving of notice, or
both, constitute an event of default under this Agreement or the Documents,
or of any event which would, after the lapse of time or the giving of
notice, or both, constitute an event of default under the Agreement or the
Documents; and (3) demonstrates that the Borrower remains in compliance
with all financial covenants that must be complied with as of the date of
the financial statements.
(d) Notices. Provide the Bank prompt written notice of: (1) any event of
-------
default or any event which would, after the lapse of time or the giving of
notice, or both, constitute an event of default under the Agreement or any
of the Documents; or (2) any future event that would
-3-
<PAGE>
cause the representations and warranties contained in this Agreement to be
untrue when applied to the Borrower's circumstances as of the date of such
event.
(e) Additional Information. Provide the Bank with such other information as it
----------------------
may reasonably request, and permit the Bank to visit and inspect its
properties and examine its books and records.
6.2 Financial Covenants.
During the time period that credit is available under this Agreement, and
afterward until all amounts due under the Documents are paid in full,
unless the Bank shall otherwise agree in writing, the Borrower agrees to
comply with the financial covenants described below, which shall be
calculated using generally accepted accounting principles consistently
applied, except as they may be otherwise modified by the following
capitalized definitions
"EBIT" means pretax earnings from operations before special extraordinary
gains, before interest expense, and before miscellaneous gains and losses-
including non-cash expenses relating to write-downs, acquisitions, stock
option repricing...etc.
"Tangible Net Worth" means total assets less total liabilities and less the
following types of assets: (1) leasehold improvements; (2) receivables and
other investments in or amounts due from any shareholder, director,
officer, employee or other person or entity related to or affiliated with
the Borrower; and (3) goodwill, patents, copyrights, mailing lists, trade
names, trademarks, servicing rights, organizational and franchise costs,
bond underwriting costs and other like assets properly classified as
intangible.
(a) Total Liabilities to Tangible Net Worth. Maintain a ratio of total
---------------------------------------
liabilities to Tangible Net Worth of not greater than 1.0 to 1.0 as of the
end of each fiscal quarter.
(b) Interest Coverage Ratio. Maintain a ratio of EBIT to interest expense of
-----------------------
not less than 2.0 to 1.0 as of the end of each fiscal quarter.
6.3 Other Covenants.
During the time period that credit is available under this Agreement, and
afterward until all amounts due under the Documents are paid in full,
unless the Bank shall otherwise agree in writing, the Borrower agrees to
(a) Additional Borrowings. Refrain from incurring any indebtedness except: (1)
---------------------
trade credit incurred in the ordinary course of business; (2)
indebtedness expressly subordinated to the Bank in a writing acceptable to
the Bank; (3) indebtedness in existence on the date of this Agreement and
disclosed in advance to the Bank in writing; (4) purchase money
indebtedness (including capitalized leases) for the acquisition of fixed
assets.
(b) Other Liens, Assignments, and Subordinations. Refrain from allowing any
--------------------------------------------
security interest or lien on accounts receivable and inventory that it
owns, now or in the future, except: (1) liens, assignments, or
subordinations in favor of the Bank; (2) liens, assignments, or
subordinations outstanding on the date of this Agreement and disclosed in
advance to the Bank in writing; and (3) liens that are imposed by law for
obligations for labor or materials not overdue for more than 120 days, such
as mechanics', materialmen's, carriers', landlords', and warehousemen's
liens, or liens, pledges, or deposits under workers' compensation,
unemployment insurance, Social Security, or similar legislation.
-4-
<PAGE>
(c) Guaranties. Refrain from assuming, guaranteeing, endorsing or otherwise
----------
becoming contingently liable for any obligations of any other person,
except for those guaranties outstanding as of the Effective Date and
disclosed to the Bank in writing.
(d) Sale of Assets. Refrain from selling, during any fiscal year assets with
--------------
a cumulative value in excess of $10,000,000.00, other than sales of
inventory in the ordinary course of business.
(e) Form of Organization and Mergers. Refrain from changing its legal form of
--------------------------------
organization, or consolidating, merging, pooling, syndicating or otherwise
combining with any other entity.
(f) Books and Records. Maintain adequate books and records, refrain from
-----------------
making any material changes in its accounting procedures for tax or other
purposes, and permit the Bank to inspect same upon reasonable notice.
(g) Compliance with Laws. Comply in all material respects with all laws
--------------------
applicable to its form of organization, business, and the ownership of its
property.
(h) Preservation of Rights. Maintain and preserve all permits, licenses,
----------------------
rights, privileges, charters and franchises that it now owns.
These covenants were negotiated by the Bank and Borrower based on
information provided to the Bank by the Borrower. A breach of a covenant is
an indication that the risk of the transaction has increased. As
consideration for any waiver or modification of these covenants, the Bank
may require: additional collateral, guaranties or other credit support;
higher fees or interest rates; and possible modifications to the Documents
and the monitoring of the Agreement. The waiver or modification of any
covenant that has been violated by the Borrower shall be made at the sole
discretion of the Bank. These options do not limit the Bank's right to
exercise its rights under Section 7 of this Agreement.
7. EVENTS OF DEFAULT AND REMEDIES
7.1 Default
Upon the occurrence of any one or more of the following events of default,
or at any time afterward unless the default has been cured, the Bank may
declare the Line to be terminated, and in its discretion accelerate and
declare the unpaid principal, accrued interest and all other amounts
payable under the Revolving Note and the Documents to be immediately due
and payable:
(a) Failure by the Borrower to make any payment of principal or interest due
under the Revolving Note which continues for ten (10) days after its due
date.
(b) Default by the Borrower in the observance or performance of any covenant or
agreement contained in this Agreement, and continuance for more than
fifteen (15) days.
-5-
<PAGE>
(c) Default by the Borrower in the observance or performance of any covenant or
agreement contained in any of the Documents (excepting defaults under this
Agreement, which are addressed in the preceding paragraph), after giving
effect to applicable grace periods, if any.
(d) Default by the Borrower with respect to any indebtedness or obligation
owed to the Bank, which is unrelated to any loan or facility subject to the
terms of this Agreement, or to any third party creditor, which would allow
the maturity of any such indebtedness or obligation to be accelerated.
(e) Any representation or warranty made by the Borrower to the Bank in this
Agreement, or any financial statement or report submitted to the Bank by or
on behalf of the Borrower before or after the Effective Date is untrue or
misleading in any material respect.
(f) Any litigation or governmental proceeding against the Borrower seeking an
amount in excess of $10,000,000.00 which is not insured or subject to
indemnity by a solvent third party either 1) results in a judgment equal to
or in excess of that amount against the Borrower or 2) remains unresolved
on the 270th day following the date of service on the Borrower, unless as
of that date no judgment has been rendered and the contingent liability
arising as a result is classified as "remote" by Borrower's counsel as
defined in FASB 5 in a signed opinion addressed to the Bank.
(g) A garnishment, levy or writ of attachment, or any local, state, or federal
notice of tax lien or levy is made or issues against the Borrower, or any
post judgment process or procedure is commenced or any supplementary remedy
for the enforcement of a judgment is employed against the Borrower or the
Borrower's property.
(h) A material adverse change occurs in the Borrower's financial condition or
ability to repay its obligations to the Bank.
7.2 Immediate Default
If, with or without the Borrower's consent, a custodian, trustee or
receiver is appointed for any of the Borrower's properties, or if a
petition is filed by or against the Borrower under the United States
Bankruptcy Code, or the Borrower is dissolved, liquidated, or winds up its
business then the Line shall immediately terminate without notice, and the
unpaid principal, accrued interest, and all other amounts payable under the
Revolving Note and the Documents shall become immediately due and payable
without notice or demand.
8. MISCELLANEOUS
(a) No Waiver; Cumulative Remedies. No failure or delay by the Bank in
------------------------------
exercising any rights under this Agreement shall be deemed a waiver of
those rights. The remedies provided for in this Agreement and the Documents
are cumulative and not exclusive of any remedies provided by law.
(b) Amendments or Modifications. Any amendment or modification of this
---------------------------
Agreement must be in writing and signed by the Bank and Borrower. Any
waiver of any provision in this Agreement must be in writing and signed by
the Bank.
-6-
<PAGE>
(c) Binding Effect: Assignment. This Agreement and the Documents are binding
--------------------------
on the successors and assigns of the Borrower and Bank. The Borrower may
not assign its rights under this Agreement and the Documents without the
Bank's prior written consent. The Bank may sell participations in or assign
this Agreement and the Documents and exchange financial information about
the Borrower with actual or potential participants or assignees.
(d) Wisconsin Law. This Agreement and the Documents shall be governed by the
-------------
substantive laws (other than conflict of laws) of the State of Wisconsin,
and the Bank and Borrower consent to the personal jurisdiction of the state
and federal courts located in the State of Wisconsin.
(e) Severability of Provisions. If any part of this Agreement or the Documents
--------------------------
are unenforceable, the rest of this Agreement or the Documents may still be
enforced.
(f) Integration. This Agreement and the Documents describe the entire
-----------
understanding and agreement of the parties and supersede all prior
agreements between the Bank and the Borrower relating to each credit
facility subject to this Agreement, whether verbal or in writing, and may
be executed in counterparts, each of which shall be deemed an original, and
all of which together shall constitute one and the same instrument. In the
event of any inconsistency between the Agreement and the Documents,
inconsistent terms shall, where possible, be construed as conferring
cumulative rights and remedies upon the Bank, and, to the extent that such
construction is not possible, the terms of this Agreement shall govern.
Address for notices to Bank: Address for notices to Borrower:
Norwest Bank Wisconsin, Planar Systems, Inc.
National Association 1400 N.W. Compton Drive
100 East Wisconsin Avenue Milwaukee, WI 53202
Attention: Stephen Mayer, Attention: Mark Ceciliani,
Vice President Controller
NORWEST BANK WISCONSIN, PLANAR SYSTEMS, INC.
NATIONAL ASSOCIATION
By: ________________________ By: ____________________________
Its ________________________ Its ____________________________
By: ____________________________
Its
-7-
<PAGE>
EXHIBIT A
CONDITIONS PRECEDENT AND SECURITY
Note
The Revolving Note
Authorization
Certificate of Authority of Borrower. A Certificate of Authority executed by
- ------------------------------------
such person or persons authorized by the Borrower's organizational documents
and/or agreements to do so, certifying the incumbency and signatures of the
officers or other persons authorized to execute the Documents, and authorizing
the execution of the Documents and performance in accordance with their terms.
Organization
Articles of Incorporation and By-Laws. A recently certified copy of the
- -------------------------------------
Borrower's Articles of Incorporation and By-laws, and any amendments, if
applicable.
Certificate of Good Standing. A recently certified copy of the Borrower's
- ----------------------------
Certificate of Good Standing.
Other
Arbitration Agreement. The Bank's standard form of Arbitration Agreement
- ---------------------
signed by the Bank and Borrower, subjecting potential controversies between them
to binding arbitration, including but not limited to those relating to the
Documents and this Agreement.
Evidence of Insurance. Evidence that the Borrower has obtained all insurance
- ---------------------
coverage required by this Agreement, and that the Bank has been named as the
beneficiary of such policy or policies of insurance.
Intercreditor Agreement. An executed intercreditor agreement between the Bank
- -----------------------
and U.S. Bank, in form and substance acceptable to the Bank, whereby the Bank
and U.S. Bank agree to refrain from encumbering the Borrower's property, and
other intercreditor matters customary to a two bank lending relationship.
<PAGE>
EXHIBIT B
REPRESENTATIONS AND WARRANTIES
Organizational Status. The Borrower is a corporation duly formed and in good
- ---------------------
standing under the laws of the State of Oregon.
Authorization. The execution and delivery of the Documents is within the
- -------------
Borrower's powers, has been duly authorized by the Borrower and does not
conflict with any of the Borrower's organizational documents or any other
agreement by which the Borrower is bound, and has been signed by all persons
authorized and required to do so under its organizational documents.
Financial Reports. The Borrower has provided the Bank with the Borrower's
- -----------------
annual audited financial statement dated September 30, 1998 and its interim
financial statement dated March 31, 1999, and these statements fairly represent
the financial condition of the Borrower as of their respective dates and were
prepared in accordance with generally accepted accounting principles
consistently applied.
Litigation. There is no litigation or governmental proceeding pending or
- ----------
threatened against the Borrower which could have a material adverse effect on
the Borrower's financial condition or business.
Taxes. The Borrower has paid when due all federal, state and local taxes.
- -----
No Default. There is no event which is, or with notice or the lapse of time
- ----------
would be, an event of default under this Agreement.
ERISA. The Borrower is in compliance in all material respects with the
- -----
Employee Retirement Income Security Act of 1974 and has received no notice to
the contrary from the Pension Benefit Guaranty Corporation or any related
governmental entity.
<PAGE>
Norwest Bank Wisconsin,
National Association Revolving Note
================================================================================
$10,000,000.00 July 29, 1999
FOR VALUE RECEIVED, Planar Systems, Inc. (the "Borrower") promises to pay to the
order of Norwest Bank Wisconsin, National Association (the "Bank"), at its
principal office or such other address as the Bank or holder may designate from
time to time, the principal sum of TEN MILLION AND 00/100 DOLLARS
($10,000,000.00), or the amount shown on the Bank's records to be outstanding,
plus interest (calculated on the basis of actual days elapsed in a 360-day year)
accruing each day on the unpaid principal balance at the annual interest rate(s)
defined below. Absent manifest error, the Bank's records shall be conclusive
evidence of the principal and accrued interest owing hereunder.
INTEREST RATES
Base Rate Option. Unless the Borrower chooses the Fixed Rate Option defined
below, the principal balance outstanding under this Revolving Note shall bear
interest at an annual rate equal to the Base Rate, floating (the "Base Rate
Option"). Base Rate means the rate of interest established by the Bank from
time to time as its "base" or "prime" rate of interest at its principal office
in Milwaukee.
Fixed Rate Option. Subject to the terms and conditions of the Agreement, the
Borrower may elect that all or portions of the principal balance of this
Revolving Note bear interest at the LIBOR Rate or Fed Funds Rate plus 1.0% (the
"Fixed Rate Option"). Specific reference is made to Section 3.2 of the
Agreement for terms governing the designation of interest periods and rate
portions.
The Fed Funds Rate shall be computed in accordance with the following formula.
Fed Funds Rate = Fed Funds Rate
---------------
1.00 - Reserve Requirement
Where,
(1)"Fed Funds Rate" means the Bank's cost of funds as determined by
the Bank's Treasury Division, based upon the average rate at which
excess balances in reserve accounts held at Federal Reserve Banks may
be purchased for a term equal to the applicable Fixed Rate Period and
in an amount equal to the Fixed Rate Portion at the time of
determination on the domestic interbank market.
(2) "LIBOR Rate" means the Bank's cost of funds as determined by the
Bank's Treasury Division, based upon the average rate at which U.S.
Dollar deposits with a term equal to the applicable Fixed Rate Period
and in an amount equal to the Fixed Rate Portion are available to the
Bank at the time of determination on the London interbank market.
(3) "Reserve Requirement" means the Federal Reserve System requirement
(expressed as a percentage) applicable to the dollar deposits used in
calculating the Fixed Funds Rate above.
<PAGE>
INTEREST AFTER MATURITY. The unpaid principal balance and interest due under
this Revolving Note after maturity (whether this Revolving Note matures by
demand, acceleration or lapse of time) shall bear interest until paid at the
Base Rate, floating.
REPAYMENT TERMS. Interest accruing under the Base Rate Option shall be payable
on the last day of each month, beginning July 31, 1999. Interest accruing under
the Fixed Rate Option shall be payable at the end of Fixed Rate Interest Period
or the last day of each month, whichever is earlier. Principal, and any unpaid
interest, shall be payable in a single payment due on July 1, 2000.
PREPAYMENT AND PREPAYMENT FEE. The Borrower may prepay principal accruing
interest under the Base Rate Option at any time without penalty. Each
prepayment of principal accruing interest at the Fixed Rate Option, whether
voluntary or by reason of acceleration, shall be accompanied by a prepayment fee
equal to the amount of interest that would have accrued on the amount of
principal prepaid from the date of prepayment or its maturity or repricing date,
at an annual rate equal to (1) the optional rate then in effect under this
Revolving Note on the principal being prepaid, less (2) the yield (including
interest and discount) on a United States Treasury Security of comparable term
that could be purchased on the date of prepayment with a maturity on (or about)
the maturity or repricing date, discounted to its present value using the yield
on the replacement security as a discount factor, discounted monthly; provided,
however, that no prepayment fee shall be due (and no credit or rebate required)
if the yield described in clause (2) exceeds the rate described in clause (1).
Each prepayment shall be applied in inverse order of maturity or as the Bank in
its sole discretion may deem appropriate. Such prepayment shall not excuse the
Borrower from making subsequent payments in the order agreed to above until the
indebtedness is paid in full.
ADDITIONAL TERMS AND CONDITIONS. This Revolving Note is issued pursuant to a
Credit Agreement of even date between the Bank and the Borrower (the
"Agreement"). The Agreement, and any amendments or substitutions, contains
additional terms and conditions, including default and acceleration provisions,
which are incorporated into this Revolving Note by reference. Capitalized terms
not expressly defined herein shall have the meanings given them in the
Agreement. The Borrower agrees to pay all costs of collection, including
reasonable attorneys' fees and legal expenses incurred by the Bank if this
Revolving Note is not paid as provided above. This Revolving Note shall be
governed by the substantive laws of the State of Wisconsin.
WAIVER OF PRESENTMENT AND NOTICE OF DISHONOR. Borrower and any other person who
signs, guarantees or endorses this Revolving Note, to the extent allowed by law,
hereby waives presentment, demand for payment, notice of dishonor, protest, and
any notice relating to the acceleration of the maturity of this Revolving Note.
PLANAR SYSTEMS, INC.
By: _____________________________
Its: _____________________________
By: _____________________________
Its: _____________________________
-2-
<PAGE>
Norwest Bank Wisconsin,
National Association Arbitration Agreement
================================================================================
Norwest Bank Wisconsin, Planar Systems, Inc.
National Association 1400 N.W. Compton Drive
100 East Wisconsin Avenue Beaverton, Oregon 97006
Milwaukee, Wisconsin 53202 (the "Customer")
(the "Bank")
July 29, 1999
1. Agreement to Arbitrate. The Bank and Borrower agree to submit to binding
arbitration by the American Arbitration Association (the "AAA") of all
claims, disputes and controversies (whether in tort, contract, or
otherwise, except "core proceedings" under the U.S. Bankruptcy Code)
arising between themselves and their respective employees, officers,
directors, attorneys and other agents, which relate in any way without
limitation to existing and future loans and extensions of credit or
requests for additional credit, including by way of example but not by way
of limitation the negotiation, collateralization, administration,
repayment, modification, default, termination and enforcement of such loans
or extensions of credit.
2. Rules Governing Arbitration. Arbitration under this Agreement will be
governed by the Federal Arbitration Act and proceed in Milwaukee, Wisconsin
in accordance with AAA Rules.
3. Selection of Arbitrator. Arbitration will be conducted before a single
neutral arbitrator selected in accordance with AAA Rules and who shall be
an attorney who has practiced commercial law for at least ten years.
4. Statutes of Limitation and Procedural Issues. The arbitrator will
determine whether an issue is arbitratable and will give effect to
applicable statutes of limitation. Judgment upon the arbitrator's award
may be entered in any court having jurisdiction. The arbitrator has the
discretion to decide, upon documents only or with a hearing, any motion to
dismiss for failure to state a claim or any motion for summary judgment.
The institution and maintenance of an action for judicial relief or for any
provisional or ancillary remedy shall not constitute a waiver of the right
of any party, including the plaintiff, to submit the controversy or claim
to arbitration if any other party contests such action for judicial relief.
5. Discovery. Discovery will be governed by the Wisconsin Rules of Civil
Procedure. Discovery must be completed at least 20 days before the hearing
date and within 180 days of the commencement of arbitration. Each request
for an extension and all other discovery disputes will be determined by the
arbitrator upon a showing that the request is essential for the party's
presentation and that no alternative means for obtaining information are
available during the initial discovery period.
6. Exceptions to Arbitration. This Agreement does not limit the right of
either party to a) foreclose against real or personal property collateral;
b) exercise self-help remedies such as setoff or repossession; c) obtain
provisional remedies such as replevin, injunctive relief, attachment or the
appointment of a receiver during the pendency or before or after any
arbitration proceeding; or d) obtain a cognovit judgment, if available.
These exceptions do not constitute a waiver of the right or obligation of
either party to submit any dispute to arbitration, including those arising
from the exercise of these remedies.
<PAGE>
7. Arbitration Costs and Fees. The arbitrator will award costs and expenses
in accordance with the provisions of the documents evidencing each loan or
extension of credit.
NORWEST BANK WISCONSIN, PLANAR SYSTEMS, INC.
NATIONAL ASSOCIATION
By:__________________________ By:___________________________
Its__________________________ Its___________________________
By:___________________________
Its___________________________
-2-
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
PARTIES: PLANAR SYSTEMS, INC. ("Company")
1400 N.W. Compton Drive
Beaverton, OR 97006
JAMES M. HURD ("Executive")
469 N.W. Skyline Blvd.
Portland, OR 97229
DATE: April 30, 1999
RECITALS:
A. Company wishes to retain the services of Executive for at least the
duration of this Agreement, and Executive wishes to provide his services for
such period, all upon the terms and conditions set out in this Agreement.
B. It is expressly recognized by the parties that Executive's agreement
to be bound by the terms of this Agreement represents a substantial commitment
to Company in terms of Executive's personal and professional career and a
foregoing of present and future career options by Executive, for all of which
Company receives substantial value.
THEREFORE, the parties agree as follows:
ARTICLE I
EMPLOYMENT, DUTIES AND TERM
---------------------------
1.1 Employment. Upon the terms and conditions set forth in this
----------
Agreement, Company hereby employs Executive, and Executive accepts such
employment. Except as expressly provided herein, termination of this Agreement
by either party or by its terms as provided in Section 1.3 shall not preclude
Company from continuing Executive's employment with Company in the same or a
different position.
1.2 Duties. Executive shall devote his full-time and best efforts to
------
Company and to fulfilling the duties of his position which shall include such
duties as may from time to time be assigned him by Company and the Board of
Directors, provided that such duties are reasonably consistent with Executive's
education, experience and background. Executive shall comply with Company's
policies and procedures to the extent they are not inconsistent with this
Agreement in which case the provisions of this Agreement prevail.
1.3 Term. Subject to the provisions of Section 1.1 and Article III,
----
Executive's employment shall continue through January 1, 2001. This Agreement
shall terminate automatically by its terms at 12:01 a.m. on January 2, 2001.
1 - EMPLOYMENT AGREEMENT
<PAGE>
ARTICLE II
COMPENSATION AND EXPENSES
-------------------------
2.1 Compensation. As consideration for this Agreement, Company shall pay,
------------
subject to Sections 3.4 and 3.5, Executive as follows:
(a) From the effective date of this agreement through the end of
fiscal year 1999 (September 24, 1999), a base salary of $277,000 annually,
payable in equal installments in accordance with Company's regular payroll
practices, plus Bonus compensation as determined by the Compensation Committee
of the Company's Board of Directors.
(b) For the period September 25, 1999 through January 1, 2001, a base
salary of $325,000 annually, payable in equal installments in accordance with
the Company's regular payroll practices, plus Bonus compensation of $81,250 in
lieu of participation in the incentive compensation program administered by the
Compensation Committee of the Company's Board of Directors to be paid on January
1, 2001.
2.2 Business Expenses. Company shall bear all ordinary and necessary
-----------------
business expenses reasonably incurred by Executive in performing his duties as
an employee of Company consistent with Company's expense reimbursement policy.
ARTICLE III
EARLY TERMINATION
-----------------
3.1 Early Termination. This Article sets forth the terms for early
-----------------
termination of this Agreement.
3.2 Termination for Cause. Company may terminate this Agreement for Cause
---------------------
immediately upon written notice to Executive. "Cause" means Executive's (a)
commission of fraud, misappropriation or embezzlement of Company assets, (b)
conviction of, or entry of a plea of guilty or nolo contendere to, a felony or
crime involving moral turpitude, or (c) willful or wanton disregard or violation
of any material duty, responsibility or significant Company policy involving his
employment with the Company, and such conduct has not been cured within 30 days
after written notice thereof; provided, however, that this paragraph (c) shall
-------- -------
not apply to any failure to act that is attributable to Executive's illness or
disability. Upon termination for Cause, Company shall pay Executive all
compensation earned through the date of the written notice.
3.3 Termination Without Cause. Either Executive or Company may terminate
-------------------------
this Agreement without Cause upon written notice. In the event Executive
terminates pursuant to this Section 3.3, Company shall pay Executive all
compensation earned through the date of the written notice. In the event
Company terminates pursuant to this Section 3.3, Company shall pay Executive
deferred compensation payments under Section 3.6 and provide for continued
health coverage under Section 3.7.
3.4 Termination in the Event of Death. This Agreement shall terminate
---------------------------------
automatically in the event of Executive's death, in which event Company shall
pay deferred
2 - EMPLOYMENT AGREEMENT
<PAGE>
compensation payments under Section 3.6. Such amounts shall be paid (1) to the
beneficiary or beneficiaries designated in writing to Company by Executive, (2)
in the absence of such designation, to the surviving spouse, or (3) if there is
no surviving spouse, or such surviving spouse disclaims all or any part, then
the full amount, or such disclaimed portion, shall be paid to the executor,
administrator or other personal representative of Executive's estate.
3.5 Termination in the Event of Disability. This Agreement shall
--------------------------------------
terminate in the event of Executive's disability, in which event Company shall
pay deferred compensation under Section 3.6 and provide for continued health
care coverage under Section 3.7. "Disability" for purposes of this Agreement
means a physical or mental condition which, in Company's sole judgment, prevents
Executive, for an indefinite period which Company considers will be of a long
and continued duration, from satisfactorily performing Executive's usual and
customary duties for Company under this Agreement. Company shall base its
disability determination upon medical reports and other evidence satisfactory to
Company.
3.6 Deferred Compensation Benefits.
------------------------------
(a) Upon the termination of this Agreement under Sections 3.4 or 3.5,
or by Company under Section 3.3, Company shall pay, at the intervals set forth
in Section 2.1, the remainder of the payments payable under Section 2.1, but
reduced by the amount of any salary and bonus compensation Executive receives
from Company if he remains in the employ of Company following the termination of
this Agreement.
(b) No interest shall accrue on the deferred compensation payments to
be made.
(c) The deferred compensation payments shall be subject to applicable
federal and state income tax and employment tax withholding.
(d) If this Agreement terminates under Section 3.4 upon Executive's
death or if Executive dies after this Agreement terminates under Section 3.5 or
is terminated by Company under Section 3.3, the remainder of the deferred
compensation payments under subsection (a) above shall be paid (1) to the
beneficiary or beneficiaries designated in writing to Company by Executive, (2)
in the absence of such designation or if there is no surviving beneficiary at
the time payment is to be made, to the surviving spouse, or (3) if there is no
surviving spouse, to Executive's estate. If a beneficiary disclaims all or any
part of the death benefit, the disclaimed portion will be paid as if the
beneficiary had predeceased Executive.
(e) If any person entitled to payments under this Section is deemed by
Company to be incapable of personally receiving and giving a valid receipt for
those payments, and Company has not received notice that a guardian or other
legal representative has been appointed for that person, Company may provide for
payments to be made to any other person or institution then contributing toward
or providing for the care and maintenance of that person. Those payments shall
be a complete discharge of Company's payment obligation under this Section.
3 - EMPLOYMENT AGREEMENT
<PAGE>
(f) To the extent that any person acquires a right to receive payments
from Company under this Section, those rights shall be no greater than the right
of a general unsecured creditor of Company.
(g) Company's deferred compensation payment obligation under this
Section is purely contractual. That is, payments shall be made in cash from
Company's general funds and are not funded or secured in any manner by any asset
of Company or any pledge or encumbrance of Company's property. Neither
Executive nor any other person shall have any right, title or interest in or to
any investments Company may make to aid it in meeting its payment obligation
under this Section. This Section does not create, nor should it be construed as
creating, a trust or escrow fund of any kind. The amounts payable by Company
under this Section to Executive or any other person shall not be held by the
Company or any other person in a fiduciary capacity.
(h) No amount payable to Executive or any other person under this
Section, nor the right to receive such a payment, shall be subject in any manner
to sale, transfer, assignment, pledge, attachment, garnishment, or other
alienation or encumbrance of any kind; nor may any interest or right to receive
a payment be taken, either voluntarily or involuntarily, for the satisfaction of
the debts of, or other obligations or claims against, that person, including
claims for alimony, support, separate maintenance and claims in bankruptcy
proceedings.
(i) Claims for benefits under this Section shall be resolved by
claimant and Company following the claims review and appeals procedures of the
Planar Systems, Inc. Deferred Compensation Plan.
3.7 Health Plan Coverage. If Company terminates this Agreement under
--------------------
Section 3.3 or if this Agreement terminates under Section 3.5, Company shall
provide Executive with continued health care coverage as follows:
(a) If Executive continues employment with Company following the
termination of this Agreement, Executive will continue to be covered as an
active employee under Company's group health plan in which Executive was
participating at the time of the termination, or a successor plan, subject to
the eligibility provisions of that plan.
(b) If Executive does not continue employment with Company following
termination of this Agreement, or if Executive continues employment, but cannot
satisfy the eligibility requirements of Company's group health plan, Company
shall pay the premiums for COBRA coverage under the Company's group health plan
and, upon the expiration of COBRA coverage, the premiums for comparable
portability coverage. Payment of COBRA or portability coverage premiums shall
continue until the earlier of Executive attaining age 65 or qualifying for
coverage under Company's group health plan.
(c) To the extent the payment of premiums by Company under subsection
(b) above is deemed to be taxable income to Executive, Company shall pay
Executive the amount required to compensate for that tax liability, it being
Company's intention to provide Executive with tax-free health care coverage as
if Executive were an active employee eligible for coverage under Company's group
health plan.
4 - EMPLOYMENT AGREEMENT
<PAGE>
3.8 Stock Options and Grants. In the event that the Company terminates
------------------------
this Agreement for Cause pursuant to Section 3.2 or Executive voluntarily
terminates this Agreement pursuant to Section 3.3, Executive shall be entitled
to such rights as to the vesting of stock options and stock grants and
exercisability of stock options held by him at the date of termination as
provided by the plans and agreements under which such stock options and stock
were granted as in effect on the date of termination. In the event that Company
terminates this Agreement pursuant to Section 3.3 or this Agreement is
terminated pursuant to Section 3.4 or 3.5, all outstanding stock options and
stock grants (including the 10,000 share stock grant made on September 25, 1998)
held by Executive at the date of termination shall become fully vested effective
as of the termination date and the period during which any such stock option may
be exercised shall immediately be extended to the expiration date of such stock
option.
3.9 Continuing Obligations. Executive's obligations under Articles IV and
----------------------
V shall continue notwithstanding the termination of this Agreement. All
obligations of Company arising as a result of early termination of this
Agreement pursuant to Article III hereof shall continue notwithstanding
termination of this Agreement.
ARTICLE IV
CONFLICT OF INTEREST
--------------------
During the term of employment with Company and for two (2) years
thereafter, Executive will engage in no activity or employment which may
conflict with the interest of Company, and will comply with Company's policies
and guidelines pertaining to business conduct and ethics.
ARTICLE V
CONFIDENTIALITY
---------------
5.1 Confidential Information. Executive affirms his obligations under and
------------------------
agrees to abide by all prior agreements with company pertaining to Confidential
Information, and restrictions on competition and/or nonsolicitation, including
the following:
(a) Use and Disclosure Restrictions. Employee shall not use or
-------------------------------
disclose Confidential Information, in any form, for any purpose, except in the
course of Employee's employment with Company.
(b) Ownership of Information. Employee acknowledges that he will
------------------------
obtain no right, title or interest in the Confidential Information, or any
related information or data, and that the Confidential Information and related
information shall remain the sole property of Company.
(c) Return of Information. Employee shall return all Confidential
---------------------
Information, including all copies in any form, to Company immediately upon
termination of employment with Company.
5.2 Return of Property. Employee acknowledges that in the course of
------------------
employment for Company, he may be provided with equipment, supplies, keys,
credits cards, software, and
5 - EMPLOYMENT AGREEMENT
<PAGE>
other property for business use (collectively, "Company Property"). Employee
shall return all Company Property immediately upon termination of employment
with Company.
ARTICLE VI
GENERAL PROVISIONS
------------------
6.1 No Adequate Remedy. The parties agree that violation of Articles IV
------------------
or V shall constitute a breach of this Agreement that will cause irreparable
injury to Company, and that monetary damages alone would not adequately
compensate Company for the harm suffered. Executive agrees that Company shall be
entitled to injunctive relief to enjoin any breach or threatened breach of
Articles IV or V in addition to any other available remedies.
6.2 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of Executive and Company, its subsidiaries, affiliated
corporations, successors and assigns, and any such successor or assign shall
absolutely and unconditionally assume all of Company's obligations hereunder.
In that this Agreement is a personal services contract, it shall not be assigned
by Executive.
6.3 Notices. All notices, requests and demands given to or made pursuant
-------
to this Agreement shall, except as otherwise specified herein, be in writing and
be delivered or mailed to any such party at its address as set forth at the
beginning of this Agreement. Either party may change its address, by notice to
the other party given in the manner set forth in this Section. Any notice, if
mailed properly addressed, postage prepaid, registered or certified mail, shall
be deemed dispatched on the registered date or that stamped on the certified
mail receipt, and shall be deemed received within the third business day
thereafter or when it is actually received, whichever is sooner,
6.4 Caption. The various headings or captions in this Agreement are for
-------
convenience only and shall not affect the meaning or interpretation of this
Agreement.
6.5 Governing Law, Forum and Attorney Fees. This Agreement shall be
--------------------------------------
interpreted and enforced in accordance with the laws of the State of Oregon. In
the event of any suit, action or arbitration to interpret or enforce this
Agreement, the prevailing party shall be entitled to its attorney fees, costs,
and out-of-pocket expenses, at trial and on appeal. The exclusive jurisdiction
for any action to interpret or enforce this Agreement shall be Washington
County, Oregon.
6.6 Construction. Wherever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law. However, the provisions of this Agreement are severable. If
any provision of this Agreement or its application is held invalid, the
invalidity shall not affect other obligations, provisions, or applications of
this Agreement which can be given effect without the invalid obligations,
provisions, or applications.
6.7 Waivers. No failure on the part of either party to exercise, and no
-------
delay in exercising, any right or remedy hereunder shall operate as a waiver of
any provision, term, covenant, or condition of this Agreement or of the right to
demand strict performance in the future.
6 - EMPLOYMENT AGREEMENT
<PAGE>
6.8 Modification. This Agreement may not be and shall not be modified or
------------
amended except by written instrument signed by the parties hereto.
6.9 Entire Agreement. This Agreement together with any of Executive's
----------------
previously agreed upon obligations pertaining to confidentiality, noncompetition
and/or nonsolicitation, constitute the entire agreement between the parties and
supersede all prior or contemporaneous oral or written understandings,
statements, representations or promises with respect to its subject matter. This
Agreement was the subject of negotiation between the parties and, therefore, the
parties agree that the rule of construction requiring that the agreement be
construed against the drafter shall not apply to the interpretation of this
Agreement.
This Agreement, upon its signing by both parties, is effective as of the
date first stated above.
JAMES M. HURD PLANAR SYSTEMS, INC.
/s/ James M. Hurd By: /s/ Jack Raiton
- --------------------- ----------------------
Title: VP-CFO
-------------------
7 - EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT 10.3
PLANAR SYSTEMS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
TO: William D. Walker Date of Grant: May 13, 1999
We are pleased to inform you that you have been selected by the Board of
Directors (the "Board") of Planar Systems, Inc. (the "Company") to receive a
nonqualified stock option for the purchase of 20,000 shares of the Company's
Common Stock at an exercise price of $7.875 per share.
1. TERM: The term of the option is ten years from date of grant, unless
sooner terminated.
2. VESTING: The option is fully vested and exercisable as of the date hereof.
3. EXERCISE: During your lifetime only you can exercise the option. The
option may be exercised by the personal representative of your estate, by the
beneficiary you have designated on forms prescribed by and filed with the
Company, or the beneficiary of your estate following your death. You may use the
Notice of Exercise of Nonqualified Stock Option in the form attached to this
Agreement when you exercise the option.
4. PAYMENT FOR SHARES: The option may be exercised by the delivery of:
a. Cash, personal check (unless, at the time of exercise, the Company
determines otherwise), bank certified or cashier's check;
b. Unless the Board in its sole discretion determines otherwise, shares
of the capital stock of the Company held by you for a period of at least six
months having a fair market value at the time of exercise, as determined in good
faith by the Board, equal to the exercise price; or
c. A properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price.
5. WITHHOLDING TAXES: As a condition to the exercise of the option, you must
make such arrangements as the Company may require for the satisfaction of any
federal, state or local withholding tax obligations that may arise in connection
with such exercise.
6. TERMINATION: If your relationship with the Company ceases because both
your employment with the Company and your membership on the Company's Board of
Directors terminates, and unless by its terms the option sooner terminates or
expires, then you may exercise the option at any time during the twenty-four
month period following the later of the termination of your employment or the
termination of your Board membership, but the option will terminate at the end
of such period following such termination as to all shares for which it has not
theretofore been exercised.
<PAGE>
7. DEATH OF OPTIONEE: If you die while having a relationship with the Company
or within the twenty-four month period following cessation of such relationship,
then this option may be exercised at any time during the twenty-four month
period following the later of the termination of your employment or the
termination of your Board membership by the personal representative of your
estate or by the person or persons to whom your rights under the option pass (i)
by will or by the applicable laws of descent and distribution or (ii) by a
designation or transfer, but the option will terminate at the end of such period
following such termination as to all shares for which it has not theretofore
been exercised.
8. TRANSFERABILITY OF OPTION: This option and the rights and privileges
conferred hereby may not be transferred, assigned, pledged or hypothecated in
any manner (whether by operation of law or otherwise) other than by will or by
the applicable laws of descent and distribution and shall not be subject to
execution, attachment or similar process. This option is personal to you and is
exercisable solely by you. Any attempt to transfer, assign, pledge, hypothecate
or otherwise dispose of this option or of any right or privilege conferred
hereby, contrary to the provisions hereof, or the sale or levy or any attachment
or similar process upon the rights and privileges conferred hereby will be null
and void. Notwithstanding the foregoing, to the extent permitted by applicable
law or regulation, the Company, in its sole discretion, may permit you to (i)
during your lifetime, designate a person who may exercise the option after your
death by giving written notice of such designation to the Company (such
designation may be changed from time to time by you by giving written notice to
the Company revoking any earlier designation and making a new designation) or
(ii) transfer the option and the rights and privileges conferred hereby.
9. NO STATUS AS SHAREHOLDER: Neither you nor any party to whom your rights
and privileges under the option pass will be, or have any of the rights or
privileges of, a shareholder of the Company with respect to any of the shares
issuable upon the exercise of this option unless and until this option has been
exercised.
10. CONTINUATION OF RELATIONSHIP: Nothing in this option will confer upon you
any right to continue in the employ or other relationship of the Company, or to
interfere in any way with the right of the Company to terminate your employment
or other relationship with the Company at any time.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION: The aggregate number and class
of shares covered by this option and the exercise price per share thereof (but
not the total price), will all be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the Company resulting
from a split-up or consolidation of shares or any like capital adjustment, or
the payment of any stock dividend.
12. EFFECT OF LIQUIDATION OR REORGANIZATION
(1) Cash, Stock or Other Property for Stock. Except as provided in
---------------------------------------
subsection (2), upon a merger (other than a merger of the Company in which the
holders of shares of Common Stock immediately prior to the merger have the same
proportionate ownership of shares of Common Stock in the surviving corporation
immediately after the merger), consolidation, acquisition of property
<PAGE>
or stock,separation, reorganization (other than a mere reincorporation or the
creation of a holding company) or liquidation of the Company, as a result of
which the shareholders of the Company receive cash, stock or other property in
exchange for or in connection with their shares of Common Stock, this option
will terminate, but you will have the right immediately prior to any such
merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation to exercise your option in whole or in part.
(2) Conversion of Options on Stock for Stock Exchange. If the shareholders
-------------------------------------------------
of the Company receive capital stock of another corporation ("Exchange Stock")
in exchange for their shares of Common Stock in any transaction involving a
merger (other than a merger of the Company in which the holders of Common Stock
immediately prior to the merger have the same proportionate ownership of Common
Stock in the surviving corporation immediately after the merger), consolidation,
acquisition of property or stock, separation or reorganization (other than a
mere reincorporation or the creation of a holding company), this option will be
converted into an option to purchase shares of Exchange Stock. The amount and
price of converted options will be determined by adjusting the amount and price
of this option in the same proportion as used for determining the number of
shares of Exchange Stock the holders of the shares of Common Stock receive in
such merger, consolidation, acquisition of property or stock, separation or
reorganization. The converted option will be fully vested.
13. FRACTIONAL SHARES: In the event of any adjustment in the number of shares
covered by this option, any fractional shares resulting from such adjustment
will be disregarded and the option will cover only the number of full shares
resulting from such adjustment.
14. DETERMINATION OF COMMITTEE TO BE FINAL: All adjustments referred to herein
will be made by the Compensation Committee of the Board, and its determination
as to what adjustments will be made, and the extent thereof, will be final,
binding and conclusive.
15. SECURITIES REGULATION: Shares will not be issued with respect to this
option unless the exercise of such option and the issuance and delivery of such
shares pursuant thereto complies with all relevant provisions of law, including,
without limitation, any applicable state securities laws, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed.
As a condition to the exercise of this option, the Company may require you
to represent and warrant at the time of any such exercise that the shares are
being purchased only for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the Company, such a
representation is required by any relevant provision of the aforementioned laws.
At the option of the Company, a stop-transfer order against any shares of stock
may be placed on the official stock books and records of the Company, and a
legend indicating that the stock may not be pledged, sold or otherwise
transferred, unless an opinion of counsel is provided (concurred in by counsel
for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates in order to
assure exemption from registration. The Company may also require such other
action or agreement by you as may from time to time be
<PAGE>
necessary to comply with the federal and state securities laws. THIS PROVISION
SHALL NOT OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THIS OPTION OR THE
SHARES ISSUABLE HEREUNDER.
Please execute the Acceptance and Acknowledgment set forth below on the
enclosed copy of this Agreement and return it to the undersigned.
Very truly yours,
PLANAR SYSTEMS, INC.
By: Jack Raiton, Vice President
--------------------------------------------
Agreed and Accepted
________________________
William D. Walker
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-24-1999
<PERIOD-START> MAR-26-1999
<PERIOD-END> JUN-25-1999
<CASH> 24,758
<SECURITIES> 791
<RECEIVABLES> 20,576
<ALLOWANCES> 0
<INVENTORY> 25,998
<CURRENT-ASSETS> 81,720
<PP&E> 36,422
<DEPRECIATION> (20,941)
<TOTAL-ASSETS> 117,011
<CURRENT-LIABILITIES> 20,371
<BONDS> 16,054
0
0
<COMMON> 75,080
<OTHER-SE> 4,402
<TOTAL-LIABILITY-AND-EQUITY> 117,011
<SALES> 90,141
<TOTAL-REVENUES> 90,141
<CGS> 64,233
<TOTAL-COSTS> 64,233
<OTHER-EXPENSES> 24,994
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 158
<INCOME-PRETAX> 2,725
<INCOME-TAX> 762
<INCOME-CONTINUING> 1,963
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,963
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.18
</TABLE>
