UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
X Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
(Fee Required)
For the fiscal year ended April 30, 1996
or
Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
(No Fee Required)
For the transition period from ____ to _____.
Commission file number 0-15047
CIRCUIT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-2663010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2350 E. Lunt Ave., Elk Grove Village, IL 60007
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 439-1999
Securities registered pursuant to Section 12(g) of the Act:
Common, no par value per share
Title of class
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the voting stock held by non
affiliates of the registrant as of June 30, 1996 (based on the
closing price as quoted by NASDAQ as of such date) was
$20,678,694.
The number of outstanding shares of the registrant's common
stock, no par value per share, as of June 30, 1996, was
5,321,973.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the definitive proxy statement of
Circuit Systems, Inc., for use in connection with its annual<PAGE>
meeting of stockholders to be held September 13, 1996 are
incorporated by reference into Part III of this Form 10-K.
<PAGE>
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS ................................... 2
ITEM 2. PROPERTIES ................................ 5
ITEM 3. LEGAL PROCEEDINGS .......................... 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS ....................... 5
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS . 6
ITEM 6. SELECTED FINANCIAL DATA ................... 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ............................ 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . 9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE ... 9
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT ............................. 10
ITEM 11.EXECUTIVE COMPENSATION ................. 10
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT .................. 10
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS ........................... 10
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K ............... 10
SIGNATURES ............................................. 11
<PAGE>
PART I ITEM 1. BUSINESS
The Company manufactures and sells single-sided, double-sided
and multilayer printed circuit boards. All of the Company's
printed circuit boards are specially designed by the customer
and are manufactured to exacting customer specifications. The
boards are sold primarily to original equipment and contract
manufacturers ("OEM's") of computers and peripherals, consumer
and industrial electronic equipment and telecommunications
equipment by the Company's in-house sales force and independent
sales representatives. The Company is a U.L. recognized
manufacturer of single-sided, double-sided and multilayer
printed circuit boards.
Circuit Systems, Inc. was incorporated in Illinois on May 26,
1967. In September, 1985, the Company successfully completed
its initial public offering and became a publicly-owned company.
On February 26, 1987, the Company acquired Ionic Industries,
Inc., a circuit board manufacturing company. The Company's
Common Stock is traded over-the-counter on NASDAQ under the
symbol CSYI.
The Company also owns 556,413 shares of the common stock of
SigmaTron International, Inc. ("SigmaTron") , an electronics
contract manufacturer, representing an approximate 20% interest.
SigmaTron's common stock trades on the NASDAQ national market
system under the symbol SGMA.
In September, 1995, the Company entered into an agreement with
Gujarat Apollo Industries And Finance Limited, of Ahmedabad,
India, a company registered under the Indian Companies Act, to
form Circuit Systems (India) Limited ("CSI (India)") to produce
primarily single-sided printed circuit boards in large volume in
Gandhinagar, India, at competitive prices for the existing
customers in the international marketplace and in head-to-head
competition with Far East manufacturers. The Company's
majority investment consists of approximately $500,000 of both
new and used equipment which it has begun to ship to India.
Operations are expected to commence in September, 1996. CSI
(India) is expecting to generate approximately $1,200,000 in
sales in the first full year of operations and $2,000,000 in the
second year.
The Company also purchased a 150,000 square foot vacant parcel
of land from the Maharashtra Industrial Development Corporation
in the electronics zone near the airport in Bombay, India. The
Company expects to build a facility on the site when the Company
has determined that its customers have a need for primarily
double-sided printed circuit board production for their Far East
facilities. The Company may share the facility with a
electronics component manufacturer or assembler.
PRINTED CIRCUIT BOARDS
Printed circuit boards consist of metallic interconnecting paths
on a nonconductive material, typically laminated epoxy glass.
Holes drilled in the laminate and plated-through with conductive
material from one surface to another, called plated-through
holes, are used to receive component leads and to interconnect
<PAGE>
the circuit layers. Printed circuit boards are used in large
quantities in the electronics industry to mount and interconnect
microprocessors, integrated circuits and other electronic
components.
The quality and design of printed circuit boards have evolved to
meet the changing needs of the electronics industry. The
development of electronic components with increased speed,
higher performance and smaller size has stimulated a demand for
printed circuit boards with increased reliability, density and
complexity. Double-sided printed circuit boards are
manufactured with a different circuit pattern on each side.
Multilayer printed circuit boards consist of three or more
layers of circuitry laminated together and interconnected by
plated-through holes.
MARKETS
The Illinois based Institute of Interconnecting and Packaging
Electronic Circuits ("IPC") reported that the total U.S. printed
circuit board industry grew in 1995 to approximately $7.1
billion from approximately $6.4 billion in 1994. Independent
printed circuit board manufacturers continued to gain a larger
share of the total printed circuit board market. The
independent's share, according to the IPC, reached 85% in 1995
from 83% in 1994. The IPC continues to be confident about
future growth prospects for the printed circuit board industry
and estimates the industry to continue to grow between 9% and
10% for the years 1996 and 1997.
The printed circuit board market is segmented by type of circuit
boards, namely single-sided, double-sided, multilayer, backplane
and flexible. The Company currently does not manufacture any
backplane or flexible circuit boards. Historically, the Company
has operated primarily in the double-sided plated through hole
segment of the market, but as a marketing strategy, the Company
offers its customers a "one-stop shopping" capability since the
Company also serves the single-sided and multilayer segments of
the printed circuit board market. The Company also offers its
customers quick turn around prototype services to complement its
full range of services.
For the year ended April 30, 1996, 8% of the Company's sales
were represented by single-sided, 69% by double-sided plated
through, and 23% by multilayer printed circuit boards. The IPC
estimates that single-sided, double-sided and multilayer printed
circuit boards represent 5%, 23% and 72%, respectively, of the
total printed circuit board market. Management will continue to
pursue additional market share in all three segments of the
market.
<PAGE>
CUSTOMERS AND MARKETING
The Company had approximately 150 active customers as of April
30, 1996. These customers include small to large-size companies
and represent a cross-section of the electronics equipment
industry.
The Company's customers are typically OEMs and subcontractors
for OEMs. The customers include American Power Conversion,
Lucent Technologies (formerly AT & T), General Instrument
Corporation, Honeywell, Inc., IBM Corp., Motorola, Inc., Group
Technologies, Inc., SCI Systems, Inc., SigmaTron International,
Inc., U. S. Robotics Corporation, Zenith Electronics Corp.,
Williams Electronics, Inc., and many other accounts.
Lucent Technologies and U.S. Robotics Corporation, accounted for
approximately 18.6% and 12.1%, respectively, of the Company's
net sales for the year ended April 30, 1996. American Power
Conversion and General Instrument Corporation accounted for
approximately 10.8% and 10.7%, respectively, of the Company's
net sales for the year ended April 30, 1995.
The Company's marketing strategy is to become a supplier to
potential customers who utilize printed circuit boards in volume
and build long-term relationships with those customers. Most of
the Company's customers require the Company to undergo a
qualification process before acceptance as a supplier. The
Company encourages the customer to use its production and
engineering facility in connection with the development of
printed circuit boards for their new projects. In this way, the
Company becomes involved with the customer's engineers in the
early stages of new product design.
The Company markets its products through 24 independent sales
representatives and through a sales and customer service staff
consisting of 6 full time individuals.
The Company's printed circuit boards are typically sold on terms
where the invoiced amounts are due within 30 days of invoice.
The Company generally warrants its boards for 30 days from date
of shipment.
COMPETITION
The printed circuit board market is highly competitive and
fragmented. Over 650 independent manufacturers in the U.S.
compete primarily on the basis of price, quality, reliability
and timely deliveries rather than on patent protection.
According to the IPC report, there were 22 independent
manufacturers of printed circuit boards in the U.S. which had
sales in excess of $50 million in 1995. Manufacturing processes
are complex and, therefore, it is important to maintain a
skilled and motivated work force. The technology used in the
manufacture of most boards is widely available. Double-sided
and multilayer circuit boards produced in large volumes involve
a higher level of material and process technology and,
therefore, a substantially larger investment in plant and
equipment is required.
<PAGE>
Major in-house printed circuit board producers are also
considered competitors. In-house producers include companies
which are electronics equipment manufacturers significantly
larger than the Company and with significantly greater
financial, technical and other resources. Printed circuit board
users having in-house sources of supply also rely on independent
board manufacturers to supply a portion of their demand. There
is a risk that the Company's customers will make greater use of
their own facilities rather than purchasing from the Company.
EMPLOYEES
At April 30, 1996, the Company had approximately 530 people
employed on a full-time basis in manufacturing, sales,
engineering and administrative functions. The Company believes
that its employee relations are good. The Company's employees
are not represented by a union and the Company has never
experienced a work stoppage.
BACKLOG
As of June 30, 1996, the Company's backlog was approximately
$12,599,000 in contrast to $12,060,000 as of June 30, 1995.
Backlog is comprised of orders which have a scheduled shipment
date. Some orders in backlog may be canceled under certain
conditions. The majority of the June 30, 1996 backlog is
scheduled to be shipped within approximately 4 months. The
reliability of backlog as an indicator of future sales varies
substantially with the make-up of customers' orders and the
Company's scheduled production and delivery dates.
MANUFACTURING PROCESS
The Company uses a variety of raw materials in its processes
including sheets of copper-clad epoxy glass, various chemicals,
dry film photo resists and gold used for sliding connector
surfaces on the printed circuit board. The raw materials used
in the Company's product consist chiefly of inorganic chemicals,
copper foil, copper-clad laminate stock and various core
materials. Adequate amounts of raw material have been readily
available to the Company in the past, and the Company believes
it would, if necessary, be able to qualify additional sources
for supplies without a material adverse effect on its business.
More than thirty sequential steps can be required in the printed
circuit board manufacturing process. Certain stages are
entirely manual and depend on operator skill, while others
require mechanical, electrical, chemical and metallurgical know-
how and high-precision photography.
All of the Company's products are designed by the customer and
manufactured to their specifications. Research and development
activities are related to advancing its manufacturing technology.
<PAGE>
COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS
Waste treatment and disposal is a major consideration for
printed circuit board manufacturers since the manufacturing
processes utilize substantial quantities of metals, acids, other
toxic substances and water. In order to comply with emerging
environmental regulations, the Company continues to invest in
equipment, materials and training of employees as required.
From time to time, unexpected minor violations have occurred
which the Company has promptly corrected. The Company also
believes that all of its manufacturing facilities currently
materially comply with all regulatory environmental laws.
ITEM 2. PROPERTIES
The Company owns four production facilities and one warehouse.
The 2400 E. Lunt location, acquired in fiscal year 1995, is in
the process of renovation to become a production facility.
Currently 2350 E. Lunt and 2201 Landmeier are crowded and many
department layouts are inefficient. The completion of
improvements on 2400 E. Lunt during fiscal 1997 will create
space for realignment of some departments, which will improve
operating efficiency, add production capacity and provide a
larger area for administrative functions.
The following table lists the administrative and printed circuit
board production facilities of the Company:
Location Function Square Footage
---------- ---------- ----------------
2350 E. Lunt Avenue Administrative and 48,000
Elk Grove Village, IL primarily double-sided
2201 Landmeier Road Primarily single-sided 117,000*
Elk Grove Village, IL and double-sided
896 Anita Avenue Primarily multilayer 47,000
Antioch, IL
2450 E. Lunt Avenue Warehouse - portion leased 38,000
Elk Grove Village, IL through April 96
(Seeking new lessee)
2400 E. Lunt Avenue Leased through November 95 61,000
Elk Grove Village, IL (Currently being upgraded to
manufacturing facility)
* Approximately 52,000 square feet are leased to SigmaTron,
which paid an aggregate rental of $302,000 to the Company in
1996.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to legal actions arising in the ordinary
course of its business, none of which, individually or in the
aggregate, in the opinion of management, after consulting with
counsel, will have a material adverse effect on the business or
financial condition of the Company.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the
fourth quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the National Association
of Securities Dealers National Market System ("NASDAQ") under
the symbol CSYI. The following table sets forth the closing
prices in the NASDAQ National Market System for the Common
Stock, as reported by NASDAQ.
<TABLE>
PERIOD HIGH LOW
Fiscal 1995
<S> <C> <C>
First Quarter 8 1/8 5 1/4
Second Quarter 6 1/8 4 7/8
Third Quarter 6 3/8 4 1/4
Fourth Quarter 5 1/4 3
Fiscal 1996
First Quarter 4 1/4 3 1/8
Second Quarter 5 1/8 3 1/8
Third Quarter 7 7/8 4 1/4
Fourth Quarter 7 1/2 4 3/8
</TABLE>
The Company has not paid dividends on its Common Stock since
fiscal 1980. Declarations of dividends is within the discretion
of the Company's Board of Directors, which will review its
dividend policy from time to time. The Company's loan
agreements currently contain certain restrictions that may have
the effect of limiting the amount of dividends which the Company
could pay in the future. See Note C of Notes to Consolidated
Financial Statements.
As of June 30, 1996 there were approximately 250 holders of
record of the Common Stock of the Company, which does not include
shareholders whose stock is held through securities position
listings.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Year Ended April 30,
(In thousands, except for per share amounts)
<CAPTION>
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Net Sales $47,234 $51,419 $60,411 $59,586 $65,130
Net Earnings 1,785 3,056 4,989 2,242 3,084
Net Earnings per
common share(1) .35 .59 .95 .42 .58
Total Assets 23,999 26,074 33,102 39,411 45,816
Long-Term Oblig. 9,291 7,406 5,612 11,622 14,536
(1) Earnings per common share have been determined using the
weighted average number of common and common equivalent shares
outstanding. The weighted average number of common and common
equivalent shares outstanding for the years ended April 30,
1992, 1993, 1994, 1995 and 1996 were 5,163,323, 5,185,145,
5,261,766, 5,328,719 and 5,353,428 respectively.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Selected Financial Data and Consolidated Financial Statements
and Notes thereto appearing elsewhere herein.
<TABLE>
Year Ending April 30,
(In thousands, except for per share amounts)
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Net Sales $60,411 $59,586 $65,130
Cost of Sales 48,624 50,772 54,392
Gross Profit 11,787 8,814 10,738
Operating Expenses 5,405 5,017 5,328
Operating Profit 6,382 3,797 5,410
Other Deductions
(Income)-Net (1,518) 133 408
Income Tax Expense 2,911 1,422 1,918
Net Earnings $4,989 $2,242 $3,084
Net Earnings
per Common Share $ .95 $ .42 $ .58
</TABLE>
RESULTS OF OPERATIONS 1996 COMPARED TO 1995
The net sales in 1996 increased by 9.3% to $65,130,000 from
$59,586,000 in the prior year. The increase in sales was not as
a result of price increases but is primarily due to four
individual unaffiliated customers which accounted for
approximately $29,832,000 or 45.8% of net sales in 1996 compared
to 1995 in which two customers accounted for approximately
$12,964,000 or 21.5% of net sales.
The gross profit in 1996 was $10,738,000 or 16.5% of net sales,
compared to $8,814,000 or 14.8% of net sales for the prior year.
The higher gross profit percentage in 1996 is attributed to the
higher volume of sales and a decrease in materials and factory
supplies that were partially offset by increases in overhead
expenses as a percentage of sales. The lower gross profit
percentage in 1995 was attributed to a higher level of returns
and rework and continuation of very competitive pricing within
the industry, which had resulted in higher costs as a percentage
of sales.
Selling, General and Administrative expense in 1996 was
$5,328,000 or 8.2% of net sales, compared to $5,017,000 or 8.4%
of net sales in the prior year. Commission expense, provision
for bad debts and overhead expenses increased, while salaries
and professional services decreased when compared to the prior
year.
<PAGE>
Other Deductions - Net in 1996 was $408,000 compared to $133,000
in the prior year. Additional borrowings on equipment notes and
leases increased interest expense to $1,527,000 from $924,000 in
the prior year. This increase was partially offset by the
equity in the net earnings of the unconsolidated affiliate,
SigmaTron to $478,000 compared to $384,000 in the prior year.
Rental income increased to $552,000 compared to $425,000 in the
prior year and sundry was income of $82,000 in 1996 compared to
an expense of $24,000 in the prior year.
The 1996 effective income tax rate was 38.4% as compared to
38.8% in the prior year.
The Net Earnings and Earnings Per Share for 1996 were $3,084,000
and $.58, respectively, compared to $2,242,000 and $.42,
respectively, for the prior year.
The Company's backlog of orders at June 30, 1996 is $12,599,000
compared to $12,060,000 at June 30, 1995. Backlog represents
orders scheduled to be shipped within approximately 6 months,
but most of which is shipped in 4 months or less. The
reliability of backlog as an indicator of future sales varies
substantially with the make-up of customer orders and the
Company's scheduled production and delivery dates.
SigmaTron net sales, gross profit and net earnings for the year
ended April 30, 1996 were $69,558,000, $10,142,000 and
$2,367,000, respectively, as compared to $45,345,000, $8,412,000
and $1,891,000, respectively, for the year ended April 30, 1995.
RESULTS OF OPERATIONS 1995 COMPARED TO 1994
The net sales were $59,586,000, a decrease of 1.4 % compared to
$60,411,000 in the prior year. The decrease in 1995 net sales
was primarily due to the result of a decline in the special
project for several subcontractors of a certain end user
initiated during 1994 and the rejection of certain boards
initially produced under a new manufacturing process, which
amounted to approximately $1,250,000 in returns during the
fourth quarter. The gross profit in 1995 was $8,814,000 or
14.8% of net sales, compared to $11,787,000 or 19.5% of net
sales for the prior year. The lower gross profit percentage was
attributed to a higher level of returns and rework and
continuation of very competitive pricing within the industry.
This resulted in a higher percentage of labor, materials,
supplies, depreciation and overhead expenses. In addition,
material prices have increased throughout 1995, which was
partially offset by a decrease in labor and related costs due to
a reduction of a Company-wide bonus and ESOP accrual of
approximately $748,000 in 1994.
Selling, General and Administrative expense in 1995 was
$5,017,000 or 8.4% of net sales, compared to $5,405,000 or 8.9%
of net sales in the prior year. Commissions (higher house
account sales), salaries and bad debts decreased which was
partially offset by increases in professional services and other
expenses. The prior year also included a Company-wide bonus, as
well as the president's bonus and ESOP contribution of
approximately $378,000 in 1994.
<PAGE>
Other Deductions (Income)-Net in 1995 was an expense of $133,000
compared to $1,518,000 of income in the prior year. These
amounts included the equity in the earnings of SigmaTron of
$384,000 for 1995 compared to the earnings of SLP/SigmaTron and
ST One, Inc. of $705,000 for 1994. The Company reduced its
ownership interest from 38.7% to 20.3% when SigmaTron completed
its initial public offering in February, 1994. 1994 also
included a realized gain on the sale of SigmaTron stock of
$750,000 and an unrealized gain of $586,000 on the increase of
SigmaTron's net book value. Rental income increased to $425,000
in 1995 from $364,000 in 1994, primarily as a result of the
lease of a premises acquired in 1994 to an unaffiliated entity.
Interest expense remained constant in 1995.
The 1995 effective tax rate of 38.8% was higher than the 1994
rate of 36.9%, primarily due to the utilization of a capital
loss carryforward and higher state tax credits in 1994.
The Net Earnings and Earnings Per Share for 1995 were $2,242,000
and $.42, respectively, compared to $4,989,000 and $.95,
respectively, for the prior year.
The Company's backlog of orders at June 30, 1995 was
$12,060,000, compared to $8,599,000 at June 30, 1994. Backlog
represents orders scheduled to be shipped within approximately 6
months, but most of which is shipped in 4 months or less.
SigmaTron/SLP net sales, gross profit and net earnings for the
year ended April 30, 1995 were $45,345,000, $8,412,000 and
$1,891,000, respectively, as compared to $36,690,000, $6,252,000
and $1,862,000, respectively, for the year ended April 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
During 1996 the Company generated positive cash flow from
operating activities of $3,247,000. This amount, together with
proceeds from long-term obligations of $7,985,000, was used for
capital expenditures of $7,453,000, payments on long-term
obligations of $3,288,000 and the net decrease in the line of
credit of $489,000.
The Company renewed its line of credit agreement on April 30,
1996. The agreement provides for maximum borrowings of
$10,000,000, which is limited to 80% of eligible accounts
receivable, 50% of eligible raw materials inventory not to
exceed $2,000,000 and 75% of eligible finished goods inventory
not to exceed $3,000,000. Payments are not scheduled until the
borrowings mature on August 31, 1997. The amount of the
borrowing as of April 30, 1996, is approximately $4,388,000.
Certain covenants restrict the amount of dividends the Company
could pay, as well as the amount of capital stock redemptions .
In June 1996, the Company entered into an installment loan of
$1,500,000 payable in monthly payments of approximately $31,000
through May 31, 2001 for improvements to the 2400 E. Lunt Avenue
property.
<PAGE>
The Company has purchase commitments as of June 30, 1996 of
approximately $4,200,000 for future deliveries of machinery and
equipment and $250,000 for building improvements to the 2400 E.
Lunt Avenue property. The Company intends to finance such
purchases through collateralized borrowings, installment loans
and existing cash flow.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Response to this Item is included in Item 14(a) of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company will be set forth
in the Company's proxy statement relating to the annual meeting
of shareholders to be held September 13, 1996, and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation will be set forth
in the Company's proxy statement relating to the annual meeting
of shareholders to be held September 13, 1996, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership of certain beneficial
owners and management will be set forth in the Company's proxy
statement relating to the annual meeting of shareholders to be
held September 13, 1996, and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related
transactions will be set forth in the Company's proxy statement
relating to the annual meeting of shareholders to be held
September 13, 1996, and is incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS
ON FORM 8-K
(a)(1) and (a)(2) The financial statements including supporting
schedules, are listed in the Index to Financial Statements and
Financial Statement Schedules filed as part of this Form 10-K on
Page F-1.
(a)(3) See Index to Exhibits filed as part of this Form 10-K.
(b) Reports on Form 8-K: None.
(c) Exhibits: Included in Item 14(a)(3) above.
(d) Financial Statement Schedules required by Regulation S-X.
Included in Items 14(a)(1) and 14(a)(2) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Circuit Systems, Inc.
Dated: July 17, 1996 /s/ D.S. Patel
D.S. Patel, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities on the dates
indicated.
Signature Title Date
/s/ D.S. Patel Chairman of the Board of July 17, 1996
D.S. Patel Directors; President and
Chief Executive Officer
(Principal Executive
Officer)
/s/ Richard J.Augustine Director July 17, 1996
Richard J. Augustine
/s/ Gary R. Fairhead Director July 17, 1996
Gary R. Fairhead
/s/ C. Joseph Incrocci Director July 17, 1996
C. Joseph Incrocci
/s/ Magan H. Patel Executive Vice President, July 17, 1996
Magan H. Patel Assistant Secretary and
Director
/s/ Thomas W. Rieck Secretary and Director July 17, 1996
Thomas W. Rieck
/s/ Dilip S. Vyas Vice President-Business July 17, 1996
Dilip S. Vyas Development, and Director
(Principal Financial
Officer)
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ....... F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS................................................. F-3
LIABILITIES............................................ F-4
CONSOLIDATED STATEMENTS OF EARNINGS ..................... F-5
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY .......... F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS ................... F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .............. F-9
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ......... F-20
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Circuit Systems, Inc.
We have audited the accompanying consolidated balance sheets of
Circuit Systems, Inc. (an Illinois Corporation) and Subsidiaries
as of April 30, 1995 and 1996, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended April 30, 1996.
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 Circuit Systems, Inc. and Subsidiaries as
of April 30, 1995 and 1996, and the consolidated results of their
operations and their consolidated cash flows for each of the
three years in the period ended April 30, 1996, in conformity
with generally accepted accounting principles.
We have also audited Schedule II of Circuit Systems, Inc. and
Subsidiaries for each of the three years in the period ended
April 30, 1996. In our opinion, this schedule presents fairly,
in all material respects, the information required to be set
forth therein.
GRANT THORNTON LLP
Chicago, Illinois
July 3, 1996
<PAGE>F2
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
Years ended April 30,
<TABLE>
ASSETS 1995 1996
----------- -----------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents (note A) ........ $ 127,865 $ 243,269
Receivables (note C)
Trade .................................... 9,876,026 7,951,621
Affiliate ................................ 417,939 628,641
Other .................................... 63,209 13,872
----------- -----------
10,357,174 8,594,134
Less allowance for doubtful receivables .. 350,000 475,000
----------- -----------
10,007,174 8,119,134
Inventories (notes A and C)
Raw material ............................. 1,424,571 3,909,818
Work in process .......................... 2,348,590 2,094,047
Finished goods ........................... 308,864 1,596,777
----------- -----------
4,082,025 7,600,642
Deferred income taxes (notes A and D) ..... 376,000 408,000
Prepaid expenses .......................... 253,026 193,137
----------- -----------
Total current assets ................. 14,846,090 16,564,182
INVESTMENT IN AFFILIATE (notes A, B and I) .. 2,109,225 2,587,609
PROPERTY, PLANT AND EQUIPMENT - AT COST
(notes A and C)
Building and improvements ................ 7,376,273 8,397,345
Machinery and equipment .................. 23,288,271 26,482,833
Automotive equipment ..................... 93,272 64,789
Equipment not placed in service .......... - 3,488,394
----------- -----------
30,757,816 38,433,361
Less accumulated depreciation
and amortization 12,869,112 15,894,629
----------- -----------
17,888,704 22,538,732
Land ..................................... 2,351,703 2,351,703
----------- -----------
20,240,407 24,890,435
OTHER ASSETS
Cash surrender value of
officers life insurance policies ........ 301,059 352,868
Equipment deposits ........................ 1,317,869 841,504
Sundry .................................... 596,400 579,656
----------- -----------
2,215,328 1,774,028
----------- -----------
$39,411,050 $45,816,254
=========== ===========
</TABLE>
<PAGE>F3
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
Years ended April 30,
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
1995 1996
----------- -----------
CURRENT LIABILITIES
<S> <C> <C>
Current maturities of
long-term obligations (note C) ...... $ 2,230,310 $ 3,523,979
Accounts payable ........................ 4,952,287 3,659,482
Accrued expenses ........................ 1,019,843 1,012,121
Income taxes payable (notes A and D) .... 208,709 322,432
----------- -----------
Total current liabilities ............ 8,411,149 8,518,014
LONG-TERM OBLIGATIONS (note C) ............ 11,622,365 14,535,823
DEFERRED INCOME TAXES (notes A and D) ..... 1,259,000 1,560,000
COMMITMENTS AND CONTINGENCIES (notes E and F) - -
SHAREHOLDERS' EQUITY
Common stock - authorized, 20,000,000 shares
without par value; issued and outstanding,
5,321,973 shares in 1995 and 1996 (note G) 3,002,599 3,002,599
Retained earnings ....................... 15,115,937 18,199,818
----------- -----------
18,118,536 21,202,417
----------- -----------
$39,411,050 $45,816,254
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>F4
<TABLE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
Years ended April 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales (note H) .............. $60,411,353 $59,586,492 $65,130,099
Cost of goods sold .............. 48,624,324 50,772,539 54,391,753
---------- ---------- ----------
Gross profit ............... 11,787,029 8,813,953 10,738,346
Sales and marketing expenses .... 3,254,842 2,786,894 3,035,967
Administrative expense .......... 2,067,271 2,177,404 1,915,492
Provision for doubtful receivables 83,220 52,303 377,159
--------- --------- ---------
5,405,333 5,016,601 5,328,618
Operating profit ........... 6,381,696 3,797,352 5,409,728
Other deductions (income)
Interest expense .............. 928,937 924,080 1,527,467
Interest income ............... (22,360) (6,143) (7,414)
Equity in earnings of
unconsolidated affiliates
(notes A ,B and I) ........... (705,100) (384,361) (478,384)
Realized gain on sale of common
stock of affiliate in public
stock offering (note B) ...... (750,188) - -
Unrealized gain on public stock
offering by affiliate (note B) (586,132) - -
Rental income (note I) ........ (364,000) (424,691) (551,650)
Sundry ........................ (19,000) 24,482 (82,172)
----------- --------- ---------
(1,517,843) 133,367 407,847
----------- ---------- ---------
Earnings before income taxes 7,899,539 3,663,985 5,001,881
Income tax expense (notes A and D) 2,911,000 1,422,000 1,918,000
----------- --------- ---------
NET EARNINGS ............... $ 4,988,539 $ 2,241,985 $ 3,083,881
========= ========= =========
Per share data (note A)
Net earnings .................. $.95 $.42 $.58
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>F5
<TABLE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended April 30, 1994, 1995 and 1996
Common Retained
stock Earnings Total
----------- ----------- ------------
<S> <C> <C> <C>
Balance at May 1, 1993 ....... $ 2,377,274 $ 7,885,413 $ 10,262,687
Issuance of 45,650 shares of
common stock ............... 267,575 - 267,575
Net earnings for the year .... - 4,988,539 4,988,539
--------- ---------- ----------
Balance at April 30, 1994 .... 2,644,849 12,873,952 15,518,801
Issuance of 54,000 shares of
common stock ............... 357,750 - 357,750
Net earnings for the year .... - 2,241,985 2,241,985
--------- ---------- ----------
Balance at April 30, 1995 .... 3,002,599 15,115,937 18,118,536
Net earnings for the year .... - 3,083,881 3,083,881
--------- ---------- ----------
Balance at April 30, 1996 .... $ 3,002,599 $ 18,199,818 $ 21,202,417
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>F6
<TABLE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30,
1994 1995 1996
---------- ---------- ----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings ..................... $ 4,988,539 $ 2,241,985 $ 3,083,881
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization ... 2,357,912 2,912,922 3,144,759
Deferred income taxes ........... 484,000 327,000 269,000
(Gain) loss on sale/disposition
of equipment .................. (22,531) 3,786 (31,271)
Equity in earnings of
unconsolidated affiliates ..... (705,100) (384,361) (478,384)
Realized gain on sale of
common stock of affiliate in
public stock offering ......... (750,188) - -
Unrealized gain on public
stock offering by affiliate ... (586,132) - -
Stock bonus ..................... 190,575 - -
Changes in assets and liabilities
Receivables ................... (433,154) (1,222,464) 1,888,041
Inventories ................... (754,123) (846,353) (3,518,617)
Prepaid expenses .............. 13,800 (107,322) 59,889
Other assets .................. (101,377) (1,022,101) 16,744
Accounts payable, accrued
expenses and income taxes
payable ...................... 892,015 (47,451) (1,186,806)
---------- ----------- -----------
Total adjustments .......... 585,697 (386,344) 163,355
---------- ----------- -----------
Net cash provided by
operating activities .... 5,574,236 1,855,641 3,247,236
Cash flows from investing
activities:
Capital expenditures ............... (6,844,415) (4,755,409) (7,452,816)
Proceeds from sale of equipment .... 93,000 53,392 165,666
Partnership distributions .......... 313,548 - -
Dissolution of partnership ......... - 53,552 -
Repayment of note receivable
from affiliate .................... 120,000 55,000 -
Proceeds from sale of common stock
of affiliate ...................... 1,090,602 - -
Increase in cash surrender value
and other assets .................. (771,297) (22,085) (51,809)
----------- ----------- -----------
Net cash used in investing activities (5,998,562) (4,615,550) (7,338,959)
</TABLE>
<PAGE>F7
<TABLE>
Circuit Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended April 30,
1994 1995 1996
---------- ---------- ----------
Cash flows from financing activities:
<S> <C> <C> <C>
Net borrowings under line of credit $ 404,248 $ 1,258,024 $ (489,275)
Proceeds from issuance of
long-term obligations ............. 2,819,076 6,300,000 7,984,895
Payments on long-term obligations..(2,848,797) (4,703,574) (3,288,493)
----------- ----------- -----------
Net cash provided by
financing activities ..... 374,527 2,854,450 4,207,127
----------- ----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ..... (49,799) 94,541 115,404
Cash and cash equivalents at
beginning of year ........... 83,123 33,324 127,865
----------- ----------- -----------
Cash and cash equivalents at
end of year ................. $ 33,324 $ 127,865 $ 243,269
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ..........................$ 929,537 $ 921,380 $1,538,567
Income taxes ...................... 2,907,000 1,230,171 1,535,739
Supplemental schedule of non-cash
investing and financing activities:
Issuance of capital stock in satisfaction
of accrued compensation
and benefits .................... $ 77,000 $ 357,750 $ -
Capital leases for new equipment .. - 954,330 -
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>F8
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1994, 1995 and 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the Company's significant accounting policies
applied in the preparation of the accompanying consolidated
financial statements follows.
Industry
The Company operates in a single industry segment, the
electronics industry, including the manufacture and sale of
printed electronic circuit boards.
Principles of Consolidation
The accounts of wholly-owned and majority-owned subsidiaries are
included in the consolidated financial statements. Investments
in affiliates owned 20 percent or more are accounted for under
the equity method. Investments owned less than 20 percent are
generally carried at cost, unless management determines that the
Company exercises significant influence over the operations of
the affiliate, in which case, such investments are accounted for
under the equity method.
The Company records gains or losses in earnings on the sale of
common stock of its affiliates and on the Company's proportionate
share of increases (decreases) in the net book value of its
investees resulting from such investees' stock issuances.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
Property and Equipment
Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations
over their estimated service lives, principally on a straight-
line basis.
The principal estimated lives used in determining depreciation
are as follows:
Machinery and equipment .............................. 5 to 7 years
Buildings and improvements ........................... 5 to 39 years
Automotive equipment ................................. 3 years
Leased property under capital leases is amortized over the lives
of the respective leases or over the service lives of the assets.
Accelerated depreciation methods are used for tax purposes.
<PAGE>F9
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1994, 1995 and 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Income Taxes
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards Board Statement
No.109 "Accounting for Income Taxes" (SFAS No. 109). Deferred
tax assets and liabilities are provided for temporary differences
between the financial reporting basis and the tax basis of the
Company's assets and liabilities at enacted tax rates expected to
be in effect when such amounts are realized or settled.
Earnings Per Common Share
Earnings per common share have been determined using the weighted
average number of common and common equivalent shares
outstanding. The weighted average number of common and common
equivalent shares outstanding for the years ended April 30, 1994,
1995 and 1996 was 5,261,766, 5,328,719, and 5,353,428,
respectively.
Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Concentration of Credit Risk
The Company has a broad customer base representing many types of
businesses within the electronics industry throughout North
America and Western Europe. Consequently, in management's
opinion, no significant concentration of credit risk exists for
the Company.
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash
equivalents, equity - method investments, and long-term debt. The
carrying value of the cash and cash equivalents and long-term
obligations approximates their estimated fair values based upon
quoted market prices. Management believes the estimated fair
value of an equity - method investment equals or exceeds its
carrying value although there can be no assurances that this is
the case.
Management's 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.
<PAGE>F-10
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1994, 1995 and 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Future Accounting Changes
Statement of Financial Accounting Standards Board Statement No.
121 - "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" will be adopted by the
Company effective May 1, 1996. The Company estimates that the
effect of adoption will not be material.
NOTE B - INVESTMENT IN AFFILIATES
Prior to February 9, 1994, the Company held 38.707% of the
limited partnership units of SigmaTron L.P. ("SLP"), a contract
manufacturer of electronic components, printed circuit board
assemblies and turnkey (completely assembled) electronic
products. The Company was a 50% shareholder of S.T. One, Inc.
("ST ONE"), which acted as the corporate general partner of SLP
and held 1% of the limited partnership units of SLP.
On February 9, 1994, the Company exchanged its ownership of SLP
partnership units for 725,761 shares of common stock of SigmaTron
International, Inc. ("SGMA") . Immediately following this
exchange, SGMA completed a public offering of 1,100,000 shares of
its stock at an offering price of $7.00 per share. In connection
with the offering, the Company sold 169,348 of its shares of
SGMA, which generated net proceeds to the Company of
approximately $1,091,000 and a gain of approximately $750,000.
The Company also recorded an unrealized gain on the public stock
offering of approximately $586,000 based upon the net increase in
the book value of the Company's remaining investment in SGMA.
Deferred income taxes of approximately $223,000 were established
on this unrealized gain. Additionally, ST ONE sold its 18,750
shares of SGMA, which generated net proceeds of approximately
$120,000. During fiscal year 1995, ST ONE was dissolved. The
Company currently holds 556,413 shares or approximately 20% of
the outstanding shares of SGMA. The quoted market price per
share of SGMA was $7.75 on April 30, 1996.
<PAGE>F-11
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1994, 1995 and 1996
NOTE C - LONG-TERM OBLIGATIONS
<TABLE>
Long-term obligations consist of the following:
April 30,
1995 1996
----------- -----------
<S> <C> <C>
Various mortgage notes, payable in monthly
installments of approximately $60,000
collateralized by buildings and land,through
April, 2000, with interest rates ranging from
7% to 9%. Two mortgage notes have balloon
payments totaling approximately $2,974,000
due in March and April, 2000. ............... $ 5,609,701 $ 4,961,396
Various installment notes, payable through
December, 1999 in monthly payments of
approximately $291,000, collateralized
by certain machinery and equipment. Interest
rates range from 6.5% to 10.5%. ............. 2,208,320 7,933,732
Various capital lease obligations, payable
in monthly payments of approximately $27,000
plus interest through December, 1998, and
collateralized by certain machinery
and equipment. ............................. 1,092,106 711,400
Revolving credit agreement (1) ............... 4,877,548 4,388,274
Pollution control revenue bonds with
an interest rate of 5.2% (2) ............... 65,000 65,000
---------- ----------
13,852,675 18,059,802
Less current maturities .................... 2,230,310 3,523,979
---------- ----------
$11,622,365 $14,535,823
========== ==========
</TABLE>
(1) Consists of a line of credit dated April 30,1996 which
provides for maximum borrowings of $10,000,000, which is
limited to 80% of eligible accounts receivable and 50% of
eligible raw material inventories (up to $2,000,000) and 75%
of eligible finished goods inventories (up to $3,000,000), at
the bank's prime rate (8.25% at April 30, 1996). In
addition, the Company, may borrow in $1,000,000 increments
under this line of credit for 30,60, or 90 days at the bank's
cost of funds plus 2%. Interest is paid monthly. Principal
payments are not scheduled until the borrowings mature on
August 31, 1997. In the normal course of events, the Company
repays a portion of the line daily when funds are available
and borrows as funds are needed. Under this practice, gross
borrowings approximated $65,525,000, $64,111,000 and
$72,100,000 in 1994, 1995 and 1996, respectively.
<PAGE>F12
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1994, 1995 and 1996
NOTE C - LONG-TERM OBLIGATIONS - Continued
(1) continued
The loan is collateralized by a security agreement covering
substantially all of the assets of the Company. Certain loan
covenants restrict or limit, among other things, the amount
of dividends which could be paid, the amount of capital stock
redemptions, formation of subsidiaries and investments in and
accounts receivable from affiliates. At April 30, 1996, the
Company's eligible borrowing base was approximately
$8,500,000.
(2) Consists of a Pollution Control Revenue Bond agreement with
the Illinois Industrial Pollution Control Financing Authority
for the purchase of certain pollution control equipment.
These bonds, which were issued in 1977, mature on December 1,
1997 and are callable by the issuer and, therefore, have been
classified as current in the accompanying balance sheet.
The capitalized lease obligations represent a method of financing
certain machinery and equipment. The following is an analysis of
the leased machinery and equipment under capital leases:
<TABLE>
April 30,
1995 1996
----------- ----------
<S> <C> <C>
Machinery and equipment .................... $ 3,269,730 $ 954,330
Less accumulated amortization .............. 1,669,539 204,499
----------- ----------
$ 1,600,191 $ 749,831
=========== ==========
</TABLE>
The following is a schedule by years of future minimum lease
payments under capital leases, together with the present value of
the net minimum lease payments as of April 30, 1996:
<TABLE>
<S> <C>
Year ending April 30,
1997................................................$ 323,333
1998................................................ 296,518
1999................................................ 188,710
--------
Net minimum lease payments ............................ 808,561
Less amount representing interest ..................... 97,161
--------
Present value of net minimum lease payments ...........$ 711,400
========
</TABLE>
<PAGE>F13
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1994, 1995 and 1996
NOTE C - LONG TERM OBLIGATIONS - continued
Scheduled annual maturities of total long-term obligations as of
April 30, 1996 are as follows:
<TABLE>
<S> <C>
Year ending April 30,
1997 ................................................. $ 3,523,979
1998 ................................................. 7,467,876
1999 ................................................. 2,825,382
2000 ................................................. 4,242,565
------------
$ 18,059,802
============
</TABLE>
NOTE D - INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
Year ended April 30,
1994 1995 1996
---------- --------- ----------
<S> <C> <C> <C>
Current
Federal......................... $1,998,000 $ 885,000 $1,339,000
State........................... 429,000 210,000 310,000
Deferred .......................... 484,000 327,000 269,000
---------- ---------- ----------
$2,911,000 $1,422,000 $1,918,000
========== ========== ==========
</TABLE>
The Federal income tax returns of the Company have been examined
and cleared by the Internal Revenue Service through 1994.
Results of the examination were not material. A reconciliation
of the Federal statutory income tax rate to the Company's
effective tax expense rate is as follows:
<TABLE>
Percent of pretax earnings
Year ended April 30,
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Statutory Federal income tax rate ...... 34.0% 34.0% 34.0%
State income taxes, net of Federal benefit 3.7 4.8 4.7
Effect of Foreign Sales Corporation .... (.7) (.7) (.5)
Utilization of Net capital loss carryforwards (.8) - -
Other - net ............................ .7 .7 .2
------ ------ ------
Effective income tax expense rate . 36.9% 38.8% 38.4%
====== ====== ======
</TABLE>
<PAGE>F14
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1994, 1995 and 1996
NOTE D - INCOME TAXES - Continued
The Company utilized net operating loss carryforwards of $328,000
and $118,000 for the years ended April 30, 1994 and 1995,
respectively. In addition, the Company utilized a capital loss
carryforward of approximately $327,000 during the year ended
April 30, 1994.
The tax effects of existing temporary differences that give rise
to significant portions of the deferred tax liabilities and
deferred tax assets are as follows at April 30:
<TABLE>
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful receivables ......... $ 133,000 $ 180,000
Employee benefits .......................... 164,000 165,000
Accrued expenses and other ................. 119,000 121,000
--------- ---------
416,000 466,000
Deferred tax liabilities:
Depreciation ............................... (922,000) (1,059,000)
Equity in earnings of affiliate ............ (154,000) (336,000)
Unrealized gain on public stock offering
by affiliate .............................. (223,000) (223,000)
----------- -----------
(1,299,000) (1,618,000)
----------- -----------
Net deferred tax liability ................. $ (883,000) $(1,152,000)
=========== ===========
</TABLE>
NOTE E - EMPLOYEE BENEFIT PLANS
The Circuit Systems, Inc. Employee Stock Ownership Plan ("ESOP")
covers substantially all employees of the Company. The ESOP is a
noncontributory plan designed to invest primarily in the common
stock of the Company and to distribute retirement benefits (or
benefits in the event of death or disability) in the form of such
stock or cash. The ESOP is subject to the provisions of the
Employee Retirement Income Security Act of 1974.
The Company may make contributions to the ESOP in the form of
cash, Company stock or other property, solely at the discretion
of the Board of Directors. The contribution expense for the years
ended April 30, 1994, 1995 and 1996 was $180,000, $125,000 and
$125,000, respectively. The plan holds 233,714 shares of Company
stock as of April 30, 1995 and 1996, respectively. All of these
shares are allocated to participant accounts and are considered<PAGE>
to be outstanding shares for computing the Company's weighted
average number of shares outstanding.
<PAGE>F15
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1994, 1995 and 1996
NOTE E - EMPLOYEE BENEFIT PLANS - Continued
Effective May 1, 1994, the Company adopted the Circuit Systems,
Inc. 401(k) Plan covering substantially all employees of the
Company who have completed one year of service. Participants may
elect to defer up to 15% of their eligible compensation. The
Company contributes 25% of the participants' deferrals, up to 6%
of eligible compensation. The Company's contribution to the Plan
amounted to approximately $79,000 and $80,000 for the years ended
April 30 1995 and 1996, respectively.
NOTE F - CONTINGENCIES
The Company's operations are subject to extensive and rapidly
changing Federal and state environmental regulations governing
air emissions, waste water discharges, and solid and hazardous
waste management activities. The Company's policy is to accrue
environmental and cleanup related costs when it is both probable
that a liability has been incurred and the amount can be
reasonably estimated. Although the level of future expenditures
for environmental and cleanup matters is impossible to determine
with any degree of probability, and such costs could be
significant within any one year, it is management's opinion that
such costs, when finally determined, will not have a material
adverse effect on the consolidated financial position of the
Company.
NOTE G - STOCK OPTIONS
The 1993 Stock Option Plan was approved by shareholders of the
Company in September, 1993. The 1993 plan provides for the
granting of a maximum of 500,000 stock options to employees of
the Company at prices not less than 100% of the market price at
the date of grant. The maximum term of an option may not exceed
ten years. The options vest in 25% increments every six month
period after the date of grant.
The 1994 Directors' Stock Option Plan was approved by the
shareholders of the Company in September 1994 and reserved
100,000 shares of common stock for issuance pursuant to this
plan. All directors of the Company who are not full-time
employees of the Company are eligible for the plan. Each
eligible director in office at each annual shareholders' meeting
beginning in 1994 will automatically be granted an option to
purchase 5,000 shares of stock at an exercise price equal to the
fair market value on the date of grant. The term of the options
shall be ten years but may not be exercised within the first six
months following the grant of the option.
<PAGE>F-16
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1994, 1995 and 1996
NOTE G - STOCK OPTIONS - Continued
The Company intends to continue to apply the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," in the computation of employee
compensation expense. The Company will provide pro forma net
income and income per share disclosures as if the fair value
based accounting method in Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation,"
had been used to account for stock-based employee compensation
expense.
The following table summarizes the changes in the number of
common shares under the stock option plans granted during the
three years ended April 30, 1996:
<TABLE>
Price range
Shares of options
-------- -------------
<S> <C> <C>
Options outstanding at
May 1, 1993 ............................... - $ -
Granted .................................. 100,000 5.75 - 7.98
Exercised ................................ - -
Canceled or terminated ................... - -
-------
Options outstanding at
April 30, 1994 ............................ 100,000 5.75 - 7.98
Granted .................................. 115,000 5.38 - 5.91
Exercised ................................ - -
Canceled or terminated ................... - -
-------
Options outstanding at
April 30, 1995 ............................ 215,000 5.38 - 7.98
Granted .................................. 120,000 3.25 - 4.50
Exercised ................................ - -
Canceled or terminated ................... - -
-------
Options outstanding at April 30, 1996 ....... 335,000 $3.25 - 7.98
=======
</TABLE>
In addition, during 1993 the Company granted 95,000 nonqualified
stock options to certain unaffiliated investment advisors. The
options were granted at the fair market value on the date of
grant. During the year ended April 30, 1995, 50,000 options
expired. The option price on the remaining options are $4.00 per
share and expire in 1997. None of the options have been
exercised through April 30, 1996.
<PAGE>F-17
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1994, 1995 and 1996
NOTE H - MAJOR CUSTOMERS
Sales to individual unaffiliated customers, which exceeded 10% of
net sales, were approximately $12,089,000 and $7,880,000 for the
year ended April 30, 1996 and $6,512,000 and $6,452,000 for the
year ended April 30, 1995. No individual customer exceeded 10%
of net sales for the year ended April 30, 1994. The percentage
composition of the accounts receivable for these customers bears
a similar relationship to net sales.
NOTE I - RELATED PARTY AND SIGNIFICANT SUBSIDIARY INFORMATION
Prior to February 9, 1994, the Company held 38.707% of the
limited partnership units of SLP and was a 50% shareholder of ST
ONE, which held 1% of the limited partnership units of SLP.
Subsequent to February 9, 1994, the Company holds approximately
20% of the outstanding stock of SGMA, the successor to SLP (see
note B). ST ONE was dissolved in early fiscal year 1995.
Transactions and balances with these unconsolidated affiliates as
of and for the years ended April 30, 1994, 1995 and 1996 are as
follows:
<TABLE>
SLP/SGMA 1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Investment in affiliate ............$1,724,864 $2,109,225 $2,587,609
Accounts receivable ................ 378,470 417,939 628,641
Note receivable .................... 55,000 - -
Net sales .......................... 2,185,000 3,292,000 4,755,000
Rental income ...................... 300,000 300,000 302,000
Interest income .................... 94,211 239 -
ST ONE
Investment in affiliate ............$ 53,552 $ - $ -
</TABLE>
The Company subleases a portion of one of its manufacturing
facilities to SGMA. The lease has a base rental of $26,000 per
month and requires SGMA to pay maintenance, utilities and real
estate taxes. The lease continues through February, 2001 and has
a five year option.
<PAGE>F18
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1994, 1995 and 1996
NOTE I - RELATED PARTY AND SIGNIFICANT SUBSIDIARY INFORMATION -
Continued
The following is summarized financial information for SLP/SGMA,
as of and for the years ended April 30:
<TABLE>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current assets .................. $13,850,197 $19,071,273 $28,458,116
Noncurrent assets ............... 3,987,642 9,164,223 9,856,678
Current liabilities ............. 5,100,992 5,778,519 9,598,369
Noncurrent liabilities .......... 4,225,741 12,055,260 15,947,886
Net sales ....................... 36,689,572 45,344,903 69,558,384
Gross profit .................... 6,251,701 8,411,771 10,142,298
Net earnings .................... 1,861,748 1,890,611 2,366,822
</TABLE>
<PAGE>F19
Circuit Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
April 30, 1994, 1995 and 1996
NOTE J - QUARTERLY FINANCIAL DATA (UNAUDITED)
The unaudited quarterly results of operations are as follows for
the fiscal years ended April 30,
<TABLE>
1995 Quarter ended
July 31, October 31, January 31, April 30,
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales ............. $14,736,870 $13,720,922 $15,257,851 $15,870,849
Gross profit .......... 2,896,037 2,055,258 1,841,586 2,021,072
Net earnings .......... 946,280 536,205 316,147 443,353
Net earnings per share .18 .10 .06 .08
1996 Quarter ended
July 31, October 31, January 31, April 30,
----------- ----------- ----------- -----------
Net sales ............. $16,982,260 $18,000,901 $17,189,073 $12,957,865
Gross profit .......... 2,917,619 3,091,527 2,802,426 1,926,773
Net earnings .......... 946,072 1,103,714 755,292 278,803
Net earnings per share .18 .20 .14 .06
</TABLE>
<TABLE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED APRIL 30, 1996, 1995 AND 1994
--------Additions-------
Balance Charged to Charged to Balance
at beginning costs and other Deductions at end
of period expenses accounts (1) of period
- ------------------------------------------------------------------------------
Allowance for doubtful receivables:
<S> <C> <C> <C> <C> <C>
Year ended
April 30, 1996.. $350,000 $377,158 $ - $252,158 $475,000
Year ended
April 30, 1995.. 275,000 52,303 - (22,697) 350,000
Year ended
April 30, 1994.. 275,000 83,220 - 83,220 275,000
Note (1) Uncollectable receivables charged off, net of recoveries
</TABLE>
<PAGE>F20
<PAGE>
INDEX TO EXHIBITS
3.1 Articles of Incorporation of the Company. (Incorporated
herein by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-18, File No. 2-99155C
filed on July 22, 1985.)
3.2 Articles of Amendment to the Articles of Incorporation.
(Incorporated herein by reference to Exhibit 19.1 of Form
10-K for the year ended April 30, 1988.)
3.3 By-Laws of the Company, as amended (as of September 6,
1991). (Incorporated herein by reference to Exhibit 3.3
of Form 10-K for the year ended April 30, 1994.)
10.1 Installment Note dated September 1, 1972, with
Percy Wilson Mortgage and Finance Corporation
(subsequently assigned to Mutual Benefit Life Insurance
Company) assumed by the Company on January 31, 1989, in
the amount of $217,279.40. (Incorporated herein by
reference to Exhibit (a)(2) of Form 10-Q for the quarter
ended April 30, 1988.)
10.2 Employee Stock Ownership Plan dated as of January 1, 1989.
(Incorporated herein by reference to Exhibit 10.11 of
Form 10-K for the year ended April 30, 1989.)
10.3 $2,100,000 Installment Note, $1,700,000 Revolving Note and
Security Agreement, all dated February 26, 1990, with
First Midwest Bank. (Incorporated herein by reference to
Exhibit 10.18 of Form 10-K for the year ended
April 30, 1990.)
10.4 Continuing Unconditional Guaranty dated February 26, 1990,
by Circuit Systems, Inc. in favor of First Midwest Bank.
(Incorporated herein by reference to Exhibit 10.19 of Form
10-K for the year ended April 30, 1990.)
10.5 1993 Stock Option Plan. (Incorporated herein by reference
to Exhibit 10.11 of Form 10-K for the year ended April 30,
1993.)
10.6 1994 Directors' Stock Option Plan. (Incorporated herein
by reference to Exhibit 10.8 of Form 10-K for the year
ended April 30, 1994.)
10.7 Secured Revolving Credit Agreement dated as of
April 30, 1994, with NBD Elk Grove Bank in the amount of
$8,000,000. (Incorporated herein by reference to Exhibit
19.1 of Form 10-K for the year ended April 30, 1993.)
10.8 First Amendment To Secured Revolving Credit Agreement
dated as of April 30, 1994, with NBD Elk Grove Bank in the
amount of $8,000,000. (Incorporated herein by reference
to Exhibit 19.2 of Form 10-K for the year ended April 30,
1994.)
<PAGE>
10.9 Second Amendment To Secured Revolving Credit Agreement
dated as of August 23, 1994, with NBD Elk Grove Bank.
(Incorporated herein by reference to Exhibit 10.9 of Form
10-K for the year ended April 30, 1995).
10.10 Mortgage and Mortgage Note in the amount of $1,400,000
dated April 14, 1995, in favor of NBD Elk Grove Bank
(for 2400 East Lunt Avenue premises). (Incorporated
herein by reference to Exhibit 10.10 of Form 10-K for the
year ended April 30, 1995).
10.11 Mortgage and Mortgage Note in the amount of $3,350,000
dated March 31, 1995, in favor of NBD Elk Grove Bank
(for 2201 Landmeier premises). (Incorporated herein by
reference to Exhibit 10.11 of Form 10-K for the year ended
April 30, 1995).
10.12 Master Lease Agreement between Company and NBD Elk Grove
Bank (for equipment finance). (Incorporated herein by
reference to Exhibit 10.12 of Form 10-K for the year ended
April 30, 1995).
10.13 Third Amendment to Secured Revolving Credit Agreement
dated as of August 31, 1995.
10.14 Fourth Amendment to Secured Revolving Credit Agreement
dated as of November 27, 1995.
10.15 Credit Facility Note in the amount of $4,000,000 dated
April 30, 1996 in favor of NBD Elk Grove Bank.
10.16 Fifth Amendment to Secured Revolving Credit Agreement
dated as of April 30, 1996.
10.17 Mortgage and Mortgage Note in the amount of $1,500,000
dated April 30, 1996 in favor of NBD Elk Grove Bank (for
2400 East Lunt Avenue property).
10.18 Joint Venture Agreement dated September 4, 1995 by and
between Circuit Systems, Inc. and Gujarat Apollo
Industries and Finance Limited.
10.19 Industrial Lease Agreement dated as of February 29, 1996
by and between Circuit Systems, Inc. and SigmaTron
International, Inc.
11. Statement re Computation of Per Share Earnings.
19.1 Employment Agreement with D.S. Patel dated as of April 30,
1994. (Incorporated herein by reference to Exhibit 19.3
of Form 10-K for the year ended April 30, 1994.)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<CASH> 243,269
<SECURITIES> 0
<RECEIVABLES> 8,594,134
<ALLOWANCES> 475,000
<INVENTORY> 7,600,642
<CURRENT-ASSETS> 16,564,182
<PP&E> 40,785,064
<DEPRECIATION> 15,894,629
<TOTAL-ASSETS> 45,816,254
<CURRENT-LIABILITIES> 8,518,014
<BONDS> 14,535,823
0
0
<COMMON> 3,002,599
<OTHER-SE> 18,199,818
<TOTAL-LIABILITY-AND-EQUITY> 45,816,254
<SALES> 65,130,099
<TOTAL-REVENUES> 65,130,099
<CGS> 54,391,753
<TOTAL-COSTS> 54,391,753
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 377,158
<INTEREST-EXPENSE> 1,527,467
<INCOME-PRETAX> 5,001,881
<INCOME-TAX> 1,918,000
<INCOME-CONTINUING> 3,083,881
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,083,881
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
</TABLE>
<PAGE> 1
EXHIBIT 11
CIRCUIT SYSTEMS, INC.
AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
PRIMARY EPS 1996 1995 1994
-----------------------
<S> <C> <C> <C>
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THE PERIOD 5,321,973 5,317,189 5,244,914
NET ADDITIONAL SHARES ASSUMING DILUTIVE
STOCK OPTIONS EXERCISED AND PROCEEDS
USED TO PURCHASE TREASURY SHARES AT
AVERAGE FAIR MARKET VALUE 31,455 11,530 16,852
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON EQUIVALENT
SHARES OUTSTANDING 5,353,428 5,328,719 5,261,766
---------- ---------- ----------
NET EARNINGS $3,083,881 $2,241,985 $4,988,539
---------- ---------- ----------
PRIMARY EARNINGS PER SHARE $0.58 $0.42 $0.95
========== ========== ==========
FULLY DILUTED EPS
---------------------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THE PERIOD 5,321,973 5,317,189 5,244,914
NET ADDITIONAL SHARES ASSUMING DILUTIVE
STOCK OPTIONS EXERCISED AND PROCEEDS
USED TO PURCHASE TREASURY SHARES AT
FAIR MARKET VALUE OR AVERAGE FAIR MARKET
VALUE IF HIGHER 40,000 11,530 21,667
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON EQUIVALENT
SHARES OUTSTANDING 5,361,973 5,328,719 5,266,581
---------- ---------- ----------
NET EARNINGS $3,083,881 $2,241,985 $4,988,539
========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE $0.58 $0.42 $0.95
========== ========== ==========
</TABLE>
<PAGE>
THIRD AMENDMENT
TO SECURED REVOLVING CREDIT AGREEMENT
DATED AS OF APRIL 30, 1993
WHEREAS, Circuit Systems, Inc., an Illinois corporation (the
"Company) and NBD Bank, an Illinois banking corporation (the
"Bank"), are party to that certain Secured Revolving Credit
Agreement dated as of April 30, 1993 as amended April 29, 1994 and
August 23, 1994 (the "Agreement"); and
WHEREAS, the Company has requested that the Bank extend the
maturity date of the Revolving Credit Commitment, the Revolving
Credit Loans, the Credit Facility and the Credit Facility Loans
under the Agreement and to make certain other amendments as
hereinafter set forth; and
WHEREAS, the Bank has agreed to the requested extension and
certain other amendments as hereinafter set forth, provided that
the parties execute this Third Amendment, and that, among other
things, the Company executes and delivers to the Bank a new
Revolving Credit Note and a new Credit Facility Note in the
form(s) attached hereto as Exhibits "A" and "B";
NOW THEREFORE, subject to such conditions as are set forth
herein, it is agreed between the Company and the Bank that:
I. The date "August 31, 1996" appearing in Subsection (a) of
Section I., Subsection (a) of Section 2., Subsection
(d) of Section 5., and in the last paragraph of Section 4. of
the Agreement is amended to read "August 31, 1997".
II. The date "August 31, 1995" appearing in Subsection (b) of
Section 1. and Subsection (b) of Section 2. of the Agreement is
amended to read "August 31, 1996".
III. Subsection (t)(i) of Section 11 of the Agreement is
amended to read as follows:
"(i) a minimum current ratio (excluding from current liabilities,
amounts payable with respect to equipment purchased and held
pending conversion into long term financing lease transactions) of
1.15 to 1.00;
IV. Subsection (v) of Section 11 of the Agreement is amended in
its entirety to read as follows:
"(v) The Company will maintain, from and after April 30, 1995 and
at each fiscal year end of the Company thereafter, a cumulative
minimum Tangible Net Worth of not less than (i) $15,000,000.00
plus (ii) 50% of the Company's earned net profits for each such
fiscal year end."
<PAGE>
As a condition precedent to the taking effect of this Third
Amendment, the Company shall provide to the Bank, in form and
substance satisfactory to the Bank (i) signed copies of
certificates of the Secretary or Assistant Secretary of the
Company, and dated as of the date of this Third Amendment, which
shall certify approval of, and all necessary corporate action with
respect to the authorization, execution and delivery of this Third
Amendment and all relevancies appertaining thereto.
By execution and delivery hereof, the Company further reaffirms
all applicable representations and warranties contained in Section
11 of the Agreement as true and correct as of the date hereof.
Except as stated herein, all terms and provisions of the Secured
Revolving Credit Agreement remain unchanged and in full force and
effect.
IN WITNESS WHEREOF, this Amendment has been duly executed as of
the 31 st day of August, 1995.
NBD Bank Circuit Systems, Inc.
By: By:
Steven F. Gersch, Vice President D.S. Patel, President
<PAGE>
<PAGE>
FOURTH AMENDMENT
TO SECURED REVOLVING CREDIT AGREEMENT
DATED AS OF APRIL 30, 1993
WHEREAS, Circuit Systems, Inc., an Illinois corporation (the
"Company) and NBD Bank, an Illinois banking corporation (the
"Bank"), are party to that certain Secured Revolving Credit
Agreement dated as of April 30, 1993 as amended April 29, 1994,
August 23, 1994, and August 31, 1995 (the "Agreement"); and
WHEREAS, the Company and the Bank are desirous of further
amending the Agreement;
NOW THEREFORE, subject to such conditions as are set forth
herein, it is agreed between the Company and the Bank that
Subsection (q) of Section 11 of the Agreement, effective as of
the date hereof, is amended in its entirety to read as follows:
"(q) In any one fiscal year the Company will not, without the
Bank's prior written consent, enter into any leases which
require the payment by the Company of amounts of yearly rent in
excess of $6,000,000.00."
By execution and delivery hereof, the Company further reaffirms all
applicable representations and warranties contained in Section 11
of the Agreement as true and correct as of the date hereof.
Except as stated herein, all terms and provisions of the Secured
Revolving Credit Agreement remain unchanged and in full force and
effect.
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
27th day of November, 1995.
NBD Bank Circuit Systems, Inc.
By: By:
Steven F. Gersch, Vice President D.S. Patel, President
<PAGE>
<PAGE>
CREDIT FACILITY NOTE
Due: August 31, 1996 $4,000,000.00
Note No. Date: April 30, 1996
PROMISE TO PAY: On or before August 31, 1996, for value
received, the undersigned (the "Company") promises to pay to NBD
Bank (the "Bank") or order, at the Bank's main office in
Wheaton, Illinois 60187 or at any office of the Bank in the
State of Illinois, the sum of Four Million and No/100 Dollars
($4,000,000.00), or such lesser sum as is indicated on the
Bank's records, plus interest computed on the basis of the
actual number of days elapsed in a year of 360 days at either
(i) the rate announced from time to time by the Bank as its
"prime" rate, which rate may not be the lowest rate charged by
the Bank to any of its customers, or (ii) the Negotiated Rate as
stated in the Agreement (as hereinafter defined) (each such rate
when and as in effect the "Note Rate"), until maturity, whether
by acceleration or otherwise, and at a rate of 3% per annum
above the Note Rate on overdue principal from the date when due
until paid. The Negotiated Rate may be greater or lesser than
the prime rate, and each change in the "prime" rate will
immediately change the Note Rate if such rate is chosen and in
effect hereunder.
In no event shall the interest rate exceed the maximum rate
allowed by law; any interest payment which would for any reason
be deemed unlawful under applicable law shall be applied to
principal.
Interest will be computed on the unpaid principal balance
hereof from the date of each borrowing.
Until maturity, the Company will pay consecutive monthly
installments of interest only commencing May 31, 1996, and on
the last day of each calendar month thereafter.
The Company acknowledges and agrees (i) that this Note
evidences a business loan for the purpose of financing a
commercial enterprize carried on for the purpose of investment
or profit within the purview of Section 205/4, Chapter 815, of
the Illinois Compiled Statutes and is not subject to any usury
law or limitation of the State of Illinois, and (ii) the
obligation evidenced by this Note is an exempt transaction under
the Federal Truth-in-Lending Act, 15 U.S.C., Section 1601 et
seq.
<PAGE>
The Bank has approved a credit facility to the Company in a
principal amount not to exceed the face amount of this Note.
The credit facility is in the form of advances made from time to
time by the Bank to the Company. This Note evidences the
Company's obligation to repay those advances. The aggregate
principal amount of debt evidenced by this Note shall be the
amount reflected from time to time in the records of the Bank
but shall not exceed the face amount of this Note. Until
maturity, the Company may borrow, pay down and reborrow under
this Note so long as the aggregate principal amount outstanding
at any one time does not exceed the face amount of this Note.
This Note evidences a debt under the terms of a Secured
Revolving Credit Agreement, between the Bank and the Company
dated as of April 30, 1993 as amended April 29, 1994, August 23,
1994, August 31, 1995, November 27, 1995 and April 30, 1996 (the
"Agreement"), and is entitled to the benefits of and subject to
the provisions of the Agreement. The Agreement, among other
things, contains provisions for acceleration of the maturity of
this Note upon the happening of certain stated events and also
for prepayments on account of the principal hereof prior to the
maturity hereof upon the terms and conditions specified in the
Agreement as may be amended from time to time.
To secure the payment of this Note and any other present or
future liability of the Company to the Bank, whether several,
joint, or joint and several, the Company pledges and grants to
the Bank a continuing security interest in the following
described property and all of its additions, substitutions,
increments, proceeds and products, whether now owned or later
acquired ("Collateral"): All securities and other property of
the Company in the custody, possession or control of the Bank
(other than property held by the Bank solely in a fiduciary
capacity); All property or securities declared or acknowledged
to constitute security for any past, present or future liability
of the Company to the Bank; All balances of deposit accounts of
the Company with the Bank; and the following additional property
of the Company: All Inventory, Accounts, Accounts Receivable,
General Intangibles and Equipment as described in those Security
Agreements dated as of April 1, 1992 and April 30, 1993, as
provided to the Bank in connection therewith. The terms used
to identify the Collateral shall have the respective meanings
assigned to such terms as of the date hereof in the Illinois
Uniform Commercial Code.
The Bank shall have the right at any time to apply its own
debt or liability to the Company or to any other party liable on
this Note in whole or partial payment of this Note or other
present or future liabilities of the Company to the Bank without
any requirement of mutual maturity.
The terms and provisions of the Agreement, any mortgage,
security agreement or any other document executed as part of or
in connection with the loans evidenced by this Note are hereby
incorporated by reference and made a part of this Note.
<PAGE>
The Company represents that it is a corporation duly
organized, existing and in good standing under the laws of its
state of incorporation, and that the execution and delivery of
this Note and the performance of the obligations it imposes are
within its corporate powers, have been duly authorized by all
necessary action of its board of directors, and do not
contravene the terms of its articles of incorporation or bylaws.
The Company represents that the execution and delivery of this
Note and the performance of the obligations it imposes do not
violate any law and do not conflict with any agreement by which
it is bound, and that no consent or approval of any governmental
authority or any third party is required for the execution or
delivery of this Note or the performance of the obligations it
imposes and that this Note is a valid and binding agreement,
enforceable according to its terms. The Company further
represents that all balance sheets, profit and loss statements,
and other financial statements, if any, furnished to the Bank
are accurate and fairly reflect the financial condition of the
Company on their effective dates, including contingent
liabilities of every type, which financial condition has not
changed materially and adversely since those dates.
If any of the following events occurs: (i) the Company or
any guarantor of this Note ("Guarantor") fails to pay when due
any amount payable under this Note or under any agreement or
instrument evidencing debt to any creditor; (ii) the Company or
any Guarantor (a) fails to observe or perform any other term of
this Note: or (b) makes any materially incorrect or misleading
representation, warranty, or certificate to the Bank; or (c)
makes any materially incorrect or misleading representation in
any financial statement or other information delivered to the
Bank; or (d) defaults under the terms of any agreement or
instrument relating to any debt for borrowed money (other than
the debt evidenced by this Note) such that the creditor declares
the debt due before its maturity; (iii) the Company or any
Guarantor defaults under the terms of any loan agreement,
mortgage, security agreement, or any other document executed as
part of the loan evidenced by this Note, or any guaranty of the
loan evidenced by this Note, becomes unenforceable in whole or
in part, or any Guarantor fails to promptly perform under such a
guaranty; (iv) a "reportable event" (as defined in the Employee
Retirement Income Security Act of 1974 as amended) occurs that
would permit the Pension Benefit Guaranty Corporation to
terminate any employee benefit plan of the Company or any
affiliate of the Company; (v) the Company or any Guarantor
becomes insolvent or unable to pay its debts as they become due;
(vi) the Company or any Guarantor (a) makes an assignment for
the benefit of creditors; (b) consents to the appointment of a
custodian, receiver or trustee for itself or for a substantial
part of its assets; or (c) commences any proceeding under any
bankruptcy, reorganization, liquidation, insolvency or similar
laws of any jurisdiction; (vii) a custodian, receiver, or
trustee is appointed for the Company or any Guarantor or for a
substantial part of its assets without the consent of the party
against which the appointment is made and is not removed within
60 days after such appointment; (viii) proceedings are commenced
against the Company or any Guarantor under any bankruptcy,
reorganization, liquidation, or similar laws of any
jurisdiction, and such proceedings remain undismissed for 60
<PAGE>
days after commencement; or the Company or Guarantor consents to
the commencement of such proceedings; (ix) any judgment is
entered against the Company or any Guarantor, or any attachment,
levy, or garnishment is issued against any property of the
Company or any Guarantor. (x) the Company or any Guarantor dies;
(xi) the Company or any Guarantor, without the Bank's written
consent, (a) is dissolved, (b) merges or consolidates with any
third party, (c) leases, sells or otherwise conveys a material
part of its assets or business outside the ordinary course of
business, (d) leases, purchases, or otherwise acquires a
material part of the assets of any other corporation or business
entity, except in the ordinary course of business and except as
contemplated and permitted under the Secured Revolving Credit
Agreement, (e) agrees to do any of the foregoing,
(notwithstanding the foregoing, any subsidiary may merge or
consolidate with any other subsidiary, or with the Company, so
long as the Company is the survivor); (xii) the loan-to-value
ratio of any pledged securities at any time exceeds the Bank's
limit for securities of the type pledged and such excess
continues for five (5) days after notice from the Bank to the
Company; (xiii) there is a substantial change in the existing or
prospective financial condition of the Company or any Guarantor
which the Bank in good faith determines to be materially
adverse; or (xiv) the Bank in good faith deems itself insecure;
then this Note shall become due immediately, without notice, at
the Bank's option.
If this Note is not paid at maturity, whether by demand,
acceleration or otherwise, the Bank shall have all of the rights
and remedies provided by any law or agreement. Any requirement
of reasonable notice shall be met if the Bank sends the notice
to the Company at least seven (7) days prior to the date of
sale, disposition or other event giving rise to the required
notice. The Bank is authorized to cause all or any part of the
Collateral to be transferred to or registered in its name or in
the name of any other person, firm or corporation, with or
without designation of the capacity of such nominee. The
Company shall be liable for any deficiency remaining after
disposition of any Collateral. The Company is liable to the
Bank for all reasonable costs and expenses of every kind
incurred in the making or collection of this Note, including,
without limitation, reasonable attorneys' fees and court costs.
These costs and expenses shall include, without limitation, any
costs or expenses incurred by the Bank in any bankruptcy,
reorganization, insolvency or other similar proceeding.
<PAGE>
Each endorser and any other party liable on this Note
severally waives demand, presentment, notice of dishonor and
protest, and consents to any extension or postponement of time
of its payment without limit as to the number or period, to any
substitution, exchange or release of all or any part of the
Collateral, to the addition of any party, and to the release or
discharge of, or suspension of any rights and remedies against,
any person who may be liable for the payment of this Note. No
delay on the part of the Bank in the exercise of any right or
remedy shall operate as a waiver. No single or partial exercise
by the Bank of any right or remedy shall preclude any other
future exercise of it or the exercise of any right or remedy.
No waiver or indulgence by the Bank of any default shall be
effective unless in writing and signed by the Bank, nor shall a
waiver on one occasion be construed as a bar to or waiver of
that right on any future occasion.
This Note shall be binding on the Company and its
successors, and shall inure to the benefit of the Bank, its
successors and assigns. Any reference to the Bank shall include
any holder of this Note. This Note is delivered in the State of
Illinois and governed by Illinois law. This Note and any
related loan documents embody the entire agreement between the
Company and the Bank regarding the terms of the loan evidenced
by this Note and supersede all oral statements and prior
writings relating to that loan.
WAIVER OF JURY TRIAL: The Bank and the Company, after
consulting or having had the opportunity to consult with
counsel, knowingly, voluntarily and intentionally waive any
right either of them may have to a trial by jury in any
litigation based upon or arising out of this Note or any related
instrument or agreement or any of the transactions contemplated
by this Note or any course of conduct, dealing, statements,
whether oral or written, or actions of either of them. Neither
the Bank nor the Company 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
either the Bank or the Company except by a written instrument
executed by both of them.
CIRCUIT SYSTEMS, INC.
Address: 2350 E. Lunt Avenue By:
Elk Grove Village, IL 60007 D. S. Patel,President
<PAGE>
<PAGE>
FIFTH AMENDMENT
TO SECURED REVOLVING CREDIT AGREEMENT
DATED AS OF APRIL 30, 1993
WHEREAS, Circuit Systems, Inc., an Illinois corporation
(the "Company) and NBD Bank, an Illinois banking corporation
(the "Bank"), are party to that certain Secured Revolving Credit
Agreement dated as of April 30, 1993 as amended April 29, 1994,
August 23, 1994, August 31, 1995 and November 27, 1995 (the
"Agreement"); and
WHEREAS, the Company has requested that the Bank increase
the amount of the Credit Facility and the Credit Facility Loans
under the Agreement and to make certain other amendments as
hereinafter set forth; and
WHEREAS, the Bank has agreed to the requested extension and
certain other amendments as hereinafter set forth, provided that
the parties execute this Fifth Amendment, and that, among other
things, the Company executes and delivers to the Bank a new Credit
Facility Note in the form attached hereto as Exhibit "B-1";
NOW THEREFORE, subject to such conditions as are set forth
herein, it is agreed between the Company and the Bank that:
I The amount "$2,000,000.00" appearing in Subsection (b)
of Section 1. of the Agreement is amended to read
"4,000,000.00".
II Exhibit "B-1" attached hereto is substituted for Exhibit
"B" attached to the Agreement.
III Section 3. of the Agreement is amended in its entirety to
read as follows:
"3. INTEREST.
(a) Each request by the Company for a Revolving Credit Loan
or Loans evidenced under the Revolving Credit Note shall
bear interest, at the Company's option, at either (i) the
Prime Rate of the Bank in effect from time to time, or (ii)
a rate of interest fixed at the time of the making of a
Revolving Credit Loan equal to 2% per annum in excess of
the Bank's then cost of funds (herein the "Negotiated
Rate"). Interest accruing on the unpaid principal balance
of the Revolving Credit Loans made in accordance with this
subsection (a) of Section 3. shall be computed for the
actual number of days elapsed on the basis of a year
consisting of 360 days and shall be payable at the time or
times provided in Exhibit "A".
<PAGE>
(B) Each request by the Company for a Credit Facility Loan
or Loans evidenced under the Credit Facility Note shall
bear interest, at the Company's option, at either (i) the
Prime Rate of the Bank in effect from time to time, or (ii)
a rate of interest fixed at the time of the making of a
Credit Facility Loan equal to 2% per annum in excess of the
Bank's then cost of funds (herein the "Negotiated Rate").
Interest accruing on the unpaid principal balance of the
Credit Facility Loans made in accordance with this
subsection (b) of Section 3. shall be computed for the
actual number of days elapsed on the basis of a year
consisting of 360 days and shall be payable at the time or
times provided in Exhibit "B-1"."
IV. The last paragraph of Section 4. of the Agreement is
amended in its entirety to read as follows:
"Each Revolving Credit Loan and each Credit Facility Loan
requested to bear interest at the Negotiated Rate (i) shall
be in an amount of not less than $1,000,000.00 or an
integral multiple of $1,000,000.00 in excess thereof, (ii)
shall remain outstanding, at the Borrower's election, for a
30, 60 or 90 day period of time from the date of such
requested Loan (but in any event not beyond August 31, 1997
with respect to Revolving Credit Loans and not beyond
August 31, 1996 with respect to Credit Facility Loans) (the
end of each such period herein referred to as "Reversion
Date"), and (iii) if not renewed at any applicable
Reversion Date for an additional 30, 60 or 90 day period of
time at a new Negotiated Rate, shall either be repaid by
the Company on the applicable Reversion Date or shall
revert to the bearing of interest at the Prime Rate of the
Bank in effect from time to time."
V. Section 5. of the Agreement is amended in its entirety to
read as follows;
"5. OPTIONAL AND MANDATORY REPAYMENTS.
(a) Revolving Credit Loans and Credit Facility Loans of
the Company bearing Negotiated Rates of interest may not be
repaid in whole or in part prior to the Reversion Date of
each such Loan.
(b) Such of the Revolving Credit Loans and Credit
Facility Loans of the Company as bear interest at the Prime
Rate of the Bank may be prepaid in whole or in part at any
time, and from time to time, without premium or penalty.
<PAGE>
(c) During such time or times as the aggregate
outstanding principal balance(s) of the Revolving Credit
Loans and the Credit Facility Loans exceed $6,000,000.00,
the Company shall repay to the Bank and reduce the Credit
Facility Note by such sums of money, representing
outstanding indebtedness in excess of $6,000,000.00, which
exceeds at such time or times, the aggregate amount of
collateral then available for such Revolving Credit Loans
and Credit Facility Loans, at such times as the Company is
required to submit to the Bank a Borrowing Base Certificate
pursuant to subsection (j)(vi) of Section 11. hereof.
(d) The Revolving Credit Loans bearing interest at the
Negotiated Rate shall, in any event, be repaid not later
than August 31, 1997, and the Credit Facility Loans bearing
interest at the Negotiated Rate shall, in any event be
repaid not later than August 31, 1996."
VI. The fraction "3/8 of 1%" appearing in Section 7. of the
Agreement is amended to read "1/8 of 1%".
VII. Subsection (t) of Section 11. of the Agreement is amended
in its entirety to read as follows:
"(t) The Company will maintain, at all times from and after
the date hereof (i) a minimum current ratio (excluding from
current liabilities, amounts payable with respect to
equipment purchased and held pending conversion into long
term financing lease transactions) of 1.25:1; and (ii) a
maximum debt to Tangible Net Worth ratio of 2.50:1, all as
determined in conformity with generally accepted accounting
principles. For purposes of this subsection and
subsection (v) of Section 11 hereof, the term "Tangible Net
Worth" shall mean the sum of Net Worth less all amounts due
from employees, affiliates, stockholders and officers, and
all intangibles, including, but not limited to goodwill."
VIII. Subsection (v) of Section 11. of the Agreement is amended
in its entirety to read as follows:
"(v) The Company will maintain, from the date hereof to
April 30, 1997 a minimum Tangible Net Worth of not less
than $17,000,000.00, and from and after April 30, 1997 a
minimum Tangible Net Worth of $19,500,000.00."
IX. Subsection (p) of Section 11. of the Agreement is amended
in its entirety to read as follows:
"(p) The Company will not purchase or redeem any shares of
its capital stock, declare or pay any dividends, nor make
any distributions to stockholders, or set aside any funds
for such purposes excepting therefrom dividends not
exceeding in any fiscal year, 50% of the Company's net
annual income."
<PAGE>
X. Subsection (z) of Section 11. of the Agreement is amended
in its entirety to read as follows:
"(z) The Company will maintain, at all times, a ratio of
its annualized net income plus depreciation divided by its
current debt maturities of not less than 1.10:1."
XI. Subsection (q) of Section 11. of the Agreement is amended
in its entirety to read as follows:
"(q) The Company will not, without the Bank's prior written
consent, contract for, lease, rent, or otherwise acquire
fixed assets, if the expense to the Company shall exceed
$8,000,000.00 in any one fiscal year."
XII. Section 10. of the Agreement is amended in its entirety to
read as follows:
"BORROWING BASE. Notwithstanding anything in the foregoing
to the contrary, the aggregate principal amount, at any one
time outstanding under (1) all Revolving Credit Loans or
advances made hereunder (not exceeding $6,000,000.00), PLUS
(2) all Credit Facility Loans or advances made hereunder
(not exceeding $4,000,000.00), SHALL NOT EXCEED THE SUM OF
(3) 80% of the Company's "Eligible Trade Accounts
Receivable" (as defined below) PLUS (4) 50% of the
Company's Inventory of raw materials valued at the lower of
cost or market (as defined below) and in any event not to
exceed $2,000,000.00, PLUS (5) 75% of the Company's
Inventory of finished goods which are stored at AT&T and in
any event not to exceed $3,000,000.00.
<PAGE>
For purposes of this Section 10. the term "Eligible Trade
Accounts Receivable" shall be an Account Receivable which
meets each of the following requirements (1) if it arises
from the sale or lease of goods or services rendered, or
such services rendered or such goods have been shipped or
delivered to an account debtor under such account
receivable; (2) it is a valid, legally enforceable
obligation of the account debtor thereunder, and is not
subject to any offset, counterclaim or other defense on the
part of such account debtor or to any claim on the part of
such account debtor denying liability thereunder in whole
or in part; (3) it is not subject to any lien or security
interest whatsoever other than the Bank's perfected, first
priority security interest; (4) it is evidenced by an
invoice (dated not later than the date of shipment or
performance and having payment terms acceptable to the
Bank) rendered to such account debtor, and is not evidenced
by any instrument or chattel paper; and (5) it is not owing
by any account debtor of which more than 50% of such
account debtor's total accounts receivable are more than 90
days past due from the date of invoice. Notwithstanding
anything to the contrary herein contained, the Bank
reserves unto itself final discretionary rights in
determining the eligibility of any Account Receivable even
though such Account Receivable shall have met the foregoing
requirements. An Account Receivable which is at any time
an Eligible Account Receivable, but which subsequently
fails to meet any of the foregoing requirements shall
forthwith cease to be an Eligible Account Receivable. An
Account Receivable which is at any time an Ineligible
Account Receivable, but which meets the foregoing
requirements shall become an Eligible Account Receivable.
For purposes of this Section 10. the term "Inventory" shall
mean all goods held by the Company for sale or lease, or
furnished or to be furnished by the Company under any
contract of service, or held by the Company as raw
materials, work in process or materials used or consumed in
its business, and in which the Bank has a perfected first
priority security interest."
XIII. Subsection (j)(x) of Section 11. of the Agreement is
hereby renumbered as Subsection (j)(xi) and a new Subsection
(j)(x) is inserted reading as follows:
"(x) within five (5) business days after the receipt
thereof by the Company, a copy of the weekly
Demand/Consigned Summary Report provided to the Company by
A.T.& T."
As a condition precedent to the taking effect of this Fifth
Amendment, the Company shall provide to the Bank, in form and
substance satisfactory to the Bank (i) signed copies of
certificates of the Secretary or Assistant Secretary of the
Company, and dated as of the date of this Fifth Amendment, which
shall certify approval of, and all necessary corporate action
with respect to the authorization, execution and delivery of
this Fifth Amendment and all relevancies appertaining thereto.
<PAGE>
By execution and delivery hereof, the Company further reaffirms
all applicable representations and warranties contained in
Section 11. of the Agreement as true and correct as of the date
hereof.
Except as stated herein, all terms and provisions of the Secured
Revolving Credit Agreement remain unchanged and in full force
and effect.
IN WITNESS WHEREOF, this Fifth Amendment has been duly executed
as of the 30th day of April, 1996.
NBD Bank Circuit Systems, Inc.
By: By: D. S. Patel,
Steven F. Gersch, Vice President President
<PAGE>
<PAGE>
Installment Business Loan No
Due May 31, 2001 $1,500,000.00
Account No. 0038250 Date: April 30, 1996
Note No.
Promise to Pay: On or before May 31, 2001, for value
received, the undersigned, Circuit Systems, Inc. (the
"Borrower") promises to pay to NBD Bank, an Illinois
banking corporation (the "Bank") or order, at the Bank's
main office in Wheaton, Illinois 60187 or at any office of
the Bank in the State of Illinois, the sum of One Million
Five Hundred Thousand and 00/100 DOLLARS ($1,500,000.00)
plus interest computed on the basis of the actual number of
days elapsed in a year of 360 days at the rate of:
8 & 1/2% per annum until maturity, whether by
acceleration or otherwise (the "Note Rate"),
and at the rate of 3% per annum above the Note
Rate on overdue principal from the date when
due until paid.
In no event shall the interest rate exceed the maximum rate
allowed by law; any interest payment which would for any
reason be unlawful under applicable law shall be applied to
principal.
The Borrower will pay this sum in 59 consecutive monthly
installments of $31,000.00, including interest, commencing
June 30, 1996 until May 31, 2001 at which time the balance
plus accrued interest then unpaid shall be due and payable
immediately.
BUSINESS LOAN: The Borrower acknowledges and agrees (i)
that this Note evidences a business loan for the purpose of
financing a commercial enterprise carried on for the
purpose of investment or profit under 815 ILCS 205/4 and is
not subject to any usury law or limitation of the State of
Illinois, and (ii) the obligation evidenced by this Note is
an exempt transaction under the Federal Truth-in-Lending
Act, 15 U.S.C., Section 1601 et seq.
<PAGE>
PREPAYMENT PREMIUM: The Borrower may prepay all or any
part of the principal balance of this Note on one business
day's notice provided that, in addition to all principal,
interest and costs owing at the time of prepayment, the
Borrower pays a prepayment premium equal to the Current
Value of (i) the interest that would have accrued on the
amount prepaid at the Note Rate, minus (ii) the interest
that could accrue on the amount prepaid at the Treasury
Rate. In both cases, interest will be calculated from the
prepayment date to the maturity date(s) of the
installment(s) being prepaid. Such maturity date(s) shall
be determined by applying the prepayment to the scheduled
installment(s) of principal in their inverse order of
maturity. "Treasury Rate" shall mean the yield, as of the
date of prepayment, on United States Treasury bills, notes
or bonds, selected by the Bank in its discretion, having
maturities comparable to the scheduled maturities of the
installment(s) being prepaid. "Current Value" means the
net present value of the dollar amount of the interest to
be earned, discounted at the Treasury Rate. In no event
shall the prepayment premium be less than zero. The
Borrower's notice of its intent to prepay shall be
irrevocable. If the balance of this Note is accelerated in
accordance with the terms of this Note, the resulting
balance due shall be considered a prepayment due and
payable as of the date of acceleration. The Borrower
agrees that the prepayment premium is a reasonable estimate
of loss and not a penalty. The prepayment premium is
payable as liquidated damages for the loss of bargain, and
its payment shall not in any way reduce, affect or impair
any other obligation of the Borrower under this Note.
All prepayments shall be applied to installments of
principal in their inverse order of maturity, and no
prepayments shall reduce the dollar amount of fixed
principal installments required to be paid, until this Note
is paid in full.
AGREEMENT: The indebtedness of the Borrower as evidenced
by this Note is further subject to that certain Secured
Revolving Credit Agreement dated as of April 30, 1993 as
amended April 29, 1994, August 23, 1994, August 31, 1995,
November 27, 1995 and April 30, 1996 between the Bank and
the Borrower, the terms and provisions of which are
incorporated herein by reference hereby.
SECURITY: To secure the payment of this Note and any other
present or future liability of the Borrower to the Bank,
whether several, joint, or joint and several, the Borrower
pledges and grants to the Bank a continuing security
interest in the following described property and all of its
additions, substitutions, increments, proceeds and
products, whether now owned or later acquired
("Collateral"):
<PAGE>
1. All securities and other property of the Borrower in the
custody, possession or control of the Bank (other than
property held by the Bank solely in a fiduciary
capacity);
2. All property or securities declared or acknowledged to
constitute security for any past, present or future
liability of the Borrower to the Bank;
3. All balances of deposit accounts of the Borrower with
the Bank;
4. The following additional property of the Borrower: Two
Junior Mortgages each dated April 30, 1996 on real
properties commonly known as 2400 E. Lunt, Elk Grove
Village, IL.; and 2450 E. Lunt, Elk Grove Village, IL
60007; and Inventory, Accounts Receivable, General
Intangibles and Equipment as described in Continuing
Security Agreement dated April 30, 1993.
BANK'S RIGHT TO SETOFF: The Bank shall have the right at
any time to apply its own debt or liability to the Borrower
or to any other party liable on this Note in whole or
partial payment of this Note or other present or future
liabilities of the Borrower to the Bank, without any
requirement of mutual maturity.
RELATED DOCUMENTS: The terms and provisions of any loan
agreement, mortgage, security agreement or any other
document executed as part of the loans evidenced by this
Note are incorporated by reference and made part of this
Note.
REPRESENTATIONS BY BORROWER: Borrower represents that: (a)
it is a corporation duly organized, existing and in good
standing pursuant to the laws under which it is organized;
and (b) the execution and delivery of this Note and the
performance of the obligations it imposes (i) are within
its powers, (ii) have been duly authorized by all necessary
action of its board of directors, and (iii) do not
contravene the terms of its articles of incorporation, by-
laws, or any other agreement governing its affairs. The
Borrower further represents that: (a) the execution and
delivery of this Note and the performance of the
obligations it imposes do not violate any law, conflict
with any agreement by which it is bound, or require the
consent or approval of any governmental authority or other
third party; (b) this Note is a valid and binding
agreement, enforceable according to its terms; and (c) all
balance sheets, statements of income, cash flow and
retained earnings, and other financial statements furnished
to the Bank are accurate and fairly reflect the financial
condition of the organization(s) and person(s) to which
they apply on their effective dates, including contingent
liabilities of every type, which financial condition has
not changed materially and adversely since those dates.
<PAGE>
EVENTS OF DEFAULT/ACCELERATION: If any of the following
events occurs this Note shall become due immediately,
without notice, at the Bank's option:
1. The Borrower, or any guarantor, of this Note (the
"Guarantor") fails to pay when due any amount payable under
this Note or under any agreement or instrument evidencing
debt to any creditor.
2. The Borrower or any Guarantor (a) fails to observe or
perform any other term of this Note; (b) makes any materially
incorrect or misleading representation, warranty, or
certificate to the Bank; (c) makes any materially incorrect
or misleading representation in any financial statement or
other information delivered to the Bank; or (d) defaults
under the terms of any agreement or instrument relating to
any debt for borrowed money (other than the debt evidenced by
this Note) such that the creditor declares the debt due
before its maturity.
3. There is a default under the terms of any loan agreement,
mortgage, security agreement, or any other document executed
as part of the loan evidenced by this Note, or any guaranty
of the loan evidenced by this Note becomes unenforceable in
whole or in part, or any Guarantor fails to promptly perform
under its guaranty.
4. A "reportable event" (as defined in the Employee Retirement
Income Security Act of 1974 as amended) occurs that would
permit the Pension Benefit Guaranty Corporation to terminate
any employee benefit plan of the Borrower or any affiliate of
the Borrower.
5. The Borrower or any Guarantor becomes insolvent or unable
to pay its debts as they become due.
6. The Borrower or any Guarantor (a) makes an assignment for
the benefit of creditors; (b) consents to the appointment of
a custodian, receiver, or trustee for itself or for a
substantial part of its assets; or (c) commences any
proceeding under any bankruptcy, reorganization, liquidation,
insolvency or similar laws of any jurisdiction.
7. A custodian, receiver, or trustee is appointed for the
Borrower or any Guarantor or for a substantial part of its
assets without its consent and is not removed within 60 days
after the appointment.
8. Proceedings are commenced against the Borrower or any
Guarantor under any bankruptcy, reorganization, liquidation,
or similar laws of any jurisdiction, and they remain
undismissed for 60 days after commencement; or the Borrower
or Guarantor consents to the commencement of those
proceedings.
9. Any judgment is entered against the Borrower or any
Guarantor, or any attachment, levy, or garnishment is issued
against any property of the Borrower or any Guarantor.
10. The Borrower or any Guarantor dies.
11. The Borrower or any Guarantor, without the Bank's written
consent (a) is dissolved, (b) merges or consolidates with any
third party, (c) leases, sells or otherwise conveys a
material part of its assets or business outside the ordinary
course of its business, (d) leases, purchases, or otherwise
acquires a material part of the assets of any other business
entity, except in the ordinary course of its business, or (e)
agrees to do any of the foregoing (notwithstanding the
foregoing, any subsidiary may merge or consolidate with any
other subsidiary, or with the Borrower, so long as the
Borrower is the survivor).
<PAGE>
12. The loan to value ratio of any pledged securities at any
time exceeds the Bank's limit for the type of securities
pledged, and that excess continues for five (5) days after
notice from the Bank to the Borrower.
13. There is a substantial change in the existing or
prospective financial condition of the Borrower or any
Guarantor which the Bank in good faith determines to be
materially adverse.
14. The Bank in good faith deems itself insecure.
REMEDIES: If this Note is not paid at maturity, whether by
demand, acceleration or otherwise, the Bank shall have all of
the rights and remedies provided by any law or agreement. Any
requirement of reasonable notice is met if the Bank sends the
notice to the Borrower at least seven (7) days prior to the date
of sale, disposition or other event giving rise to the required
notice. The Bank is authorized to cause all or any part of the
Collateral to be transferred to or registered in its name or in
the name of any other person or business entity, with or without
designating the capacity of that nominee. The Borrower is
liable for any deficiency remaining after disposition of any
Collateral. The Borrower is liable to the Bank for all
reasonable costs and expenses of every kind incurred in the
making or collection of this Note, including without limitation
reasonable attorneys' fees and court costs. These costs and
expenses include without limitation any costs or expenses
incurred by the Bank in any bankruptcy, reorganization,
insolvency or other similar proceeding.
WAIVER: Each endorser and any other party liable on this Note
severally waives demand, presentment, notice of dishonor and
protest, and consents to any extension or postponement of time
of its payment without limit as to the number or period, to any
substitution, exchange or release of all or any part of the
Collateral, to the addition of any party, and to the release or
discharge of, or suspension of any rights and remedies against,
any person who may be liable for the payment of this Note. No
delay on the part of the Bank in the exercise of any right or
remedy waives that right or remedy. No single or partial
exercise by the Bank of any right or remedy precludes any other
future exercise of it or the exercise of any other right or
remedy. No waiver or indulgence by the Bank of any default is
effective unless it is in writing and signed by the Bank, nor
does a waiver on one occasion bar or waive that right on any
future occasion.
MISCELLANEOUS: The Borrower, if more than one, is jointly and
severally liable for the obligations represented by this Note,
the term "Borrower" means any one or more of them, and the
receipt of value by any one of them constitutes the receipt of
value by the others. This Note binds the Borrower and its
successors, and benefits the Bank, its successors and assigns.
Any reference to the Bank includes any holder of this Note.
This Note is delivered in the State of Illinois and governed by
Illinois law. Section headings are for convenience of reference
only and do not affect the interpretation of this Note. This
Note and any related loan documents embody the entire agreement
between the Borrower and the Bank regarding the terms of the
loan evidenced by this Note and supersede all oral statements
and prior writings relating to that loan.
<PAGE>
WAIVER OF JURY TRIAL: The Bank and the Borrower, after
consulting or having had the opportunity to consult with
counsel, knowingly, voluntarily and intentionally waive any
right either of them may have to a trial by jury in any
litigation based upon or arising out of this Note or any related
instrument or agreement, or any of the transactions contemplated
by this Note, or any course of conduct, dealing, statements
(whether oral or written), or actions of either of them.
Neither the Bank nor the Borrower shall seek to consolidate, by
counterclaim or otherwise, any 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 either
the Bank or the Borrower except by a written instrument executed
by both of them.
Borrower
Circuit Systems, Inc.
Address: 2350 E. Lunt Avenue By:
Elk Grove Village, IL 60007 D.S. Patel, President
<PAGE>
<PAGE>
JOINT VENTURE AGREEMENT
THIS AGREEMENT made at Chicago, Illinois, on this the 4th
day of September, 1995, between CIRCUIT SYSTEMS, INC., a
company incorporated under the laws of the State of Illinois,
United States of America, and having its principal place of
business at 2350 E. Lunt Avenue, Elk Grove Village, Illinois
60007 - 5699, USA hereinafter called "CSI" (which expression shall
mean and include its successors and assignees) of the one part and
GUJARAT APOLLO INDUSTRIES AND FINANCE LIMITED, a company
registered under the Indian Companies Act, 1956, and having its
registered office at 14-A "Darshak", Swastick Society,
NavarangPura, Ahmedabad - 380 009, India, in the state of Gujarat
AND OTHER INDIVIDUAL PROMOTERS hereinafter called "APOLLO" (which
expression shall mean and include its successors and assignees) of
the other party.
CSI and APOLLO are sometimes individually referred to as
the "Party" or collectively referred to as the "Parties."
Pursuant to the terms and conditions of this Agreement,
the Parties desire to establish a privately held limited liability
company in accordance with and pursuant to the regulations for
companies under the laws of India.
In consideration of the above premise and maternal
covenants herein contained, the Parties hereto agree as follows:
1. The Name: The name of the company shall be "Circuit
Systems (India) Limited" hereinafter referred to as the "Company."
2. The Object: The object of the Company shall be
to undertake the manufacture and sale (and all other appropriate
activities associated therewith) of Printed Circuit Boards (PCBs)
for sale in India and abroad. The Company may also engage in such
other kinds of lawful activities within India as may be mutually
agreed to from time to time by the Parties.
In furtherance of these objectives, the Company may
require real and personal property, borrow and lend funds, hire
and dismiss officers and employees, enter into contracts of all
descriptions, including purchase sales service, financing, and
guarantees, establish offices and do all other acts necessary or
appropriate to obtaining or carrying out the object of the
Company.
3. Duration of the Company: The duration of the
Company shall be perpetual or until otherwise dissolved by the
Parties or as a matter of law.
4. Head Offices and Branches: The Company shall
have its registered office in the State of Gujarat. The Company
may establish branches within India as may be mutually agreed by
the Parties.
5. Share Capital: The share capital of the Partnership
is fixed at Rs. 20,000,000 (Rs. Twenty Million only) divided into
2,000,00 (two million) equity shares valued at Rs. 10/- each.
6. Share Subscription: Circuit Systems Inc., USA shall
subscribe for fifty one (51%) of said shares 1,020,000 (One
million twenty thousand) shares valued at Rs. 10,200,000 (Rupees
Ten million two hundred thousand) and Apollo shall subscribe for
forty nine percent (49%) of said shares 980,000 (Nine Hundred
Eighty Thousand) shares valued at Rs. 9,800,000 (Rupees Nine
Million Eight Hundred Thousand only).
On every issue of further capital by the Company,
Circuit Systems Inc. and Apollo shall respectively subscribe for
said shares in the ratio mentioned above or as otherwise mutually
agreed.
<PAGE>
7. Transferability of Shares: No transfer of shares
as hereinafter provided shall be effected without prior compliance
with the terms and conditions of this Joint Venture Agreement.
Shares are transferable only between the Parties, and
the Company must be advised of such transfer in order to register
it in the register kept for such purpose. Shares shall not be
transferable until the expiration of the three (3) years after the
Effective Date (as hereinafter defined) hereof.
If any Party should wish to dispose of his shares in the
Company's capital, three (3) years after the Effective Date
hereof, other than by transfer to affiliated entities having the
same ultimate control, it must notify the other Party of this
wish. If within sixty (60) days from the date of such
notification the other Party does not buy such shares as are
offered for sale at their offering price, all such share interest
may be sold or offered for sale by the Party desiring to dispose
of said share interest, provided, however, said shares shall not
be offered to any other party at a price and on terms and
conditions more favorable than those offered to the remaining
Party of the Company for such share interest and provided further,
such other party shall be agreeable to the remaining Party and
shall agree to execute an agreement containing substantially the
same terms as this Joint Venture Agreement.
8. The Register of Shareholders: The Company shall
keep a special register containing the names of the Parties, the
number of shares held by each and all transactions affecting such
shares. No transfer of shares shall be valid against the Company
or third parties unless it is registered in the said register.
Nothing herein shall be deemed to make valid any transfer of
shares contrary to the provision of Article 7 above. The Company
shall not register any transfer of shares that have been
effectuated in contravention of this Joint Venture Agreement. Any
Party hereto shall have access to this register during the
Company's working hours.
<PAGE>
9. General Meeting: The Parties shall hold a
General Meeting within six (6) months after the closing of the
fiscal year, and an Extraordinary Meeting on request by a Party
holding twenty-five percent (25%) or more of the total shares.
The quorum of the Meeting is the presence of all Parties (or their
representatives in person or by proxy). The resolution at the
Meeting shall require the approval by not less than fifty-one
percent (51%) of the shares of the Parties. The major matters, as
follows, shall require the resolutions at the Meeting:
(a) change in the Articles of Incorporation
of the Company;
(b) issuance of additional shares;
(c) remunerations of Directors;
(d) change in the number of Directors;
(e) significant change in the Company's
business purpose;
(f) sale or lease of the Company's real
estate or other important assets, or mortgage
thereon;
(g) any change in capital of the Company;
(h) dissolution, merger or restructuring of
the Company;
(i) approval of a regular or long-term
management plan, annual budget or closing of
accounts, and the decision of dividends to be
paid to the Parties and other disposition of
profits;
(j) any borrowing in excess of the amount in
Rupees equivalent to US$100,000 for the
purposes other than the ordinary purchase of
raw materials and sales, and loans for working
capital and discounting of bills in the
ordinary course of business;
(k) creation or dissolution of agents,
branches or subsidiaries;
(l) investment, capital expenditures,
guarantee or acceptance of obligations in
excess of the amount of Rupees equivalent to
US$100,000;
(m) execution, amendment or termination of e
license agreement;
(n) execution, amendment or termination of
important contracts;
(o) assignment or transfer of the whole or a
significant part of the assets;
(p) assignment, transfer, purchase or sale of
industrial properties including patents,
trademarks and know-how, and approval or
acquisition of the right to execute such
properties; and
(q) other items to affect significantly the
business of the Company.
<PAGE>
10. Board of Directors:
(a) To manage and administer the Company, the
Parties shall establish a Board of Directors comprising seven (7)
Directors. Of these seven Directors, four shall be elected from
those appointed by CSI and three from those appointed by APOLLO.
Of the Directors appointed by APOLLO one shall be elected Chairman
of the Board of Directors of the Company. The Chairman shall have
a casting vote at the Meetings. Each Party agrees that it shall
exercise voting rights in respect of all the shareholding in the
Company in support of the appointment and/or election of Directors
nominated by the other.
(b) A vacancy in the Board of Directors shall be
supplemented by the Party liable for having appointed the former
Director. The Party liable for appointing a Director shall have
the right to dismiss such Director at its discretion.
(c) The President/CEO of the Company shall be
appointed by the Board of the Company and will be selected by
mutual consent of both the Parties. Subject to superintendence
control and direction of the Board, the day-to-day management will
vest in the President/CEO who shall be a professional manager.
11. Accounting and Audit:
(a) The Company shall keep accounting books truly
and accurately in accordance with the accounting principles
established in both India and the U.S.A. and make all financial
reports required.
(b) The parties hereto have a right to inspect the
Company's books for accounting and other business, purposes at any
time through the representatives and public accountants duly
authorized.
(c) The financial statements of the Company shall
be audited annually by a public auditor authorized to work in
India mutually acceptable to the Parties.
(d) The Company shall send each of the Parties
hereto a copy of the audit report within thirty (30) days after
the completion of the annual audit.
12. Protection of Confidential Information: The Parties
or any affiliate thereof may furnish the Company with technical
information and know-how of a secret and confidential matter, in
which event the parties hereto shall keep such secrecy and
confidentiality, and shall use their best efforts to require all
appropriate persons, officers and directors to enter secrecy and
confidentiality agreements, which obligations shall survive for
five (5) years after cancellation and/or termination of such
technology transfer agreements.
13. Covenant Not to Compete: The Parties hereto agree
not to directly or indirectly compete with each other or the
Company in the Indian market in the business areas as described in
paragraph 2 hereof so long as such Party or Parties maintain(s) an
equity interest in the Company; provided however, that any
technology and/or products that are reasonably judged to exceed
the capability of the Company may be manufactured and/or marketed
in India directly by the Party or Parties hereto or by any
appropriate third party or parties selected by the Party or
Parties hereto on condition of a written notice in advance by such
Party to the other.
<PAGE>
14. Covenant Not to Assign: Unless otherwise provided
in this Agreement, the Parties hereto agree not to sell, assign,
transfer or otherwise dispose of this Agreement, the whole or a
part of the rights and obligations hereunder, or the whole or a
part of any such Party's share of the Company to any third party
without written consent thereto by the other Party. In the event
that the other Party agrees by written consent to the sale,
assignment, transfer or other disposal of this Agreement or any
rights and obligations thereunder to a third party, this Agreement
shall bind such transferee, become effective simultaneously with
such transfer, and remain effective of the transferor.
15. General Provisions:
(a) This Agreement supersedes all provisions,
agreements or undertaking arrived at between the Parties regarding
the subject matter of this Agreement whether in the form of
letters, correspondence, writing or otherwise.
(b) This Agreement shall be binding upon the
successors and assignees of the Parties hereto, whether by
amalgamation, merger or otherwise.
(c) Any Party hereto may notice to the other
Party, change of the address to which any communication/notice
shall be addressed to it.
(d) All notification to be sent by the Company to
any Party, or to be sent by any Party to the other, shall be made
by telecopy with a confirming copy by registered or certified
mail, return receipt requested or by Federal Express or other
recognized international courier service. Any notification sent
otherwise shall be considered null and void.
(e) For the purpose of this Agreement, the
President of CSI And the Managing Director of APOLLO shall be the
sole representative of CSI and APOLLO, respectively.
16. Arbitration:
(a) Any controversy, claim or dispute between the
Parties arising out of or in connection with this Joint Venture
Agreement, which cannot be amicably resolved, shall be finally
settled by arbitration. The site of the arbitration shall be
Chicago, Illinois. The dispute shall be submitted to a panel of
three arbitrators, one chose by each party and the third agreed
upon by the Parties or, failing such agreement, the American
Arbitration Association in Chicago, Illinois, shall select such
third arbitrator. To the extent the arbitrators decide that the
resolution of the dispute is not governed by this Agreement, they
shall apply and decide the dispute under general principles of
equity in conformity with the laws of India. The arbitration
award, which shall be issued in English shall be final and binding
upon the Parties. The arbitrators shall be required to issue a
well reasoned opinion to support the award tendered Costs of the
arbitration and of the enforcement of any award shall be assessed
by the arbitrators.
17. Severability: Should any provision of this
Agreement be legally invalid for or at variance with any present
or future requirements of Law, such provisions alone shall become
inoperative and shall have no effect on the rights and obligations
of the Parties with respect to the other independent provisions of
this Agreement.
<PAGE>
18. Effective Date: CSI agrees to this Agreement
subject to receiving the written approval of the Reserve Bank of
India, Central Government under the Companies Act, 1956 and the
Monopolies and Restrictive Trade Practices Act, 1969, or FERA,
1973 or any other laws of India, if applicable or necessary.
IN WITNESS WHEREOF, THE PARTIES hereto, by their duly
authorized officers, set and subscribe their respective hands and
seals on the day and year first hereinabove written.
Signed & Delivered by:
CIRCUIT SYSTEMS, INC. GUJARAT APOLLO INDUSTRIES AND
FINANCE LIMITED
By By
Mr. D.S. Patel Mr. Anil T. Patel
President and C.E.O. Chairman & Managing Director
WITNESS: WITNESS:
<PAGE>
<PAGE>
LEASE AGREEMENT
This Lease Agreement made and entered into this 29th
day of February, 1996, between CIRCUIT SYSTEMS, INC., an Illinois
corporation (hereinafter referred to as "Lessor"), and SIGMATRON
INTERNATIONAL, INC., a Delaware corporation (hereinafter referred
to as "Lessee").
WHEREAS, the Lessor is the owner real property commonly
referred to as 2201 Landmeier Road, Elk Grove Village, Illinois,
and more particularly described on Exhibit A attached hereto and
made a part hereof by this reference, and;
WHEREAS, Lessor desires to lease to Lessee, and Lessee
desires to lease from Lessor, a portion of the Building and
appurtenances thereto located on said property (hereafter
referred to as the "Building") on terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual
covenants and promises herein contained and in consideration of
the payments to be made by Lessee to Lessor as hereinafter
provided, Lessor and Lessee agree as follows:
1. DEFINITIONS. It is agreed that the following
definitions shall apply to terms as used in this agreement:
1.1 The "Premises" means that portion of the real
property and the Building and improvements located thereon
commonly referred to as 2201 Landmeier Road, Elk Grove Village,
Illinois, as delineated and described on Exhibit B attached
hereto and made a part hereof. The Premises shall consist of
51,971 square feet in the Building located on said property
and shall include access to common areas such as lunch rooms,
restroom facilities, loading docks, and parking areas currently
utilized by Lessee's employees, plus 6,485 square feet for the
balcony area occupied by Lighting Components and EMD Elk Grove.
1.2 "Base Rental" means the sum to be paid as
rent payment for the Premises, being $5.75 per square foot per
annum for 51,983.71 square feet and $2.00 per square per annum
feet for 6,485 square feet, and totalling $26,000 per month.
1.3 "Building Standard" means the state of
condition and repair or capacity, as the case may be, as
currently exists in the Building, ordinary wear and tear
excepted.
1.4 "Effective Date" means March 1, 1996.
2. LEASE GRANT. Subject to and upon the terms
herein contained, Lessor leases to Lessee the Premises for an
initial term as set forth hereafter.
3. LEASE TERM. This lease shall commence on March
1, 1996 and continue until February 28, 2001, unless this Lease
is sooner terminated or extended under the terms hereof.
4 USE. Lessee will use and occupy the Premises
solely for the purpose of operating an electronic contract
manufacturing business, focusing on the assembly of printed
circuit boards, and for office/administrative space directly
related thereto. Lessee will not conduct any activities on the
Premises which are illegal or contrary to zoning ordinances or
any other restrictions applicable to the property or which, in
Lessor's reasonable opinion, creates a nuisance or prevents the
acquisition of fire or casualty insurance at standard rates.
<PAGE>
5. RENTAL. Lessee shall pay to Lessor during the
lease term, without any set off or deduction whatsoever, the Base
Rental, sometimes herein called "rent." Lessee agrees to pay all
monthly Base Rental payments in advance and without demand on the
first day of each month beginning the Effective Date. Lessee
shall pay such Base Rental and any adjustments thereto as
hereinafter provided to Lessor (or to such other party as Lessor
may designate) at such address as maybe designated by Lessor in
writing from time to time. In the event that the Lessor and
Lessee agree to adjust the square footage of the Premises, the
Base Rental and real estate tax percentage (set forth in
paragraph 6.1) shall be adjusted to reflect the square footage of
the Building thereafter occupied by Lessee and the nature and
character of the Premises then occupied.
6. OTHER EXPENSES.
6.1 It is agreed that Lessor shall be responsible
for payment of real estate taxes assessed against the Building
and premiums for fire and extended insurance coverage on the
Building. The Lessee shall pay to Lessor 42.5% of the real
property taxes levied upon or assessed for the tax year 1995 and
subsequent years against the Building, such percentage being its
agreed pro rata share of the real estate taxes relating to the
Premises, together with any costs associated with protest of such
taxes (e.g. attorneys fees and appraisals) mutually agreed by
Lessor and Lessee. Lessee shall pay to Lessor on the first day
of each month, together with each month's rent, an amount equal
to one -twelfth (1/12th) of the yearly amounts due from Lessee
under this Paragraph 6.1 as estimated by the Lessor to be
sufficient to pay, at least sixty (60) days before they become
due Lessee's share of said real property taxes. Accordingly,
Lessee deposits with Lessor a real property tax reserve of
$14,000.00. To the extent that the monthly amount so estimated
is more or less than the actual real property taxes levied upon
or assessed against the Premises, the same shall be adjusted
between the Lessee and the Lessor within fifteen (15) days
following the day on which the tax bill is received by Lessor.
It is agreed that any increase in the amount of real estate taxes
attributable to betterments made by Lessee to the Premises or in
the amount of premiums payable for fire and extended insurance
over that presently in effect caused by activities of the Lessee
on the Premises shall be chargeable to Lessee as additional rent.
Lessor shall give Lessee notice within thirty (30) days of
receipt of billing reflecting such increase and Lessee shall be
responsible for payment to Lessor of the amount of the real
estate tax or insurance premium increase as the case may be
within fifteen (15) days after notice. It is further agreed that
Lessor shall be solely responsible for any increase in the amount
of real estate taxes attributable to betterments made by Lessor
to the Building or in the amount of premiums payable for fire and
extended insurance over that presently in effect caused by
activities of the Lessor in the Building.
<PAGE>
6.2 All other necessary expenses of operation and
maintenance of the Premises shall be the responsibility of
Lessee, it being the intention of the parties that this Lease
yield to the Lessor the sums specified herein as base rental
without deduction and that all costs, expenses, and other charges
arising out of, related to or connected with the Premises or the
operation and maintenance thereof (except as provided in
Paragraphs 6.5 and 6.6 herein) shall be borne and paid by the
Lessee. In no event shall there be any abatement or reduction
in the rentals required hereunder except as otherwise
specifically provided for in this Lease Agreement.
6.3 Lessee shall be responsible for the payment
of 35% of all charges and costs in connection with electrical
utilities serving the Premises except Lessee shall not be liable
for payment for electrical service to or gas for heating the
22,000 square feet manufacturing area occupied by Lessor in Mid-
1994, both of which are separately metered. Lessee shall be
responsible for the increase in electrical utilities charge in
excess of the current charges on the Premises as a result of
increased activities of the Lessee. Lessor will monthly
reimburse Lessee, within 15 days after invoice, a sum equal to
the agreed upon amount for said utilities. Upon request, Lessor
will provide Lessee copies of said total monthly billings.
Lessor shall pay all water and sewer charges for the Building,
except for any portion thereof that is the result of an increase
in the use of such utilities by Lessee.
6.4 Lessee shall, at its own expense, maintain
the portions of the Building occupied by it, including the
mechanical, heating, ventilation, air conditioning, plumbing,
waste disposal and electrical systems which relate solely to
Lessee's operations and not to the operations of the Building as
a whole, consistent with the Building Standard as herein defined,
and shall at its expense make such repairs as are necessary to
maintain such Building Standard. If Lessee fails to make
necessary repairs or maintenance as required herein, Lessor shall
have the right to enter the Premises and make such repairs or
maintenance and Lessee shall be obligated to reimburse Lessor for
the expenses incurred in so doing within 15 days after notice of
the amount thereof. Lessee shall not be responsible for repairs
made necessary by the actions or negligence of Lessor or its
agents or employees.
6.5 Lessee shall be responsible for cleaning and
maintaining the loading dock and common areas located in the
Building, excluding the 22,000 square-foot manufacturing area
occupied by Lessor in Mid-1994, including pest control, security
service and janitorial services related to common restroom and
lunchroom facilities and snow and ice removal from the front
entrances (business guests and Lessee's employee entrances), and
Lessee's receiving and shipping entrances. Lessor shall
reimburse Lessee monthly, within 15 days after invoice, for the
costs thereof.
<PAGE>
6.6 Lessor shall be responsible for making
exterior, structural, and roof repair to the Building and shall
maintain the mechanical, heating, ventilation, air conditioning,
plumbing, waste disposal and electrical systems which relate to
the operation of the Building as a whole except for such repairs
made necessary by the actions or negligence of Lessee or its
agents or employees which Lessee shall immediately repair at its
expense. Lessee accepts the Premises in their present condition
and acknowledges that the Premises are on the date hereof in
tenantable condition.
7. LIABILITY, PROPERTY AND OTHER INSURANCE.
7.1 Lessee shall, at Lessee's expense, obtain and
keep in force during the term of this Lease a policy of
comprehensive public liability insurance, with a company or
companies reasonably acceptable to Lessor, insuring Lessor and
Lessee against any liability arising out of the ownership, use,
occupancy or maintenance of the Premises. Such insurance shall
be in the amounts and of the types reasonably specified by
Lessor. The limit of any such insurance shall not, however,
limit the liability of Lessee hereunder.
7.2 Lessor shall carry fire and extended coverage
insurance on the Building, insuring the improvements thereon
(including leasehold improvements) against loss or damage by fire
or other hazards with standard extended coverage endorsements in
amounts equal to the full replacement value of the improvements.
All payments made under such policy shall be made to Lessor, and
Lessee shall have no right or interest therein. Lessee shall be
responsible for obtaining, at its expense, any fire and casualty
coverage insuring Lessee's property, including machinery,
equipment, and inventory, located on the Premises.
7.3 At all times during the term of this Lease
and any renewal term, Lessee, at Lessee's sole cost and expense,
shall maintain: (a) rental value insurance insuring Lessor
against loss of rental on account of any rental abatement
afforded Lessee during the period of any damage or destruction to
the Premises and the restoration and repair thereof, (b) Business
Interruption Insurance, and (c) worker's compensation insurance
coverage on all its employees.
7.4 Lessee shall deliver to Lessor, at the time
of occupancy, and from time to time as requested by Lessor,
copies of all insurance policies required herein or certificates
evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Lessor. No policy shall be
cancelable or subject to reduction of coverage without thirty
(30) days prior written notice of such fact to the Lessor by the
insurance company. All such policies shall be written as primary
policies not contributing with and not in excess of coverage
which Lessor may carry.
8. GRAPHICS. Lessee may install, at Lessee's cost,
all letters or numerals on doors in the Premises. Lessee may
select graphics for the Building with Lessor's consent.
9. CARE AND USE OF THE PREMISES. Lessee shall not
commit or allow any waste to be committed on any portion of the
Premises, and at the termination of this Lease, Lessee shall
deliver the Premises to Lessor in as good condition as at the
date of the commencement of the term of this Lease, ordinary wear
and use excepted.
<PAGE>
10. ALTERATIONS BY LESSEE.
10.1 Lessee agrees not to make or allow to be made
any alterations to the Premises or place additional signs on the
Premises which are visible from outside the Premises without
first obtaining the prior written consent of Lessor.
10.2 Any and all alterations to the Premises after
the Effective Date shall become the property of Lessor upon
termination of this Lease (except for trade fixtures, movable
equipment and furniture owned by Lessee or other third parties).
Lessor may, nonetheless, require Lessee to remove any and all
alterations, fixtures, equipment and other improvements installed
on the Premises in order to restore the Premises to Building
Standard. If Lessor so requires, and Lessee fails to remove such
improvements, Lessor may remove such improvements at Lessee's
cost, and Lessee shall pay to Lessor on demand the cost of
restoring the Premises to Building Standard.
10.3 Any work to be performed on the Premises by
Lessee shall not commence until Lessor has approved the
contractor to perform the work. No contractor shall perform
services in the Building on behalf of the Lessee unless said
contractor has adequate worker's compensation insurance and
liability insurance to protect the Lessor and, if requested by
Lessor, has provided Lessee a performance bond in the same amount
as any contract with a cost of $25,000 or more. Lessee shall
indemnify the Lessor from any liability, loss or damage to Lessor
arising from breach of this provision.
11. USE OF ELECTRICAL SERVICES BY LESSEE. Lessee's
use of electrical services on the Premises shall not exceed,
either in voltage, rated capacity or overall load that which
Lessor deems to be Building Standard. If Lessee shall request
that it be allowed to consume electrical services in excess of
that deemed by Lessor to be Building Standard, Lessor may refuse
to consent to usage unless Lessee shall undertake to cause the
electrical capability of the Building to be increased to handle
the additional load.
12. PARKING. Lessee, its guests, and invitees shall
have the non-exclusive use of parking spaces, driveways, and
footways located on the Premises designated by Lessor subject,
however, to reasonable rules and regulations promulgated from
time to time by the Lessor, provided that such rules and
regulations are not in conflict with the provisions of this
Lease. Lessee shall have the non -exclusive use of all driveways
connecting the Premises to a public way.
<PAGE>
13. LAWS, REGULATIONS AND RULES.
13.1 Lessee shall comply with all applicable laws,
ordinances, rules and regulations of any governmental entity,
agency or authority having jurisdiction of the Premises and all
restrictive covenants to which the Premises are subject. Without
limiting the generality of the foregoing, the Lessee shall be
solely responsible for any damage or loss suffered by Lessor or
any other party as a result of its failure to comply with
regulations, duties and requirements specified by said agencies.
Lessee shall not under any circumstances be entitled to any
abatement of rent during any period that its operations are
curtailed by action of any regulatory agency. If the operations
or use of the Building by Lessor, its subsidiaries, or other
occupants are prohibited, restricted, or otherwise affected
adversely by administrative or judicial action resulting from the
failure of Lessee to comply with all applicable laws, ordinances,
regulations and restrictions of any governmental agency or
authority, Lessor may immediately terminate this Lease and Lessee
shall be liable to the injured party for all losses, damages, and
injuries suffered as a consequence thereof.
13.2 Lessor shall comply with all applicable laws,
ordinances, rules and regulations of any governmental entity,
agency or authority having jurisdiction of the Building and all
restrictive covenants to which the Building is subject. Without
limiting the generality of the foregoing, Lessor shall be solely
responsible for any damage or loss suffered by Lessee or any
other party as a result of its failure to comply with
regulations, duties and requirements specified by said agencies.
14. ENTRY BY LANDLORD AND LESSOR. Lessee shall permit
Lessor, or its agents or representatives, to enter into and upon
any part of the Premises at all reasonable hours (and in
emergencies at all times) to inspect the condition, occupancy or
use of the Premises; to show the Premises to prospective
purchasers, mortgagees, tenants or insurers; or to clean or make
repairs, alterations or additions; provided that such entry shall
not unreasonably interfere with or disrupt the business
operations of Lessee. Lessee shall not be entitled to any
abatement or reduction of rent by reason of this right of entry.
15. ASSIGNMENT AND SUBLETTING. Lessee will not be
permitted to assign this Lease Agreement or lease any portion of
the Premises, except as already leased to AL & W Sales, Inc. and
Lighting Components, Inc. provided that Lessee, on ten (10) days
prior notice to Lessor, may lease the Premises to a corporation
authorized to do business in Illinois which is a parent or
subsidiary company of Lessee or which is owned by or otherwise
affiliated with Lessee by virtue of common controlling ownership.
Lessee shall remain responsible for the performance of Lessee's
obligations hereunder despite said subletting.
16. MECHANIC'S LIEN.
16.1 Neither Lessee nor Lessor shall permit any
mechanic's lien or liens to be placed upon the Premises. Nothing
in this Lease shall be deemed to be construed in any way as
constituting the consent or request of Lessor, express or
implied, to any person for the performance of any labor or the
furnishing of any materials to all or part of the Premises, nor
as giving Lessee any right, power or authority to contract for or
permit the rendering of any services or the furnishing thereof
that would or might give rise to any mechanic's or other liens
against the Premises.
<PAGE>
16.2 If any such lien is claimed against the
Premises, then the responsible party shall discharge the same or
transfer it to bond within thirty (30) days after the recording
thereof. In the event that the responsible party fails to do so,
the non-responsible party may do so and any amount paid by the
non-responsible party for such purposes on account of any lienor
claiming a lien through the responsible party shall be paid by
the responsible party to the non-responsible party within fifteen
(15) days after demand therefor.
17. ASSUMPTION OF RISK, INDEMNIFICATION AND HOLD
HARMLESS.
17.1 Except to the extent caused by Lessor's
negligence or intentional acts, Lessor shall not be liable to
Lessee or Lessee's customers, licensees, agents, guests or
employees for any injury or damages to its, his or their persons
or property by any obligation of Lessor's part to be performed
under the terms of this Lease, or arising from injury or damages
to person or property caused by the intentional or negligent acts
or omissions of Lessor, its agents, or employees, and from and
against all costs, attorney's fees, expenses and liabilities
incurred in connection cause whatsoever including, but not
limited to, construction defects, water, rain, sleet, fire,
storms, negligence and accidents, breakage, stoppage, or leaks of
gas, water, heating, sewer or other waste disposal pipes,
boilers, wiring or plumbing or any other defect in, on, under or
about the Premises.
17.2 Lessee shall indemnify and hold harmless the
Lessor, their agents, servants and employees, against and from
any and all claims arising from any breach or default in the
performance of any obligation on Lessee's part to be performed
under the terms of this Lease, or arising from injury or damage
to person or property caused by the intentional or negligent acts
or omissions of Lessee, or of its agents or employees, and from
and against all costs, attorneys' fees, expenses and liabilities
incurred in connection with such claim or any action or
proceeding brought thereon against Lessor by reason of such
claim. Lessee upon notice from Lessor shall defend the same at
its sole expense by counsel reasonably satisfactory to Lessor.
17.3 Lessor shall indemnify and hold harmless the
Lessee, its agents, servants and employees, against and from any
and all claims arising from default and performance of any with
such claim or any action or proceeding brought thereon against
Lessee by reason of such claim. Lessor upon notice from Lessee
shall defend the same at its sole expense by counsel reasonably
satisfactory to Lessee.
18. CASUALTY DAMAGE.
18.1 If the Premises or any part thereof shall be
damaged by fire or other casualty, Lessee shall give prompt
written notice thereof to Lessor.
18.2 If the Premises (being the portion of the
Building leased to Lessee hereunder) shall be damaged by fire or
other casualty to the extent that alteration or reconstruction of
more than 75% of said Premises shall be required, then Lessee may
at its option terminate this Lease provided that rental payments
due hereunder for the then remaining term are paid to Lessor
through rental value or business interruption insurance provided
by Lessee under Paragraph 7 above. Likewise, in the event of
such damage to the extent of 75% of Lessee's Premises, Lessor
may, at its option, terminate this Lease.
<PAGE>
18.3 Lessor shall not be liable for any
inconvenience or annoyance to Lessee or injury to the business of
Lessee resulting in any way from such damage or the repair
thereof, except that, subject to the provisions of Paragraph
18.4, Lessor shall allow Lessee a fair diminution or abatement of
Base Rental due hereunder during the time and to the extent the
Premises remain unfit for occupancy, provided that rent payments
are paid during such period by rental value or business
interruption insurance provided under Paragraph 7 hereof.
18.4 If the Building is damaged by fire or other
casualty resulting from the fault or negligence of Lessee or any
of Lessee's agents, invitees or employees, the Base Rental
hereunder shall not be diminished during the repair of such
damage and Lessee shall be liable to Lessor for the cost of the
repair and restoration of the Building caused thereby to the
extent such cost and expense is not covered by insurance
proceeds, unless Lessor failed to carry the insurance required to
be provided by Lessor pursuant to Paragraph 7.2 above.
19. CONDEMNATION.
19.1 In the event the Premises or part thereof are
taken for any public or quasi-public use, by right of eminent
domain or otherwise, or if it should be sold in lieu of
condemnation, then this Lease shall terminate, except that this
Lease shall continue to be binding upon the parties hereto
provided the Lessor makes within a reasonable time any necessary
restoration of the portion of the Building being occupied by
Lessee under this Lease Agreement.
19.2 All amounts awarded upon a taking or a sale
in lieu of a taking of any part or all of the Premises shall
belong to Lessor except these amounts specifically awarded to the
Lessee, if any.
19.3 Lessee shall be entitled to claim
independently against the condemning authority any damages
attributable to Lessee's business or property as the same may be
permitted by law.
<PAGE>
20. EVENTS OF DEFAULT/REMEDIES.
20.1 The happening of any one or more of the
following listed events (Events of Default) shall constitute a
breach of this Lease by Lessee:
(a) The failure of Lessee to pay any rent due
hereunder and such failure continues for a
period of ten (10) days after written notice
of Lessee's failure to pay the sum due;
(b) The failure of Lessee to comply with any
other provision of this Lease within fifteen
(15) days after notification to Lessee of
such default; in the event that a default
(excluding default involving payment or
reimbursement of money to Lessor) cannot be
cured within fifteen (15) days, Lessee shall
not be in default so long as Lessee begins to
diligently cure such default within fifteen
(15) days after notice of default and
completes such cure within sixty (60) days
after said notice; or
(c) The taking of the leasehold on execution or
other process of law in any action against
Lessee, free of any equity of redemption.
If at any time during the term hereof a receiver of the
business or assets of the Lessee be appointed, or if the Lessee
makes an assignment for the benefit of creditors, or if any
sheriff or his agent take possession of the Premises by virtue of
any attachment or execution proceedings, then the Lessor may, at
its option, take possession of the Premises and terminate this
Lease. If at any time during the term hereof, proceedings in
bankruptcy shall be instituted by or against the Lessee and the
trustee in bankruptcy elects to assume the unexpired term of this
Lease, then such trustee shall promptly cure any default existing
under a term or provision of the Lease and shall provide to
Lessor adequate assurance of future performance as required under
Section 365(b) of the Bankruptcy Code, or any amendments thereto.
Such adequate assurance shall include, but not be limited to:
(1) adequate assurance of the source of rent; (2) adequate
assurance that assumption of this Lease shall not constitute a
default under any mortgage encumbering the Building in which the
Premises are a part. The parties hereto acknowledge that the
foregoing provisions are the minimal requirements necessary to
protect Lessor from an increased risk of future default under
this Lease.
<PAGE>
20.2 Upon the occurrence of any Event of Default
by Lessee, Lessor shall have the option, at Lessor's election, to
pursue any one or more of the following remedies:
(a) Lessor may cancel and terminate this Lease
and dispossess Lessee;
(b) Lessor may without terminating or canceling
this Lease declare the present value of all
amounts and rents due under this Lease for
the remainder of the existing term (or any
applicable extension or renewal thereof) to
be immediately due and pay able, and
thereupon the present value of all rents and
other charges due hereunder to the end of the
initial term or any renewal term, if
applicable, shall be accelerated and Lessor
may recover the difference between such
amount and the fair market rental value of
the Premises during the remainder of the term
or renewal thereof;
(c) Lessor may elect to repossess the Premises
and relet the Premises for Lessee's account,
holding Lessee liable in damages for all
expenses incurred in any such reletting and
for any difference between the amount of rent
received from such reletting and the amount
due and payable under the terms of this
Lease; or
(d) Lessor may enter upon the Premises and do
whatever Lessee has failed to do as obligated
under the terms of this Lease (and Lessee
shall reimburse Lessor on demand for any
expenses which Lessor may incur in effecting
compliance with Lessee's obligations under
this Lease).
20.3 All the remedies of Lessor in the event of
Lessee default shall be cumulative and in addition, Lessor may
pursue any other remedies permitted by law or in equity.
Forbearance by Lessor to enforce one or more of the remedies upon
an Event of Default shall not constitute a waiver of such
default.
20.4 In no event shall Lessee have the right to
terminate or rescind this Lease as a result of Lessor's default
as to any covenant or agreement contained in this Lease or as a
result of the breach of any promise or inducement hereof, whether
in this Lease or elsewhere. Lessee hereby waives such remedies
of termination and rescission and hereby agrees that Lessee's
remedies for default hereunder and for breach of any promise or
inducement by the Lessor shall be limited to a suit for damages
or an injunction, or both.
21. PEACEFUL ENJOYMENT. Lessee shall, and may
peacefully enjoy the Premises against all persons claiming by,
through or under Lessor, subject to the other terms hereof, and
subject to the rights of others to the common areas covered by
this Lease, provided that Lessee pays the rent and other sums
herein recited to be paid by the Lessee and performs all of
Lessee's covenants and agreements in this Lease.
<PAGE>
22. HOLDING OVER.
22.1 Lessee shall have the right to remain in
possession of the Premises for a grace period of 2 months after
the end of the initial or the renewal term of this Lease at the
same Base Rental then in effect under the terms hereof provided
Lessee is not then in default hereunder and provided Lessee
continues to comply with all its obligations herein contained.
If Lessee holds over without Lessor's written consent after
expiration of the grace period provided for above, or after
earlier termination of this Lease or if Lessee continues to
occupy the Premises after termination of Lessee's right of
possession pursuant to the provisions of Paragraph 20.2(c),
Lessee shall throughout the entire holdover period pay rent equal
to twice the Base Rental.
22.2 No possession by Lessee after the expiration
of any term of this Lease shall be construed to extend said term
of this Lease unless Lessor has consented to such possession in
writing. The consent required hereby shall not be governed by
the terms of Paragraph 29.12 below.
23. SUBORDINATION TO MORTGAGE AND ESTOPPEL LETTER.
23.1 This Lease is and shall be subject and
subordinate to any mortgage created by Landlord, whether
presently existing or hereafter arising upon the Premises and to
any renewals, refinancing and extensions thereof, but Lessee
agrees that Landlord's mortgagee shall have the right at anytime
to subordinate such mortgage, or other lien to this Lease on such
terms and subject to such conditions as such mortgagee may deem
appropriate in its discretion.
23.2 Upon request by Less or, Lessee agrees to
execute all further agreements required by Lessor's mortgagees
which provide for subordination of this Lease to Lessor's
mortgages. If Lessee should fail to execute any subordination or
other agreement required by this Paragraph promptly as requested,
Lessee hereby irrevocably constitutes Lessor as its attorney--
in-fact to execute such instrument in Lessee's name, place and
stead, it being agreed that such power is one coupled with an
interest.
23.3 Lessee agrees that it will from time to time,
within ten (10) days from request by Lessor, execute and deliver
to such persons as Lessor shall request a statement in recordable
form certifying that this Lease is unmodified and in full force
and effect (or if there have been modifications that the same is
in full force and effect as so modified), stating the dates to
which rent and other charges payable under this Lease have been
paid, stating that Lessor is not in default under this Lease (or
if Lessee alleges a default stating the nature of such alleged
default) and further stating such other matters as Lessor's
mortgagee(s) shall reasonably require.
23.4 In the event of the sale or assignment of
Lessor's interest in the Premises or in the event of any
proceedings brought for the foreclosure of, or in the event of
exercise of the power of sale under, any mortgage made by Lessor
covering the Premises, then Lessee shall attorn to the purchaser
and recognize the purchaser as Lessor under this Lease.
24. ATTORNEY'S FEES. In the event that it becomes
necessary to file suit to enforce this Lease, the prevailing
party shall recover all reasonable attorney's fee to compensate
it for the expense of litigation.
<PAGE>
25. NO IMPLIED WAIVER. The failure of either party to
insist at any time upon the strict performance of any covenant or
agreement or to exercise any option, right, power or remedy
contained in this Lease shall not be construed as a wavier or a
relinquishment thereof for the future.
26. SECURITY DEPOSIT.
26.1 Lessee has deposited with Lessor a security
deposit in the amount of $46,000.00 (the "Security Deposit") for
the performance of each and every covenant and agreement to be
performed by Lessee under this Lease. Lessor shall deposit the
Security Deposit in an interest bearing account and shall pay the
interest thereon to Lessee, upon Lessee's written demand not more
frequently than once annually, provided that the amount on
deposit shall never be less than $46,000.00. Lessor shall have
the right, but not the obligation, to apply the Security Deposit
in whole or in part as payment of such amounts as are reasonably
necessary to remedy Lessee defaults in the payment of rent or in
the performance of the covenants or agreements contained herein.
Lessor's right to possession of the Premises for non-payment of
rent or any other reason shall not be affected by the fact that
Lessor holds security. Lessee liability is not limited to the
amount of the Security Deposit.
26.2 Lessor shall give written notice of
application of the Security Deposit or any part thereof within
thirty (30) days of said application. If the application is
on account of maintenance, repairs or replace placements
necessitated by Lessee, said notice shall include the estimated
or actual cost of the same, attaching estimates or paid receipts.
Upon the receipt of said notice, Lessee shall at once pay to
Lessor an amount sufficient to restore the Security Deposit in
full. Upon termination of this Lease, full payment of all amounts
due and performance of all Lessee covenants and agreements
(including surrender of the Premises), the Security Deposit or
any portion thereof remaining unapplied shall be returned to
Lessee within forty-five (45) days of said termination, together
with accrued interest thereon.
27. RELATIONSHIP OF PARTIES. Nothing contained in
this Lease shall be deemed or construed by the parties hereto,
nor by any third party, as creating the relationship of principal
and agent or of partnership or of joint venture between the
parties hereto, it being understood and agreed that neither the
method of computation of rent, nor any other provision contained
herein, nor any acts of the parties herein, shall be deemed to
create any relationship between the parties hereto other than the
relationship of Lessor and Lessee.
28. NOTICES.
28.1 The Lessee shall forward all notices to
Lessor at 2350 E. Lunt, Elk Grove Village, Illinois 60007
Attention: Magan H. Patel or at such other place as Lessee may
hereafter designate in writing with copy to Thomas W. Rieck, 55
West Monroe, Suite 3390, Chicago, Illinois 60603.
28.2 The Lessor shall forward all notices to
Lessee at 2201 Landmeier Road, Elk Grove Village, Illinois 60007
Attention: Gary R. Fairhead or at such other place as Lessee
shall designate in writing, with a copy to Henry J. Underwood,
Jr., at 200 South Michigan Avenue, Suite 1100, Chicago, Illinois
60604.
<PAGE>
28.3 Any notice provided for in this Lease shall,
unless otherwise expressly provided herein, be in writing, and
shall, unless otherwise expressly provided, be given or be served
by depositing the same in the United States mail, be certified or
registered with postage thereon prepaid and addressed to the
party to be notified, or by delivering the same in person to an
officer or executive employee of such party.
28.4 Notice deposited in the mail in the manner
hereinabove required shall be effective upon receipt, unless such
mail is unclaimed, in which event notice shall be effective five
(5) days after the date of mailing.
29. MISCELLANEOUS.
29.1 If any term or provision of this Lease, or
the application thereof to any person or circumstance shall, to
any extent, be invalid or unenforceable, the remainder of this
Lease or the application of such term or provision to the persons
or circumstances other than those as to which it is held invalid
or unenforceable, shall not be affected thereby, and each term
and provision of this Lease shall be valid and enforced to the
fullest extent permitted by law.
29.2 This Lease and the rights and obligations of
the parties hereto are governed by the laws of the State of
Illinois.
29.3 Except as expressly otherwise herein
provided, time is of the essence of this Lease.
29.4 The paragraph or sub -paragraph headings are
used for convenience of reference only and do not define, limit
or extend the scope or intent of the paragraphs.
29.5 If any amount due from Lessee to Lessor is
not paid when due, Lessee shall pay to Lessor the sum of $100.00
per day commencing from the date when such payment was due until
paid.
29.6 Lessor shall have the right to transfer and
assign, in whole or in part, all its rights and obligations
hereunder and in the Building and the Premises, and in such event
and upon such transfer Lessor shall be released from any further
obligations hereunder to Lessee; the Lessee agrees to look solely
to such successor in interest of Lessor for the performance of
such obligations.
29.7 Lessor or Lessee may record a memorandum of
the terms of this Lease and each party hereby agrees to execute
such memorandum. This Lease shall not be recorded by either
Lessor or Lessee.
29.8 Wherever this Lease provides for the payment
of any sum of money by Lessee to Lessor as reimbursement or
otherwise, and such sum is not deemed rent under other provisions
of this Lease, such payment shall not be considered rent, except
that if such sum is not paid within thirty (30) days after it is
due, such sum shall then be deemed rent.
29.9 Whenever a period of time is herein
prescribed for the taking of any action by Lessor or Lessee,
Lessor and Lessee shall not be liable or responsible for, and
there shall be excluded from the computation of such period of
time, any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws, regulations or
restrictions, financing, or any other cause whatsoever beyond the
control of Lessor and Lessee.
<PAGE>
29.10 In each instance in this Lease Agreement
where the consent of the Lessor is required prior to any action
by Lessee, such consent shall not be unreasonably withheld except
in instances where the provisions of this paragraph are hereby
specifically made inapplicable.
30. OPTION TO RENEW. Lessor hereby grants to Lessee
an option to renew this Lease for a renewal term to expire on
February 28, 2006. To exercise the option for the renewal term,
Lessee must give Lessor written notice of its intent to renew not
less than 180 days prior to the expiration of the initial term of
this Lease. The exercise of the option to renew shall not be
effective if Lessee is in default under any provisions of this
Lease at the time the notice of intent to renew is given or at
the time such renewal term would otherwise commence. The Base
Rental for the renewal term will be $6.00 per square foot per
annum for 51,983.71 square feet and $2.25 per square per annum
feet for 6,485 square feet.
IN WITNESS WHEREOF, Lessor and Lessee have executed this
Lease as of the day and year first above written.
SIGMATRON INTERNATIONAL, INC.
By: /s/ Gary R. Fairhead
Gary R. Fairhead, President
CIRCUIT SYSTEMS, INC.
By: /s/ Magan H. Patel
Magan H. Patel, Vice President
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
Lots 180, 181, 182, 183, 184, and 185 (except the Northerly 10
feet of said Lots 180 to 185, both inclusive, taken for widening
Landmeier Road) in Centex Industrial Park Unit Number 14, being a
subdivision in Section 26, Township 41 North, Range 11 East of
the Third Principal Meridian, in Cook County, Illinois and Lot
205 (except the Northerly 10 feet of said Lot 205 taken for
widening Landmeier Road) in Centex Industrial Park Unit No. 102
being a subdivision in Section 26, Township 41 North, Range 11
East of the Third Principal Meridian, in Cook County, Illinois
Commonly known as: 2201 Landmeier Road, Elk Grove Village,
Illinois
PINS: 08-26-403-011
08-26-403-012
08-26-403-013
08-26-403-014
<TABLE>
EXHIBIT B
DESCRIPTION OF THE PREMISES
<S> <C> <C>
I. SigmaTron Area Square Feet
A. Schedule A 34,670.36
B. Schedule B 15,483.35
C. AL & W Sales 1,830.00
---------
TOTAL SigmaTron LEASED SQUARE FOOTAGE 51,983.71
=========
II. CSI AREA
A. Schedule C 71,612.21
---------
TOTAL CSI SQUARE FOOTAGE 71,612.21
=========
III. TOTAL BUILDING %
A. SigmaTron Area 51,983.71 42.06
B. CSI Area 71,612.21 57.94
---------- ------
C. TOTAL BUILDING 123,595.92 100.00
</TABLE> ========== ======
<PAGE>
<TABLE>
SigmaTron
SCHEDULE A
CAI MANUFACTURING AREAS
DESCRIPTION SQUARE FEET
<S> <C>
CAI Toolroom 3,584.12
CAI Stock & Storage 1,909.50
CAI Hallway to CAI 869.00
CAI CAI Maintenance Room 719.40
CAI Stockroom/Janitorial Room 40.83
CAI Stock Area 2,596.46
CAI Stock Room 343.50
CAI CAI MFG. & Office Area 23,961.00
CAI CAI Preforming Area 646.55
---------
TOTAL 34,670.36
=========
</TABLE>
<PAGE>
<TABLE>
SigmaTron
SCHEDULE B
SigmaTron OFFICE AREA
DESCRIPTION SQUARE FEET
<S> <C>
SIGMA Accounting Department 1,461.00
SIGMA Purchasing Department 4,880.92
SIGMA N. Entrance Hall 907.10
SIGMA Mail and Supply Room 479.40
SIGMA *Furnace Room 89.82
SIGMA Phone Room 86.25
SIGMA Office Wash Room 512.00
SIGMA N/S Hall 568.00
SIGMA Lobby 573.30
SIGMA Reception & Switchboard Office 73.28
SIGMA Personnel Office 137.50
SIGMA Sales Manager's Office 192.00
SIGMA Sales Hall 43.00
SIGMA Sales & Purchasing Conference Room 297.80
SIGMA *Cafeteria 728.33
SIGMA Kitchen 98.57
SIGMA Sales Office 1,157.60
SIGMA G.R. Fairhead's Offices 191.30
SIGMA Executive 229.40
SIGMA Executive Wash Room 64.50
SIGMA Executive Foyer 159.25
SIGMA G.A. Fairhead's Office 208.33
SIGMA *Compressor Compactor Room 231.50
SIGMA *Compressor & Hall 121.50
SIGMA *Loading Dock 1,260.73
SIGMA *Dock Entrance 215.25
SIGMA *Valve & Pump Room 114.92
SIGMA *Washroom & Chem Storage (Dock Area) 400.85
---------
TOTAL 15,483.35
=========
*Shared Space With CSI
</TABLE>
<PAGE>
<TABLE>
SigmaTron
SCHEDULE C
CAI MANUFACTURING AREAS
DESCRIPTION SQUARE FEET
<S> <C>
CSI Blueprint Room 200.00
CSI Plant Washroom & Closets 505.00
CSI Plant Washrooms 359.00
CSI Compressor & Compactor Room 1,870.00
CSI Compressor & Hall 121.50
CSI *Loading Dock 3,782.19
CSI *Dock Entrance Area 215.24
CSI MFG. Area 40,043.85
CSI *Valve & Pump Room 114.92
CSI New MFG. Area 22,950.00
CSI *Packing, Maintenance Office & Washroom 400.85
CSI *Valve & Pump Room 114.92
CSI *Furnace Room 89.83
CSI *Cafeteria 728.33
---------
TOTAL 71,612.21
=========
*Shared space with SigmaTron
</TABLE>
<PAGE>
