<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 27, 1998,
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 0-27482
XETEL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2310781
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2105 GRACY FARMS LANE
AUSTIN, TEXAS 78758
(Address of principal executive offices, including zip code)
(512) 435-1000
(Registrant's telephone number, including area code)
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 other shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [x] No [ ]
Number of shares outstanding of the issuer's common stock, $0.0001 par value, as
of August 6, 1998: 9,085,797.
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XETEL CORPORATION
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
Balance Sheet as of June 27, 1998 and March 28, 1998................................................................3
Statement of Operations for the three months ended June 27, 1998 and June 28, 1997..................................4
Statement of Cash Flows for the three months ended June 27, 1998 and June 28, 1997..................................5
Notes to Interim Financial Statements...............................................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............................8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K..................................................................................12
Signatures..................................................................................................................13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
XETEL CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
June 27, March 28,
1998 1998
-------- ---------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,205 $ 7,239
Trade accounts receivable, net of
allowance for doubtful accounts
of $240 and $240, respectively 24,666 22,887
Inventories 21,773
18,061
Prepaid expenses and other 919
927
-------- --------
Total current assets 54,563 49,114
Property and equipment, net 8,858 8,955
Goodwill 683
737
-------- --------
Total assets $ 64,104 $ 58,806
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 20,177 $ 19,396
Notes payable and current portion
of long term debt 8,500 5,800
Accrued expenses and other liabilities 4,000 2,965
-------- --------
Total current liabilities 32,677 28,161
Deferred income taxes 234 234
Long term debt 2,542 2,667
Commitments (Note 7)
Stockholders' equity:
Common stock, $0.0001 par value,
25,000,000 shares authorized,
9,085,795 and 8,998,896 shares
issued and 9,043,299 and 8,936,400
shares outstanding, respectively 21,465 21,142
Retained earnings 7,309 6,625
Deferred compensation (123) (23)
-------- --------
Total stockholders' equity 28,651 27,744
-------- --------
Total liabilities and
stockholders' equity $ 64,104 $ 58,806
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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XETEL CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
June 27, June 28,
1998 1997
-------- --------
<S> <C> <C>
Net sales $ 44,308 $ 24,467
Cost of sales 41,238 22,171
-------- --------
Gross profit 3,070 2,296
Selling, general and administrative
expenses 1,787 1,624
-------- --------
Income from operations 1,283 672
Other (expense) income, net (179) 61
-------- --------
Income before income taxes 1,104 733
Provision for income taxes 420 278
-------- --------
Net income $ 684 $ 455
======== ========
Basic earnings per share $ 0.08 $ 0.05
======== ========
Basic weighted average shares 9,008 8,811
outstanding ======= ========
Diluted earnings per share $ 0.07 $ 0.05
======== ========
Diluted weighted average shares 9,695 9,638
outstanding ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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XETEL CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
June 27, June 28,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 684 $ 455
Adjustments to reconcile net income to net
cash (used for) provided by operating
activities:
Depreciation and amortization 714 647
(Gain) loss on disposal of equipment (8) 1
Change in operating assets and liabilities:
(Increase) decrease in--
Trade accounts receivable (1,779) (401)
(1,667)
Inventories (3,712)
Prepaid expenses and other 8 729
Increase in--
Trade accounts payable 781 443
52
Accrued expenses and other liabilities 1,035
------- -------
Cash (used for) provided by operating activities (2,277) 259
------- -------
Cash flows from investing activities:
Proceeds from sale of equipment 8 399
Purchases of property and equipment (545) (3,102)
------- -------
Cash used for investing activities (537) (2,703)
------- -------
Cash flows from financing activities:
Net borrowings under debt agreements 2,575 1,677
Cash proceeds from stock issued under
employee stock purchase plan 154 --
Proceeds from stock options exercised 51 29
------- -------
Cash provided by financing activities 2,780 1,706
------- -------
(Decrease) increase in cash and cash equivalents (34) (738)
Cash and cash equivalents, beginning of period 7,239 7,032
------- -------
Cash and cash equivalents, end of period $ 7,205 $ 6,294
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 BUSINESS
XeTel provides advanced design and prototype services, manufactures
sophisticated surface mount assemblies and supplies turnkey solutions to
original equipment manufacturers primarily in the telecommunications, networking
and computer industries. XeTel incorporates its design and prototype services
and assembly capabilities together with materials management, advanced testing,
systems integration services and order fulfillment to provide turnkey solutions
for its customers.
NOTE 2 BASIS OF PRESENTATION
The accompanying financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules or regulations.
In the opinion of management, the financial statements reflect all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position, operating results, and cash flows for
those periods presented. The results of operations for the period ended June 27,
1998 are not necessarily indicative of the results of operations for the fiscal
year ending March 27, 1999. These financial statements should be read in
conjunction with the financial statements, and notes thereto, for the fiscal
year ended March 28, 1998 as presented in the Company's 10-K filed with the SEC.
NOTE 3 INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 27, March 28,
1998 1998
-------- --------
<S> <C> <C>
Raw materials $16,746 $13,944
Work in progress 4,393 3,731
Finished goods 634 386
------- -------
$21,773 $18,061
======= =======
</TABLE>
As of June 27, 1998 and March 28, 1998, the Company had allowances for obsolete
raw materials (principally printed circuit board assembly components) of
$490,000 and $490,000, respectively. Cost of sales for the three months ended
June 27, 1998 and June 28, 1997 include provisions to the allowance for obsolete
materials of $ 130,000 and $0, respectively.
NOTE 4 PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following (in thousands):
<TABLE>
<CAPTION>
June 27, March 28,
1998 1998
-------- ---------
<S> <C> <C>
Machinery and equipment $ 13,390 $ 13,204
Furniture and fixtures 912 838
Leasehold improvements 3,772 3,506
-------- --------
18,074 17,548
Less: Accumulated depreciation
and amortization (9,216) (8,593)
-------- --------
$ 8,858 $ 8,955
======== ========
</TABLE>
6
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NOTE 5 NOTES PAYABLE AND LONG-TERM DEBT
The Company has (i) a revolving line of credit for $17.0 million from a
commercial bank, (ii) a term loan facility for $3.3 million, and (iii) an
equipment financing facility from a financial services company. There was $8.0
million and $5.3 outstanding under the commercial bank line of credit and $3.0
million and $3.3 million outstanding under the term note at June 27, 1998 and
March 28, 1998, respectively. The term loan facility bears interest at 9.2%, is
secured by certain assets, and matures on August 31, 2000.
The $17.0 million line of credit bears interest at LIBOR plus 1.25% or 1.75%,
depending on certain financial ratios, and/or prime (such rate determined based
upon the amounts and period of loans), matures on August 31, 1999 and is secured
by certain assets of the Company. The facility requires payment of a commitment
fee equal to one-eighth of 1% (1/8%) on the unused balance, and borrowings are
limited based upon certain collateral availability requirements The equipment
financing facility provides for the leasing of equipment over a five-year period
commencing on the date of acceptance of such equipment. All equipment leased to
date under this facility has qualified for operating lease treatment.
The financing facilities contain certain restrictions which include maintenance
of a minimum level of tangible net worth and other operating and financial
ratios. At June 27, 1998, the Company was in compliance with all debt covenants.
Interest paid totaled $201,000 and $23,000 for the three months ended June 27,
1998 and June 28, 1997, respectively.
NOTE 6 LEASE COMMITMENTS
XeTel leases its operating facilities and certain office equipment under
noncancellable operating leases. Rental expense under all operating leases was
approximately $1,001,000 and $566,000 during the three months ended June 27,
1998 and June 28, 1997, respectively. Future noncancellable minimum rental
payments under all operating leases with initial terms of greater than one year
are $3,875,000 in 1999, $3,782,000 in 2000, $3,467,000 in 2001, $2,513,000 in
2002, $1,684,000 in 2003 and an aggregate of $7,343,000 thereafter.
NOTE 7 RELATED PARTY TRANSACTIONS
The Company has transactions with certain divisions of Rohm Corporation, a
wholly-owned subsidiary of Rohm U.S.A., Inc. ("Rohm") a subsidiary of Rohm Co.,
Ltd., Japan, during the normal course of business. Rohm owned approximately 48%
and 49% of the Company's outstanding common stock as of June 27, 1998 and June
28, 1997, respectively. Purchases from such divisions were $41,000, and $70,000
for the three months ended June 27, 1998 and June 28, 1997, respectively.
Accounts payable to such divisions were $33,000 and $14,000 as of June 27, 1998
and March 28, 1998, respectively. Accounts receivable from such divisions were
not significant.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in this document contains trend analysis and other forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Actual results could differ materially from those projected in the
forward-looking statements throughout this document as a result of the risk
factors set forth below and other risks described in the Company's other filed
SEC documents such as those associated with the Company's initial public
offering and Form 10-K filing.
OVERVIEW
XeTel was founded in 1984. In 1986, Rohm , a diversified electronics company,
acquired a controlling interest in the Company. Since its inception, the Company
has manufactured surface mount assemblies and performed other manufacturing
services for OEMs in the electronics industry. In a number of cases, such
services were rendered during periods in which customers were experiencing
fluctuations in demand for their products. During such periods, the Company's
net sales and operating results were and are subject to significant fluctuations
that often were and are tied to the market demand for its customers' products,
competitive factors and the customers' need to utilize independent manufacturers
to maintain sufficient product supply to meet such demand.
Annual and/or quarterly gross margins and operating results are also affected by
the level of capacity utilization of manufacturing facilities, indirect labor
and selling, general and administrative expenses. Accordingly, gross margins and
operating income margins have generally improved during periods of high volume
and high capacity utilization. XeTel generally has idle capacity and reduced
operating margins during periods of lower-volume.
In an effort to achieve greater stability and higher gross margins, the Company
made the strategic decision in 1993 to reduce its dependence on the computer
industry and expand its service offerings in order to establish long-term
relationships with targeted customers in diversified markets. With the addition
of new management personnel in 1993, including a new President in September
1993, the Company focused certain of its resources to establish capabilities in
product design and prototype, improve materials management processes,
restructure the Company's management organization, establish dedicated customer
teams, and to expand and diversify its customer base. The Company has reduced
its role as a source of additional capacity for OEMs during periods of
fluctuating product demand and has positioned itself to provide a more
comprehensive set of services within the electronics manufacturing services
industry.
The development and growth of the Company's business has generally followed the
trend by OEMs in the electronics industry to outsource certain of their
manufacturing requirements. Recognizing the benefits offered by using
independent manufacturers, OEMs in the electronics industry have increasingly
relied on independent manufacturers not only as a source of additional
manufacturing capacity during periods of fluctuating demand, but as the primary
source for their manufacturing and assembly needs. In addition, the Company has
developed competencies in additional areas where it can add value to its
customers' requirements, such as design, prototype, systems integration and
order fulfillment and has sought to use such competencies to forge long-term
relationships as a single source provider of turnkey solutions for its
customers. During fiscal 1997, XeTel acquired two full-service manufacturing
services centers in Dallas, Texas and San Ramon, California to further establish
and expand its long-term relationships with OEM's of advanced electronic
products.
RISK FACTORS
The following summary of risk factors relevant to an investment in shares of the
Company's common stock is derived, in part, from the section captioned "Risk
Factors" in the prospectus of the Company dated February 13, 1996 (the
"Prospectus"), as filed with the Securities and Exchange Commission (the
"Commission") pursuant to the initial registration of shares of common stock of
the Company under the Securities Act of 1933, as amended (the "Securities Act").
This discussion does not purport to be complete and is subject to, and qualified
by, the discussion of risk factors set forth in the Prospectus. A copy of the
Prospectus may be inspected without charge at the Commission's principal offices
in Washington, D.C. and copies of all or any part thereof may be obtained from
such office upon payment of prescribed fees. The Commission also maintains a
World Wide Website which provides online access to reports, proxy and
information statements and other information regarding registrants that they
file electronically with the Commission (including the Company) at the address
http:// www.sec.gov.
Fluctuations in Operating Results. XeTel's operating results are affected by a
number of factors, including timing of orders from and shipments to major
customers, availability of materials and components, the volume of orders
relative to the Company's capacity, timing of expenditures in anticipation of
future sales, the gain or loss of significant customers, variations in the mix
between consignment and component purchase arrangements with customers,
variations in the demand for products in the industries served by the Company
and general economic conditions. Operating results can also be significantly
influenced by the development and introduction of new products or technologies
by the Company's customers, or such customer's competitors, which may materially
and adversely affect the demand for the Company's services. The Company's
customers generally require short delivery cycles, and a substantial portion of
the Company's backlog is typically scheduled for delivery within 120 days. In
the absence of substantial backlog, quarterly sales and operating results depend
on
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<PAGE> 9
the volume and timing of bookings received during the quarter which can be
difficult to forecast. Backlog fluctuations affect the Company's ability to plan
production and inventory levels, which could lead to fluctuations in operating
results. Variations in the size and delivery schedules of purchase orders
received by the Company, changes in customers' delivery requirements, or the
rescheduling or cancellation of orders and commitments, may result in
substantial fluctuations in backlog from period to period. Accordingly, the
Company believes that backlog may not be a meaningful indicator of future
operating results.
A significant portion of the Company's expenses is relatively fixed in nature
and planned expenditures are based in part on anticipated orders. The inability
to adjust expenditures quickly enough to compensate for a decline in net sales
may magnify the adverse impact of such decline in the Company's results of
operations. Due to the factors noted above and elsewhere in this Form 10-Q and
other filings with the Securities and Exchange Commission, the Company's future
earnings and stock price may be subject to significant volatility, particularly
on a quarterly basis. Past financial performance should not be considered a
reliable indicator of future performance and investors should not use historical
trends to anticipate results or trends in future periods. Any shortfall in
revenue and earnings from the levels anticipated by securities analysts could
have an immediate and significant effect on the trading price of the Company's
common stock in any given period. Also, the Company participates in a highly
dynamic industry which often results in volatility of the Company's common stock
price.
Concentration of Customers. The Company's customer base is highly concentrated.
The Company's three largest customers accounted for approximately 54.8%, 9.6%
and 3.4%, respectively, of net sales for the three months ended June 27, 1998.
The Company anticipates that a significant portion of its sales will continue to
be concentrated in a relatively small number of customers for the foreseeable
future. In addition, the Company's objective is to develop new and expand
existing relationships with leading and emerging OEM's in the electronics
industry. Such emerging growth and technology companies tend to have limited
operating histories, and also may have changes in management and limited
capitalization. As a result, the Company may experience difficulties in
maintaining long-term relationships with these customers and in receiving
payment for services rendered to them. To the extent that any significant
customers of the Company terminate their relationship with the Company, or the
Company is unable, for any reason, to receive payment for its services, the
Company's business, financial condition and results of operations likely would
be materially and adversely affected.
Unavailability of Components and Materials. Components and material used by
XeTel in producing surface mount assemblies and turnkey solutions are purchased
by XeTel from approved suppliers of its customers. Any failure on the part of
suppliers to deliver required components to the Company or any failure of such
components to meet performance requirements could impair the Company's ability
to meet scheduled shipment dates and could delay sales of systems by the
Company's customers and thereby adversely affect the Company's business,
financial condition and results of operations. The Company has in the past
experienced shortages of certain types of electronic components, and may
experience shortages of certain electronic components that are in short supply
generally within the electronics industry. Component shortages or price
fluctuations, to the extent not absorbed by customers under its agreements with
the Company, could have a material adverse effect on the Company's business,
financial condition and results of operations. Certain components used in a
number of the Company's customer programs are obtained from a single source.
Variability of Customer Requirements; Absence of Long-Term Purchase Orders. The
level and timing of purchase orders placed by the Company's customers are
affected by a number of factors, including variation in demand for the
customer's products, customer attempts to manage inventory and changes in the
customer's manufacturing strategies. Many of such factors are outside of the
control of the Company. The Company typically does not obtain long-term purchase
orders or commitments, but instead works with its customers to develop
nonbinding forecasts of the future volume of orders. Based on such nonbinding
forecasts, the Company makes commitments regarding the level of business that it
will seek and accept, the timing of production schedules and the levels and
utilization of personnel and other resources. Generally, customers may cancel,
reduce or delay purchase orders and commitments without penalty, except for
payment for services rendered, materials purchased or procured and, in certain
circumstances, charges associated with such cancellation, reduction or delay.
Significant or numerous cancellations, reductions or delays in orders by
customers, or inability by customers to pay for services provided by the Company
or to pay for components and materials purchased by the Company on such
customer's behalf, could have a material adverse effect on the Company's
business, financial condition and results of operations.
Management of Growth and Expansion. The Company's design, prototype, assembly
and turnkey solutions business and multi-site locations have grown rapidly in
recent years. This growth has increased the Company's fixed costs and required
it to hire additional personnel. Furthermore, the Company plans to establish
additional regional manufacturing services centers which will increase the
Company's fixed costs and will require additional personnel. A continuing period
of rapid growth, including geographic expansions, could place a significant
strain on the Company's management, operations and other resources. The
Company's ability to manage its growth will require it to manage its existing
resources more efficiently, to continue to invest in its operations, including
its financial and management information systems and internal process controls,
and to retain, motivate and manage its employees. If the Company's management is
unable to manage growth effectively, the quality of the Company's services and
its ability to retain key personnel could be materially and adversely affected,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
Year 2000 Compliance. In fiscal 1998, the Company began a year 2000 data
assessment project to address all necessary code changes, testing and
implementation for all of its systems. Many of the Company's business and
operating systems are currently year 2000 compliant, and therefore, the Company
is undertaking additional efforts to identify and modify those systems which may
not be year 2000
9
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compliant. Anticipated spending for the year 2000 date conversion project will
be expensed as incurred or new software will be capitalized and amortized over
the software's useful life and is not expected to have a significant impact on
the Company's results of operations. Project completion is planned during fiscal
1999. The costs of the project and the date on which the Company believes it
will complete the year 2000 modifications are based on management's best
estimates, which are derived utilizing numerous assumptions of future events,
including the continuous availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties. In addition,
there can be no assurance that the systems of other companies on which the
Company's systems rely will be converted on a timely basis or that such failure
by another company to convert would not have an adverse effect on the Company's
systems.
RESULTS OF OPERATIONS
Net sales for the three months ended June 27, 1998 increased 81.1% to $44.3
million from $24.5 million for the same prior year period. The higher sales
levels primarily represents increased shipments to the Company's major customers
in the computer segment of the electronics market.
Gross profit for the three months ended June 27, 1998 increased 33.7% to $3.1
million from $2.3 million in the comparable prior year period. Gross profit is
defined as net sales less cost of sales. Cost of sales consists of direct labor,
direct material and manufacturing overhead (which includes manufacturing and
process engineering expenses). The increase in gross profit primarily resulted
from higher sales levels which provided increased coverage of fixed expenses.
Gross margin (gross profit as a percentage of net sales) decreased to 6.9% for
the first quarter of fiscal 1999 from 9.4% for the comparable prior year period.
The decrease in gross margin mainly reflects anticipated changes in product mix
towards higher material content customer programs.
Selling, general and administrative ("SG&A") expenses consist primarily of
salaries and related expenses, marketing and promotional expenses, and sales
commissions paid to direct sales personnel and independent sales representative
organizations. SG&A expenses for the three months ended June 27, 1998 increased
10.0% to $1.8 million compared to $1.6 million in the corresponding period last
year. The increase in SG&A expenses mainly reflects expenses related to employee
additions. SG&A expenses represented 4.0% of net sales for the three months
ended June 27, 1998 compared to 6.6% for the three months ended June 28, 1997.
The decrease in SG&A expenses as a percentage of sales reflects the effects of
cost controls and higher sales levels.
Other (expense) income, net for the three months ended June 27, 1998 reflected
expense of $179,000 compared to income of $61,000 in the corresponding period in
fiscal 1998. The change in other (expense) income is mainly due to interest
expense incurred on borrowings under the term note and revolving line of credit.
The provision for income taxes of $420,000 and $278,000 reflects an effective
tax rate of 38.0% for the three months ended June 27, 1998 which was relatively
flat with the 37.9% effective tax rate for the three month period ended June 28,
1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $21.9 million and $21.0 million as of June 27, 1998 and
March 28, 1998, respectively. In addition to the Company's working capital as of
June 27, 1998, which includes cash and cash equivalents of $7.2 million, the
Company has $16.1 million available from unused credit facilities.
Net cash used for operating activities was $2.3 million during the first quarter
due to working capital needs associated with higher sales levels. Net cash
provided by operating activities was $259,000 during the three month period
ended June 28, 1997.
Capital expenditures during the three months ended June 27, 1998 and June 28,
1997 were $545,000 and $3.1 million, respectively. The decrease in capital
expenditures was primarily due to capital investments made in the prior year
associated with the Company's new manufacturing and administrative facilities in
Austin, Texas.
The bank facility bears interest at LIBOR plus 1.25% or 1.75% and/or prime (such
rate determined based upon the amounts and period of loans), matures August 1999
and is secured by certain assets of the Company. The bank facility requires the
payment of a monthly commitment fee equal to one-eighth of 1% (1/8%) on the
unused balance, and borrowings are limited based upon certain collateral
availability requirements. The term loan facility bears interest at 9.2% with a
maturity of August 31, 2000. The equipment financing facility provides for the
leasing of equipment over a five-year period commencing on the date of
acceptance of such equipment.
The financing facilities contain certain restrictions which, among other things,
require maintenance of a minimum level of tangible net worth and other operating
and financial ratios.
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<PAGE> 11
The Company believes its working capital, together with cash flows from
operations and financing facilities, will be sufficient to meet operating and
capital requirements through its 1999 fiscal year end.
BACKLOG
The Company's backlog as of June 27, 1998 was approximately $114.8 million
compared to approximately $112.3 million at March 28, 1998. Backlog consists of
purchase orders received by the Company and commitments under scheduled
releases, both of which generally specify delivery dates within twelve months.
Variations in the size and delivery schedules of purchase orders received by the
Company, as well as changes in customers' delivery requirements or the
rescheduling or cancellation of orders and commitments, has resulted in the past
and may result in substantial fluctuation in backlog from period to period.
Accordingly, the Company believes that backlog may not be a meaningful indicator
of future operating results. See "Variability of Customer Requirements" and
"Fluctuations in Operating Results."
EMPLOYEES
As of June 27, 1998, the Company had 675 full-time employees supplemented from
time to time by part-time employees. The employees are not represented by a
union, and the Company believes its employee relations to be satisfactory.
The Company's success depends to an extent upon the continued services of
several key employees. The loss of certain key personnel could have a material
adverse effect on the Company. The Company's business also depends upon its
ability to continue to attract and retain senior managers and skilled employees.
Failure to do so could adversely affect the Company's operations.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Description
Number
<S> <C>
3.2(1) Second Restated Certificate of Incorporation.
3.3(1) Restated Bylaws of the Registrant, as amended.
3.4(1) Registration Rights, dated June 18, 1986 among the Registrant Rohm Corporation, Julian C. Hart, David W. Gault
and Emory C. Garth.
4.1(1) Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2(1) Specimen Common Stock certificate.
10.2(1) Form of Indemnification Agreement between the Registrant and each of its directors and certain executive officers.
10.20(1) Manufacturing Services Agreement February 22, 1989 between Motorola, Inc., MOS Memory Products Division and the
Registrant, and letter from Motorola, Inc., Fast Static RAM Module Division related thereto.
10.21(1) Mobile Communication Standard Terms and Conditions dated August 5, 1994 for Westinghouse Electric.
10.22(2) Master Lease Agreement between the Registrant and General Electric Capital Corporation.
10.23(2) $3,000,000 Promissory Note between the Registrant and Rohm U.S.A.
10.24(3) $7,000,000 Promissory Note between the Registrant and Texas Commerce Bank National Association.
10.25(3) Lease Agreement between Braker Phase III, Ltd. as Landlord, and the Registrant, as Tenant.
10.26(4) Lease Agreement between Delta HP Limited, as Landlord, and the Registrant, as Tenant.
10.27(4) First Amendment to Credit Agreement between the Registrant and Texas Commerce Bank National Association.
10.28(4) Letter of Commitment between the Registrant and General Electric Capital Corporation.
10.29(4) Amended $3,000,000 Promissory Note between the Registrant and Rohm U.S.A.
10.30(5) Registrant's 1997 Stock Incentive Plan
10.31(5) Registrant's Employee Stock Purchase Plan
10.32(6) Lease Agreement between Braker Phase III, Ltd. as Landlord, and the Registrant, as Tenant.
10.33(7) Amended $10,000,000 Promissory Note between the Registrant and Chase Bank of Texas.
10.34(7) Second Amendment to Credit Agreement between the Registrant and Chase Bank of Texas.
10.35(7) Amended Letter of Commitment between the Registrant and General Electric Capital Corporation.
10.36 Amended $17,000,000 Promissory Note between the Registrant and Chase Bank of Texas.
10.37 Third Amendment to Credit Agreement between the Registrant and Chase Bank of Texas.
11.1 Computation of Earnings per Share.
24.1 Power of Attorney, pursuant to which amendments to this Form 10-Q may be filed, is included
on the signature page contained in this Form 10-Q.
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the like-numbered exhibits previously filed
with Registrant's Registration Statement on Form S-1, No. 33-99632 filed with
the Securities and Exchange Commission on February 14, 1996.
(2) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1996 Form 10-K.
(3) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's September 1996 Form 10-Q.
(4) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1997 Form 10-K.
(5) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1997 Form 14-A.
(6) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's December 1997 Form 10-Q.
(7) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1998 Form 10-K.
(b) Reports on Form 8-K
During the fiscal quarter ended June 27, 1998 no current reports
on Form 8-K were filed.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints, Angelo A. DeCaro, Jr. and
Richard S. Chilinski, and each or any of them, his true and lawful
attorney-in-fact and agent, each with the power of substitution and
resubstitution, for him in any and all capacities, to sign any and all
amendments to this Form 10-Q and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said attorney-in-fact
and agent, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
XETEL CORPORATION
(Registrant)
Date: August 11, 1998 By: /s/ Angelo A. DeCaro, Jr.
---------------------------------
Angelo A. DeCaro, Jr.
President and Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: August 11, 1998 By: /s/ Angelo A. DeCaro, Jr.
---------------------------------
Angelo A. DeCaro, Jr.
President and Chief Executive
Officer and Director
Date: August 11, 1998 /s/ Richard S. Chilinski
---------------------------------
Richard S. Chilinski
Vice President,
Chief Financial Officer
and Assistant Secretary
(Principal Financial and
Accounting Officer)
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------- ------- -------------
<S> <C> <C>
10.36 Amended $17,000,000 Promissory Note
10.37 Third Amendment to Credit Agreement
11.1 Computation of Earnings per Share
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.36
PROMISSORY NOTE
(this "Note")
U.S. $17,000,000.00 June 25, 1998 ("Date")
FOR VALUE RECEIVED, XETEL CORPORATION ("Borrower"), a Delaware corporation,
promises to pay to the order of CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
("Bank," formerly Texas Commerce Bank National Association) on or before August
31, 1999, (the "TERMINATION DATE"), at its banking house at 700 Lavaca, Austin,
Travis County, Texas, or at such other location as Bank may designate, in lawful
money of the United States of America, the lesser of: (i) the principal sum of
SEVENTEEN MILLION AND NO/100THS UNITED STATES DOLLARS (U.S. $17,000,000.00) (the
"Maximum Loan Total"); or (ii) the aggregate unpaid principal amount of all
loans made by Bank (each such loan being a "LOAN"), which may be outstanding on
the Termination Date. Each Loan shall be due and payable on the maturity date
agreed to by Bank and Borrower with respect to such Loan (the "MATURITY DATE").
In no event shall any maturity date fall on a date after the Termination Date to
the terms and conditions of this Note and the Loan Documents, Borrower may
borrow, repay and reborrow all or any part of the credit provided for herein at
any time before the Termination Date, there being no limitation on the number of
Loans made so long as the total unpaid principal amount at any time outstanding
does not exceed the Maximum Loan Total.
This Note is the Revolving Credit Note described in Section 1.1.A of the
Amendment and Restatement of Credit Agreement between Borrower and Bank dated as
of June 25, 1998 (as amended, restated and supplemented from time to time, the
"Credit Agreement") and sometimes referred to therein as a Note. Capitalized
terms used in this Note and not otherwise defined have the meanings used in the
Credit Agreement. This Note renews and increases Borrower's $10,000,000.00
revolving promissory note dated April 15, 1997.
"BASE RATE" shall mean for any day, a rate per annum (rounded upwards, if
necessary, to the next higher 1/16 of 1%) equal to the greatest of: (a) the
Prime Rate in effect on such day; and (b) the Federal Funds Effective Rate
in effect on such day plus 1/4 of 1%. For purposes hereof, "PRIME RATE"
means the rate determined from time to time by Bank as its prime rate. The
Prime Rate shall change automatically from time to time without notice to
Borrower or any other person. THE PRIME RATE IS A REFERENCE RATE AND MAY
NOT BE BANK'S LOWEST RATE.
"FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such
transactions received by the Bank from three Federal funds brokers of
recognized standing selected by Bank. If for any reason the Bank shall have
determined (which determination shall be conclusive absent manifest error)
that it is unable to ascertain the the Federal Funds Effective Rate, or
both, for any reason, including the inability or failure of the Bank to
obtain sufficient quotations in accordance with the terms thereof, the Base
Rate shall be determined without regard to clause (b) of the first sentence
of this definition, until the circumstances giving rise to such inability
no longer exist. Any change in the Base Rate due to a change in the Prime
Rate or the Federal Funds Effective Rate shall be effective on the
effective date of such change in the Prime Rate, or the Federal Funds
Effective Rate, respectively.
"BASE RATE LOAN" means a Loan which bears interest at a rate determined by
reference to the Base Rate.
"BOARD" means the Board of Governors of the Federal Reserve System of the
United States.
"BORROWING DATE" means any Business Day on which Bank shall make or
continue a Loan hereunder.
"BUSINESS DAY" means a day: (i) on which Bank and commercial banks in New
York City are generally open for business; and (ii) with respect to LIBOR
Loans, on which dealings in United States Dollar deposits are carried out
in the interbank markets.
"HIGHEST LAWFUL RATE" means the maximum nonusurious rate of interest from
time to time permitted by applicable law. If Texas law determines the
Highest Lawful Rate, Bank has elected the "indicated" (weekly) ceiling as
defined in the Texas Credit Code or any successor statute. Bank may from
time to time, as to current and future balances, elect and implement any
other ceiling under such Code and/or revise the index, formula or
provisions of law used to compute the rate on this open-end account by
notice to Borrower, if and to the extent permitted by, and in the manner
provided in such Code.
"INTEREST PERIOD" means for each Loan the period commencing on the
Borrowing Date and ending on the Maturity Date, consistent with the
following provisions. The duration of each Interest Period shall be: (a) in
the case of a Base Rate Loan, a period of up to the Termination Date unless
any portion thereof is converted to a LIBOR Loan hereunder; and (b) in the
case of a LIBOR Loan, a period of up to one, two, three, four or six
months; in each case as selected by Borrower and agreed to by Bank.
Borrower's choice of Interest Period is subject to the following
limitations: (i) No Interest Period shall end on a date after the
Termination Date; and (ii) If the last day of an Interest Period would be a
day other than a Business Day, the Interest Period shall end on the next
succeeding Business Day (unless the Interest Period relates to a LIBOR Loan
and the next succeeding Business Day is in a different calendar month than
the day on which the Interest Period would otherwise end, in which case the
Interest Period shall end on the next preceding Business Day).
"LIBOR LOAN" means a Loan which bears interest at a rate determined by
reference to the LIBOR Rate.
"LIBOR RATE" means a per annum interest rate determined by Bank by
dividing: (i) the average rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) of the rates per annum at which United States dollar
deposits in an amount comparable to the principal amount of the LIBOR Loan
to which such LIBOR Rate is applicable for a term equal to or substantially
equal to the Interest Period are offered by Bank to prominent banks in the
London interbank market at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of the applicable Interest Period;
by (ii) Statutory Reserves.
"LOAN DOCUMENTS" means this Note and any document or instrument evidencing,
securing, guaranteeing or given in connection with this Note including, but
not limited to that certain Credit Agreement of even date herewith executed
by and between Borrower and Bank (the "Credit Agreement").
"OBLIGATIONS" means all principal, interest and other amounts which are or
become owing under this Note or any other Loan Document.
"OBLIGOR" means Borrower and any guarantor, surety, co-signer, general
partner or other person who may now or hereafter be obligated to pay all or
any part of the Obligations.
"STATUTORY RESERVES" means the difference (expressed as a decimal) of the
number one minus the aggregate of the maximum reserve percentages
(including, without limitation, any marginal, special, emergency, or
supplemental reserves) expressed as a decimal established by the Board and
any other banking authority to which Bank is subject to,
Page 1 of 4 Pages
<PAGE> 2
with respect to the LIBOR Rate, for Eurocurrency Liabilities (as defined in
Regulation D of the Board). Such reserve percentages shall include, without
limitation, those imposed under such Regulation D. LIBOR Loans shall be
deemed to constitute Eurocurrency Liabilities and as such shall be deemed
to be subject to such reserve requirements without benefit of or credit for
proration, exceptions or offsets which may be available from time to time
to any bank under such Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
Loans may be either Base Rate Loans or LIBOR Loans. Borrower shall pay
interest on the unpaid principal amount of each Base Rate Loan at a rate per
annum equal to the lesser of: (i) the Base Rate in effect from time to time (the
"EFFECTIVE BASE RATE"); or (ii) the Highest Lawful Rate. Accrued interest on
each Base Rate Loan is due and payable on the last day of each month and at the
Maturity Date. Borrower shall pay interest on the unpaid principal amount of
each LIBOR Loan for the Interest Period with respect thereto at a rate per annum
equal to the lesser of: (i) the LIBOR Rate plus the LIBOR Spread (as defined
hereinafter) (the "EFFECTIVE LIBOR RATE"); or (ii) the Highest Lawful Rate.
Accrued interest on each LIBOR Loan is due on the last day of the Interest
Period applicable thereto, and in the case of an Interest Period in excess of
three months, on each day which occurs every three months after the initial date
of such Interest Period, and on any prepayment (on the amount prepaid).
DETERMINATION OF LIBOR SPREAD. The amount of the LIBOR Spread shall be (a)
1.25% per annum, for each LIBOR Loan commencing (whether by request, conversion
of a Base Rate Loan, or by continuation of a LIBOR Loan at the end of a prior
Interest Period) during the fiscal quarter of Borrower following the end of a
fiscal quarter for which Borrower has timely and correctly reported to Bank,
under the Credit Agreement, a Cash Flow Coverage Ratio greater than or equal to
3.51 : 1.00; (b) 1.50% per annum, for each LIBOR Loan commencing (whether by
request, conversion of a Base Rate Loan, or by continuation of a LIBOR Loan at
the end of a prior Interest Period) during the fiscal quarter of Borrower
following the end of a fiscal quarter for which Borrower has timely and
correctly reported to Bank, under the Credit Agreement, a Cash Flow Coverage
Ratio greater than or equal to 2.76 : 1.00 and less than or equal to 3.50 :1.00;
and (c) 1.75% per annum at all other times. The LIBOR Spread so determined shall
apply for the entire Interest Period for each LIBOR Loan, regardless of whether
Borrower's Cash Flow Coverage Ratio subsequently changes prior to the end of the
Interest Period for such LIBOR Loan. Accrued interest on each LIBOR Loan is due
on the last day of each Interest Period applicable thereto, and in the case of
an Interest Period in excess of one month, on each day which occurs every thirty
days after the initial date of such Interest Period, and on any prepayment (on
the amount prepaid).
If at any time the effective rate of interest which would otherwise be
payable on any Loan evidenced by this Note exceeds the Highest Lawful Rate, the
rate of interest to accrue on the unpaid principal balance of such Loan during
all such times shall be limited to the Highest Lawful Rate, but any subsequent
reductions in such interest rate shall not become effective to reduce such
interest rate below the Highest Lawful Rate until the total amount of interest
accrued on the unpaid principal balance of such Loan equals the total amount of
interest which would have accrued if the Effective Base Rate, or Effective LIBOR
Rate, whichever is applicable, had at all times been in effect.
Each LIBOR Loan shall be in an amount not less than $200,000.00 and an
integral multiple of $100,000.00. Interest shall be computed on the basis of the
actual number of days elapsed and a year comprised of 360 days, unless such
calculation would result in a usurious interest rate, in which case such
interest shall be calculated on the basis of a 365 or 366 day year, as the case
may be.
The unpaid principal balance of this Note at any time will be the total
amounts advanced by Bank, less the amount of all payments or prepayments of
principal. Absent manifest error, the records of Bank will be conclusive as to
amounts owed. Loans shall be made on Borrower's irrevocable notice to Bank,
given not later than 10:00 A.M. (Houston time) on, in the case of LIBOR Loans,
the third Business Day prior to the proposed Borrowing Date or, in the case of
Base Rate Loans, the first Business Day prior to the proposed Borrowing Date.
Each notice of a requested borrowing (a "NOTICE OF REQUESTED BORROWING") under
this paragraph may be oral or written, and shall specify: (i) the requested
amount; (ii) proposed Borrowing Date; (iii) whether the requested Loan is to be
a Base Rate Loan or LIBOR Loan; and (iv) Interest Period for the LIBOR Loan. If
any Notice of Requested Borrowing shall be oral, Borrower shall deliver to Bank
prior to the Borrowing Date a confirmatory written Notice of Requested
Borrowing.
Borrower may on any Business Day prepay the outstanding principal amount of
any Base Rate Loan, in whole or in part. Borrower shall have no right to prepay
any LIBOR Loan.
Provided that no Event of Default has occurred and is continuing, Borrower
may elect to continue all or any part of any LIBOR Loan beyond the expiration of
the then current Interest Period relating thereto by providing Bank at least
three Business Day's written or telecopy notice of such election, specifying the
Loan or portion thereof to be continued and the Interest Period therefor and
whether it is to be a Base Rate Loan or LIBOR Loan provided that any
continuation as a LIBOR Loan shall not be less than $200,000.00 and shall be in
an integral multiple of $100,000.00. If an Event of Default shall have occurred
and be continuing, the Borrower shall not have the option to elect to continue
any such LIBOR Loan or to convert Base Rate Loans into LIBOR Loans. Provided
that no Event of Default has occurred and is continuing, Borrower may elect to
convert any Base Rate Loan at any time or from time to time to a LIBOR Loan by
providing Bank at least three Business Day's written or telecopy notice of such
election, specifying each Interest Period therefor. Any conversion of Base Rate
Loans shall not result in a borrowing of LIBOR Loans in an amount less than
$200,000.00 and in integral multiples of $100,000.00.
If at any time Bank determines in good faith (which determination shall be
conclusive) that any change in any applicable law, rule or regulation or in the
interpretation, application or administration thereof makes it unlawful, or any
central bank or other governmental authority asserts that it is unlawful, for
Bank or its foreign branch or branches to maintain any LIBOR Loan by means of
dollar deposits obtained in the London interbank market (any of the above being
described as a "LIBOR Event"), then, at the option of Bank, the aggregate
principal amount of all LIBOR Loans outstanding shall be prepaid; however the
prepayment may be made at the sole option of the Bank with a Base Rate Loan.
Upon the occurrence of any LIBOR Event, and at any time thereafter so long as
such LIBOR Event shall continue, the Bank may exercise its aforesaid option by
giving written notice thereof to Borrower.
If Bank determines after the date of this Note that any change in
applicable laws, rules or regulations regarding capital adequacy, or any change
in the interpretation or administration thereof by any appropriate governmental
agency, or compliance with any request or directive to Bank regarding capital
adequacy (whether or not having the force of law) of any such agency, increases
the capital required to be maintained with respect to any LIBOR Loan and
therefore reduces the rate of return on Bank's capital below the level Bank
could have achieved but for such change or compliance (taking into consideration
Bank's policies with respect to capital adequacy), then Borrower will pay to
Bank from time to time, within 15 days of Bank's request, any additional amount
required to compensate Bank for such reduction. Bank will request any additional
amount by delivering to Borrower a certificate of Bank setting forth the amount
necessary to compensate Bank. The certificate will be conclusive and binding,
absent manifest error. Bank may make any assumptions, and may use any
allocations of costs and expenses and any averaging and attribution methods,
which Bank in good faith finds reasonable.
Page 2 of 4 Pages
<PAGE> 3
If any domestic or foreign law, treaty, rule or regulation (whether now in
effect or hereinafter enacted or promulgated, including Regulation D of the
Board) or any interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof (whether or
not having the force of law): (a) changes, imposes, modifies, applies or deems
applicable any reserve, special deposit or similar requirements in respect of
any Loan or against assets of, deposits with or for the account of, or credit
extended or committed by, Bank; or (b) imposes on Bank or the interbank
eurocurrency deposit and transfer market or the market for domestic bank
certificates or deposit any other condition affecting any such Loan; and the
result of any of the foregoing is to impose a cost to Bank of agreeing to make,
funding or maintaining any such Loan or to reduce the amount of any sum
receivable by Bank in respect of any such Loan, then Bank may notify Borrower in
writing of the happening of such event and Borrower shall upon demand pay to
Bank such additional amounts as will compensate Bank for such costs as
determined by Bank. Without prejudice to the survival of any other agreement of
Borrower under this Note, the obligations of Borrower under this paragraph shall
survive the termination of this Note.
Borrower will indemnify Bank against, and reimburse Bank on demand for, any
loss, cost or expense incurred or sustained by Bank (including without
limitation any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by Bank to fund or maintain
LIBOR Loans) as a result of: (a) any payment or prepayment (whether permitted by
Bank or required hereunder or otherwise) of all or a portion of any LIBOR Loan
on a day other than the Maturity Date of such Loan; (b) any payment or
prepayment, whether required hereunder or otherwise, of any LIBOR Loan made
after the delivery of a Notice of Requested Borrowing but before the applicable
Borrowing Date if such payment or prepayment prevents the proposed Loan from
becoming fully effective; or (c) the failure of any LIBOR Loan to be made by
Bank due to any action or inaction of Borrower. Such funding losses and other
costs and expenses shall be calculated and billed by Bank and such bill shall,
as to the costs incurred, be conclusive absent manifest error.
All past-due principal and interest on this Note, will, at Bank's option,
bear interest at the lesser of the Highest Lawful Rate and a rate per annum
equal to the Base Rate plus three percent (3%).
In addition to all principal and accrued interest on this Note, Borrower
agrees to pay: (a) all reasonable costs and expenses incurred by Bank and all
owners and holders of this Note in collecting this Note through probate,
reorganization, bankruptcy or any other proceeding; and (b) reasonable
attorney's fees if and when this Note is placed in the hands of an attorney for
collection.
Borrower and Bank intend to conform strictly to applicable usury laws.
Therefore, the total amount of interest (as defined under applicable law)
contracted for, charged or collected under this Note will never exceed the
Highest Lawful Rate. If Bank contracts for, charges or receives any excess
interest, it will be deemed a mistake. Bank will automatically reform the
contract or charge to conform to applicable law, and if excess interest has been
received, Bank will either refund the excess to Borrower or credit the excess on
the unpaid principal amount of this Note. All amounts constituting interest will
be spread throughout the full term of this Note in determining whether interest
exceeds lawful amounts.
If any Event of Default (as defined in the Credit Agreement) shall occur,
then Bank may do any or all of the following: (i) cease making Loans hereunder;
(ii) declare the Obligations to be immediately due and payable, without notice
of acceleration or of intention to accelerate, presentment and demand or protest
or notice of any kind, all of which are hereby expressly waived; (iii) set off,
in any order, against the Obligations any debt owing by Bank to any Obligor,
including, but not limited to, any deposit account, which right is hereby
granted by each Obligor to Bank; and (iv) exercise any and all other rights
under the Loan Documents, at law, in equity or otherwise.
No waiver of any default is a waiver of any other default. Bank's delay in
exercising any right or power under any Loan Document is not a waiver of such
right or power.
Each Obligor severally waives notice, demand, presentment for payment,
notice of nonpayment, notice of intent to accelerate, notice of acceleration,
protest, notice of protest, and the filing of suit and diligence in collecting
this Note and all other demands and notices, and consents and agrees that its
liabilities and obligations will not be released or discharged by any or all of
the following, whether with or without notice to it or any other Obligor, and
whether before or after the stated maturity hereof: (i) extensions of the time
of payment; (ii) renewals; (iii) acceptances of partial payments; (iv) releases
or substitutions of any collateral or any Obligor; and (v) failure, if any, to
perfect or maintain perfection of any security interest in any collateral. Each
Obligor agrees that acceptance of any partial payment will not constitute a
waiver and that waiver of any default will not constitute waiver of any prior or
subsequent default.
Where appropriate the neuter gender includes the feminine and the masculine
and the singular number includes the plural number.
Borrower represents and agrees that: all Loans evidenced by this Note are
and will be for business, commercial, investment or other similar purpose and
not primarily for personal, family, or household use as such terms are used in
Chapter One of the Texas Credit Code. Borrower represents and agrees that each
of the following statements is true: (i) No advances will be used primarily for
agricultural purposes as such term is used in the Texas Credit Code. (ii) No
advances will be used for the purpose of purchasing or carrying any margin stock
as that term is defined in Regulation U of the Board.
Chapter 346 of the Texas Finance Code (which regulates certain revolving
credit loan accounts) shall not apply to this Note or any Loan governed by this
Note.
This Note is governed by Texas law. If any provision of this Note is
illegal or unenforceable, that illegality or unenforceability will not affect
the remaining provisions of this Note. BORROWER AND BANK AGREE THAT TRAVIS
COUNTY, TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING BROUGHT BY BORROWER
OR BANK, WHETHER IN CONTRACT, TORT, OR OTHERWISE. ANY ACTION OR PROCEEDING
AGAINST BORROWER MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN SUCH COUNTY TO
THE EXTENT NOT PROHIBITED BY APPLICABLE LAW. TO THE EXTENT PERMITTED BY
APPLICABLE LAW BORROWER HEREBY IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY OBJECTION IT MAY NOW OR
HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. BORROWER AGREES THAT
SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED BELOW. BANK MAY SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW AND MAY BRING ANY ACTION OR PROCEEDING AGAINST
BORROWER OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER PROPER
JURISDICTIONS OR VENUES.
For purposes of this Note, any assignee or subsequent holder of this Note
will be considered the "Bank," and each successor to Borrower will be considered
the "Borrower."
Borrower represents that it is duly organized and validly existing and in
good standing under the laws of the state of its incorporation or organization;
has full power to own its properties and to carry on its business as now
conducted; is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it makes such
qualification desirable; and has not commenced any dissolution proceedings.
Borrower represents that if it conducts
Page 3 of 4 Pages
<PAGE> 4
business under an assumed business or professional name it has properly filed
Assumed Name Certificate(s) in the office(s) required by Chapter 36 of the Texas
Business and Commerce Code. Each of the persons signing below as Borrower
represents that he/she has full requisite power and authority to execute and
deliver this Note to Bank on behalf of the party for whom he/she signs and to
bind such party to the terms and conditions of this Note and that this Note is
enforceable against such party.
NO COURSE OF DEALING BETWEEN BORROWER AND BANK, NO COURSE OF PERFORMANCE,
NO TRADE PRACTICES, AND NO EXTRINSIC EVIDENCE OF ANY NATURE MAY BE USED TO
CONTRADICT OR MODIFY ANY TERM OF THIS NOTE OR ANY OTHER LOAN DOCUMENT.
THIS NOTE AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, Borrower has executed this Note effective the day,
month and year first aforesaid.
BORROWER: XETEL CORPORATION
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
(Bank's signature is provided as its acknowledgment of the above as the final
written agreement between the parties.)
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
Page 4 of 4 Pages
<PAGE> 1
EXHIBIT 10.37
AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT
THIS AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT (as amended, restated and
supplemented from time to time, this "AGREEMENT") between XETEL CORPORATION
("BORROWER") and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION ("BANK," formerly
Texas Commerce Bank National Association) is dated as of June 25, 1998 (the
"EFFECTIVE DATE").
PRELIMINARY STATEMENT. Borrower and Bank have entered into a Credit Agreement
(with Borrowing Base) dated as of August 23, 1996 (as amended, "Prior Credit
Agreement"). The parties desire to amend and restate the Prior Credit Agreement
in its entirety to, among other things, provide for an increase in Bank's
revolving loan commitment to Borrower.
1. THE LOANS.
REVOLVING CREDIT NOTE 1.1.A Subject to the terms and conditions hereof, Bank
agrees to make loans ("REVOLVING LOANS") to Borrower from time to time before
the Termination Date, not to exceed at any one time outstanding the less of the
Borrowing Base or $17,000,000.00 (the "COMMITMENT"). Borrower has the right to
borrow, repay and reborrow. Loans may only be used for supporting Borrower's
accounts receivable and inventory.Chapter 346 of the Texas Finance Code (which
governs certain revolving loan accounts) will not apply to this Agreement, the
Revolving Note or any Revolving Loan. Revolving Loans will be evidenced by, and
will bear interest and be payable as provided in, Borrower's $17,000,000.00
Revolving Credit Note dated the Effective Date (together with any and all
renewals, extensions, modifications and replacements thereof and substitutions
therefor, the "REVOLVING NOTE"), given to renew and increase Borrower's
$10,000,000.00 revolving promissory note dated April 15, 1997 (including all
prior notes of which said note represents a renewal, extension, modification,
increase, substitution, rearrangement or replacement thereof, a "Renewed Note").
"TERMINATION DATE" means the earlier of:
(a) August 31, 1999; or (b) the date specified by Bank pursuant to Section 6.1
hereof.
ADVANCE TERM NOTE 1.1.B Subject to the Prior Credit Agreement, Bank has made
loans ("Advance/Term Loans") to Borrower evidenced by Borrower's $3,250,000.00
Advancing Promissory Note Converting to a Term Note dated November 21, 1997
(together with any and all renewals, extensions, modifications and replacements
thereof and substitutions therefor, the "Advance/Term Note"). The parties agree
that effective upon the execution of this Agreement, the Advance/Term Loans and
Advance/Term Note shall be governed by this Agreement and that each reference in
the Advance/Term Note to the Credit Agreement shall be to this Agreement.
REFERENCES 1.1.C "Loan", "Note", "Commitment" and "Termination Date" in this
Agreement shall refer to each and all of the loans, notes, and commitments, and
their respective termination dates, provided for in this Agreement from time to
time. "Renewed Note" shall include the Renewed Note herein and each Renewed Note
referenced in the Prior Credit Agreement.
BORROWING BASE 1.2 The "BORROWING BASE" will be the amount shown as the
BORROWING BASE on the most recent Borrowing Base Report, subject to verification
by Bank at any time and calculated using the eligibility criteria, borrowing
base factors, dollar ceilings for various components and any deductions
specified in the attached EXHIBIT A, incorporated herein by reference.
REQUIRED PAYMENT 1.3 If the unpaid amount of the Loans at any time exceeds the
Borrowing Base then in effect, Borrower must make a payment on the Note(s) in an
amount sufficient to reduce the unpaid principal balance of the Note(s) to an
amount no greater than the Borrowing Base, unless waived by Bank in writing in
Bank's sole absolute discretion. Such payment shall be accompanied by any
prepayment charge required by the Note and shall be due concurrently with the
Borrowing Base Report.
COMMITMENT FEES 1.4 In consideration of the revolving Commitment, Borrower shall
pay the following non-refundable fees: (a) $41,250 which has been paid by
Borrower prior to the execution of this Agreement; (b) $41,250 due and payable
August 31, 1998; and (c) an unused Commitment fee (computed on the basis of the
actual number of days elapsed in a year comprised of 360 days) of one-eighth
(1/8) of one percent (1%) of the daily average difference between the revolving
Commitment and the principal balance of the Revolving Note from the date hereof
to the Termination Date. The Commitment Fee is due and payable quarterly in
arrears beginning on June 30, 1998..
PAST DUE AMOUNTS 1.5 Each amount due to Bank in connection with the Loan
Documents will bear interest from its due date until paid at the Highest Lawful
Rate unless the applicable Loan Document provides otherwise.
CONFIRMATION OF SECURITY INTERESTS 1.6. Borrower confirms and ratifies each of
the liens, security interests and other interests granted in each and all
security agreements executed in connection with, related to, or securing the
Prior Credit Agreement, Renewed Notes, Revolving Note and the Renewed A/T Note
as extending to and securing all Loans and Notes including but not limited to
each of those interests and liens described in the following listed Security
Agreements. Borrower further agrees and acknowledges that the terms "secured
indebtedness," "indebtedness secured hereby" "Obligations" and any similar
reference used in any security agreement including any supplemental security
agreements executed in connection with or related to, or securing any Renewed
Note, or any other indebtedness of Borrower to Bank, including but not limited
to the following security agreements executed by Borrower and delivered to Bank:
Security Agreement - Accounts dated August 23, 1996; Security Agreement -
Inventory dated August 23, 1996, including any Supplemental Security Agreements
supplementing any of the foregoing, and any other security agreements previously
executed by Borrower and delivered to Bank and not released by Bank and all
security agreements executed as of the Effective Date (each and all "Security
Agreements") include, but are not limited to, each and all indebtedness of all
character and kind related to or evidenced by the Revolving Note, the
Advance/Term Note and related to the Loan Documents.
CAPITAL ADEQUACY 1.6 If Bank determines after the date of this Agreement that
any change in applicable laws, rules or regulations regarding capital adequacy,
or any change in the interpretation or administration thereof by any appropriate
governmental agency, or compliance with any request or directive to Bank
regarding capital adequacy (whether or not having the force of law) of any such
agency, increases the capital required to be maintained with respect to the Loan
or Note and therefore reduces the rate of return on Bank's capital below the
level Bank could have achieved but for such change or compliance (taking into
consideration Bank's policies with respect to capital adequacy), then Borrower
will pay to Bank from time to time, within 15 days of Bank's request, any
additional amount required to compensate Bank for such reduction. Bank will
request any additional amount by delivering to Borrower a certificate of Bank
setting forth the amount necessary to compensate Bank. The certificate will be
conclusive and binding, absent manifest error. Bank may make any assumptions,
and may use any allocations of costs and expenses and any averaging and
attribution methods, which Bank in good faith finds reasonable.
2. CONDITIONS PRECEDENT.
ALL LOANS 2.1 Bank is not obligated to make any Loan unless: (a) Bank has
received the following, duly executed and in Proper Form: (1) a Request for
Loan, substantially in the form of Exhibit B, within the time required in the
Note; provided however, Bank may accept and act upon verbal advance requests
received from Borrower's representative reasonably believed by Bank to be
authorized to make such requests; (2) a Borrowing Base Report within the time
required by this Agreement; and (3) such other documents as Bank reasonably may
require; (b) no Event of Default exists; and (c) the making of the Loan is not
prohibited by, or subjects Bank to any penalty or onerous condition under any
Legal Requirement.
FIRST LOAN 2.2 In addition to the matters described in the preceding section,
Bank will not be obligated to make the first Loan unless Bank has received all
of the Loan Documents specified on Annex I in Proper Form.
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3. REPRESENTATIONS AND WARRANTIES. To induce Bank to enter into this Agreement
and to make the Loans, Borrower represents and warrants as of the Effective Date
and the date of each request for a Loan that each of the following statements is
and shall remain true and correct throughout the term of this Agreement:
ORGANIZATION AND STATUS 3.1 Borrower and each Subsidiary of Borrower is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; has all power and authority to conduct its
business as presently conducted, and is duly qualified to do business and in
good standing in each jurisdiction in which the nature of the business conducted
by it makes such qualification desirable. Borrower has no Subsidiary other than
those listed on Annex II and each Subsidiary is owned by Borrower in the
percentage set forth on Annex II. If Borrower is subject to the Texas Revised
Partnership Act ("TRPA"), Borrower agrees that Bank is not required to comply
with Section 3.05(d) of TRPA and agrees that Bank may proceed directly against
one or more partners or their property without first seeking satisfaction from
partnership property.
FINANCIAL STATEMENTS 3.2 All financial statements delivered to Bank are complete
and correct and fairly present, in accordance with generally accepted accounting
principles, consistently applied ("GAAP"), the financial condition and the
results of operations of Borrower and each Subsidiary of Borrower as at the
dates and for the periods indicated. No material adverse change has occurred in
the financial condition of the Borrower since the dates of such financial
statements. Neither Borrower nor any Subsidiary of Borrower is subject to any
instrument or agreement materially and adversely affecting its financial
condition, business or affairs.
ENFORCEABILITY 3.3 The Loan Documents are legal, valid and binding obligations
of the Parties enforceable in accordance with their respective terms, except as
may be limited by bankruptcy, insolvency and other similar laws affecting
creditors' rights generally. The execution, delivery and performance of the Loan
Documents have all been duly authorized by all necessary action; are within the
power and authority of the Parties; do not and will not violate any Legal
Requirement, the Organizational Documents of the Parties or any agreement or
instrument binding or affecting the Parties or any of their respective Property.
COMPLIANCE 3.4 Borrower and each Subsidiary of Borrower has filed all applicable
tax returns and paid all taxes shown thereon to be due, except those for which
extensions have been obtained and those which are being contested in good faith
and for which adequate reserves have been established. Borrower and each
Subsidiary of Borrower is in compliance with all applicable Legal Requirements
and manages and operates (and will continue to manage and operate) its business
in accordance with good industry practices. Neither Borrower nor any Subsidiary
of Borrower is in default in the payment of any other indebtedness or under any
agreement to which it is a party. The Parties have obtained all consents of and
registered with all Governmental Authorities or other Persons required to
execute, deliver and perform the Loan Documents.
LITIGATION 3.5 Except as previously disclosed to Bank in writing, there is no
litigation or administrative proceeding pending or, to the knowledge of
Borrower, threatened against, nor any outstanding judgment, order or decree
affecting Borrower or any Subsidiary of Borrower before or by any Governmental
Authority.
TITLE AND RIGHTS 3.6 Borrower and each Subsidiary of Borrower has good and
marketable title to its Property, free and clear of any Lien except for Liens
permitted by this Agreement and the other Loan Documents. Except as otherwise
expressly stated in the Loan Documents or permitted by this Agreement, the Liens
of the Loan Documents will constitute valid and perfected first and prior Liens
on the Property described therein, subject to no other Liens whatsoever.
Borrower and each Subsidiary of Borrower possesses all permits, licenses,
patents, trademarks and copyrights required to conduct its business. All
easements, rights-of-way and other rights necessary to maintain and operate
Borrower's Property have been obtained and are in full force and effect.
REGULATION U; BUSINESS PURPOSE 3.7 None of the proceeds of any Loan will be used
to purchase or carry, directly or indirectly, any margin stock or for any other
purpose which would make this credit a "purpose credit" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System. All Loans
will be used for business, commercial, investment or other similar purpose and
not primarily for personal, family, or household use or primarily for
agricultural purposes as such terms are used in Chapter One of the Texas Credit
Code or any successor statute.
ENVIRONMENT 3.8 To the best of Borrower's knowledge after due inquiry (i)
Borrower and each Subsidiary of Borrower have complied with applicable Legal
Requirements in each instance in which any of them have generated, handled,
used, stored or disposed of any hazardous or toxic waste or substance, on or off
its premises (whether or not owned by any of them); (ii) neither Borrower nor
any Subsidiary of Borrower has any material contingent liability for
non-compliance with environmental or hazardous waste laws and (iii) neither
Borrower nor any Subsidiary of Borrower has received any notice that it or any
of its Property or operations does not comply with, or that any Governmental
Authority is investigating its compliance with, any environmental or hazardous
waste laws.
INVESTMENT COMPANY ACT/PUBLIC UTILITY HOLDING COMPANY ACT 3.9 Neither Borrower
nor any Subsidiary of Borrower is an "investment company" within the meaning of
the Investment Company Act of 1940 or a "holding company" or an "affiliate" of a
"holding company" or a "public utility" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
STATEMENTS BY OTHERS 3.10 All statements made by or on behalf of Borrower, any
Subsidiary of Borrower or any other of the Parties in connection with any Loan
Document constitute the representation and warranty of Borrower hereunder.
4. AFFIRMATIVE COVENANTS. Borrower agrees to do, and if necessary cause to be
done, and cause its Subsidiaries to do, each of the following:
CORPORATE FUNDAMENTALS 4.1 (a) Pay when due all taxes and governmental charges
of every kind upon it or against its income, profits or Property, unless and
only to the extent that the same shall be contested in good faith and adequate
reserves have been established therefor; (b) Renew and keep in full force and
effect all of its licenses, permits and franchises; (c) Do all things necessary
to preserve its corporate existence and its qualifications and rights in all
jurisdictions where such qualification is necessary or desirable; (d) Comply
with all applicable Legal Requirements; and (e) Protect, maintain and keep in
good repair its Property and make all replacements and additions to its Property
as may be reasonably necessary to conduct its business properly and efficiently.
INSURANCE 4.2 Maintain insurance with such reputable financially sound insurers,
on such of its Property and personnel, in such amounts and against such risks as
is customary with similar Persons or as may be reasonably required by Bank, and
furnish Bank satisfactory evidence thereof promptly upon request. These
insurance provisions are cumulative of the insurance provisions of the other
Loan Documents. Bank must be named as a beneficiary, loss payee or additional
insured of such insurance as its interest may appear (Bank having no right to
recover any amount in excess of the Obligations), and Borrower must provide Bank
with copies of the policies of insurance and a certificate of the insurer that
the insurance required by this section may not be canceled, reduced or affected
in any manner without 30 days' prior written notice to Bank.
FINANCIAL INFORMATION/BORROWING BASE REPORT 4.3 Furnish to Bank in Proper Form
(i) the financial statements prepared in conformity with GAAP on consolidated
and consolidating bases and the other information described in, and within the
times required by, Exhibit C, Reporting Requirements, Financial Covenants and
Compliance Certificate attached hereto and incorporated herein by reference;
(ii) the Borrowing Base Report substantially in the form of, and within the time
required by, Exhibit A along with the other information required by Exhibit A to
be submitted; (iii) within the time required by Exhibit C, Exhibit C signed and
certified by the chief financial officer or president of Borrower; (iv) promptly
after such request is submitted to the appropriate Governmental Authority, any
request for waiver of funding standards
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or extension of amortization periods with respect to any employee benefit plan;
and (v) copies of materially significant special audits, studies, reports and
analyses prepared for the management of Borrower by outside parties, and such
other information materially relating to the financial and operating condition
of Borrower and its Subsidiaries as Bank may reasonably request from time to
time in its discretion.
MATTERS REQUIRING NOTICE 4.4 Notify Bank immediately, upon acquiring knowledge
of (a) the institution or threatened institution of any material lawsuit or
administrative proceeding which, if adversely determined, might materially
adversely affect Borrower; (b) any material adverse change in the assets,
liabilities, financial condition, business or affairs of Borrower; (c) any Event
of Default; or (d) any reportable event or any prohibited transaction in
connection with any employee benefit plan.
INSPECTION 4.5 Permit Bank and its affiliates to inspect and photograph its
Property, to examine and copy its files, books and records, and to discuss its
affairs with its officers and accountants, at such times and intervals and to
such extent as Bank reasonably desires.
ASSURANCES 4.6 Promptly execute and deliver any and all further agreements,
documents, instruments, and other writings that Bank may request to cure any
defect in the execution and delivery of any Loan Document or more fully to
describe particular aspects of the agreements set forth or intended to be set
forth in the Loan Documents.
CERTAIN CHANGES 4.7 Notify Bank at least 30 days prior to the date that any of
the Parties changes its name or the location of its chief executive office or
principal place of business or the place where it keeps its books and records or
the location of any of the Collateral.
EXHIBIT C 4.8 Comply with each of the other affirmative covenants set forth in
Exhibit C.
ENVIRONMENT 3.8 Comply with applicable Legal Requirements in each instance in
which any of them have generated, handled, used, stored or disposed of any
hazardous or toxic waste or substance, on or off its premises (whether or not
owned by any of them), and incur no material liability with respect to such
activities.
5. NEGATIVE COVENANTS. The Borrower will not, and no Subsidiary of Borrower
will:
INDEBTEDNESS 5.1 Except as approved in Bank's sole discretion in writing,
create, incur, or permit to exist, or assume or guarantee, directly or
indirectly, or become or remain liable with respect to, any Indebtedness,
contingent or otherwise unless there is a permitted amount set forth in Exhibit
C, except: (a) Indebtedness to Bank, or secured by Liens permitted by this
Agreement, (b) Indebtedness otherwise approved in writing by Bank, and renewals
and extensions (but not increases) thereof; (c) current accounts payable and
unsecured current liabilities, not the result of borrowing, to vendors,
suppliers and Persons providing services, for expenditures for goods and
services normally required by it in the ordinary course of business and on
ordinary trade terms; (d) operating leases incurred during the ordinary course
of business; (e) Indebtedness associated with an acquired entity or Subsidiary
as defined in Section 8, and (f) certain loans from Rohm U.S.A., Inc. which are
approved by the Bank in writing from time to time.
LIENS 5.2 Create or permit to exist any Lien upon any of its Property now owned
or hereafter acquired, or acquire any Property upon any conditional sale or
other title retention device or arrangement or any purchase money security
agreement; or in any manner directly or indirectly sell, assign, pledge or
otherwise transfer any of its accounts or other Property unless approved in
writing by Bank in Bank's sole discretion, except: (a) Liens, not for borrowed
money, arising in the ordinary course of business; (b) Liens for taxes not
delinquent or being contested in good faith by appropriate proceedings; (c)
Liens in effect on the date hereof and disclosed to Bank in writing, so long as
neither the indebtedness secured thereby nor the Property covered thereby
increases; and (d) Liens in favor of Bank, permitted in Exhibit C, or otherwise
approved in writing by Bank. Notwithstanding anything to the contrary herein,
Borrower will not, and no Subsidiary of Borrower will permit any Lien on any
accounts receivable and inventory that secures the Loans unless Bank shall
provide Borrower with Bank's prior written consent.
FINANCIAL AND OTHER COVENANTS 5.3 Fail to comply with the required financial
covenants and other covenants described, and calculated as set forth, in Exhibit
C. Unless otherwise provided on Exhibit C, all such amounts and ratios will be
calculated: (a) on the basis of GAAP; and (b) on a consolidated basis.
Compliance with the requirements of Exhibit C will be determined as of the dates
of the financial statements to be provided to Bank.
CORPORATE CHANGES 5.4 Unless approved by the Bank in Bank's sole discretion in
writing, in any single transaction, directly or indirectly: (a) liquidate or
dissolve; (b) be a party to any merger or consolidation affecting more than 10%
of the Borrower's total assets; (c) sell or dispose of any interest in any of
its Subsidiaries affecting more than 10% of the Borrower's total assets, or
permit any of its Subsidiaries to issue any additional equity other than to
Borrower; (d) sell, convey or lease all or any substantial part of its assets,
except for sale of inventory or equipment in the ordinary course of business; or
(e) materially change the number of outstanding shares of Borrower.
RESTRICTED PAYMENTS 5.5 Unless otherwise permitted on Exhibit C, at any time
declare or pay any dividend (except stock dividends and dividends paid to
Borrower).
NATURE OF BUSINESS 5.6 Change the nature of its business or enter into any
business which is substantially different from the business in which it is
presently engaged.
AFFILIATE TRANSACTIONS 5.7 Enter into any transaction or agreement with any
Affiliate which might materially affect the Borrower's financial condition
except upon terms substantially similar to those obtainable from wholly
unrelated sources. Note: This provision does not apply for transactions with
management of the Borrower which do not materially affect the Borrower's
financial condition.
SUBSIDIARIES 5.8 Form, create, acquire or divest of any Subsidiary except in
compliance with Exhibit C.
LOANS AND INVESTMENTS 5.9 Unless otherwise provided on Exhibit C, make any
advance, loan, extension of credit, or capital contribution to or investment in,
or purchase, any stock, bonds, notes, debentures, or other securities of, any
Person, except: (a) readily marketable direct obligations of the United States
of America or any agency thereof with maturities of two years or less from the
date of acquisition; (b) fully insured certificates of deposit with maturities
of one year or less from the date of acquisition issued by any commercial bank
operating in the United States of America having capital and surplus in excess
of $50,000,000.00; (c) commercial paper of a domestic issuer if at the time of
purchase such paper is rated in one of the two highest rating categories of
Standard and Poor's Corporation or Moody's Investors Service; (d) money market
mutual funds that invest in items of the type described in (a), (b) and (c)
above; and (e) financial instruments purchased from the loan participation
programs of either the Bank or Chase Securities, Inc. provided that the
instruments purchased through such program are obligations of borrower's which
have a rating in one of the two highest rating categories of Standard and Poor's
Corporation or Moody's Investors Service.
6. EVENTS OF DEFAULT AND REMEDIES.
EVENTS OF DEFAULT 6.1 Each of the following is an "EVENT OF DEFAULT":
(a) Any Obligor fails to pay any principal of or interest on the Note or any
other obligation under any Loan Document as and when due; or
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(b) Any Obligor or any Subsidiary of Borrower fails to pay at maturity, or
within any applicable period of grace, any principal of or interest on any other
borrowed money obligation or fails to observe or perform any term, covenant or
agreement contained in any agreement or obligation by which it is bound; or
(c) Any material representation or warranty made in connection with any Loan
Document was incorrect, false or misleading when made; or
(d) Any Obligor violates any covenant contained in any Loan Document; or
(e) An event of default occurs under any other Loan Document; or
(f) Final judgment for the payment of money is rendered against Obligor or any
Subsidiary of Borrower and remains undischarged for a period of 30 days during
which execution is not effectively stayed; or
(g) The sale, encumbrance or abandonment (except as otherwise expressly
permitted by this Agreement) of any of the Collateral or the making of any levy,
seizure, garnishment, sequestration or attachment thereof or thereon; or the
loss, theft, substantial damage, or destruction of any material portion of such
Collateral which is not covered by insurance proceeds for which the Bank is
shown as loss payee; or
(h) Any order is entered in any proceeding against Borrower or any Subsidiary of
Borrower decreeing the dissolution, liquidation or split-up thereof, and such
order shall remain in effect for 30 days; or
(i) Any Obligor or any subsidiary of Borrower makes a general assignment for the
benefit of creditors or shall petition or apply to any tribunal for the
appointment of a trustee, custodian, receiver or liquidator of all or any
substantial part of its business, estate or assets or shall commence any
proceeding under any bankruptcy, insolvency, dissolution or liquidation law of
any jurisdiction, whether now or hereafter in effect; or any such petition or
application shall be filed or any such proceeding shall be commenced against any
Obligor or any subsidiary of Borrower and the Obligor or such subsidiary by any
act or omission shall indicate approval thereof, consent thereto or acquiescence
therein, or an order shall be entered appointing a trustee, custodian, receiver
or liquidator of all or any substantial part of the assets of any Obligor or any
subsidiary of Borrower or granting relief to any Obligor or any subsidiary of
Borrower or approving the petition in any such proceeding, and such order shall
remain in effect for more than 30 days; or any Obligor or any subsidiary of
Borrower shall fail generally to pay its debts as they become due or suffer any
writ of attachment or execution or any similar process to be issued or levied
against it or any substantial part of its property which is not released,
stayed, bonded or vacated within 30 days after its issue or levy; or
(j) Any Obligor or any Subsidiary of Borrower conceals or removes any part of
its Property, with intent to hinder, delay or defraud any of its creditors,
makes or permits a transfer of any of its Property which may be fraudulent under
any bankruptcy, fraudulent conveyance or similar law; or makes any transfer of
its Property to or for the benefit of a creditor at a time when other creditors
similarly situated have not been paid; or
(k) A material adverse change occurs in the financial condition of any Obligor
or any Subsidiary of Borrower; or in the assets, liabilities or operations of
any of the foregoing to the extent reasonably likely to materially and adversely
affect the financial condition of any Obligor; or
(l) Any individual Obligor dies or any Obligor that is not an individual
dissolves.
IF ANY EVENT OF DEFAULT OCCURS, then Bank may do any or all of the following:
(1)declare the Obligations to be immediately due and payable without notice of
acceleration or of intention to accelerate, presentment and demand or protest,
all of which are hereby expressly waived; (2) without notice to any Obligor,
terminate the Commitment and accelerate the Termination Date; (3) set off, in
any order, against the indebtedness of Borrower under the Loan Documents any
debt owing by Bank to Borrower (whether such debt is owed individually or
jointly), including, but not limited to, any deposit account, which right is
hereby granted by Borrower to Bank; and (4) exercise any and all other rights
pursuant to the Loan Documents, at law, in equity or otherwise.
REMEDIES CUMULATIVE 6.2 No remedy, right or power of Bank is exclusive of any
other remedy, right or power now or hereafter existing by contract, at law, in
equity, or otherwise, and all remedies, rights and powers are cumulative.
7. MISCELLANEOUS.
NO WAIVER 7.1 No waiver of any default or Event of Default will
be a waiver of any other default or Event of Default. No failure to exercise or
delay in exercising any right or power under any Loan Document will be a waiver
thereof, nor shall any single or partial exercise of any such right or power
preclude any further or other exercise thereof or the exercise of any other
right or power. The making of any Loan during either the existence of any
default or Event of Default, or subsequent to the occurrence of an Event of
Default will not be a waiver of any such default or Event of Default. No
amendment, modification or waiver of any Loan Document will be effective unless
the same is in writing and signed by the Person against whom such amendment,
modification or waiver is sought to be enforced. No notice to or demand on any
Person shall entitle any Person to any other or further notice or demand in
similar or other circumstances.
NOTICES 7.2 All notices required under the Loan Documents shall be in writing
and either delivered against receipt therefor, or mailed by registered or
certified mail, return receipt requested, in each case addressed to the address
shown on the signature page hereof or to such other address as a party may
designate. Except for the notices required by Section 2.1, which shall be given
only upon actual receipt by Bank, notices shall be deemed to have been given
(whether actually received or not) when delivered (or, if mailed, on the next
Business Day).
GOVERNING LAW/ARBITRATION 7.3 (a) UNLESS OTHERWISE SPECIFIED THEREIN, EACH LOAN
DOCUMENT IS GOVERNED BY TEXAS LAWS AND THE APPLICABLE LAWS OF THE UNITED STATES
OF AMERICA. To the maximum extent permitted by law, any controversy or claim
arising out of or relating to the Loans or any Loan Document, including but not
limited to any claim based on or arising from an alleged tort or an alleged
breach of any agreement contained in any of the Loan Documents, shall, at the
request of any party to the Loan or Loan Documents (either before or after the
commencement of judicial proceedings), be settled by mandatory and binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA Rules") and pursuant to Title 9 of the United
States Code, or if Title 9 does not apply, the Texas General Arbitration Act. In
any arbitration proceeding: (i) all statutes of limitations which would
otherwise be applicable shall apply; and (ii) the proceeding shall be conducted
in Austin, Texas, by a single arbitrator if the amount in controversy is $1
million or less, or by a panel of three arbitrators if the amount in controversy
(including but not limited to all charges, principal, interest fees and
expenses) is over $1 million. Arbitrators are empowered to resolve any
controversy by summary rulings substantially similar to summary judgments and
motions to dismiss. Arbitrators may order discovery conducted in accordance with
the Federal Rules of Civil Procedures. All arbitrators will be selected by the
process of appointment from a panel, pursuant to the AAA Rules. Any award
rendered in the arbitration proceeding will be final and binding, and judgment
upon any such award may be entered in any court having jurisdiction.
(b) If any party to the Loan or Loan Documents files a proceeding in any court
to resolve any controversy or claim, such action will not constitute a waiver of
the right of such party or a bar to the right of any other party to seek
arbitration under the provisions of this Section or that of any other claim or
controversy, and the court shall, upon motion of any party to the proceeding,
direct that the controversy or claim be arbitrated in accordance with this
Section.
(c) No provision of, or the exercise of any rights under, this Section shall
limit or impair the right of any party to the Loan Documents before, during or
after any arbitration proceeding to: (i) exercise self-help remedies including
but not limited to setoff or repossession; (ii) foreclose any Lien on or
security interest in any Collateral; or (iii) obtain relief from a court of
competent jurisdiction to prevent the dissipation, damage, destruction,
transfer, hypothecation, pledging or concealment of assets or Collateral
including, but not limited to attachments, garnishments, sequestrations,
appointments of receivers, injunctions or other relief to preserve the status
quo.
(d) To the maximum extent permitted by applicable law and the AAA Rules, neither
Bank nor any Obligor or any Affiliate, officer, director, employee, attorney, or
agent of either shall have any liability with respect to, and Bank and each
Obligor waives, releases, and agrees not to sue any of them upon, any claim for
any special, indirect, incidental and consequential damages suffered or incurred
by such Person in connection with, arising out of, or in any way related to,
this Agreement or any of the other Loan Documents. Each of Bank and each Obligor
waives, releases, and agrees not to sue each other or any of their Affiliates,
officers, directors, employees, attorneys, or agents for punitive damages in
respect of any claim in connection with, arising out of, or in any way related
to, this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the other Loan Documents.
Nothing contained herein, however, shall be construed as a waiver of any
Obligor's or the Bank's right to compel arbitration of disputes pursuant to
subparagraphs (a) and (b), above.
Page 4 of 6 Pages
<PAGE> 5
Amendment and Restatement
of Credit Agreement XeTel Corporation June 25, 1998
(e) Nothing herein shall be considered a waiver of the right or protections
afforded Bank by 12 U.S.C. 91, Texas Banking Code Art. 342-609 or any similar
statute.
(f) Each party agrees that any other party may proceed against any other liable
Person, jointly or severally, or against one or more of them, less than all,
without impairing rights against any other liable Persons. A party shall not be
required to join the principal Obligor or any other liable Persons (e.g.,
sureties or guarantors) in any proceeding against any Person. A party may
release or settle with one or more liable Persons as the party deems fit without
releasing or impairing right to proceed against any Persons not so released.
SURVIVAL; PARTIES BOUND; TERM OF AGREEMENT 7.4 All representations, warranties,
covenants and agreements made by or on behalf of Borrower in connection with the
Loan Documents will survive the execution and delivery of the Loan Documents;
will not be affected by any investigation made by any Person, and will bind
Borrower and the successors, trustees, receivers and assigns of Borrower and
will benefit the successors and assigns of the Bank; provided that Bank's
agreement to make Loans to Borrower will not inure to the benefit of any
successor or assign of Borrower except for an approved merger or business
combination. Except as otherwise provided herein, the term of this Agreement
will be until the later of the final maturity of the Revolving Note or the
Advance/Term Note, whichever is later and the full and final payment of all
Obligations and all amounts due under the Loan Documents.
DOCUMENTARY MATTERS 7.5 This Agreement may be executed in several identical
counterparts, on separate counterparts; each counterpart will constitute an
original instrument, and all separate counterparts will constitute but one and
the same instrument. The headings and captions in the Loan Documents have been
included solely for convenience and should not be considered in construing the
Loan Documents. If any provision of any Loan Document is invalid, illegal or
unenforceable in any respect under any applicable law, the remaining provisions
will remain effective. The Loans and all other obligations and indebtedness of
Borrower to Bank are entitled to the benefit of the Loan Documents.
EXPENSES 7.6 Any provision to the contrary notwithstanding, and whether or not
the transactions contemplated by this Agreement are consummated, Borrower agrees
to pay on demand all reasonable, direct out-of-pocket expenses (including,
without limitation, the fees and expenses of counsel for Bank) in connection
with the negotiation, preparation, execution, filing, recording, modification,
supplementing and waiver of the Loan Documents and the making, servicing and
collection of the Loans. Notwithstanding anything contained herein to the
contrary, Borrower shall not pay more than $3,000.00 for any single, annual
field analysis of Borrower's assets. Borrower agrees to pay Bank's standard
Documentation Preparation and Processing Fee for preparation, negotiation and
handling of this Agreement not to exceed the amount of $1,500.00. The
obligations of the Borrower under this and the following section will survive
the termination of this Agreement. Upon request by Borrower, Bank will provide
an invoice of charges at least as detailed as customarily provided by Bank to
comparably situated clients.
INDEMNIFICATION 7.7 BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD BANK HARMLESS
FROM AND AGAINST ANY AND ALL LOSS, LIABILITY, OBLIGATION, DAMAGE, PENALTY,
JUDGMENT, CLAIM, DEFICIENCY AND EXPENSE (INCLUDING INTEREST, PENALTIES,
ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT) TO WHICH BANK MAY BECOME SUBJECT
ARISING OUT OF OR BASED UPON THE LOAN DOCUMENTS, OR ANY LOAN, INCLUDING THAT
RESULTING FROM BANK'S OWN NEGLIGENCE, EXCEPT AND TO THE EXTENT CAUSED BY BANK'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
USURY NOT INTENDED 7.8 Borrower and Bank intend to conform strictly to
applicable usury laws. Therefore, the total amount of interest (as defined under
applicable law) contracted for, charged or collected under this Agreement or any
other Loan Document will never exceed the Highest Lawful Rate. If Bank contracts
for, charges or receives any excess interest, it will be deemed a mistake. Bank
will automatically reform the Loan Document or charge to conform to applicable
law, and if excess interest has been received, Bank will either refund the
excess to Borrower or credit the excess on any unpaid principal amount of the
Note or any other Loan Document. All amounts constituting interest will be
spread throughout the full term of the Loan Document or applicable Note in
determining whether interest exceeds lawful amounts.
NO COURSE OF DEALING 7.9 NO COURSE OF DEALING BY BORROWER WITH BANK, NO COURSE
OF PERFORMANCE AND NO TRADE PRACTICES OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE
MAY BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS
AGREEMENT.
8. DEFINITIONS. Unless the context otherwise requires, capitalized terms used in
Loan Documents and not defined elsewhere shall have the meanings provided by
GAAP, except as follows:
AFFILIATE means, as to any Person, any other Person (a) that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, such Person; (b) that directly or indirectly
beneficially owns or holds five percent (5%) or more of any class of voting
stock of such Person; or (c) five percent (5%) or more of the voting stock of
which is directly or indirectly beneficially owned or held by the Person in
question. The term "control" means to possess, directly or indirectly, the power
to direct the management and policies of a Person, whether through the ownership
of voting securities, by contract, or otherwise. Bank is not under any
circumstances to be deemed an Affiliate of Borrower or any of its Subsidiaries.
AUTHORITY DOCUMENTS means certificates of authority to transact business,
certificates of good standing, borrowing resolutions (with secretary's
certificate), secretary's certificates of incumbency, and other documents which
empower and enable Borrower or its representatives to enter into agreements
evidenced by Loan Documents or evidence such authority.
BUSINESS DAY means a day when the main office of Bank is open for the conduct of
commercial lending business.
COLLATERAL means all Property, tangible or intangible, real, personal or mixed,
now or hereafter subject to Security Documents, or intended so to be.
CORPORATION means corporations, partnerships, limited liability companies, joint
ventures, joint stock associations, associations, banks, business trusts and
other business entities.
GOVERNMENT ACCOUNTS means receivables owed by the U.S. government or by the
government of any state, county, municipality, or other political subdivision as
to which Bank's security interest or ability to obtain direct payment of the
proceeds is governed by any federal or state statutory requirements other than
those of the Uniform Commercial Code, including, without limitation, the Federal
Assignment of Claims Act of 1940, as amended.
GOVERNMENTAL AUTHORITY means any foreign governmental authority, the United
States of America, any state of the United States and any political subdivision
of any of the foregoing, and any agency, department, commission, board, bureau,
court or other tribunal having jurisdiction over Bank or any Obligor, or any
Subsidiary of Borrower or their respective Property.
HIGHEST LAWFUL RATE means the maximum nonusurious rate of interest permitted to
be charged by applicable Federal or Texas law (whichever permits the higher
lawful rate) from time to time in effect. If Texas law determines the Highest
Lawful Rate, the Highest Lawful Rate is the weekly rate ceiling as defined in
Article 5069-1D.001 et. seq., as amended, of the Texas Revised Civil Statutes.
INDEBTEDNESS means and includes (a) all items which in accordance with GAAP
would be included on the liability side of a balance sheet, including but not
limited to capital leases, on the date as of which Indebtedness is to be
determined (excluding capital stock, surplus, surplus reserves and deferred
credits); (b) all guaranties, endorsements and other contingent obligations in
respect of, or any obligations to purchase or otherwise acquire, Indebtedness of
others, and (c) all Indebtedness secured by any Lien existing on any interest of
the Person with respect to which indebtedness is being determined, in Property
owned subject to such Lien, whether or not the Indebtedness secured thereby has
been assumed.
LEGAL REQUIREMENT means any law, ordinance, decree, requirement, order,
judgment, rule, regulation (or interpretation of any of the foregoing) of, and
the terms of any license or permit issued by, any Governmental Authority.
LIEN shall mean any mortgage, pledge, charge, encumbrance, security interest,
collateral assignment or other lien or restriction of any kind, whether based on
common law, constitutional provision, statute or contract.
LOAN DOCUMENTS means this Agreement, the agreements, documents, instruments and
other writings contemplated by this Agreement or listed on Annex I, all other
assignments, deeds, guaranties, pledges, instruments, certificates and
agreements now or hereafter executed or delivered to
Page 5 of 6 Pages
<PAGE> 6
Amendment and Restatement
of Credit Agreement XeTel Corporation June 25, 1998
the Bank pursuant to any of the foregoing, and all amendments, modifications,
renewals, extensions, increases and rearrangements of, and substitutions for,
any of the foregoing.
OBLIGATIONS means all principal, interest and other amounts which are or become
owing under this Agreement, the Note or any other Loan Document.
OBLIGOR means each Borrower and any guarantor, surety, co-signer, general
partner or other person who may now or hereafter be obligated to pay all or any
part of the Obligations.
ORGANIZATIONAL DOCUMENTS means, with respect to a corporation, the certificate
of incorporation, articles of incorporation and bylaws of such corporation; with
respect to a limited liability company, the articles of organization,
regulations and other documents establishing such entity, with respect to a
partnership, joint venture, or trust, the agreement, certificate or instrument
establishing such entity; in each case including all modifications and
supplements thereof as of the date of the Loan Document referring to such
Organizational Document and any and all future modifications thereof which are
consented to by Bank.
PARTIES means all Persons other than Bank executing any Loan Document.
PERSON means any individual, Corporation, trust, unincorporated organization,
Governmental Authority or any other form of entity.
PROPER FORM means in form and substance satisfactory to the Bank.
PROPERTY means any interest in any kind of property or asset, whether real,
personal or mixed, tangible or intangible.
SECURITY DOCUMENTS means those Security Agreements listed on Annex I and all
supplements, modifications, amendment, extensions thereof and all other
agreements hereafter executed and delivered to Bank to secure the Loans.
SUBORDINATED DEBT means any Indebtedness subordinated to Indebtedness due Bank
pursuant to a written subordination agreement in Proper Form by and among Bank,
subordinated creditor and Borrower which at a minimum must prohibit: (a) any
action by subordinated creditor which will result in an occurrence of an Event
of Default or default under this Agreement, the subordination agreement or the
subordinated Indebtedness; and (b) upon the happening of any Event of Default or
default under any Loan Document, the subordination agreement, or any instrument
evidencing the subordinated Indebtedness (i) any payment of principal and
interest on the subordinated Indebtedness; (ii) any act to compel payment of
principal or interest on subordinated Indebtedness; and (iii) any action to
realize upon any Property securing the subordinated Indebtedness.
SUBSIDIARY means, as to a particular parent Corporation, any Corporation of
which 50% or more of the indicia of equity rights is at the time directly or
indirectly owned by such parent Corporation or by one or more Persons controlled
by, controlling or under common control with such parent Corporation.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN BANK AND THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF BANK AND THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN BANK AND THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
BORROWER: XETEL CORPORATION
By:
----------------------------------------------------------------------------
Name:
--------------------------------------------------------------------------
Title:
-------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By:
----------------------------------------------------------------------------
Name:
--------------------------------------------------------------------------
Title:
-------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
EXHIBITS: ANNEXES:
A Borrowing Base Report I Loan Documents
B Request for Loan II Subsidiaries
C Reporting Requirements, Financial Covenants,
and Compliance Certificate
Page 6 of 6 Pages
<PAGE> 7
EXHIBIT A
BORROWING BASE REPORT
BORROWING BASE REPORT FOR PERIOD BEGINNING:________ AND ENDING________
("CURRENT PERIOD") REQUIRED BY THE CREDIT AGREEMENT DATED JUNE 25, 1998 BETWEEN
XETEL CORPORATION AND CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
BORROWER WILL DELIVER THIS BORROWING BASE REPORT COMPLETED IN PROPER FORM WITHIN
30 DAYS OF THE LAST DAY OF EACH MONTH END, AND PROVIDE WITH EACH SUCH REPORT AN
ACCOUNTS RECEIVABLE AGING AND LISTING, ACCOUNTS PAYABLE AGING, AND AN INVENTORY
REPORT.
<TABLE>
<S> <C> <C>
Line $
--------
1. Total Accounts as of the end of the Current Period $ --------INELIGIBLE
ACCOUNTS AS OF THE END OF THE CURRENT PERIOD:
2. That portion (e.g., invoice) of all of the Accounts of any Account
Debtor where the Account is more than 90 days from invoice date (net
of unapplied cash and return material authorizations) $
3. That portion of all of the Accounts of any Account Debtor which exceed --------
25% of the dollar amount of the total of all Accounts for all Account
Debtors for the Current Period (Line 1); except that with approval in
writing by Bank in its sole discretion, the percentage specified in
this item shall be higher with respect to such Account Debtors as
Borrower and Bank shall mutually specify $ $
4. Intercompany and Affiliate Accounts (Total Intercompany and Affiliate --------
Accounts = $ --------less $ --------[not to exceed $500,000.00 in the
aggregate] in Intercompany and Affiliate Accounts which Borrower,
by signing below, certifies as arising from "arms length" transactions) $
--------
5. Government Accounts $
--------
6. Foreign Accounts $
--------
7. Accounts subject to any dispute or setoff or contra account $
--------
8. Other Ineligible Accounts $
9. Total Ineligible Accounts for the Current Period --------
(Add Lines 2 through 8) $
10. Total Eligible Accounts for the Current Period (Line 1 - Line 9) --------
80%
11. Multiplied by: Accounts Advance Factor $
========
12. Equals: Accounts Component of Borrowing Base
$
--------
13. Total Foreign Accounts secured by a letter of credit issued by a bank 90%
satisfactory to the Bank or covered by Exim bank insurance ("Secured $
========
Foreign Accounts") $
--------
14. Multiplied by: Secured Foreign Accounts Advance Factor 80%
$
15. Equals: Secured Foreign Accounts Component of Borrowing Base ========
$
16. Accounts of Ericsson, Inc., Dell Computer Corp., Dell International, --------
Inc. and all Subsidiaries of Dell International, Inc. or otherwise 80%
approved by Bank in writing ("Acceptable Foreign Accounts") $ 17. $
Multiplied by: Acceptable Foreign Accounts Advance Factor 80% 18. ========
Equals: Acceptable Foreign Accounts Component of Borrowing Base $
19. Net book value of Inventory as of the end of the Current Period $
20. Less: Ineligible Inventory --------
$
21. Total Eligible Inventory as of the end of the --------
Current Period (Line 19 - Line 20) $
--------
22. Multiplied by: Inventory Advance Factor 25%
$
23. Equals: Inventory Component of Borrowing Base ========
(Not to exceed 40% of the Borrowing Base at any time when the aggregate
amount outstanding under the Notes is equal to or less than
$7,000,000.00 and not to exceed 25% of the Borrowing Base at any time
when the aggregate amount outstanding under the Note is greater than
$7,000,000.00)
24. Total BORROWING BASE as of the end of the Current Period (not to exceed $
$17,000,000) (Line 12 + Line 15 + Line 18 + Line 23) ========
25. Less: Aggregate principal outstanding under Notes as end of Current
Period:
Revolving Note $
Advance/Term Note --------
Total outstanding $
--------
26. Equals: Amount available for borrowing subject to the terms of the $
Agreement, if positive; or amount due, if negative ========
$
--------
</TABLE>
The terms "ACCOUNTS" and "INVENTORY" have the respective meanings as set forth
in the Texas Business and Commerce Code in effect as of the date of the
Agreement. Inventory shall be valued at the lesser of: (a) market value; and (b)
cost. "OTHER INELIGIBLE ACCOUNTS" mean all such Accounts of Borrower that are
not subject to a first and prior Lien in favor of Bank, those Accounts that are
subject to any Lien not in favor of Bank and those Accounts of Borrower as shall
be deemed from time to time to be, in the sole judgment of Bank, ineligible for
purposes of determining the Borrowing Base. "INELIGIBLE INVENTORY" means that
Inventory of Borrower that is not subject to a first and prior Lien in favor of
Bank, that Inventory that is subject to any Lien not in favor of Bank and that
Inventory of Borrower as shall be deemed from time to time to be in the sole
judgment of Bank, ineligible for purposes of determining the Borrowing Base. All
other terms not defined herein shall have the respective meanings as in the
Agreement.
Borrower certifies that the above information and computations are true,
correct, complete and not misleading as of the date hereof.
Borrower: XETEL CORPORATION
By:
---------------------------------------------------------------------------
Name:
-------------------------------------------------------------------------
Title:
------------------------------------------------------------------------
Address:
----------------------------------------------------------------------
<PAGE> 8
Date:
--------------------------------------------------------------------------
EXHIBIT A
Page 1 of 1 Page
EXHIBIT B
REQUEST FOR LOAN
LETTERHEAD OF BORROWER
Chase Bank of Texas, National Association
700 Lavaca
P.O. Box 550
Austin, Texas 78701-0001
Fax No. (512) 479-2211
Re: Request for Revolving Loan under Agreement
Attention: RALPH T. BEASLEY
Gentlemen:
This letter confirms our oral or telephonic request of , 19 , for a Revolving
Loan in accordance with that certain Credit Agreement (as amended, restated and
supplemented from time to time, the "AGREEMENT") dated as of June 25, 1998
between you and us. Any term defined in the Agreement and used in this letter
has the same meaning as in the Agreement.
The proposed Revolving Loan is to be in the amount of $________________ and
is to be made on____________, 19____, which is a Business Day. The proposed
Revolving Loan should bear interest at the (check one:)
[ ] LIBOR Rate with an Interest Period from _________ to __________
(refer to note for conditions); or
[ ] the Base Rate.
The proceeds of the proposed Revolving Loan should be (check one:) |_| deposited
into account number ____________ with the Bank; or
[ ]________________________________________________.
The undersigned hereby certifies that:
(1) The representations and warranties made by the Borrower or by any
other Person in the Agreement and the other Loan Documents are true
and correct on and as of this date as though made on this date.
(2) The proposed Revolving Loan complies with all applicable provisions
of the Agreement.
(3) No Event of Default has occurred and is continuing.
Sincerely,
XETEL CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
EXHIBIT B Page 1 of 1
<PAGE> 9
ANNEX I
LOAN DOCUMENTS
"Loan Documents" includes, but is not limited to, the following:
1. Agreement
2. Revolving Note; Advance/Term Note
3. Borrowing Base Report
4. Compliance Certificate
5. Security Agreements
6. Financing Statements
7. Organizational and Authority Documents
8. Insurance policies and certificates
9 Financial Statements of: Borrower
10. UCC search
Loan Documents - ANNEX I Page 1 of 1
<PAGE> 10
ANNEX II
SUBSIDIARIES
IF NONE AS OF THE EFFECTIVE DATE, CHECK [ ] NONE
Subsidiary Name State Where
and Address Incorporated % Owned
ANNEX II Page 1 of 1
<PAGE> 11
EXHIBIT C to Agreement between
XETEL CORPORATION ("Borrower") and Chase Bank of Texas,
National Association ("Bank") dated June 25, 1998 (as
may be amended, restated and supplemented in
writing).
REPORTING REQUIREMENTS, FINANCIAL COVENANTS AND COMPLIANCE CERTIFICATE
FOR CURRENT REPORTING PERIOD ENDING , 199 ("END DATE")
<TABLE>
<S> <C>
A. REPORTING PERIOD. THIS EXHIBIT WILL BE IN PROPER FORM AND SUBMITTED AS PROVIDED IN PART B. Borrower's fiscal year ends
March 30.
==================================================================================================================================
B. Financial Reporting. Borrower will provide the following financial information within the times indicated: Compliance
====================================================================================================================
WHEN DUE WHAT Certificate
(Circle)
- ----------------------------------------------------------------------------------------------------------------------------------
(i) Within 90 days of fiscal year end Annual financial statements (balance sheet, income statement, cash flow Yes No
statement) audited (with unqualified opinion) by independent certified
public accountants satisfactory to Bank, accompanied by Compliance
Certificate.
- ----------------------------------------------------------------------------------------------------------------------------------
(ii) Within 45 days of each fiscal Unaudited interim financial statements accompanied by Compliance Yes No
quarter End Date, including final quarter Certificate
of fiscal year
- ----------------------------------------------------------------------------------------------------------------------------------
(iii) As provided in Exhibit A Borrowing Base Report with accounts receivable aging and listing, Yes No
inventory report and accounts payable aging
==================================================================================================================================
C. FINANCIAL COVENANTS. Borrower will comply with the following financial
covenants, defined in accordance with GAAP and the definitions in Section 8,
and incorporating the calculation adjustments indicated on the Compliance
Certificate:
- ----------------------------------------------------------------------------------------------------------------------------------
REQUIRED: Except as specified otherwise, each COMPLIANCE CERTIFICATE /ACTUAL REPORTED Compliance
covenant will be maintained at all times and For Current Reporting Period/as of the End Date (Circle)
reported for each Reporting Period or as of
each Reporting Period End Date, as appropriate:
- ----------------------------------------------------------------------------------------------------------------------------------
I. Maintain a Tangible Net Worth as adjusted of Stockholders' Equity $ Yes No
at least $24,000,000.00 plus: (a) 75% of net --------
income after 12/31/97, added at end of each Minus: Goodwill $
fiscal quarter and (b) 100% of the net increase Other Intangible Assets --------
(after deduction of goodwill) in shareholder's $
equity occurring immediately after each issuance Loans/Advances to --------
of equity securities and merger/ acquisition Equity holders $
transaction. Please indicate requirement so --------
calculated below: Loans to Affiliates $
--------
Plus: Subordinated Debt $
= Tangible Net Worth as adjusted --------
$ $
============
- -----------------------------------------------------------------------------------------------------------------------------------
II. Have a Cash Flow Coverage Ratio for each Yes No
fiscal quarter of at least 1.60 : 1.00 for the Net income $
fiscal quarter ending 6/30/98; and 1.75 : 1.00 -----------
thereafter. Plus: Depreciation $
-----------
Amortization $
-----------
Tax expense $
-----------
Interest Expense $
-----------
Lease Expense $
-----------
Rent Expense $
-----------
Minus: Federal tax cash
payments $
-----------
Equals: Adjusted EBITAR = $
============
Current Maturities of Long Term Debt
(for the next quarter)
$
-----------
Plus: Interest Expense $
-----------
Lease Expense $
-----------
Rent Expense $
-----------
Equals: Fixed Charges
$
-----------
$
-----------
$ $ =
-------------/ ------- ============
Adjusted EBITAR Fixed Charges Cash Flow Coverage Ratio
- -----------------------------------------------------------------------------------------------------------------------------------
D. Other Required Covenants to be maintained and to be certified.
- -----------------------------------------------------------------------------------------------------------------------------------
REQUIRED ACTUAL REPORTED/COMPLIANCE CERTIFICATE Compliance
- -----------------------------------------------------------------------------------------------------------------------------------
(i) Additional Indebtedness, Liens and capital leases are For fiscal year: Yes No
limited to $2,000,000.00 in the aggregate for each fiscal year. ---------------------------
Debt for borrowed money = $
--------------------,
Plus capital lease payments = $
--------------------,
Plus Other Indebtedness = $
--------------------,
Equals Total of: $
--------------------,
</TABLE>
- -------------------------------------------------------------------------------
(ii) Borrower shall not make any acquisition (by stock Please indicate
acquisitions and total and cash Yes No purchase, asset purchase, merger or
otherwise) or divestiture consideration here or in attachment:
if: (a) the total purchase or sales price, as the case ma be
(including cash, cash equivalents, stock issued, and
indebtedness assumed), exceeds 10% of the book value of
Borrower's assets before such acquisition or divestiture, (b)
if cash consideration exceeds $3MM, or (c) any Event of
Default otherwise would result from such acquisition or
divestiture; unless Bank in its sole discretion shall have consented in
advance in writing.
- -------------------------------------------------------------------------------
(iii) Capital expenditures & capital lease obligations For fiscal quarter
ended _____________: Yes No incurred shall not exceed (a) $2MM in any fiscal
quarter and (b) $4MM in any fiscal year beginning with the fiscal year
$__________________________ ended 3/31/99; provided however that up to $1MM
financed by For fiscal year ended _____________:
another financial institution or capital lease shall be
excluded from the foregoing calculation $__________________________
===============================================================================
THE ABOVE SUMMARY REPRESENTS SOME OF THE COVENANTS AND AGREEMENTS IN THE
AGREEMENT AND DOES NOT IN ANY WAY RESTRICT OR MODIFY THE TERMS AND CONDITIONS OF
THE AGREEMENT. IN CASE OF CONFLICT BETWEEN THIS EXHIBIT AND THE AGREEMENT, THE
AGREEMENT SHALL CONTROL. The undersigned hereby certifies that the above
information and computations are true and correct and not misleading as of the
date hereof, and that since the date of the Borrower's most recent Compliance
Certificate (if any):
[ ] No default or Event of Default has occurred under the
Agreement during the current Reporting Period, or been discovered
from a prior period, and not reported.
[ ] A default or Event of Default (as described below) has occurred during the
current Reporting Period or has been discovered from a prior period and is
being reported for the first time and:
[ ] was cured on . [ ]was waived by Bank in writing on
-------- -----------------
[ ] is continuing.
Description of Event of Default:
------------------------------------------------
- -------------------------------------------------------------------------------
Executed this day of , 19 .
------------------------- ----------------- -----------
BORROWER: XETEL CORPORATION
SIGNATURE:
-----------------------------
<PAGE> 12
NAME: TITLE (CFO or President)
-------------------------- ------------------------------------
Exhibit C Page 1 of 1
<PAGE> 1
Exhibit 11.1
XETEL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
IN THOUSANDS, EXCEPT SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-------------------
June 27, June 28,
1998 1997
-------- --------
<S> <C> <C>
Basic earnings per share:
Weighted average shares outstanding 9,008 8,811
====== ======
Net income $ 684 $ 455
====== ======
Basic earnings per share $ 0.08 $ 0.05
====== ======
Diluted earnings per share:
Weighted average shares outstanding 9,008 8,811
Common stock equivalents: stock options (1) 687 827
------ ------
9,695 9,638
====== ======
Net income $ 684 $ 455
====== ======
Diluted earnings per share $ 0.07 $ 0.05
====== ======
</TABLE>
(1) Stock options based on the treasury stock method using average market price.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-27-1999
<PERIOD-START> MAR-29-1998
<PERIOD-END> JUN-27-1998
<CASH> 7,205
<SECURITIES> 0
<RECEIVABLES> 24,666
<ALLOWANCES> 240
<INVENTORY> 21,773
<CURRENT-ASSETS> 54,563
<PP&E> 18,074
<DEPRECIATION> 9,216
<TOTAL-ASSETS> 64,104
<CURRENT-LIABILITIES> 32,677
<BONDS> 0
0
0
<COMMON> 21,465
<OTHER-SE> 7,186
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</TABLE>
