<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 28, 1997
Commission file Number 0-6508
IEC ELECTRONICS CORP
--------------------------------------------------------
(Exact name of registrant as specified in its charter.)
Delaware 13-3458955
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 Norton Street, Newark, New York 14513
- -------------------------------------- ----------
(Address of principal executive offices (Zip Code)
(315) 331-7742
- ---------------------------------------------------
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
Common Stock, $0.01 Par Value - 7,415,070 shares as of April 22, 1997.
Page 1 of 23
<PAGE>
IEC ELECTRONICS CORP
INDEX
PART 1 FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Consolidated Balance Sheets as of :
March 28, 1997 (Unaudited) and September 30, 1996.......... 4
Consolidated Statements of Income
for the three months ended:
March 28, 1997 (Unaudited) and
March 29, 1996(Unaudited)................................... 5
Consolidated Statements of Income
for the six months ended:
March 28, 1997 (Unaudited) and
March 29, 1996(Unaudited)................................... 6
Consolidated Statement of Cash Flows
for the six months ended:
March 28, 1997 (Unaudited) and
March 29, 1996(Unaudited)................................... 7
Consolidated Statement of Changes
in Shareholders' Equity for the years ended
September 30, 1996 and 1995 and for the
six months ended March 28, 1997 (Unaudited)................. 8
Notes to Consolidated Financial
Statements (Unaudited) ...................................... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 12
PART II
Item 1. Legal Proceedings............................................ 14
Item 2. Changes in Securities........................................ 14
Page 2 of 23
<PAGE>
Item 3. Defaults Upon Senior Securities.............................. 14
Item 4. Submission of Matters to a Vote of Security Holders.......... 14
Item 5. Other Information............................................ 14
Item 6. Exhibits and Reports on Form 8-K............................. 14
Signature ........................................................... 15
Page 3 of 15
<PAGE>
<TABLE>
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 28, 1997 AND SEPTEMBER 30, 1996
<CAPTION>
MARCH 28, SEPTEMBER 30,
1997 1996
--------------------------------
ASSETS (Unaudited) (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $2,498,919 $1,481,694
Accounts receivable 37,827,764 28,210,567
Inventories 31,116.794 26,006,235
Income taxes receivable 0 756,879
Deferred income taxes 702,192 702,192
Other current assets 168,767 165,446
--------------------------------
Total current assets 72,314,436 57,323,013
--------------------------------
Property, Plant and Equipment, net 37,592,511 39,014,104
--------------------------------
Other Assets:
Cost in excess of net assets acquired, net 12,582,229 12,818,645
Note receivable from officer 393,464 355,519
Other assets 9,309 9,309
--------------------------------
12,985,002 13,183,473
--------------------------------
$122,891,949 $109,520,590
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Borrowings under lines of credit $8,530,000 $8,530,000
Current portion of long-term debt 2,721,251 2,781,517
Accounts payable 28,146,489 16,974,916
Accrued payroll and related expenses 2,968,290 2,772,330
Accrued income taxes 724,311 0
Other accrued expenses 293,782 305,237
--------------------------------
Total current liabilities 43,384,123 31,364,000
--------------------------------
Deferred Income Taxes 3,290,749 3,290,749
--------------------------------
Long-Term Debt 5,975,469 7,409,076
--------------------------------
Shareholders' Equity:
Preferred stock, par value $.01 per share
Authorized - 500,000 shares
Outstanding - 0 shares - -
Common stock, par value $.01 per share
Authorized - 15,000,000 shares
Outstanding - 7,415,070 shares 74,151 74,151
Additional paid-in capital 36,973,633 36,973,633
Retained earnings 33,193,824 30,408,981
--------------------------------
Total shareholders' equity 70,241,608 67,456,765
--------------------------------
$122,891,949 $109,520,590
================================
<FN>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these balance sheets
</FN>
</TABLE>
Page 4 of 15
<PAGE>
<TABLE>
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 28, 1997 AND MARCH 29, 1996
<CAPTION>
3 MONTHS 3 MONTHS
ENDED ENDED
MARCH 28, 1997 MARCH 29, 1996 1996
-----------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $61,102,718 $44,384,964
Cost of sales 54,014,937 40,107,663
-----------------------------------
Gross profit 7,087,781 4,277,301
Selling and administrative
expenses (exclusive of
amortization expense shown below) 3,587,435 3,079,612
Amortization expense 118,489 118,489
-----------------------------------
Operating income 3,381,857 1,079,200
Interest expense (383,373) (411,524)
Other income, net 82,091 103,151
-----------------------------------
Net income before income 3,080,575 770,827
taxes
Income taxes 1,208,000 352,000
-----------------------------------
Net Income $1,872,575 $418,827
===================================
Net income per common and common
equivalent share $0.25 $0.06
----- -----
Common and common equivalent shares 7,531,868 7,478,611
--------- ---------
<FN>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these financial statements.
</FN>
</TABLE>
Page 5 OF 15
<PAGE>
<TABLE>
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED MARCH 28, 1997 AND MARCH 29, 1996
<CAPTION>
6 MONTHS 6 MONTHS
ENDED ENDED
MARCH 28, 1997 MARCH 29, 1996
---------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $111,624,957 $91,367,147
Cost of sales 99,829,138 80,510,414
---------------------------------------
Gross profit 11,795,819 10,856,733
Selling and administrative
expenses (exclusive of
amortization expense shown below) 6,321,108 6,155,705
Amortization expense 236,979 236,979
---------------------------------------
Operating income 5,237,732 4,464,049
Interest expense (773,582) (748,043)
Other income, net 177,693 225,354
---------------------------------------
Net income before income taxes 4,641,843 3,941,360
Income taxes 1,857,000 1,609,000
---------------------------------------
Net Income $2,784,843 $2,332,360
=======================================
Net income per common and common
equivalent share $0.37 $0.31
----- -----
Common and common equivalent shares 7,521,940 7,476,842
--------- ---------
<FN>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these financial statements.
</FN>
</TABLE>
Page 6 of 15
<PAGE>
<TABLE>
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 28, 1997 AND MARCH 29, 1996
<CAPTION>
6 MONTHS 6 MONTHS
ENDED ENDED
MARCH 28, 1997 MARCH 29, 1996
---------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $2,784,843 $2,332,360
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 4,703,520 4,255,920
Increase in other assets (37,945) -
Gain on sale of fixed assets (14,000) (3,750)
Amortization of cost in excess of
net assets acquired 236,979 236,979
Changes in operating assets and
liabilities:
(Increase) Decrease in accounts
receivable (9,617,197) (4,485,382)
(Increase) Decrease in inventories (5,110,559) (7,677,181)
Decrease in income taxes rceivable 756,879 -
Decrease in other current assets (3,321)
Increase in Accounts Payable 11,171,573 1,847,231
Decrease in accrued payroll and
related expenses 195,960 (630,643)
Decrease in accrued income taxes 724,311 (877,840)
Increase (Decrease) in other
accrued expenses (11,455) 64,321
-----------------------
Net cash provided by (used in)
operating activities 5,779,588 (5,032,596)
-------------------------
Cash Flows from Investing Activities:
Purchases of property, plant and
equipment (3,281,927) (6,423,318)
Proceeds from sale of property 14,000 3,750
Proceeds from exercise of options - 15,264
Merger related costs (563) (3,282)
-------------------------
Net cash used in investing activities (3,268,490) (6,407,586)
-------------------------
Cash Flows from Financing Activities:
Net borrowings under line of credit
agreements - 4,000,000
Proceeds from long-term borrowings - 3,970,000
Principal payments on long-term debt (1,493,873) (1,904,978)
---------------------------
Net cash (used in)provded by
financing activities (1,493,873) 6,065,022
----------------------------
Net Increase (Decrease) in cash
and cash equivalents 1,017,225 (5,375,160)
Cash and cash equivalents at beginning
of period 1,481,694 8,639,803
-----------------------------
Cash and cash equivalents at end of
period $2,498,919 $3,264,643
=============================
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $773,582 $748,043
======== ========
Income taxes $742,810 $2,486,840
======== ==========
Cash received during the period for:
Income taxes $367,000 $ -
======== ==========
<FN>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these financial statements.
</FN>
</TABLE>
Page 7 of 15
<PAGE>
<TABLE>
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
AND THE SIX MONTHS ENDED MARCH 28, 1997
<CAPTION>
Total
Common Stock Additional Retained Shareholders
------------
Shares Amount Capital Earnings Equity
------------------------------------------------
<S> <C> <C> <C> <C>
Balance, September 30, 1994 7,186,250 $71,863 $35,160,564 $23,222,745$58,455,172
Issuance of Stock-
Purchase of Accutek 201,116 2,011 1,752,989 - 1,956,116
Net income - - - 4,688,348 4,688,348
----------------------------------------------------
Balance, September 30, 1995 7,387,366 73,874 36,913,553 27,911,093 64,898,520
Exercise of stock options 27,704 277 60,080 - 60,357
Net income - - - 2,497,888 2,497,888
----------------------------------------------------
Balance, September 30, 1996 7,415,070 74,151 36,973,633 30,408,981 67,456,765
Net income for the six
months ended March 28, 1997
unaudited) - - - 2,784,843 2,784,843
----------------------------------------------------
Balance, March 28, 1997 7,415,070 $74,151 $36,973,633 $33,193,82 $68,369,033
(unaudited) ====================================================
<FN>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these financial statements.
</FN>
</TABLE>
Page 8 of 15
<PAGE>
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1997
(1) Business and Summary of Significant Accounting Policies
Business
IEC Electronics Corp. (IEC) is an independent contract manufacturer of complex
printed circuit board assemblies and electronic products and systems. IEC offers
its customers a wide range of manufacturing services, on either a turnkey or
consignment basis, including material procurement and control, manufacturing and
test engineering support, statistical quality assurance and complete resource
management.
Consolidation
The consolidated financial statements include the accounts of IEC and its
wholly-owned subsidiaries, Calidad Electronics, Inc. (Calidad) and Accutek, Inc.
(Accutek)(collectively, the Company). All significant intercompany transactions
and accounts have been eliminated.
Effective November 21, 1994, the Company acquired all of the outstanding common
stock of Accutek, a contract electronics manufacturer for approximately $4
million incash and common stock. The acquisition has been accounted for using
the purchase method of accounting, and accordingly, Accutek's net assets and
results of operations are included in the consolidated financial statements
since the date ofacquisition. The purchase price has been allocated to the
assets acquired and liabilities assumed based on estimated fair values at the
date of acquisition. Cost in excess of net assets acquired related to the
acquisition is being amortized on a straight-line basis over a period of 15
years.
Page 9 of 15
<PAGE>
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1997
Revenue Recognition
- -------------------
The Company recognizes revenues upon shipment of product for both turnkey and
consignment contracts.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out) or market. The
major classifications of inventories are as follows at period end:
MARCH 28, SEPTEMBER 30,
1997 1996
----------------- --------------
(Unaudited)
Raw materials $28,038,844 $20,914,619
Work-in-process 3,077,950 5,091,616
----------- -----------
$31,116,794 $26,006,235
=========== ===========
Unaudited Financial Statements
- ------------------------------
The accompanying unaudited financial statements as of March 28, 1997, and for
the six months ended March 28, 1997 have been prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, all adjustments considered necessary for a fair
presentation, which consist solely of normal recurring adjustments have been
included. The accompanying financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
September 30, 1996 Annual Report on Form 10-K.
New Pronouncements
- ------------------
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share". The Statement
is effective for fiscal years ending after December 15, 1997. When adopted,
restatement of prior years' earning per share will be required.
The statement establishes revised standards for computing and presenting
earning per share. Mangement does not expect the application to have
a material effect on the Company's financial Statements.
Page 10 of 15
<PAGE>
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1997
(2) Financing Arrangements
At March 28, 1997, $8,500,000 and $7,547,000 is outstanding on the working
capital and equipment line of credit, respectively. Amounts borrowed under the
equipment line of credit are repayable monthly from date of borrowing over a
term of 60 months.
(3) Legal Matters
In March 1994, the Company, and certain of its officers were named as defendants
in three separate complaints filed by certain shareholders who claim to
represent a class of shareholders (the Class), alleging that the defendants
violated the federa securities laws. The three actions were consolidated in
March 1995. The consolidated action was voluntarily discontinued in September
1996 without any payment to the plaintiffs or to their counsel. No class had
ever been certified by the court.
The Company is involved with various legal matters in the ordinary course
of business, including certain employment matters. The outcomes of these matters
are also uncertain at this time and related loss contingencies, if any, are
currently not estimable. Management believes these matters to be without merit
and believes that resolution of these matters will not have a material
adverse effect on the Company's financial position or results of operations.
Page 11 of 15
<PAGE>
Management's Discussion and Analysis of Financial Condition and
- ---------------------------------------------------------------
Results of Operations
- ----------------------
Results of Operations - Three months ended March 28, 1997 as compared to three
- ------------------------------------------------------------------------------
months ended March 29,1996.
- ---------------------------
Net sales for the three month period ended March 28, 1997, were $61,102,718 as
compared to $44,384,964 for the comparable period of the prior fiscal year, an
increase of 37.7%. The increase in sales was primarily due to sales to existing
customers and sales to new customers. Sales to new customers were approximately
11% of the sales for the quarter. Turnkey sales were 94% of net sales in the
three months ended March 28, 1997, as compared to 84% for the comparable period
of the prior year.
Gross profit as a percentage of sales was 11.6% in the three months ended March
30, 1997, up from 9.6% in the comparable period of the prior year. This increase
is primarily due to increased capacity utilization and partial use of 24 hours a
day, 7 days a week manufacturing operations, both of which lead to improved
labor efficiencies and absorption of fixed overhead costs.
Selling and administrative expenses increased to $3,587,435 in the three months
ended March 28, 1997, from $3,079,612 in the comparable period of the prior
fiscal year. This increase is primarily due to the bonus accrual based upon
improved profitability. As a percentage of net sales, selling and administrative
expenses decreased to 5.9% from 6.9% in the same quarter of the prior year.
Net income for the quarter increased to $1,872,575 from $418,827 in the
comparable quarter of the prior year. Earnings per share were $.25 as compared
to $.06 per share in the comparable quarter of the prior year.
Results of Operations - Six months ended March 28, 1997 as compared to six
months ended March 29, 1996.
Net sales for the six month period ended March 28, 1997, were $111,624,957 as
compared to $91,367,147 for the comparable period of the prior fiscal year, an
increase of 22.2%. The increase in sales was primarily due to increased sales to
existing customers and sales to new customers. Turnkey sales were 93% of net
sales in the six months ended March 28, 1997, as compared to 80% for the
comparable period of the prior year.
Gross profit as a percentage of sales was 10.6% in the six months ended March
30, 1997, down from 11.9% in the comparable period of the prior year. This
decrease is primarily due to the increased raw material value in the cost of
sales.
Selling and administrative expenses increased to $6,321,108 in the six months
ended March 28, 1997, from $6,155,705 in the comparable period of the prior
year. This increase is due primarily to increased salaries and wages, a bonus
accrual based on increased profitability, partially offset by decreased
commission expense related to an increase in sales of non-commissioned accounts.
As a percentage of net sales, selling and administrative expenses decreased to
5.7% from 6.7% for the comparable period of the prior year.
Net income for the first six months of fiscal year 1997 increased to $2,784,843
from $2,332,360 in the same period of fiscal year 1996. Earnings per share were
$.37 for the six months as compared to $.31 per share in the six months of the
prior year.
Page 12 of 15
<PAGE>
In the contract electronics industry, business is managed by job on a customer
basis. The cost of goods and resulting gross profit as a percentage of sales can
vary widely among different jobs within both turnkey and consignment sales and
are affected by a number of factors including the mix of consignment sales and
turnkey contracts, the percentage of material content, the percentage of labor
content, quantities ordered, complexity of the assemblies, the degree of
atomization utilized in the assembly process and the efficiencies achieved by
the Company in managing material procurement costs, inventory levels and
manufacturing processes.
The Company has experienced component shortages which cause inefficiencies due
to frequent customer rescheduling, short manufacturing lot sizes, production
interruptions and restarts, set-up duplication and production line downtime.
Other rescheduling has been the result of customers adjusting to their current
business conditions.
All of these factors are continually changing and are interrelated. The effect
of each factor cannot be separately determined.
Certain component shortages are expected to continue in future months and will
continue to have an impact on the Company's results. However, the scope and
magnitude of their aggregate effects on sales and profits cannot be determined
until close to the end of a given quarter when it becomes known that the short
material in question will not arrive before quarter end and therefore will have
a determinable effect on the resultant mix of production and delivery schedules.
Accordingly, these factors may result in quarter to quarter fluctuations in both
future revenues and earnings.
Liquidity and Capital Resources
Net sales for the month of March 1997 were $27,985,769, representing 46% of the
total net sales for the three month period ending March 28, 1997. The Company
operates on a calendar quarter consisting of four weeks in the first and second
months and five weeks in the third month.
At March 28, 1997, $8,500,000 and $7,547,000 is outstanding on the working
capital and equipment line of credit, respectively. Amounts borrowed under the
equipment line of credit are repayable monthly from date of borrowing over a
term of 60 months. At March 28, 1997, approximately $16,953,000 was available
for borrowing under these existing lines of credit.
The Company believes that its cash balances, funds generated from operations and
its existing credit facilities will be sufficient for the Company to meet its
capital expenditures and working capital needs for its operations as presently
conducted. As part of its overall business strategy, the Company may from time
to time evaluate acquisition opportunities. The funding for these future
transactions, if any, may require the Company to obtain additional sources of
financing.
The impact of inflation on the Company's operations has been minimal due to the
fact that it is able to adjust its bids to reflect any inflationary increases in
cost.
Except for historical information, statements in this quarterly report are
forward-looking made pursuant to the safe harbor created by the Private
Securities Litigation Reform Act of 1995 and are therefore subject to certain
risks and uncertainties including timing of orders and shipments, availability
of material, product mix and general market conditions that could cause actual
results to differ materially from those projected in the forward looking
statements. Investors should consider the risks and uncertainties discussed in
the Company's September 30, 1996, Form 10-K and in its other filings with the
Securities and Exchange Commission.
Page 13 of 15
<PAGE>
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
None.
Item 2 -- Changes in Securities
None.
Item 3 -- Defaults Upon Senior Securities
None.
Item 4 -- Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on February 26, 1997.
(b) The names of the directors elected at the Annual Meeting are as
follows:
David J. Beaubien
Thomas W. Folger
W. Barry Gilbert
Robert P. B. Kidd
Eben S. Moulton
Russell E. Stingel
Justin J. Vigdor
(c) At the Annual Meeting, the tabulation of votes with respect to each
nominee for director was as follows:
Nominee Votes FOR Authority Witheld
------- --------- -----------------
David J.Beaubien 6,389,508 34,250
Thomas W. Folger 6,389,508 34,250
W. Barry Gilbert 6,389,508 34,250
Robert P.H. Kidd 6,389,508 34,250
Eben S. Moulton 6,388,858 34,900
Russel E. Stingel 6,389,408 34,350
Justin L. Vigdor 6,389,408 34,350
Item 5 -- Other Information
None.
Item 6 -- Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Admendment No.2 dated January 21, 1997 to the Loan Agreement dated
June 30, 1993, between IEC Electronics Corp
and Marine Midland Bank, N.A.
b. Reports on Form 8-K
None.
Page 14 of 15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IEC ELECTRONICS CORP.
REGISTRANT
Dated: April 22, 1997 /s/Russell E. Stingel
-----------------------------
Russell E. Stingel
President, Chief Executive Officer
Dated: April 22, 1997 /s/Timothy J. Kennedy
------------------------------
Timothy J. Kennedy
Vice President, Treasurer, Secretary and
Chief Finanical Officer
Page 15 of 15
<PAGE>
EXHIBIT 10.1 Admendment No.2 dated January 21, 1997 to the Loan Agreement dated
June 30, 1993, between IEC Electronics Corp.
and Marine Midland Bank, N.A.
AMENDMENT
AMENDMENT NO. 2 dated as of January 21, 1997 (this "Amendment") to the
Loan Agreement, dated as of June 30, 1993, as amended by Amendment No. 1 thereto
dated as of June 9, 1995 (collectively the "Agreement") between IEC ELECTRONICS
CORP., a Delaware corporation (the "Company"), and Marine Midland Bank, N.A. the
predecessor to MARINE MIDLAND BANK, a bank organized under the laws of the State
of New York (the "Bank"). All references to Marine Midland Bank, N.A. in the
Agreement, the Promissory Notes, the Security Agreement, all Exhibits to the
Agreement and all other documents, shall be deemed to be references to MARINE
MIDLAND BANK, the successor bank to Marine Midland Bank, N.A.
WHEREAS, the Company and the Bank desire to further amend the Agreement
for the purposes of (i) permitting the Company to borrow under the
Accounts/Inventory Line of Credit to finance the accounts receivables and
inventory purchases of the Company's two wholly owned subsidiaries Accutek, Inc.
and Calidad Electronics, Inc. (the "Wholly Owned Subsidiaries") (ii) requiring
the Company to provide to the Bank the unlimited guarantys of the obligations of
the Company to the Bank under the Agreement by each Wholly Owned Subsidiary
secured by a "blanket" security interest in the assets of each Wholly Owned
Subsidiary, (iii) eliminating the limitation on loans by the Company to Wholly
Owned Subsidiaries, and (iv) making applicable to the Wholly Owned Subsidiaries
certain Affirmation and Negative Covenants contained in the Agreement.
<PAGE>
NOW THEREFORE, the parties hereto agree as follows:
Section 1. Defined Terms (Section 1)
(a) Except as otherwise provided herein, all terms used herein and defined
in the Agreement shall have the meanings ascribed to such terms in the
Agreement.
(b) The Agreement shall be amended by adding Section 1.54 (1) as
follows:
"Subsidiary Documents" The Security Agreement and the unlimited
Guaranty of each Wholly Owned Subsidiary in the form of Exhibits A and B
to Amendment No. 2 to the Agreement.
(c) The Agreement shall be amended by deleting Sections 1.11, 1.46, 1.47
and 1.51 in their entirety and substituting the following Sections 1.11, 1.46,
1.47 and 1.51 in lieu thereof:
1.11 The term "Collateral" shall mean all property which is subject
to the Liens granted by the Security Agreements.
1.46 The term "Qualified Account" shall mean an account owing to the
Company or either of the Wholly Owned Subsidiaries, now existing or
hereafter arising, which is included in the Borrowing Base as calculated
by the Bank from time to time, which account met the following
specifications at the time it came into existence and continues to meet
the same until it is collected in full:
(a) The account is due and payable in full in not more than ninety
(90) days and not more than sixty (60) days have elapsed since the due
date of the invoice;
(b) The account arose from the outright sale of goods or from the
performance of services by Company or either of the Wholly Owned
Subsidiaries; such goods have been shipped to the account debtor or such
services have been performed, and the account is evidenced by such
invoices, shipping documents, or other instruments ordinarily used in the
trade as shall be reasonably satisfactory to Bank;
(c) No return, rejection or repossession has occurred, and such
goods or services have been finally accepted by the account debtor without
dispute;
- 2 -
<PAGE>
(d) The account is not a right to receive rentals or other payments
under any lease or any ongoing or master agreement; the account is not
subject to any prior assignment, claim, Lien, or security interest, and
neither the Company nor either of the Wholly Owned Subsidiaries will make
any further assignment thereof or create any further security interest
therein, or permit the account to be reached by attachment, levy,
garnishment or other judicial process;
(e) To the knowledge of the Company and each of the Wholly Owned
Subsidiaries, as the case may be, the account is a valid and legally
enforceable obligation of the account debtor and is not subject to credit,
allowance, offset, defense, counterclaim or adjustment by the account
debtor, except discount allowed for prompt payment;
(f) The account arose in the ordinary course of business of the
Company or either of the Wholly Owned Subsidiaries, as the case may be,
and no notice of the bankruptcy, insolvency, failure, or suspension or
termination of business of the account debtor has been received by the
Company or either of the Wholly Owned Subsidiaries;
(g) The Bank in its reasonable discretion, after consultation with
the Company or either of the Wholly Owned Subsidiaries, has not deemed the
account or the account debtor unsatisfactory.
1.47 The term "Qualified Inventory Value" shall mean the value of
the Company's and the Wholly Owned Subsidiary's inventory, now existing or
hereafter acquired, of finished products, work in process and raw
materials computed at the lower of cost or market on a first-in, first-out
basis. Qualified Inventory Value shall not include the following:
(a) any goods which are the subject of any Qualified Account;
(b) any goods not in the Company's or either of the Wholly Owned
Subsidiaries' possession for which the Company or either of the Wholly
Owned Subsidiaries' does not own a document of title free and clear of any
Liens; and
(c) any goods financed, or to be financed in the performance of
Material-Bearing Contracts.
1.51 The Term "Security Agreements" shall mean the Security
Agreement of the Company in the form of Exhibit H attached, and the
Security Agreements substantially in the form of Exhibit A to Amendment
No. 2 to the Agreement, to be executed and delivered pursuant to this
Agreement and Amendment No. 2 thereto.
- 3 -
<PAGE>
Section 2. Provisions Applicable to the Aggregate Loan Commitment (Section
---------------------------------------------------------------
2).
---
The Agreement shall be amended by deleting Section 2 in its entirety
and substituting the following Section 2 in lieu thereof:
2.1 The Company agrees that it may borrow and the Bank agrees to
lend to the Company, after the Effective Date, in the aggregate, up to
Thirty- three Million Dollars ($33,000,000) in three separate credit
facilities, upon the terms and conditions set forth in the Agreement, as
amended.
Section 3. Provisions Applicable to the Accounts/Inventory
-----------------------------------------------
Line of Credit (Section 3).
---------------------------
The Agreement shall be amended by deleting Sections 3.3 in its entirety
and substituting the following Section 3.3 in lieu thereof:
3.3 The Accounts/Inventory Line of Credit is intended to fund the
Company's and either of the Wholly Owned Subsidiary's accounts receivable
and inventory purchases. Notwithstanding anything to the contrary
contained in the Agreement, said Line of Credit may be used by the Company
to support up to $300,000 (at any given time) in Standby Letters of Credit
issued by the Bank to the Company's suppliers having an expiration date
not later than April 1, 1998.
Section 4. Provisions Applicable to the Conditions Precedent to
----------------------------------------------------
Financial Commitment (Section 8).
---------------------------------
(a) The Agreement shall be amended by deleting Section 8.3 in its entirety
and substituting the following Section 8.3 in lieu thereof:
8.3 (a) The Company and each of the Wholly Owned Subsidiaries shall
deliver to the Bank its respective Security Agreement, duly executed by
the Company and each Wholly Owned Subsidiary, as the case may be, together
with (a) acknowledgment copies of the Financing Statements (UCC-l) duly
filed under the Uniform Commercial Code of all jurisdictions necessary or,
in the opinion of the Bank, desirable to perfect the security interest
created by the Security Agreements; and (b) certified copies of Requests
for Information (Form UCC-ll) identifying all of the financing statements
on file with respect to the Company and each of the Wholly Owned
Subsidiaries in all jurisdictions referred to under (a), including the
Financing Statements filed by the Bank against the Company and each of the
Wholly Owned Subsidiaries, indicating that no party claims an interest in
any of the Collateral (except as hereinafter permitted).
- 4 -
<PAGE>
(b) The Agreement shall be amended by adding a new Sections 8.7 and 8.8
thereto as follows:
8.7 The Company shall deliver the Bank the Subsidiary Documents in
the form attached to Amendment No. 2 to the Agreement as Exhibit B, duly
executed by the appropriate Wholly Owned Subsidiaries, together with the
following supporting documents, each certified as indicated below: (a) a
copy of the charter, as amended and in effect, of each Wholly Owned
Subsidiary, certified as of a recent date by the Secretary of State of its
jurisdiction of incorporation, and a certificate from such Secretary of
State dated as of a recent date as to the good standing of and charter
documents filed by each Wholly Owned Subsidiary; a Certificate of the
Secretary or an Assistant Secretary of each Wholly Owned Subsidiary, dated
the date first above written and certifying (i) that attached thereto is a
true and complete copy of the by-laws of each Wholly Owned Subsidiary as
amended and in effect at all times from the date on which the resolutions
referred to in clause (ii) were adopted to and including the date of such
certificate, (ii) that attached thereto is a true and complete copy of
resolutions duly adopted by the Board of Directors of each Wholly Owned
Subsidiary authorizing the execution, delivery and performance of the
applicable Subsidiary Documents, and the extensions of credit hereunder,
and that such resolutions have not been modified, rescinded or amended and
are in full force and effect, (iii) that the charter of each Wholly Owned
Subsidiary has not been amended since the date of the certification
thereto furnished pursuant to clause (1) above, and (iv) as to the
incumbency and specimen signature of each officer of each Wholly Owned
Subsidiary executing the applicable Subsidiary Documents, and each other
document to be delivered by each Wholly Owned Subsidiary from time to time
in connection therewith.
8.8 The Bank shall have received a written legal opinion, addressed
to the Bank, dated the Effective Date of Amendment No. 2 to the Agreement
from Boylan, Brown, Code, Fowler, Vigdor & Wilson, LLP, counsel to the
Wholly Owned Subsidiaries. Such legal opinion shall be in the form set out
in Exhibit C to Amendment No. 2 to the Agreement.
Section 5. Provisions Applicable to the Affirmative Covenants
--------------------------------------------------
(Section 9).
------------
The Company covenants and agrees that until all sums owed the Bank
pursuant to the Agreement and the Promissory Notes are paid in full, it
shall cause the Wholly Owned Subsidiaries to comply with each and every
Affirmative Covenant of the Company set forth in Section 9.5 (b), 9.6,
9.7, 9.9, 9.10 and 9.11, and the failure by either Wholly Owned
- 5 -
<PAGE>
Subsidiary to so comply shall be deemed a failure by the Company to comply
with any such Affirmative Covenant.
Section 6. Provisions Applicable to Negative Covenants (Section 10).
---------------------------------------------------------
The Company covenants and agrees that until all sums owed the Bank
pursuant to the Agreement and the Promissory Notes are paid in full, it
shall not, without the prior written consent of the Bank, permit any
Wholly Owned Subsidiary to violate any of the Negative Covenants set forth
in Sections 10.1 through 10.8, 10.10,10.11 or 10.12 of the Agreement, and
the violation by either of the Wholly Owned Subsidiaries of any such
Negative Covenant without the prior written consent of the Bank, shall be
deemed a violation by the Company of such Negative Covenant.
Section 7. Provisions Applicable to Events of Default (Section 12).
--------------------------------------------------------
There shall be added to the Agreement a new Section 12.10 as follows:
12.10 The unlimited Guarantys by either of the Wholly Owned
Subsidiaries shall at any time after the execution and delivery thereof
and for any reason, cease to be in full force and effect or shall be
declared null and void, or the validity or enforceability thereof shall be
contested by either Wholly Owned Subsidiary or any Wholly Owned Subsidiary
shall deny it has any further liability or obligation under or shall fail
to perform its obligations under its Guaranty;
Section 8. Representations and Warranties.
-------------------------------
(a) The Company represents and warrants to the Bank (which
representations and warranties shall survive the execution and delivery of
this Amendment) that each of the Representations and Warranties of the
Company contained in Section 7 of the Agreement is true and correct on the
date hereof and will be true and correct on the Effective Date of the
Amendment as hereinafter defined. For purposes of this Section 8, where a
Representation and Warranty contained in the Agreement makes reference to
the Agreement,
- 6 -
<PAGE>
the term "Agreement" shall be deemed to mean the Agreement as Amended by this
Amendment and where appropriate shall be deemed to be made so as to include the
execution, delivery and performance of this Amendment.
(b) The Company represents and warrants to the Bank that all
necessary action has been taken to perfect the security interests in and charges
upon the Collateral described in the Security Agreements for the benefit of the
Bank, and no filing (including without limitation, any financing statements
pursuant to the Uniform Commercial Code), recording, registration, giving of
notice to other action is required in connection with this Amendment (other than
as provided for herein) in order to continue in effect the security interests
described in the Security Agreements.
Section 9. Conditions Precedent to Effectiveness Hereof. When this
---------------------------------------------
Amendment has been executed by the Bank and the Company and lodged with the
Bank, this Amendment shall be deemed to be effective (the "Effective Date");
provided that each of the following conditions shall have been satisfied in a
manner satisfactory to the Bank;
(a) All representations and warranties contained herein or otherwise
made in writing in connection herewith shall be true and correct with the same
force and effect as though the representations and warranties had been made on
the Effective Date.
(b) No material adverse change shall have occurred in the financial
condition of the Company since September 30, 1996.
(c) There shall not exist on the Effective Date any Event of Default
as defined in Section 12 of the Agreement, or any event which with notice or
lapse of time, or both, would constitute such an Event of Default.
- 7 -
<PAGE>
(d) All corporate and legal proceedings necessary in connection with
the transactions contemplated by this Amendment shall have been completed and
the execution and delivery of this Amendment and the Subsidiary Documents in the
form of Exhibits A and B hereto by an authorized officer of the Company and each
Wholly Owned Subsidiary shall have been duly authorized, all as provided for
more particularly in Section 4 hereof.
(e) On the Effective Date, the Bank shall have received a
certificate of the chief executive officer of the Company, dated such date, to
the effect that all of the conditions specified in this Section 9 have been
satisfied as of such date, and that the representations and warranties set forth
in Section 8 are true and correct as of such date.
Section 10. Survival of Covenants. All covenants, agreements,
----------------------
representations and warranties made herein or concurrently with the execution
and delivery hereof, and in certificates given pursuant hereto, shall survive
the execution and delivery of this Amendment and the Subsidiary Documents, and
shall continue in full force and effect with respect to the date as of which
they were made as long as any indebtedness remains unpaid hereunder or under the
Agreement.
Section 11. Amendment. This Amendment may not be amended or modified
----------
except in writing signed by the Company and the Bank.
Section 12. Successors and Assigns. This Amendment shall be binding
-----------------------
upon and shall inure to the benefit of the Company, the Bank and their
respective successors and assigns, including each successive holder or holders
of any Promissory Note (or any interest therein).
Section 13. Limitation of Amendments. The amendments set forth
-------------------------
herein are limited precisely as written and shall not be deemed to be a consent
or any waiver of or modification
- 8 -
<PAGE>
of any other term or condition of the Agreement, or any of the instruments or
agreements referred to therein, or prejudice any right or rights which the Bank
may now have or may have in the future under or in connection with the
Agreement, or any of the instruments or agreements referred to therein. Except
as expressly modified hereby, the terms and provisions of this Agreement shall
continue in full force and effect. Whenever the Agreement is referred to in the
Agreement, it shall be deemed to mean the Agreement as amended and modified
hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
IEC ELECTRONICS CORP.
By: /s/Timothy J. Kennedy
---------------------
Its: Vice President
MARINE MIDLAND BANK
By: _________________________________
Its: Vice President
- 9 -
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-30-1997
<CASH> 2,498,919
<SECURITIES> 0
<RECEIVABLES> 37,827,764
<ALLOWANCES> 0
<INVENTORY> 31,116,794
<CURRENT-ASSETS> 72,314,436
<PP&E> 37,592,511
<DEPRECIATION> 0
<TOTAL-ASSETS> 122,891,949
<CURRENT-LIABILITIES> 43,384,123
<BONDS> 5,975,469
0
0
<COMMON> 74,151
<OTHER-SE> 70,167,457
<TOTAL-LIABILITY-AND-EQUITY> 112,891,949
<SALES> 111,624,957
<TOTAL-REVENUES> 111,802,650
<CGS> 99,829,138
<TOTAL-COSTS> 6,558,087
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 773,582
<INCOME-PRETAX> 4,641,843
<INCOME-TAX> 1,857,000
<INCOME-CONTINUING> 2,784,843
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,784,843
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
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