<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 2000
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SATURN ELECTRONICS & ENGINEERING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MICHIGAN 3672 38-2622745
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.)
</TABLE>
255 REX BOULEVARD
AUBURN HILLS, MICHIGAN 48326
(248) 853-5724
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WALLACE K. TSUHA, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SATURN ELECTRONICS & ENGINEERING, INC.
255 REX BOULEVARD
AUBURN HILLS, MICHIGAN 48326
(248) 853-5724
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DONALD J. KUNZ, ESQ. THOMAS J. MURPHY, ESQ.
HONIGMAN MILLER SCHWARTZ AND COHN MCDERMOTT, WILL & EMERY
2290 FIRST NATIONAL BUILDING 227 WEST MONROE STREET
DETROIT, MICHIGAN 48226 CHICAGO, ILLINOIS 60606-5096
(313) 465-7000 (312) 372-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- ----------------------------------------------------------------------------------------------------------------
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, without par value............................. $125,000,000 $33,000
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) of the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED MARCH 29, 2000
Shares
[SATURN LOGO TO COME]
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of common stock is expected to be
between $ and $ per share. We have reserved the symbol "SATR" to list
our common stock on The Nasdaq Stock Market's National Market.
We are selling shares of common stock and the selling shareholders are
selling shares of common stock. We will not receive any of the proceeds
from the shares of common stock sold by the selling shareholders.
The underwriters have an option to purchase a maximum of
additional shares from the selling shareholders to cover over-allotments of
shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 5.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO PROCEEDS TO
PRICE TO DISCOUNTS AND SATURN ELECTRONICS & SELLING
PUBLIC COMMISSIONS ENGINEERING, INC. SHAREHOLDERS
-------- ------------- -------------------- ------------
<S> <C> <C> <C> <C>
Per Share............................................ $ $ $ $
Total................................................ $ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
NEEDHAM & COMPANY, INC.
The date of this prospectus is , 2000.
<PAGE> 3
[SATURN ARTWORK]
<PAGE> 4
[SATURN ARTWORK]
<PAGE> 5
[SATURN ARTWORK]
<PAGE> 6
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 5
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS.......... 16
USE OF PROCEEDS....................... 17
DIVIDEND POLICY....................... 17
CAPITALIZATION........................ 18
DILUTION.............................. 19
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 21
BUSINESS.............................. 26
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
MANAGEMENT............................ 39
CERTAIN TRANSACTIONS.................. 45
PRINCIPAL AND SELLING SHAREHOLDERS.... 46
DESCRIPTION OF CAPITAL STOCK.......... 47
SHARES ELIGIBLE FOR FUTURE SALE....... 49
UNDERWRITING.......................... 51
NOTICE TO CANADIAN RESIDENTS.......... 53
EXPERTS............................... 54
WHERE YOU CAN FIND MORE INFORMATION... 54
LEGAL MATTERS......................... 54
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
---------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATIONS
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 7
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary may not contain all of the information that is important to you.
You should read the entire prospectus, including risk factors and our
consolidated financial statements and related notes, before making an investment
decision.
OUR COMPANY
We are a global provider of value-added electronics manufacturing services,
or EMS, to original equipment manufacturers, or OEMs, and their suppliers. We
offer our customers integrated, cost-effective solutions that are responsive to
their outsourcing needs and provide a broad range of services, including design
and engineering; materials management; manufacturing and assembly; testing and
qualification; fulfillment; and after-sales support. Through our 12
manufacturing facilities in the United States, Mexico and the Philippines, we
provide our customers a full range of manufacturing capabilities, from low-
volume/high-mix to high-volume/low-mix manufacturing. Our facilities are
generally located in regions that offer proximity to our customers or lower our
manufacturing costs.
We provide our services to customers primarily in the automotive,
communications, computer and military end markets. Our customers include
industry leaders such as DaimlerChrysler, Ford, General Dynamics,
Hewlett-Packard, Hughes, IBM and Motorola. We also seek to identify and nurture
strategic outsourcing alliances with emerging companies that we believe have the
potential to develop next-generation products. We provide our design,
engineering and other value-added services to these emerging companies in
exchange for preferred manufacturing rights to the applicable products.
The EMS industry has experienced rapid growth over the last several years
and is expected to continue growing rapidly. Technology Forecasters, Inc., or
TFI, forecasts that overall EMS industry revenue will grow 20% annually from
2000 through 2003, to approximately $149 billion. As the electronics content in
commercial and consumer goods has increased and grown more complex, OEMs have
been increasingly outsourcing their internal manufacturing capacity and related
services to EMS providers, to focus on their core competencies. TFI forecasts
that OEMs will increasingly outsource more complex services and products, with
the communications and computer markets representing the largest growth
opportunities. These markets are characterized by rapidly evolving product
technologies and shortening product lifecycles. We believe that these trends
will favor EMS providers with scale, a global presence, broad service offerings
and advanced technological capabilities.
In order to strengthen our competitive position in the midst of this
industry growth, we have pursued selective strategic acquisitions and alliances.
In August 1999, we acquired Smartflex Systems, or Smartflex, a high-technology
product design and precision EMS provider based in Tustin, California. Through
this acquisition, we gained access to full-service electronics capabilities,
significantly increased our scale of operations, expanded our customer base to
the communications and computer end markets, and enhanced our geographic
presence. Most recently, in March 2000, we entered into a strategic outsourcing
alliance with Motorola pursuant to which we became a preferred EMS provider to
its Integrated Electronics System Sector, or IESS. As a preferred EMS provider,
we have the opportunity to participate in requests for quotations, bids or other
opportunities to provide manufacturing and related services to IESS, subject to
our being competitive in price and quality. We believe that this strategic
relationship could generate significant business opportunities for us over the
next few years.
To better target customers and serve the needs of different end markets, we
have strategically aligned our business into three segments: electronics,
electromechanical and electrical.
- Our electronics segment provides services in connection with flex
assembly, printed circuit board assembly and the incorporation of
electronic assemblies into subassemblies and final systems box-build. We
significantly increased our capabilities in this segment with our
acquisition of Smartflex.
1
<PAGE> 8
- Our electromechanical segment provides services in connection with
junction blocks, relays, actuators, solenoids and transmission modules.
- Our electrical segment provides services in connection with battery
cables, wire harnesses and power distribution systems. This segment is
comprised of a limited liability company, the Saturn LLC, of which we own
53%.
We intend to continue to strengthen and expand our position in the rapidly
growing EMS industry by:
- building strategic outsourcing alliances with both leading and emerging
OEMs;
- targeting an increasingly diverse customer base in high-growth end
markets, such as communications;
- leveraging our design and engineering capabilities;
- expanding our global presence;
- pursuing selective acquisitions; and
- seeking additional minority business enterprise opportunities.
We were incorporated in Michigan on October 1, 1985. Our principal
executive offices are located at 255 Rex Boulevard, Auburn Hills, Michigan
48326, and our telephone number is (248) 853-5724. Our web site is located at
www.saturnee.com. Information contained on, or linked to, our web site does not
constitute part of this prospectus.
"Global Innovator of Smart Products" and the Saturn logo are our trademarks
and service marks.
2
<PAGE> 9
THE OFFERING
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<S> <C>
Common stock offered by:
Saturn Electronics & Engineering, Inc...... shares
The selling shareholders................... shares
Total................................. shares
Common stock to be outstanding after the
offering................................... shares
Use of proceeds.............................. We intend to use approximately
$ million of our net proceeds to reduce
indebtedness under our credit facility, and
the remainder for working capital and other
general corporate purposes. We will not
receive any proceeds from the sale of shares
of our common stock being offered by the
selling shareholders.
Proposed Nasdaq National Market symbol....... SATR
</TABLE>
The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding as of March 27, 2000 and
excludes:
- 2,834,400 shares of common stock issuable upon exercise of outstanding
stock options with a weighted average exercise price of $2.75 per share;
- 2,500,000 shares of common stock available for future grant under our
2000 Stock Option Plan; and
- 1,565,331 shares of common stock issuable upon the exercise of a warrant
held by Motorola with an exercise price equal to 90% of the initial
public offering price per share.
Unless otherwise indicated, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option and reflects a
recapitalization of our capital stock, which we will effect immediately prior to
this offering, as follows:
- each outstanding share of our Class A Voting Common Stock will be
converted into 3.25 shares of our common stock, no par value;
- each outstanding share of our Class B Nonvoting Common Stock will be
converted into 2.75 shares of common stock, no par value;
- each option to purchase a share of our common stock will be converted
into an option to purchase 3.00 shares of common stock, no par value; and
- each warrant to purchase a share of Class B Nonvoting Common Stock will
be converted into a warrant to purchase 3.00 shares of common stock, no
par value.
3
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables set forth summary consolidated financial data and
certain pro forma financial data for our business during the years and as of the
date indicated. The 1999 pro forma consolidated statement of operations data
give effect to our acquisition of Smartflex Systems, Inc. as if this acquisition
had been completed on January 1, 1999. This acquisition was accounted for under
the purchase method of accounting, and, accordingly, Smartflex has been included
in our financial results since August 26, 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
PRO FORMA
1995 1996 1997 1998 1999 1999
---------- ---------- ---------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenue............... $ 122,550 $ 168,707 $ 161,048 $ 188,464 $ 257,107 $ 325,579
Cost of revenue........... 119,272 146,070 133,568 147,661 205,341 268,975
---------- ---------- ---------- ----------- ---------- ----------
Gross profit.............. 3,278 22,637 27,480 40,803 51,766 56,604
Development expense....... 2,468 3,260 3,563 4,861 7,741 8,465
Selling, general and
administrative
expense................. 2,431 4,976 8,039 12,777 19,146 29,467
Amortization expense...... 1,650 1,650 1,650 1,649 2,582 4,772
Restructuring expense..... -- -- -- -- -- 3,833
---------- ---------- ---------- ----------- ---------- ----------
Operating income (loss)... (3,271) 12,751 14,228 21,516 22,297 10,067
Net income (loss)......... $ (3,378) $ 7,002 $ 8,059 $ 11,954 $ 9,905 $ (2,537)
========== ========== ========== =========== ========== ==========
Basic and diluted earnings
(loss) per share........ $ (0.09) $ 0.19 $ 0.22 $ 0.32 $ 0.31 $ (0.08)
Basic and diluted weighted
average number of common
shares outstanding...... 37,176,600 37,176,600 37,176,600 37,176,600 32,145,026 32,145,026
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash........................................................ $ 1,929 $
Working capital............................................. 44,645
Total assets................................................ 231,974
Long-term debt.............................................. 107,361
Total shareholders' equity.................................. 51,858
</TABLE>
The as adjusted balance sheet data reflect:
- our receipt of the estimated net proceeds from our sale of
shares of our common stock in this offering at an assumed initial public
offering price of $ per share, after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us;
and
- the assumed repayment of $ million of long-term debt outstanding
under our credit facility using the estimated proceeds from this
offering.
4
<PAGE> 11
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and the other information in
this prospectus before deciding to invest in shares of our common stock. While
these are the risks and uncertainties we believe are most important for you to
consider, you should know that they are not the only risks and uncertainties
facing us or which may adversely affect our business. If any of the following
risks or uncertainties actually occur, our business, financial condition or
results of operations would likely suffer. In that event, the market price of
our common stock could decline, and you could lose all or part of the money you
paid to buy our common stock.
RISKS RELATING TO OUR BUSINESS
THE LOSS OF ONE OR MORE OF OUR SIGNIFICANT CUSTOMERS WOULD ADVERSELY AFFECT OUR
BUSINESS.
DaimlerChrysler accounted for approximately 31% of our net revenue, and
Ford accounted for approximately 19% of our net revenue for the year ended
December 31, 1999. Our ten largest customers accounted for approximately 68% of
our net revenue during 1999. We expect to continue to depend upon a core group
of customers for a material percentage of our net revenue in the future. We
cannot assure you that our significant customers will continue to purchase
services and products from us in the future or that they will not reduce or
delay the amount of services and products they purchase. For example, during the
third quarter of 2000, a significant automotive program that generated $31.5
million of net revenue during 1999 for our electromechanical segment is
scheduled to end. Any reduction or delay in orders from any of our significant
customers would result in a significant reduction in our net revenue. In
addition, a majority of our accounts receivable outstanding at any given time
are owed by our significant customers. The inability of one or more of our
significant customers to pay for the services and products we provide, due to
insolvency or otherwise, would have a material adverse effect on our business,
financial condition or results of operations.
WE MAY EXPERIENCE VARIABILITY IN OUR QUARTERLY RESULTS OF OPERATIONS, WHICH
COULD REDUCE OUR REVENUES AND THE PRICE OF OUR COMMON STOCK.
Our quarterly results of operations may vary significantly depending on
various factors, many of which are beyond our control. These factors include:
- variations in the timing and volume of customer orders relative to our
capacity;
- customer introduction of new services and products and market acceptance
of these services and products;
- the timing of our expenditures in anticipation of future net revenue;
- our effectiveness in managing our manufacturing processes;
- changes in competitive and economic conditions generally or in the
industries we serve; and
- the timing of, and the price we pay for, acquisitions and related
integration costs.
Because of these and other factors, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
our future performance. Because a significant portion of our operating expenses
are fixed, even a small reduction in our net revenue could have a
disproportionate effect on our quarterly results of operations. Our results of
operations may be below the expectations of securities analysts or investors in
one or more future quarters, which could cause the trading price of our common
stock to decline.
5
<PAGE> 12
LOSS OF OUR STATUS AS A QUALIFIED MINORITY BUSINESS ENTERPRISE COULD NEGATIVELY
AFFECT OUR ABILITY TO RETAIN EXISTING BUSINESS, PROCURE FUTURE BUSINESS AND
PURSUE CERTAIN STRATEGIC ALLIANCES OR JOINT VENTURES.
We are certified as a minority business enterprise by the Michigan Minority
Business Development Council. Minority business enterprise status generally
offers us a significant competitive advantage for our business and is an
important element of many of our customer relationships. At times minority
business enterprise status has provided us with the ability to compete for
business opportunities that might have been otherwise unavailable. For example,
because of our status, in February 1998 we were able to establish a strategic
relationship with United Technologies Automotive, Inc., now Lear Corporation.
This strategic alliance took the form of a jointly owned limited liability
company, referred to in this prospectus as the Saturn LLC, in which we own a 53%
interest. The Saturn LLC constitutes our electrical business segment, which
accounted for 14% of our net revenue in 1999.
The guidelines applicable to minority business enterprises which engage in
public offerings are pending final approval by the National Minority Supplier
Development Council, or the National Council. While most of our customers
currently require us to provide a certification from the Michigan Minority
Business Development Council, or the Michigan Council, to recognize our status
as a minority business enterprise, the Michigan Council follows the guidelines
approved by the National Council. We have been advised by the National Council
that the Executive Committee of the National Council has approved the
continuation of our status as a certified minority business enterprise after
this offering so long as:
- minorities own at least 30% of our common stock;
- a majority of the members of our board of directors continue to be ethnic
minorities; and
- a minority person continues to be responsible for our day-to-day
management.
Following the completion of this offering, we believe we will meet these
criteria.
The National Council, however, expects to approve a clear definition of a
minority-owned publicly traded company which would meet minority business
enterprise certification requirements within the next few months. While the
National Council currently anticipates that the criteria described above would
be acceptable under the definition to be approved, it also has indicated that
our status will be reviewed once that definition is adopted.
We cannot assure you that the criteria set forth above will be finally
approved or that we will qualify as a minority business enterprise under any
criteria adopted by the National Council. For example, if a majority of our
board of directors ceases to be ethnic minorities, or if a minority person
ceases to be responsible for our day-to-day management, we may no longer be
certified as a minority business enterprise. Also, we cannot assure you that our
customers will continue to follow the guidelines adopted by the National Council
or that our customers will continue or expand any commitments to purchase
services and goods from certified minority business enterprises. In addition,
assuming the criteria listed above are adopted, if we issue additional stock in
the future, in connection with acquisitions or otherwise, or if Mr. Tsuha's or
his family's beneficial ownership is reduced voluntarily or involuntarily
through sale, transfer, death, personal bankruptcy or otherwise, and other
ethnic minorities cease to hold at least 30% of our common stock, we may lose
our status as a minority business enterprise.
Our loss of minority business enterprise status or the reduction of
commitments by our customers to purchase goods from minority business
enterprises could negatively affect our ability to retain some of our existing
business, procure future business and pursue certain strategic alliances or
joint ventures. In particular, if we lose our minority business enterprise
status, Lear has the right under our agreement to require us to sell our
membership interest in the Saturn LLC to another minority partner. We cannot
assure you that we would be capable of replacing the net revenue we derived from
the Saturn LLC after such sale.
6
<PAGE> 13
OUR CUSTOMERS GENERALLY DO NOT ENTER INTO LONG-TERM PURCHASE ORDERS OR
COMMITMENTS, AND CANCELLATIONS, REDUCTIONS OR DELAYS IN CUSTOMER ORDERS COULD
MATERIALLY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS.
We generally do not obtain long-term, firm purchase orders from our
communications, computer, military or other non-automotive customers. Rather,
these customers typically place orders for delivery within 30 to 90 days. Our
automotive customers typically place annual blanket purchase orders, but these
orders do not obligate them to purchase any specific services or products from
us until they issue a release. Releases are typically placed within 30 to 90
days of required delivery and may be canceled at any time, in which case the
customer would generally be liable only for work in process and finished goods.
We often purchase components with lead times in excess of 90 days based on
customer forecasts, at times without a customer commitment or order to pay for
them. We also rely on our estimates of anticipated future orders when making
decisions regarding:
- the levels of business that we will seek and accept;
- the timing of production schedules;
- the purchase of materials;
- the purchase or lease of facilities and equipment; and
- the levels and utilization of personnel and other resources.
For a variety of reasons, customers may cancel, reduce or delay commitments
or orders that were either previously made or anticipated. Significant or
numerous cancellations, reductions or delays in our customers' commitments or
orders could have a material adverse effect on our business, financial condition
or results of operations.
UNEXPECTED INCREASES IN THE PRICE OF OUR RAW MATERIALS AND INACCURACIES IN
FORECASTING OUR RAW MATERIAL AND INVENTORY NEEDS COULD NEGATIVELY AFFECT OUR
BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.
Because most of our agreements with our customers contain fixed prices, we
bear the risk of unexpected fluctuations in the cost of many raw materials. In
addition, a substantial portion of our net revenue is derived from our ability
to meet short customer timelines and provide just-in-time services. Accordingly,
we are often required to forecast our future inventory needs based upon the
anticipated demands of our customers. As a result, inaccuracies in forecasting
our needs could result in a shortage or an excess of materials or inventory,
either of which could have a material adverse effect on our business, financial
condition or results of operations.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY OR IF WE BECOME INVOLVED
IN INTELLECTUAL PROPERTY RELATED LITIGATION, OUR BUSINESS, FINANCIAL CONDITION
OR RESULTS OF OPERATIONS MAY SUFFER A MATERIAL ADVERSE EFFECT.
Our success depends, in part, on our proprietary designs, technologies,
techniques, processes and other intellectual property, most of which is not
protected by patents. We rely primarily on trade secret protection to secure
this intellectual property. We may be unable to remain competitive if others
infringe on our intellectual property, are able to reverse engineer our products
or otherwise replicate our intellectual property. Protecting our intellectual
property in foreign jurisdictions may also be difficult or impossible. In
addition, competitors and others may claim that we are infringing on their
intellectual property. Litigation may be necessary to protect our intellectual
property or to determine the validity and scope of the proprietary rights of our
competitors and others. Our involvement in existing and future intellectual
property litigation could result in significant expense to us or adversely
affect our use of the challenged technologies or our sales of the challenged
products, whether or not such litigation is resolved in our favor. Intellectual
property related litigation could also divert the efforts of our management and
our design,
7
<PAGE> 14
engineering and technical personnel. In the event of an adverse outcome in any
intellectual property litigation, we may be required to:
- pay substantial damages;
- cease the manufacture, use, sale or importation of infringing products or
technologies; or
- expend significant resources to develop, acquire or license necessary
technologies.
We may not be successful in the development or acquisition of replacement
technology, and licenses may not be available under terms acceptable to us or at
all.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL
AND SKILLED EMPLOYEES.
We depend on the services of our senior executives, including Wallace K.
Tsuha, Jr., our chairman, chief executive officer and president. Specifically,
Mr. Tsuha's departure would result in the loss of our minority business
enterprise status, unless we appoint an ethnic minority as our new chief
executive officer. Our business also depends on our ability to continue to
recruit, train and retain skilled employees, particularly management,
engineering and sales personnel. Recruiting personnel in our industry is highly
competitive. We have no employment agreements with any of our executive officers
or skilled employees. In addition, our ability to successfully integrate
acquired companies or portions of businesses depends, in part, on our ability to
retain key management and skilled personnel of these companies. The loss of, or
inability to retain, Mr. Tsuha or one or more of our other senior executives or
other skilled personnel, including personnel of acquired companies, could have a
material adverse effect on our business, financial condition or results of
operations.
RISKS PARTICULAR TO OUR INTERNATIONAL OPERATIONS COULD ADVERSELY AFFECT OUR
OVERALL RESULTS.
In addition to operations in the United States, we have manufacturing
facilities in Mexico and the Philippines, and engineering and sales operations
in Singapore. We also intend to expand our operations in existing and into new
markets worldwide. Expanding our operations in foreign markets may require
considerable management time as well as start-up expenses for market
development, hiring personnel and establishing office facilities before any
significant revenue is generated. As a result, operations in new or expanded
foreign markets may have lower margins or may be unprofitable.
Our international manufacturing and other operations are also subject to
certain risks inherent in carrying on business outside of the United States.
These risks include:
- exchange rate fluctuations or increases in the level of inflation;
- greater risk of political or economic instability;
- difficulties in staffing or management;
- possible longer payment cycles from customers or greater difficulty in
collecting accounts receivable;
- unexpected changes in and the burdens and costs of compliance with a
variety of foreign laws and labor practices;
- adherence to and unexpected changes in trade restrictions such as export
duties, import controls or trade barriers, including quotas and tariffs;
- inability to utilize net operating losses incurred by our foreign
operations to reduce our United States income taxes; and
- difficulties in coordinating domestic and foreign operations.
We cannot assure you that we will realize the anticipated benefits of our
international expansion or that our current or future international operations
will contribute positively to our business, financial condition or results of
operations.
8
<PAGE> 15
WE HAVE EXPOSURE TO PRODUCT LIABILITY CLAIMS AND RECALLS OF PRODUCTS THAT COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION OR RESULTS
OF OPERATIONS.
As a service provider in the EMS industry, we have exposure to product
liability claims with respect to our operations in the event that the failure of
one or more of our services or products results in personal injury or death. In
addition, if any of the services we provide or the products we manufacture prove
to be defective, we may be required to participate in a government mandated or
OEM required recall involving those related products. Our insurance against
product liability claims may be insufficient to cover liabilities ultimately
incurred by us, or insurance may cease to be available on terms acceptable to
us.
WE MAY INCUR SIGNIFICANT LIABILITIES IF WE FAIL TO COMPLY WITH ENVIRONMENTAL AND
HEALTH AND SAFETY REGULATIONS.
Our operations are regulated under a number of federal, state, local and
foreign environmental and health and safety laws and regulations, which govern,
among other things, the use, storage, treatment, discharge and disposal of
hazardous chemicals and substances used in our manufacturing processes. Also,
because our manufacturing processes result in the generation of some hazardous
wastes, we may be subject to potential financial exposure for costs associated
with investigation or remediation of sites at which we have arranged for the
disposal of hazardous wastes if such sites become contaminated, even if we fully
comply with applicable environmental laws. Moreover, liabilities, including
sanctions, may be imposed without regard to the legality of our original conduct
and without regard to whether we knew of, or were responsible for, the presence
of such hazardous or toxic substances, and this liability may be joint and
several with other parties. If the liability is joint and several, we could be
held responsible for payment of the full amount of the liability, whether or not
any other responsible party is also liable. In the event of a violation of
environmental laws, we could be held liable for damages, penalties, sanctions
and costs of remedial actions and could also be subject to revocation of our
permits. Any revocation could require us to cease or limit production at one or
more of our facilities. Environmental and health and safety laws could also
become more stringent over time, imposing greater compliance costs and
increasing risks and penalties associated with any violation. In addition,
compliance with these laws and regulations could restrict our ability to expand
our facilities or require us to acquire costly equipment or incur other
significant expenses.
OUR BUSINESS MAY SUFFER IF GOVERNMENT REGULATION HINDERS OUR ABILITY TO SELL
CERTAIN COMMUNICATIONS OR MEDICAL SERVICES OR PRODUCTS.
Although our sales to the communications market currently constitute a
small portion of our net revenue, we intend to increase our sales to this end
market. Many of our communications customers are subject to regulation by the
Federal Communications Commission, or the FCC, the European Union, and other
federal, state and foreign governmental and non-governmental authorities. The
failure of our current or potential communications customers to meet FCC or
similar requirements could result in the non-approval, recall or discontinuation
of products which could substantially reduce or eliminate their demand for our
services. This could significantly reduce an area of anticipated growth in net
revenue, resulting in a material adverse effect on our business, financial
condition or results of operations.
In addition, although our sales to the medical market currently constitute
a small portion of our net revenue, we intend to increase our sales to this
market. The design, development, testing, manufacture, promotion and sale of
medical devices are subject to extensive regulation by the Food and Drug
Administration, or the FDA, and other federal, state and foreign authorities.
Noncompliance with applicable requirements can result in a device not being
cleared or approved for sale, product recalls, fines and other significant
regulatory, civil or criminal actions. Medical device manufacturers are also
subject to strict federal regulations regarding the design, development,
manufacture, packaging and labeling of medical devices known as the Quality
System Regulations, formerly Good Manufacturing Practices. If the FDA determines
that our medical customers or we fail to meet such FDA and similar regulatory
requirements, the FDA could institute regulatory proceedings or product recalls,
assess penalties or take other significant actions. The failure of our current
or potential medical end market customers or us to obtain or maintain FDA
approvals and maintain compliance with the Quality System Regulations,
9
<PAGE> 16
therefore, could substantially reduce their demand for our services, reducing an
area of anticipated revenue growth. This could have a material adverse effect on
our business, financial condition or results of operations.
WE MAY FAIL TO SECURE ADDITIONAL FINANCING WHICH MAY BECOME NECESSARY TO MAKE
CAPITAL EXPENDITURES TO EXPAND OUR OPERATIONS AND REMAIN COMPETITIVE.
We have made and will continue to make substantial capital expenditures to
maintain our facilities and expand our operations in order to remain
competitive. Our future success may depend on our ability to obtain additional
financing to support our continued growth and operations. We may seek to raise
funds by:
- issuing additional common stock or other equity instruments;
- issuing debt securities;
- obtaining additional lease financings;
- increasing our credit facility; or
- obtaining off-balance sheet financing.
We may not be able to obtain additional financing when we need it on
satisfactory terms or at all. In addition, our current credit facility imposes
restrictions on our ability to increase our leverage. Furthermore, any
additional financing may have terms or conditions that adversely affect our
business, such as financial or operating covenants. If we issue additional
equity securities or convertible debt to raise capital, it may be dilutive to
your ownership interests. Moreover, our ability to raise additional financing
through the issuance of equity securities or convertible debt securities may be
hindered due to our desire to retain our minority business enterprise status,
which we believe will require at least 30% of our stock to be beneficially owned
by ethnic minorities.
UNEXPECTED INTERRUPTIONS TO OUR SERVICES COULD NEGATIVELY AFFECT OUR RESULTS OF
OPERATIONS.
Our services are subject to a number of potential causes of interruption,
including labor difficulties and strikes, natural disasters, fire, vandalism,
civil disturbances and mechanical failures, any of which could impair or prevent
our ability to provide one or more of our services. Any significant reduction or
stoppage of production at one or more of our manufacturing facilities or
impairment or prevention of our ability to provide design and engineering,
materials management, testing and qualification, fulfillment or after-sales
support services could have a material adverse effect on our business, financial
condition or results of operations.
RISKS RELATING TO OUR INDUSTRY AND MARKETS
OUR INDUSTRY IS INTENSELY COMPETITIVE, AND WE MAY BE UNSUCCESSFUL IF WE CANNOT
COMPETE EFFECTIVELY.
The EMS industry is intensely competitive. We compete against many domestic
and foreign EMS providers, some of which possess significant global or domestic
operations and greater financial, manufacturing, sales, marketing, research,
engineering and acquisition resources and capabilities than we have. Also,
current and prospective customers may decide to internally perform some of the
services we offer. In addition, because the basic technology necessary to be an
EMS provider is generally not subject to significant proprietary protection,
competitors may replicate such basic technology and additional competitors may
enter the market in the future. We compete on the basis of, among other things,
product quality, responsiveness to customers, manufacturing and engineering
technology and price. To the extent our services and products do not provide
quality, timing or technological advantages over those offered by our
competitors, or which can be realized by our customers internally, we are likely
to experience increased price competition, reduced margins or loss of market
share with respect to those services and
10
<PAGE> 17
products, any of which could have a material adverse effect on our business,
financial condition or results of operations.
WE MAY BE UNABLE TO OBTAIN RAW MATERIALS OR COMPONENTS NEEDED FOR OUR
MANUFACTURING OPERATIONS ON A TIMELY BASIS OR AT ALL.
We rely on a limited number of suppliers for single source components used
in the manufacture and assembly of our products, and we generally do not have
long-term supply agreements. Shortages of materials and components have occurred
from time to time and will likely occur in the future. Raw materials or
component shortages and price fluctuations could result in shipping delays or
increased prices, which could adversely affect our ability to manufacture
products for our customers on a timely basis or at an acceptable cost. Moreover,
the current consolidation trend among suppliers to EMS providers could result in
changes in supply relationships and in the price, availability and quality of
components and raw materials. Due to our use of just-in-time inventory
techniques, the timely availability of many components is dependent on our
abilities to develop accurate forecasts of customer requirements and to manage
the materials supply chain. If we fail to do either, we may lose customers which
could have a material adverse effect on our business, financial condition or
results of operations.
IF WE ARE UNABLE TO RESPOND TO RAPIDLY CHANGING TECHNOLOGY AND CONTINUOUS
PROCESS DEVELOPMENT, WE MAY BE UNABLE TO COMPETE EFFECTIVELY.
The EMS industry is characterized by rapidly changing technology and
continuous process development. The future success of our business will largely
depend on our ability to maintain and enhance our technological capabilities,
develop and market services that meet changing customer needs, and successfully
anticipate or respond to technological changes on a cost-effective and timely
basis. In addition, in the future our industry could encounter competition from
new or revised technologies that render our current technology less competitive
or obsolete or that reduce the demand for our services. We may not be able to
effectively respond to the technological requirements of changing markets. To
the extent we determine that we must develop or secure new technologies and
equipment to remain competitive, we may be required to make significant capital
or other investments. Financing on acceptable terms may not be available for
these purposes in the future and our investments in new technologies may not
result in commercially viable technologies.
A DOWNTURN IN THE AUTOMOTIVE INDUSTRY WOULD LIKELY REDUCE OUR NET REVENUE.
For the year ending December 31, 1999, approximately 74% of our net revenue
was derived from customers in the automotive industry. The automotive industry
is subject to economic cycles and has in the past experienced, and is likely in
the future to experience, recessionary periods. A recession or any other event
leading to either excess capacity or a downturn in the automotive industry may
have a material adverse effect on our business, financial condition or results
of operations.
OUR SALES MAY BE ADVERSELY AFFECTED BY LABOR INTERRUPTIONS AT OUR CUSTOMERS.
Substantially all of the hourly employees of North American automotive
OEMs, and a significant proportion of the employees of our other customers who
sell to automotive OEMs, are represented by the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America under
collective bargaining agreements. Because we deliver products to our customers
on a just-in-time basis, a work stoppage caused by labor difficulties at any
significant automotive customer could prevent sales and deliveries of our
services and products to that customer, which could have a material adverse
effect on our business, financial condition or results of operations.
11
<PAGE> 18
RISKS ASSOCIATED WITH INTERNAL GROWTH AND ACQUISITIONS
WE INTEND TO RAPIDLY GROW OUR BUSINESS AND MAY HAVE TROUBLE MANAGING THAT
GROWTH.
We intend to rapidly grow our business by seeking additional programs for
each of our segments and entering into strategic outsourcing alliances. Rapid
growth involves risks, including the following:
- inability to attract and retain the management personnel and skilled
employees necessary to support expanded operations;
- inability to efficiently integrate new operations, expand existing
operations and manage geographically dispersed operations;
- incurrence of cost overruns;
- construction delays, equipment delays or shortages, labor shortages and
disputes and production start-up costs;
- inability to obtain financing or capital on acceptable terms or at all;
and
- incurrence of new fixed operating expenses, including increases in
depreciation expense and rental expense.
For example, in March 2000, we entered into a strategic outsourcing
alliance with Motorola pursuant to which we became a preferred EMS supplier to
their Integrated Electronics Systems Sector. We anticipate that this could
generate significant business opportunities for us in the next few years. We
expect to dedicate resources and management time toward fostering and
maintaining this relationship, which may divert personnel from other matters. If
we are unable to meet the requirements of this new strategic outsourcing
alliance, there could be a material adverse effect on our business, financial
condition or results of operations.
In addition, our rapid growth has placed and will continue to place a
significant strain on our management resources and information, operating and
financial systems. For example, we anticipate that within the next four years we
may need to replace or expand our current information system. If our information
system does not work effectively or if we experience any difficulties in our
transition to a new information system, we may experience delays or failures in
our accounting and other information processing. This could adversely affect the
promptness and accuracy of our transaction processes and our financial
accounting and reporting. Furthermore, to manage the expected growth of our
operations and personnel, we may need to improve our other operational and
financial systems, transaction processes, procedures and controls. Our current
and planned systems, transaction processes, procedures and controls may be
inadequate to support future operations. Our inability to manage our growth
effectively could have a material adverse effect on our business, financial
condition or results of operations.
OUR ACQUISITION STRATEGY MAY NOT SUCCEED.
As part of our business strategy, we have also grown, and expect to
continue growing, by acquiring other product lines, technologies or facilities
that complement or expand our existing business. For example, in August 1999, we
expanded our business through the acquisition of Smartflex Systems, an EMS
provider based in Tustin, California. However, we may not realize any of the
anticipated benefits of the Smartflex acquisition or any other past or future
acquisition.
Future acquisitions may involve the issuance of our equity securities as
payment, in part or in full, for the acquired product line, technology or
facilities. Any future issuances of equity securities will dilute your ownership
interests. In addition, future acquisitions might never increase, and may even
decrease, our earnings or earnings per share and the benefits derived by us from
an acquisition may not outweigh or exceed the dilutive effect of the
acquisition. We may also incur additional debt burden in connection with any
future acquisitions or suffer costs of adverse tax and accounting consequences.
12
<PAGE> 19
In addition, there is keen competition for acquisition targets in the EMS
industry. As a result, we may not be able to identify suitable acquisition
candidates or negotiate attractive terms. In addition, we may have difficulty
obtaining the financing necessary to complete transactions we pursue. For
example, our current credit facility restricts the amount we can borrow to
undertake acquisitions. Moreover, our ability to issue equity securities or
convertible debt securities as financing for an acquisition may be limited due
to the extent we desire to maintain our minority business enterprise status. Our
failure to execute our acquisition strategy may have a material adverse effect
on our business, financial condition or results of operations.
WE MAY HAVE TROUBLE INTEGRATING ACQUIRED PRODUCT LINES, TECHNOLOGIES AND
FACILITIES.
In accordance with our business strategy, we have historically engaged in,
and intend to continue to engage in, a number of acquisitions, the most recent
of which was our purchase of Smartflex. In addition to the risks that the
intended benefits of an acquisition may not materialize, or an acquisition might
prove costly or dilutive, acquisitions, including Smartflex, involve numerous
other risks, including the following:
- difficulty in integrating operations, technologies, systems, services and
products;
- diversion of management's attention and disruption of operations;
- increased expenses and working capital requirements;
- entering markets in which competitors have stronger market positions or
in which we have limited or no prior experience;
- potential loss of key employees and customers of acquired businesses or
portions of businesses; and
- potential liabilities of acquired product lines, assets or companies.
We may not be able to meet performance expectations or successfully
integrate acquisitions on a timely basis without disrupting the quality and
reliability of services to our customers or diverting management resources,
either of which could have a material adverse effect on our business, financial
condition or results of operations.
RISKS RELATING TO OUR COMMON STOCK
WALLACE K. TSUHA, JR. AND HIS FAMILY WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL
OVER OUR COMPANY AFTER THIS OFFERING AND THEY, ESPECIALLY IN COMBINATION WITH
MASCOTECH, A SIGNIFICANT SHAREHOLDER, COULD DELAY, DETER OR PREVENT A CHANGE OF
CONTROL OR OTHER BUSINESS COMBINATION EVEN THOUGH SOME OF OUR SHAREHOLDERS MIGHT
CONSIDER SUCH A DEVELOPMENT FAVORABLE.
Upon completion of this offering, Mr. Wallace K. Tsuha, Jr. our chairman,
chief executive officer and president, and his family, will beneficially own
approximately % of our common stock on a fully diluted basis, or %, on
a fully diluted basis, if the underwriters' over-allotment is exercised in full.
By virtue of this stock ownership, Mr. Tsuha and his family will continue to
have substantial control over all matters submitted to our shareholders,
including the election of our directors, and to exercise significant control
over our business, policies and affairs. Such concentration of voting power
could delay, deter or prevent a change of control or other business combination
that might otherwise be beneficial to our shareholders.
Upon completion of this offering, MascoTech will own approximately %
of our common stock on a fully diluted basis, or %, on a fully diluted
basis, if the underwriters' over-allotment is exercised in full. By virtue of
this stock ownership, MascoTech will continue to have significant influence over
us through its ability to influence the election of directors and all other
matters that require action by our shareholders. This concentration of voting
power, especially in combination with Mr. Tsuha's and his family's voting power,
could delay, deter or prevent a change of control or other business combination
that might otherwise be beneficial to our shareholders. In addition, one of the
executive officers of MascoTech is currently a member of our board of directors.
We sell services and products to affiliates of MascoTech.
13
<PAGE> 20
At times, it may be possible that this director may be presented with a conflict
of interest by virtue of his positions at both MascoTech and our company,
particularly given MascoTech's share ownership and the fact that some of
MascoTech's affiliates are also our customers.
PROVISIONS IN STATE LAW AND OUR ARTICLES OF INCORPORATION AND BYLAWS MAY MAKE IT
MORE DIFFICULT FOR OTHERS TO OBTAIN CONTROL OF OUR COMPANY EVEN THOUGH SOME
SHAREHOLDERS MIGHT CONSIDER THIS DEVELOPMENT FAVORABLE.
Provisions in state law and our amended and restated articles of
incorporation and amended and restated bylaws may deter, delay or prevent a
change of control or changes in our management even though some of our
shareholders may consider those changes favorable or beneficial. For example,
our bylaws provide for a classified board of directors with staggered terms, so
that it would take three successive annual meetings of the shareholders to
replace all of our directors. Our articles also authorize the issuance of
preferred stock, with rights senior or superior to common shares, by our board
of directors, without prior shareholder approval. Our bylaws also require
unanimous consent for shareholder action by writing, and establish advance
notice for submitting nominations for election to the board of directors and for
proposing matters that can be acted upon by the shareholders at a meeting. In
addition, Michigan law has specific fair price and control share provisions that
could delay, deter, or prevent a change of control.
RISKS RELATED TO THIS OFFERING
NON-CASH ACCOUNTING CHARGES RELATED TO EMPLOYEE OPTIONS AND A WARRANT HELD BY
MOTOROLA WILL RESULT IN A REDUCTION OF OUR EARNINGS, MAY RESULT IN US REPORTING
LOSSES AND MAY RESULT IN A REDUCTION OF OUR STOCK PRICE.
Upon completion of this offering, we will record non-cash deferred
compensation and related paid in capital to reflect the grant of stock options
to employees at prices below fair market value of our common stock on the date
of this offering. At an assumed initial public offering price of $ per
share, this deferred compensation will be $ million, and will be
amortized as stock-based compensation using an accelerated method over the
exercise period of the related options. This charge will result in a reduction
of our earnings, may result in us reporting a loss in the applicable
amortization period and may result in a reduction of our stock price.
In addition, in March 2000, we will recognize a non-cash charge through our
results of operations in the amount of $ million in relation to the
issuance of a warrant to purchase 1,565,331 shares of our common stock to
reflect the difference between the fair market value and the exercise price of
the warrant. This charge will result in a reduction of our earnings, may result
in us reporting a loss for year 2000 and may result in a reduction in our stock
price.
THERE MAY NOT BE AN ACTIVE TRADING MARKET FOR OUR COMMON STOCK FOLLOWING THE
OFFERING, WHICH COULD MAKE IT DIFFICULT FOR YOU TO SELL YOUR STOCK.
Prior to this offering, there has not been a public market for our common
stock. We cannot assure you that an active trading market for our common stock
will develop or be sustained after this offering. The initial public offering
price for our common stock will be determined by negotiations between the
underwriters and us and may not be indicative of prices that will prevail in the
trading market. You may not be able to sell shares of our common stock at or
above the initial offering price or at all.
OUR STOCK PRICE COULD BE VOLATILE AND COULD DROP UNEXPECTEDLY FOLLOWING THIS
OFFERING.
Historically, stock prices and trading volumes for newly public companies
fluctuate widely for a number of reasons, including some reasons that may be
unrelated to their businesses or results of operations. This type of market
volatility could decrease the price of our common stock without regard to our
operating performance. In addition, our results of operations may be below the
expectations of public market analysts or investors. If this occurs, the market
price of our common stock could decrease, perhaps significantly.
14
<PAGE> 21
FUTURE SALES OF OUR COMMON STOCK, OR THE PERCEPTION THAT SUCH SALES COULD OCCUR,
COULD CAUSE OUR STOCK PRICE TO DECLINE.
The market price of our common stock could decline as a result of sales in
the public market of our common stock by our existing shareholders after this
offering, or the perception that these sales could occur. These sales also might
make it difficult for us to issue additional equity securities in the future.
After this offering, we will have shares of common stock outstanding.
This includes the
shares we and the selling shareholders are selling in this offering, which may
be resold in the public market immediately. The remaining shares, or % of
our total outstanding shares, and our shares subject to outstanding options and
the Motorola warrant, are restricted from immediate resale by federal securities
laws and lock-up agreements between our current shareholders and the
underwriters, but may be sold into the public market in the near future. These
shares will become available for sale at various times following the expiration
of the lock-up agreements, which is 180 days after the date of this prospectus,
subject to volume limitations under Rule 144 of the Securities Act. In addition,
MascoTech, one of our current significant shareholders, and Motorola with
respect to the shares it may acquire pursuant to its warrant, each has the right
to require us to register their shares following this offering under certain
circumstances. You should read the section titled "Shares Eligible For Future
Sale" beginning on page 49 for a more complete discussion of shares that may be
sold in the public market in the future.
INVESTORS WHO PURCHASE OUR COMMON STOCK IN THIS OFFERING WILL SUFFER IMMEDIATE
AND SUBSTANTIAL DILUTION.
Our existing shareholders paid substantially less for their shares of our
common stock than the initial public offering price. As a result, you will
suffer immediate and substantial dilution in net tangible book value per share.
In addition, to the extent outstanding and newly issued options and the Motorola
warrant are exercised in the future, you will experience further dilution.
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<PAGE> 22
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make forward-looking statements within the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 throughout this prospectus. In
some cases you can identify these statements by forward-looking words such as
"anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"should," "will," and "would" or similar words. You should read statements that
contain these words carefully because they discuss our future expectations,
contain projections of our future results of operations or of our financial
position or state other "forward-looking" information. We believe that it is
important to communicate our future expectations to our investors. However,
there may be events in the future that we are not able to accurately predict or
control. The factors listed above in the section captioned "Risk Factors," as
well as any cautionary language in this prospectus provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of the
events described in these risk factors and elsewhere in this prospectus could
have a material adverse effect on our business, financial condition or results
of operations.
You should read this prospectus completely and with the understanding that
our actual future results may be materially different from what we expect. We
may not update these forward-looking statements after the date of this
prospectus, even though our situation will change in the future. All
forward-looking statements attributable to us are expressly qualified by these
cautionary statements.
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<PAGE> 23
USE OF PROCEEDS
We will receive net proceeds of approximately $ million from our
sale of shares of our common stock in this offering at the assumed
initial public offering price of $ per share after deducting underwriting
discounts and commissions paid by us. We will not receive any of the proceeds
from the sale of our shares being offered by the selling shareholders, including
shares they will sell if the underwriters exercise their over-allotment option.
We expect to use approximately $ million of our net proceeds from
this offering to reduce our indebtedness under our credit facility, and expect
to use the remainder for working capital and other general corporate purposes.
You should be aware, however, that we have broad discretion under our bank
credit facility as to the amount we choose to repay. We may actually repay more
or less of our long-term debt. Our bank credit facility matures in August, 2002.
At December 31, 1999, we had $107.4 million outstanding under our bank credit
facility, of which $71.3 million was used to finance our acquisition of
Smartflex in August 1999 and $27.0 million was used to finance a share
repurchase in April 1999. At December 31, 1999, the weighted average interest
rate on our credit facility was 8.46%. Our net proceeds from this offering not
used to reduce our indebtedness under the bank credit facility will be invested
in short-term, interest-bearing securities until allocated for a specific use.
DIVIDEND POLICY
We have not declared or paid a cash dividend on our common stock since our
formation, and we do not anticipate paying any cash dividends in the foreseeable
future. We presently intend to retain earnings to finance future operations and
expansion and to reduce indebtedness.
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<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis; and
- on an as adjusted basis to reflect our sale of shares of common
stock in this offering at an assumed initial public offering price of
$ per share, and our receipt and use of the estimated net proceeds
after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
While we have assumed for purposes of the adjusted capitalization data
below that we will apply approximately $ million of our net proceeds to
reduce long-term debt, you should be aware that we have broad discretion under
our bank credit facility as to the amount we choose to repay.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS EXCEPT
SHARE DATA)
<S> <C> <C>
Cash........................................................ $ 1,929 $
======== ========
Long-term debt.............................................. $107,361 $
-------- --------
Shareholders' equity:
Common stock -- no par value; 200,000,000 shares
authorized, actual and as adjusted; 29,741,280 shares
outstanding, actual, shares outstanding as
adjusted............................................... --
Additional paid-in capital................................ 7,737
Retained earnings......................................... 44,121
-------- --------
Total shareholders' equity............................. 51,858
-------- --------
Total capitalization................................. $159,219 $
======== ========
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 27, 2000 and excludes:
- 2,834,400 shares issuable upon exercise of outstanding stock options with
a weighted average exercise price of $2.75 per share;
- 2,500,000 shares of common stock available for future grant under our
2000 Stock Option Plan; and
- 1,565,331 shares issuable upon the exercise of a warrant held by Motorola
with an exercise price equal to 90% of the initial public offering price
per share.
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<PAGE> 25
DILUTION
If you invest in shares of our common stock in this offering, your
ownership interest will be diluted to the extent of the difference between the
public offering price per share of our common stock and the net tangible book
value per share after this offering. As of December 31, 1999, we had a negative
net tangible book value of approximately $(15.0) million, or $(.50) per share of
common stock. Net tangible book value per share is determined by dividing the
amount of our total tangible assets less total liabilities by the number of
shares of common stock outstanding. Dilution in net tangible book value per
share represents the difference between the amount per share paid by purchasers
of common stock in this offering and the net tangible book value per share of
common stock immediately after the completion of this offering. Our pro forma
net tangible book value as of December 31, 1999 would have been approximately
$ million, or $ per share, after giving effect to our sale of
shares of common stock in this offering at an assumed public offering price of
$ and our receipt of the net proceeds, after deducting the underwriting
discounts and commissions and estimated offering expenses payable by us. This
represents an immediate increase in pro forma net tangible book value of $
per share to our existing shareholders and an immediate dilution of $ per
share to new investors purchasing shares at the initial public offering price.
If the initial public offering price is higher or lower, the dilution to the new
investors will be greater or less, as applicable. The following table
illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at December
31, 1999............................................... $
Increase per share attributable to new investors..........
-------
Pro forma tangible book value per share after this
offering..................................................
-------
Dilution per share to new investors......................... $
=======
</TABLE>
The following table sets forth, as of December 31, 1999, the number of
shares of common stock purchased from us, the total consideration paid, and the
average price per share paid by our existing shareholders and new investors
assuming an initial offering price of $ per share, before deducting the
underwriting discounts and commissions and our estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... % $ % $
New investors.................. % %
---------- -------- ---------- --------
Total..................... 100.0% $ 100.0% $
========== ======== ========== ========
</TABLE>
The foregoing table and calculations assume no exercise of any options and
excludes:
- 2,834,400 shares issuable upon exercise of outstanding stock options with
a weighted average exercise price of $2.75 per share;
- 2,500,000 shares of common stock available for future grant under our
stock option plan; and
- 1,565,331 shares issuable upon the exercise of a warrant held by Motorola
with an exercise price equal to 90% of the initial public offering price
per share.
To the extent outstanding or newly acquired options or the Motorola warrant
are exercised in the future, there will be further dilution to new investors.
19
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data and selected pro forma
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page
and our consolidated financial statements and related notes included elsewhere
in this prospectus. The 1999 pro forma consolidated statement of operations data
give effect to the acquisition of Smartflex Systems as if this acquisition had
been completed on January 1, 1999. This acquisition was accounted for under the
purchase method of accounting and accordingly Smartflex has been included in our
financial results since August 26, 1999, the date of the acquisition. The
consolidated statements of operations data for the years ended December 31,
1997, 1998 and 1999 and the consolidated balance sheet data as of December 31,
1998 and 1999 are derived from our audited consolidated financial statements
included elsewhere in this prospectus. The consolidated statements of operations
data for the years ended December 31, 1995 and 1996 and the consolidated balance
sheet data as of December 31, 1995, 1996 and 1997 are derived from our audited
consolidated financial statements, which are not included in this prospectus.
Historical results are not necessarily indicative of the results of operations
to be expected for future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
PRO FORMA
1995 1996 1997 1998 1999 1999
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net revenue......................... $ 122,550 $ 168,707 $ 161,048 $ 188,464 $ 257,107 $ 325,579
Cost of revenue..................... 119,272 146,070 133,568 147,661 205,341 268,975
---------- ---------- ---------- ---------- ---------- ----------
Gross profit........................ 3,278 22,637 27,480 40,803 51,766 56,604
Development expense................. 2,468 3,260 3,563 4,861 7,741 8,465
Selling, general and administrative
expense........................... 2,431 4,976 8,039 12,777 19,146 29,467
Amortization expense................ 1,650 1,650 1,650 1,649 2,582 4,772
Restructuring expense............... -- -- -- -- -- 3,833
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)............. (3,271) 12,751 14,228 21,516 22,297 10,067
Interest income..................... -- -- 100 176 331 --
Interest expense.................... (1,722) (1,981) (977) (142) (3,340) (8,736)
Other income (expense), net......... (158) 449 116 (131) (161) (710)
Write down of investment............ -- -- -- (905) -- --
Minority interest................... -- -- -- (1,701) (2,788) (2,788)
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes... (5,151) 11,219 13,467 18,813 16,339 (2,167)
Income taxes........................ (1,773) 4,217 5,408 6,859 6,434 370
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)................... $ (3,378) $ 7,002 $ 8,059 $ 11,954 $ 9,905 $ (2,537)
========== ========== ========== ========== ========== ==========
Basic and diluted earnings (loss)
per share of common stock......... $ (0.09) $ 0.19 $ 0.22 $ 0.32 $ 0.31 $ (0.08)
Basic and diluted weighted average
number of common shares
outstanding....................... 37,176,600 37,176,600 37,176,600 37,176,600 32,145,026 32,145,026
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash................................ $ 101 $ 2,331 $ 1,136 $ 1,020 $ 1,929
Working capital..................... 22,404 21,828 18,283 22,259 44,645
Total assets........................ 87,026 84,616 83,425 98,604 231,974
Long-term debt, net of current
portion........................... 27,074 18,070 6,630 3,976 107,361
Total shareholders' equity.......... 41,938 48,940 56,999 68,953 51,858
</TABLE>
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<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the "Selected
Consolidated Financial Data" section of this prospectus and our consolidated
financial statements and related notes included elsewhere in this prospectus.
The following discussion contains trend analysis and other forward-looking
statements within the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. Our actual
results may differ from those indicated in such forward-looking statements as a
result of factors set forth elsewhere in this prospectus, including under "Risk
Factors" beginning on page 5.
OVERVIEW
We are a global provider of value-added electronics manufacturing services,
or EMS, to OEMs and their suppliers. We provide these services to customers
primarily in the automotive, communications, computer and military end markets.
As the amount and complexity of electronics content in commercial and consumer
goods have grown, OEMs have been increasingly using EMS providers to outsource
their internal manufacturing capacity. We also offer OEMs integrated
cost-effective solutions that are responsive to their outsourcing needs and
provide a broad range of services, including product design and engineering;
materials management; manufacturing and assembly; testing and qualification;
fulfillment; and after-sales support. Our customers include industry leaders
such as DaimlerChrysler, Ford, General Dynamics, Hewlett-Packard, Hughes, IBM
and Motorola.
To better target customers and serve the needs of different end markets, we
have strategically aligned our business into three segments: electronics,
electromechanical and electrical.
- Our electronics segment provides services in connection with printed
circuit board, flex circuit assembly and the incorporation of electronic
assemblies into subassemblies and final systems box-build. We
significantly increased our capabilities in this segment with the
acquisition of Smartflex in August 1999.
- Our electromechanical segment provides services in connection with
devices such as junction blocks, relays, actuators, solenoids and
transmission modules.
- Our electrical segment provides services in connection with battery
cables, wire harnesses and power distribution systems. This segment is
comprised of the Saturn LLC, of which we own 53%.
For the year ended December 31, 1999, our electronics segment accounted for
32% of our net revenue, our electromechanical segment accounted for 54% of our
net revenue and our electrical segment accounted for 14% of our net revenue. In
future periods, we expect that our electronics segment will account for a
significantly higher portion of our net revenue, as our 1999 results only
include the operations of Smartflex beginning after August 26, 1999. In
addition, some of our manufacturing facilities in our electronics segment
currently have excess capacity for which we are seeking new programs.
We recognize revenue when products are shipped to our customers. We have
historically relied on a small number of customers for a majority of our net
revenue. For the year ended December 31, 1999, DaimlerChrysler accounted for 31%
of our net revenue and Ford accounted for 19% of our net revenue. We expect to
continue to generate a significant portion of our net revenue from a small group
of customers in the future. The loss of any one of our major customers would
have a material adverse effect on our business, financial condition or results
of operations. During the third quarter of 2000, a significant automotive
program is scheduled to end. This program generated $31.5 million of net revenue
during 1999 for our electromechanical segment.
We do not generally obtain long-term, firm purchase orders from our
communications, computer, military and other non-automotive customers. Rather,
these customers typically place orders for delivery within 30 to 90 days. Our
automotive customers typically place annual blanket purchase orders, but these
orders do not obligate them to purchase any specific or minimal amount of
services or products from us
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<PAGE> 28
until a release is issued under the blanket purchase order. Releases are
typically placed within 30 to 90 days of required delivery and may be canceled
at any time, in which case the customer generally would be liable only for
finished goods and work in process. Therefore, we must anticipate delivery dates
and future volume of orders based upon our customer forecasts. The level and
timing of orders placed by our customers vary due to:
- customer attempts to manage inventory;
- changes in customer manufacturing strategy; and
- variation in demand for customer products resulting from, among other
things, introduction of new products, product life cycles, competitive
conditions or industry or economic conditions.
We rely on a single or limited number of suppliers for many proprietary and
other components used in the assembly of our products, and we do not typically
have any long-term supply agreements. Shortages of materials and components have
occurred from time to time and will likely occur in the future. Some key
electronics components have long procurement lead times in addition to being
available from only one source or a limited number of sources. Failure to
anticipate the volume or timing of customer orders or delivery problems relating
to components from limited source suppliers could have a material adverse effect
on our financial performance.
A significant portion of our business is presently dependent upon the
automotive industry. The automotive industry is cyclical and dependent on
consumer spending. In addition, EMS providers to the automotive industry
experience seasonal variations in OEM orders and revenue. Decreased revenues and
operating income are generally experienced during the months of July and
December of each year as a result of scheduled OEM plant shut downs for
vacations and holidays as well as changeovers in production lines for the next
model year.
RECENT ACQUISITION
In August 1999, we acquired Smartflex Systems, Inc. for $71.3 million. This
acquisition was accounted for under the purchase method of accounting, and,
accordingly, Smartflex has been included in our financial results since August
26, 1999.
STOCK OPTIONS AND WARRANT
Upon completion of this offering, we will record non-cash deferred
compensation related to paid in capital to reflect the grant of stock options to
employees at prices below fair market value of our common stock on the date of
this offering. At an assumed initial offering price of $ per share,
this deferred compensation will be $ million, and will be amortized as
stock-based compensation using an accelerated method over the exercise period of
the related options.
In addition, in March 2000, we will recognize a non-cash charge through our
results of operations in the amount of $ million in relation to the
issuance of a warrant to purchase 1,565,331 shares of our common stock, to
reflect the difference between the fair market value and the exercise price of
this warrant.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Net Revenue
Our net revenue increased $68.6 million, or 36.4%, to $257.1 million in
1999 from $188.5 million in 1998. This increase reflected higher business volume
in all of our business segments. Net revenues were higher in the electronics
segment by $36.1 million, in the electromechanical segment by $22.8 million and
in the electrical segment by $9.8 million. The increase in the electronics
segment was attributable to the acquisition of Smartflex, which added $52.2
million in net revenue for the period beginning August 26, 1999 and ending
December 31, 1999. This increase was offset by a $16.1 million decrease in net
revenue of our electronics business which existed prior to the Smartflex
acquisition, primarily due to the phase-out
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<PAGE> 29
of certain programs. The increase in the electromechanical segment was primarily
attributable to $15.2 million of net revenue associated with a major junction
block program which was launched during the second quarter of 1999, $3.9 million
of net revenue associated with increased sales of relay products, and the
remainder of the increase was attributable to solenoids and other
electromechanical products. The increase in the electrical segment was
attributable to the operation of this segment for 12 months during 1999 compared
to 10 months during 1998.
Gross Profit
Our gross profit increased $11.0 million, or 27.0%, to $51.8 million in
1999 from $40.8 million in 1998. However, our gross profit as a percent of net
revenue declined to 20.1% in 1999 from 21.6% in 1998. This decline was primarily
attributable to a higher proportion of net revenue from our electronics segment,
which generally has lower profit margins than our other business segments. Also
during 1999 our gross profit as a percent of net revenue was negatively affected
by excess capacity in our electronics segment.
Development Expense
Development expense includes payroll and related benefits for design and
process engineering and information services. Our development expense increased
$2.8 million, or 57.1%, to $7.7 million in 1999 from $4.9 million in 1998. This
increase reflected additional development activities, together with development
expense at Smartflex of approximately $600,000.
Selling, General and Administrative Expense
Selling, general and administrative expense includes payroll and benefit
expense, certain facilities expense, professional service fees, travel and
related costs. Our selling, general and administrative expense increased $6.3
million, or 49.2%, to $19.1 million in 1999 from $12.8 million in 1998. Selling,
general and administrative expense as a percentage of net revenue increased to
7.4% in 1999 from 6.8% in 1998. These increases reflect $6.8 million
attributable to Smartflex, which was partially offset by lower expense in our
other business segments. These lower expenses resulted primarily from the
absence of management fees for administrative services which were provided to
the Saturn LLC by our strategic alliance partner in 1998.
Amortization Expense
Amortization expense increased $1.0 million, or 62.5%, to $2.6 million in
1999 from $1.6 million in 1998. This increase reflected the amortization of $1.1
million, for the period from August 26 through December 31 related to $52.7
million of intangible assets recorded in connection with the acquisition of
Smartflex.
Net Income
Our net income declined $2.1 million, or 17.5%, to $9.9 million in 1999
from $12.0 million in 1998. This decline was a result of the lower gross profit
margins and the higher expenses mentioned above as well as significantly higher
interest expense and a higher effective tax rate. Interest expense increased by
$3.2 million which reflected the incurrence of significant debt to finance the
Smartflex acquisition and a stock repurchase. Our effective tax rate increased
to 39.4% in 1999 from 36.5% in 1998 as a result of nondeductible amounts for tax
purposes pertaining to certain assets acquired in the Smartflex acquisition.
Our earnings per share of common stock declined by 3% to $0.31 per share in
1999 from $0.32 per share in 1998. The 1999 weighted average number of shares of
common stock declined by 5,031,574 as a result of a stock repurchase of
7,435,320 shares in April 1999.
23
<PAGE> 30
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net Revenue
Our net revenue increased $27.5 million, or 17.1%, to $188.5 million in
1998 from $161.0 million in 1997. The increase was primarily attributable to the
initiation of operations of the Saturn LLC in March 1998 which contributed $27.0
million.
Gross Profit
Our gross profit increased $13.3 million, or 48.4%, to $40.8 million in
1998 from $27.5 million in 1997. Our gross profit as a percent of net revenue
increased to 21.6% in 1998 from 17.1% during 1997. The dollar and percentage
increases primarily reflect improvements in materials management achieved during
1998.
Development Expense
Our development expense increased $1.3 million, or 36.1%, to $4.9 million
in 1998 from $3.6 million in 1997, reflecting increased development activities.
Selling, General and Administrative Expense
Our selling, general and administrative expense increased $4.8 million, or
60.0%, to $12.8 million in 1998 from $8.0 million in 1997. This increase was
primarily due to $3.4 million attributable to the Saturn LLC, which began
operations in February, 1998. The remainder of the increase resulted from higher
salary and benefit expenses in our existing businesses.
Net Income
Our net income increased $3.9 million, or 48.1%, to $12.0 million in 1998
from $8.1 million in 1997. This increase resulted principally from the higher
net revenue and gross profit mentioned above and lower interest expense. These
positive impacts were partially offset by the write-down of an investment in a
joint venture in the amount of $905,478 in 1998. The lower interest expense was
attributable to lower debt balances and lower interest rates during 1998. Our
effective tax rate decreased to 36.5% in 1998 from 40.2% in 1997 as a result of
adjustments of deferred tax assets in 1997.
LIQUIDITY AND CAPITAL RESOURCES
During 1999, our cash requirements were met through operations and
borrowings from our credit facility. On December 31, 1999, we had cash on hand
of $1.9 million.
For the year ended December 31, 1999, net cash provided by operating
activities amounted to $4.4 million compared to $17.6 million in 1998 and $16.7
million in 1997. The decrease in the net cash provided by operating activities
during 1999 was primarily attributable to higher inventory and accounts
receivable as well as a significant amount of payment activity associated with
our accounts payable and other liabilities toward the end of 1999. The inventory
increase primarily reflected additions to inventory at the end of 1999 for Y2K
contingency purposes and a build up of inventory to support a major automotive
program with Ford, which is being launched during the first quarter of 2000 in
our electrical segment. The increase in accounts receivable was primarily
attributable to accounts receivable being carried at Smartflex and, to a lesser
extent, a general increase in our business volume.
For the year ended December 31, 1999, net cash used in investing activities
amounted to $61.3 million compared to $16.9 million in 1998 and $6.5 million in
1997. The increase in the net cash used in investing activities during 1999
resulted primarily from the acquisition of Smartflex for $52.7 million which is
net of cash acquired in the amount of $18.6 million. Capital expenditures were
$8.6 million in 1999, $16.9 million in 1998 and $6.5 million in 1997.
24
<PAGE> 31
For the year ended December 31, 1999, net cash provided by financing
activities amounted to $57.8 million. Net cash used by financing activities
amounted to $879,000 in 1998 and $11.4 million in 1997. During 1999, we borrowed
a total of $251.6 million to finance our acquisition of Smartflex, a repurchase
of our common stock, and working capital requirements in excess of the amount
which was financed by our operations. The proceeds from borrowings were
partially offset by $164.9 million of debt repayments.
In August 1999, we replaced our existing $60.0 million credit facility with
a $125.0 million credit facility. Our credit facility is a revolving line of
credit which expires in August 2002. On December 31, 1999, the unused amount of
this facility was $17.6 million. The Saturn LLC also has a credit facility in
the amount of $15.0 million which expires in January 2001. The Saturn LLC has
never incurred any borrowings under this facility.
We intend to use $ of the proceeds of this offering to reduce
indebtedness under our credit facility, and the remainder, if any, will be used
for working capital and general corporate purposes.
Our need for, and the cost of and access to funds are dependent, in the
long-term, on our future operating results as well as conditions external to us.
We may require additional financing in connection with our business. We may seek
additional funds from time to time through public or private debt or equity
offerings or obtaining further bank borrowings or off-balance sheet financing.
No assurance can be given that any additional financing will be available on
terms satisfactory to us, or at all. In addition, our credit facility imposes
restrictions on our ability to increase our financing. Moreover, our desire to
maintain our minority business enterprise status, which we believe requires 30%
of our common stock to be owned by ethnic minorities, may limit our ability to
raise funds through additional equity issuances. We believe that our current
sources of liquidity and the net proceeds from this offering will be adequate to
support our anticipated liquidity needs for, at least, the next 12 months.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in interest rates and foreign currency exchange
rates primarily in our cash, debt and foreign currency transactions. We do not
hold derivative financial instruments for trading or speculative purposes.
Our exposure related to adverse movements in interest rates is primarily
derived from the variable rates associated with our credit facility. We have a
$125.0 million credit facility which bears interest at variable rates in
relation to the outstanding balances. At December 31, 1999, the interest rate on
$90.0 million of the outstanding balance of $107.4 million under the credit
facility was 8.4%, and the interest rate of the remainder of the borrowings was
8.75%. Based upon the outstanding balances relating to this facility, an
increase of one percent in the interest rates would cause a corresponding
increase in interest expense of approximately $1.1 million on an annual basis.
The foreign currencies to which we have exchange rate exposure are the
Mexican peso, the Philippine peso and the Singapore dollar. Foreign currency
transaction gains (losses) were not material during the three years ended
December 31, 1999.
Future changes in interest rates and foreign exchange rates could
potentially have a material adverse effect on our financial position.
25
<PAGE> 32
BUSINESS
OVERVIEW
We are a global provider of value-added electronics manufacturing services,
or EMS, to OEMs and their suppliers. We provide these services to customers
primarily in the automotive, communications, computer and military end markets.
We have proven expertise in providing services in connection with electronics,
electromechanical and electrical products to diverse companies including
industry leaders such as DaimlerChrysler, Ford, General Dynamics,
Hewlett-Packard, Hughes, IBM and Motorola.
The EMS industry is growing rapidly, primarily as a result of the
increasing reliance of OEMs on outsourcing. As the electronics content in
commercial and consumer goods grows, OEMs are increasingly outsourcing their
design and engineering, materials management, manufacturing and assembly,
testing and fulfillment services to EMS providers in order to focus on their
core competencies. We offer OEMs integrated, cost-effective solutions that are
responsive to their outsourcing needs. Our broad range of services includes:
- design and engineering;
- materials management;
- manufacturing and assembly;
- testing and qualification;
- fulfillment; and
- after-sales support.
Our manufacturing facilities are generally located in regions that offer
proximity to our customers or lower manufacturing costs. Presently we have 12
manufacturing facilities in the United States, Mexico and the Philippines. We
offer a broad range of manufacturing services from low-volume/high-mix to high-
volume/low-mix manufacturing, using advanced technologies such as surface mount
technology, or SMT. To better target customers and serve the needs of different
end markets, we have strategically aligned our business into three segments:
electronics, electromechanical and electrical.
In recent years, we have significantly grown by engaging in strategic
alliances and acquisitions. For example, in March 2000, we entered into a
strategic outsourcing alliance with Motorola pursuant to which we became a
preferred EMS provider to its IESS. As a preferred EMS provider, we have the
opportunity to participate in requests for quotations, bids or other
opportunities to provide manufacturing and related services to IESS, subject to
our being competitive in price and quality. We believe that this strategic
outsourcing alliance could generate significant business opportunities for us
over the next few years. In addition, our August 1999 acquisition of Smartflex
enabled us to broaden our service offerings, significantly increase our scale of
operations, expand our base of customers to the communications and computer end
markets and enhance our geographic presence. We intend to continue our expansion
in the rapidly growing EMS industry by:
- building strategic outsourcing alliances;
- targeting an increasingly diverse customer base in high-growth end
markets;
- leveraging our design and engineering capabilities;
- expanding our global presence;
- pursuing selective acquisitions; and
- seeking additional minority business enterprise opportunities.
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<PAGE> 33
ELECTRONICS MANUFACTURING SERVICES INDUSTRY
The EMS industry is comprised of businesses that provide a range of
manufacturing services to OEMs and their suppliers. The industry has experienced
rapid growth in the past several years and is expected to continue growing
rapidly. TFI estimates that from 1994 to 1999 overall EMS industry revenue grew
from approximately $25 billion to $73 billion. TFI forecasts that overall EMS
industry revenue will grow 20% annually from 2000 through 2003, to approximately
$149 billion.
The growth in the EMS industry is being fueled, in part, by the expansion
of the broader electronics industry. The electronics content of many of today's
commercial and consumer products has increased dramatically in recent years, and
the nature of electronics content has shifted toward complex, high-density
assemblies. As the amount of electronics content has grown, OEMs have been
increasingly using EMS providers to outsource their internal manufacturing
capacity, as well as other services, such as design, engineering, assembly,
testing, qualification and fulfillment, primarily in order to:
- accelerate time-to-market and time-to-volume production;
- benefit from EMS providers' materials management and logistics expertise;
- reduce capital investment in manufacturing;
- access advanced technologies in product design and manufacturing
processes; and
- focus resources on core competencies, such as research and development
and sales and marketing.
TFI forecasts that OEMs will increasingly outsource more complex services
and products, with the communications and computer end markets representing the
largest growth opportunities. These markets are characterized by rapidly
changing technologies and shortening product life cycles. We believe that these
trends will favor EMS providers having scale, a global presence, broad service
offerings and advanced technological capabilities. We believe that we are well
positioned to benefit from these EMS industry trends.
OUR STRATEGY
Our objective is to continue to strengthen and expand our position as a
value-added EMS provider. Our strategy to achieve this objective is comprised of
the following key elements:
Build Strategic Outsourcing Alliances
We believe that our ability to provide an integrated range of services to
OEMs, beginning at the product design stage and continuing throughout the
production process, enables us to develop close customer relationships. We work
closely with our customers at the earliest stages of design to optimize product
manufacturability and quality. We then coordinate closely with them to
anticipate product delivery timetables and volume requirements. We believe that
the relationships we develop throughout this process position us to provide
additional services or attract additional programs from existing customers. Our
ability to provide value-added services through our extensive design,
engineering and global manufacturing capabilities make us an attractive
strategic outsourcing alliance partner. For example, as a result of our existing
business performance with Motorola and our capability to provide value-added
services, we recently became a preferred EMS supplier to Motorola's IESS.
In addition, we identify and enter into strategic outsourcing alliances
with emerging companies that we believe have the potential to develop
next-generation products. We help bring these products to market by providing
extensive design, engineering and other value-added services in exchange for
preferred manufacturing rights for these products. Examples include our
strategic outsourcing alliance with an emerging company for the design and
production of digital x-ray detectors, and our strategic outsourcing alliance
with an emerging communications company for the design and production of
high-efficiency power supplies for communications OEMs.
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<PAGE> 34
Target a Diversified Customer Base in High-Growth End Markets
We intend to further enhance our long-term growth prospects by continuing
to diversify our customer base, particularly in high-growth end markets such as
communications and medical. These markets are characterized by technology-driven
products that are subject to rapid technological advances and shortening product
life cycles, as well as accelerated time-to-market and time-to-volume
requirements. We believe that our value-added design and engineering services
and global manufacturing capabilities enable us to serve customers effectively
in these end markets. We also target high-growth opportunities in mature markets
such as the automotive industry. We believe that we are well positioned to
benefit from this development because of our electronics capabilities and our
traditional strength in serving the largest automobile manufacturers.
Leverage Our Design and Engineering Capabilities
We believe that EMS providers seeking to build long-term customer
relationships must be able to provide a broad range of capabilities. Proven
design and engineering expertise is often the first of these requirements. We
employ over 150 design engineers, manufacturing engineers and technicians, and
have developed a significant number of patents as well as unpatented proprietary
processes and design capabilities. Our design and engineering work has yielded
innovative products and processes and is critical to customer retention and new
business generation. We intend to continue to focus our design and engineering
capabilities on developing new proprietary intellectual property, which enables
us to improve our margins and positions us to provide additional value-added
services. We also intend to continue leveraging Lear's design and engineering
capabilities in connection with our electrical business segment.
Our process engineering team begins to work closely with our design
engineers at the concept stage to deliver products that have been simultaneously
engineered for functionality and manufacturability. We believe that this
parallel and integrated approach gives us a competitive advantage, as some of
our competitors do not provide these services. We believe that these
capabilities reduce development costs for OEMs and accelerate the time-to-market
of their products.
We plan to continue to provide our design and engineering expertise to
strengthen existing, and build additional, strategic outsourcing alliances. In
addition, we intend to obtain new business by capturing system integration
opportunities. As one of the few EMS providers that has capabilities in all
three of the electronics, electromechanical and electrical business segments, we
are able to provide complete system solutions, for which we typically attain
higher margins. For example, we are currently providing prototypes of a complex
exhaust emission reduction device which uses components from all three of our
business segments.
Expand Our Global Presence
OEMs increasingly seek EMS providers with a global presence in order to
accelerate time-to-market for their products and obtain lower production costs.
We currently have 12 manufacturing facilities in the United States, Mexico and
the Philippines, and an engineering and sales operation in Singapore. We intend
to establish new, or expand our existing, facilities worldwide. We believe that
having a global presence enables us to reduce our production costs, procure
components more efficiently, accelerate time-to-market and meet local content
requirements.
Pursue Selective Acquisitions
We intend to continue to expand through the acquisition of companies with
complementary product lines, advanced technologies and worldwide facilities. We
may acquire entire companies or selected assets,
28
<PAGE> 35
including captive manufacturing assets of OEMs. We intend to pursue acquisitions
that offer one or more of the following advantages:
- opportunity to increase our base of Fortune 100 customers and other large
international customers;
- expansion into existing or new high-growth end markets;
- advanced technology;
- additional manufacturing capacity; and
- additional global presence.
Seek Additional Minority Business Enterprise Opportunities
We believe that we are the largest minority business enterprise in the EMS
industry. Our minority business enterprise status generally offers us a
significant competitive advantage for our business. A number of current and
potential customers have announced their commitment to increase the amount of
purchases from minority business enterprises. For example, DaimlerChrysler, Ford
and GM have executed a Memorandum of Understanding with the Small Business
Administration by which they collectively committed to purchase up to nearly
$8.8 billion of automotive parts from minority business enterprise suppliers in
2000. In addition, a number of communications industry leaders are increasingly
encouraging communications OEMs to increase their minority business enterprise
supplier content. We are currently one of the few minority business enterprises
in the EMS industry that is capable of offering services and products in each of
the electronics, electromechanical and electrical business segments. As a
result, we believe that we are well positioned to benefit from these
commitments.
OUR STRATEGIC OUTSOURCING ALLIANCES AND ACQUISITIONS
We were founded in 1985, primarily as an engineering design company, by
Wallace K. Tsuha, Jr., our chairman, chief executive officer and president.
Since then, we have grown significantly and have expanded our service offerings,
in part, by entering into strategic outsourcing alliances and engaging in
business acquisitions.
For example, in March 2000, we entered into a strategic outsourcing
alliance with Motorola pursuant to which we became a preferred EMS provider to
Motorola's IESS. As a preferred EMS provider, we receive the opportunity to
participate in requests for quotations, bids or other opportunities to provide
manufacturing and related services to IESS, subject to our being competitive in
price and quality. As part of this transaction, Motorola received a warrant to
purchase 1,565,331 shares of our common stock, representing approximately %
of our outstanding common stock after this offering, at an exercise price equal
to 90% of our initial public offering price. For every $100.0 million that we
receive from Motorola for services rendered, 10% of the shares subject to this
warrant will become exercisable immediately, otherwise the warrant is
exercisable between March 2004 and March 2005. We believe that this strategic
relationship could generate significant business opportunities for us over the
next few years.
In August 1999, we acquired Smartflex, a high-technology product design and
precision EMS provider based in Tustin, California. Through this acquisition, we
gained full-service electronics capabilities and we:
- increased our base of Fortune 100 customers to include companies such as
Hewlett-Packard, Motorola and IBM;
- expanded into new and high-growth end markets, such as the communications
and computer markets;
- gained access to advanced manufacturing technology;
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<PAGE> 36
- increased our manufacturing capacity; and
- enhanced our geographic presence by adding facilities in Mexico, the
Philippines and Singapore.
In February 1998, we entered into a strategic alliance with United
Technologies Automotive, now Lear Corporation. This alliance took the form of a
jointly owned limited liability company, referred to as the Saturn LLC, in which
we own a 53% interest. The Saturn LLC, which constitutes our electrical business
segment, manufactures battery cables, wire harnesses, ground straps, trailer tow
harnesses, electrical distribution systems and complete vehicle wiring systems.
We provide our management and administrative services, in addition to
manufacturing and materials management expertise, to the Saturn LLC, while Lear
provides design and engineering services.
Effective October 1994, we acquired three affiliates of MascoTech. As a
result of this transaction, MascoTech became our second largest shareholder.
MascoTech currently holds approximately 36% of our outstanding common stock and,
after the offering, will hold approximately % of our outstanding common
stock. This acquisition substantially expanded our electromechanical business.
OUR SERVICES
We offer our customers integrated, cost-effective EMS solutions that are
responsive to their outsourcing needs. Our broad service offerings include the
following:
- design and engineering;
- materials management;
- manufacturing and assembly;
- testing and qualification;
- fulfillment; and
- after-sales support.
At the core of our services is a multi-disciplinary team consisting of
designers, engineers, manufacturing managers, quality management personnel,
procurement representatives, and sales organization members coordinated by
program managers. By working closely with our customers, we are able to focus on
meeting their timelines and cost, quality and other requirements. By focusing on
customer needs and involving our diverse capabilities at all stages of a
product's cycle, we believe that we are able to reduce costs, accelerate
time-to-market, time-to-volume production and increase overall product quality.
Design and Engineering
We currently employ over 150 design engineers, manufacturing engineers and
technicians to provide design and engineering services to our customers. We
focus on concept development, product design and engineering and advanced
manufacturing engineering for our electronics and electromechanical business
segments. Our electrical business segment, through the Saturn LLC, leverages
Lear's engineering and design capabilities on an as-needed basis. We focus our
efforts on enhancing existing product lines as well as developing new products
for our customers.
We offer design and engineering services to develop a working product from
an initial concept. Our process engineering team works closely with our design
engineers from the concept stage to deliver products that have been
simultaneously engineered for functionality and manufacturability. These
services ensure that products meet their functional specifications and can be
manufactured efficiently and economically. Our engineers use sophisticated
computer-aided design tools to improve the efficiency of the design process and
enhance design quality. We also build and test working product samples, or
prototypes, to test and refine our design and engineering specifications. We
then validate prototypes under operating conditions.
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We believe that we have the design and engineering capabilities needed to
develop innovative products that, in many instances, offer substantial
advantages over our competitors' products. For example, we believe that our
patented variable force solenoids are smaller, less expensive and possess better
operating functionality than our competitors' products. We believe that this
enabling technology will allow us to win subassembly programs.
Materials Management
We provide a wide array of materials management services for our customers
including materials planning, procurement, inventory management and handling
services. In cases where we have product design responsibility, our early
involvement in the design and engineering process allows us to assist in the
selection of components and suppliers to enhance manufacturability and
logistical support for product lines. We use an extensive supplier qualification
process to help ensure that our suppliers meet our quality and delivery
standards. We also leverage our position as a value-added EMS provider and work
with our customers to obtain better pricing from our suppliers.
Manufacturing and Assembly
We have a full range of advanced electronics, electromechanical and
electrical manufacturing and assembly capabilities. Our assembly and
manufacturing capabilities for electronics and electromechanical products
include high-volume full automation, low-volume/high-mix production and
high-volume manual processes. Our electronics manufacturing and assembly
services include the production of printed circuit board assemblies and
electronic subassemblies as well as final systems box-build. Our
electromechanical operations produce a wide range of products such as solenoids,
actuators, relays and junction blocks. Our electrical manufacturing services
include wire cutting and stripping, die cast and injection molding, and manual
harness assembly. Our 12 manufacturing facilities located in the United States,
Mexico and the Philippines enable us to reduce our costs and source our products
globally.
Our manufacturing technologies in the electronics segment include advanced
SMT and direct chip attach technologies. SMT is a method of affixing electronic
components, including integrated circuits, onto the surface of printed circuit
boards. The very fine lead-to-lead spacing in SMT uses a significantly more
precise manufacturing process than traditional manufacturing methods. SMT allows
printed circuit boards to interconnect integrated circuits in density greater
than traditional processes. This greater density permits tighter component
spacing and, as a result, reduces the size of printed circuit boards. Greater
density also improves product functionality. Our precision SMT allows an even
more precise placement of miniaturized components onto printed circuit boards,
leading to reduced size and increased functionality. In addition, we use grid
array and micro ball grid array SMT technologies, which use small balls of
solder, instead of the traditional leads, to pre-package several electronics
components into one package, which is then assembled onto a printed circuit
board. As a result, fewer individual components need to be attached to the
printed circuit board, providing improved electrical performance, higher
input/output capabilities, better assembly yields and lower cost. We also offer
direct chip attach technology, which creates enhanced performance by attaching
bare, unpackaged components onto printed circuit boards. Our flexible circuit
technology allows us to mount components within precise parameters to flexible
printed circuit boards, leading to higher density packaging.
Our electromechanical manufacturing process involves fully automated
manufacturing lines. We use closed loop feedback, which measures the efficiency
and accuracy of the manufacturing process and enables automated management of
our process. We also use semi-automated equipment and manual assembly for
certain products.
Our electronics and electromechanical advanced manufacturing technologies
and processes enable us to offer a broad range of services to our customers,
including:
- High-Volume Production. We generally perform the design and engineering
services and initial manufacturing of our products in the United States.
Once a product is ready for high-volume production, we typically
transition the manufacturing to our highly-automated, state-of-the-art
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facilities in Mexico and the Philippines to minimize our production
costs. However, some high-volume electromechanical products are produced
at our facilities in the United States.
- Low-Volume/High-Mix Production. We offer precision manufacturing
capabilities for complex products involving highly complicated designs
and lower production volumes through some of our facilities in the United
States. We are able to manufacture a variety of products for a number of
customers on the same production line.
- Box-Build/Complete System Assembly. We assemble final products or
complete systems from various subassemblies, modules and components. We
manufacture a wide range of state-of-the-art final products for
applications in the automotive, communications, computer and military end
markets. This allows our customers to reduce their number of suppliers.
Our electrical manufacturing processes include automated wire cutting and
stripping, injection molding, die cast molding and manual harness assembly.
By using cost-effective manufacturing processes, we are able to provide our
customers with competitively priced products. We believe that we have achieved
significant productivity improvements by streamlining our manufacturing
processes, reducing floor space requirements, minimizing inventory and
implementing automated systems. We control costs and maintain quality by using
quality operating system goals to measure performance criteria such as customer
returns, supplier rejects, scrap, training and cost of quality in each
manufacturing plant. We also reduce costs by using electronic information and
order exchange, a master production scheduling system and repetitive
manufacturing cycles, rather than build-to-order cycles.
All of our manufacturing facilities are certified by independent
organizations. Our manufacturing facilities serving the communications,
computer, military and other non-automotive end markets are registered under ISO
9001 or ISO 9002, a set of standards published by the International
Standardization Organization and used to document, implement and demonstrate
quality management and assurance systems in design and manufacturing. As part of
the ISO 9001 and ISO 9002 registration process, we have developed quality
systems manuals and internal systems of quality controls and audits for each
facility. Although ISO 9002 registration is of particular importance to
companies in the European Community, we believe that domestic OEMs are
increasingly requiring ISO 9002 registration of suppliers.
All of our manufacturing facilities serving the automotive market are
registered under QS 9000, a set of standards published by our automotive
customers, which is used to document, implement and demonstrate quality
management and assurance systems in a manner similar to ISO 9001 and ISO 9002.
When applicable, the products we manufacture are BellCore, British Approval
Board for Telecommunications and Underwriters Laboratories compliant. These
qualifications establish product standards for quality, manufacturing process
control and documentation and are required by many OEMs.
Testing and Qualification
We typically conduct product validation testing and production testing to
ensure that our products meet our customers' operating and quality requirements.
Product validation testing is conducted as part of our engineering development
activities. We perform this testing to ensure that the product under development
meets customer requirements. This testing includes heat, cold, humidity,
vibration, thermal shock, mechanical shock, salt spray and dust testing.
Durability testing is also conducted by submitting the product to many cycles of
typical operating conditions. Production testing consists of in-process testing
and end-of-line testing to verify that products are manufactured properly and
meet product specifications.
In the communications end market, we provide development test services that
help our customers develop their products to meet FCC requirements. We believe
that our expertise in this field shortens the FCC approval process. In the
medical end market, we provide services to help our customers comply with the
FDA approval process and the Quality Systems Regulations.
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Fulfillment
In order to respond more rapidly to the market demands of our customers, we
offer delivery programs designed with the flexibility to ship products directly
to an OEM's customer. Under these programs, we package products to the
customer's specifications with appropriate product documentation and manage the
logistics of delivery.
After-Sales Support
We offer a wide range of after-sales support services, which are tailored
to meet customer requirements, including field failure analysis, product
upgrades, repair and engineering modification. Our quality engineers provide
on-site after-sales support by helping customers use our products correctly.
They also collect customer feedback and work with our in-house engineers and
other staff to incorporate improvements and customer suggestions into the
products we manufacture. In addition, our plant-based teams are responsible for
addressing all customer manufacturing issues to ensure continuity through a
product's life cycle. Our continuous improvement support teams also offer our
customers support from our in-house engineers to improve product reliability. We
believe that these efforts have produced warranty reductions and cost savings
for our customers. The success of our continuous improvement support teams is
exemplified by DaimlerChrysler's awarding us its Role Model of the Year for
Continuous Improvement Award in 1999 in connection with our minivan junction
block product.
OUR BUSINESS SEGMENTS
To better serve the needs of different end markets, we have organized our
operations into three business segments: electronics, electromechanical and
electrical. We believe that this organization allows us to better target
customers due to differences in manufacturing processes, customer expectations,
technologies, bidding processes and product life cycles for each segment.
Our electronics segment represented approximately 32% of our net revenue in
1999. Through this business segment, we provide services to our customers,
primarily in the automotive, communications and computer end markets, in
connection with the following products:
- Printed Circuit Assemblies -- Using our precision manufacturing
technology, we assemble printed circuit assemblies by placing various
components onto pre-manufactured printed circuit boards.
- Flexible Printed Circuit Assemblies -- Using our precision flexible
circuit capabilities we assemble various products including hard disk
drives, smart battery packs, flexible sensors and assemblies that require
limited space.
- Complete System Assembly -- We assemble a wide variety of final products
by building entire electronic systems from various subassemblies, modules
and components. Our products include complete systems, such as Internet
service provider switches for video, data and voice; complete industrial
control systems; and position locators for wireless communications
equipment.
Our electromechanical segment represented approximately 54% of our net
revenue in 1999. Through this business segment, we provide services to our
customers, primarily in the automotive end-market, in connection with the
following products:
- Junction Blocks -- Junction blocks are power distribution centers for
motor vehicles. Currently we manufacture these products for use in full
size trucks, sport utility vehicles and mini-vans.
- Relays -- Relays are electrical switches that turn power on and off using
low voltage electrical signals.
- Actuators -- Actuators transform electrical or vacuum power into linear
or rotational motion using a motor. We manufacture a number of actuators,
including innovative patented devices.
- Solenoids and Transmission Modules -- Solenoids transform electrical
power into magnetic flux and then into linear motion. We supply solenoids
for use in a number of vehicles and applications. We
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intend to expand our solenoid business by expanding our production of
transmission modules. Transmission modules integrate solenoids, sensors and
wiring or flex circuit interconnects with other devices to perform complete
electronic transmission shifting control.
Our electrical segment represented approximately 14% of our net revenue in
1999. Through the Saturn LLC, we provide services to our customers, primarily in
the automotive end market, in connection with the following products:
- Battery Cables -- Battery cables are used to distribute electricity
between different components of a vehicle. We currently sell a wide range
of battery cables, including die cast and stamped cables.
- Niche Harnesses -- Niche harnesses include cable and harness assemblies,
such as trailer tow kits and ground straps.
- Electrical Distribution Systems -- Electrical distribution systems
consist of the wiring harness that is used to transmit signal and power
from a battery to functional components of a motor vehicle. We offer a
number of electrical distribution systems, including complete wiring
systems.
You should read note 12 of our consolidated financial statements included
elsewhere in this prospectus for financial information regarding our business
segments and geographic areas.
OUR CUSTOMERS
We serve a wide range of customers, from emerging-growth enterprises to
Fortune 100 companies, primarily in the automotive, communications, computer and
military end markets. Although historically most of our sales have been to
automotive OEMs, our acquisition of Smartflex provides us with a significant
platform in the communications and computer end markets. We expect that our
customer base in those markets will represent an increasingly large proportion
of our net revenue in the near future. We currently provide services to over 25
customers, including the following:
<TABLE>
<CAPTION>
Automotive Communications Computer Military
---------- -------------- -------- --------
<S> <C> <C> <C>
DaimlerChrysler FVC.com Hewlett-Packard General Dynamics
Exemplar Motorola IBM Hughes
Ford Sierracom Iomega
General Motors True Position Iris Graphics
</TABLE>
DaimlerChrysler accounted for approximately 31% of our net revenue in 1999,
40% of our net revenue in 1998, and 45% of our net revenue in 1997. Ford
accounted for approximately 19% of our net revenue in 1999, and 10% of our net
revenue in 1998. In addition, General Motors accounted for approximately 14% of
our net revenue in 1997. Our top ten customers accounted for approximately 68%
of our net revenue in 1999.
We expect to continue to depend on a core group of customers for a
substantial portion of our net revenue in the future. We cannot assure you that
our significant customers will continue to purchase services and products from
us in the future or that they will not reduce or delay the amount of services
and products they purchase from us. Any reduction or delay in orders from our
customers could have a material adverse effect on our business, financial
condition or results of operations. In addition, a majority of our accounts
receivable outstanding at any given time are owed by our significant customers.
The inability of one or more of our significant customers to pay for the
services and products we provide, due to insolvency or otherwise, could have a
material adverse affect on our business, financial condition or results of
operations.
SALES AND MARKETING
We seek to develop close, long-term relationships with our customers by
working with them throughout the design and engineering, materials management,
manufacturing and assembly, testing and qualification, fulfillment and
after-sales support processes. EMS providers generally must perform
satisfactorily on a trial basis prior to obtaining significant orders from an
OEM. As a result, we seek to develop these close relationships with customers
during the initial product design and development stage.
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We then support our existing customer relationships through a comprehensive
staff of program managers dedicated to individual customer accounts. Program
managers are responsible for the development of our manufacturing relationship
with our customers, including the allocation of our resources to meet customers'
requirements.
We market our services primarily through a direct sales force, and to a
lesser extent, through independent sales representatives. We rely on our direct
sales team to respond to the needs of existing customers and targeted new
accounts, and rely on independent sales representatives to obtain additional new
business. In addition, we attend trade shows in which there is a focused
customer and industry presence. We also undertake media relations efforts to
encourage the publication of articles featuring our company and our services in
trade journals and other publications.
OUR SUPPLIERS
Our business segments typically negotiate purchase orders directly with
suppliers, and to a lesser extent, through independent distributors, that have
demonstrated timely delivery, quality products, responsiveness and competitive
prices. We use a standardized rating system to more effectively evaluate these
suppliers. Most of the components used by our business segments are available
from numerous sources. Even so, we rely on a limited number of suppliers for
some proprietary and other components. In addition, some of our electronics
products require one or more components for which there is a limited supply and,
in some instances, our supplier is also a competitor. Delivery problems relating
to components purchased from any of our key suppliers could have a material
adverse effect on our financial performance. From time to time, our electronics
suppliers allocate components among their customers in response to supply
shortages. For example, the recent upsurge of demand for cellular wireless
products has created an electronics industry-wide shortage of certain SMT
components such as tantalum capacitors. As a result, we are required to make
continual spot buys of these components in an attempt to have the components on
hand to meet customer requirements.
COMPETITION
While the competitive challenges we face differ across our business
segments, the EMS industry is highly competitive. A number of our current and
potential competitors have substantially greater manufacturing, financial,
technical, marketing and other resources, and offer a broader line of services,
than we do. In addition, many of our competitors have a broader geographic
presence than we have. To the extent we do not provide timing or technological
advantages over our competitors, we are likely to experience increased price
competition or loss of market share. Increased competition could also result in
reduced prices, reduced margins or loss of market share, any of which could
materially adversely affect our business, financial condition or results of
operations. We also face competition from the manufacturing operations of our
current and potential OEM customers, which we believe continue to evaluate the
merits of manufacturing internally, and from foreign EMS providers. Significant
competitive factors in the EMS industry include quality, price, ability to
enhance time-to-market and time-to-volume production, manufacturing capacity,
test capabilities and design and engineering expertise.
Our electronics business segment competes with a number of large EMS
companies including ACT Manufacturing, Benchmark Electronics, C-MAC Industries,
Celestica, Flextronics International, Jabil Circuit, Innovex, Parlex, Pemstar,
Plexus, SCI, Siemens and Solectron. We have also experienced competition from
head stack assemblers, which primarily assemble products that attach to flexible
circuit assemblies. We expect our electronics business segment to encounter
future competition from other large electronics manufacturers.
The markets served by our electrical and electromechanical business
segments are also served by large, well established companies including
Borg-Warner Automotive, Delphi Automotive, Eaton Corporation, Robert Bosch,
Siemens, TRW and Yazaki North America. We expect our electrical and
electromechanical business segments to encounter future competition from other
large electrical and electromechanical businesses.
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INTELLECTUAL PROPERTY
We have been granted 39 domestic patents and have applications pending for
an additional 16 domestic patents. In addition, we have been granted 14 patents,
corresponding to our U.S. patents, in various foreign jurisdictions. Although we
believe that, taken together, our patents are significant, the loss or
expiration of any particular patent would not, in our opinion, be material to
us. We also possess significant non-patented proprietary information related to
our manufacturing processes, engineering processes and other trade secrets and
intellectual capital that forms a substantial foundation for our business
activities.
REGULATIONS
Environmental and Health and Safety Laws
Our operations are regulated under a number of federal, state, local and
foreign environmental and health and safety laws and regulations, which govern,
among other things, the use, storage, treatment, discharge and disposal of
hazardous chemicals and substances used in our manufacturing processes. In
addition, because we are a generator of hazardous wastes, we, along with any
other person who arranges for the disposal of our hazardous wastes, may be
subject to potential financial exposure for costs associated with investigation
and remediation of sites at which we have arranged for the disposal of hazardous
wastes, if such sites become contaminated, even if we fully comply with
applicable environmental laws. Moreover, such liabilities or sanctions may be
imposed without regard to the legality of our original conduct and without
regard to whether we knew of, or were responsible for, the presence of such
hazardous or toxic substances. Also, such liability may be joint and several
with other parties. If the liability is joint and several, we could be held
responsible for payment of the full amount of the liability, whether or not any
other responsible party is also liable. In the event of a violation of
environmental laws, we could be held liable for damages, penalties, sanctions
and the costs of remedial actions and also could be subject to revocation of our
permits. Any such revocations could require us to cease or limit production at
one or more of our facilities, thereby having a material adverse effect on our
operations. Environmental and health and safety laws could also become more
stringent over time, imposing greater compliance costs and increasing risks and
penalties associated with any violation, which could have a material adverse
effect on business, financial condition or our results of operations. In
addition, compliance with such laws and regulations could restrict our ability
to expand our facilities or require us to acquire costly equipment or to incur
other significant expenses. We believe that we are in material compliance with
all existing applicable environmental and health and safety statutes and
regulations.
Additional Laws
Many of our communications end market customers are subject to regulation
by the Federal Communications Commission, or the FCC, the European Union and
other federal, state and foreign governmental and non-governmental authorities.
The failure of our current or potential communication end market customers to
meet certain FCC or similar requirements could result in the non-approval,
recall or discontinuation of their products and could substantially reduce or
eliminate their demand for our services. The failure of our current or potential
communications end market customers to meet such requirements could
significantly reduce an area of anticipated revenue growth, resulting in a
material adverse effect on our business, financial condition or results of
operations.
In addition, although our sales to the medical end market currently
constitute a small portion of our net revenue, we intend to increase our sales
to this end market. The design, development, testing, manufacture, production
and sale of medical devices are subject to extensive regulation by the Food and
Drug Administration, or the FDA, and other federal, state and foreign
authorities. Noncompliance with applicable requirements can result in a device
not being cleared or approved for sale, product recalls, fines and other
significant regulatory, civil or criminal actions. Medical device manufacturers
are also subject to strict federal regulations regarding the design,
development, manufacture, packaging and labeling of medical devices known as the
Quality System Regulations, formerly Good Manufacturing Practices. If the
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FDA determines that we or our medical customers fail to meet such FDA and
similar regulatory requirements, the FDA could institute regulatory proceedings
or product recalls, assess penalties or take other significant actions. The
failure of our current or potential medical end market customers or us to obtain
or maintain FDA approvals and maintain compliance with the Quality System
Regulations, therefore, could substantially reduce their demand for our
services, reducing an area of anticipated revenue growth. This could have a
material adverse effect on our business, financial condition or results of
operations.
BACKLOG
We do not generally obtain long-term, firm purchase orders from our
communications, computer, military and other non-automotive customers. Rather,
these customers place orders for delivery within 30 to 90 days. Our automotive
customers typically place annual blanket purchase orders, but these orders do
not obligate them to purchase any specific or minimal amount of products from us
until a release is issued by the customer under the blanket purchase order.
Releases are typically placed within 30 to 90 days of required delivery and may
be canceled at any time, in which case the customer would be liable for work in
process and finished goods. We do not believe that our backlog of expected
product sales covered by firm purchase orders is a meaningful indicator of
future sales since orders may be rescheduled or canceled.
EMPLOYEES
As of February 29, 2000, we employed a total of 3,981 persons. We have no
collective bargaining contracts other than in Mexico where we have 2,272
employees, where collective bargaining agreements are required by law. Our
collective bargaining agreements covering our facilities in Juarez and
Monterrey, Mexico are subject to renegotiation in 2002, and the agreements
covering our employees in Guadalajara, Mexico are subject to renegotiation in
September of each year. We have never experienced a work stoppage and believe
that our relations with our employees are good.
LEGAL PROCEEDINGS
From time-to-time, we are subject to claims or litigation incidental to our
business. We are not currently involved in any legal proceedings that,
individually or in the aggregate, are expected to have a material effect on our
business, financial condition or results of operations.
FACILITIES
Our operations are conducted in a number of owned and leased facilities. We
believe that these facilities are sufficient for our activities as currently
conducted. Our significant facilities are as follows:
<TABLE>
<CAPTION>
LOCATION OWNED/LEASED SIZE (SQ./FT.) BUSINESS SEGMENT ACTIVITIES
- -------- ------------ -------------- ---------------------------
<S> <C> <C> <C>
Auburn Hills, MI................. Leased 68,000 Corporate headquarters; Design
and Engineering; Electronics
Manufacturing
Coopersville, MI................. Owned 40,000 Electromechanical Manufacturing
Fremont, CA...................... Leased 42,000 Electronics Manufacturing
Hudson, NH....................... Leased 33,200 Electronics Manufacturing
Marks, MS........................ Leased 45,000 Electromechanical Manufacturing
Oxford, MI....................... Owned 62,000 Electromechanical Manufacturing
Rocky Mount, NC.................. Owned 88,000 Electromechanical Manufacturing
Santa Clara, CA.................. Leased 11,500 Electronics Design and
Engineering
Tustin, CA....................... Leased 37,000 Administration/Electronics Design
and Engineering
Juarez, Mexico................... Owned 140,000 Electrical Manufacturing
</TABLE>
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<TABLE>
<CAPTION>
LOCATION OWNED/LEASED SIZE (SQ./FT.) BUSINESS SEGMENT ACTIVITIES
- -------- ------------ -------------- ---------------------------
<S> <C> <C> <C>
Juarez, Mexico................... Leased 138,500 Electrical Manufacturing
Monterrey, Mexico................ Owned 70,000 Electromechanical Manufacturing
Monterrey, Mexico................ Leased 55,000 Electronics Manufacturing
Cebu, Philippines................ Leased 40,000 Electronics Manufacturing
Singapore........................ Leased 11,000 Asia Business Development Center;
Electronics Engineering
</TABLE>
We also provide manufacturing services at an OEM-owned facility in
Guadalajara, Mexico.
The terms of most of our leases expire between 2002 and 2004, and most of
our leases have options to renew for between one and five years.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth our executive officers and directors, their
ages and the positions they currently hold:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Wallace K. Tsuha, Jr.(1)................... 56 Chief executive officer, president and
chairman of the board
Donald J. Cowie............................ 53 Chief financial officer, executive vice
president, treasurer and assistant
secretary
Nick Najmolhoda............................ 42 Executive vice president and general
manager, electromechanical business segment
Gene R. Smith, Jr.......................... 50 Executive vice president and general
manager, electronics business segment
William T. Anderson(3)..................... 53 Director
David E. Cole(2)........................... 62 Director
Sherman L. Cruz............................ 47 Director
Forest J. Farmer(3)........................ 59 Director
Rick Inatome(2)............................ 46 Director
Gary E. Liebl(3)........................... 58 Director
</TABLE>
- ---------------
(1) Member of the Nominating Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Wallace K. Tsuha, Jr., the founder of our company, has served as our chief
executive officer and chairman of the board since November 1985. Mr. Tsuha has
also served as our president from November 1985 to March 1995, and since
December 1995. Prior to founding our company, Mr. Tsuha had over 18 years of EMS
business experience in product development, engineering and manufacturing while
working at GM, Rockwell and TRW. Mr. Tsuha is the brother of Sherman L. Cruz,
one of our directors and a consultant to our electronics business segment.
Donald J. Cowie has served as our executive vice president, chief financial
officer, treasurer and assistant secretary since 1996. Prior to joining us, he
was a group vice president -- OEM from 1993 through 1995, and vice
president -- finance & administration from 1988 through 1993, at International
Jensen, a manufacturer of automotive and consumer electronics products.
Nick Najmolhoda has served as our executive vice president and general
manager of our electromechanical business segment since September 1999. He also
served as our executive vice president -- operations from February 1996 to
September 1999. He joined us as group vice president -- electromechanical in
March 1995, following our acquisition of MascoTech Controls. While at MascoTech
Controls, Mr. Najmolhoda served as executive vice president of operations for
the Coopersville facility and vice president of sales & marketing for the Rocky
Mount and Coopersville facilities from May 1992 until our acquisition of
MascoTech.
Gene R. Smith, Jr. has served as our executive vice president and general
manager of our electronics business segment since November 1999. Mr. Smith
served as our executive vice president of business management from December 1996
through November 1999. From February 1996 through June 1996, Mr. Smith served as
the president and general manager of the Kenmar Business Group, an electronics
contract manufacturing company. Mr. Smith worked as an electronics industry
consultant for us and others from July 1996 through December 1996.
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<PAGE> 46
William T. Anderson has served as our director since March 1995. Since July
1998, Mr. Anderson has served as a vice president and the controller at
MascoTech, an automotive supplier, and one of our significant shareholders. From
July 1994 through June 1998, Mr. Anderson served as the vice president of
operational accounting at MascoTech.
David E. Cole, Ph.D., has served as our director since January 1997. Since
1967, Dr. Cole has been the Director of the Office for the Study of Automotive
Transportation and professor of engineering at the University of Michigan. Dr.
Cole is also a director of Mechanical Dynamics, a virtual prototyping software
company, MSX International, an affiliate of MascoTech to which we sublease a
portion of our Auburn Hills headquarters, Thyssen/Krupp U.S., a metals
distributor and processor, and Plastech, a plastic automotive products company.
Dr. Cole frequently provides consulting services to the automotive industry.
Sherman L. Cruz has served as our director since March 1995. Since 1996,
Mr. Cruz has served as a financial consultant to various companies, including
our electronics business segment, providing consulting services and assisting
companies in acquisitions and financial and general management. From 1991 to
1996, Mr. Cruz served as our vice president and chief financial officer. Mr.
Cruz is the brother of Mr. Tsuha, our chairman, chief executive officer and
president.
Forest J. Farmer has served as our director since January 1997. Since 1995,
Mr. Farmer has served as chairman and chief executive officer of the Farmer
Group, a holding company, and Trillium Teamologies, an information systems and
software development company. In 1995, Mr. Farmer co-founded Bing Manufacturing,
a manufacturer of assemblies modules for automobile manufacturers and suppliers.
Mr. Farmer also served as president of Bing Manufacturing from 1995 to 1999. Mr.
Farmer is a director of Lubrizol Corporation, a chemicals company specializing
in lubricant additives. Mr. Farmer also serves on the board of directors of
American Axle and Manufacturing, a manufacturer of automotive and truck
drivetrains and axles.
Rick Inatome has served as our director since March 1995. Since September
1999, Mr. Inatome has been the chief executive officer, president and a director
of ZapMe!, a satellite-based computer network system providing internet access
and aggregated educational content to middle and high schools throughout the
U.S. Mr. Inatome served as the chairman of the board of directors of Inacom, a
computer leasing company, from January 1980 to September 1999. Mr. Inatome
currently serves on the board of directors of Sylvan Learning Systems, Inacom
and Atlantic Premium Brands, a food processing company.
Gary E. Liebl has served as our director since October 1999. He recently
retired from Qlogic, a semiconductor company, where he served as chairman of the
board from February 1993 to May 1999. Mr. Liebl was formerly a member of the
board of directors of Smartflex and currently serves on the board of directors
of Pressure Systems, a diversified aerospace industry company.
BOARD OF DIRECTORS COMPOSITION
Our amended and restated bylaws provide that our board of directors
consists of three to fifteen members. The size of our board is determined by the
board and currently consists of seven members. Our board is divided into three
classes, each serving three year terms. Each class is to consist, as nearly as
possible, of one-third of our directors. One class of our directors stands for
election each year as follows:
<TABLE>
<CAPTION>
EXPIRATION
CLASS OF TERMS MEMBERS
- ----- ---------- -------
<S> <C> <C>
Class I.............................. 2001 Sherman L. Cruz and David E. Cole
Class II............................. 2002 Rick Inatome and Forest J. Farmer
Class III............................ 2003 Wallace K. Tsuha, Jr., Gary E. Liebl and William
T. Anderson
</TABLE>
Mr. Anderson, an officer of MascoTech, one of our significant shareholders,
was appointed to our board pursuant to a stockholders agreement among us and our
shareholders. This stockholders agreement will terminate upon the effectiveness
of this offering. This, however, will not affect the length of his term on our
board of directors. Our amended and restated articles of incorporation provide
that our directors
40
<PAGE> 47
may be removed only with cause, by vote of the holders of a majority of the
shares of the common stock entitled to vote at an election of directors.
Approval by at least 80% of our outstanding shares of our common stock is
required to amend or repeal these provisions of our amended and restated
articles of incorporation and bylaws.
To maintain our minority business status after this offering, we believe
that at least a majority of our board must consist of ethnic minorities. Messrs.
Cruz, Farmer, Inatome and Tsuha are ethnic minorities.
Our officers are elected annually by our board of directors and serve at
the pleasure of the board. To maintain our ethnic minority status after this
offering, we also believe that our chief executive officer must be an ethnic
minority.
BOARD COMMITTEES
Our board of directors has a compensation committee, an audit committee and
a nominating committee.
The compensation committee, currently composed of Messrs. Cole and Inatome,
reviews and approves the compensation of our executive officers, including
payment of salaries, bonuses and incentive compensation, determines our
compensation policies and programs and administers our stock option plan.
The audit committee, currently composed of Messrs. Anderson, Liebl and
Farmer, makes recommendations to the board concerning the appointment of
independent auditors, reviews our accounting principles, practices and reporting
standards, aids management in the establishment and supervision of our internal
audits and accounting control systems and reviews the scope and results of
audits.
The nominating committee consists solely of our chairman, and recommends
nominees for election to our board to our shareholders.
DIRECTOR COMPENSATION
Members of our board of directors who are not employees of our company are
paid an annual retainer of $11,500. Nonemployee directors also receive a fee of
$950 for each board meeting attended and $850 for each meeting of a committee of
the board attended. The chairman of each committee, if a nonemployee, receives
$1200 per committee meeting attended. All directors are also eligible to
participate in our stock option plan. Directors who are employees of our company
receive no compensation for service on the board. All directors, including
employees are also reimbursed for their travel and related expenses incurred in
connection with board meetings and related activities.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Michigan law allows the articles of incorporation of a Michigan corporation
to contain a provision eliminating or limiting directors' liability to a
corporation or its shareholders for money damages for any action taken or any
failure to take any action as a director, except for liability for specified
acts, and our amended and restated articles of incorporation contain such a
provision. In addition, our amended and restated bylaws obligate us to indemnify
our directors and officers, and our former directors and officers, to the
maximum extent permitted by Michigan law. Our obligation to indemnify such
individuals includes indemnification against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service as
an officer or director in advance of the final disposition of any covered
matter. To be indemnified, the officer or director must have acted, or failed to
act, in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, our or our shareholders' best interests and he or she must not
have derived an improper personal benefit from such actions or omission. To be
indemnified in connection with any criminal action or proceeding, a director or
officer must have had no reasonable cause to believe his or her conduct was
unlawful. Our indemnification obligations extend to claims made against our
officers or directors because they acted as an officer or director of another
company at our request. We maintain directors' and officers' liability insurance
that provides coverage in the amount of $15.0 million.
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<PAGE> 48
These provisions may discourage shareholders from bringing lawsuits against
our directors for breach of their fiduciary duties. These provisions may also
reduce the likelihood of derivative litigation against our directors and
officers, even though such action, if successful, might otherwise benefit us and
our shareholders. Furthermore, a shareholder's investment may be adversely
affected to the extent we are liable for damages awarded against our directors
and officers pursuant to these indemnification provisions. We believe that these
provisions and the related insurance are necessary to attract and retain
talented, experienced directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors or officers where indemnification will be required or permitted.
We are not aware of any threatened litigation or proceeding that might result in
a claim for indemnification.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither of the two directors on our compensation committee has ever been an
officer or employee of our company. In addition, none of our executive officers
serves as a member of the board of directors or compensation committee of any
company that has one or more executive officers serving as a member of our board
of directors or our compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation we
paid in the fiscal year ended December 31, 1999 to our chief executive officer
and to our other three executive officers. For ease of reference, we
collectively refer to these executive officers throughout this section as our
"named executive officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION(1)
- --------------------------- -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Wallace K. Tsuha, Jr., $423,600 $150,000 $90,571(2) -- $ 39,728(3)
Chairman, chief executive
officer and president
Gene R. Smith, $170,000 $ 60,000 -- 78,000 $ 1,200
Executive vice president and
general manager, electronics
business segment
Donald J. Cowie, $163,000 $ 50,000 -- 48,000 $ 1,200
Chief financial officer and
executive vice president
Nick Najmolhoda, $172,800 $ 40,000 -- 48,000 $ 1,200
Executive vice president and
general manager,
electromechanical business
segment
</TABLE>
- ---------------
(1) Includes matching contributions of $1,200 made by us under our 401(k) plan.
(2) Includes $77,500 paid by us for interest accrued on a promissory note made
by Mr. Tsuha in favor of us.
(3) Includes a bonus in the amount of $38,528 paid to Mr. Tsuha for constructive
income and income taxes pursuant to a split-dollar life insurance policy
insuring Mr. Tsuha's life in the face amount of $20.0 million.
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<PAGE> 49
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1999
The following table contains information concerning the stock option grants
which were made to our named executive officers in the fiscal year ended
December 31, 1999 under our 1995 Management Stock Option Plan, or the 1995 Plan.
Only three of those officers were granted options.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER % OF TOTAL APPRECIATION FOR
OF SHARES OPTIONS GRANTED OPTION TERM
UNDERLYING TO EMPLOYEES EXERCISE PRICE EXPIRATION -----------------
NAME OPTIONS GRANTED IN FISCAL YEAR PER SHARE DATE 5% 10%
- ---- --------------- --------------- --------------- --------------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Donald J. Cowie.......... 48,000 5.5 $3.888 12/31/04 $ $
Nick Najmolhoda.......... 48,000 5.5 $3.888 12/31/04
Gene R. Smith(1)......... 48,000 5.5 $3.888 12/31/04
30,000 3.5 $3.888 12/31/04
</TABLE>
- ---------------
(1) Mr. Smith received an option grant for 48,000 shares on May 14, 1999 and an
option grant for 30,000 shares on October 28, 1999.
Once the options become exercisable, these options terminate 90 days after
the termination of the optionee's employment for any reason other than cause,
retirement, death or disability, and one year after the termination of the
optionee's employment due to retirement, disability or death or immediately upon
termination of the optionee's employment for cause.
Options were granted at an exercise price equal to the fair market value
per share of common stock on the date of grant as determined by our board of
directors. The potential realizable value is calculated based on the option
expiration date of December 31, 2004, and with a stock price appreciation at 5%
and 10% annual rates as assumed pursuant to rules promulgated by the SEC, and
does not represent our prediction of our stock price performance. The potential
realizable value at 5% and 10% appreciation is calculated by assuming that each
option's exercise price appreciates at the indicated rates for the entire term
of the option and that the option is exercised at the exercise price, and the
share sold, on the last day of its term at the appreciated prices.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the year-end number
and value of unexercised options with respect to three of our named executive
officers. The other named executive officer did not hold any options to acquire
common stock from us as of the end of the fiscal year 1999. No options were
exercisable in fiscal year 1999 by any of our named executive officers. There
was no public trading market for our common stock as of December 31, 1999.
Accordingly, the values set forth below have been calculated on the basis of the
assumed initial public offering price of $ per share, less the applicable
exercise price per share, multiplied by the number of shares underlying the
options.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SHARES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NAME DECEMBER 31, 1999 DECEMBER 31, 1999
- ---- ---------------------- -----------------
<S> <C> <C>
Donald J. Cowie......................................... 258,000 $
Nick Najmolhoda......................................... 264,000
Gene R. Smith........................................... 198,000
</TABLE>
Our compensation committee can make the options granted under the 1995 Plan
exercisable at any time at its discretion, and all options granted under the
1995 Plan will also become immediately exercisable in full upon a change of
control of our company. In addition, the options granted under the 1995 Plan may
become exercisable over time upon the earlier to occur of the following events:
we offer
43
<PAGE> 50
our shares to the public under a registration statement or we merge with a
publicly traded corporation but we do not experience a change of control.
STOCK OPTION PLANS
2000 Stock Option Plan
Our 2000 Stock Option Plan is designed to enable us to attract and retain
qualified officers, directors, employees and consultants and to provide these
individuals with an increased incentive to make significant and extraordinary
contributions to our long-term performance and growth, by making them eligible
to receive awards of stock options. A total of 2,500,000 shares of our common
stock have been authorized to date for issuance under the plan. No options have
been issued under the plan as of the date of this prospectus.
The 2000 Stock Option Plan is administered by the compensation committee of
our board of directors. Subject to the provisions of the plan, the compensation
committee will determine:
- when and to whom options will be granted;
- the number of shares covered by each option;
- the terms of the options, including the exercise price, although the
exercise price for incentive stock options may not be less than the fair
market value of our common stock on the date of grant, or 110% of the
fair market value if granted to an employee who at the time of the grant
owns more than 10% of our outstanding common stock; and
- subject to applicable law, whether the options will be incentive stock
options or non-qualified stock options.
Options granted under the plan will become exercisable at those times and
under the conditions determined by the compensation committee. Under the plan,
unless the compensation committee otherwise provides, all options held by an
option holder will automatically terminate when that person ceases to be an
employee, director or consultant for any reason.
The compensation committee may interpret the plan and may at any time adopt
rules and regulations for the plan as it deems advisable. In determining the
persons to whom options will be granted and the number of shares covered by each
option, the compensation committee may take into account any factors it deems
relevant.
Our board of directors may amend or terminate the 2000 Stock Option Plan.
However, no change will be effective without the approval of our shareholders if
shareholder approval is required by any law, regulation or stock exchange rule.
In addition, no change may adversely affect an option previously granted, except
with the written consent of the option holder.
The plan provides for adjustments to the number of shares and to the
exercise price of outstanding options in the event of stock dividends, stock
splits, recapitalizations, mergers, statutory share exchanges or reorganizations
of or by us, as the compensation committee, in its discretion, deems
appropriate.
1995 Management Stock Option Plan
We have outstanding under our 1995 Management Stock Option Plan, or the
1995 Plan, options to purchase a total of 2,834,400 shares of common stock. The
1995 Plan will be terminated upon the consummation of this offering and no
further options will be granted under the 1995 Plan. However, the options which
are now outstanding will continue to be exercisable according to their terms.
Our compensation committee can make the options granted under the 1995 Plan
exercisable at any time at its discretion, and all options granted under the
1995 Plan will also become immediately exercisable in full upon a change of
control of our company. In addition, the options granted under the 1995 Plan may
become exercisable over time upon the earlier to occur of the following events:
we offer our shares to the public under a registration statement or we merge
with a publicly traded corporation but we do not experience a change of control.
44
<PAGE> 51
CERTAIN TRANSACTIONS
In 1995, we loaned to Mr. Tsuha, our chairman, president and chief
executive officer, the amount of $1.0 million, bearing interest at a rate of
7.75% per annum due on the earlier March 31, 2002 or 90 days following the
effective date of a registration statement of a public offering of our common
stock. This loan is evidenced by an amended promissory note made by Mr. Tsuha in
our favor and has no principal amortization prior to maturity. Under the terms
of Mr. Tsuha's now expired employment agreement, we have paid the quarterly
interest payments on this promissory note. Interest on the promissory note
amounted to $77,500 each year from 1997 through 1999. Assuming Mr. Tsuha's
continued employment with us, we intend to continue to make interest payments on
his behalf in the future.
In 1999, we sold approximately $6.7 million in services and products to
affiliates of MascoTech, one of our significant shareholders. In 1998, we sold
approximately $5.1 million and in 1997 we sold approximately $4.2 million of
services and products to affiliates of MascoTech. Mr. William T. Anderson, one
of our directors, is also a vice president and controller at MascoTech. We have
continued to provide services and products to MascoTech during 2000 and intend
to continue to do so.
Until August 20 1999, we subleased our Auburn Hills, Michigan facility from
an affiliate of MascoTech for a total of $273,669. In 1998, we subleased the
facility for a total of $453,207 and in 1997 we subleased the facility for a
total of $439,774. Pursuant to a sublease agreement dated August 20, 1999, we
sublease a portion of our Auburn Hills, Michigan facility to another affiliate
of MascoTech. Rental income for this sublease in 1999 was $101,154, however, in
March of 2000 the monthly rental was reduced to $4,700 because of a reduction in
the amount of leased space. We believe this constitutes fair market rent.
We have entered into a consulting agreement with Sherman L. Cruz, one of
our directors and the brother of Mr. Tsuha, our chairman, chief executive
officer and president. The consulting agreement, which expires on August 31,
2000, provides for a monthly fee of $13,000 paid to Mr. Cruz for administrative
services. Mr. Cruz received a total of $144,000 in 1999 pursuant to a similar
consulting agreement. In 1998, we paid a total of $54,400 to Mr. Cruz for
services and in 1997 we paid a total of $7,550 to Mr. Cruz for such services.
In 1999, we purchased $3.0 million of materials from Bitron, an affiliate
of World Wide Industrial Invest B.V., or Worldwide, one of our shareholders
until April 29, 1999. In 1998 we purchased $6.7 million of materials from Bitron
and in 1997 we purchased $5.1 million of materials from Bitron. On April 29,
1999, we purchased from Worldwide 7,435,320 shares of our common stock for $27.0
million.
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<PAGE> 52
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our outstanding shares of common stock as of March 27, 2000 by:
- each person who is the beneficial owner of more than 5% of our
outstanding common stock;
- each of our directors;
- each of our named executive officers; and
- all of our directors and executive officers as a group.
Unless otherwise indicated below, the shareholders in this table have sole
voting and investment power with respect to all shares shown as beneficially
owned by them. Unless otherwise indicated, the address of each shareholder is
our principal executive office.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
BEFORE THIS OFFERING NUMBER OF AFTER THIS OFFERING (1)
--------------------- SHARES BEING -----------------------
NAME NUMBER PERCENT OFFERED (1) NUMBER PERCENT
---- ---------- ------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Wallace K. Tsuha, Jr.(2)............ 12,403,895 41.7%
MascoTech, Inc...................... 10,781,280 36.3
21001 Van Born Rd
Taylor, Michigan 48180
Jennifer Tsuha Pelling(3)(5)........ 2,156,105 7.2
2285 Rutherford Road
Carlsbad, California 92008
Bank One Trust N.A. ................ 4,400,000 14.8
2155 West Big Beaver
Troy, Michigan 48084(4)
Sherman L. Cruz (4)(5).............. 4,400,000 14.8
Donald J. Cowie..................... -- --
Nick Najmolhoda..................... -- --
Gene R. Smith, Jr................... -- --
William T. Anderson................. -- --
David E. Cole....................... -- --
Forest J. Farmer.................... -- --
Rick Inatome........................ -- --
Gary E. Liebl....................... -- --
All directors and executive officers
as a group (10 persons)........... 16,803,895 56.5
</TABLE>
- ---------------
(1) These numbers assume that the underwriters' over-allotment option is not
exercised. Mr. Tsuha is offering shares of common stock and
MascoTech is offering shares of common stock in the over-allotment
option. Assuming full exercise of the over-allotment option, Mr. Tsuha will
own shares of common stock, constituting % of the shares
outstanding, and MascoTech will own shares of common stock,
constituting % of the shares outstanding.
(2) Includes 1,264,307 shares held by the Wallace K. Tsuha Grantor Retained
Annuity Trust U/A/D 5/18/98, for which Mr. Tsuha is the trustee and has sole
investment and voting power, and includes 11,139,588 shares held by The
Wallace K. Tsuha Trust dated 10/14/91. Mr. Tsuha is the brother of Sherman
L. Cruz and the father of Jennifer Tsuha Pelling.
(3) Includes 1,032,119 shares held by the Wallace K. Tsuha Grantor Retained
Annuity Trust U/A/D 9/23/93 and 1,123,986 shares held by the Wallace K.
Tsuha Grantor Retained Annuity Trust U/A/D 11/7/94, for which Ms. Pelling is
the trustee and has sole voting and investment power.
(4) Includes 4,400,000 shares owned by the Tsuha Family Dynasty Trust U/A/D
12/31/91, for which Mr. Cruz and Bank One Trust N.A. serve as co-trustees
and jointly share investment and voting power.
(5) Ms. Pelling is the daughter of Mr. Tsuha and Mr. Cruz is the brother of Mr.
Tsuha.
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<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of the offering, the total amount of our authorized
capital stock will consist of 200,000,000 shares of common stock, no par value,
and 1,000,000 shares of preferred stock, no par value. The following description
of our capital stock describes all material provisions of our amended and
restated articles of incorporation and bylaws, but does not purport to be
complete, and does not give full effect to Michigan statutory or common law. The
following is in all respects, qualified by reference to the applicable
provisions of the Michigan Business Corporation Act and our amended and restated
articles of incorporation and bylaws. As of March 27, 2000, there were six
holders of record of our common stock.
COMMON STOCK
All of our issued and outstanding shares of common stock have been validly
issued and are fully paid and nonassessable. The shares of common stock we are
offering will be, when paid for, validly issued, fully paid and nonassessable.
Subject to the prior rights of the holders of any preferred stock that we may
later issue, the holders of outstanding shares of common stock will be entitled
to receive dividends out of assets legally available at such time and in such
amounts as our board of directors may from time to time determine. The common
stock is neither redeemable nor convertible, and holders of common stock have no
preemptive or subscription rights to purchase any of our securities. There is no
sinking fund provision applicable to our common stock. Upon our liquidation,
dissolution or winding up, the holders of common stock will be entitled to
receive, on a pro rata basis, our assets that are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of preferred stock then outstanding. Each
outstanding share of our common stock is entitled to one vote on all matters
submitted to a vote of shareholders. There is no cumulative voting in the
election of directors.
PREFERRED STOCK
Our board of directors may, without further action by our shareholders,
from time to time, issue shares of preferred stock in a series and may, at the
time of issuance, determine the rights, preferences and limitations of each
series with respect to, among other things, dividends, redemption and conversion
terms and voting rights. We may issue shares of preferred stock with voting,
dividend and liquidation rights superior to our common stock, any of which could
adversely affect the rights of holders of common stock. Our ability to issue
preferred stock, or our actual issuance of preferred stock, could have the
effect of discouraging, delaying, deterring or preventing a change of control.
Currently there are no shares of preferred stock outstanding, and we have no
present intention to issue any shares of preferred stock.
ANTI-TAKEOVER LEGISLATION AND PROVISIONS OF OUR ARTICLES AND BYLAWS
Chapters 7A and 7B of the Michigan Business Corporation Act may affect
attempts to acquire control of a Michigan corporation. Chapter 7A prohibits a
Michigan corporation from consummating a "business combination" with an
"interested shareholder" unless the proposed business combination is approved by
at least 90% of the votes of each class of the corporation's shares entitled to
vote and by at least two-thirds of such voting shares not held by the interested
shareholder, its affiliates and associates. These requirements do not apply,
however, when the interested shareholder satisfies certain price, form of
consideration and other requirements and at least five years have elapsed after
the person involved became an interested shareholder. In general, under Chapter
7A, business combinations are defined to include certain mergers, substantial
sales of assets or securities and recapitalizations between covered Michigan
business corporations or their subsidiaries and an interested shareholder.
Generally, an interested shareholder is defined as a direct or indirect
beneficial owner of 10% or more of the voting power of the corporation's
outstanding shares. Our board of directors has the power to elect not to be
subject to Chapter 7A as to specifically identified or unidentified interested
shareholders.
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<PAGE> 54
Generally, under Chapter 7B, an entity that acquires "control shares" of a
corporation exercises voting rights with respect to the control shares on any
matter only if a majority of all shares, and of all shares that are not
"interested shares," of each class of shares entitled to vote as a class,
approve those voting rights. In general, interested shares of a corporation are
shares owned by employee-directors or officers of the company, or by an entity
making a "control share acquisition." Control shares are shares that, when added
to those already owned by an entity, would give the entity voting power in the
election of directors over any of three thresholds: one-fifth, one-third and a
majority of such voting power. If control shares acquired in a control share
acquisition are accorded full voting rights and the acquirer of such control
shares has acquired a majority of all voting power of the company, Chapter 7B
would afford special dissenters' rights to the company's shareholders other than
the acquirer, unless otherwise provided in the articles of incorporation or
bylaws before the control share acquisition occurs. The effect of the statute is
to condition the acquisition of voting control of the company on the approval of
a majority of the pre-existing disinterested shareholders. While our amended and
restated bylaws currently provide that Chapter 7B does not apply to us, our
board of directors may amend the bylaws to make Chapter 7B apply to us.
In addition, certain provisions of our amended and restated articles of
incorporation and our amended and restated bylaws could have the effect of
discouraging, delaying, deterring or preventing a change of control. Such
provisions could also limit the price that certain investors might be willing to
pay in the future for shares of our common stock. These provisions include those
which:
- classify our board of directors into three classes, each class as nearly
equal in number as possible, with members serving staggered three year
terms;
- permit our board of directors to issue up to 1,000,000 shares of
preferred stock and to fix the rights and preferences of any series of
the preferred stock, without any further vote or action by our
shareholders;
- require the approval of at least 80% of the outstanding shares of our
voting stock to amend or repeal the provision establishing a classified
board of directors;
- provide that special meetings of shareholders may only be called by our
chief executive officer, our board of directors or a majority of our
shareholders entitled to vote at the meeting; and
- provide that directors may be removed only for cause, by a vote of the
holders of a majority of the shares entitled to vote at an election of
directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
LISTING
We have reserved the trading symbol "SATR" for listing our shares of common
stock on The Nasdaq Stock Market's National Market.
48
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock and
we cannot make any predictions as to the effect, if any, that market sales of
shares or the availability of shares of our common stock for future sale will
have in the market price of our common stock from time to time. Furthermore,
although many shares will be unavailable for sale shortly after this offering
due to contractual and legal restrictions on resale described below, the sale of
a substantial amount of shares of common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price of our
common stock and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding, an aggregate of
shares of our common stock. Of these shares, all of the shares
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act, unless the shares are purchased by our
affiliates as that term is defined in Rule 144 under the Securities Act. Any
shares purchased by an affiliate may not be resold except pursuant to an
effective registration statement or an applicable exemption from registration,
including an exemption under Rule 144 of the Securities Act. The remaining
shares of common stock held by existing shareholders are restricted securities
as that term is defined in Rule 144 under the Securities Act. These restricted
securities may be sold in the public market only if they are registered or if
they qualify for an exemption from registration, including exemptions under Rule
144 or Rule 701 under the Securities Act. These rules are summarized below.
Upon the expiration of the lock-up agreements described below and subject
to the provisions of Rule 144 and Rule 701, restricted shares totaling
will be available for sale in the public market 180 days after
the date of this prospectus. The sale of these restricted securities is subject,
in the case of shares held by affiliates, to the timing, volume and manner of
sale restrictions contained in those rules.
RULE 144
In general, under Rule 144, beginning 90 days after the consummation of
this offering, a person who has beneficially owned shares of our common stock
for at least one year from the date those shares of common stock were acquired
from us or from an affiliate of ours would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1.0% of the number of shares of common stock then outstanding, which will
equal approximately shares of common stock immediately after
this offering; or
- the average weekly trading volume of the common stock in the public
market during the four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale.
The sales of any shares of common stock under Rule 144 are also subject to
manner of sale provisions and notice requirements and to the availability of
current public information about us.
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, without the restrictions
on our outstanding shares contained in the lock-up agreements, those shares
could have been sold immediately upon the completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act, each of our employees,
consultants or advisors who purchased shares from us under our stock option
plans or other written agreements, is eligible to resell those shares 90 days
after the effective date of this offering in reliance on Rule 144, but without
compliance with some of the restrictions, including the holding period
requirements, contained in Rule 144.
49
<PAGE> 56
LOCK-UP AGREEMENTS
Together with our directors and executive officers and all our existing
shareholders, we have entered into lock-up agreements with the underwriters.
Under those agreements, neither we nor any of our directors, executive officers
or current shareholders may dispose of or hedge any shares of our common stock
or securities convertible into or exchangeable or exercisable for shares of our
common stock. These restrictions will be in effect for a period of 180 days
after the date of this prospectus. At any time and without notice, Credit Suisse
First Boston Corporation may, in its sole discretion, release all or some of the
securities from these lock-up agreements. Transfers or dispositions can be made
sooner with the prior written consent of Credit Suisse First Boston Corporation,
provided the transferee becomes bound by the terms of a lockup agreement.
STOCK PLANS AND WARRANT
We intend to file a registration statement under the Securities Act
covering 2,500,000 shares of common stock reserved for issuance under our 2000
Stock Option Plan and covering 2,834,400 shares of common stock reserved for
issuance for options outstanding under our 1995 Management Stock Option Plan.
Currently, there are no options outstanding under our 2000 Stock Option Plan.
Once we file this registration statement, all of the shares issued upon exercise
of the options granted under these plans will be eligible for sale in the public
market from time to time, subject to the expiration of applicable lock-up
agreements. This registration statement is expected to be filed as soon as
practicable after the effective date of this offering.
In addition to our outstanding options, we have granted to Motorola a
warrant to acquire 1,565,331 shares of our common stock, at a per share exercise
price equal to 90% of the price per share of our initial public offering. The
warrant is exercisable between March 2004 and March 2005. However, for every
$100.0 million that we receive from Motorola for services rendered, 10% of the
shares subject to this warrant will become exercisable immediately. The shares
issued upon exercise of this warrant may be sold in the public market only if
they are registered with the SEC or if the sale qualifies for an exemption from
registration, including exemption under Rule 144 under the Securities Act.
REGISTRATION RIGHTS
Following 180 days after the effectiveness of this offering, MascoTech, one
of our current significant shareholders, will, under certain circumstances, have
the right to require us to register a portion of its shares for future sale. In
addition, if we determine to register our common stock in an underwritten
offering, MascoTech has the right to be included in such offering, subject to
certain exceptions.
In addition, Motorola, a holder of a warrant to purchase 1,565,331 shares
of our common stock will, under certain circumstances, have the right to require
us to register the shares it obtains through the exercise of the warrant. After
our common stock is publicly traded, Motorola will have the right to require us
to file a registration statement providing for the sale of Motorola's shares
under Rule 415 of the Securities Act, which permits registration of an offering
to be made on a continuous or delayed basis. However, we have the right to
require Motorola not to sell any securities registered under this registration
statement under certain circumstances. In addition, at Motorola's request, we
have agreed to use our best efforts to include common stock issuable under this
warrant in any future registration statement that we may file with respect to
our common stock, subject to certain limitations.
50
<PAGE> 57
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we and the selling shareholders have agreed
to sell to the underwriters named below, for whom Credit Suisse First Boston
Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Needham &
Company, Inc. are acting as representatives, the following respective numbers of
shares of common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Needham & Company, Inc......................................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
The selling shareholders have granted to the underwriters a 30-day option
to purchase on a pro rata basis up to additional shares at the initial
public offering price less the underwriting discounts and commissions. The
option may be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
and the selling shareholders will pay:
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us..... $ $ $ $
Expenses payable by us....... $ $ $ $
Underwriting discounts and
commissions paid by selling
shareholders............... $ $ $ $
Expenses payable by selling
Shareholders............... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
relating to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof.
51
<PAGE> 58
All of our executive officers, directors and shareholders have agreed that
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of our common stock or securities convertible
into or exchangeable or exercisable for any shares of our common stock, enter
into a transaction which would have the same effect, or enter into any swap,
hedge or other arrangement that transfers, in whole or in part, any of the
economic consequences of ownership of our common stock, whether any such
aforementioned transaction is to be settled by delivery of our common stock or
such other securities, in cash or otherwise, or publicly disclose the intention
to make any such offer, sale, pledge or disposition, or to enter into any such
transaction, swap, hedge or other arrangement, without, in each case, the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in this offering will be reduced to the extent such
persons purchase reserved shares. Any reserved shares not purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We and the selling shareholders have agreed to indemnify the underwriters
against liabilities under the Securities Act, or contribute to payments which
the underwriters may be required to make in that respect.
We have reserved the symbol "SATR" to list the shares of common stock on
The Nasdaq Stock Market's National Market.
Prior to this offering, there was no established public trading market for
our common stock. The initial public offering price for the common stock will be
determined by negotiation among Credit Suisse First Boston Corporation, the
representatives and us and the selling shareholders. The primary factors to be
considered in determining the initial public offering price include:
- the history and prospects of the industry in which we compete;
- the ability of our management;
- our past and present operations;
- our prospects for future earnings;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of securities of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of our common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market, or otherwise and, if commenced, may be
discontinued at any time.
52
<PAGE> 59
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
shareholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are effected.
Accordingly, any resale of the common stock in Canada must be made in accordance
with applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us, the selling shareholders and the
dealer from whom such purchase confirmation is received that (i) such purchaser
is entitled under applicable provincial securities laws to purchase such common
stock without the benefit of a prospectus qualified under such securities laws,
(ii) where required by law, that such purchaser is purchasing as a principal and
not as agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the United States federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All the issuer's directors and officers as well as the experts named herein
and the selling shareholders may be located outside of Canada and, as a result,
it may not be possible for Canadian purchasers to effect service of process
within Canada upon the issuer or such persons. All or a substantial portion of
the assets of the issuer and such persons may be located outside of Canada and,
as a result, it may not be possible to satisfy a judgment against the issuer or
such persons in Canada or to enforce a judgment obtained in Canadian courts
against such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such person pursuant to this offering. Such report must
be in the form attached to the British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
53
<PAGE> 60
EXPERTS
Our consolidated balance sheets as of December 31, 1999 and 1998, and our
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1999, included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
The consolidated balance sheets for Smartflex Systems, Inc. as of December
31, 1998 and 1997, and the consolidated statements of operations, stockholders'
equity and cash flows of Smartflex Systems, Inc. for each of the three years in
the period ended December 31, 1998, included in this prospectus, have been
included in reliance on the report of Ernst & Young LLP, independent auditors,
given on the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock to be sold in this
offering. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement or the exhibits and schedules which are part of the registration
statement. For further information about us and our common stock, you should
refer to the registration statement as permitted by the SEC's rules. Any
statements made in this prospectus as to the contents of any contract, agreement
or other document are necessarily incomplete and we refer you to the exhibit for
a more complete description of the matter involved, and each statement in this
prospectus shall be deemed qualified in its entirety by this reference.
On completion of this offering we will be subject to the information
requirements of the Securities Exchange Act of 1934 and will file reports, proxy
statements and other information with the SEC. You may read and copy all or any
portion of the registration statement or any reports, statements or other
information in the files at the public reference facilities of the SEC at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., 20549 and at
the regional offices of the SEC located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You can request copies of these documents upon payment of a
duplicating fee by writing to the SEC. You may call the SEC at 1-800-SEC-0330
for further information on the operation of its public reference rooms. Our
filings, including the registration statement, will also be available to you on
the Internet site maintained by the SEC at www.sec.gov.
LEGAL MATTERS
The legality of the shares offered hereby by us and by Wallace K. Tsuha,
Jr., one of the selling shareholders, is being passed upon by Honigman Miller
Schwartz and Cohn, Detroit, Michigan, counsel for us. Certain legal matters will
be passed upon for the underwriters by McDermott, Will & Emery, Chicago,
Illinois.
54
<PAGE> 61
SATURN ELECTRONICS & ENGINEERING, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
OUR ANNUAL FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998, and 1997............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
SMARTFLEX SYSTEMS, INC. FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-21
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-22
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996.......................... F-23
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996...... F-24
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-25
Notes to Consolidated Financial Statements.................. F-26
Consolidated Balance Sheets as of June 30, 1999 and December
31, 1998.................................................. F-41
Consolidated Statements of Operations for the six months
ended June 30, 1999 and 1998 and for the three months
ended June 30, 1999 and 1998.............................. F-42
Consolidated Statements of Cash Flows for six months ended
June 30, 1999 and 1998.................................... F-43
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-44
PRO FORMA CONSOLIDATED FINANCIAL STATEMENT OF OPERATIONS
Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1999................................... F-46
Notes to Pro Forma Consolidated Statement of Operations..... F-46
</TABLE>
F-1
<PAGE> 62
THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS OF SATURN ELECTRONICS &
ENGINEERING, INC. HAVE BEEN PREPARED GIVING EFFECT TO THE AUTHORIZATION OF
ADDITIONAL SHARES OF COMMON STOCK AND CERTAIN STOCK SPLITS AS MORE FULLY
DESCRIBED IN NOTE 14. WE HAVE BEEN INFORMED THAT AUTHORIZATION OF ADDITIONAL
SHARES AND THE STOCK SPLITS ARE CONTINGENT UPON THE EFFECTIVENESS OF THE
OFFERING. UPON THE CONSUMMATION OF THE AFOREMENTIONED EVENTS WE WILL BE IN A
POSITION TO ISSUE THE FOLLOWING REPORT:
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Saturn Electronics & Engineering, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholders' equity and cash
flows present fairly, in all material respects, the financial position of Saturn
Electronics & Engineering, Inc. and its subsidiaries at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
March 2, 2000, except as to
the authorization of
additional shares and the
stock splits described in
Note 14 which is as of
March 25, 2000.
F-2
<PAGE> 63
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
-------------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,929 $ 1,020
Accounts receivable, trade (less allowances of $1,783 and
$455 in 1999 and 1998, respectively)................... 46,012 28,265
Note receivable........................................... 1,000 --
Inventories............................................... 32,271 9,474
Deferred income taxes..................................... 8,982 1,665
Prepaid expenses.......................................... 2,634 336
Other current assets...................................... 3,125 967
-------- -------
Total current assets................................... 95,953 41,727
Property, plant and equipment, net........................ 66,798 39,105
Process technology, net................................... 14,357 --
Customer lists and other intangible assets, net........... 17,137 463
Goodwill, net............................................. 35,382 16,270
Note receivable........................................... -- 1,000
Other assets.............................................. 2,347 39
-------- -------
Total assets........................................... $231,974 $98,604
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade................................... $ 30,080 $13,959
Seller Payable............................................ 4,279 --
Income taxes payable...................................... -- 412
Product warranty.......................................... 3,307 2,779
Other accrued expenses.................................... 13,642 2,318
-------- -------
Total current liabilities.............................. 51,308 19,468
Long term debt.............................................. 107,361 3,976
Deferred income taxes....................................... 13,757 2,731
-------- -------
Total liabilities...................................... 172,426 26,175
-------- -------
Minority interest........................................... 7,690 3,476
-------- -------
Shareholders' Equity:
Common stock, no par value -- 200,000,000 shares
authorized, 29,741,280 shares issued and outstanding... -- --
Additional paid-in-capital................................ 7,737 34,737
Retained earnings......................................... 44,121 34,216
-------- -------
Total shareholders' equity............................. 51,858 68,953
-------- -------
Total liabilities and shareholders' equity............. $231,974 $98,604
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 64
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net revenue............................................ $ 257,107 $ 188,464 $ 161,048
Cost of revenue........................................ 205,341 147,661 133,568
---------- ---------- ----------
Gross profit...................................... 51,766 40,803 27,480
Development expense.................................... 7,741 4,861 3,563
Selling, general and administrative expense............ 19,146 12,777 8,039
Amortization expense................................... 2,582 1,649 1,650
---------- ---------- ----------
Operating income.................................. 22,297 21,516 14,228
Interest income........................................ 331 176 100
Interest expense....................................... (3,340) (142) (977)
Other income (expense), net............................ (161) (131) 116
Write down of investment............................... -- (905) --
Minority interest...................................... (2,788) (1,701) --
---------- ---------- ----------
Income before income taxes........................ 16,339 18,813 13,467
Income taxes........................................... 6,434 6,859 5,408
---------- ---------- ----------
Net income........................................ $ 9,905 $ 11,954 $ 8,059
========== ========== ==========
Basic and diluted earnings per share of common stock... $ 0.31 $ 0.32 $ 0.22
========== ========== ==========
Basic and diluted weighted average number of common
shares outstanding................................... 32,145,026 37,176,600 37,176,600
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 65
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCK, NO PAID-IN RETAINED SHAREHOLDERS'
PAR VALUE CAPITAL EARNINGS EQUITY
---------- ---------- -------- -------------
<S> <C> <C> <C> <C>
Balances, January 1, 1997.................... 37,176,600 $ 34,737 $14,203 $ 48,940
Net income................................... -- -- 8,059 8,059
---------- -------- ------- --------
Balances, December 31, 1997.................. 37,176,600 34,737 22,262 56,999
Net income................................... -- -- 11,954 11,954
---------- -------- ------- --------
Balances, December 31, 1998.................. 37,176,600 34,737 34,216 68,953
Stock Repurchase............................. (7,435,320) (27,000) -- (27,000)
Net income................................... -- -- 9,905 9,905
---------- -------- ------- --------
Balances, December 31, 1999.................. 29,741,280 $ 7,737 $44,121 $ 51,858
========== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 66
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income.................................................. $ 9,905 $11,954 $ 8,059
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
Depreciation.............................................. 6,614 4,524 3,125
Amortization.............................................. 2,582 1,649 1,650
Deferred income taxes..................................... 500 (884) 248
Write off of investment................................... -- 905 --
Loss on disposal of fixed assets.......................... -- 1,169 --
Minority interest in income............................... 2,788 1,701 --
Changes in operating assets and liabilities, net of
business acquisition:
Accounts receivable, trade................................ (2,323) (7,479) 527
Inventories............................................... (9,410) 641 2,384
Prepaid expenses.......................................... (563) 176 153
Accounts payable, trade................................... (4,390) 2,339 (171)
Income taxes payable...................................... 857 (403) 382
Accrued expenses and other................................ (2,113) 1,348 366
--------- ------- --------
Net cash provided by operating activities.......... 4,447 17,640 16,723
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired............... (52,694) -- --
Capital expenditures........................................ (8,640) (16,877) (6,478)
--------- ------- --------
Net cash used in investing activities.............. (61,334) (16,877) (6,478)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from borrowings.................................... 251,646 44,939 20,360
Payment of borrowings....................................... (164,884) (47,593) (31,800)
Stock repurchase............................................ (27,000) -- --
Payment of finance fee...................................... (1,991) -- --
Minority interest investment................................ 25 1,775 --
--------- ------- --------
Net cash provided by (used in) financing
activities....................................... 57,796 (879) (11,440)
Net increase(decrease) in cash.............................. 909 (116) (1,195)
Cash, beginning of year..................................... 1,020 1,136 2,331
--------- ------- --------
Cash, end of year........................................... $ 1,929 $ 1,020 $ 1,136
========= ======= ========
Supplemental disclosures of cash flow information, Cash paid
during the period for:
Income taxes.............................................. $ 6,895 $ 8,567 $ 4,604
========= ======= ========
Interest.................................................. $ 2,748 $ 168 $ 1,011
========= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 67
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Except as the context otherwise indicates, the term "the Company" refers to
Saturn Electronics & Engineering, Inc. and its subsidiaries.
The Company is a global provider of value added electronics manufacturing
services to original equipment manufacturers in the automotive, communications,
computer and military markets. The Company provides a broad range of services
including design and engineering, material management, manufacturing and
assembly, testing and qualification, fulfillment and after-sales support.
In August 1999, the Company acquired Smartflex Systems, Inc., a high
technology product design and precision manufacturing firm based in Tustin,
California. Through this acquisition, the Company gained access to full-service
electronics capabilities and significantly increased its scale of operations.
This acquisition expanded the Company's customer base to the communications and
computer markets, and enhanced its geographic presence.
The Company has manufacturing facilities in the United States, Mexico and
the Philippines, and an engineering and sales facility in Singapore.
During the year ended December 31, 1999, the Company had sales to two
customers aggregating approximately 31% and 19%, respectively, of total net
revenue. During the year ended December 31, 1998, the Company had sales to two
customers aggregating approximately 40% and 10% respectively of total sales.
During the year ended December 31, 1997, the Company had sales to two customers
aggregating approximately 45% and 14%, respectively, of total net revenue.
2. ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
The Company participates in a strategic alliance with a major Tier 1
automotive supplier ("Tier 1") through a limited liability company ("LLC") for
the purpose of manufacturing battery cables, wire harnesses, ground straps,
trailer tow harnesses and non-automotive electrical distribution systems. On
December 31, 1999, the Company held an approximate 53% membership interest in
the LLC. All products of the LLC are sold and serviced through the Company. The
remaining 47% membership interest in the LLC is reflected as a minority
interest.
The LLC is operating as a subsidiary of the Company and, for financial
reporting purposes, the assets, liabilities, results of operations and cash
flows of the LLC are included in the Company's consolidated financial
statements.
Revenue recognition
Revenue is generally recognized when a product is shipped, and the Company
provides an applicable allowance for estimated sales returns based on historical
experience.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
on a first-in, first-out basis.
F-7
<PAGE> 68
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACCOUNTING POLICIES -- (CONTINUED)
Property, plant and equipment
Property, plant and equipment is stated at cost. Depreciation is computed
principally using the straight-line method over the following estimated useful
lives: buildings and land improvements from 10 to 40 years and machinery and
equipment from 3 to 15 years.
Costs of maintenance and repairs are charged to expense when incurred;
costs of renewals or betterments are capitalized. Upon sale or retirement of
property, plant and equipment, the cost and related accumulated depreciation are
eliminated from the respective accounts, and the resulting gain or loss is
included in the statement of operations.
Intangible assets
Goodwill is amortized using the straight-line method over periods ranging
from 18 to 20 years. At December 31, 1999 and 1998, accumulated amortization
amounted to $8,783,000 and $7,362,000 respectively.
Process technology and customer lists and other intangible assets are
amortized under the straight line method over periods ranging from 13 to 18
years. At December 31, 1999, accumulated amortization pertaining to process
technology, and customer lists and other intangible assets amounted to
$3,081,000 and $705,600 respectively. At December 31, 1998, accumulated
amortization pertaining to process technology amounted to $2,618,850.
Intangible assets are reviewed for impairment whenever the facts and
circumstances indicate that the carrying amount may not be recoverable.
Financial instruments
Financial instruments which potentially subject the Company to
concentrations of credit risk represent primarily accounts receivable. At
December 31, 1999, two customers represented 19.4% and 12.3%, respectively, of
the Company's accounts receivable balance. The Company performs ongoing credit
evaluations of its customers' financial condition and currently requires no
collateral from its customers.
The carrying amounts of the Company's receivable and payable balances
approximate fair value because of the short maturity of these instruments. The
carrying amounts of the Company's bank borrowings under its revolving credit
facility approximate fair value because the applicable interest rates are based
on floating rates identified by reference to market rates.
Translation of foreign currency
The financial statements of the Company's operations outside the United
States are measured using the U.S. dollar as the functional currency. Monetary
assets and liabilities are translated at the rates of exchange at the balance
sheet date. Non-monetary assets and liabilities are translated at historical
rates of exchange. Income and expense items associated with monetary assets and
liabilities are translated at average rates of exchange for the period, while
the income and expense items associated with non-monetary assets and liabilities
are translated at historical rates. The resultant translation adjustments are
included in results of operations as transaction gains and losses. Transaction
gains/(losses) were not material during 1999, 1998 and 1997.
F-8
<PAGE> 69
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACCOUNTING POLICIES -- (CONTINUED)
Earnings Per Share
Basic earnings per share is calculated by dividing consolidated net income
by the weighted average number of common shares outstanding. Diluted earnings
per share is computed by dividing consolidated net income by the sum of the
weighted average number of common shares outstanding and the weighted average
number of common stock equivalents outstanding. During 1999, 1998 and 1997, the
Company had no common stock equivalents outstanding.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions, and changes in such estimates and assumptions may affect amounts
reported in future periods.
3. BUSINESS ACQUISITION
Effective August 26, 1999, the Company acquired all of the outstanding
shares of common stock of Smartflex Systems, Inc. ("Smartflex") for $71,308,000.
In connection with this acquisition, the Company also incurred transaction costs
in the amount of approximately $385,000.
This acquisition was funded through the Company's revolving credit
facility. In addition, cash acquired in this acquisition in the amount of
$18,614,000 was utilized in the extinguishment of certain debt of Smartflex.
The acquisition was accounted for as a purchase, and accordingly, the
operating results of Smartflex have been included in the Company's financial
statements since August 26, 1999. The excess of the purchase price over the fair
value of net assets acquired is presently estimated at $20,503,000 and is being
amortized over 18 years.
The Company's allocation of the aggregate purchase price of Smartflex to
the tangible and intangible assets acquired in connection with this acquisition
were based on fair values as determined by an independent appraiser. The
allocation is summarized below (in thousands).
<TABLE>
<S> <C>
Current assets.............................................. $ 41,048
Property, plant & equipment................................. 23,600
Unpatented technology....................................... 14,700
Customer lists and other intangible assets.................. 17,500
Goodwill.................................................... 20,525
Other assets................................................ 5,604
--------
Total assets........................................... 122,977
--------
Current liabilities......................................... 30,756
Seller payable.............................................. 4,279
Long-term debt.............................................. 4,596
Deferred income taxes....................................... 11,946
Other non current liabilities............................... 92
--------
Total liabilities...................................... 51,669
--------
Total purchase price................................. 71,308
--------
Less: cash acquired.................................. 18,614
--------
Purchase price, net of cash acquired................. $ 52,694
========
</TABLE>
F-9
<PAGE> 70
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. BUSINESS ACQUISITION -- (CONTINUED)
The following unaudited pro forma consolidated results of operations for
the years ended December 31, 1999 and 1998 assume that this acquisition occurred
on January 1, 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net revenue................................................. $325,578 $296,065
Net income (loss)........................................... $ (2,537) $ 4,126
</TABLE>
The Company is in the process of implementing a rationalization plan
established shortly after the acquisition of Smartflex. The rationalization plan
takes into consideration duplicate capacity and opportunities for further
leveraging of cost and technology platforms. The Company's actions approved and
committed to in the fourth quarter of 1999 will result in the displacement of
approximately 81 current positions all of which are manufacturing positions. The
Company has decided to close one Smartflex facility and transition the
manufacturing of applicable product lines to other sites of the Company. The
Company estimates that the costs associated with closing the Smartflex facility
will be approximately $2,900,000 (which mostly represents contractual
commitments, severance and related costs). This amount has been capitalized as
part of the purchase price of Smartflex and is reflected in the other accrued
expenses classification of the Company's balance sheet at December 31, 1999.
The above mentioned charges were determined based upon plans approved by
the Company's management utilizing the best information available at the time.
The amounts the Company may incur may differ from the total amount accrued as
the Company's initiative in relation to this rationalization plan is executed.
Management expects the execution of this plan will be completed in the second
quarter of 2000.
4. DETAILS TO CONSOLIDATED BALANCE SHEETS
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- ------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................... $18,601 $4,453
Work-in-process............................................. 4,817 1,892
Finished goods.............................................. 8,853 3,129
------- ------
$32,271 $9,474
======= ======
</TABLE>
Inventories are net of allowances for slow-moving and obsolete inventory of
approximately $3,958,000 and $1,402,000 at December 31, 1999 and 1998,
respectively.
F-10
<PAGE> 71
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DETAILS TO CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements....................................... $ 1,438 $ 1,487
Buildings and improvements.................................. 19,283 9,785
Machinery and equipment..................................... 64,695 34,280
Construction in progress.................................... 4,430 12,501
-------- --------
89,846 58,053
Less -- accumulated depreciation............................ (23,048) (18,948)
-------- --------
$ 66,798 $ 39,105
======== ========
</TABLE>
During the fourth quarter of 1998, the Company determined that the cash
flows related to an investment in a joint venture were not sufficient to recover
the carrying value. As a result of this determination, the Company recognized a
pretax write down of this investment in the amount of $905,478.
5. DEBT
On August 24, 1999, the Company entered into a $125,000,000 revolving line
of credit facility, which expires on August 9, 2002 with one year renewals based
upon the meeting of certain requirements at each anniversary date of the
facility. This arrangement involves a consortium of banks led by one major
financial institution. This line of credit replaced an existing $60,000,000 line
of credit facility.
A facility fee applicable to this arrangement amounts to 0.50% per annum of
the maximum commitment of the facility, payable quarterly, subject to adjustment
under certain circumstances. Letter of credit fees and facing fees on each
letter of credit also apply to this arrangement. This agreement contains
financial covenants relating to leverage, interest coverage and shareholder's
equity. Interest pertaining to borrowings associated with this facility are
based upon either a Eurodollar rate or the prime rate of the financial
institution.
During 1999, the maximum borrowings under the Company's credit arrangements
were $113,673,086; average borrowings were $29,739,715 at a weighted average
interest rate of 7.75%.
Borrowings pertaining to this arrangement are collateralized by all of the
Company's assets, except for the assets pertaining to the LLC. The unutilized
amount of this arrangement amounted to $17,639,000 on December 31, 1999.
The LLC has a revolving credit facility, as amended, with the above
mentioned financial institution. During the term of this facility, the financial
institution agrees to lend to the LLC sums not to exceed $15,000,000 in
aggregate principal amount outstanding at any one time. The term of this
facility expires on January 1, 2001. Interest on any unpaid principal balance
shall be payable monthly at a per annum rate equal to the financial
institution's prime rate. Borrowings pertaining to this facility shall be
collateralized by all of the LLC's assets. This facility contains covenants
which include restrictions pertaining to the issuance of debt, business
acquisitions, and transfers of assets. At December 31, 1999, there were no
borrowings outstanding, and no borrowings have been incurred in relation to this
arrangement.
F-11
<PAGE> 72
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. EMPLOYEE INVESTMENT PLANS
Saturn Electronics & Engineering, Inc. sponsors a 401(k) savings plan
covering substantially all employees with the exception of Smartflex employees.
Employees are eligible to participate in this plan following one year of
service. The Company matches 100% of the first $500 and 50% of the next $1,400
of each participant's annual contributions. These contributions vest
immediately. The Company also pays certain administrative expenses associated
with this plan. Total expense pertaining to this plan amounted to $476,000,
$441,000 and $453,000 for 1999, 1998 and 1997, respectively.
Smartflex sponsors a 401(k) savings plan covering substantially all
full-time employees of Smartflex. Employees are eligible to participate in this
plan following six months of service. Smartflex may make discretionary matching
contributions, which vest over five years. Smartflex matches 100% of the first
3% of each employee's contribution. Total expense pertaining to this plan
amounted to $126,000 during the period of August 26, 1999 through December 31,
1999.
7. INCOME TAXES
Income before income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Domestic.............................................. $15,113 $18,813 $13,467
Foreign............................................... 1,226 -- --
------- ------- -------
$16,339 $18,813 $13,467
======= ======= =======
</TABLE>
The components of income tax expense are:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current provision
Federal................................................ $5,394 $7,503 $5,010
State.................................................. 323 186 150
Foreign................................................ 248 -- --
------ ------ ------
Total.......................................... 5,965 7,689 5,160
Deferred................................................. 469 (830) 248
------ ------ ------
Total provision................................ $6,434 $6,859 $5,408
====== ====== ======
</TABLE>
F-12
<PAGE> 73
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts utilized for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities at December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets:
Inventory................................................. $ 1,705 $ 575
Product Warranty.......................................... 1,018 890
Allowance for Doubtful Accounts........................... 468 --
Accrued Liabilities....................................... 2,982 200
Net Operating Loss Carryforwards.......................... 2,809 --
------- -------
Deferred Tax Assets......................................... 8,982 1,665
------- -------
Deferred Tax Liabilities
State Deferred Taxes...................................... 11,653 --
Property, Plant and Equipment............................. 1,925 3,048
Other..................................................... 179 (317)
------- -------
Deferred Tax Liabilities.................................... 13,757 2,731
------- -------
Net Deferred Tax Liabilities................................ $(4,775) $(1,066)
======= =======
</TABLE>
The tax credit carryforwards relate to net operating losses generated by
Smartflex prior to August 26, 1999. On that date, Smartflex had available for
income tax purposes approximately $8,026,000 in federal net operating loss
carryforwards, which is subject to an annual limitation of approximately
$3,694,000 pursuant to Section 382 of the Internal Revenue Code, regarding the
offset of future taxable income. These loss carryforwards expire in 2014.
At December 31, 1999, Smartflex had state tax credit carryforwards in the
approximate amount of $2,999,000 of which $1,628,000 existed at August 26, 1999.
These credits expire in 2004.
The Company has not recognized a deferred tax liability of approximately
$275,000 for the undistributed earnings generated prior to August 26, 1999 of
certain foreign subsidiaries of Smartflex because the Company currently does not
expect those unremitted earnings to reverse and become taxable in the
foreseeable future. At December 31, 1999, the undistributed earnings of these
subsidiaries amounted to $726,000.
Smartflex has a tax holiday in the Philippines, which expires on October 1,
2000. There was no income tax relief resulting from this holiday during the
period of August 26, 1999 through December 31, 1999.
In addition to tax credit carryforwards, deferred tax assets and
liabilities in the respective amounts of $9,377,000 and $12,581,000 applied to
Smartflex at the date of its acquisition by the Company.
F-13
<PAGE> 74
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES -- (CONTINUED)
Major differences between income tax expense computed using the United
States statutory tax rate and actual income tax expense were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes at statutory rate................... $5,719 $6,584 $4,713
State income taxes (net of federal benefit).............. 209 121 98
Goodwill................................................. 317 176 184
Other.................................................... 189 (22) 413
------ ------ ------
Income taxes........................................... $6,434 $6,859 $5,408
====== ====== ======
</TABLE>
8. SHAREHOLDERS' EQUITY
Stock Repurchase
On April 29, 1999, the Company purchased 7,435,320 shares of Common Stock
for $27,000,000, pursuant to a Stock Purchase Agreement. The Company utilized
its line of credit to finance this transaction.
9. STOCK OPTION PLAN
The 1995 Management Stock Option Plan (the "Plan"), as amended, provides
for the grant of options to directors and key employees of the Company, for the
purchase of up to 1,240,000 shares of the Company's common stock. Options
granted under the Plan may be incentive stock options, within the meaning of
Section 422 of the Internal Revenue Code, or nonqualified stock options.
Options awarded three years or less before the effective date of an initial
public offering ("IPO") or merger with a public company will become exercisable
to the extent of 25% at each interval of 12, 18, 24, and 30 months after the
effective date of an IPO or merger with a public company. Options awarded more
than three years before the effective date of an IPO or merger with a public
company will become exercisable to the extent of 50% at each interval of 12 and
18 months after the effective date of an IPO or merger with a public company.
All options are exercisable, at the discretion of the Compensation Committee
(the "Committee") of the Board of Directors. Upon change of control of the
Company, all outstanding options shall become immediately exercisable. The term
of the options granted pursuant to this plan shall not exceed 10 years.
F-14
<PAGE> 75
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. STOCK OPTION PLAN -- (CONTINUED)
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE WEIGHTED AVERAGE
OF SHARES PER SHARE EXERCISE PRICE
--------- ------------ ----------------
<S> <C> <C> <C>
Outstanding at December 31, 1996........... 843,000 $ 1.83
Granted.................................. 831,000 $1.75 - 2.23
Cancelled................................ (150,000) $1.85 - 2.23
---------
Outstanding at December 31, 1997........... 1,524,000 $ 2.01
Granted.................................. 709,500 $2.23 - 2.88
Cancelled................................ (90,000) $1.85 - 2.88
---------
Outstanding at December 31, 1998........... 2,143,500 $ 2.29
Granted.................................. 870,900 $3.89
Cancelled................................ (184,500) $1.88 - 3.89
---------
Outstanding at December 31, 1999........... 2,829,900 $ 2.75
=========
</TABLE>
The exercise prices of the options under grant were determined based upon
the fair value of the Company's common stock at the date of grant as determined
by the Company's Board of Directors. All options under grant are nonqualified
stock options. No options have been exercised through December 31, 1999 in
relation to the Plan, and no outstanding options were exercisable at December
31, 1999.
Had compensation expense been determined based on the fair value of the
options on the date of this offering, consistent with the methodology of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation." The pro forma effects of compensation expense associated with
these options would have amounted to approximately $ . The fair value is
based on the public offering price of the Company's common stock.
10. RELATED PARTY TRANSACTIONS
The Company has a note receivable from a shareholder, who is also the
President and Chief Executive Officer of the Company, in the amount of
$1,000,000. This note bears interest at the rate of 7.75% per annum and shall be
due and payable on the earlier to occur of (i) the 90th day following the
effective date of a registration statement of a public offering of the common
stock of the Company, or (ii) March 31, 2002.
On December 1, 1999, the Company entered into a consulting agreement with
one of its directors to provide administrative services to the Company. This
agreement covers the period of December 1, 1999 through February 28, 2000. A
monthly fee of $13,000 applies to this agreement. The director is a brother to
the Company's Chairman. Expenses associated with director fees and various
consulting agreements pertaining to this consultant amounted to $162,800,
$76,100 and $26,300 during 1999, 1998 and 1997, respectively. On February 28,
2000, the term of this agreement was extended until August 31, 2000.
The Company subleased corporate office space from an affiliate of a
shareholder affiliate ("shareholder affiliate"). Rent expense pertaining to this
sublease amounted to $273,669, $453,207 and $439,774, respectively, during the
first seven months of 1999 and the years ended December 31, 1998 and 1997. This
sublease expired on July 31, 1999.
In August, 1999, the Company entered into a sublease agreement, as amended,
involving the lease of office space to the Shareholder Affiliate. The Company
recognized $101,154 during 1999 in relation to this
F-15
<PAGE> 76
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS -- (CONTINUED)
sublease. This agreement provides for a monthly rental payment which varies
based upon space occupied and expires on January 31, 2001.
During the period of January 1, 1999 through April 30, 1999 and during the
years ended December 31, 1998 and 1997, the Company purchased materials from a
stockholder of the Company in the approximate amounts of $2,997,000, $6,707,000
and $5,100,000, respectively. The shares of the Company's stock held by this
stockholder were purchased by the Company on April 29, 1999.
The Company had sales to affiliates of a shareholder in the amounts of
$6,668,500, $5,075,000, and $4,172,600 during the respective years of 1999, 1998
and 1997.
The Company incurred interest expense pertaining to a subordinated note
payable to a stockholder in the approximate amount of $548,000 for the year
ended December 31, 1997. This note was extinguished on July 8, 1997.
Management believes that transactions in the ordinary course of business
with shareholders and their affiliates are at arms length and are under terms no
less favorable to the Company than those with other customers or vendors.
At December 31, 1999 and 1998, accounts receivable balances pertaining to
shareholders and their affiliates amounted to $503,033 and $385,648,
respectively. At the same date, accounts payable balances pertaining to
shareholders and their affiliates amounted to $367,429 and $488,116,
respectively.
11. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain facilities and equipment pursuant to
noncancellable operating leases. Total rent expense pertaining to these leases
amounted to $2,042,000, $1,396,000 and $1,253,000, respectively, during 1999,
1998 and 1997. The following is a schedule by years of future minimum rental
payments required pursuant to the above mentioned leases:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
------------------------- (IN THOUSANDS)
<S> <C>
2000........................................................ $ 3,450
2001........................................................ 3,170
2002........................................................ 2,356
2003........................................................ 2,293
2004........................................................ 1,880
Thereafter.................................................. 3,491
-------
$16,640
=======
</TABLE>
Employment Agreement
On March 21, 1995, the Company entered into a five-year employment
agreement with its Chairman and Chief Executive Officer ("Chairman"). The
Company's potential minimum obligation in relation to this agreement was
$154,286 at December 31, 1999. This agreement provides for base salary,
reimbursement for the cost of life insurance benefiting a trust of the Chairman
and the Company absorbing the interest costs associated with a $1,000,000
promissory note of the Chairman in favor of the Company. This agreement expires
on March 21, 2000.
F-16
<PAGE> 77
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Insurance Agreement
On July 15, 1999, the Company entered into an agreement with a trust,
benefiting the Chairman's estate. Under this agreement, the Company shall pay
premiums associated with a $20,000,000 life insurance policy, which insures the
life of the Chairman. Upon collection of proceeds in relation to this policy,
the Company shall be reimbursed for all applicable premiums paid. During 1999,
the Company paid premiums amounting to $242,084 in relation to this policy.
Contingencies
The Company is subject to various legal actions and claims incidental to
its business and the business of Smartflex. Litigation is subject to many
uncertainties and the outcome of individual litigated matters is not predictable
with assurance. After discussions with counsel, it is the opinion of management
that the outcome of such matters will not have a material adverse impact on the
Company's consolidated financial statements.
12. SEGMENT INFORMATION
The Company is a supplier of products and solutions to the communications,
military, automotive and computer markets. The Company operates in three
segments, each of which are strategic businesses, which are managed separately.
Each of these businesses develops, manufactures and sells distinct products and
provides distinct services.
A description of the businesses of the Company's segments follows:
- The electronics segment provides services in connection with flex
assembly, printed circuit board assembly and the incorporation of
electronic assemblies into subassemblies and final systems box-build.
- The electromechanical segment provides services in connection with
junction blocks, relays, actuators, solenoids and transmission modules.
- The electrical segment provides services in connection with battery
cables, wire harnesses and power distribution systems. This segment is
comprised of the Saturn LLC, of which the Company owns 53%.
The dominant measurements that management utilizes to measure segment
performance and to allocate resources to the segments is consistent with the
information reported herein. Management evaluates the performance of its
segments and allocates resources to these segments primarily based upon pretax
income as well as cash flows and overall economic returns. Inter-segment sales
are insignificant. The accounting policies of the segments are substantially
equivalent to the policies described in Note 2, "Accounting Policies".
Certain items are maintained at the Company's corporate headquarters
(Corporate) and, therefore, not allocated to the segments. These items primarily
include certain debt and related interest expense, deferred income taxes and
certain non-trade receivables and investments.
F-17
<PAGE> 78
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
ELECTRO-
AS OF AND FOR THE YEARS ENDED DECEMBER 31, ELECTRONICS MECHANICAL ELECTRICAL OTHER
- ------------------------------------------ ----------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1999
Net revenue...................................... $ 82,605 $137,725 $36,777 $ --
Depreciation and amortization.................... 3,942 4,500 754 --
Interest expense................................. -- -- -- 3,340
Income before income taxes....................... (2,778) 19,267 3,227 (3,377)
Assets........................................... 121,630 75,820 24,050 10,474
Expenditures for long-lived assets............... 1,856 6,053 731 --
1998
Net revenue...................................... $ 46,539 $114,964 $26,961 $ --
Depreciation and amortization.................... 1,944 4,059 170 --
Interest expense................................. -- -- -- 142
Income before income taxes....................... 3,533 14,099 2,080 (899)
Assets........................................... 11,052 68,334 16,553 2,665
Expenditures for long-lived assets............... 958 8,998 6,921 --
1997
Net revenue...................................... $ 44,314 $116,734 $ -- $ --
Depreciation and amortization.................... 1,013 3,762 -- --
Interest expense................................. -- -- -- 977
Income before income taxes....................... 2,123 12,664 -- (1,320)
Assets........................................... 13,040 67,852 -- 2,533
Expenditures for long-lived assets............... 963 5,515 -- --
</TABLE>
Long lived assets consist of property, plant and equipment and goodwill.
Expenditures for long lived assets in 1999 exclude long lived assets totaling
$50,469,000 acquired in a business combination.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income before income taxes:
Income before income taxes from segments.................. $19,716 $19,712 $14,787
Unallocated amounts:
Interest expense.......................................... (3,340) (142) (977)
Other corporate items..................................... (37) (757) (343)
------- ------- -------
Consolidated income before income taxes..................... $16,339 $18,813 $13,467
======= ======= =======
</TABLE>
F-18
<PAGE> 79
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Assets:
Total segment assets...................................... $221,500 $95,939 $80,892
Unallocated assets
Equity investment...................................... 250 -- 234
Deferred income taxes.................................. 8,982 1,665 1,299
Other corporate assets................................. 1,242 1,000 1,000
-------- ------- -------
Consolidated total assets................................... $231,974 $98,604 $83,425
======== ======= =======
</TABLE>
Geographic Information: The following geographic data includes sales and
long-lived assets based on product shipment destination and physical location,
respectively.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
SALES
United States.............................................. $193,770 $157,559 $126,778
Canada..................................................... 27,631 23,010 23,584
Mexico..................................................... 10,410 2,068 5,899
Other...................................................... 25,296 5,827 4,787
-------- -------- --------
Consolidated totals........................................ $257,107 $188,464 $161,048
======== ======== ========
Long-lived assets
United States.............................................. $118,009 $ 47,971 $ 46,245
International.............................................. 15,665 7,867 58
-------- -------- --------
$133,674 $ 55,838 $ 46,303
======== ======== ========
</TABLE>
13. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133").
SFAS 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. The Company is currently evaluating SFAS 133 and has yet to
form an opinion on whether its adoption will have any significant impact on the
Company's consolidated financial statements. The Company will be required to
implement SFAS 133 for the year ended December 31, 2001.
14. SUBSEQUENT EVENTS
Warrant
On March 15, 2000, the Company issued a warrant to a major electronics OEM,
(the "Warrant Holder") for the purchase of 1,565,331 shares of the Company's
common stock at an exercise price of 90% of the Company's initial public
offering price. This warrant is exercisable in whole or in part between
F-19
<PAGE> 80
SATURN ELECTRONICS & ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS -- (CONTINUED)
March 2004 and March 2005. However, for every $100,000,000 that the Company
receives from the Warrant Holder, 10% of the shares subject to the Warrant shall
become immediately exercisable.
Common Stock
On March 25, 2000 the Board of Directors approved an increase to the total
authorized number of shares of common stock, no par value, from 20,000,000 to
200,000,000 shares upon the effectiveness of this public offering.
On March 25, 2000 the Company's Board of Directors authorized the
equivalent of a 3 for 1 split of its common stock, including outstanding stock
options and the warrant, upon effectiveness of this public offering. All share
data in the accompanying consolidated financial statements have been restated to
give effect to the stock split. Prior to this stock split, the Company had
4,956,880 shares of each of its Class A Voting Stock and Class B Non-Voting
Stock. The Class A Voting Stock was split on a 3.25 to 1 basis and the Class B
Non-Voting Stock was split on a 2.75 to 1 basis resulting in an overall 3 for 1
stock split. The distinction between Class A and Class B Common Stock will cease
upon the effectiveness of this offering, and, therefore, the equivalent of the
Class B shares will have voting rights.
Preferred Stock
On March 25, 2000, the Company's Board of Directors approved the
authorization of 1,000,000 shares of preferred stock upon the effectiveness of
this offering. Shares of the preferred stock shall be issued from time to time
in one or more series. Each series shall bear a distinctive designation and have
such relative rights and preferences as shall be prescribed by resolution of the
Company's Board of Directors.
Public Offering of the Company's Common Stock
On March 25, 2000, the Board of Directors approved an underwritten public
offering of shares of the Company's common stock. The proposed aggregate
offering price associated with this offering amounts to $125,000,000. The
proceeds from the offering will be used to reduce indebtedness under the
Company's credit facility in the estimated amount of $ , with the
remainder to be used for working capital and general corporate purposes.
F-20
<PAGE> 81
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Smartflex Systems, Inc.
We have audited the accompanying consolidated balance sheets of Smartflex
Systems, Inc. as of December 31, 1998 and 1997 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Smartflex
Systems, Inc. at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Orange County,
California
February 4, 1999
F-21
<PAGE> 82
SMARTFLEX SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 2,613 $ 2,069
Short-term investments.................................... 24,743 26,051
Accounts receivable, trade (less allowance of $957 in 1998
and $1,384 in 1997).................................... 11,209 19,252
Inventories............................................... 3,927 12,100
Deferred income taxes..................................... 3,613 3,541
Prepaid expenses and other current assets................. 2,360 1,755
------- -------
Total current assets.............................. 48,465 64,768
Property and equipment, net................................. 18,475 16,278
Deferred income taxes....................................... -- 350
Goodwill, net of accumulated amortization of $49............ 4,089 --
Other assets................................................ 1,262 510
------- -------
Total assets...................................... $72,291 $81,906
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable to related parties....................... $ 1 $ 533
Accounts payable.......................................... 7,049 18,990
Other accrued liabilities................................. 7,546 10,542
Current portion of notes payable.......................... 1,150 1,063
------- -------
Total current liabilities......................... 15,746 31,128
Deferred income taxes....................................... 323 --
Long-term portion of notes payable and other liabilities.... 5,203 1,689
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value
Authorized shares -- 5,000,000
None issued and outstanding............................ -- --
Common stock, $.0025 par value:
Authorized shares -- 25,000,000
Issued and outstanding shares -- 6,452,841 in 1998 and
6,362,477 in 1997..................................... 16 16
Additional paid-in capital................................ 36,532 36,118
Retained earnings......................................... 14,471 12,955
------- -------
Total stockholders' equity........................ 51,019 49,089
------- -------
$72,291 $81,906
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE> 83
SMARTFLEX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Net revenues............................................... $107,601 $133,347 $146,100
Cost of revenues........................................... 95,543 123,963 127,309
-------- -------- --------
Gross margin............................................. 12,058 9,384 18,791
Costs and expenses:
Marketing and sales expense.............................. 3,689 3,537 2,755
General and administrative expense....................... 7,402 7,492 5,590
Restructuring expense.................................... -- 5,150 --
-------- -------- --------
Operating income (loss).................................... 967 (6,795) 10,446
Interest income............................................ 1,106 967 1,015
Interest expense........................................... (178) (486) (214)
Other income (expense)..................................... 402 25 (4)
-------- -------- --------
Income (loss) before income taxes.......................... 2,297 (6,289) 11,243
Income tax provision (benefit)............................. 781 (2,160) 4,086
-------- -------- --------
Net income (loss).......................................... $ 1,516 $ (4,129) $ 7,157
======== ======== ========
Net income (loss) per share (basic)........................ $ 0.24 $ (0.65) $ 1.14
======== ======== ========
Net income (loss) per share (diluted)...................... $ 0.24 $ (0.65) $ 1.12
======== ======== ========
Number of shares used in computing net income (loss) per
share (basic)............................................ 6,418 6,333 6,271
======== ======== ========
Number of shares used in computing net income (loss) per
share (diluted).......................................... 6,463 6,333 6,395
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 84
SMARTFLEX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN
------------ CAPITAL RETAINED
SHARES AMOUNT AMOUNT EARNINGS TOTAL
------ ------ ---------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995..................... 6,223 $16 $34,980 $ 9,927 $44,923
Exercise of stock options.................... 21 -- 61 -- 61
Employee stock purchase plan................. 57 -- 570 -- 570
Tax benefit associated with exercise of stock
options.................................... -- -- 38 -- 38
Net income................................... -- -- -- 7,157 7,157
----- --- ------- ------- -------
Balances at December 31, 1996..................... 6,301 16 35,649 17,084 52,749
Exercise of stock options.................... 22 -- 59 -- 59
Employee stock purchase plan................. 39 -- 343 -- 343
Tax benefit associated with exercise of stock
options.................................... -- -- 67 -- 67
Net loss..................................... -- -- -- (4,129) (4,129)
----- --- ------- ------- -------
Balances at December 31, 1997..................... 6,362 16 36,118 12,955 49,089
Exercise of stock options.................... 52 -- 137 -- 137
Employee stock purchase plan................. 39 -- 277 -- 277
Net income................................... -- -- -- 1,516 1,516
----- --- ------- ------- -------
Balances at December 31, 1998..................... 6,453 $16 $36,532 $14,471 $51,019
===== === ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 85
SMARTFLEX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $ 1,516 $ (4,129) $ 7,157
Adjustments to reconcile net income to net cash (loss)
provided by (used in) operating activities, net of
effects of acquisitions in 1998:
Depreciation............................................. 4,699 5,776 2,905
Amortization of goodwill................................. 49 -- --
Provision for doubtful accounts.......................... 162 11 --
Provision for inventory obsolescence..................... 2,252 910 (115)
Deferred income taxes.................................... 601 (3,166) 686
Tax benefit from exercise of stock options............... -- 67 38
Changes in operating assets and liabilities:
Receivables.............................................. 8,271 (426) (1,441)
Inventories.............................................. 6,517 (1,920) 6,350
Prepaid expenses and other assets........................ (1,339) 218 (1,616)
Accounts payable to related parties...................... (532) (1,508) (1,376)
Accrued restructuring cost............................... (3,273) 6,500 --
Accounts payable and accrued liabilities................. (12,057) 7,908 (877)
-------- -------- --------
Net cash provided by operating activities............. 6,866 10,241 11,711
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (6,845) (9,918) (6,414)
Proceeds from sales of capital assets...................... -- -- 85
Acquisition of LSI and EA/Methuen.......................... (4,060) -- --
Purchases of short-term investments...................... (94,260) (20,868) (19,043)
Proceeds from the sale of short-term investments......... 95,568 19,604 16,056
-------- -------- --------
Net cash used in investing activities................. (9,597) (11,182) (9,316)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock..................... 414 402 631
Line of credit, net........................................ 1,146 -- (2,505)
Borrowings on term loan.................................. 3,000 2,200 --
Payments on term loan.................................... (1,285) (756) (755)
-------- -------- --------
Net cash provided by (used in) financing activities...... 3,275 1,846 (2,629)
-------- -------- --------
Net increase (decrease) in cash............................ 544 905 (234)
Cash at beginning of period.............................. 2,069 1,164 1,398
-------- -------- --------
Cash at end of period.................................... $ 2,613 $ 2,069 $ 1,164
======== ======== ========
Supplemental disclosures of cash flow information:
Interest paid............................................ $ 211 $ 428 $ 190
Taxes paid (refunded).................................... 1,655 (79) 3,530
Supplemental disclosure of non-cash activities:
Seller note payable for acquisition of LSI and
EA/Methuen............................................ $ 740 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 86
SMARTFLEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Smartflex Systems, Inc. is a technology leader in electronic manufacturing
services. The Company provides a diverse range of services for customers to
achieve their product realization needs. These services include product
Application Specific Integrated Circuits ("ASIC"), Software and Radio Frequency
("RF") design; modeling, and package/enclosure management; and the precision
assembly of comprehensive advanced interconnect solutions utilizing precision
surface mount and Direct Chip Attach technologies. Prototype through high volume
manufacturing of electronic circuit board and box build services are provided
through nine facilities worldwide for customers in the Americas, Europe and
Asia.
Basis of Presentation and Fiscal Year
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Smartflex Systems Singapore, Pte.
Ltd., Smartflex Systems Philippines, Inc., Smartflex Systems de Mexico, S.A. de
C.V., Smartflex Systems de Guadalajara S.A. de C.V., Logical Services,
Incorporated. and Smartflex New England, Inc. Results of operations for the
fourth quarter and 1998 fiscal year include a full three months of operations
from the Company's Guadalajara and Logical Services subsidiaries. The Company's
New England subsidiary is consolidated in the results of operations for the
month of December 1998 only. All significant inter-company accounts and
transactions have been eliminated in consolidation.
The Company operates and reports financial results on a 52- or 53-week
year, ending on the Saturday nearest December 31 each year, and follows a
four-four-five week quarterly cycle. Fiscal year 1998 had 53 weeks and fiscal
years 1997 and 1996 each included 52 weeks of operations. For clarity of
presentation, all periods are described as if the fiscal year ended December 31.
Short-Term Investments
The Company's short-term investments are composed primarily of municipal
bonds and money market instruments. The Company's short-term investments at
December 31, 1998 and 1997 are classified as available-for-sale and are carried
at fair value with the net unrealized gains or losses reported as a separate
component of stockholders' equity, net of their related tax effects. Fair values
are based on quoted market prices where available. Amortization of premiums or
discounts, if any, associated with marketable debt securities is included in
investment income. Realized gains and losses, and declines in value judged to be
other-than-temporary, as well as interest and dividends on available-for-sale
securities, are included in investment income.
Inventories
Inventories are stated at the lower of standard cost (which approximates
actual cost on a first-in, first-out basis) or market (estimated net realizable
value).
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment
and provides an appropriate allowance for estimated sales returns and warranties
based on historical experience and other known factors.
F-26
<PAGE> 87
SMARTFLEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization of property and equipment is
computed using the straight-line method over the estimated useful lives of the
assets, which is usually three to five years.
Goodwill
Goodwill is recorded as the net of purchase price less amounts allocated to
tangible assets. Goodwill is amortized over various lives, usually ten to twenty
years.
Research and Development
Research and Development ("R&D") is reported as part of General and
Administration expense. R & D expenses were approximately $851,000, $864,000 and
$720,000 for 1998, 1997 and 1996, respectively.
Foreign Currency
The Company uses the United States dollar as the functional currency for
its wholly-owned subsidiaries in Singapore, the Philippines and Mexico.
Re-measurement gains and losses, resulting from the process of re-measuring the
financial statements of these foreign subsidiaries into U.S. dollars, are
included in operations. In 1998, the effect on income of re-measurement gains
was $255,000. In prior years the effect on net income of re-measurement gains
and losses had not been significant.
Income Taxes
The Company uses the liability method of accounting for income taxes,
whereby deferred taxes are determined based on the differences between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.
Deferred tax assets are recognized and measured based on the likelihood of
realization of the related tax benefits in the future.
Stock-based Compensation
The Company accounts for employee stock options under Accounting Principles
Board opinion No. 25 and related interpretations ("APB 25") and has made certain
pro forma disclosures for options granted at fair market value in accordance
with the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation".
Earnings Per Share
Net income (loss) per share has been computed in accordance with Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share."
Earnings (loss) per common share ("Basic EPS") was computed by dividing net
income (loss) by the weighted-average number of common shares outstanding during
the periods. Earnings (loss) per common share -- assuming dilution ("Diluted
EPS") was calculated by dividing net income (loss) by the weighted-average
number of common and common share equivalents (when the effect is dilutive)
outstanding during the periods presented. Common share equivalents result from
outstanding options to purchase common stock using the treasury stock method.
F-27
<PAGE> 88
SMARTFLEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the computation of Basic and Diluted
earnings per share.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------ ------- ------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Net income (loss) -- numerator for basic and diluted
earnings
per share.............................................. $1,516 $(4,129) $7,157
------ ------- ------
Denominator:
Denominator for basic earnings per
share -- weighted-average shares....................... 6,418 6,333 6,271
Effect of dilutive securities:
Employee stock options.................................... 45 -- 124
------ ------- ------
Denominator for diluted earnings per share -- adjusted
weighted-average shares and assumed conversions........... 6,463 6,333 6,395
====== ======= ======
Basic earnings (loss) per share............................. $ 0.24 $ (0.65) $ 1.14
====== ======= ======
Diluted earnings (loss) per share........................... $ 0.24 $ (0.65) $ 1.12
====== ======= ======
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Significant estimates are made relative to
valuation of accounts receivable, inventories, deferred income taxes and certain
accrued liabilities, including among others, those for warranties and
restructuring obligations. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts in the accompanying consolidated financial
statements have been reclassified to conform to the 1998 presentation.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Segment Information". Both
of these standards are effective for fiscal years beginning after December 15,
1997. SFAS No. 130 requires that all components of comprehensive income,
including net income, be reported in the financial statements in the period in
which they are recognized. Comprehensive income is defined as the change in
equity during a period from transactions and other events and circumstances from
non-owner sources. Net income and other comprehensive income, including foreign
currency translation adjustments, and unrealized gains and losses on
investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income. Comprehensive income was not materially different from net
income. SFAS No. 131 amends the requirements for a public enterprise to report
financial and descriptive information about its reportable operating segments.
Operating segments, as defined in SFAS No. 131, are components of an enterprise
for which separate financial information is available and is evaluated regularly
by the Company in deciding how to allocate resources and in assessing
performance. The financial information is required to be reported on the basis
that is used internally for evaluating the segment performance. The Company
F-28
<PAGE> 89
SMARTFLEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
believes that through 1998 it operated in one business and operating segment and
believes the adoption of this standard did not have a material impact on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative instruments and Hedging Activities." This statement
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. This statement requires all
derivatives to be recorded on the balance sheet at fair value and establishes
accounting for several types of hedges, resulting in the recognition of
offsetting changes in value or cash flows of the hedge and hedged items in
earnings in the same period. The provisions of this statement are effective for
years beginning after June 15, 1999. The Company will adopt this statement for
fiscal year 2000. The Company does not expect SFAS No. 133 to materially impact
the Company's results of operations or financial position.
NOTE 2. ACQUISITIONS
On October 7, 1998 the Company acquired Logical Services Incorporated, a
California corporation ("LSI"), pursuant to the terms of a Stock Purchase
Agreement whereby the Company purchased all of the issued and outstanding shares
of stock of LSI for an aggregate purchase price of $2.3 million. LSI is an
electronics, engineering, design and development company with annual revenues of
$3 million. Upon the closing of the acquisition, LSI became a wholly-owned
subsidiary of the Company. The acquisition has been accounted for as a purchase
and the purchase price, including direct costs of the acquisition of $2.3
million, has been allocated to the fair value of the net assets acquired with
the excess approximating $2.1 million allocated to goodwill.
On December 2, 1998 the Company, through its wholly-owned subsidiary
Methuen Acquisition Corp., a Delaware corporation, acquired certain assets of
the Methuen, Massachusetts division of EA Industries, Inc., a New Jersey
corporation ("EA/Methuen"), pursuant to the terms of an Agreement of Purchase
and Sale for an aggregate purchase price of $2.5 million. EA/Methuen is a
provider of high-mix electronic contract manufacturing assembly and test
services with annual revenues of approximately $7 million. The acquisition has
been accounted for as a purchase and the purchase price, including direct costs
of the acquisition of $2.5 million, has been allocated to the fair value of the
net assets acquired with the excess approximating $2 million allocated to
goodwill.
NOTE 3. SHORT-TERM INVESTMENTS
Short-term investments, for which cost approximated fair value, were as
follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Municipal bonds............................................. $20,592 $13,283
Money market preferred stock................................ 1,000 5,000
Money market funds.......................................... 1,003 7,740
Commercial paper............................................ 2,000 --
Other....................................................... 148 28
------- -------
$24,743 $26,051
======= =======
</TABLE>
Certain of the Company's municipal bond investments include instruments
that have original maturities at various dates through 2021. As a result of the
Company's ability and intent to redeem these investments at their stated
principal values at various dates throughout 1999, the Company has classified
these investments as maturing within one year. Realized gains and losses from
securities transactions are determined on a specific identification basis.
Realized and unrealized gains or losses for the years ended December 31, 1998,
1997 and 1996 were not material.
F-29
<PAGE> 90
SMARTFLEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................... $1,329 $ 6,943
Work in progress............................................ 1,352 2,725
Finished goods.............................................. 1,246 2,432
------ -------
$3,927 $12,100
====== =======
</TABLE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment..................................... $ 25,718 $ 20,930
Office furniture and equipment.............................. 4,242 3,148
Leasehold improvements...................................... 5,474 4,460
-------- --------
35,434 28,538
Less: Accumulated depreciation.............................. (16,959) (12,260)
-------- --------
$ 18,475 $ 16,278
======== ========
</TABLE>
NOTE 6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
Accrued compensation and related costs...................... $1,627 $ 1,569
Income tax payable.......................................... -- 1,248
Restructuring liabilities................................... 650 3,923
Other accrued expenses...................................... 5,269 3,802
------ -------
$7,546 $10,542
====== =======
</TABLE>
In order to address the imbalance between demand and capacity, as well as
to position the Company's operations for future cost advantages, the Company
accelerated the streamlining of its worldwide operations in the third quarter of
1997. As part of this restructuring, volume manufacturing was moved from
Singapore to the Company's lower-cost facility in Cebu, Philippines. The
Singapore operations are now the focal point of Smartflex' customer support in
Asia, as the Company's Far East Regional Services and Technology Center. The
restructuring also included a reduction of manufacturing and other personnel
from the Company's Tustin, California operations. As part of this restructuring,
he Company provided for the following charges in the third quarter of 1997: $1.4
million for the write-off of inventories, which is included in cost of revenues,
$3.5 million for the write-down of non-current assets and other expenses, $1.1
million for severance and other employee-related costs associated with the
reduction in force, and approximately $500,000 toward a potential Singapore tax
liability. By the end of 1998, the Company had used all of the restructuring
reserve, with the exception of the $500,000 associated with the Singapore tax
liability, and a nominal portion associated with inventory. During 1999 the
Company received certain new information and now expects to have a favorable
ruling regarding the Singapore tax liability, which would result in this part of
the restructuring reserve being reversed.
F-30
<PAGE> 91
SMARTFLEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The increase in other accrued expenses was primarily due to billings to
customers in which revenue had not yet been recognized.
NOTE 7. CREDIT FACILITY AND LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revolving line of credit.................................... $ 1,146 $ --
Unsecured term loan (LIBOR 7.37%)........................... 1,467 2,108
Unsecured term loan (Interest rate 7.75%)................... 3,000 --
Note payable, secured by equipment, principal payments in
equal monthly installments through December 1998, interest
is payable monthly at variable interest rates averaging
7.5% in 1997.............................................. -- 416
Note payable to bank, secured by equipment, principal
payments in equal monthly installments through June 1998,
interest at 9.53%......................................... -- 228
Note payable to seller's of LSI, due April 2000,
non-interest bearing...................................... 230 --
Note payable to seller's of EA/Methuen, due April 2000
non-interest bearing...................................... 510 --
------- -------
6,353 2,752
Less: Current portion....................................... (1,150) (1,063)
------- -------
$ 5,203 $ 1,689
======= =======
</TABLE>
The Company amended its bank credit facility (the "facility") on October 1,
1998 to provide for aggregate unsecured borrowings of $25 million under a
revolving line of credit (the "credit line"). Borrowings under the credit line,
which expires in September 2000, include a sub-limit for the issuance of up to
$2 million in commercial or standby letters of credit for the importation or
purchase of inventory. No such letters of credit were outstanding at December
31, 1998. Outstanding balances on the credit line bear interest at the bank's
reference rate (7.75% at December 31, 1998) or, at the Company's option, LIBOR
plus 1.5%, and unused portions of the credit line bear interest at .125% per
annum. At December 31, 1998 there was $1.1 million outstanding under the credit
line. The facility additionally provides for an unsecured term loan totaling
$2.2 million for the purchase of equipment. This unsecured term loan bears
interest at the bank's reference rate plus .5% or, at the Company's option,
LIBOR plus 2%. Principal and interest are payable monthly, and this term loan
matures on March 30, 2001. At December 31, 1998, the outstanding balance on this
term loan was $1.5 million. The facility additionally provides for a second
unsecured term loan (the "second term loan") totaling $3.0 million to be used
for general corporate purposes. The second term loan bears interest at the
bank's reference rate, or at the Company's option, LIBOR plus 1.75%. At December
31, 1998, the outstanding balance on the second term loan was $3.0 million. The
facility contains certain financing and operating covenants relating to net
worth, liquidity, leverage, profitability, debt coverage and a prohibition on
payment of cash dividends. At December 31, 1998, the Company was in compliance
with all of the covenants, except those related to net
F-31
<PAGE> 92
SMARTFLEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
worth, for which the Company has obtained a waiver. Debt of the Company will
mature in fiscal years after December 31, 1998 as follows:
<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
- ----------- --------------
<S> <C>
1999........................................................ $1,150
2000........................................................ 3,036
2001........................................................ 967
2002........................................................ 600
2003........................................................ 600
------
$6,353
======
</TABLE>
NOTE 8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's cash, accounts receivable and accounts
payable approximated their carrying amounts due to the relatively short maturity
of these items. The fair value of the Company's short-term investments
approximates cost and was determined based on quoted market prices. The fair
value of long-term debt approximates its carrying amount at December 31, 1998
and 1997 based on rates currently available to the Company for debt with similar
terms and remaining maturities.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company has entered into leases for its Tustin, California
headquarters, Monterrey, Singapore, Cebu and Logical Services facilities, that
expire at various dates through March 15, 2004 and provide for renewal options
at the then current market rate, thereafter adjusted for changes in the Consumer
Price Index. Future minimum lease payments under these non-cancelable
obligations at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
- ----------- --------------
<S> <C>
1999........................................................ $1,143
2000........................................................ 979
2001........................................................ 851
2002........................................................ 338
2003........................................................ 322
Thereafter.................................................. 67
------
$3,700
======
</TABLE>
Total rent expense was $1,043,000, $792,000 and $437,000 in 1998, 1997 and
1996, respectively.
In the normal course of business, the Company is named in legal
proceedings. There are currently no material legal proceedings pending with
respect to the company.
F-32
<PAGE> 93
SMARTFLEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. INCOME TAXES
Income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997 1996
---- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................. $106 $ 753 $2,688
State................................................... 74 131 622
Foreign................................................. -- 55 52
---- ------- ------
180 939 3,362
Deferred:
Federal................................................. 530 (2,911) 576
State................................................... 71 (255) 110
---- ------- ------
601 (3,166) 686
Charge in lieu of income taxes attributable to benefits of
stock option exercises.................................. -- 67 38
---- ------- ------
$781 $(2,160) $4,086
==== ======= ======
</TABLE>
Income tax provision (benefit) differed from the amounts computed by
applying the U.S. statutory federal income tax rate to pretax income (loss) as a
result of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
----- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. statutory rates.............................. $ 781 $(2,138) $3,823
Permanent differences.................................... 157 -- --
State taxes, net of federal benefit...................... 96 (77) 487
Foreign earnings not subject to tax...................... (322) (45) (246)
Foreign losses not benefited............................. 54 205 --
Other.................................................... 15 (105) 22
----- ------- ------
$ 781 $(2,160) $4,086
===== ======= ======
</TABLE>
F-33
<PAGE> 94
SMARTFLEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Restructuring reserve..................................... $ 132 $1,821
Inventory obsolescence reserve............................ 1,313 614
Reserve for returns and allowances........................ 660 645
Inventory capitalization.................................. 15 17
Vacation accrual.......................................... 149 152
Allowance for doubtful accounts........................... 363 353
Other reserves............................................ 1,117 864
AMT credits (no expiration)............................... 116 79
Other..................................................... 30 --
------ ------
Total deferred tax assets.............................. 3,895 4,545
Deferred tax liabilities:
Tax over book depreciation................................ 502 570
State taxes............................................... 103 84
------ ------
Total deferred tax liabilities......................... 605 654
------ ------
Net deferred tax assets.............................. $3,290 $3,891
====== ======
</TABLE>
The Company has not recorded a valuation allowance against the deferred tax
assets as management believes all of the temporary differences will be realized.
Effective March 1, 1994, the Company obtained a Pioneer Status tax holiday
in Singapore, which expires five years thereafter, assuming the Company
continues to maintain certain levels of capital expenditures and employment, and
implements certain technology development. Net income tax relief resulting from
the tax holiday was $100,000 in 1998 and $246,000 in 1996. There was no income
tax relief in 1997.
Effective October 1, 1996, the Company obtained a tax holiday in the
Philippines, which expires four years thereafter. Net income relief resulting
from the tax holiday was $45,000 in 1997 and $226,000 in 1998.
Residual income taxes of approximately $659,000 have not been provided on
approximately $1.9 million of undistributed earnings of certain foreign
subsidiaries at December 31, 1998 because the Company intends to keep those
earnings reinvested indefinitely.
NOTE 11. EQUITY INCENTIVE PLANS AND STOCK PURCHASE PLAN
Acquisition Stock Plan
The purpose of the Company's Acquisition Nonstatutory Stock Plan (the
"Acquisition Plan") is to attract and retain key employees of the companies
acquired by the Company and its wholly-owned subsidiaries. This plan is designed
to provide an incentive for these new employees to achieve long-range
performance goals, and to enable them to participate in the long-term growth of
the Company. Nonstatutory options in this plan may only be awarded to the
employees of the Company's acquisitions
F-34
<PAGE> 95
SMARTFLEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and the exercise price per share may not be less than 100% of the fair market
value ("FMV") of a share of common stock on the grant date.
An aggregate of 200,000 shares of common stock has been reserved for
issuance under the Acquisition Plan.
As of December 31, 1998, non-qualified stock options to purchase 105,250
shares of common stock have been granted with prices ranging from $5.75 to $7.44
per share. All employee options vest at a rate of 25% on the first anniversary
of the grant date and 6.25% per quarter thereafter. At December 31, 1998, no
stock options to purchase shares of common stock under the Acquisition Plan were
exercisable.
1995 Equity Incentive Plan
The Company's 1995 Equity Incentive Plan (the "1995 Plan") provides for the
grant of stock options, performance shares, restricted stock, stock units and
other stock-based awards of the Company's common stock to employees, executive
officers, directors and consultants. Incentive stock options may be granted only
to employees and the exercise price per share may not be less than 100% of the
FMV of a share of common stock on the grant date. The exercise price per share
under non-qualified stock options shall not be less than 85% of the FMV of a
share of common stock on the grant date. The 1995 Plan provides for the
automatic grant of a non-qualified option to purchase 10,000 shares of common
stock to each non-employee director of the Company upon his or her initial
election to the Board of Directors, and an additional automatic grant of a
non-qualified option to purchase 3,000 shares of common stock each time such
director is reelected. Automatic grants shall be at the FMV of the common stock
on the date that such director is elected or reelected.
An aggregate of 600,000 shares of common stock was initially reserved for
issuance under the 1995 Plan. The number of shares of common stock authorized
under the 1995 Plan increases automatically on January 1 of each year, from and
after January 1, 1997, by an amount equal to 1% of the total number of issued
and outstanding shares of common stock of the Company as of the immediately
preceding December 31. The total shares reserved for issuance under the 1995
Plan after the automatic increase was 791,169 at December 31, 1998.
As of December 31, 1998, incentive stock options and non-qualified stock
options to purchase 645,094 shares of common stock have been granted with prices
ranging from $5.94 to $18.25 per share. All employee options vest at a rate of
25% on the first anniversary of the grant date and 6.25% per quarter thereafter.
At December 31, 1998, stock options to purchase 214,383 shares of common stock
under the 1995 Plan were exercisable.
1994 Equity Incentive Plan
The Company's 1994 Equity Incentive Plan (the "1994 Plan") provided for the
grant of stock options, and other stock-based awards of the Company's common
stock, to officers, key employees, directors and consultants. The 1994 Plan
allowed for the issuance of up to 100,000 shares of common stock. Effective with
the Company's IPO, the Board of Directors resolved to cease issuance of new
awards under the 1994 Plan. As of December 31, 1998, a total of 37,200
restricted shares of common stock at $3.13 per share and non-qualified stock
options to purchase 20,000 shares of common stock ranging in price from $3.13 to
$9.25 per share have been granted to non-employee directors of the Company. At
December 31, 1998, there were no shares subject to restriction and no
unexercised non-qualified stock options under the 1994 Plan.
F-35
<PAGE> 96
SMARTFLEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1993 Equity Incentive Plan
The Company's 1993 Equity Incentive Plan (the "1993 Plan") provided for the
grant of stock options and other stock-based awards of the Company's common
stock to employees, consultants and affiliates. The 1993 Plan allowed for the
issuance of up to 280,000 shares of common stock. Effective with the Company's
IPO, the Company ceased issuance of new awards under the 1993 Plan. As of
December 31, 1998, options to purchase 144,825 shares of common stock have been
granted with prices ranging from $.96 to $10.40 per share. All options vest at a
rate of 25% on the first anniversary of the grant date and 6.25% per quarter
thereafter. At December 31, 1998, stock options to purchase 56,225 shares of
common stock under the 1993 Plan were exercisable.
The following is a summary of equity incentive plan activity for the
periods indicated:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
------- ---------------
<S> <C> <C>
Outstanding, December 31, 1995............................ 350,515 $ 0.96 - $17.00
Granted................................................. 42,000 $10.25 - $18.25
Exercised............................................... (20,540) $ 0.96 - $12.00
Cancelled............................................... (12,412) $ 0.96 - $14.63
------- ---------------
Outstanding, December 31, 1996............................ 359,563 $ 0.96 - $18.25
Granted................................................. 245,750 $ 9.00 - $16.75
Exercised............................................... (22,432) $ 0.96 - $12.00
Canceled................................................ (16,494) $ 0.96 - $16.50
------- ---------------
Outstanding, December 31, 1997............................ 566,387 $ 0.96 - $18.25
Granted................................................. 376,500 $ 5.75 - $11.00
Exercised............................................... (51,725) $ 0.96 - $3.13
Canceled................................................ (51,975) $ 8.07 - $17.00
------- ---------------
Outstanding, December 31, 1998............................ 839,187 $ 0.96 - $18.25
</TABLE>
The weighted average exercise price per share of options granted, exercised
and canceled during 1998 and outstanding at December 31, 1998 were $8.15, $2.63,
$13.03 and $10.32, respectively. The weighted average exercise price per share
of options granted, exercised and canceled during 1997 and outstanding at
December 31, 1997 were $14.01, $2.62, $12.41 and $11.38, respectively. The
weighted average exercise price per share of options granted, exercised and
canceled during 1996 and outstanding at December 31, 1996 were $15.11, $2.97,
$9.30 and $8.23, respectively. The weighted average remaining contractual life
of stock options outstanding at December 31, 1998, 1997 and 1996 was 8.3 years,
7.9 years and 8.1 years, respectively.
The range of exercise prices, shares, weighted average remaining
contractual life and exercise price for the options outstanding as of December
31, 1998, 1997 and 1996 are:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL LIFE EXERCISE NUMBER
RANGE OF EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE
- ------------------------ ----------- ---------------- -------- -----------
<S> <C> <C> <C> <C>
1998:
$0.96-$0.96....................... 38,125 4.7 $ 0.96 38,125
$3.13-$9.25....................... 283,425 9.3 $ 7.61 8,525
$9.38-$13.50...................... 323,937 7.9 $10.89 142,104
$13.75-$18.25..................... 156,500 7.9 $16.34 81,854
</TABLE>
F-36
<PAGE> 97
SMARTFLEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL LIFE EXERCISE NUMBER
RANGE OF EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE
- ------------------------ ----------- ---------------- -------- -----------
<S> <C> <C> <C> <C>
1997:
$0.96-$0.96....................... 49,850 5.7 $ 0.96 49,850
$3.13-$3.13....................... 40,125 6.2 $ 3.13 37,625
$9.00-$13.25...................... 262,712 8.3 $11.29 99,330
$13.75-$18.25..................... 176,500 8.4 $16.34 16,363
1996:
$0.96-$0.96....................... 61,125 6.7 $ 0.96 46,200
$3.13-$3.13....................... 50,625 7.2 $ 3.13 37,925
$9.25-$13.25...................... 178,738 8.6 $11.81 55,372
$13.75-$18.25..................... 31,875 8.6 $16.19 1,268
</TABLE>
1995 Employee Stock Purchase Plan
Under the Company's 1995 Employee Stock Purchase Plan ("ESPP"), eligible
employees may elect to contribute from 1% to 15% of their base compensation
toward the purchase of the Company's common stock through weekly payroll
deductions. The purchase price per share is 85% of the lesser of the FMV of the
stock on the commencement date or on the last business day of each six-month
purchase period. The total number of shares of stock that may be issued under
the ESPP was 200,000 shares as of December 31, 1998. As of December 31, 1998, a
total of 134,538 shares have been issued under the ESPP.
Common Stock Reserved
At December 31, 1998, the Company had reserved 1,571,169 shares of common
stock for issuance pursuant to the 1993 Plan, the 1994 Plan, the 1995 Plan, the
ESPP and the Acquisition Plan.
Accounting for Stock-Based Compensation
The Company applies APB 25 and related Interpretations in accounting for
its employee stock options for the reasons discussed below. The alternative fair
value method of accounting provided for under SFAS 123 requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Pro forma information regarding net income (loss) and earnings (loss) per
share is required by SFAS 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rate 6.0% for 1998, 5.3% to 5.4% for 1997, and
5.3% to 6.5% for 1996; volatility factors of the expected market price of the
Company's common stock of .78 for 1998, .60 for 1997 and .65 for 1996; and a
weighted-average expected life of the option of 3.7 to 3.9 years for 1998, 3.9
to 5.2 years for 1997 and 6.0 years for 1996.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options,
F-37
<PAGE> 98
SMARTFLEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows: (In thousands, except for earnings (loss) per
share information)
<TABLE>
<CAPTION>
YEARS ENDED:
-------------------------
1998 1997 1996
---- ------- ------
<S> <C> <C> <C>
Pro forma net income (loss)............................... $537 $(4,680) $6,744
Pro forma earnings (loss) per share:
Basic................................................... $.08 $ (.74) $ 1.07
Diluted................................................. $.08 $ (.74) $ 1.06
</TABLE>
The effects of applying SFAS 123 for providing pro forma disclosures are
not likely to be representative of such expenses for future years as the amounts
are based only on the grants subsequent to 1994.
NOTE 12. EMPLOYEE BENEFIT PLANS
Employee Investment Plan
The Company sponsors a 401(k) employee salary deferral plan that allows
voluntary contributions by substantially all full-time employees. Under the
plan, eligible employees may contribute up to 15% of their pre-tax earnings, not
to exceed the Internal Revenue Service annual contribution limit. The Company
may make discretionary matching contributions, which vest over five years.
During 1998, 1997 and 1996, the Company matched 100% of the first 3% of each
employee's contribution, which totaled $175,000, $236,000 and $226,000,
respectively.
Profit Sharing Bonus Plan
The Company also has a profit sharing bonus plan whereby all full-time
employees are eligible to participate in a pool of before-tax earnings of the
Company. The profit sharing pool is established annually by the Board of
Directors based on the operational performance expectations of the Company. In
1998, 1997, and 1996, the Company recognized compensation expense totaling
$72,000, $56,000, and $260,000, respectively, pursuant to the employees' profit
sharing portion of the plan.
NOTE 13. RELATED PARTY TRANSACTIONS
The Company had facility and service agreements in 1997 with Silicon
Systems, Inc. ("SSI") and Silicon Systems Singapore Pte. Ltd. ("SSS"), both
wholly-owned subsidiaries of Texas Instruments Incorporated. The agreements
state that SSI and SSS will provide certain administrative services and
facilities to the Company for agreed-upon fees, which were based upon actual
costs. One of the members of the Company's board of directors is a senior
executive with SSI.
In addition the Company sells services to Volterra Inc. One of the members
of the Company's Board of Directors is a senior executive with Volterra Inc.
F-38
<PAGE> 99
SMARTFLEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of such purchases and expenses with related parties is as
follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
SSI (current board member and former stockholder):
Purchases of raw materials................................ $1,415 $5,528
Administrative and facility expenses...................... 19 383
TDK (stockholder):
Purchases of raw materials................................ 54 193
Volterra (current board member)
Sales of services......................................... 99 --
</TABLE>
NOTE 14. BUSINESS SEGMENT INFORMATION
Historically the Company has operated in one business segment, which is the
development, production and distribution of flexible interconnect products for
use in computers and peripheral equipment. The Company's principal market is the
HDD industry. In fiscal 1998, 1997, and 1996 approximately 43.6%, 54.8% and
50.0% respectively, of the Company's net revenues were to HDD manufacturers.
The Company sells its products primarily to U.S.-based companies that are
manufacturers or distributors of computer and computer-related products. These
products are often shipped directly to the international headstack assemblers of
these companies, or to the offshore facilities of these U.S.-based companies.
The Company performs periodic credit evaluations on its customers'
financial condition and does not require collateral. Credit losses have
traditionally been minimal, and such losses have been within management's
expectation.
During fiscal years 1998, 1997 and 1996, net revenues attributed to
individual customers, each of which represented over 10% of total net revenues,
were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Customer A.................................................. 16% 12% 32%
Customer B.................................................. 35 27 15
Customer C.................................................. 2 24 24
Customer D.................................................. 28 20 11
</TABLE>
Some of the assemblies manufactured by the Company require one or more
components that are ordered from, or which may be available from, a limited
number of suppliers. A change in suppliers could cause a delay in manufacturing
and a possible loss of sales, which would affect operating results adversely.
Total export revenues, primarily to the Far East, were $85.3 million,
$111.7 million, and $104.1 million, during 1998, 1997, and 1996, respectively.
Export revenues by country in excess of 10% of total net revenues were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Singapore................................................... 18% 20% 33%
Thailand.................................................... 10 17 23
Hong Kong................................................... 21 24 7
Mexico...................................................... 14 11 --
</TABLE>
F-39
<PAGE> 100
SMARTFLEX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company maintains manufacturing operations in Mexico, Singapore and the
Philippines. Pre-tax income (loss) from the Company's offshore operations
totaled, $863,000 $(308,000), and $723,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
The Company's direct employees at the Monterrey, Mexico facility are
represented by a labor union and are covered by a collective bargaining
agreement ("agreement") that is subject to revision annually under Mexican law.
These employees represent 80% of the Company's Monterrey labor force. The
current agreement covers all direct employees in Monterrey and is subject to
revision in February 2000. While the Company believes that it has established
good relationships with its labor force in Monterrey, there can be no assurance
that such relationships will continue in the future.
NOTE 15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly results:
<TABLE>
<CAPTION>
QUARTER 1ST 2ND 3RD 4TH
- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1998
Net revenues............................. $37,005 $27,037 $20,504 $23,055
Gross margin............................. 4,145 2,983 2,419 2,511
Net income............................... 828 387 134 167
Net income per share -- basic............ $ .13 $ .06 $ .02 $ .03
Net income per share -- diluted.......... $ .13 $ .06 $ .02 $ .03
FISCAL 1997
Net revenues............................. $30,272 $37,003 $28,010 $38,062
Gross margin............................. 1,953 3,591 (10)(1) 3,850
Net income (loss)........................ 234 558 (5,436)(1)(2) 515
Net income (loss) per share -- basic..... $ .04 $ .09 $ (.85)(3) $ .08
Net income (loss) per share -- diluted... $ .04 $ .09 $ (.85)(3) $ .08
</TABLE>
- ---------------
(1) Includes non-recurring pre-tax inventory write-off of $1.4 million (related
to restructuring) included in cost of revenues
(2) Includes non-recurring pre-tax restructuring charge of $5.1 million
(3) Includes non-recurring charges totaling $(.70) per share on an after-tax
basis.
The summation of quarterly per share amounts for fiscal 1997 amounts do not
equal annual per share amounts due to the effects of stock issuances on the
weighted-average share calculation.
NOTE 16. SUBSEQUENT EVENT
On February 1, 1999, the Company, through its wholly-owned subsidiaries,
Smartflex Fremont, Inc. and Smartflex New Jersey, Inc., acquired certain assets
from Tanon Manufacturing, Inc., the principal operating subsidiary of EA
Industries, Inc. ("Tanon"). On December 3, 1998, Tanon had filed a voluntary
proceeding under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for Northern District of California. The acquisition of the
assets was subject to approval of the Bankruptcy Court, which was granted on
January 29, 1999. The assets acquired include certain specified contracts,
equipment and inventory used in connection with Tanon's contract manufacturing
electronic assembly business at facilities in Fremont, California and West Long
Branch, New Jersey. The aggregate purchase price paid was $14.9 million, $2.5
million of which is due in April of 2000 and the Company has delivered a
non-interest-bearing promissory note to guaranty this additional payment.
F-40
<PAGE> 101
SMARTFLEX SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 3,052 $ 2,613
Short-term investments.................................... 18,662 24,743
Accounts receivable, trade (less allowance of $767 at June
30, 1999 and $957 at December 31, 1998)................ 14,969 11,209
Inventories............................................... 10,467 3,927
Deferred income taxes..................................... 3,613 3,613
Income tax receivable..................................... 1,735 --
Prepaid expenses and other current assets................. 2,821 2,360
----------- --------
Total current assets.............................. 55,319 48,465
Property and equipment, net................................. 20,801 18,475
Goodwill, net of accumulated amortization of $398 at June
30, 1999 and $49 at December 31, 1998..................... 14,327 4,089
Other assets................................................ 1,167 1,262
----------- --------
Total assets...................................... $ 91,614 $ 72,291
=========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable to related parties....................... $ -- $ --
Accounts payable.......................................... 14,885 7,050
Other accrued liabilities................................. 7,044 7,546
Current portion of notes payable.......................... 5,673 1,150
----------- --------
Total current liabilities......................... 27,602 15,746
Deferred income taxes....................................... 324 323
Long-term portion of notes payable and other liabilities.... 18,066 5,203
Commitments and contingencies
Stockholder's equity:
Preferred stock, $.001 par value
Authorized shares -- 5,000,000
None issued and outstanding............................ -- --
Common stock, $.0025 par value:
Authorized shares -- 25,000,000
Issued and outstanding shares -- 6,452,841 in 1998 and
6,362,477 in 1997..................................... 16 16
Additional paid-in capital................................ 36,534 36,532
Retained earnings......................................... 9,072 14,471
----------- --------
Total stockholders' equity........................ 45,622 51,019
----------- --------
Total liabilities and stockholder's equity...... $ 91,614 $ 72,291
=========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE> 102
SMARTFLEX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues........................................ $53,491 $64,042 $30,339 $27,037
Cost of revenues.................................... 48,143 56,914 27,082 24,054
------- ------- ------- -------
Gross margin...................................... 5,348 7,128 3,257 2,983
Costs and expenses:
Marketing and sales expense....................... 1,844 1,816 687 886
General and administrative expense................ 6,032 3,967 3,178 1,886
Goodwill expense.................................. 398 -- 202 --
Restructuring expense............................. 3,847 -- -- --
------- ------- ------- -------
Operating income (loss)............................. (6,773) 1,345 (810) 211
Interest income..................................... 489 484 174 221
Interest expense.................................... (652) (87) (342) (25)
Other income (expense).............................. 188 98 151 171
------- ------- ------- -------
Income (loss) before income taxes................... (6,748) 1,840 (827) 578
Income tax provision (benefit)...................... (1,348) 625 (281) 191
------- ------- ------- -------
Net income (loss)................................... $(5,400) $ 1,215 $ (546) $ 387
======= ======= ======= =======
Net income (loss) per share (basic)................. $ (0.84) $ 0.19 $ (0.08) $ 0.06
======= ======= ======= =======
Net income (loss) per share (diluted)............... $ (0.83) $ 0.19 $ (0.08) $ 0.06
======= ======= ======= =======
Number of shares used in computing net income (loss)
per share (basic)................................. 6,467 6,397 6,481 6,422
======= ======= ======= =======
Number of shares used in computing net income (loss)
per share (diluted)............................... 6,500 6,469 6,508 6,476
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-42
<PAGE> 103
SMARTFLEX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ (5,400) $ 1,215
Adjustments to reconcile net income to net cash (loss)
provided by (used in) operating activities,
Depreciation.............................................. 3,578 1,965
Amortization of goodwill.................................. 398 --
Provision for doubtful accounts........................... (105) 165
Provision for inventory obsolescence...................... (1,251) 1,941
Changes in operating assets and liabilities:
Receivables............................................... (3,655) 5,308
Inventories............................................... (1,789) 4,418
Prepaid expenses and other assets......................... (2,100) 97
Accounts payable to related parties....................... -- (396)
Accrued restructuring cost................................ 579 (1,406)
Accounts payable and accrued liabilities.................. 6,754 (7,125)
-------- -------
Net cash provided by operating activities.............. (2,991) 6,182
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (4,654) (3,358)
Acquisition................................................. (11,604) --
Purchases of short-term investments....................... 36 (2,590)
Proceeds from the sale of short-term investments.......... 6,045 --
-------- -------
Net cash used in investing activities.................. (10,177) (5,948)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock...................... 3 282
Line of credit, net......................................... 14,087 --
Payments on term loan..................................... (483) (888)
-------- -------
Net cash provided by (used in) financing activities....... 13,607 (606)
-------- -------
Net increase (decrease) in cash............................. 439 (372)
Cash at beginning of period............................... 2,613 2,069
-------- -------
Cash at end of period..................................... $ 3,052 $ 1,697
======== =======
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 652 $ 89
Taxes paid................................................ 53 960
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE> 104
SMARTFLEX SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE (A) -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Smartflex Systems, Inc. and its wholly owned
subsidiaries ("Smartflex" or the "Company"), and have been prepared in
accordance with generally accepted accounting principles for interim financial
information, and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
NOTE (B) -- FISCAL YEAR
The Company's fiscal year is 52 or 53 weeks, ending on the Saturday nearest
December 31 each year, and follows a four-four-five week quarterly cycle. For
clarity of presentation, the Company has presented its fiscal years as ending
December 31, and its fiscal quarters as ending on March 31, June 30, September
30 and December 31.
NOTE (C) -- USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
NOTE (D) -- CREDIT FACILITY
The Company amended its bank credit facility (the "facility") on March 30,
1999 and April 20, 1999 to provide for aggregate unsecured borrowings of $25
million under a revolving line of credit (the "credit line"). Borrowings under
the credit line, which expires in September 2000, include a sub-limit for the
issuance of up to $2 million in commercial or standby letters of credit for the
importation or purchase of inventory. No such letters of credit were outstanding
at June 30, 1999. Outstanding balances on the credit line bear interest at the
bank's prime rate or, at the Company's option, a sliding rate of LIBOR plus
1.50% to 2.25%, and unused portions of the credit line bear interest at .125%
per annum. At June 30, 1999 there was $15.2 million outstanding under the credit
line. The facility additionally provides for an unsecured term loan totaling
$2.2 million for the purchase of equipment. This unsecured term loan will bear
interest at the bank's reference rate plus .5% or, at the Company's option, a
sliding rate of LIBOR plus 1.75% to 2.50%. Principal and interest are payable
monthly, and this term loan matures on March 30, 2001. At June 30, 1999, the
outstanding balance on this term loan was $1.3 million. The facility
additionally provides for a second unsecured term loan (the "second term loan")
totaling $3.0 million to be used for general corporate purposes. The second term
loan bears interest at the bank's reference rate, or at the Company's option, a
sliding rate of LIBOR plus 1.75% to 2.50%. At June 30, 1999, the outstanding
balance on the second term loan was $2.7 million. The facility contains certain
financing and operating covenants relating to net worth, liquidity, leverage,
profitability, fixed charge coverage and a prohibition on payment of cash
dividends. At June 30, 1999, the Company was in compliance with all of the
covenants, except those that relate to the quick ratio, for which the Company
has received a waiver.
NOTE (E) -- IMPACT OF NEWLY ISSUED PRONOUNCEMENT BY THE FINANCIAL ACCOUNTING
STANDARDS BOARD
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative instruments and Hedging Activities." This statement
provides a comprehensive and consistent
F-44
<PAGE> 105
SMARTFLEX SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
standard for the recognition and measurement of derivatives and hedging
activities. This statement requires all derivatives to be recorded on the
balance sheet at fair value and establishes accounting for several types of
hedges, resulting in the recognition of offsetting changes in value or cash
flows of the hedge and hedged items in earnings in the same period. The
provisions of this statement are effective for years beginning after June 15,
1999. The Company will adopt this statement for fiscal year 2000. The adoption
of SFAS No. 133 will not materially impact the Company's results of operations
or financial position.
NOTE (F) -- TANON ACQUISITION
On February 1, 1999, the Company, through its wholly-owned subsidiaries,
Smartflex Fremont, Inc. and Smartflex New Jersey, Inc., acquired certain assets
from Tanon Manufacturing, Inc., the principal operating subsidiary of EA
Industries, Inc. ("Tanon"). On December 3, 1998, Tanon had filed a voluntary
proceeding under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for Northern District of California. The acquisition of the
assets was subject to approval of the Bankruptcy Court, which was granted on
January 29, 1999. The assets acquired include certain specified contracts,
equipment and inventory used in connection with Tanon's contract manufacturing
electronic assembly business at facilities in Fremont, California and West Long
Branch, New Jersey. The aggregate purchase price paid was $14.9 million, $2.5
million of which is due in April of 2000 and the Company has delivered a
non-interest-bearing promissory note to guarantee this additional payment.
NOTE (G) -- TENDER OFFER FROM SATURN
On July 7, 1999 the Company announced that it has entered into a definitive
agreement pursuant to which all outstanding shares of common stock will be
acquired by SSI Acquisition Corp. ("SSI") a subsidiary of Saturn Electronics and
Engineering, Inc. ("Saturn"). Under the agreement, Saturn commenced a tender
offer for all outstanding shares of common stock of Smartflex for $10.50 per
share in cash. A successful completion of the tender offer will be followed by a
merger in which any shares not acquired by Saturn in the tender offer will be
acquired for the same amount of cash in the merger. The tender offer commenced
on July 14, 1999, and is conditioned on a majority of the outstanding shares
being tendered as well as other customary conditions.
F-45
<PAGE> 106
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The following sets forth pro forma data for the Company for the year ended
December 31, 1999 and has been prepared to illustrate the effects of the
Smartflex acquisition as if it had occurred as of January 1, 1999 with respect
to the Statement of Operations information. The Smartflex acquisition was
accounted for under the purchase method of accounting. The pro forma
Consolidated Statement of Operations is provided for comparative purposes only
and does not purport to be indicative of the results that actually would have
been obtained if this transaction had occurred on the date indicated. The
information presented below is qualified in its entirety by, and should be read
in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Result of Operations," "Selected Financial Data," and the
financial statements and notes thereto included elsewhere in this prospectus.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SATURN
ELECTRONICS SMARTFLEX
& ENGINEERING SYSTEMS PRO FORMA PRO FORMA
INC. INC. ADJUSTMENTS COMBINED
------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenue.............................. $ 257,107 $ 68,472 $ 325,579
Cost of revenue.......................... 205,341 63,377 $ 257(1) 268,975
---------- -------- ------- ----------
Gross profit........................... 51,766 5,095 (257) 56,604
Development expense...................... 7,741 724 8,465
Selling, general and administrative
expense................................ 19,146 10,321 29,467
Amortization expense..................... 2,582 531 (531)(2)
2,190(3) 4,772
Restructuring expense.................... 3,833 3,833
---------- -------- ------- ----------
Operating income (loss)................ 22,297 (10,314) (1,916) 10,067
Interest income.......................... 331 463 (463)(4)
(331)(5) 0
Interest expense......................... (3,340) (898) 898(6)
3,340(7)
(8,293)(8)
(443)(9) (8,736)
Other income (expense), net.............. (161) (549) (710)
Minority Interest........................ (2,788) (2,788)
---------- -------- ------- ----------
Income (loss) before income taxes...... 16,339 (11,298) (7,208) (2,167)
Income taxes............................. 6,434 (2,895) (3,169)(10) 370
---------- -------- ------- ----------
Net income (loss)...................... $ 9,905 $ (8,403) $(4,039) $ (2,537)
========== ======== ======= ==========
Basic and diluted earnings per share..... $ 0.31 $ (0.08)
Basic and diluted weighted average number
of common shares outstanding........... 32,145,026 32,145,026
</TABLE>
- ---------------
Notes:
(1) To record additional depreciation expense pertaining to appraised valuation
of Smartflex property, plant and equipment. The associated asset amount is
being depreciated over 5 years on a straight line basis.
(2) To record reversal of amortization expense pertaining to pre-acquisition
goodwill of Smartflex.
(3) To record amortization expense on acquired intangible assets. These
intangible assets are being amortized over periods ranging from 13 to 18
years.
F-46
<PAGE> 107
(4) To record reversal of interest income pertaining primarily to
pre-acquisition cash investments held by Smartflex.
(5) To record reversal of interest income pertaining to cash investments held
by Saturn.
(6) To record reversal of interest expense incurred by Smartflex.
(7) To record reversal of interest expense incurred Saturn.
(8) To record interest expense assuming average borrowings outstanding of
$107,000,000 at an interest rate of 7.75%.
(9) To record amortization expense pertaining to deferred financing costs of
$1,991,000. The deferred financing costs are being amortized on a straight
line basis over three years.
(10) To record the income tax impact of the pro forma adjustments.
F-47
<PAGE> 108
[SATURN ARTWORK]
F-48
<PAGE> 109
[LOGO TO COME]
SATURN ELECTRONICS &
ENGINEERING, INC.
<PAGE> 110
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of the issuance and distribution, all of which are payable by
us, will be as follows (all amounts are estimated except the SEC registration
fee, the NASD fee and the Nasdaq Market listing fee):
<TABLE>
<S> <C>
SEC Registration Fee........................................ $33,000
NASD Fee....................................................
Nasdaq National Market Listing Fee..........................
Printing and Engraving Expenses.............................
Accounting Fees and Expenses................................
Legal Fees and Expenses.....................................
Transfer Agent's Fees and Expenses..........................
Miscellaneous Expenses......................................
-------
Total.................................................. $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Michigan law allows the articles of incorporation of a Michigan corporation
to contain a provision eliminating or limiting directors' liability to a
corporation or its shareholders for money damages for any action taken or any
failure to take any action as a director, except for liability for specified
acts, and our amended and restated articles of incorporation contain such a
provision. In addition, our amended and restated bylaws obligate us to indemnify
our directors and officers, and our former directors and officers, to the
maximum extent permitted by Michigan law. Our obligation to indemnify such
individuals includes indemnification against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service as
an officer or director in advance of the final disposition of any covered
matter. To be indemnified, the officer or director must have acted, or failed to
act, in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, our or our shareholders' best interests and he or she must not
have derived an improper personal benefit from such actions or omission. To be
indemnified in connection with any criminal action or proceeding, a director or
officer must have had no reasonable cause to believe his or her conduct was
unlawful. Our indemnification obligations extend to claims made against our
officers or directors because they acted as an officer or director of another
company at our request. We maintain directors' and officers' liability insurance
that provides coverage in the amount of $15.0 million.
These provisions may discourage shareholders from bringing lawsuits against
our directors for breach of their fiduciary duties. These provisions may also
reduce the likelihood of derivative litigation against our directors and
officers, even though such action, if successful, might otherwise benefit us and
our shareholders. Furthermore, a shareholder's investment may be adversely
affected to the extent we are liable for damages awarded against our directors
and officers pursuant to these indemnification provisions. We believe that these
provisions and the related insurance are necessary to attract and retain
talented, experienced directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors or officers where indemnification will be required or permitted.
We are not aware of any threatened litigation or proceeding that might result in
a claim for indemnification.
II-1
<PAGE> 111
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information reflects our recent sales of unregistered
securities, none of which involved any underwriters:
On March 15, 2000, we granted a warrant for 1,565,331 shares of common
stock to Motorola. The exercise price per share is 90% of the initial public
offering price per share. We issued the warrant in reliance upon the exemption
from registration available under Section (4)2 of the Securities Act, including
Regulation D promulgated thereunder, as a transaction by an issuer not involving
any public offering. The warrant certificate has a legend imprinted on it
stating that it have not been registered under the Securities Act and cannot be
transferred until properly registered under the Securities Act or unless an
exemption applies.
In 1999, we granted options to purchase 821,400 unregistered shares of
common stock to 98 employees, including 3 executive officers, and 5 directors.
The exercise price per share was $3.888. These shares were issued by us in
reliance upon the exemption from registration contained in Rule 701 of the
Securities Act.
In 1998, we granted options to purchase 625,500 unregistered shares of
common stock to 29 employees, including 3 executive officers, and 3 directors.
The exercise price per share was $2.878. These shares were issued by us in
reliance upon the exemption from registration contained in Rule 701 of the
Securities Act.
In 1997, we granted options to purchase 636,000 unregistered shares of
common stock to 32 employees, including 2 executive officers, and 3 directors.
The exercise price per share was $2.233. These shares were issued by us in
reliance upon the exemption from registration contained in Rule 701 of the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S> <C>
1* -- Form of Underwriting Agreement
3.1* -- Form of Amended and Restated Articles of Incorporation of
Saturn Electronics & Engineering, Inc.
3.2* -- Form of Amended and Restated Bylaws of Saturn Electronics &
Engineering, Inc.
4.1* -- Form of Certificate for shares of Common Stock
5** -- Opinion of Honigman Miller Schwartz and Cohn
10.1* -- Tanon Manufacturing, Inc. Amended and Restated Agreement of
Purchase and Sale between Tanon Manufacturing, Inc. and
Smartflex Systems, Inc., dated December 2, 1998
10.2 -- Stock Purchase Agreement by and among Logical Services
Incorporated, the Shareholders of Logical Services
Incorporated and Smartflex Systems, Inc., dated October 7,
1998
10.3 -- Methuen Division Agreement of Purchase and Sale by and
between EA Industries, Inc. and Methuen Acquisition Corp.,
dated December 2, 1998
10.4 -- Stock Purchase Agreement between World Wide Industrial
Invest, B.V. and Saturn Electronics & Engineering, Inc.,
dated April 16, 1999
10.5 -- Agreement and Plan of Merger among Saturn Electronics &
Engineering, Inc., SSI Acquisition Corp., and Smartflex
Systems, Inc., dated, July 6, 1999
10.6 -- Split-Dollar Agreement between Saturn Electronics &
Engineering, Inc., Wallace K. Tsuha, and Sherman Cruz,
Trustee of the Wallace K. Tsuha Irrevocable Life Insurance
Trust of December 13, 1991, dated July 15, 1999
10.7 -- Independent Contractor Agreement between Sherman L. Cruz and
Saturn Electronics & Engineering, Inc., dated December 1,
1999
</TABLE>
II-2
<PAGE> 112
<TABLE>
<C> <S> <C>
10.8 -- Amendment to Independent Contractor Agreement between
Sherman L. Cruz and Saturn Electronics & Engineering, Inc.,
dated February 28, 2000
10.9 -- Saturn Electronics & Engineering, Inc. 1995 Management Stock
Option Plan
10.10 -- Amendment No. 1 to Saturn Electronics & Engineering, Inc.
1995 Management Stock Option Plan, dated November 19, 1997
10.11 -- Amendment No. 2 to Saturn Electronics & Engineering, Inc.
1995 Management Stock Option Plan, dated July 29, 1999
10.12 -- Amendment No. 3 to Saturn Electronics & Engineering, Inc.
1995 Management Stock Option Plan, dated September 28, 1999
10.13 -- Loan Agreement by and between Saturn Electronics Texas, LLC
and Comerica Bank, dated April 16, 1998
10.14 -- Amendment No. 1 to Loan Agreement and Revolving Credit Note
by and between Saturn Electronics Texas, LLC and Comerica
Bank, dated June 10, 1999
10.15 -- Amendment No. 2 to Loan Agreement by and between Saturn
Electronics Texas, LLC and Comerica Bank, dated January 11,
2000
10.16 -- Credit Agreement between Comerica Bank and Saturn
Electronics & Engineering, Inc., dated August 24, 1999
10.17 -- Amendment No. 1 to Credit Agreement between Saturn
Electronics & Engineering, Inc. and Comerica Bank, dated
September 24, 1999
10.18 -- Amendment No. 2 to Credit Agreement between Comerica Bank
and Saturn Electronics & Engineering, Inc., dated November
10, 1999
10.19* -- Amendment No. 3 to Credit Agreement between Comerica Bank
and Saturn Electronics & Engineering, Inc., dated March 27,
2000
10.20 -- Saturn Electronics Texas, LLC Membership Regulations, dated
February 25, 1998
10.21 -- Amendment No. 1 to Saturn Electronics Texas, LLC Membership
Regulations, dated September 21, 1998
10.22 -- Amendment No. 2 to Saturn Electronics Texas, LLC Membership
Regulations, dated February 28, 1999
10.23 -- Amendment No. 3 to Saturn Electronics Texas, LLC Membership
Regulations, dated June 21, 1999
10.24 -- Amendment No. 4 to Saturn Electronics Texas, LLC Membership
Regulations, dated October 21, 1999
10.25 -- Sublease between Saturn Electronics & Engineering, Inc. and
MSX International Engineering Services, Inc., dated August
20, 1999
10.26 -- First Amendment to Sublease between Saturn Electronics &
Engineering, Inc. and MSX International Engineering
Services, Inc., dated March 27, 2000
10.27* -- Warrant to Purchase Shares of Class B Nonvoting Common
Stock, dated March 15, 2000
10.28* -- First Amendment to Saturn Electronics & Engineering, Inc. to
Warrant to Purchase Shares of Class B Nonvoting Common
Stock, dated March 27, 2000
10.29* -- Registration Rights Agreement with MascoTech, Inc.
10.30* -- Saturn Electronics & Engineering, Inc. 2000 Stock Option
Plan
21* -- List of subsidiaries
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2 -- Consent of Ernst & Young LLP
23.3* -- Consent of Honigman Miller Schwartz and Cohn (contained in
their opinion filed as Exhibit 5)
</TABLE>
II-3
<PAGE> 113
<TABLE>
<C> <S> <C>
24 -- Power of Attorney (included on the signature page to this
Registration Statement)
27 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by Amendment.
(b) Financial Statement Schedules.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, or the Act, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rules 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE> 114
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Auburn Hills, Michigan on March 29,
2000.
SATURN ELECTRONICS & ENGINEERING, INC.
By: /s/ WALLACE K. TSUHA, JR.
------------------------------------
Wallace K. Tsuha, Jr.
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned officers
and directors of Saturn Electronics & Engineering, Inc., a Michigan corporation
(the "Company"), hereby constitutes and appoints Wallace K. Tsuha, Jr. and
Donald J. Cowie, and each of them, the true and lawful attorneys-in-fact and
agents of the undersigned, each with the power and substitution for him in any
and all capacities, with full power and authority in said attorneys-in-fact and
agents and in any one or more of them, to sign, execute and affix his seal
thereto and file any and all amendments to this Registration Statement,
including any amendment thereto changing the amount of securities for which
registration is being sought, and any post-effective amendment and any and all
additional registration statements pursuant to Rule 462(b) of the Securities Act
of 1993, with all exhibits and any and all documents required to be filed with
respect thereto with the Securities and Exchange Commission, granting unto said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
in order to effectuate the same as fully to all intents and purposes as the
undersigned might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or
their or his substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WALLACE K. TSUHA, JR. President, chief executive March 27, 2000
- --------------------------------------------------- officer, chairman of the board
Wallace K. Tsuha, Jr. and director (principal
executive officer)
/s/ DONALD J. COWIE Chief financial officer, March 27, 2000
- --------------------------------------------------- executive vice president,
Donald J. Cowie treasurer and assistant
secretary (principal financial
and accounting officer)
/s/ WILLIAM T. ANDERSON Director March 27, 2000
- ---------------------------------------------------
William T. Anderson
</TABLE>
II-5
<PAGE> 115
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DAVID E. COLE Director March 27, 2000
- ---------------------------------------------------
David E. Cole
/s/ SHERMAN L. CRUZ Director March 27, 2000
- ---------------------------------------------------
Sherman L. Cruz
/s/ FOREST J. FARMER Director March 27, 2000
- ---------------------------------------------------
Forest J. Farmer
/s/ RICK INATOME Director March 27, 2000
- ---------------------------------------------------
Rick Inatome
/s/ GARY E. LIEBL Director March 27, 2000
- ---------------------------------------------------
Gary E. Liebl
</TABLE>
II-6
<PAGE> 116
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S> <C>
1* -- Form of Underwriting Agreement
3.1* -- Form of Amended and Restated Articles of Incorporation of
Saturn Electronics & Engineering, Inc.
3.2* -- Form of Amended and Restated Bylaws of Saturn Electronics &
Engineering, Inc.
4.1* -- Form of Certificate for shares of Common Stock
5* -- Opinion of Honigman Miller Schwartz and Cohn
10.1* -- Tanon Manufacturing, Inc. Amended and Restated Agreement of
Purchase and Sale between Tanon Manufacturing, Inc. and
Smartflex Systems, Inc., dated December 2, 1998
10.2 -- Stock Purchase Agreement by and among Logical Services
Incorporated, the Shareholders of Logical Services
Incorporated and Smartflex Systems, Inc., dated October 7,
1998
10.3 -- Methuen Division Agreement of Purchase and Sale by and
between EA Industries, Inc. and Methuen Acquisition Corp.,
dated December 2, 1998
10.4 -- Stock Purchase Agreement between World Wide Industrial
Invest, B.V. and Saturn Electronics & Engineering, Inc.,
dated April 16, 1999
10.5 -- Agreement and Plan of Merger among Saturn Electronics &
Engineering, Inc., SSI Acquisition Corp. and Smartflex
Systems, Inc., dated July 6, 1999
10.6 -- Split-Dollar Agreement between Saturn Electronics &
Engineering, Inc., Wallace K. Tsuha, and Sherman Cruz,
Trustee of the Wallace K. Tsuha Irrevocable Life Insurance
Trust of December 13, 1991, dated July 15, 1999
10.7 -- Independent Contractor Agreement between Sherman L. Cruz and
Saturn Electronics & Engineering, Inc., dated December 1,
1999
10.8 -- Amendment to Independent Contractor Agreement between
Sherman L. Cruz and Saturn Electronics & Engineering, Inc.,
dated February 28, 2000
10.9 -- Saturn Electronics & Engineering, Inc. 1995 Management Stock
Option Plan
10.10 -- Amendment No. 1 to Saturn Electronics & Engineering, Inc.
1995 Management Stock Option Plan, dated November 19, 1997
10.11 -- Amendment No. 2 to Saturn Electronics & Engineering, Inc.
1995 Management Stock Option Plan, dated July 29, 1999
10.12 -- Amendment No. 3 to Saturn Electronics & Engineering, Inc.
1995 Management Stock Option Plan, dated September 28, 1999
10.13 -- Loan Agreement by and between Saturn Electronics Texas, LLC
and Comerica Bank, dated April 16, 1998
10.14 -- Amendment No. 1 to Loan Agreement and Revolving Credit Note
by and between Saturn Electronics Texas, LLC and Comerica
Bank, dated June 10, 1999
10.15 -- Amendment No. 2 to Loan Agreement by and between Saturn
Electronics Texas, LLC and Comerica Bank, dated January 11,
2000
10.16 -- Credit Agreement between Comerica Bank and Saturn
Electronics & Engineering, Inc., dated August 24, 1999
10.17 -- Amendment No. 1 to Credit Agreement between Comerica Bank
and Saturn Electronics & Engineering, Inc., dated September
24, 1999
10.18 -- Amendment No. 2 to Credit Agreement between Comerica Bank
and Saturn Electronics & Engineering, Inc., dated November
10, 1999
10.19* -- Amendment No. 3 to Credit Agreement between Comerica Bank
and Saturn Electronics & Engineering, Inc., dated March 27,
2000
</TABLE>
<PAGE> 117
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S> <C>
10.20 -- Saturn Electronics Texas, LLC Membership Regulations, dated
February 25, 1998
10.21 -- Amendment No. 1 to Saturn Electronics Texas, LLC Membership
Regulations, dated September 21, 1998
10.22 -- Amendment No. 2 to Saturn Electronics Texas, LLC Membership
Regulations, dated February 28, 1999
10.23 -- Amendment No. 3 to Saturn Electronics Texas, LLC Membership
Regulations, dated June 21, 1999
10.24 -- Amendment No. 4 to Saturn Electronics Texas, LLC Membership
Regulations, dated October 21, 1999
10.25 -- Sublease between Saturn Electronics & Engineering, Inc. and
MSX International Engineering Services, Inc., dated August
20, 1999
10.26 -- First Amendment to Sublease between Saturn Electronics &
Engineering, Inc. and MSX International Engineering
Services, Inc., dated March 27, 2000
10.27* -- Warrant to Purchase Shares of Class B Nonvoting Common
Stock, dated March 15, 2000
10.28* -- First Amendment to Saturn Electronics & Engineering, Inc. to
Warrant to Purchase Shares of Class B Nonvoting Common
Stock, dated March 26, 2000
10.29* -- Registration Rights Agreement with MascoTech, Inc.
10.30* -- Saturn Electronics & Engineering, Inc. 2000 Stock Option
Plan
21* -- List of subsidiaries
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2 -- Consent of Ernst & Young LLP
23.3* -- Consent of Honigman Miller Schwartz and Cohn (contained in
their opinion filed as Exhibit 5)
24 -- Power of Attorney (included on the signature page to this
Registration Statement)
27 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by Amendment.
<PAGE> 1
EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
dated as of
October 7, 1998
by and among
LOGICAL SERVICES INCORPORATED,
the Shareholders of
LOGICAL SERVICES INCORPORATED
and
SMARTFLEX SYSTEMS, INC.
<PAGE> 2
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
October 7, 1998, by and among SMARTFLEX SYSTEMS, INC., a Delaware corporation
("Buyer"), LOGICAL SERVICES INCORPORATED, a California corporation (the
"Company"), and the shareholders of the Company listed on Schedule I attached
hereto (such Shareholders are sometimes referred to herein collectively as the
"Shareholders" and individually as a "Shareholder").
R E C I T A L S:
- - - - - - - -
A. The Company is engaged in the business of, among others, providing
engineering driven, turn-key services (the "Business").
B. The Shareholders own, beneficially and of record, one hundred
percent (100%) of the issued and outstanding capital stock of the Company
(collectively the "Shares") consisting of an aggregate of 1,479,250 shares of
the Company's Common Stock, $.10 par value (the "Common Stock").
C. Buyer desires to acquire from the Shareholders, and the
Shareholders desire to sell to Buyer, the Shares upon the terms and subject to
the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the terms, covenants, and
conditions hereinafter set forth, the parties hereto agree as follows:
1 . Purchase and Sale of Shares.
Upon the terms and subject to the conditions set forth in this
Agreement, at the Closing (as defined in Section 11 hereof) on the Closing Date
(as defined in Section 11 hereof), the Shareholders agree to sell, convey,
assign, transfer, set over and deliver to Buyer, the number of the Shares set
forth opposite the name of each Shareholder on Schedule 1 attached hereto, in
each case free and clear of all liens, claims, encumbrances, rights of first
refusal, security interests, pledges, equities, options, charges, conditional
sale contracts, restrictions and other adverse interests and defects in title of
any nature whatsoever (collectively, the "Liens"), and Buyer agrees to purchase
and accept such Shares from the Shareholders.
2. Purchase Price and Terms of Payment.
2.1 Purchase Price. As consideration for the sale hereunder to
Buyer of the Shares, Buyer shall pay to each Shareholder, in the manner set
forth in Section 2.2 and Section 3 below, his proportionate share, based on the
number of Shares owned of record by such Shareholder at the time of Closing
(such Shareholder's "Prorata Share"), of an aggregate purchase price (the
"Purchase Price") of Two Million Three Hundred Thousand Dollars ($2,300,000),
which (i) shall be subject to adjustment as provided in Section 2.3 below and
(ii) shall consist of Two Million Seventy Thousand Dollars ($2,070,000) to be
Paid at the Closing (the "Closing Date Payment") and Two Hundred Thirty Thousand
Dollars ($230,000) to be withheld by the Buyer in accordance with Section 3
(the "Holdback Amount").
2.2 Payment of Purchase Price. The Purchase Price shall be paid
to the Shareholders as follows:
<PAGE> 3
(a) the Closing Date Payment shall be paid to the Shareholders at the
Closing by delivery of a bank cashier's check or wire transfer of funds to each
Shareholder in the amount of such Shareholder's Prorata Share of the Purchase
Price as set forth on Schedule 1; and
(b) the Holdback Amount shall be paid to, or for the account of, the
Shareholders as provided in Section 3 below.
2.3 Adjustment to Purchase Price. On the date hereof, the Company shall
deliver to the Buyer a balance sheet as of August 31, 1998, which has been
prepared by the Company and attached hereto as Schedule 2.3 (the "Balance
Sheet"). Within ninety (90) days following the Closing Date, Ernst & Young LLP
("E&Y") shall deliver to the Buyer and to the Shareholder Representative (as
defined in Section 4 below) an audited balance sheet as of the Closing Date (the
"Closing Balance Sheet") showing the Company's Net Asset Value (as defined
herein) as of the close of business on the day prior to the Closing Date (the
"Closing Balance Sheet Net Asset Value"). The Closing Balance Sheet shall be
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied using the same methodology as was used in the preparation
of the Financial Statements (as defined in Section 6.5 hereof) and the Balance
Sheet. In the event that the Closing Balance Sheet Net Asset Value is less than
the Net Asset Value as shown on the Balance Sheet (the "Target Net Asset
Value"), the Purchase Price shall be reduced by one dollar for each dollar that
the Closing Balance Sheet Net Asset Value is less than the Target Net Asset
Value. In the event that the amount of the Closing Balance Sheet Net Asset Value
is more than the Target Net Asset Value, the Purchase Price shall be increased
by one dollar for each dollar that the Closing Balance Sheet Net Asset Value is
more than the Target Net Asset Value (collectively, the "Purchase Price
Adjustment"). The Shareholder Representative and the Buyer shall be entitled to
review the Closing Balance Sheet for a period of thirty (30) days after delivery
by E&Y. In the event that before the end of such thirty (30) day period, either
of such persons notifies the other in writing that they dispute the Closing
Balance Sheet Net Asset Value shown on the Closing Balance Sheet, then the
Closing Balance Sheet Shareholders' Equity shall be determined by
PricewaterhouseCoopers LLP, or other Big 5 accounting firm mutually agreed to by
Buyer and the Shareholder Representative ("Second Auditor"), which determination
shall be made within thirty (30) days of the date such firm is retained and when
delivered shall be final and binding on the parties. If the Closing Balance
Sheet Net Asset Value as determined by the Second Auditor varies in favor of the
requesting party, the cost of the Second Auditor shall be paid by the
non-requesting party. If the Closing Balance Sheet Net Asset Value as determined
by the Second Auditor does not vary in favor of the requesting party, the cost
of the Second Auditor shall be paid by the requesting party. If neither the
Shareholder Representative nor the Buyer notifies the other that it is
contesting the Closing Balance Sheet within the above specified time period, the
Closing Balance Sheet provided by E&Y shall be final and binding on all parties
for purposes of making the above specified Purchase Price Adjustment. When the
Purchase Price Adjustment has been finally determined, if a Purchase Price
reduction results, the Buyer shall reduce the Holdback Amount by the amount of
the Purchase Price Adjustment; provided, that, if the Purchase Price Adjustment
is greater than the Holdback Amount, then each of the Shareholders shall refund
such Shareholder's Prorata Share of the amount by which the Purchase Price
Adjustment exceeds the Holdback Amount in cash (or by immediately available
funds transfer) to the Buyer within five (5) days of the date that the Purchase
Price Adjustment is finally determined. If the Purchase Price Adjustment results
in a Purchase Price increase, the amount of such increase shall be added to the
Holdback Amount and shall be paid as provided in Section 3 below. For purposes
hereof, "Net Asset Value" shall mean the tangible assets of the Business less
the liabilities of the Business.
3. Purchase Price Holdback.
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<PAGE> 4
(a) The Buyer shall withhold the Holdback Amount as collateral to
secure the Shareholders' obligations described in Section 3(b) below, during the
period commencing on the Closing Date and terminating on the date that is one
(1) year from the Closing Date. On the date that is one (1) year from the
Closing Date (or if such date is not a business day, on the next business day
thereafter), the Holdback Amount, less the amount of any reductions thereto, as
provided in Section 3(b) below, if a positive amount, shall be distributed to
the Shareholders, without interest, in accordance with such Shareholder's
Prorata Share. The Buyer shall not be required to segregate or set aside the
Holdback Amount. The Buyer may, without obligation, file a UCC-1 or other
appropriate instruments with the California Secretary of State evidencing
Buyer's security interest in the Holdback Amount, and the Shareholder
Representative is authorized to execute and deliver such UCC-1 or other
appropriate instruments, and each Shareholder shall be fully bound thereby.
(b) The Holdback Amount is subject to reduction and retention by Buyer
as follows:
(i) In the event that there is a Purchase Price reduction
pursuant to the terms of Section 2.3 above; and
(ii) In satisfaction of any claim for Damages by the Buyer
against the Shareholders pursuant to the provisions of Section 14, below.
(c) Without limiting the foregoing, in the event that reductions to
the Holdback Amount made by the Buyer pursuant to this Section 3 exceed the
amount of the Holdback Amount, then, in addition to any other remedies available
to the Buyer, the Buyer shall be able to recover any excess amounts directly
from the Shareholders, on a joint and several basis.
(d) Under no circumstances will the Shareholders, without the prior
written consent of the Buyer, assign, transfer or grant any security interest in
the Holdback Amount to any party other than (i) the Buyer pursuant to Section
3(a) above, or (ii) an existing Shareholder who shall accept such assignment,
transfer or security interest subject to the prior rights of the Buyer
hereunder.
4. Shareholder Representative. Each of the Shareholders (and their
successors and assigns) hereby irrevocably consents to the appointment of, and
does hereby appoint and empower, Robert W. Ulrickson (and Robert W. Ulrickson
does hereby accept such appointment), as the sole and exclusive representative
of the Shareholders (the "Shareholder Representative"), until replaced by the
Shareholders, as evidenced in a writing delivered to the Buyer which is executed
by the Shareholders holding a majority of the Shares immediately prior to the
Closing Date. All decisions of the Shareholder Representative shall be final and
binding on all of the Shareholders, and the Buyer shall be entitled to rely
upon, without independent investigation, any decision of the Shareholder
Representative and shall be jointly and severally indemnified by the
Shareholders and held harmless by each Shareholder for any action or inaction
taken or omitted to be taken by Buyer in reliance thereon.
5. Several Representations and Warranties of the Shareholders.
Except as disclosed in the disclosure schedules delivered to Buyer
concurrently herewith (the "Disclosure Schedules") by reference to the specific
section or subsections to which a disclosure pertains, each Shareholder,
severally but not jointly, represents and warrants to Buyer as follows:
5.1 Authority. Such Shareholder has the full legal right, capacity,
power and authority to execute and deliver, and to perform such Shareholder's
obligations under this Agreement. This
-4-
<PAGE> 5
Agreement has been duly executed and delivered by such Shareholder, constitutes
the valid and binding obligation of such Shareholder, and is enforceable
against such Shareholder in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights and (ii) general principles of equity
relating to the availability of equitable remedies (regardless of whether such
Agreement is sought to be enforced in a proceeding at law or in equity). Any
Employment Agreement required to be executed by such Shareholder pursuant to
Section 9.11 below, when executed and delivered by such Shareholder, will be the
valid and binding obligation of such Shareholder, and will be enforceable
against such Shareholder in accordance with its terms except, in each case, as
such enforceability may be limited by (i) bankruptcy, insolvency, moratorium or
other similar laws affecting creditors' rights and (ii) general principles of
equity relating to the availability of equitable remedies (regardless of whether
any such agreements are sought to be enforced in a proceeding at law or in
equity).
5.2 Title to Shares. Such Shareholder is the owner, beneficially and
of record, of the number of Shares set forth opposite such Shareholder's name on
Schedule 1 attached hereto and at the Closing shall transfer, convey and vest
in Buyer, legal and beneficial ownership of (including, but not limited to, the
right to vote), and good, valid and marketable title to, such Shares free and
clear of all Liens other than restrictions imposed by federal and applicable
state securities laws which do not constitute an impediment to the sale and
transfer of the Shares contemplated by this Agreement. Neither such Shareholder
nor any Shares owned by such Shareholder are or will be a party or subject to
any agreement or commitment, written or oral, granting any rights or options in
or to such Shares or any interest therein or imposing any restrictions thereon.
5.3 No Shareholder Conflicts. Except as set forth in Schedule 5.3
attached hereto, neither the execution and delivery of this Agreement by such
Shareholder, the performance by such Shareholder of such Shareholder's
obligations hereunder, nor the consummation of the transactions contemplated
hereby, including, but not limited to, the execution by such Shareholder of an
Employment Agreement pursuant to Section 9.11 hereto, will result in any of the
following: (a) a default or an event that, with notice or lapse of time, or
both, would constitute a default, breach or violation of (i) any of the terms,
conditions or provisions of any lease, license, franchise, promissory note,
contract, agreement, commitment, indenture, mortgage, deed of trust, or other
instrument, document or arrangement to which such Shareholder is a party or by
which his properties or assets may be bound and which is material to the
Shareholder (a "Material Shareholder Contract"); (b) the creation or imposition
of any Lien on any of the assets or properties of such Shareholder; (c) the
termination of any Material Shareholder Contract or the acceleration of the
maturity of any indebtedness or other material obligation of such Shareholder;
or (d) a violation or breach of any order, writ, injunction, decree, law,
statute or regulation of any court or governmental authority applicable to such
Shareholder or any of such Shareholder's properties or assets.
5.4 No Third Party Consents. Except as set forth in Schedule 5.4
attached hereto, no consent, approval, order or authorization of, or
registration, declaration or filing with, any person or entity or any court,
administrative agency or commission or other governmental authority or
instrumentality is required by or with respect to such Shareholder in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
5.5 Absence of Claims. Except as set forth in Schedule 5.5 attached
hereto, such Shareholder does not, and at the Closing will not, have any claim,
demand or cause of action against the Company, or its officers, directors,
employees, agents or representatives and knows of no fact, event or circumstance
which could reasonably be expected to result in any such claim.
-5-
<PAGE> 6
5.6 Delegation of Authority to Shareholder Representative. The
delegation of authority by each of the Shareholders to the Shareholder
Representative pursuant to this Agreement, is a valid and enforceable delegation
and each Shareholder has the full power and authority to make such delegation.
6. Representations and Warranties of the Company and Shareholders.
Except as disclosed in the Disclosure Schedules by reference to the
specific section or subsections to which a disclosure pertains, the Company and
each of the Shareholders, jointly and severally, represent and warrant to Buyer
as follows:
6.1 Organization and Good Standing: Corporate Matters. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California, and is duly authorized or qualified to do
business as a foreign corporation in each jurisdiction in which the character of
the properties owned by it or the nature of the Business makes such
authorization or qualification necessary and where the failure to be so
authorized or qualified would have a Material Adverse Effect (as hereinafter
defined) on the Company. As used in this Agreement, unless otherwise indicated,
the term "Material Adverse Effect" when used in connection with the Company,
means any event, circumstance, change or effect that is, or could reasonably be
expected to be, materially adverse to the condition (financial or otherwise),
properties, assets, liabilities, businesses, operations, results of operations
or prospects of the Company either prior to or following the Closing, other than
Material Adverse Effects set forth or described in the Disclosure Schedules.
The Company does not own or control, directly or indirectly, any interest or
investment (whether equity or debt) in any corporation, partnership, limited
liability company, joint venture, association, business organization, trust or
entity. The Company has all necessary corporate power and authority to conduct
the Business as it is now, and has since its organization been, conducted and to
own, lease and/or operate the properties and assets which it now owns, leases or
operates. The Company has delivered to Buyer true and correct copies of (a) the
Articles of Incorporation of the Company and all amendments thereto, certified
by the Secretary of State of the State of California, (b) the Bylaws of the
Company and all amendments thereto, duly certified by its corporate secretary,
(c) the minute and stock books of the Company and (d) any agreements,
commitments or understandings restricting the transfer of or otherwise relating
to the Shares or any other securities of the Company to which the Company or any
Shareholder is a party. Such Articles of Incorporation and Bylaws are in full
force and effect and the Company is not in violation of its Articles of
Incorporation or Bylaws. The minute and stock books of the Company are complete
and accurate in all material respects.
6.2 Capital Structure of the Company. The authorized capital stock of
the Company consists solely of 5,000,000 shares of Common Stock, par value $0.10
of which 1,479.250 shares are issued and outstanding. There are no
outstanding subscriptions, options, calls, warrants, convertible or exchangeable
debt or securities, agreements, arrangements, commitments, understandings or
other rights, oral or written, obligating the Company to offer, sell or issue
any additional shares of its capital stock of any class or any outstanding
shares of capital stock of the Company. Except as set forth in Schedule 6.2,
none of the Shareholders is a party to any voting trust agreement or any other
contract, agreement, commitment, plan or understanding restricting or otherwise
relating to voting or dividend rights or privileges with respect to, or which
either provide for or restrict the sale, transfer or assignment of, the Shares.
All of the outstanding shares of capital stock of the Company are validly
issued, fully paid, nonassessable, and were not issued in violation or
contravention of any federal or applicable state securities laws or regulations,
any preemptive rights (contractual or other) of any person or entity, or any
agreement to which the Company or any shareholder of the Company is or was a
party. Except as set forth in Schedule 6.2, there are no obligations, contingent
or otherwise, of the Company to repurchase, redeem or
-6-
<PAGE> 7
otherwise acquire any currently outstanding, or make any payments in respect of
any currently or previously outstanding, shares of capital stock of the Company.
Except as disclosed in Schedule 6.2 or in the Financial Statements (as
hereinafter defined), the Company has not repurchased, redeemed or otherwise
acquired any shares of its capital stock or declared, paid or set aside funds
for the payment of any dividend or other distribution on its shares of capital
stock, or effected any recapitalization, reclassification, combination, stock
split or other transaction affecting its authorized or outstanding shares of
capital stock. Each repurchase, redemption or other acquisition of shares of
capital stock, and each dividend or other distribution and each
recapitalization, reclassification, combination, stock split or other
transaction disclosed in Schedule 6.2 was made in accordance with all applicable
provisions of California Law and without violation of any Material Contract (as
hereinafter defined).
6.3 No Conflicts. Except as set forth in Schedule 6.3 attached hereto,
neither the execution and delivery of this Agreement by the Company or any
Shareholder, the performance by the Company or any Shareholder of its
obligations hereunder, the execution and delivery by the Company or any
Shareholder of any agreement required to be entered into pursuant to this
Agreement, nor the consummation of the transactions contemplated hereby, will
result in any of the following: (a) a default or an event that, with notice or
lapse of time, or both, would constitute a default, breach or violation of (i)
any provision of the Articles of Incorporation or Bylaws of the Company, or (ii)
any of the terms, conditions or provisions of any lease, license, franchise,
promissory note, contract, agreement, commitment, indenture, mortgage, deed of
trust, or other instrument, document or arrangement to which the Company is a
party or by which it or any of its respective properties or assets may be bound
and which is material to the Company (a "Material Contract"); (b) the creation
or imposition of any Lien on any of the assets or properties of the Company; (c)
the termination of any Material Contract or the acceleration of the maturity of
any indebtedness or other material obligation of the Company; (d) a violation or
breach of any order, writ, injunction, decree, law, statute or regulation of any
court or governmental authority applicable to the Company or any of its
respective properties or assets; (e) the cessation or termination of any other
business relationship or arrangement between the Company and any third party the
cessation or termination of which would have a Material Adverse Effect; (f) any
adverse effect on the Intangible Personal Property (as defined in Section
6.7(b) below) or on the Company's rights or ability to use the Intangible
Personal Property or on the Company's rights or privileges under the license
agreements or other arrangements, if any, listed on Schedule 6.7(b).
6.4 Consents and Approvals. Except as set forth in Schedule 6.4, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any person or entity or any court, administrative agency or
commission or other governmental authority or instrumentality is required by or
with respect to the Company in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby.
6.5 Financial Statements. The Shareholders have delivered or caused
the Company to deliver to Buyer true and correct copies of the unaudited
consolidated financial statements of the Company for the period from January 1,
1998 to August 31, 1998 and for each of the years in the two (2) year period
ended December 31, 1997, consisting of balance sheets and statements of income
(collectively, the "Financial Statements"), true and correct copies of which
Financial Statements are also attached hereto as Schedule 6.5. The Financial
Statements (i) were prepared in accordance with GAAP consistently applied; (ii)
present fairly, in all material respects, the financial position, results of
operations of the Company as at the relevant dates thereof and for the
respective periods covered thereby; and (iii) reflect that the Company has
calculated and set aside reserves or allowances for doubtful accounts, warranty
claims, obsolete, excessive or slow moving inventory and other contingencies and
claims in amounts which are adequate in relation to potential write-downs or
write-offs of assets and potential liabilities or losses that may arise out
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<PAGE> 8
of any pending or threatened claims or other contingencies to which the Company
or its Business are subject, determined in accordance with GAAP consistently
applied. Other than as expressly set forth in Schedule 6.5 or in the (August
31, 1998) Balance Sheet included in the Financial Statements or the notes
thereto, the Company has no debts, liabilities, obligations or commitments
of any nature, secured or unsecured and whether due or to become due, absolute,
contingent or otherwise, which, in accordance with GAAP consistently applied,
either would be required to be shown on a balance sheet of the Company prepared
accordance with GAAP or, although it is not required to be shown on the
Company's balance sheet, are individually or in the aggregate material in
amount, except for liabilities that have been incurred by the Company after
August 31, 1998, in the ordinary course of business and consistent with
past practice, that are not material in amount and have not had, and are not
reasonably expected to have, a Material Adverse Effect on the Company.
6.6 Absence of Certain Changes. Except as set forth in Schedule 6.6
attached hereto, since January 1, 1995, the Company has conducted the Business
in the ordinary course, and there has not been or occurred with respect to the
Company: (i) any change in or amendment to its Articles of Incorporation or
Bylaws or any recapitalization or reclassification of its authorized or
outstanding capital stock; (ii) any damage, destruction or loss, whether or not
covered by insurance, which has had or may have a Material Adverse Effect on the
Company or its ability to operate the Business in the ordinary course and
consistent with past practices; (iii) any amendment, modification or
termination of any Material Contract or the termination, cessation or loss of
or any material change in the pricing or other material terms of any product
supply or other business arrangement or relationship which would or could
reasonably be expected to have a Material Adverse Effect; (iv) other than
immaterial increases in regular salaries or wages made in the ordinary course
of business and consistent with past practices, any increase in, or commitment
to increase, the direct or indirect compensation or benefits payable or to
become payable to any of the Company's officers, directors, employees, agents,
or independent contractors, or the payment or awarding, or the making of any
commitment to pay, any severance, bonus, incentive or special or deferred
compensation to or similar arrangements with any of such officers, directors,
employees, agents or independent contractors or the adoption of any new, or any
material amendment or modification of any existing, Employee Plan (as
hereinafter defined); (v) any sale or issuance of, or grant of options, warrants
or other rights to acquire, any shares of capital stock or other securities
(whether currently outstanding or authorized or available for issuance); (vi)
any declaration, setting aside or payment of a dividend or other distribution in
respect of its capital stock, or any direct or indirect redemption, repurchase
or other acquisition of any shares of its capital stock or other securities, or
any issuance or the creation of any commitment or obligation to issue any shares
of capital stock or any rights or securities convertible, exchangeable or
exercisable into shares of capital stock, or any transfer, sale, pledge,
assignment or other disposition of, any of the Shares, or any interest in or
right to acquire any of the Shares; (vii) any waiver or release of any material
right or claim of the Company; (viii) except for sales of inventory made,
and Permitted Liens (as defined in Subsection 6.7(d) below) incurred in the
ordinary course of business and consistent with past practices, any sale,
transfer, mortgage, pledge or subjection to Lien of or affecting any of its
properties or assets other than sales of assets that are not material to and are
no longer needed in the Business; (ix) the incurrence of any indebtedness for
borrowed money or capitalized lease obligations or any guaranty of indebtedness
of any other person or entity; (x) any capital expenditures or any commitment
involving more than [$25,000] individually or [$50,000] in the aggregate;
(xi) any material alteration in the manner of keeping the books, accounts or
records of the Company or in the manner of preparing financial statements, or
any change in the accounting principles, practices, policies or procedures of
the Company (except as may have been required by any modification or change in
GAAP); (xii) any material alteration in the operating or employment policies
and procedures of the Company; (xiii) any other event or condition of any
character that has had or could reasonably be expected to result in a Material
Adverse Effect on the
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<PAGE> 9
Company or the Business; or (xiv) any agreement or commitment by the Company or
any Shareholder to do any of the things described in the preceding clauses (i)
through (xiii).
6.7 Property of the Company. Except as set forth in Schedule 6.7,
the Company owns or otherwise has the right to use (free of any burdensome
conditions or restrictions) all of the property and assets, real, personal or
mixed, tangible or intangible, now used in the operation of the Business, or
the use of which is necessary for the performance of any Material Contract or
the conduct of the Business as now conducted and as presently contemplated to be
conducted.
(a) Tangible Personal Property. Except as set forth in Schedule
6.7(a), the Company has furnished to Buyer a true and correct listing of all
machinery, implements, supplies, equipment, computers, furniture, fixtures,
vehicles, tools, and all other similar assets or tangible personal property
owned, leased or used by the Company other than any of such items that are not
necessary for the conduct of the Business as currently conducted. The assets
contained on such listing constitute all the tangible personal property
reasonably necessary for the conduct by the Company of the Business, and such
assets are in good operating condition and repair, ordinary wear and tear
excepted, and have been properly maintained. Except as disclosed in Schedule
6.7(a), no personal property used by the Company in connection with the Business
is held under any lease, security agreement, conditional sales contract, or
other title retention or security agreement, or is located other than in the
possession of the Company.
(b) Intangible Personal Property. Schedule 6.7(b) attached
hereto contains a true and correct list of all patents and patent applications,
copyrights and applications therefor, trademarks, trade names and service marks,
whether or not registered, and whether owned or licensed for use by the Company,
and any applications therefor, designs, drawings, processes, inventions,
products, computer software, firmware or hardware and other trade secrets and
know-how (the "Intangible Personal Property") owned by the Company or used in
or necessary to the conduct of the Business. Schedule 6.7(b) also contains a
list of all license agreements and other arrangements under which the Company
uses, or licenses to any third party, any patents, trademarks or other
intellectual property, true and complete copies of which have been provided to
Buyer. The Company owns or is licensed, or otherwise has the full right and
authority to use, all Intangible Personal Property required for the conduct of
the Business in the manner presently conducted, and such use does not conflict
with, infringe upon or violate any trademark, trade name, copyright, patent
rights or trade secret rights of any other person or entity. Neither the Company
nor any of its products or advertising or marketing materials, (i) has
infringed, or is now infringing, any patent, trade name, trademark, service
mark, copyright, trade secret, technology, know-how or process belonging to any
other person, firm or corporation, which infringement would have a Material
Adverse Effect on the Company or (ii) has breached or violated or is in breach
or violation of any license agreement governing the use of any intellectual
property by the Company which, in either case, would have a Material Adverse
Effect on the Company. Except as disclosed in Schedule 6.7(b), neither the
Company nor any Shareholder has received any written notice or other indication
of any such claim of infringement or violation.
(c) Real Property. Schedule 6.7(c) attached hereto contains a
correct list of the addresses of each parcel of real property owned by, leased
to or used in any way by the Company (the "Real Properties"), together with a
brief description of the structures thereon and the uses being made thereof, and
a list of all leases under which the Company possesses or uses real property
(the "Real Property Leases"). True and correct copies of the Real Property
Leases, and any and all amendments thereto, have been delivered to Buyer. The
Real Properties constitute all of the real properties and structures and
improvements necessary for the Company to conduct the Business. Each of the Real
Property Leases is valid, binding and enforceable in accordance with its
terms, and is in full force and effect. The Company is not in material
default, and no event has occurred which, with the giving of notice
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<PAGE> 10
or lapse of time or both, would constitute a material default under, or which
would entitle the lessor to terminate, any of such Real Property Leases. The
Company has also delivered to Buyer true and correct copies of any and all title
insurance policies or commitments and environmental studies or reports in the
possession or control of the Company or any Shareholder with respect to any of
the Real Properties. The zoning of each parcel of Real Property permits the
presently existing improvements and structures and the continuation of the
Business presently conducted thereon. To the best knowledge of the Shareholders,
no changes in such zoning are pending or threatened, and no condemnation or
similar proceedings are pending against any such parcel of real property.
(d) Title. Except as set forth in the Financial Statements or
in Schedule 6.7(d) attached hereto, the Company has good, valid and marketable
title to, or a valid leasehold interest in, all of the assets and properties
(personal, real, mixed, tangible or intangible) which it purports to own or
lease, free and clear of any and all Liens other than Permitted Liens. As used
in this Agreement, the term "Permitted Liens" shall mean (i) mechanics',
carriers', workmen's, repairmen's or other similar Liens arising or incurred
in the ordinary course of business in respect of obligations which are not
overdue, or which are being contested in good faith; (ii) such Liens and minor
imperfections of title, if any, as are not material in amount, do not materially
detract from the value or impair the use of any material assets subject thereto
or the operations of the Business by the Company and have arisen only in the
ordinary course of business; and (iii) Liens for current Taxes (as hereinafter
defined) not yet due or for Taxes being contested in good faith by appropriate
proceedings and for which adequate reserves have been set aside.
(e) Accounts Receivable. The Company has delivered to Buyer a
complete and current aging of all accounts receivable of the Company as of
August 31, 1998, as set forth on Schedule 6.7(e) attached hereto. All such
accounts receivable represent, and all accounts receivable arising from the
operation of the business of the Company between the date hereof and the
Closing (collectively, the "Accounts Receivable") will represent, amounts due
the Company for bona fide sales of products actually made or services actually
performed on or prior to the date such Accounts Receivable were or will be
recorded on the books of the Company, in the ordinary course of the Business
and consistent with past practices, and are, or on or prior to the Closing Date
will be, valid and collectible in full in the ordinary course of business. No
reserves for invalid or uncollectible receivables have been made, and, in the
opinion of the Shareholders, no such reserves are necessary. There is no
contest, claim or right of set-off contained in any oral or written agreement
with any account debtor relating to the amount or validity of any Account
Receivable.
(f) Inventories. The Company has furnished to Buyer a complete,
current and correct list of all inventories, including packaging materials,
components, supplies, raw materials, work-in-process and finished goods, of the
Company as of August 31, 1998 (the "Inventories"), as set forth in Schedule
6.7(f) attached hereto. The Inventories are, and as of the Closing Date will be,
of a quality and quantity usable and salable in the ordinary course of
business, except for items of obsolete, damaged or slow moving materials and
materials of below standard quality, all of which have been written off or
written down to net realizable value and, in the aggregate, are not material in
amount.
6.8 Contracts and Agreements. Except as described in Schedules
6.7, 6.8 or 6.9 attached hereto, the Company is not a party to, and none of its
assets and properties are subject to: (a) any employment contract with any
officer, consultant, director or employee or any affiliate of the foregoing; (b)
any lease of real or personal property; (c) any agreement or understanding,
written or oral, that provides for or relates to the purchase, sale or other
disposition of any property, materials, equipment or supplies (except purchase
or sales orders from or to individual customers or individual suppliers
incurred in the ordinary course of business); (d) any instrument creating or
providing for the creation of any Lien on any
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<PAGE> 11
of the assets or properties of the Company or evidencing or relating to
indebtedness constituting notes payable or long-term debt; or (e) any other
Material Contract, which shall include, without limitation, any contracts or
agreements relating to, or entered into by the Company in connection with, the
purchase or sale of any business or product line. There has been delivered to
Buyer (i) true and correct copies of each written contract or agreement listed
on Schedules 6.7, 6.8 or 6.9, and any and all amendments thereto, and (ii) an
accurate written summary of the terms of any oral agreement or understanding
that the Company may have with any other person or entity that is material to
the Company or the Business, which shall include, without limitation, any oral
agreement or understanding that the Company may have with any of the customers
or suppliers listed on Schedule 6.10, and any amendments thereto. Except as
otherwise set forth on Schedule 6.8, each of such contracts, agreements,
licenses and instruments so listed, or required to be so listed, or described or
required to be described in a written summary required to be delivered pursuant
hereto, is a valid and binding obligation of the Company and, to the knowledge
of the Shareholders, also of the other parties thereto, and is enforceable in
accordance with its terms, except as enforceability may be affected by
bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights
generally and general principles of equity relating to the availability of
equitable remedies. Except as otherwise set forth in Schedule 6.8 hereto, there
have not been any defaults by the Company or, to the knowledge of the
Shareholders, any defaults or claims of default or of non-enforceability by the
other party, or parties to such contracts, agreements, licenses and instruments
which, individually or in the aggregate, would have a Material Adverse Effect on
the Company or the Business and, to the knowledge of the Shareholders, there are
no facts, events or conditions that have occurred which, through the passage of
time or the giving of notice, or both, would constitute a default by the Company
or by the other party or parties under any of such contracts, agreements,
licenses and instruments that could reasonably be expected to have a Material
Adverse Effect on the Company or the Business or that would create or result in
the imposition of a Lien on any material assets or properties of the Company.
6.9 Employees; Labor Matters and Employee Plans.
(a) Schedule 6.9 attached hereto contains complete, current and
correct lists of each director and officer of the Company and of all employees
of the Company, which lists include the job position(s) of and compensation and
benefits payable to each of such individuals as a result of his or her
employment by or association with the Company. Schedule 6.9 also contains a list
of consultants and any other independent contractors that have provided
professional or other services to the Company and have received or are expected
to receive fees or other compensation from the Company. The Company has
furnished to Buyer a true and correct copy of its employee handbook (if one
exists) and a written description of all material employment or personnel
policies of the Company not set forth therein.
(b) Except as set forth in Schedule 6.9, the Company is not a
party to or otherwise bound by or subject to any collective bargaining or other
labor, employment, deferred compensation, bonus, retainer, consulting, or
incentive agreement, plan or contract. Except as disclosed in Schedule 6.9,
there has been no strike or other work stoppage by nor to the knowledge of any
of the Shareholders, has there been any union organizing activity among any of
the employees of the Company. The Company is in compliance, in all material
respects, with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and is not
engaged in any unfair labor practice. Except as set forth in Schedule 6.9, there
is no unfair labor practice complaint pending or, to the best knowledge of any
of the Shareholders, threatened against the Company, nor, to the best knowledge
of any of the Shareholders, is there any factual basis for any such complaint.
(c) Schedule 6.9 also contains a complete, current and correct
list of all Employee Plans (as hereinafter defined) of the Company (true,
correct and complete copies of which have
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<PAGE> 12
been delivered to Buyer). For purposes of this Agreement, the term "Employee
Plan" includes all present plans, programs, agreements or any other arrangements
(including all amendments to and components of same, such as a trust with
respect to a plan) providing any remuneration or benefits, other than current
cash compensation, to any current or former employee of the Company or to any
other person who provides, or at any time since January 1, 1995 provided,
services to the Company, whether or not such plans, programs, agreements or any
such other arrangements, are subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or are qualified under the Internal Revenue
Code of 1986, (as amended, the "Code"). By way of example, but without limiting
the generality of the foregoing, the term Employee Plan includes, but is not
limited to, employee benefit plans (as defined in Section 3(3) of ERISA),
pension, retirement, profit sharing, stock option, stock bonus, and
non-qualified deferred compensation plans, any multiemployer plan (as defined in
Section 3(37) of ERISA), disability, medical, dental, health insurance, life
insurance,'incentive compensation, vacation benefit, and fringe benefit plans,
programs or arrangements. Any and all tax returns, reports, forms or other
documents required to be filed by the Company under applicable federal, state or
local law with respect to the Employee Plans have been timely filed and are
correct and complete in all material respects; and any and all amounts due by
the Company to any governmental agency or entity with respect to the Employee
Plans have been timely and fully paid. Except as disclosed in Schedule 6.9, the
Company has not terminated any Employee Plan.
(d) Except as set forth in Schedule 6.9, all Employee Plans are
now, and have always been, established, maintained and operated in accordance,
in all material respects, with all applicable laws (including, but not limited
to, ERISA and the Code) and all regulations and interpretations thereunder and
in accordance with their plan documents. All communications with respect to each
Employee Plan by any members of any plan committee, plan fiduciaries, plan
administrators, the Company or its Boards of Directors or employees, accurately
reflect the documents and operations of each such Employee Plan in all material
respects. The Internal Revenue Service has issued one or more determination
letters with respect to each funded Employee Plan stating that, from the
inception of each such Employee Plan, such Employee Plan has been and is
qualified under Section 401 of the Code and each trust maintained in connection
with each such Employee Plan has been and is exempt under Section 501 of the
Code. No Employee Plan is a multiemployer plan within the meaning of the Code or
ERISA, a defined benefit plan within the meaning of Section 3(35) of ERISA, a
plan subject to Section 302 of ERISA or Section 412 of the Code, or funded
through a welfare benefit fund (as defined in Section 419 of the Code). The
Company has not participated in, maintained, contributed to or been required to
contribute to any employee benefit plan subject to Title IV of ERISA or any
retiree medical or retiree life insurance benefit plan. All contributions
required to be made to or with respect to each Employee Plan and all costs of
administering each Employee Plan have been completely and timely paid. All
reports, forms and other documents required to be filed with any governmental
entity with respect to any Employee Plan have been timely filed and are
accurate. There is and there has been no actual or, to the knowledge of the
Shareholders, no threatened or expected litigation or arbitration concerning or
involving any Employee Plan. No complaints to or by any government entity have
been filed or, to the knowledge of the Shareholders, have been threatened or are
expected with respect to any Employee Plan. No Employee Plan or any other person
has any liability to any plan participant, beneficiary or other person under any
provision of ERISA, the Code or any other applicable law by reason of any action
or failure to act in connection with any Employee Plan. There has been no breach
of fiduciary duty or prohibited transaction as described in Section 406 of ERISA
and Section 4975 of the Code with respect to any Employee Plan. No Employee Plan
provides medical benefits to one or more former employees (including retirees),
other than benefits required to be provided under Section 4980B of the Code or
Sections 601 to 608 of ERISA. Each welfare benefit plan (as defined in Section
3(2) of ERISA) is, and has been, in material compliance with the requirements of
Code Section 4980B and Section 601 to 608 of ERISA. There is no contract,
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agreement or benefit arrangement covering any employee of the Company which
individually or collectively would constitute an "excess parachute payment"
under Section 280G of the Code.
(e) Except as set forth in Schedule 6.9, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any individual
to severance pay, or (ii) accelerate the time of payment or vesting, or
increase the amount, of compensation that, but for such transactions, would be
due to any individual. The Company has delivered to the Buyer true, correct and
complete copies of each plan, agreement or arrangement relating to the
foregoing, including all amendments thereto.
(f) With respect to any insurance policy providing funding for
benefits under any Employee Plan, (i) there is no material liability of the
Company in the nature of a retroactive or retrospective rate adjustment, loss
sharing arrangement, or other actual or contingent liability, nor would there
be any such material liability if such insurance policy was terminated on the
date hereof, and (ii) to the knowledge of the Shareholders, no insurance
company issuing any such policy is in receivership, conservatorship,
liquidation or similar proceeding and, neither the Company nor any of the
Shareholders has received any notice that any such proceeding with respect to
any such insurance company is pending or imminent.
6.10 Customers and Suppliers. Except as set forth on Schedule 6.10,
Schedule 6.10 attached hereto contains correct and current lists of (a)all
customers or clients of the Company, including original equipment manufacturers
("OEMs"), who accounted for more than five percent (5%) of the consolidated
sales of the Company in either of the two most recent fiscal years, showing the
approximate aggregate dollar amount of sales to each such customer during each
of such fiscal years; and (b) the ten (10) largest suppliers of the Company in
terms of purchases during each of the two most recent fiscal years, showing the
approximate aggregate dollar amounts of purchases by the Company from each such
supplier during each of such fiscal years. Except as set forth on Schedule 6.10,
there has been no change in the business relationship of the Company with any
customer or supplier named in Schedule 6.10 which has had or could reasonably be
expected to have a Material Adverse Effect on the Company or the Business.
Except as set forth on Schedule 6.10, no Shareholder has any present information
or is aware that, due to any events or circumstances that have occurred prior to
the date of this Agreement, any of the customers or Suppliers listed in Schedule
6.10 intends to cease doing business with the Company, or alter materially the
amount of the business that any of them is presently doing with the Company, or
will require, as a condition of continuing to purchase products from or to sell
raw materials or components to the Company, a change in the prices at or in any
other material terms under which it has been doing business with the Company.
6.11 Product Warranties and Liabilities. Schedule 6.11 attached hereto
sets forth the product return policies (the "Return Policies") of, and all
Warranties (as hereinafter defined) given or made by, the Company. "Warranties"
shall mean all service, repair, replacement and other obligations based upon or
arising out of express and implied warranties made or deemed made in connection
with the sale of goods or the performance of services by the Company. The
Company has not extended or granted any return rights or given or made any
Warranties with respect to any products sold or services performed by it, except
for those set forth in Schedule 6.11. None of the customers of the Company has
claimed to the Company or, to the best knowledge of any of the Shareholders, to
the Company's suppliers, that the Company's products are defective. Neither the
Company nor any of the Shareholders nor, to the best knowledge of any of the
Shareholders, any of the employees of the Company, has any particular knowledge
of any products which have been shipped by the Company in a condition that such
products might reasonably be expected to be returned by the customer, or of any
intention on the part of any customer to return any of the Company's products,
except returns by customers in the ordinary course of business and
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<PAGE> 14
consistent with the Return Policies and which, in any event, are not expected to
be material in amount. Except as otherwise set forth in Schedule 6.11, no
Shareholder has any knowledge of any fact or of the occurrence of any event
forming the basis of any present or future claim against the Company, whether or
not fully covered by insurance, for liability on account of negligence or
product liability or on account of any Warranties which would have, individually
or in the aggregate, a Material Adverse Effect on the Company or the Business,
and adequate reserves have been set aside in the Financial Statements for
Warranty claims and product returns.
6.12 Licenses and Permits: Compliance With Laws. Schedule 6.12 contains
a true and correct list of all governmental licenses, permits, franchises,
authorizations, certificates, rights, privileges and registrations held by or
issued to the Company which are required for the lawful conduct of its business
and which the failure to maintain would have a Material Adverse Effect (the
"Material License and Permits"). Each of the Material Licenses and Permits is
in full force and effect, and there are no pending or, to the knowledge of the
Shareholders, threatened claims or proceedings challenging the validity of, or
seeking to revoke or discontinue, any of the Material Licenses and Permits.
None of the transactions contemplated by this Agreement will affect the
validity of or cause the revocation or discontinuation of any of the Material
Licenses and Permits. Except as otherwise set forth in Schedule 6.12, the
Business is being, and has been, conducted in compliance with all applicable
federal, state, local and international laws, statutes, ordinances, rules,
regulations, orders, decrees and other requirements of all governmental
authorities and other political subdivisions and agencies thereof having
jurisdiction over the Company, including, without limitation, all such laws,
regulations, ordinances and requirements relating to environmental matters,
antitrust, consumer protection, labor and employment, zoning and land use,
immigration, health and occupational safety matters, except where any instances
of noncompliance, either individually or in the aggregate, have not had, and
could not be reasonably expected to have, any Material Adverse Effect on the
Company of the Business.
6.13 Environmental and Safety Matters. Except as set forth in Schedule
6.13, the Company and the use of its respective properties and assets and the
operation of the Business have complied and are in compliance in all material
respects with all federal, state, local and regional statutes, laws,
ordinances, rules, regulations and orders relating to the protection of human
health and safety, natural resources or the environment, including, but not
limited to, air pollution, water pollution, noise control, on-site or off-site
hazardous substance discharge, disposal or recovery, toxic or hazardous
substances,or employee safety, and no notice of violation of any such statutes,
laws, ordinances, rules, regulations and orders with respect thereto and no
notice of the violation, cancellation or revocation of any permit, license or
other authorization relating thereto, has been received, nor is any such notice
pending or, to the best knowledge of any of the Shareholders, threatened.
Except as set forth in Schedule 6.13, no underground or above-ground storage
tanks or surface impoundments are located on any of the Real Properties. Except
as set forth on Schedule 6.13 and in compliance with applicable statutes, laws,
ordinances, rules, regulations, orders, licenses and permits, there has been no
generation, use, treatment, storage, transfer, disposal, release or threatened
release, in, at, under, or on any of the Real Properties of toxic or hazardous
substances during the ownership or occupancy thereof by the Company, or, to the
knowledge of any of the Shareholders, except for the existence of toxic or
hazardous substances or any generation, use, treatment, storage, transfer,
disposal, or release thereof that set forth in Schedule 6.13, prior to such
ownership or occupancy; and, except as otherwise set forth in Schedule 6.13,
there are not now, and at Closing there will not be, any toxic or hazardous
substances on, in or under any of the Real Properties except in compliance with
all applicable laws, regulations, ordinances and permits relating to
environmental protection or the protection of health and safety. Except as
otherwise set forth on Schedule 6.13, (i) none of the Company or any of the
Shareholders has received any notice or claim to the effect, and none of the
Shareholders knows or is
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aware, that the Company is or may be or become liable to any governmental
authority or private party as a result of the release, or threatened release, of
any toxic or hazardous substances in connection with the operations of the
Company, or any of the predecessors of the Company; and (ii) to the best
knowledge of any of the Shareholders, none of such operations is the subject of
any federal, state or local investigation evaluating whether any remedial
action is needed to respond to a release or a threatened release of any toxic
or hazardous substances at any of the Real Properties or any other real
properties that have been owned, used or leased by the Company or predecessors
thereof. For the purposes of this Section 6.13, "toxic or hazardous substances"
shall include any material, substance or waste that, because of its quantity,
concentration or physical or chemical characteristics, is at any time deemed
under any federal, state, local or regional statute, law, ordinance, regulation
or order, or by any governmental agency pursuant thereto, to pose a present or
potential hazard to human health or safety or the environment, including, but
not limited to, (i) any material, waste or substance which is defined as a
"hazardous substance" pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (42 U.S.C. 9601 et seq.), as amended
from time to time ("CERCLA"), and its related state and local counterparts;
(ii) asbestos and asbestos containing materials and polychlorinated biphenyls;
and (iii) any petroleum hydrocarbon, including oil, gasoline (refined and
unrefined) and their respective constituents and any wastes associated
therewith.
6.14 Insurance Coverage. Schedule 6.14 attached hereto contains a list
and description of each policy of fire, general liability, product liability,
worker's compensation and other forms of insurance maintained by the Company.
True and correct copies of each such policy have been delivered to Buyer. All
such policies are, and since January 1, 1995, such policies (or policies
substantially equivalent thereto) have been, continuously in full force and
effect and without any gaps in coverage, all premiums with respect thereto
covering all periods up to and including the date hereof have been paid, and no
notice of cancellation, termination or denial of coverage has been received
with respect to any such policy. Such policies (i) are valid, outstanding and
enforceable policies, (ii) to the best knowledge of the Shareholders, provide
adequate insurance coverage for the properties, assets and operations of the
Company as presently conducted, and (iii) will remain in full force and effect
through the respective dates set forth on Schedule 6.14 attached hereto,
without the payment of additional premiums, and (iv) will not in any way be
affected by, or terminate or lapse by reason or, the transactions contemplated
by this Agreement. There has also been furnished to Buyer a schedule that
describes all claims of the Company which are pending under such insurance
policies or have been paid to or on behalf of the Company since January 1,
1995. Since January 1, 1995, the Company has not been refused any insurance
with respect to its properties, assets or operations, nor has its coverage been
limited, by any insurance carrier to which it has applied for any such
insurance or with which is has carried insurance.
6.15 Litigation. Except as set forth in Schedule 6.15 attached hereto,
there is no pending, or to the best knowledge of any of the Shareholders is
there any threatened, action, suit, arbitration proceeding, charge, complaint,
allegation, investigation, inquiry or other proceeding or claim before any
court or governmental or administrative body or agency or other entity against,
relating to or affecting the Company or any director, shareholder, officer,
agent or employee of the Company in its, his or her capacity as such, or the
assets, properties or Business of the Company or the transactions contemplated
by this Agreement, nor is any Shareholder aware of any facts or circumstances
which could reasonably lead to or provide the basis for any such action, suit,
arbitration proceeding, investigation or inquiry that, if brought or adversely
determined against the Company, could reasonably be expected to have a Material
Adverse Effect. Except as set forth in Schedule 6.15, there is not in effect
any order, judgment or decree of any court or governmental or administrative
body or agency enjoining, barring, suspending, prohibiting or otherwise
limiting any of Shareholders, the Company, or any officer, director, employee
or agent of the Company, in its capacity as such, from conducting or engaging
in any aspect of the Business, or requiring
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<PAGE> 16
such Shareholder, the Company, or any officer, director, employee or agent of
the Company to take or refrain from taking any action with respect to any aspect
of the Business which could reasonably be anticipated to have a Material Adverse
Effect on the Company or the Business.
6.16 Taxes and Tax Returns.
(a) Except as set forth on Schedule 6.16: (i) the Company has duly
and timely filed all Tax Returns (as hereinafter defined) which are required by
law to be filed by it and has duly and timely paid all Taxes (as hereafter
defined) due or claimed to be due from it (whether or not shown on any Tax
Return), and there are no assessments or claims for payment of Taxes now pending
or, to the best knowledge of any of the Shareholders, threatened, or any audit
of the records of the Company being made or threatened by, any taxing authority;
(ii) each Tax Return previously filed is, or to be filed in the future relating
to any period up to the Closing Date shall be, correct and complete in all
respects; and (iii) the Company is not currently the beneficiary of any
extension of time within which to file any Tax Return. The amounts set up as
provisions for Taxes, if any, on the December 31, 1997 and August 31, 1998
balance sheets of the Company included in the Financial Statements are
sufficient for the payment of all unpaid Taxes accrued for or applicable to the
periods ended on such dates and all years and periods prior thereto and for
which the Company, at those dates, may have been liable. Except as disclosed in
Schedule 6.16, the Company has properly withheld and paid, or accrued for
payment, when due, to appropriate state and/or federal authorities, all sales
and use taxes, if any, and all amounts required to be withheld from payments
made to its employees, independent contractors, creditors, Shareholders, or
other third parties and has also paid all employment taxes as required under
applicable laws. The Company has not agreed to or is required to make any
adjustment under Code Section 481(a) by reason of a change in accounting method.
There is no income reportable by the Company for a period ending after the
Closing Date attributable to a transaction or other event (e.g., an installment
sale) occurring prior to the Closing Date involving in excess of $25,000. The
Company is not (nor has been) a "reporting corporation" subject to the
information reporting and record maintenance requirements of Code Section 6038A
and the regulations thereunder. The Company does not own any interest in real
property located in any state or local taxing jurisdiction that imposes a tax on
the transfer of such an interest that could apply with respect to the
transactions contemplated by this Agreement.
(b) Except as set forth in Schedule 6.16, the Company has not
waived any statute of limitation in respect of any taxes or assessments by any
federal, state, county, local, foreign or other taxing jurisdiction or agreed to
any extension of time with respect to an assessment or deficiency in any Tax,
and has not been audited by any taxing authority. The Company has not filed a
consent under Section 341(f) of the Code concerning collapsible corporations.
(c) Except as set forth in Schedule 6.16, the Company has not made
any payments, nor is the Company a party to any agreement that under any
circumstances could obligate it to make any payments, that would not be
deductible under Section 280G of the Code. The Company has not been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code. The Company is not a party to any tax allocation or tax sharing
agreement or has any obligations under any such agreement to which it may, in
the past, have been a party.
(d) Except as set forth in Schedule 6.16, the Company (i) is not
nor ever has been required to file a consolidated or combined state or federal
income Tax Return with any other person or entity, and (ii) is not liable for
the Taxes of any person under Treas. Reg. 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract or
otherwise.
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<PAGE> 17
(e) For purposes of this Agreement, the term "Tax" or "Taxes"
means any federal, state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental (including taxes under Code Section 59A), customs duties,
capital stock, franchise, profits, withholding, social security, unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
(f) For purposes of this Agreement, the term "Tax Return" means
any return, declaration, report, claim for refund, or information return or
statement (including, but not limited to, information returns or reports related
to back-up withholding and any payments to third parties) relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
(g) The Company has furnished to Buyer true and complete copies of
(A) relevant portions of income tax audit reports, statements of deficiencies,
closing or other agreements received by or on behalf of the Company relating to
Taxes for all open years, and (B) all federal, state, local and foreign tax
returns for all open years.
(h) The Company has disclosed on its federal and state income tax
returns all positions taken therein that could give rise to a substantial
understatement penalty within the meaning of Code Section 6662 or corresponding
provisions of state tax law. There are no requests for rulings with respect to
any Tax or potential Tax of the Company pending before any taxing authority.
6.17 Related Party Transactions. Except as described on Schedule 6.17,
no officer, director, shareholder or employee of the Company, and none of their
relatives or affiliates, owns any interest in any competitor, lessor, lessee or
customer or supplier of the Company; and the Company is not a party to any
transaction or arrangement with any of its respective officers, directors,
shareholders or employees, or any relative or affiliate of any of them, which
relates to or affects the ownership, lease or use or disposition of any assets,
properties or the operations of the Company or the sale, lease or use of goods
or services, or the loan of money or any extension of credit or guaranty, by or
to the Company, other than the payment of wages, salaries and bonuses to
employees of the Company for services performed in the ordinary course of
business. Except as disclosed in the Financial Statements or described on
Schedule 6.17, none of the assets or properties of the Company include any
receivables or contract rights from, or notes payable or evidences of
indebtedness of, any of the officers, directors, shareholders or employees of
the Company or any relative or affiliate of any of them.
6.18 Certain Payments. To the best knowledge of the Shareholders,
neither the Company nor any shareholder, officer, director, employee of the
Company or any agent or other representative who has been retained by the
Company to act on its behalf, has made, directly or indirectly, any political
contributions with corporate funds, payments from corporate funds not fully and
accurately recorded on its books and records, payments from corporate funds to
governmental officials in their individual capacities or to obtain or retain
business either within the United States of America or abroad. The Company has
not engaged and is not engaging in any course of conduct and has not been and is
not a party to any agreements or involved in any transactions which would give
rise to a violation of the applicable provisions of the Foreign Corrupt
Practices Act of 1977 (U.S. Public Law No. 95-213).
6.19 Bank Accounts. Schedule 6.19 attached hereto contains a true and
complete list showing the name of each person who holds a power of attorney
authorizing such person to act in the name or on behalf of the Company, the
name and address of each bank, savings and loan or other financial
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<PAGE> 18
institution in which the Company maintains any account or safe deposit box, the
title and number of each such account, and the names of all persons authorized
to draw thereon or effect transactions in connection with such accounts or to
have access to such safe deposit boxes.
6.20 Brokers and Finders. Neither the Company nor any Shareholder has
engaged or authorized any broker, finder, investment banker or other third party
to act on behalf of the Company or the Shareholders, directly or indirectly, as
a broker, finder, investment banker or in any other like capacity in connection
with this Agreement or the transactions contemplated hereby, or has consented to
or acquiesced in anyone so acting, and none of the Company or any of the
Shareholders knows of any claim for compensation from any such broker, finder,
investment banker or other third party for so acting or of any basis for such a
claim.
6.21 Disclosure. None of the representations or warranties of the
Company or the Shareholders contained in this Agreement or the Schedules and
Exhibits hereto, or in any certificate furnished or to be furnished pursuant
hereto, contains any statement of a material fact that was untrue when made or
omits to state any material fact necessary to make the statements of fact
contained herein or therein not misleading in any material respect.
6.22 Knowledge. For purposes of determining under this Section 6
whether the Shareholders know of any facts, events, conditions or circumstances
relating to the subject matter of the representations and warranties contained
in this Section 6, each Shareholder shall be deemed to have knowledge of the
facts, events, conditions and circumstances actually known on or before the date
hereof by any of the persons listed on Schedule 6.22.
7. Representations and Warranties of Buyer.
Buyer hereby represents and warrants to the Shareholders as follows:
7.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly, existing and in good standing under the laws of the State of
Delaware. Buyer is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where such qualification is necessary
under applicable law as a result of the conduct of its business and where the
failure to be so qualified would have a material adverse effect on Buyer. Buyer
has the requisite corporate power and authority to carry on its business as now
being conducted and to execute and deliver and perform its obligations under
this Agreement and the Employment Agreements.
7.2 Necessary Actions: Binding Effect. Buyer has taken all corporate
action necessary to authorize its execution and delivery of, and the performance
of its obligations under, this Agreement. This Agreement constitutes, and upon
execution and delivery the Employment Agreements will constitute, valid
obligations of Buyer that are legally binding on and enforceable against Buyer
in accordance with their respective terms, except as such enforceability may be
limited by (i) bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights, and (ii) general principles of equity relating to
the availability of equitable remedies (regardless of whether such Agreements
are sought to be enforced in a proceeding at law or in equity).
7.3 No Conflicts. Except as set forth on Schedule 7.3, neither the
execution and delivery of this Agreement by Buyer or the performance by Buyer of
its obligations hereunder nor the consummation of the transactions contemplated
hereby, will result in any of the following: (a) a default or an event that,
with notice or lapse of time, or both, would constitute a default, breach or
violation of (i) any
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<PAGE> 19
provision of the Certificate of Incorporation or Bylaws of Buyer, or (ii) any
lease, license, franchise, promissory note, contract, agreement, commitment,
indenture, mortgage, deed of trust, security or pledge agreement, or other
agreement, instrument or arrangement to which Buyer is a party and which is
material to Buyer, considered together with all of Buyer's subsidiaries as a
whole (a "Material Buyer Contract"); (b) the termination of any Material Buyer
Contract or the acceleration of the maturity of any indebtedness or other
monetary obligation of Buyer that is material in amount when considered in
relation to Buyer and its subsidiaries taken as a whole; or (c) a violation or
breach of any writ, injunction or decree of any court or governmental
instrumentality to which the Buyer is a party or by which any of its properties
is bound or any laws or regulations applicable to Buyer, where the violation
would have a material adverse effect on Buyer considered together with all of
its subsidiaries, as a whole.
7.4 Brokers and Finders. Except as set forth on Schedule 7.4, Buyer has
not engaged or authorized any broker, finder, investment banker or other third
party to act on behalf of Buyer, directly or indirectly, as a broker, finder,
investment banker or in any other like capacity in connection with this
Agreement or the transactions contemplated hereby, or has consented to or
acquiesced in anyone so acting, and the Buyer does not know of any claim for
compensation from any such broker, finder, investment banker or other third
party for so acting or of any basis for such a claim.
7.5 Disclosure. None of the representations or warranties of Buyer
contained herein or the Schedules and Exhibits hereto, or in any certificate
furnished or to be furnished pursuant hereto, contains any statement of a
material fact that was untrue when made or omits to state any material fact
necessary to make the statements of fact contained herein or therein not
misleading in any material respect.
7.6 Consents and Approvals. Except as set forth in Schedule 7.6, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any person or entity or any court, administrative agency or
commission or other governmental authority or instrumentality is required by or
with respect to the Buyer in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
7.7 Litigation. Except as set forth in Schedule 7.7 attached hereto,
there is no pending or, to the best knowledge of the Buyer, threatened action,
suit, arbitration proceeding, charge, compliant, allegation, investigation,
inquiry or other proceeding or claim before any court or governmental or
administrative body or agency or other entity against, relating to or affecting
the Buyer or any director, shareholder, officer, agent or employee of the Buyer
in its, his or her capacity as such, or the assets, properties or business of
the Buyer or the transactions contemplated by this Agreement.
8. Obligations Pending and Following the Closing.
8.1 Full Access. The Shareholders shall afford, and shall cause the
Company to afford, to Buyer, its counsel, accountants, investment bankers and
lenders (and their respective accounting and legal and other authorized
representatives), full access during normal business hours to all properties,
personnel and information of the Company, including, without limitation,
financial statements, books and records, leases and agreements and tax returns,
to enable Buyer to determine that the transactions contemplated hereby can be
consummated in accordance with applicable statutes and regulations, to verify
the accuracy of the representations and warranties made herein and to fully
investigate the affairs of the Company as fully as Buyer may desire; provided,
that such investigation shall be conducted in a manner which does not
unreasonably interfere with the operation of the Business. Without limiting the
generality of the foregoing, the Company and the Shareholders shall furnish or
cause to be furnished to Buyer and its representatives such information, data
and reports concerning the ownership of the Shares, the capital
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<PAGE> 20
structure of the Company and the assets and properties and businesses, financial
condition and operating results of the Company as Buyer or any such
representatives shall reasonably request. No information or knowledge obtained
in any investigation pursuant to this Section 8.1 shall affect or be deemed to
modify any representation or warranty contained in this Agreement or in any
certificates delivered by the Company or the Shareholders at the closing.
8.2 Conduct of Business. Unless Buyer gives its prior written consent
for actions to be taken to the contrary, from the date hereof and until the
Closing or termination of this Agreement, whichever first occurs, the
Shareholders shall cause the Company to operate and conduct the Business
diligently and only in the ordinary course of business consistent with past
practices. Without limiting the generality of the foregoing, the Shareholders
shall cause the Company to:
(a) Organization and Relationships. Preserve intact its
properties, assets and business organizations and use its reasonable best
efforts to keep available the services of its officers, directors and employees
and to maintain satisfactory relationships with all vendors, suppliers,
distributors, sales representatives, customers, agents, consultants and others
having commercially beneficial relationships with it, commensurate with the
requirements of the Business;
(b) Indebtedness. Not increase the amount due and owing to any
lender for borrowed money, incur any capitalized lease obligations, or guaranty
or otherwise become obligated in respect of the obligations of any other person
or entity.
(c) Insurance. Maintain insurance coverage consistent with past
practices and, unless comparable insurance is substituted therefor or is not
generally available to businesses of the type conducted by the Company not take
any action to terminate or modify, nor permit the lapse or termination of, the
present insurance policies and coverages of the Company;
(d) Compensation and Benefits. Not increase the compensation or
benefits of any employee, independent contractor or agent; not adopt or amend
any commission plan or arrangement or any Employee Plan of any type; not make,
pay, award or grant any bonus or incentive or deferred compensation; and not
lend or advance any sum or extend credit to any employee, director, shareholder
or any affiliate; except that, without obtaining Buyer's prior written consent,
the Company may be permitted to increase the regular salaries or wages of
non-management employees in the ordinary course of business and consistent with
past practices, provided that such increases do not average more than 4%.
(e) Lawsuits and Claims. Promptly notify Buyer of all lawsuits,
claims, proceedings or investigations that are, or which any officers of the
Company or any of the Shareholders has reason to believe may be, threatened,
brought, asserted or commenced against the Company or any of its officers or
directors, and which could have a Material Adverse Effect on the Company or the
Business or which relates or could affect in any way the Shares or the
transactions contemplated hereby, and not release, settle, compromise or
relinquish any claims, causes of action or rights involving more than $25,000
individually or $50,000 in the aggregate which the Company may have against any
other person or entity;
(f) Sales of or Liens on Assets. Not sell or otherwise dispose, or
enter into any agreement for the sale or other disposition, of any of its assets
or properties, except for sales of inventory and obsolete equipment in the
ordinary course of business and consistent with past practices, and not permit
or allow, or enter into any agreements providing for or permitting, any of its
assets or properties to be subjected to any Lien other than Permitted Liens;
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<PAGE> 21
(g) Condition of Assets. Maintain in good working order and
condition, ordinary wear and tear excepted, all items of tangible personal
property, wherever located, that are used, leased or owned by it;
(h) Agreements and Transactions. Observe and perform all terms,
conditions, covenants and obligations contained in, and take all actions
necessary or appropriate to preserve the rights of the Company under, all
existing agreements, written or oral, between the Company and any third parties
the violation or loss of which would have, individually or in the aggregate, a
Material Adverse Effect on the Company or the Business; and, except as required
by any existing agreements, not enter into any new agreements or transactions,
or incur any expenditures, liabilities or obligations, involving more than
$50,000 individually or $100,000 in the aggregate (except for purchase from
customers or sales orders to suppliers incurred in the ordinary course of
business and consistent with past practice), or renew, extend, amend or modify
any existing agreement (written or oral) involving any commitments, obligations,
liabilities or requiring any expenditures that would exceed $50,000 individually
or $100,000 in the aggregate or which would govern the pricing or any other of
the material terms of sales to be made to any customers or purchases of raw
materials or components from any suppliers that are expected to account for more
than 5% of the Company's product sales or purchases of supplies during the next
12 months; not take any action which would cause a breach or violation of or
default under any Materia1 Contract and promptly notify Buyer in writing of the
occurrence of any such breach or default; and not enter into any transaction
with any shareholder, director or officer or any person or entity related to or
affiliated with any such person other than to continue those transactions that
are described on Schedule 6.17 hereto;
(i) Consents; Compliance with Laws. Use its best efforts to obtain
and maintain all consents, assignments or approvals of third parties,
governmental and other, in form and substance reasonably satisfactory to Buyer,
the absence or loss of which would have a Material Adverse Effect on the Company
or the Business; and not take any action which would result in a violation of or
the noncompliance with any Material Contract or any laws or regulations
applicable to or any permits or licenses or contractual rights held by the
Company where such violation or non-compliance would or is reasonably likely to
have a Material Adverse Effect on the Company or the Business, or result in the
incurrence of any material liability by the Company or in the revocation,
modification or loss of any license, permit or contractual right needed for the
operation of the Business as presently conducted by the Company, or which would
adversely affect the obtaining of third-party consents or approvals for or
otherwise adversely affect the ability of the parties to consummate the
transactions contemplated by this Agreement; and cooperate with Buyer and render
to Buyer such assistance as Buyer may reasonably request in obtaining such
consents and approvals;
(j) Taxes. Pay, when due, and prior to the imposition or
assessment of any interest, penalties or Liens by reason of the non-payment
of, all Taxes assessed against the Company;
(k) Dividends; Significant Transactions. Not: (i) declare or pay
any dividends or make any distributions with respect to, or redeem or otherwise
acquire any shares of, the capital stock of the Company; (ii) accelerate the
maturity or payment of or prepay any indebtedness or other obligations of the
Company; (iii) approve or effect any reclassification or recapitalization of the
Company or its authorized or outstanding shares of capital stock; (iv) merge or
consolidate the Company with or into a third party or reorganize the Company;
(v) approve or commence any proceedings for the dissolution or liquidation of
the Company; or (vi) enter into any agreement or commitment to do any of the
foregoing;
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<PAGE> 22
(l) Corporate Matters. Not: (i) amend in any manner the Articles
of Incorporation or Bylaws of the Company; (ii) authorize or issue any shares of
capital stock of any class or series; or (iii) create or issue any warrants,
obligations, subscriptions, options, convertible securities or other commitments
under which any additional shares of the capital stock of any class or other
equity securities of the Company may be directly or indirectly authorized,
issued or transferred; or (iv) agree to do any of the foregoing;
(m) Liabilities and Expenses. Not create or incur (whether as
principal, surety or otherwise) any material liabilities, secured or unsecured,
or fixed, absolute or contingent, other than liabilities and expenses incurred
in the ordinary course of business consistent with past practices;
(n) Tax Matters. Prepare and timely file any Tax Returns required
to be filed by the Company on or before the Closing Date and not make or change
any election, change any annual accounting period, adopt or change any
accounting method, file any amended Return, enter into any closing agreement,
settle any Tax claim or assessment, surrender any right to claim refund of
Taxes, consent to any extension or waiver of the limitation period applicable to
any Tax claim or assessment relating to the Company, take any other action or
omit to take any action, if any such election, adoption, change, amendment,
agreement, settlement, surrender, consent or other action or omission would have
the effect of causing or increasing a Tax liability of the Company or the Buyer;
or
(o) Other. Not enter into any agreement or commitment to take any
action that would violate any of the covenants set forth in this Section 8.2.
8.3 Shareholder Indebtedness. On or prior to the Closing Date, each
Shareholder shall satisfy any indebtedness of such Shareholder to the Company,
which indebtedness is reflected on Schedule 6.17.
8.4 Further Assurances. Each party hereto shall execute and deliver,
both before and after the Closing, such instruments and take such other actions
as the other party or parties, as the case may be, may reasonably request in
order to carry out the intent of this Agreement or to better evidence or
effectuate the transactions contemplated herein, provided that, with respect to
any such request, the requesting party bears the reasonable costs of preparing,
executing and delivering such instruments or the taking of such actions, unless
the other party is obligated, under any other terms or provisions of this
Agreement, to execute and deliver such documents or to take any such action.
8.5 Transfer of Property Rights. The Shareholders shall each have
entered into an agreement in a form reasonably acceptable to the Buyer with the
Company (in the form of an employment agreement, assignment, transfer, release
or otherwise) whereby each Shareholder (i) acknowledges and agrees that all
rights, title and interests in and to the property of the Company (the
"Property"), including without limitation the property and assets referenced,
referred to or contemplated by Section 6.7 hereof, and all parts of such
Property, including all copyrights, patents, trade secrets, and trademarks
therein, in whatever media or form, shall be and remain the exclusive property
of the Company; (ii) unconditionally and irrevocably transfers, conveys and
assigns to the Company all of the Shareholder's current and hereafter acquired
rights, title and interests in and to such Products, and all parts thereof,
including, without limitation, rights in copyright, patent, trade secret and
trademark; and (iii) agrees to take all actions and execute all documents, as
the Company may reasonably request, to effectuate the acknowledgement of
ownership and the vesting of complete and exclusive ownership of the Products
in the Company.
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<PAGE> 23
8.6 Notice of Breach. Each party to this Agreement will immediately
give notice to the other parties of the occurrence of any event, or the failure
of any event to occur, that results in or constitutes a breach by it of any
representation or warranty or a failure by it to comply with or fulfill any
covenant, condition or agreement contained herein.
8.7 Employment Agreements. At the Closing, each of Rocky R. Arnold,
Robert W. Ulrickson and Baxter R. Watkins shall execute and deliver an
employment agreement with the Company in the form attached hereto as Exhibit A
(the "Employment Agreements").
8.8 Releases. At the Closing, each of the Shareholders shall have
executed a release in favor of the Company, in the form attached hereto as
Exhibit B (the "Releases").
8.9 Certain Covenants of the Shareholders: No Solicitation. Except
for the sale of the Shares to Buyer, from and after the date hereof and
continuing until the termination of this Agreement or the consummation of the
sale of the Shares to Buyer hereunder, whichever first occurs, none of the
Shareholders shall sell, transfer, pledge, hypothecate or otherwise dispose of
any of the Shares now outstanding and none of the Shareholders shall grant any
options or rights to purchase, or enter into any agreements which would obligate
any of the Shareholders to sell, or entitle any person or entity to acquire, any
of such Shares, or any interest therein or rights thereunder, whether absolute
or contingent. Each Shareholder agrees that such Shareholder will not, and the
Shareholders shall cause the Company to not, directly or indirectly through any
of its respective officers, directors, employees, representatives or agents, (i)
solicit, initiate or encourage any inquiries or proposals (from any person or
entity other than Buyer) that constitute, or could reasonably be expected to
lead to, or accept, any proposal or offer for a merger, consolidation,
reorganization, business combination, sale of substantial assets, sale of shares
of capital stock (including, without limitation, by way of a tender offer), or
the issuance of any new securities of the Company or any other transaction or
series of transactions which could cause or result in a change of control of or
any material change in the Company or the Business, or which could interfere in
any manner, directly or indirectly, with the consummation of the transactions
contemplated by this Agreement (any of the foregoing inquiries or proposals
being referred to in this Agreement as an "Acquisition Proposal"), (ii) engage
in negotiations or discussions concerning, or provide any non-public information
to any person or entity relating to or which could lead to or facilitate the
making of, any Acquisition Proposal by any person or entity other than Buyer, or
(iii) agree to, approve or recommend any Acquisition Proposal. The Shareholders
shall notify the Buyer immediately (and no later than 24 hours) after receipt by
the Company or such Shareholder (or by any of their advisors) of any written
bona fide Acquisition Proposal or any written request for nonpublic information
or for access to the properties, books or records of the Company. Such notice to
Buyer shall be made orally and in writing and shall indicate in reasonable
detail the identity of the person or entity making such Proposal or request and
the terms and conditions of such proposal, inquiry or contact.
8.10 Furnishing of Certain Information. If requested by Buyer, the
Shareholders shall cause the Company to (i) permit Buyer's independent public
accountants to have access to the books and records of the Company so that, if
required by Buyer, any unaudited historical financial statements and other
financial information of the Company can be reviewed or audited by Buyer's
independent public accountants; and (ii) permit such financial statements and
other information of or concerning the Company or its businesses to be
disclosed in any public filing by Buyer under or pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), or the documents filed by the Buyer
with the Securities and Exchange Commission (the "Securities Filings"). In
addition, each Shareholder shall cause the Company's independent public
accountants to provide such information (including, without limitation, such
accountants' workpapers) and assistance, including the execution and delivery
of opinions and consents,
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with respect to the Company's historical consolidated financial statements, as
may be required by Buyer in connection with the preparation of financial
statements for, and their inclusion in, any such Securities Filings. The
Shareholders also shall cause the Company to provide to Buyer such assistance
and other information, including, without limitation, information concerning the
Company and the Business of the type and nature that would be required to be
included in a Registration Statement that the Company would be required by the
Securities Act to file on Form S-1 for a public offering of its equity
securities, for inclusion in any Securities Filing. Disclosure of such financial
statements and information furnished hereunder in any Securities Filing shall
not constitute a breach or violation of the confidentiality provisions of
Section 15 of this Agreement. The reasonable out-of-pocket expenses of the
Company's accountants and other professionals retained by the Company to prepare
any documents or information and accounting services specifically requested of
the Company by Buyer or its accountants shall be paid by Buyer, provided the
incurring of such expenses has been approved in advance and in writing by
Buyer.
8.11 Monthly Financial Statements. As soon as practicable, and in any
event within 30 days following the end of each month ending on or after the date
of this Agreement, true and correct copies of the consolidated financial
statements of the Company, consisting of a balance sheet and statements of
income, and cash flows, as of and for the month then ended, shall be furnished
to Buyer, together with a copy of any compliance certificates furnished to the
Company's bank lenders.
8.12 Employee Benefits. In addition to the Buyer's obligations under
Section 8.14 below, Buyer shall, with respect to all full-time employees
employed by the Company, cause the Company to provide employee benefit plans,
programs and arrangements having benefits that in all material respects, are
comparable to the employee benefit plans, programs and arrangements provided by
Buyer for its own employees of a similar position; provided, that the foregoing
shall not require Buyer to maintain any specific type of employee benefit plan;
provided, however, that, notwithstanding the foregoing, no full time employees
employed by the Company shall be entitled to any credit for accrued vacation to
the extent such accrued vacation exceeds the number of vacation days that
employees of Buyer are entitled to accrue.
8.13 Environmental Assessments. Buyer shall have the right to obtain,
at Buyer's expense and from environmental consultants selected by Buyer,
environmental assessments of any of the Real Properties (the "Environmental
Assessments") for the purpose of determining whether there exists any toxic or
hazardous substances (as such terms are defined in Section 6.13 above) on, about
or underneath the Real Properties, or migrating or threatening to migrate from
any of the Real Properties, or any condition, circumstance or activity which
constitutes a violation of or noncompliance with any Environmental Law (as
defined below) which, in the reasonable judgment of Buyer, based on the results
of or any recommendations from its environmental consultants, is required to be
remedied or corrected (a "Hazardous Condition") and which is attributable to the
operations of the Company on or after, or to any Hazardous Condition on, about
or underneath or migrating from any such Real Property which neither existed nor
was originated prior to, inception. For purposes of this Section 8.11,
"Environmental Law" shall mean any federal, state or local law, order, rule or
regulation relating to the discharge, remediation, removal, manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of toxic or hazardous substances.
8.14 Executive Bonus Plan. Without limiting the provisions of Section
8.12 above, on the Closing Date, the Buyer shall cause the Company to establish
a bonus plan in the form attached hereto as Exhibit C (the "Bonus Plan"), to
incentivize the senior executives of the Company named therein to increase sales
revenue derived from the Company's and the Buyer's engineering and manufacturing
businesses. The Company, the Buyer and the Shareholders each hereby acknowledge
that (i) any payments made under the Bonus Plan to the senior executives of the
Company are in consideration for services
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<PAGE> 25
rendered by such senior executives, and/or are incentives for continued
employment by such senior executives with the Company and (ii) in no event
shall any such payments have any correlation or relation to the number of
Shares being sold to the Buyer by any of such senior executives, or the
transactions contemplated in this Agreement.
8.15 Sable Technologies Matter. In the exercise of its fiduciary
obligations, the Board of Directors of the Company will confer from time to time
with Robert W. Ulrickson concerning the current arbitration with Sable
Technologies Incorporated ("Sable"), and will cause its responsible officer or
officers to consult with, and utilize, to the extent deemed reasonably
appropriate, the service and leadership of Robert W. Ulrickson in the
prosecution and resolution of such arbitration. In the event that the Company
receives any amounts (the "Recovery Amount") from Sable, then the Company will
pay the Shareholders, in proportion to each Shareholder's Prorata Share, the
difference between (i) the Recovery Amount and (ii) the sum of (A) all of the
Company's costs and expenses incurred in connection with the current
arbitration with Sable, except to the extent such expenses are reflected as
liabilities reducing the Net Asset Value in the Closing Balance Sheet and (B)
any amounts paid by Sable which are reflected as assets increasing the Net Asset
Value in the Closing Balance Sheet. Such amounts shall be paid by the Company
within thirty (30) days after the Company receives such amounts, by delivery of
a check to each Shareholder at their address as set forth on Schedule I attached
hereto.
9. Conditions to Buyer's Obligations.
The obligations of Buyer to consummate the transactions
contemplated herein shall be subject to the satisfaction or waiver, on or before
the Closing Date, of each of the following conditions:
9.1 Accuracy of Representations and Warranties. All of the
representations and warranties of the Company and the Shareholders contained
herein shall be true and correct as of the date when made and shall be true and
correct as of the Closing Date with the same force and effect as though such
representations and warranties were made at and as of the Closing Date.
9.2 Due Diligence. The Buyer, its officers, directors,
employees, accountants, attorneys, representatives, advisors and/or agents shall
have completed to their satisfaction, a due diligence review of the Company's
business and financial condition pursuant to Section 8.1, and specifically,
Buyer's independent public accountants shall have completed their review of the
Financial Statements of the Company to their satisfaction, and Buyer deems such
Financial Statements to have been prepared in accordance with, and in
satisfaction of GAAP.
9.3 Performance. The Company and each of the Shareholders
shall have performed and complied with all agreements, obligations and
conditions required by this Agreement to be performed or complied with by them
on or prior to the Closing Date, and all actions which the Shareholders have
been required to cause to be taken by the Company at or prior to the Closing, as
provided in this Agreement, shall have been taken by them in accordance with the
terms of this Agreement.
9.4 Adverse Changes. From August 31, 1998, no material
adverse change shall have occurred and no event shall have taken place that
would, or could have a Material Adverse Effect on the Company or the Business
and Buyer shall have received a letter, in form and substance reasonably
requested by Buyer updating the Balance Sheet.
9.5 No Governmental Proceeding or Litigation. No suit,
action, investigation, inquiry or and administrative or other proceeding by any
governmental body or other person or entity shall have been
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<PAGE> 26
instituted or threatened which questions the validity or legality of the
transactions contemplated hereby. There shall be no pending or threatened
litigation, or asserted or unasserted claims, assessments, or other loss
contingencies, which could have a Material Adverse Effect on the Company other
than as disclosed in the Disclosure Schedules delivered pursuant hereto as of
the date of this Agreement.
9.6 Certificates. Buyer shall have received the following:
(a) Good Standing Certificate, dated as of a recent date, with
respect to the Company from (i) the Secretary of State of the State of
California and (ii) the Secretaries of State or other appropriate state agencies
of each other jurisdiction in which the Company is engaged in business
activities that would require qualification under the laws of such state; and
(b) Certificate signed by the President of the Company and by
the Shareholder Representative, dated as of the Closing Date, certifying that
(i) all representations and warranties of the Shareholders were true and
correct when made and remain true and correct in all material respects as of the
Closing Date; (ii) all of the respective covenants, agreements, obligations and
conditions of the Shareholders, and the actions of the Company required to have
been performed or complied with under or pursuant to this Agreement as of or
prior to the Closing have been fully performed or complied with; unless waived
in writing by Buyer; and (iii) all of the conditions to the obligations of Buyer
under this Agreement required to be satisfied by any of the Shareholders or the
Company by the Closing Date have been satisfied and fulfilled or have been
waived in writing by Buyer.
9.7 Consents. All consents, authorizations, permits or approvals
from third parties, governmental and other, required to permit the parties to
consummate the transactions contemplated hereby shall have been obtained,
without the imposition of any burdensome conditions on the Company or Buyer, and
shall not have been revoked or withdrawn.
9.8 Employment Obligations. All employment agreements and
commitments of the Company, including, without limitation, any commitments for
parachute payments or other amounts payable as a result of the transactions
contemplated hereunder, will be terminated as of the Closing Date without
liability to, or will have been paid or otherwise fully discharged by the
Shareholders other than from funds or assets of the Company.
9.9 Shareholder Indebtedness. Each Shareholder shall have paid,
in full, all amounts owing to the Company by such Shareholder, as provided in
Section 8.3 above.
9.10 Opinion of Counsel. Buyer shall have received an opinion, dated
the Closing Date, of The Corporate Law Group, substantially in the form of
Exhibit D hereto.
9.11 Employment Agreement. Each of Rocky R. Arnold, Robert W.
Ulrickson and Baxter R. Watkins shall have executed and delivered their
respective Employment Agreements to Company.
9.12 Releases. Each of the Shareholders shall have executed and
delivered the Releases to the Buyer.
9.13 Resignation. Buyer shall have received written resignation
letters from each director and executive officer of the Company designated in
writing by Buyer on or before the Closing Date.
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<PAGE> 27
9.14 Additional Instruments. Buyer shall have received such other or
additional instruments, consents, endorsements and documents as Buyer reasonably
deems to be necessary to enable the transactions contemplated by this Agreement
to be consummated as provided in this Agreement. All other proceedings in
connection with this Agreement and the transactions contemplated hereby, and all
documents and instruments incident to such transactions, shall be reasonably
satisfactory in form and substance to Buyer and its counsel.
9.15 Results of Environmental Assessments. Buyer shall be reasonably
satisfied with the results of the Environmental Assessments conducted pursuant
to Section 8.11 relating to the presence on, about or underneath the Real
Properties of Hazardous Substances that were not present at such Real Properties
prior to, and the Company's compliance with Environmental Laws since, inception.
10. Conditions to the Shareholder's Obligations.
The obligations of the Shareholders to consummate the
transactions contemplated herein shall be subject to the satisfaction or waiver,
on or before the Closing Date, of each of the following conditions:
10.1 Accuracy of Representations and Warranties. All of the
representations and warranties of Buyer contained herein shall be true and
correct as of the date when made and shall be true and correct as of the Closing
Date with the same force and effect as though such representations and
warranties were made at and as of the Closing.
10.2 Performance. Buyer shall have performed and complied with all
agreements, obligations and conditions required by this Agreement to be
performed by or complied with on or prior to the Closing Date.
10.3 No Governmental Proceeding or Litigation. No suit, action,
investigation, inquiry or administrative or other proceeding by any
governmental body or other person or entity shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby.
10.4 Employment Agreements. Company shall have executed and delivered
Employment Agreements to Rocky R. Arnold. Robert W. Ulrickson and Baxter R.
Watkins in substantially the respective forms attached in Exhibit A hereto;
provided that any of such individuals shall, with the prior consent of the
Buyer, be entitled to waive such condition with respect to his Employment
Agreement.
10.5 Certificates. The Shareholders shall have received the
following:
(a) A Good Standing Certificate of Buyer as of a recent date
from the Secretary of State of the State of Delaware; and
(b) A certificate signed by the Chief Executive Officer and
Chief Financial Officer of Buyer, dated as of the Closing Date, certifying
that (1) all representations and warranties of Buyer were true and correct when
made and remain, in all material respects, true and correct as of the Closing;
(ii) all of the covenants, agreements, obligations and conditions of Buyer
required to have been fully performed or complied performed or complied with
Buyer as of or prior to the Closing, have been fully performed or complied with,
unless waived in writing by the Company and the Shareholders; and (iii) all of
the conditions to the Shareholders' obligations under this Agreement required to
be satisfied by the Closing Date by Buyer have been satisfied and fulfilled or
waived in writing by the Company and the Shareholders.
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<PAGE> 28
10.6 Consents. All consents, authorizations, permits or approvals
from third parties. governmental and other, required to permit the parties to
consummate the transactions contemplated hereby shall have been obtained,
without the imposition of any burdensome conditions on the Company or Buyer, and
shall not have been revoked or withdrawn.
10.7 Opinion of Counsel. The Shareholders shall have received an
opinion, dated the Closing Date, of Stradling Yocca Carlson & Rauth,
substantially in the form of Exhibit E hereto.
10.8 Additional Instruments. The Shareholders shall have received
certified copies of resolutions duly adopted by the Board of Directors of Buyer
approving this Agreement and authorizing the transactions contemplated hereby,
and such other or additional instruments, consents, endorsements and documents
as the Shareholders reasonably deem to be necessary to enable the transactions
contemplated by this Agreement to be consummated as provided in this Agreement.
All other proceedings in connection with this Agreement and the transactions
contemplated hereby, and all documents and instruments incident to such
transactions, shall be reasonably satisfactory in form and substance to the
Shareholders and their counsel.
11. Closing.
11.1 Closing: Closing Date. The consummation of the purchase
and sale of the Shares (the "Closing") shall take place at the offices of
Stradling Yocca Carlson & Rauth, 660 Newport Center Drive, Suite 1600, Newport
Beach, California 92660, at 10:00 A.M. on or before October 7, 1998, but in no
event later than October 7, 1998, or at such other place, date and time as Buyer
and the holders of a majority of the Company's outstanding Shares may mutually
agree (the "Closing Date").
11.2 Closing Deliveries. In connection with and at the time
of the Closing:
(a) By the Shareholders. The Shareholders shall deliver
or cause to be delivered to Buyer the following:
(i) The stock certificates evidencing all of the
Shares, accompanied by appropriate instruments of transfer duly
executed by the Shareholders;
(ii) The Employment Agreements, duly executed by
Rocky R. Arnold, Robert W. Ulrickson and Baxter R. Watkins;
(iii) The Releases, duly executed by the
Shareholders; and
(iv) Each of the certificates, documents,
instruments and evidences required to be delivered to Buyer pursuant
to Section 9 above.
(b) By the Company. The Shareholders shall cause the
Company to deliver to Buyer the following:
(i) The minute books, stock transfer books and
records, the corporate seal and other corporate records of the
Company;
(ii) All documents and instruments and records
pertaining to bank accounts and safety deposit boxes of the Company
together with such instruments as the depository
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institutions where such accounts and safety boxes are maintained may require to
change the signatories on such accounts and for such safety deposit boxes; and
(iii) Each of the certificates, documents,
instruments and evidences required to be delivered to Buyer pursuant
to Section 9 above; and
(iv) The Employment Agreements, duly executed by the
Company; and
(c) By Buyer. Buyer shall deliver to the Shareholders the
following:
(i) Bank cashiers' checks or wire transfers of
funds payable to the order of the Shareholders in an aggregate amount
equal to the Closing Date Payment; and
(ii) Each of the certificates, documents,
instruments and evidences required to be delivered by Buyer pursuant
to Section 10 above.
12. Termination and Abandonment.
12.1 Methods of Termination. This Agreement may be terminated
and the purchase and sale of the Shares herein contemplated may be abandoned at
any time but not later than the Closing Date:
(a) By mutual written consent of the Shareholders and
Buyer; or
(b) By any party, if the Closing has not occurred by
November 1, 1998;
provide, that the party so terminating is not in breach of any of its material
obligations under this Agreement.
12.2 Procedure Upon Termination. In the event of termination
and abandonment by Buyer or by the Shareholders, or both, pursuant to Section
12.1 hereof, written notice thereof shall forthwith be given to the other party
or parties. Upon termination, the purchase and sale of the Shares shall be
abandoned, without further action by Buyer or the Shareholders. If this
Agreement is terminated as provided herein:
(a) Each party will redeliver all documents, workpapers
and other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the party
furnishing the same;
(b) The obligations of confidentiality set forth in
Section 15 hereof shall continue despite such termination; and
(c) The parties shall be relieved of any obligation to
sell or purchase the Shares, but none of the parties shall be relieved of any
liability for any material breach or default under this Agreement.
13. Survival of Covenants. Representations and Warranties.
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All of the representations and warranties set forth in this
Agreement or in any certificates delivered pursuant hereto, and all covenants
which by their terms require performance or compliance following the Closing,
shall remain in full force and effect and shall survive the Closing
indefinitely.
14. Indemnification.
14.1 Indemnification by the Shareholders.
(a) Each Shareholder shall, jointly and severally,
through the Holdback or otherwise, indemnify, hold harmless and defend Buyer
and its directors, officers, shareholders, employees, agents and successors and
assigns, and, from and after the Closing, and also the Company and those persons
who, following the Closing Date, are the Company's officers, directors, agents
and successors and assigns (collectively, all of the foregoing, the "indemnified
parties" or, individually, an indemnified party") from and against any and all
Damages" (as hereinafter defined) that arise from or are in connection with:
(i) Except as provided in Section 14.1(b) below,
any breach of, or inaccuracy in, any of the representations or
warranties of any of the Shareholders contained in this
Agreement or in any of the Disclosure Schedules or any
certificates delivered hereunder;
(ii) Except as provided in Section 14.1(b) below,
any breach or default by the Shareholders of their covenants
or agreements contained in this Agreement;
(iii) Any claim, lawsuit, action or other proceeding
that (i) is pending against the Company and/or any of the
Shareholders on the Closing Date, except only to the extent that
such claim, lawsuit, action or other proceeding is taken into
account as a reduction of the Net Asset Value in the Closing
Balance Sheet, or (ii) is brought against Buyer or the Company
as a result of or arising from any acts or omissions of or for
the Company or the Shareholders that have occurred on or before
the Closing Date or any acts or omissions of the Shareholders
that may occur after the Closing Date, and whether or not the
bringing or assertion of any such claim, lawsuit, action or
other proceeding constitutes a breach of the Shareholders'
representations or warranties contained in this Agreement or is
disclosed in Disclosure Schedules;
(iv) The failure to have paid or to pay, when due,
any Taxes or effect any withholdings that arose out of the
operations of the Company or the consummation of the
transactions contemplated by or preceding this Agreement or the
failure to have filed, when due, any Tax Returns related to any
such Taxes or any period up to the Closing Date, whether or not
such failure constitutes a breach of the representations or
warranties of Seller contained in this Agreement or is disclosed
in the Disclosure Schedules;
(v) Any claim, lawsuit, action or other proceeding
that is brought against the Company or the Buyer in connection
with any payments made to the senior executives of the Company
under the Bonus Plan;
(vi) The existence prior to the Closing Date of any
toxic or hazardous substances or materials upon, about or
beneath the Real Properties or migrating or threatening to
migrate from any of the Real Properties or the violation of
applicable environmental laws or regulations pertaining to the
Real Properties, or any real properties at which the Company
previously conducted any operations and whether or not the
existence of such toxic of hazardous
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<PAGE> 31
substances or materials or the existence or occurrence of any such violations
was disclosed to Buyer.
(b) Each Shareholder, severally and not jointly, shall
indemnify, hold harmless and defend Buyer and each of the other indemnified
parties named in Section 14.1(a) above, from and against any and all Damages
that arise from or in connection with any breach or inaccuracy in any of such
Shareholder's representations or warranties contained in Section 5 or in any
Disclosure Schedules or Closing certificate relating to any such representations
or warranties of such Shareholder.
14.2 Damages. "Damages," as used in this Section 14, shall
mean: (i) demands, claims, actions, suits, investigations and legal or other
proceedings brought against any indemnified party or parties, and any judgments
or assessments, fines or penalties rendered therein or any settlements thereof,
and (ii) all liabilities, damages, losses, Taxes, assessments, costs and
expenses (including, without limitation, reasonable attorneys' and accountants'
fees and expenses) incurred by any indemnified party or parties, to the extent
not reimbursed or paid for by insurance, whether or not they have arisen from or
were incurred in or as a result of any demand, claim, action, suit, assessment
or other proceeding or any settlement or judgment.
14.3 Limitations.
(a) Time. No claim for indemnification under this Section
14 may be made after April __, 2000, except that claims for indemnification may
be made by the Buyer at any time after the Closing and prior to the expiration
of the applicable statute of limitations with respect to Damages arising from
any breach of any of the representations and warranties of the Company and the
Shareholders (and indemnification therefor) contained in Section 6.13
(Environmental and Safety Matters), and Section 6.16 (Taxes and Tax Returns).
(b) Threshold Amount. The Shareholders shall not have any
obligation to indemnify the Buyer or any of the other indemnified parties named
in Section 14.1(a) unless and until the indemnified parties have incurred or
suffered Damages in an aggregate amount in excess of Twenty-Five Thousand
Dollars ($25,000) (the "Threshold"), whereupon the Shareholders shall become
obligated to indemnify the indemnified parties for all Damages they have
incurred, including the amount of the Threshold, but subject to the
Indemnification Ceilings hereinafter set forth in Section 14.3(b); provided,
however, that the foregoing limitation shall not apply to any indemnification
obligation of the Shareholders pursuant to Section 14.1(a)(iii), 14.1(a)(iv) or
14(a)(v) above, or any reduction to the Purchase Price pursuant to Sections 2.3,
3 and 8.12 above.
(c) Ceiling Amount. The aggregate liability for
indemnification under Section 14.1 of the Shareholders shall in no event exceed
the Purchase Price (the "Indemnification Ceiling").
14.4 Notice of Claims. Whenever any claim shall arise for
indemnification hereunder, the indemnified party shall promptly notify the other
party or parties from whom indemnity may be sought therefor under this Section
14 (the "indemnifying party") of the claim and, when known, the facts
constituting the basis for such claim; provided that the indemnified party's
failure to give such notice shall not affect any rights or remedies of such
indemnified party hereunder with respect to indemnification for Damages except
to the extent that the indemnifying party is materially prejudiced thereby. In
the event that the Shareholders are collectively the indemnifying parties, the
Buyer shall only be required to deliver a Notice of Claim to the Shareholder
Representative. In the event of any claim for indemnification hereunder
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resulting from or in connection with any claim or legal proceeding by a third
party, the notice to the indemnifying party shall specify, if known, the amount
or any estimate of the amount of the liability arising therefrom. Neither the
indemnified party nor any indemnifying party shall settle or compromise any
claim by a third party for which the indemnified party is entitled to
indemnification hereunder, without the prior written consent of the other party
(which shall not be unreasonably withheld), unless suit shall have been
instituted against the indemnified party and the indemnifying party shall not
have taken control of such suit after notification thereof as provided in
Section 14.6 of this Agreement
14.5 Third Party Claims. In connection with any claim giving
rise to indemnify hereunder that results or may result from or arises or may
arise out of any claim or legal proceeding by a person who is not a party to
this Agreement, the indemnifying party at its sole cost and expense may, upon
written notice to the indemnified party, assume the defense of any such claim or
legal proceeding if, within fifteen (15) days of receipt of notice of the claim
or proceeding, it elects in writing to do so, and thereafter diligently conducts
the defense thereof with counsel reasonably acceptable to the indemnified party.
If the indemnifying party has so assumed the defense of any such claim or legal
proceeding the indemnified party shall be entitled to participate in (but not
control) the defense of any such action, with its counsel and at its own
expense. If the indemnifying party does not assume or falls to conduct in a
diligent manner the defense of any such claim or litigation resulting therefrom
with counsel reasonably acceptable to the indemnified party, then (in) the
indemnified party may defend against such claim or litigation, in such manner as
it may deem appropriate, including, but not limited to, settling such claim or
litigation, after giving notice of the same to the indemnifying party, on such
terms as the indemnified party may deem appropriate, (ii) the indemnifying party
shall pay the costs and expenses (including the reasonable fees and cost of the
attorneys and accountants for the indemnified parties) incurred in the defense
of such claim or other proceeding as and when the same are incurred, and (iii)
the indemnifying party shall be entitled to participate in (but not control)
the defense of such claim or proceeding, with its counsel and at its own
expense. If the indemnifying party thereafter seeks to question the manner in
which the indemnified party defended such third-party claim or proceeding or
the amount or nature of any such settlement, the indemnifying party shall have
the burden to prove, by a preponderance of the evidence, that the indemnified
party did not defend or settle such third-party claim or proceeding in a
reasonably prudent manner. Each party agrees to cooperate fully with the
other, such cooperation to include, without limitation, attendance at
depositions and the provision of relevant documents as may be reasonably
requested by the indemnifying party; provided that the indemnifying party will
hold the indemnified party harmless from all of its expenses, including
reasonable and actual attorneys' fees, as and when incurred in connection with
such cooperation by the indemnified party.
14.6 Indemnification Procedures. Upon receipt of a notice of
claim for indemnification (a "Notice of Claim"), the indemnifying parties shall
have fifteen (15) business days to contest their indemnification obligation with
respect to such claim, or the amount thereof, by written notice to the
indemnified party (a "Contest Notice"); provided, however, that if, at the time
a Notice of Claim is submitted to the indemnifying parties the amount of the
Damages in respect thereof cannot yet be determined, such fifteen (15) day
period shall not commence until a further written notice (a "Notice of
Liability") has been sent or delivered by the indemnified party to the
indemnifying parties setting forth the amount of the Damages incurred by the
indemnified parties in respect of the indemnification claims that were the
subject of the earlier Notice of Claim. Any Contest Notice shall specify the
reasons or bases for the objection of the indemnifying party to the claim, and
if the objection relates to the amount of the Damages asserted, the amount, if
any, which indemnifying parties believe is due the indemnified party or
parties. If no such Contest Notice is given within such 15-day period, the
obligation of the indemnifying parties to pay to the indemnified parties the
amount of the Damages set forth in the Notice of Claim, or subsequent Notice of
Liability, shall be deemed established and accepted by the indemnifying parties;
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provided, however, that if the actual Damages later prove to be greater or less
than that set forth in the Notice of Claim or Notice of Liability, the
indemnifying parties shall be responsible for the actual Damages incurred. If,
on the other hand, the indemnifying parties contest a Notice of Claim or Notice
of Liability (as the case may be) within such 15-day period, the indemnified and
indemnifying parties shall thereafter attempt in good faith to resolve their
dispute by agreement. If they are unable to so resolve their dispute within the
immediately succeeding thirty (30) days, such dispute shall be resolved by
binding arbitration in Orange County, California, as provided in Section 18.8
below. The award of the arbitrator shall be final and binding on the parties and
may be enforced in any court of competent jurisdiction. Upon final determination
of the amount of the Damages that is the subject of an indemnification claim
(whether such determination is the result of indemnifying parties' acceptance
of, or failure to contest, a Notice of Claim or Notice of Liability, or as a
result of resolution of any dispute with respect thereto by agreement of the
parties or binding arbitration), such amount shall be payable, in cash, by the
indemnifying parties to the indemnified party or parties who have been
determined to be entitled thereto within five (5) days of such final
determination of the amount of the Damages due by the indemnifying parties.
Notwithstanding anything to the contrary contained elsewhere in this Section 14,
if the indemnifying parties are contesting only the amount of any Damages, then
as a condition precedent to the effectiveness of any Contest Notice, they shall
pay to the indemnified parties, concurrently with the delivery of such Contest
Notice, the portion of the Damages which they are not contesting. Any amount
that becomes due hereunder and is not paid when due shall bear interest at a
rate of eight percent (8%) per annum until paid.
14.7 Subrogation. In the event that an idemnifying party pays
all or any portion of a third party claim or demand concerning which the
indemnified party submits a claim for indemnification pursuant to this Section
14, the indemnifying party shall be subrogated to any and all defenses, claims
or other matters which the indemnified party asserted or could have asserted
against the third party making such claim or demand. The indemnified party shall
execute and deliver to the indemnifying party (and at the indemnifying party's
expense) such documents as may be reasonably necessary to establish by way of
subrogation the ability of the indemnifying party to assert such defenses,
claims or other matters against any third party making such claim or demands.
14.8 No Benefit to Third Parties. None of the limitations
contained in this Section 14 on the rights of the indemnified parties or on the
obligations or liabilities of the Shareholders is intended or shall be construed
to confer or give, nor shall they confer or give, to any person, corporation or
other entity, other than the parties hereto and their respective heirs,
executors, representatives, successors and permitted assigns, any legal or
equitable or other right, remedy or benefit, nor shall they be construed to
alter or diminish any rights of the Company or any of the obligations of any
person, corporation or other entity, under any agreement that may exist between
the Company on the one hand, and any such other person, corporation or other
entity, on the other hand, as the provisions of this Section 14 are intended to
be and shall be for the sole and exclusive benefit of the parties hereto and
their respective heirs, executors, representatives, successors and permitted
assigns, and for the benefit of no other person, corporation or other entity.
14.9 Holdback Amount. The Buyer shall be entitled to, but shall
not be obligated to, reduce the Holdback Amount by the amount of any Damages for
which the Buyer is entitled to indemnification from the Shareholders under this
Section 14.
15. Confidentiality.
Each party acknowledges that it may have access to various items
of proprietary and confidential information of the other in the course of
investigations and negotiations prior to Closing.
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<PAGE> 34
Except as otherwise provided in Section 9.8 above, each party agrees that any
such confidential information received from the other party shall be kept
confidential and shall not be used for any purpose other than to facilitate the
arrangement of financing for and the consummation of the transactions
contemplated herein. The furnishing of financial statements and other
information of or relating to the Company or the Business by Buyer for purposes
of obtaining financing for the transactions contemplated hereby, or the
disclosure of such financial or other information by Buyer as provided in
Section 9.8 above, or the release of information to Buyer's insurers for risk
assessment purposes, shall not constitute a breach of this Section 15.
Confidential information shall include any business or other information which
is delivered by one party to the other, unless such information (i) is already
public knowledge or (ii) becomes public knowledge through no fault, action or
inaction of the receiving party, or (iii) was known by the receiving party, or
any of its directors, officers, employees, representatives, agents or advisors
prior to the disclosure of such information by the disclosing party to the
receiving party. No party hereto, nor its respective officers, directors,
employees, accountants, attorneys, or agents shall intentionally disclose the
existence or nature of, or any of the terms and conditions relating to, the
transaction referred to herein, to any third person, specifically including,
but not limited to, the employees of the Company; provided, however, that such
information may be disclosed (i) with the consent of the other parties hereto,
(ii) in applications or requests required to be made to obtain licenses,
permits, approvals or consents needed to consummate the transactions
contemplated herein, (iii) in Securities Filings as provided in Section 9.8
above, (iv) to the professional advisors of each party hereto, or (v) pursuant
to court order or subpoena. The restrictions contained in this Section 15 that
are applicable to Buyer shall terminate at the Closing.
16. Expenses
Each of the parties shall pay all costs and expenses incurred
or to be incurred by it in negotiating and preparing this Agreement and in
closing and carrying out the transactions contemplated by this Agreement,
including without limitation, the fees and expenses of their respective counsel,
accountants and consultants and none of the assets of the Company shall be
reduced or diminished by any such costs or expenses incurred by the
Shareholders.
17. Notices.
All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly served or
delivered (i) upon actual physical delivery when delivered in person, or (ii) if
sent by facsimile to the facsimile number of such party set forth hereinafter,
upon receipt of confirmation of the transmission thereof to that number,
provided that the sender thereof mails a copy of such notice, request, demand or
other communication by the business day next succeeding the date such facsimile
was transmitted, or, (iii) if mailed, seventy-two (72) hours after being
deposited in the United States Mail, provided it is sent by certified mail,
return receipt requested, postage prepaid, and addressed as follows:
(a) If to the Company:
Logical Services Incorporated
3235 Kifer Road, Suite 210
Santa Clara, California 95051
Attention: Robert Ulrickson, President and Chief Executive Officer
Facsimile No. (408) 739-6364
with copies to:
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<PAGE> 35
Paul David Marotta, Esq.
The Corporate Law Group
300 Airport Blvd., Suite 120
Burlingame, CA 94010-1914
Facsimile No: (650) 373-1501
(b) If to any Shareholder, to the address set forth opposite such
Shareholder's name on Schedule 1 attached hereto.
with copies to:
the Company and to Paul David Marotta, Esq.
(c) If to Buyer, to:
Smartflex Systems, Inc.
14312 Franklin Avenue
Tustin, California 92781
Attention: William L. Healey, President and Chief Executive Officer
Facsimile No. (714) 838-8787
with copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660-6441
Attention: Nick E. Yocca, Esq.
Facsimile No. (949)725-4100
Any party hereto may from time to time, by written notice to the other party
given in the manner hereinabove set forth, designate a different address or
different facsimile number, which shall be substituted for the one specified
above for such party.
18. Miscellaneous.
18.1 Binding Effect. Subject to the provisions of Section
18.10 below, this Agreement shall be binding upon and inure to the benefit of
the respective heirs, executors, representatives, successors and assigns of the
parties hereto.
18.2 Counterparts. This Agreement may be executed in any
number of separate counterparts, each of which shall be deemed to be an original
and all of which together shall be deemed to be one and the same instrument.
18.3 Headings. The subject headings of the sections and
subsections of this Agreement are included for purposes of convenience only and
shall not affect the construction or interpretation of any of its provisions.
18.4 Waivers. Any party to this Agreement may waive any
right it may have hereunder or any breach or default hereunder by any other
party hereto; provided that no such waiver will be effective
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<PAGE> 36
against the waiving party unless it is in writing and specifically refers to
this Agreement. No waiver will be deemed to be a waiver of any subsequent or
other right, breach or default of the same or similar nature.
18.5 Entire Agreement. This Agreement, including the
Schedules and Exhibits and other documents referred to herein which form a part
hereof, embodies the entire agreement and understanding of the parties hereto
with respect to the subject matter hereof, and supersedes all prior or
contemporaneous agreements or understandings (whether written or oral) among the
parties, in respect to the subject matter contained herein. This Agreement may
not be modified, amended or terminated except by written agreement specifically
referring to this Agreement signed by the Buyer and the holders of a majority of
the outstanding Shares, provided, however, that any amendment which would reduce
the Purchase Price payable to the Shareholders for the Shares shall require the
approval, in writing, of all of the Shareholders.
18.6 Governing Law. This Agreement is deemed to have been
made in the State of California, and shall be governed by and construed in
accordance with the laws of, the State of California for contracts made and to
be performed in that State.
18.7 Public Communications. The Shareholders will cooperate
with the Buyer, if necessary, with respect to the making of a public
communications release relating to this Agreement. Except as may be required by
applicable law, neither the Shareholders nor the Company shall issue any press
releases or other public communications relating to this Agreement or the
transactions contemplated hereunder without the prior written consent of the
Buyer. In the event that any such press release or other public communication
shall be required by applicable law, the Shareholders shall first consult in
good faith with the Buyer with respect to the form and substance of such release
or communication.
18.8 Disputes: Arbitration. In lieu of litigation, all
disputes concerning this Agreement or any attachment hereto or any asserted
breach hereof shall be resolved as follows:
(a) Cooperation. The parties agree to cooperate
with each other to attempt to settle all disputes arising under this Agreement
without resort to mediation or arbitration.
(b) Mediation. If the parties are unsuccessful in
resolving a dispute within forty-five (45) days from the date the parties begin
attempting to resolve it, either parry may submit the dispute to a mediation
administered by Judicial Arbitration & Mediation Services, Inc. ("JAMS"), by
requesting in writing to JAMS and the other party that a mediation settlement
conference be scheduled. Each party shall use best efforts to complete the
mediation within forty-five (45) days after such notice pursuant to the rules of
JAMS. The mediation shall take place in Orange County, California. The parties
shall attempt in good faith to reach agreement on the appointment of a retired
judge from the JAMS panel as mediator. If they cannot agree within twenty (20)
days after such notice, JAMS will provide a list of three available retired
judges (which judges, to the extent available on a timely basis, should have
substantial experience in the area of the Dispute) and each party may strike one
name from the list. The remaining judge shall be appointed as mediator. The
parties shall each pay their own expenses of mediation, including attorney's
fees, and shall share equally the mediator's fees and expenses.
(c) Arbitration. All disputes which are not
resolved through cooperation and mediation shall be finally resolved by binding
arbitration by a single arbitrator in accordance with the Federal Arbitration
Act.9 USCA 1, et. seq. in effect at the time. Each party to this Agreement can
initiate arbitration pursuant to this Agreement by serving notice on the
other party of an intent to arbitrate. Each of the parties consents to venue
for such arbitration in Orange County, California, if proceedings are
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<PAGE> 37
commenced by the Buyer, and in Santa Clara County, California, if proceedings
are commenced by the Company or any Shareholder. The notice shall specify with
particularity the claims or issues that are to be arbitrated. Within ten days of
receipt of the notice by all parties, the parties shall use all reasonable
efforts to obtain a list of available arbitrators from the appropriate office of
JAMS and select a mutually acceptable arbitrator. If the parties are unable to
agree on an arbitrator within ten days, any party may petition the Presiding
Judge of the forum's Superior Court to select a single arbitrator from the JAMS
list. The parties shall have the discovery rights available under the forum's
Civil Rules, subject to the limitation that each side shall be limited to no
more than five depositions unless, upon a showing of good cause, the party can
convince the arbitrator that more depositions should be permitted. It shall be
the intention of the parties to select an arbitrator and set a schedule
according to the following: (1) all discovery must be concluded within 120 days
of the selection of an arbitrator, (2) the arbitration hearing must be concluded
within 30 days of the close of discovery and it will be conducted in accordance
with the forum's Rules of Evidence, and (3) the arbitrator's final decision
shall be rendered within ten days of the final hearing day. Judgment upon the
arbitrator's final award may be entered in any court having jurisdiction
thereof. The parties shall bear in equal shares the arbitrator's fees and costs.
In those cases where the arbitrator's judgment consists solely of monetary
damages, the prevailing party in the arbitration shall be awarded its reasonable
attorneys' fees and all costs, other than the arbitrator's fees and costs. For
the purpose of determining who is the prevailing party, each side will submit to
the other a single written offer of settlement ten days prior to the start of
the arbitration hearing and the party whose offer most closely resembles the
arbitrator's award shall be deemed the prevailing party for the purpose of
awarding attorneys' fees.
18.9 Assignment. No Shareholder may assign this Agreement,
or assign its rights or delegate its duties hereunder, without the prior written
consent of Buyer. Prior to the Closing, Buyer may not assign this Agreement, or
assign its rights or delegate its duties hereunder, without the prior written
consent of the Shareholder Representative.
18.10 Severability. Any provision of this Agreement which is
illegal, invalid or unenforceable shall be ineffective to the extent of such
illegality, invalidity or unenforceability, without affecting in any way the
remaining provisions hereof.
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<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year above written.
BUYER: SMARTFLEX SYSTEMS, INC.,
- ----- a Delaware corporation
By: /s/ William L. Healey
--------------------------------------
William L. Healey, President and Chief
Executive Officer
COMPANY: LOGICAL SERVICES INCORPORATED,
- ------- a California corporation
By: /s/ Robert Ulrickson
--------------------------------------
Robert Ulrickson, President and Chief
Executive Officer
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<PAGE> 39
SHAREHOLDERS:
/s/ Rocky R. Arnold /s/ James W. Moyer
- ------------------------- -------------------------
Rocky R. Arnold, Ph.D. James W. Moyer, Ph.D.
/s/ Douglas L. Bish
- ------------------------- -------------------------
Douglas L. Bish John L. Nichols
/s/ David H. Nudelman
- ------------------------- -------------------------
Timothy Barry David H. Nudelman
/s/ John M. O'Keefe
- ------------------------- -------------------------
Anthony D. Castagna, Ph.D. John M. O'Keefe
/s/ Connie R. Praast
- ------------------------- -------------------------
Robert K. Chipman Connie R. Praast
/s/ Jackie M. Daemion
- ------------------------- -------------------------
Jackie M. Daemion Theodore D. Praast
/s/ Ronald J. Heath /s/ Tim R. Russell
- ------------------------- -------------------------
Ronald J. Heath Tim R. Russell
/s/ Michael R. Seliskar
- ------------------------- -------------------------
John N. Hendrick Michael R. Seliskar
- ------------------------- -------------------------
Lb W. Larson Michael Slater
/s/ David E. Smoler
- ------------------------- -------------------------
Richard M. Levy, Ph.D. David E. Smoler
/s/ Douglas S. Thom
- ------------------------- -------------------------
Douglas J. Littlejohn Douglas S. Thom
/s/ David P. Manley /s/ Robert W. Ulrickson
- ------------------------- -------------------------
David P. Manley Robert W. Ulrickson
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<PAGE> 40
Ulrickson-Weaver Charitable Trust
R. W. Ulrickson, Trustee
By: /S/ R. W. Ulrickson
-------------------------
/s/ Baxter R. Watkins
- -------------------------
Baxter R. Watkins
/s/ Nancy J. Weaver
- -------------------------
Nancy J. Weaver
/s/ Paul J. White
- -------------------------
Paul J. White
/s/ Bruce D. Wong
- -------------------------
Bruce D. Wong
/s/ Sun N. Yu
- -------------------------
Sun N. Yu
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<PAGE> 41
EXHIBIT A
Employment Agreements
See Tabs 18-20
<PAGE> 42
EXHIBIT B
Shareholder Releases
See Tab 9
<PAGE> 43
EXHIBIT C
Performance Bonus Plan
See Tab 21
<PAGE> 44
EXHIBIT D
Opinion of Counsel to the Company
See Tab 10
<PAGE> 45
EXHIBIT E
Opinion of Counsel to the Buyer
See Tab 16
<PAGE> 1
EXHIBIT 10.3
METHUEN DIVISION
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT dated as of the 2nd day of December, 1998 is entered into by
and between EA Industries, Inc., a New Jersey corporation (the "Company"), and
Methuen Acquisition Corp., a Delaware corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company is engaged, among other things, in the business of
providing contract manufacturing electronic assembly services, including the
quick-turn, prototype and volume assembly and testing of a wide range of
products at a facility in Methuen. Massachusetts (such activities being
hereinafter referred to as the "Business"); and
WHEREAS, effective on the date of the Closing (as defined in Section VI
hereof), the Purchaser desires to acquire from the Company certain assets of the
Company as described in Section I(a) hereof (the "Assets"), and the Company
desires to sell or assign the Assets, on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, and intending to be legally bound, the
parties hereto hereby agree as follows:
SECTION I
PURCHASE AND SALE OF THE ASSETS
(a) Purchase and Sale of the Assets. Subject to the terms and conditions of
this Agreement and on the basis of the representations, warranties, covenants
and agreements herein contained:
(i) The Company hereby sells, assigns and conveys to the
Purchaser, and the Purchaser hereby purchases, acquires and accepts from the
Company, the Assets, free and clear of any liens, charges, security interests or
encumbrances of any kind whatsoever, including any successor liabilities
(collectively, "Liens or Encumbrances"). The Assets shall include the Business,
all assets used in connection with the Business, all assets specified on
Schedule I(a)(i) hereto, work in process, inventory, contract rights, equipment,
financial books and records, all other assets of every kind and nature, real,
personal, and mixed, tangible and intangible, wherever located, of the Company
used in or in any way related to the Business, except for the assets listed on
Schedule I(a)(i) hereto (the "Excluded Assets"), which Excluded Assets shall
include, without limitation, the Lease referred to in Section I(g) hereof, and
all cash and all accounts receivable related to the Business.
(ii) Except to the extent expressly set forth in this Agreement or any
document, instrument or agreement executed or entered into pursuant hereto or
contemporaneously herewith.
<PAGE> 2
the Purchaser shall not assume and shall have no responsibility with respect to,
and shall be indemnified by the Company, against, any and all liabilities or
obligations of the Company, known or unknown, absolute or contingent, accrued or
unaccrued, whether due or to become due (collectively, "Liabilities").
(b) Purchase Price. The purchase price (the "Purchase Price") for the Assets
is Two Million Five Hundred Thousand Dollars ($2,500,000), which shall be paid
as follows. At the Closing, Purchaser shall pay to the Company an amount (the
"Closing Date Payment") equal to the Purchase Price minus the items set forth on
Schedule I(b) (the "Payout Amounts"), which Payout Amounts shall be paid by the
Purchaser except as otherwise noted on Schedule I(b). and less the Holdback
Amount described in Section I(d) below. The Closing Date Payment shall be paid
by wire transfer of immediately available funds to an account designated by the
Company; and
(c) Purchase Price Adjustment for Inventory. In the event the Inventory
Value determined in accordance with Section II(g) below is less than Six Hundred
Thousand Dollars ($600,000), the Purchase Price shall be reduced by one dollar
for each dollar that the Inventory Value is less than Six Hundred Thousand
Dollars ($600,000).
(d) Purchase Price Holdback.
(i) The Purchaser shall withhold from the Purchase Price an amount equal
to $350,000 (the "Holdback Amount") as collateral to secure the Company's
obligations described in Section VII(a) below, during the period commencing on
the Closing Date and terminating on the date that is eighteen (18) months from
the Closing Date. On the date that is eighteen (18) months from the Closing Date
(or if such date is not a business day, on the next business day thereafter),
the Holdback Amount, less the amount of any reductions thereto, as provided in
Section I(d)(ii) below, if a positive amount shall be distributed to the
Company without interest. The Purchaser shall not be required to segregate or
set aside the Holdback Amount. The Purchaser may, without obligation, file a
UCC-1 or other appropriate instruments with the California and New Jersey
Secretaries of State evidencing Purchaser's security interest in the Holdback
Amount.
(ii) The Holdback Amount is subject to reduction and retention by
Purchaser as follows:
(A) In the event that there is a Purchase Price reduction pursuant
to the terms of Section I(c) above, provided that immediately after any
reduction is made pursuant to Section I(c) ("Inventory Reduction"), Purchaser
shall promptly pay to the Company from the Holdback Amount the difference
between $100,000 and the Inventory Reduction. If the Inventory Reduction is
greater than $100,000, then Purchaser shall withhold any additional monies from
the Holdback Amount; and
(B) In satisfaction of any claim for Damages by the Purchaser
against the Company pursuant to the provisions of Section VII(a) below.
(iii) Without limiting the foregoing, in the event that reductions to
the Holdback Amount made by the Purchaser pursuant to this Section I(d) exceed
the amount of the Holdback Amount then in addition to any other remedies
available to the Purchaser, the Purchaser shall be able to recover any excess
amounts directly from the Company.
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<PAGE> 3
(i.v) Under no circumstances will the Company, without the prior
written consent of the Purchaser, assign, transfer or grant any security
interest in the Holdback Amount to any party other than the Purchaser pursuant
to Section I(d)(i) above.
(e) Allocation. The Purchase Price for the Assets shall be allocated to the
Assets at their fair market values. The portion of the Purchase Price not
allocated to specific Assets shall be allocated to goodwill. The Purchase Price
shall be allocated as set forth in Schedule I(e)(i) hereto and the Purchaser
agrees to file Internal Revenue Service Form 8594 which shall be prepared in
accordance with the Internal Revenue Code of 1986, as amended and all rules and
regulations promulgated thereunder.
(f) Removal of Assets by Purchaser. The Company shall allow Purchaser up to
ninety (90) days from the Closing Date (as defined in Section VI hereof) in
which to transition the business and remove the Assets from the Company's
facility located at 126 Merrimack Street, Methuen, Massachusetts 01844 (the
"Facility"). Purchaser shall have full access and all rights of the Company to
the Facility. Notwithstanding the foregoing, the Purchaser acknowledges that the
Company's rights to the Facility are subject to the lease (the "Lease") between
Tanon Manufacturing, Inc., a California corporation and wholly-owned subsidiary
of the Company, and Tri-Star Realty Trust, a Massachusetts trust (the "Lease"),
which expires on January 31, 1999, and as a result, Purchaser shall remove all
of the Assets from the Facility prior to such date. This Section I(f) does not
constitute a lease or sublease, and nothing contained in this Section I(f) or
elsewhere in this Agreement shall be construed as subjecting Purchaser to or
obligating Purchaser under any of the terms and conditions of the Lease and
Purchaser shall incur no liability in connection with the Lease. Any obligation
to reimburse rental payments or other expenses shall be subject to negotiation.
(g) Business Cut-Off. All business conducted on and after the Closing Date
shall be the obligation and responsibility of the Purchaser, and all business
conducted prior to the Closing Date shall be the obligation and responsibility
of the Company. Accordingly, all sales commissions payable to sales
representatives of the Company who operate with respect to the Business which
were earned in connection with product shipped prior to the Closing Date shall
be paid by the Company, and all sales commissions earned in connection with
product shipped after the Closing Date shall be paid by the Purchaser.
SECTION II
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE COMPANY
The Company hereby represents and warrants to, and covenants and agrees
with the Purchaser, as of the date of the Closing that:
(a) Organization and Qualification. The Company is duly organized,
validly existing and in good standing under the laws of the State of New Jersey
and has full corporate power and authority to own its properties and to conduct
the business in which it is now engaged. The Company has full corporate power
and authority, and all necessary approvals, permits, licenses and
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<PAGE> 4
authorizations to own its properties and to conduct the Business as currently
conducted and to enter into and consummate the transactions contemplated under
this Agreement.
(b) Authority/Enforceability. The execution and delivery of this Agreement
by the Company, the performance by the Company of its covenants and agreements
hereunder and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action. This
Agreement constitutes a valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms, and constitutes a
valid and legal binding obligation of the Purchaser, enforceable against it in
accordance with its terms. The Bill of Sale, when executed and delivered at
Closing, and assuming due and proper execution by the Purchaser, will constitute
a valid and legal binding obligation of the Company, enforceable against it in
accordance with its terms.
(c) No Legal Bar; Conflicts. Except as listed on Schedule II(c), neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, violates any provision of the charter or
by-laws of the Company as amended or any statute, ordinance, regulation, order,
judgment or decree of any court or governmental agency or board, or conflicts
with or will result in any breach of any of the terms of or constitute a default
under or result in the termination of or the creation of any lien pursuant to
the terms of any contract or agreement to which the Company is a party or by
which the Company or any of its assets are bound. No consents, approvals or
authorizations of, or filings with. any governmental authority or any other
person or entity are required in connection with the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
except for required consents, if any, to assignment of permits, certificates,
contracts, leases and other agreements as set forth in Schedule 11(c) attached
hereto.
(d) Title to Assets. Except as noted on Schedule II(d) or as set forth in a
validly filed UCC-1 financing statement, copies of which are attached hereto as
Exhibit II(d), (i) the Company has good and valid title to all Assets and (ii)
none of the Assets is subject to any liens, charges, encumbrances or security
interests. None of the Assets (or uses to which they are put) fails to conform
with any applicable agreement, law, ordinance or regulation in a manner which is
likely to be material to the operations of the Business.
(e) Condition and Sufficiency of Assets. The Assets are in good working
order and condition, ordinary wear and tear excepted and are suitable for the
uses for which they are being utilized in the Business. The Assets together with
the Excluded Assets constitute all of the assets, properties, rights, privileges
and interests necessary for the operation of the Business as it has been owned
and operated by the Company.
(f) Permits; Compliance with Applicable Law.
(i) General. The Company is not in default under any, and has complied
with all, statutes, ordinances, regulations and laws, orders, judgments and
decrees of any court or governmental entity or agency, relating to the Business
or the Assets as to which a default or failure to comply might result in a
material adverse affect on the Assets or the Business. The Company has no
knowledge of any basis for assertion of any violation of the foregoing or for
any claim for compensation or damages or otherwise arising out of any violation
of the foregoing. The Company
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<PAGE> 5
has not received any notification of any asserted present or past failure to
comply with any of the foregoing which has not been satisfactorily responded to
in the time period required thereunder.
(ii) Permits; Intellectual Property. Set forth on Schedule II(f) is a
complete and accurate list of all permits, licenses, approvals, franchises,
patents, registered and common law trademarks, service marks, tradenames,
copyrights (and applications for each of the foregoing), notices and
authorizations issued by governmental entities or other regulatory authorities,
federal, state or local (collectively the "Permits"), held by the Company in
connection with the Business. Except as set forth on Schedule II(f), the Permits
are all the Permits required for the conduct of the Business in its present
form. All the Permits set forth in Schedule II(f) are in full force and effect,
and neither the Company nor its shareholders have engaged in any activity which
would cause or permit revocation or suspension of any such Permit, and no action
or proceeding looking to or contemplating the revocation or suspension of any
such Permit is pending or threatened. There are no existing defaults or events
of default or event or state of facts which with notice or lapse of time or both
would constitute a default by the Company under any such Permit. The Company has
no knowledge of any default or claimed or purported or alleged default or state
of facts which with notice or lapse of time or both would constitute a default
on the part of any other party in the performance of any obligation to be
performed or paid by any other party under any Permit set forth in Schedule
II(f). The use by the Company of any proprietary rights relating to any Permits
does not involve any claimed infringement of such Permit or rights. The
consummation of the transactions contemplated hereby will in no way affect the
continuation, validity or effectiveness of the Permits set forth in Schedule
II(f) or require the consent of any person. Except as set forth on Schedule
II(f), the Company is not required to be licensed by, nor is it subject to the
regulation of, any governmental or regulatory body by reason of the conduct of
the Business in its present form.
(g) Inventories. The inventory of the Company related to the Business at
Closing will have an accounting value of at least $600,000 computed in
accordance with GAAP and will consist at Closing of usable raw materials and
supplies for which there are related purchase orders ("Useable Raw Materials
Inventory"), manufactured and purchased parts, work and goods in process, and
finished goods, all of which are fit for the purpose for which they were
procured or manufactured, and none of which is obsolete, or damaged, adjusted
for the passage of time through the Closing Date in accordance with the past
custom and practice of the Company, and GAAP. The finished goods inventory is
merchantable. Within ninety (90) days following the Closing Date, Ernst & Young
LLP ("E&Y") shall deliver to the Purchaser and to the Company, E&Y's
determination of the value of the inventory (the "Inventory Value") included in
the Assets purchased by Purchaser hereunder, as of the Closing Date, which
determination shall be made in accordance with generally accepted accounting
principles ("GAAP"). The Company shall have twenty days from the date of
delivery of the Inventory Value to dispute such value and on the twenty-first
day after the Inventory Value is delivered to the Company, the Inventory Value
shall be deemed accepted. The Company shall have the right to receive the
information upon which such determination was made, and shall, in the event of a
dispute as to the amount or method of calculation, have the right to review all
work papers relating to the determination. In the event the Company disputes
such determination, the Purchaser and the Company shall have the right to
designate an independent certified accountant, as mutually agreed, to review
such determination. Failing such agreement, the parties shall apply to the
American Arbitration Association for the designation of such accountant. The
final determination of such independent certified public accountant shall be
deemed conclusive. The costs and expenses of such independent certified public
accountant shall be paid fifty percent (50%) by the Purchaser and
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<PAGE> 6
fifty percent (50%) by the Company. In the event that the Inventory Value is
less than Six Hundred Thousand Dollars ($600,000), the Purchase Price shall be
reduced by one dollar for each dollar that the Inventory Value is less than Six
Hundred Thousand Dollars ($600,000). In the event that the Inventory Value is
greater than Six Hundred Thousand Dollars ($600,000) (the inventory with a value
in excess of $600,000 shall be deemed to be the "Excess Inventory"), then the
Purchaser shall reimburse the Company for the Excess Inventory utilized by the
Purchaser during such ninety (90) day period at a price equal to the lower of
the book or market value of such utilized Excess Inventory. After such ninety
(90) day period, if there is any remaining Excess Inventory, Purchaser shall be
entitled to purchase all or any portion of such Excess Inventory at a price
equal to the lower of book or market value of such Excess Inventory. In the
event that Purchaser does not purchase such Excess Inventory, the Company shall
be entitled to sell such Excess Inventory to third parties.
(h) The Assigned Contracts and Other Agreements. Schedule II(h) hereto
contains an accurate and complete list of each material contract, agreement,
indenture, note, lease, or other instrument or commitment, written or oral, to
which the Company is a party or is bound or which relates to any of the Assets
or the consummation of the transactions contemplated by this Agreement (the
"Material Contracts"), which shall include without limitation all Material
Contracts included in the Assets and being assigned to the Purchaser at the
Closing (the "Assigned Contracts"), all of which are designated as "Assigned
Contracts" on Schedule II(h) hereto, Accurate and complete copies of all of the
Assigned Contracts have been furnished by the Company, or made available to
Purchaser prior to the date hereof. Except for the Material Contracts, there is
no contract, lease, license or other agreement, commitment or understanding that
is material to the Assets or the Business. Each of the Assigned Contracts is a
valid and binding obligation of The Company and, to the Company's knowledge, the
other parties thereto, enforceable in accordance with its terms, except as may
be affected by bankruptcy, insolvency, moratorium or similar laws affecting
creditors' rights generally and general principles of equity relating to the
availability of equitable remedies. There have not been any defaults by the
Company or, to the knowledge of the Company, defaults, claims of default or
claims of nonenforceability by the other party or parties under or with respect
to any of the Assigned Contracts which, individually or in the aggregate, have
had an adverse effect on the Business or any of the Assets, and to the Company's
knowledge there are no facts or conditions that have occurred or that are
anticipated to occur which, with the passage of time or the giving of notice, or
both, would constitute a default by the Company or by the other party or parties
under any of the Assigned Contracts or would cause the creation or imposition of
any Lien or Encumbrance upon any of the Assets or otherwise have an adverse
effect on the Business.
(i) Financial Statements. True and correct copies of the financial
statements of the Company are attached as Schedule II(i) hereto (the "Financial
Statements"). The Financial Statements were prepared in accordance with GAAP,
consistently applied, and fairly present the financial condition of the Company
and the results of its operations as at the relevant dates thereof and for the
respective periods covered thereby. Except as set forth on Schedule II(i), the
Company has no debts, obligations or liabilities, fixed or contingent, of a
nature that would be required, in accordance with GAAP, to be shown on a balance
sheet and that are not shown on the balance sheet as of September 30, 1998.
other than liabilities incurred after September 30, 1998 in the ordinary Course
of the Company's business and consistent with past practice.
(j) Litigation; Disputes. Except as set forth in Schedule II(j), there are
no claims, disputes, actions, suits, investigations or proceedings pending or
threatened against the Company,
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the Business or any of the Assets, which would hinder the ability of the Company
to consummate the transactions contemplated hereby, and, to the best of the
knowledge of the Company, there is no basis for any such claim, dispute, action,
suit, investigation or proceeding. The Company has no knowledge of any default
under any such action, suit or proceeding. Except as set forth in Schedule
II(h), the Company is not in default in respect of any judgment, order, writ,
injunction or decree of any court or of any federal, state, municipal or other
government department, commission, bureau, agency or instrumentality or any
arbitrator.
(k) Environmental and Safety Matters. Except as set forth in Schedule
II(k), the Company has complied with, and the operation of the Business and the
use of the Assets are in compliance with, in all material respects, all federal,
state, regional and local statutes, laws, ordinances, rules, regulations and
orders relating to the protection of human health and safety, natural resources
or the environment, including, but not limited to, air pollution, water
pollution, noise control, on-site or off-site hazardous substance discharge,
disposal or recovery, toxic or hazardous substances, training, information and
warning provisions relating to toxic or hazardous substances, and employee
safety relating to the Business or the Assets (collectively the "Environmental
Laws"): and no notice of violation of any Environmental Laws or of any permit,
license or other authorization relating thereto has been received or threatened
against the Company, and to the best knowledge of the Company, is there any
factual basis for the giving of any such notice. Except as set forth in Schedule
II(k), no underground or above-ground storage tanks or surface impoundments are
located on any of the real properties owned or leased in connection with the
Business and (i) except in compliance with applicable Environmental Laws and any
licenses or permits relating thereto, there has been no generation, use,
treatment, storage, transfer, disposal, release or threatened release in, at,
under, from, to or into, or on such properties of toxic or hazardous substances
during the occupancy thereof by the Company or, to the best knowledge of the
Company, prior to such occupancy, and (ii) in no event has there been any
generation, use, treatment, storage, transfer, disposal, release or threatened
release in, at, under, from, to or into, or on such properties of toxic or
hazardous substances that has resulted in or is reasonably likely to result in a
material adverse effect on the Business or on the Assets. The Company has not
received any notice or claim to the effect that the Company or the Business is
or may be liable to any governmental authority or private party as a result of
the release or threatened release of any toxic or hazardous substances in
connection with the conduct or operation of the Business, and none of the
operations of the Business or the Company and none of the Assets is the subject
of any federal, state or local investigation evaluating whether any remedial
action is needed to respond to a release or a threatened release of any toxic or
hazardous substances at any of the real properties owned or leased in connection
with the Business. For the purposes of this Section II(k), "toxic, or hazardous
substances" shall include any material, substance or waste that, because of its
quantity, concentration or physical or chemical characteristics, is deemed under
any federal, state, local or regional, statute, law, ordinance, regulation or
order, or by any governmental agency pursuant thereto, to pose a present or
potential hazard to human health or safety or the environment, including, but
not limited to, (i) any material, waste or substance which is defined as a
"hazardous substance" pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (42 U.S.C. sec. 9601. et seq.) as
amended, and its related state and local counterparts, (ii) asbestos and
asbestos containing materials and polychlorinated biphenyls and (iii) any
petroleum hydrocarbon including oil, gasoline (refined and unrefined) and their
respective constituents and any wastes associated with the exploration,
development or production of crude oil, natural gas or geothermal energy.
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<PAGE> 8
(1) Disclosure. No representation or warranty made under any Section
hereof and none of the information furnished by the Company set forth herein, in
the exhibits hereto or in any document delivered by the Company to the
Purchaser, or any authorized representative of the Purchaser, pursuant to this
Agreement contains any untrue statement of a material fact or fails to state a
material fact necessary to make the statements herein or therein not misleading.
SECTION III
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE PURCHASER
The Purchaser represents and warrants to the Company that the
statements contained in this Section III are correct and complete as of the date
of this Agreement:
(a) Organization. The Purchaser is a corporation duly incorporated,
validly existing, and in good standing under the laws of the State of Delaware.
(b) Authorization of Transaction. The Purchaser has full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes a valid and legal binding
obligation of the Purchaser, enforceable against it in accordance with its
terms. The Purchaser is not required to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by this
Agreement.
(c) Non-Contravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Purchaser is subject or any provision
of its charter or by-laws, or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which the Purchaser is bound or to which any of its assets is subject.
SECTION IV
ADDITIONAL REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE COMPANY AND THE PURCHASER
(a) Post Closing Cooperation. In case at any time after the Closing
any further action is necessary or desirable to carry out the purposes of this
Agreement, each of the parties will take such further action (including the
execution and delivery of such further instruments and documents) as the other
may request, all at the sole cost and expense of the requesting party (unless
the requesting party is entitled to indemnification therefor under Section VII),
so long as such documents do not increase the liability or risk of liability of
the party of whom action is requested.
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<PAGE> 9
(b) Discharge of Obligations. The Company covenants and agrees to pay
promptly and otherwise to fulfill and discharge all of the Liabilities of the
Company when due and payable and otherwise prior to the time at which any of
such Liabilities could in any way result in or give rise to a claim against the
Assets, the Business or the Purchaser, result in the imposition of any lien,
charge or encumbrance on any of the Assets, or adversely affect the Purchaser's
title to or use of any of the Assets.
(c) Access. The Company shall give to the Purchaser and its
representatives, from and after the date of execution of this Agreement, on
prior reasonable request therefor from the Purchaser or such representatives,
such access to the premises, employees, agents and consultants of the Company,
and such copies of the Financial Statements, books and records, and contracts
and leases and other documentation, so as to enable the Purchaser to inspect and
evaluate all aspects of the Business and operations, assets, operating results,
financial condition, capitalization, ownership, and legal affairs thereof. This
shall include the right of the purchaser to have Phase I environmental
evaluations conducted on the any real property owned or leased by the Company in
connection with the Business. The Purchaser agrees to conduct its review, and to
cause its representatives to conduct their review, in a manner designed to
minimize any disruption of the operations of the Company.
(d) Conduct of Business. From the date of this Agreement and until
the Closing or termination of this Agreement, whichever first occurs, the
Company shall use its commercially reasonable best efforts, consistent with
prior practice (a) to preserve intact the business organization and employees
and other business relationships relating to the Business, (b) to continue to
operate in the ordinary course of its business and to maintain its books,
records and accounts in accordance with GAAP and (c) to preserve and maintain
the Assets, ordinary wear and tear excepted.
(e) "No Shop". The Company agrees that during the period commencing
on the date hereof and ending on the Closing Date, or ending sixty (60) days
after the date hereof, whichever first occurs, if the Company receives a firm
offer to buy any of the Business and/or the Assets (other than sales of
inventory in the ordinary course of the Business), in whole or in part, the
Company shall promptly after receipt of a proposal advise the Purchaser of the
details of such proposal and submit copies of all pertinent documents to the
Purchaser. However, if the Purchaser enters into a commitment or agreement with
IBJ Schroeder Bank & Trust Co. ("Schroeder") to participate in the Schroeder
loans to Tanon Manufacturing, Inc. ("Tanon"), pursuant to the terms of Section
4(g) of the Letter of Intent among the Purchaser, on the one hand, and the
Company and Tanon, on the other hand (the "Tanon Letter of Intent"), the Company
will not, directly or indirectly, during the period commencing on the date
hereof and ending on the Closing Date, or ending sixty (60) days after the date
hereof, whichever first occurs: (a) offer or agree to sell any of the Business
and/or the Assets (other than sales of inventory in the ordinary course of the
Business), in whole or in part, (b) make or assist anyone else in making any
proposal to purchase any of the Business and/or the Assets (other than sales of
inventory in the ordinary course of the Business), (c) encourage, solicit or
initiate discussions or negotiations with or provide any information to any
corporation, partnership, person, entity or group, other than the Purchaser,
concerning any merger, consolidation, sale of assets, sale of securities or
acquisition of beneficial ownership with respect to the Business, or (d)
otherwise take any action which would prejudice the ability of the Purchaser to
complete the transactions described in this Agreement.
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<PAGE> 10
(f) Litigation Support and Accounts Receivable Collection. So long as
any party hereto is actively contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand in
connection with (i) any transaction contemplated under this Agreement or (ii)
any fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act or transaction on or prior
to the Closing Date relating to this Agreement or the Business, the other party
will cooperate with him or it or his or its counsel in the contest or defense,
make available their personnel, and provide such testimony and access to their
books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending party
(unless the contesting or defending party is entitled to indemnification
therefor under Section VII below). For a period of five years from the Closing
Date, the Purchaser shall use its commercially reasonable best efforts to retain
the books and records of the Business in substantially their condition at the
time of the Closing and no such books and records shall be destroyed without the
prior written approval of the Company or without first offering such books and
records to the Company.
The Purchaser shall deliver to the Company on a weekly basis any funds
and any checks, notes, drafts and other instruments for the payment of money,
duly endorsed to the Company, received by it (i) comprising payment of any of
the accounts receivable of the Business for periods on or before the Closing or
(ii) comprising payment of any amounts due from customers of the Business for
services rendered by the Business for periods on or before the Closing Date. The
Purchaser shall use its commercially reasonable best efforts to assist the
Company and its agents and representatives in collecting such accounts
receivable.
(g) Acknowledgement of Parties. The parties hereto acknowledge and
agree that the transactions contemplated herein, and the terms and conditions of
this Agreement, were negotiated by the parties in good faith and that the
Purchase Price being paid by the Purchaser hereunder for the Assets is not less
than the fair market value of such Purchased Assets.
SECTION V
CONDITIONS PRECEDENT
(a) Conditions Precedent to the Obligations of the Purchaser. The
obligation of the Purchaser to consummate the purchase of the Assets from the
Company shall be subject to the fulfillment, or the waiver by the Purchaser, at
or prior to the Closing, of each of the following conditions precedent:
(i) Representations and Warranties. The representations and
warranties made by the Company in this Agreement, including information set
forth on the Schedules hereto shall have been true and correct on the date
hereof, and shall also be true and correct at and as of the Closing Date with
the same force and effect as if made again at and as of that time.
(ii) Absence of Material Litigation. There shall be (i) no
pending or overtly threatened litigation (other than litigation which is
determined by the parties in good faith, after consulting their respective
attorneys, to be without legal or factual substance or merit), whether brought
against the Company or the Purchaser, that seeks to enjoin the consummation of
any of the transactions contemplated by this Agreement, (ii) no order that has
been issued by any court or governmental agency having jurisdiction that
restrains or prohibits the consummation of the
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<PAGE> 11
purchase and sale of the Assets hereunder and no proceedings pending which are
reasonably likely to result in the issuance of such an order; and (iii) no
pending or overtly threatened litigation, which has had or is expected to have a
material adverse affect on the Business or the Assets.
(iii) Performance of Obligations. The Company shall have
performed and complied with all of its covenants required by this Agreement to
have been performed on or prior to the Closing.
(iv) No Material Adverse Change. Since October 31, 1998, there
shall not have been any change in or other event affecting the Business or the
condition (financial or other) or operating results of Company that has had or
is expected to have a material adverse effect on the Business or the Assets.
(v) Certificates. Receipt of a certificate executed by the
Company's President or Chief Financial Officer, dated as of the Closing Date and
reasonably satisfactory in form and substance to the Purchaser, certifying that
(i) each of the representations and warranties of the Company contained herein
was true and correct when made and is true and correct on and as of the Closing
Date with the same force and effect as if such representations and warranties
had been made on the Closing Date, (ii) the Company has performed and complied
with all of its covenants required to have been performed or complied with by it
pursuant hereto on or prior to the Closing Date, and (iii) all of the conditions
precedent to the Purchaser's obligations the satisfaction of which was the
responsibility of the Company has been satisfied, except to the extent waived by
the Purchaser.
(vi) Consents Obtained. All consents, waivers, approvals,
authorizations or orders required to be obtained by the Company and the
Purchaser for the authorization, execution and delivery of this Agreement and
the consummation by it by the transactions contemplated hereby shall have been
obtained by the Company or the Purchaser, as the case may be, including, without
limitation, all lease and equipment assignments and/or consents for the
assumption by, or assignment to, the Purchaser of the Assigned Contracts, in
form and substance acceptable to the Purchaser or the Purchaser's counsel in its
sole discretion.
(vii) Due Diligence: Phase I Evaluation. The results of the
Purchaser's business, legal and accounting due diligence with respect to the
Business shall be satisfactory to Purchaser in its sole discretion. Without
limiting the foregoing, the results of any Phase I environmental evaluation
conducted by the Purchaser on any of the real properties owned or leased by the
Company in connection with the Business shall be satisfactory to Purchaser in
its sole discretion.
(viii) Delivery of Additional Instruments. On the Closing Date,
unless waived in writing by Purchaser, the Company shall deliver, or cause to
be delivered to the Purchaser, the documents and instruments referenced in
Section VI(b)(ii), in form and substance satisfactory to Purchaser and its
counsel.
(ix) Board Approval. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the requisite vote
of the Board of Directors of the Purchaser.
(b) Conditions Precedent to the Obligations of the Company. The
obligation of the
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<PAGE> 12
Company to consummate the sale of the Assets to Purchaser shall be subject to
the fulfillment, or the waiver by the Company, at or prior to the Closing, of
each of the following conditions precedent:
(i) Representations and Warranties. The representations and
warranties made by the Purchaser in this Agreement hereto shall have been true
and correct on the date hereof, and also at and as of the Closing Date with the
same force and effect as if made again at and as of that time.
(ii) Absence of Material Litigation. There shall be (i) no
pending or overtly threatened litigation (other than litigation which is
determined by the parties in good faith, after consulting their respective
attorneys, to be without legal or factual substance or merit), whether brought
against the Company or the Purchaser that seeks to enjoin the consummation of
any of the transactions contemplated by this Agreement, and (ii) no order that
has been issued by any court or governmental agency having jurisdiction that
restrains or prohibits the consummation of the purchase and sale of the Assets
hereunder or any proceedings pending which are reasonably likely to result in
the issuance of such an order.
(iii) Performance of Obligations. The Purchaser shall have
performed and complied with all of its covenants required by this Agreement to
have been performed by it at or prior to the Closing.
(iv) Certificates. Receipt from the Purchaser of a certificate,
dated as of the Closing Date and signed by the President or the Chief Financial
Officer of the Purchaser, certifying that (i) each of its representations and
warranties contained herein was true and correct when made and is true and
correct on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on the Closing Date, and (ii) it
has performed and complied with all agreements, obligations, covenants and
conditions required to be performed or complied with by it pursuant hereto on or
prior to the Closing Date, except as may be waived in writing by the Company.
(v) Delivery of Additional Instruments. On the Closing Date,
unless waived in writing by Company, the Purchaser shall deliver, or cause to be
delivered to Company, the Purchase Price and the documents and instruments
referenced in Section VI(b)(i), in form and substance satisfactory to Company
and its counsel.
SECTION VI
CLOSING AND DELIVERIES
(a) Time and Place of Closing. The closing of the purchase and sale
of the Assets as set forth herein (the "Closing") shall be held at the offices
of the Business. The Closing shall commence at 2:00 p.m., local time on December
2, 1998 or such other date upon which the Purchaser and the Company shall agree
(the "Closing Date").
(b) Deliveries.
(i) At the Closing, the Purchaser shall deliver to the Company
the following:
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<PAGE> 13
(A) A wire transfer for the Closing Date Payment of the
Purchase Price, as described and adjusted in accordance with Section l(b);
and
(B) Such certificates, instruments and other documents, in form
and substance satisfactory to the Company and its counsel, as they shall
have reasonably requested in connection with the transactions contemplated
hereby.
(ii) At the Closing, the Company shall deliver to the Purchaser,
as a condition to Closing, the following:
(A) A Bill of Sale in the form attached hereto as Exhibit
VI(b)(ii)(A), such other instruments of conveyance and transfer, and such
powers of attorney, as shall be effective to vest in the Purchaser title to
or other interest in, and the right to full custody and control of, the
Assets, free and clear of all Liens or Encumbrances whatsoever;
(B) The Assigned Contracts and the books and records of the
Company constituting a part of the Assets;
(C) Evidence that any and all sales or use taxes assessed in
connection with this transaction have been paid by the Company;
(D) Such certificates, instruments and other documents, in form
and substance satisfactory to the Purchaser and its counsel, as they shall
have reasonably requested in connection with the transactions contemplated
hereby;
(E) An opinion of Howard P. Kamins, Esq., counsel for the
Company, delivered to the Purchaser pursuant to the instructions of the
Company, substantially to the effect set forth in Exhibit VI(b)(ii)(E)
attached hereto; and
(F) All necessary consents of third parties under the Assigned
Contracts and other instruments of the Company to the consummation of the
transactions contemplated hereby, which consents shall not provide for the
acceleration of any liabilities or any other detriment to the Purchaser or
the Company.
(c) Other Inventory. At the Closing, the Company shall consign its rights
to the Other Inventory (as defined below) of the Business to the Purchaser for
a period of at least ninety (90) days from the Closing Date. During such period,
such Other Inventory shall remain on the Company's premises and the Purchaser
shall be entitled, but without obligation, and from time to time, to draw down
on the Other Inventory for sale and use in connection with the Business as and
where conducted by Purchaser. During such ninety (90) day period, the purchase
price to be paid by the Purchaser for such Other Inventory shall be the lower of
the Company's cost or the market price of such Other Inventory. On or prior to
the expiration of such ninety (90) day period, the Purchaser shall be entitled
to purchase all or part of the remaining Other Inventory in bulk for a price and
upon terms to be negotiated by the parties at such time. Payments by Purchaser
shall be within thirty (30) days of the draw down of any such Other Inventory.
Following the expiration of such ninety (90) days period, the Purchaser shall
be entitled to purchase all or part of the remaining Other Inventory at a price
and upon terms to be negotiated by the parties at such time; provided that, if
the parties are unable to negotiate a mutually acceptable price at which such
remaining Other Inventory may be
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<PAGE> 14
purchased by the Purchaser, then the Company may sell any Other Inventory after
the expiration of such ninety (90) day period to any third party other than the
Purchaser. For purposes hereof, the term "Other Inventory" shall mean all
inventory other than the Useable Raw Materials Inventory included in the Assets.
SECTION VII
INDEMNIFICATION
(a) Indemnification by the Company. The Company shall indemnify and hold
harmless the Purchaser and its successors and assigns, directors, officers,
employees, agents and representatives, from and against any and all losses,
claims, assessments, actions, suits, claims, demands, debts, liabilities,
obligations, losses, damages, costs and expenses, including without limitation
the cost of investigation and reasonable attorney's fees and court costs,
arising out of, resulting from, related to, or caused by, directly or
indirectly, in whole or in part any or all of the following (hereinafter
referred to collectively as "Damages"):
(i) Damages based on, arising out of or attributable to the
Liabilities:
(ii) Damages based on, arising out of or attributable to any
inaccuracy in or breach or nonfulfillment of any of the representations,
warranties and covenants made by the Company in this Agreement, except for those
in Section II(g), the sole remedy for which is the adjustment mechanism Section
I(d)(ii)(A);
(iii) Damages arising out of or attributable from the failure of the
Company to comply with the provisions of the Uniform Commercial Code and/or any
"Bulk Sales" laws, in connection with the sale of the Assets to the Purchaser;
(iv) Damages arising out of or attributable to the presence on or in
or the discharge from any of the real properties owned or leased in connection
with the Business or any of the Assets, any toxic or hazardous substances (as
defined in Section II(k) above) that originated or took place prior to the
Closing Date, whether or not the same constitutes a breach of the
representations or warranties contained in Section II(k) hereof or is disclosed
in this Agreement or the Schedules hereto;
(v) Damages arising out of or attributable to the operations prior
to the Closing Date of the Company, and/or to the acts or omissions prior to the
Closing Date of any of its current or former shareholders, directors, officers,
employees or agents, including without limitation Damages arising out of claims
(a) for violation of federal or state insurance, antitrust, securities, unfair
trade practice or other laws, (b) personal injury claims, (c) claims of any
nature by past or present directors, officers, employees or agents of the
Company (including workers' compensation claims to the extent not fully insured
against and claims under federal or state employment statutes and judicial
decisions), (d) claims based on breach of warranty, products liability or
defective or omitted service, and (e) any other Liabilities. It is understood
and agreed that the acts, omissions or events for which Purchaser is entitled to
indemnification hereunder include, but are not limited to, claims asserted after
the Closing (whether such claims are tort claims, contract claims or otherwise)
which are based upon (1) alleged defects in products or services which were
either sold, delivered or
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<PAGE> 15
rendered by the Company on or before the Closing. (2) alleged defects in
products which were in the inventory of the Company at the time of the Closing
and sold or delivered thereafter by the Purchaser or (3) defects in services
which were rendered by the Company at or before the time of Closing and were
completed thereafter by the Purchaser. It is further understood and agreed that
the acts, omissions and events for which Purchaser is entitled to
indemnification hereunder include claims (whether tort. contract or otherwise)
which are based upon any injury to any Person or any damage to any property
which occurs after the Closing and which results in whole or in part from acts,
omissions and events which occurred at or before the Closing; the Company's lack
of knowledge of such act, omission or event, or the fact that such act, omission
or event was unknowable by such person, shall not be a defense to the claim for
indemnity.
(vi) any liability for taxes heretofore or hereafter imposed by any
taxing authority (including penalties and interest) owed by, relating to,
resulting from or attributable to the business or operations of the Company on
or before the Closing Date, including interest and penalties related to such
taxes.
(b) Indemnification by the Purchaser. The Purchaser shall indemnify
and hold harmless the Company from and against (i) any and all Damages sustained
or incurred by the Company by reason of the breach of any of the obligations,
covenants or provisions of, or the inaccuracy of any of the representations or
warranties made by, the Purchaser herein, (ii) Damages arising out of or
attributable to the operations after the Closing Date of the portion of the
Business which is purchased by the Purchaser. including without limitation
Damages arising out of claims (a) for violation of federal or state insurance.
antitrust, securities, unfair trade practice or other laws, (b) personal injury
claims, (c) claims of any nature by directors. officers, employees or agents of
the Purchaser based on occurrences after the Closing Date (including workers'
compensation claims to the extent not fully insured against and claims under
federal or state employment statutes and judicial decisions), and (d) claims
based on breach of warranty, products liability or defective or omitted service.
It is understood and agreed that the acts, omissions or events for which the
Company is entitled to indemnification hereunder include, but are not limited
to claims asserted after the Closing Date (whether such claims are tort claims,
contract claims or otherwise) which are based in whole upon alleged defects in
products or services which were either sold, delivered or rendered by the
Purchaser on or after the Closing Date; and (iii) any liability for taxes
heretofore or hereafter imposed by any taxing authority (including penalties and
interest) owed by, relating to, resulting from or attributable to the business
or operations of the portion of the Business which is purchased by the Purchaser
on or after the Closing Date, including interest and penalties related to such
taxes.
(c) Procedure for Indemnification. If a claim by a third party is
made against any party hereto, and such party (the "Indemnified Party") intends
to seek indemnity with respect to such claim under this Section VII such
Indemnified Party shall promptly notify the party from whom such indemnity may
be sought (the "Indemnifying Party") of such claim. The Indemnifying Party shall
have thirty (30) days after receipt of the above-mentioned notice to undertake,
conduct and control, through counsel of such party's own choosing (subject to
the consent of the Indemnified Party, such consent not to be unreasonably
withheld) and at such party's expense, the settlement or defense of it, and the
Indemnified Party shall cooperate with the Indemnifying Party in connection with
such efforts: provided that: (i) the Indemnifying Party shall not by this
Agreement permit to exist any lien, encumbrance or other adverse charge upon any
asset of any Indemnified Party, (ii) the Indemnifying Party shall permit the
Indemnified Party to participate in such settlement or defense
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<PAGE> 16
through counsel chosen by the Indemnified Party, provided that the fees and
expenses of such counsel shall be borne by the Indemnified Party, and (iii) the
Indemnifying Party shall agree promptly to reimburse the Indemnified Party for
the full amount of any loss resulting from such claim and all related expense
incurred by the Indemnified Party pursuant to this Section VII. So long as the
Indemnifying Party is reasonably contesting any such claim in good faith, the
Indemnified Party shall not pay or settle any such claim. If the Indemnified
Party does not notify the Indemnified Party within thirty (30) days after
receipt of the Indemnified Party's notice of a claim of indemnify under this
Section VI that such party elects to undertake the defense of such claim, the
Indemnified Party shall have the right to contest, settle or compromise the
claim in the exercise of the Indemnified Party's exclusive discretion at the
expense of the Indemnifying Party, and the Indemnifying Party shall within 30
days pay to the Indemnified Party the amount of expenses and damages as a result
of contesting, settling or compromising such claim. In the event that any party
hereto shall incur any Damages in respect of which indemnity may be sought by
such party pursuant to this Section VII. the Indemnifying Party shall be given
written notice thereof by the indemnified Party, which notice shall specify the
amount and nature of such Damages and include the request of the Indemnified
Party for indemnification of such amount. The Indemnifying party shall within 30
days pay to the Indemnified Party the amount of the Damages so specified.
(d) The amount of Damages payable to an Indemnified Party pursuant to
this Section VII shall be reduced by the actual amount of proceeds received by
such party from an insurance carrier on account of such Damages. The Indemnified
Party shall not be entitled to make a claim for indemnification hereunder, or to
withhold from the Holdback Amount, until the total amount of the Damages
suffered by the Purchaser exceeds $25,000. Once that threshold amount is
reached, such party may recover the full amount of its Damages, including the
threshold amount.
SECTION VIII
BROKERS AND FINDERS
(a) The Company's Obligation. Except as set forth in Schedule VIII(a)
hereto, the Purchaser shall not have any obligation to pay any fee or other
compensation to any person, firm or corporation engaged by the Company in
connection with this Agreement and the transactions contemplated hereby, and the
Company, hereby agrees to indemnify and save the Purchaser harmless from any
liability, damage, cost or expense arising from any claim for any such fee or
other compensation.
(b) The Purchaser's Obligation. Except as set forth in Schedule
VIII(b) hereto, the Company shall not have any obligation to pay any fee or
other compensation to any person, firm or corporation engaged by the Purchaser
in connection with this Agreement and the transactions contemplated hereby, and
the Purchaser hereby agrees to indemnify and save the Company harmless from any
liability, damage, cost or expense arising from any claim for any such fee or
other compensation.
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<PAGE> 17
SECTION IX
TERMINATION
(a) This Agreement may be terminated and the transactions herein
contemplated may be abandoned at any time prior to the Closing:
(i) By mutual written consent of the Purchaser and the
Company:
(ii) By the Purchaser, if there has been a material breach by
the Company of any of its representations, warranties, agreements or covenants
set forth herein, or a failure of any condition to which the obligations of the
Purchaser are subject; or
(iii) By the Company, if there has been a material breach by
the purchaser of any of its representations, warranties, agreements or covenants
set forth herein, or a failure of any condition to which the obligations of the
Company is subject, or if the Closing does not occur on or before sixty (60)
days from the date hereof and there has been no material breach by the Company
of its obligations hereunder.
(b) Procedure Upon Termination. In the event of termination of this
Agreement by the Purchaser or the Company or by both the Purchaser and the
Company pursuant to Section IX(a) hereof, written notice thereof shall forthwith
be given to the other party or parties hereto and the transactions contemplated
herein shall be abandoned without further action by the Purchaser or the
Company. In addition, if this Agreement is terminated as provided herein:
(i) Each party will redeliver all documents, workpapers and
other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the party
furnishing the same.
(ii) All information of a confidential nature received by any
party hereto with respect to the business of any other party (other than
information which is a matter of public knowledge or which has heretofore been
or is hereafter published in any publication for public distribution or filed as
public information with any governmental authority) shall continue to be kept
confidential for a period of two (2) years.
(iii) Upon any termination of this Agreement pursuant to this
Section IX(a) the respective obligations of the parties hereto under this
Agreement shall terminate and no party shall have any liability whatsoever to
any other party hereto by reason of such termination, irrespective of the cause
of such termination, except as expressly provided to the contrary in this
Section IX and in Section IV(e) above.
SECTION X
MISCELLANEOUS
(a) Notices. All notices, requests or instructions hereunder shall be
in writing and delivered personally, sent by telecopy or sent by registered or
certified mail, postage prepaid, as follows:
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<PAGE> 18
If to the Purchaser: Smartflex Systems, Inc.
14312 Franklin Avenue
Tustin, California 92781
Attention: William L. Healey,
President and Chief Executive Officer
Facsimile No. (714) 838-8787
with copies to: Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660-6441
Attention: Nick E. Yocca, Esq.
Facsimile No. (949) 725-4100
If to the Company: EA Industries, Inc.
185 Monmouth Parkway
West Long Branch, NJ 07764
Attention: President
Telecopy No.: (732) 229-6162
Telephone No.: (732) 229-1100
with a copy to: Mesirov Gelman Jaffe Cramer & Jamieson
1735 Market Street
Philadelphia, PA 19103
Attention: Richard P. Jaffe, Esquire
Telecopy No.: (215) 994-1111
Telephone No.: (215) 994-1046
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, and two business days after the date of
mailing, if mailed.
(b) Survival of Representations. Each representation, warranty, covenant
and agreement of the parties hereto herein contained shall survive closing,
notwithstanding any investigation at any time made by or on behalf of any party
hereto.
(c) Entire Agreement. This Agreement and the documents referred to herein
contain the entire agreement among the parties hereto with respect to the
transactions contemplated hereby, and no modification hereof shall be effective
unless in writing and signed by the party against which it is sought to be
enforced.
(d) Expenses. Each of the parties hereto shall bear such party's own
expenses in connection with this Agreement and the transactions contemplated
hereby.
(e) Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or any breach hereof, shall be settled by arbitration in
accordance with the rules of the American
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<PAGE> 19
Arbitration Association then in effect and judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. The
arbitration shall be held in Orange County, California.
(f) Invalidity. Should any provision of this Agreement be held by a court
or arbitration panel of competent jurisdiction to be enforceable only if
modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as modified by the court or the arbitration panel
shall be binding upon and enforceable against each of them. In any event, should
one or more of the provisions of this Agreement be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions hereof, and if such provision or
provisions are not modified as provided above, this Agreement shall be construed
as if such invalid, illegal or unenforceable provisions had never been set forth
herein.
(g) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the Company and the Purchaser.
(h) Governing Law. The validity of this Agreement and of any of its terms
or provisions, as well as the rights and duties of the parties under this
Agreement, shall be construed pursuant to and in accordance with the laws of the
State of California, without regard to conflict of laws principles.
(i) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
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<PAGE> 20
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first written above.
PURCHASER: METHUEN ACQUISITION CORP..
By: William L. Healey
------------------------------------
Name: William L. Healey
-------------------------------
Title: President
------------------------------
COMPANY: EA INDUSTRIES, INC.
By: Howard Hammins
------------------------------------
Name: Howard Hammins
-------------------------------
Title: Vice President
------------------------------
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<PAGE> 21
SCHEDULE I(b)
PAYOUT AMOUNTS
<TABLE>
<S> <C>
1. Promissory Note To the bank for Lease $400,000
2. Commissions to Sales Representatives 5,000
3. Benefit Premiums 40,000
4. Payroll Setup 5,000
5. ISO Certification 8,000
6. Retention Bonuses 50,000
7. Micro MRP License** 25,000
8. Payables to Customers** 49,000
**To be paid directly by the Company, and to be reimbursed to
the Company by the presentation of documentation reasonably
satisfactory to the Purchaser evidencing has been made. 582,000
</TABLE>
<PAGE> 1
EXHIBIT 10.4
EXECUTION COPY
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), is made this 16th day of
April, 1999, between WORLD WIDE INDUSTRIAL INVEST B.V., a private limited
company organized under the laws of the Netherlands ("World Wide"), and SATURN
ELECTRONICS & ENGINEERING, INC., a Michigan corporation whose address is 255 Rex
Boulevard, Auburn Hills, MI 48326 ("Saturn").
RECITALS:
A. World Wide is the owner of 619,610 shares of Class A Voting stock and
619,610 shares of Class B Nonvoting stock of Saturn, no par value
(collectively, the "Stock"), which Stock constitutes twenty percent (20%) of the
issued and outstanding stock of Saturn.
B. Saturn desires to purchase and redeem the Stock upon the terms and
conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the promises contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, World Wide and Saturn agree as follows:
1. PURCHASE AND SALE OF STOCK; CLOSING. World Wide agrees to assign,
convey, sell and transfer to Saturn at Closing (defined below), and Saturn
agrees to purchase, redeem and acquire from World Wide at Closing, all of World
Wide's right, title and interest in and to the Stock, free and clear of all
liens, charges, security interests, pledges, restrictions, claims and
encumbrances of any kind. At the Closing, World Wide shall deliver to Saturn the
original of all stock certificates evidencing the Stock (as described on
Attachment 1 to this Agreement), duly endorsed for transfer or accompanied by
stock powers or assignments duly signed. The closing of the purchase and sale
(the "Closing") shall take place on April 30, 1999 or such other date mutually
agreed by the parties.
2. PAYMENT FOR STOCK; CONDITIONS TO CLOSING. The purchase price for the
Stock shall be Twenty Seven Million Dollars (U.S. $27,000,000). The purchase
price shall be paid by Saturn in cash at Closing via federal wire transfer to a
bank account designated by World Wide. The purchase and sale of the Stock is
subject to fulfillment or waiver of the following conditions:
(a) Approval of the purchase by Saturn's Board of Directors.
(b) Approval of the purchase by World Wide's Board of Directors and General
Shareholders Assembly.
(c) Compliance by the parties with applicable provisions of the
Stockholders Agreement among the stockholders of Saturn dated March 21, 1995, as
amended by an Amendment No. 1 to Stockholders Agreement dated December 13, 1996,
or receipt of a waiver
<PAGE> 2
by the stockholders of Saturn in the form of Attachment 2 attached hereto
waiving compliance with Section 2.3 of the Stockholders Agreement if applicable.
3. REPRESENTATIONS.
(a) World Wide represents and warrants to Saturn now and as of the Closing
date that:
(i) The sale and transfer of the Stock to Saturn was duly authorized
and does not violate any contract or agreement to which World
Wide is a party or is bound or any requirement of law applicable
to World Wide, and all approvals required to transfer the Stock
to Saturn have been (or will be by Closing) obtained.
(ii) World Wide is the sole owner, beneficially and of record, of the
Stock, and has good and marketable title to the Stock, free and
clear of any and all liens, charges, security interests, pledges,
restrictions, claims and encumbrances of any kind.
(b) Saturn represents and warrants to World Wide now and as of the Closing
date that:
(i) The purchase of the Stock by Saturn was duly authorized and does
not violate any contract or agreement to which Saturn is a party
or is bound or any requirement of law applicable to Saturn, and
all approvals required to purchase the Stock have been (or will
be by Closing) obtained.
(ii) Saturn has provided to World Wide copies of the financial
information listed on Attachment 3 attached hereto (collectively,
the "Financial Information"). To the best of Saturn's knowledge,
the Financial Information does not contain any untrue statement
of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements
therein not misleading as of the date prepared and in light of
the circumstances in which they were made. To the best of
Saturn's knowledge, Saturn has disclosed to World Wide all
material transactions which are currently active and for which
Saturn has obtained a signed letter of intent or memorandum of
understanding as of March 17, 1999. The Forecasts (defined below)
that constitute part of the Financial Information have been
prepared in good faith taking into consideration all material
information of which the President and Chief Financial Officer of
Saturn were aware at the time the Forecasts were prepared. World
Wide acknowledges and agrees that Saturn is not making any
representation or warranty regarding any forward-looking
statements provided to World Wide, including those that
constitute part of the Financial Information (collectively, the
"Forecasts"), or that Saturn will achieve the numbers set forth
in the Forecasts. World Wide further acknowledges and agrees that
such Forecasts are subject to uncertainty, unknown or changed
opportunities, changed circumstances and other factors which
could affect the Forecasts and cause actual results to differ
materially (beneficially or
2
<PAGE> 3
detrimentally) from those set forth in the Forecasts. Saturn
provided to World Wide estimated net income of Saturn as a
percentage of Saturn revenues in the following percentages: 6.8%
for the year 2000, 7.2% for the year 2001 and 7.7% for the year
2002. World Wide acknowledges and agrees that these percentages
are Forecasts as used in this paragraph and that the disclaimers
set forth in this paragraph apply to these percentages.
(iii)Saturn represents and warrants that Saturn and its subsidiaries,
on a consolidated basis, has not been a U.S. real property
holding corporation within the meaning of Section 897(c)(2) of
the United States Internal Revenue Code during the applicable
period specified in Section 897(c)(l)(A)(ii) thereof. Saturn
shall indemnify and hold World Wide harmless from and against any
assessment, penalty or interest charge arising out of or
resulting from any breach of the representation made in the
previous sentence.
4. RELEASE AND WAIVER OF WORLD WIDE. In consideration of the purchase price
to be paid for the Stock, World Wide, for itself and its successors and assigns,
as of the date of Closing releases and discharges Saturn and its directors,
officers, shareholders, employees, affiliates, agents, successors and assigns,
from any and all claims, demands, actions, suits, liabilities and causes of
action of any kind and nature whatsoever, fixed or contingent, and waives all
rights, which World Wide may have against Saturn and/or the released parties by
reason of World Wide having been a shareholder of Saturn and owner of the Stock.
5. RELEASE AND WAIVER OF WORLD WIDE DESIGNATED DIRECTORS. Conditioned on
receipt by Saturn of written representations from Mr. Mario Borzone and Mr.
Enrico Perna that, to the best of their knowledge, they have not breached their
fiduciary duties as directors of Saturn (copies of such representations are
attached hereto as Attachment 4), Saturn agrees:
(a) As of the date of Closing (the effective date of his resignation)
regarding Mr. Borzone, and as of May 22, 1997 (the effective date he no longer
was a director) regarding Mr. Perna, Saturn releases and discharges Messrs.
Borzone and Perna from any and all claims, demands, actions, suits, liabilities
and causes of action of any kind and nature whatsoever, fixed or contingent, and
waives all rights, which Saturn may have against either of them by reason of
their having served on the Saturn Board of Directors.
(b) Saturn currently has in place Directors & Officers Liability insurance
(attached hereto as Attachment 5 is a summary of such insurance) and agrees to
use reasonable best efforts to keep such insurance (or comparable insurance) in
place until December 31, 2001.
(c) Attached hereto as Attachment 6 is a true and correct copy of Saturn's
Articles of Incorporation, as amended to date. At present, Saturn does not
contemplate amending Article VIII of its Articles of Incorporation which
addresses indemnification of directors and officers of Saturn.
3
<PAGE> 4
6. STOCKHOLDERS AGREEMENT: RESIGNATION. World Wide acknowledges and agrees
that, upon transfer of the Stock to Saturn, World Wide shall cease to be a party
to the Stockholders Agreement among the shareholders of Saturn dated March 21,
1995, as amended, and World Wide shall not have any rights or obligations
thereunder, including, but not limited to, the right to designate a director of
Saturn. World Wide shall deliver to Saturn at Closing the resignation of Mario
Borzone resigning as a director of Saturn, which resignation shall be effective
upon execution.
7. ADDITIONAL COVENANTS. Saturn and World Wide, on behalf of themselves and
their respective subsidiaries, covenant and agree as follows:
(a) Saturn agrees to terminate the license agreement it currently holds
from Bitron, a subsidiary of World Wide, as it applies to certain products at no
cost to Bitron. Upon execution of this Agreement, Saturn and Bitron shall
execute and deliver the Amendment No. 2 to Technical Information and License
Agreement (the "License Agreement") in the form attached as Attachment 7 to this
Agreement, which Amendment shall become effective upon Closing of this
Agreement. Saturn does not have any of the products being terminated from the
License Agreement in production. Promptly after execution of Amendment No. 2,
Saturn shall cease using Bitron Technology (as defined in the License Agreement)
related to such products and shall return to Bitron all documentation related to
such products in accordance with Section 3.06(b) and Article V of the License
Agreement (all of the obligations of which shall continue, notwithstanding the
termination of Article III pursuant to Amendment No. 2 to the License
Agreement). If an opportunity arises with respect to the products for which the
license will be terminated, Saturn and World Wide may elect to discuss the
opportunity and may mutually agree upon the terms of World Wide/Bitron, Inc.
granting to Saturn a license for any of these products on a case-by-case basis.
(b) For a period of three (3) years from the date of this Agreement, Saturn
and World Wide agree not to employ or solicit to employ any person who is
employed by the other party in an executive, management or professional level
position or any person who is otherwise considered a key employee, without the
other party's prior written consent.
(c) For a period of three (3) years from the date of this Agreement, World
Wide and Saturn agree not to operate a production facility within a twenty-five
(25) mile radius of any existing production facility of the other party. The
parties acknowledge that operation by World Wide or its affiliates of commercial
offices (that is non-production facilities) in the greater Detroit, Michigan
area would not constitute a breach of this provision.
(d) For a period of three (3) years from the date of this Agreement, World
Wide and Bitron agree not to misuse any confidential or proprietary written
information regarding Saturn obtained from Saturn in connection with Saturn
Board of Director meetings to unfairly compete with Saturn. This restriction
shall not apply to information which (i) is now or subsequently becomes publicly
known or available through no fault of World Wide or Bitron S.p.A; or (ii) is
rightfully furnished to World Wide or Bitron S.p.A. by a third person who is not
prohibited from disclosing the information acquired by it in any manner.
Promptly after execution of this Agreement, World Wide shall return to Saturn
all documentation and information regarding Saturn in the possession of World
Wide or any of its subsidairies received in connection with
4
<PAGE> 5
Saturn Board of Director and Shareholder meetings, and World Wide shall not
retain any copies thereof.
(e) Except as permitted pursuant to the License Agreement, Saturn and World
Wide agree that they will not, without the other party's prior written consent,
use for any purpose or disclose to any person or entity any confidential or
proprietary information or trade secrets acquired by it in any manner
(including, but not limited to, information acquired in connection with Saturn
Board of Director and Shareholder meetings) which pertains to the business or
manner of operation of the other party's business (any such information,
"Confidential Information"). This restriction shall not apply to Confidential
Information that (i) is now or subsequently becomes publicly known or available
without breach of this provision by the recipient, (ii) or is, in the written
opinion of legal counsel, required to be disclosed by law or court order. If
either party (the "Requested Party") is requested or required (by oral
questions, interrogatories, requests for information or documents, subpoena,
civil investigative demand or similar process) to disclose any Confidential
Information of the other party, such Requested Party will provide the other
party with prompt notice of such request(s), to the extent practicable, so that
the party whose Confidential Information would be disclosed may seek an
appropriate protective order and/or waive compliance with the provisions of this
section. If, failing the entry of a protective order or the receipt of a waiver
hereunder, the Requested Party is, in the opinion of its counsel, compelled to
disclose Confidential Information or notes under pain of liability for contempt
or other censure or penalty, the Requested Party may disclose such Confidential
Information of the other party (to the extent necessary to avoid such liability,
censure, or penalty) without liability hereunder. Each party understands and
agrees that money damages may not be a sufficient remedy for any breach of its
obligations under this section and that the other party shall be entitled to
equitable relief, including injunction and specific performance, as a remedy for
any such breach. Such remedies shall not be deemed to be the exclusive remedies
for a breach of this section but may be in addition to all other remedies
available at law or equity to the parties.
8. MISCELLANEOUS.
(a) Entire Agreement and Amendment. This Agreement contains the entire
agreement between the parties with respect to the matters described herein and
is a completely integrated and exclusive statement as to the terms thereof and
supersede all previous agreements. This Agreement may not be altered or modified
except by a writing signed by the parties hereto.
(b) Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(c) Governing Law and Choice of Forum. Michigan law shall govern the
construction and enforceability of this Agreement. Any and all actions
concerning any dispute arising hereunder shall be filed and maintained only in a
court sitting in Michigan.
(d) Further Assurances. Saturn and World Wide agree that they shall
execute and deliver any and all additional writings, instruments and other
documents contemplated hereby or referred to herein and shall take such further
actions as shall be reasonably required in order to
5
<PAGE> 6
effectuate the terms and conditions of this Agreement and carry out its
purposes.
(e) Transfer Taxes. World Wide shall pay and indemnify Saturn from and
against any sales, use, excise, transfer or other similar tax imposed with
respect to the sale of the Stock to Saturn, and any interest and penalties
related thereto. World Wide shall not be responsible for tax assessments,
penalties or interest charges arising out of or resulting from a breach of
Saturn's representations and warranties set forth in Section 3(b)(iii) above.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
WORLD WIDE INDUSTRIAL INVEST B.V.
By: /s/ Claude Aloyse Schmitz
----------------------------------
Claude Aloyse Schmitz, Director
By: /s/ Ronald Vergunst
----------------------------------
Ronald Vergunst, Director
By: /s/ Pierfranco Riva
----------------------------------
Pierfranco Riva, Director
SATURN ELECTRONICS & ENGINEERING, INC.
By: /s/ Wallace K. Tsuha, Jr.
----------------------------------
Wallace K. Tsuha, Jr.
Its: CEO and President
Bitron, S.p.A. signs this Agreement to agree to be bound by the covenants set
forth in Section 7 of this Agreement.
BITRON, S.p.A.
By: /s/
----------------------------------
Its: President
---------------------------------
6
<PAGE> 1
EXHIBIT 10.5
================================================================================
AGREEMENT AND PLAN OF MERGER
among
SATURN ELECTRONICS & ENGINEERING, INC.
SSI ACQUISITION CORP.
and
SMARTFLEX SYSTEMS, INC.
Dated as of July 6, 1999
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TABLE OF CONTENTS
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ARTICLE I.........................................................................................................2
SECTION 1.01. The Offer.................................................................................2
SECTION 1.02. Company Action............................................................................3
ARTICLE II........................................................................................................5
SECTION 2.01. The Merger................................................................................5
SECTION 2.02. Effective Time; Closing...................................................................5
SECTION 2.03. Effect of the Merger......................................................................5
SECTION 2.04. Articles of Incorporation; Bylaws.........................................................5
SECTION 2.05. Directors and Officers....................................................................6
SECTION 2.06. Conversion of Securities..................................................................6
SECTION 2.07. Employee and Director Stock Options.......................................................6
SECTION 2.08. Surrender of Shares; Stock Transfer Books.................................................7
ARTICLE III.......................................................................................................8
SECTION 3.01. Organization and Qualification; Subsidiaries..............................................8
SECTION 3.02. Articles of Incorporation and Bylaws......................................................9
SECTION 3.03. Capitalization............................................................................9
SECTION 3.04. Authority Relative to this Agreement.....................................................10
SECTION 3.05. No Conflict; Required Filings and Consents...............................................10
SECTION 3.06. Compliance...............................................................................11
SECTION 3.07. SEC Filings; Financial Statements........................................................11
SECTION 3.08. Absence of Certain Changes or Events.....................................................12
SECTION 3.09. Absence of Litigation....................................................................12
SECTION 3.10. Employee Benefit Plans...................................................................13
SECTION 3.11. Labor Matters............................................................................15
SECTION 3.12. Offer Documents; Schedule 14D-9; Proxy Statement.........................................15
SECTION 3.13. Tangible Property; Real Property and Leases..............................................16
SECTION 3.14. Trademarks, Patents and Copyrights.......................................................17
SECTION 3.15. Taxes....................................................................................17
SECTION 3.16. Environmental Matters....................................................................18
SECTION 3.17. Material Contracts.......................................................................18
SECTION 3.18. Brokers and Counsel......................................................................19
SECTION 3.19. Year 2000 Compliance.....................................................................19
ARTICLE IV.......................................................................................................20
SECTION 4.01. Corporate Organization...................................................................20
SECTION 4.02. Authority Relative to This Agreement.....................................................20
SECTION 4.03. No Conflict; Required Filings and Consents...............................................20
SECTION 4.04. Financing................................................................................21
SECTION 4.05. Offer Documents; Proxy Statement.........................................................21
SECTION 4.06. Brokers..................................................................................21
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ARTICLE V........................................................................................................22
SECTION 5.01. Conduct of Business by the Company Pending the Merger....................................22
ARTICLE VI.......................................................................................................24
SECTION 6.01. Special Shareholders' Meeting............................................................24
SECTION 6.02. Proxy Statement..........................................................................24
SECTION 6.03. Access to Information; Confidentiality...................................................24
SECTION 6.04. No Solicitation of Transactions..........................................................25
SECTION 6.05. Employee Benefits Matters; Employment Agreements.........................................25
SECTION 6.06. Directors' and Officers' Indemnification and Insurance...................................26
SECTION 6.07. Notification of Certain Matters..........................................................27
SECTION 6.08. Further Action; Reasonable Best Efforts..................................................27
SECTION 6.09. Public Announcements.....................................................................28
SECTION 6.10. Confidentiality Agreement................................................................28
SECTION 6.11 Financial Statements.....................................................................28
SECTION 6.12 SEC Reports..............................................................................28
SECTION 6.13 Customer Calls...........................................................................28
ARTICLE VII......................................................................................................29
SECTION 7.01. Conditions to the Merger.................................................................29
ARTICLE VIII.....................................................................................................29
SECTION 8.01. Termination..............................................................................29
SECTION 8.02. Effect of Termination....................................................................31
SECTION 8.03. Fees and Expenses........................................................................31
SECTION 8.04. Amendment................................................................................31
SECTION 8.05. Waiver...................................................................................32
ARTICLE IX.......................................................................................................32
SECTION 9.01. Non-Survival of Representations, Warranties and Agreements...............................32
SECTION 9.02. Notices..................................................................................32
SECTION 9.03. Certain Definitions......................................................................33
SECTION 9.04. Severability.............................................................................34
SECTION 9.05. Entire Agreement, Assignment.............................................................34
SECTION 9.06. Parties in Interest......................................................................34
SECTION 9.07. Specific Performance.....................................................................34
SECTION 9.08. Governing Law............................................................................35
SECTION 9.09. Headings.................................................................................35
SECTION 9.10. Counterparts; Facsimile..................................................................35
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ANNEX A Conditions to the Offer
SCHEDULE I
EXHIBIT A
ii
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Glossary of Defined Terms
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Location of
Defined Term Definition
------------ ----------
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affiliate....................................................................... ss. 9.03(a)
Affiliate Contract.............................................................. ss. 3.17
Agreement....................................................................... Preamble
Attorney Engagement............................................................. ss. 3.18
beneficial owner................................................................ ss. 9.03(b)
Blue Sky Laws................................................................... ss. 3.05(b)
Board ....................................................................... Recitals
Broker Agreement................................................................ ss. 3.18
business day.................................................................... ss. 9.03(c)
Certificate of Merger........................................................... ss. 2.02
Certificates.................................................................... ss. 2.08(b)
Code ....................................................................... ss. 3.10(a)
Company ....................................................................... Preamble
Competing Proposal.............................................................. ss. 8.03(a)(i)
Competing Transaction........................................................... ss. 6.04
Confidentiality Agreement....................................................... ss. 6.03(b)
control ....................................................................... ss. 9.03(d)
control by...................................................................... ss. 9.03(d)
Delaware Law.................................................................... Recitals
Disclosure Schedule............................................................. ss. 3.01
Effective Time.................................................................. ss. 2.02
Environmental Law............................................................... ss. 3.16(a)
ERISA ....................................................................... ss. 3.10(a)
Exchange Act.................................................................... ss. 1.02(b)
Fee ....................................................................... ss. 8.03(a)
GAAP ....................................................................... ss. 3.07(b)
Hazardous Substances............................................................ ss. 3.16(a)
HSR Act ....................................................................... ss. 3.05(b)
Indemnified Parties............................................................. ss. 6.06(b)
IRS ....................................................................... ss. 3.10(a)
Material Adverse Effect......................................................... ss. 3.01(a)
Material Contracts.............................................................. ss. 3.17
Merger ....................................................................... Recitals
Merger Consideration............................................................ ss. 2.06(a)
Minimum Condition............................................................... ss. 1.01(a)
1998 Balance Sheet.............................................................. ss. 3.07(c)
Offer ....................................................................... Recitals
Offer Documents................................................................. ss. 1.01(b)
Offer to Purchase............................................................... ss. 1.01(b)
Parent ....................................................................... Preamble
Paying Agent.................................................................... ss. 2.08(a)
Per Share Amount................................................................ Recitals
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person ....................................................................... ss. 9.03(e)
Plans ....................................................................... ss. 3.10(a)
Proprietary Rights.............................................................. ss. 3.14
Proxy Statement................................................................. ss. 3.12
Purchaser....................................................................... Preamble
Schedule 14D-1.................................................................. ss. 1.01(b)
Schedule 14D-9.................................................................. ss. 1.02(b)
SEC ....................................................................... ss. 1.01(b)
SEC Reports..................................................................... ss. 3.07(a)
Securities Act.................................................................. ss. 3.07(a)
SG Cowen ....................................................................... ss. 1.02(a)
Shareholder Agreements.......................................................... Recitals
Shareholders.................................................................... Recitals
Shares ....................................................................... Recitals
Special Shareholders' Meeting................................................... ss. 6.01
Spread ....................................................................... ss. 2.07
Stock Option Plans.............................................................. ss. 2.07
Subsidiary...................................................................... ss. 3.01
subsidiary...................................................................... ss. 9.03(f)
Superior Proposal............................................................... ss. 6.04
Surviving Corporation........................................................... ss. 2.01
Transactions.................................................................... ss. 3.04
under common control with....................................................... ss. 9.03(d)
WARN ....................................................................... ss. 3.10(f)
Year 2000 Compliant............................................................. ss. 3.19
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AGREEMENT AND PLAN OF MERGER, dated as of July 6, 1999 (this
"Agreement"), among SATURN ELECTRONICS & ENGINEERING, INC., a corporation
organized under the laws of Michigan ("Parent"), SSI ACQUISITION CORP., a
Delaware corporation and a wholly owned subsidiary of Parent ("Purchaser"), and
SMARTFLEX SYSTEMS, INC., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent, Purchaser and the
Company have each unanimously determined that it is in the best interests of
their respective shareholders for Parent to acquire the Company upon the terms
and subject to the conditions set forth herein;
WHEREAS, in furtherance of such acquisition, it is proposed
that Purchaser shall make a cash tender offer (the "Offer") to acquire all the
issued and outstanding shares of common stock, $.0025 par value, of the Company
(the "Shares") for U.S. $10.50 per Share (such amount being hereinafter referred
to as the "Per Share Amount") net to the seller in cash, upon the terms and
subject to the conditions of this Agreement and the Offer;
WHEREAS, the Board of Directors of the Company (the "Board"),
including all the disinterested directors on the Board, has unanimously approved
the making of the Offer and resolved and agreed to recommend that holders of
Shares tender their Shares pursuant to the Offer;
WHEREAS, also in furtherance of such acquisition, the Boards
of Directors of Parent, Purchaser and the Company have each unanimously approved
the merger (the "Merger") of Purchaser with and into the Company in accordance
with the Business Corporation Act of the State of Delaware ("Delaware Law")
following the consummation of the Offer and upon the terms and subject to the
conditions set forth herein;
WHEREAS, to induce Parent and Purchaser to enter into this
Agreement, Parent has required that Purchaser and each of the shareholders of
the Company listed on Schedule I attached hereto (the "Shareholders") enter into
a Stock Tender and Voting Agreement, dated today's date (the "Shareholder
Agreements"), pursuant to which each Shareholder agrees, among other things, to
validly tender its Shares into, and not to withdraw its Shares from, the Offer,
and to vote its Shares in favor of the Merger, in each case subject to the terms
and conditions set forth therein; and
WHEREAS, also in furtherance of such acquisition, the Boards
of Directors of the Parent, the Purchaser and the Company have each unanimously
approved the execution, delivery and performance of the Shareholder Agreements
in accordance with applicable law.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Parent, Purchaser and the Company hereby agree as follows:
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ARTICLE I
THE OFFER
SECTION 1.01. The Offer. (a) Provided that this Agreement
shall not have been terminated in accordance with Section 8.01 and none of the
events set forth in Annex A hereto shall have occurred or be existing, Purchaser
shall commence the Offer as promptly as reasonably practicable after the date
hereof, but in no event later than five business days after the date hereof. The
obligation of Purchaser to accept for payment and pay for Shares tendered
pursuant to the Offer shall be subject to the condition (the "Minimum
Condition") that at least the number of Shares that combined with the Shares
already owned by Parent, Purchaser or any of their affiliates shall constitute a
majority of the then outstanding Shares on a fully diluted basis (including,
without limitation, all Shares issuable upon the conversion of any convertible
securities or upon the exercise of any options, warrants or rights) shall have
been validly tendered and not withdrawn prior to the expiration of the Offer and
also shall be subject to the satisfaction of the other conditions set forth in
Annex A hereto. Purchaser expressly reserves the right to waive any such
condition, to increase the price per Share payable in the Offer, and to make any
other changes in the terms and conditions of the Offer; provided, however, that,
without the prior written consent of the Company, no change may be made which
decreases the price per Share payable in the Offer or which changes or waives
the Minimum Condition or which changes the form of consideration to be paid in
the Offer or which extends the period that the Offer is outstanding for one or
more periods not to exceed thirty days in the aggregate or which reduces the
maximum number of Shares to be purchased in the Offer or which imposes
conditions to the Offer in addition to those set forth in Annex A hereto. The
Per Share Amount shall, subject to applicable withholding of taxes, be paid net
to the seller in cash, upon the terms and subject to the conditions of the
Offer. Subject to the terms and conditions of the Offer (including, without
limitation, the Minimum Condition), Purchaser shall pay, as promptly as
practicable after expiration of the Offer, for all Shares validly tendered into
and not withdrawn from, the Offer.
(b) As soon as reasonably practicable on the date of
commencement of the Offer, Purchaser shall file with the Securities and Exchange
Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1 (together with
all amendments and supplements thereto, the "Schedule 14D-1") with respect to
the Offer and the other Transactions (as hereinafter defined), which shall have
been provided to the Company and to which the Company shall not have reasonably
objected. The Schedule 14D-1 shall contain or shall incorporate by reference an
offer to purchase (the "Offer to Purchase") and forms of the related letter of
transmittal and any related summary advertisement (the Schedule 14D-1, the Offer
to Purchase and such other documents, together with all supplements and
amendments thereto, being referred to herein collectively as the "Offer
Documents"). Each of Parent, Purchaser and the Company agree to correct promptly
any information provided by it for use in the Offer Documents which shall have
become false or misleading, and Parent and Purchaser further agree to take all
steps necessary to cause the Schedule 14D-1 as so corrected to be filed with the
SEC and the other Offer Documents as so
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corrected to be disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws.
SECTION 1.02. Company Action. (a) The Company hereby approves
of and consents to the Offer and represents and warrants that (i) the Board, at
a meeting duly called and held on July 6, 1999, has unanimously (A) determined
that this Agreement, the Shareholder Agreements and the transactions
contemplated hereby and thereby, including, without limitation, each of the
Offer, the Merger and the tender of Shares pursuant to the Shareholder
Agreements, are fair to and in the best interests of the shareholders of the
Company, (B) approved and adopted this Agreement and the transactions,
including, without limitation, the Offer, the Merger and the tender of Shares
pursuant to the Shareholder Agreements, contemplated hereby and thereby, (C)
taken all action to render the provisions of the Rights Agreement, dated as of
July 17, 1996, between the Company and The First National Bank of Boston, as
Rights Agent, and of Section 203 of the Delaware Law inapplicable to the Offer,
the Merger and the Shareholder Agreements, and (D) recommend that the
shareholders of the Company accept the Offer and approve and adopt this
Agreement and the transactions, including, without limitation, the Merger,
contemplated hereby, and (ii) SG Cowen Securities Corporation ("SG Cowen") has
delivered to the Board an opinion to the effect that the consideration to be
received by the holders of Shares (other than Parent, Purchaser and their
affiliates) pursuant to each of the Offer and the Merger is fair to such holders
of Shares from a financial point of view, it being understood and acknowledged
that such opinion has been rendered to the Board and may only be relied upon by
the Board, the Company and any successors thereto. Subject only to the
provisions of Sections 6.04 and 8.01(e) below, the Company hereby consents to
the inclusion in the Offer Documents of the recommendation of the Board
described in the immediately preceding sentence; provided, however, that the
Board may withdraw such consent in the exercise of its fiduciary duties as
contemplated in Sections 6.04 and 8.01(e) below.
(b) As soon as reasonably practicable on the date of
commencement of the Offer, the Company shall file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the "Schedule 14D-9") containing, subject
only to the provisions of Sections 6.04 and 8.01(d) below, the recommendation of
the Board described in Section 1.02(a) and shall disseminate the Schedule 14D-9
to the extent required by Rule 14d-9 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and any other applicable federal
securities laws. Each of the Company, Parent and Purchaser agree to correct
promptly any information provided by it for use in the Schedule 14D-9 which
shall have become false or misleading, and the Company further agrees to take
all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with
the SEC and disseminated to holders of Shares, in each case as and to the extent
required by applicable federal securities laws. Prior to the Company's filing of
the Schedule 14D-9, such Schedule shall have been provided to Purchaser and
Parent and shall not have been reasonably objected to.
(c) The Company shall promptly furnish Purchaser with mailing
labels containing the names and addresses of all record holders of Shares and
with security position listings of Shares held in stock depositories, each as of
a recent date, together with all other
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available listings and computer files containing names, addresses and security
position listings of record holders and beneficial owners of Shares. The Company
shall furnish Purchaser with such additional information, including, without
limitation, updated listings and computer files of shareholders, mailing labels
and security position listings, and such other assistance as Parent, Purchaser
or their agents may reasonably request. Subject to the requirements of
applicable law, and except for such steps as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Offer or the
Merger, Parent and Purchaser shall hold in confidence the information contained
in such labels, listings and files, shall use such information only in
connection with the Offer and the Merger and, if this Agreement shall be
terminated in accordance with Section 8.01, shall deliver to the Company, or
certify to the Company destruction of, all copies of such information then in
their possession.
(d) (i) The Company will, promptly following the purchase and
payment for by Purchaser of all Shares validly tendered and not withdrawn
pursuant to the Offer, take all actions necessary to cause persons designated by
Parent to become directors of the Company so that the total number of persons so
designated equals that number of directors, rounded up to the next whole number,
which represents the product of (x) the total number of directors on the Board
of Directors of the Company multiplied by (y) the percentage that the number of
Shares so accepted for payment and paid for plus any Shares beneficially owned
by Parent, Purchaser or their respective affiliates on the date when Parent so
accepts for payment and pays for any Shares pursuant to the Offer bears to the
number of Shares outstanding at the time of such acceptance for payment and
payment. In furtherance thereof, the Company will increase the size of its Board
of Directors, or use best efforts to secure the resignation of directors, or
both, as is necessary to permit Parent's designees to be elected to the
Company's Board of Directors; provided, however, prior to the Effective Time (as
defined in Section 2.2), subject to the provisions of Section 1.02(d)(ii), the
Company's Board of Directors shall always have at least two members who are
directors of the Company as of the date hereof (the "Continuing Directors"). At
such time, the Company, if so requested, will cause persons designated by Parent
to constitute at least the same percentage of each committee of the Company's
Board of Directors as determined above in this Section 1.02(d)(i). The Company's
obligations to appoint designees to its Board of Directors shall be subject to
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The
Company shall promptly take all actions required pursuant to such section and
rule in order to fulfill its obligations under this Section 1.02(d)(i). Parent
and Purchaser will supply the Company with all information which the Company
shall reasonably request with respect to nominees to the Company's Board of
Directors in order for the Company to make the filing required by Section 14(f)
of the Exchange Act. Except with respect to the information provided by Parent
or Purchaser pursuant to the immediately preceding sentence, the Company agrees
that none of the information attached to the Offer Documents pursuant to Section
14(f) or Rule 14f-1 shall contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
(ii) Following the election or appointment of the designees of
Parent pursuant to Section 1.02(d)(i) and prior to the Effective Time, any
amendment or termination of this Agreement, extension for the performance of the
obligations or other acts of Parent and
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Purchaser under this Agreement, waiver of the rights of the Company under this
Agreement, or action taken by the Company pursuant to, or that is described in,
Article 8 and Sections 1.01(a), 6.06, 8.04 and 8.05, notwithstanding anything
herein to the contrary, will (if and to the extent that there are any then
serving Continuing Directors) require the approval of a majority of the
Continuing Directors. If, prior to the Effective Time, the number of Continuing
Directors is fewer than two, the remaining Continuing Director, if any, will be
entitled to appoint a director to fill the vacancy created and such appointee
will be a Continuing Director for the purpose of this Agreement. The Continuing
Directors may not be removed prior to the Effective Time except for cause.
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the
conditions set forth in Article VII, and in accordance with Delaware Law, at the
Effective Time (as hereinafter defined), Purchaser shall be merged with and into
the Company. As a result of the Merger, the separate corporate existence of
Purchaser shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation"), and shall continue to
be governed by the laws of the State of Delaware.
SECTION 2.02. Effective Time; Closing. As promptly as
practicable after the satisfaction or, if permissible, waiver of the conditions
set forth in Article VII, the parties hereto shall cause the Merger to be
consummated by filing a certificate of merger in substantially the form of
Exhibit A hereto, or in such other form as the parties shall otherwise agree
(the "Certificate of Merger"), with the Delaware Secretary of State, in such
form as is required by, and executed in accordance with the relevant provisions
of, Delaware Law (the date and time of such filings being, collectively, the
"Effective Time"). Prior to such filing, a closing shall be held at the offices
of Honigman Miller Schwartz and Cohn, 2290 First National Building, Detroit,
Michigan 48226, or such other place as the parties shall agree, for the purpose
of confirming the satisfaction or waiver, as the case may be, of the conditions
set forth in Article VII.
SECTION 2.03. Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Purchaser shall vest in the Surviving Corporation,
and all debts, liabilities, obligations, restrictions, disabilities and duties
of the Company and Purchaser shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 2.04. Articles of Incorporation; Bylaws. (a) The
Articles of Incorporation of Purchaser, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by
5
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applicable law and such Articles of Incorporation; provided, however, that, at
the Effective Time, Article I of the Articles of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the corporation is
Smartflex Systems, Inc. "
(b) The Bylaws of Purchaser, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by law, the Articles of Incorporation of the
Surviving Corporation and such Bylaws.
SECTION 2.05. Directors and Officers. The directors of
Purchaser immediately prior to the Effective Time shall be the initial directors
of the Surviving Corporation, each to hold office in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation, and the
officers of Purchaser immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
SECTION 2.06. Conversion of Securities. At the Effective Time,
by virtue of the Merger and without any action on the part of Purchaser, the
Company or the holders of any of the Shares:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be cancelled pursuant to Section
2.06(b)) shall be cancelled and shall be converted automatically into the
right to receive an amount equal to the Per Share Amount in cash (the
"Merger Consideration"), payable, without interest, to the holder of such
Share, upon surrender, in the manner provided in Section 2.08, of the
certificate that formerly evidenced such Share;
(b) Each Share owned by Purchaser, Parent or any direct or
indirect wholly owned subsidiary of Parent or of the Company immediately
prior to the Effective Time shall be cancelled and retired without any
conversion thereof and no payment or distribution shall be made with
respect thereto; and
(c) Each share of common stock, without par value, of
Purchaser issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of Common Stock, $.0025 par value per share, of the
Surviving Corporation.
SECTION 2.07. Employee and Director Stock Options. In accordance with
the terms of the Company's 1993 Equity Incentive Plan, 1994 Equity Incentive
Plan, 1995 Equity Incentive Plan and Acquisition Stock Plan (the "Stock Option
Plans"), each outstanding option to purchase Shares granted under the Stock
Option Plans shall, immediately prior to the Effective Time, become exercisable
regardless of the vesting schedule contained in any stock option agreement or in
any of the Stock Option Plans. Each outstanding option to purchase Shares
granted under the Stock Option Plans or otherwise shall be cancelled at the
Effective Time. In the event that any unexercised option is cancelled by the
Company, each holder of a cancelled option shall be entitled to receive, at the
Effective Time or as soon as practicable thereafter, from
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the Company, in consideration for the cancellation of such option, an amount in
cash equal to the product of (i) the number of Shares previously subject to such
option and (ii) the excess, if any, of the Merger Consideration over the
exercise price per Share previously subject to such option (the "Spread").
SECTION 2.08. Surrender of Shares; Stock Transfer Books. (a)
Prior to the Effective Time, Purchaser shall designate a bank or trust company
to act as agent (the "Paying Agent") for the holders of Shares in connection
with the Merger to receive the funds to which holders of Shares shall become
entitled pursuant to Section 2.06(a), and at the Effective Time Purchaser shall
deposit with such Paying Agent an amount sufficient to pay the aggregate Merger
Consideration. Such funds shall be invested by the Paying Agent as directed by
the Surviving Corporation, provided that such investments shall be in
obligations of or guaranteed by the United States of America or of any agency
thereof and backed by the full faith and credit of the United States of America
or in commercial paper obligations rated A-1 or P-1 or better by Moody's
Investors Service, Inc. or Standard & Poor's Corporation, respectively.
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each person who was, at the Effective
Time, a holder of record of Shares entitled to receive the Merger Consideration
pursuant to Section 2.06(a) a form of letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the certificates
evidencing such Shares (the "Certificates") shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for use in
effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration for each Share formerly
evidenced by such Certificate, and such Certificate shall then be cancelled. No
interest shall accrue or be paid on the Merger Consideration payable upon the
surrender of any Certificate for the benefit of the holder of such Certificate.
If payment of the Merger Consideration is to be made to a person other than the
person in whose name the surrendered Certificate is registered on the stock
transfer books of the Company, it shall be a condition of payment that the
Certificate so surrendered shall be endorsed properly or otherwise be in proper
form for transfer and that the person requesting such payment shall have paid
all transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such taxes either have been paid or are not applicable. In the
event any certificate representing Shares shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such certificate to be lost, stolen or destroyed, the Paying Agent will issue in
exchange for such lost, stolen or destroyed certificate the Merger Consideration
deliverable in respect thereof as determined in accordance with this Article II;
provided, however, the person to whom the Merger Consideration is paid shall, as
a condition precedent to the payment thereof, give the Surviving Corporation a
bond in such sum as it may direct or otherwise indemnify the Surviving
Corporation in a manner satisfactory to it against any claim that may be made
against the
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Surviving Corporation with respect to the certificate alleged to have been lost,
stolen or destroyed.
(c) At any time following the sixth month after the
Effective Time, the Surviving Corporation shall be entitled to require the
Paying Agent to deliver to it any funds which had been made available to the
Paying Agent and not disbursed to holders of Shares (including, without
limitation, all interest and other income received by the Paying Agent in
respect of all funds made available to it) and, thereafter, such holders shall
be entitled to look only to the Surviving Corporation (subject to abandoned
property, escheat and other similar laws) only as general creditors thereof with
respect to any Merger Consideration that may be payable upon due surrender of
the Certificates held by them. Notwithstanding the foregoing, neither the
Surviving Corporation nor the Paying Agent shall be liable to any holder of a
Share for any Merger Consideration delivered in respect of such Share to a
public official pursuant to any abandoned property, escheat or other similar
law.
(d) At the close of business on the day of the Effective
Time, the stock transfer books of the Company shall be closed and, thereafter,
there shall be no further registration of transfers of Shares on the records of
the Company. From and after the Effective Time, the holders of Shares
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such Shares except as otherwise provided herein or by
applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser that:
SECTION 3.01. Organization and Qualification; Subsidiaries.
Each of the Company and each subsidiary of the Company (a "Subsidiary"), is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has the requisite power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not, individually or in
the aggregate, have a Material Adverse Effect (as defined below). The Company
and each Subsidiary is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect. When used in connection with the
Company or any Subsidiary, the term "Material Adverse Effect" means any change
or changes, event(s), condition(s), development(s) or effect(s) that adversely
affects, or may be reasonably likely to adversely affect, individually or in the
aggregate, the business, operations, results of operations, properties,
condition, financial
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condition, cash flows, assets or liabilities (including, without limitation,
contingent liabilities) of the Company and the Subsidiaries taken as a whole and
the value of the Shares, in any case, by an amount equal to at least $2,500,000;
provided, however, that a Material Adverse Effect shall not include any adverse
effect resulting from general economic conditions or conditions generally
affecting the contract manufacturing market. A true and complete list of all the
Subsidiaries, together with the jurisdiction of incorporation of each Subsidiary
and the percentage of the outstanding capital stock (calculated on a fully
diluted basis) of each Subsidiary owned by the Company, each other Subsidiary
and any third party, is set forth in Section 3.01 of the Disclosure Schedule,
which has been delivered prior to the date of this Agreement by the Company to
Parent (the "Disclosure Schedule"). Except as disclosed in such Section 3.01,
the Company does not directly or indirectly own any equity or similar interest
in, or any interest convertible into or exchangeable or exercisable for any
equity or similar interest in, any corporation, partnership, joint venture or
other business association or entity.
SECTION 3.02. Articles of Incorporation and Bylaws. The
Company has heretofore furnished to Parent a complete and correct copy of the
Articles of Incorporation and the Bylaws or equivalent organizational documents,
each as amended to date, of the Company and each Subsidiary. Such Articles of
Incorporation, Bylaws and equivalent organization documents are in full force
and effect. Neither the Company nor any Subsidiary is in violation of any
provision of its Articles of Incorporation, Bylaws or equivalent organizational
documents.
SECTION 3.03. Capitalization. The authorized capital stock of
the Company consists of 5,000,000 shares of preferred stock (none of which is
issued and outstanding) and 25,000,000 Shares. As of the date hereof, (i)
6,493,994 Shares are issued and outstanding, all of which are validly issued,
fully paid and nonassessable, (ii) no Shares are held by the Subsidiaries or in
the Company's treasury, and (iii) 994,502 Shares are reserved for issuance
pursuant to stock options granted pursuant to the Company's Stock Option Plans
or otherwise. Except as set forth in this Section 3.03 or Section 3.03 of the
Disclosure Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or any Subsidiary or obligating the Company or any
Subsidiary to issue or sell any shares of capital stock of, or other equity
interests in, the Company or any Subsidiary (including, without limitation, any
securities which are convertible into or exchangeable for Shares of capital
stock of, or other equity interests in, the Company or any Subsidiaries). All
Shares subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. Except as
set forth in Section 3.03 of the Disclosure Schedule, there are no outstanding
contractual obligations of the Company or any Subsidiary to repurchase, redeem
or otherwise acquire any Shares or any capital stock of any Subsidiary or to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any Subsidiary or any other person. Each
outstanding share of capital stock of each Subsidiary is duly authorized,
validly issued, fully paid and nonassessable and, except as set forth in Section
3.03 of the Disclosure Schedule, is owned free and clear of all liens and
encumbrances.
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SECTION 3.04. Authority Relative to this Agreement. Subject to
approval by the affirmative vote of the shareholders of the Company, the Company
has all necessary power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions, including,
without limitation, the Merger, contemplated hereby (the "Transactions"). The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the Transactions have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
Transactions (other than, with respect to the Merger, the approval and adoption
of this Agreement by the affirmative vote of the holders of a majority of the
outstanding Shares as required by Delaware Law and the Company's Certificate of
Incorporation, and the filing and recordation of the Certificate of Merger as
required by Delaware Law). This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by Parent and Purchaser, constitutes a legal, valid and binding
obligation of the Company.
SECTION 3.05. No Conflict; Required Filings and Consents.
Except as set forth in Section 3.05 of the Disclosure Schedule, (a) the
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Articles of Incorporation or Bylaws or equivalent organizational
documents of the Company or any Subsidiary, (ii) conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to the Company or
any Subsidiary or by which any property or asset of the Company or any
Subsidiary is bound or subject or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance of any nature on any property or asset of the Company or any
Subsidiary pursuant to, any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any property or asset of the Company or any Subsidiary is bound or
subject. Any costs and expenses which occur or are reasonably likely to occur as
a result of the failure to obtain the consent of the other parties to the
contracts and agreements listed in Section 3.05 of the Disclosure Schedule prior
to the Effective Time shall be borne by the Company and its Subsidiaries and
shall be considered in determining whether a Material Adverse Effect has
occurred.
(b) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the Company will not,
require any consent, approval, authorization or permit of, or filing with, or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Exchange Act, state
securities or "blue sky" laws ("Blue Sky Laws") and state takeover laws, the
premerger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act") and the filing and recordation of the Certificate of
Merger as required by Delaware Law, and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Offer or the
Merger, or otherwise
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prevent the Company from performing its obligations under this Agreement, or
would not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.06. Compliance. Except as set forth in Section 3.06
of the Disclosure Schedule, neither the Company nor any Subsidiary is, in any
material respect, in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to the Company or any
Subsidiary or by which any property or asset of the Company or any Subsidiary is
bound or subject or (ii) any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any property or asset of the Company or any Subsidiary is bound or
subject.
SECTION 3.07. SEC Filings; Financial Statements. (a) The
Company has filed all forms, reports and documents required to be filed by it
with the SEC in the past three years, and has heretofore delivered to Parent, in
the form filed with the SEC, (i) its Annual Reports on Form 10-K for the fiscal
years ended December 31, 1996, 1997 and 1998, respectively, (ii) its Quarterly
Reports on Form 10-Q for the periods ended (x) March 31, June 30 and September
30 in 1997 and in 1998, and (y) March 31, 1999, (iii) all proxy statements
relating to the Company's meetings of shareholders (whether annual or special)
held in the past three years and (iv) all other forms, reports and other
registration statements (other than Quarterly Reports on Form 10-Q not referred
to in clause (ii) above) filed by the Company with the SEC in the past three
years (the forms, reports and other documents referred to in clauses (i), (ii),
(iii) and (iv) above being referred to herein, collectively, as the "SEC
Reports"). The most recent SEC Report filed by the Company is its Quarterly
Report on Form 10-Q for the period ended March 31, 1999. The SEC Reports (i)
were prepared in accordance with the requirements of the Securities Act of 1933,
as amended (the "Securities Act"), and the Exchange Act, as the case may be, and
the rules and regulations promulgated thereunder and (ii) did not, at the time
they were filed, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. No Subsidiary is required to file any form,
report or other document with the SEC.
(b) Each of the consolidated financial statements (including, in
each case, any notes thereto) contained in the SEC Reports was prepared from the
books and records of the Company in accordance with generally accepted
accounting principles applied on a consistent basis ("GAAP") throughout the
periods indicated (except as may be indicated in the notes thereto and except,
in the case of unaudited statements, as may be permitted under the Exchange Act)
and each fairly presents the consolidated financial position, results of
operations and changes in shareholders' equity and cash flows of the Company and
the consolidated Subsidiaries as at the respective dates thereof and for the
respective periods indicated therein (subject, in the case of unaudited
financial statements, to normal year-end audit adjustments).
(c) Except as and to the extent set forth on the consolidated balance
sheet of the Company and the consolidated Subsidiaries as at December 31, 1998
including the notes thereto (the "1998 Balance Sheet"), or as reflected on the
consolidated balance sheet of the
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Company and the consolidated Subsidiaries as at May 31, 1999 or in Section 3.07
of the Disclosure Schedule, neither the Company nor any Subsidiary has any
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise) which would be required to be reflected on a balance sheet, or in the
notes thereto, prepared in accordance with GAAP.
SECTION 3.08. Absence of Certain Changes or Events. Since
December 31, 1998, except as set forth in Section 3.08 of the Disclosure
Schedule or as contemplated by this Agreement or disclosed in any SEC Report
filed since December 31, 1998 and prior to the date of this Agreement, the
Company and the Subsidiaries have conducted their businesses only in the
ordinary course and in a manner consistent with past practice and, since
December 31, 1998, there has not been (i) any Material Adverse Effect with
respect to the Company, (ii) any damage, destruction or loss (whether or not
covered by insurance) with respect to any property or asset of the Company or
any Subsidiary and having, individually or in the aggregate, a Material Adverse
Effect with respect to the Company, (iii) any material change by the Company in
its accounting methods, principles or practices, with respect to the Company
(iv) any revaluation by the Company of any asset (including, without limitation,
any writing down of the value of inventory or writing off of notes or accounts
receivable), other than in the ordinary course of business consistent with past
practice, (v) any failure by the Company to revalue any asset in accordance with
GAAP consistent with past practice, (vi) any entry by the Company or any
Subsidiary into any commitment or transaction material to the Company and the
Subsidiaries taken as a whole, (vii) any declaration, setting aside or payment
of any dividend or distribution in respect of any capital stock of the Company
or any redemption, purchase or other acquisition of any of its securities,
(viii) other than as set forth in any contracts (as in effect on the date
hereof) referred to in Section 3.10, any increase in or establishment of any
bonus, insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any officers or key employees
of the Company or any Subsidiary, except customary increases in compensation to
employees generally incurred in the ordinary course of business consistent with
past practice, (ix) any entering into, renewal, modification or extension of,
any material contract, arrangement or agreement with any affiliate of the
Company, or (x) any entering into, renewal, modification or extension of, any
contract, arrangement or agreement with any other party having, individually or
in the aggregate, a Material Adverse Effect with respect to the Company.
SECTION 3.09. Absence of Litigation. Except as set forth in
Section 3.09 of the Disclosure Schedule or as disclosed in the SEC Reports filed
prior to the date of this Agreement, there is no claim, action, proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary, or any property or asset of the Company or any
Subsidiary, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, which (i) the amount in
controversy is or could reasonably be expected to be at least $50,000, (ii)
seeks to, or is reasonably likely to, delay or prevent the consummation of any
Transaction or (iii) which, if adversely determined against the Company would
limit, in any material respect, the Company's ability to conduct its business as
currently conducted. As of the date hereof, except as set forth in Section 3.09
of the Disclosure Schedule, neither the Company nor any Subsidiary nor any
property or asset of the Company or any Subsidiary is subject to any order,
writ, judgment, injunction, decree, determination or award. Except as set forth
in Section 3.09 of the Disclosure
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Schedule, the Company and each Subsidiary has notified its insurance companies,
in accordance with the terms and conditions of its insurance policies, of any
pending or, to the knowledge of the Company, threatened litigation, and no
insurance company has denied coverage, reserved its rights to deny coverage or
otherwise advised the Company or any of its Subsidiaries of any defenses
available to such insurance company to deny coverage for any such pending or, to
the knowledge of the Company, threatened litigation.
SECTION 3.10. Employee Benefit Plans. (a) Section 3.10 of the
Disclosure Schedule contains a true and complete list of (i) all employee
benefit plans (within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option,
stock purchase, restricted stock, incentive, deferred compensation, retiree
medical or life insurance, supplemental retirement, severance or other benefit
plans, programs or arrangements, and all employment, termination, severance or
other contracts or agreements to which the Company or any Subsidiary is a party,
with respect to which the Company or any Subsidiary has any obligation or which
are maintained, contributed to or sponsored by the Company or any Subsidiary for
the benefit of any current or former employee, officer or director of the
Company or any Subsidiary and (ii) each employee benefit plan for which the
Company or any Subsidiary could incur liability under Title IV of ERISA, or in
respect of which the Company or any Subsidiary remains secondarily liable under
Section 4204 of ERISA (collectively, the "Plans"). Except as set forth in
Section 3.10 of the Disclosure Schedule, no Plan is a "defined benefit plan"
within the meaning of Section 3(35) of ERISA and no Plan is subject to Title IV
of ERISA. Each Plan is in writing and the Company has previously furnished
Parent with a true and complete copy of each Plan and a true and complete copy
of each material document prepared in connection with each such Plan, including,
without limitation, (i) a copy of each trust or other funding arrangement, (ii)
each summary plan description and summary of material modifications, (iii) the
most recently filed Internal Revenue Service ("IRS") Form 5500, (iv) the most
recently received IRS determination letter for each such Plan, and (v) the most
recently prepared financial statement in connection with each such Plan. Except
as set forth in Section 3.10 of the Disclosure Schedule, neither the Company nor
any Subsidiary has any express or implied commitment (i) to create, incur
liability with respect to or cause to exist any other employee benefit plan,
program or arrangement, (ii) to enter into any contract or agreement to provide
compensation or benefits to any individual or (iii) to modify, change or
terminate any Plan, other than with respect to a modification, change or
termination required by ERISA or the Internal Revenue Code of 1986, as amended
(the "Code").
(b) Except as disclosed in Section 3.10 of the Disclosure
Schedule, none of the Plans (i) provides for the payment of separation,
severance, termination or similar-type benefits to any person, (ii) obligates
the Company or any Subsidiary to pay separation, severance, termination or other
benefits as a result of any Transaction or (iii) obligates the Company or any
Subsidiary to make any payment or provide any benefit that could be subject to a
tax under Section 4999 of the Code. Except as disclosed in Section 3.10 of the
Disclosure Schedule, none of the Plans provides for or promises retiree medical,
disability or life insurance
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benefits to any current or former employee, officer or director of the Company
or any Subsidiary.
(c) Except as set forth in Section 3.10 of the Disclosure
Schedule, each Plan which is intended to be qualified under Section 401(a) or
401(k) of the Code has received a favorable determination letter from the IRS
that such Plan is so qualified, and each trust established in connection with
any Plan which is intended to be exempt from federal income taxation under
Section 501(a) of the Code has received a determination letter from the IRS that
such trust is so exempt. To the knowledge of the Company, no fact or event has
occurred since the date of any such determination letter from the IRS that could
adversely affect the qualified status of any such Plan or the exempt status of
any such trust. Each trust maintained or contributed to by the Company or any
Subsidiary which is intended to be qualified as a voluntary employees'
beneficiary association exempt from federal income taxation under Sections
501(a) and 501(c)(9) of the Code has received a favorable determination letter
from the IRS that it is so qualified and so exempt, and, to the knowledge of the
Company, no fact or event has occurred since the date of such determination by
the IRS that could adversely affect such qualified or exempt status.
(d) There has been no prohibited transaction (within the
meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any
Plan. Neither the Company nor any Subsidiary is currently liable or has
previously incurred any liability for any tax or penalty arising under Section
4971, 4972, 4979, 4980 or 4980B of the Code or Section 502(c) of ERISA, and no
fact or event exists which could give rise to any such liability. Neither the
Company nor any Subsidiary has incurred any liability under, arising out of or
by operation of Title IV of ERISA, including, without limitation, any liability
in connection with (i) the termination or reorganization of any employee pension
benefit plan subject to Title IV of ERISA or (ii) the withdrawal from any
Multiemployer Plan or Multiple Employer Plan, and no fact or event exists which
could give rise to any such liability.
(e) To the knowledge of the Company, each Plan is now and
has been operated in all respects in accordance with the requirements of all
applicable laws, including, without limitation, ERISA and the Code, and the
Company and each Subsidiary have performed all obligations required to be
performed by them under, are not in any respect in default under or in violation
of, and have no knowledge of any default or violation by any party to, any Plan.
All contributions, premiums or payments required to be made with respect to any
Plan have been timely made ,are fully deductible for income tax purposes and no
such deduction previously claimed has been challenged by any government entity.
The 1998 Balance Sheet reflects an accrual of all amounts of employer
contributions and premiums accrued but unpaid with respect to the Plans.
(f) The Company and the Subsidiaries have not incurred
any liability under, and have complied in all material respects with, the Worker
Adjustment Retraining Notification Act and the regulations promulgated
thereunder ("WARN") and do not reasonably expect to incur any such liability as
a result of actions taken or not taken prior to the Effective Time. Section
3.10(f) of the Disclosure Schedule lists (i) all the employees terminated or
laid off by the
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Company or any Subsidiary during the 90 days prior to the date hereof and (ii)
all the employees of the Company or any Subsidiary who have experienced a
reduction in hours of work of more than 50% during any month during the 90 days
prior to the date hereof and describes all notices given by the Company and the
Subsidiaries in connection with WARN. The Company will, by written notice to
Parent and Purchaser, update Section 3.10(f) of the Disclosure Schedule to
include any such terminations, layoffs and reductions in hours from the date
hereof through the Effective Time and will provide Parent and Purchaser with any
related information which they may reasonably request.
SECTION 3.11. Labor Matters. Except as set forth in Section
3.11 of the Disclosure Schedule, (i) there are no controversies pending or, to
the knowledge of the Company, threatened between the Company or any Subsidiary,
on the one hand, and any of their respective employees or former employees, on
the other hand; (ii) neither the Company nor any Subsidiary is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or any Subsidiary, nor, to the knowledge of the
Company, are there any activities or proceedings of any labor union to organize
any such employees; (iii) neither the Company nor any Subsidiary has breached or
otherwise failed to comply with any provision of any such agreement or contract
and there are no grievances outstanding against the Company or any Subsidiary
under any such agreement or contract; (iv) there are no unfair labor practice
complaints pending or, to the knowledge of the Company, threatened against the
Company or any Subsidiary before the National Labor Relations Board or any
current union representation questions involving employees of the Company or any
Subsidiary; and (v) there is no strike, slowdown, work stoppage or lockout, or,
to the knowledge of the Company, threat thereof, by or with respect to any
employees of the Company or any Subsidiary. Section 3.11 of the Disclosure
Letter sets forth an accurate and complete list of all agreements or
arrangements with employees, consultants (excluding attorneys and investment
banking firms) and agents of the Company or any Subsidiary, including (without
limitation, employment, consulting, severance, stay-bonus, termination or other
agreements or arrangements) where the total compensation to any such employee,
consultant or agent under any such agreement or arrangement (or series of
related agreements or arrangements) exceeds $100,000 in any year.
SECTION 3.12. Offer Documents; Schedule 14D-9; Proxy
Statement. Neither the Schedule 14D-9 nor any information supplied by the
Company for inclusion in the Offer Documents shall, at the respective times the
Schedule 14D-9, the Offer Documents, or any amendments or supplements thereto
are filed with the SEC or are first published, sent or given to shareholders of
the Company, as the case may be, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading. In the event that Purchaser has not
designated a majority of the members of the Board pursuant to the terms of
Section 1.02(d) above and a shareholder vote is required, neither the
information supplied by the Company for inclusion in the proxy statement to be
sent to the shareholders of the Company in connection with the Special
Shareholders' Meeting (as defined in Section 6.01 hereof), nor the information
statement to be sent to shareholders of the Company in connection with the
Merger (such proxy or information statement, as amended or
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supplemented, being referred to herein as the "Proxy Statement") shall not, at
the date the Proxy Statement (or any amendment or supplement thereto) is first
mailed to shareholders of the Company, at the time of the Special Shareholders'
Meeting, if applicable and at the Effective Time, be false or misleading with
respect to any material fact, or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they are made, not misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Special Shareholders' Meeting which shall
have become false or misleading. The Schedule 14D-9 and the Proxy Statement
shall comply in all material respects as to form with the requirements of the
Exchange Act and the rules and regulations thereunder. Notwithstanding the
foregoing, the Company makes no representation or warranty with respect to any
information which is supplied in writing by Parent or Purchaser or which is
excerpted from or derived from public sources other than the Company's public
filings with the SEC.
SECTION 3.13. Tangible Property; Real Property and Leases. (a)
The Company and the Subsidiaries have good and marketable title to all their
tangible properties and assets, free and clear of all liens and encumbrances,
with only such exceptions as are set forth in Section 3.13 of the Disclosure
Schedule, and subject to (i) liens for taxes, assessments or governmental
charges not yet due, (ii) liens incident to construction, common carriers, and
public warehouse storage, which are either not delinquent or are being contested
in good faith by the Company by appropriate proceedings and as to which
appropriate reserves have been established on the 1998 Balance Sheet, (iii)
liens or deposits in connection with workers' compensation, unemployment, or
other insurance, social security laws, or to secure customs' duties, public or
statutory obligations in lieu of surety, stay or appeal bonds, or to secure
performance of contracts or bids (other than contracts for the payment of money
borrowed), or deposits required by law or governmental regulations or by any
court order, decree, judgment or rule as condition to the transaction of
business or the exercise of any right, privilege or license or (iv) other liens
or deposits of a like nature made in the ordinary course of business.
(b) No parcel of real property owned or leased by the
Company or any Subsidiary is subject to any governmental decree or order to be
sold nor is being condemned, expropriated or otherwise taken by any public
authority with or without payment of compensation therefor, nor, to the
knowledge of the Company, has any such condemnation, expropriation or taking
been proposed or threatened.
(c) All leases of real property leased for the use or
benefit of the Company or any Subsidiary to which the Company or any Subsidiary
is a party having a term in excess of ten years or requiring rental payments in
excess of U.S. $100,000 during the period of the lease and all amendments and
modifications thereto are in full force and effect and have not been modified or
amended, and there exists no default under any such lease by the Company or any
Subsidiary, nor any event which with notice or lapse of time or both would
reasonably be expected to constitute a default thereunder by the Company or any
Subsidiary, nor, to the knowledge of the Company, does there exist any default,
or any event which with notice or lapse of time or both would reasonably be
expected to constitute a default thereunder, by any other party to any such
lease. Section 3.13 of the Disclosure Schedule sets forth an accurate and
complete list of each
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parcel of real property owned or leased by the Company or any Subsidiary and of
the leases and other documents described in the immediately preceding sentence,
and accurate and complete copies of each such lease and other documents have
been provided to the Parent.
SECTION 3.14. Trademarks, Patents and Copyrights. Except as
set forth in Section 3.14 of the Disclosure Schedule, the Company and the
Subsidiaries own or possess adequate licenses or other valid rights to use all
material patents, patent rights, trademarks, trademark rights, trade names,
trade dress, trade name rights, copyrights, servicemarks, trade secrets,
applications for trademarks and for servicemarks, mask works, know-how and other
proprietary rights and information (collectively, "Proprietary Rights") used or
held for use in connection with the business of the Company and the Subsidiaries
as conducted since June 30, 1997, as currently conducted or as contemplated to
be conducted, and the Company is unaware of any assertion or claim challenging
the validity of any of such Proprietary Rights. Except as set forth in Section
3.14 of the Disclosure Schedule, the conduct of the business of the Company and
the Subsidiaries did not, does not and will not conflict in any way with any
Proprietary Rights of any third party that, individually or in the aggregate,
would have a Material Adverse Effect with respect to the Company. Except as set
forth in Section 3.14 of the Disclosure Schedule, there are no infringements of
any Proprietary Rights owned by or licensed by or to the Company or any
Subsidiary. Except as set forth in Section 3.14 of the Disclosure Schedule,
neither the Company nor any Subsidiary has licensed or otherwise permitted the
use by any third party of any Proprietary Rights.
SECTION 3.15. Taxes. The Company and the Subsidiaries have
filed all federal, state, local and foreign tax returns and reports (as defined
below) required to be filed by them and have paid and discharged all taxes (as
defined below) that have become due as of the date hereof, other than such
payments as are being contested in good faith by appropriate proceedings and
other than such payments as to which adequate reserves are set forth on the 1998
Balance Sheet. Neither the IRS nor any other taxing authority or agency,
domestic or foreign, is now asserting or, to the knowledge of the Company,
threatening to assert against the Company or any Subsidiary any deficiency or
claim for additional taxes or interest thereon or penalties in connection
therewith. To the knowledge of the Company's management, no tax return or
taxable period of the Company is under examination by any taxing authority, and
Company has not received written notice of any pending audit by any taxing
authority. Except as set forth on Schedule 3.15 of the Disclosure Schedule, the
Company is not a party to any agreement or contract which would result in
payment of any "excess parachute payment" within the meaning of Section 280G of
the Code. The Company has not been and is not a United States real property
holding company (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code). Neither
the Company nor any Subsidiary has granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any federal, state, county, municipal or foreign income tax which is currently
in effect. The accruals and reserves for taxes reflected in the 1998 Balance
Sheet are adequate to cover all taxes accruable through such date (including
interest and penalties, if any, thereon) in accordance with GAAP. Neither the
Company nor any Subsidiary has made an election under Section 341(f) of the Code
or agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset owned by the Company or any of the Subsidiaries. For
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purposes of this Agreement, "taxes" shall mean all taxes or other like
assessments including, without limitation, income, withholding, gross receipts,
excise, real or personal property, asset, sales, use, license, payroll,
transaction, capital, net worth and franchise taxes imposed by or payable to any
federal, state, county, local or foreign government, taxing authority,
subdivision or agency thereof, including interest, penalties, additions to tax
or additional amounts thereto. For purposes of this Agreement, "tax return"
shall mean any report, return, declaration or other information required to be
supplied to a taxing authority in connection with taxes. The Transactions,
including the Offer and the Merger, will not cause any change in the taxes
payable by any Subsidiary of the Company.
SECTION 3.16. Environmental Matters. (a) For purposes of this
Agreement, the following terms shall have the following meanings: (i) "Hazardous
Substances" means (A) any asbestos or asbestos-containing material, petroleum
and petroleum products, including crude oil and any fractions thereof, natural
gas, natural gas liquids, synthetic gas, polychlorinated biphenyls or radon; (B)
any pollutant or contaminant; or (C) any substance with respect to which a
federal, state or local agency requires environmental investigation, monitoring,
reporting or remediation; and (ii) "Environmental Law" means any federal, state,
foreign, county or local law relating to (A) releases or threatened releases of
Hazardous Substances or materials containing Hazardous Substances; (B) the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substances or materials containing Hazardous Substances; or (C)
otherwise relating to pollution of the environment or the protection of human
health.
(b) Except as described in Section 3.16 of the Disclosure
Schedule: (i) neither the Company or any of its Subsidiaries, nor any of their
operations, have violated any applicable Environmental Law; (ii) the Company and
each Subsidiary has all material permits and licenses required under any
applicable Environmental Law and is in compliance with all such permits and
licenses; (iii) the soils, surface and ground waters at the properties owned or
leased, currently or in the past, by the Company and each Subsidiary are not
contaminated with any Hazardous Substance; (iv) neither the Company nor any
Subsidiary has received any notice of violation of liability under any
Environmental Law which liability remains unresolved; (v) true, correct and
complete copies of all environmental surveys, reports, assessments and similar
materials which were prepared by or on behalf of the Company, any of its
Subsidiaries or any affiliate of either the Company or any Subsidiary, have been
made available to Parent; and (vi) neither the Company nor any Subsidiary has
contractually assumed any liability of any other person involving Hazardous
Substances or Environmental Laws. Any costs which occur or are reasonably likely
to occur relating to the matters reflected in Section 3.16 of the Disclosure
Schedule shall be borne by the Company and its Subsidiaries and, to the extent
such costs are in excess of $50,000, such excess shall be considered in
determining whether a Material Adverse Effect has occurred.
SECTION 3.17. Material Contracts. Each contract or agreement
to which the Company or any of the Subsidiaries is a party that is material to
the Company or any Subsidiary (a "Material Contract"), or that is between the
Company or any Subsidiary, on the one hand, and any director, officer or
affiliate of the Company, on the other hand (an "Affiliate Contract") is in full
force and effect and is enforceable against the parties thereto (including the
Company and
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the Subsidiaries) in accordance with its terms and no condition or state of
facts exists that, with notice or the passage of time, or both, would constitute
a material default by the Company or any Subsidiary or, to the knowledge of the
Company, any third party under such Material Contracts. The Company or the
applicable Subsidiary and, to the knowledge of the Company, any third party
thereto, has duly complied in all material respects with the provision of each
Material Contract to which it is a party. An accurate and complete list of each
Material Contract and each Affiliate Contract is set forth in Section 3.17 of
the Disclosure Schedule, and accurate and complete copies of each Material
Contract and each Affiliate Contract have been provided to the Parent. The term
Material Contract shall include any agreement, lease, contract, note, mortgage,
indenture, arrangement or other obligation (or any series of related agreements,
lease, contracts, notes, mortgages, indentures, arrangements or other
obligations) entered into by the Company or any of its Subsidiaries (i) of a
nature which would be required to be included as an Exhibit in a registration
statement filed with the SEC under the Securities Act, pursuant to Item
601(b)(10) of Regulation S-K (other than this Agreement); (ii) which involves
the leasing or rental of any significant portion of the real property currently
utilized by the Company or any of the Subsidiaries; (iii) under which the
Company or any Subsidiary has incurred or may incur indebtedness for borrowed
money; (iv) under which the Company or any Subsidiary is leasing any equipment
or other tangible personal property; or (v) which requires the Company or any of
its Subsidiaries to expend funds in excess of $100,000 in any one-year period
and which is not terminable at will by the Company or its Subsidiary, other than
those which relate to the purchase of inventory by the Company or any of its
Subsidiary, each of which shall only be deemed a Material Contract in the event
that it requires the Company or any of its Subsidiaries to expend funds in
excess of $1,000,000 in any one-year period and which is not terminable at will
by the Company or its Subsidiary.
SECTION 3.18. Brokers and Counsel. No broker, finder or
investment banker (other than SG Cowen) is entitled to any brokerage, finder's
or other fee or commission in connection with the Transactions based upon
arrangements made by or on behalf of the Company. The Company has heretofore
furnished to Parent a complete and correct copy of all agreements among the
Company or any of its Subsidiaries, on the one hand, and SG Cowen (the "Broker
Agreement") or Stradling Yocca Carlson & Rauth on the other hand (the "Attorney
Engagement") pursuant to which such firms would be entitled to any payment
relating to the Transactions.
SECTION 3.19. Year 2000 Compliance. All computer software,
computerized systems, manufacturing equipment and other systems owned or used by
the Company or any Subsidiary, or licensed by the Company or any Subsidiary, as
licensor or as licensee, other than any shrinkwrap software available to retail
customers, and each product sold by the Company, is "Year 2000 Compliant" (as
hereinafter defined), except as disclosed in Section 3.19 of the Disclosure
Schedule. For purposes of this Agreement, "Year 2000 Compliant" shall mean (i)
all such software and systems shall operate in 4-digit year format and, in all
material respects, without errors in the recognition, calculation and processing
of date data relating to century recognition, leap years, single and
multi-century formulae, date values and interfaces of date-related
functionality's; (ii) all date processing shall be conducted in a four-digit
year format and all date sorting that includes a "year field" or "year category"
shall be based upon a four-digit
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year format; and (iii) any date arithmetic programs or calculators in the
software shall operate in all material respects in accordance with the related
user documentation in the Year 2000, and the years following, without degrading
functionality or performance. The Company and each Subsidiary have taken
appropriate steps to obtain assurances from customers, vendors, suppliers and
licensors as to their Year 2000 Compliance.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent
and warrant to the Company that:
SECTION 4.01. Corporate Organization. Each of Parent and
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the requisite
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted, except where the failure to be so organized, existing or in good
standing or to have such power, authority and governmental approvals would not,
individually or in the aggregate, have a material adverse effect on the business
or operations of Parent and Purchaser and their respective subsidiaries, taken
as a whole.
SECTION 4.02. Authority Relative to This Agreement. Each of
Parent and Purchaser has all necessary corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the Transactions. The execution and delivery of this Agreement by
Parent and Purchaser and the consummation by Parent and Purchaser of the
Transactions have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of Parent or Purchaser are
necessary to authorize this Agreement or to consummate the Transactions (other
than with respect to the Merger, the filing and recordation of the Certificate
of Merger as required by Delaware Law). This Agreement has been duly and validly
executed and delivered by Parent and Purchaser and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of each of Parent and Purchaser enforceable against each
of Parent and Purchaser in accordance with its terms.
SECTION 4.03. No Conflict; Required Filings and Consents. (a)
The execution and delivery of this Agreement by Parent and Purchaser do not, and
the performance of this Agreement by Parent and Purchaser will not, (i) conflict
with or violate the Certificate of Incorporation or Bylaws (or equivalent
documents) of either Parent or Purchaser, (ii) conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Parent or Purchaser or
by which any property or asset of either of them is bound or affected, or (iii)
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or other encumbrance on any property or asset of Parent
or Purchaser pursuant to, any note, bond, mortgage, indenture,
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contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or Purchaser is a party or by which Parent or
Purchaser or any property or asset of either of them is bound or subject.
(b) The execution and delivery of this Agreement by Parent and
Purchaser do not, and the performance of this Agreement by Parent and Purchaser
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Exchange Act,
Blue Sky Laws and state takeover laws, the HSR Act and filing and recordation of
the Certificate of Merger as required by Delaware Law and (ii) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay consummation of the Offer
or the Merger, or otherwise prevent Parent or Purchaser from performing their
respective obligations under this Agreement.
SECTION 4.04. Financing. Parent has, or has commitments to obtain,
sufficient funds to permit Purchaser to acquire all the outstanding Shares in
the Offer and the Merger, evidence of which has been provided to the Company.
SECTION 4.05. Offer Documents; Proxy Statement. The Offer
Documents will not, at the time the Offer Documents are filed with the SEC or
are first published, sent or given to shareholders of the Company, as the case
may be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they are
made, not misleading. The information supplied by Parent for inclusion in the
Proxy Statement and the information statement to be sent to the Company's
shareholders will not, on the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to shareholders of the Company, at the time
of the Special Shareholders' Meeting, if applicable, and at the Effective Time,
contain any statement which, at such time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Special Shareholders' Meeting which shall
have become false or misleading. Notwithstanding the foregoing, Parent and
Purchaser make no representation or warranty with respect to any information
supplied by the Company or any of its representatives which is contained in any
of the foregoing documents or the Offer Documents. The Offer Documents shall
comply in all material respects as to form with the requirements of the Exchange
Act and the rules and regulations thereunder.
SECTION 4.06. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the Transactions based upon arrangements made by or on behalf of Parent or
Purchaser.
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ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the
Merger. The Company covenants and agrees that, between the date of this
Agreement and the Effective Time, unless Parent shall otherwise agree in
writing, the businesses of the Company and the Subsidiaries shall be conducted
only in, and the Company and the Subsidiaries shall not take any action except
in, the ordinary course of business and in a manner consistent with past
practice; and the Company shall use its best efforts to preserve substantially
intact the business organization of the Company and the Subsidiaries, to keep
available the services of the current officers, employees and consultants of the
Company and the Subsidiaries and to preserve the current relationships of the
Company and the Subsidiaries with customers, suppliers and other persons with
which the Company or any Subsidiary has significant business relations. By way
of amplification and not limitation, except as contemplated by this Agreement or
by Section 5.01 of the Disclosure Schedule, neither the Company nor any
Subsidiary shall, between the date of this Agreement and the Effective Time,
directly or indirectly do, or propose to do, any of the following without the
prior written consent of Parent:
(a) amend or otherwise change its Articles of Incorporation or Bylaws
or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, encumber, or authorize
the issuance, sale, pledge, disposition, grant or encumbrance of (i) any
shares of capital stock of any class of the Company or any Subsidiary, or
any options, warrants, convertible securities or other rights of any kind
to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of the
Company or any Subsidiary (except for the issuance of a maximum of 994,502
Shares issuable pursuant to stock options outstanding or any rights to
purchase Shares under the Company's 1995 Employee Stock Purchase Plan in
effect on the date hereof) or (ii) any material assets of the Company or
any Subsidiary, except for sales in the ordinary course of business and in
a manner consistent with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets or any other business
combination) any corporation, partnership, other business organization or
any division thereof or any assets; (ii) incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee or
endorse, pledge in respect of or otherwise as an accommodation become
responsible
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for the obligations of any person, or make any loans or advances, except in
the ordinary course of business and consistent with past practice, but in
no event shall there be more than $1,000,000 of indebtedness outstanding at
any one time in addition to the total amount of indebtedness outstanding as
of the date of this Agreement; (iii) enter into any contract or agreement
which is outside of the ordinary course of business, consistent with past
practice, or which requires payments by the Company or the Subsidiaries in
an aggregate amount of more than U.S. $100,000, other than contracts or
agreements relating to the purchase of inventory by the Company or the
Subsidiaries in the ordinary course of business, which contracts or
agreements will not be subject to such $100,000 limitation; (iv) terminate,
cancel or permit any change in, or agree to any change in, any Material
Contract, except in the ordinary course of business consistent with past
practice; (v) terminate, cancel or permit any change in, or agree to any
change in, any Affiliate Agreement, Broker Agreement or Attorney
Engagement; (vi) other than the proposed capital expenditures described in
Schedule 5.01(e) of the Disclosure Schedule, authorize any single capital
expenditure which is in excess of U.S. $100,000 or capital expenditures
which are, in the aggregate, in excess of U.S. $250,000 for the Company and
the Subsidiaries taken as a whole; or (vii) enter into or amend any
contract, agreement, commitment or arrangement with respect to any matter
set forth in this Section 5.01(e);
(f) increase the compensation payable or to become payable to its
directors, officers or employees, except for normal increases consistent
with past practices in salaries or wages of employees of the Company or any
Subsidiary who are not officers of the Company, or grant any severance or
termination pay to, or enter into any employment, severance, termination,
stay-bonus or similar agreement with, any director, officer or other
employee of the Company or any Subsidiary, or establish, adopt, enter into
or amend any collective bargaining, bonus, profit sharing, thrift,
compensation (including any sales compensation plan), stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee, or
communicate to employees, accrue any benefits under or otherwise implement
the Company's 1999 Executive Incentive Plan;
(g) take any action, other than (i) reasonable and usual actions in
the ordinary course of business and consistent with past practice or (ii)
as required by the SEC, with respect to accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable);
(h) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability;
(i) pay, discharge or satisfy any material claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business and consistent with past practice, of
liabilities reflected or reserved against in the 1998 Balance Sheet or
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subsequently incurred in the ordinary course of business and consistent
with past practice or incurred in connection with the Transactions; or
(j) announce an intention, enter into any formal or informal
agreement, or otherwise make a commitment, to do any of the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Special Shareholders' Meeting. The Company,
acting through the Board, shall, in accordance with applicable law and the
Company's Articles of Incorporation and Bylaws, unless not required under
applicable "short-form" merger provisions of Delaware Law, (i) duly call, give
notice of, convene and hold a special meeting of its shareholders as soon as
practicable following consummation of the Offer for the purpose of considering
and taking action on this Agreement and the transactions contemplated hereby
(the "Special Shareholders' Meeting") and (ii) subject to the provisions of
Sections 6.04 and 8.01 below, (A) include in the Proxy Statement the unanimous
recommendation of the Board that the shareholders of the Company approve and
adopt this Agreement and the Transactions, including, without limitation, the
Merger and (B) use its best efforts to obtain such approval and adoption. At the
Special Shareholders' Meeting (or by consent if a shareholders meeting is not
required), Parent and Purchaser shall cause all Shares then owned by them and
their subsidiaries to be voted in favor of the approval and adoption of this
Agreement and the Transactions, including, without limitation, the Merger.
SECTION 6.02. Proxy Statement. As soon as practicable
following consummation of the Offer, the Company shall file the Proxy Statement
with the SEC under the Exchange Act, unless not required under applicable
"short-form" merger provisions of Delaware Law, and shall use its best efforts
to have the Proxy Statement cleared by the SEC. Parent, Purchaser and the
Company shall cooperate with each other in the preparation of the Proxy
Statement, and the Company shall notify Parent promptly of the receipt of any
comments of the SEC with respect to the Proxy Statement and of any requests by
the SEC for any amendment or supplement thereto or for additional information
and shall provide to Parent promptly copies of all correspondence between the
Company or any representative of the Company and the SEC. The Company shall give
Parent and its counsel the opportunity to review the Proxy Statement prior to
its being filed with the SEC and shall give Parent and its counsel the
opportunity to review all amendments and supplements to the Proxy Statement and
all responses to requests for additional information and replies to comments
prior to their being filed with, or sent to, the SEC. Each of the Company,
Parent and Purchaser agrees to use its best efforts, after consultation with the
other parties hereto, to respond promptly to all such comments of and requests
by the SEC and to cause the Proxy Statement and all required amendments and
supplements thereto to be mailed to the holders of Shares entitled to vote at
the Special Shareholders' Meeting at the earliest practicable time.
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SECTION 6.03. Access to Information; Confidentiality. (a) From
the date hereof to the Effective Time, the Company shall, and shall cause the
Subsidiaries and the officers, directors, employees, auditors and agents of the
Company and the Subsidiaries to, afford the officers, employees and agents of
Parent and Purchaser access at all reasonable times to the officers, employees,
agents, properties, offices, plants and other facilities, books and records of
the Company and each Subsidiary, shall instruct its independent auditors to make
available its accountants' work papers to the officers, employees and agents of
Parent and Purchaser, and shall furnish Parent and Purchaser with all financial,
operating and other data and information as Parent or Purchaser, through its
officers, employees or agents, may reasonably request.
(b) All information obtained by Parent or Purchaser pursuant to this
Section 6.04 shall be kept confidential, by Purchaser, by Parent and by any
other party which is to be afforded access pursuant to Section 6.03(a), in
accordance with the confidentiality agreement, dated February 2, 1999, as
amended on February 3, 1999 (the "Confidentiality Agreement"), between Parent
and the Company.
SECTION 6.04. No Solicitation of Transactions. Neither the
Company nor any Subsidiary shall, directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage the submission of
any proposal or offer from any person relating to any acquisition or purchase of
all or any material portion of the assets of, or any equity interest in (other
than pursuant to the exercise of options outstanding on the date hereof), the
Company or any Subsidiary or any merger, consolidation, business combination,
reorganization, recapitalization or similar transaction involving the Company or
any Subsidiary (each a "Competing Transaction") or participate in any
discussions or negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing. The Company and each of its
Subsidiaries will cease and cause to be terminated any existing activities,
discussions or negotiations by or on its behalf with any other person conducted
heretofore with respect to any Competing Transaction and will promptly notify
Parent following receipt of any request by any person relating to any possible
Competing Transaction or information concerning the Company. The Company agrees
that it will not disclose any of the terms of this Agreement or the matters
referred to herein to any other prospective acquiror of the Company until the
Effective Time or earlier if this Agreement is terminated in accordance with its
terms, except to the extent such disclosure is contemplated by this Agreement or
is otherwise required by law or the regulations of the Nasdaq Stock Market.
Nothing contained in this Section 6.04 shall prohibit the Board from furnishing
information to, or entering into discussions or negotiations with, any person in
connection with an unsolicited (from the date of this Agreement) proposal
involving a fully-financed (as represented by such person) Competing Transaction
which is made in writing by such person and which, if consummated, would provide
consideration per Share to the shareholders of the Company in excess of the Per
Share Amount (a "Superior Proposal"), if, and only to the extent that, the Board
determines in good faith, based upon the advice of SG Cowen and the written
advice of Stradling Yocca Carlson & Rauth, that such action is required for the
Board to comply with its fiduciary duties to shareholders under Delaware Law.
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SECTION 6.05. Employee Benefits Matters; Employment Agreements. For a
period of one year from the Effective Time, Parent shall, or shall cause the
Company or the Surviving Corporation to, maintain the Plans (other than the
Stock Option Plans, the Company's 1995 Employee Stock Purchase Plan and the
Company's 1999 Key Employees Stock Ownership Plan) which the Company maintains
for the benefit of, or which are open to, a majority of the employees of the
Company on the terms in effect on the date hereof, or such other plans,
arrangements or programs as will provide employees with benefits that in the
aggregate are substantially equivalent to those provided under the Plans (other
than the Stock Option Plans, the Company's 1995 Employee Stock Purchase Plan and
the Company's 1999 Key Employees Stock Ownership Plan) as in effect on the date
hereof. In addition, Parent shall, or shall cause the Surviving Corporation to,
assume and agree to perform those agreements and policies listed in Schedule
6.05 of the Disclosure Schedule in the same manner and to the same extent that
the Company is required to perform such agreements and policies as of the date
hereof, and Parent shall not, and shall cause the Surviving Corporation to not,
withdraw or modify the obligations of Parent or the Surviving Corporation
thereunder, as the case may be, without obtaining the prior consent of the other
party or parties thereto, or the current beneficiaries thereof.
SECTION 6.06. Directors' and Officers' Indemnification and Insurance.
(a) The Articles of Incorporation and Bylaws of the Surviving
Corporation shall contain provisions no less favorable with respect to
indemnification than are set forth in Article VII of the Bylaws of the Company,
which provisions shall not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would affect
adversely the rights thereunder of individuals who at the Effective Time were
directors, officers, employees, fiduciaries or agents of the Company, unless
such modification shall be required by law. Any determinations made pursuant to
Section 3 of Article VII of the Bylaws of the Company with respect to the
appropriateness of indemnification shall be made in good faith.
(b) The Company shall, to the extent permitted by Delaware Law,
indemnify and hold harmless, and, after the Effective Time, the Surviving
Corporation shall, to the extent permitted by Delaware Law, indemnify and hold
harmless, each present and former director, officer, employee, fiduciary and
agent of the Company and each Subsidiary (collectively, the "Indemnified
Parties") against all costs and expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and settlement amounts
paid in connection with any claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omission in their capacity as an officer, director, employee, fiduciary or
agent, whether occurring before or after the Effective Time, for a period of six
years after the date hereof. In the event of any such claim, action, suit,
proceeding or investigation, (i) the Company or the Surviving Corporation, as
the case may be, shall pay the reasonable fees and expenses of counsel selected
by the Indemnified Parties, which counsel shall be reasonably satisfactory to
the Company or the Surviving Corporation, promptly after statements therefor are
received and (ii) the Company and the Surviving Corporation shall cooperate in
the defense of any such matter; provided, however, that neither the Company nor
the Surviving Corporation shall be liable for any settlement effected without
its written consent (which consent shall not be
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<PAGE> 32
unreasonably withheld); provided further that neither the Company nor the
Surviving Corporation shall be obligated pursuant to this Section 6.06(b) to pay
the fees and expenses of more than one counsel for all Indemnified Parties in
any single action except to the extent that two or more of such Indemnified
Parties shall have conflicting interests in the outcome of such action; and
provided further that, in the event that any claim for indemnification is
asserted or made within such six-year period, all rights to indemnification in
respect of such claim shall continue until the disposition of such claim.
(c) Prior to the Effective Time the Company shall, and
after the Effective Time the Surviving Corporation shall, make reasonable
advances to the Indemnified Parties to cover expenses for which such Indemnified
Parties would otherwise be entitled to indemnification pursuant to this Section
6.06, subject to receipt of an undertaking by the Indemnified Parties to
reimburse the Company for all such amounts advanced if it is subsequently
determined that the Company is not required to indemnify such Indemnified Party.
(d) The Surviving Corporation shall use its best efforts
to maintain in effect for six years from the Effective Time, if available, the
current directors' and officers' liability insurance policies maintained by the
Company (provided that the Surviving Corporation may substitute therefor
policies of at least the same coverage containing terms and conditions which are
not materially less favorable) with respect to matters occurring on or prior to
the Effective Time; provided, however, that in no event shall the Surviving
Corporation be required to expend pursuant to this Section 6.06(d) more than an
amount per year equal to 150% of current annual premiums paid by the Company for
such insurance, which amount shall be increased by 5% for each year hereafter.
(e) In the event the Company or the Surviving Corporation
or any of their respective successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (ii) transfers all or substantially
all of its properties and assets to any person, then, and in each such case,
proper provision shall be made so that the successors and assigns of the Company
or the Surviving Corporation, as the case may be, or at Parent's option, Parent,
shall assume the obligations set forth in this Section 6.06.
SECTION 6.07. Notification of Certain Matters. The Company
shall give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of (i) the occurrence, or non-occurrence, of any event the occurrence,
or non-occurrence, of which causes any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect and (ii) any
failure of the Company, Parent or Purchaser, as the case may be, to comply with
or satisfy any material covenant, condition or agreement to be complied with or
satisfied by it hereunder.
SECTION 6.08. Further Action; Reasonable Best Efforts. Upon
the terms and subject to the conditions hereof (including, without limitation,
Section 6.04), each of the parties hereto shall (i) make promptly its respective
filings, and thereafter make any other required submissions, under the HSR Act
with respect to the Transactions and (ii) use its reasonable best
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<PAGE> 33
efforts to take, or cause to be taken, all appropriate action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the Transactions,
including, without limitation, using its reasonable best efforts to obtain all
licenses, permits (including, without limitation, environmental permits),
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company and the Subsidiaries as
are necessary for the consummation of the Transactions and to fulfill the
conditions to the Offer and the Merger. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each party to this
Agreement shall use their reasonable best efforts to take all such action.
SECTION 6.09. Public Announcements. Parent and the Company shall
consult with each other before issuing any press release or otherwise
making any public statements with respect to this Agreement or any Transaction
and shall not issue any such press release or make any such public statement
prior to such consultation, except as may be required by law or any listing
agreement with a national securities exchange or The Nasdaq Stock Market to
which Parent or the Company is a party.
SECTION 6.10. Confidentiality Agreement. Upon the acceptance for
payment of Shares pursuant to the Offer, the Confidentiality Agreement shall be
deemed to have terminated without further action by the parties thereto.
SECTION 6.11 Financial Statements. As soon as they are made
available to senior management of the Company, the Company shall make available
to Parent copies of all internally generated monthly, quarterly and annual
financial statements, consisting of consolidated balance sheets, and statements
of income and of cash flows.
SECTION 6.12 SEC Reports. The Company shall timely file all
quarterly, annual and other reports and information required to be filed by it
with the SEC under the Exchange Act for all periods through and including the
Effective Time and, promptly after making such filing, shall provide Parent with
an accurate and complete copy thereof. The delivery to Parent of copies of any
such reports and information shall constitute a representation and warranty by
the Company to Parent that such report or information was prepared in accordance
with the requirements of the Exchange Act and did not, at the time it was filed,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances in which they were made, not misleading.
SECTION 6.13 Customer Calls. The Company shall, and shall
cause each of its Subsidiaries and the officers, directors, employees and agents
of the Company and its Subsidiaries to, participate with Parent in visiting and
communicating with customers of the Company and its Subsidiaries, as reasonably
requested by Parent prior to the Effective Time.
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ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger. The respective obligations
of each party to effect the Merger shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions:
(a) Shareholder Approval. This Agreement and the Transactions,
including, without limitation, the Merger, shall have been approved and
adopted by the affirmative vote of the shareholders of the Company (unless
the vote of the shareholders is not required by Delaware Law);
(b) No Order. No foreign, United States or state governmental
authority or other agency or commission or foreign, United States or state
court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making the acquisition of
Shares by Parent or Purchaser or any affiliate of either of them or the
consummation of the Merger illegal or otherwise restricting, preventing or
prohibiting consummation of the Transactions;
(c) Offer. Purchaser or its permitted assignee shall have
purchased all Shares validly tendered and not withdrawn pursuant to the
Offer; provided, however, that this condition shall only be applicable to
the obligations of Parent or Purchaser if Purchaser's failure to purchase
such Shares is not in breach of this Agreement or the terms of the Offer;
and
(d) HSR Act and Foreign Antitrust Laws. Any waiting period
(and any extension thereof) applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated, and consummation
of the Merger shall not result in a violation of any applicable material
foreign antitrust or competition law, rule or regulation.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the
Merger and the other Transactions may be abandoned at any time prior to the
Effective Time, notwithstanding any requisite approval and adoption of this
Agreement and the transactions contemplated hereby by the shareholders of the
Company:
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<PAGE> 35
(a) By mutual written consent duly authorized by the Boards of
Directors of Parent, Purchaser and the Company; or
(b) By Parent, Purchaser or the Company if (i) the Effective
Time shall not have occurred on or before December 31, 1999; provided,
however, that the right to terminate this Agreement under this Section
8.01(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date or (ii) any
court of competent jurisdiction in the United States or other governmental
authority shall have issued an order, decree, ruling or taken any other
action restraining, enjoining or otherwise prohibiting the Offer or the
Merger and such order, decree, ruling or other action shall have become
final and nonappealable; or
(c) By Parent, upon approval of its Board of Directors, if (i)
due to an occurrence or circumstance that would result in a failure to
satisfy any condition set forth in Annex A hereto, Purchaser shall have (A)
failed to commence the Offer within 60 days following the date of this
Agreement, (B) terminated the Offer without having accepted any Shares for
payment thereunder or (C) failed to pay for Shares pursuant to the Offer
within 90 days following the commencement of the Offer; unless such action
or inaction under (A), (B) or (C) shall have been caused by or resulted
from the failure of Parent or Purchaser to perform in any material respect
any covenant or agreement of either of them contained in this Agreement or
the material breach by Parent or Purchaser of any representation or
warranty of either of them contained in this Agreement or (ii) prior to the
purchase of Shares pursuant to the Offer, the Board or any committee
thereof shall have publicly withdrawn or modified in a manner adverse to
Purchaser or Parent or, after receipt of a proposal involving a Competing
Transaction, upon the request of Parent, shall not have, within four
business days after receipt of Parent's request, publicly reaffirmed, its
approval or recommendation of the Offer, this Agreement, the Merger, the
Shareholder Agreements or any other Transaction, or shall have recommended
another merger, consolidation, business combination, recapitalization,
reorganization or similar transaction involving, or acquisition of, the
Company or its assets, or another tender offer or exchange offer for
Shares, or shall have resolved to do any of the foregoing; or
(d) By the Parent, upon approval of its Board of Directors, if
the Company shall have materially breached its obligations under Section
6.04 above; or
(e) By the Company, upon approval of the Board, if Parent or
Purchaser shall materially breach any of its obligations hereunder and
shall fail to cure such breach within ten days after written notice thereof
from the Company or if due to an occurrence or circumstance that would
result in a failure to satisfy any of the conditions set forth in Annex A
hereto, Purchaser shall have (A) failed to commence the Offer within 60
days following the date of this Agreement, (B) terminated the Offer without
having accepted any Shares for payment thereunder or (C) failed to pay for
Shares pursuant to the Offer within 90 days following the commencement of
the Offer, unless such action or inaction under (A), (B), and (C) shall
have been caused by or resulted from the failure of the
30
<PAGE> 36
Company to perform in any material respect any covenant or agreement of it
contained in this Agreement or the material breach by the Company of any
representation or warranty of it contained in this Agreement; or
(f) by the Company or Parent, prior to the purchase of Shares
pursuant to the Offer, if the Board, in full compliance with the
provisions of Section 6.04 above, shall have approved the execution by
the Company of a definitive agreement relating to a Superior Proposal.
SECTION 8.02. Effect of Termination. In the event of the termination
of this Agreement pursuant to Section 8.01, this Agreement shall forthwith
become void, and there shall be no liability on the part of any party hereto,
except as set forth in Sections 8.03 and 9.01, and nothing herein shall relieve
any party from liability for any breach hereof.
SECTION 8.03. Fees and Expenses. (a) In the event that
(i) any person shall have commenced a tender or exchange offer
for 25% or more (or which, assuming the maximum amount of securities which
could be purchased, would result in any person beneficially owning 25% or
more) of the then outstanding Shares or otherwise publicly announced a
Competing Transaction for the direct or indirect acquisition of the Company
or all or substantially all of its assets and (w) the Board does not
recommend against the Competing Transaction, (x) the Offer shall have
remained open for at least 20 business days, (y) the Minimum Condition
shall not have been satisfied and (z) this Agreement shall have been
terminated pursuant to Section 8.01; or
(ii) this Agreement is terminated (x) pursuant to Section 8.01(c)(ii)
or (y) pursuant to Section 8.01(d) or (z) pursuant to Section 8.01(f);
then, in any such event, the Company shall pay Parent promptly (but in no event
later than one business day after the first of such events shall have occurred)
a fee of U.S. $2,500,000 (the "Fee"), which amount shall be payable in
immediately available funds.
(b) Except as set forth above, all costs and expenses incurred in
connection with this Agreement and the Transactions shall be paid by the party
incurring such expenses, whether or not any Transaction is consummated.
SECTION 8.04. Amendment. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; provided, however, that,
after the approval and adoption of this Agreement and the transactions
contemplated hereby by the shareholders of the Company, no amendment may be made
which would reduce the amount or change the type of consideration into which
each Share shall be converted upon consummation of the Merger. This Agreement
may not be amended except by an instrument in writing signed by the parties
hereto.
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SECTION 8.05. Waiver. At any time prior to the Effective Time,any
party hereto may (i) extend the time for the performance of any obligation or
other act of any other party hereto, (ii) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any agreement or condition
contained herein. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.01, as the case may be, except that the agreements set
forth in Articles II and IX and in Section 6.06 shall survive the Effective Time
indefinitely and those set forth in Section 8.03 and Article IX shall survive
termination indefinitely.
SECTION 9.02. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
facsimile, by United States express mail (postage prepaid, return receipt
requested) or by overnight courier guaranteeing next business day delivery to
the respective parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance with this Section
9.02):
if to Parent or Purchaser:
Saturn Electronics & Engineering, Inc.
255 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Wallace K. Tsuha, President,
Chief Executive Officer and Chairman of the Board
Facsimile: (248) 853-2645
with a copy to:
Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, Michigan 48226
Attention: Donald J. Kunz, Esq.
Facsimile: (313) 465-7455
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if to the Company:
Smartflex Systems, Inc.
14312 Franklin Avenue
Tustin, California 92781
Attention: William Healey, President,
Chief Executive Officer and Chairman of the Board
Facsimile: (714) 838-3130
with a copy to:
Stradling Yocca Carson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660
Attention: Nick E. Yocca, Esq.
Facsimile: (949) 725-4100
SECTION 9.03. Certain Definitions. For purposes of this Agreement,
the term:
(a) "affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by,
or is under common control with, such specified person;
(b) "beneficial owner" with respect to any Shares means a person who
shall be deemed to be the beneficial owner of such Shares (i) which such
person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly
or indirectly, (ii) which such person or any of its affiliates or
associates has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of consideration rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement
or understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or associates or person with whom such person or any of its
affiliates or associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any Shares;
(c) "business day" means any day on which the principal offices of
the SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in the City of New York;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power
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to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "person" means an individual, corporation, partnership,
limited partnership, syndicate, person (including, without limitation, a
"person" as defined in Section 13(d)(3) of the Exchange Act), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government; and
(f) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means an affiliate controlled by
such person, directly or indirectly, through one or more intermediaries.
SECTION 9.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the Transactions be consummated as originally contemplated to the
fullest extent possible.
SECTION 9.05. Entire Agreement, Assignment. This Agreement
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes, except as set forth in Sections 6.03(b) and 6.10,
all prior agreements and undertakings, both written and oral, among the parties,
or any of them, with respect to the subject matter hereof; provided, however,
the third full paragraph of page 3 of the Confidentiality Agreement shall not be
deemed to reduce or modify the Company's obligations with respect to any
representation or warranty made pursuant to this Agreement. This Agreement shall
not be assigned by operation of law or otherwise, except that Parent and
Purchaser may assign all or any of their rights and obligations hereunder to any
affiliate of Parent provided that no such assignment shall relieve the assigning
party of its obligations hereunder if such assignee does not perform such
obligations.
SECTION 9.06. Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement, other than Section 6.06 (which is intended to be for
the benefit of the persons covered thereby and may be enforced by such persons).
SECTION 9.07. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or equity.
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SECTION 9.08. Governing Law. The Merger and the rights of the
shareholders of the Company, this Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws.
SECTION 9.09. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.10. Counterparts; Facsimile. This Agreement may be
executed in one or more counterparts (including by facsimile signature), each of
which shall be an original and all of which, when taken together, shall be one
and the same agreement.
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IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
SATURN ELECTRONICS &
ENGINEERING, INC.
Attest:
/s/ Jereen G. Trudell By: /s/ W. Tsuha
- ---------------------------------- ------------------------------------
Name: Jereen G. Trudell Name: Wallace K. Tsuha, Jr.
Title: President, Chief Executive
Officer and Chairman of the
Board
SSI ACQUISITION CORP.
Attest:
/s/ Jereen G. Trudell By: /s/ W. Tsuha
- ---------------------------------- ------------------------------------
Name: Jereen G. Trudell Name: Wallace K. Tsuha, Jr.
Title: President, Chief Executive
Officer and Chairman of the
Board
SMARTFLEX SYSTEMS, INC.
Attest:
/s/ John Hohener By: /s/ William L. Healey
- ---------------------------------- ------------------------------------
Name: John Hohener Name: William L. Healey
Title: President
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<PAGE> 42
ANNEX A
Conditions to the Offer
Notwithstanding any other provision of the Offer, Purchaser shall not
be required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance for
payment of and payment for Shares tendered, if (i) the Minimum Condition shall
not have been satisfied, (ii) any applicable waiting period under the HSR Act
shall not have expired or been terminated prior to the expiration of the Offer,
(iii) acceptance for payment of and payment for Shares tendered would result in
a violation of any applicable material foreign antitrust or competition law,
rule or regulation, or (iv) at any time on or after the date of this Agreement,
and prior to the acceptance for payment of Shares, any of the following
conditions shall exist:
(a) there shall have been entered any order, preliminary or
permanent injunction, decree, judgment or ruling in any action or
proceeding before any court or governmental, administrative or regulatory
authority or agency, which makes illegal or otherwise directly or
indirectly restrains or prohibits or makes materially more costly the
making of the Offer, the acceptance for payment of, or payment for, any
Shares by Parent, Purchaser or any other affiliate of Parent, or the
consummation of any other Transaction;
(b) there shall have occurred any Material Adverse Effect with
respect to the Company;
(c) (i) the Board or any committee thereof (x) shall have
publicly withdrawn or modified in a manner adverse to Parent or Purchaser
the approval or recommendation of the Offer, the Merger, the Shareholder
Agreements or the Agreement, (y) after the Company's receipt of a proposal
involving a Competing Transaction, shall have failed to reaffirm such
approval or recommendation upon request by Parent within four business days
after the Company's receipt of Parent's request or (z) shall have approved
or recommended any takeover proposal or any other acquisition of Shares
other than the Offer and the Merger, or (ii) the Board or any committee
thereof shall have resolved to do any of the foregoing;
(d) there shall have been any breach of warranty by, the
Company in the Agreement as a result of which, individually or in the
aggregate, there is, or may reasonably be expected to occur a Material
Adverse Effect with respect to the Company;
(e) the Company shall have failed to perform in any material
respect any obligation or to comply in any material respect with any
material agreement or material covenant of the Company to be performed or
complied with by it under the Agreement;
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<PAGE> 43
(f) the Agreement shall have been terminated in accordance with its
terms; or
(g) Purchaser and the Company shall have agreed (i) that Purchaser
shall terminate the Offer or (ii) that Purchaser shall postpone the
acceptance for payment of or payment for Shares thereunder which, in the
sole judgment of Purchaser, in any such case, and regardless of the
circumstances (including any action or inaction by Parent or any of its
affiliates) giving rise to any such condition, makes it inadvisable to
proceed with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser and
Parent and may be asserted by Purchaser or Parent regardless of the
circumstances giving rise to any such condition or may be waived by Purchaser or
Parent in whole or in part at any time and from time to time in their sole
discretion. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right; the waiver
of any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances; and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
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SCHEDULE I
William Healey
William Bendush
Alan King
William Klein
Gary Liebl
Anthony Richardson
John Hohener
Richard Bell
James Cogan
Christopher Rollison
Cheryl Moreno
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<PAGE> 1
EXHIBIT 10.6
SPLIT-DOLLAR AGREEMENT
BETWEEN
SATURN ELECTRONICS & ENGINEERING, INC.,
WALLACE K TSUHA,
AND
SHERMAN CRUZ, TRUSTEE OF THE WALLACE K. TSUHA IRREVOCABLE
LIFE INSURANCE TRUST OF DECEMBER 13, 1991
THIS AGREEMENT made and entered into as of the 15th day of July, 1999
by and among SATURN ELECTRONICS & ENGINEERING, INC., a Michigan Corporation,
with principal offices and place of business in the State of Michigan, located
at 255 Rex Blvd., Auburn Hills, MI 48326 (hereinafter referred to as the
"Corporation"), WALLACE K. TSUHA, an individual residing in the State of
Michigan, (hereinafter referred to as "Employee"), and SHERMAN CRUZ, TRUSTEE OF
THE WALLACE K. TSUHA IRREVOCABLE LIFE INSURANCE TRUST OF DECEMBER 13, 1991
(hereinafter referred to as the "Owner").
WITNESSETH THAT:
WHEREAS, the Employee is employed by the Corporation; and
WHEREAS, the Employee wishes to provide life insurance protection for
his family in the event of his death, under a policy of life insurance insuring
his life (hereinafter referred to as the "Policy"), which is described in
Exhibit A attached hereto and by this reference made a part hereof, and which
shall be issued by NORTHWESTERN MUTUAL LIFE (hereinafter referred to as the
"Insurer"); and
WHEREAS, the Corporation is willing to pay a portion of the premiums
due on the Policy as an additional employment benefit for the Employee, on the
terms and conditions hereinafter set forth; and
WHEREAS, Owner is the Owner of the Policy and, as such, possesses all
incidents of ownership in and to the Policy; and
WHEREAS, the Corporation wishes to have the Policy collaterally
assigned to it by the Owner, in order to secure the repayment of the amounts
which it will pay toward the premiums on the Policy; and
WHEREAS, the parties intend that by such Collateral Assignment the
Corporation shall receive only the right to such repayment, with the Owner
retaining all other ownership rights in the Policy, as specified herein;
1
<PAGE> 2
NOW THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto agree as follows:
1. PURCHASE OF POLICY. The Owner has purchased the Policy from the Insurer
in the total face amount of TWENTY MILLION ($20,000,000.00) DOLLARS.
The parties hereto have taken all necessary action to cause the Insurer
to issue the Policy, and shall take any further action which may be
necessary to cause the Policy to conform to the provisions of this
Agreement. The parties hereto agree that the Policy shall be subject to
the terms and conditions of this Agreement and of the Collateral
Assignment filed with the Insurer relating to the Policy. The Parties
further agree that they may convert the Policy to a new policy, if the
parties to this Agreement agree to such a conversion. If the Policy is
converted to a new policy, any change in the face amount and/or policy
number shall be listed on Exhibit A hereof.
2. OWNERSHIP OF POLICY.
a. The Owner shall be the sole and absolute owner of the Policy, and
may exercise all ownership rights granted to the Owner thereof by
the terms of the Policy, except as may otherwise be provided
herein.
b. It is the intention of the parties to this Agreement and the
Collateral Assignment executed by the Owner to the Corporation in
connection herewith that the Owner shall retain all rights which
the Policy grants to the Owner thereof; the sole right of the
Corporation hereunder shall be to be repaid the amounts which it
has paid toward the premiums on the Policy. Specifically, but
without limitation, the Corporation shall neither have nor
exercise any right as a collateral assignee of the Policy which
could in any way defeat or impair the Owner's right to receive the
Cash Surrender Value or the Death Proceeds of the Policy in excess
of the amount due the Corporation hereunder. All provisions of
this Agreement and of such Collateral Assignment shall be
construed so as to carry out such intention.
3. POLICY DIVIDENDS. Any dividend declared on the Policy shall be applied
to purchase paid-up additional insurance on the life of the Employee.
The parties hereto agree that the dividend election provision of the
Policy shall conform to the provisions hereof.
4. PAYMENT OF PREMIUMS.
a. Thirty (30) days prior to the due date of each Policy premium,
the Owner shall notify the Corporation and the Employee of the
exact amount due from the Corporation and Employee hereunder. The
amount of premium payable by Employee shall be an amount at least
equal to the annual cost of current life insurance protection on
the life of Employee, measured by the lower of the PS 58 Rate, set
forth in Rev. Rul. 55-747, 1955-2 C.B. 228, (or the corresponding
2
<PAGE> 3
applicable provision of any future Revenue Ruling), or the
Insurer's current published premium rate for annually
renewable term insurance for standard risks. Either the Employee
or the Owner, on behalf of the Employee, shall pay such required
contribution to the Corporation prior to the premium due date. If
neither the Employee nor the Owner makes such timely payment, the
Corporation, in its sole discretion, may elect to make the
Employee's portion of the premium payment, which payment shall be
recovered by the Corporation as provided herein.
b. On or before the due date of each Policy premium, or within the
grace period provided therein, the Corporation shall pay the full
amount of the premium to the Insurer, and shall upon request,
promptly furnish the Employee evidence of timely payment of such
premium. The Corporation shall annually furnish the Employee a
statement of the amount of income reportable by the Employee for
Federal and State income tax purposes, if any, as a result of the
insurance protection provided the Owner as the Policy Beneficiary.
5. COLLATERAL ASSIGNMENT. To secure the repayment of the Corporation of
the amount of the premiums on the Policy paid by it hereunder, the
Owner has, contemporaneously herewith, assigned the Policy to the
Corporation as collateral, under a separate document, which Collateral
Assignment specifically provides that the sole right of the Corporation
thereunder is to be repaid the amounts it has paid toward premiums on
the Policy hereunder. Such repayment shall be made from the Cash
Surrender Value of the Policy (as defined by the Insurer) if this
Agreement is terminated or the Owner surrenders or cancels the Policy,
or from the death proceeds of the Policy if the Employee should die
while the Policy and Agreement remain in force. Furthermore, if Owner
has taken any loans from the policy, either through the Insurer, or by
pledging the Policy with a third party, Owner may be required by the
Corporation to repay said loans, under the terms of this Agreement, if
either the Net Cash Surrender Value or the Net proceeds are not
sufficient to repay the Corporation for the premiums it has paid. In no
event shall the Corporation have any right to borrow against or make
withdrawals from the Policy, to surrender or cancel the Policy, nor to
take any action which would impair or defeat the rights of the Owner
in and to the Policy. The Collateral Assignment of the Policy to the
Corporation hereunder shall not be terminated, altered or amended by
the Owner while this Agreement is in effect. The parties hereto agree
to take all action necessary to cause such Collateral Assignment to
conform to the provisions of this Agreement.
6. LIMITATION ON OWNER'S RIGHTS IN POLICY.
a. The Owner shall take no action with respect to the Policy which
would in any way compromise or jeopardize the Corporation's right
to be repaid the amounts it has paid toward premiums on the Policy
while this Agreement is in effect.
3
<PAGE> 4
b. With the prior written approval of the Corporation, the Owner may
pledge or assign the Policy, subject to the terms and conditions
of this Agreement, in order to secure a loan from the Insurer or
from a third party, in an amount which shall not exceed the Cash
Surrender Value of the Policy (as defined therein) as of the date
to which premiums have been paid, less the amount paid toward the
premiums on the Policy by the Corporation hereunder. Interest
charges on such loan shall be the responsibility of and be paid by
the Owner. For any policy year in which the Owner borrows
hereunder, the Corporation shall be correspondingly relieved of
its obligations to pay any amounts towards premiums hereunder for
such policy year, to the extent of such borrowing.
c. The Owner shall have the sole right to surrender or cancel the
Policy, and to receive the full Cash Surrender Value of the
Policy, remaining after any interest of the Corporation has first
been satisfied hereunder, directly from the Insurer. Upon the
surrender or cancellation of the Policy, the Corporation shall
have the unqualified right to receive a portion of the Cash
Surrender Value equal to the total amount of the premiums paid by
it hereunder. If the Owner has obtained any loans from the
Insurer, or from third parties by pledging the Policy, and the
Cash Surrender Value is not sufficient to repay the Corporation
for the premiums that it has paid, Owner shall repay said loans in
order to increase the Cash Surrender Value available to repay the
Corporation. Provided, however, the obligation owed to the
Corporation shall not be larger than the Cash Surrender Value of
the Policy, taking into account the repayment of any and all loans
received by the Owner. Immediately upon receipt of such cash value
of the Policy from the Insurer, the Owner shall pay to the
Corporation the portion of such cash value to which it is entitled
hereunder and shall retain the balance, if any; upon such receipt
and payment, this Agreement shall thereupon terminate.
7. COLLECTION OF DEATH PROCEEDS.
a. Upon the death of the Employee, the Corporation and the Owner
shall cooperate to take whatever action is necessary to collect
the provided under the Policy; when such benefit has been
collected and paid as provided herein, this Agreement shall
thereupon terminate.
b. Upon the death of the Employee, the Corporation shall have the
unqualified right to receive a portion of such equal to the total
amount of premiums paid by it hereunder. If the Owner has
outstanding loans, which have reduced the proceeds below the
amount of premiums that the Corporation has paid, Owner shall be
required to repay said loans in order to increase the available
funds needed to repay the Corporation. The balance of the provided
under the Policy, if any, shall be paid directly to the Owner, in
the manner and in the amount or amounts provided in the
beneficiary designation provision of the Policy. In no event shall
4
<PAGE> 5
the amount payable to the Corporation hereunder exceed the Policy
proceeds payable at the death of the Employee, taking into account
the repayment of any and all loans by the Owner. No amount shall
be paid from such to the Owner until the full amount due the
Corporation hereunder has been paid. The parties hereto agree that
the beneficiary designation provision of the Policy shall conform
to the provisions hereof.
c. Notwithstanding any provision hereof to the contrary, in the event
that, for any reason whatsoever, no is payable under the Policy
upon the death of the Employee and in lieu thereof the Insurer
refunds all or a portion of the premiums paid for the Policy, the
Corporation shall first receive its full premium contributions
that it has paid hereunder, before the Owner receives its share,
and then the Owner shall have the unqualified right to the balance
of any refunded premiums. Owner and Employee shall take all
actions necessary to comply with the policy requirements to assure
that the and/or the Cash Surrender Value will be available.
8. TERMINATION OF THE AGREEMENT DURING THE EMPLOYEE'S LIFETIME.
a. This Agreement shall terminate during the Employee's lifetime
without notice upon the occurrence of any of the following events:
(a) total cessation of the Corporation's business; (b) bankruptcy,
receivership or dissolution of the Corporation; (c) failure of
both the Employee and the Owner to timely pay to the Corporation
the Employee's portion of the premium, if any, due hereunder,
unless the Corporation elects to make such payment on behalf of
the Employee, as provided herein.
b. In addition, either the Owner or the Employee may terminate this
Agreement, while no premium under the Policy is overdue, by
written notice to the other parties hereto. Such termination shall
be effective as of the date of such notice.
c. Furthermore, if the parties decide to convert the current Policy
to a new policy, such conversion shall not act to terminate this
Agreement.
d. If the Policy terminates for any reason, this Agreement also
terminates.
e. Provided, however, if the Corporation merges with another entity,
but the Corporation is the surviving entity, or as a result of an
acquisition, the name of the Corporation is changed, such event
shall not by itself act to terminate this Agreement.
5
<PAGE> 6
f. In the event the Corporation desires to become a public company,
the Corporation reserves the right to review this Agreement at the
time of an initial public offering and, at its option, terminate
this Agreement by sending written notice to the other parties
hereto.
9. DISPOSITION OF THE POLICY ON TERMINATION OF THE AGREEMENT DURING THE
EMPLOYEE'S LIFETIME.
a. For sixty (60) days after the date of the termination of this
Agreement during the Employee's lifetime, the Owner shall have the
option of obtaining the release of the Collateral Assignment of
the Policy to the Corporation. To obtain such a release, the Owner
shall repay to the Corporation the total amount of the premium
payments made by the Corporation hereunder. Upon receipt of such
amount, the Corporation shall release the Collateral Assignment
of the Policy, by the execution and delivery of an appropriate
instrument of release.
b. If the Owner fails to exercise such option within such sixty (60)
day period, then, at the request of the Corporation, the Owner
shall execute any document or documents required by the Insurer to
transfer the interest of the Owner in the Policy to the
Corporation. Thereafter, neither the Owner nor the Owner's
successors, assigns or beneficiaries shall have any further
interest in and to the Policy, either under the terms thereof or
under this Agreement. Alternatively, the Corporation may enforce
its right to be repaid the amount of the premiums on the policy
paid by it from the Cash Surrender Value of the Policy under the
Collateral Assignment of the Policy; provided that in the event
the Cash Surrender Value of the Policy exceeds the amount due the
Corporation, such excess shall be paid to the Owner.
10. INSURER NOT A PARTY. The Insurer shall be fully discharged from its
obligations under the Policy by payment of the Policy to the
beneficiary or beneficiaries named in the Policy, subject to the terms
and conditions of the Policy. In no event shall the Insurer be
considered a party to this Agreement, or any modification or amendment
hereof. No provision of this Agreement, any modification or amendment
hereof, shall in any way be construed as enlarging, varying, or in any
other way affecting the obligations of the Insurer as expressly
provided in the Policy, except insofar as the provisions hereof are
made a part of the Policy by the Collateral Assignment executed by
the Owner and filed with the Insurer in connection herewith.
6
<PAGE> 7
11. NAMED FIDUCIARY, DETERMINATION OF BENEFITS, CLAIMS PROCEDURE AND
ADMINISTRATION.
a. The Corporation is hereby designated as the named fiduciary under
this Agreement. The named fiduciary shall have authority to
control and manage the operation and administration of this
Agreement, and shall be responsible for establishing and carrying
out a funding policy and method consistent with the objectives of
this Agreement.
b. (1) Claim. A party to this Agreement who believes that he or she
is being denied a benefit to which he or she is entitled
under this Agreement (hereinafter referred to as a
"Claimant") may file a written request for such benefit with
the Corporation, setting forth his or her claim. The request
must be addressed to the Secretary of the Corporation at its
then principal place of business.
(2) Claim Decision. Upon receipt of a claim, the Corporation
shall advise the Claimant that a reply will be forthcoming
within ninety (90) days and shall, in fact, deliver such
reply within such period. The Corporation may, however,
extend the reply period for an additional ninety (90) days
for reasonable cause.
If the claim is denied in whole or in part, the Corporation
shall adopt a written opinion, using language calculated to
be understood by the Claimant, setting forth: (a) the
specific reason or reasons for such denial; (b) the
specified reference to pertinent provisions of this
Agreement on which such denial is based; (c) a description
of any additional material or information necessary for the
Claimant to perfect his or her claim and an explanation why
such material or such information is necessary; (d)
appropriate information as to the steps to be taken if the
Claimant wishes to submit the claim for review; and (e) the
time limits for requesting a review under subsection (3) and
for review under subsection (4) hereof.
(3) Request for Review. Within sixty (60) days after the receipt
by the Claimant of the written opinion described above, the
Claimant may request in writing that the Secretary of the
Corporation review the determination of the Corporation.
Such request must be addressed to the Secretary of the
Corporation, at its then principal place of business. The
Claimant or his or her duly authorized representative may,
but need not, review the pertinent documents and review and
submit issues and comments in writing for consideration by
the Corporation. If the claimant does not request a review
of the Corporation's determination by the Secretary of the
Corporation within such sixty (60) day period, he or she
7
<PAGE> 8
shall be barred and estopped from challenging the Corporation's
determination.
(4) Review of Decision. Within sixty (60) days after the Secretary's
receipt of a request for review, he or she will review the
Corporation's determination. After considering all the materials
presented by the Claimant, the Secretary will render a written
opinion, setting forth the specific reasons for the decision and
containing specific references to the pertinent provisions of this
Agreement on which the decision is based. If special circumstances
require that the sixty (60) day time period be extended, the
Secretary will so notify the Claimant and will render the decision
as soon as possible, but no later than one hundred twenty (120)
days after receipt of the request for review. The Secretary's
decision shall be final and binding upon the Claimant.
12. AMENDMENT. This Agreement may not be amended, altered or modified,
except by a written instrument signed by the parties hereto, or their
respective successors or assigns, and may not be otherwise terminated
except as provided herein.
13. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Corporation and its successors and assigns, and the
Employee, the Owner, and their respective successors, assigns, heirs,
executors, administrators and beneficiaries.
14. NOTICE. Any notice, consent or demand required or permitted to be given
under the provisions of this Agreement shall be in writing, and shall be
signed by the party giving or making the same. If such notice, consent or
demand is mailed to a party hereto, it shall be sent by United States
Certified Mail, postage prepaid or sent by Federal Express, Airborne, or
UPS, addressed to such party's last known address as shown on the records
of the Corporation or faxed to such party at said party's last known fax
number. The date of such mailing shall be deemed the date of notice,
consent or demand.
15. GOVERNING LAW. This Agreement, and the rights of the parties hereunder,
shall be governed by and construed in accordance with the laws of the
State of Michigan.
THIS SPACE INTENTIONALLY LEFT BLANK
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in
duplicate, as of the day and year first above written.
SATURN ELECTRONICS & ENGINEERING,
INC. ("Corporation")
/s/ Donald J. Cowie
- ------------------------------ -----------------------------------
Donald J. Cowie, C.F.O.
- ------------------------------
WALLACE K. TSUHA ("Employee")
/s/ Wallace K. Tsuha, Jr.
- ------------------------------ -----------------------------------
- ------------------------------
SHERMAN CRUZ, TRUSTEE OF THE
WALLACE K. TSUHA IRREVOCABLE
LIFE INSURANCE TRUST OF DECEMBER
13, 1991 ("Owner")
/s/ Sherman Cruz
- ------------------------------ -----------------------------------
Sherman Cruz, Trustee
- ------------------------------
9
<PAGE> 10
EXHIBIT A
LIFE INSURANCE
INSURER: Northwesten Mutual Life
INSURED: Wallace K. Tsuha
POLICY NUMBER: 14000573
FACE AMOUNT: TWENTY MILLION ($20,000,000.00)
DIVIDEND OPTION:
DATE OF ISSUE:
INSURER:
------------------------------------------------------------------------
INSURED:
------------------------------------------------------------------------
POLICY NUMBER:
------------------------------------------------------------------
FACE AMOUNT:
--------------------------------------------------------------------
DIVIDEND:
-----------------------------------------------------------------------
OPTION:
-------------------------------------------------------------------------
DATE OF ISSUE:
------------------------------------------------------------------
10
<PAGE> 11
INSURER:
------------------------------------------------------------------------
INSURED:
------------------------------------------------------------------------
POLICY NUMBER:
------------------------------------------------------------------
FACE AMOUNT:
--------------------------------------------------------------------
DIVIDEND:
-----------------------------------------------------------------------
OPTION:
-------------------------------------------------------------------------
DATE OF ISSUE:
------------------------------------------------------------------
INSURER:
------------------------------------------------------------------------
INSURED:
------------------------------------------------------------------------
POLICY NUMBER:
------------------------------------------------------------------
FACE AMOUNT:
--------------------------------------------------------------------
DIVIDEND:
-----------------------------------------------------------------------
OPTION:
-------------------------------------------------------------------------
DATE OF ISSUE:
------------------------------------------------------------------
11
<PAGE> 12
INSURER:
------------------------------------------------------------------------
INSURED:
------------------------------------------------------------------------
POLICY NUMBER:
------------------------------------------------------------------
FACE AMOUNT:
--------------------------------------------------------------------
DIVIDEND:
-----------------------------------------------------------------------
OPTION:
-------------------------------------------------------------------------
DATE OF ISSUE:
------------------------------------------------------------------
12
<PAGE> 1
EXHIBIT 10.7
INDEPENDENT CONTRACTOR AGREEMENT
THIS INDEPENDENT CONTRACTOR AGREEMENT (the "Agreement") is made as of this 1st
day of December, 1999 by and between Sherman L. Cruz ("Consultant"), and Saturn
Electronics & Engineering, Inc., a Michigan corporation ("Saturn").
A. Saturn desires to retain Consultant as an independent contractor
to assist Saturn in the matters described in this Agreement.
B. Consultant is willing to provide such services on the terms and
conditions stated in this Agreement.
Therefore, the parties agree as follows:
1. SERVICES. Consultant will provide services to Saturn in accordance with
this Agreement. A general description of the consulting services to be
performed by Consultant is set forth on Attachment 1 which is attached to
this Agreement and incorporated by reference. The services shall be
performed by Consultant in Orange County, California. Saturn will define
the specific type and scope of assignments and the priority of Consultant's
services, with Consultant reporting directly to Gene Smith, Executive Vice
President of Saturn. Consultant will control all decisions on how
assignments are to be performed. Consultant shall not be restricted from
performing services for other businesses or individuals so long as those
services do not interfere with Consultant's obligations under this
Agreement.
2. TERM; PAYMENT; TERMINATION.
(a) Term. Unless sooner terminated in accordance with the terms of this
Agreement, the term of this Agreement will be three (3) months commencing
December 1, 1999 and ending February 28, 2000.
(b) Fee and Payment Terms. Saturn will pay to Consultant $13,000/month for
full-time services. Consultant will submit monthly invoices to Saturn which
shall detail the number of hours of services provided the previous month
and a description of the services performed during the previous month. In
the event Consultant satisfactorily performs the services required under
this Agreement, Saturn will pay all invoices upon receipt.
(c) Termination. Saturn may terminate this Agreement at any time without
liability if satisfactory progress toward completion of assignments is not
being made, or if Saturn is otherwise not satisfied with Consultant's
performance. Either Saturn or Consultant may terminate this Agreement at
any time for convenience by sending the other party ten (10) days prior
written notice of his or its desire to terminate. Upon termination or
expiration of this Agreement, Consultant will submit to Saturn all
requested reports (including all files and correspondence relating to
specific projects or assignments and the items described in Section 8(c)
below) and specific instructions describing unfinished activities which are
required to complete any unfinished assignments. Consultant shall submit a
final invoice to Saturn for all services actually performed prior to the
date of termination
<PAGE> 2
or expiration and Saturn shall pay such invoice in accordance with the
terms of this Agreement.
(d) Expenses. Consultant is an independent contractor and as such will be
responsible for all of Consultant's own expenses, including, but not
limited to, tools and equipment, rent, utilities, wages, salaries and
benefits of Consultant, license fees, insurance and supplies; provided,
however, that Saturn shall reimburse Consultant for reasonable expenses
incurred for travel, meal and business expenses upon delivery of acceptable
receipts in accordance with Saturn's policy on business expense
reimbursements. Saturn shall also reimburse Consultant for biweekly travel
expenses to and from Detroit, Michigan to Orange County, California.
3. INDEPENDENT CONTRACTOR RELATIONSHIP. Consultant will perform all services
under this Agreement as an independent contractor and not as an employee or
partner of Saturn, and nothing in this Agreement or otherwise shall be
deemed to create an employee/employer or agent/principal relationship.
Consultant shall not have any authority to act as Saturn's legal
representative or enter into any contract or make any representations or
warranties on behalf of Saturn. Consultant, as an independent contractor to
Saturn, is self-employed and is responsible for all taxes and other
governmental charges which are levied or assessed against any payment made
by Saturn to Consultant under this Agreement. Consultant acknowledges and
agrees that he/she is an independent contractor of Saturn and is not
entitled to any benefits provided by Saturn to its employees.
4. COMPLIANCE WITH LAWS. Consultant agrees to comply, at his own expense, with
all laws, regulations, ordinances, directives and rules imposed by Federal,
State and local governments or agencies, including, but not limited to,
wage and hour, overtime, discrimination, and health and safety in carrying
out its obligations under this Agreement.
5. INSURANCE. Consultant shall obtain and maintain such insurance coverages
as Saturn may time to time reasonably request. Consultant shall also
provide a certificate(s) of insurance or other documentation evidencing
Consultant's insurance coverages as required pursuant to this Section 5.
6. INDEMNIFICATION. Consultant agrees to indemnify, defend and hold Saturn
harmless from any and all liabilities, costs, expenses (including costs and
attorney's fees) and claims for damage or injury of any nature whatsoever,
whether known or unknown, which Saturn may incur, suffer, become liable
for, or which may be asserted or claimed against Saturn as a result of the
acts, errors or omission of Consultant, or breach of this Agreement by
Consultant. This indemnity obligation shall survive the termination or
expiration of this Agreement.
7. CONFIDENTIALITY.
(a) Use and Obligation of Confidence. In consideration of receiving Proprietary
Information (defined below) from Saturn, Consultant agrees that during the
term of this Agreement
<PAGE> 3
and for a period of five (5) years following termination of this Agreement,
Consultant shall:
(1) hold the Proprietary Information in confidence and not disclose it
to anyone (other than Saturn employees who have a need to know)
unless otherwise agreed in writing by Saturn; and
(2) use the Proprietary Information only in performing the services
requested pursuant to this Agreement and for no other purpose.
"Proprietary Information" means all information disclosed verbally,
visually or in writing to Consultant, or which Consultant develops in
performing services under this Agreement, relating to Saturn's and Saturn's
subsidiaries' businesses, costs, business records and plans, financial and
marketing data and strategies, equipment, software, components, devices,
products, processes, techniques, technology, ideas, know-how, customers and
suppliers.
(b) Exceptions. Notwithstanding subsection (a) above, this Agreement shall
impose no obligation upon Consultant with respect to any Proprietary
Information which (1) is now or subsequently becomes publicly known or
available by publication, commercial use or otherwise without breach of
this Agreement by Consultant; (2) is subsequently rightfully furnished to
Consultant by a third person without a restriction on disclosure; (3) was
already in the possession of Consultant prior to disclosure by Saturn; or
(4) is legally required to be disclosed.
(c) Delivery of Information. Upon the written request of Saturn, Consultant
shall promptly deliver to Saturn all written Proprietary Information
furnished by Saturn and all reports, memos, research, analysis and
summaries of work performed by Consultant under this Agreement, and
Consultant will not retain any notes, copies, extracts or other
reproductions thereof in whole or in part.
(d) Survival of Obligations. The confidentiality and nonuse obligations of this
Section 7 shall survive the termination or expiration of this Agreement.
(e) Property Rights. All software programs, documentation, know-how, processes,
designs, drawings, documentation, technology, ideas, concepts, techniques,
inventions, developments, improvements and all other information and
documentation ("Technology") developed by Consultant in carrying out the
services to be provided pursuant to this Agreement shall be delivered to
Saturn on completion or termination of this Agreement, and shall be the
sole property of Saturn. Consultant assigns to Saturn all of its right,
title and interest in all the Technology. Consultant agrees that all
services and work performed for Saturn by Consultant which is eligible for
copyright protection shall be a work made for hire for Saturn. Consultant
agrees to provide all assistance reasonably requested by Saturn in the
establishment, preservation and enforcement of Saturn's rights in the
Technology, including, but not limited to, executing documents.
<PAGE> 4
8. NONSOLICITATION. During the term of this Agreement and for twelve (12)
months after termination or expiration of this Agreement, Consultant will
not directly or indirectly solicit any of Saturn's employees for employment
without the prior written consent of Saturn.
9. GENERAL.
(a) Assignment, Consultant shall not assign his/her rights or duties hereunder,
or any interest herein, without the prior written consent of Saturn.
(b) Integration; Amendment. This Agreement constitutes the entire agreement
between the parties relating to the subject matter and no other agreement,
statement, promise or practice between the parties relating to the subject
matter shall be binding on the parties. This Agreement may be changed only
by a written amendment signed by both parties.
(c) Waiver. Failure by either party at any time to require performance by the
other party or to claim a breach of any provision of this Agreement will
not be construed as a waiver of any subsequent breach or effectiveness of
this Agreement, nor any part thereof, or prejudice either party as
regarding any subsequent action.
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan. Any claim or controversy
arising out of this Agreement shall be settled by binding arbitration in
accordance with the commercial arbitration rules of the American Bar
Association, the arbitration shall take place in the Detroit, Michigan
metropolitan area, and judgment upon any award rendered by the arbitrator
may be entered into any court having jurisdiction.
(e) Attorney's Fees. In the event that any action is brought by either party
as the result of a breach or a default of any provision of this Agreement,
the prevailing party of such action shall be awarded reasonable attorney's
fees and costs in addition to any other relief to which the party may be
entitled.
(f) Notices. All notices, requests, demands and other communications which are
required or may be given under this Agreement shall be in writing and
delivered to the recipients' address, or telecopier number hereinafter set
forth by any of the following methods: (i) personally delivered, (ii)
forwarded by overnight air express and receipted for by the recipient or an
agent of the recipient, (iii) sent by telephonic facsimile transmission,
with confirmatory copies (iv) or mailed by registered or certified United
States mail, postage prepaid and return receipt requested. Notice made in
accordance with this Section shall be deemed delivered on receipt of
delivery by hand or confirmed wire transmission; on the third business day
after mailing if mailed by registered or certified United States mail; and
on the next business day after mailing or deposit with an overnight courier
service if delivered by express or overnight courier. Any notices or other
communications required or permitted hereunder shall be addressed to the
following addresses (or to such other address of a party as shall have been
specified to the other parties to this Agreement by notice):
<PAGE> 5
Sherman L. Cruz
970 Golfview
Rochester Hills, MI 48307
Fax No.
----------
Saturn Electronics & Engineering, Inc.
255 Rex Boulevard
Auburn Hills, MI 48326
Attn.: Don Cowie
FAX No.: (248) 853-2645
(g) Severabilily. Should any term or provision of this Agreement be held to be
invalid or unenforceable, the balance of this Agreement shall remain in
full force and effect and shall stand as if the unenforceable part did not
exist.
10. ETHICS POLICY. Consultant acknowledges receipt of Saturn's Legal and
Ethical Standards Policy and understands and agrees to abide by such policy
to the extent applicable to independent consultants.
IN WITNESS WHEREOF, Consultant and Saturn have executed this Agreement,
effective as of the date written above.
Consultant:
/s/ Sherman L. Cruz
--------------------------------------
Sherman L. Cruz
SATURN ELECTRONICS & ENGINEERING,
INC., a Michigan corporation
By: /s/ Donald J. Cowie
-----------------------------------
Donald J. Cowie, CFO
<PAGE> 6
ATTACHMENT I
DESCRIPTION OF SERVICES
Consultant shall provide all services consistent with the services provided by a
corporate controller, and all such other services as Saturn shall reasonably
request.
<PAGE> 1
EXHIBIT 10.8
AMENDMENT TO INDEPENDENT CONTRACTOR AGREEMENT
On December 1, 1999, Saturn Electronics & Engineering, Inc. ("Saturn") and
SHERMAN L. CRUZ ("Consultant") entered into an Independent Contractor Agreement
(the "Agreement"). Section 2(a) of the Agreement provides that the term of the
Agreement ends February 28, 2000. Saturn and Consultant desire to amend the
Agreement to extend the term as provided in this Amendment.
Now, therefore, Saturn and Consultant amend the Agreement as follows:
1. Section 2(a) of the Agreement is amended in its entirety to provide as
follows:
"Term. Unless sooner terminated in accordance with the terms of this
Agreement, the initial term of this Agreement will be three (3) months
commencing December 1, 1999 and ending February 28, 2000. After February
28, 2000, this Agreement will automatically renew on a month-to-month basis
until August 31, 2000 unless either Saturn or Consultant terminates this
Agreement by sending written notice to the other party at least ten (10)
days prior to expiration of the then current monthly period."
2. All other terms and provisions of the Agreement remain in full force and
effect and are hereby affirmed.
IN WITNESS WHEREOF, the parties have signed this Amendment as of February
28, 2000.
SATURN ELECTRONICS & ENGINEERING, CONSULTANT
INC.
By: Donald J. Cowie Sherman L. Cruz
---------------------------- -----------------------------
Donald J. Cowie, CFO Sherman L. Cruz
<PAGE> 1
EXHIBIT 10.9
SATURN ELECTRONICS & ENGINEERING, INC.
DOC: #3
1995 MANAGEMENT STOCK OPTION PLAN
I. PURPOSE.
The purpose of this 1995 Management Stock Option Plan (the "Plan") is to
give certain officers, executive personnel, and directors ("Participants")
who are not affiliated with a corporate shareholder of Saturn Electronics &
Engineering, Inc., a Michigan corporation (the "Company"), and corporations
with respect to which the Company directly or indirectly controls 50% or
more of the combined voting power ("Subsidiaries"), an opportunity to
acquire options for future purchase of common stock of the Company ("Common
Stock"). This plan is intended to provide an incentive for such
Participants to continue to promote the best interests of the Company and
enhance its long-term performance, and to provide an incentive for
Participants to join or remain with the Company and its Subsidiaries.
The Plan is based on the expectation that the shares of the Company will be
publicly traded. However, there is no guarantee that the shares will be
publicly traded. If none of the events described in Section IV (C or D)
occur before stock options expire, Participants will not have the right to
exercise stock options.
II. ADMINISTRATION.
A. The Plan shall be administered by a committee ("Compensation
Committee" or "Committee") appointed by the Board of Directors of the
Company ("Board"). The Committee shall be composed of not fewer than
two members of the Board who are not employed by the Company
("Nonemployee Directors"). No member of the Committee may exercise
discretion with respect to, or participate in, the administration of
the Plan if, at any time, during the twelve-month period prior to such
exercise or participation, he or she has been granted or awarded
stock, restricted stock, stock options, stock appreciation rights or
any other derivative security of any Company or an affiliate thereof
under this Plan or any similar plan of the Company except as permitted
in Rule l6b-3(c)(2)(i)(A) through (D) under the Securities Exchange
Act of 1934. In the event of a public offering, members of the
Committee shall be subject to any additional restrictions necessary to
satisfy the requirements for disinterested administration of the Plan
as set forth in rule 16b-3, as it may be amended from time to time.
The decisions of the Committee under the Plan shall be conclusive and
binding. No member of the Board or the Committee shall be liable for
any action taken, or determination made, hereunder in good faith.
Service on the Committee shall constitute service as a director
<PAGE> 2
of the Company so that members of the Committee shall be entitled to
indemnification and reimbursement as directors of the Company pursuant
to its bylaws.
B. POWERS. Within the express limits of Plan provisions, the Committee
shall determine:
1. The Participants to whom awards hereunder shall be granted;
2. The time or times at which such awards shall be granted;
3. The form and amount of the awards; and
4. The limitations, restrictions and conditions applicable to any such
award.
In making such determinations, the Committee may take into account the
nature of the services rendered by such Participants, or classes of
Participants, their present and potential contributions to the
Company's success and such other factors as the Committee, shall deem
relevant. All awards are subject to the approval of the Board.
C. INTERPRETATIONS. Subject to the express provisions of the Plan, the
Committee may interpret the Plan, prescribe, amend and rescind rules
and regulations relating to it, determine the terms and provisions of
the respective awards and make all other determinations it deems
necessary or advisable for the administration of the Plan.
D. DETERMINATIONS. The determinations of the Committee, along with Board
approval, on all matters regarding the Plan shall be conclusive and
binding upon all parties.
E. NONUNIFORM DETERMINATIONS. The Committee's determinations under the
Plan including, without limitation, determinations as to the persons
to receive awards, the terms and provisions of such awards and the
agreements evidencing the same, need not be uniform and may be made by
it selectively among persons who receive or are eligible to receive
awards under the Plan, whether or not such persons are similarly
situated.
III. AWARDS UNDER THE PLAN.
A. FORM. Awards under the Plan shall be granted in the form of
nonstatuatory stock options ("Stock Options"), as described in Section
IV.D.
B. MAXIMUM LIMITATIONS. The aggregate number of shares of Common Stock
which will be available for grant under the Plan is 465,000 subject to
adjustment pursuant to Section III.C. The maximum number of shares
which may be issuable to a single individual pursuant to Options under
the Plan is 116,250. Shares of Common Stock issued pursuant to the
Plan may be either authorized but unissued shares or shares held in
the treasury of the Company. In the event that, prior to the end of
the period during which Stock Options may be granted under the Plan,
any Stock Option under the Plan expires unexercised or is terminated,
surrendered or canceled without being exercised,
2
<PAGE> 3
in whole or in part, for any reason, the number of shares subject to
such Stock Option or the unexercised, terminated, forfeited or
unearned portion thereof, shall be added to the remaining number of
shares of Common Stock available for grant as a Stock Option under the
Plan, including a grant to a former holder of such Stock Option, upon
such terms and conditions as the Committee shall determine, which
terms may be more or less favorable than those applicable to such
former Stock Option.
C. ADJUSTMENT PROVISIONS. The aggregate number of shares of Common Stock
with respect to which Stock Options shall be granted, the aggregate
number of shares of Common Stock subject to each outstanding Stock
Option and the exercise price per share of each such Stock Option may
all be appropriately adjusted as the Board may determine for any
increase or decrease in the number of shares of issued Common Stock
resulting from a subdivision or consolidation of shares, whether
through reorganization, recapitalization, stock split-up, stock
distribution or combination of shares, or the payment of a share
dividend or other increase or decrease in the number of such shares
outstanding effected without receipt of consideration by the Company.
Adjustments under this Section III.C. shall be made according to the
sole discretion of the Board, and its decisions shall be binding and
conclusive.
IV. STOCK OPTIONS.
Stock Options may be granted under the Plan for the purchase of Common
Stock. Stock Options shall be in such form and upon such terms and
conditions as the Committee shall from time to time determine, subject to
the following:
A. EXERCISE. Stock Options shall be subject to such terms and conditions,
shall be exercisable at such time or times, and shall be evidenced by
such form of written option agreement ("Option Agreement") between the
Participant and the Company, as the Committee shall determine;
provided, that such determinations are not inconsistent with the other
provisions of the Plan. Option Agreements need not be identical.
B. EXERCISE PRICE. The per share exercise price of each Stock Option
shall be fixed by the Committee in the Option Agreement, but shall not
be less than 100% of the fair market value, as defined in Section XI,
of the Common Stock subject to such Stock Option on the date of grant.
C. DURATION OF OPTION. The period during which a Stock Option may be
exercised shall be such period as the Committee establishes and
includes in the Option Agreement, provided that such period shall not
exceed ten (10) years from the date of grant, unless subsequently
extended.
3
<PAGE> 4
D. EXERCISABILITY. Stock Options shall become exercisable for the number
of shares Common Stock fixed by the Committee in the Stock Option
Agreement, as specified by the terms below in accordance with the
earliest of the following to occur:
1. In the event that the Company
a. Offers its shares to the public under a registration
statement made effective by the Securities Exchange
Commission ("Initial Public Offering" or "IPO"), or
b. Merges with a corporation whose shares are publicly traded
but does not experience a Change of Control (as defined in
Section IX)
stock options awarded through the Plan will become exercisable
according to the following schedule:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TIME FRAME % OF ALL AWARDED
OPTIONS TO VEST
- --------------------------------------------------------------------------------
<S> <C>
12 months after effective date of IPO 25%
- --------------------------------------------------------------------------------
18 months after effective date of IPO 25%
- --------------------------------------------------------------------------------
24 months after effective date of IPO 25%
- --------------------------------------------------------------------------------
30 months after effective date of IPO 25%
- --------------------------------------------------------------------------------
</TABLE>
2. In the event of a Change of Control (as defined in Section IX),
all Options shall become immediately exercisable.
3. The Committee shall retain the right to trigger exercisability at
any other time which it determines, in its sole discretion, to be
appropriate.
E. TERMINATION OF OPTIONS. If one of the events described in IV.C.1, 2 or
3 above do not occur by the end of the option period specified by the
Committee in the Option Agreement, each Stock Option awarded under the
Option Agreement shall expire and all rights to purchase Common Stock
thereunder shall cease on the date specified in the Option Agreement.
F. TYPE OF STOCK OPTIONS. Stock Options awarded to Participants under the
Plan shall be non-qualified Stock Options and are not intended to
qualify as incentive stock options under Section 422A of the Internal
Revenue Code (the "Code").
4
<PAGE> 5
G. CONDITIONS OF GRANT. The Committee, in its discretion, may, as a
condition to the grant of a Stock Option, require a Participant who
is the recipient of such Stock Option to enter into one or
more of the following agreements with the Company on or prior to the
date of grant of such Stock Option:
1. A covenant not to compete with the Company and its subsidiaries,
which shall become effective on the date of termination of
employment of the Participant with the Company and which shall
contain such terms and conditions as shall be specified by the
Committee; and
2. An agreement to execute a stock restriction agreement with the
employer at the date of exercise that imposes certain
restrictions upon the transferability of the option stock.
If the Participant shall fail to enter into any such agreement at the
request of the Committee, then no Stock Options shall be granted
hereunder to such Participant (or, if granted, shall not be
exercisable) and the number of shares of Common Stock that would have
been subject to such Stock Option shall be added to the remaining
number of shares available for grant as a Stock Option under the Plan.
H. Any Stock Option granted and vested under the Plan may be exercised by
the Participant, by a legatee or legatees of such Stock Option under
the Participant's last will, or by his or her executors, personal
representatives or distributees.
1. The Option may be exercised, as specified in the Option
Agreement, by:
a. Delivering to the Secretary of the Company written notice of
the number of shares of Common Stock with respect to which
the Stock Option is being exercised; or
b. Delivering such notice to a broker-dealer with a copy to the
Secretary of the Company.
2. Except as otherwise provided in the Plan or in any Option
Agreement, and at the sole discretion of the Committee, the
purchase price of Common Stock upon exercise of any Stock Option
by a Participant shall be paid in full by one of the following
methods:
a. In cash or certified check by the Participant;
5
<PAGE> 6
b. By a broker-dealer to whom the Participant has submitted an
exercise notice consisting of a fully endorsed Stock Option;
c. In Common Stock valued at its fair market value, as defined
in Section XI, on the date of exercise;
d. By agreeing to surrender Stock Options then exercisable by
him or her valued at the excess of the aggregate fair market
value of the Common Stock, as defined in Section XI, over
the aggregate option exercise price of such Common Stock;
e. By directing the Company to withhold such number of shares
of Common Stock otherwise issuable upon exercise of such
Stock Option having an aggregate fair market value on the
date of exercise equal to the exercise price of the Stock
Option; or
f. By such other medium of payment as the Committee, in its
discretion, shall authorize, or by any combination of a, b,
c, d, and e at the discretion of the Committee.
In the case of payment pursuant to b, c, d, e or f above, the
Participant's election must be made on or prior to the date of
exercise of the Stock Option and must be irrevocable. In the
event of an IPO or merger with a public corporation, a
Participant who is an insider subject to Section 16 of the
Securities Exchange Act of 1934 ("Section 16 Insider") and who
elects payment pursuant to Section IV.F.2.e. above, the election
must be made in writing either (a) within ten (10) business days
beginning on the third business day following release of the
Company's quarterly or annual summary of earnings and ending on
the twelfth business day following such day or (b) at least six
(6) months prior to the date of exercise of such Stock Option.
The Company shall issue, in the name of the Participant, stock
certificates representing the total number of shares of Common
Stock issuable pursuant to the exercise of any Stock Option as
soon as reasonably practicable after such exercise.
I. Whenever the Company is required to issue or transfer shares of Common
Stock to a Participant under the Plan, the Company shall have the
right to require the Participant to remit to the Company an amount
sufficient to satisfy all federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates
for such shares. Whenever payments under the Plan are to be made to a
Participant in cash, such payments shall be net of any amounts
sufficient to satisfy all federal, state and local withholding tax
requirements. In lieu of requiring a Participant to make a payment to
the Company in an amount related to the withholding tax requirement,
the Committee may, in its discretion, provide that at the
Participant's election, the tax withholding obligation shall be
satisfied by the Company's withholding a portion of the
6
<PAGE> 7
shares otherwise distributable to the Participant, such shares being
valued at their fair market value, as defined in Section XI, at the
date of exercise, or by the shares previously delivered by the
Company, such shares being valued at their fair market value, as
defined in Section XI, as of the date of delivery of such shares by
Participant to the Company. Notwithstanding any provision of the Plan
to the contrary, (i) a Section 16 Insider's election pursuant to the
preceding sentence must be made on or prior to the date as of which
income is realized by the Section 16 Insider in connection with such
benefit and must be irrevocable, and (ii) if the Section 16 Insider
elects to have shares withheld from those otherwise issuable, then the
election must be made in writing either (a) within the 10 business
days beginning on the third business day following the release of the
company's quarterly or annual summary of earnings and ending on the
12th business day following such day, or (b) at least six months prior
to the date the income is realized.
V. TRANSFERABILITY.
No Stock Option may be transferred, assigned, pledged or hypothecated
(whether by operation of law or otherwise), except as provided by will or
the applicable laws of descent or distribution, and no Stock Option shall
be subject to execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of a Stock
Option, or levy of attachment or similar process upon the Stock Option not
specifically permitted herein shall be null and void and without effect. A
Stock Option may be exercised only by a Participant during his or her
lifetime, or pursuant to Section VIII. C., by his or her estate or the
person who acquires the right to exercise such Stock Option upon his or her
death by bequest or inheritance.
VI. DISSOLUTION.
Upon the dissolution or liquidation of the Company, each Stock Option
granted hereunder shall expire as of the effective date of such
transaction.
VII. EFFECTIVE DATE AND CONDITIONS SUBSEQUENT TO EFFECTIVE DATE.
A. The Plan shall become effective on the date of the approval of the
Plan by the Board, and the Plan shall be null and void and of no
effect if such condition is not fulfilled, and in such event each
Stock Option granted hereunder shall, notwithstanding any of the
preceding provisions of the Plan, be null and void and of no effect.
In the event of an IPO, shareholder approval must be obtained one
year, before or after the effective date of the offering, or the plan
will be null and void and of no effect as of the date of the public
offering.
7
<PAGE> 8
B. No grant or award shall be made under the Plan more than ten (10)
years from the date of adoption of the Plan by the Board; provided,
however, that the Plan and all Stock Options granted under the Plan
prior to such date shall remain in effect and subject to adjustment
and amendment as herein provided until they have been satisfied or
terminated in accordance with the terms of the respective grants or
awards and the related Option Agreements.
VIII. TERMINATION OF EMPLOYMENT.
Stock Options shall expire in accordance with Section IV.E. herein, or in
the case of termination of employment, as described below:
A. OTHER THAN FOR CAUSE, DEATH, DISABILITY OR RETIREMENT. If the
Participant's employment with the Company and all subsidiaries is
terminated for any reason, other than cause, retirement, death or
disability (as determined solely by the Board), and the Stock Option
or a portion thereof is exercisable on the date of termination, the
Stock Option shall expire on the earlier of 90 days after such
termination of employment or the date the Stock Option expires in
accordance with the related Option Agreement.
B. CAUSE. If the Participant is terminated for cause, as determined by
the Board, all Stock Options shall expire on the first to occur of the
expiration date set forth in the applicable Option Agreement, or date
and time of termination of employment.
C. DEATH, DISABILITY OR RETIREMENT. If the Participant's employment with
the Company and all Subsidiaries is terminated due to retirement,
disability (as determined solely by the Board) or death, and the Stock
Option or a portion thereof was exercisable on the date of employment
termination, the Stock Option shall expire on the earlier of the first
anniversary of such termination of employment or the date the Stock
Option expires in accordance with this related Option Agreement.
D. TERMINATION BEFORE A PUBLIC OFFERING, MERGER, CHANGE OF CONTROL, OR
COMMITTEE DETERMINED VESTING. Notwithstanding VIII.A., B., and C.,
relating to termination of employment, a Stock Option expires on the
date of termination of employment unless an IPO, merger with a public
corporation, Change of Control, as defined in Section IX, or Committee
determined vesting occurs prior to the date of employment termination.
IX. CHANGE IN CONTROL.
A Change of Control shall occur if any of the following take place:
8
<PAGE> 9
A. Any person (as such term is used in Section 13) of the Securities
Exchange Act of 1934 and the rules and regulations thereunder and
including any Affiliate or Associate of such person, as defined in Rule
12b-2 under said Act, and any person acting in concert with such
person), other than shareholders as of the date of adoption of the
Plan, directly or indirectly acquires or otherwise becomes entitled to
vote more than 50 percent of the voting power entitled to be cast at
elections for directors ("Voting Power") of the Company; or
B. There occurs any merger or consolidation of the Company, or any sale,
lease or exchange of all or any substantial part of the consolidated
assets of the company and its subsidiaries to any other person and
1. In the case of a merger or consolidation, the holders of
outstanding stock of the Company entitled to vote in elections of
directors immediately before such merger or consolidation hold
less than 50 percent of the Voting Power of the survivor of such
merger or consolidation or its parent; or
2. In the case of any such sale, lease or exchange, the Company does
not own at least 50.1 percent of the Voting Power of the other
person.
X. POSTPONEMENT OF EXERCISE.
The Committee may postpone any exercise of a Stock Option for such time as
the Committee, in its sole discretion, may deem necessary in order to permit
the Company to:
A. Effect, amend or maintain any necessary registration of the Plan or the
shares of Common Stock issuable upon the exercise of a Stock Option
under the Securities Act of 1933, as amended, or the securities laws of
any applicable jurisdiction;
B. Permit any action to be taken in order to:
1. List such shares of Common Stock on a stock exchange if shares of
Common Stock are then listed on such exchange; or
2. Comply with restrictions or regulations incident to the
maintenance of a public market for its shares of Common Stock,
including any rules or regulations of any stock exchange on which
the shares of Common Stock are listed, or
C. Determine that such shares of Common Stock and the Plan are exempt from
such registration or that no action of the kind referred to in B.2.
above needs to be taken; and
9
<PAGE> 10
the Company shall not be obligated by virtue of any terms and
conditions of any Option Agreement or any provision of the Plan to
recognize the exercise of a Stock Option or to sell or issue shares of
Common Stock in violation of the Securities Act of 1933 or the law of
any government having jurisdiction thereof. Any such postponement shall
not extend the terms of a Stock Option and neither the Company nor its
directors or officers shall have any obligation or liability to any
Participant or any other person with respect to any shares of Common
Stock as to which the Stock Option shall lapse because of such
postponement.
XI. MISCELLANEOUS.
A. NO OBLIGATION TO EXERCISE OPTIONS. The granting of a Stock Option shall
impose no obligation upon a Participant to exercise such Stock Option.
B. TERMINATION AND AMENDMENT OF PLAN. The Board, without further action on
the part of the shareholders of the Company, may from time to time
alter, amend or suspend the Plan or any Stock Option granted hereunder
or may at any time terminate the Plan, except that, if an IPO has been
made, or the Company has merged with a public corporation, it may not
(except to the extent provided in Section III.C. hereof):
1. Materially increase the total number of shares of Common Stock
available for grant to Section 16 Insiders under the Plan;
2. Materially increase benefits to Section 16 Insiders under the
Plan, or
3. Materially change the class of Section 16 Insiders eligible to be
granted Stock Options under the Plan.
No action taken by the Board under this Section may materially and
adversely affect any outstanding Stock Option without the consent of
the holder thereof.
C. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Common Stock pursuant to Stock Options will be used for general
corporate purposes.
D. RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or any agreement
entered into pursuant to the Plan shall confer upon any Participant the
right to continue in the employment of the Company or any Subsidiary or
affect any right which the Company or any Subsidiary may have to
terminate the employment of such Participant.
10
<PAGE> 11
E. RIGHTS AS A SHAREHOLDER. No Participant shall have any right or
privilege as a shareholder unless and until certificates for shares of
Common Stock are issuable to him or her.
F. LEAVES OF ABSENCE AND DISABILITY. The Committee shall be entitled to
make such rules, regulations and determinations as it deems appropriate
under the Plan in respect of any leave of absence taken by or
disability of any Participant. Without limiting the generality of the
foregoing, the Committee shall be entitled to determine:
1. Whether or not any such leave of absence shall constitute a
termination of employment within the meaning of the Plan; and
2. The impact, if any, of any such leave of absence on awards under
the Plan theretofore made to any Participant who takes such leave
of absence.
G. FAIR MARKET VALUE. Whenever the fair market value of Common Stock is to
be determined under the Plan as of a given date, such fair market value
shall be:
1. IF AN IPO HAS BEEN MADE OR IF THE COMPANY HAS MERGED WITH A PUBLIC
CORPORATION.
A. If the Common Stock is principally traded on an exchange or
market in which prices are reported on a bid and asked basis,
the average of the mean between the bid and the asked price
for the Common Stock at the close of trading for the 10
consecutive trading days immediately preceding such given
date;
B. If the Common Stock is principally listed on a national
securities exchange, the average of the closing prices of the
Common Stock on the Composite Tape for the 10 consecutive
trading days immediately preceding such given date; or
C. If the Common Stock is neither traded on the over-the-counter
market nor listed on a national securities exchange, such
value as the Board, in good faith, shall determine.
2. IF NO IPO HAS BEEN MADE AND NO MERGER WITH A PUBLIC CORPORATION
HAS OCCURRED. The value shall be determined as of the end of each
fiscal year using a method which is consistent with the method
used to value the Company during previous merger negotiations. The
value determined as of the end of a fiscal year shall be the fair
market value for all options granted during the following fiscal
year.
11
<PAGE> 12
H. NOTICES. Every direction, revocation or notice authorized or required
by the Plan shall be deemed delivered to the Company
1. On the date it is personally delivered to the Secretary of the
Company at its principal executive offices; or
2. Three business days after it is sent by registered or certified
mail; postage prepaid, addressed to the Secretary at such offices.
and to an Optionee:
3. On the date it is personally delivered to him or her; or
4. Three business days after it is sent by registered or certified
mail, postage prepaid, addressed to him or her at the last address
shown for him or her on the records of the Company.
I. APPLICABLE LAW. All questions pertaining to the validity, construction
and administration of the plan and Stock Options granted hereunder
shall be determined in conformity with the laws of the State of
Michigan.
J. ELIMINATION OF FRACTIONAL SHARES. If under any provision of the Plan
that requires a computation of the number of shares of Common Stock
subject to a Stock Option, the number so computed is not a whole number
of shares of Common Stock, such number of shares shall be rounded down
to the next whole number.
K. STOCK RESTRICTION AGREEMENT. Notwithstanding anything to the contrary
contained in the Plan, the Company shall be under no obligation to sell
or deliver Common Stock under the Plan to an Optionee unless such
Optionee shall execute a Stock Option Agreement substantially in the
form of Exhibit A attached hereto, which contains provisions regarding
the Optionee's competing with the Company and stock restrictions.
12
<PAGE> 1
EXHIBIT 10.10
AMENDMENT NO. 1 TO
SATURN ELECTRONICS & ENGINEERING, INC.
1995 MANAGEMENT STOCK OPTION PLAN
--------------------------------------
This Amendment No. 1 to Saturn Electronics & Engineering, Inc. 1995
Management Stock Option Plan (this "Amendment"), is made as of November 19,
1997, in order to amend certain provisions of the Saturn Electronics &
Engineering, Inc. 1995 Management Stock Option Plan (the "Option Plan").
Item 1. Section II.B.1 of the Option Plan is amended to add the
following at the end thereof:
"; provided, however, that Incentive Options (as defined in Section
IV.F) shall be granted only to employees (as defined in the Internal Revenue
Code of 1986, as amended, and the applicable rules and regulations thereunder
(the "Code")) of the Company or a corporate Subsidiary, unless Section 422 of
the Code, or any successor provision, then permits Incentive Options to be
granted to others;"
Item 2. Section III.A of the Option Plan is amended to read in its
entirety as follows:
"A. FORM. Subject to the terms of the Plan, the Committee, in its
discretion, may grant to Participants Incentive Options (as defined in Section
IV.F), Nonqualified Options (as defined in Section IV.F) or any combination
thereof. Each option (each "Stock Option") granted under the Plan shall
designate the number of shares covered thereby, if any, with respect to which
the option is an Incentive Option and the number of shares covered thereby, if
any, with respect to which the option is a Nonqualified Option."
Item 3. Section IV.B of the Option Plan is amended to add the following
at the end thereof;
"; provided that with respect to an Incentive Option granted to an
employee who at the time of the grant owns (after applying the attribution rules
of Section 424(d) of the Code) more than 10% of the total combined voting stock
of the Company or of any parent or Subsidiary, the option price shall not be
less than 110% of the fair market value of the stock subject to the Incentive
Option on the date such option is granted."
Item 4. Section IV.C of the Option Plan is amended to add the following
at the end thereof;
"; and provided further, that with respect to an Incentive Option
granted to a Participant who, at the time of the grant, owns (after applying the
attribution rules of Section 424(d) of the Code) more than 10% of the total
combined voting stock of all classes of stock of the Company or of any parent or
Subsidiary, such option shall expire not more than five (5) years after the date
of grant."
<PAGE> 2
Item 5. Section IV.D of the Option Plan is amended to read in its
entirety as follows:
"D. EXERCISABILITY. Stock Options shall become exercisable for the
number of shares of Common Stock fixed by the Committee in the Stock Option
Agreement. Unless provided otherwise in the Stock Option Agreement, Stock
Options shall become exercisable upon the earliest to occur of the following
(provided that the aggregate fair market value (determined as of the date the
option is granted) of the underlying stock with respect to which Incentive
Options are exercisable for the first time by such individual during any
calendar year (under all of such plans of the Company and its parent and
Subsidiary corporations) shall not exceed $100,000):
1. In the event that the Company
a. Offers its shares to the public in accordance with a
registration statement made effective by the Securities and Exchange
Commission ("Initial Public Offering" or "IPO"), or
b. Merges with a corporation whose shares are publicly traded but
does not experience a Change of Control (as defined in Section IX)
Stock Options awarded through the Plan will become exercisable
according to the following schedule (unless provided otherwise in the
Stock Option Agreement):
<TABLE>
<CAPTION>
% OF ALL AWARDED
TIME FRAME OPTIONS TO VEST
---------- ---------------
<S> <C>
12 months after effective date of IPO or merger with public company 25%
18 months after effective date of IPO or merger with public company 25%
24 months after effective date of IPO or merger with public company 25%
30 months after effective date of IPO or merger with public company 25%
</TABLE>
2. In the event of a Change of Control, all Stock Options will become
immediately exercisable.
3. The Committee shall retain the right to trigger exercisability at
any other time which it determines, in its sole discretion, to be
appropriate."
Item 6. The reference in Section IV.E of the Option Plan to "IV.C.1, 2
or 3" is hereby changed to "IV.D.1, 2 or 3. "
Item 7. Section IV.F of the Option Plan is amended to read in its
entirety as follows:
"F. TYPE OF STOCK OPTIONS. Stock Options granted under the Plan may be
"Incentive Options," (options to purchase Common Stock which meet the
requirements set forth in the Plan
2
<PAGE> 3
and are also intended to be, and qualify as, incentive stock options within the
meaning of Section 422 of the Code) or "Nonqualified Options" (options to
purchase Common Stock which meet the requirements set forth in the Plan but are
not intended to be, or do not qualify as, incentive stock options within the
meaning of the Code); provided that no Incentive Option may be granted
under the Plan to any one Participant which would result in the aggregate fair
market value, determined as of the date the option is granted, of the underlying
stock with respect to which Incentive Options are exercisable for the first time
by such individual during any calendar year (under all of such plans of the
Company and its parent and Subsidiary corporations) exceeding $100,000."
Item 8. Section VIII of the Option Plan is amended to read in its
entirety as follows:
"VIII. TERMINATION OF EMPLOYMENT OR DIRECTORSHIP.
Stock Options shall expire in accordance with Section IV.E herein, or
in the case of termination of employment or directorship, as described
below:
A. OTHER THAN FOR CAUSE, DEATH, DISABILITY OR RETIREMENT. If the
Participant's employment with the Company and all Subsidiaries or
service as a director is terminated for any reason, or the Participant
resigns as an officer or director of the Company, in either case other
than for cause, retirement, death or disability (as determined solely
by the Board), and the Stock Option or a portion thereof is exercisable
on the date of termination, the Stock Option shall expire on the
earlier of ninety (90) days after such termination of employment or
directorship or the date the Stock Option expires in accordance with
the related Option Agreement.
B. CAUSE. If the Participant is terminated for cause, or if the
Participant is removed as an officer or director of the Company, as
determined by the Board, all Stock Options shall expire on the first to
occur of the expiration date set forth in the applicable Option
Agreement, or date and time of termination of employment or removal as
a director or officer.
C. DEATH, DISABILITY OR RETIREMENT. If the Participant's employment
with the Company and all Subsidiaries is terminated, or the Participant
is no longer an officer or director of the Company, in either case due
to retirement, disability (as determined solely by the Board) or death,
and the Stock Option or a portion thereof was exercisable on the date
of employment termination or on the date the Participant ceases to be a
director or officer of the Company, the Stock Option shall expire on
the earlier of the first anniversary of such termination or the date
the Stock Option expires in accordance with the related Option
Agreement.
D. TERMINATION BEFORE IPO, MERGER, CHANGE OF CONTROL, OR COMMITTEE
DETERMINED VESTING. Notwithstanding the provisions of Section VIII.A.,
B., and C.,
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<PAGE> 4
relating to termination of employment or termination as a director or
officer of the Company, a Stock Option shall expire on the date of
termination unless an IPO, with a public company, Change of Control or
Committee determined vesting occurs prior to the date of termination
(unless the Committee extends the period during which the Stock Option
may be exercised by establishing a later termination date)."
4
<PAGE> 1
EXHIBIT 10.11
AMENDMENT NO. 2 TO
SATURN ELECTRONICS & ENGINEERING, INC.
1995 MANAGEMENT STOCK OPTION PLAN
------------------------------------
This Amendment No. 2 to Saturn Electronics & Engineering, Inc. 1995
Management Stock Option Plan (this "Amendment"), is made as of July 29, 1999, in
order to amend the Saturn Electronics & Engineering, Inc. 1995 Management Stock
Option Plan, as amended by Amendment No. 1 of November 19, 1997 (the "Option
Plan").
The first sentence of Section III B. of the Option Plan is amended in
its entirety to read as follows:
"The aggregate number of shares of Common Stock which will be available
for grant under the Plan is 620,000 subject to adjustment pursuant to Section
III C."
1
<PAGE> 1
EXHIBIT 10.12
AMENDMENT NO. 3 TO
SATURN ELECTRONICS & ENGINEERING, INC.
1995 MANAGEMENT STOCK OPTION PLAN
---------------------------------------
This Amendment No. 3 to Saturn Electronics & Engineering, Inc. 1995
Management Stock Option Plan (this "Amendment"), is made as of September 28,
1999, in order to amend the Saturn Electronics & Engineering, Inc. 1995
Management Stock Option Plan, as amended by Amendment No. 1 of November 19,
1997, and as amended by Amendment No. 2 of July 29, 1999 (the "Option Plan").
Section IV.4D.1 of the Option Plan is amended in its entirety to read
as follows:
"D. EXERCISABILITY. Stock Options shall become exercisable for the
number of shares of Common Stock fixed by the Committee in the Stock Option
Agreement. Unless provided otherwise in the Stock Option Agreement, Stock
Options shall become exercisable upon the earliest to occur of the following
(provided that the aggregate fair market value (determined as of the date the
option is granted) of the underlying stock with respect to which Incentive
Options are exercisable for the first time by such individual during any
calendar year (under all of such plans of the Company and its parent and
Subsidiary corporations) shall not exceed $100,000):
1. In the event that the Company
a. Offers its shares to the public in accordance with a
registration statement made effective by the Securities and Exchange
Commission ("Initial Public Offering" or "IPO"), or
b. Merges with a corporation whose shares are publicly traded but
does not experience a Change of Control (as defined in Section IX)
Stock Options awarded through the Plan three (3) years or less before
the effective date of an IPO or merger with a public company will become
exercisable according to the following schedule (unless provided otherwise in
the Stock Option Agreement):
<TABLE>
<CAPTION>
% OF ALL AWARDED
TIME FRAME OPTIONS EXERCISABLE
---------- -------------------
<S> <C>
12 months after effective date of IPO or merger with public company 25%
18 months after effective date of IPO or merger with public company 25%
24 months after effective date of IPO or merger with public company 25%
30 months after effective date of IPO or merger with public company 25%
</TABLE>
1
<PAGE> 2
Stock Options awarded through the Plan more than three (3) years before the
effective date of an IPO or merger with a public company will become exercisable
according to the following schedule (unless provided otherwise in the Stock
Option Agreement):
<TABLE>
<CAPTION>
% OF ALL AWARDED
TIME FRAME OPTIONS EXERCISABLE
---------- -------------------
<S> <C>
12 months after effective date of IPO or merger with public company 50%
18 months after effective date of IPO or merger with public company 50%
</TABLE>
2
<PAGE> 1
EXHIBIT 10.13
EXECUTION COPY
================================================================================
LOAN AGREEMENT
BY AND BETWEEN
SATURN ELECTRONICS TEXAS, L.L.C.
AND
COMERICA BANK
================================================================================
<PAGE> 2
LOAN AGREEMENT
THIS LOAN AGREEMENT, made this 16th day of April, 1998, by and between
Saturn Electronics Texas, L.L.C., a Texas limited liability company, of Auburn
Hills, Michigan (herein called "Company"), and Comerica Bank, a Michigan banking
corporation of Detroit, Michigan (herein called "Bank");
RECITALS:
A. Company desires to obtain a revolving credit facility from Bank.
B. Bank is willing to extend such credit to Company on the terms and
conditions herein set forth.
NOW, THEREFORE, Company and Bank agree as follows:
1. THE INDEBTEDNESS: Revolving Credit
1.1 Bank agrees to lend to Company at any time and from time to time
from the effective date hereof sums not to exceed Five Million Dollars
($5,000,000) in aggregate principal amount at any one time outstanding. The
borrowings hereunder shall be evidenced by a Revolving Credit Note (herein
called "Revolving Credit Note") in form similar to that annexed hereto as
Exhibit "A" under which advances, repayments and readvances may be made, subject
to the terms and conditions of this Agreement.
1.2 The principal indebtedness represented by the Revolving Credit
Note and all interest thereon shall be payable on or before June 1, 1999.
Company agrees to pay interest on the unpaid principal balance of the Revolving
Credit Note from time to time outstanding at a per annum rate equal to Bank's
Prime Rate. Upon the occurrence of any event of default hereunder, interest
shall accrue on the unpaid principal balance at the per annum rate of three
percent (3%) above the rate otherwise applicable hereunder. Interest shall be
payable monthly commencing on May 1, 1998 and on the first day of each month
thereafter. Interest shall be computed on a daily basis using a year of 360
days, assessed for the actual number of days elapsed, and in such computation
effect shall be given to any change in the interest rate resulting from a change
in the Prime Rate on the date of such change in the Prime Rate. "Prime Rate"
shall mean the rate of interest established by Bank as its prime rate for its
borrowers as the same may be changed from time to time, which may not
necessarily be Bank's lowest rate for loans.
A late installment charge equal to five percent (5%) of each late
installment may be charged on any installment payment not received by Bank
within ten (10) calendar days after the installment due date but acceptance of
this charge shall not waive any default or event of default under this
Agreement.
<PAGE> 3
1.3 Bank shall not lend under the Revolving Credit Note unless
Company shall have first filed with Bank a Request for Draw and Certificate of
Compliance (as of the date of the borrowing) in form similar to that annexed
hereto as Exhibit "B", executed by an authorized officer of Company. Bank may,
at its option, lend under the Revolving Credit Note upon the telephone request
of an authorized officer of Company and, in the event Bank makes any such
advance upon a telephone request, such telephone request shall be deemed to be a
certification as of such date of the information set forth in the Request for
Draw and Certificate of Compliance form.
1.4 In addition to advances under the Revolving Credit Note to be
provided to Company by Bank under and pursuant to Section 1.1 of this Agreement,
Bank may issue, or commit to issue, from time to time, standby letters of credit
for the account of Company (herein individually called a "Letter of Credit" and
collectively "Letters of Credit") in aggregate undrawn amounts not to exceed One
Million Five Hundred Thousand Dollars ($1,500,000) at any one time outstanding;
provided, however that the sum of the aggregate amount of advances outstanding
under the Revolving Credit Note plus the Reserve shall not exceed Five Million
Dollars ($5,000,000) at any one time; provided further, that no Letter of Credit
shall, by its terms, have an expiration date of longer than one year from the
date of issuance; and provided further, that in no case shall any Letter of
Credit have an expiration date later than the maturity date of the Revolving
Credit Note. In addition to the terms and conditions of this Agreement, the
issuance of any Letters of Credit shall also be subject to the terms and
conditions of any applications and agreements executed and delivered by Company
with respect thereto. Company shall pay to Bank annually in advance a fee equal
to 1-1/4% per annum of the amount of each Letter of Credit. "Reserve" shall mean
an amount equal to the undrawn amount of all outstanding Letters of Credit plus
the unreimbursed amount of any drawings under Letters of Credit.
1.5 Company acknowledges and agrees that the sum of the advances
outstanding under this Section 1 and the Reserve shall never exceed the advance
formula set forth in the Advance Formula Agreement dated as of the date hereof
by Company in favor of Bank or in any Advance Formula Agreement given in
substitution therefor. Company shall immediately make all payments necessary to
comply with the provisions of this Section 1.5.
1.6 Company may prepay the Revolving Credit Note in whole or in part
without premium or penalty.
1.7 Proceeds of the Revolving Credit Note shall be used for general
corporate and working capital purposes of Company.
2. CONDITIONS AND SECURITY
2.1 Company agrees to furnish Bank, prior to the initial borrowing
hereunder, in form to be satisfactory to Bank, with (i) certified copies of
resolutions of all of the members of Company evidencing approval of the
borrowings hereunder, (ii) certified copies of Company's
2
<PAGE> 4
Articles of Organization and Membership Regulations, and (iii) a certificate of
good standing from the State of Company's formation and from each jurisdiction
in which it is required to be qualified to do business.
2.2 As security for all indebtedness of Company to Bank hereunder and
under the Revolving Credit Note as herein provided, Company agrees to furnish,
execute and deliver to Bank or cause to be furnished, executed and delivered to
Bank prior to or simultaneously with the initial borrowing hereunder, in form to
be satisfactory to Bank and supported by appropriate resolution in certified
form authorizing same, the following (all of which is herein collectively called
the "Collateral"):
(a) Security Agreement granting to Bank first priority security
interests in and covering all of Company's machinery and
equipment, furniture and fixtures, and other tangible personal
property, whether then owned or thereafter acquired;
(b) Security Agreement granting to Bank first priority security
interests in all of Company's present and future accounts
receivable, inventories, contract rights, chattel paper,
inventory, general intangibles and instruments and such
additional documents as relate thereto or shall be required by
the terms of said Security Agreements or this Agreement;
(c) Financing Statements required or requested by Bank to perfect all
security interests to be conferred upon Bank under this Agreement
and to accord Bank a perfected first priority security position
under the Uniform Commercial Code;
(d) Such documents or certificates as may be requested by Bank and/or
are required under the terms of any and every Security Agreement;
and
(e) Such other documents or agreements of security and appropriate
assurances of validity and perfected first priority of lien or
security interest as Bank may request at any time.
3. REPRESENTATIONS AND WARRANTIES
Company represents and warrants and such representations and warranties
shall be deemed to be continuing representations and warranties during the
entire life of this Agreement:
3.1 Company is a limited liability company duly organized and
existing in good standing under the laws of the State of Texas; Company is in
good standing in each jurisdiction in which it is required to be qualified to do
business; execution, delivery and performance of this Agreement and other
documents and instruments required under this Agreement, and the issuance of the
Revolving Credit Note by Company are within its limited liability company
powers, have been duly authorized, are not in contravention of law or the terms
of Company's Articles of Organization or Membership Regulations, and do not
require the consent or approval
3
<PAGE> 5
of any governmental body, agency or authority; and this Agreement and the other
documents and instruments required under this Agreement and the Revolving Credit
Note, when issued and delivered, will be valid and binding in accordance with
their terms.
3.2 The execution, delivery and performance of this Agreement and any
other documents and instruments required under this Agreement, and the issuance
of the Revolving Credit Note by Company are not in contravention of the unwaived
terms of any indenture, agreement or undertaking to which Company is a party or
by which it is bound, the violation of which could materially impair Company's
financial condition or ability to carry on its business.
3.3 No litigation or other proceeding before any court or
administrative agency is pending, or to the knowledge of the officers of Company
is threatened against Company, the outcome of which could materially impair the
financial condition of Company or the ability of Company to carry on its
business.
3.4 There are no security interests in, liens, mortgages, or other
encumbrances on any of Company's assets, except to Bank or as otherwise
permitted by this Agreement.
3.5 Company does not maintain or contribute to any employee pension
benefit plan subject to title IV of the "Employee Retirement Income Security Act
of 1974" (herein called "ERISA") except the plans described in attached Schedule
3.5 (herein called "Pension Plan"). There was no "unfunded past service
liability" of the Pension Plan, as of December 31, 1997, and there is no
accumulated funding deficiency within the meaning of ERISA, or any existing
liability with respect to the Pension Plan owed to the Pension Benefit Guaranty
Corporation or any successor thereto.
3.6 The opening balance sheet of Company dated February 28, 1998,
previously furnished Bank, is complete and correct and fairly presents the
assets and liabilities of Company; since said date there has been no material
adverse change in the financial condition of Company; to the best of the
knowledge of Company's officers, Company does not have any contingent
obligations (including any liability for taxes) not disclosed by or reserved
against in said balance sheet, and at the present time there are no material
unrealized or anticipated losses from any present commitment of Company.
3.7 All tax returns and tax reports of Company required by law to be
filed have been duly filed or extensions obtained, and all taxes, assessments
and other governmental charges or levies (other than those presently payable
without penalty and those currently being contested in good faith for which
adequate reserves have been established) upon Company (or any of its properties)
which are due and payable have been paid. The charges, accruals and reserves on
the books of Company in respect of the Federal income tax for all periods are
adequate in the opinion of Company.
3.8 There are no subsidiaries of Company, except Saturn Electronics
de Juarez, S.A. ("Saturn Mexico").
4
<PAGE> 6
3.9 Company is, in the conduct of its business, in compliance in all
material respects with all federal, state or local laws, statutes, ordinances
and regulations applicable to it, the enforcement of which, if Company were not
in compliance, would materially and adversely affect its business or the value
of its property or assets, taken as a whole. Company has all approvals,
authorizations, consents, licenses, orders and other permits of all governmental
agencies and authorities, whether federal, state or local, required to permit
the operation of its business as presently conducted, except such approvals,
authorizations, consents, licenses, orders and other permits with respect to
which the failure to have can be cured without having a material adverse effect
on the operation of such business, taken as a whole.
3.10 No representation or warranty by Company in this Agreement, nor
any statement or certificate (including financial statements) furnished or to be
furnished to Bank pursuant hereto contains or will contain any materially untrue
statement of any fact or omits or will omit to state a fact necessary to make
such representation, warranty, statement or certificate not misleading.
3.11 Except as disclosed by Company to Bank in writing prior to the
date of this Agreement, Company is not a party to any litigation or
administrative proceeding, nor so far as is known by Company is any litigation
or administrative proceeding threatened against Company, which in either case
(A) asserts or alleges that Company violated Environmental Laws (as defined in
Section 6.1), (B) asserts or alleges that Company is required to clean up,
remove, or take remedial or other response action due to the disposal,
depositing, discharge, leaking or other release of any hazardous substances or
materials, or (C) asserts or alleges that Company is required to pay all or a
portion of the cost of any past, present, or future cleanup, removal or remedial
or other response action which arises out of or is related to the disposal,
depositing, discharge, leaking or other release of any hazardous substances or
materials by Company.
3.12 To the best knowledge of Company, there are no conditions
existing currently or likely to exist during the term of this Agreement which
would subject Company to damages, penalties, injunctive relief or cleanup costs
under any applicable Environmental Laws or which require or are likely to
require cleanup, removal, remedial action or other response pursuant to
applicable Environmental Laws by Company.
3.13 Company is not subject to any judgment, decree, order or citation
related to or arising out of applicable Environmental Laws and to the best
knowledge of the Company, Company has not been named or listed as a potentially
responsible party by any governmental body or agency in a matter arising under
any applicable Environmental Laws.
3.14 Company has all permits, licenses and approvals required under
applicable Environmental Laws.
3.15 There has been delivered to Bank projected financial statements
for 1998 and 1999, including balance sheets and statements of cash flows and
income. Such projected
5
<PAGE> 7
financial statements present a good faith estimate by Company of the financial
information contained therein.
4. AFFIRMATIVE COVENANTS
Company covenants and agrees that it will, so long as Bank is committed
to make any advance under this Agreement and thereafter so long as any
indebtedness remains outstanding under this Agreement:
4.1 Furnish Bank:
(a) within one hundred twenty (120) days after and as of the end of
each fiscal year of Company, detailed financial statements of
Company, including a balance sheet, statements of profit and loss
and cash flows and surplus reconciliation, prepared and reviewed
by independent certified public accountants satisfactory to Bank;
(b) within forty-five (45) days after and as of the end of each
month, a balance sheet and statement of profit and loss and
surplus reconciliation of Company certified by the chief
financial officer or treasurer of Company as being materially
correct and accurate;
(c) within twenty (20) days after and as of the end of each month,
the monthly aging of Company's accounts and accounts payable and
an inventory report;
(d) within twenty (20) days after and as of the end of each month, a
borrowing base report in form acceptable to Bank;
(e) such information as required by the terms and conditions of any
security agreements referred to in this Agreement; and
(f) promptly, and in form to be satisfactory to Bank, such other
information as Bank may reasonably request from time to time.
4.2 Pay and discharge all taxes and other governmental charges, and
all contractual obligations calling for the payment of money, before the same
shall become overdue, unless and to the extent only that such payment is being
contested in good faith.
4.3 Maintain insurance coverage on its physical assets and against
other business risks in such amounts and of such types as are customarily
carried by companies similar in size and nature, and in the event of acquisition
of additional property, real or personal, or of incurrence of additional risks
of any nature, increase such insurance coverage in such manner and to such
extent as prudent business judgment and present practice would dictate; and in
the case of all policies covering property mortgaged or pledged to Bank or
property in which Bank shall have a security interest of any kind whatsoever,
other than those policies protecting against
6
<PAGE> 8
casualty liabilities to strangers, all such insurance policies shall provide
that the loss payable thereunder shall be payable to Company and Bank as their
respective interests may appear, all said policies or copies thereof, including
all endorsements thereon and those required hereunder, to be deposited with
Bank.
4.4 Permit Bank, through its authorized attorneys, accountants and
representatives, to examine Company's books, accounts, records, ledgers and
assets of every kind and description at all reasonable times during normal
business hours upon oral or written request of Bank, which shall include but
shall not be limited to audits of Company conducted by Bank. Company shall be
obligated to pay for one collateral audit per year. Company shall be obligated
to pay for additional audits only if Company is in default hereunder.
4.5 Promptly notify Bank of any condition or event which constitutes
or with the running of time and/or the giving of notice would constitute an
event of default under this Agreement, and promptly inform Bank of the existence
or occurrence of any condition or event which could have a material adverse
effect upon Company's financial condition or of the commencement of any
litigation against Company.
4.6 Maintain in good standing all licenses required by the State of
Texas or any agency thereof, or other governmental authority that may be
necessary or required for Company to carry on its general business objects and
purposes.
4.7 Furnish Bank, upon Bank's request, in form satisfactory to Bank
with pledges, assignments, mortgages, lien instruments or other security
instruments covering any or all of Company's real or personal property, of every
nature and description, whether now owned or hereafter acquired, to the extent
that Bank may in its sole discretion require.
4.8 Comply with all material requirements imposed by ERISA as
presently in effect or hereafter promulgated, including but not limited to, the
minimum funding requirements of the Pension Plan, if applicable.
4.9 Promptly notify Bank after the occurrence thereof in writing of
any of the following events:
(a) the termination of a Pension Plan pursuant to Subtitle C of Title
IV of ERISA or otherwise;
(b) the appointment of a trustee by a United States District Court to
administer the Pension Plan;
(c) the commencement by the Pension Benefit Guaranty Corporation, or
any successor thereto of any proceeding to terminate a Pension
Plan;
7
<PAGE> 9
(d) the failure of a Pension Plan to satisfy the minimum funding
requirements for any plan year as established in Section 412 of
the Internal Revenue Code of 1954, as amended or any similar
provision under the Internal Revenue Code of 1986, as amended;
(e) the withdrawal of Company from any Pension Plan; or
(f) a reportable event, within the meaning of Title IV of ERISA.
4.10 Furnish to the Bank concurrently with the delivery of each of the
financial statements required by Section 4.1(a) and (b) (and in the case of (b)
for the months ending March 31, June 30 and September 30) hereof, a statement
prepared and certified by the chief executive or financial officer or treasurer
of Company (or in his absence, a responsible senior officer of Company) stating
that as of the date thereof, no condition or event which constitutes an event of
default or which with the running of time and/or the giving of notice would
constitute an event of default has occurred and is continuing, or if any such
event or condition has occurred and is continuing or exists, specifying in
detail the nature and period of existence thereof and any action taken with
respect thereto taken or contemplated to be taken by Company and (c) stating
that the signer has personally reviewed this Agreement and that such certificate
is based on an examination sufficient to assure that such certificate is
accurate.
5. NEGATIVE COVENANTS
Company covenants and agrees that, so long as Bank may make any
advances under this Agreement and thereafter so long as any indebtedness remains
outstanding under this Agreement, it will not, without the prior written consent
of Bank:
5.1 (a) Purchase, acquire or redeem any of its equity interests or
make any material change in its capital structure or general business objects or
purpose, or (b) declare or pay any dividends on, or make any other distributions
(whether by reduction of capital or otherwise) with respect to, any equity
interests of Company; provided, however, that if an event of default has not
occurred and is then continuing, Company may redeem its equity interests or
declare and pay dividends or other equity distributions in an amount not
exceeding the amount necessary to enable the members of Company to pay their
aggregate federal and state income taxes attributable to the undistributed
income of Company.
5.2 Enter into any merger or consolidation or sell, lease, transfer,
or dispose of all, substantially all, or any material part of its assets, except
sales of inventory in the ordinary course of its business.
5.3 Guarantee, endorse, or otherwise become secondarily liable for or
upon the obligations of others, except by endorsement for deposit in the
ordinary course of business, and except for guaranties of obligations of Saturn
Mexico not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate at
any time.
8
<PAGE> 10
5.4 Become or remain obligated for any indebtedness for borrowed
money, or for any indebtedness incurred in connection with the acquisition of
any property, real or personal, tangible or intangible, except:
(a) indebtedness to Bank;
(b) current unsecured trade, utility or non-extraordinary accounts
payable arising in the ordinary course of Company's business;
(c) indebtedness listed on attached Schedule 5.4, and refinancings
thereof in amounts not in excess of the original principal
balance of such indebtedness; and
(d) additional indebtedness incurred after the date of this Agreement
not to exceed $500,000 in the aggregate outstanding at any time.
(e) indebtedness to members of Company that is subordinated to all
indebtedness of Company to Bank pursuant to written subordination
agreements in form and substance satisfactory to Bank.
5.5 Purchase or otherwise acquire or become obligated for the
purchase of all or substantially all of the assets or business interests of any
person, firm or corporation or any shares of stock of any corporation,
trusteeship or association or in any other manner effectuate or attempt to
effectuate an expansion of present business by acquisition; provided, that if an
event of default has not occurred and is then continuing, Company may engage in
any acquisition otherwise prohibited by this Section 5.5 in which the total
purchase price (including indebtedness assumed and all other consideration) paid
or to be paid by Company does not exceed $500,000.
5.6 Make or allow to remain outstanding any investment (whether such
investment shall be of the character of investment in shares of stock, evidences
of indebtedness or other securities or otherwise) in, or any loans or advances
to, any person, firm, corporation or other entity or association.
5.7 Affirmatively pledge or mortgage any of its assets, whether now
owned or hereafter acquired, or create, suffer or permit to exist any lien,
security interest in, or encumbrance thereon, except to Bank and except for
liens securing debt permitted by Section 5.4(d) incurred to finance the
acquisition of fixed or capital assets, provided that such liens do not at any
time encumber any property other than the property financed by such debt.
5.8 Sell, assign, transfer or confer a security interest in any
account, contract, note, trade acceptance or other receivable, except to Bank.
9
<PAGE> 11
5.9 Enter into, maintain, or make contribution to, directly or
indirectly, any employee pension plan that is subject to Title IV of ERISA,
except the Pension Plan heretofore described.
5.10 Reserved.
5.11 Make loans, advances of credit or extensions of credit to any
officer, manager or member of Company or any member of their immediate families
or entity controlled by any of the foregoing or to any other person, except for
sales on open account or in the ordinary course of business.
5.12 Enter into or become subject to any agreement (other than this
Agreement) (i) prohibiting the creation or assumption of any lien or encumbrance
upon the properties or assets of Company or (ii) requiring an obligation to
become secured (or further secured) if another obligation is secured or further
secured.
5.13 Materially alter the purpose of its businesses as specified in
Company's Membership Regulations.
5.14 Enter into any transaction or series of transactions with any
affiliate other than on terms and conditions as favorable to Company as would be
obtainable in a comparable arms-length transaction with a person other than an
affiliate.
6. ENVIRONMENTAL PROVISIONS
6.1 For the purposes of this Agreement the term "Environmental Laws"
shall mean all federal, state and local laws including statutes, regulations,
ordinances, codes, rules, and other governmental restrictions and requirements,
relating to environmental pollution, contamination or other impairment of any
nature, any hazardous or other toxic substances of any nature, whether liquid,
solid and/or gaseous, including smoke, vapor, fumes, soot, acids, alkalis,
chemicals, wastes, by-products, and recycled materials. These Environmental Laws
shall include but not be limited to the Federal Solid Waste Disposal Act, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976, the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Federal Superfund
Amendments and Reauthorization Act of 1986, regulations of the Environmental
Protection Agency, regulations of the Nuclear Regulatory Agency, regulations of
any state department of natural resources or state environmental protection
agency now or at any time hereafter in effect and local health department
ordinances.
6.2 Company shall comply in all material respects with all applicable
Environmental Laws.
6.3 Company shall provide to Bank, immediately upon receipt, copies
of any correspondence, notice, pleading, citation, indictment, complaint, order,
decree, or other document from any source asserting or alleging a circumstance
or condition which requires or
10
<PAGE> 12
may require a financial contribution by Company or a cleanup, removal, remedial
action, or other response by or on the part of Company under applicable
Environmental Laws or which seeks damages or civil, criminal or punitive
penalties from Company for an alleged violation of Environmental Laws.
6.4 Company shall promptly notify Bank in writing as soon as Company
becomes aware of any condition or circumstance which makes the environmental
warranties contained in this Agreement incomplete or inaccurate in any material
respect as of any date.
6.5 In the event of any condition or circumstance that makes any
environmental warranty, representation and/or agreement incomplete or inaccurate
in any material respect as of any date, Company shall, at the reasonable request
of Bank, at its sole expense, retain an environmental professional consultant,
reasonably acceptable to Bank, to conduct a thorough and complete environmental
audit regarding the changed condition and/or circumstance and any environmental
concerns arising from that changed condition and/or circumstance. A copy of the
environmental consultant's report will be promptly delivered to both Bank and
Company upon completion.
6.6 At any time Company, directly or indirectly through any
professional consultant or other representative, determines to undertake an
environmental audit, assessment or investigation, Company shall promptly provide
Bank with written notice of the initiation of the environmental audit, fully
describing the purpose and intended scope of the environmental audit. Upon
receipt, Company will promptly provide to Bank copies of all final findings and
conclusions of any such environmental investigation. Preliminary findings and
conclusions shall be provided if final reports have not been completed and
delivered to Bank within 60 days following completion of the preliminary
findings and conclusions.
6.7 Company hereby indemnifies, saves and holds Bank and any of its
past, present and future officers, directors, shareholders, employees,
representatives and consultants harmless from any and all loss, damages, suits,
penalties, costs, liabilities and expenses (including but not limited to
reasonable investigation, environmental audit(s), and legal expenses) arising
out of any claim, loss or damage of any property, injuries to or death of
persons, contamination of or adverse affects on the environment, or any
violation of any applicable Environmental Laws, caused by or in any way related
to any real property owned or operated by Company, or due to any acts of
Company, its officers, directors, shareholders, employees, consultants and/or
representatives; provided, however, that the foregoing indemnification shall not
be applicable when arising from events or conditions occurring while the Bank is
in sole possession (subject to the rights of any creditors of Company) of the
property. In no event shall Company be liable hereunder for any loss, damages,
suits, penalties, costs, liabilities or expenses arising from any act of
negligence of Bank, or its agents or employees.
It is expressly understood and agreed that the indemnifications granted
herein are intended to protect Bank, its past, present and future officers,
directors, shareholders, employees, consultants and representatives from any
claims that may arise by reason of the security interest,
11
<PAGE> 13
liens and/or mortgages granted to Bank, or under any other document or agreement
given to secure repayment of any indebtedness from Company, whether or not such
claims arise before or after Bank has foreclosed upon and/or otherwise become
the owner of any such property. All obligations of indemnity as provided
hereunder shall be secured by the collateral documents.
It is expressly agreed and understood that the provisions hereof shall
and are intended to be continuing and shall survive the repayment of any
indebtedness from Company to Bank.
6.8 Company shall maintain all permits, licenses and approvals
required under applicable Environmental Laws.
7. EVENTS OF DEFAULT
7.1 Upon non-payment of any installment of the principal or interest
on the Revolving Credit Note when due in accordance with the terms thereof, or
upon non-payment of any other outstanding indebtedness of Company to Bank
hereunder or under any other instrument or evidence of indebtedness when due in
accordance with the terms thereof, the Revolving Credit Note shall at Bank's
option become immediately due and payable and Bank shall not make any further
advances hereunder.
7.2 Upon occurrence of any of the following events of default:
(a) default in the observance or performance of any of the
conditions, covenants or agreements of Company set forth in
Sections 1.5, 4.1, 4.3, 4.4, 4.5, 4.9 or 4.10, 5 or 6 herein;
(b) default in observance or performance of any of the other
conditions, covenants or agreements of Company herein set forth,
and continuance thereof for thirty (30) days after notice to
Company by Bank;
(c) any representation or warranty made by Company herein or by
Company in any instrument submitted pursuant hereto proves untrue
in any material respect;
(d) default in the observance or performance of any of the
conditions, covenants or agreements of Company or any other
person set forth in any collateral document of security which may
be given to secure the indebtedness hereunder or in any other
collateral document related to or connected with this Agreement
or the indebtedness hereunder, and continuation of such default
beyond any period of grace specified in any such document;
(e) default in the payment of any other obligation of Company for
borrowed money in excess of $75,000, or in the observance or
performance of any conditions, covenants or agreements related or
given with respect thereto beyond any applicable grace or cure
period;
12
<PAGE> 14
(f) judgments for the payment of money in excess of the sum of Fifty
Thousand Dollars ($50,000) in the aggregate shall be rendered
against Company and such judgments shall remain unpaid,
unvacated, unbonded or unstayed by appeal or otherwise for a
period of sixty (60) consecutive days from the date of its entry;
(g) the occurrence of any "reportable event", as defined in the
Employee Retirement Income Security Act of 1974 and any
amendments thereto, which is determined to constitute grounds for
termination by the Pension Benefit Guaranty Corporation of any
employee pension benefit plan maintained by or on behalf of
Company for the benefit of any of its employees or for the
appointment by the appropriate United States District Court of a
trustee to administer such plan and such reportable event is not
corrected and such determination is not revoked within thirty
(30) days after notice thereof has been given to the plan
administrator or Company; or the institution of proceedings by
the Pension Benefit Guaranty Corporation to terminate any such
employee benefit pension plan or to appoint a trustee to
administer such plan; or the appointment of a trustee by the
appropriate United States District Court to administer any such
employee benefit pension plan;
(h) if there shall be any change for any reason whatsoever in the
management, ownership or control of Company which shall in the
reasonable judgment of Bank adversely affect future prospects for
the successful operation of Company; or
(i) default by Saturn Mexico under the negative pledge letter dated
as of the date hereof, concerning Saturn Mexico's land and
building located in Juarez, Mexico;
then, or at any time thereafter, unless such default is remedied, Bank may give
notice to Company declaring all outstanding indebtedness hereunder and under the
Revolving Credit Note to be due and payable, whereupon all indebtedness then
outstanding hereunder and under the Revolving Credit Note shall immediately
become due and payable without further notice and demand, and Bank shall not
make further advances hereunder.
7.3 If a creditors' committee shall have been appointed for the
business of Company; or if Company shall have made a general assignment for the
benefit of creditors or shall have been adjudicated bankrupt, or shall have
filed a voluntary petition in bankruptcy or for reorganization or to effect a
plan or arrangement with creditors; or shall file an answer to a creditor's
petition or other petition filed against it, admitting the material allegations
thereof for an adjudication in bankruptcy or for reorganization; or shall have
applied for or permitted the appointment of a receiver, or trustee or custodian
for any of its property or assets; or such receiver, trustee or custodian shall
have been appointed for any of its property or assets (otherwise than upon
application or consent of Company) and such receiver, trustee or custodian so
appointed shall not have been discharged within forty-five (45) days after the
date of his appointment or if an order shall be entered and shall not be
dismissed or stayed within forty-five
13
<PAGE> 15
(45) days from its entry, approving any petition for reorganization of Company;
then the Revolving Credit Note and all indebtedness then outstanding hereunder
shall automatically become immediately due and payable and Bank shall not make
further advances under this Agreement.
7.4 Upon the occurrence and during the continuance of an event of
default, unless all of the indebtedness of Company to Bank is then immediately
fully paid, Bank shall have and may exercise any one or more of the rights and
remedies for which provision is made for a secured party under the Michigan
Uniform Commercial Code, under the Security Agreements or under any other
document contemplated hereby or for which provision is provided by law or in
equity, including, without limitation, the right to take possession and sell,
lease or otherwise dispose of any or all of the collateral and to set off
against the indebtedness of Company to Bank any amount owing by Bank to Company
and/or any property of Company in possession of Bank. Company agrees, upon
request of Bank, to assemble the collateral and make it available to Bank at any
place designated by Bank which is reasonably convenient to Bank and Company.
7.5 All of the indebtedness of Company to Bank shall constitute one
loan secured by Bank's security interest in the collateral and by all other
security interests, mortgages, liens, claims, and encumbrances now and from time
to time hereafter granted from Company to Bank. Upon the occurrence and during
the continuance of an event of default which is not cured within the cure
period, if any, provided hereunder, Bank may in its sole discretion apply the
collateral to any portion of the indebtedness of Company to Bank. The proceeds
of any sale or other disposition of the collateral authorized by this Agreement
shall be applied by Bank, first upon all expenses authorized by the Michigan
Uniform Commercial Code (or other applicable law) or otherwise in connection
with the sale and all reasonable attorneys' fees and legal expenses incurred by
Bank; the balance of the proceeds of such sale or other disposition shall be
applied in the payment of the indebtedness of Company to Bank, first to
interest, then to principal, then to other indebtedness of Company to Bank and
the surplus, if any, shall be paid over to Company or to such other person or
persons as may be entitled thereto under applicable law. Company shall remain
liable for any deficiency, which Company shall pay to Bank immediately upon
demand.
7.6 The remedies provided for herein are cumulative to the remedies
for collection of the indebtedness of Company to Bank as provided by law, in
equity or by any mortgage, security agreement or other document contemplated
hereby. Nothing herein contained is intended, nor shall it be construed, to
preclude Bank from pursuing any other remedy for the recovery of any other sum
to which Bank may be or become entitled for the breach of this Agreement by
Company.
8. MISCELLANEOUS
8.1 This Agreement shall be binding upon and shall inure to the
benefit of Company and Bank and their respective successors and assigns;
provided, however, that the credit
14
<PAGE> 16
provided hereunder and no obligation of Bank hereunder shall be assignable or
otherwise transferrable by Company.
8.2 No delay or failure of Bank in exercising any right, power or
privilege hereunder shall affect such right, power or privilege, nor shall any
single or partial exercise thereof preclude any further exercise thereof, or the
exercise of any other power, right or privilege. The rights of Bank under this
Agreement are cumulative and not exclusive of any right or remedies which Bank
would otherwise have.
8.3 Reserved
8.4 All notices to Company with respect to this Agreement shall be
deemed to be completed upon mailing by certified mail as follows:
To Company:
255 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Donald J. Cowie
To Bank:
P.O. Box 75000
Mail Code 3241
Detroit, Michigan 48275-3241
Attention: Metropolitan Loan Division C
8.5 Company shall pay all closing costs and expenses, including, by
way of description and not limitation, reasonable outside attorney fees and lien
search fees incurred by Bank in connection with the commitment, consummation and
closing of this Agreement. All of said amounts required to be paid by Company
may, at Bank's option, be charged by Bank as an advance against the proceeds of
the Revolving Credit Note. All costs, including attorney fees and auditor fees,
incurred by Bank in reviewing, revising, protecting or enforcing any of its or
any of the Bank's rights against Company or defending Bank from any claims or
liabilities by any party or otherwise incurred by Bank in connection with an
event of default or the enforcement of this Agreement or the related documents,
including by way of description and not limitation, such charges in any court or
bankruptcy proceedings or arising out of any claim or action by any person
against Bank which would not have been asserted were it not for Bank's
relationship with Company hereunder or otherwise, shall also be paid by Company.
8.6 On any default as defined in this Agreement or any default in
payment of any liability above mentioned, Bank may, without notice to anyone,
declare the Revolving Credit Note due forthwith, take all action, remedial and
otherwise, as provided herein or in any Security Agreement or other document,
instrument, or agreement of security or of collateral, and collect, deal with
and dispose of all or any part of any security without notice in any manner
permitted or authorized by the Michigan Uniform Commercial Code or other
applicable law (including public or private sale) and after deducting expenses
(including reasonable attorneys' fees and expenses)
15
<PAGE> 17
Bank may apply the proceeds and any deposits or credits in part or full payment
of any of said liabilities, whether due or not, in any manner or order Bank
elects.
8.7 This Agreement shall become effective upon the execution hereof
by Bank and Company.
8.8 No amendments or waiver of any provision of this Agreement nor
consent to any departure by Company therefrom shall in any event be effective
unless the same shall be in writing and signed by the Bank, and then such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No amendment, waiver or consent
with respect to any provision of this Agreement shall affect any other provision
of this Agreement.
8.9 COMPANY AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY
IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT.
8.10 This Agreement and the Revolving Credit Note have been delivered
at Detroit, Michigan, and shall be governed by and construed and enforced in
accordance with the laws of the State of Michigan. Whenever possible each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
WITNESS the due execution hereof as of the day and year first above
written.
COMERICA BANK SATURN ELECTRONICS TEXAS,
L.L.C.
By: /s/ Jason L. Stoecker By: /s/ Donald J. Cowie
--------------------- ----------------------
Donald J. Cowie
Its: Account Officer Its: Treasurer
16
<PAGE> 18
SCHEDULE 3.5
None
17
<PAGE> 19
SCHEDULE 5.4
PERMITTED DEBT
None
18
<PAGE> 20
EXHIBIT "A"
REVOLVING CREDIT NOTE
$5,000,000 Detroit, Michigan
April 16, 1998
On or before June 1, 1999, FOR VALUE RECEIVED, the undersigned, SATURN
ELECTRONICS TEXAS, L.L.C., a Texas limited liability company (herein called
"Company"), promises to pay to the order of COMERICA BANK, a Michigan banking
corporation (herein called "Bank") at its Main Office at One Detroit Center,
Detroit, Michigan, the indebtedness or so much of the sum of Five Million
Dollars ($5,000,000) as may from time to time have been advanced and then be
outstanding hereunder and under a certain Loan Agreement by and between Company
and Bank dated April 16, 1998 (as amended from time to time, herein called "Loan
Agreement").
The indebtedness outstanding under this Note from time to time shall
bear interest at a per annum rate equal to Bank's Prime Rate or as otherwise
provided in the Loan Agreement. Upon the occurrence of any event of default
hereunder or under the Loan Agreement, interest shall accrue on the unpaid
balance hereunder at a per annum rate equal to three percent (3%) above the rate
otherwise applicable hereunder. Interest shall be payable monthly on the unpaid
principal balance from time to time outstanding commencing on May 1, 1998 and on
the first day of each month thereafter until June 1, 1999 when the entire unpaid
balance of principal and interest shall be due and payable. Interest shall be
computed on a daily basis using a year of 360 days for the actual number of days
elapsed, and, in such computation, effect shall be given to any change in the
interest rate resulting from a change in the Prime Rate on the date of such
change in the Prime Rate. "Prime Rate" shall mean the rate of interest
established by Bank as its prime rate for its borrowers as the same may be
changed from time to time, which may not necessarily be Bank's lowest rate for
loans. This Note may be prepaid in whole or in part at any time without premium
or penalty.
This Note evidences borrowing under, is subject to, is secured pursuant
to, shall be prepaid in accordance with, and may be matured under the terms of
the Loan Agreement, to which reference is hereby made. As additional security,
Bank is granted a lien on all property and assets (including deposits and other
credits) of Company at any time in possession or control of (or owing by) Bank
for any purpose.
All agreements between Company and Bank pertaining to the indebtedness
described herein are expressly limited so that in no event whatsoever shall the
amount of interest paid or agreed to be paid to Bank exceed the highest rate of
interest permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of the Loan Agreement, this Note or any
other instrument securing this Note or all or any part of the indebtedness
secured thereby, at the time performance of such provision shall be due, shall
involve exceeding the
<PAGE> 21
interest limitation validly prescribed by law which a court of competent
jurisdiction may deem applicable hereto, then, the obligation to be fulfilled
shall be reduced to an amount computed at the highest rate of interest
permissible under such applicable law, and if, for any reason whatsoever, Bank
shall ever receive as interest an amount which would be deemed unlawful under
such applicable law, such interest shall be automatically applied to the payment
of the principal amount described herein or otherwise owed by Company to Bank
(whether or not then due and payable) and not to the payment of interest.
Notwithstanding anything herein to the contrary, nothing shall limit
any rights granted Bank by other instruments or by law.
COMPANY AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS NOTE.
SATURN ELECTRONICS TEXAS, L.L.C.
By:
---------------------------
Donald J. Cowie
Its: Treasurer
2
<PAGE> 22
EXHIBIT "B"
REQUEST FOR DRAW AND CERTIFICATE OF COMPLIANCE
TO: COMERICA BANK (the "Bank")
The undersigned hereby requests an advance in the amount of
DOLLARS ($ ) against the Revolving Credit Note dated
April 16, 1998, of undersigned to the Bank in the face amount of Five Million
Dollars ($5,000,000).
The proceeds of this advance shall be deposited to the Account No.
of the undersigned with the Bank or as follows:
---------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------.
The undersigned warrants that no condition exists or event has occurred
which constitutes or, with the running of time would constitute a default under
that certain Loan Agreement dated April 16, 1998 by and between the undersigned
and the Bank.
SATURN ELECTRONICS TEXAS, L.L.C.
By:
-----------------------------
Its:
----------------------------
<PAGE> 1
EXHIBIT 10.14
AMENDMENT NO. 1 TO
LOAN AGREEMENT AND REVOLVING CREDIT NOTE
THIS AMENDMENT, dated as of June 10, 1999, by and between Saturn
Electronics Texas, L.L.C., a Texas limited liability company, of Auburn Hills,
Michigan ("Company"), and Comerica Bank, a Michigan banking corporation, of
Detroit, Michigan ("Bank").
W I T N E S S E T H:
WHEREAS, said parties desire to amend that certain Loan Agreement dated
April 16, 1998 (the "Agreement"), entered into by and between Company and Bank
to extend the maturity date of the Revolving Credit Note delivered by Company
pursuant to the Agreement (the "Note").
NOW, THEREFORE, it is agreed that the first sentence of Section 1.2 of
the Agreement is amended by deleting the date June 1, 1999 where it appears
therein and replacing it with the date June 1, 2000.
IT IS FURTHER AGREED that the Note is amended to conform with the
Agreement by providing for a maturity date of June 1, 2000 in lieu of June 1,
1999.
This Amendment shall be effective as of the date hereof. Except as
modified hereby, all of the terms and conditions of the Agreement and the Note
shall remain in full force and effect. Company hereby represents and warrants
that, after giving effect to the amendments contained herein, (a) execution,
delivery and performance of this Amendment and any other documents and
instruments required under this Amendment or the Agreement are within Company's
corporate powers, have been duly authorized, are not in contravention of law or
the terms of the Company's Articles of Organization or Membership Regulations,
and do not require the consent or approval of any governmental body, agency, or
authority; and this Amendment and any other documents and instruments required
under this Amendment or the Agreement, will be valid and binding in accordance
with their terms; (b) the representations and warranties of the Company set
forth in Sections 3.1 through 3.15 of the Agreement are true and correct on and
as of the date hereof with the same force and effect as if made on and as of the
date hereof; and (c) no event of default, or condition or event which, with the
giving of notice or the running of time, or both, would constitute an event of
default under the Agreement, has occurred and is continuing as of the date
hereof.
This Amendment may be executed in counterparts, of which this is one,
all of which shall constitute one and the same instrument.
<PAGE> 2
WITNESS the due execution hereof as of the day and year first above written.
BANK: COMPANY:
COMERICA BANK SATURN ELECTRONICS TEXAS, L.L.C.
By: [SIG] By:
---------------------------- ------------------------------
Its: Officer Its:
---------------------------- ------------------------------
<PAGE> 1
EXHIBIT 10.15
AMENDMENT NO. 2 TO LOAN AGREEMENT
THIS AMENDMENT, dated as of January 11, 2000, by and between Saturn
Electronics Texas, L.L.C., a Texas limited liability company, of Auburn Hills,
Michigan ("Company"), and Comerica Bank, a Michigan banking corporation, of
Detroit, Michigan ("Bank").
W I T N E S S E T H:
WHEREAS, said parties desire to amend that certain Loan Agreement dated
April 16, 1998 as amended by Amendment No. 1 dated as of June 10, 1999 (the
"Agreement"), entered into by and between Company and Bank to increase the
credit provided to Company under the Agreement.
NOW, THEREFORE, it is agreed as follows:
1. Section 1.1 of the Agreement is amended by deleting the figure Five
Million Dollars ($5,000,000) where it appears therein and replacing it with the
figure Fifteen Million Dollars ($15,000,000).
2. The first sentence of Section 1.2 of the Agreement is amended by
deleting the date June 1, 2000 where it appears therein and replacing it with
the date January 1, 2001.
3. Section 1.4 of the Agreement is amended by deleting the figure Five
Million Dollars ($5,000,000) where it appears therein and replacing it with the
figure Fifteen Million Dollars ($15,000,000).
This Amendment shall be effective as of the date hereof and upon delivery by
Company to Bank of a replacement Revolving Credit Note in the principal amount
of $15,000,000. Except as modified hereby, all of the terms and conditions of
the Agreement and the Note shall remain in full force and effect. Company hereby
represents and warrants that, after giving effect to the amendments contained
herein, (a) execution, delivery and performance of this Amendment and any other
documents and instruments required under this Amendment or the Agreement are
within Company's corporate powers, have been duly authorized, are not in
contravention of law or the terms of the Company's Articles of Organization or
Membership Regulations, and do not require the consent or approval of any
governmental body, agency, or authority; and this Amendment and any other
documents and instruments required under this Amendment or the Agreement, will
be valid and binding in accordance with their terms; (b) the representations and
warranties of the Company set forth in Sections 3.1 through 3.15 of the
Agreement are true and correct on and as of the date hereof with the same force
and effect as if made on and as of the date hereof; and (c) no event of default,
or condition or event which, with the giving of notice or the running of time,
or both, would constitute an event of default under the Agreement, has occurred
and is continuing as of the date hereof.
<PAGE> 2
This Amendment may be executed in counterparts, of which this is one, all
of which shall constitute one and the same instrument.
WITNESS the due execution hereof as of the day and year first above
written.
BANK: COMPANY:
COMERICA BANK SATURN ELECTRONICS TEXAS, L.L.C.
By: [SIG] By: /s/ Donald J. Cowie
------------------------------ ------------------------------
Donald J. Cowie
Its: Assistant Vice-President Its: Treasurer
------------------------------
<PAGE> 1
EXHIBIT 10.16
EXECUTION COPY
================================================================================
SATURN ELECTRONICS & ENGINEERING, INC.
CREDIT AGREEMENT
DATED AS OF AUGUST 24, 1999
COMERICA BANK, AS AGENT
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. DEFINITIONS..............................................................................................1
2. REVOLVING CREDIT........................................................................................20
2.1 Commitment.....................................................................................20
2.2 Accrual of Interest and Maturity...............................................................20
2.3 Requests for and Refundings and Conversions of Advances........................................20
2.4 Disbursement of Advances.......................................................................22
2.5 Swing Line Advances............................................................................24
2.6 Prime-based Interest Payments..................................................................27
2.7 Eurocurrency-based Interest Payments and Quoted Rate Interest Payments.........................28
2.8 Interest Payments on Conversions...............................................................28
2.9 Interest on Default............................................................................28
2.10 Prepayment of Revolving Credit Advances........................................................28
2.11 Prime-based Advance in Absence of Election or Upon Default.....................................29
2.12 Revolving Credit Facility Fee..................................................................29
2.13 Optional Reduction or Termination of Revolving Credit Aggregate
Commitment.....................................................................................30
2.14 Application of Advances........................................................................31
2.15 Extension of Revolving Credit Maturity Date....................................................31
2.16 Mandatory Reduction of Revolving Credit Aggregate Commitment...................................31
3. LETTERS OF CREDIT.......................................................................................32
3.1 Letters of Credit..............................................................................32
3.2 Conditions to Issuance.........................................................................32
3.3 Notice.........................................................................................33
3.4 Letter of Credit Fees..........................................................................34
3.5 Other Fees.....................................................................................35
3.6 Drawings and Demands for Payment Under Letters of Credit.......................................35
3.7 Obligations Irrevocable........................................................................36
3.8 Risk Under Letters of Credit...................................................................37
3.9 Indemnification................................................................................38
3.10 Right of Reimbursement.........................................................................39
4. [RESERVED]..............................................................................................40
5. MARGIN ADJUSTMENTS......................................................................................40
5.1 Margin Adjustments.............................................................................40
</TABLE>
- i -
<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
<S> <C> <C>
6. CONDITIONS..............................................................................................40
6.1 Execution of Notes and this Agreement..........................................................41
6.2 Corporate Authority............................................................................41
6.3 Collateral Documents and Guaranty..............................................................41
6.4 Lessors' Acknowledgments.......................................................................42
6.5 Lien Searches..................................................................................42
6.6 Pro Forma Balance Sheet and Projections........................................................42
6.7 Insurance......................................................................................42
6.8 Compliance with Certain Documents and Agreements...............................................42
6.9 Opinion of Counsel.............................................................................42
6.10 Borrowers' Certificate.........................................................................42
6.11 Payment of Fees................................................................................43
6.12 Financial Statements...........................................................................43
6.13 Continuing Conditions..........................................................................43
6.A. ADDITIONAL CONDITIONS...................................................................................43
6.A.1 Effective Date.................................................................................43
6.A.2 Smartflex Acquisition Documents................................................................44
6.A.3 No Material Change.............................................................................44
6.A.4 Approval of Tender Offer by Smartflex's Board of Directors.....................................44
6.A.5 Tender Offer Made in Accordance with Applicable Law............................................44
6.A.6 Borrowings to Fund Purchase of Shares..........................................................44
7. REPRESENTATIONS AND WARRANTIES..........................................................................45
7.1 Company Authority..............................................................................45
7.2 Due Authorization - Borrowers..................................................................45
7.3 Due Authorization - Guarantors.................................................................46
7.4 Liens..........................................................................................46
7.5 Taxes..........................................................................................46
7.6 No Defaults....................................................................................46
7.7 Enforceability of Agreement and Loan Documents -- Borrowers....................................46
7.8 Enforceability of Loan Documents -- Guarantors.................................................47
7.9 Compliance with Laws...........................................................................47
7.10 Non-contravention -- Borrowers.................................................................47
7.11 Non-contravention -- Guarantors................................................................47
7.12 No Litigation..................................................................................47
7.13 Consents, Approvals and Filings, Etc...........................................................48
7.14 [RESERVED].....................................................................................48
7.15 No Investment Company or Margin Stock..........................................................48
7.16 ERISA..........................................................................................49
</TABLE>
- ii -
<PAGE> 4
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
<S> <C> <C>
7.17 Conditions Affecting Business or Properties....................................................49
7.18 Environmental and Safety Matters...............................................................49
7.19 Subsidiaries...................................................................................50
7.20 Accuracy of Information........................................................................50
7.21 Labor Relations................................................................................50
7.22 Solvency.......................................................................................50
7.23 Ownership......................................................................................51
7.24 Year 2000 Requirement..........................................................................51
8. AFFIRMATIVE COVENANTS...................................................................................51
8.1 Financial Statements...........................................................................51
8.2 Certificates; Other Information................................................................52
8.3 Payment of Obligations.........................................................................53
8.4 Conduct of Business and Maintenance of Existence...............................................53
8.5 Maintenance of Property; Insurance.............................................................53
8.6 Inspection of Property; Books and Records, Discussions.........................................53
8.7 Notices........................................................................................54
8.8 Hazardous Material Laws........................................................................55
8.9 Funded Debt Ratio..............................................................................55
8.10 Consolidated Net Worth.........................................................................55
8.11 Fixed Charge Coverage Ratio....................................................................55
8.12 Taxes..........................................................................................56
8.13 Governmental and Other Approvals...............................................................56
8.14 Compliance with ERISA..........................................................................56
8.15 ERISA Notices..................................................................................56
8.16 Future Subsidiaries; Additional Collateral.....................................................56
8.17 Further Assurances.............................................................................57
8.18 Security.......................................................................................57
8.19 Defense of Collateral..........................................................................57
8.20 Merger.........................................................................................57
8.21 Use of Proceeds................................................................................57
9. NEGATIVE COVENANTS......................................................................................58
9.1 Limitation on Debt.............................................................................58
9.2 Limitation on Liens............................................................................58
9.3 Limitation on Guarantee Obligations............................................................59
9.4 Acquisitions...................................................................................59
9.5 Limitation on Mergers or Sale of Assets........................................................59
9.6 Restricted Payments.....................................................................................60
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
<S> <C> <C>
9.7 Limitation on Capital Expenditures.............................................................60
9.8 Limitation on Investments, Loans and Advances..................................................60
9.9 Transactions with Affiliates...................................................................61
9.10 Sale and Leaseback.............................................................................61
9.11 Limitation on Negative Pledge Clauses..........................................................62
9.12 Prepayment of Debts............................................................................62
9.13 Modification of Smartflex Acquisition Documents................................................62
10. DEFAULTS................................................................................................62
10.1 Events of Default..............................................................................62
10.2 Exercise of Remedies...........................................................................64
10.3 Rights Cumulative..............................................................................65
10.4 Waiver by Borrowers of Certain Laws............................................................65
10.5 Waiver of Defaults.............................................................................65
10.6 Set Off........................................................................................65
11. PAYMENTS, RECOVERIES AND COLLECTIONS....................................................................66
11.1 Payment Procedure..............................................................................66
11.2 Application of Proceeds of Collateral..........................................................67
11.3 Letter of Credit Liabilities...................................................................68
11.4 Pro-rata Recovery..............................................................................68
12. CHANGES IN LAW OR CIRCUMSTANCES; INCREASED COSTS........................................................68
12.1 Reimbursement of Prepayment Costs..............................................................68
12.2 Eurocurrency Lending Office....................................................................69
12.3 Circumstances Affecting Eurocurrency-based Rate Availability...................................69
12.4 Laws Affecting Eurocurrency-based Advance Availability.........................................70
12.5 Increased Cost of Eurocurrency-based Advances..................................................70
12.6 Capital Adequacy and Other Increased Costs.....................................................71
12.7 Substitution of Banks..........................................................................72
12.8 Right of Banks to Fund through Branches and Affiliates.........................................73
13. AGENT...................................................................................................73
13.1 Appointment of Agent...........................................................................73
13.2 Deposit Account with Agent.....................................................................73
13.3 Scope of Agent's Duties........................................................................73
13.4 Successor Agent................................................................................74
13.5 Agent in its Individual Capacity...............................................................75
13.6 Credit Decisions...............................................................................75
13.7 Agent's Fees...................................................................................75
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
<S> <C> <C>
13.8 Authority of Agent to Enforce Notes and This Agreement.........................................75
13.9 Indemnification................................................................................75
13.10 Knowledge of Default...........................................................................76
13.11 Agent's Authorization; Action by Banks.........................................................76
13.12 Enforcement Actions by the Agent...............................................................76
13.13 Collateral Matters.............................................................................77
14. MISCELLANEOUS...........................................................................................77
14.1 Accounting Principles..........................................................................77
14.2 Consent to Jurisdiction........................................................................77
14.3 Law of Michigan................................................................................78
14.4 [Reserved].....................................................................................78
14.5 Closing Costs and Other Costs; Indemnification.................................................78
14.6 Notices........................................................................................79
14.7 Further Action.................................................................................80
14.8 Successors and Assigns; Participations; Assignments............................................80
14.9 Indulgence.....................................................................................83
14.10 Counterparts...................................................................................83
14.11 Amendment and Waiver...........................................................................83
14.12 Confidentiality................................................................................84
14.13 Withholding Taxes..............................................................................84
14.14 Taxes and Fees.................................................................................84
14.15 WAIVER OF JURY TRIAL...........................................................................85
14.16 Interest.......................................................................................85
14.17 Complete Agreement; Conflicts..................................................................85
14.18 Severability...................................................................................86
14.19 Table of Contents and Headings.................................................................86
14.20 Construction of Certain Provisions.............................................................86
14.21 Independence of Covenants......................................................................86
14.22 Reliance on and Survival of Various Provisions.................................................86
14.23 Merger Agreement; Effect.......................................................................86
14.24 Joint and Several Liability of Borrowers and Related Matters...................................87
14.25 Complete Agreement; Amendment and Restatement..................................................89
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
Schedule 1.1 Applicable Margin
Schedule 1.2 Percentages
Schedule 6.3(b) List of Jurisdictions in which to file financing statements
Schedule 6.4 Leased Property
Schedule 7.9 Compliance with Laws
Schedule 7.12 Litigation
Schedule 7.13 Consents, Approvals, Filings
Schedule 7.16 Employee Pension Benefit Plans
Schedule 7.18 Environmental Matters
Schedule 7.19 Subsidiaries
Schedule 7.20 Contingent Obligations
Schedule 7.23 Ownership Interests
Schedule 9.1 Existing Debt
Schedule 9.2 Permitted Liens
Schedule 9.3 Guarantee Obligations
Schedule 9.8 Existing Investments
</TABLE>
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TABLE OF CONTENTS
(Continued)
EXHIBITS
A FORM OF REQUEST FOR REVOLVING CREDIT ADVANCE
B FORM OF REVOLVING CREDIT NOTE
C FORM OF NOTICE OF LETTERS OF CREDIT
D FORM OF REQUEST FOR SWING LINE ADVANCE
E FORM OF SWING LINE NOTE
F FORM OF SWING LINE PARTICIPATION CERTIFICATE
G FORM OF INTERCOMPANY NOTE
H FORM OF COVENANT COMPLIANCE REPORT
I FORM OF ASSIGNMENT AGREEMENT
J FORM OF GUARANTY
K FORM OF PLEDGE AGREEMENT
L FORM OF SECURITY AGREEMENT
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<PAGE> 9
CREDIT AGREEMENT
THIS CREDIT AGREEMENT ("Agreement") is made as of the 24th day of
August, 1999, by and among Comerica Bank and the other financial institutions
from time to time parties hereto as lenders of the Revolving Credit
(individually, "Revolving Credit Bank", and collectively "Revolving Credit
Banks"), Comerica Bank, as bank of the Swing Line Credit ("Swing Line Bank" and
together with the Revolving Credit Banks, collectively referred to as the
"Banks") Comerica Bank, as agent for the Banks (in such capacity, "Agent"),
Saturn Electronics & Engineering, Inc., a Michigan corporation ("Company" and
sometimes a "Borrower"), Saturn Manufacturing Co., an Ohio corporation
("Manufacturing" and sometimes a "Borrower"), and SSI Acquisition Corp., a
Delaware corporation ("Newco" and sometimes a "Borrower").
COMPANY, NEWCO, MANUFACTURING, AGENT AND BANKS AGREE:
A. The Company has requested that the Banks extend to it credit and
letters of credit as previously extended to it by Comerica Bank under that
certain Credit Agreement dated as of September 20, 1995, by and between the
Company and Comerica Bank (as amended, the "Prior Credit Agreement") on the
terms and conditions set forth herein.
B. The Banks are prepared to extend such credit as aforesaid, but only
upon the terms and conditions set forth in this Agreement.
C. This Agreement shall constitute an amendment to and restatement in
its entirety of the Prior Credit Agreement as provided in Section 14.25 hereof.
1. DEFINITIONS
For the purposes of this Agreement the following terms will have the
following meanings:
"Account" shall mean any account or account receivable as defined in
the UCC, including without limitation, with respect to any Person, any right of
such Person to payment for goods sold or leased or for services rendered.
"Account Party(ies)" shall mean, with respect to any Letter of Credit,
the account party or parties (which shall be a Borrower or a Guarantor with the
counter signature of a Borrower) as named in an application to the Agent for the
issuance of such Letter of Credit.
"Additional Tender Offer Documents" shall mean all amendments and
schedules to, and documents related to, the Tender Offer Documents filed with
the Securities and Exchange Commission or distributed to the shareholders of
Smartflex by the Company and its Subsidiaries or Smartflex and its Subsidiaries
in connection with the Tender Offer and the Merger.
<PAGE> 10
"Advance(s)" shall mean, as the context may indicate, a borrowing
requested by a Borrower and made by the Revolving Credit Banks under Section 2.1
or requested by a Borrower and made by the Swing Line Bank under Section 2.5
hereof, including without limitation any readvance, refunding or conversion of
such borrowing pursuant to Section 2.3 hereof, any advance in respect of a
Letter of Credit under Section 3.6 hereof (including without limitation the
unreimbursed amount of any draws under any Letters of Credit), and shall
include, as applicable, a Eurocurrency-based Advance, a Prime-based Advance, a
Quoted Rate Advance and a Swing Line Advance.
"Affected Bank" shall have the meaning set forth in Section 12.7.
"Affiliate" shall mean, with respect to any Person, any other Person or
group acting in concert in respect of the first Person that, directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with such first Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person or group of Persons, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise. Unless otherwise specified to the contrary herein, or the context
requires otherwise, Affiliate shall refer to the Company's Affiliates.
"Agent" shall mean Comerica Bank, in its capacity as agent for the
Banks hereunder, or any successor agent appointed in accordance with Section
13.4 hereof.
"Agent's Fees" shall mean those agency and other fees and expenses
required to be paid by Company to Agent under Section 13.7 hereof.
"Alternate Base Rate" shall mean, for any day, an interest rate per
annum equal to the Federal Funds Effective Rate in effect on such day, plus one
percent (1%).
"Annualized" shall mean with respect to each of Consolidated EBITDA,
Consolidated EBITDAR and Consolidated Fixed Charges, (a) for the Measuring
Periods ending on December 31, 1999, March 31, 2000 and June 30, 2000,
Consolidated EBITDA, Consolidated EBITDAR and Consolidated Fixed Charges, as
applicable, for such Measuring Period multiplied by four (4), two (2) and one
and one-third (1-1/3), respectively, and (b) for each Measuring Period ending
thereafter, Consolidated EBITDA, Consolidated EBITDAR and Consolidated Fixed
Charges, as applicable, for such Measuring Period.
"Applicable Fee Percentage" shall mean, as of any date of determination
thereof, the applicable percentage used to calculate certain of the fees due and
payable hereunder, determined by reference to the appropriate columns in the
Pricing Matrix attached to this Agreement as Schedule 1.1.
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<PAGE> 11
"Applicable Interest Rate" shall mean (i) in respect of a Revolving
Credit Advance, the Eurocurrency-based Rate or the Prime-based Rate, applicable
to such Advance or such amount (in the case of a Eurocurrency-based Advance, for
the relevant Interest Period), (ii) in respect of a Swing Line Advance, the
Prime-based Rate or the Quoted Rate, applicable to such Advance, for the
relevant Interest Period, as selected by the Borrowers from time to time subject
to the terms and conditions of this Agreement.
"Applicable Margin" shall mean, as of any date of determination
thereof, the applicable interest rate margin determined in accordance with the
provisions of Section 5.1 hereof by reference to the appropriate columns in the
pricing matrix attached to this Agreement as Schedule 1.1.
"Asset Sale" shall mean the sale, transfer or other disposition by any
Borrower or any Subsidiary of any asset to any Person (other than sales,
transfers or other dispositions of inventory in the ordinary course of business
and sales, transfers or other dispositions of obsolete or damaged assets).
"Authorized Representative" is defined in Section 2.3 hereof.
"Banks" shall mean Comerica Bank ("Comerica") and such other financial
institutions from time to time parties hereto as lenders and shall include the
Revolving Credit Banks and the Swing Line Bank and any assignee which becomes a
Bank pursuant to Section 14.8 hereof.
"Blocked Commitment" shall mean (i) for the period from and including
the Effective Date through but not including the earlier of (x) the Smartflex
Acquisition Date and (y) Smartflex Expiration Date, $70,000,000 and (ii) for the
period thereafter, $0.
"Borrower" is defined in the Preamble; and shall include the Company,
Manufacturing and Newco; and "Borrowers" shall mean the Company, Manufacturing,
Newco, and any of them.
"Business Day" shall mean any day on which commercial banks are open
for domestic and international business in Detroit, London and New York.
"Capital Expenditures" shall mean, without duplication, any amounts
accrued in respect of a period in respect of any purchase or other acquisition
for value of fixed or capital assets; provided that, in no event shall Capital
Expenditures include amounts expended in respect of normal repair and
maintenance of plant facilities, machinery, fixtures and other like capital
assets utilized in the ordinary conduct of business (to the extent such amounts
would not be capitalized in preparing a balance sheet determined in accordance
with GAAP).
"Capitalized Lease" shall mean, as applied to any Person, any lease of
any property (whether real, personal or mixed) which, in conformity with GAAP,
is required to be capitalized on the balance sheet of such Person.
3
<PAGE> 12
"Capitalized Lease Obligation" shall mean the discounted present value
of the rental obligations of any Person under any Capitalized Lease, determined
in accordance with GAAP.
"Collateral" shall mean all property or rights in which a security
interest, mortgage, lien or other encumbrance for the benefit of the Banks is or
has been granted or arises or has arisen, under or in connection with this
Agreement, the Loan Documents, or otherwise.
"Collateral Documents" shall mean the Security Agreement, the Pledge
Agreement(s) and all of the other acknowledgments, certificates, stock powers,
financing statements, instruments and other security documents executed by
Borrowers or any Guarantor in favor of the Agent for the benefit of the Banks
and delivered to the Agent, as security for the Indebtedness, in each case as of
the Effective Date or, from time to time, subsequent thereto, in connection with
such Security Agreement, Pledge Agreement, this Agreement, the other Loan
Documents, in each case, as such collateral documents may be amended or
otherwise modified from time to time.
"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with the Company within the meaning
of Section 4001 of ERISA or which is part of a group which includes the Company
and which is treated as a single employer under Section 414 of the Internal
Revenue Code.
"Company" is defined in the Preamble.
"Consolidated" or "Consolidating" shall, when used with reference to
any financial information pertaining to (or when used as a part of any defined
term or statement pertaining to the financial condition of) Company and its
Subsidiaries, mean the accounts of Company and its Consolidated Subsidiaries
determined on a consolidated or consolidating basis, as the case may be, all
determined as to principles of consolidation and, except as otherwise
specifically required by the definition of such term or by such statements, as
to such accounts, in accordance with GAAP.
"Consolidated EBITDA" shall mean, for any period, the sum of
Consolidated Net Income for such period, plus, to the extent deducted in
determining Consolidated Net Income, Consolidated Interest Expense, Consolidated
Income Taxes and Consolidated depreciation and amortization for such period.
"Consolidated EBITDAR" shall mean, for any period, Consolidated EBITDA
for such period, plus, to the extent deducted in determining Consolidated Net
Income, Consolidated Rental Payments for such period.
"Consolidated Fixed Charges" shall mean for any period, the sum of (i)
Consolidated Interest Expense for such period, (ii) all Consolidated Rental
Payments for such period, and (iii) the sum of all regularly scheduled payments
(whether paid or payable) falling due during such
4
<PAGE> 13
period on Funded Debt of Company and its Consolidated Subsidiaries having a
maturity date of more than one year from the due date of such payment(s).
"Consolidated Funded Debt" shall mean as of any date of determination
thereof, all Funded Debt of the Company and its Consolidated Subsidiaries.
"Consolidated Income Taxes" shall mean for any period the aggregate
amount of taxes based on income or profits for such period of the operations of
Company and its Consolidated Subsidiaries determined in accordance with GAAP (to
the extent such income and profits were included in computing Consolidated Net
Income).
"Consolidated Interest Expense" shall mean for any period the aggregate
gross interest expense (including amortization of original issue discount and
the interest component of Capitalized Lease Obligations) of Company and its
Consolidated Subsidiaries for such period as determined in accordance with GAAP.
"Consolidated Net Income" shall mean for any period the Net Income of
Company and its Consolidated Subsidiaries for such period but excluding in any
event:
(i) any gains or losses on the sale or other disposition, not
in the ordinary course of business, of investments or fixed or capital
assets, and any taxes on the excluded gains and any tax deductions or
credits on account of any excluded losses;
(ii) net earnings of any Person (other than a Consolidated
Subsidiary) in which the Company or a Subsidiary has an ownership
interest, unless such net earnings shall have been actually received by
the Company or a Subsidiary in the form of cash distributions; and
(iii) extraordinary items as defined by GAAP.
"Consolidated Net Worth" shall mean as of any date all amounts that
would be included under stockholders' equity on a Consolidated balance sheet of
Company and its Consolidated Subsidiaries determined in accordance with GAAP.
"Consolidated Rental Payments" shall mean for any period all rental
payments paid in cash by Company and its Consolidated Subsidiaries in respect of
operating leases, as determined in accordance with GAAP.
"Consolidated Subsidiary(ies)" shall mean those Subsidiaries of Company
which are treated as Consolidated for purposes of GAAP, but excluding Saturn
Texas.
"Contractual Obligation" shall mean as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
5
<PAGE> 14
"Covenant Compliance Report" shall mean the report to be furnished by
the Borrowers to the Agent pursuant to Section 8.2(a) hereof, substantially in
the form of attached Exhibit H and certified by a Responsible Officer, in which
report Borrowers shall set forth, among other things, detailed calculations and
the resultant ratios or financial tests with respect to the financial covenants
contained in Sections 8.9 through 8.11 of this Agreement.
"Debt" shall mean the sum of the following, without duplication (a) all
Funded Debt of a Person, (b) all liabilities secured by any consensual lien on
any property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof, (c) all Guarantee Obligations
of such Person, (d) all obligations of such Person under conditional sale or
other title retention agreements relating to property or assets purchased by
such Person and (e) interest rate swap transaction, basis swap transaction,
forward rate transaction, commodity swap transaction, equity transaction, equity
index transaction, foreign exchange transaction, cap transaction, floor
transaction (including any option with respect to any of these transactions and
any combination of any of the foregoing) entered into by such Person.
"Default" shall mean any event which with the giving of notice or the
passage of time, or both, would constitute an Event of Default under this
Agreement.
"Dollars" and the sign "$" shall mean lawful money of the United States
of America.
"Domestic Subsidiary" shall mean any direct or indirect Subsidiary
incorporated under the laws of the United States of America, or any state,
territory, possession or other political subdivision thereof.
"Effective Date" shall mean the date on which all the conditions
precedent set forth in Sections 6.1 through 6.12 have been satisfied.
"Eligible Foreign Subsidiary" shall mean any Foreign Subsidiary owned
by the Company or Smartflex on the Effective Date, and whose capital stock and
other equity interests are pledged to the Agent and the Banks pursuant to a
Foreign Share Pledge.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, or any successor act or code and the regulations in effect from time
to time thereunder.
"Eurocurrency-based Advance" shall mean an Advance which bears interest
at the Eurocurrency-based Rate.
"Eurocurrency-based Rate" shall mean, with respect to any
Eurocurrency-Interest Period, the per annum interest rate which is equal to the
sum of the Margin plus the quotient of:
(A) the per annum interest rate at which deposits in eurodollars
are offered to Agent's Eurocurrency Lending Office by other
prime banks in the eurodollar market in an amount comparable
to the relevant Eurocurrency-based Advance and for a period
6
<PAGE> 15
equal to the relevant Eurocurrency-Interest Period at
approximately 11:00 a.m. Detroit time two (2) Business Days
prior to the first day of such Eurocurrency-Interest Period,
divided by
(B) an amount equal to one minus the stated maximum rate
(expressed as a decimal) of all reserve requirements
(including, without limitation, any marginal, emergency,
supplemental, special or other reserves) that is specified on
the first day of such Eurocurrency-Interest Period by the
Board of Governors of the Federal Reserve System (or any
successor agency thereto) for determining the maximum reserve
requirement with respect to eurodollar funding (currently
referred to as "eurocurrency liabilities" in Regulation D of
such Board) maintained by a member bank of such System,
all as conclusively determined (absent manifest error) by the Agent, such sum to
be rounded upward, if necessary, to the nearest whole multiple of 1/16th of 1%.
"Eurocurrency-Interest Period" shall mean the Interest Period
applicable to a Eurocurrency-based Advance.
"Eurocurrency Lending Office" shall mean, (a) with respect to the
Agent, Agent's office located at Grand Cayman, British West Indies, or such
other branch or branches of Agent, domestic or foreign, as it may hereafter
designate as a Eurocurrency Lending Office by notice to Company and the Banks,
and (b) as to each of the Banks, its office, branch or affiliate located at its
address set forth on the Agent's Administrative Detail Reply Form (on file with
Agent, copies of which have been delivered to Company) and identified thereon as
a Eurocurrency Lending Office, or at such other office, branch or affiliate of
such Bank as it may hereafter designate as its Eurocurrency Lending Office by
notice to Company and Agent.
"Event of Default" shall mean each of the Events of Default specified
in Section 10.1 hereof.
"Federal Funds Effective Rate" shall mean, for any day, a fluctuating
interest rate per annum equal to 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 for such day (or, if such day is not a
Business Day, for the next preceding 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 such day on such transactions
received by Agent from three Federal funds brokers of recognized standing
selected by it, all as conclusively determined by the Agent, such sum to be
rounded upward, if necessary, to the nearest whole multiple of 1/16th of 1%.
"Fees" shall mean the Revolving Credit Facility Fee, the Letter of
Credit Fees, the Agent's Fees, and the other fees and charges payable by the
Borrowers to the Banks or Agent hereunder.
7
<PAGE> 16
"Fixed Charge Coverage Ratio" shall mean, as of the last day of each
fiscal quarter, the ratio of (a) Annualized Consolidated EBITDAR for the
Measuring Period ending on such date to (b) Annualized Consolidated Fixed
Charges for such Measuring Period.
"Foreign Share Pledge" shall mean such domestic or local law share
pledge(s) as shall be advisable or necessary under applicable local law to
create and perfect liens on the share capital of the Foreign Subsidiaries and
securing the Indebtedness (subject to Section 956 of the Internal Revenue Code).
"Foreign Subsidiary" shall mean any Subsidiary other than the Domestic
Subsidiaries.
"Funded Debt" of any Person shall mean (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services as of such date (other than trade liabilities incurred in the ordinary
course of business and payable in accordance with customary practices) or which
is evidenced by a note, bond, debenture or similar instrument, (b) the principal
component of all obligations of such Person under Capitalized Leases and (c) all
obligations of such Person in respect of letters of credit, acceptances or
similar obligations issued or created for the account of such Person.
"Funded Debt Ratio" shall mean, as of the last day of each fiscal
quarter, the ratio of (a) Consolidated Funded Debt as of such date to (b)
Annualized Consolidated EBITDA for the Measuring Period ending on such date.
"GAAP" shall mean generally accepted accounting principles in the
United States of America, as in effect on the date hereof, consistently applied.
"Governmental Authority" shall mean any nation or government, any
state, province or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Governmental Obligations" means noncallable direct general obligations
of the United States of America or obligations the payment of principal of and
interest on which is unconditionally guaranteed by the United States of America.
"Guarantee Obligation" shall mean as to any Person (the "guaranteeing
person") (a) any obligation of the guaranteeing person or (b) any obligation of
another Person (including, without limitation, any bank under any letter of
credit), the creation of which was induced by a reimbursement, counter indemnity
or similar obligation issued by the guaranteeing person, in either case
guaranteeing or in effect guaranteeing any Debt, leases, dividends or other
obligations (the "primary obligations") of any other third Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation or any property
8
<PAGE> 17
constituting direct or indirect security therefor, (ii) to advance or supply
funds (1) for the purchase or payment of any such primary obligation or (2) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (iii) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (iv) otherwise to assure or hold harmless
the owner of any such primary obligation against loss in respect thereof;
provided, however, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing person
shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by the
Company in good faith.
"Guarantors" shall mean each Subsidiary of the Company which is
required by the Banks to guarantee the obligations of the Borrowers hereunder
and under the other Loan Documents.
"Guaranty" shall mean that certain unconditional guaranty of all
outstanding Indebtedness in the form of Exhibit J, executed and delivered (or to
be executed and delivered) by each of the Guarantors (whether by execution
thereof, or by execution of the Joinder Agreement attached as "Exhibit A" to the
form of such Guaranty), to the Agent, on behalf of the Banks, as amended from
time to time.
"Hazardous Material" shall mean and include any hazardous, toxic or
dangerous waste, substance or material defined as such in (or for purposes of)
the Hazardous Material Laws.
"Hazardous Material Law(s)" shall mean all laws, codes, ordinances,
rules, regulations, orders, decrees and directives issued by any federal, state,
provincial, local, foreign or other governmental or quasi-governmental authority
or body (or any agency, instrumentality or political subdivision thereof)
pertaining to any hazardous, toxic or dangerous waste, substance or material on
or about any facilities owned, leased or operated by Company or any of its
Subsidiaries, or any portion thereof including, without limitation, those
relating to soil, surface, subsurface ground water conditions and the condition
of the ambient air; and any state and local laws and regulations pertaining to
any hazardous, toxic or dangerous waste, substance or material and/or asbestos;
any so-called "superfund" or "superlien" law; and any other federal, state,
provincial, foreign or local statute, law, ordinance, code, rule, regulation,
order or decree regulating, relating to, or imposing liability or standards of
conduct concerning, any hazardous, toxic or dangerous waste, substance or
material, as now or at any time hereafter in effect.
"Hereof", "hereto", "hereunder" and similar terms shall refer to this
Agreement and not to any particular paragraph or provision of this Agreement.
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<PAGE> 18
"Hedging Transaction" shall mean any interest rate swap transaction,
basis swap transaction, forward rate transaction, commodity swap transaction,
equity transaction, equity index transaction, foreign exchange transaction, cap
transaction, floor transaction, collar transaction, currency swap transaction or
any other similar transaction (including any option with respect to any of such
transactions and any combination of any of the foregoing) entered into by any of
the Borrowers from time to time as otherwise permitted under this Agreement.
"Indebtedness" shall mean all indebtedness and liabilities (including,
without limitation, interest accruing at the then applicable rate provided in
this Agreement or any other applicable Loan Document after the Revolving Credit
Maturity Date and interest accruing at the then applicable rate provided in this
Agreement or any other applicable Loan Document after the filing of any petition
in bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to any of the Borrowers or any Subsidiary, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding),
fees and other charges arising under this Agreement or any of the other Loan
Documents, whether direct or indirect, absolute or contingent, of any of the
Borrowers or any Subsidiary to any of the Banks or Affiliates thereof or to the
Agent, in any manner and at any time, whether arising under this Agreement, or
under any Guaranty or any of the other Loan Documents, due or hereafter to
become due, now owing or that may hereafter be incurred by any of the Borrowers
or any Subsidiary to, any of the Banks or Affiliates thereof or to the Agent
(and which shall be deemed to include any liabilities of any of the Borrowers or
any Subsidiary to any Bank arising in connection with account overdrafts), and
any judgments that may hereafter be rendered on such indebtedness or any part
thereof, with interest according to the rates and terms specified, or as
provided by law, all net obligations of Borrowers and their respective
Subsidiaries with respect to any Hedging Transactions (such obligations to be
equal at any time to the aggregate net amount that would have been payable by
such Borrower or such Subsidiary at the most recent fiscal quarter end in
connection with the termination of such Interest Rate Protection Agreement at
such fiscal quarter end), and any and all consolidations, amendments, renewals,
replacements, substitutions or extensions of any of the foregoing; provided,
however that for purposes of calculating the Indebtedness outstanding under the
Agreement or any of the other Loan Documents, the direct and indirect and
absolute and contingent obligations of the Borrowers and the Subsidiaries
(whether direct or contingent) shall be determined without duplication.
"Initial Public Offering" shall mean an initial public offering of the
capital stock of the Company pursuant to a registration statement filed under
the Securities Act of 1933, as amended.
"Initial Tender Funding Date" shall mean the date on which the
conditions precedent in Section 6.A. shall have been satisfied, which date shall
be not later than the date which is 30 days after the Effective Date.
"Insolvency Proceeding" shall mean, with respect to any Person, (a) any
case, action or proceeding with respect to such Person before any court or other
Governmental Authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding-up, administration or relief of
debtors, or (b) any general assignment for the benefit of
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<PAGE> 19
creditors, arrangement, compromise, composition, marshaling of assets for
creditors, or other, similar arrangement in respect of such Person's creditors
generally or any substantial portion of its creditors.
"Intercompany Loan" shall mean any loan (or advance in the nature of a
loan) by a Borrower to any other Borrower, or by a Borrower to any Guarantor, or
by any Guarantor to a Borrower or to any other Guarantor, provided that each
such loan or advance is subordinated in right of payment and priority to the
Indebtedness and is funded under and evidenced by the Intercompany Note issued
by the applicable obligor.
"Intercompany Loans, Advances or Investments" shall mean any
Intercompany Loan, and any advance or investment by a Borrower to any other
Borrower or by a Borrower or any Guarantor (including without limitation any
guaranty of obligations or indebtedness to third parties) to or in another
Guarantor (or by any Guarantor to a Borrower).
"Intercompany Notes" shall mean the promissory notes substantially in
the form of Exhibit G attached hereto issued or to be issued by a Borrower or a
Guarantor to evidence an Intercompany Loan.
"Interest Period" shall mean (a) with respect to a Eurocurrency-based
Advance, one (1), two (2), three (3) or six (6) months (or any lesser or greater
number of days agreed to in advance by applicable Borrower, Agent and the
Majority Banks) as selected by the applicable Borrower pursuant to Section 2.3,
provided, however, that any Eurocurrency-Interest Period which commences on the
last Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month
and (b) with respect to a Swing Line Advance, shall mean a period of one (1) to
thirty (30) days agreed to in advance by the applicable Borrower and the Swing
Line Bank as selected by the applicable Borrower. Each Interest Period which
would otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day or, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day, and no
Interest Period which would end after the Revolving Credit Maturity Date shall
be permitted with respect to any Advance.
"Interest Rate Protection Agreement" shall mean any Hedging Transaction
entered into between a Borrower and a Bank or an Affiliate of a Bank.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time, and the regulations promulgated thereunder.
"Investment" shall mean, when used with respect to any Person, (a) any
loan, investment or advance made by such Person to any other Person (including,
without limitation, any contingent obligation) in respect of any capital stock,
Debt, obligation or liability of such other Person and (b) any other investment
made by such Person (however acquired) in stock or other
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<PAGE> 20
ownership interests in any other Person, including, without limitation, any
investment made in exchange for the issuance of shares of stock of such Person.
"Issuing Bank" shall mean Comerica Bank in its capacity as issuer of
one or more Letters of Credit hereunder.
"Issuing Office" shall mean Issuing Bank's office located at One
Detroit Center, 500 Woodward Avenue, Detroit, Michigan or such other office as
Issuing Bank shall designate as its Issuing Office.
"Joinder Agreement" shall mean a joinder agreement in the form attached
as Exhibit A to the form of the Guaranty, to be executed and delivered by any
Person required to be a Guarantor pursuant to Section 8.16 of this Agreement.
"Letter(s) of Credit" shall mean any standby letters of credit issued
by Issuing Bank at the request of or for the account of an Account Party
pursuant to Article 3 hereof.
"Letter of Credit Agreement" shall mean, in respect of each Letter of
Credit, the application and related documentation satisfactory to the Issuing
Bank of the Account Party, as amended from time to time.
"Letter of Credit Documents" is defined in Section 3.7.
"Letter of Credit Fees" shall mean the fees payable to Agent for the
account of the Revolving Credit Banks in connection with Letters of Credit
pursuant to Section 3.4 hereof.
"Letter of Credit Maximum Amount" shall mean Five Million Dollars
($5,000,000).
"Letter of Credit Obligations" shall mean at any date of determination,
the sum of (a) the aggregate undrawn amount of all Letters of Credit then
outstanding, (b) the aggregate face amount of all Letters of Credit requested
but not yet issued as of such date and (c) the aggregate amount of Reimbursement
Obligations which have not been reimbursed by the Borrowers as of such date.
"Letter of Credit Payment" shall mean any amount paid or required to be
paid by the Issuing Bank in its capacity hereunder as issuer of a Letter of
Credit as a result of a draft or other demand for payment under any Letter of
Credit.
"Lien" shall mean any pledge, assignment, hypothecation, mortgage,
security interest, deposit arrangement, option, trust receipt, conditional sale
or title retaining contract, sale and leaseback transaction, Capitalized Lease,
subordination or any claim or right, or any other type of lien, charge,
encumbrance, preferential or priority arrangement or other claim or right,
whether based on common law or statute.
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"Loan Documents" shall mean, collectively, this Agreement, the Notes,
the Letter of Credit Agreements, the Letters of Credit, the Collateral
Documents, the Guaranty, and any other documents, certificates, instruments or
agreements executed pursuant to or in connection with any such document or this
Agreement, as such documents may be amended from time to time.
"Loan Parties" shall mean collectively the Borrowers and the
Guarantors, and "Loan Party" shall mean any one of them, as the context
indicates or otherwise requires.
"Majority Banks" shall mean (a) so long as the Revolving Credit
Aggregate Commitment is outstanding hereunder, at any time Banks holding not
less than 66-2/3% of the aggregate principal amount of the Revolving Credit
Aggregate Commitment, and (b) if the Revolving Credit Aggregate Commitment has
been terminated, at any time Banks holding not less than 66- 2/3% of the
aggregate principal amount of the Indebtedness then outstanding under the Notes
(provided that, for purposes of determining Majority Banks hereunder,
Indebtedness outstanding under the Swing Line Note or under any Letter of Credit
shall be allocated among the Revolving Credit Banks based on their respective
Percentages).
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business or financial condition of the Borrowers and their respective
Subsidiaries taken as a whole, which impairs the ability of the Borrowers and
their respective Subsidiaries to perform their respective obligations under this
Agreement, the Notes or any other Loan Document when due or required to be
performed to which either of them is a party, or (b) the validity or
enforceability of this Agreement, any of the Notes or any of the other Loan
Documents or the rights or remedies of the Agent or the Banks hereunder or
thereunder.
"Measuring Period" shall mean (a) for the fiscal quarter ending on
December 31, 1999, the period beginning on October 1, 1999 and ending on
December 31, 1999, (b) for the fiscal quarter ending on March 31, 2000, the
period beginning on October 1, 1999 and ending on March 31, 2000, (c) for the
fiscal quarter ending on June 30, 2000 the period beginning on October 1, 1999
and ending on June 30, 2000, and (d) for the fiscal quarter ending on September
30, 2000, and each quarter ending thereafter, the four fiscal quarters then
ending.
"Merger" shall mean the merger of Newco with and into Smartflex in
accordance with the Merger Agreement, such that Smartflex is the surviving
corporation and is a Subsidiary of the Company.
"Merger Agreement" shall mean that certain Agreement and Plan of Merger
dated July 6, 1999, among the Company, Newco and Smartflex.
"Merger Date" shall mean the date upon which the Merger is consummated
and is effective.
"Multiemployer Plan" shall mean a Pension Plan which is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
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"Net Income" of any Person for any period shall mean the net income
(loss) of such Person for such period, determined in accordance with GAAP.
"Newco" is defined in the preamble.
"Notes" shall mean the Revolving Credit Notes and the Swing Line Note
as the context may indicate or otherwise require.
"Percentage" shall mean with respect to each Revolving Credit Bank, its
percentage share, as set forth on Schedule 1.2, of the Revolving Credit and its
risk participation in Letters of Credit and in any outstanding Swing Line
Advances, as such Schedule may be revised from time to time by Agent in
accordance with Section 14.8.
"Permitted Acquisition" shall mean any acquisition by any Borrower or
any Subsidiary of all or substantially all of the assets of another Person, or
of a division or line of business of another Person, or shares of stock or other
ownership interests of another Person, which satisfies and/or is conducted in
accordance with the following requirements:
(a) Such acquisition is of a business or Person engaged in a line
of business which is compatible with, or complementary to, the
business of the Borrowers, or is engaged in a business using
systems or techniques not unlike those of the Borrowers or any
Subsidiary;
(b) Both immediately before and after such acquisition no Default
or Event of Default shall have occurred and be continuing;
(c) Based upon financial statements of the business or Person
being acquired in a form reasonably satisfactory to the Agent
and the Banks, the Borrowers have demonstrated that on a pro
forma basis after giving effect to such acquisition, they will
continue to comply with all of the terms and conditions of
this Agreement and the other Loan Documents for a period of
not less than three years following the date of such
acquisition;
(d) The Board of Directors (or other Person(s) exercising similar
functions) of the seller of the assets or issuer of the shares
of stock or other ownership interests being acquired shall not
have disapproved such transaction or recommended that such
transaction be disapproved; and
(e) The total consideration paid by the Borrowers or any
Subsidiary in connection with such acquisition (including cash
payments and all indebtedness incurred or assumed) and any
other acquisition during the same calendar year shall not
exceed Twenty Five Million Dollars ($25,000,000).
"Permitted Investments" shall mean:
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<PAGE> 23
(a) Governmental Obligations;
(b) Obligations of a state of the United States, the District
of Columbia or any possession of the United States, or any political
subdivision thereof, which are described in Section 103(a) of the
Internal Revenue Code and are graded in any of the highest three (3)
major grades as determined by at least one Rating Agency; or secured,
as to payments of principal and interest, by a letter of credit
provided by a financial institution or insurance provided by a bond
insurance company which in each case is itself or its debt is rated in
one of the highest three (3) major grades as determined by at least one
Rating Agency;
(c) Banker's acceptances, commercial accounts, demand deposit
accounts, certificates of deposit, or depository receipts issued by or
maintained with any Bank or a bank, trust company, savings and loan
association, savings bank or other financial institution whose deposits
are insured by the Federal Deposit Insurance Corporation and whose
reported capital and surplus equal at least $250,000,000, provided that
such minimum capital and surplus requirement shall not apply to demand
deposit accounts maintained by the Company or any of its Subsidiaries
in the ordinary course of business;
(d) Commercial paper rated at the time of purchase within the
two highest classifications established by not less than two Rating
Agencies, and which matures within 270 days after the date of issue;
(e) Secured repurchase agreements against obligations itemized
in paragraph (a) above, and executed by a bank or trust company or by
members of the association of primary dealers or other recognized
dealers in United States government securities, the market value of
which must be maintained at levels at least equal to the amounts
advanced; and
(f) Any fund or other pooling arrangement which exclusively
purchases and holds the investments itemized in (a) through (e) above.
"Permitted Liens" shall mean:
(a) Liens for taxes not yet due or which are being contested
in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of the
Company in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, landlord's liens or other like Liens arising in the
ordinary course of business which are not overdue for a period of more
than 60 days or which are being contested in good faith by appropriate
proceedings;
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<PAGE> 24
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation, and deposits securing liability to insurance carriers
under insurance or self-insurance arrangements;
(d) deposits to secure (i) the performance of bids, trade
contracts (other than for borrowed money), statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a
like nature in an aggregate amount not to exceed $100,000 at any one
time or (ii) the performance of leases permitted hereunder, in each
case given or incurred on terms, in amounts and otherwise in the
ordinary course of business; and
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrowers or any Subsidiary.
"Person" shall mean a natural person, corporation, limited liability
company, partnership, limited liability partnership, trust, incorporated or
unincorporated organization, joint venture, joint stock company, or a government
or any agency or political subdivision thereof or other entity of any kind.
"Pledge Agreement" shall mean the pledge agreement substantially in the
form of Exhibit K, executed and delivered in favor of the Agent, as amended or
otherwise modified from time to time.
"Prime Rate" shall mean the per annum rate of interest announced by the
Agent, at its main office from time to time as its "prime rate" (it being
acknowledged that such announced rate may not necessarily be the lowest rate
charged by the Agent to any of its customers), which Prime Rate shall change
simultaneously with any change in such announced rate.
"Prime-based Advance" shall mean an Advance which bears interest at the
Prime-based Rate.
"Prime-based Rate" shall mean, for any day, that per annum rate of
interest which is equal to the sum of the Applicable Margin, plus the greater of
(i) the Prime Rate, or (ii) the Alternate Base Rate.
"Purchasing Bank" shall have the meaning set forth in Section 12.7.
"Quoted Rate" shall mean the rate of interest per annum offered by the
Swing Line Bank in its sole discretion with respect to a Swing Line Advance.
"Quoted Rate Advance" means any Swing Line Advance which bears interest
at the Quoted Rate.
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"Rating Agency" shall mean Moody's Investor Services, Standard and
Poor's Ratings Group or any other nationally recognized statistical rating
organization which is acceptable to the Agent.
"Reimbursement Obligation(s)" shall mean the obligation of an Account
Party or Account Parties under each Letter of Credit Agreement to reimburse the
Issuing Bank for each payment made by the Issuing Bank under the Letter of
Credit issued pursuant to such Letter of Credit Agreement, together with all
other sums, fees, charges and amounts which may be owing to the Issuing Bank
under such Letter of Credit Agreement.
"Request for Revolving Credit Advance" shall mean a Request for
Revolving Credit Advance issued by a Borrower under Section 2.3 of this
Agreement in the form annexed hereto as Exhibit A, as amended or otherwise
modified.
"Request for Swing Line Advance" shall mean a Request for Swing Line
Advance issued by a Borrower under Section 2.5(c) of this Agreement in the form
attached hereto as Exhibit D, as amended or otherwise modified.
"Requirement of Law" shall mean as to any Person, the articles or
certificate of incorporation and code of regulations or bylaws, the partnership
agreement or other organizational or governing documents of such Person and any
law, treaty, rule or regulation or determination of an arbitration or a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Responsible Officer" shall mean, with respect to any corporation, the
chief executive officer, the chief operating officer or the president of such
corporation, or any other officer having substantially the same authority and
responsibility; or with respect to compliance with financial covenants, the
chief financial officer or the treasurer of such corporation, or any other
officer having substantially the same authority and responsibility.
"Revolving Credit" shall mean the revolving credit loan to be advanced
to the Borrowers by the Revolving Credit Banks pursuant to Article 2 hereof, in
an aggregate amount (subject to the terms hereof), not to exceed, at any one
time outstanding, the Revolving Credit Aggregate Commitment.
"Revolving Credit Advance" shall mean a borrowing requested by the
Borrowers and made by the Revolving Credit Banks under Section 2.1 of this
Agreement, including without limitation any readvance, refunding or conversion
of such borrowing pursuant to Section 2.3 hereof and any advance in respect of a
Letter of Credit under Section 3.6 hereof, and shall include, as applicable, a
Eurocurrency-based Advance and/or a Prime-based Advance.
"Revolving Credit Banks" shall mean the financial institutions from
time to time parties hereto as lenders of the Revolving Credit.
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<PAGE> 26
"Revolving Credit Aggregate Commitment" shall mean One Hundred
Twenty-Five Million Dollars ($125,000,000), subject to reduction or termination
under Section 2.13, 2.16 or 10.2 hereof.
"Revolving Credit Available Commitment" shall mean, at any time, the
Revolving Credit Aggregate Commitment minus the Blocked Commitment, if any, at
such time.
"Revolving Credit Facility Fee" shall mean the fees payable to Agent
for distribution to the Revolving Credit Banks pursuant to Section 2.12 hereof.
"Revolving Credit Maturity Date" shall mean the earlier to occur of (i)
August 9, 2002, and (ii) the date on which the Revolving Credit Aggregate
Commitment shall be terminated pursuant to Section 2.8 or Section 10.2 hereof.
"Revolving Credit Notes" shall mean the revolving credit notes
described in Section 2.1 hereof, made by the Borrowers to each of the Revolving
Credit Banks in the form annexed to this Agreement as Exhibit B, as such notes
may be amended or supplemented from time to time, and any other notes issued in
substitution, replacement or renewal thereof from time to time.
"Saturn Texas" shall mean Saturn Electronics Texas, L.L.C., a Texas
limited liability company, and any Subsidiary thereof.
"Security Agreement" shall mean the Security Agreement executed and
delivered by each Borrower and each Guarantor in favor of the Agent
substantially in the form of Exhibit L, as amended or otherwise modified from
time to time.
"Shares" shall mean the issued and outstanding common stock of
Smartflex.
"Smartflex" shall mean Smartflex Systems, Inc.
"Smartflex Acquisition" shall mean the acquisition of the issued and
outstanding capital stock of Smartflex pursuant to the Smartflex Acquisition
Documents, and in accordance with the Smartflex Acquisition Documents.
"Smartflex Acquisition Date" shall mean the date on which the Tender
Offer becomes effective in accordance with the term and conditions of the Tender
Offer Documents and applicable Requirements of Law.
"Smartflex Acquisition Documents" shall mean the Tender Offer
Documents, the Additional Tender Offer Documents, and the Merger Agreement.
"Smartflex Expiration Date" shall mean October 31, 1999.
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"Subsidiary(ies)" shall mean any corporation, association, joint stock
company, business trust limited liability company or any other business entity
of which more than fifty percent (50%) of the outstanding voting stock, share
capital, membership or other interests, as the case may be, is owned either
directly or indirectly by any Person or one or more of its Subsidiaries, or the
management of which is otherwise controlled, directly, or indirectly through one
or more intermediaries, or both, by any Person and/or its Subsidiaries. Unless
otherwise specified to the contrary herein, Subsidiary(ies) shall refer to the
Company's Subsidiary(ies) and shall include, but not be limited to,
Manufacturing, Newco, and, after the Smartflex Acquisition Date, Smartflex;
provided, however, in no case shall Saturn Texas be considered to be a
Subsidiary for any purpose of this Agreement.
"Swing Line" shall mean the revolving credit loan to be advanced to the
Borrowers by the Swing Line Bank pursuant to Section 2.5 hereof, in an aggregate
amount (subject to the terms hereof), not to exceed, at any one time
outstanding, the Swing Line Maximum Amount.
"Swing Line Advance" shall mean a borrowing made by Swing Line Bank to
any Borrower pursuant to Section 2.5 hereof.
"Swing Line Bank" shall mean Comerica, in its capacity as lender under
Section 2.5 of this Agreement, and its successors and assigns.
"Swing Line Maximum Amount" shall mean Five Million Dollars
($5,000,000).
"Swing Line Note" shall mean the swing line note described in Section
2.5(a) hereof, made by each of the Borrowers to Swing Line Bank in the form
annexed hereto as Exhibit E, as such Note may be amended or supplemented from
time to time, and any notes issued in substitution, replacement or renewal
thereof from time to time.
"Tender Offer" shall mean the tender offer by Newco for all of the
issued and outstanding shares of common stock of Smartflex and the purchase of
the Tendered Shares in accordance with the terms and conditions of the Tender
Offer Documents.
"Tender Offer Documents" shall mean, collectively, the tender offer
statement on Schedule 14D-1 and Schedule 13D, dated July 14, 1999, filed by
Newco, the Company, and Wallace K. Tsuha, Jr. with the Securities and Exchange
Commission, together with all exhibits thereto, including the Offer to Purchase,
and the solicitation/recommendation statement on Schedule 14D-9, dated July 14,
1999, filed by Smartflex with the Securities and Exchange Commission, in each
case, as in effect on the date hereof and as amended, supplemented or otherwise
modified from time to time in accordance with the provisions of Section 9.14.
"Tendered Shares" shall mean the Shares tendered pursuant to the Tender
Offer and not validly withdrawn.
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<PAGE> 28
"Uniform Commercial Code" shall mean the Uniform Commercial Code of any
applicable state, and, unless specified otherwise the Uniform Commercial Code as
in effect in the State of Michigan.
2. REVOLVING CREDIT
2.1 Commitment. Subject to the terms and conditions of this Agreement
(including without limitation Section 2.3 hereof), each Revolving Credit Bank
severally and for itself alone agrees to make Advances of the Revolving Credit
to the Borrowers from time to time on any Business Day during the period from
the Effective Date hereof until (but excluding) the Revolving Credit Maturity
Date in an aggregate amount not to exceed at any one time outstanding such
Revolving Credit Bank's Percentage of the Revolving Credit Available Commitment
then in effect. All of such Advances hereunder shall be evidenced by the
Revolving Credit Notes, under which advances, repayments and readvances may be
made, subject to the terms and conditions of this Agreement.
2.2 Accrual of Interest and Maturity. Each Borrower hereby
unconditionally promises to pay to the Agent for the account of each Revolving
Credit Bank the then unpaid principal amount of each Revolving Credit Note (plus
all accrued and unpaid interest) of such Revolving Credit Bank to such Borrower
on the Revolving Credit Maturity Date and on such other dates and in such other
amounts as may be required from time to time pursuant to this Agreement. The
amount and date of each Revolving Credit Advance, its Applicable Interest Rate,
its Interest Period, and the amount and date of any repayment shall be noted on
Agent's records, which records may be kept electronically and which will be
conclusive evidence thereof, absent manifest error; provided, however, that any
failure by the Agent to record any such information shall not relieve the
Borrowers of their obligation to repay the outstanding principal amount of such
Advance, all interest accrued thereon and any amount payable with respect
thereto in accordance with the terms of this Agreement and the Loan Documents.
2.3 Requests for and Refundings and Conversions of Advances. Any
Borrower may request an Advance of the Revolving Credit, refund any such Advance
in the same type of Advance or convert any such Advance to any other type of
Advance of the Revolving Credit only after delivery to Agent of a Request for
Revolving Credit Advance executed by a person previously authorized (in a
writing delivered to the Agent by the Borrowers) to execute such Request,
subject to the following and to the remaining provisions hereof:
(a) each such Request for Revolving Credit Advance shall set
forth the information required in the Request for Revolving Credit
Advance, including without limitation:
(i) the proposed date of such Advance, which
must be a Business Day;
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(ii) whether such Advance is a refunding or
conversion of an outstanding Advance; and
(iii) whether such Advance is to be a Prime-based
Advance or a Eurocurrency-based Advance,
and, except in the case of a Prime- based
Advance, the first Interest Period
applicable thereto.
(b) each such Request for Revolving Credit Advance shall be
delivered to Agent by noon (Detroit time) three (3) Business Days prior
to the proposed date of Advance, except in the case of a Prime-based
Advance, for which the Request for Advance must be delivered by 12:00
p.m. (Detroit time) on such proposed date for Advances;
(c) on the proposed date of such Revolving Credit Advance,
after giving effect to all Advances and all Letters of Credit requested
by any of the Borrowers on such date of determination, the sum of (x)
the aggregate outstanding principal amount of all Advances of the
Revolving Credit and of the Swing Line on such date plus (y) the
outstanding Letter of Credit Obligations on such date shall not exceed
the then applicable Revolving Credit Available Commitment; provided
however, that, in the case of any Advance being applied to refund an
outstanding Advance, the aggregate principal amount of such Advances to
be refunded shall not be included for purposes of calculating
availability under this Section 2.3(c);
(d) in the case of a Prime-based Advance, the principal amount
of the initial funding of such Advance, as opposed to any refunding or
conversion thereof, shall be at least $250,000;
(e) in the case of a Eurocurrency-based Advance, the principal
amount of such Advance, plus the amount of any other outstanding
Advance of the Revolving Credit to be then combined therewith having
the same Applicable Interest Rate and Interest Period, if any, shall be
at least $2,000,000 (or a larger integral multiple of $500,000) and at
any one time there shall not be in effect more than four (4) Applicable
Interest Rates and Interest Periods;
(f) a Request for Revolving Credit Advance, once delivered to
Agent, shall not be revocable by the Borrowers;
(g) each Request for Revolving Credit Advance shall constitute
a certification by the applicable Borrower, as of the date thereof
that:
(i) both before and after such Advance, the
obligations of the Loan Parties set forth in
this Agreement and the other Loan Documents
to which such Persons are parties are valid,
binding and enforceable obligations of such
Loan Parties;
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(ii) all conditions to Advances of the Revolving
Credit have been satisfied, and shall remain
satisfied to the date of such Advance (both
before and after giving effect to such
Advance);
(iii) there is no Default or Event of Default in
existence, and none will exist upon the
making of such Advance (both before and
after giving effect to such Advance);
(iv) the representations and warranties contained
in this Agreement and the other Loan
Documents are true and correct in all
material respects and shall be true and
correct in all material respects as of the
making of such Advance (both before and
after giving effect to such Advance); and
(v) the execution of such Request for Advance
will not violate the material terms and
conditions of any material contract,
agreement or other borrowing of the Loan
Parties.
Agent, acting on behalf of the Revolving Credit Banks, may, at its
option, lend under this Section 2 upon the telephone request of a
person (an "Authorized Representative") previously authorized (in a
writing delivered to the Agent) by the Borrowers to make such requests
and, in the event Agent, acting on behalf of the Revolving Credit
Banks, makes any such Advance upon a telephone request, the Authorized
Representative shall fax to Agent, on the same day as such telephone
request, a Request for Advance. The Borrowers hereby authorize Agent to
disburse Advances under this Section 2.3 pursuant to the telephone
instructions of any person purporting to be an Authorized
Representative. Notwithstanding the foregoing, each of the Borrowers
acknowledges that the Borrowers shall bear all risk of loss resulting
from disbursements made upon any telephone request by any person
purporting to be an Authorized Representative. Each telephone request
for an Advance shall constitute a certification of the matters set
forth in the Request for Revolving Credit Advance form as of the date
of such requested Advance.
2.4 Disbursement of Advances.
(a) Upon receiving any Request for Revolving Credit Advance
from a Borrower under Section 2.3 hereof, Agent shall promptly notify
each Revolving Credit Bank by wire, telex or telephone (confirmed by
wire, telecopy or telex) of the amount of such Advance to be made and
the date such Advance is to be made by said Revolving Credit Bank
pursuant to its Percentage of such Advance. Unless such Revolving
Credit Bank's commitment to make Advances of the Revolving Credit
hereunder shall have been suspended or terminated in accordance with
this Agreement, each such Revolving Credit Bank shall make available
the amount of its Percentage of each Advance in immediately available
funds to Agent, at the office of Agent located at One Detroit
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Center, 500 Woodward Avenue, Detroit, Michigan 48226 not later than
3:00 p.m. (Detroit time) on the date of such Advance.
(b) Subject to submission of an executed Request for Revolving
Credit Advance by the applicable Borrower without exceptions noted in
the compliance certification therein, Agent shall make available to
such Borrower the aggregate of the amounts so received by it from the
Revolving Credit Banks in like funds, not later than 4:00 p.m. (Detroit
time) on the date of such Revolving Credit Advance by credit to an
account of such Borrower maintained with Agent or to such other account
or third party as such Borrower may reasonably direct.
(c) Agent shall deliver the documents and papers received by
it for the account of each Revolving Credit Bank to such Revolving
Credit Bank or upon its order. Unless Agent shall have been notified by
any Revolving Credit Bank prior to the date of any proposed Revolving
Credit Advance that such Revolving Credit Bank does not intend to make
available to Agent such Revolving Credit Bank's Percentage of such
Advance, Agent may assume that such Revolving Credit Bank has made such
amount available to Agent on such date and in such currency, as
aforesaid and may, in reliance upon such assumption, make available to
the applicable Borrower a corresponding amount. If such amount is not
in fact made available to Agent by such Revolving Credit Bank, as
aforesaid, Agent shall be entitled to recover such amount on demand
from such Revolving Credit Bank. If such Revolving Credit Bank does not
pay such amount forthwith upon Agent's demand therefor, the Agent shall
promptly notify the Borrowers, and the Borrowers shall pay such amount
to Agent. Agent shall also be entitled to recover from such Revolving
Credit Bank or the Borrowers, as the case may be, but without
duplication, interest on such amount in respect of each day from the
date such amount was made available by Agent to such Borrower, to the
date such amount is recovered by Agent, at a rate per annum equal to:
(i) in the case of such Revolving Credit Bank,
for the first two (2) Business Days such
amount remains unpaid, with respect to
Prime-based Advances, the Federal Funds
Effective Rate, and with respect to
Eurocurrency-based Advances, Agent's
aggregate marginal cost (including the cost
of maintaining any required reserves or
deposit insurance and of any fees,
penalties, overdraft charges or other costs
or expenses incurred by Agent as a result of
such failure to deliver funds hereunder) of
carrying such amount and thereafter, at the
rate of interest then applicable to such
Revolving Credit Advances; and
(ii) in the case of any Borrower, the rate of
interest then applicable to such Advance of
the Revolving Credit.
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2.5 Swing Line Advances. (a) The Swing Line Bank shall, on the terms
and subject to the conditions hereinafter set forth (including without
limitation Section 2.5(c) and 2.5(e) hereof), make one or more advances (each
such advance being a "Swing Line Advance") to any Borrower, from time to time on
any Business Day during the period from the date hereof to (but excluding) the
Revolving Credit Maturity Date in an amount not to exceed at any time
outstanding the Swing Line Maximum Amount. All Swing Line Advances shall be
evidenced by the Swing Line Note, under which advances, repayments and
readvances may be made, subject to the terms and conditions of this Agreement.
Each Swing Line Advance shall mature and the principal amount thereof shall be
due and payable by the Borrowers on the last day of the Interest Period
applicable thereto. In no event whatsoever shall any outstanding Swing Line
Advance be deemed to reduce, modify or affect any Revolving Credit Bank's
commitment to make Revolving Credit Advances based upon its Percentage.
(b) Accrual of Interest. Each Swing Line Advance shall, from
time to time after the date of such Advance, bear interest at its Applicable
Interest Rate. The amount and date of each Swing Line Advance, its Applicable
Interest Rate, its Interest Period, if any, and the amount and date of any
repayment shall be noted on Swing Line Bank's account maintained pursuant to
Section 2.5(a), which records will be conclusive evidence thereof, absent
manifest error; provided, however, that any failure by the Swing Line Bank to
record any such information shall not relieve applicable Borrower of its
obligation to repay the outstanding principal amount of such Advance, all
interest accrued thereon and any amount payable with respect thereto in
accordance with the terms of this Agreement and the other Loan Documents.
(c) Requests for Swing Line Advances. A Borrower may request a
Swing Line Advance only after the delivery to Swing Line Bank of a Request for
Swing Line Advance executed by a person authorized (in a writing a copy of which
has been previously delivered to the Agent) by Borrowers to make such requests,
subject to the following and to the remaining provisions hereof:
(i) each such Request for Swing Line Advance shall set
forth the information required in the Request for Advance, including
without limitation:
(A) the proposed date of such Swing Line
Advance, which must be a Business Day;
(B) whether such Swing Line Advance is to be a
Prime-based Advance or a Quoted Rate Advance; and
(C) in the case of a Quoted Rate Advance, the
duration of the Interest Period applicable thereto.
(ii) on the proposed date of such Swing Line Advance,
after giving effect to all Swing Line Advances requested by any of the
Borrowers on such date of
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determination, the aggregate principal amount of all Swing Line
Advances outstanding on such date shall not exceed the Swing Line
Maximum Amount.
(iii) on the proposed date of such Swing Line Advance,
after giving effect to all Advances and Letters of Credit requested by
any of the Borrowers on such date of determination, the sum of (x) the
aggregate outstanding principal amount of all Advances of the Revolving
Credit and of the Swing Line on such date plus (y) the outstanding
Letter of Credit Obligations on such date shall not exceed the then
applicable Revolving Credit Available Commitment;
(iv) in the case of a Prime-based Advance, the principal
amount of the initial funding of such Advance, as opposed to any
refunding or conversion thereof, shall be at least Fifty Thousand
Dollars ($50,000);
(v) in the case of a Quoted Rate Advance, the principal
amount of such Swing Line Advance plus any other outstanding Advance of
the Swing Line to be then combined therewith having the same Applicable
Interest Rate and Interest Period, if any, shall be, at least Fifty
Thousand Dollars ($50,000) (or a larger integral multiple of Fifty
Thousand Dollars ($50,000)), and at any one time there shall not be in
effect more than four (4) Applicable Interest Rates and Interest
Periods;
(vi) each such Request for Swing Line Advance shall be
delivered to the Swing Line Bank by noon (Detroit time) on the proposed
date of the Advance;
(vii) each Request for Swing Line Advance, once delivered
to Swing Line Bank, shall be irrevocable by the Borrowers, and shall
constitute and include a certification by the applicable Borrower as of
the date thereof that:
(A) both before and after such Swing Line Advance,
the obligations of the Loan Parties set forth in this
Agreement and the other Loan Documents, are valid, binding and
enforceable obligations of such Loan Parties;
(B) all conditions to the making of Swing Line
Advances have been satisfied (both before and after giving
effect to such Advance);
(C) both before and after the making of such Swing
Line Advance, there is no Default or Event of Default in
existence; and
(D) both before and after such Swing Line Advance,
the representations and warranties contained in this Agreement
and the other Loan Documents are true and correct in all
material respects.
Swing Line Bank shall promptly deliver to Agent by telecopy a copy of any
Request for Advance received hereunder.
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(d) Disbursement of Swing Line Advances. Subject to submission
of an executed Request for Swing Line Advance by a Borrower without exceptions
noted in the compliance certification therein and to the other terms and
conditions hereof, Swing Line Bank shall make available to the applicable
Borrower the amount so requested, in like funds and currencies, not later than
4:00 p.m. (Detroit time) on the date of such Advance by credit to an account of
the applicable Borrower maintained with Agent or to such other account or third
party as the applicable Borrower may reasonably direct in writing.
Swing Line Bank shall promptly notify Agent of any Swing Line Advance by
telephone, telex or telecopier.
(e) Refunding of or Participation Interest in Swing Line
Advances.
(i) The Agent, at any time in its sole and absolute
discretion, may on behalf of the applicable Borrower (which hereby irrevocably
directs the Agent to act on its behalf) request each of the Revolving Credit
Banks (including the Swing Line Bank in its capacity as a Revolving Credit Bank)
to make an Advance of the Revolving Credit to such Borrower, in an amount equal
to such Revolving Credit Bank's Percentage of the principal amount of the
aggregate Swing Line Advances outstanding on the date such notice is given (the
"Refunded Swing Line Advances"); provided however that Swing Line Advances which
are carried at the Quoted Rate which are converted to Revolving Credit Advances
at the request of the Agent at a time when no Default or Event of Default has
occurred and is continuing, shall not be subject to Section 12.1 and no losses,
costs or expenses may be assessed by the Swing Line Bank against any Borrower or
the Revolving Credit Banks as a consequence of such conversion. In the case of
each Refunded Swing Line Advance the applicable Advance of the Revolving Credit
used to refund such Swing Line Advance shall be a Prime-based Advance. In
connection with the making of any such Refunded Swing Line Advances or the
purchase of a participation interest in Swing Line Advances under Section
2.5(e)(ii) hereof, the Swing Line Bank shall retain its claim against the
Borrowers for any unpaid interest or fees in respect thereof. Unless any of the
events described in Section 10.1(j) hereof shall have occurred (in which event
the procedures of subparagraph (ii) of this Section 2.5(e) shall apply) and
regardless of whether the conditions precedent set forth in this Agreement to
the making of an Advance of the Revolving Credit are then satisfied but subject
to Section 2.5(e)(iii), each Revolving Credit Bank shall make the proceeds of
its Advance of the Revolving Credit available to the Agent for the benefit of
the Swing Line Bank at the office of the Agent specified in Section 2.4(a)
hereof prior to 11:00 a.m. Detroit time on the Business Day next succeeding the
date such notice is given, in immediately available funds. The proceeds of such
Advances of the Revolving Credit shall be immediately applied to repay the
Refunded Swing Line Advances in accordance with the provisions of Section 11.1
hereof.
(ii) If, prior to the making of an Advance of the
Revolving Credit pursuant to subparagraph (i) of this Section 2.5(e), one of the
events described in Section 10.1(j) hereof shall have occurred, each Revolving
Credit Bank will, on the date such Advance of the Revolving Credit was to have
been made, purchase from the Swing Line Bank an undivided
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participating interest in each Refunded Swing Line Advance in an amount equal to
its Percentage of such Refunded Swing Line Advance. Each Revolving Credit Bank
within the time periods specified in Section 2.5(e)(i) hereof, as applicable,
shall immediately transfer to the Agent, in immediately available funds, the
amount of its participation and upon receipt thereof the Agent will deliver to
such Revolving Credit Bank a Swing Line Participation Certificate in the form of
Exhibit F evidencing such participation.
(iii) Each Revolving Credit Bank's obligation to make
Advances of the Revolving Credit and to purchase participation interests in
accordance with clauses (i) and (ii) of this Section 2.5(e) shall be absolute
and unconditional and shall not be affected by any circumstance, including,
without limitation, (i) any set-off, counterclaim, recoupment, defense or other
right which such Revolving Credit Bank may have against Swing Line Bank, the
Borrowers or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of any Default or Event of Default; (iii) any adverse change in the
condition (financial or otherwise) of the Borrowers or any other Person; (iv)
any breach of this Agreement by any Borrower or any other Person; (v) any
inability of the Borrowers to satisfy the conditions precedent to borrowing set
forth in this Agreement on the date upon which such participating interest is to
be purchased; (vi) the termination of the Revolving Credit Aggregate Commitment
hereunder; or (vii) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing. If any Revolving Credit Bank
does not make available to the Agent the amount required pursuant to clause (i)
or (ii) above, as the case may be, the Agent shall be entitled to recover such
amount on demand from such Revolving Credit Bank, together with interest thereon
for each day from the date of non-payment until such amount is paid in full (x)
for the first two (2) Business Days such amount remains unpaid, at the Federal
Funds Effective Rate and (y) thereafter, at the rate of interest then applicable
to such Swing Line Advances.
Notwithstanding the foregoing however, no Revolving Credit Bank shall
be required to make any Revolving Credit Advance to refund a Swing Line Advance
or to purchase a participation in a Swing Line Advance if prior to the making of
the Swing Line Advance by the Swing Line Bank, the Agent had obtained actual
knowledge that an Event of Default had occurred and was continuing; provided,
however that the obligation of the Revolving Credit Banks to make such Revolving
Credit Advances shall be reinstated upon the date of which such Event of Default
has been waived by the requisite Revolving Credit Banks, as applicable.
2.6 Prime-based Interest Payments. Interest on the unpaid balance of
all Prime-based Advances of the Revolving Credit and all Swing Line Advances
carried at the Prime-based Rate from time to time outstanding shall accrue from
the date of such Advance to the Revolving Credit Maturity Date (and until paid),
at a per annum interest rate equal to the Prime-based Rate, and shall be payable
in immediately available funds quarterly in arrears commencing on the first day
of the calendar quarter next succeeding the calendar quarter during which the
initial Advance of the Revolving Credit or Swing Line Advance, as the case may
be, is made and on the first day of each calendar quarter thereafter. Interest
accruing at the Prime-based Rate shall be computed on the basis of a 360 day
year and assessed for the actual number of days elapsed, and in such
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computation effect shall be given to any change in the interest rate resulting
from a change in the Prime-based Rate on the date of such change in the
Prime-based Rate.
2.7 Eurocurrency-based Interest Payments and Quoted Rate Interest
Payments.
(a) Interest on each Eurocurrency-based Advance of the Revolving Credit
shall accrue at the Eurocurrency-based Rate and shall be payable in immediately
available funds on the last day of the Interest Period applicable thereto (and,
if any Interest Period shall exceed three months, then on the last Business Day
of the third month of such Interest Period, and at three month intervals
thereafter). Interest accruing at the Eurocurrency-based Rate shall be computed
on the basis of a 360 day year and assessed for the actual number of days
elapsed from the first day of the Interest Period applicable thereto to but not
including the last day thereof.
(b) Interest on each Quoted Rate Advance of the Swing Line shall accrue
at its Quoted Rate and shall be payable in immediately available funds on the
last day of the Interest Period applicable thereto. Interest accruing at the
Quoted Rate shall be computed on the basis of a 360 day year and assessed for
the actual number of days elapsed from the first day of the Interest Period
applicable thereto to, but not including the last day thereof.
2.8 Interest Payments on Conversions. Notwithstanding anything to the
contrary in the preceding sections, all accrued and unpaid interest on any
Advance converted pursuant to Section 2.3 hereof shall be due and payable in
full on the date such Advance is converted.
2.9 Interest on Default. In the event and so long as any Event of
Default shall exist, in the case of any Event of Default under Sections 10.1(a),
10.1(b) or 10.1(j), immediately upon the occurrence thereof, and in the case of
all other Events of Default, upon notice from the Majority Banks, interest shall
be payable daily on all Eurocurrency-based Advances of the Revolving Credit and
Quoted Rate Advances from time to time outstanding (and all other monetary
obligations of the Borrowers hereunder and under the other Loan Documents) at a
per annum rate equal to the Applicable Interest Rate plus two percent (2%) for
the remainder of the then existing Interest Period, if any, and at all other
such times, with respect to Prime-based Advances from time to time outstanding,
at a per annum rate equal to the Prime-based Rate plus two percent (2%).
2.10 Prepayment of Revolving Credit Advances. (a) The Borrowers may
prepay all or part of the outstanding balance of any Prime-based Advance(s) of
the Revolving Credit at any time, provided that the amount of any partial
prepayment shall be at least Two Hundred Fifty Thousand Dollars ($250,000) and,
after giving effect to any such partial prepayment, the aggregate balance of
Prime-based Advance(s) of the Revolving Credit remaining outstanding, if any,
shall be at least Two Hundred Fifty Thousand Dollars ($250,000). The Borrowers
may prepay all or part of any Eurocurrency-based Advance (subject to not less
than two (2) Business Days' notice to Agent) provided that the amount of any
such partial prepayment shall be Five Hundred Thousand Dollars ($500,000), after
giving effect to any such partial prepayment, the unpaid portion of such Advance
which is refunded or converted under Section 2.3 hereof shall be
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at least Five Hundred Thousand Dollars ($500,000); provided further, however
that if the prepayment of a Eurocurrency-based Advance is made on a day other
than the last Business Day of the then current Interest Period applicable to
such Eurocurrency-based Advance, then, pursuant to Section 12.1, the Borrowers
shall compensate the Revolving Credit Banks for any losses.
(b) The Borrowers may prepay all or part of the outstanding
balance of any Swing Line Advance carried at the Prime-based Rate at any time,
provided that the amount of any partial prepayment shall be at least Twenty Five
Thousand Dollars ($25,000) and, after giving effect to any such partial
prepayment, the aggregate balance of such Swing Line Advances remaining
outstanding, if any, shall be at least One Hundred Thousand Dollars ($100,000).
The Borrowers may prepay all or part of any Swing Line Advances carried at the
Quoted Rate (subject to not less than two (2) Business Days' notice to Swing
Line Bank and Agent), provided that the amount of any such partial payment shall
be at least Twenty Five Thousand Dollars ($25,000), after giving effect to any
such partial prepayment, and the unpaid portion of such Advance which is
refunded or converted under Section 2.5(c) hereof shall be at least Twenty Five
Thousand Dollars ($25,000); provided further, however that if the prepayment of
a Quoted Rate Advance is made on a day other than the last Business Day of the
then current Interest Period applicable to such Quoted Rate Advance, then,
pursuant to Section 12.1, the Borrowers shall compensate the Swing Line Bank for
any losses.
(c) Any prepayment made in accordance with this Section shall
be subject to Section 12.1 hereof, but otherwise without premium, penalty or
prejudice to the right to readvance under the terms of this Agreement.
2.11 Prime-based Advance in Absence of Election or Upon Default.
Subject to Section 12.3 and unless the Majority Banks shall have otherwise
agreed, if upon the expiration of any Interest Period applicable to any
Eurocurrency-based Advance
(a) the applicable Borrower has failed to timely select a new
Interest Period to be applicable to such Eurocurrency-based Advance,
such Borrower shall be deemed to have elected to convert such
Eurocurrency-based Advance into a Prime-based Rate Advance effective as
of the expiration date of such Interest Period; and
(b) on such day a Default or Event of Default shall exist,
then subject to Sections 2.9 and 12.1 hereof, and notwithstanding the
foregoing clause (a), at the election of the Majority Banks the
outstanding principal amount of such Eurocurrency-based Advance shall
be converted to a Prime-based Advance and the Agent shall promptly
notify Borrowers of such action.
2.12 Revolving Credit Facility Fee. From the Effective Date to the
Revolving Credit Maturity Date, the Borrowers shall pay to the Agent for
distribution to the Revolving Credit Banks pro-rata in accordance with their
respective Percentages, a Revolving Credit Facility Fee quarterly in arrears
commencing October 1, 1999 (in respect of the prior fiscal quarter or portion
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thereof), and on the first day of each fiscal quarter thereafter. The Revolving
Credit Facility Fee shall be equal to the Revolving Credit Aggregate Commitment
(whether used or unused) times the Applicable Fee Percentage computed on a daily
basis. The Revolving Credit Facility Fee shall be computed on the basis of a
year of three hundred sixty (360) days and assessed for the actual number of
days elapsed. Upon receipt of such payment, Agent shall make prompt payment to
each Revolving Credit Bank of its share of the Revolving Credit Facility Fee
based upon its respective Percentage. It is expressly understood that the
Revolving Credit Facility Fees described in this Section are not refundable
under any circumstances.
2.13 Optional Reduction or Termination of Revolving Credit Aggregate
Commitment. Provided that no Default or Event of Default has occurred and is
continuing, the Borrowers may upon at least five Business Days' prior written
notice to the Agent, permanently reduce the Revolving Credit Aggregate
Commitment in whole at any time, or in part from time to time, without premium
or penalty, provided that: (i) each partial reduction of the Revolving Credit
Aggregate Commitment shall be in an aggregate amount equal to Five Million
Dollars ($5,000,000) or a larger integral multiple of One Million Dollars
($1,000,000); (ii) each reduction shall be accompanied by the payment of the
Revolving Credit Facility Fee, if any, accrued on the amount of the reduction in
the Revolving Credit Commitment Fee to the date of such reduction; (iii) the
Borrowers shall prepay in accordance with the terms hereof the amount, if any,
by which the aggregate unpaid principal amount of Advances outstanding
hereunder, plus the aggregate undrawn amount of outstanding Letter of Credit
Obligations, exceeds the amount of the then applicable Revolving Credit
Aggregate Commitment as so reduced, together with interest thereon to the date
of prepayment; and (iv) no reduction shall reduce the Revolving Credit Aggregate
Commitment to an amount which is less than the aggregate undrawn amount of any
Letters of Credit outstanding at such time; provided, however that if the
termination or reduction of the Revolving Credit Aggregate Commitment requires
the prepayment of a Eurocurrency-based Advance or a Quoted Rate Advance and such
termination or reduction is made on a day other than the last Business Day of
the then current Interest Period applicable to such Eurocurrency-based Advance
or such Quoted Rate Advance, then, pursuant to Section 12.1, the Borrowers shall
compensate the Revolving Credit Banks for any losses. In the event the Revolving
Credit Aggregate Commitment is reduced to an amount which is less than the then
current Swing Line Maximum Amount, the then current Swing Line Maximum Amount
shall be automatically reduced to an amount equal to the Revolving Credit
Aggregate Commitment as so reduced and the Borrowers shall prepay in accordance
with the terms hereof, the amount by which the then outstanding Swing Line
Advances exceeds the Swing Line Maximum Amount as so reduced. Reductions of the
Revolving Credit Aggregate Commitment and any accompanying prepayments of
Advances of the Revolving Credit shall be distributed by Agent to each Revolving
Credit Bank in accordance with such Revolving Credit Bank's Percentage thereof,
and will not be available for reinstatement by or readvance to the Borrowers and
any accompanying prepayments of Advances of the Swing Line shall be distributed
by the Agent to the Swing Line Bank and will not be available for reinstatement
by or readvance to the Borrowers. Any reductions of the Revolving Credit
Aggregate Commitment hereunder shall reduce each Revolving Credit Bank's portion
thereof proportionately (based on the applicable Percentages), and shall be
permanent and irrevocable. Any payments made pursuant to this
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Section shall be applied first to outstanding Prime-based Advances under the
Revolving Credit, next to Swing Line Advances carried at the Prime-based Rate,
next to Eurocurrency-based Advances of the Revolving Credit and then to Swing
Line Advances carried at the Quoted Rate.
2.14 Application of Advances. Advances of the Revolving Credit
(including Swing Line Advances) shall be available, subject to the terms hereof,
to finance the Smartflex Acquisition and Permitted Acquisitions, to fund working
capital needs, or other general corporate purposes of the Borrowers; provided,
however, that no Borrower other than Newco may request Advances to finance any
portion of the purchase price of the Smartflex Acquisition.
2.15 Extension of Revolving Credit Maturity Date. (a) Provided that no
Default or Event of Default has occurred and is continuing, Borrowers may, by
written notice to Agent (with sufficient copies for each Bank) (which notice
shall be irrevocable and which shall not be deemed effective unless actually
received by Agent) prior to July 1, but not before June 1 of each year beginning
in 2000, request that the Banks extend the then applicable Revolving Credit
Maturity Date to a date that is one year later than the Revolving Credit
Maturity Date then in effect (each such request, a "Request"). Each Bank shall,
not later than July 30 of such year, give written notice to the Agent stating
whether such Bank is willing to extend the Revolving Credit Maturity Date as
requested. If Agent has received the aforesaid written approvals of such Request
from each of the Banks, then, effective upon the date of Agent's receipt of all
such written approvals from the Banks, as aforesaid, the Revolving Credit
Maturity Date shall be so extended for such additional one year period, the term
Revolving Credit Maturity Date shall mean such extended date and Agent shall
promptly notify the Borrowers that such extension has occurred.
(b) If (i) any Bank gives the Agent written notice that it is unwilling
to extend the Revolving Credit Maturity Date as requested or (ii) any Bank fails
to provide written approval to Agent of such a Request on or before July 30 of
such year, then (w) the Banks shall be deemed to have declined to extend the
Revolving Credit Maturity Date, (x) the then-current Revolving Credit Maturity
Date shall remain in effect (with no further right on the part of Borrowers to
request extensions thereof under this Section 2.15), and (y) the commitments of
the Revolving Credit Banks to make Advances of the Revolving Credit hereunder
shall terminate on the Revolving Credit Maturity Date then in effect, and Agent
shall promptly notify Borrowers thereof.
2.16 Mandatory Reduction of Revolving Credit Aggregate Commitment. On
the Smartflex Expiration Date, the Revolving Credit Aggregate Commitment shall
be permanently reduced by the amount of the Blocked Commitment, unless the
Smartflex Acquisition has been consummated by such date. Any reduction of the
Revolving Credit Aggregate Commitment hereunder shall reduce each Revolving
Credit Bank's portion thereof proportionately (based on the applicable
Percentages), and shall be permanent and irrevocable.
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3. LETTERS OF CREDIT
3.1 Letters of Credit. Subject to the terms and conditions of this
Agreement, Issuing Bank shall through the Issuing Office, at any time and from
time to time from and after the date hereof until thirty (30) days prior to the
Revolving Credit Maturity Date, upon the written request of an Account
Party(ies) accompanied by a duly executed Letter of Credit Agreement and such
other documentation related to the requested Letter of Credit as the Issuing
Bank may require, issue Letters of Credit in Dollars for the account of such
Account Party(ies), in an aggregate amount for all Letters of Credit issued
hereunder at any one time outstanding not to exceed the Letter of Credit Maximum
Amount. Each Letter of Credit shall be in a minimum face amount of One Hundred
Thousand Dollars ($100,000) (or such lesser amount as may be agreed to by
Issuing Bank) and each Letter of Credit (including any renewal thereof) shall
expire on the earlier to occur of (x) one (1) year from the date of issuance and
(y) not later than ten (10) Business Days prior to the Revolving Credit Maturity
Date in effect on the date of issuance thereof. The submission of all
applications in respect of and the issuance of each Letter of Credit hereunder
shall be subject in all respects to the Uniform Customs and Practices for
Documentary Credits of the International Chamber of Commerce, 1993 Revisions,
ICC Publication No. 500 or, if applicable, ISP 98, and any successor
documentation thereto, as selected by the Issuing Bank. In the event of any
conflict between this Agreement and any Letter of Credit Document other than any
Letter of Credit, this Agreement shall control.
3.2 Conditions to Issuance. No Letter of Credit shall be issued at the
request and for the account of any Account Party(ies) unless, as of the date of
issuance of such Letter of Credit:
(a) in the case of any Account Party:
(i) after giving effect to the Letter of Credit
requested, the outstanding Letter of Credit Obligations does
not exceed the Letter of Credit Maximum Amount; and
(ii) after giving effect to the Letter of Credit
requested, the outstanding Letter of Credit Obligations on
such date plus the aggregate amount of all Advances requested
or outstanding on such date does not exceed the then
applicable Revolving Credit Available Commitment;
(b) the obligations of the Loan Parties set forth in this
Agreement and the other Loan Documents are valid, binding and enforceable
obligations of such Loan Parties and the valid, binding and enforceable nature
of this Agreement and the other Loan Documents has not been disputed by any of
the Loan Parties;
(c) the representations and warranties contained in this
Agreement and the other Loan Documents are true in all material respects as if
made on such date, and both immediately before and immediately after issuance of
the Letter of Credit requested, no Default or Event of Default exists;
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(d) the execution of the Letter of Credit Agreement with
respect to the Letter of Credit requested will not violate the terms and
conditions of any material contract, agreement or other borrowing of the
relevant Account Party;
(e) the Account Party requesting the Letter of Credit
shall have delivered to Issuing Bank at its Issuing Office, not less than three
(3) Business Days prior to the requested date for issuance (or such shorter time
as the Issuing Bank, in its sole discretion, may permit), the Letter of Credit
Agreement related thereto, together with such other documents and materials as
may be required pursuant to the terms thereof, and the terms of the proposed
Letter of Credit shall be satisfactory to Issuing Bank;
(f) no order, judgment or decree of any court, arbitrator
or governmental authority shall purport by its terms to enjoin or restrain
Issuing Bank from issuing the Letter of Credit requested, or any Revolving
Credit Bank from taking an assignment of its Percentage thereof pursuant to
Section 3.6 hereof, and no law, rule, regulation, request or directive (whether
or not having the force of law) shall prohibit or request that Issuing Bank
refrain from issuing, or any Revolving Credit Bank refrain from taking an
assignment of its Percentage of, the Letter of Credit requested or letters of
credit generally;
(g) there shall have been no introduction of or change in
the interpretation of any law or regulation that would make it unlawful or
unduly burdensome for the Issuing Bank to issue or any Revolving Credit Bank to
take an assignment of its Percentage of the requested Letter of Credit, no
suspension of or material limitation on trading on the New York Stock Exchange
or any other national securities exchange, no declaration of a general banking
moratorium by banking authorities in the United States, Michigan or the
respective jurisdictions in which the Revolving Credit Banks, the applicable
Account Party and the beneficiary of the requested Letter of Credit are located,
and no establishment of any new restrictions on transactions involving letters
of credit or on banks materially affecting the extension of credit by banks; and
(h) Issuing Bank shall have received the issuance fees
required in connection with the issuance of such Letter of Credit pursuant to
Section 3.4 hereof.
Each Letter of Credit Agreement submitted to Issuing Bank pursuant hereto shall
constitute the certification by the Borrowers and the Account Party of the
matters set forth in Section 3.2 (a) through (d) hereof. The Agent shall be
entitled to rely on such certification without any duty of inquiry.
3.3 Notice. The Issuing Bank will deliver to the Agent, concurrently
with or promptly following its delivery of any Letter of Credit, a true and
complete copy of each Letter of Credit. Promptly upon its receipt thereof, Agent
shall give notice, substantially in the form attached as Exhibit C, to each
Revolving Credit Bank of the issuance of each Letter of Credit, specifying the
amount thereof and the amount of such Lender's Percentage thereof.
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3.4 Letter of Credit Fees. The Borrowers shall pay to the Agent for
distribution to the Revolving Credit Banks in accordance with their Percentages,
letter of credit fees as follows:
(a) A per annum letter of credit fee with respect to the
undrawn amount of each Letter of Credit issued pursuant hereto (based on the
Amount of each Letter of Credit) in the amount of the Applicable Fee Percentage
(determined with reference to Schedule 1.1 to this Agreement).
(b) A letter of credit facing fee in the amount equal to
one-eighth percent (0.125%) per annum on the undrawn amount of each Letter of
Credit to be retained by Issuing Bank for its own account.
(c) Subject to Section 12.6 hereof, if any change in any
law or regulation or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration thereof
shall either (i) impose, modify or cause to be deemed applicable any reserve,
special deposit, limitation or similar requirement against letters of credit
issued or participated in by, or assets held by, or deposits in or for the
account of, Issuing Bank or any Bank or (ii) impose on Issuing Bank or any Bank
any other condition regarding this Agreement, the Letters of Credit or any
participations in such Letters of Credit, and the result of any event referred
to in clause (i) or (ii) above shall be to increase the cost or expense to
Issuing Bank or such Bank of issuing or maintaining or participating in any of
the Letters of Credit (which increase in cost or expense shall be determined by
the Issuing Bank's or such Bank's reasonable allocation of the aggregate of such
cost increases and expenses resulting from such events), then, upon demand by
the Issuing Bank or such Bank, as the case may be, the applicable Account Party
shall, within thirty (30) days following demand for payment, pay to Issuing Bank
or such Bank, as the case may be, from time to time as specified by the Issuing
Bank or such Bank, additional amounts which shall be sufficient to compensate
the Issuing Bank or such Bank for such increased cost and expense, together with
interest on each such amount from ten days after the date demanded until payment
in full thereof at the Prime-based Rate. A certificate as to such increased cost
or expense incurred by the Issuing Bank or such Bank, as the case may be, as a
result of any event mentioned in clause (i) or (ii) above, submitted to the
applicable Account Party, shall be conclusive evidence, absent manifest error,
as to the amount thereof.
(d) All payments by the Borrowers to the Agent for
distribution to the Issuing Bank or the Revolving Credit Banks under this
Section 3.4 shall be made in immediately available funds at the Issuing Office
or such other office of the Agent as may be designated from time to time by
written notice to Borrowers by the Agent. The fees described in clauses (a) and
(b) above shall be nonrefundable under all circumstances, shall be payable
annually in advance (or such lesser period, if applicable, for Letters of Credit
issued with stated expiration dates of less than one year) upon the issuance of
each such Letter of Credit, and shall be calculated on the basis of a 360 day
year and assessed for the actual number of days from the date of the issuance
thereof to the stated expiration thereof.
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3.5 Other Fees. In connection with the Letters of Credit, and in
addition to the Letter of Credit Fees, the Borrowers and the applicable Account
Party(ies) shall pay, for the sole account of the Issuing Bank, standard
documentation, administration, payment and cancellation charges assessed by
Issuing Bank or the Issuing Office, at the times, in the amounts and on the
terms set forth or to be set forth from time to time in the standard fee
schedule of the Issuing Office in effect from time to time and delivered to the
relevant Account Party(ies).
3.6 Drawings and Demands for Payment Under Letters of Credit.
(a) The Borrowers and each applicable Account Party agree
to pay to the Issuing Bank, on the day on which the Issuing Bank shall honor a
draft or other demand for payment presented or made under any Letter of Credit,
an amount equal to the amount paid by the Issuing Bank in respect of such draft
or other demand under such Letter of Credit and all expenses paid or incurred by
the Agent relative thereto. Unless the Borrowers or the applicable Account Party
shall have made such payment to the Agent for the account of the Issuing Bank on
such day, upon each such payment by the Issuing Bank, the Agent shall be deemed
to have disbursed to the Borrowers or the applicable Account Party, and the
Borrowers or the applicable Account Party shall be deemed to have elected to
substitute for its reimbursement obligation, a Prime-based Advance of the
Revolving Credit for the account of the Revolving Credit Banks in an amount
equal to the amount so paid by the Issuing Bank in respect of such draft or
other demand under such Letter of Credit. Such Prime-based Advance shall be
deemed disbursed notwithstanding any failure to satisfy any conditions for
disbursement of any Advance set forth in Section 2 hereof and, to the extent of
the Advances so disbursed, the reimbursement obligation of the Borrower or the
applicable Account Party under this Section 3.6 shall be deemed satisfied.
(b) If the Issuing Bank shall honor a draft or other
demand for payment presented or made under any Letter of Credit, the Issuing
Bank shall provide notice thereof to the Borrowers and the applicable Account
Party on the date such draft or demand is honored, and to each Revolving Credit
Bank on such date unless the Borrowers or applicable Account Party shall have
satisfied its reimbursement obligation under Section 3.6(a) hereof by payment to
the Agent on such date. The Issuing Bank shall further use reasonable efforts to
provide notice to the Borrowers or applicable Account Party prior to honoring
any such draft or other demand for payment, but such notice, or the failure to
provide such notice, shall not affect the rights or obligations of the Issuing
Bank with respect to any Letter of Credit or the rights and obligations of the
parties hereto, including without limitation the obligations of the Borrowers or
applicable Account Party under Section 3.6(a) hereof.
(c) Upon issuance by the Issuing Bank of each Letter of
Credit hereunder, each Revolving Credit Bank shall automatically acquire a pro
rata participation interest in such Letter of Credit and each related Letter of
Credit Payment based on its respective Percentage. Each Revolving Credit Bank,
on the date a draft or demand under any Letter of Credit is honored (or the next
succeeding Business Day if the notice required to be given by Agent to the
Revolving Credit Banks under Section 3.6(b) hereof is not given to the Revolving
Credit Banks prior to 2:00 p.m. (Detroit time) on such date of draft or demand),
shall make its Percentage of
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the amount paid by the Issuing Bank, and not reimbursed by the Borrowers or
applicable Account Party on such day, in immediately available funds at the
principal office of the Agent for the account of Issuing Bank. If and to the
extent such Revolving Credit Bank shall not have made such pro rata portion
available to the Agent, such Bank, the Borrowers and the applicable Account
Party severally agree to pay to the Issuing Bank forthwith on demand such amount
together with interest thereon, for each day from the date such amount was paid
by the Issuing Bank until such amount is so made available to the Agent at a per
annum rate equal to the interest rate applicable during such period to the
related Advance deemed to have been disbursed under Section 3.6(a) in respect of
the reimbursement obligation of the Borrowers and the applicable Account Party,
as set forth in Section 2.4(c)(i) or 2.4(c)(ii) hereof, as the case may be. If
such Revolving Credit Bank shall pay such amount to the Agent for the account of
Issuing Bank together with such interest, such amount so paid shall be deemed to
constitute an Advance by such Revolving Credit Bank disbursed in respect of the
reimbursement obligation of the Borrowers or applicable Account Party under
Section 3.6(a) hereof for purposes of this Agreement, effective as of the dates
applicable under said Section 3.6(a). The failure of any Revolving Credit Bank
to make its pro rata portion of any such amount paid by the Issuing Bank
available to the Agent for the account of Issuing Bank shall not relieve any
other Revolving Credit Bank of its obligation to make available its pro rata
portion of such amount, but no Revolving Credit Bank shall be responsible for
failure of any other Revolving Credit Bank to make such pro rata portion
available to the Agent for the account of Issuing Bank.
(d) Nothing in this Agreement shall be construed to
require or authorize any Bank to issue any Letter of Credit, it being recognized
that the Issuing Bank shall be the sole issuer of Letters of Credit under this
Agreement.
3.7 Obligations Irrevocable. The obligations of the Borrowers and any
Account Party to make payments to Agent for the account of Issuing Bank or the
Revolving Credit Banks with respect to Letter of Credit Obligations under
Section 3.6 hereof, shall be unconditional and irrevocable and not subject to
any qualification or exception whatsoever, including, without limitation:
(a) Any lack of validity or enforceability of any Letter
of Credit or any documentation relating to any Letter of Credit or to any
transaction related in any way to any Letter of Credit (the "Letter of Credit
Documents");
(b) Any amendment, modification, waiver, consent, or any
substitution, exchange or release of or failure to perfect any interest in
collateral or security, with respect to or under any of the Letter of Credit
Documents;
(c) The existence of any claim, setoff, defense or other
right which the Borrowers or any Account Party may have at any time against any
beneficiary or any transferee of any Letter of Credit (or any persons or
entities for whom any such beneficiary or any such transferee may be acting),
the Agent, the Issuing Bank or any Revolving Credit Bank or any
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other person or entity, whether in connection with any of the Letter of Credit
Documents, the transactions contemplated herein or therein or any unrelated
transactions;
(d) Any draft or other statement or document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect;
(e) Payment by the Issuing Bank to the beneficiary under
any Letter of Credit against presentation of documents which do not comply with
the terms of such Letter of Credit, including failure of any documents to bear
any reference or adequate reference to such Letter of Credit;
(f) Any failure, omission, delay or lack on the part of
the Agent, Issuing Bank or any Revolving Credit Bank or any party to any of the
Letter of Credit Documents to enforce, assert or exercise any right, power or
remedy conferred upon the Agent, Issuing Bank, any Bank or any such party under
this Agreement, any of the other Loan Documents or any of the Letter of Credit
Documents, or any other acts or omissions on the part of the Agent, Issuing
Bank, any Bank or any such party; or
(g) Any other event or circumstance that would, in the
absence of this Section 3.7, result in the release or discharge by operation of
law or otherwise of the Borrowers or any Account Party from the performance or
observance of any obligation, covenant or agreement contained in Section 3.6
hereof.
No setoff, counterclaim, reduction or diminution of any obligation or any
defense of any kind or nature which the Borrowers or any Account Party has or
may have against the beneficiary of any Letter of Credit shall be available
hereunder to the Borrowers or any Account Party against the Agent, Issuing Bank
or any Bank. Nothing contained in this Section 3.7 shall be deemed to prevent
the Borrowers or the Account Parties, after satisfaction in full of the absolute
and unconditional obligations of the Borrowers and the Account Parties
hereunder, from asserting in a separate action any claim, defense, set off or
other right which they (or any of them) may have against Agent, Issuing Bank or
any Bank.
3.8 Risk Under Letters of Credit. (a) In the administration and
handling of Letters of Credit and any security therefor, or any documents or
instruments given in connection therewith, Issuing Bank shall have the sole
right to take or refrain from taking any and all actions under or upon the
Letters of Credit.
(b) Subject to other terms and conditions of this
Agreement, Issuing Bank shall issue the Letters of Credit and shall hold the
documents related thereto in its own name and shall make all collections
thereunder and otherwise administer the Letters of Credit in accordance with
Issuing Bank's regularly established practices and procedures and will have no
further obligation with respect thereto. In the administration of Letters of
Credit, Issuing Bank shall not be liable for any action taken or omitted on the
advice of counsel, accountants, appraisers or
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other experts selected by Issuing Bank with due care and Issuing Bank may rely
upon any notice, communication, certificate or other statement from the
Borrowers, any Account Party, beneficiaries of Letters of Credit, or any other
Person which Issuing Bank believes to be authentic. Issuing Bank will, upon
request, furnish the Banks with copies of Letter of Credit Documents related
thereto.
(c) In connection with the issuance and administration of
Letters of Credit and the assignments hereunder, Issuing Bank makes no
representation and shall have no responsibility with respect to (i) the
obligations of the Borrowers or any Account Party or the validity, sufficiency
or enforceability of any document or instrument given in connection therewith,
or the taking of any action with respect to same, (ii) the financial condition
of, any representations made by, or any act or omission of, the Borrowers, the
applicable Account Party or any other Person, or (iii) any failure or delay in
exercising any rights or powers possessed by Issuing Bank in its capacity as
issuer of Letters of Credit in the absence of its gross negligence or willful
misconduct. Each of the Banks expressly acknowledges that it has made and will
continue to make its own evaluations of the Borrowers's and the Account Parties'
creditworthiness without reliance on any representation of Issuing Bank or
Issuing Bank's officers, agents and employees.
(d) If at any time Issuing Bank shall recover any part of
any unreimbursed amount for any draw or other demand for payment under a Letter
of Credit, or any interest thereon, Agent or Issuing Bank, as the case may be,
shall receive same for the pro rata benefit of the Revolving Credit Banks in
accordance with their respective Percentages and shall promptly deliver to each
Revolving Credit Bank its share thereof, less such Revolving Credit Bank's pro
rata share of the costs of such recovery, including court costs and attorney's
fees. If at any time any Revolving Credit Bank shall receive from any source
whatsoever any payment on any such unreimbursed amount or interest thereon in
excess of such Revolving Credit Bank's Percentage of such payment, such
Revolving Credit Bank will promptly pay over such excess to Agent, for
redistribution in accordance with this Agreement.
3.9 Indemnification. Each of the Borrowers and each Account Party
hereby indemnifies and agrees to hold harmless the Banks, the Issuing Bank and
the Agent, and their respective officers, directors, employees and agents, from
and against any and all claims, damages, losses, liabilities, costs or expenses
of any kind or nature whatsoever which the Banks, the Issuing Bank or the Agent
or any such Person may incur or which may be claimed against any of them by
reason of or in connection with any Letter of Credit, and none of the Issuing
Bank, any Bank or the Agent or any of their respective officers, directors,
employees or agents shall be liable or responsible for:
(a) the use which may be made of any Letter of Credit or
for any acts or omissions of any beneficiary in connection therewith;
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(b) the validity, sufficiency or genuineness of documents
or of any endorsement thereon, even if such documents should in fact prove to be
in any or all respects invalid, insufficient, fraudulent or forged;
(c) payment by the Issuing Bank to the beneficiary under
any Letter of Credit against presentation of documents which do not strictly
comply with the terms of any Letter of Credit (unless such payment resulted from
the gross negligence or willful misconduct of the Issuing Bank), including
failure of any documents to bear any reference or adequate reference to such
Letter of Credit;
(d) any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit; or
(e) any other event or circumstance whatsoever arising in
connection with any Letter of Credit;
provided, however, that with respect to subparagraphs (a) through (e) hereof,
none of the Borrowers nor any of the Account Parties shall be required to
indemnify the Issuing Bank, the other Banks and the Agent and such other persons
to the extent the claim for indemnification resulted from the Issuing Bank's
gross negligence or willful misconduct, and the Issuing Bank shall be liable to
the Borrowers and the Account Parties to the extent, but only to the extent, of
any direct, as opposed to consequential or incidental, damages suffered by the
Borrowers and the Account Parties which were caused by the Issuing Bank's gross
negligence, willful misconduct or wrongful dishonor of any Letter of Credit
after the presentation to it by the beneficiary thereunder of a draft or other
demand for payment and other documentation strictly complying with the terms and
conditions of such Letter of Credit.
(f) It is understood that in making any payment under a
Letter of Credit the Issuing Bank will rely on documents presented to it under
such Letter of Credit as to any and all matters set forth therein without
further investigation and regardless of any notice or information to the
contrary. It is further acknowledged and agreed that a Borrower or an Account
Party may have rights against the beneficiary or others in connection with any
Letter of Credit with respect to which the Banks are alleged to be liable and it
shall be a condition of the assertion of any liability of the Banks under this
Section that the applicable Borrower or applicable Account Party shall
contemporaneously pursue all remedies in respect of the alleged loss against
such beneficiary and any other parties obligated or liable in connection with
such Letter of Credit and any related transactions; provided however that, to
the extent that the Issuing Bank or the Banks are finally adjudicated to have
been grossly negligent or to have acted with willful misconduct, then the
Issuing Bank or the Banks, as the case may be, shall reimburse such Borrowers or
such Account Party for the reasonable costs and expenses of pursuing such
remedies.
3.10 Right of Reimbursement. Each Bank agrees to reimburse the Issuing
Bank on demand, pro rata in accordance with its respective Percentage, for (i)
the reasonable out-of-
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pocket costs and expenses of the Issuing Bank to be reimbursed by the Borrowers
or any Account Party pursuant to any Letter of Credit Agreement or any Letter of
Credit, to the extent not reimbursed by any Borrowers or any Account Party and
(ii) any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, fees, reasonable out-of-pocket expenses or
disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against Issuing Bank in any way relating to or arising
out of this Agreement, any Letter of Credit, any documentation or any
transaction relating thereto, or any Letter of Credit Agreement, to the extent
not reimbursed by any Borrowers or any Account Party, except to the extent that
such liabilities, losses, costs or expenses were incurred by Issuing Bank as a
result of Issuing Bank's gross negligence or willful misconduct or by the
Issuing Bank's wrongful dishonor of any Letter of Credit after the presentation
to it by the beneficiary thereunder of a draft or other demand for payment and
other documentation strictly complying with the terms and conditions of such
Letter of Credit.
4. [RESERVED]
5. MARGIN ADJUSTMENTS
5.1 Margin Adjustments. Adjustments to the Applicable Margins and the
Applicable Fee Percentages, based on Schedule 1.1 shall be implemented on a
quarterly basis as follows:
(a) Such adjustments shall be given prospective effect only,
effective as to all Advances outstanding hereunder and the Applicable
Fee Percentage, upon the date of delivery of the financial statements
under Sections 8.1(a) and 8.1(b) and the Covenant Compliance
Certificate under Section 8.2(a) hereunder, in each case establishing
applicability of the appropriate adjustment, in each case with no
retroactivity or claw- back. In the event the Borrowers fail timely to
deliver the financial statements required under Section 8.1(a) or
8.1(b) or the Covenant Compliance Certificate under Section 8.2(a),
then from the date delivery of such financial statements and
certificate was required until such financial statements and
certificate are delivered, the margins and fee percentages shall be at
the highest level on the Pricing Matrix attached to this Agreement as
Schedule 1.1.
(b) From the Effective Date until the receipt under Section
8.1(b) of the Borrowers' financial statements for the fiscal quarter
ending September 30, the margins and fee percentages shall be those set
forth under the Level IV column of the Pricing Matrix attached to this
Agreement as Schedule 1.1.
6. CONDITIONS
The obligations of the Banks to make Advances or loans pursuant to this
Agreement, and the obligation of the Issuing Bank to issue Letters of Credit
subject to the following conditions:
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6.1 Execution of Notes and this Agreement. Each of the Loan Parties
shall have executed and delivered to Agent for the account of each Bank, the
Revolving Credit Notes, the Swing Line Note, this Agreement, and the other Loan
Documents to which they are a party (including all schedules, exhibits,
certificates, opinions, financial statements and other documents to be delivered
pursuant hereto), and such Notes, and this Agreement and the other Loan
Documents shall be in full force and effect.
6.2 Corporate Authority. Agent shall have received, with a counterpart
thereof for each Bank:
(a) For each Loan Party, a certificate of its Secretary or
Assistant Secretary as to:
(i) resolutions of the board of directors of such Loan
Party evidencing approval of the transactions contemplated by
this Agreement and authorizing the execution and delivery thereof
and the borrowing of Advances and in the case of the Borrowers,
the requesting of Letters of Credit hereunder,
(ii) the incumbency and signature of the officers of
such Loan Party executing any Loan Document,
(iii) a certificate of good standing from the state of
its incorporation, and from every state or other jurisdiction in
which it is required to qualify to do business, and
(iv) copies of such Loan Party's articles of
incorporation and bylaws or other constitutional documents, as the
case may be, as in effect on the Effective Date.
6.3 Collateral Documents and Guaranty. (a) As security for all
Indebtedness of the Borrowers to the Banks hereunder, the Agent shall have
received the following documents:
(i) the Pledge Agreement;
(ii) the Security Agreement; and
(iii) an Agreement (Trademark) and Agreement (Patent) in the
forms attached as exhibits to the Security Agreement,
executed and delivered by the Company and encumbering
substantially all of the Company's patents and trademarks
as security for the Indebtedness.
(b) Any documents (including, without limitation, financing
statements, amendments to financing statements and assignments of financing
statements, and stock powers) required to be filed in connection with the
Collateral Documents to create, in favor of the Agent (for and on
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behalf of Agent and the Banks), a perfected security interest in the Collateral
thereunder shall have been delivered to the Agent in a proper form for filing in
each office in each jurisdiction listed in Schedule 6.3(b), or other office, as
the case may be.
6.4 Lessors' Acknowledgments. Agent shall have received lessors'
acknowledgments, in form and substance acceptable to the Agent and the Banks, in
connection with the leased property described in Schedule 6.4.
6.5 Lien Searches. The Agent shall have received the results of a
recent lien search in each jurisdiction where the material assets of the Loan
Parties are located and such search shall reveal no liens on any of the assets
of the Loan Parties except for liens permitted by Section 9.2 or assigned to the
Agent for the benefit of the Banks.
6.6 Pro Forma Balance Sheet and Projections. The Borrowers shall have
delivered to the Agent (a) a pro forma balance sheet of the Company and its
Subsidiaries, on a consolidated basis as at the Effective Date, and after giving
effect to the Smartflex Acquisition (the "Pro Forma Balance Sheet"), certified
by a Responsible Officer of each Borrower that it fairly presents the pro forma
adjustments reflecting the consummation of the transactions contemplated in this
Agreement, including all material fees and expenses in connection therewith,
subject to normal year end adjustments acceptable in form and substance to the
Agent and (b) pro forma financial projections in form and substance reasonably
satisfactory to the Agent and the Banks.
6.7 Insurance. The Agent shall have received evidence satisfactory to
it that the Loan Parties have obtained the insurance policies required by
Section 8.5 hereof and that such insurance policies are in full force and
effect.
6.8 Compliance with Certain Documents and Agreements. The Loan Parties
shall have each performed and complied in all material respects with all
agreements and conditions contained in this Agreement, other Loan Documents, or
any agreement or other document executed thereunder and required to be performed
or complied with by each of them (as of the applicable date) and none of such
parties shall be in material default in the performance or compliance with any
of the terms or provisions hereof or thereof.
6.9 Opinion of Counsel. The Loan Parties shall furnish Agent prior to
the initial Advance under this Agreement, with signed copies for each Bank,
opinions of counsel to the Loan Parties, dated the Effective Date and covering
such matters as reasonably required by and otherwise reasonably satisfactory in
form and substance to the Agent and each of the Banks.
6.10 Borrowers' Certificate. The Agent shall have received, with a
signed counterpart for each Bank, a certificate of a Responsible Officer of each
Borrower dated the date of the making of the initial Advances hereunder, stating
that to the best of his or her knowledge after due inquiry, (a) each of the
conditions set forth in this Section 6 have been satisfied; (b) the
representations and warranties made by Loan Parties to any of the Loan Documents
(excluding the Agent and Banks) in this Agreement or any of the other Loan
Documents, shall have been
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true and correct in all material respects when made and shall be true and
correct in all material respects on and as of the Effective Date; (c) no Default
or Event of Default shall have occurred and be continuing; (d) there shall have
been no change in the financial condition, properties, business, results or
operations of the Borrowers from January 1, 1999 to the Effective Date, which
would reasonably be expected to have a Material Adverse Effect; and (e) there
shall have been no material changes to the pro forma opening balance sheet of
the Borrowers previously delivered to the Agent pursuant to Section 6.6(a).
6.11 Payment of Fees. The Borrowers shall have paid to the Agent all
fees, costs and expenses required to be paid to the Agent upon execution of this
Agreement under the terms of this Agreement and under the terms of the
commitment letter dated July 2, 1999 from Comerica Bank to Borrowers, and the
agency fee letter referred to therein and Company shall have paid to Comerica
Bank all interest and fees required to be paid under the Prior Credit Agreement.
6.12 Financial Statements. The Agent shall have received (i) audited
Consolidated financial statements of the Company for the fiscal years ending
December 31, 1997 and December 31, 1998 (ii) unaudited interim Consolidated
financial statements of the Company for the fiscal period ending June 30, 1999,
(iii) audited Consolidated financial statements of Smartflex for the fiscal
years ending December 31, 1997 and December 31, 1998, (iv) unaudited
Consolidated financial statements of Smartflex for the fiscal period ending June
30, 1999, (v) audited financial statements of Saturn Texas for the fiscal year
ending December 31, 1998 and (vi) unaudited financial statements of Saturn Texas
for the fiscal period ending June 30, 1999.
6.13 Continuing Conditions. The obligations of the Banks to make
Advances (including the initial Advance) under this Agreement, the obligation of
the Issuing Bank to issue any Letters of Credit shall be subject to the
continuing conditions that:
(a) No Default or Event of Default shall exist as of the date of the
Advance or the request for the Letter of Credit; and
(b) Each of the representations and warranties contained in this
Agreement and in each of the other Loan Documents shall be true and correct in
all material respects as of the date of the Advance or Letter of Credit.
6.A. ADDITIONAL CONDITIONS
The obligations of each Bank to make any Advance which shall be
utilized to finance or refinance payments made to shareholders of Smartflex in
connection with the Smartflex Acquisition, shall be conditioned upon
satisfaction, prior to or concurrently with the making of such extension of
credit, of the following conditions precedent:
6.A.1 Effective Date. The Effective Date shall have occurred.
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6.A.2 Smartflex Acquisition Documents. The Agent shall have received
and approved, in its commercially reasonable discretion, a complete and correct
copy of each Smartflex Acquisition Document, including, without limitation, all
exhibits, schedules and disclosure letters referred to in each of the foregoing
or delivered pursuant thereto and other side letters or agreements affecting the
terms thereof, and such Smartflex Acquisition Documents shall not have been
amended, supplemented, waived, or modified in any respect materially adverse to
the interests of the Banks without the prior written consent of the Agent.
6.A.3 No Material Change. There shall have been no material change in
the number of shares (on a fully diluted basis) of, or the terms of, the capital
stock of Smartflex outstanding; and any stock purchase rights or other "poison
pill" rights of Smartflex, if any, shall have been redeemed by the Board of
Directors of Smartflex or the Agent shall be satisfied that they have been
invalidated or otherwise will not be triggered.
6.A.4 Approval of Tender Offer by Smartflex's Board of Directors. The
Board of Directors of Smartflex shall have approved the Tender Offer prior to
the commencement thereof and shall have recommended to the shareholders of
Smartflex the acceptance of the Tender Offer, and such approval and
recommendation shall not have been withdrawn.
6.A.5 Tender Offer Made in Accordance with Applicable Law. The Tender
Offer shall have been commenced and conducted in accordance with all applicable
Requirements of Law and no consent, exemption or other action by, or notice to
or filing with, any governmental authority or other Person (including
Hart-Scott-Rodino approvals and other approvals necessary in connection with the
Smartflex Acquisition) is necessary in connection with the execution, delivery,
performance or enforcement of any Tender Offer Document, other than any
consents, exemptions, actions, notices or filings which have been obtained and
remain in full force and effect or for which the failure to make or obtain would
not be reasonably likely to have a Material Adverse Effect.
6.A.6 Borrowings to Fund Purchase of Shares. In the case of an Advance
to finance or refinance payments to shareholders of Smartflex of the purchase
price for Tendered Shares, (i) the Tender Offer shall have been, or concurrently
with the making of the Advances to be made on the Initial Tender Funding Date
shall be, consummated pursuant to and in accordance with the Smartflex
Acquisition Documents, and (ii) the Agent shall have received evidence
reasonably satisfactory to it that:
(A) there has been no material change in the number of issued
and outstanding Shares (on a fully diluted basis) since the date of the
Merger Agreement;
(B)(i) there shall have been validly tendered pursuant to the
Tender Offer and not withdrawn a number of Shares which, together with
the Shares then owned by the Borrowers, would represent at least a
majority of the total number of outstanding Shares, assuming the
exercise of all outstanding options, rights and convertible securities
(if any), (ii) such Tendered Shares shall have been represented by the
shareholders with respect
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thereto to be free and clear of all Liens, (iii) such Tendered Shares
(together with the Shares owned by the Borrowers) are sufficient to
permit the consummation of the Merger without the affirmative vote of
any other shareholder, and (iv) the Tender Offer shall have expired and
all conditions to the obligation of Newco to purchase the Tendered
Shares shall have been satisfied or (but only with the consent of the
Agent) waived;
(C) there is not in effect any injunction, restraining order
or other order of any Governmental Authority purporting to prohibit the
consummation of the Tender Offer or the Merger;
(D) no consent, exemption or other action by, or notice to or
filing with, any Governmental Authority or other Person is necessary in
connection with the consummation of the Tender Offer, other than any
consents, exemptions, actions, notices or filings which have been
obtained and remain in full force and effect or for which the failure
to make or obtain would not be reasonably likely to have a Material
Adverse Effect; and
(E) all applicable waiting periods have expired without any
action being taken by any Governmental Authority which would prevent,
materially restrain or otherwise impose material adverse conditions on
the transactions contemplated by this Agreement, the Merger Agreement
or any Tender Offer Document or be reasonably likely to have a Material
Adverse Effect.
7. REPRESENTATIONS AND WARRANTIES
Each of the Borrowers represents and warrants and such representations
and warranties shall survive until the Revolving Credit Maturity Date and
thereafter until the expiration of all Letters of Credit and the final payment
in full of the Indebtedness and the performance by the Borrowers of all other
obligations under this Agreement:
7.1 Company Authority. Each Borrower is duly organized and existing
in good standing under the laws of the State or jurisdiction of its
incorporation, each Subsidiary is duly organized and existing in good standing
under the laws of the jurisdiction of its formation; and each Borrower and each
Subsidiary is duly qualified and authorized to do business as a foreign
corporation in each jurisdiction where the character of its assets or the nature
of its activities makes such qualification necessary and where failure to be so
qualified would have a Material Adverse Effect.
7.2 Due Authorization - Borrowers. Execution, delivery and
performance of this Agreement, the other Loan Documents and any other documents
and instruments required under or in connection with this Agreement or the other
Loan Documents (or to be so executed and delivered), and to which such Borrower
is a party, and the issuance of the Notes by Borrowers are within each such
Borrower's corporate powers, have been duly authorized, are not in
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contravention of law or the terms of such Borrower's organizational documents
and, except as have been previously obtained or as referred to in Section 7.13,
below do not require the consent or approval, material to the transactions
contemplated by this Agreement and the other Loan Documents, of any governmental
body, agency or authority not previously obtained.
7.3 Due Authorization - Guarantors. Execution, delivery and
performance of the Guaranty, the other Loan Documents and all other documents
and instruments required of the Guarantors under or in connection with this
Agreement and the other Loan Documents (or to be so executed and delivered), and
to which each such Guarantor is a party, are within the corporate powers of each
such Guarantor, have been duly authorized, are not in contravention of law or
the terms of such Guarantor's organizational documents, and, except as have been
previously obtained or as referred to in Section 7.13 below, do not require the
consent or approval, material to the transactions contemplated by this Agreement
and the other Loan Documents, of any governmental body, agency or authority not
previously obtained.
7.4 Liens. There are no Liens on file with respect to any of the
property owned, pledged, mortgaged or otherwise encumbered (or to be encumbered)
by Borrowers or any of their Subsidiaries, except for Liens permitted pursuant
to Section 9.2.
7.5 Taxes. Each of the Borrowers and each of their respective
Subsidiaries has filed on or before their respective due dates or within the
applicable grace periods, all federal, state, local and foreign tax returns
which are required to be filed or has obtained extensions for filing such tax
returns and is not delinquent in filing such returns in accordance with such
extensions and has paid all taxes which have become due pursuant to those
returns or pursuant to any assessments received by any such party, as the case
may be, to the extent such taxes have become due, except to the extent such tax
payments are being actively contested in good faith by appropriate proceedings
and with respect to which adequate provision has been made on the books of such
Borrower or such Subsidiary as may be required by GAAP.
7.6 No Defaults. There exists no material default under the
provisions of any instrument evidencing any indebtedness for borrowed money of
any Loan Party which is permitted hereunder or of any agreement relating
thereto.
7.7 Enforceability of Agreement and Loan Documents -- Borrowers.
This Agreement, each of the other Loan Documents to which Borrowers are a party,
and all other certificates, agreements and documents executed and delivered by
Borrowers under or in connection herewith or therewith have each been duly
executed and delivered by their respective duly authorized officers and
constitute the valid and binding obligations of Borrowers, enforceable in
accordance with their respective terms, except as enforcement thereof may be
limited by applicable bankruptcy, reorganization, insolvency, fraudulent
conveyance, moratorium or similar laws affecting the enforcement of creditor's
rights, generally and by general principles of equity (regardless of whether
enforcement is considered in a proceeding in law or equity).
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7.8 Enforceability of Loan Documents -- Guarantors. The Loan
Documents to which each of the Guarantors is a party, and all certificates,
documents and agreements executed in connection therewith by the Guarantors have
each been duly executed and delivered by the duly authorized officers, of the
applicable Guarantors and constitute the valid and binding obligations of such
Guarantors, enforceable in accordance with their respective terms, except as
enforcement thereof may be limited by applicable bankruptcy, reorganization,
insolvency, fraudulent conveyance, moratorium or similar laws affecting the
enforcement of creditor's rights, generally and by general principles of equity
(regardless of whether enforcement is considered in a proceeding in law or
equity).
7.9 Compliance with Laws. Except as disclosed on Schedule 7.9 and
except as disclosed in the documents listed in Schedule 7.18, each of the
Borrowers and each of the Guarantors has complied with all applicable federal,
state and local laws, ordinances, codes, rules, regulations and guidelines
(including consent decrees and administrative orders) except to the extent that
failure to comply therewith would not have a Material Adverse Effect; except for
such matters as are not likely to have a Material Adverse Effect, and except as
set forth in Schedule 7.9 hereof, and without limiting the generality of Section
7.12, there is no pending or, to the knowledge of Borrowers threatened,
litigation, action, proceeding or controversy affecting any Borrower, any
Guarantor or any other Subsidiary brought or asserted by any Governmental
Authority, and no pending or, to the knowledge of Borrowers threatened
complaint, notice or inquiry to any Borrower, any Guarantor or any other
Subsidiary, regarding potential liability of any Borrower, any Guarantor or any
Subsidiary brought or asserted by any Governmental Authority.
7.10 Non-contravention -- Borrowers. The execution, delivery and
performance of this Agreement and the other Loan Documents executed and
delivered by the Borrowers and any other documents and instruments required
under or in connection with this Agreement or the other Loan Documents by the
Borrowers are not in contravention of the terms of any indenture, agreement or
undertaking to which any such Borrower or any of its Subsidiaries is a party or
by which its or their properties are bound or affected where such violation
would reasonably be expected to have a Material Adverse Effect.
7.11 Non-contravention -- Guarantors. The execution, delivery and
performance of those Loan Documents executed and delivered by the Guarantors,
and any other documents and instruments required under or in connection with
this Agreement or any other Loan Document by the Guarantors are not in
contravention of the terms of any indenture, agreement or undertaking to which
any Guarantor or any Borrower is a party or by which it or its properties are
bound or affected where such violation would reasonably be expected to have a
Material Adverse Effect.
7.12 No Litigation. Except with respect to matters specifically
disclosed on Schedule 7.12 hereof, and except for miscellaneous suits, actions
and proceedings (other than suits, actions or proceedings commenced by any
government or governmental authority) involving less than $2,000,000 in the
aggregate (as such amount may be reasonably determined by the Company based on
facts and circumstances known to the Company on the applicable date of
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determination) which miscellaneous suits, actions or proceedings, if resolved
adversely to Company or any other Loan Party, are not reasonably likely to have
a Material Adverse Effect, there is no suit, action, proceeding, including,
without limitation, any bankruptcy proceeding, or governmental investigation
pending against or to the knowledge of Company, affecting Company or any other
Loan Party (other than any suit, action or proceeding in which Company or such
other Loan Party is the plaintiff and in which no counterclaim or cross-claim
against Company or such other Loan Party has been filed), nor has Company or any
other Loan Party or any of its or their officers or directors, as the case may
be, been subject to any suit, action, proceeding or governmental investigation
as a result of which any such officer or director is or may be entitled to
indemnification by Company or another Loan Party, as applicable, which suit,
action, proceeding or investigation, if resolved adversely to Company or such
other Loan Party, is reasonably likely to have a Material Adverse Effect. Except
as disclosed on Schedule 7.12 hereof, there is not outstanding against Company
or any other Loan Party any judgment, decree, injunction, rule, or order of any
court, government, department, commission, agency, instrumentality or arbitrator
nor is Company or any other Loan Party in violation of any applicable law,
regulation, ordinance, order, injunction, decree or requirement of any
governmental body or court where such violation would reasonably be expected to
have a Material Adverse Effect.
7.13 Consents, Approvals and Filings, Etc. Except as have been
previously obtained and except as disclosed on Schedule 7.13, no authorization,
consent, approval, license, qualification or formal exemption from, nor any
filing, declaration or registration with, any court, governmental agency or
regulatory authority or any securities exchange, or any other Person or party
(whether or not governmental) is required in connection with the execution,
delivery and performance: (i) by any of the Borrowers of this Agreement, any of
the other Loan Documents to which they are a party, or any other documents or
instruments to be executed and/or delivered by Borrowers in connection therewith
or herewith; (ii) by any Guarantor, of any of the other Loan Documents to which
such Guarantor is a party, or (iii) by Borrowers or any of the Guarantors, of
the liens, pledges, mortgages, security interests or other encumbrances granted,
conveyed or otherwise established (or to be granted, conveyed or otherwise
established) by or under this Agreement or the other Loan Documents, except for
such filings to be made concurrently herewith as are required by the Collateral
Documents to perfect liens in favor of the Agent. All such authorizations,
consents, approvals, licenses, qualifications, exemptions, filings, declarations
and registrations which have previously been obtained or made, as the case may
be, are in full force and effect and are not the subject of any attack, or to
the knowledge of Borrowers threatened attack (in any material respect) by appeal
or direct proceeding or otherwise.
7.14 [RESERVED]
7.15 No Investment Company or Margin Stock. None of the Borrowers or
any Guarantor is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended. No Borrower nor any Guarantor is engaged
principally, or as one of its important activities, directly or indirectly, in
the business of extending credit for the purpose of purchasing or carrying
margin stock. None of the proceeds of any of the Advances (or any
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Letters of Credit) will be used by any Borrower nor any other Subsidiary to
purchase or carry margin stock or will be made available by any Borrower or any
of its Subsidiaries in any manner to any other Person to enable or assist such
Person in purchasing or carrying margin stock. Terms for which meanings are
provided in Regulation U of the Board of Governors of the Federal Reserve System
or any regulations substituted therefor, as from time to time in effect, are
used in this paragraph with such meanings.
7.16 ERISA. None of the Borrowers nor any Guarantor maintains or
contributes to any Pension Plan subject to Title IV of ERISA, except as set
forth on Schedule 7.16 hereto; and there is no accumulated funding deficiency
within the meaning of ERISA, or any existing liability with respect to any of
the Pension Plans owed to the Pension Benefit Guaranty Corporation or any
successor thereto, and no "reportable event" or "prohibited transaction", as
defined in ERISA, has occurred with respect to any Pension Plan, and all such
Pension Plans are in material compliance with the requirements of the Internal
Revenue Code and ERISA.
7.17 Conditions Affecting Business or Properties. Neither the
respective businesses nor the properties of any Borrower, nor any Subsidiary of
any Borrower has been affected by any fire, explosion, accident, strike, lockout
or other dispute, drought, storm, hail, earthquake, embargo, Act of God or other
casualty (not covered by insurance) which is reasonably likely to have a
Material Adverse Effect, or if such event or condition were to continue for more
than ten (10) additional days would reasonably be expected to have a Material
Adverse Effect.
7.18 Environmental and Safety Matters. Except as set forth in
Schedules 7.18 and 7.12 and except for such matters as are not likely to have a
Material Adverse Effect:
(a) all facilities and property owned or leased by the Loan
Parties are owned or leased by the Loan Parties in material compliance
with all Hazardous Material Laws;
(b) to the best knowledge of the Borrowers, there have been
no past, and there are no pending or threatened
(i) claims, complaints, notices or requests
for information received by any Loan Party with respect to any
alleged violation of any Hazardous Material Law, or
(ii) complaints, notices or inquiries to any
Loan Party regarding potential liability under any Hazardous
Material Law; and
(c) to the knowledge of the Borrowers, no conditions exist
at, on or under any property now or previously owned or leased by the
Loan Parties which, with the passage of time, or the giving of notice
or both, would give rise to liability under any Hazardous Material Law.
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7.19 Subsidiaries. Except as disclosed on Schedule 7.19 hereto, the
Company has no Subsidiaries.
7.20 Accuracy of Information. (a) The projections and pro forma
financial information provided to the Banks are based upon good faith estimates
and assumptions believed by management of the Borrowers to be reasonable at the
time made, it being recognized by the Banks that such financial information as
it relates to future events is not to be viewed as fact and that actual results
during the period or periods covered by such financial information may differ
from the projected results set forth therein.
(b) Since December 31, 1998 through the Effective Date there
has been no material adverse change in the financial condition of the Borrowers
or their respective Subsidiaries; to the best knowledge of Borrowers, none of
the Borrowers (or any of their respective Subsidiaries) has any contingent
obligations required to be disclosed under GAAP (including any liability for
taxes) not disclosed by or reserved against in the balance sheet referred to in
Section 6.6(a), except as set forth on Schedule 7.20 hereof, and as of the
Effective Date, there are no unrealized or anticipated losses from any present
commitment of Borrowers or any of their Subsidiaries which contingent
obligations and losses in the aggregate are likely to have a Material Adverse
Effect.
7.21 Labor Relations. None of the Borrowers nor any of their respective
Subsidiaries is engaged in any unfair labor practice that could reasonably be
expected to have a Material Adverse Effect. There is (i) no unfair labor
practice complaint pending against the Borrowers, or any of their respective
Subsidiaries or, to the knowledge of Borrowers, threatened against any of them,
before the National Labor Relations Board, and no grievance or arbitration
proceeding arising out of or under any collective bargaining agreement is so
pending against any Borrower or any of its Subsidiaries or, to Borrowers'
knowledge, threatened against any of them, (ii) no strike, labor dispute,
slowdown or stoppage pending against the Borrowers or any of their respective
Subsidiaries, or, to the knowledge of Borrowers, threatened against any of them
and (iii) no union representation question existing with respect to the
employees of the Borrowers or any of their respective Subsidiaries, in each case
or in the aggregate which could reasonably be expected to have a Material
Adverse Effect.
7.22 Solvency. After giving effect to the consummation of the
transactions contemplated by this Agreement, each Borrower and its Subsidiaries
will each be solvent, able to pay its indebtedness as it matures and will have
capital sufficient to carry on its business and all business in which it is
about to engage. This Agreement is being executed and delivered by the Borrowers
to Agent and the Banks in good faith and in exchange for fair, equivalent
consideration. After giving effect to the transactions contemplated herein, the
capital and monies remaining in the Borrowers and their Subsidiaries are not now
and will not become so unreasonably small as to preclude the Borrowers or their
Subsidiaries from carrying on their businesses. Neither of the Borrowers nor any
Subsidiary intends to nor does management of Borrowers or any Subsidiary believe
it will incur debts beyond its ability to pay as they mature. Neither of the
Borrowers nor any Subsidiary contemplates filing a petition in bankruptcy or for
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an arrangement or reorganization under the Bankruptcy Code, nor does any
Borrower or any Subsidiary have any knowledge of any threatened bankruptcy or
insolvency proceedings against Borrowers or any Subsidiary.
7.23 Ownership. The common stock of each Borrower and each Subsidiary
of such Borrower is as set forth in Schedule 7.23. All common stock of Borrowers
and their respective Subsidiaries are duly authorized and validly issued, fully
paid, nonassessable, free and clear of all Liens and such ownership interests
were issued in compliance with all applicable state and federal laws concerning
the issuance of such interests. Except as disclosed on Schedule 7.23, there are
no preemptive or other outstanding rights, options, warrants, conversion rights
or similar agreements or understandings for the purchase or acquisition from a
Borrower or any Subsidiary, of any ownership interests or other securities of a
Borrower or any Subsidiary.
7.24 Year 2000 Requirement. Each of the Borrowers has reviewed and has
caused their respective Subsidiaries to review the areas in their business and
operations which could be adversely affected by, and have developed or are
developing a program to address on a timely basis, the risk that computer
applications used by the Borrowers and their respective Subsidiaries may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999. Any reprogramming
required to permit the proper functioning, in and following the year 2000, of
(i) any such Borrower's or any such Subsidiary's computer systems and (ii)
equipment containing embedded microchips (including systems and equipment
supplied by others or with which such Borrower's or such Subsidiary's systems
interface) and the testing of all such systems and equipment, as so
reprogrammed, will be substantially completed by September 30, 1999. The cost to
the Borrowers and their respective Subsidiaries of such reprogramming and
testing and of the reasonably foreseeable consequences of year 2000 to the
Borrowers and their respective Subsidiaries taken as a whole (including, without
limitation, reprogramming errors and the failure of others' systems or
equipment) will not result in a Default or a Material Adverse Effect. Except for
such of the reprogramming referred to in the preceding sentence as may be
necessary, the computer and management information systems of the Borrowers and
their Subsidiaries are and, with ordinary course upgrading and maintenance, will
continue for the term of this Agreement to be, sufficient to permit the
Borrowers to conduct their business without Material Adverse Effect.
8. AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that it will, and, as applicable, it
will cause each other Subsidiary to, until the Revolving Credit Maturity Date
and thereafter until expiration of all Letters of Credit and final payment in
full of the Indebtedness and the performance by the Loan Parties of all other
obligations under this Agreement and the other Loan Documents, unless the
Majority Banks shall otherwise consent in writing:
8.1 Financial Statements. Furnish to the Agent, with sufficient copies
for the Agent and each Bank:
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(a) as soon as available, but in any event within 90 days
after the end of each fiscal year of the Company, a copy of the audited
Consolidated and unaudited Consolidating financial statements of the
Company as at the end of such year and the related audited statements
of income, accumulated earnings, cash flows and income for such year,
and the audited financial statements of Saturn Texas, setting forth in
each case in comparative form the figures for the previous year,
certified as being fairly stated in all material respects by a
nationally recognized certified public accountant satisfactory to the
Agent and the Majority Banks; and
(b) as soon as available, but in any event not later than 45
days after the end of each of the first three quarterly periods of each
fiscal year of the Company, the unaudited Consolidated and
Consolidating financial statements of the Company as at the end of such
quarter and the related unaudited statements of cash flows and income
of the Company for the portion of the fiscal year through the end of
such quarter, setting forth in each case in comparative form the
figures for the previous year, certified by a Responsible Officer of
the Company as being fairly stated in all material respects;
(c) as soon as available, but in any event not later than 45
days after the end of the first three quarterly periods of each fiscal
year of Saturn Texas, the unaudited financial statements of Saturn
Texas as at the end of such quarter and related unaudited statements of
cash flows and income of Saturn Texas for the portion of the fiscal
year through the end of such quarter, setting forth in each case in
comparative form the figures for the previous year, certified by a
Responsible Officer of Saturn Texas as being fairly stated in all
material respects;
all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such officer and disclosed therein), provided
however that the monthly and quarterly financial statements delivered hereunder
will not be required to include footnotes and will be subject to year-end
adjustments.
8.2 Certificates; Other Information. Furnish to the Agent, with
sufficient copies for the Agent and each Bank:
(a) together with the financial statements to be delivered
pursuant to Section 8.1(a) and (b), a Covenant Compliance Report
executed by a Responsible Officer;
(b) concurrently with the delivery by the Borrowers of each
request for an extension of the Revolving Credit Maturity Date pursuant
to Section 2.15, a copy of the projections by the Company of the
balance sheets, operating budget and cash flow budget of the Company
and its Subsidiaries, covering the next three fiscal years, which shall
be on a quarterly basis for the next fiscal year and on an annual basis
for the following two fiscal years, such projections to be accompanied
by a certificate of a Responsible Officer to the effect that such
projections have been prepared on the basis of sound financial
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planning practice and that such Officer has no reason to believe they
are incorrect or misleading in any material respect;
(c) promptly as issued, all press releases, notices to
shareholders and all other material written communications transmitted
to the general public or to the trade or industry in which the Company
or any Subsidiary is engaged; and
(d) promptly, such additional financial and other information,
or other reports as any Bank may from time to time reasonably request.
8.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all of its
material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrowers or their respective Subsidiaries, as the case may be.
8.4 Conduct of Business and Maintenance of Existence.
(a) Continue to engage solely in the business as now conducted
by it and as contemplated by this Agreement and preserve, renew and
keep in full force and effect its existence; and
(b) take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct
of its business.
8.5 Maintenance of Property; Insurance. Maintain with responsible
insurance companies insurance with respect to the Collateral, its or their
properties and business, against such casualties and contingencies and of such
types and in such amounts as is customary in the case of similar businesses, and
will furnish to the Agent prior to the initial Advance, and upon request by any
Bank at reasonable intervals thereafter, a certificate of a Responsible Officer,
as well as independent evidence of coverage, setting forth the nature and extent
of all insurance policies maintained by the Borrowers or any Subsidiary in
accordance with this Section. The Borrowers shall give immediate written notice
to the Banks and to the insurers of any significant loss or damage to the
Collateral or other property to be insured and shall promptly file proofs of
loss with such insurers.
8.6 Inspection of Property; Books and Records, Discussions. Permit
Agent and each Bank, through their authorized attorneys, accountants and
representatives (a) to examine the Borrowers' and each Subsidiary's books,
accounts, records, ledgers and assets and properties of every kind and
description (including without limitation, all promissory notes, security
agreements, customer applications, vehicle title certificates, chattel paper,
Uniform Commercial Code filings) wherever located at all reasonable times and in
a manner not disruptive to the business of the Borrowers and Subsidiaries during
normal business hours, upon at least five days' oral or written request of Agent
or such Bank (except that no prior notice shall be required
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during the continuance of any Default or Event of Default), and to permit (at
Borrowers' expense) audits of the Accounts and Inventory of Borrowers and their
respective Subsidiaries no more frequently than annually, and (b) at any time
and from time to time at the request of the Majority Banks, to conduct full or
partial collateral audits, with all reasonable costs and expenses of such audits
to be reimbursed by Borrowers; and permit Agent and each Bank or their
authorized representatives, at reasonable times and intervals, to visit all of
their respective offices, discuss their respective financial matters with their
respective officers and independent certified public accountants, and, by this
provision, Borrowers authorize such accountants to discuss the finances and
affairs of Borrowers and the Subsidiaries and examine any of its or their books
and other corporate records.
8.7 Notices. Promptly give notice to the Agent of:
(a) the occurrence of any Default or Event of Default of which
any Borrower has knowledge;
(b) any (i) default or event of default under any Contractual
Obligation of any Borrower or any Subsidiary or (ii) litigation,
investigation or proceeding which may exist at any time between any
Borrower or any Subsidiary and any Governmental Authority or other
Person, which in either case, if not cured or if adversely determined,
as the case may be, would have a Material Adverse Effect;
(c) the following events, as soon as possible and in any event
within 30 days after the Company knows or has reason to know thereof:
(i) the occurrence or expected occurrence of any "reportable event" as
defined in ERISA with respect to any Pension Plan, or any withdrawal
from or the termination, reorganization or insolvency of any
Multiemployer Plan or (ii) the institution of proceedings or the taking
of any other action by the Pension Benefit Guaranty Corporation or any
Borrower or any Commonly Controlled Entity or any Multiemployer Plan
with respect to the withdrawal from or the terminating, reorganization
or insolvency of any Pension Plan;
(d) any event or change in business, operations, property, or
financial condition of any of the Loan Parties which would be
reasonably likely to have a Material Adverse Effect;
(e) its receipt of a written tax position taken by the Internal
Revenue Service or any foreign taxing jurisdiction which could
reasonably be expected to have a Material Adverse Effect (or any such
tax position taken by the Borrowers) setting forth the details of such
position and the financial impact thereof; and
(f) not less than two days prior to the proposed effective date
thereof, copies of any proposed material amendments, restatements
or other modification to the Smartflex Acquisition Documents.
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Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer of the Company setting forth details of the occurrence
referred to therein and stating what action the Company proposes to take with
respect thereto.
8.8 Hazardous Material Laws.
(a) Use and operate all of its facilities and properties in
material compliance with all material Hazardous Material Laws, keep all
necessary permits, approvals, certificates, licenses and other
authorizations relating to environmental matters in effect and remain
in material compliance therewith, and handle all Hazardous Materials in
material compliance with all applicable Hazardous Material Laws;
(b) Promptly notify Agent and provide copies upon receipt of all
written claims, complaints, notices or inquiries received by the
Company or any Subsidiary of a material nature relating to its
facilities and properties or compliance with Hazardous Material Laws,
and shall promptly cure and have dismissed with prejudice to the
satisfaction of the Majority Banks any actions and proceedings relating
to compliance with Hazardous Material Laws to which the Company or any
Subsidiary is named as a party; and
(c) Provide such information and certifications which any Bank
may reasonably request from time to time to evidence compliance with
this Section 8.8.
8.9 Funded Debt Ratio. Maintain, as of the last day of each fiscal
quarter, a Funded Debt Ratio of not greater than the following ratios during the
periods specified below:
At December 31, 1999 4.3 to 1
At March 31, 2000 3.75 to 1
At June 30, 2000 3.5 to 1
At September 30, 2000 3.25 to 1
December 31, 2000 to December 30, 2001 3 to 1
December 31, 2001 and thereafter 2.75 to 1
8.10 Consolidated Net Worth. Maintain, as of the last day of each
fiscal quarter, Consolidated Net Worth of not less than an amount equal to the
sum of $39,000,000, plus 75% of the Company's Consolidated Net Income (not
reduced by losses) for the period (taken as one accounting period) beginning on
the Effective Date and ending on the date of determination.
8.11 Fixed Charge Coverage Ratio. Maintain, as of the last day of each
fiscal quarter, a Fixed Charge Coverage Ratio of not less than the following
ratios during the periods specified below:
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At December 31, 1999 2.25 to 1
At March 31, 2000 2.50 to 1
At June 30, 2000 2.75 to 1
At September 30, 2000 2.75 to 1
December 31, 2000 and thereafter 3 to 1
8.12 Taxes. Pay and discharge all taxes and other governmental charges,
before the same shall become overdue, unless and to the extent only that such
payment is being contested in good faith by appropriate proceedings and is
reserved for, as required by GAAP on its balance sheet.
8.13 Governmental and Other Approvals. Apply for, obtain and/or
maintain in effect, as applicable, all authorizations, consents, approvals,
licenses, qualifications, exemptions, filings, declarations and registrations
(whether with any court, governmental agency, regulatory authority, securities
exchange or otherwise) which are necessary in connection with the execution,
delivery and performance: (i) by Borrowers, of this Agreement, the other Loan
Documents, or any other documents or instruments to be executed and/or delivered
by Borrowers in connection therewith or herewith; and (ii) by each of the
Subsidiaries, of the Loan Documents to which it is a party.
8.14 Compliance with ERISA. Comply in all material respects with all
requirements imposed by ERISA as presently in effect or hereafter promulgated or
the Internal Revenue Code, including, but not limited to, the minimum funding
requirements of any Pension Plan.
8.15 ERISA Notices. Promptly notify Agent and each Bank upon the
occurrence of any of the following events:
(a) the termination of any Pension Plan subject to Subtitle C of
Title IV of ERISA;
(b) the appointment of a trustee by a United States District
Court to administer any Pension Plan subject to Title IV of ERISA;
(c) the commencement by the Pension Benefit Guaranty
Corporation, or any successor thereto, of any proceeding to terminate
any Pension Plan subject to Title IV of ERISA;
(d) the failure any Borrower to make any payment in respect of
any Pension Plan required under Section 412 of the Internal Revenue
Code;
(e) the withdrawal of any Borrower from any multiemployer plan
(as defined in Section 3(37) of ERISA; or
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(f) the occurrence of a "reportable event" which is required
to be reported by any Borrower under Section 4043 of ERISA or a
"prohibited transaction" as defined in Section 406 of ERISA or Section
4975 of the Internal Revenue Code which is likely to have a Material
Adverse Effect on the Borrowers.
8.16 Future Subsidiaries; Additional Collateral.
(a) With respect to each Person which becomes a Domestic Subsidiary
subsequent to the Effective Date, within thirty days of the date such Person is
created, acquired or otherwise becomes a Subsidiary (whichever first occurs),
cause such new Domestic Subsidiary to execute and deliver to the Agent, (x) a
Joinder Agreement whereby such Domestic Subsidiary becomes obligated as a
Guarantor under the Guaranty and (y) a Joinder Agreement whereby such Domestic
Subsidiary becomes obligated as a Debtor under the Security Agreement;
(b) With respect to (i) the ownership interests of each Person which
becomes a Domestic Subsidiary subsequent to the Effective Date, within thirty
days of the date such Person is created, acquired or becomes a Subsidiary
(whichever first occurs), or (ii) any ownership interests of any existing
Domestic Subsidiary issued on or after the Effective Date, immediately upon the
issuance of such additional ownership interests, the applicable Loan Party shall
execute, or cause to be executed, and deliver to the Agent a Pledge Agreement
(or a Security Agreement) encumbering 100% of the ownership interests of each
such Domestic Subsidiary, or an amendment to an existing Security Agreement
encumbering 100% of such additional ownership interests of each such existing
Subsidiary, in each case to secure the Indebtedness;
in each case in form satisfactory to the Agent and the Majority Banks, in their
reasonable discretion, together with such supporting documentation, including
without limitation corporate authority items, certificates and opinions of
counsel, as reasonably required by the Agent and the Majority Banks.
8.17 Further Assurances. Execute and deliver or cause to be executed
and delivered to Agent within a reasonable time following Agent's request, and
at the Borrowers' expense, such other documents or instruments as Agent may
reasonably require to effectuate more fully the purposes of this Agreement or
the other Loan Documents.
8.18 Security. Take such actions as the Agent or the Majority Banks may
from time to time reasonably request to establish and maintain first perfected
security interests in and Liens on all of its Collateral, subject only to
Permitted Liens and other liens permitted under Section 9.2 hereof.
8.19 Defense of Collateral. Defend the Collateral from any Liens other
than Liens permitted by Section 9.2.
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8.20 Merger. Cause the Merger to be consummated within 120 days
following the later of (a) the Initial Tender Funding Date and (b) the date on
which Newco first accepts Shares for purchase pursuant to the Tender Offer.
8.21 Use of Proceeds. Use all Advances as set forth in Section 2.14
hereof. Borrowers shall not use any proceeds of Advances in any manner which
violates the provisions of Regulation T, U or X of the Board of Governors of the
Federal Reserve System or for any other purpose in violation of (x) any statute
or regulation or (y) the terms and conditions of this Agreement.
9. NEGATIVE COVENANTS
Borrowers covenant and agree that, until the Revolving Credit Maturity
Date and thereafter until expiration of all Letters of Credit and final payment
in full of the Indebtedness and the performance by Borrowers and the
Subsidiaries of all other obligations under this Agreement and the other Loan
Documents, without the prior written consent of the Majority Banks they will
not, and will not permit any of the Subsidiaries to:
9.1 Limitation on Debt. Create, incur, assume or suffer to exist any
Debt, except:
(a) Indebtedness in respect of the Notes, the Letters of
Credit and other obligations of the Borrowers or any Subsidiary under
this Agreement and the other Loan Documents to which it is a party;
(b) any Debt set forth in Schedule 9.1 attached hereto and any
renewals or refinancing of such Debt in amounts not exceeding the
scheduled amounts (less any required amortization according to the
terms thereof), on substantially the same terms and otherwise in
compliance with this Agreement;
(c) Debt of the Borrowers or a Subsidiary owed to Persons
other than the Banks incurred to finance the acquisition of fixed or
capital assets (whether pursuant to a loan or a Capitalized Lease) in
an aggregate amount not exceeding Five Million Dollars ($5,000,000) at
any time outstanding, and any renewals or refinancing of such Debt in
amounts not exceeding the scheduled amounts (less any required
amortization according to the terms thereof), on substantially the same
terms and otherwise in compliance with this Agreement;
(d) Debt in respect of taxes, assessments or governmental
charges to the extent that payment thereof shall not at the time be
required to be made in accordance with Section 8.12 and Debt permitted
by Sections 9.8(f), (g) and (i);
(e) Debt under any Hedging Transactions;
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(f) Intercompany Loans, but only to the extent permitted under
the applicable terms and provisions of this Agreement, including, but
not limited to Section 9.8 hereof; and
(g) additional unsecured Debt not exceeding Five Million
Dollars ($5,000,000) in aggregate principal amount at any one time
outstanding.
9.2 Limitation on Liens. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
(a) Permitted Liens;
(b) Liens securing Debt permitted by Section 9.1(c) incurred
to finance the acquisition of fixed or capital assets, provided that
(i) such Liens shall be created substantially simultaneously with the
acquisition of such fixed or capital assets, (ii) such Liens do not at
any time encumber any property other than the property financed by such
Debt, (iii) the amount of Debt secured thereby is not increased and
(iv) the principal amount of Debt secured by any such Lien shall at no
time exceed 100% of the original purchase price of such property;
(c) Liens in favor of Agent for the benefit of the Banks, as
security for the Indebtedness; and
(d) other Liens, existing on the Effective Date, set forth on
Schedule 9.2.
9.3 Limitation on Guarantee Obligations. Create, incur, assume or
suffer to exist any Guarantee Obligation except pursuant to the Loan Documents
and Guarantee Obligations set forth in Schedule 9.3.
9.4 Acquisitions. Purchase or otherwise acquire or become obligated
for the purchase of all or substantially all or any material portion of the
assets or business interests of any Person, firm or corporation, or any shares
of stock (or other ownership interests) of any corporation, trusteeship or
association, or any business or going concern, or in any other manner effectuate
or attempt to effectuate an expansion of present business by acquisition, except
for Permitted Acquisitions and, subject to the terms and conditions of this
Agreement, including but not limited to Section 6A hereof, the Smartflex
Acquisition.
9.5 Limitation on Mergers or Sale of Assets. Enter into any merger or
consolidation or convey, sell, lease, assign, transfer or otherwise dispose of
any of its property, business or assets (including, without limitation,
receivables and leasehold interests), whether now owned or hereafter acquired,
except:
(a) inventory leased or sold in the ordinary course of business;
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(b) obsolete or worn out property, property no longer useful in
the conduct of Company's or any Subsidiaries' business or property from
closed offices, in each case disposed of in the ordinary course of
business;
(c) the Merger and mergers in which a Borrower or a Subsidiary is
the surviving corporation and which otherwise meet the definition of
"Permitted Acquisition";
(d) (i) Asset Sales approved by the Majority Banks and (ii)
Asset Sales in which the sales price is at least the fair market value
of the assets sold and the aggregate amount of such Asset Sales is less
than Two Million Dollars ($2,000,000) in the aggregate in any fiscal
year for the Company and all Subsidiaries;
(e) mergers of any Borrower or any Guarantor with or into any
other Borrower or Guarantor as the surviving corporation, provided that
no Person other than a Borrower or Guarantor shall be a party to any
such merger;
(f) mergers of any Foreign Subsidiary which is not an Eligible
Foreign Subsidiary with or into any other Foreign Subsidiary, provided
that no Person other than a Subsidiary is a party to any such merger;
and
(g) mergers of any Eligible Foreign Subsidiary with or into any
other Eligible Foreign Subsidiary, provided that no Person other than a
Subsidiary is a party to any such merger.
9.6 Restricted Payments. Declare or make, or permit any Subsidiary to
declare or make, any distributions, dividend, payment or other distribution of
assets, properties, cash, rights, obligations or securities (collectively,
"Distributions") on account of any shares of any class of its capital stock, or
purchase, redeem or otherwise acquire for value any shares of its capital stock
as, or any warrants, rights or options to acquire such shares now or hereafter
outstanding; except:
(a) cash Distributions by any Subsidiary to any Borrower or any
Guarantor;
(b) dividends payable solely in its common stock; and
(c) dividends by the Company, provided that at the time declared
and paid, no Default or Event of Default shall have occurred and be
continuing, either before the payment of such dividends or after giving
effect thereto.
9.7 Limitation on Capital Expenditures. Make (by way of the
acquisition of securities of a Person or otherwise) any Capital Expenditure,
except for Capital Expenditures not to exceed $25,000,000 in the aggregate
during any fiscal year for the Company and all Subsidiaries, or commit to make
aggregate Capital Expenditures in excess of such amount for any fiscal year.
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9.8 Limitation on Investments, Loans and Advances. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities, of or any assets constituting a
business unit of, or make any other investment in, any Person, except:
(a) Permitted Investments;
(b) investments existing on the Effective Date and listed on
Schedule 9.8 hereto and any refinancings or refunding thereof in an
amount not greater than the applicable amount set forth on Schedule
9.8;
(c) extensions of trade credit in the ordinary course of
business;
(d) loans to officers for relocation expenses, not to exceed Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate at any
one time outstanding;
(e) loans and advances to officers and employees of any Borrower
or any Subsidiary for travel and entertainment and other business
expenses in the ordinary course of business not to exceed Two Hundred
Fifty Thousand Dollars ($250,000) in the aggregate at any one time
outstanding;
(f) Intercompany Loans, Advances or Investments existing on or
after the Effective Date by a Borrower or any Guarantor to any other
Borrower or any other Guarantor (provided that all Intercompany Loans
covered by this clause shall be evidenced by and funded under an
Intercompany Note encumbered in favor of the Agent pursuant to the
applicable Security Agreement and provided further that at the time any
such loan, advance or investment is made (before and after giving
effect thereto) no Default or Event of Default has occurred and is
continuing);
(g) Intercompany Loans, Advances or Investments made after the
Effective Date by a Borrower to any Eligible Foreign Subsidiary in an
aggregate amount not to exceed $15,000,000 at any one time outstanding
(provided that all Intercompany Loans covered by this clause shall be
evidenced by and funded under an Intercompany Note encumbered in favor
of the Agent pursuant to the applicable Security Agreement and provided
further that at the time any such loan, advance or investment is made
(before and after giving effect thereto) no Default or Event of Default
has occurred and is continuing);
(h) acquisitions permitted pursuant to Section 9.4; and
(i) other loans, advances or investments made on or after the
Effective Date, in an aggregate amount not to exceed $7,000,000 at any
one time outstanding.
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9.9 Transactions with Affiliates. Enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate of any Borrower or any
Subsidiary unless such transaction is otherwise permitted under this Agreement,
is in the ordinary course of such Borrower's or Subsidiary's business and is
upon fair and reasonable terms no less favorable to such Borrower Subsidiary
than it would obtain in a comparable arms length transaction with a Person not
an Affiliate.
9.10 Sale and Leaseback. Enter into any arrangement with any Person
providing for the leasing by any Borrower or any Subsidiary of real or personal
property which has been or is to be sold or transferred by such Borrower or
Subsidiary to such Person or to any other Person to whom funds have been or are
to be advanced by such Person on the security of such property or rental
obligations of such Borrower or such Subsidiary, as the case may be.
9.11 Limitation on Negative Pledge Clauses. Enter into or suffer to
exist or become effective any agreement that prohibits or limits the ability of
any of the Borrowers or any of their respective Subsidiaries to create, incur,
assume or suffer to exist any Lien upon any of its property or revenues, whether
now owned or hereafter acquired, other than (a) this Agreement and the other
Loan Documents and (b) any agreements, documents or instruments pursuant to
which Liens not prohibited by the terms of this Agreement are created, entered
into are allowed to exist.
9.12 Prepayment of Debts. Prepay, purchase, redeem or defease any Debt
for money borrowed or any Capitalized Lease Obligation in excess of One Million
Dollars ($1,000,000) excluding, subject to the terms hereof, the Indebtedness
and payments and repayments of Intercompany Loans.
9.13 Modification of Smartflex Acquisition Documents. Make, permit or
consent to any amendment to the Smartflex Acquisition Documents except to the
extent that any such amendment (i) does not violate the terms and conditions of
this Agreement or any of the other Loan Documents or (ii) does not have a
material adverse affect on the interests of the Banks as creditors under this
Agreement and the other Loan Documents.
10. DEFAULTS
10.1 Events of Default. The occurrence of any of the following events
shall constitute an Event of Default hereunder:
(a) non-payment when due of (i) the principal or interest under
any of the Notes, (ii) any Reimbursement Obligation, or (iii) any Fees,
and in the case of interest payments and any such Fees, continuance
thereof for three (3) Business Days;
(b) non-payment of any money by Borrowers under this Agreement or
by Borrowers or any Subsidiary under any of the Loan Documents, other
than as set forth in
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subsection (a), above within ten (10) Business Days after notice from
Agent that the same is due and payable;
(c) default in the observance or performance of any of the
conditions, covenants or agreements of any Borrower set forth in
Sections 8.4(a), 8.5, 8.6, 8.7, 8.9 through 8.11, 8.16, 8.21 or Section
9 (in its entirety);
(d) default in the observance or performance of any of the
conditions, covenants or agreements of any Borrower set forth in
Section 8.1 or 8.2 and continuance thereof for a period of five (5)
consecutive days;
(e) default in the observance or performance of any of the
other conditions, covenants or agreements set forth in this Agreement
by any Borrower and continuance thereof for a period of thirty (30)
consecutive days after written notice from the Agent;
(f) any representation or warranty made by any Borrower or any
Subsidiary herein or in any instrument submitted pursuant hereto or by
any other party to the Loan Documents proves untrue or misleading in
any material adverse respect when made;
(g) default in the observance or performance of or failure to
comply with any of the conditions, covenants or agreements of any
Borrower, any Guarantor or any Subsidiary set forth in any of the other
Loan Documents, and the continuance thereof beyond any period of grace
or cure specified in any such document;
(h) default (i) in the payment of any indebtedness for
borrowed money (other than Indebtedness hereunder) of any Borrower or
any Subsidiary in excess of One Million Dollars ($1,000,000) in the
aggregate when due (whether by acceleration or otherwise) and
continuance thereof beyond any applicable period of cure or (ii)
failure to comply with the terms of any other obligation of any
Borrower or any Subsidiary with respect to any indebtedness for
borrowed money (other than Indebtedness hereunder) in excess of One
Million Dollars ($1,000,000) in the aggregate, which with the giving of
notice or passage of time or both would permit the holder or holders
thereto to accelerate such other indebtedness for borrowed money or
terminate its commitment thereunder, as applicable;
(i) the rendering of any judgment(s) for the payment of money
in excess of the sum of One Million Dollars ($1,000,000) individually
or in the aggregate against any Borrower or any Subsidiary, and such
judgment(s) shall remain unpaid, unvacated, unbonded or unstayed by
appeal or otherwise for a period of thirty (30) consecutive days,
except as covered by adequate insurance with a reputable carrier and as
to which an action is pending in which an active defense is being made
with respect thereto;
(j) the occurrence of a "reportable event", as defined in
ERISA, which is determined to constitute grounds for termination by the
Pension Benefit Guaranty
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Corporation of any Pension Plan subject to Title IV of ERISA maintained
or contributed to by or on behalf of a Borrower or any of its
Subsidiaries for the benefit of any of its employees or for the
appointment by the appropriate United States District Court of a
trustee to administer such Pension Plan and such reportable event is
not corrected and such determination is not revoked within sixty (60)
days after notice thereof has been given to the plan administrator of
such Pension Plan (without limiting any of Agent's or any Bank's other
rights or remedies hereunder), or the institution of proceedings by the
Pension Benefit Guaranty Corporation to terminate any such Pension Plan
or to appoint a trustee by the appropriate United States District Court
to administer any such Pension Plan;
(k) Any Loan Party (i) ceases or fails to be solvent, or
generally fails to pay, or admits in writing its inability to pay, its
debts as they become due; (ii) voluntarily ceases to conduct its
business in the ordinary course; (iii) commences any Insolvency
Proceeding with respect to itself; (iv) takes any action to effectuate
or authorize any of the foregoing; or (A) any involuntary Insolvency
Proceeding is commenced or filed against any Loan Party, or any writ,
judgment, warrant of attachment, execution or similar process is
issued, enforced or levied against a substantial part of any Loan
Party's properties, and such proceeding or petition shall not be
dismissed, or such writ, judgment, warrant of attachment, execution or
similar process shall not be released, vacated or fully bonded, within
60 days after commencement, filing or levy; (B) any Loan Party admits
the material allegations of a petition against it in any Insolvency
Proceeding, or an order for relief (or similar order under non-U.S.
law) is ordered in any Insolvency Proceeding; or (C) any Loan Party
acquiesces in the appointment of a receiver, receiver and manager,
administrative receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession (or Agent therefor), or other similar Person
for itself or a substantial portion of its property or business;
(l) Any of the following events shall occur:
(i) prior to any Initial Public Offering, Wallace K.
Tsuha, Jr. shall cease to own or control, directly
or indirectly but on a fully diluted basis, at
least 51% of the capital stock having voting rights
of each of the Borrowers; or
(ii) following an Initial Public Offering, (x) any
Person and Affiliates of such Person shall own or
control, directly or indirectly, a greater number
of shares of the capital stock having voting rights
of any of the Borrowers than are owned or
controlled, directly or indirectly, by Wallace K.
Tsuha, Jr. or (y) Wallace K. Tsuha, Jr. shall fail
to own or control, directly or indirectly, more
than 20% of the capital stock having voting rights
of any of the Borrowers; or
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(iii) Wallace K. Tsuha, Jr. shall for any reason cease to
be the Chairman of the Board of each of the
Borrowers.
(m) any material provision of any Loan Document shall at any time
for any reason cease to be valid, binding and enforceable against any
Loan Party or the validity, binding effect or enforceability thereof
shall be contested by any Loan Party, or any Loan Party shall deny that
it has any or further liability or obligation under any Loan Document,
or any such Loan Document shall be terminated, invalidated, revoked or
set aside or in any way cease to give or provide to the Banks and the
Agent the benefits purported to be created thereby.
10.2 Exercise of Remedies. (a) If an Event of Default has occurred and
is continuing hereunder: (a) the Agent may, and shall, upon being directed to do
so by the Majority Banks, declare the Revolving Credit Aggregate Commitment
terminated; (b) the Agent may, and shall, upon being directed to do so by the
Majority Banks, declare the entire unpaid principal Indebtedness, including the
Notes, immediately due and payable, without presentment, notice or demand, all
of which are hereby expressly waived by Borrowers; (c) upon the occurrence of
any Event of Default specified in subsection 10.1(j), above, and notwithstanding
the lack of any declaration by Agent under preceding clause (a), the entire
unpaid principal Indebtedness, shall become automatically and immediately due
and payable, and the Revolving Credit Aggregate Commitment shall be
automatically and immediately terminated; (d) the Agent shall, upon being
directed to do so by the Majority Banks, demand immediate delivery of cash
collateral, and Borrowers and each Account Party agrees to deliver such cash
collateral upon demand, in an amount equal to the maximum amount that may be
available to be drawn at any time prior to the stated expiry of all outstanding
Letters of Credit, and (e) the Agent may, and shall, if directed to do so by the
Majority Banks or all Banks, as applicable (subject to the terms hereof),
exercise any remedy permitted by this Agreement, the other Loan Documents or
law.
10.3 Rights Cumulative. No delay or failure of the Agent and/or Banks
in exercising any right, power or privilege hereunder shall affect such right,
power or privilege, nor shall any single or partial exercise thereof preclude
any further exercise thereof, or the exercise of any other power, right or
privilege. The rights of Agent and Banks under this Agreement are cumulative and
not exclusive of any right or remedies which the Banks would otherwise have.
10.4 Waiver by Borrowers of Certain Laws. To the extent permitted by
applicable law, each Borrower hereby agrees to waive, and does hereby absolutely
and irrevocably waive and relinquish the benefit and advantage of any valuation,
stay, appraisement, extension or redemption laws now existing or which may
hereafter exist, which, but for this provision, might be applicable to any sale
made under the judgment, order or decree of any court, on any claim for interest
on the Notes, or any security interest or mortgage contemplated by or granted
under or in connection with this Agreement. These waivers have been voluntarily
given, with full knowledge of the consequences thereof.
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10.5 Waiver of Defaults. No Event of Default may be waived by the Banks
except in a writing signed by an officer of the Agent in accordance with Section
14.11 hereof. No single or partial exercise of any right, power or privilege
hereunder, nor any delay in the exercise thereof, shall preclude other or
further exercise of their rights by Agent or the Banks. No waiver of any Event
of Default shall extend to any other or further Event of Default. No forbearance
on the part of the Agent or the Banks in enforcing any of their rights shall
constitute a waiver of any of their rights. Company and Newco expressly agree
that this Section may not be waived or modified by the Banks or Agent by course
of performance, estoppel or otherwise.
10.6 Set Off. Upon the occurrence and during the continuance of any
Event of Default, each Bank may at any time and from time to time, without
notice to the Borrowers but subject to the provisions of Section 11.4 hereof
(any requirement for such notice being expressly waived by the Borrowers), set
off and apply against any and all of the obligations of the Borrowers now or
hereafter existing under this Agreement, whether owing to such Bank or any other
Bank or the Agent, any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Bank to or for the credit or the account of any Borrower or any property
of any Borrower from time to time in possession of such Bank, irrespective of
whether or not such deposits held or indebtedness owing by such Bank may be
contingent and unmatured and regardless of whether any Collateral then held by
Agent or any Bank is adequate to cover the Indebtedness. The Borrowers hereby
grant to the Banks and the Agent a lien on and security interest in all such
deposits, indebtedness and property as collateral security for the payment and
performance of all of the obligations of the Borrowers under this Agreement and
all of the obligations of the Borrowers under each Loan Document to which it is
a party. The rights of each Bank under this Section 10.6 are in addition to the
other rights and remedies (including, without limitation, other rights of
setoff) which such Bank may have.
11. PAYMENTS, RECOVERIES AND COLLECTIONS
11.1 Payment Procedure.
(a) All payments by the Borrowers of principal of, or
interest on, the Notes, or of Fees, shall be made without setoff or
counterclaim on the date specified for payment under this Agreement not
later than 12:00 noon (Detroit time) in immediately available funds to
Agent, for the ratable account of the Banks, at Agent's office located
at One Detroit Center, Detroit, Michigan 48226 (care of Agent's
Eurocurrency Lending Office, for Eurocurrency-based Advances). Upon
receipt by the Agent of each such payment, the Agent shall make prompt
payment in like funds received to each Bank as appropriate, or, in
respect of Eurocurrency-based Advances, to such Bank's Eurocurrency
Lending Office.
(b) Unless the Agent shall have been notified by the
Borrowers prior to the date on which any payment to be made by the
Borrowers is due that the Borrowers do not intend to remit such
payment, the Agent may, in its sole discretion and without obligation
to do so, assume that the Borrowers have remitted such payment when so
due and the
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Agent may, in reliance upon such assumption, make available to each
Bank on such payment date an amount equal to such Bank's share of such
assumed payment. If Borrowers have not in fact remitted such payment to
the Agent each Bank shall forthwith on demand repay to the Agent the
amount of such assumed payment made available or transferred to such
Bank, together with the interest thereon, in respect of each day from
and including the date such amount was made available by the Agent to
such Bank to the date such amount is repaid to the Agent at a rate per
annum equal to (i) for Prime-based Advances, the Federal Funds
Effective Rate (daily average), as the same may vary from time to time,
and (ii) with respect to Eurocurrency-based Advances, Agent's aggregate
marginal cost (including the cost of maintaining any required reserves
or deposit insurance and of any fees, penalties, overdraft charges or
other costs or expenses incurred by Agent) of carrying such amount.
(c) Subject to the definition of Interest Period, whenever
any payment to be made hereunder shall otherwise be due on a day which
is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in
computing interest, if any, in connection with such payment.
(d) All payments to be made by Borrowers under this
Agreement or any of the Notes (including without limitation payments
under the Swing Line Note) shall be made without set-off or
counterclaim, as aforesaid, and without deduction for or on account of
any present or future withholding or other taxes of any nature imposed
by any governmental authority or of any political subdivision thereof
or any federation or organization of which such governmental authority
may at the time of payment be a member, unless Borrowers are compelled
by law to make payment subject to such tax. In such event, Borrowers
shall:
(i) pay to the Agent for Agent's own account and/or, as
the case may be, for the account of the Banks (and,
in the case of Advances of the Swing Line, pay to
the Swing Line Bank which funded such Advances)
such additional amounts as may be necessary to
ensure that the Agent and/or such Bank or Banks
receive a net amount equal to the full amount which
would have been receivable had payment not been
made subject to such tax; and
(ii) remit such tax to the relevant taxing authorities
according to applicable law, and send to the Agent
or the applicable Bank (including the Swing Line
Bank) or Banks, as the case may be, such
certificates or certified copy receipts as the
Agent or such Bank or Banks shall reasonably
require as proof of the payment by the Borrowers,
of any such taxes payable by the Borrowers.
As used herein, the terms "tax", "taxes" and "taxation" include all
existing taxes, levies, imposts, duties, charges, fees, deductions and
withholdings and any restrictions or conditions
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resulting in a charge together with interest thereon and fines and penalties
with respect thereto which may be imposed by reason of any violation or default
with respect to the law regarding such tax, assessed as a result of or in
connection with the transactions hereunder, or the payment and or receipt of
funds hereunder, or the payment or delivery of funds into or out of any
jurisdiction other than the United States (whether assessed against any of the
Borrowers, the Agent or any of the Banks).
11.2 Application of Proceeds of Collateral. Notwithstanding anything to
the contrary in this Agreement, after an Event of Default, the proceeds of any
Collateral, together with any offsets, voluntary payments by Borrowers or others
and any other sums received or collected in respect of the Indebtedness, shall
be applied, first, to the Notes and any Reimbursement Obligation on a pro rata
basis (or in such order and manner as determined by the Majority Banks), next,
to any other Indebtedness on a pro rata basis, and then, if there is any excess,
to Borrowers or the applicable Subsidiary, as the case may be. The application
of such proceeds and other sums to the Notes and any Reimbursement Obligation
shall be based on each Bank's respective Percentages, as applicable.
11.3 Letter of Credit Liabilities For the purposes of payments and
distributions under Section 11.2 hereof, the full amount of Indebtedness on
account of any outstanding Letter of Credit shall be deemed to be then due and
owing, and the face amount of any Letter of Credit then outstanding but not
drawn upon and all Reimbursement Obligations (other than amounts attributable to
interest, fees and costs) due on any Letters of Credit that have been drawn upon
shall be considered principal owing pursuant to Indebtedness relating to Letters
of Credit and the amount outstanding under the Letters of Credit for purposes of
determining pro rata sharing or otherwise. Amounts distributable under Section
11.2 to the Banks on account of such Indebtedness under such Letters of Credit
shall be deposited in a separate interest bearing cash collateral account in the
name of and under the control of the Agent and held by the Agent, first as
security for such Letter of Credit Indebtedness and then as security for all
other Indebtedness, and the amount so deposited shall be applied to reimburse
the Revolving Credit Banks for any drawings under any Letter of Credit, and if
all letters of credit shall expire or terminate without being drawn upon, then
such amounts shall be applied to the remaining Indebtedness in the order and
manner provided under Section 11.2. Each Borrower, by its acknowledgment and
acceptance of this Agreement, hereby grants to the Agent, for the benefit of the
Banks, a lien and security interest in all such funds deposited in such separate
interest bearing collateral account, as security for the Indebtedness as set
forth above.
11.4 Pro-rata Recovery. If any Bank shall obtain any payment or other
recovery (whether voluntary, involuntary, by application of offset or otherwise)
on account of principal of, or interest on, any of the Indebtedness in excess of
its pro rata share of payments then or thereafter obtained by all Banks upon
principal of and interest on all Indebtedness, such Bank shall purchase from the
other Banks such participations in the Notes and/or Reimbursement Obligation
held by them as shall be necessary to cause such purchasing Bank to share the
excess payment or other recovery ratably in accordance with the Percentage with
each of them; provided, however, that if all or any portion of the excess
payment or other recovery is thereafter
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recovered from such purchasing holder, the purchase shall be rescinded and the
purchase price restored to the extent of such recovery, but without interest.
12. CHANGES IN LAW OR CIRCUMSTANCES; INCREASED COSTS
12.1 Reimbursement of Prepayment Costs. If any Borrower makes any
payment of principal with respect to any Eurocurrency-based Advance or Quoted
Rate Advance on any day other than the last day of the Interest Period
applicable thereto (whether voluntarily, by acceleration, or otherwise), or if
any Borrower converts or refunds (or attempts to convert or refund) any such
Advance on any day other than the last day of the Interest Period applicable
thereto; or if any Borrower fails to borrow, refund or convert into any
Eurocurrency-based Advance or Quoted Rate Advance after notice has been given by
such Borrower to Agent in accordance with the terms hereof requesting such
Advance, or if any Borrower fails to make any payment of principal or interest
in respect of a Eurocurrency-based Advance or Quoted Rate Advance when due, the
applicable Borrower shall reimburse Agent for itself and/or on behalf of any
Bank, as the case may be, on demand for any resulting loss, cost or expense
incurred (excluding the loss of any Applicable Margin) by Agent and Banks, as
the case may be as a result thereof, including, without limitation, any such
loss, cost or expense incurred in obtaining, liquidating, employing or
redeploying deposits from third parties, whether or not Agent and Banks, as the
case may be, shall have funded or committed to fund such Advance. Such amount
payable by such Borrower to Agent for itself and/or on behalf of any Bank, as
the case may be, may include, without limitation, an amount equal to the excess,
if any, of (a) the amount of interest which would have accrued on the amount so
prepaid, or not so borrowed, refunded or converted, for the period from the date
of such prepayment or of such failure to borrow, refund or convert, through the
last day of the relevant Interest Period, at the applicable rate of interest for
said Advance(s) provided under this Agreement, over (b) the amount of interest
(as reasonably determined by Agent and Banks, as the case may be) which would
have accrued to Agent and Banks, as the case may be, on such amount by placing
such amount on deposit for a comparable period with leading banks in the
interbank eurocurrency market. Calculation of any amounts payable to any Bank
under this paragraph shall be made as though such Bank shall have actually
funded or committed to fund the relevant Advance through the purchase of an
underlying deposit in an amount equal to the amount of such Advance and having a
maturity comparable to the relevant Interest Period; provided, however, that any
Bank may fund any Eurocurrency-based Advance or Quoted Rate Advance, as the case
may be, in any manner it deems fit and the foregoing assumptions shall be
utilized only for the purpose of the calculation of amounts payable under this
paragraph. Agent and Banks shall deliver to Borrowers a certificate setting
forth in reasonable detail the basis for determining such losses, costs and
expenses, which certificate shall be conclusively presumed correct, absent
manifest error.
12.2 Eurocurrency Lending Office. For any Advance to which the
Eurocurrency-based Rate is applicable, if Agent or a Bank, as applicable, shall
designate a Eurocurrency Lending Office which maintains books separate from
those of the rest of Agent or such Bank, Agent or such Bank, as the case may be,
shall have the option of maintaining and carrying the relevant Advance on the
books of such Eurocurrency Lending Office.
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12.3 Circumstances Affecting Eurocurrency-based Rate Availability. If
with respect to any Interest Period, Agent or the Majority Banks (after
consultation with Agent) shall determine that, by reason of circumstances
affecting the foreign exchange and interbank markets generally, deposits in
eurodollars, in the applicable amounts are not being offered to the Agent or
such Banks for such Interest Period, then Agent shall forthwith give notice
thereof to the Borrowers. Thereafter, until Agent notifies the Borrowers that
such circumstances no longer exist, (i) the obligation of Banks to make
Eurocurrency-based Advances, and the right of the Borrowers to convert an
Advance to or refund an Advance as a Eurocurrency-based Advance, as the case may
be, shall be suspended, and (ii) the Borrowers shall repay in full (or cause to
be repaid in full) the then outstanding principal amount of each such
Eurocurrency-based Advance covered hereby, together with accrued interest
thereon, any amounts payable under Sections 12.1 hereof, and all other amounts
payable hereunder on the last day of the then current Interest Period applicable
to such Advance. Upon the date for repayment as aforesaid and unless Borrowers
notify Agent to the contrary within two (2) Business Days after receiving a
notice from Agent pursuant to this Section, such outstanding principal amount
shall be converted to a Prime-based Advance as of the last day of such Interest
Period.
12.4 Laws Affecting Eurocurrency-based Advance Availability. If, after
the date of this Agreement, the introduction of, or any change in, any
applicable law, rule or regulation or in the interpretation or administration
thereof by any Governmental Authority charged with the interpretation or
administration thereof, or compliance by any of the Banks (or any of their
respective Eurocurrency Lending Offices) with any request or directive (whether
or not having the force of law) of any such authority, shall make it unlawful or
impossible for any of the Banks (or any of their respective Eurocurrency Lending
Offices) to honor its obligations hereunder to make or maintain any Advance with
interest at the Eurocurrency-based Rate, such Bank shall forthwith give notice
thereof to the Borrowers and to Agent. Thereafter, (a) the obligations of Banks
to make Eurocurrency-based Advances and the right of any Borrower to convert an
Advance into or refund an Advance as a Eurocurrency-based Advance shall be
suspended and thereafter the Borrowers may select as Applicable Interest Rates
only those which remain available and which are permitted to be selected
hereunder, and (b) if any of the Banks may not lawfully continue to maintain an
Advance to the end of the then current Interest Period applicable thereto as a
Eurocurrency-based Advance the applicable Advance shall immediately be converted
to a Prime-based Advance and the Prime-based Rate shall be applicable thereto
for the remainder of such Interest Period. For purposes of this Section, a
change in law, rule, regulation, interpretation or administration shall include,
without limitation, any change made or which becomes effective on the basis of a
law, rule, regulation, interpretation or administration presently in force, the
effective date of which change is delayed by the terms of such law, rule,
regulation, interpretation or administration.
12.5 Increased Cost of Eurocurrency-based Advances. If the adoption
after the date of this Agreement of, or any change after the date of this
Agreement in, any applicable law, rule or regulation of or in the interpretation
or administration thereof by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by Agent or any of the Banks (or any of their respective Eurocurrency
Lending
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Offices) with any request or directive (whether or not having the force of law)
made by any such authority, central bank or comparable agency after the date
hereof:
(a) shall subject any of the Banks (or any of their respective
Eurocurrency Lending Offices) to any tax, duty or other charge with
respect to any Advance or shall change the basis of taxation of
payments to any of the Banks (or any of their respective Eurocurrency
Lending Offices) of the principal of or interest on any Advance or any
other amounts due under this Agreement in respect thereof (except for
changes in the rate of tax on the overall net income of any of the
Banks or any of their respective Eurocurrency Lending Offices imposed
by the jurisdiction in which such Bank's principal executive office or
Eurocurrency Lending Office is located); or
(b) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors
of the Federal Reserve System), special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, any of the Banks (or any of their respective Eurocurrency
Lending Offices) or shall impose on any of the Banks (or any of their
respective Eurocurrency Lending Offices) or the foreign exchange and
interbank markets any other condition affecting any Advance;
and the result of any of the foregoing is to increase the costs to any of the
Banks of maintaining any part of the Indebtedness hereunder as a
Eurocurrency-based Advance or to reduce the amount of any sum received or
receivable by any of the Banks under this Agreement in respect of a
Eurocurrency-based Advance, whether with respect to Advances to any of the
Borrowers, then such Bank shall promptly notify Agent, and Agent (or such Bank,
as aforesaid) shall promptly notify the Borrowers of such fact and demand
compensation therefor and, within fifteen (15) days after such notice, the
applicable Borrower agrees to pay to such Bank such additional amount or amounts
as will compensate such Bank or Banks for such increased cost or reduction.
Agent will promptly notify the Borrowers of any event of which it has knowledge
which will entitle Banks to compensation pursuant to this Section, or which will
cause the Borrowers to incur additional liability under Section 12.1 hereof,
provided that Agent shall incur no liability whatsoever to the Banks or the
Borrowers in the event it fails to do so. A certificate of Agent (or such Bank,
if applicable) setting forth in reasonable detail the basis for determining such
additional amount or amounts necessary to compensate such Bank or Banks shall be
conclusively presumed to be correct save for manifest error. Each Bank demanding
compensation under this Section 12.5 shall deliver to the applicable Borrower
such a certificate with, or promptly following, the delivery of the notice and
demand referred to above. For purposes of this Section, a change in law, rule,
regulation, interpretation, administration, request or directive shall include,
without limitation, any change made or which becomes effective on the basis of a
law, rule, regulation, interpretation, administration, request or directive
presently in force, the effective date of which change is delayed by the terms
of such law, rule, regulation, interpretation, administration, request or
directive.
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12.6 Capital Adequacy and Other Increased Costs. In the event that
after the Effective Date the adoption of or any change in any applicable law,
treaty, rule or regulation (whether domestic or foreign) now or hereafter in
effect and whether or not presently applicable to any Bank or Agent, or any
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof, or compliance by any Bank or
Agent with any guideline, request or directive of any such authority (whether or
not having the force of law), including any risk based capital guidelines,
affects or would affect the amount of capital required or expected to be
maintained by such Bank or Agent (or any corporation controlling such Bank or
Agent) and such Bank or Agent, as the case may be, determines that the amount of
such capital is increased by or based upon the existence of such Bank's or
Agent's obligations or Advances hereunder and such increase has the effect of
reducing the rate of return on such Bank's or Agent's (or such controlling
corporation's) capital as a consequence of such obligations or Advances
hereunder to a level below that which such Bank or Agent (or such controlling
corporation) could have achieved but for such circumstances (taking into
consideration its policies with respect to capital adequacy) by an amount deemed
by such Bank or Agent to be material (collectively, "Increased Costs"), then
Agent or such Bank shall notify the Borrowers, and thereafter the applicable
Borrower shall pay to such Bank or Agent, as the case may be, from time to time,
upon request by such Bank or Agent, additional amounts sufficient to compensate
such Bank or Agent (or such controlling corporation) for any increase in the
amount of capital and reduced rate of return which such Bank or Agent reasonably
determines to be allocable to the existence of such Bank's or Agent's
obligations or Advances hereunder; notwithstanding the forgoing, however, the
Borrowers shall not be required to pay any increased costs under this Section
12.6 and Sections 12.5 or 3.4(c) for any period ending prior to the date that is
180 days prior to the making of a Bank's initial request for such additional
amounts unless the applicable change in law or other event resulting in such
increased costs is effective retroactively to a date more than 180 days prior to
the date of such request, in which case a Bank's request for such additional
amounts relating to the period more than 180 days prior to the making of the
request must be given not more than 180 days after such Bank becomes aware of
the applicable change in law or other event resulting in such increased costs. A
statement as to the amount of such compensation, prepared in good faith and in
reasonable detail by such Bank or Agent, as the case may be, shall be submitted
by such Bank or by Agent to the Borrowers, reasonably promptly after becoming
aware of any event described in this Section 12.6 and shall be conclusive,
absent manifest error in computation.
12.7 Substitution of Banks. If (a) the obligation of any Bank to make
Eurocurrency-based Advances has been suspended pursuant to Section 12.3 or 12.4
or (b) any Bank has demanded compensation under Section 3.4(c), 12.5 or 12.6 or
has defaulted in its obligation to make Advances under Article 2 (in each case,
an "Affected Bank"), then the Borrowers shall have the right (subject to Section
14.8 hereof), with the assistance of the Agent, to seek a substitute Bank or
Banks (which may be one or more of the Banks (the "Purchasing Bank" or
"Purchasing Banks") to purchase the Advances of the Revolving Credit and assume
the commitments (including without limitation its participations in Swing Line
Advances and Letters of Credit) under this Agreement of such Affected Bank. The
Affected Bank shall be obligated to sell its Advances of the Revolving Credit,
and assign its commitments to such Purchasing Bank
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or Purchasing Banks within fifteen days after receiving notice from Borrowers
requiring it to do so, at an aggregate price equal to the outstanding principal
amount thereof, plus unpaid interest accrued thereon up to but excluding the
date of the sale. In connection with any such sale, and as a condition thereof,
Borrowers shall pay to the Affected Bank all fees accrued for its account
hereunder to but excluding the date of such sale, plus, if demanded by the
Affected Bank within ten Business Days after such sale, (i) the amount of any
compensation which would be due to the Affected Bank under Section 12.1 if the
applicable Borrower has prepaid the outstanding Eurocurrency-based Advances of
the Affected Bank on the date of such sale and (ii) any additional compensation
accrued for its account under Sections 3.4(c), 12.5 and 12.6 to but excluding
said date. Upon such sale, the Purchasing Bank or Purchasing Banks shall assume
the Affected Bank's commitment, and the Affected Bank shall be released from its
obligations hereunder to a corresponding extent. If any Purchasing Bank is not
already one of the Banks, the Affected Bank, as assignor, such Purchasing Bank,
as assignee, Borrowers and the Agent, shall enter into an Assignment Agreement
pursuant to Section 14.8 hereof, whereupon such Purchasing Bank shall be a Bank
party to this Agreement, shall be deemed to be an assignee hereunder and shall
have all the rights and obligations of a Bank with a Revolving Credit Percentage
equal to its ratable share of the then applicable Revolving Credit Aggregate
Commitment of the Affected Bank. In connection with any assignment pursuant to
this Section 12.7, the Borrowers or the Purchasing Bank shall pay to the Agent
the administrative fee for processing such assignment referred to in Section
14.8.
12.8 Right of Banks to Fund through Branches and Affiliates. Each Bank
may, if it so elects, fulfill its commitment as to any Advance hereunder by
designating a branch or Affiliate of such Bank to make such Advance; provided
that (a) such Bank shall remain solely responsible for the performances of its
obligations hereunder and (b) no such designation shall result in any material
increased costs to the Borrowers.
13. AGENT
13.1 Appointment of Agent. Each Bank and the holder of each Note
irrevocably appoints and authorizes the Agent to act on behalf of such Bank or
holder under this Agreement and the other Loan Documents and to exercise such
powers hereunder and thereunder as are specifically delegated to Agent by the
terms hereof and thereof, together with such powers as may be reasonably
incidental thereto, including without limitation the power to execute or
authorize the execution of financing or similar statements or notices, and other
documents. In performing its functions and duties under this Agreement, the
Agent shall act solely as agent of the Banks and does not assume and shall not
be deemed to have assumed any obligation towards or relationship of agency or
trust with or for any Borrowers. Each Bank agrees (which agreement shall survive
any termination of this Agreement) to reimburse Agent for all reasonable
out-of-pocket expenses (including house and outside attorneys' fees and
disbursements) incurred by Agent hereunder or in connection herewith or with an
Event of Default or in enforcing the obligations of Borrowers under this
Agreement or the other Loan Documents or any other instrument executed pursuant
hereto, and for which Agent is not reimbursed by Borrowers, pro rata according
to such Bank's Percentage, but excluding any such expense resulting from
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Agent's gross negligence or wilful misconduct. Agent shall not be required to
take any action under the Loan Documents, or to prosecute or defend any suit in
respect of the Loan Documents, unless indemnified to its satisfaction by the
Banks against loss, costs, liability and expense (excluding liability resulting
from its gross negligence or wilful misconduct). If any indemnity furnished to
Agent shall become impaired, it may call for additional indemnity and cease to
do the acts indemnified against until such additional indemnity is given.
13.2 Deposit Account with Agent. Each of the Borrowers hereby
authorizes Agent, in Agent's sole discretion, to charge their respective general
deposit account(s), if any, maintained with Agent for the amount of any
principal, interest, or other amounts or costs due under this Agreement when the
same become due and payable under the terms of this Agreement or the Notes.
13.3 Scope of Agent's Duties. The Agent shall have no duties or
responsibilities except those expressly set forth herein, and shall not, by
reason of this Agreement or otherwise, have a fiduciary relationship with any
Bank (and no implied covenants or other obligations shall be read into this
Agreement against the Agent). None of Agent, its Affiliates nor any of their
respective directors, officers, employees or agents shall be liable to any Bank
for any action taken or omitted to be taken by it or them under this Agreement
or any document executed pursuant hereto, or in connection herewith or therewith
with the consent or at the request of the Majority Banks (or all of the Banks
for those acts requiring consent of all of the Banks) (except for its or their
own wilful misconduct or gross negligence), nor be responsible for or have any
duties to ascertain, inquire into or verify (a) any recitals or warranties made
by the Borrowers, or any Subsidiary or Affiliate of the Borrowers, or any
officer thereof contained herein or therein, (b) the effectiveness,
enforceability, validity or due execution of this Agreement or any document
executed pursuant hereto or any security thereunder, (c) the performance by the
Borrowers of the obligations hereunder or thereunder, or (d) the satisfaction of
any condition hereunder or thereunder, including without limitation the making
of any Advance or the issuance of any Letter of Credit. Agent and its Affiliates
shall be entitled to rely upon any certificate, notice, document or other
communication (including any cable, telegraph, telex, facsimile transmission or
oral communication) believed by it to be genuine and correct and to have been
sent or given by or on behalf of a proper person. Agent may treat the payee of
any Note as the holder thereof. Agent may employ agents and may consult with
legal counsel (who may be counsel for Borrowers), independent public accountants
and other experts selected by it and shall not be liable to the Banks (except as
to money or property received by them or their authorized agents), for the
negligence or misconduct of any such agent selected by it with reasonable care
or for any action taken or omitted to be taken by it in good faith in accordance
with the advice of such counsel, accountants or experts.
13.4 Successor Agent. Agent may resign as such at any time upon at
least 45 days prior notice to Borrowers and all Banks. If Agent at any time
shall resign or if the office of Agent shall become vacant for any other reason,
Majority Banks shall, by written instrument, appoint successor agent(s)
satisfactory to such Majority Banks, and, so long as no Default or Event of
Default has occurred and is continuing, to Borrowers. Such successor agent shall
thereupon
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become the Agent hereunder, as applicable, and shall be entitled to receive from
the prior Agent such documents of transfer and assignment as such successor
Agent may reasonably request. Any such successor Agent shall be a commercial
bank organized under the laws of the United States or any state thereof and
shall have a combined capital and surplus of at least $500,000,000. If a
successor is not so appointed or does not accept such appointment before the
resigning Agent's resignation becomes effective, the resigning Agent may appoint
a temporary successor to act until such appointment by the Majority Banks is
made and accepted or if no such temporary successor is appointed as provided
above by the resigning Agent, the Majority Banks shall thereafter perform all of
the duties of the resigning Agent hereunder until such appointment by the
Majority Banks is made and accepted. Such successor Agent shall succeed to all
of the rights and obligations of the resigning Agent as if originally named. The
resigning Agent shall duly assign, transfer and deliver to such successor Agent
all moneys at the time held by the resigning Agent hereunder after deducting
therefrom its expenses for which it is entitled to be reimbursed. Upon such
succession of any such successor Agent, the resigning agent shall be discharged
from its duties and obligations hereunder, except for its gross negligence or
wilful misconduct arising prior to its resignation hereunder, and the provisions
of this Article 13 shall continue in effect for the benefit of the resigning
Agent in respect of any actions taken or omitted to be taken by it while it was
acting as Agent.
13.5 Agent in its Individual Capacity. Comerica, its Affiliates and
their respective successors and assigns, shall have the same rights and powers
hereunder as any other Bank and may exercise or refrain from exercising the same
as though Comerica Bank were not the Agent. Comerica and its Affiliates may
(without having to account therefor to any Bank) accept deposits from, lend
money to, and generally engage in any kind of banking, trust, financial advisory
or other business with Company (or its Subsidiaries) as if Comerica were not
acting as Agent hereunder, and may accept fees and other consideration therefor
without having to account for the same to the Banks.
13.6 Credit Decisions. Each Bank acknowledges that it has,
independently of Agent and each other Bank and based on the financial statements
of Company and its subsidiaries and such other documents, information and
investigations as it has deemed appropriate, made its own credit decision to
extend credit hereunder from time to time. Each Bank also acknowledges that it
will, independently of Agent and each other Bank and based on such other
documents, information and investigations as it shall deem appropriate at any
time, continue to make its own credit decisions as to exercising or not
exercising from time to time any rights and privileges available to it under
this Agreement or any document executed pursuant hereto.
13.7 Agent's Fees. The Company shall pay to Agent the annual agency fee
and such other fees and charges in the amounts and at the times set forth in the
letter agreement between the Company and Agent dated July 2, 1999, as such
letter may be amended or restated from time to time. The Agent's Fees described
in this Section 13.7 shall not be refundable under any circumstances, except
that if Agent resigns, such Agent's Fees shall be prorated through the effective
date of resignation.
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13.8 Authority of Agent to Enforce Notes and This Agreement. Each Bank,
subject to the terms and conditions of this Agreement, authorizes the Agent with
full power and authority as attorney-in-fact to institute and maintain actions,
suits or proceedings for the collection and enforcement of the Notes and to file
such proofs of debt or other documents as may be necessary to have the claims of
the Banks allowed in any proceeding relative to Borrowers, or any of their
Subsidiaries, or their respective creditors or affecting their respective
properties, and to take such other actions which Agent considers to be necessary
or desirable for the protection, collection and enforcement of the Notes, this
Agreement or the other Loan Documents.
13.9 Indemnification. The Banks agree to indemnify the Agent and its
Affiliates (to the extent not reimbursed by the Borrowers, but without limiting
any obligation of the Borrowers to make such reimbursement), ratably according
to their respective Percentages, from and against any and all claims, damages,
losses, liabilities, costs or expenses of any kind or nature whatsoever
(including, without limitation, fees and disbursements of counsel) which may be
imposed on, incurred by, or asserted against the Agent and its Affiliates in any
way relating to or arising out of this Agreement, any of the other Loan
Documents or the transactions contemplated hereby or any action taken or omitted
by the Agent and its Affiliates under this Agreement or any of the Loan
Documents; provided, however, that no Bank shall be liable for any portion of
such claims, damages, losses, liabilities, costs or expenses resulting from the
Agent's or its Affiliates's gross negligence or willful misconduct. Without
limitation of the foregoing, each Bank agrees to reimburse the Agent and its
Affiliates promptly upon demand for its ratable share of any out-of-pocket
expenses (including, without limitation, fees and expenses of counsel) incurred
by the Agent and its Affiliates in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement or any of the other
Loan Documents, to the extent that the Agent and its Affiliates is not
reimbursed for such expenses by Borrowers, but without limiting the obligation
of Borrowers to make such reimbursement. Each Bank agrees to reimburse the Agent
and its Affiliates promptly upon demand for its ratable share of any amounts
owing to the Agent and its Affiliates by the Banks pursuant to this Section,
provided that, if the Agent or its Affiliates is subsequently reimbursed by the
Borrowers for such amounts, it shall refund to the Banks on a pro rata basis the
amount of any excess reimbursement. If the indemnity furnished to the Agent and
its Affiliates under this Section shall, in the judgment of the Agent, be
insufficient or become impaired, the Agent may call for additional indemnity
from the Banks and cease, or not commence, to take any action until such
additional indemnity is furnished.
13.10 Knowledge of Default. It is expressly understood and agreed that
the Agent shall be entitled to assume that no Event of Default has occurred and
is continuing, unless the officers of the Agent immediately responsible for
matters concerning this Agreement shall have been notified in a writing
specifying such Event of Default and stating that such notice is a "notice of
default" by a Bank or by Company. Upon receiving such a notice, the Agent shall
promptly notify each Bank of such Event of Default and provide each Bank with a
copy of such notice and, shall endeavor to provide such notice to the Banks
within three (3) Business Days (but without any liability whatsoever in the
event of its failure to do so). Agent shall also furnish the Banks,
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promptly upon receipt, with copies of all other notices or other information
required to be provided by Borrowers hereunder.
13.11 Agent's Authorization; Action by Banks. Except as otherwise
expressly provided herein, whenever the Agent is authorized and empowered
hereunder on behalf of the Banks to give any approval or consent, or to make any
request, or to take any other action on behalf of the Banks (including without
limitation the exercise of any right or remedy hereunder or under the other Loan
Documents), the Agent shall be required to give such approval or consent, or to
make such request or to take such other action only when so requested in writing
by the Majority Banks or the Banks, as applicable hereunder. Action that may be
taken by Majority Banks or all of the Banks, as the case may be (as provided for
hereunder), may be taken (i) pursuant to a vote at a meeting (which may be held
by telephone conference call) as to which all of the Banks have been given
reasonable advance notice, or (ii) pursuant to the written consent of the
requisite Percentages of the Banks as required hereunder, provided that all of
the Banks are given reasonable advance notice of the requests for such consent.
13.12 Enforcement Actions by the Agent. Except as otherwise expressly
provided under this Agreement or in any of the other Loan Documents and subject
to the terms hereof, Agent will take such action, assert such rights and pursue
such remedies under this Agreement and the other Loan Documents as the Majority
Banks or all of the Banks, as the case may be, (as provided for hereunder),
shall direct; provided, however, that the Agent shall not be required to act or
omit to act if, in the judgment of the Agent, such action or omission may expose
the Agent to personal liability or is contrary to this Agreement, any of the
Loan Documents or applicable law. Except as expressly provided above or
elsewhere in this Agreement or the other Loan Documents, no Bank (other than the
Agent, acting in its capacity as agent) shall be entitled to take any
enforcement action of any kind under any of the Loan Documents.
13.13 Collateral Matters.
(a) The Agent is authorized on behalf of all the Banks, without the
necessity of any notice to or further consent from the Banks, from time to time
to take any action with respect to any Collateral or the Collateral Documents
which may be necessary to perfect and maintain a perfected security interest in
and Liens upon the Collateral granted pursuant to the Loan Documents.
(b) The Banks agree to release, and hereby irrevocably authorize the
Agent to release, any Lien granted to or held by the Agent upon any Collateral
(i) upon termination of the Revolving Credit Aggregate Commitment and payment in
full of all Indebtedness payable under this Agreement and under any other Loan
Document; (ii) constituting property sold or to be sold or disposed of as part
of or in connection with any disposition expressly permitted hereunder; or (iii)
if approved, authorized or ratified in writing by the Majority Banks, or all the
Banks, as the case may be, as provided in Section 14.11. Upon request by the
Agent at any time, the Banks will confirm in writing the Agent's authority to
release particular types or items of Collateral pursuant to this Section
13.13(b).
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14. MISCELLANEOUS
14.1 Accounting Principles. Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, it shall be done, unless otherwise specified herein,
in accordance with GAAP. Furthermore, all financial statements required to be
delivered hereunder shall be prepared in accordance with GAAP.
14.2 Consent to Jurisdiction. The Borrowers, Agent and the Banks hereby
irrevocably submit to the non-exclusive jurisdiction of any United States
Federal Court or Michigan state court sitting in Detroit, Michigan in any action
or proceeding arising out of or relating to this Agreement or any of the Loan
Documents and, Agent and the Banks hereby irrevocably agree that all claims in
respect of such action or proceeding may be heard and determined in any such
United States Federal Court or Michigan state court. Borrowers irrevocably
consent to the service of any and all process in any such action or proceeding
brought in any court in or of the State of Michigan by the delivery of copies of
such process to Company at its address specified on the signature page hereto or
by certified mail directed to such address or such other address as may be
designated by Company in a notice to the other parties that complies as to
delivery with the terms of Section 14.6. Nothing in this Section shall affect
the right of the Banks and the Agent to serve process in any other manner
permitted by law or limit the right of the Banks or the Agent (or any of them)
to bring any such action or proceeding against any Borrower or any Subsidiary or
any of its or their property in the courts with subject matter jurisdiction of
any other jurisdiction. Borrowers hereby irrevocably waive any objection to the
laying of venue of any such suit or proceeding in the above described courts.
14.3 Law of Michigan. This Agreement and the Notes have been delivered
at Detroit, Michigan, and shall be governed by and construed and enforced in
accordance with the laws of the State of Michigan (without regard to its
conflict of laws provisions). Whenever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
14.4 [Reserved].
14.5 Closing Costs and Other Costs; Indemnification. (a) Borrowers
agree to pay, or reimburse the Agent for payment of, on demand (i) all
reasonable closing costs and expenses, including, by way of description and not
limitation, house and outside attorney fees (but without duplication of fees and
expenses for the same services provided to the same party) and advances,
appraisal and accounting fees, and lien search fees incurred by Agent in
connection with the commitment, consummation and closing of the loans
contemplated hereby or in connection with the administration of this Agreement
or any amendment, refinancing or restructuring of the credit arrangements
provided under this Agreement, (ii) all stamp and other taxes and fees payable
or
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determined to be payable in connection with the execution, delivery, filing,
recording or amendment of this Agreement and the other Loan Documents and the
consummation of the transactions contemplated hereby, and any and all
liabilities with respect to or resulting from any delay in paying or omitting to
pay such taxes or fees, (iii) in connection with any Default or Event of
Default, all reasonable costs and expenses of the Agent or any of the Banks
(including reasonable fees and expenses of house and outside counsel and whether
incurred through negotiations, legal proceedings or otherwise) in connection
with the amendment, waiver or enforcement of this Agreement, or the Loan
Documents or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement and (iv) all reasonable costs and
expenses of the Agent or any of the Banks (including reasonable fees and
expenses of house and outside counsel (but without duplication of fees and
expenses for the same services) in connection with any action or proceeding
relating to a court order, injunction or other process or decree restraining or
seeking to restrain the Agent or any of the Banks from paying any amount under,
or otherwise relating in any way to, any Letter of Credit and any and all costs
and expenses which any of them may incur relative to any payment under any
Letter of Credit. At Agent's option, all of said amounts required to be paid by
Borrowers, if not paid when due, may be charged by Agent as a Prime-based
Advance against the Revolving Credit Notes.
(b) Borrowers agree to indemnify and save Agent and each of the Banks
harmless from all loss, cost, damage, liability or expenses, including
reasonable house and outside attorneys' fees and disbursements (but without
duplication of fees and expenses for the same services), incurred by Agent and
the Banks by reason of an Event of Default (including in connection with any
"workout" or restructuring regarding the Indebtedness hereunder, and including
in any Insolvency Proceeding or appellate proceeding), or enforcing the
obligations of Borrowers or any Subsidiary under this Agreement or any of the
other Loan Documents or in the prosecution or defense of any action or
proceeding concerning any matter growing out of or connected with this Agreement
or any of the other Loan Documents, excluding, however, any loss, cost, damage,
liability or expenses arising solely as a result of the gross negligence or
willful misconduct of the party seeking to be indemnified under this Section
14.5(b).
(c) Borrowers agree to defend, indemnify and hold harmless Agent and
each of the Banks, and their respective employees, agents, officers and
directors from and against any and all claims, demands, penalties, fines,
liabilities, settlements, damages, costs or expenses of whatever kind or nature
arising out of or related to (i) the presence, disposal, release or threatened
release of any Hazardous Materials on, from or affecting any premises owned or
occupied by any Borrower or any Subsidiary, (ii) any personal injury (including
wrongful death) or property damage (real or personal) arising out of or related
to such Hazardous Materials, (iii) any lawsuit or other proceeding brought or
threatened, settlement reached or governmental order or decree relating to such
Hazardous Materials, (iv) the cost of removal of all Hazardous Materials from
all or any portion of any premises owned by any Borrower or any Subsidiary, (v)
the taking of necessary precautions to protect against the release of Hazardous
Materials on or affecting any premises owned by any Borrower or any Subsidiary,
(vi) complying with all Hazardous Material Laws and/or (vii) any violation of
Hazardous Material Laws, including without limitation, reasonable attorneys and
consultants fees, investigation and laboratory fees, environmental
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studies required by Agent or any Bank in connection with the violation of
Hazardous Material Laws (whether before or after the occurrence of any Default
or Event of Default hereunder), court costs and litigation expenses, excluding
however, those arising as a result of its or their gross negligence or willful
misconduct. The obligations of Borrowers under this Section 14.5(c) shall be in
addition to any and all other obligations and liabilities Borrowers may have to
Agent or any of the Banks at common law or pursuant to any other agreement.
14.6 Notices. Except as expressly provided otherwise in this Agreement,
all notices and other communications provided to any party hereto under this
Agreement or any other Loan Document shall be in writing and shall be given by
personal delivery, by mail, by reputable overnight courier, by telex or by
facsimile and addressed or delivered to it at its address set forth on the
signature pages hereof or at such other address as may be designated by such
party in a notice to the other parties that complies as to delivery with the
terms of this Section 14.6. Any notice, if personally delivered or if mailed and
properly addressed with postage prepaid and sent by registered or certified
mail, shall be deemed given when received or when delivery is refused; any
notice, if given to a reputable overnight courier and properly addressed, shall
be deemed given 2 Business Days after the date on which it was sent, unless it
is actually received sooner by the named addressee; and any notice, if
transmitted by telex or facsimile, shall be deemed given when received (answer
back confirmed in the case of telexes and receipt confirmed in the case of
telecopies). Agent may, but, except as specifically provided herein, shall not
be required to, take any action on the basis of any notice given to it by
telephone, but the giver of any such notice shall promptly confirm such notice
in writing or by telex or facsimile, and such notice will not be deemed to have
been received until such confirmation is deemed received in accordance with the
provisions of this Section set forth above.
14.7 Further Action. Borrowers, from time to time, upon written request
of Agent will make, execute, acknowledge and deliver or cause to be made,
executed, acknowledged and delivered, all such further and additional
instruments, and take all such further action as may reasonably be required to
carry out the intent and purpose of this Agreement or the Loan Documents, and to
provide for Advances under and payment of the Notes, according to the intent and
purpose herein and therein expressed.
14.8 Successors and Assigns; Participations; Assignments.
(a) This Agreement shall be binding upon and shall inure to the benefit
of Borrowers and the Banks and their respective successors and assigns.
(b) The foregoing shall not authorize any assignment by Borrowers, of
their rights or duties hereunder, and no such assignment shall be made (or
effective) without the prior written approval of the Banks.
(c) Borrowers and Agent acknowledge that each of the Banks may at any
time and from time to time, subject to the terms and conditions hereof, assign
or grant participations in such Bank's rights and obligations hereunder and
under the other Loan Documents to any
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commercial bank, savings and loan association, insurance company, pension fund,
mutual fund, commercial finance company or other similar financial institution,
the identity of which institution is approved by Company and Agent, such
approval not to be unreasonably withheld or delayed; provided, however, that (i)
the approval of Company shall not be required upon the occurrence and during the
continuance of a Default or Event of Default, and (ii) the approval of Company
and Agent shall not be required for any such sale, transfer, assignment or
participation to the Affiliate of an assigning Bank, any other Bank or any
Federal Reserve Bank. Borrowers authorize each Bank to disclose to any
prospective assignee or participant, once approved by Company and Agent, any and
all financial information in such Bank's possession concerning the Borrowers
which has been delivered to such Bank pursuant to this Agreement, provided that
such prospective assignee or participant shall have agreed to be bound by the
provisions of Section 14.12 hereof.
(d) Each assignment by a Bank of any portion of its rights and
obligations hereunder and under the other Loan Documents shall be made pursuant
to an Assignment Agreement substantially (as determined by Agent) in the form
attached hereto as Exhibit I (with appropriate insertions acceptable to Agent)
and shall be subject to the terms and conditions hereof, and to the following
restrictions:
(i) each assignment shall be in a minimum amount of the lesser of
(x) Five Million Dollars ($5,000,000) or such lesser amount
as the Agent may agree and (y) the entire remaining amount of
assigning Bank's aggregate interest in the Revolving Credit
(and participations in any outstanding Letters of Credit);
provided however that, after giving effect to such
assignment, in no event shall the entire remaining amount (if
any) of assigning Bank's aggregate interest in the Revolving
Credit (and participations in any outstanding Letters of
Credit) be less than $10,000,000; and
(ii) no assignment shall be effective unless Agent has received
from the assignee (or from the assigning Bank) an assignment
fee of $3,500 for each such assignment, except that such
assignment fee shall not be required if the assignee is an
Affiliate of the assignor.
In connection with any assignment, Borrowers and Agent shall be entitled to
continue to deal solely and directly with the assigning Bank in connection with
the interest so assigned until (x) the Agent shall have received a notice of
assignment duly executed by the assigning Bank and an Assignment Agreement (with
respect thereto) duly executed by the assigning Bank and each assignee; and (y)
the assigning Bank shall have delivered to the Agent the original of each Note
held by the assigning Bank under this Agreement. From and after the date on
which the Agent shall notify Company and the assigning Bank that the foregoing
conditions shall have been satisfied and all consents (if any) required shall
have been given, the assignee thereunder shall be deemed to be a party to this
Agreement. To the extent that rights and obligations hereunder shall have been
assigned to such assignee as provided in such notice of assignment (and
Assignment
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Agreement), such assignee shall have the rights and obligations of a Bank under
this Agreement and the other Loan Documents (including without limitation the
right to receive fees payable hereunder in respect of the period following such
assignment). In addition, the assigning Bank, to the extent that rights and
obligations hereunder shall have been assigned by it as provided in such notice
of assignment (and Assignment Agreement), but not otherwise, shall relinquish
its rights and be released from its obligations under this Agreement and the
other Loan Documents.
Within five (5) Business Days following Company's receipt of notice from the
Agent that Agent has accepted and executed a notice of assignment and the duly
executed Assignment Agreement, Borrowers shall execute and deliver to the Agent
in exchange for any surrendered Note, new Note(s) payable to the order of the
assignee in an amount equal to the amount assigned to it pursuant to such notice
of assignment (and Assignment Agreement), and with respect to the portion of the
Indebtedness retained by the assigning Bank, to the extent applicable,
replacement Note(s) payable to the order of the assigning Bank in an amount
equal to the amount retained by such Bank hereunder shall be executed and
delivered by Borrowers. Agent, the Banks and Borrowers acknowledge and agree
that any such new Note(s) shall be given in renewal and replacement of the
surrendered Notes and shall not effect or constitute a novation or discharge of
the Indebtedness evidenced by any surrendered Note, and each such new Note may
contain a provision confirming such agreement. In addition, promptly following
receipt of such Notes, Agent shall prepare and distribute to Borrowers and each
of the Banks a revised Schedule 1.2 to this Agreement setting forth the
applicable new Percentages of the Banks (including the assignee Bank), taking
into account such assignment.
(e) Each Bank agrees that any participation agreement permitted
hereunder shall comply with all applicable laws and shall be subject to the
following restrictions (which shall be set forth in the applicable Participation
Agreement):
(i) such Bank shall remain the holder of its Notes hereunder,
notwithstanding any such participation;
(ii) except as expressly set forth in this Section 14.8(e) with
respect to rights of setoff and the benefits of Section 12
hereof, a participant shall have no direct rights or remedies
hereunder;
(iii) a participant shall not reassign or transfer, or grant any
sub-participations in its participation interest hereunder or
any part thereof; and
(iv) such Bank shall retain the sole right and responsibility to
enforce the obligations of Borrowers relating to the Notes
and the other Loan Documents, including, without limitation,
the right to proceed against any Guaranties, or cause Agent
to do so (subject to the terms and conditions hereof), and
the right to approve any amendment, modification or waiver of
any provision of this Agreement without the consent of the
participant (other than a participant which is an Affiliate
of such Bank), except for
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those matters covered by Section 14.11(a) through (e) and (h)
hereof (provided that a participant may exercise approval
rights over such matters only on an indirect basis, acting
through such Bank, and Borrowers, Agent and the other Banks
may continue to deal directly with such Bank in connection
with such Bank's rights and duties hereunder).
Borrowers agree that each participant shall be deemed to have the right of
setoff under Section 10.6 hereof in respect of its participation interest in
amounts owing under this Agreement and the other Loan Documents to the same
extent as if the Indebtedness were owing directly to it as a Bank under this
Agreement, shall be subject to the pro rata recovery provisions of Section 11.4
hereof and shall be entitled to the benefits of Section 12 hereof. The amount,
terms and conditions of any participation shall be as set forth in the
participation agreement between the issuing Bank and the Person purchasing such
participation, and none of the Borrowers, the Agent and the other Banks shall
have any responsibility or obligation with respect thereto, or to any Person to
whom any such participation may be issued. No such participation shall relieve
any issuing Bank of any of its obligations under this Agreement or any of the
other Loan Documents, and all actions hereunder shall be conducted as if no such
participation had been granted.
(f) Nothing in this Agreement, the Notes or the other Loan Documents,
expressed or implied, is intended to or shall confer on any Person other than
the respective parties hereto and thereto and their successors and assignees and
participants permitted hereunder and thereunder any benefit or any legal or
equitable right, remedy or other claim under this Agreement, the Notes or the
other Loan Documents.
14.9 Indulgence. No delay or failure of Agent and the Banks in
exercising any right, power or privilege hereunder shall affect such right,
power or privilege nor shall any single or partial exercise thereof preclude any
further exercise thereof, nor the exercise of any other right, power or
privilege. The rights of Agent and the Banks hereunder are cumulative and are
not exclusive of any rights or remedies which Agent and the Banks would
otherwise have.
14.10 Counterparts. This Agreement may be executed in several
counterparts, and each executed copy shall constitute an original instrument,
but such counterparts shall together constitute but one and the same instrument.
14.11 Amendment and Waiver. No amendment or waiver of any provision of
this Agreement or any other Loan Document, nor consent to any departure by
Borrowers therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Majority Banks (or by the Agent at the written request
of the Majority Banks) or, if this Agreement expressly so requires with respect
to the subject matter thereof, by all Banks (and, with respect to any amendments
to this Agreement or the other Loan Documents, by Borrowers or any other Persons
which are signatories thereto), and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
writing and signed by all the Banks, do any of the following: (a) increase any
Bank's commitments hereunder, (b) reduce the principal of, or
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interest on, the Notes or any Fees or other amounts payable hereunder, (c)
postpone any date fixed for any payment of principal of, or interest on, the
Notes or any Fees or other amounts payable hereunder, (d) waive any Event of
Default specified in Sections 10.1(a) or (b) hereof, (e) except as expressly
permitted hereunder, release or defer the granting or perfecting of a lien or
security interest in any Collateral or release any guaranty or similar
undertaking provided by any Person, (f) terminate or modify any indemnity
provided to the Banks hereunder or under the other Loan Documents, except as
shall be otherwise expressly provided in this Agreement or any other Loan
Document, (g) take any action which requires the signing of all Banks pursuant
to the terms of this Agreement or any other Loan Document, (h) change the
aggregate unpaid principal amount of the Notes which shall be required for the
Banks or any of them to take any action under this Agreement or any Loan
Document or (i) change the definitions of "Percentage", or of "Majority Banks"
or this Section 14.11; provided further, that no amendment, waiver or consent
shall, unless in writing signed by the Swing Line Bank do any of the following:
(x) reduce the principal of, or interest on, the Swing Line Note or (y) postpone
any date fixed for any payment of principal of, or interest on, the Swing Line
Note; and provided further, however, that no amendment, waiver, or consent
shall, unless in writing and signed by the Agent in addition to all the Banks,
affect the rights or duties of the Agent under this Agreement or any other Loan
Document. All references in this Agreement to "Banks" or "the Banks" shall refer
to all Banks, unless expressly stated to refer to Majority Banks.
14.12 Confidentiality. Each Bank agrees that it will not disclose
without the prior consent of Borrowers (other than to its employees, another
Bank or to its auditors or counsel) any information with respect to Borrowers
which is furnished pursuant to this Agreement or any of the other Loan
Documents; provided that any Bank may disclose any such information (a) as has
become generally available to the public or has been lawfully obtained by such
Bank from any third party under no duty of confidentiality to Borrowers, (b) as
may be required or appropriate in any report, statement or testimony submitted
to, or in respect to any inquiry, by, any municipal, state or federal regulatory
body having or claiming to have jurisdiction over such Bank, including the Board
of Governors of the Federal Reserve System of the United States, the Office of
the Comptroller of the Currency or the Federal Deposit Insurance Corporation or
similar organizations (whether in the United States or elsewhere) or their
successors, (c) as may be required or appropriate in respect to any summons or
subpoena or in connection with any litigation, (d) in order to comply with any
law, order, regulation or ruling applicable to such Bank, and (e) to any
permitted transferee or assignee or to any approved participant of, or with
respect to, the Notes, as aforesaid, provided that such financial institution,
transferee or assignee agrees to be bound by the provisions of this Section
14.12.
14.13 Withholding Taxes. If any Bank is not incorporated under the laws
of the United States or a state thereof, such Bank shall promptly deliver to the
Agent (x) two executed copies of (i) Internal Revenue Service Form 1001 (or any
successor form) specifying the applicable tax treaty between the United States
and the jurisdiction of such Bank's domicile which provides for the exemption
from withholding on interest payments to such Bank or (ii) Internal Revenue
Service Form 4224 (or any successor form) evidencing that the income to be
received by such Bank hereunder is effectively connected with the conduct of a
trade or business in the United
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States or (y) other evidence satisfactory to the Agent and Borrowers that such
Bank is exempt from United States income tax withholding with respect to such
income. Such Bank shall amend or supplement any such form or evidence as
required to insure that it is accurate, complete and non-misleading at all
times. Promptly upon notice from the Agent of any determination by the Internal
Revenue Service that any payments previously made to such Bank hereunder were
subject to United States income tax withholding when made, such Bank shall pay
to the Agent the excess of the aggregate amount required to be withheld from
such payments over the aggregate amount actually withheld by the Agent.
14.14 Taxes and Fees. Should any tax (other than as a result of a
Bank's failure to comply with Section 14.13 or a tax based upon the net income
or capitalization of any Bank or the Agent by any jurisdiction where a Bank or
Agent is located), recording or filing fee become payable in respect of this
Agreement or any of the other Loan Documents or any amendment, modification or
supplement hereof or thereof, the Borrowers agree to pay the same, together with
any interest or penalties thereon arising from the Borrowers' act or omission,
and agrees to hold the Agent and the Banks harmless with respect thereto.
Notwithstanding the foregoing, nothing contained in this Section 14.14 shall
affect or reduce the rights of any Bank or the Agent under Section 12.6 hereof.
14.15 WAIVER OF JURY TRIAL. EACH OF THE BANKS, THE AGENT AND THE
BORROWERS AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH
COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM
MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTION OF ANY OF THEM. NEITHER THE BANKS, THE
AGENT, NOR BORROWERS SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE,
ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN
WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT
BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY THE BANKS, AND
THE AGENT, OR BORROWERS EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM.
14.16 Interest. It is the intention of the parties hereto that each
Bank and the Agent shall conform to usury laws applicable to them, if any.
Accordingly, if the transactions with any Bank or Agent contemplated hereby
would be usurious under such applicable laws, then, notwithstanding anything to
the contrary in the Notes or Loan Documents payable to such Bank, this Agreement
or any other agreement entered into in connection with or as security for or
guaranteeing this Agreement or the Indebtedness, it is agreed as follows: (i)
the aggregate of all consideration which constitutes interest under applicable
law that is contracted for, taken, reserved, charged or received by such Bank
under the Notes payable to such Bank, this
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Agreement, the Loan Documents or under any other agreement entered into in
connection with or as security for or guaranteeing this Agreement or such Notes
or Loan Documents shall under no circumstances exceed the maximum amount allowed
by such applicable law, and any excess shall be credited automatically, if
theretofore paid, on the principal amount of the Indebtedness owed to such Bank
or, if no Indebtedness to such Bank is outstanding, shall be refunded to
Borrowers by such Bank, and (ii) in the event that the maturity of any such Note
or other Indebtedness is accelerated or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to such Bank may never include more than the maximum amount
allowed by such applicable law and excess interest, if any, to such Bank shall
be canceled automatically as of the date of such acceleration or prepayment and,
if theretofore paid, shall be credited by such Bank on the principal amount of
the Indebtedness owed to such Bank by the Borrowers or, if no Indebtedness to
such Bank is then outstanding, shall be refunded by such Bank to the Borrowers.
14.17 Complete Agreement; Conflicts. This Agreement, the Notes, any
Requests for Revolving Credit Advance and Requests for Swing Line Advance
hereunder, and the other Loan Documents contain the entire agreement of the
parties hereto, superseding all prior agreements, discussions and understandings
relating to the subject matter hereof, and none of the parties shall be bound by
anything not expressed in writing. In the event of any conflict between the
terms of this Agreement and the other Loan Documents, this Agreement shall
govern.
14.18 Severability. In case any one or more of the obligations of the
Borrowers or any other Person under this Agreement, the Notes or any of the
other Loan Documents shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
obligations of the Borrowers, or such Person shall not in any way be affected or
impaired thereby, and such invalidity, illegality or unenforceability in one
jurisdiction shall not affect the validity, legality or enforceability of the
obligations of the Borrowers and such Person under this Agreement, the Notes or
any of the other Loan Documents in any other jurisdiction.
14.19 Table of Contents and Headings. The table of contents and the
headings of the various subdivisions hereof are for convenience of reference
only and shall in no way modify or affect any of the terms or provisions hereof.
14.20 Construction of Certain Provisions. If any provision of this
Agreement or any of the Loan Documents refers to any action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person,
whether or not expressly specified in such provision.
14.21 Independence of Covenants. Each covenant hereunder shall be given
independent effect (subject to any exceptions stated in such covenant) so that
if a particular action or condition is not permitted by any such covenant
(taking into account any such stated exception), the fact that it would be
permitted by an exception to, or would be otherwise within the limitations of,
another covenant shall not avoid the occurrence of a Default or an Event of
Default.
86
<PAGE> 95
14.22 Reliance on and Survival of Various Provisions. All terms,
covenants, agreements, representations and warranties of the Borrowers or any
party to any of the Loan Documents made herein or in any of the Loan Documents
or in any certificate, report, financial statement or other document furnished
by or on behalf of the Borrowers or any such party in connection with this
Agreement or any of the Loan Documents shall be deemed to have been relied upon
by the Banks, notwithstanding any investigation heretofore or hereafter made by
any Bank or on such Bank's behalf, and those covenants and agreements of
Borrowers set forth in Sections 12.5 and 12.6 hereof (together with any other
indemnities of Borrowers or any other Person contained elsewhere in this
Agreement or in any of the other Loan Documents) and of Banks set forth in
Section 13.9 hereof shall survive the repayment in full of the Indebtedness and
the termination of the Revolving Credit Aggregate Commitment.
14.23 Merger Agreement; Effect. The Merger Agreement provides for the
merger of Newco with and into Smartflex as the surviving corporation, in
accordance with the Delaware General Corporation Law ("DGCL"). Upon and
following the Merger Date, and as provided in Section 2.03 of the Merger
Agreement and Section 259 of the DGCL, (i) all obligations of Newco under this
Agreement and the other Loan Documents to which Newco is a party shall be and
become the direct obligations of Smartflex without further action, assignment or
assumption by Newco, Smartflex or any other Person, (ii) all references to Newco
in this Agreement and the other Loan Documents shall be deemed to be references
to Smartflex, and (iii) the Borrowers (including Smartflex) will execute and
deliver new Revolving Credit Notes naming Smartflex as a maker.
14.24 Joint and Several Liability of Borrowers and Related Matters.
(a) Each of the Borrowers acknowledges and agrees that it is the intent
of the parties that each such Borrower be primarily liable for the obligations
as a joint and several obligor (except as set forth in sub-section (g), below).
It is the intention of the parties that with respect to liability of any
Borrower hereunder arising solely by reason of its being jointly and severally
liable for Advances and other extensions of credit taken by the other Borrowers,
the obligations of such Borrower shall be absolute, unconditional and
irrevocable irrespective of:
(i) any lack of validity, legality or enforceability of this
Agreement or any Note as to any Borrower, as the case may be;
(ii) the failure of any Bank or any holder of any Note:
(A) to enforce any right or remedy against any Borrower, as
the case may be, or any other Person (including any guarantor)
under the provisions of this Agreement, such Note, or otherwise,
or
(B) to exercise any right or remedy against any guarantor of,
or collateral securing, any obligations;
87
<PAGE> 96
(iii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Indebtedness, or any other
extension, compromise or renewal of any Indebtedness;
(iv) any reduction, limitation, impairment or termination of any
Indebtedness with respect to any Borrower, as the case may be, for any
reason, including any claim of waiver, release, surrender, alteration
or compromise, and shall not be subject to (and each of the Borrowers
hereby waives any right to or claim of) any defense (other than the
defense of payment in full of the Indebtedness) or setoff,
counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality, nongenuineness, irregularity, compromise,
unenforceability of, or any other event or occurrence affecting, any
Indebtedness with respect to any Borrower, as the case may be;
(v) any addition, exchange, release, surrender or nonperfection of
any collateral, or any amendment to or waiver or release or addition
of, or consent to departure from, any guaranty, held by any Bank or any
holder of the Notes securing any of the Indebtedness; or
(vi) any other circumstance which might otherwise constitute a
defense (other than the defense of payment in full of the Indebtedness)
available to, or a legal or equitable discharge of, any Borrower, as
the case may be, any surety or any guarantor.
(b) Each of the Borrowers agrees that its joint and several liability
hereunder shall continue to be effective or be reinstated, as the case may be,
if at any time any payment (in whole or in part) of any of the Indebtedness is
rescinded or must be restored by any Bank or any holder of any Note, upon the
insolvency, bankruptcy or reorganization of any Borrower, as the case may be, as
though such payment had not been made.
(c) Each of the Borrowers hereby expressly waives: (i) notice of the
Banks' acceptance of this Agreement; (ii) notice of the existence or creation or
non payment of all or any of the Indebtedness other than notices expressly
provided for in this Agreement; (iii) presentment, demand, notice of dishonor,
protest, and all other notices whatsoever other than notices expressly provided
for in this Agreement; and (iv) all diligence in collection or protection of or
realization upon the Indebtedness or any part thereof, any obligation hereunder,
or any security for or guaranty of any of the foregoing, subject, however, in
the case of Collateral in the possession of Agent or a Bank to such Person's
duty to use reasonable care in the custody and preservation of such Collateral.
(d) No delay on any of the Banks' part in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
any of the Banks of any right or remedy shall preclude other or further exercise
thereof or the exercise of any other right or remedy. No action of any of the
Banks permitted hereunder shall in any way affect or impair any such Banks'
rights or any Borrower's Indebtedness under this Agreement.
88
<PAGE> 97
(e) Each of the Borrowers hereby represents and warrants to each of the
Banks that it now has and will continue to have independent means of obtaining
information concerning the Borrowers' affairs, financial condition and business.
Banks shall not have any duty or responsibility to provide any Borrower with any
credit or other information concerning such Borrower's affairs, financial
condition or business which may come into the Banks' possession.
(f) Each of the Borrowers represents and warrants (i) that the business
operations of the Borrowers are interrelated and complement one another, and
such entities have a common business purpose, with intercompany bookkeeping and
accounting adjustments used to separate their respective properties,
liabilities, and transactions; and (ii) that, to permit their uninterrupted and
continuous operations, such entities now require and will from time to time
hereafter require funds and credit accommodations for general business purposes
and that (iii) the proceeds of advances under the Revolving Credit, the Swing
Line and any other credit facilities extended hereunder will directly or
indirectly benefit the Borrowers hereunder, severally and jointly, regardless of
which Borrower requests or receives part or all of the proceeds of such
Advances.
(g) Notwithstanding anything to the contrary contained herein, it is
the intention of the Borrowers, Agent and the Banks that the amount of the
respective Borrowers' obligations hereunder shall be in, but not in excess of,
the maximum amount thereof not subject to avoidance or recovery by operation of
applicable law governing bankruptcy, reorganization, arrangement, adjustment of
debts, relief of debtors, dissolution, insolvency, fraudulent transfers or
conveyances or other similar laws (collectively, "Applicable Insolvency Laws").
To that end, but only in the event and to the extent that the Borrowers'
respective obligations hereunder or any payment made pursuant thereto would, but
for the operation of the foregoing proviso, be subject to avoidance or recovery
under Applicable Insolvency Laws, the amount of the Borrowers' respective
obligations hereunder shall be limited to the largest amount which, after giving
effect thereto, would not, under Applicable Insolvency Laws, render the
Borrowers' respective obligations hereunder unenforceable or avoidable or
subject to recovery under Applicable Insolvency Laws. To the extent any payment
actually made hereunder exceeds the limitation contained in this Section
14.24(g), then the amount of such excess shall, from and after the time of
payment by the Borrowers (or any of them), be reimbursed by the Banks upon
demand by such Borrowers. The foregoing proviso is intended solely to preserve
the rights of the Agent and the Banks hereunder against the Borrowers to the
maximum extent permitted by Applicable Insolvency Laws and neither any Borrower
nor any Guarantor nor any other Person shall have any right or claim under this
Section 14.24(g) that would not otherwise be available under Applicable
Insolvency Laws.
14.25 Complete Agreement; Amendment and Restatement. This Agreement, the
Notes, any Requests for Advance or Letters of Credit hereunder, the other Loan
Documents and any agreements, certificates, or other documents given to secure
the Indebtedness, contain the entire agreement of the parties hereto, and none
of the parties hereto shall be bound by anything not expressed in writing. This
Agreement constitutes an amendment to and restatement in its entirety of the
Prior Credit Agreement, which Prior Credit Agreement is fully superseded and
amended and restated in its entirety hereby; provided, however, that the
Indebtedness governed by the
89
<PAGE> 98
Prior Credit Agreement shall remain outstanding and in full force and effect and
provided further that this Agreement does not constitute a novation of such
Indebtedness.
* * *
[Signatures Follow On Succeeding Page]
90
<PAGE> 99
WITNESS the due execution hereof as of the day and year first above
written.
COMERICA BANK, as Agent SATURN ELECTRONICS &
ENGINEERING, INC.
By: /s/ David B. Martin By: /s/ Donald J. Cowie
-------------------------------- ---------------------------------
Its: Vice President Its: CFO
One Detroit Center --------------------------------
500 Woodward Avenue 255 Rex Boulevard
9th Floor MC 3289 Auburn Hills, Michigan 48326
Detroit, Michigan 48226 Telephone: (248) 853-5724
Attention: Jason L. Stoecker Facsimile No. (248) 853-2645
Telephone: (313) 222-3516 Attention: Wallace K. Tsuha, Jr.
Facsimile No. (313) 222-9434
SATURN MANUFACTURING CO.
By: /s/ Donald J. Cowie
---------------------------------
Its: CFO
--------------------------------
255 Rex Boulevard
Auburn Hills, Michigan 48326
Telephone: (248) 853-5724
Facsimile No. (248) 853-2645
Attention: Wallace K. Tsuha, Jr.
91
<PAGE> 100
SSI ACQUISITION CORP.
By: /s/ Donald J. Cowie
---------------------------------
Its: CFO
--------------------------------
255 Rex Boulevard
Auburn Hills, Michigan 48326
Telephone: (248) 853-5724
Facsimile No. (248) 853-2645
Attention: Wallace K. Tsuha, Jr.
SWING LINE BANK: COMERICA BANK
By: /s/ Jason L. Stoecker
---------------------------------
Its: AVP
--------------------------------
One Detroit Center
500 Woodward Avenue
6th Floor, MC 3241
Detroit, Michigan 48226
Attention: David B. Marvin
Telephone No. (313) 222-5087
Facsimile No. (313) 222-5759
BANKS: COMERICA BANK
By: /s/ Jason L. Stoecker
---------------------------------
Its: AVP
--------------------------------
One Detroit Center
500 Woodward Avenue
6th Floor, MC 3241
Detroit, Michigan 48226
Attention: David B. Marvin
Telephone No. (313) 222-5087
Facsimile No. (313) 222-5759
92
<PAGE> 101
SCHEDULE 1.1
APPLICABLE FEE PERCENTAGE AND MARGINS
<TABLE>
<CAPTION>
BASIS FOR PRICING LEVEL I LEVEL II LEVEL III LEVEL IV
=========================================================================================================================
<S> <C> <C> <C> <C>
Funded Debt Ratio > 2 to 1 > 2.5 to 1
- -
< 2 to 1 but but > 3 to 1
-
< 2.5 to 1 < 3 to 1
- -------------------------------------------------------------------------------------------------------------------------
Revolving Credit 0.15% 0.25% 0.375% 0.50%
Facility Fee
- -------------------------------------------------------------------------------------------------------------------------
Eurocurrency Margin 1.50% 1.75% 2.0% 2.25%
- -------------------------------------------------------------------------------------------------------------------------
Prime-based Margin 0% 0% 0% .25%
- -------------------------------------------------------------------------------------------------------------------------
Letter of Credit Fee 1.50% 1.75% 2.0 % 2.25%
(exclusive of issuing fee)
=========================================================================================================================
</TABLE>
93
<PAGE> 102
REVISED--11/22/99
SCHEDULE 1.2
PERCENTAGES
<TABLE>
<CAPTION>
================================================================================
Bank Percentage
- --------------------------------------------------------------------------------
<S> <C>
Comerica Bank 64%
- --------------------------------------------------------------------------------
Summit Bank 8%
- --------------------------------------------------------------------------------
U.S. Bank N.A. 12%
- --------------------------------------------------------------------------------
Union Bank of California, N.A. 16%
- --------------------------------------------------------------------------------
100%
================================================================================
</TABLE>
<PAGE> 103
REVISED--11/22/99
SCHEDULE 1.2
PERCENTAGES
<TABLE>
<CAPTION>
================================================================================
Bank Percentage
- --------------------------------------------------------------------------------
<S> <C>
Comerica Bank 100%
100%
================================================================================
</TABLE>
<PAGE> 104
SCHEDULE 6.3(b)
Jurisdiction of UCC Filings
Prior to the Smartflex Acquisition
I. The Company
a. Michigan Secretary of State
b. North Carolina Secretary of State
c. Nash County, North Carolina
d. Oakland County, Michigan
e. Ottawa County, Michigan
VI. Manufacturing
a. Ohio Secretary of State
b. Mississippi Secretary of State
c. Quitman County, MS
IV. Newco
a. Delaware Secretary of State
b. Michigan Secretary of State
After the Smartflex Acquisition
II. Smartflex
a. California Secretary of State
b. Orange County, California
c. Santa Clara County California
d. Alameda County, California
V. Logical Services Incorporated
a. California Secretary of State
b. Santa Clara County, California
III. Smartflex Freemont, Inc.
a. California Secretary of State
b. Orange County, California
c. Santa Clara County, California
d. Alameda County, California
V. Smartflex New England, Inc.
a. New Hampshire Secretary of State
b. Hudson County, New Hampshire
c. Hillsborough County, New Hampshire
<PAGE> 105
IV. Smartflex New Jersey, Inc.
a. New Jersey Secretary of State
b. Monmouth County, New Jersey
<PAGE> 106
SCHEDULE 6.4
LEASED PROPERTY
1. 2119 Austin
Rochester Hills, Michigan
2. 255 Rex Blvd.
Auburn Hills, Michigan
3. 1098 Second Street
Marks, Mississippi
<PAGE> 107
SCHEDULE 7.9
COMPLIANCE WITH LAWS
NONE
<PAGE> 108
SCHEDULE 7.12
LITIGATION
None
<PAGE> 109
SCHEDULE 7.13
CONSENTS, APPROVALS, FILINGS
The respective Boards of Directors of the Borrowers have approved this Agreement
and the other Loan Documents.
<PAGE> 110
SCHEDULE 7.16
PENSION PLANS SUBJECT TO TITLE IV OF ERISA
None
<PAGE> 111
SCHEDULE 7.18
ENVIRONMENTAL MATTERS
None
<PAGE> 112
SCHEDULE 9.3
GUARANTEE OBLIGATIONS
None
<PAGE> 113
SCHEDULE 9.8
INVESTMENTS
Investments in all existing subsidiaries of Saturn Electronics &
Engineering, Inc.
<PAGE> 114
EXHIBIT A
REQUEST FOR REVOLVING CREDIT ADVANCE
No. Dated:
------------ -----------------
To: Comerica Bank - Agent
Re: Saturn Electronics & Engineering, Inc. Credit Agreement by
and among Comerica Bank, as Agent, the lenders from time
to time parties thereto (collectively, "Banks"), Saturn
Electronics & Engineering, Inc., Saturn Manufacturing Co.,
and SSI Acquisition Corp. (collectively, "Borrowers")
dated as of August 24, 1999 (as amended from time to time,
the "Agreement").
Pursuant to the Agreement, the undersigned Borrower
requests a Revolving Credit Advance from the Banks as follows:
A. Date of Advance:
---------------------
B. Amount of Advance:
$
---------
/ / Comerica Bank Account No.
---------------
/ / Other:
----------------------------------
----------------------------------
C. Type of Activity:
1. Advance / /
2. Refunding / /
of a Revolving Credit Advance / /
of a Swing Line Advance / /
3. Conversion / /
<PAGE> 115
D. Interest Rate:
1. Prime-based Rate / /
2. Eurocurrency-based Rate / /
E. Interest Period (for Eurocurrency-based
Advances only):
1. One (1) Month / /
2. Two (2) Months / /
3. Three (3) Months / /
4. Six (6) Months / /
The undersigned certifies to the matters specified in
Section 2.3(g) of the Agreement.
-------------------------------------
By:
-------------------------------------
Its:
-------------------------------------
Agent Approval:
---------------------
2
<PAGE> 116
EXHIBIT B
REVOLVING CREDIT NOTE
$ , 1999
--------------------------- ------------
On the Revolving Credit Maturity Date, FOR VALUE RECEIVED, Saturn
Electronics & Engineering, Inc., a Michigan corporation, SSI Acquisition Corp.,
a Delaware corporation, and Saturn Manufacturing Co., an Ohio corporation
(collectively, "Borrowers") jointly and severally promise to pay to the order of
[insert Bank] ("Bank") at Detroit, Michigan, in care of Agent, in lawful money
of the United States of America, the sum of [Insert amount derived from
Percentages] Dollars ($ ), or so much of said sum as may from time to time have
been advanced and then be outstanding hereunder pursuant to the Saturn
Electronics & Engineering, Inc. Credit Agreement dated as of August 24, 1999,
made by and among the Borrowers, certain banks, including the Bank, and Comerica
Bank as Agent for such banks, as the same may be amended from time to time (the
"Agreement"), together with interest thereon as hereinafter set forth.
Each of the Advances made hereunder shall bear interest at the
Applicable Interest Rate from time to time applicable thereto under the
Agreement or as otherwise determined thereunder, and interest shall be computed,
assessed and payable as set forth in the Agreement.
This Note is a note under which advances (including refundings and
conversions), repayments and readvances may be made from time to time, but only
in accordance with the terms and conditions of the Agreement. This Note
evidences borrowings under, is subject to, is secured in accordance with, and
may be accelerated or matured under, the terms of the Agreement, to which
reference is hereby made. Definitions and terms of the Agreement are hereby
incorporated by reference herein.
This Note shall be interpreted and the rights of the parties hereunder
shall be determined under the laws of, and enforceable in, the State of Michigan
(without regard to its conflict of laws principles).
Each Borrower hereby waives presentment for payment, demand, protest
and notice of dishonor and nonpayment of this Note and agrees that no obligation
hereunder shall be discharged by reason of any extension, indulgence, release,
or forbearance granted by any holder of this Note to any party now or hereafter
liable hereon or any present or subsequent owner of any property, real or
personal, which is now or hereafter security for this Note.
<PAGE> 117
Nothing herein shall limit any right granted Bank by any other
instrument or by law.
SATURN ELECTRONICS &
ENGINEERING, INC.
By:
--------------------------------
Its:
-------------------------------
SATURN MANUFACTURING CO.
By:
--------------------------------
Its:
-------------------------------
SSI ACQUISITION CORP.
By:
--------------------------------
Its:
-------------------------------
2
<PAGE> 118
EXHIBIT C
LETTER OF CREDIT NOTICE
TO: Members of the Bank Group
RE: Issuance of Letter of Credit pursuant to Article 3 of the Saturn
Electronics & Engineering, Inc.("Company") Credit Agreement (as amended
or otherwise modified from time to time, "Agreement") dated August 24,
1999 among Company, Manufacturing, Newco, Agent and the Banks.
On , ,1/ Issuing Bank, in accordance
with Article 3 of the Agreement, issued its Letter of Credit number
, in favor of 2/ for the account of. The face amount of
such Letter of Credit is $ . The amount of each Bank's participation
in the Letter of Credit is as follows:3/
Comerica Bank $
--------
------------------------- $
--------
------------------------- $
--------
This notification is delivered this day of , , pursuant
to Section 3.3 of the Agreement. Except as otherwise defined, capitalized terms
used herein have the meanings given them in the Agreement.
Signed:
COMERICA BANK, AS AGENT
By:
--------------------------------
Its:
-------------------------------
- --------
1/Date of Issuance
2/Beneficiary
3/Amounts based on Percentages
<PAGE> 119
SCHEDULE 7.19
SUBSIDIARIES OF THE COMPANY
1. Saturn Manufacturing Co., an Ohio corporation
2. SSI Acquisition Corp., a Delaware corporation
3. Saturn Electronics Texas, L.L.C., a Texas limited liability company.
4. Saturn Electronics de Juarez, S.A. de C.V., a Mexican corporation.
5. Saturn de Monterrey, S.A. de C.V., a Mexican corporation
6. Saturn Electronics (Barbados), Inc., a Barbados corporation
7. Beijing Saturn Electronics Co., Ltd., a Chinese corporation
<PAGE> 120
SCHEDULE 7.20
CONTINGENT OBLIGATIONS
A component provided by the Company has experienced some failures. The
Company currently estimates that the cost to address this matter could range
from $200,000 to $1,500,000.
<PAGE> 121
SCHEDULE 7.23
OWNERSHIP INTERESTS; RIGHTS TO PURCHASE
OWNERSHIP INTERESTS
<TABLE>
<S> <C>
1. Saturn Electronics & Engineering, Inc.
Owners of Class A Voting Stock
Wallace K. Tsuha Trust dated Oct. 14, 1991 63.75%
MascoTech, Inc. 36.25%
Owners of Class B Nonvoting Stock
Tsuha Trusts 63.75%
MascoTech, Inc. 36.25%
2. Saturn Manufacturing Co.
Owned 100% by Saturn Electronics & Engineering, Inc.
3. SSI Acquisition Corp.
Owned 100% by Saturn Electronics & Engineering, Inc.
4. Saturn Electronics Texas, L.L.C.
Owners of Voting Interests
Saturn Electronics & Engineering, Inc. 55%
Lear Corporation (formerly United Technologies Automotive, Inc.) 45%
Owners of Non-Voting Interests
Roland Lartigue 100%
(2% total Interests)
5. Saturn Electronics de Juarez, S.A. de C.V.
</TABLE>
<PAGE> 122
<TABLE>
<S> <C>
Series B-1
Saturn Electronics Texas, L.L.C. 99.9%
Saturn Electronics & Engineering, Inc. .1%
Series B-2
Saturn Electronics Texas, L.L.C. 100%
6. Saturn de Monterrey, S.A. de C.V.
Series B-1
Saturn Manufacturing Co. 99.9%
Wallace K. Tsuha, Jr. .1%
Series B-2
Saturn Manufacturing Co. 100%
7. Saturn Electronics (Barbados), Inc.
Saturn Electronics & Engineering, Inc. 100%
8. Beijing Saturn Electronics Co., Ltd.
Saturn Electronics & Engineering, Inc. 57%
Beinei Group Corporation 38%
China Modernization Institute, Inc. 5%]
</TABLE>
<PAGE> 123
OUTSTANDING RIGHTS
1. Under the 1995 Management Stock Option Program, certain directors,
officers and executive personnel of Saturn Electronics & Engineering,
Inc. and its subsidiaries are eligible to receive stock options to
acquire stock in Saturn Electronics & Engineering, Inc.
9. Under the Stockholders Agreement dated March 21, 1995, as amended, the
stockholders of Saturn Electronics & Engineering, Inc. have pre-emptive
rights in accordance with Section 343 of the Michigan Business
Corporation Act as specified in such agreement.
10. Under the Membership Interest Agreement dated February, 28, 1999
between Saturn Electronics Texas, L.L.C. (Saturn/Texas) and Roland E.
Lartigue, Mr. Lartigue has been granted a one percent Non-Voting
percentage interest in Saturn/Texas which will vest on February 28,
2000 if Mr. Lartigue is employed by Saturn/Texas on this date. In
addition, Mr. Lartigue is eligible to receive an additional one percent
Non-Voting percentage interest in Saturn/Texas on February 28, 2000,
which will vest on February 28, 2001 if Mr. Lartigue is employed by
Saturn/Texas on this date.
<PAGE> 124
SCHEDULE 9.1
INDEBTEDNESS
There are currently outstanding loans owed to Comerica Bank pursuant to the
Credit Agreement dated as of September 20, 1995, as amended, with Saturn
Electronics & Engineering, Inc. and Saturn Manufacturing Co.
<PAGE> 125
SCHEDULE 9.2
LIENS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Jurisdiction Date File # Secured Party Debtor
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michigan 4/12/99 D502002 Rockford Saturn Electronics &
Secretary of Engineering, Inc.
State
- --------------------------------------------------------------------------------------------------------------
Michigan 4/12/99 D502001 Rockford Saturn Electronics &
Secretary of Engineering, Inc.
State
- --------------------------------------------------------------------------------------------------------------
Michigan 11/10/98 D442187 IBM Credit Saturn Electronics &
Secretary of Corporation Engineering, Inc.
State
- --------------------------------------------------------------------------------------------------------------
Michigan 3/17/98 D350413 IKON Office Saturn Electronics &
Secretary of Solutions Engineering, Inc.
State
- --------------------------------------------------------------------------------------------------------------
Michigan 12/10/97 D314025 Advance Saturn Electronics &
Secretary of Acceptance Engineering, Inc.
State Corporation
- --------------------------------------------------------------------------------------------------------------
Michigan 5/9/97 D230741 IBM Credit Saturn Electronics &
Secretary of Corporation Engineering, Inc.
State
- --------------------------------------------------------------------------------------------------------------
Michigan 12/9/96 80742B Octel Capital Saturn Electronics &
Secretary of Engineering, Inc.
State
- --------------------------------------------------------------------------------------------------------------
Michigan 5/16/96 D096611 Dougherty Saturn Electronics &
Secretary of Equipment Engineering, Inc.
State Company, Inc.
- --------------------------------------------------------------------------------------------------------------
Michigan 9/16/96 D138646 Clarklift of Saturn Electronics &
Secretary of Detroit, Inc. Engineering, Inc.
State
- --------------------------------------------------------------------------------------------------------------
Michigan 9/16/96 D131112 Clarklift of Saturn Electronics &
Secretary of Detroit, Inc. Engineering, Inc.
State
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 126
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Jurisdiction Date File # Secured Party Debtor
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
North Carolina, 4/5/99 1990033088 Rockford Saturn Electronics &
Secretary of Engineering, Inc.
State
- --------------------------------------------------------------------------------------------------------------
North Carolina, 4/5/99 1990033087 Rockford Saturn Electronics &
Secretary of Engineering, Inc.
State
- --------------------------------------------------------------------------------------------------------------
North Carolina, 12/30/97 001534530 Mellon First Saturn Electronics &
Secretary of United Engineering, Inc.
State Leasing
- --------------------------------------------------------------------------------------------------------------
North Carolina, 5/16/96 1340915 Dougherty Saturn Electronics &
Secretary of Equipment Engineering, Inc.
State Company, Inc.
- --------------------------------------------------------------------------------------------------------------
North Carolina, 4/5/99 99-848 Rockford Saturn Electronics &
Nash County Industries, Inc. Engineering, Inc.
- --------------------------------------------------------------------------------------------------------------
North Carolina, 4/5/99 99-847 Rockford Saturn Electronics &
Nash County Industries, Inc. Engineering, Inc.
- --------------------------------------------------------------------------------------------------------------
North Carolina, 5/14/96 961515 Dougherty Saturn Electronics &
Nash County Equipment Engineering, Inc.
Company, Inc.
- --------------------------------------------------------------------------------------------------------------
Mississippi, 4/2/99 1309588 Rockford Saturn Electronics &
Secretary of Industries, Inc. Engineering, Inc.
State
- --------------------------------------------------------------------------------------------------------------
Mississippi, 4/2/99 1309584 Rockford Saturn Electronics &
Secretary of Industries, Inc. Engineering, Inc.
State
- --------------------------------------------------------------------------------------------------------------
Mississippi, 1/8/99 1284082 Associates Saturn Electronics &
Secretary of Commercial Engineering, Inc.
State Corporation AND
(a/k/a AT&T Saturn Manufacturing
Commercial Co.
Corporation)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 127
EXHIBIT D
REQUEST FOR SWING LINE ADVANCE
No. Dated:
---------------- -------------------
To: Comerica Bank, Swing Line Bank
Re: Saturn Electronics & Engineering, Inc. Credit Agreement by and among
Comerica Bank, as Agent, the lenders from time to time parties thereto
(collectively, "Banks"), Saturn Electronics & Engineering, Inc., Saturn
Manufacturing Co. and SSI Acquisition Corp. (collectively, "Borrowers")
dated as of August 24, 1999 (as amended from time to time, the
"Agreement").
Pursuant to the Agreement, the undersigned Borrower requests a Swing
Line Advance from the Swing Line Bank as follows:
A. Date of Advance:
------------------------
B. Amount of Advance:
$
------------
/ / Comerica Bank Account No.
------------------------
/ / Other:
---------------------------------
---------------------------------
C. Interest Rate:
1. Prime-based Rate / /
2. Quoted Rate / /
D. Interest Period:
1. days1/
------------
- --------
1/Insert up to 30 days.
<PAGE> 128
The undersigned Borrower certifies to the matters specified in Section
2.5(c)(vii) of the Agreement.
-----------------------------------
By:
--------------------------------
Its:
-------------------------------
2
<PAGE> 129
EXHIBIT E
SWING LINE NOTE
$5,000,000 , 1999
--------
On the Revolving Credit Maturity Date, FOR VALUE RECEIVED, Saturn
Electronics & Engineering, Inc., a Michigan corporation, SSI Acquisition Corp.,
a Delaware corporation, and Saturn Manufacturing Co., an Ohio corporation
(collectively "Borrowers"), jointly and severally promise to pay to the order of
Comerica Bank ("Bank") at 500 Woodward Avenue, Detroit, Michigan in lawful money
of the United States of America, the sum of Five Million Dollars ($5,000,000),
or so much of said sum as may from time to time have been advanced and then be
outstanding hereunder pursuant to Section 2.5 of the Saturn Electronics &
Engineering, Inc. Credit Agreement dated as of August 24, 1999, executed by and
among the Borrowers, certain banks, including the Bank, and Comerica Bank as
Agent for such banks, as the same may be amended from time to time (the
"Agreement"), together with interest thereon as hereinafter set forth.
The unpaid principal indebtedness from time to time outstanding under
this Note shall be due and payable on the last day of the Interest Period
applicable thereto or as otherwise set forth in the Agreement, provided that no
Swing Line Advance may mature or be payable on a day later than the Revolving
Credit Maturity Date.
Each of the Swing Line Advances made hereunder shall bear interest at
the Prime-based Rate or the Quoted Rate from time to time applicable thereto
under the Agreement or as otherwise determined thereunder, and interest shall be
computed, assessed and payable as set forth in the Agreement.
This Note is a note under which advances, repayments and readvances may
be made from time to time, but only in accordance with the terms and conditions
of the Agreement. This Note evidences borrowings under, is subject to, is
secured in accordance with, and may be accelerated or matured under, the terms
of the Agreement, to which reference is hereby made. Definitions and terms of
the Agreement are hereby incorporated by reference herein.
This Note shall be interpreted and the rights of the parties hereunder
shall be determined under the laws of, and enforceable in, the State of Michigan
(without regard to its conflict of laws provisions).
Each Borrower hereby waives presentment for payment, demand, protest
and notice of dishonor and nonpayment of this Note and agrees that no obligation
hereunder shall be discharged by reason of any extension, indulgence, release,
or forbearance granted by any holder
<PAGE> 130
of this Note to any party now or hereafter liable hereon or any present or
subsequent owner of any property, real or personal, which is now or hereafter
security for this Note.
Nothing herein shall limit any right granted Bank by any other
instrument or by law.
SATURN ELECTRONICS &
ENGINEERING, INC.
By:
--------------------------------
Its:
-------------------------------
SSI ACQUISITION CORP.
By:
--------------------------------
Its:
-------------------------------
SATURN MANUFACTURING CO.
By:
--------------------------------
Its:
-------------------------------
2
<PAGE> 131
EXHIBIT F
FORM OF
SWING LINE LOAN PARTICIPATION CERTIFICATE
___________________ , ____
[Name of Bank]
_________________________
_________________________
Ladies and Gentlemen:
Pursuant to subsection 2.5(e)(ii) of the Credit Agreement dated as of
August 24, 1999, among Saturn Electronics & Engineering, Inc., Saturn
Manufacturing Co. and SSI Acquisition Corp. the undersigned hereby acknowledges
receipt from you of $ as payment for a participating interest
in the following Swing Line Loan:
Date of Swing Line Loan:________________________________
Principal Amount of Swing Line Loan:____________________
The participation evidenced by this certificate shall be subject to the terms
and conditions of the Revolving Credit Agreement including without limitation
Section 2.5 thereof.
Very truly yours,
COMERICA BANK, as Agent
By: ____________________________
Its:____________________________
<PAGE> 132
EXHIBIT G
FORM OF INTERCOMPANY NOTE
INTERCOMPANY NOTE
BORROWER OR GUARANTOR, AS MAKER
________________, 1999
ON DEMAND, FOR VALUE RECEIVED, the undersigned ("MAKER") promises to
pay to the order of Saturn Electronics & Engineering, Inc. from which it has
received advances of credit ("Holder") at such place as shall be designated from
time to time by each such Holder to Maker, in lawful money of the United States
of America or in such other currencies applicable to any particular advance made
hereunder (each an "Advance" and, collectively, the "Advances") which may, from
time to time, be outstanding hereunder, such sum as may from time to time have
been advanced by Holder to Maker and then be outstanding hereunder, together
with interest thereon as hereinafter set forth.
Each Advance shall bear interest at Holder's average cost of Borrowing
as certified by Holder from time to time.
Interest on the unpaid balance of all Advances shall be payable in
immediately available funds quarterly commencing on , 1999 and
on the first day of each calendar quarter thereafter. Interest accruing shall be
computed on the basis of a 365 day year and assessed for the actual number of
days elapsed.
This Note is a note under which advances, repayments and readvances may
be made from time to time.
Upon the occurrence and during the continuance of an Event of Default,
as defined in that certain Saturn Electronics & Engineering, Inc. Credit
Agreement dated as of August 24, 1999 (as amended, or otherwise modified from
time to time, the "Credit Agreement") by and among Saturn Electronics &
Engineering, Inc., a Michigan corporation ("Company"), Saturn Manufacturing,
Co., an Ohio corporation ("Manufacturing"), SSI Acquisition Corp., a Delaware
corporation ("SSI"), certain financial institutions from time to time signatory
thereto (the "Banks") and Comerica Bank, as Agent for the Banks (the "Agent"),
and following receipt of notice from the Agent, (A) no payments may be made of
the principal of or interest on this Note, and (B) this Note shall be fully
subordinated in all respects to the Indebtedness (as defined in the Credit
Agreement).
As used herein, "Senior Creditors" shall refer to the Banks and "Senior
Indebtedness" shall refer to the Indebtedness under the Credit Agreement.
During the period when payments of interest hereon are not permitted by
the second
<PAGE> 133
preceding paragraph, interest shall accrue and be added to principal on each
interest payment date.
Maker agrees, and Holder by accepting this Note agrees, that: (A) the
obligations evidenced by this Note are subordinated in right of payment, to the
prior payment in full of all the Senior Indebtedness; the subordination is for
the benefit of the Senior Creditors, and each Senior Creditor whether now
outstanding or hereafter created, incurred, assumed or guaranteed shall be
deemed to have acquired Indebtedness in reliance upon the covenants and
provisions contained in this Note; (B) if Maker is prohibited by the terms of
this Note from making any payment of principal, interest or any other sum under
or in respect of this Note when due, and therefore the Maker shall fail to pay
when due any such sum, such failure shall not constitute a default or event of
default under and in respect of this Note (provided that interest shall continue
to accrue as provided herein and be added to principal as herein set forth); and
(C) no revision to any provision of this Note applicable or relevant to the
subordination of this Note to the Senior Indebtedness shall be made or become
effective until approved in writing by the Agent.
Upon any distribution (whether cash, securities or other property, by
setoff or otherwise) to creditors of Maker in a liquidation or dissolution of
Maker or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Maker or its property: (A) Senior Creditors shall be
entitled to payment in full of all obligations with respect to the Senior
Indebtedness (including interest after the commencement of any such proceeding
at the rates specified for the applicable Indebtedness) to the date of payment
of the Indebtedness before Holder shall be entitled to receive any payment of
any obligations with respect to this Note; and (B) until all obligations with
respect to the Senior Indebtedness are paid in full, any distribution to which
Holder would be entitled shall be made to Senior Creditors as their interests
may appear.
No right of any Senior Creditor to enforce the subordination of the
indebtedness evidenced by this Note shall be impaired by any act or failure to
act by the Maker or by its failure to comply with the terms and conditions of
this Note.
This Note shall be interpreted and the rights of the parties hereunder
shall be determined under the laws of, and enforceable in, the State of
Michigan.
Maker hereby waives presentment for payment, demand, protest and notice
of dishonor and nonpayment of this Note and agrees that no obligation hereunder
shall be discharged by reason of any extension, indulgence, release, or
forbearance granted by any holder of this Note to any party now or hereafter
liable hereon or any present or subsequent owner of any property, real or
personal, which is now or hereafter security for this Note.
Terms not defined herein shall have the meanings set forth in the
Credit Agreement.
<PAGE> 134
Nothing herein shall limit any right granted Holder by any other
instrument or by law.
SATURN MANUFACTURING, CO.
By:
---------------------------------------
Its:
--------------------------------------
Dated: , 1999
-----------------
Pay to the order of Comerica Bank, as Agent
By: SATURN ELECTRONICS &
ENGINEERING, INC.
By:
---------------------------------------
Its:
--------------------------------------
<PAGE> 135
EXHIBIT H
COVENANT COMPLIANCE REPORT
To: Comerica Bank, as Agent
Re: Saturn Electronics & Engineering, Inc. Credit Agreement dated
as of August 24, 1999 (as amended or otherwise modified from
time to time, the "Agreement")
This Covenant Compliance and Interest Rate Adjustment Report ("Report")
is furnished pursuant to Section 8.2(a) of the Agreement and sets forth various
information as of , (the "Computation Date").
1. Funded Debt Ratio. On the date of determination, the Funded Debt
Ratio, which is required to be not more than to 1.0, was to 1.0 as
computed in the supporting documents attached as Schedule 1.
2. Consolidated Net Worth. On the date of determination, Consolidated
Net Worth, which is required to be not less than $ , was
$ , as computed in the supporting documents attached hereto as
Schedule 2.
3. Fixed Charge Coverage Ratio. On the date of determination, the Fixed
Charge Coverage Ratio, which is required to be not less than to 1, was
to 1, as computed in the supporting documents attached hereto as Schedule 3.
4. Eurocurrency Margins. The applicable Eurocurrency Margin which shall
become effective pursuant to the provisions of Section 5.1 of the Agreement is
%:
5. Prime-based Margins. The applicable Prime-based Margin which shall
become effective pursuant to the provisions of Section 5.1 of the Agreement is
%:
6. Fees. The applicable Revolving Credit Facility Fee and Letter of
Credit Fee which shall become effective pursuant to the provisions of Section
5.1 of the Agreement are set forth below:
Fee Rate
Revolving Credit
Facility Fee %
------
Letter of Credit Fee %
------
The undersigned officer(s) of Borrowers hereby certifies that:
<PAGE> 136
A. All of the information set forth in this Report (and in any Schedule
attached hereto) is true and correct in all material respects.
B. As of the Computation Date, the Loan Parties have observed and
performed all of their covenants and other agreements contained in the Agreement
and in the Notes and any other Loan Documents to be observed, performed and
satisfied by them.
C. I (we) have reviewed the Agreement and this Report is based on an
examination sufficient to assure that this Report is accurate.
D. Except as stated in Schedule 4 hereto (which shall describe any
existing Default or Event of Default and the notice and period of existence
thereof and any action taken with respect thereto or contemplated to be taken by
Borrowers), no Default or Event of Default has occurred and is continuing on the
date of this Report.
Capitalized terms used in this Report and in the schedules hereto,
unless specifically defined to the contrary, have the meanings given to them in
the Agreement.
IN WITNESS WHEREOF, Borrowers have caused this Report to be executed
and delivered by their duly authorized officers this day of
, .
SATURN ELECTRONICS &
ENGINEERING, INC.
By:
--------------------------------
Its:
--------------------------------
SATURN MANUFACTURING CO.
By:
--------------------------------
Its:
--------------------------------
SSI ACQUISITION CORP.
By:
--------------------------------
Its:
--------------------------------
2
<PAGE> 137
EXHIBIT I
FORM OF
ASSIGNMENT AGREEMENT
Date:
---------------
To: SATURN ELECTRONICS & ENGINEERING, INC.
and
COMERICA BANK, AS AGENT ("Agent")
Re: Saturn Electronics & Engineering, Inc. Credit Agreement dated as of
August 24, 1999 (as amended or otherwise modified from time to time,
the "Agreement"), among Saturn Electronics & Engineering, Inc., Saturn
Manufacturing Co., and SSI Acquisition Corp. (collectively,
"Borrowers"), Saturn Electronics & Engineering, Inc., Agent and certain
Banks
Gentlemen and Ladies:
This Agreement constitutes notice to each of you of the proposed
assignment and delegation by [insert assignor Bank] (the "Assignor") to [insert
proposed assignee] (the "Assignee"), and the Assignor hereby sells and assigns
to the Assignee, and the Assignee hereby purchases and assumes from the
Assignor, effective on the "Effective Date" (as hereafter defined) that
undivided interest in each of Assignor's rights and obligations under the Credit
Agreement and the other Loan Documents such that, after giving effect to the
foregoing assignment and assumption, [and the other assignments by Assignor to
on the date hereof,] the Assignee's interest, and the Assignor's
interest remaining (if any), in the Revolving Credit (and participations in any
outstanding Letters of Credit) shall be as set forth on the attached schedule.
The Assignor hereby instructs the Agent to make all payments from and
including the Effective Date hereof in respect of the interest assigned hereby,
directly to the Assignee. The Assignor and the Assignee agree that all interest
and fees accrued up to, but not including, the Effective Date of the assignment
and delegation being made hereby are the property of the Assignor, and not the
Assignee. The Assignee agrees that, upon receipt of any such interest or fees
accrued up to the Effective Date, the Assignee will promptly remit the same to
the Assignor.
The Assignee hereby confirms that it has received a copy of the Credit
Agreement and the exhibits and schedules referred to therein, and all other Loan
Documents which it considers necessary, together with copies of the other
documents which were required to be delivered under the Credit Agreement as a
condition to the making of the loans thereunder. The Assignee acknowledges and
agrees that it: (a) is legally authorized to enter into this Assignment
Agreement; (b) has made and will continue to make such inquiries and has taken
and will take such care on its own behalf as would have
<PAGE> 138
been the case had its Percentages been granted and its loans been made directly
by such Assignee to Borrowers without the intervention of the Agent, the
Assignor or any other Bank; and (c) has made and will continue to make,
independently and without reliance upon the Agent, the Assignor or any other
Bank, and based on such documents and information as it has deemed appropriate,
its own credit analysis and decisions relating to the Credit Agreement. The
Assignee further acknowledges and agrees that neither the Agent, nor the
Assignor has made any representations or warranties about the creditworthiness
of any Borrower or any other party to the Credit Agreement or any other of the
Loan Documents, or with respect to the legality, validity, sufficiency or
enforceability of the Credit Agreement, or any other of the Loan Documents. This
assignment shall be made without recourse to or warranty by the Assignor, except
as set forth herein.
Assignee represents and warrants that it is a Person to which
assignments are permitted pursuant to Section 14.8(c) of the Credit Agreement.
Assignor represents and warrants, as of the Effective Date, that it is
the legal and beneficial owner of the interest being assigned and delegated by
it hereunder and that such interest is free and clear of any pledge, encumbrance
or other adverse claim or interest created by Assignor.
Except as otherwise provided in the Credit Agreement, effective as of
the Effective Date:
(a) the Assignee: (i) shall be deemed automatically to have become
a party to the Credit Agreement and the other Loan Documents,
to have assumed all of the Assignor's obligations thereunder
to the extent of the Assignee's Percentage referred to in the
second paragraph of this Assignment Agreement, and to have all
the rights and obligations of a party to the Credit Agreement
and the other Loan Documents, as if it were an original
signatory thereto to the extent specified in the second
paragraph hereof; and (ii) agrees to be bound by the terms and
conditions set forth in the Credit Agreement and the other
Loan Documents as if it were an original signatory thereto;
and
(b) the Assignor's obligations under the Credit Agreement and the
other Loan Documents shall be reduced by the percentage
assigned to Assignee referred to in the second paragraph of
this Assignment Agreement.
As used herein, the term "Effective Date" means the date on which all
of the following have occurred or have been completed, as reasonably determined
by the Agent:
(1) the delivery to the Agent of an original of this Assignment
Agreement executed by the Assignor and the Assignee;
(2) the payment to the Agent, of all accrued fees, expenses and
other items for which reimbursement is then owing under the
Credit Agreement;
2
<PAGE> 139
(3) the payment to the Agent of the $3,500 processing fee referred
to in Section 14.8(d) (ii) of the Credit Agreement; and
(4) all other restrictions and items noted in Sections 14.8(c) and
(d) of the Credit Agreement have been completed.
Following the execution and delivery of this Assignment Agreement by
the Assignor and Assignee to the Agent and the Agent shall notify the Assignor
and the Assignee, along with the Borrowers, of the Effective Date.
On the Effective Date the Assignee shall pay to the Assignor the amount
agreed upon with respect to the outstanding principal amount of the outstanding
Advances of the Revolving Credit owed to Assignor by the Borrowers under the
Credit Agreement in respect of the interest being assigned hereby.
The Assignee hereby advises each of you that an administrative detail
with respect to the assigned loans has been filed with the Agent:
The Assignee has delivered to the Agent (or is delivering to the Agent
concurrently herewith) the tax forms referred to in Section 14.13 of the Credit
Agreement, and other forms reasonably requested by the Agent. The Assignor has
delivered to the Agent (or is delivering to Agent concurrently herewith), the
original of each Note held by the Assignor under the Credit Agreement.
Please evidence your consent to and acceptance of the proposed
assignment and delegation set forth herein by signing and returning counterparts
hereof to the Assignor and the Assignee.
[ASSIGNOR]
By:
--------------------------------
Its:
-------------------------------
[ASSIGNEE]
By:
--------------------------------
Its:
--------------------------------
3
<PAGE> 140
ACCEPTED AND CONSENTED TO
this day of ,
-------- ------------------------ ------------
COMERICA BANK, Agent
By:
--------------------------------
Its:
-------------------------------
SATURN ELECTRONICS &
ENGINEERING, INC.
By:
--------------------------------
Its:
-------------------------------
[This form of Assignment Agreement (including footnotes) is subject in all
respects to the terms and conditions of the Agreement which shall govern in the
event of any inconsistencies or omissions.]
4
<PAGE> 141
SCHEDULE TO ASSIGNMENT AGREEMENT
ASSIGNEE'S/ASSIGNOR'S PERCENTAGE AND ALLOCATION
<PAGE> 1
EXHIBIT 10.17
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT NO. 1 TO CREDIT AGREEMENT, dated as of September 24, 1999
(this "Amendment No. 1"), to the Credit Agreement dated as of August 24,1999
(the "Credit Agreement"), among Comerica Bank and the other financial
institutions from time to time parties thereto (individually, a "Bank", and
collectively, "Banks"), Comerica Bank, as Agent for the Banks (in such capacity,
"Agent"), and Saturn Electronics & Engineering, Inc., Saturn Manufacturing Co.,
and Smartflex Systems, Inc., successor in interest to SSI Acquisition Corp.
by reason of merger ("Borrowers").
W I T N E S S E T H:
WHEREAS, the Banks, the Agent and the Borrowers are parties to the
Credit Agreement; and
WHEREAS, Newco has merged with and into Smartflex pursuant to the
Merger Agreement, and the Borrowers, the Agent and the Banks wish to amend
certain of the Schedules, to the Credit Agreement to reflect the Merger and the
substitution of Smartflex for Newco as a Borrower;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, it is hereby agreed as follows:
ARTICLE I -- DEFINITIONS AND AMENDMENTS
1.1 Defined Terms. Capitalized terms used herein which are defined in
the Credit Agreement are used herein with such defined meanings.
1.2 Substitution of Schedules. Schedules 6.3(b), 6.4, 7.9, 7.12, 7.13,
7.16, 7.18, 7.19, 7.20, 7.23, 9.1, 9.2, 9.3 and 9.8 are amended to read in their
entirety as provided in the attached schedules.
ARTICLE II -- REPRESENTATIONS AND WARRANTIES;
CONDITIONS PRECEDENT
2.1 Representations; No Default. On and as of the effective date hereof
and after giving effect to this Amendment No. 1 and to the transactions
contemplated hereby, each Borrower hereby (i) confirms, reaffirms and restates
the representations and warranties set forth in Section 7 of the Credit
Agreement, except to the extent that such representations and
<PAGE> 2
warranties relate solely to an earlier date in which case each Borrower hereby
confirms, reaffirms and restates such representations and warranties on and as
of such earlier date, provided that the references to the Credit Agreement
therein shall be deemed to be references to the Credit Agreement as amended by
this Amendment No. 1, and (ii) represents and warrants that no Default or Event
of Default has occurred and is continuing.
2.2 Effective Date. This Amendment No. 1 shall become effective when
Agent shall have received counterpart originals of this Amendment No. 1, in each
case duly executed and delivered by Borrowers, the Banks and the Guarantors, in
form satisfactory to Agent and the Banks.
ARTICLE III -- MISCELLANEOUS
3.1 Limited Effect. Except as expressly amended hereby, all of the
provisions, covenants, terms and conditions of the Credit Agreement shall
continue to be, and shall remain, in full force and effect in accordance with
its terms.
3.2 Expenses. The Company shall reimburse the Agent for all its
reasonable costs and expenses including, without limitation, legal expenses
incurred in connection with the preparation, execution and delivery of this
Amendment No. 1.
3.3 Governing Law. This Amendment No. 1 shall be governed by, and
construed and interpreted in accordance with, the law of the State of Michigan.
3.4 Counterparts. This Amendment No. 1 may be executed by one or more
parties hereto on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
3.5 Guarantors. By its execution hereof, each Guarantor consents to the
foregoing amendments and reaffirms and ratifies all of its obligations to the
Agent and the Banks under the Guaranty.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be executed and delivered by their proper and duly authorized officers or
other representatives as of the date first above written.
BORROWERS:
SATURN ELECTRONICS &
ENGINEERING, INC.
By: /s/ Donald J. Cowie
---------------------------------
Its: Chief Financial Officer
---------------------------------
SATURN MANUFACTURING CO.
By: /s/ Donald J. Cowie
---------------------------------
Its: Chief Financial Officer
---------------------------------
SMARTFLEX SYSTEMS, INC.
By: /s/ Donald J. Cowie
---------------------------------
Its: Chief Financial Officer
---------------------------------
AGENT AND BANKS:
COMERICA BANK, as Agent and as a Bank
By: /s/ Jason L. Stoecker
---------------------------------
Its: AVP
---------------------------------
3
<PAGE> 4
GUARANTORS:
SMARTFLEX NEW JERSEY INC.
By: /s/ Donald J. Cowie
---------------------------------
Its: Chief Financial Officer
---------------------------------
LOGICAL SYSTEMS INC.
By: /s/ Donald J. Cowie
---------------------------------
Its:
Chief Financial Officer
---------------------------------
SMARTFLEX FREMONT INC.
By: /s/ Donald J. Cowie
---------------------------------
Its: Chief Financial Officer
---------------------------------
SMARTFLEX NEW ENGLAND INC.
By: /s/ Donald J. Cowie
---------------------------------
Its: Chief Financial Officer
---------------------------------
4
<PAGE> 5
SCHEDULE 6.3(b)
JURISDICTION OF UCC FILINGS
I. The Company
a. Michigan Secretary of State
b. North Carolina Secretary of State
c. Nash County, North Carolina
d. Oakland County, Michigan
e. Ottawa County, Michigan
VI. Manufacturing
a. Ohio Secretary of State
b. Mississippi Secretary of State
c. Quitman County, MS
IV. Newco
a. Delaware Secretary of State
b. Michigan Secretary of State
After the Smartflex Acquisition
II. Smartflex
a. California Secretary of State
b. Orange County, California
c. Santa Clara County California
d. Alameda County, California
V. Logical Services Incorporated
a. California Secretary of State
b. Santa Clara County, California
III. Smartflex Freemont, Inc.
a. California Secretary of State
b. Orange County, California
c. Santa Clara County, California
d. Alameda County, California
V. Smartflex New England, Inc.
a. New Hampshire Secretary of State
b. Hudson County, New Hampshire
c. Hillsborough County, New Hampshire
<PAGE> 6
IV. Smartflex New Jersey, Inc.
a. New Jersey Secretary of State
b. Monmouth County, New Jersey
<PAGE> 7
SCHEDULE 6.4
LEASED PROPERTY
1. 2119 Austin
Rochester Hills, Michigan
2. 255 Rex Blvd.
Auburn Hills, Michigan
3. 1098 Second Street
Marks, Mississippi
<PAGE> 8
SCHEDULE 7.9
COMPLIANCE WITH LAWS
NONE
<PAGE> 9
SCHEDULE 7.12
LITIGATION
None
<PAGE> 10
SCHEDULE 7.13
CONSENTS, APPROVALS, FILINGS
The respective Boards of Directors of the Borrowers have approved this Agreement
and the other Loan Documents.
<PAGE> 11
SCHEDULE 7.16
PENSION PLANS SUBJECT TO TITLE IV OF ERISA
None
<PAGE> 12
SCHEDULE 7.18
ENVIRONMENTAL MATTERS
None
<PAGE> 13
SCHEDULE 7.19
SUBSIDIARIES OF THE COMPANY
1. Saturn Manufacturing Co., an Ohio corporation
2. SSI Acquisition Corp., a Delaware corporation
3. Saturn Electronics Texas, L.L.C., a Texas limited liability company.
4. Saturn Electronics de Juarez, S.A. de C.V., a Mexican corporation.
5. Saturn de Monterrey, S.A. de C.V., a Mexican corporation
6. Saturn Electronics (Barbados), Inc., a Barbados corporation
7. Beijing Saturn Electronics Co., Ltd., a Chinese corporation
<PAGE> 14
SCHEDULE 7.20
CONTINGENT OBLIGATIONS
A component provided by the Company has experienced some failures. The
Company currently estimates that the cost to address this matter could range
from $200,000 to $1,500,000.
<PAGE> 15
SCHEDULE 7.23
OWNERSHIP INTERESTS; RIGHTS TO PURCHASE
OWNERSHIP INTERESTS
1. Saturn Electronics & Engineering, Inc.
Owners of Class A Voting Stock
Wallace K. Tsuha Trust dated Oct. 14, 1991 63.75%
MascoTech, Inc. 36.25%
Owners of Class B Nonvoting Stock
Tsuha Trusts 63.75%
MascoTech, Inc. 36.25%
2. Saturn Manufacturing Co.
Owned 100% by Saturn Electronics & Engineering, Inc.
3. SSI Acquisition Corp.
Owned 100% by Saturn Electronics & Engineering, Inc.
4. Saturn Electronics Texas, L.L.C.
Owners of Voting Interests
Saturn Electronics & Engineering, Inc. 55%
Lear Corporation (formerly United Technologies
Automotive, Inc.) 45%
Owners of Non-Voting Interests
Roland Lartigue 100%
(2% total Interests)
5. Saturn Electronics de Juarez, S.A. de C.V.
<PAGE> 16
Series B-1
Saturn Electronics Texas, L.L.C. 99.9%
Saturn Electronics & Engineering, Inc. .1%
Series B-2
Saturn Electronics Texas, L.L.C. 100%
6. Saturn de Monterrey, S.A. de C.V.
Series B-1
Saturn Manufacturing Co. 99.9%
Wallace K. Tsuha, Jr. .1%
Series B-2
Saturn Manufacturing Co. 100%
7. Saturn Electronics (Barbados), Inc.
Saturn Electronics & Engineering, Inc. 100%
8. Beijing Saturn Electronics Co., Ltd.
Saturn Electronics & Engineering, Inc. 57%
Beinei Group Corporation 38%
China Modernization Institute, Inc. 5%]
<PAGE> 17
OUTSTANDING RIGHTS
1. Under the 1995 Management Stock Option Program, certain directors,
officers and executive personnel of Saturn Electronics & Engineering,
Inc. and its subsidiaries are eligible to receive stock options to
acquire stock in Saturn Electronics & Engineering, Inc.
9. Under the Stockholders Agreement dated March 21, 1995, as amended, the
stockholders of Saturn Electronics & Engineering, Inc. have pre-emptive
rights in accordance with Section 343 of the Michigan Business
Corporation Act as specified in such agreement.
10. Under the Membership Interest Agreement dated February, 28, 1999
between Saturn Electronics Texas, L.L.C. (Saturn/Texas) and Roland E.
Lartigue, Mr. Lartigue has been granted a one percent Non-Voting
percentage interest in Saturn/Texas which will vest on February 28,
2000 if Mr. Lartigue is employed by Saturn/Texas on this date. In
addition, Mr. Lartigue is eligible to receive an additional one percent
Non-Voting percentage interest in Saturn/Texas on February 28, 2000,
which will vest on February 28, 2001 if Mr. Lartigue is employed by
Saturn/Texas on this date.
<PAGE> 18
SCHEDULE 9.1
INDEBTEDNESS
There are currently outstanding loans owed to Comerica Bank pursuant to the
Credit Agreement dated as of September 20, 1995, as amended, with Saturn
Electronics & Engineering, Inc. and Saturn Manufacturing Co.
<PAGE> 19
SCHEDULE 9.2
LIENS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Jurisdiction Date File # Secured Party Debtor
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michigan Secretary of 4/12/99 D502002 Rockford Saturn Electronics &
State Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
Michigan Secretary of 4/12/99 D502001 Rockford Saturn Electronics &
State Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
Michigan Secretary of 11/10/98 D442187 IBM Credit Saturn Electronics &
State Corporation Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
Michigan Secretary of 3/17/98 D350413 IKON Office Saturn Electronics &
State Solutions Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
Michigan Secretary of 12/10/97 D314025 Advance Acceptance Saturn Electronics &
State Corporation Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
Michigan Secretary of 5/9/97 D230741 IBM Credit Saturn Electronics &
State Corporation Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
Michigan Secretary of 12/9/96 80742B Octel Capital Saturn Electronics &
State Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
Michigan Secretary of 5/16/96 D096611 Dougherty Saturn Electronics &
State Equipment Company, Engineering, Inc.
Inc.
-------------------------------------------------------------------------------------------------------------------
Michigan Secretary of 9/16/96 D138646 Clarklift of Saturn Electronics &
State Detroit, Inc. Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
Michigan Secretary of 9/16/96 D131112 Clarklift of Saturn Electronics &
State Detroit, Inc. Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
North Carolina, 4/5/99 1990033088 Rockford Saturn Electronics &
Secretary of State Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
North Carolina, 4/5/99 1990033087 Rockford Saturn Electronics &
Secretary of State Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
North Carolina, 12/30/97 001534530 Mellon First Saturn Electronics &
Secretary of State United Leasing Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
North Carolina, 5/16/96 1340915 Dougherty Saturn Electronics &
Secretary of State Equipment Company, Engineering, Inc.
Inc.
-------------------------------------------------------------------------------------------------------------------
North Carolina, Nash 4/5/99 99-848 Rockford Saturn Electronics &
County Industries, Inc. Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
North Carolina, Nash 4/5/99 99-847 Rockford Saturn Electronics &
County Industries, Inc. Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
North Carolina, Nash 5/14/96 961515 Dougherty Saturn Electronics &
County Equipment Company, Engineering, Inc.
Inc.
-------------------------------------------------------------------------------------------------------------------
Mississippi, 4/2/99 1309588 Rockford Saturn Electronics &
Secretary of State Industries, Inc. Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
Mississippi, 4/2/99 1309584 Rockford Saturn Electronics &
Secretary of State Industries, Inc. Engineering, Inc.
-------------------------------------------------------------------------------------------------------------------
Mississippi, 1/8/99 1284082 Associates Saturn Electronics &
Secretary of State Commercial Engineering, Inc.
Corporation (a/k/a AND
AT&T Commercial Saturn Manufacturing Co.
Corporation)
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
SCHEDULE 9.3
GUARANTEE OBLIGATIONS
None
<PAGE> 21
SCHEDULE 9.8
INVESTMENTS
Investments in all existing subsidiaries of Saturn Electronics &
Engineering, Inc.
<PAGE> 1
EXHIBIT 10.18
AMENDMENT NO. 2 TO CREDIT AGREEMENT
AMENDMENT NO. 2 TO CREDIT AGREEMENT, dated as of November 10, 1999
(this "Amendment No. 2"), to the Credit Agreement dated as of August 24,1999, as
amended by Amendment No. 1 dated as of September 24, 1999 (the "Credit
Agreement"), among Comerica Bank and the other financial institutions from time
to time parties thereto (individually, a "Bank", and collectively, "Banks"),
Comerica Bank, as Agent for the Banks (in such capacity, "Agent"), and Saturn
Electronics & Engineering, Inc., Saturn Manufacturing Co., and Smartflex
Systems, Inc., successor in interest to SSI Acquisition Corp. by reason of
merger ("Borrowers").
W I T N E S S E T H:
WHEREAS, the Banks, the Agent and the Borrowers are parties to the
Credit Agreement; and
WHEREAS, the Borrowers, the Agent and the Banks wish to amend an
incorrect cross reference in the Credit Agreement;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, it is hereby agreed as follows:
ARTICLE I -- DEFINITIONS AND AMENDMENTS
1.1 Defined Terms. Capitalized terms used herein which are defined in
the Credit Agreement are used herein with such defined meanings.
1.2 Amendment to Section 2.5. Section 2.5(e)(i) and (ii) are amended by
deleting the references to Section 10.1(j) where they appear therein and
replacing them with Section 10.1(k).
ARTICLE II -- REPRESENTATIONS AND WARRANTIES;
CONDITIONS PRECEDENT
2.1 Representations; No Default. On and as of the effective date hereof
and after giving effect to this Amendment No. 2 and to the transactions
contemplated hereby, each Borrower hereby (i) confirms, reaffirms and restates
the representations and warranties set forth in Section 7 of the Credit
Agreement, except to the extent that such representations and warranties relate
solely to an earlier date in which case each Borrower hereby confirms, reaffirms
and restates such representations and warranties on and as of such earlier date,
provided that the references to the Credit Agreement therein shall be deemed to
be references to the Credit
1
<PAGE> 2
Agreement as amended by this Amendment No. 2, and (ii) represents and warrants
that no Default or Event of Default has occurred and is continuing.
2.2 Effective Date. This Amendment No. 2 shall become effective when
Agent shall have received counterpart originals of this Amendment No. 2, in each
case duly executed and delivered by Borrowers, the Banks and the Guarantors, in
form satisfactory to Agent and the Banks.
ARTICLE III -- MISCELLANEOUS
3.1 Limited Effect. Except as expressly amended hereby, all of the
provisions, covenants, terms and conditions of the Credit Agreement shall
continue to be, and shall remain, in full force and effect in accordance with
its terms.
3.2 Expenses. The Company shall reimburse the Agent for all its
reasonable costs and expenses including, without limitation, legal expenses
incurred in connection with the preparation, execution and delivery of this
Amendment No. 2.
3.3 Governing Law. This Amendment No. 2 shall be governed by, and
construed and interpreted in accordance with, the law of the State of Michigan.
3.4 Counterparts. This Amendment No. 2 may be executed by one or more
parties hereto on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
3.5 Guarantors. By its execution hereof, each Guarantor consents to the
foregoing amendments and reaffirms and ratifies all of its obligations to the
Agent and the Banks under the Guaranty.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2
to be executed and delivered by their proper and duly authorized officers or
other representatives as of the date first above written.
BORROWERS:
SATURN ELECTRONICS &
ENGINEERING, INC.
By: /s/ Donald J. Cowie
---------------------------------
Its: CFO
---------------------------------
SATURN MANUFACTURING CO.
By: /s/ Donald J. Cowie
---------------------------------
Its: CFO
---------------------------------
SMARTFLEX SYSTEMS, INC.
By: /s/ Donald J. Cowie
---------------------------------
Its: CFO
---------------------------------
AGENT AND BANKS:
COMERICA BANK, as Agent and as a Bank
By:
---------------------------------
Its:
---------------------------------
3
<PAGE> 4
GUARANTORS:
SMARTFLEX NEW JERSEY INC.
By: /s/ Donald J. Cowie
---------------------------------
Its: CFO
---------------------------------
LOGICAL SYSTEMS INC.
By: /s/ Donald J. Cowie
---------------------------------
Its: CFO
---------------------------------
SMARTFLEX FREMONT INC.
By: /s/ Donald J. Cowie
---------------------------------
Its: CFO
---------------------------------
SMARTFLEX NEW ENGLAND INC.
By: /s/ Donald J. Cowie
---------------------------------
Its: CFO
---------------------------------
4
<PAGE> 1
EXHIBIT 10.20
SATURN ELECTRONICS TEXAS, L.L.C.
MEMBERSHIP REGULATIONS
THESE MEMBERSHIP REGULATIONS (these "Regulations") are entered into as
of this 25th day of February, 1998 by and among the signatories hereto.
RECITALS
The following is a recital of facts underlying these Regulations:
A. The parties have decided to organize and operate a limited
liability company.
B. The parties desire to set forth in these Regulations certain
terms and conditions relating to the affairs of the limited
liability company and the conduct of its business, including
the manner in which it will be managed and the way in which
profits and losses will be shared.
NOW, THEREFORE, for good and valuable consideration, the parties agree
as follows:
SECTION I -- DEFINED TERMS
For purposes of these Regulations, the following capitalized terms
shall have the meanings set forth in this Section I.
"Act"
means the Texas Limited Liability Company Act, as amended from time to time.
"Adjusted Capital Account Deficit"
means, with respect to any Member, the deficit balance, if any, in the Member's
Capital Account as of the end of the relevant taxable year, after giving effect
to the following adjustments:
(i) the deficit shall be decreased by the amounts that the Member is
obligated to restore pursuant to Section 4.4.2, or is deemed obligated
to restore pursuant to Regulation Section 1.704-1(b)(2)(ii)(c); and
(ii) the deficit shall be increased by the items described in Regulation
Section 1.704-1(b)(2)(ii)(d)(4), (5), and (6).
<PAGE> 2
"Adjusted Capital Balance"
means, as of any day, a Members total Capital Contributions less all amounts
actually distributed to the Member pursuant to Sections 4.2.3.4.1 and 4.4
hereof. If any Interest is transferred in accordance with the terms of this
Agreement, the transferee shall succeed to the Adjusted Capital Balance of the
transferor to the extent the Adjusted Capital Balance relates to the Interest
transferred.
"Affiliate"
means, with respect to any Member, any Person: (i) which owns more than fifty
percent (50%) of the voting interests in the Member; or (ii) in which the Member
owns more than fifty percent (50%) of the voting interests; or (iii) in which
more than fifty percent (50%) of the voting interests are owned by a Person who
has a relationship with the Member described in clause (i) or (ii) above.
"Articles" or "Articles of Organization"
means the Articles of Organization of the Company filed with the Secretary of
State, as amended from time to time.
"Automotive Customers"
shall mean companies in the Territory that: A) are original equipment
manufacturers of passenger cars or light trucks, or B) purchase products for
incorporation into their own products and resale to the companies referenced in
(A) above.
"Battery Cables"
shall mean wire assemblies that provide direct power from the battery to the
engine or associated electro-mechanical devices.
"Build-to-Print"
shall mean the manufacture of products from blue prints and specifications
provided by the purchaser or the Automotive Customer without the Company
providing any design or engineering services itself.
"Business Plan"
shall mean a written summary setting forth the strategic direction of the L.L.C.
for the next fiscal year, including 1) financial statements, and 2) a summary of
the five (5) year sales and financial objectives of the L.L.C., that will be
presented annually to the Members for review and approval.
"Capital Account"
means the account to be maintained by the Company for each Member in accordance
with the following provisions:
(i) a Member's Capital Account shall be credited with the Member's
Capital Contributions, the amount of any Company liabilities
assumed by the
2
<PAGE> 3
Member (or which are secured by Company property distributed to
the Member), the Member's distributive share of Profit, and any
item in the nature of income or gain specially allocated to such
Member pursuant to the provisions of Section IV (other than
Section 4.3.3); and
(ii) a Member's Capital Account shall be debited with the amount of
money and the fair market value of any Company property
distributed to the Member, the amount of any liabilities of the
Member assumed by the Company (or which are secured by property
contributed by the Member to the Company), the Member's
distributive share of Loss, and any item in the nature of
expenses or losses specially allocated to the Member pursuant to
the provisions of Section IV (other than Section 4.3.3).
If any Interest is transferred pursuant to the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the extent
the Capital Account is attributable to the transferred Interest. If the book
value of Company property is adjusted pursuant to Section 4.3.3, the Capital
Account of each Member shall be adjusted to reflect the aggregate adjustment in
the same manner as if the Company had recognized gain or loss equal to the
amount of such aggregate adjustment. It is intended that the Capital Accounts of
all Members shall be maintained in compliance with the provisions of Regulation
Section 1.704-1 (b), and all provisions of this Agreement relating to the
maintenance of Capital Accounts shall be interpreted and applied in a manner
consistent with that Regulation.
"Capital Contribution"
means the total amount of cash and the fair market value of any other net assets
contributed (or deemed contributed under Regulation Section 1.704-1
(b)(2)(iv)(d)) to the Company by a Member.
"Capital Proceeds"
means the gross receipts received by the Company from a Capital Transaction.
"Capital Transaction"
means any transaction not in the ordinary course of business that results in the
Company's receipt of cash or other consideration other than Capital
Contributions, including, without limitation, proceeds of sales or exchanges or
other dispositions of property not in the ordinary course of business,
financings, refinancings, condemnations, recoveries of damage awards, and
insurance proceeds.
"Code"
means the Internal Revenue Code of 1986, as amended from time to time, or any
corresponding provision of any succeeding law.
3
<PAGE> 4
"Company"
means the limited liability company formed under the Act in accordance with this
Agreement.
"Complete Electrical Distribution Systems"
shall mean the entire set of wire harnesses that provide for electrical
transmissions throughout the entire vehicle or other product.
"Ground Straps"
shall mean specific point to point braided wire sets that are used to provide a
grounding source for specific vehicle applications.
"Interest"
means a Member's share of the Profits and Losses of, and the right to receive
distributions from, the Company.
"Involuntary Withdrawal"
means, with respect to any Member, the occurrence of any of the following
events:
(i) the Member makes an assignment for the benefit of creditors;
(ii) the Member files a voluntary petition of bankruptcy;
(iii) the Member is adjudged bankrupt or insolvent or there is entered
against the Member an order for relief in any bankruptcy or
insolvency proceeding;
(iv) the Member files a petition seeking for the Member any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any statute,
law, or regulation;
(v) the Member seeks, consents to, or acquiesces in the appointment
of a trustee for, receiver for, or liquidation of the Member or
of all or any substantial part of the Member's properties;
(vi) the Member files an answer or other pleading admitting or failing
to contest the material allegations of a petition filed against
the Member in any proceeding described in Subsections (i) through
(v);
(vii) any proceeding against the Member (not filed by the Member)
seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any statute,
law, or regulation, continues for one hundred twenty (120) days
after the commencement
4
<PAGE> 5
thereof, or the appointment of a trustee, receiver, or liquidator
for the Member or all or any substantial part of the Member's
properties without the Member's agreement or acquiescence, which
appointment is not vacated or stayed within one hundred twenty
(120) days or, if the appointment is stayed, continues for one
hundred twenty (120) days after the expiration of the stay during
which period the appointment is not vacated;
(viii) if the Member is an individual, the Member's death or
adjudication by a court of competent jurisdiction as incompetent
to manage the Member's person or property;
(ix) if the Member is acting as a Member by virtue of being a trustee
of a trust, the termination of the trust;
(x) if the Member is a partnership or limited liability company, the
dissolution and commencement of winding up of the partnership or
limited liability company;
(xi) if the Member is a corporation, the dissolution of the
corporation or the revocation of its charter; or
(xii) if the Member is an estate, the distribution by the fiduciary of
the estate's entire interest in the limited liability company.
"IRS Regulations"
means the federal income tax regulations promulgated under the Code, including
any temporary regulations, as in effect from time to time.
"Manager"
is the Person designated as such in Section V.
"Member"
means each Person signing these Regulations and any Person who subsequently is
admitted as a member of the Company.
"Member Loan Nonrecourse Deductions"
means any Company deductions that would be Nonrecourse Deductions if they were
not attributable to a loan made or guaranteed by a Member within the meaning of
Regulation Section 1.704-2(i).
"Member Tax Distributions"
means the amount that is distributable to the Members to pay their proportional
shares
5
<PAGE> 6
of Federal and State income taxes. This amount will be initially calculated at
thirty-eight percent (38%) of the Company's annual Profit times each Members'
Interest Percentage. This percentage may be changed from time to time by the
Members as tax rates and / or jurisdictions of the Company or Members change. No
Member Tax Distributions will be made in a year with a Company Loss.
"Membership Rights"
means all of the rights of a Member in the Company, including a Member's: (i)
right to a share of the Profits and Losses of, and to receive distributions
from, the Company; (ii) right to inspect the Company's books and records; (iii)
right to participate in the management and affairs of, and to vote on matters
coming before, the Company to the extent set forth in these Regulations; and
(iv) unless this Agreement or the Articles of Organization provide to the
contrary, right to act as an agent of the Company.
"Minimum Gain"
has the meaning set forth in IRS Regulation Section 1.704-2(d). Minimum Gain
shall be computed separately for each Member in a manner consistent with the IRS
Regulations under Code Section 704(b).
"Negative Capital Account"
means a Capital Account with a balance of less than zero.
"Nonrecourse Deductions"
has the meaning set forth in Regulation Section 1.704-2(b)(1). The amount of
Nonrecourse Deductions for a taxable year of the Company equals the net
increase, if any, in the amount of Minimum Gain during that taxable year,
determined according to the provisions of Regulation Section 1.704-2(c).
"Nonrecourse Liability"
means any liability of the Company with respect to which no Member has personal
liability determined in accordance with Code Section 752 and the IRS Regulations
promulgated thereunder.
"Percentage"
means, as to a Member, the percentage set forth after the Member's name on
Exhibit A, as amended from time to time, and as to any holder of any Interest
who is not a Member, the Percentage of the Member whose Interest has been
acquired by such holder, to the extent the holder has succeeded to that Member's
Interest.
"Person"
means and includes an individual, partnership, limited liability company,
association, corporation, or any other legal entity.
6
<PAGE> 7
"Positive Capital Account"
means a Capital Account with a balance greater than zero.
"Profit" and "Loss"
means, for each taxable year of the Company (or other period for which Profit or
Loss must be computed), the Company's taxable income or loss determined in
accordance with Code Section 703(a), with the following adjustments:
(i) all items of income, gain, loss, deduction, or credit required to
be stated separately pursuant to Code Section 703(a)(1) shall be
included in computing taxable income or loss; and
(ii) any tax-exempt income of the Company, not otherwise taken into
account in computing Profit or Loss, shall be included in
computing taxable income or loss; and
(iii) any expenditures of the Company described in Code Section
705(a)(2)(B) (or treated as such pursuant to Regulation Section
1.704-1 (b)(2)(iv)(i)) and not otherwise taken into account in
computing Profit or Loss, shall be subtracted from taxable income
or loss; and
(iv) gain or loss resulting from any taxable disposition of Company
property shall be computed by reference to the adjusted book
value of the property disposed of, notwithstanding the fact that
the adjusted book value differs from the adjusted basis of the
property for federal income tax purposes; and
(v) in lieu of the depreciation, amortization or cost recovery
deductions allowable in computing taxable income or loss, there
shall be taken into account the depreciation computed based upon
the adjusted book value of the asset; and
(vi) notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Section 4.3 hereof
shall not be taken into account in computing Profit or Loss.
"Regulations"
means these Regulations, as amended from time to time.
"Secretary of State"
means the Secretary of State of the State of Texas, Corporation Division.
7
<PAGE> 8
"Territory"
shall mean the United States, Canada and Mexico.
"Trailer Tow Harnesses"
shall mean wire harness sets utilized as a connection from the vehicle rear
lighting system to a trailer's lighting system for the purpose of providing
braking and turn signal indication during a towing process.
"Transfer"
means, when used as a noun, any voluntary sale, hypothecation, pledge,
assignment, or other transfer, and, when used as a verb, means voluntarily to
sell, hypothecate, pledge, assign or otherwise transfer.
"UTA"
shall mean United Technologies Automotive, Inc.
"Voluntary Withdrawal"
means a Member's disassociation with the Company by means other than ceasing to
be a Member as a result of a permitted Transfer or an Involuntary Withdrawal,
including but not limited to retirement or resignation.
SECTION II -- FORMATION AND NAME; OFFICE; PURPOSE; TERM
2.1. Organization.
The parties have organized a limited liability company pursuant to the
Act and the provisions of these Regulations and, for that purpose, have
caused Articles of Organization in the form attached as Exhibit B to be
executed and filed for record with the Secretary of State.
2.2. Name of the Company.
The name of the Company shall be "SATURN ELECTRONICS TEXAS, L.L.C.." If
the Company does business under a name other than that set forth in its
Articles of Organization, then the Company shall file an assumed name
certificate as required by law.
2.3. Purpose.
The Company is organized solely to do the following business activities
in the Territory. Any other activity is subject to the approval of the
Members.
2.3.1. Build-to-Print manufacture and sale of Battery Cables and
Ground Straps for Automotive Customers. For UTA sourced
vehicle lines, UTA shall be the engineering design source. For
non-UTA sourced vehicle lines, UTA
8
<PAGE> 9
shall be the prefered source for engineering design. The
Company shall be the exclusive outside supplier of Battery
Cables and Ground Straps for UTA designed electrical
distribution systems according to the terms and conditions
agreed to by the parties in a separate written agreement.
2.3.2 Build-to-Print manufacture and sale of Trailer Tow Harnesses.
2.3.3 Design, engineering, manufacture, marketing and sale of
Complete Electrical Distribution Systems and related products
to customers that are not Automotive Customers.
and to do any and all things necessary, convenient, or
incidental to these purposes.
2.4. Term.
The term of the Company shall begin on the date that the Articles of
Organization were filed with the Department and became effective under
the Act, and shall continue in existence for a period of fifty
(50) years unless its existence is terminated earlier pursuant to
Section VII of this Agreement.
2.5. Registered Office.
The registered office of the Company shall be located at CT Corporation
System, 811 Dallas Avenue, Houston, TX, 77002.
2.6. Registered Agent.
The name and address of the Company's initial registered agent in the
State of Texas shall be CT Corporation System.
2.7. Members.
The name, present mailing address, taxpayer identification number, and
Percentage of each Member are set forth on Exhibit A.
SECTION III - MEMBERS; CAPITAL; CAPITAL ACCOUNTS
3.1 Initial Capital Contributions.
Upon the execution of these Regulations and as a condition of becoming
a Member, each Member shall contribute to the Company cash or property
in the amount set forth for such Member on Exhibit A.
3.2. No Interest on Capital Contributions.
Members shall not be paid interest on their Capital Contributions.
9
<PAGE> 10
3.3. Return of Capital Contributions.
Except as otherwise provided in this Agreement, no Member shall have
the right to receive the return of any Capital Contribution.
3.4. Form of Distribution.
If a Member is entitled to receive a distribution, including but not
limited to any return of a Capital Contribution, the Member shall not
have the right to receive anything but cash.
3.5. Capital Accounts.
A separate Capital Account shall be maintained for each Member in
accordance with IRS Regulations issued under Section 704(b) of the
Code.
3.6. Loans.
Any Member may, with the written consent of the other Members, make or
cause a loan to be made to the Company in any amount and on those terms
upon which the Company and the Member agree. If a Member makes any
loans to the Company or advances money on its behalf, the amount of
such loan or advance shall not be treated as a contribution to the
capital of the Company but shall be a debt due from the Company. Any
such loan or advance shall be repayable out of the Company's cash and
shall bear interest at a rate not less than the applicable federal rate
as defined in Section 1274(d) of the Code. No Member shall be obligated
pursuant to this Agreement to make any loan or advance to the Company.
SECTION IV -- Profit, Loss, and Distributions
4.1. Distributions and Allocations of Profit or Loss Other than Capital
Transactions.
4.1.1. Profit or Loss Other than from a Capital Transaction.
After giving effect to the special allocations set forth in
Section 4.3, for any taxable year of the Company, Profit or
Loss (other than Profit or Loss resulting from a Capital
Transaction, which Profit or Loss shall be allocated in
accordance with the provisions of Sections 4.2.1 and 4.2.2)
shall be allocated to the Members in proportion to their
Percentages.
4.1.2. Distributions from Capital Accounts.
Distributions from Capital Accounts for each taxable year of
the Company shall be determined by the Members.
4.2. Distributions of Capital Proceeds and Allocation of Profit or Loss from
Capital Transactions.
10
<PAGE> 11
4.2.1. Profit.
After giving effect to the special allocations set forth in
Section 4.3, Profit from a Capital Transaction shall be
allocated as follows:
4.2.1.1. If one or more Members has a Negative Capital
Account, to those Members in proportion to their
Negative Capital Accounts, until all of those
Negative Capital Accounts have been reduced to zero.
4.2.1.2. Any Profit not allocated pursuant to Section
4.2.1.1. shall be allocated to the Members in
proportion to, and to the extent of, the amounts
distributable to them pursuant to Sections
4.2.3.4.1. and 4.2.3.4.2.
4.2.1.3. Any Profit in excess of the foregoing allocations
shall be allocated to the Members in proportion to
their Percentages.
4.2.2. Loss.
After giving effect to the special allocations set forth in
Section 4.3, Loss from a Capital Transaction shall be
allocated as follows:
4.2.2.1. If one or more Members has a Positive Capital
Account, to those Members, in proportion to their
Positive Capital Accounts, until all Positive
Capital Accounts have been reduced to zero.
4.2.2.2. Any Loss not allocated to reduce Positive Capital
Accounts to zero pursuant to Section 4.2.2.1 shall
be allocated to the Members in proportion to their
Percentages.
4.2.3. Capital Proceeds.
Capital Proceeds shall be distributed and applied by the
Company in the following order and priority:
4.2.3.1. to the payment of all expenses of the Company
incident to the Capital Transaction: then
4.2.3.2. to the payment of debts and liabilities of the
Company then due and outstanding (including all
debts due to any Member); then
4.2.3.3. to the establishment of any reserves that the
Manager deems necessary for liabilities or
obligations of the Company; then
4.2.3.4. the balance shall be distributed as follows:
11
<PAGE> 12
Company's other items of income and gain for the taxable year.
It is the intent of the parties hereto that any allocation
pursuant to this Section 4.3.2 shall constitute a "minimum
gain chargeback" under Regulation Section 1.704-2(f).
4.3.3. Contributed Property and Book-ups.
In accordance with Code Section 704(c) and the IRS Regulations
under 1.704 - 3(c), as well as Regulation Section
1.704-1(b)(2)(iv)(d)(3), income, gain, loss, and deduction
with respect to any property contributed (or deemed
contributed) to the Company shall, solely for tax purposes, be
allocated among the Members so as to take account of any
variation between the adjusted basis of the property to the
Company for federal income tax purposes and its fair market
value at the date of contribution (or deemed contribution). If
the adjusted book value of any Company asset is adjusted as
provided herein, subsequent allocations of income, gain, loss,
and deduction with respect to the asset shall take account of
any variation between the adjusted basis of the asset for
federal income tax purposes and its adjusted book value in the
manner required under Code Section 704(c) and the IRS
Regulations thereunder.
4.3.4. Code Section 754 Adjustment.
To the extent an adjustment to the tax basis of any Company
asset pursuant to Code Section 734(b) or Code Section 743(b)
is required, pursuant to Regulation Section 1.704-1
(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of the adjustment to the Capital Accounts
shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment
decreases basis), and the gain or loss shall be specially
allocated to the Members in a manner consistent with the
manner in which their Capital Accounts are required to be
adjusted pursuant to that Section of the IRS Regulations.
4.3.5. Nonrecourse Deductions.
Nonrecourse Deductions for a taxable year or other period
shall be specially allocated among the Members in proportion
to their Percentages.
4.3.6. Member Loan Nonrecourse Deductions.
Any Member Loan Nonrecourse Deduction for any taxable year or
other period shall be specially allocated to the Member who
bears the risk of loss with respect to the loan to which the
Member Loan Nonrecourse Deduction is attributable in
accordance with Regulation Section 1.704-2(b).
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4.3.7. Guaranteed Payments.
To the extent any compensation paid to any Member by the
Company, including any fees payable to any Member pursuant to
Section 5.3 hereof, is determined by the Internal Revenue
Service not to be a guaranteed payment under Code Section
707(c) or is not paid to the Member other than in the Person's
capacity as a Member within the meaning of Code Section
707(a), the Member shall be specially allocated gross income
of the Company in an amount equal to the amount of that
compensation, and the Member's Capital Account shall be
adjusted to reflect the payment of that compensation.
4.3.8. Unrealized Receivables.
If a Member's Interest is reduced (provided the reduction does
not result in a complete termination of the Member's
Interest), the Member's share of the Company's "unrealized
receivables" and "substantially appreciated inventory" (within
the meaning of Code Section 751) shall not be reduced, so
that, notwithstanding any other provision of these Regulations
to the contrary, that portion of the Profit otherwise
allocable upon a liquidation or dissolution of the Company
pursuant to Section 4.4 hereof that is taxable as ordinary
income (recaptured) for federal income tax purposes shall, to
the extent possible without increasing the total gain to the
Company or to any Member, be specially allocated among the
Members in proportion to the deductions (or basis reductions
treated as deductions) giving rise to such recapture.
4.3.9. Withholding.
All amounts required to be withheld pursuant to Code Section
1446 or any other provision of federal, state, or local tax
law shall be treated as amounts actually distributed to the
affected Members for all purposes under these Regulations.
4.4. Liquidation and Dissolution.
4.4.1. If the Company is liquidated, the assets of the Company shall
be distributed to the Members in accordance with the balances
in their respective Capital Accounts, after taking into
account the allocations of Profit or Loss pursuant to Sections
4.1 or 4.2, if any, and distributions, if any, of cash or
property, if any, pursuant to Sections 4.1. and 4.2.3.
4.4.2. No Member shall be obligated to restore a Negative Capital
Account.
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4.5. General.
4.5.1. Except as otherwise provided in these Regulations, and except
for Member Tax Distributions which shall be made each year
that the Company does not have a Loss, the timing and amount
of all distributions shall be determined by the Members.
4.5.2. If any assets of the Company are distributed in kind to the
Members, those assets shall be valued on the basis of their
fair market value, and any Member entitled to any interest in
those assets shall receive that interest as a tenant-in-common
with all other Members so entitled. Unless the Members
otherwise agree, the fair market value of the assets shall be
determined by an independent appraiser who shall be selected
by the Manager. The Profit or Loss for each unsold asset shall
be determined as if the asset had been sold at its fair market
value, and the Profit or Loss shall be allocated as provided
in Section 4.2 and shall be properly credited or charged to
the Capital Accounts of the Members prior to the distribution
of the assets in liquidation pursuant to Section 4.4.
4.5.3. All Profit and Loss shall be allocated and all distributions
shall be made to the Persons shown on the records of the
Company to have been Members as of the last day of the taxable
year for which the allocation or distribution is to be made.
Notwithstanding the foregoing, unless the Company's taxable
year is separated into segments, if there is a Transfer or an
Involuntary Withdrawal during the taxable year, the Profit and
Loss shall be allocated between the original Member and the
successor on the basis of the number of days each was a Member
during the taxable year; provided, however, the Company's
taxable year shall be segregated into two or more segments in
order to account for Profit, Loss or proceeds attributable to
a Capital Transaction or to any other extraordinary
non-recurring items of the Company.
4.5.4. The Manager is hereby authorized, upon the advice of the
Company's tax counsel, to amend this Section IV to comply with
the Code and the IRS Regulations promulgated under Code
Section 704(b); provided, however, that no amendment shall
materially affect distributions to a Member without the
Member's prior written consent.
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SECTION V - MANAGEMENT: RIGHTS, POWERS, AND DUTIES
5.1. Management.
5.1.1. Manager.
The Company shall be managed by a Manager, who may, but need
not, be a Member. Wallace K. Tsuha, Jr. is hereby designated
to serve as the initial Manager. The Manager shall be entitled
to fair compensation for his services. The compensation level
shall be approved by the Members. The Company may have one or
more officers who shall be appointed by the manager, and who
shall have the title, authority and duties as authorized or
directed by the Manager. An officer shall hold office for the
term for which appointed and until a successor is appointed
and qualified, or until resignation or removal. An officer
appointed by the Manager may be removed by the Manager at any
time and for any reason. An officer may resign by written
notice to the Manager, which resignation is effective upon its
receipt by the Manager or at a subsequent time specified in
the notice of resignation. Vacancies in any office may be
filled by the Manager.
5.1.2. General Powers.
The Manager shall have the discretion, power, and authority,
subject in all cases to the other provisions of these
Regulations and the requirements of applicable law, to manage,
control, administer, and operate the business and affairs of
the Company for the purposes herein stated, and to make all
decisions affecting such business and affairs, including,
without limitation, for Company purposes, the power to:
5.1.2.1. acquire by purchase, lease, or otherwise, any
personal property, tangible or intangible;
5.1.2.2. construct, operate, maintain, and improve, and to
sell, convey, assign, or lease any personal
property;
5.1.2.3. sell, dispose, trade, or exchange Company assets in
the ordinary course of the Company's business;
5.1.2.4. enter into agreements and contracts and to give
receipts, releases, and discharges;
5.1.2.5. purchase liability and other insurance to protect
the Company's properties and business;
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5.1.2.6. borrow money for and on behalf of the Company, and,
in connection therewith, execute and deliver
instruments authorizing the confession of judgment
against the Company;
5.1.2.7. execute or modify leases with respect to any part or
all of the assets of the Company;
5.1.2.8. prepay, in whole or in part, refinance, amend,
modify, or extend any mortgages or deeds of trust
that may affect any asset of the Company and in
connection therewith to execute for and on behalf of
the Company any extensions, renewals, or
modifications of such mortgages or deeds of trust;
5.1.2.9. execute any and all other instruments and documents
that may be necessary or in the opinion of the
Manager desirable to carry out the intent and
purpose of these Regulations, including but not
limited to, documents whose operation and effect
extend beyond the term of the Company;
5.1.2.10. make any and all expenditures that the Manager deems
necessary or appropriate in connection with the
management of the affairs of the Company and the
carrying out of its obligations and responsibilities
under these Regulations, including but not limited
to all legal, accounting, and other related expenses
incurred in connection with the financing and
operation of the Company;
5.1.2.11. enter into any kind of activity necessary to, in
connection with, or incidental to, the
accomplishment of the purposes of the Company; and
5.1.2.12. invest and reinvest Company reserves in short-term
instruments or money market funds.
5.1.3. Extraordinary Transactions.
Notwithstanding anything to the contrary in these Regulations,
the Manager shall not undertake any of the following without
the approval of the Members:
5.1.3.1. the sale, lease or exchange or other disposition of
more than Five Hundred Thousand Dollars
($500,000.00) of the assets of the Company pursuant
to any transaction or series of related
transactions;
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5.1.3.2. the Company's spending more than Five Hundred
Thousand Dollars ($500,000.00) in any one
transaction or series of related transactions;
5.1.3.3. the Company borrowing more than Five Hundred
Thousand Dollars ($500,000.00), or borrowing from
any Member in accordance with Section 3.6.
5.1.3.4. the admission of additional Members to the Company
pursuant to Sections 6.1.4.6, 6.1.4.7, 6.1.4.8 or
6.1.5.;
5.1.3.5. the amendment of the Articles of Organization or
these Regulations;
5.1.3.6. the approval of any merger, consolidation, share or
Interest exchange, or other similar transaction.
5.1.3.7. the voluntary dissolution of the Company and
approval of a plan of dissolution pursuant to
Section 7.2;
5.1.3.8. the authorization of any transaction, agreement, or
action on behalf of the Company that is unrelated to
its purpose as set forth in these Regulations or
Articles of Organization or that otherwise
contravenes these Regulations; or
5.1.3.9. the authorization of any act that would make it
impossible to carry on the ordinary business of the
Company.
5.1.3.10. the Company's electing to exercise any Purchase
Option pursuant to Section 6.1.4.
5.1.3.11. the Company making distributions from Capital
Accounts pursuant to Section 4.1 2 or distributions
pursuant to Section 4.5.1;
5.1.3.12. the approval of the Business Plan and the annual
audit report referred to in Section 8.4.
5.1.3.13. the compromise of any disputes with the Internal
Revenue Service pursuant to Section 8.5.
5.1.3.14. The removal and replacement of the Manager, at any
time and for any reason, and the election of a new
manager.
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5.1.3.15 Compensation of the Manager pursuant to Section
5.1.1;
5.1.3.16 Payment of fees, costs and expenses of Tax Matters
Partner pursuant to Section 8.5;
5.1.4. Limitation on Authority of Members.
5.1.4.1. No Member is an agent of the Company solely by
virtue of being a Member, and no Member has
authority to act for the Company solely by virtue of
being a Member.
5.1.4.2. This Section 5.1 supersedes any authority granted to
the Members pursuant to the Act. Any Member who
takes any action or binds the Company in violation
of this Section 5.1 shall be solely responsible for
any loss and expense incurred by the Company as a
result of the unauthorized action and shall
indemnify and hold the Company harmless with respect
to the loss or expense.
5.2. Meetings of and Voting by Members.
5.2.1. A meeting of the Members may be called at any time by the
Manager or by those Members holding at least thirty percent
(30%) of the Percentages then held by Members. Meetings of
Members shall be held at the Company's registered office or at
any place in Southeastern Michigan designated by the Person
calling the meeting. Not less than three (3) nor more than
thirty (30) days before each meeting, the Person calling the
meeting shall give written notice of the meeting to each
Member entitled to vote at the meeting. The notice shall state
the time, place, and purpose of the meeting. Notwithstanding
the foregoing provisions, each Member who is entitled to
notice waives notice if before or after the meeting the Member
signs a waiver of the notice that is filed with the records of
Members' meetings, or is present at the meeting in person or
by proxy. Unless these Regulations provides otherwise, at a
meeting of Members, the presence in person or by proxy of
Members holding not less than seventy-five percent (75%) of
the Percentages then held by Members constitutes a quorum. A
Member may vote either in person or by written proxy signed by
the Member or by its duly authorized attorney in fact.
5.2.2. Wherever these Regulations requires the determination or
approval of the Members as set forth in Section 5.1.3, the
affirmative vote of Members holding seventy-five percent (75%)
or more of the Percentages then held by Members shall be
required to approve the matter.
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5.2.3. In lieu of holding a meeting, the Members may vote by written
consent describing the action and signed by each Member
entitled to vote on that action. A vote by written consent
shall be effective when all Members entitled to vote have
signed the consent, unless the consent specifies a different
date. A written consent may be executed in counterparts, and
shall be filed with the Company's records.
5.2.4. In the event that the Company experiences losses in any
quarter after June 30, 1999, the Members shall receive a
detailed report from the Manager or his designee describing
the extent and cause of the losses and a proposed action plan.
5.2.5. A meeting of the Members shall occur during the months of
March and November, or on other such dates as mutually agreed
by the Members. During these meetings, the senior management
team of the Company shall make a presentation to the Members
summarizing the past and expected future performance of the
Company. Such presentations shall not address any business
opportunities of the Company to which UTA could be considered
a competitor of the Company. The March meeting shall also
include a presentation by senior management of the annual
report. The November meeting shall also include a presentation
by senior management of the Business Plan for the forthcoming
year.
5.3. Personal Services.
5.3.1. No Member shall be required to perform services for the
Company solely by virtue of being a Member. Unless such
services are the subject of a written agreement between the
Member and the Company, no Member shall perform services for
the Company or be entitled to compensation for services
performed for the Company.
5.4. Duties of Parties.
5.4.1. Except as otherwise expressly provided in Section 5.4.2 or
Section 7.1.4 or the Act, nothing in these Regulations shall
be deemed to restrict in any way the rights of any Member, or
of any Affiliate of any Member, to conduct any other business
or activity whatsoever, and the Member shall not be
accountable to the Company or to any Member with respect to
that business or activity, even if the business or activity
competes with the Company's business. The organization of the
Company shall be without prejudice to their respective rights
(or the rights of their respective
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Affiliates) to maintain, expand, or diversify such other
interests and activities and to receive and enjoy profits or
compensation therefrom. Each Member waives any rights the
Member might otherwise have to share or participate in such
other interests or activities of any other Member or the
Member's Affiliates.
5.4.2. Each Member understands and acknowledges that the conduct of
the Company's business may involve business dealings and
undertakings with Members and their Affiliates. In any of
those cases, those dealings and undertakings shall be at arm's
length, on commercially reasonable terms, and similar services
shall result in comparable compensation.
5.5. Liability and Indemnification.
5.5.1. The Manager shall not be liable, responsible, or accountable,
in damages or otherwise, to any Member or to the Company for
any omission or any act performed by the Manager within the
scope of the authority conferred on the Manager by these
Regulations, except for fraud, gross negligence, an
intentional breach of these Regulations, or as otherwise
required by the Act.
5.5.2. The Company shall indemnify the Manager to the fullest extent
permitted by the Act for any liability arising from any actual
or alleged omission or any actual or alleged act performed by
the Manager within the scope of the authority conferred on the
Manager by these Regulations except for fraud, gross
negligence or an intentional breach of these Regulations.
5.6. Power of Attorney.
5.6.1. Grant of Power.
Each Member constitutes and appoints the Manager as the
Member's true and lawful attorney-in-fact
("Attorney-in-Fact"), and in the Member's name, place, and
stead, to make, execute, sign, acknowledge, and file:
5.6.1.1. all documents (including amendments to articles of
organization) that the Attorney-in-Fact deems
necessary or appropriate to reflect any amendment,
change, or modification of these Regulations;
5.6.1.2. any and all other certificates or other instruments
required to be filed by the Company with the
Secretary of State under the laws of the State of
Texas or of any other state or jurisdiction
necessary in order for the Company to continue to
qualify as a limited liability company under the
laws of the States of Texas and Michigan or
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any other state where qualification is required;
5.6.1.3. one or more assumed name certificates; and
5.6.1.4. all documents that may be required to dissolve and
terminate the Company and to cancel its Articles of
Organization if the Company is dissolved in
accordance with Section 7.1.
5.6.2. Irrevocability.
The foregoing power of attorney is irrevocable and is coupled
with an interest, and shall not be affected by disability of
the principal. It also shall survive the Transfer of an
Interest, except that if the transferee is approved for
admission as a Member, this power of attorney on behalf of the
assigning Member shall survive the delivery of an assignment
that terminates the membership interest of the assigning
Member for the sole purpose of enabling the Attorney-in-Fact
to execute, acknowledge, and file any documents needed to
effectuate the substitution. Each Member shall be bound by any
representations made by the Attorney-in-Fact acting in good
faith pursuant to this power of attorney, and each Member
hereby waives any and all defenses that may be available to
contest, negate, or disaffirm the action of the
Attorney-in-Fact taken in good faith under this power of
attorney.
SECTION VI -- TRANSFER OF INTERESTS AND WITHDRAWALS OF MEMBERS
6.1. Transfers.
6.1.1. No Person may Transfer all or any portion of or any Interest
or rights in the Person's Interest or other Membership Rights
unless the following conditions ("Conditions of Transfer") are
satisfied:
6.1.1.1. the Transfer will not require registration of any
Interest or Membership Rights under any federal or
state securities laws;
6.1.1.2. the transferee delivers to the Company a written
instrument agreeing to be bound by the terms of
Section VI of these Regulations;
6.1.1.3. the Transfer will not result in the termination of
the Company pursuant to Code Section 708;
6.1.1.4. the Transfer will not result in the Company being
subject to the
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Investment Company Act of 1940, as amended;
6.1.1.5 the Transfer, when aggregated with all previous
transfers, will not result in the transfer of 80% or
more of all Members' Membership Rights or interest
within any given calendar year.
6.1.1.6. the transferor and/or the transferee delivers the
following information to the Company: (i) the
transferee's taxpayer identification number; (ii)
the transferee's initial tax basis in the
Transferred Interest; and (iii) such instruments of
transfer, assignment, and assumption as may be
required by the Company in form and substance
satisfactory to the Company; and
6.1.1.7. the transferor complies with the provisions set
forth in Section 6.1.4.
6.1.2. If the Conditions of Transfer are satisfied, then a Person may
Transfer all or any portion of that Person's Interest. The
Transfer of an Interest pursuant to this Section 6.1 shall
only result, however, in the Transfer of the transferor's
right to receive economic distributions, if any, subject to
all of the restrictions and limitations that would be
applicable to that Interest if it were still held by a Member;
and unless admitted as a Member in accordance with Section
6.1.5 the transferee of the Interest shall have no right to:
(i) become a Member; (ii) exercise any other Membership
Rights, including but not limited to the right to participate
in any way in the management and affairs of the Company; or
(iii) act as an agent of the Company.
6.1.3. Each Member and each other holder of an Interest hereby
acknowledges the reasonableness of the prohibition contained
in this Section 6.1 in view of the purposes of the Company and
the relationship of the Members. The attempted Transfer of any
Interest or other Membership Rights in violation of the
prohibition contained in this Section 6.1 shall be invalid,
null and void, and of no force or effect. Any Person to whom
any Membership Rights or Interest is attempted to be
transferred in violation of this Section shall not be
entitled to vote on matters coming before the Members,
participate in the management of the Company, act as an agent
of the Company, receive distributions from the Company, or
have any other rights in or with respect to the Membership
Rights or Interest.
6.1.4. Transfer Procedure.
6.1.4.1. If a Member or the holder of an Interest (a
"Transferor") desires
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to Transfer all or any portion of, or any interest
or rights in, the Transferor's Interest (the
"Transferor Interest"), the Transferor shall notify
the Company of that desire (the "Transfer Notice").
The Transfer Notice shall describe the Transferor
Interest including the information required pursuant
to Sections 6.1.1.2 and 6.1.1.6. The Company shall
have the option (the "Purchase Option") to purchase
all of the Transferor Interest for a price (the
"Purchase Price") equal to the Transferor's
Percentage of the Appraised Value (as defined in
Section 6.4.1) if the Transfer Notice is dated on or
after February 25, 2000. If the Transfer Notice is
dated prior to February 25, 2000, the price shall be
equal to the amount of the Transferor's Capital
Account.
6.1.4.2. The Purchase Option shall be and remain irrevocable
for a period (the "Transfer Period") ending at 11:59
P.M. local time at the Company's principal office on
the thirtieth (30th) day following the date of the
determination of the Appraised Value.
6.1.4.3. At any time during the Transfer Period, the Company
may elect to exercise the Purchase Option by giving
written notice of its election to the Transferor.
The Transferor shall not be deemed a Member for the
purpose of voting on whether the Company shall elect
to exercise the Purchase Option.
6.1.4.4. If the Company elects to exercise the Purchase
Option, the Company's notice of its election shall
fix a closing date (the "Transfer Closing Date") for
the purchase, which shall not be earlier than five
(5) days after the date of the notice of election or
more than thirty (30) days after the expiration of
the Transfer Period.
6.1.4.5. If the Company elects to exercise the Purchase
Option, the Purchase Price shall be paid in cash on
the Transfer Closing Date.
6.1.4.6. If the Company fails to exercise the Purchase
Option, all Members shall use their best efforts to
identify a purchaser of the Transferor Interest
which is acceptable to the nontransferring Members.
One of the criteria to be considered when
identifying qualified purchasers is that the
products produced by the Company continue to qualify
for minority-sourced credit. The target price of
such sale shall be the Transferor's Percentage of
the Appraised Value, but the actual price may be
equal to, greater than, or less than the Purchase
Price. Any Member who identifies a purchaser
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may request that a meeting of Members be called (and
if so requested the Company shall hold a meeting of
Members) to vote both on whether to approve the
purchase by proposed purchaser and admission of the
proposed purchaser as a Member upon completion of
the proposed purchase. The notice of such meeting
shall identify the proposed purchaser and purchase
price ("Transferee Purchase Price"). Prior to such
meeting the Transferor shall provide to Members the
information described in Section 6.1.1.6. The
Company shall provide written notice of how each
Member voted on each issue and the results of the
vote to Transferor within five days after the
Members meeting.
6.1.4.7. If the Members approve both the sale and the
admission of the proposed purchaser as a Member
under Section 6.1.4.6., Transferor shall be free to
sell the Transferor Interest to the proposed
purchaser at the Transferee Purchase Price within
ninety (90) days after Transferor's receipt of the
notice of the results of the vote at the Members'
meeting and, upon completion of the sale, the
purchaser shall become a Member.
6.1.4.8. If the Members do not approve both the purchase and
the admission of the proposed purchaser as a Member
under Section 6.1.4.6., those Members who do not
vote for approval on either issue shall be obligated
to prepare a list of approved purchasers to purchase
the Transferor Interest. The Members shall use their
best efforts to conclude a sale of the Transferor
Interest to one of the approved purchasers using the
procedures set forth in Sections 6.1.4.6 and 6.1.4.7
above. If a sale by SATURN of the Transferor
Interest to an approved purchaser is not concluded
within one hundred eighty (180) days after the list
of approved purchasers is prepared, UTA shall
purchase SATURN's Interest. The Purchase Price shall
be equal to SATURN's Percentage of the Appraised
Value if the Transfer Notice is dated on or after
February 25, 2000. If the Transfer Notice is dated
prior to February 25, 2000 the price shall be equal
to the amount of SATURN's Capital Account.
Any attempted Transfer of the Transferor Interest made without
strict compliance with the terms, provisions, and conditions
of this Section VI (including but not limited to the
Conditions of Transfer) and other terms, provisions, and
conditions of these Regulations shall be invalid, null and
void, and of no force or effect.
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6.1.5. Admission of Transferee as Member.
Except for transfers pursuant to Section 6.1.4.7 and 6.1.4.8,
notwithstanding anything contained herein to the contrary, the
transferee of all or any portion of or any rights or interest
in any Interest or other Membership Rights shall not be
entitled to become a Member, or exercise any rights of a
Member, unless and until it is admitted as a member; and the
transferee shall not be admitted as a Member unless approved
by the Members. In the event that a transferee is not approved
by the Members after exhaustion of the steps set forth in
Section 6.1.4., those Members not voting for approval shall be
obligated to purchase the Interest offered for sale at the
Appraised Value on a pro rata basis.
6.2. Voluntary Withdrawal.
No Member shall have the right to voluntarily withdraw from the
Company. A Voluntary Withdrawal is a violation of these Regulations,
and a Member will not be entitled to receive any distribution pursuant
to Section 5.06 of the Act upon a Voluntary Withdrawal.
6.3. Involuntary Withdrawal.
Immediately upon the occurrence of an Involuntary Withdrawal, the
successor of the Withdrawn Member (if any) shall become an assignee of
the Member that holds all of its Interest subject to all of the
restrictions and limitations that would be applicable to that Interest
if it were still held by the Withdrawn Member, but such successor shall
not become a Member.
6.4. Appraised Value.
6.4.1. The term "Appraised Value" means the appraised value of the
Company on a "going concern" basis as hereinafter provided.
Within fifteen (15) days after demand by either one to the
other, the Company and the Transferor shall each appoint an
appraiser from a list of mutually agreed upon appraisers to
determine the value of the Company. If the two appraisers
agree upon the value of the Company (or if the two values
differ by less than 5%, the difference shall be split), they
shall jointly render a single written report stating that
value. If the two values determined by the appraisers differs
by 5% or more then the two appraisers shall appoint a third
appraiser, who shall appraise the Company and determine the
value of the Company, and shall render a written report of its
opinion thereon. Each party shall pay the fees and other costs
of the appraiser appointed by that party, and the fees and
other costs of the third appraiser shall be shared equally by
both parties.
6.4.2. The value contained in the aforesaid joint written report or
written report
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of the third appraiser, as the case may be, shall be the
Appraised Value; provided, however, that if the value contained
in the appraisal report of the third appraiser is more than the
higher of the first two appraisals, the higher of the first two
appraisals shall govern; and provided, further, that if the value
contained in the appraisal report of the third appraiser is less
than the lower of the first two appraisals, the lower of the
first two appraisals shall govern.
6.5 Management Incentives.
Section 6.1.4 shall not apply to the Transfer of an Interest to a
Person as a result of a management incentive program. The maximum
Percentage that may be transferred pursuant to any such management
incentive program shall not exceed four percent (4%) in total.
SECTION VII -- DISSOLUTION, LIQUIDATION,
AND TERMINATION OF THE COMPANY
7.1. Events of Dissolution.
The Company shall be dissolved and its affairs wound up upon the
happening of any of the following events:
7.1.1. When the period fixed for its duration in the Articles has
expired; or
7.1.2. upon the written agreement of the Members; or
7.1.3. upon the written request of any Member holding more than
thirty percent (30%) of the Percentages if the products
manufactured and / or sold by the Company do not qualify for
minority sourced credit by the original equipment
manufacturers ultimately purchasing the products. Before
such written request is made, the Members shall use their
best efforts to requalify such products for minority sourced
credit within one hundred eighty (180) days. In the event
the disqualification is the result of the existing ownership
structure of the Company on the date of signing these
Regulations, the Members shall proceed to change the
ownership structure of the Company pursuant to the
provisions of Section 6.1.4. For purposes of the operation
of Section 6.1.4, the date of the Saturn Transfer Notice
shall be the date the Company receives notice that its
products no longer qualify as minority sourced products.
7.1.4 upon the written request of any Member holding more than thirty
percent (30%) of the Percentages in the event any other
Member (the "Competing Member") makes an investment, either
directly or indirectly, of greater
27
<PAGE> 27
than thirty percent (30%) in any business that supplies
Battery Cables, Ground Straps or Trailer Tow Harnesss to
Automotive Customers in the Territory.
In an attempt to avoid dissolution of the Company pursuant to
this Section 7.1.4, the Competing Member shall give written
notice to the other Members of its intention to make such an
investment on the date of signing of a memorandum of
understanding regarding such investment. The other Members
shall have the right to call a meeting of the Members to
discuss the subject of the competing investment. Following
such meeting, any non-Competing Member holding more than
thirty percent (30%) of the Percentages shall have the right
to proceed with dissolution of the Company or compel the sale
of the Competing Member's Interest pursuant to the procedures
set forth in Section 6.1.4. For purposes of the operation of
Section 6.1.4, the date of the Transfer Notice referenced in
Section 6.1.4 shall be the date that the Competing Member
signs a memorandum of understanding.
7.2. Procedure for Winding Up and Distribution.
If the Company is dissolved, the Manager shall prepare a plan of
dissolution for approval by the Members, and once the plan is approved,
shall wind up its affairs. On winding up of the Company, the assets of
the Company shall be distributed first, to creditors, including Members
who are creditors, in satisfaction of the liabilities of the Company,
and then to the Members in accordance with Section 4.4 of these
Regulations.
SECTION VIII - BOOKS, RECORDS, ACCOUNTING, AND TAX ELECTIONS
8.1. Bank Accounts.
All funds of the Company shall be deposited in a bank account or
accounts maintained in the Company's name. The Manager shall determine
the institution or institutions at which the accounts will be opened
and maintained, the types of accounts, and the Persons who will have
authority with respect to the accounts and the funds therein.
8.2. Books and Records.
8.2.1. The Manager shall keep or cause to be kept complete and
accurate books and records of the Company and supporting
documentation of transactions with respect to the conduct of
the Company's business. The records shall be kept at the
Company's principal office or any other place designated by
the Members and shall include, but not be limited to, (a) a
current list of the full name and last known address of each
Member and
28
<PAGE> 28
manager, (b) a copy of the Articles or restated Articles of
Organization, together with any amendments to the Articles,
(c) copies of the Company's federal, state and local tax
returns, and reports, if any, for the three most recent years,
(d) copies of the financial statements of the Company for the
three most recent years, (e) copies of these Regulations and
any other regulations and operating agreements, (f) copies of
records that would enable a Member to determine the Members'
relative shares of Company's distributions and their relative
voting rights, and (g) complete and accurate information
regarding the state of the business and financial condition of
the Company.
8.2.2. The books and records shall be maintained in accordance with
sound accounting practices and shall be available at the
Company's principal office, or any other place designated by
the Members, for examination by any Member or the Member's
duly authorized representative at any and all reasonable
times during normal business hours.
8.2.3. Each Member shall reimburse the Company for all costs and
expenses incurred by the Company in connection with the
Member's inspection and copying of the Company's books and
records.
8.3. Annual Accounting Period.
The annual accounting period of the Company shall be its taxable year.
The Company's taxable year shall be the calendar year, subject to the
requirements and limitations of the Code.
8.4. Reports.
Within sixty (60) days after the end of each taxable year of the
Company, the Manager shall cause to be sent to each Person who was a
Member at any time during the accounting year then ended: (i) an
annual audit report, prepared by the Company's independent accountants
as appointed by the Members in accordance with standards issued by the
American Institute of Certified Public Accountants; and (ii) a report
summarizing the fees and other remuneration paid by the Company to any
Member, the Manager, or any Affiliate in respect of the taxable year.
In addition, within sixty (60) days after the end of each taxable year
of the Company, the Manager shall cause to be sent to each Person who
was an unadmitted assignee of a Member, or who otherwise held any
Interest at any time during the taxable year then ended, the tax
information concerning the Company that is necessary for preparing the
Person's income tax returns for that year. At the request of any
Member, and at the Member's expense, the Manager shall cause an audit
of the Company's books and records to be prepared by independent
accountants for the period requested by the Member.
In addition to the annual reports referenced herein, each Member shall
receive:
29
<PAGE> 29
i) within three (3) days of the close of each business month of the
Company a report outlining the financial results of the Company for
the month just concluded, and (ii) at least seventy-five (75) days
before the end of the then current fiscal year, the Business Plan for
the following fiscal year.
8.5. Tax Matters Partner.
The Member holding the majority Interest in the Company shall be
designated the Company's tax matters partner ("Tax Matters Partner").
The Tax Matters Partner shall have all powers and responsibilities
provided in Code Section 6221, et seq. The Tax Matters Partner shall
keep all Members informed of all notices from government taxing
authorities that may come to the attention of the Tax Matters Partner.
The Company shall pay and be responsible for all reasonable costs, fees
and expenses incurred by the Tax Matters Partner and approved by the
Members in performing those duties. A Member shall be responsible for
any costs incurred by the Member with respect to any tax audit or
tax-related administrative or judicial proceeding against any Member,
even though it relates to the Company. The Tax Matters Partner may not
compromise any dispute with the Internal Revenue Service without the
approval of the Members.
8.6. Tax Elections.
The Tax Matters Partner shall have the authority to make all Company
elections permitted under the Code, including but not limited to
elections of methods of depreciation and elections under Code Section
754. The decision to make or not make an election shall be made after
consultation with the Members.
8.7. Indemnification of Tax Matters Partner.
The Company shall defend, indemnify and hold harmless and reimburse the
Tax Matters Partner for all expenses (including, but not limited to,
legal and accounting fees), claims, liabilities, losses and damages
incurred in connection with the performance of its duties as Tax
Matters Partner.
8.8. Title to Company Property.
8.8.1. All real and personal property acquired by the Company shall
be acquired and held by the Company in its name. The
Manager, or any individual designated in writing by the
Manager, is authorized to execute documents conveying title
to Company property on behalf of the Company.
30
<PAGE> 30
SECTION IX -- GENERAL PROVISIONS
9.1. Assurances.
Each Member shall execute all such certificates and other documents and
shall do all such filing, recording, publishing and other acts as the
Manager deems appropriate to comply with the requirements of law for
the formation and operation of the Company and to comply with any laws,
rules, and regulations relating to the acquisition, operation or
holding of the property of the Company.
9.2. Notifications.
Any notice, demand, consent, election, offer, approval, request, or
other communication (collectively a "notice") required or permitted
under these Regulations must be in writing and either delivered
personally or by Federal Express or any other similar overnight
delivery service, or sent by certified or registered mail, postage
prepaid, return receipt requested. Any notice to be given hereunder by
the Company shall be given by the Manager or his designee. A notice
must be addressed to a Member at the Member's last known address on the
records of the Company. A notice to the Company must be addressed to
the Manager at the Company's principal office. A notice delivered
personally or by an overnight delivery service will be deemed given
only when acknowledged in writing by the Person or an agent of the
Person to whom it is delivered. A notice that is sent by mail will be
deemed given three (3) business days after it is mailed. Any party may
designate, by notice to all of the others in accordance with this
Section 9.2, substitute addresses or addressees for notices.
Thereafter, notices are to be directed to those substitute addresses or
addressees and the records of the Company, including Exhibit A to these
Regulations, shall be revised accordingly.
9.3. Specific Performance.
The parties recognize that irreparable injury will result from a breach
of any provision of these Regulations and that money damages will be
inadequate to fully remedy the injury. Accordingly, in the event of a
breach or threatened breach of one or more of the provisions of these
Regulations, any party who may be injured (in addition to any other
remedies which may be available to that party) shall be entitled to one
or more preliminary or permanent orders (i) restraining and enjoining
any act which would constitute a breach or (ii) compelling the
performance of any obligation which, if not performed, would constitute
a breach.
9.4. Complete Agreement.
These Regulations and the Articles constitute the complete and
exclusive statement of the agreement among the Members with respect to
the matters set forth herein. They supersede all prior written and oral
statements. Except as expressly provided otherwise herein, these
Regulations may not be amended
31
<PAGE> 31
without the written consent of all of the Members.
9.5. Applicable Law.
All questions concerning the construction, validity, and interpretation
of these Regulations and the performance of the obligations imposed by
these Regulations shall be governed by the internal law, not the law of
conflicts, of the State of Texas.
9.6. Section Titles.
The headings herein are inserted as a matter of convenience only, and
do not define, limit, or describe the scope of these Regulations or the
intent of the provisions hereof.
9.7. Binding Provisions.
These Regulations are binding upon, and inure to the benefit of, the
parties hereto and their respective heirs, executors, administrators,
personal and legal representatives, successors, and permitted assigns.
9.8. Jurisdiction and Venue.
any suit involving any dispute or matter arising under these
Regulations may only be brought in any United States District Court in
the State of Michigan or any Michigan State Court having jurisdiction
over the subject matter of the dispute or matter. All Members hereby
consent to the exercise of personal jurisdiction by any such court with
respect to any such proceeding.
9.9. Construction of Terms.
Unless the context requires otherwise, common nouns and pronouns shall
be deemed to refer to the masculine, feminine, neuter, singular, and
plural, and the words "hereof," "herein," "hereunder," and similar
terms in these Regulations refer to these Regulations as a whole and
not to any particular provisions of these Regulations.
9.10. Separability of Provisions.
Each provision of these Regulations shall be considered separable; and
if, for any reason, any provision or provisions herein are determined
to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions
of these Regulations which are valid.
9.11. Estoppel Certificate.
Each Member shall, within ten (10) days after written request by any
Member or the Manager, deliver to the requesting Person a certificate
stating, to the Member's knowledge, that: (i) these Regulations are in
full force and effect; (ii) these Regulations have not been modified
except by any instrument or instruments identified in the certificate;
and (iii) there is no default hereunder by the requesting Person, or if
there is a default, the nature and extent thereof. If the certificate
is not received within that ten (10) day period, the Manager shall
execute and deliver the certificate without qualification on behalf of
the
32
<PAGE> 32
requested Member, pursuant to the power of attorney granted in Section
5.6; except that if the Manager has actual personal knowledge of any
qualifications, such qualifications shall be included in the
certificate.
9.12. Counterparts.
These Regulations may be executed in two or more counterparts, each of
which shall be deemed an original and all of which, when taken
together, constitute one and the same document. The signature of any
party to any counterpart shall be deemed a signature to, and may be
appended to, any other counterpart.
9.13. Approvals.
The following individuals shall have authority to give any approvals
necessary pursuant to these Regulations:
For SATURN: President of Saturn Electronics & Engineering, Inc.
For UTA: President of UTA's Electrical Systems - Americas
business unit.
or such other individual as designated by the party in writing to the
Company.
IN WITNESS WHEREOF, the parties have caused these Regulations to be
executed, as of the date first set forth above.
MEMBERS:
SATURN ELECTRONICS & ENGINEERING, INC.
/s/ Wallace K. Tsuha, Jr.
----------------------------------------------
Wallace K. Tsuha, Jr.
Chairman, Chief Executive Officer and President
UNITED TECHNOLOGIES AUTOMOTIVE, INC.
/s/ Edwin L. Buker
----------------------------------------------
Edwin L. Buker
President, Electrical Systems - Americas
33
<PAGE> 33
EXHIBIT A
LIST OF MEMBERS, CAPITAL, AND PERCENTAGES
<TABLE>
<CAPTION>
Name, Address, Initial
and Taxpayer Cash or Capital
I.D. Number Contribution Percentages
<S> <C> <C>
Saturn Electronics & Engineering, Inc. $ 4.5 Million 55%
255 Rex Boulevard
Auburn Hills, MI 48326
38-2622745
United Technologies Automotive, Inc. $ 3.9 Million 45%
5200 Auto Club Drive
Dearborn, MI 48126
38-3185535
</TABLE>
<PAGE> 34
EXHIBIT A TO SATURN ELECTRONICS TEXAS, L.L.C. MEMBERSHIP REGULATIONS
(as amended 2/28/99)
LIST OF MEMBERS, CAPITAL AND PERCENTAGES
<TABLE>
<CAPTION>
NAME, ADDRESS AND INITIAL CASH OR TOTAL CLASS PERCENTAGES
TAXPAYER ID NUMBER CAPITAL CONTRIBUTION PERCENTAGES -------------------------
- ------------------ -------------------- -----------
<S> <C> <C> <C>
Saturn Electronics & $ 4.5 Million 53.9% 55% Voting, Interests
Engineering, Inc. 0% Non-Voting Interests
255 Rex Boulevard
Auburn Hills, MI 48326
38-2622745
United Technologies $ 3.9 Million 44.1% 45% Voting Interests
Automotive, Inc. 0% Non-Voting Interests
5200 Auto Club Drive
Dearborn, MI 48126
38-3185535
Roland E. Lartigue $ 163,600 2.0% 0% Voting Interests
Saturn Electronics Texas 100% Non-Voting Interests
255 Rex Boulevard
Auburn Hills, MI 48326
SS # ###-##-####
</TABLE>
SATURN ELECTRONICS & ENGINEERING, INC.
By /s/ W. Tsuha
-------------------------------------------
Wallace K. Tsuha, Jr.
Chairman, CEO and President
UNITED TECHNOLOGIES AUTOMOTIVE, INC.
By /s/ Edwin L. Buker
-------------------------------------------
Edwin L. Buker
President, Electrical Systems - Americas
/s/ Roland E. Lartigue
-------------------------------------------
Roland E. Lartigue
<PAGE> 35
EXHIBIT B
ARTICLES OF ORGANIZATION
OF
SATURN ELECTRONICS TEXAS, L.L.C.
<PAGE> 36
[SEAL]
THE STATE OF TEXAS
SECRETARY OF STATE
CERTIFICATE OF ORGANIZATION
OF
SATURN ELECTRONICS TEXAS, L.L.C.
FILING NUMBER 07031358
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT THE ATTACHED ARTICLES OF ORGANIZATION FOR THE ABOVE NAMED
COMPANY HAVE BEEN RECEIVED IN THIS OFFICE AND HAVE BEEN FOUND TO CONFORM TO LAW.
ACCORDINGLY, THE UNDERSIGNED, AS SECRETARY OF STATE, AND BY VIRTUE OF THE
AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSUES THIS CERTIFICATE OF
ORGANIZATION.
ISSUANCE OF THIS CERTIFICATE OF ORGANIZATION DOES NOT AUTHORIZE THE USE OF
A COMPANY NAME IN THIS STATE IN VIOLATION OF THE RIGHTS OF ANOTHER ENTITY UNDER
THE FEDERAL TRADEMARK ACT OF 1946, THE TEXAS TRADEMARK LAW, THE ASSUMED
BUSINESS OR PROFESSIONAL NAME ACT OR THE COMMON LAW.
DATED NOV. 21, 1997
EFFECTIVE NOV. 21, 1997
[SEAL] /s/ Antonio O. Garza, Jr.
-----------------------------------------
Antonio O. Garza, Jr., Secretary of State
<PAGE> 37
ARTICLES OF ORGANIZATION FILED
in the Office of the
OF Secretary of State of Texas
SATURN ELECTRONICS TEXAS, L.L.C. NOV 21 1997
ARTICLE ONE Corporations Section
The name of the limited liability company is Saturn Electronics Texas,
L.L.C.
ARTICLE TWO
The period of its duration is fifty (50) years from date of filing of
these Articles of Organization with the Secretary of State of the State of
Texas.
ARTICLE THREE
The purpose for which the limited liability company is organized is the
transaction of any or all lawful business for which limited liability companies
may be organized under the Texas Limited Liability Company Act.
ARTICLE FOUR
The address of its principal place of business, the address of the
initial registered office, and the name of its initial registered agent is as
follows:
CT Corporation System
811 Dallas Avenue
Houston, Texas 77002
ARTICLE FIVE
The limited liability company shall be managed by a manager, until the
members decide otherwise. The manager of the limited liability company is as
follows:
Wallace K. Tsuha, Jr
255 Rex Boulevard
Auburn Hills, Michigan 48326
ARTICLES OF ORGANIZATION PAGE 1
<PAGE> 38
ARTICLE SIX
The name and address of the organizer is:
Robert M. Barnett, Esq.
Cacheaux, Cavazos, Newton, Martin & Cukjati, L.L.P.
Convent Plaza
333 Convent Street
San Antonio, Texas 78205-1348
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of November, 1997.
ORGANIZER:
/s/ Robert M. Barnett
---------------------------------
ROBERT M. BARNETT
STATE OF TEXAS SECTION
COUNTY OF BEXAR SECTION
Before me, the undersigned authority, a Notary Public in and for the State
of Texas, on this day personally appeared ROBERT M. BARNETT, who being by me
duly sworn declared that he is the person who signed the foregoing document as
Organizer, and that the statements therein contained are true.
SUBSCRIBED AND SWORN to before me this 20th day of November, 1997, to which
witness my hand and seal.
/s/ Michelle Robles
------------------------------------
Notary Public, State of Texas
[SEAL] MICHELLE ROBLES
NOTARY PUBLIC
STATE OF TEXAS
? ? 3-18-99
ARTICLES OF ORGANIZATION Page 2
<PAGE> 1
EXHIBIT 10.21
AMENDMENT NO. 1 TO MEMBERSHIP REGULATIONS
The undersigned members of SATURN ELECTRONICS TEXAS, L.L.C. (the "Company")
hereby amend the Membership Regulations of the Company dated February 25, 1998
(the "Regulations") as follows:
Section 2.3 of the Regulations is amended by adding the following after the
end of subsection 2.3.3:
"2.3.4 Build-to-Print manufacture and sale of wire harness products for the
Ford Motor Company F-Series truck, with the specific platform and product to be
specified."
All other terms and provisions of the Regulations are ratified and affirmed and
remain in full force and effect.
This Amendment is signed by all the members of the Company as of the 21st
day of September, 1998.
SATURN ELECTRONICS & ENGINEERING, INC.
By /s/ W. Tsuha
----------------------------------------
Wallace K. Tsuha, Jr.
Chairman, CEO and President
UNITED TECHNOLOGIES AUTOMOTIVE, INC.
By /s/ Edwin L. Buker
----------------------------------------
Edwin L. Buker
President, Electrical Systems - Americas
<PAGE> 1
EXHIBIT 10.22
AMENDMENT NO. 2 TO MEMBERSHIP REGULATIONS
The undersigned members of SATURN ELECTRONICS TEXAS, L.L.C. (the "Company")
hereby amend the Membership Regulations of the Company dated February 25, 1998,
as amended by an Amendment No. 1 dated September 21, 1998 (the "Regulations") as
follows:
1. Creation of New Class of Interests. The Members hereby create two classes
of Interests by deleting the definition of "Interest" in Section I of the
Regulations and replacing it with the following definition:
"Interest" means a Member's share of the Profits and Losses of, and the
right to receive distributions from, the Company. The Interests of the
Company shall consist of two classes, Voting Interests and Non-Voting
Interests. The Voting Interests shall have full voting rights. The
Non-Voting Interests shall be identical to the Voting Interests except that
Members holding Non-Voting Interests shall have no voice or vote in any
matter requiring the consent or approval of the Members under these
Regulations, the Act or otherwise, including, but not limited to, no right
to vote on or approve the matters specified in Section 5.1.3 of these
Regulations."
2. Amendment of Other Definitions and New Definitions. The definitions of
"Membership Rights" and "Percentage" set forth in Section I of the
Regulations are deleted and replaced with the following definitions, and
new definitions for "Non-Voting Interest," "Voting Class Percentage" and
"Voting Interest" are added:
"Membership Rights" means all of the rights of a Member in the Company,
including a Member's: (i) right to a share of the Profits and Losses of,
and to receive distributions from, the Company; (ii) right to inspect the
Company's books and records; (iii) right to participate in the management
and affairs of, and to vote on matters coming before, the Company to the
extent set forth in these Regulations; provided, however, Members holding
Non-Voting Interests shall not have the rights specified in this subsection
(iii); and (iv) unless these Regulations or the Articles of Organization
provide to the contrary, right to act as an agent of the Company."
"Non-Voting Interest" means an Interest in the Company which does not have
voting rights and which is described in the definition of "Interest."
"Percentage" means, as to a Member, the percentage set forth after the
Member's name on Exhibit A under the column "Total Percentages," as amended
from time to time, and as to any holder of any Interest who is not a
Member, the Percentage of the Member whose Interest has been acquired by
such holder, to the extent the holder has succeeded to that Member's
Interest.
1
<PAGE> 2
"Voting Class Percentage" means, as to a Member, the percentage of
Voting Interests set forth after the Member's name on Exhibit A under
the column "Class Percentages."
"Voting Interest" means an Interest in the Company which has voting
rights and which is described in the definition of "Interest."
3. Meetings of and Voting by Members. Subsections 5.2.1 and 5.2.2 of the
Regulations are deleted in their entireties and amended to read as
follows:
"5.2. Meetings of and Voting by Members.
5.2.1. A meeting of the Members may be called at any time by the
Manager or by those Members holding at least thirty percent
(30%) of the Voting Class Percentages then held by Members
holding Voting Interests. Meetings of Members shall be held at
the Company's registered office or at any place in Southeastern
Michigan designated by the Person calling the meeting. Not less
than three (3) nor more than thirty (30) days before each
meeting, the Person calling the meeting shall give written notice
of the meeting to each Member entitled to vote at the meeting.
The notice shall state the time, place, and purpose of the
meeting. Notwithstanding the foregoing provisions, each Member
who is entitled to notice waives notice if before or after the
meeting the Member signs a waiver of the notice that is filed
with the records of Members' meetings, or is present at the
meeting in person or by proxy. Unless these Regulations provide
otherwise, at a meeting of Members, the presence in person or by
proxy of Members holding not less than seventy-five percent
(75%) of the Voting Class Percentages then held by Members
holding Voting Interests constitutes a quorum. A Member may vote
either in person or by written proxy signed by the Member or by
its duly authorized attorney in fact.
5.2.2. Wherever these Regulations require the determination or approval
of the Members as set forth in Section 5.1.3, the affirmative
vote of Members holding seventy-five percent (75%) or more of
the Voting Class Percentages then held by Members holding Voting
Interests shall be required to approve the matter."
4. Management Incentives. The following is added to the end of Section 6.5
of the Regulations:
"Any Interests granted by the Company and/or Transferred by the Members
as part of any management incentive program shall consist solely of
Non-Voting Interests."
5. Dissolution. Section 7.1 of the Regulations is deleted in its entirety
and amended to read
2
<PAGE> 3
as follows:
"7. 1. Events of Dissolution.
The Company shall be dissolved and its affairs wound up upon the
happening of any of the following events:
7.1.1. When the period fixed for its duration in the Articles has
expired; or
7.1.2. upon the written agreement of the Members holding Voting
Interests; or
7.1.3. upon the written request of any Member holding more than thirty
percent (30%) of the Voting Class Percentages if the products
manufactured and/or sold by the Company do not qualify for
minority sourced credit by the original equipment manufacturers
ultimately purchasing the products. Before such written request
is made, the Members shall use their best efforts to requalify
such products for minority sourced credit within one hundred
eighty (180) days. In the event the disqualification is the
result of the existing ownership structure of the Company as of
February 25, 1998, the Members shall proceed to change the
ownership structure of the Company pursuant to the provisions of
Section 6.1.4. For purposes of the operation of Section 6.1.4,
the date of the Saturn Transfer Notice shall be the date the
Company receives notice that its products no longer qualify as
minority sourced products; or
7.1.4. upon the written request of any Member holding more than thirty
percent (30%) of the Voting Class Percentages in the event any
other Member (the "Competing Member") makes an investment,
either directly or indirectly, of greater than thirty percent
(30%) in any business that supplies Battery Cables, Ground
Straps or Trailer Tow Harnesses to Automotive Customers in the
Territory.
In an attempt to avoid dissolution of the Company pursuant to
this Section 7.1.4, the Competing Member shall give written
notice to the other Members of its intention to make such an
investment on the date of signing of a memorandum of
understanding regarding such investment. The other Members
holding Voting Interests shall have the right to call a meeting
of the Members to discuss the subject of the competing
investment. Following such meeting, any non-Competing Member
holding more than thirty percent (30%) of the Voting Class
Percentages shall have the right to proceed with dissolution of
the Company or compel the sale of the Competing Member's
Interest pursuant to the procedures set forth in Section 6.1.4.
For purposes of the operation of Section 6.1.4, the date of the
Transfer Notice referenced in Section 6.1.4 shall be the date
that the Competing Member signs a memorandum of understanding."
6. Amendments to Regulations. The third sentence of Section 9.4 of the
Regulations is
3
<PAGE> 4
amended in its entirety to read as follows:
"Except as expressly provided otherwise herein, these Regulations may
not be amended without the written consent of all of the Members holding
Voting Interests."
7. Ratification of Regulations. All other terms and provisions of the
Regulations are ratified and affirmed and remain in full force and
effect.
This Amendment is signed by all the members of the Company as of the
28th day of February, 1999.
SATURN ELECTRONICS & ENGINEERING, INC.
By /s/ W. Tsuha
-------------------------------------------------
Wallace K. Tsuha, Jr.
Chairman, CEO and President
UNITED TECHNOLOGIES AUTOMOTIVE, INC.
By /s/ Edwin L. Buker
-------------------------------------------------
Edwin L. Buker
President, Electrical Systems - Americas
4
<PAGE> 1
EXHIBIT 10.23
AMENDMENT NO. 3 TO MEMBERSHIP REGULATIONS
The undersigned members of SATURN ELECTRONICS TEXAS, L.L.C. (the
"Company") hereby amend the Membership Regulations of the Company dated February
25, 1998, as amended by an Amendment No. 1 dated September 21, 1998 and an
Amendment No. 2 dated February 28, 1999 (the "Regulations"), as follows:
Section 2.3 of the Regulations is amended by adding the following after
the end of subsection 2.3.4:
"2.3.5 Build-to-Print manufacture and sale of wire harness products for
the Ford Motor Company 2003 Model Year Ranger Truck Platform."
All other terms and provisions of the Regulations are ratified and affirmed and
remain in full force and effect.
This Amendment is signed by all the voting members of the Company as of
the 21st day of June, 1999.
SATURN ELECTRONICS & ENGINEERING, INC.
By /s/ W. Tsuha
----------------------------------------------
Wallace K. Tsuha, Jr.
Chairman, CEO and President
LEAR CORPORATION
By /s/ Doug DelGrosso
----------------------------------------------
Doug DelGrosso
President, LEED
<PAGE> 1
EXHIBIT 10.24
AMENDMENT NO. 4 TO MEMBERSHIP REGULATIONS
The undersigned members of SATURN ELECTRONICS TEXAS, L.L.C. (the
"Company") hereby amend the Membership Regulations of the Company dated February
25, 1998, as amended by an Amendment No. 1 dated September 21, 1998, an
Amendment No. 2 dated February 28, 1999, and an Amendment No. 3 dated June 21,
1999 (the "Regulations"), as follows:
Section 2.3 of the Regulations is amended by adding the following after
the end of subsection 2.3.5:
2.3.6 Build-to-Print manufacture and sale of wire harness products for
automotive applications."
All other terms and provisions of the Regulations are ratified and affirmed and
remain in full force and effect.
This Amendment is signed by all the voting members of the Company as of
the 21st day of October, 1999.
SATURN ELECTRONICS & ENGINEERING, INC.
By /s/ W. Tsuha
----------------------------------------------
Wallace K. Tsuha, Jr.
Chairman, CEO and President
LEAR CORPORATION
By /s/ Doug DelGrosso
----------------------------------------------
Doug DelGrosso
President, LEED
<PAGE> 1
EXHIBIT 10.25
SUBLEASE
THIS SUBLEASE, made as of the 20th day of August, 1999, by and between
SATURN ELECTRONICS & ENGINEERING, INC., a Michigan corporation, whose address is
255 Rex Boulevard, Auburn Hills, MI 48326 ("Saturn"), and MSX INTERNATIONAL
ENGINEERING SERVICES, INC., a Delaware corporation, whose address is 275 Rex
Boulevard, Auburn Hills, MI 48326 ("Sublessee").
WITNESSETH:
1. LETTING CLAUSE. Saturn agrees to sublease to Sublessee a portion of the
premises located at 255 Rex Boulevard, the City of Auburn Hills, Oakland County,
Michigan (the "Property"), which portion of the Property is identified on
Exhibit A as Area l office (6385 square feet), Area 2 office (4600 square feet),
Area 3 office (1400 square feet), Area 4 shop (2760 square feet), Area 5 shop
(3000 square feet), prorated common areas (428 square feet), and prorated common
shop area (1140 square feet) attached hereto and hereby made a part hereof (the
"Leased Premises"). The Leased Premises consist of the portions of the Property
which Sublessee occupied immediately prior to commencement of this Sublease.
2. TERM. The term of this Sublease shall commence as of 12:01 a.m., local time
August 1, 1999, and unless sooner terminated in accordance with the provisions
of this Sublease, shall end at 11:59 p.m., local time July 31, 2000. Sublessee
shall have the option to terminate any or all areas identified in section 1 of
this Sublease prior to expiration of the term by providing Saturn with written
notice of termination at least ninety (90) days prior to the desired date of
termination. The term of this Sublease shall automatically end with the
termination of the Primary Lease (defined in Section 5 below). It is expressly
understood that Saturn has no obligation to extend or renew the Primary Lease
beyond its present term and Saturn will have no liability or obligation to
Sublessee in the event of a premature termination of the Primary Lease, or an
eviction by the landlord under the Primary Lease. Saturn may allow for an
additional 1 year term for area 2 provided that the Sublessee requests such an
extension in writing 90 days prior to the Sublease termination date.
3. BASIC RENTAL. Sublessee, in consideration of this Sublease, shall pay to
Saturn as basic rental based on current occupancy, monthly installments in
advance upon the first day of each and every month, the sum of Twenty Five
Thousand Five Hundred Three and 53/100 Dollars ($25,503.53). This rental payment
is calculated based on an office area and common area rental rate of $17.10 per
square foot, and a shop area and common area rental rate of $12.60 per square
foot. Monthly rental payment shall be adjusted based on occupancy during the
billing month. It is the intent of the parties hereto that this is a modified
gross lease and that Sublessee shall not have any payment obligations to Saturn
other than (a) basic rental provided for above, (b) Sublessee's obligations to
pay for telephone usage charges and any additional or different telephone
equipment which the Sublessee may install or use in the Leased Premises, and (c)
Sublessee's personal property taxes applicable to the Leased Premises of
Sublessee's personal property to the extent included in Sublessee's taxes.
PAGE 1 OF 8
<PAGE> 2
4. USE OF THE LEASED PREMISES. The Leased Premises may be used and occupied by
the Sublessee for light industrial (including, but not limited to,
engineering, design, modeling, and model making, testing and production,
prototype manufacture), research and office purposes only and for no other
purpose or purposes without the prior written consent of Saturn. Sublessee
covenants and agrees that it shall not use, or suffer or permit to be used,
the Leased Premises, or any part thereof, for any purpose or in any manner
in violation of any law, ordinance, regulation or restriction affecting the
Leased Premises, and that, on any breach hereunder, Saturn may, at its
option, immediately terminate this Sublease and re-enter and repossess the
Leased Premises.
5. PRIMARY LEASE.
a) Sublessee hereby acknowledges and agrees that the leasehold interest
granted pursuant to this Sublease is subject and subordinate to the
terms, conditions and provisions of that certain Lease dated November
17, 1998 (the "Primary Lease"), by and between Anthony Bennett
Properties, as "Landlord," and Saturn, as "Tenant," all of which are
incorporated herein and by this reference made a part hereof.
b) Where, pursuant to the Primary Lease, the "Tenant" therein is
obligated to give notice to and/or secure the consent or approval of
the "Landlord" therein, Sublessee shall give notice to and/or secure
the consent or approval of both "Landlord" and Saturn.
c) Saturn shall have vis-a-vis Sublessee and this Sublease, all the
rights (but not the obligations) reserved unto or granted to the
"Landlord" pursuant to the Primary Lease, all of which are
incorporated herein and by this reference made a part hereof, and
Sublessee shall observe and acknowledge all such rights as if it were
"Tenant" and Saturn were "Landlord" under the Primary Lease; provided,
however, that in no event shall any period of time for performance or
opportunity to cure of Sublessee extend beyond the last day for
performance or opportunity to cure by Saturn under the Primary Lease.
d) Sublessee shall make all rental payments under this Sublease directly
to Saturn and not to "Landlord" or any other party.
e) Notwithstanding anything herein to the contrary, Saturn shall have no
obligation to perform the obligations of the "Landlord" under the
Primary Lease and in no event shall Sublessee be relieved of or
released from any of its obligations or duties under this Sublease by
reason of any non-performance by "Landlord" under the Primary Lease.
f) The foregoing notwithstanding, Sections 1, 2, 3, 4, 6, 7.03, 29.05 and
29.14 of the Primary Lease shall not be incorporated herein nor made a
part hereof, and neither Sublessee nor Saturn shall have, by virtue of
this Sublease, any obligations to each other with respect thereto.
PAGE 2 OF 8
<PAGE> 3
6. REPAIRS AND ALTERATIONS. Saturn, after receiving written notice from
Sublessee and having reasonable opportunity to obtain the necessary workers
and supplies therefor, agrees to keep in good order and repair the Leased
Premises and every part thereof and improvements thereon, except for any
repair necessitated by the negligence or willful act of Sublessee, its
agents or employees or others acting by or through Sublessee. Sublessee
shall, at its own expense under penalty of forfeiture and damages, at all
times maintain the Leased Premises in a clean and orderly and sanitary
condition satisfactory to Saturn, and shall promptly comply with all laws,
ordinances, regulations and restrictions affecting the Leased Premises.
Sublessee covenants and agrees that it will make no repairs, alterations,
additions or improvements to the Leased Premises without the prior written
consent of Saturn and the "Landlord" under the Primary Lease if required
by the Primary Lease. All improvements, alterations, additions and repairs
shall remain upon and be surrendered with the Leased Premises at the
termination of this Sublease, without molestation or injury.
7. INSURANCE. Sublessee covenants and agrees that it will, at its own expense,
procure and maintain in full force and effect at all times during the term
of this Sublease and any renewal thereof all insurance coverage required to
be obtained by Saturn under the Primary Lease, except that Sublessee shall
not be obligated to carry the hazard, flood, boiler and machinery or loss
of rents insurance required pursuant to Section 8.04 of the Primary Lease.
With respect to all insurance policies required hereunder, all of such
policies shall be written in favor of, and name as additional insureds or
loss payees as directed by Saturn, Saturn and the "Landlord" under the
Primary Lease and each mortgagee of the Property under each mortgage of the
Property to which this Sublease is subordinate, and shall require not less
than thirty (30) days prior written notice to be delivered to Saturn by the
insurance company prior to cancellation, termination, lapse, non-renewal or
forfeiture. Sublessee agrees to promptly deliver certificates of insurance
to Saturn upon demand, to pay all premiums therefor before due and to
deliver paid receipts therefor. Upon any failure of Sublessee to so
maintain such insurance, Saturn may, at its option, obtain any such
insurance and the cost thereof shall be paid, with interest, by Sublessee
as provided in Section 8 hereof, but any act or failure to act on the part
of Saturn in obtaining insurance shall not operate to relieve or release
Sublessee of any liability.
8. EXPENDITURES BY SATURN. If the Sublessee shall default in any payment or
expenditure other than basic rental required to be paid or expended by the
Sublessee under the terms hereof, Saturn may, at its option, make such
payment or expenditure, in which event the amount thereof shall be payable
as additional rental to Saturn by the Sublessee within five (5) days after
receipt of an invoice from Saturn, together with interest at fifteen
percent (15%) per annum on the amount of any such payment or expenditure
from the date of such payment or expenditure by Saturn. In default of such
payment, Saturn shall have the same remedies as on default in payment or
rent.
9. PLACE OF PAYMENT. All payments of rent and other sums to be made to Saturn
shall be made to Saturn at its address set forth above or at such place as
Saturn shall designate in writing from time to time.
PAGE 3 OF 8
<PAGE> 4
10. ASSIGNMENT. Subleasee covenants not to assign or transfer this Sublease or
hypothecate or mortgage the same, or sublet the Leased Premises or any part
thereof, without the prior written consent of Saturn, which consent shall
not be unreasonably withheld; provided that Subleasee shall be allowed to
assign or sublet the Leased Premises to an affiliate or subsidiary of
Subleasee, without Saturn's consent so long as Subleasee provides notice to
Saturn of such assignment or subletting and, provided, further, that any
such assignment or sublet shall not relieve Subleasee of any of its
responsibilities or liabilities under this Sublease. Any assignment,
transfer, hypothecation, mortgage or subletting without said written
consent shall give Saturn the right to terminate this Sublease and to
re-enter and repossess the Leased Premises. Upon notice to and receipt of
the written consent of Saturn, which consent shall not be unreasonably
withheld, Subleasee shall be permitted to allow entities that it does
business with, including DaimlerChrylser Advance Service Bay Diagnostics,
to place workers on the Leased Premises. The notice to Saturn shall contain
the name of the entity, the number of workers, a general description of the
type of work that will be performed, the anticipated time period for using
the Leased Premises, and such other information as Saturn may reasonably
request. Subleasee is currently allowing DaimlerChrysler Advance Service
Bay Diagnostics to place works at the Premises and to perform work at the
Premises. Saturn and the Landlord consent to such placement and use of the
Premises.
11. RIGHT TO MORTGAGE; NONDISTURBANCE. Saturn reserves the right to subject and
subordinate this Sublease at all times to the lien of any mortgage or
mortgages now or hereafter placed upon Saturn's interest in the Property,
or any part thereof or any buildings or improvements thereon, and Subleasee
covenants and agrees to execute and deliver upon demand such further
instrument or instruments subordinating this Sublease to the lien of any
such mortgage or mortgages as shall be desired by Saturn and any mortgagees
or proposed mortgagees, and hereby irrevocably appoints Saturn the
attorney-in-fact of Sublessee to execute and deliver any such instrument
for and in the name of Subleasee. Saturn covenants that so long as
Subleasee is not in default in the terms and conditions of this Sublease,
Subleasee shall peaceably and quietfully hold and enjoy the Leased Promises
for the term hereof without interference by Saturn or any other person
claiming by, through or under Saturn.
12. ACCEPTANCE OF LEASED PREMISES. Subleasee acknowledges that it has examined
the Leased Premises prior to the making of this Sublease, and knows the
condition thereof, and that no representations or warranties as to the
Condition or state of repairs thereof have been made by Saturn, or its
agents, and the Subleasee hereby accepts the Leased Premises in their
present "AS IS" condition.
13. INSPECTION. Saturn or its authorized agents shall have the right but not
the obligation to enter upon the Leased Premises at all reasonable times
for the purpose of inspecting same upon providing Subleasee twenty-four
(24) hours notice of its desire to inspect the Leased Premises. If any
repairs or maintenance activities shall be necessary, Subleasee shall allow
Saturn to make the same.
14. HOLDING OVER. In the event of Subleasee holding over after termination of
this Sublease, a tenancy from month to month shall thereafter exist in the
absence of a written agreement to the
PAGE 4 OF 8
<PAGE> 5
contrary, except that the rental for each month will be one hundred fifty
percent (150%) of the base monthly installment of rental payable the last
month during the term of this Sublease. This provision shall not preclude
Saturn from recovering immediate possession of the Leased Premises and any
and all damages Saturn may incur as a result of Sublessee's failure to
timely deliver possession of the Leased Premises to Saturn.
15. RIGHT TO SHOW LEASED PREMISES. Sublessee agrees that, during the sixty (60)
days next preceding the expiration of the term of this Sublease, it will at
all reasonable hours upon twenty-four (24) hours notice from Saturn permit
Saturn or its duly authorized agents to show the Leased Premises to persons
wishing to lease same, and to place a notice which will not interfere with
the business of Sublessee on the Leased Premises offering the Leased
Premises "For Rent" and Sublessee hereby agrees to permit the notice to
remain at the Leased Premises without hindrance or molestation.
16. INDEMNIFICATION. Sublessee undertakes and agrees to, defend, indemnify and
hold harmless, Saturn and its affiliates, subsidiaries, directors,
officers, agents, employees, lenders, successors and assigns and Landlord
and Landlord's mortgagee against any and all loss, damage, liability, cost
and expense (including, but not limited to, court costs and reasonable
attorneys fees) which may be caused or contributed to by the acts,
omissions or operations of Sublessee (including those of Sublessee's
employees, agents and invitees (including workers of entities for which
Sublessee does business who are allowed on the Leased Premises) on or about
the Leased Premises or any common areas. Saturn undertakes and agrees to
save, defend and hold harmless Sublessee and its affiliates, subsidiaries,
directors, officers, agents, employees, lenders, successors and assigns
against any and all loss, damage, liability, cost and expense (including,
but not limited to, court costs and reasonable attorneys fees) which may be
caused or contributed to by the acts, omissions or operations of Saturn
(including those of Saturn's employees, agents and invitees) on or about
the Property or any common areas.
17. OWNER CONSENT. This Sublease is contingent upon receipt of written consent
to this Sublease by the Landlord under the Primary Lease on or before
October 15, 1999, and either party may terminate this Sublease by written
notice to the other if such consent is not obtained on or before such date.
18. ACCESS TO CERTAIN AREAS. The conference room located on the second floor of
the Property is not included in the Leased Premises being leased by the
Sublessee; however, such conference room may be used by Sublessee, subject
to availability, on an advance reservation basis only. Sublessee shall have
the right to use the following common areas: lobby, smoking area and lunch
room. Sublessee shall also have the right to use the computer room;
provided that Saturn shall have exclusive control over the access to and
security for the computer room and provided, further, that Sublessee
complies with all internal policies and procedures regarding access to and
use of the computer room.
19. SIGNS. Subject to the prior written approval of the size, type, wording and
proposed location of any proposed signage from Saturn, the "Landlord" under
the Primary Lease and the City of Auburn Hills, Sublessee shall have the
right, at Sublessee's sole cost, expense and risk, to keep
PAGE 5 OF 8
<PAGE> 6
in place any existing signs located inside the building. Sublessee
acknowledges and agrees that it will remove at its sole cost, expense and
risk, its existing "MSX International" sign from the outside of the
building within thirty (30) days of Saturn's request.
20. PARKING SPACES. Sublessee shall have the right to use no more than twenty
percent (20%) of the parking spaces in the parking lot that is part of the
Property for its employees, agents and invitees.
21. CUMULATIVE REMEDIES. All rights, remedies and benefits under this Sublease
shall be cumulative and shall not be exclusive of any other rights,
remedies and benefits conferred by law or by this Sublease.
22. WAIVER. No waiver of any provision of this Sublease, or of the breach
thereof, shall be construed as a continuing waiver or shall constitute a
waiver of such provision or breach or of any other provision or breach.
23. SUCCESSORS AND ASSIGNS. This Sublease shall inure to the benefit of and be
binding upon the parties hereto, their respective heirs, administrators,
executors, representatives, successors and permitted assignees.
24. INTERPRETATION, READINGS. The paragraph headings herein are included solely
for convenience and shall in no event affect, or be used in connection
with, the interpretation of this Sublease. Each separately numbered section
(and portions thereof) of this Sublease shall be treated as severable, to
the end that if any one or more such sections shall be adjudged or declared
illegal, invalid or unenforceable, this Sublease shall be interpreted, and
shall remain in full force and effect, as though such section or sections
(or portions thereof) had never been contained in this Sublease. Whenever
reasonably necessary in the interpretation of this Sublease, pronouns of
any gender shall be deemed synonymous, as shall singular and plural
pronouns.
This Sublease shall be governed by and construed in accordance with the
laws of the State of Michigan. If any provision of this Sublease or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Sublease shall not be
affected thereby and each provision of the Sublease shall be valid and
enforceable to the fullest extent permitted by law.
25. NOTICES. All bills, notices, statements, communications, or demands
(collectively, "notices or demands") upon Saturn or Sublessee desired or
required to be given under any of the provisions of this Sublease must be
in writing. Any such notices or demands will be deemed to have been duly
and sufficiently given if a copy thereof has been personally delivered,
mailed by United States certified mail, return receipt requested, postage
prepaid, or sent via overnight courier service to the other party at the
address of the party set forth above (addressed to Sublessee's Controller
and addressed to Saturn's Vice President of Global Processes and Saturn's
Corporate Counsel, or such other address as the party may have last
furnished in writing to the other party for such purpose. The effective
date of such notice or demand will be deemed to be the time when personally
delivered, mailed or sent via overnight courier as herein provided.
PAGE 6 OF 8
<PAGE> 7
26. ENTIRE AGREEMENT. This Sublease constitutes the entire agreement of the
parties hereto; all prior and contemporaneous agreements between the
parties, whether written or oral, are merged herein and shall be of no
force or affect. This Sublease may only be changed, modified or discharged
by an agreement in writing, signed by the party against whom enforcement of
the change, modification or discharge is sought.
Page 7 of 8
<PAGE> 8
IN WITNESS WHEREOF, Saturn and Sublessee have executed this Sublease as of
the day and year first above written.
SATURN:
SATURN ELECTRONICS & ENGINEERING, INC.
By:/s/ Jeff Reddy
-----------------------------
Its: V.P. Process Ergr.
-------------------------
SUBLESSEE:
MSX INTERNATIONAL ENGINEERING SERVICES, INC.
By: Fred Minturn
-----------------------------
Its: Vice President
-------------------------
CONSENT BY LANDLORD
THE UNDERSIGNED, ANTHONY BENNETT PROPERTIES, A MICHIGAN CO-PARTNERSHIP AND THE
LANDLORD UNDER THE PRIMARY LEASE DESCRIBED IN THE FOREGOING SUBLEASE, HEREBY
ACKNOWLEDGES AND CONSENTS TO SUCH SUBLEASE.
ANTHONY BENNETT PROPERTIES
BY:
---------------------------------
ITS:
-----------------------------
DATED: ,1999
------
PAGE 8 OF 8
<PAGE> 1
EXHIBIT 10.26
First Amendment to Sublease
Between
Saturn Electronics & Engineering
And
MSX International Engineering Services, Inc.
This first amendment ("Amendment") to sublease dated August 20, 1999, between
Saturn Electronics & Engineering, Inc., a Michigan corporation, whose address is
255 Rex Boulevard, Auburn Hills, MI 48326 ("Saturn"), and MSX INTERNATIONAL
ENGINEERING SERVICES, INC., a Delaware corporation, whose address is 275 Rex
Boulevard, Auburn Hills, MI 48326 ("Sublessee") is made as of the 27 day of
March, 2000
Saturn and Sublessee wish to amend the sublease.
In consideration of the mutual covenants and obligations of the Amendment, the
parties agree to amend the Sublease as follows:
1) Section 1 is amended to identify only Area 2 office (4600 square feet) as
identified in Exhibit A as the "Leased Premises". The references to Areas
1,3,4 and 5 are deleted. Sublessee agrees to provide parking space for the
sublease occupants at the 275 Rex Blvd facility if deemed necessary by
Saturn.
2) Section 2 is amended to provide that the end of the Term of the Sublease is
extended from 11:59 p.m. local time July 31, 2000 to 11:59 p.m. local time
January 31, 2001.
3) All other terms and provisions of the Sublease remain in full force and
effect and are affirmed.
In witness whereof, Saturn and Sublessee have executed this Amendment as of the
day and year first above written.
Saturn:
Saturn Electronics & Engineering, Inc.
By: Jeff Reddy
---------------------------
Its: V.P. Process Engr.
-----------------------------
MSX International Engineering Services, Inc.
By: Fred Minturn
--------------------------------------------
Its: Executive Vice President, CFO
--------------------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated March 2, 2000, except as to the authorization of additional
shares and the stock splits described in Note 14 which is as of March 25, 2000,
relating to the financial statements of Saturn Electronics & Engineering, Inc.,
which appear in such Registration Statement. We also consent to the reference
to us under the headings "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Detroit, Michigan
March 28, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 4, 1999, with respect to the financial
statements of Smartflex Systems, Inc. included in this Registration Statement
and related Prospectus of Saturn Electronics & Engineering, Inc.
ERNST & YOUNG LLP
Orange County, California
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1999 AUDITED
BALANCE SHEET & INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,929
<SECURITIES> 0
<RECEIVABLES> 48,795
<ALLOWANCES> 1,783
<INVENTORY> 32,271
<CURRENT-ASSETS> 95,953
<PP&E> 89,846
<DEPRECIATION> 23,048
<TOTAL-ASSETS> 231,974
<CURRENT-LIABILITIES> 51,308
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 51,858
<TOTAL-LIABILITY-AND-EQUITY> 231,974
<SALES> 257,107
<TOTAL-REVENUES> 257,107
<CGS> 205,341
<TOTAL-COSTS> 205,341
<OTHER-EXPENSES> 161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,340
<INCOME-PRETAX> 16,339
<INCOME-TAX> 6,434
<INCOME-CONTINUING> 9,905
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,905
<EPS-BASIC> 0.31
<EPS-DILUTED> 0.31
</TABLE>
